More regulations = more investments?

Dear member,

Amidst signs of crypto capital flows returning to positive levels ($300 billion since the start of the year), we continue to see large funding rounds raised. This includes a $70 million round led by Accel, a GameFi project raising $13 million, and angel investments made by prominent traditional tech execs.

Some may see these flows as running counter to the trend of tightening regulations, as we saw the US and UK introducing policies related to digital assets this week. But perhaps the opposite is true.

New regulations result in digital assets being more palatable to more sophisticated investors, which in turn leads to more capital inflows. This is most visible in the recent moves by Hong Kong and Israel, who both recently announced significant developments to allow crypto investors to be subject to a framework of investor protection.

In fact, Web3 and the metaverse remain growth areas for some of the biggest brands in the world, with Adidas, DKNY, Tommy Hilfiger, and others participating in a metaverse fashion week to be hosted in Decentraland.

It’s thus clear that global brands and corporations see the metaverse as an arena they must continue to participate in and experiment with.

Indeed, prominent thinkers and practitioners in Web3, namely Vitalik Buterin, Arthur Hayes, and Yat Siu, all shared highly relevant and insightful views this week. Definitely worth a read this weekend!

Best regards from the Future,
RFTF.ai 

Market Intel

Crypto capital flows have returned to positive levels over the last 30 days. Capital flows are turning positive in crypto markets after 9 months, with money returning faster than it is leaving, to the tune of over $300 billion re-entering the space since the start of 2023.

According to Coinbase, 20% of surveyed Americans own cryptocurrency despite the bear market and multiple catastrophes like Terra/LUNA crash, 3AC and Celsius bankruptcy, and the FTX collapse. The report stated that younger generations, including Gen Z and Millennials, and people of color have higher adoption rates, among other insightful findings.

Funding Trends

Chain Reaction, a Tel Aviv-based blockchain chip startup, has secured $70 million from a funding round led by Morgan Creek Digital to grow its engineering team and develop a "fully homomorphic encryption" chip by the end of 2024, aiming to solve security gaps in cloud migration for industries like defense and government.

Web3 gaming DAO builder Kratos Studios raised a $20 million seed funding round at a valuation of $150 million, led by Accel, with participation from Prosus Ventures, Courtside Ventures, Nexus Venture Partners, Nazara, and others. Kratos Studio has also acquired IndiGG, enabling them to build distribution rails in emerging markets for global Web3 games.

Avalon Corp raised $13 million in funding in a round led by Bitkraft Ventures, with participation from Coinbase Ventures, Delphi Digital, Hashed, and others, including angel funding from Twitch co-founder and a Microsoft exec. The team consists of veteran game developers, previously from Electronic Arts, Microsoft, Blizzard, and Sony, working to build Avalon in Unreal Engine 5 with some MMO and metaverse elements.

Mangrove DAO, a French DeFi exchange, raised $7 million in Series A funding to pursue research leads and enhancements to its product - executes smart contracts between DeFi liquidity providers and buyers to tackle underlying issues in the market by emulating the capital efficiency of a centralized exchange in a decentralized one.

Web3 wallet infrastructure startup Portal raised $5.3 million in a funding round that included Haun Ventures, the venture capital firm founded by Andreessen Horowitz alum Kaite Haun. Co-founded by CEO Raj Parekh who previously directed Visa’s global crypto product division, Portal aims to reduce financial barriers to onboard the next wave of users into web3.

Web2 → Web3 Immersion

Fujitsu, Mitsubishi, Mizuho, and 7 other large Japanese corporations are collaborating to create Ryugukoku, an interoperable virtual world - as part of the expansion plans of “Japan Metaverse Economic Zone” - that connects users to Web3 services intending to transform Web3 marketing, work reform, and consumer experiences.

Dolce & Gabbana, Tommy Hilfiger, Coach, Adidas, and DKNY will join the second annual Metaverse Fashion Week (MVFW) hosted in Decentraland’s Luxury District, with immersive digital experiences, digital design competition, new wearable launches, pop-up art art gallery, and more.

Visa confirms it’s not slowing down with its cryptocurrency plans, clarifying a previous Reuters report. While its partnership with FTX to roll out credit cards globally ended, Visa reiterates its belief that fiat-backed digital currencies are still important in the payments ecosystem.

Aiming to be the Disney of Web3, Orange Comet has partnered with the likes of award-winning Hollywood actor Sir Anthony Hopkins - among other popular IPs like “The Walking Dead,” “Interview with the Vampire,” and more - to bring the masses into Web3 entertainment, while offering an alternative revenue stream and channel to reach fans via Web3.

Playboy is coming to the Metaverse this year. The “Playboy MetaMansion” will be open to all, while exclusive access is reserved for Rabbitar NFT holders - an extension of Playboy’s foray into Web3.

Regulatory Round-up

Asia

Hong Kong embraces crypto industry amidst global crackdown, welcoming investors and entrepreneurs by organizing and supporting numerous Web3 events. It makes for a surprising pivot to surpass Singapore’s hold in the region’s crypto market, despite the gloomy market outlook.

Europe

France has passed a bill in favor of stricter licensing rules for new cryptocurrency firms to harmonize local laws with proposed EU standards, requiring France-based cryptocurrency service providers to comply with stricter rules. The bill now awaits the approval of President Macron.

MENA

Crypto trading regulation is coming to the Tel Aviv Stock Exchange (TASE) after a volatile 2022. TASE wants to allow its non-banking members, including brokerage firms and exchanges, to trade cryptocurrencies, in a proposal that aims to boost competition, innovation, and customer protection.

World’s first free zone for digital asset companies will be built in Ras Al Khaimah, UAE, providing procedures for business setup, 100% foreign ownership, no corporate tax, no personal income tax, and no customs duties, making it an attractive regulatory environment for crypto firms.

UK

UK banking regulator PRA to propose rules for crypto issuing and holding after finalizing Basel 3 and the Financial Services and Markets Bill (FSM). The Bank of England and PRA are working with six other agencies to create a new regulatory framework to replace the current EU rules.

Bank of England official highlights the potential benefits of the digital pound for businesses, providing a faster alternative to online payments, lower settlement costs, and helping protect the pound’s financial stability. They’re awaiting feedback before proceeding to the design stage after June 7.

US

Robinhood is under SEC investigation regarding its crypto business. The firm also received similar requests from the California Attorney General's office. This news follows the regulatory crackdown on the crypto industry, which started with the collapse of FTX last year.

FTX's senior executive Nishad Singh was charged with fraud by US regulators and pled guilty to six counts of fraud charges. Singh, ex-Director of Engineering for FTX, created software code that allowed customer funds to be diverted to Alameda Research.

Investors pull around $6 billion out of Binance's stablecoin following the regulatory crackdown. The NYDFS also said that Paxos had violated its obligations for periodic risk assessments and due diligence checks.

The Raven Also Spotted

Vitalik Buterin shared his personal experiences of using crypto for purchases in his latest blog post, posing the question: Could bad UI be a bigger problem than most think?

Arthur Hayes shared his timeline for the next crypto "mega upcycle." The ex-CEO of BitMEX stated that central bank decisions with government bonds price might result in the next big upswing for risk-on assets, believed to end in 2026.