Ten31 Timestamp 762,757
Ongoing disruptions plagued both traditional financial markets and the “crypto” complex throughout October and into November. One of the fastest monetary tightening cycles in history finally triggered critical stress among UK pension funds, whose rate-sensitive “liability-driven investing” (LDI) strategies buckled dramatically under the weight of exploding UK gilt rates. The apparent near-collapse of several funds led the Bank of England to suspend its quantitative tightening aims by stepping in to support the UK bond market and keep rates under control, even as inflation reached a 40-year high and the GBP fell to near-parity with the USD. Elsewhere, the Bank of Japan continued to aggressively pursue explicit yield curve control and conduct emergency government bond purchases while simultaneously trying to defend the collapsing yen with record outflows of USD and sales of US Treasuries. Amid rising global stressors across markets, the classic 60/40 portfolio is offering little protection for investors, putting up its worst returns in 100 years.
The “crypto” sector was similarly destabilized by the sudden collapse of prominent exchange FTX following concerning balance sheet disclosures, a widely publicized firesale of the company’s FTT token, and a quickly-scrapped takeover offer by rival Binance (who noted that the hole in FTX’s balance sheet was “beyond help”). Numerous fatal flaws appear to have undone the exchange, but the most immediate takeaway is that institutions and ordinary users alike now face withdrawal limits and an uncertain path to reclaim any of the $8 billion shortfall the exchange has reportedly amassed. Impact from FTX's insolvency quickly spread to other players in the non-bitcoin focused crypto space, with BlockFi (previously set to be acquired by FTX) suspending withdrawals and Genesis Trading noting $175 million in exposure.
The unfortunate (but predictable) implosion of FTX and the continuing deterioration of traditional financial markets serve as the latest examples of the power of Ten31’s bitcoin-only thesis. While many prominent investors and crypto-adjacent companies have been significantly impacted by this chaos, bitcoin remains the only dilution-proof, counterparty-free asset in the world, and companies building sustainable bitcoin businesses that avoid rehypothecation of client funds and allow users to take control of their wealth – including Unchained Capital, and the rest of our portfolio – will form the bedrock of the future’s financial infrastructure. Bitcoin and bitcoin companies continue to offer investors and the world the best path forward as stocks, bonds, and crypto vaporware increasingly fail to store value.
Ten31 will continue our emphasis on low time preference, value-generating businesses with our next in-person Tribe event on November 17th in Austin at the Bitcoin Commons, featuring Andrew Hohns from Battery Finance and Tom Masiero from ABG Energy. We expect a high signal event and look forward to seeing everyone there!
Fund II New Investments
Mempool.space is a highly popular block explorer providing extensive real-time data on the bitcoin blockchain, transaction fees, mining economics, and much more through a sleek and intuitive UI. Users can either query data directly through Mempool’s site or self-host an instance of the platform on their own hardware to eliminate third-party dependencies. Mempool recently launched a beta for its Lightning explorer and will be rolling out many additional new features over the coming months.
Oshi provides a suite of tools for businesses, consumers, and community leaders to drive local commerce powered by bitcoin rewards. Oshi allows local businesses without the reach or resources of large chains to seamlessly offer bitcoin-denominated loyalty programs and drive new customer acquisition. The company taps into a powerful distributed sales force model by offering local customers bitcoin commissions on sales from merchants they onboard to the platform.
Selected Portfolio News
Mempool.space rolled out the beta for its new Lightning Explorer, which allows users to query Lightning Network data in an intuitive UI similar to the classic blockchain explorer.
River Financial launched River Lightning Services (RLS), a public API enabling companies and institutions to easily integrate Lightning payments into their applications:
Start9 announced the launch of its new and improved Embassy One product, as well as the rollout of the latest upgrade to embassyOS:
Unchained formed a strategic partnership with Choice, which will serve as a key agent for Unchained’s mutli-institution collaborative custody vaults:
Swan launched a mobile app for iOS and Android:
Hodl Hodl rolled out a new UI / UX for its lending platform:
Unchained expanded automated trading to four more US states and Puerto Rico, bringing total US states and territories with trading access to 40:
Jack Mallers, CEO and founder of Strike, joined CNBC to discuss the company’s Series B fundraise led by Ten31 and the power of the Lightning Network as a payment rail.
Rodolfo Novak (“NVK”), CEO and co-founder of Coinkite, discussed the company’s new Tapsigner product on the Stephan Livera podcast and took questions on Coinkite’s product portfolio in a StackerNews AMA.
Matt Odell participated in a panel at the Bitcoin Amsterdam conference focusing on the dangers of KYC and regulatory encroachments on bitcoin use.
IBEX Mercado’s support of bitcoin education and the Bitcoin Diploma program in El Salvador were profiled in the documentary A Sly, Roundabout Way.
