First Mover Asia: Speculating on Tokenized Carbon Offsets Won’t Help Climate Crisis, Says Consultant; BTC Falls Under $19K Amid Wider Crypto Woes

Good morning. Here’s what’s happening:

Prices: Bitcoin tumbles amid continued crypto industry stress.

Insights: Speculating on tokenized carbon offsets won’t help prevent climate change, a consultant says.

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Bitcoin (BTC): $18,955 -5.7%

Ether (ETH): $1,024 -6.7%

Bitcoin Plummets Amid Latest Crypto Industry Woes

Crypto investors looking for bad news to justify a continued retreat from bitcoin had more than enough on Thursday.

There were the dual spot bitcoin exchange-traded fund (ETF) rejections in the U.S. late Wednesday, one of which prompted an immediate lawsuit by Grayscale Investments, a subsidiary of CoinDesk parent Digital Currency Group. There were the Singapore central bank’s reprimand of floundering crypto hedge fund Three Arrows Capital for misleading it with allegedly false information, a CoinDesk report of bitcoin miners facing margin calls, of crypto futures exchange CoinFLEX continuing to halt withdrawals and the European Systemic Risk Board (ESRB) deeming crypto assets possible threat to traditional financial systems a “matter of urgency.”

There was even ex-Monero developer Ricardo “Fluffypony” Spagni agreeing to surrender to U.S. Marshals Service for extradition to South Africa.

Already rocked by four days of discouraging economic indicators, bitcoin, the largest cryptocurrency by market capitalization, which had held on stubbornly above the $20,000 threshold for much of the past two weeks, fell below $19,000, and was recently down nearly 6% over the past 24 hours. A number of analysts earlier in the week had been expecting bitcoin to break its support even as they admired its resilience.

“Negative crypto headlines have been nonstop and fresh concerns that the regulatory environment will be rather harsh going forward has really kept sentiment down,” Oanda Senior Market Analyst Americas Edward Moya wrote.

Ether, the second-largest crypto by market cap, also plummeted and was recently trading just above $1,000, down almost 7%. Other major altcoins assumed various shades of red, including the tokens from troubled protocols Terra (UST) and Celsius (CEL), which tumbled over 40% and 19% at one point. MATIC and DOGE were both off about 8%.

Cryptos’ Thursday drop went steps further than major stock indexes, which closed with modest losses. The tech-focused Nasdaq, whose performance digital assets have tracked in recent months, fell 1.3%, while the Dow Jones Industrial Average and S&P 500 each declined by less than a percentage point. The S&P finished the first half of the year with its biggest downturn since 1970, according to The Wall Street Journal. Bitcoin has dropped over 60% this year.

Mark Lurie, the CEO of crypto software provider Shipyard Software, saw a deeper significance in the decline, rooted more in the U.S. central bank’s increasing single-mindedness to tame inflation, even at the expense of recession than the Securities and Exchange Commission ETF rejections and other events. Earlier this week, Federal Reserve Chair Jerome Powell reiterated his commitment to monetary hawkishness while acknowledging anew the possibility of recession as the money supply tightens.

“Powell signaled the Fed’s resolve yesterday to tame inflation, even at the risk of a recession,” Lurie wrote to CoinDesk. “This was already priced into the broader markets, and most institutional crypto investors already expect further downside and a long recession. But retail is often a bit more hopeful and may finally be getting the message.”

However, Lurie remains wary of the Fed’s purpose. “The bigger question on the horizon is whether the Fed will keep its resolve when the costs become clear,” he wrote.

S&P 500: 3,785 -0.8%

DJIA: 30,775 -0.8%

Nasdaq: 11,028 -1.3%

Gold: $1,807 0.6%

Speculating on Tokenized Carbon Offsets Won’t Help Prevent Climate Change: Consultant

Tokenized carbon offsets were once a favorite of Web2 investors trying to dip their toes into the Web3 world, while also maintaining a certain distance from what critics call the worst parts of blockchain.

Mark Cuban was at one time a big evangelist of Toucan Protocol’s Base Carbon Tonne (BCT) protocol, and spent tens of thousands of dollars bridging carbon offsets onto BCT. Cuban also invested in KlimaDAO, a decentralized autonomous organization that wanted to create a lucrative market for carbon by pumping up BCT.

It’s hoped that if there’s a lucrative and liquid market for carbon, with its value being pushed up through speculation, projects that capture carbon could easily get funding because their offsets would be that much more valuable.

“You can’t speculate on carbon offset assets. That’s not how the science works,” Taipei-based carbon consultant Nate Maynard, who also hosts the sustainability science podcast “Waste Not Why Not,” told CoinDesk.

Worse, as Maynard highlights, a significant portion of these carbon credits are from projects that are eight to 10 years old. Buying credits from these projects is useless by international carbon accounting norms because the project has been already financed and is in operation.

