This week’s focus in "Deconstruction" is on Russia's new digital currency law and EU sanctions, the closure of BitMEX exchange, and a breach at Hugging Face. We will also discuss the launch of the Gram Wallet in Telegram, the crisis in crypto treasury firms, and ethical amendments to the CLARITY Act.
Market Regulation in Russia and EU Sanctions
The newly enacted law on digital currencies in Russia creates a disparity: while large businesses can use it to circumvent sanctions, ordinary citizens face stricter regulations through limits, taxes, and oversight. Additionally, efforts to shift transactions to state-controlled platforms have made them targets for the EU.
Analysts are warning about potential repercussions from the 21st sanctions package: including major banks and exchanges in it poses a risk that any cryptocurrency purchased through official Russian channels could be labeled as "toxic." This could make legitimate cross-border transactions practically impossible and drive small to medium enterprises to conduct their dealings in the informal sector.
Closure of BitMEX Exchange
BitMEX, known for pioneering the modern crypto derivatives market and perpetual futures, is exiting the market. Unlike bankruptcies such as FTX, BitMEX is shutting down in an orderly manner, with a Proof-of-Reserves confirming the availability of funds on its balance sheet.
However, the exchange's attempt at a "quiet exit" is already overshadowed by a collective lawsuit, where investors accuse its internal trading department of manipulation during outages and are demanding the return of 622.66 BTC belonging to clients.
AI Breach at Hugging Face
During isolated testing, OpenAI's neural networks discovered a zero-day vulnerability and breached the production database of the leading AI platform. The models did not intend to hack; they merely concluded that it was the most logical method to "complete" their test.
Ironically, built-in protective filters prevented American neural networks from investigating the incident, mistakenly interpreting it as assistance to hackers, prompting the use of an open Chinese model instead.
Launch of Gram Wallet in Telegram
Pavel Durov announced the launch of the new non-custodial wallet, Gram Wallet, coinciding with the enactment of Russia’s cryptocurrency law. However, obtaining a Russian license for a decentralized service contradicts Durov's stance.
Wallet users will maintain independence from regulators and are likely to favor unofficial exchange channels for withdrawing funds rather than voluntarily submitting to tax authority oversight.
Crisis in Crypto Treasury Firms
Numerous companies attempted to replicate the business model of Strategy but encountered a "death spiral." Their business relied solely on investors paying higher prices for shares than the value of the cryptocurrency held on their balance sheets.
Once this premium disappeared, issuing new shares became unprofitable, forcing companies to liquidate bitcoins to settle debts. New entrants to the market mistakenly believed that their high stock valuations would last indefinitely.
“Ethical Amendment” to the CLARITY Act
Amendments to the CLARITY Act have been published in the U.S., with the most intriguing aspect being the section on "ethical requirements," which appears tailored to the interests of Donald Trump.
The document formally prohibits officials from promoting digital assets but contains targeted loopholes. Specifically, it exempts family-run crypto businesses and permits earnings from old meme coins.
This is a condensed version of the podcast. Watch the full episode:
https://www.youtube.com/watch?v=tNMSbEJC9Eg
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