Giga Energy co-founder Matt Lohstroh discussed the oil & gas industry’s increasingly tight relationship with bitcoin mining with Anthony Pompliano.
Hoseki founder and CEO Sam Abbassi joined the What Bitcoin Did podcast to discuss proof of reserves and Hoseki’s efforts to bolster bitcoin’s role as collateral.
River Financial published a report on their view of the latest trends in the Lightning Network from the perspective of the fourth largest Lightning node by channel capacity.
Following disclosures about the state of its balance sheet and its FTT token, prominent crypto exchange FTX saw significant withdrawal pressure, halted withdrawals, and ultimately agreed in principle to be acquired by Chinese exchange Binance, only to see that agreement scrapped a day later. The episode once again underscores the importance of Ten31’s focus on bitcoin, self-custody, and sustainable business models.
Bitcoin miner distress intensified through October due to sustained suppression of hashprice and upward pressure on energy costs, with publicly traded miners Core Scientific, Argo Blockchain, Iris Energy, and hosting provider Compute North all announcing significant financial strain or impending bankruptcy.
In response to miner capitulation, Grayscale launched a vehicle to purchase and deploy mining equipment from distressed players. Mining pool Foundry will manage operations of the new entity, which may present incremental centralization vulnerabilities given Foundry’s already significant share of hashrate.
Meanwhile, Braiins and Spiral continued to push mining forward by releasing a reference implementation of the highly anticipated Stratum V2 protocol, which seeks to improve on various aspects of how miners interface with the bitcoin network.
Luxor launched an OTC non-deliverable forward hashprice derivative contract to give investors and institutions synthetic exposure to bitcoin mining. Contracts will be settled in USD by default, but participants can elect to take settlement in BTC.
Only two months after its hard fork (“the Merge”) to a Proof of Stake consensus mechanism, Ethereum is already seeing >70% of daily blocks complying with OFAC sanctions, opening users up to significant risk of censorship at the protocol level.
The EU banned cryptocurrency payments from Russian-linked wallets, again highlighting the danger of KYC/AML regulations for ordinary users.
The DOJ announced it had seized over 51,000 bitcoin last November from James Zhong, who faces wire fraud charges related to a hack of the Silk Road marketplace in 2012.
Shortly before that announcement, a report from the US Attorney General suggested the Biden Administration is seeking to increase the ease of nonjudicial seizure of cryptocurrencies while removing the current $500,000 cap on the value of assets forfeited.
In a more positive regulatory development, the US Financial Accounting Standards Board (FASB) issued guidance for companies to use fair-value accounting for bitcoin and other digital assets held on balance sheets. This treatment would allow companies to record both gains and losses immediately rather than recording write-downs immediately but only recording gains when those assets are sold.
The UK arm of Banco Santander notified customers of a $1,000 limit on individual transactions to crypto exchanges, including a $3,000 monthly limit. The bank suggested it might continue to tighten limits in the future.
Newly elected UK Prime Minister Rishi Sunak recorded a promotional video touting the eventual rollout of a Central Bank Digital Currency (CBDC).
Moody’s Analytics forecasts that, at current prevailing interest rates, net interest payments on US federal debt are set to exceed annual defense spending as early as 2025.
Highly popular Lightning Network node implementation LND suffered two separate bugs that inhibited the software’s ability to sync accurately to the bitcoin blockchain. Both issues were addressed in under 24 hours but could have left LND users vulnerable to malicious channel counterparties.
BNY Mellon began offering custody for bitcoin and other cryptocurrencies alongside traditional investments.
Shell announced a sponsorship of Bitcoin Magazine and plans to demonstrate its new immersion technology at next year’s Bitcoin Conference, the latest sign of oil & gas stalwarts recognizing the strategic value of bitcoin mining.
Cash App, which boasts 47 million+ active users, added functionality to allow users to receive Lightning Network payments, after opening up the sending feature earlier this year.
Elon Musk discussed the potential to add native payment features to Twitter and made regulatory filings to that effect. This feature may ultimately be powered by bitcoin and the Lightning Network given Strike’s existing integration with the platform.
Celsius revealed sensitive information – including names, transaction histories, and wallet addresses – on 600,000 customers as part of its Chapter 11 restructuring process.
The Tor network, a privacy-focused means of accessing the internet leveraged by many bitcoin projects, continues to undergo a distributed-denial-of-service (DDoS) attack that has decreased the speed and usability of the network for the past several months.
Google will partner with Coinbase to accept bitcoin as payment for some Google Cloud services starting in 2023.
South African grocery chain Pick n Pay will begin accepting bitcoin payments over Lightning in its 1,600+ stores across the country.
Fidelity Digital Assets released its latest annual survey of institutional investors, noting a slight increase in favorable perception of bitcoin since 2021.