TBW #70: Another defeat for the SEC

Read all about The Big Whale's 70th Premium newsletter.

Hello Whales and welcome to the little newcomers who have just joined us in the Smart edition!

The editorial byRaphaël Bloch

A turning point 🌈

How could we not start this new edition with Grayscale's legal victory against the SEC?

On Tuesday, the US investment firm won a landmark ruling that could pave the way for Bitcoin Spot ETFs, i.e. ETFs based on real bitcoin, on the US market.

This ruling, eagerly awaited by the industry, was by no means a foregone conclusion, but the Federal Court of Appeals considered that the arguments put forward by the regulator and its boss, Gary Gensler, were not strong enough to refuse the project.

Paradoxically, as Louis points out very well in the Big Focus that you can find below 💡, Grayscale may not benefit from this ruling (yes yes). On the other hand, it does the business of the other candidates, who are all in the starting blocks.

BlackRock, Vanguard, Fidelity... Every Wall Street giant in traditional finance has filed applications, and is just waiting for the green light from Gary Gensler, who will have to redouble his efforts to once again find a parade. But is it still possible?

In the meantime, the prospect of the arrival of Bitcoin Spot ETFs could be a game-changer for cryptos. In the 1980s, the arrival of these easy-to-use financial products democratised access to the equity markets. More than 40 years on, they could do the same again, but this time with cryptos 🚀.

The Big News_

Edited byRaphaël Bloch

Our exclusive news 🗣

👉 Stroom raises $3.5m

Not many people know about Stroom, but that could soon change. According to our information, the Ukrainian start-up has just raised $3.5 million from a number of major Web3 players, including German investment fund Greenfield Capital and US company Ankr.

Stroom is a bit of an animal of its own in Web3, since the start-up, which will celebrate its 2nd birthday in September, does liquidity staking on the Lightning Network (read our Lightning dossier) in two stages: first by placing bitcoins in the LN, then by transforming them into wrapped bitcoin (lnBTC), i.e. bitcoins compatible with the ERC-20 token standard, to seek yield in other protocols such as Ethereum.

"This system allows us to seek returns both on the Lightning Network and in decentralised finance", explains Rostyslav Shvets, who is the co-founder and CEO of the company (12 employees).

The principle of liquidity staking is to make your cryptocurrencies available on the network, in exchange for a fee. As we explained last week, one of the Lightning Network's big challenges is to benefit from more liquidity. And from that point of view, start-ups like Stroom could change the game.

With this funding, Stroom aims to finish developing its test version by the end of October, and launch its product in early 2024. The start-up will, of course, take a fee for managing bitcoins on the Lightning Network. "We hope to serve between 2% and 6% annual return," explains Rostyslav Shvets. Stay tuned!


🎙 Listen to a replay of this week's Big Talk on the state of Lightning Network

The Big Interview_

ByRaphaël Bloch and Grégory Raymond

Michael Gronager (Chainalysis): "I'm a strong advocate of privacy, but not anonymity"


By analysing blockchain data, US company Chainalysis has become a key player in the crypto world. It now supports more than 10,000 companies. Exclusive interview with its founder, Michael Gronager.

The Big Whale: Chainalysis was launched in 2014, in other words an eternity ago on the crypto scale. How did you come up with the idea of creating such a company?

Michael Gronager: That's an excellent question! In fact, the project even dates back to before 2014. I arrived in this ecosystem in 2011, at a time when there was only bitcoin and very few people. I was immediately fascinated by the project and its ambition. Bitcoin is the first digital element that cannot be copied. This is unique in history.

When I realised this, I told myself that I absolutely had to work in this industry, even if it takes a century to adopt.

I initially worked in micropayments, and co-founded Kraken in 2011 (which has become one of the leading exchange platforms on the planet), but very quickly I realised that one of the main advantages of blockchain is that it gives you a better understanding of your environment: thanks to the traceability of transactions, you can have detailed knowledge of your market, networks, trends, and that's how we came up with the idea of creating Chainalysis in 2014.

How would you sum up Chainalysis in a few words?

We are a Web3 economy analysis company.

How do you work concretely?

Today, there are millions of transactions every day on blockchains. With these transactions, and thanks to machine learning and artificial intelligence tools, we are able to map the market for a company or an entire sector.

Everything is available on the blockchain: transactions, wallets, amounts, their frequency... This mapping of exchanges enables companies to understand their customers. Who are they? Are they new? Have they been around for a long time? What do they buy? How do they buy? When?

Companies today know little about their customers and their behaviour. We help them to improve all that.

What else can you help with?

We also get a lot of business from trading platforms because they have compliance and anti-money laundering obligations. They need to know who their customers are, the money they hold and, above all, where it comes from. When you have so many customers in so many different locations, you need to have tools that allow you to get to know them well both for onboarding and for managing your business.

We enable an Exchange to know in a matter of minutes whether a new customer has a compromising history, whether their wallets are linked to illegal activities.

A concrete example?

If you have an 85-year-old customer who uses X (ex-Twitter) and sends funds from a suspicious wallet, there's an alert immediately. On the basis of these elements, we are able to say that it is most certainly a false identity, and we have thousands of examples like these!

Isn't there a risk of getting it wrong?

We're just a decision-making tool, we're not the ones who take responsibility for the rest.

Companies using blockchain are still a tiny minority. Do you have many customers?

We're actually starting from a very long way off. At the first meetings in 2014-2015, there were very few companies, and those that were interested didn't have any money, but things have come a long way. More than 10,000 companies use our services today!

You don't just work with companies. You also work with government organisations?

We also work with public and government authorities. We have an investigation tool that enables us to analyse flows and connections on the blockchain. This is very useful in criminal investigations. Around 200 government agencies use our products.