“If you’re buying credits from 2016 for emissions that you’re doing in 2021, people are going to look at that, and when you get it reviewed then you have to explain it to your stakeholders why didn’t we buy offsets from something that has a more tangible impact,” he said.

In May, Verra, a hybrid standards agency and registry responsible for carbon credits, said it would disconnect the Toucan protocol, which powers BCT, because of BCT’s purchases of retired credits for the purpose of speculation. Robin Vix, Verra’s chief legal, policy and markets officer, called what BCT engaged in “mind frying.”

Besides, there are too many other problems in the carbon offset and accounting world that blockchain can’t solve, ironically involving trust.

Carbon offsetting involves all sorts of trust issues to verify the authenticity of the data coming from the project. Outside audits are expensive and out of the reach for many of the projects in the developing world.

Maynard gives an example of an offsets project he’s familiar with in Myanmar at a mangrove. Mangrove trees are well-known carbon sinks; every tree planted can remove hundreds of kilograms of carbon throughout its lifetime. But if this is going to be commodified and traded, it needs to be verified — and that was going to cost the project close to $1 million, an impossible figure for a budget of its scale. But at the same time, corporations (the usual customers of these offsets) are requiring verification of real carbon mitigation or removal.

“The blockchain doesn’t solve this trust issue, maybe in some ways just locks in a lack of trust. Because if something is done and then it’s put on the blockchain, everyone goes, ‘well, it’s on the blockchain,'” Maynard said.

Because of the issue surrounding trust, the industry is moving to prioritize high-quality offsets and many verified renewable energy certificates effectively cover carbon offsets for many corporations.

As for BCT and KlimaDAO, which derives its value from BCT, they aren’t doing that well, to put it mildly. BCT is trading at around $2, down from a high of $8.60 at the end of last year. KlimaDAO has also suffered a similar fate losing nearly 99% of its value down to $3 from $3700.

Cuban, however, made off handsomely. Analysis of on-chain data by Protos shows that Cuban made almost $2 million in profit from KlimaDAO and BCT tokens, largely through figuring out an arbitrage play between the two.

But what did this do to offset carbon emissions?

Canada Day

8:30 a.m. HKT/SGT(12:30 a.m. UTC): Jibun Bank Manufacturing PMI (Jun)

In case you missed it, here is the most recent episode of “First Mover/” on CoinDesk TV:

Grayscale Goes to Court Over SEC’s Bitcoin Spot ETF Rejection, Coinbase Reportedly Sells Geotracking Data to US Government

Grayscale is launching legal action against the U.S. Securities and Exchange Commission after the agency rejected its bitcoin spot ETF application. Grayscale Investments Chief Legal Officer Craig Salm joined “First Mover” to discuss the move and next steps. Plus, Antonio Juliano of dYdX provided market analysis. Also, Jack Poulson of Tech Inquiry discussed allegations that Coinbase (COIN) is selling geolocation data to the U.S. Immigration and Customs Enforcement agency.

SEC Rejects Grayscale’s Spot Bitcoin ETF Application: Grayscale has said it was prepared for “all possible post-ruling scenarios.”

Singapore Central Bank Censures Three Arrows Capital for Alleged Misleading and False Disclosures: The crypto hedge fund also exceeded the threshold of assets it could manage in Singapore, according to the central bank.

Genesis Faces ‘Hundreds of Millions’ in Losses as 3AC Exposure Swamps Crypto Lenders: Sources: The DCG-owned trading colossus is said to have suffered nine-figure losses partly through exposure to Three Arrows Capital and Babel Finance.

Coinbase is Reportedly Selling Geolocation Data to ICE: Watchdog group Tech Inquiry reported the new details about Coinbase’s three-year contract with the U.S. Department of Homeland Security.

Goldman Cuts Coinbase to ‘Sell’ Due to Fall in Crypto Prices and Industry Activity; Shares Drop: The company faces a difficult choice between shareholder dilution and effective employee compensation, the report said.

Survey: Market Downturn Hasn’t Chilled Optimism About Crypto Jobs: A CoinDesk survey finds the majority of employees in the industry feel secure in their positions. This post is part of CoinDesk’s Future of Work Week.

Other voices: Crypto winter has had a chilling effect on Coinbase and Robinhood(CNN)

Wellp. There it is. Certainly earlier than I expected but the decision was as expected. BOTH @Grayscale’s $GBTC and @BitwiseInvest’s spot #Bitcoin ETF were “Disapproved” by the SEC today. (James Seyffart/Twitter) … “Whales (>1k $BTC) typically go through accumulation/distribution cycles, often aligned with #Bitcoin market structure. These entities are also adding to their balance aggressively, acquiring 140k $BTC/month directly from exchanges. Whales now own 8.69M $BTC (45.6% Supply)” (Glassnode/Twitter) … “An employee of our email vendor, Customer.io, misused their employee access to download & share email addresses with an unauthorized external party. Email addresses provided to OpenSea by users or newsletter subscribers were impacted.” (OpenSea/Twitter)