Isn't it dangerous to be able to trace all this data? In the wrong hands, it could become dangerous...

We are able to identify the wallets, the transactions, but we don't know who is behind the wallets. And that's the whole point of blockchain. We are able to map the entire ecosystem without violating people's privacy.

Are you not afraid of alienating the crypto community, which is very attached to anonymity?

This is an important point. I think that in reality we tend to mix up privacy and anonymity, which are two very different notions. The right to privacy is the ability to live a life free from the gaze of others, but it is not absolute. Throughout history, anonymity has never existed, and I don't think that's a good thing. I'm a staunch defender of privacy, but not of anonymity.

Criminals are very imaginative, especially in crypto. How are their practices evolving?

It's a game of cat and mouse. Most of them think that if they manage to commit a crime today, they'll manage to do it again tomorrow, which is a huge mistake. Take what happened with Silk Road in 2013: ten years later, a case like that would be solved in a matter of minutes. Criminals have a lot of imagination, but we're also making a lot of progress.

How are you adapting to new protocols that strengthen anonymity?

This is indeed one of our challenges. As I said, anonymity isn't really an issue because it doesn't exist, but blockchains are very effective for privacy. Bitcoin is the best example of this.

What do you think of cryptos like Monero and Zcash that are presented as anonymous? Are they really effective?

We get asked this question regularly, but I think the best way to answer is to look at volumes. People prefer the flexibility and financial efficiency of ether to the supposed anonymity of Monero or ZCash. I think the best way to understand the phenomenon is to see that the value of Monero or Zcash has absolutely not kept up with that of other cryptos that are nevertheless less "anonymous".

People talk a lot about these issues, but in reality it's not their priority. They talk about it, but they don't invest much in it, and so it remains a small ecosystem that's easy for us to navigate.

And for the so-called "Zero Knowledge" solutions, which work by hiding a lot of information and can now be found in some Ethereum (L2)?

This is the real challenge for us. ZK rollups are very interesting because they are transactions recorded in the blockchain, so we can know and prove that they existed, but we can't know precisely what happened. We still need to improve our products in this area.

Project Arkham, which offers a financial incentive to identify wallets, has caused a stir in recent months. What do you think of it?

I don't really like to comment on other projects in detail. The only thing I can say is that I don't like the idea of revealing people's identities. It's a personal principle that applies to Chainalysis.

What is your business model?

Our institutional customers, companies and authorities, subscribe to access our services via our platform.

How many customers do you have?

We have 11,000 corporate customers and 200 public and government agencies in the public sector. Our customers are in 50 countries.

What are your revenues?

We're not a listed company, so we don't have any publication obligations there.

What are your medium-to-long-term goals for the company?

We want to become the biggest software company in the crypto universe. To do that, we need to expand further around the world. Europe is one of our priorities.

How many people work at Chainalysis?

850 globally, and just over a hundred in Europe.

What is your main market in Europe?

In Europe, it would be the UK and in the European Union, it would be France.

You raised nearly $200 million in 2022 out of a valuation of more than $8 billion. Do you intend to raise more?

We raised a lot of money at the right time. We have no plans to raise any more money, at least in the short term.

As you know, the crypto industry has a lot of challenges ahead. What do you think is the main one?

I think the main challenge is to create trust, and that's actually Chainalysis' mission. That's the main challenge. From the outset, I've been convinced that cryptos will take hold, but the speed of adoption will depend on trust in this ecosystem, and from that point of view what we experienced with FTX in 2022 didn't help...

If FTX had been built directly on a blockchain, none of this would have happened because the company would have been transparent by design. Some people don't want that transparency. They prefer the opacity of the current system. That's why we're pushing for the adoption of blockchain.

What do you think about the debates around regulation, particularly in the United States?

There are a lot of debates because with blockchain, we're creating a new economic and financial universe with its own instruments, its own rules, its own dynamics, so there's bound to be friction and misunderstanding.

Many politicians and regulators don't understand this new world and want to apply the rules of the old world to it, which can't work. The best way to protect investors, because they need to be protected, is not by killing an industry with rules that are too rigid, but by creating rules that are adapted.

We can feel a big change on the American political side... In a recent interview with The Big Whale, Coinbase's head of legal affairs, Paul Grewal, explained that the lines are shifting in the US. Do you share this view?

Of course, things are improving, although, to be honest, it couldn't be worse (laughs). The US Securities and Exchange Commission (SEC) and some US politicians wanted to hit back hard after FTX, but that's the wrong approach. Obviously we need to regulate, but with appropriate rules, and the US judges seem to have understood this. After the decision in the Ripple trial, a US judge has just ruled in favour of Grayscale, which wants to launch a Bitcoin spot ETF.

I also think that the fact that Europe is moving forward with MiCA has been a wake-up call for the US. They realised that they were really at risk of losing a leading industry. MiCA was a wake-up call.

Do you therefore think that MiCA is going to change everything in Europe?

Of course not, but what's interesting is that over the last few decades, most of the new industries have been built in the United States, whereas for Web3 things seem to be much more open. This is a big opportunity for Europe.

How do you see the industry evolving over the next 10 years?

A lot is going to happen. There is so much energy in this ecosystem. We've seen it with NFTs, metavers, decentralised finance. All these use cases are very important because they're going to build bridges with the traditional economy.


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Thanks again 🐳!

The Big Focus_

Written by Louis Tellier

ETF Bitcoin: the inside story of Grayscale's battle with the SEC


Grayscale, which until now has offered one of the only ways for US institutional investors to invest in Bitcoin, wants to turn its Bitcoin Trust into an ETF. The success of the project is vital for this historic player.

The rest is available on The Big Whale's website. 🐳


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