🐋 Cautious optimism on the horizon

We also talk about crypto custody and how blockchain can protect us from AI!

Good evening and welcome to the Whale Capital Newsletter!

This newsletter offers, in simple language, insights into the development of blockchain technology and digital assets as a new financial asset.

In today's issue, we discuss:

  • Cautious optimism on the horizon

  • 🎓 Whale Crypto Academy: An Introduction to Digital Asset Custody: The difference between traditional and digital asset custody.

  • 🔍 Did you know?: The biggest hack in history ocurred thanks to a fake interview.

  • 🔗 Use case: Blockchain and AI: Blockchain’s application to ensure Trustworthy AI Systems.

But first, a market review  

🗞️ Brief News

  • Swift and Chainlink successfully test asset tokenization on blockchain. LINK

  • Visa taps into Solana to expand payment capacity with USDC. LINK

  • Vodafone partners with Chainlink to showcase the potential of blockchain in global trade. LINK

  • Polygon launches the new token POL with Polygon 2.0 Update. LINK

  • Ripple wins its case against the SEC and secures new partnerships for its CBDC Service. LINK

  • JPMorgan debuts tokenized BlackRock shares as collateral with Barclays. LINK

  • Deutsche Bank to offer crypto custody to institutional clients. LINK

  • The SEC won’t appeal court decision on Grayscale Bitcoin ETF. LINK

  • Binance CEO steps down as his crypto platform pays $4bn in fines. LINK

  • Santander Private Bank introduces Bitcoin and Ethereum trading for clients in Switzerland. LINK

Cautious optimism on the horizon

Since our last post, there's been a significant change in the mood of the crypto market, sparking a surge in trading activity. Although we have yet to approach the record peaks, the transaction volume of the top 30 tokens, ranked by market capitalization, has risen by 120% from the lowest levels.

Daily trading volume of the top 30 (millions of dollars). Analysis; Whale Capital. Source; CCI30®

The current wave of optimism isn't just limited to retail investors; it's also evident in the growing institutional interest in the asset class. Investment volumes in conventional listed products with crypto exposure, such as Exchange Traded Notes (ETNs) and Bitcoin futures ETFs, have been on the rise for eight straight weeks. In this period, there's been a net inflow of $1.2 billion, with Bitcoin-focused products attracting $1 billion of this capital. While these figures are promising, they have yet to reach the dizzying heights of the $10 billion influx experienced during the 2021 bull run.

Net weekly inflow of capital into listed investment products with crypto exposure (USD million). Source; CoinShares.

Building on this analysis, a noteworthy trend emerges. The trading volume for traditionally listed crypto-related products has seen a twofold increase in recent weeks. What's more, these volumes now represent an average of 11% of the total crypto market volume—a substantial rise from the historical average of 3.4% and a figure that surpasses even the highs of the 2020/21 bull market. This trend underscores the mounting trust institutional investors have in digital assets as they continue to integrate them into their investment portfolios with greater conviction.

A key catalyst driving this surge of optimism is the growing anticipation of a Bitcoin spot ETF being approved. The market remains keenly attuned to any updates on this expected approval, and even though the SEC has recently delayed its decision again, there are grounds for cautious optimism. Notably, BlackRock has enhanced its ETF operational procedures and has further reinforced its commitment to the sector by applying for an Ethereum spot ETF. These developments indicate that major financial institutions are actively gearing up for a potential shift in the regulatory environment, a change that could further bolster the legitimacy of digital assets.

The potential approval of a Bitcoin ETF could be a game-changer for investor confidence, not only by introducing more robust investment mechanisms but also by significantly boosting market liquidity. The market impact of such an approval could be substantial. Drawing on insights from a recent CoinShares study, an influx of $12 billion in liquidity – mirroring the 2021 surge into traditional products with crypto exposure – might propel Bitcoin's price to as high as $127,000, marking a 250% increase. In the United States alone, there's already $32 billion invested in crypto-related investment products, and as previously noted, interest in this sector is on the rise.

Bitcoin price projection based on capital inflow into the spot ETF. Source; CoinShares.

Change in the macroeconomic environment: A promising horizon

The recent surge of optimism is finding support in a range of economic indicators that suggest a more promising future, or at the very least, a diminishing level of uncertainty. A welcome sign is the moderation of inflation rates, a change that positively influences investor sentiment towards risk-laden assets, including cryptocurrencies..

A key barometer affirming this shift is the US dollar's valuation. Historical analysis of the dollar's performance, as tracked by the UUP index—a proxy for its value—reveals that market risk appetite often escalates following the dollar's peak. Historically, the crypto market has thrived under such conditions, embarking on periods of growth, a pattern we're currently witnessing.

Dollar quote against Bitcoin. Source: Whale Analysis. Data: Investing.com

Technological advance and institutional adoption: Path to convergence

The past month has seen a surge in interest in layer one (L1) blockchain projects, with notable performers like Solana (185%) and Avalanche (100%) experiencing remarkable price increases since the end of August. This trend is driven not just by significant technological advancements, but also by partnerships with major players in the financial sector, pushing these platforms toward more robust and scalable applications.

Asset tokenization is now grabbing headlines, reflecting its increasing significance. This process, which involves converting traditional assets into digital tokens on a blockchain ledger, symbolizes a pioneering blend of traditional finance (TradFi) and decentralized finance (DeFi). More importantly, it marks a critical stride towards the maturity and widespread adoption of blockchain technology.

In this domain, Project Guardian, spearheaded by the Monetary Authority of Singapore (MAS), stands out as a key initiative investigating the tokenization of assets in financial institutions, with several impactful applications already under its belt. Among various pilot projects, Crescendo, a collaboration between ONYX (JPMorgan's blockchain division) and Apollo, is particularly noteworthy. The initial trials of Crescendo, leveraging Avalanche's technology, aim to showcase how tokenization can transform portfolio management. The potential benefits include significant reductions in operational costs and time, alongside broadening avenues for growth.

Advances on the regulatory front: Building trust

The crypto market, particularly in the United States, has been under intense regulatory scrutiny for some time. A recent development in this arena is the conviction of the FTX founder, which has been seen as a positive step towards enhancing the transparency and integrity of the crypto ecosystem.

This week, however, the market was jolted by two unexpected moves from the SEC. Despite initially causing a dip in prices, these developments did not dampen the market's overall optimism, which swiftly rebounded. After an extensive investigation, Binance, one of the largest global exchanges, has settled with the U.S. government. In a major shift, CEO Changpeng Zhao, popularly known as "CZ", has stepped down. Binance has agreed to pay approximately $4.3 billion in fines, marking the heftiest penalty ever imposed by the U.S. Treasury.

Under the terms of the settlement, Binance will phase out its operations in the U.S. market over the next five years, under government supervision to ensure regulatory compliance. This includes granting the authorities access to the platform's systems and records. This agreement marks a pivotal moment for Binance and its investors, alleviating widespread concerns about the company's future following a turbulent year.

The second significant regulatory action this week targeted Kraken. The SEC has leveled new allegations against the exchange, in addition to those resolved in February concerning its staking service. The SEC now accuses Kraken of engaging in risky business practices and failing to properly register its services as a securities exchange. Furthermore, the lawsuit labels 16 cryptocurrencies as potential securities. Kraken has refuted these claims, asserting they are unfounded and vowing to contest them robustly.

While the outcomes of these cases remain to be seen, it's clear that the market is undergoing a recalibration and reformation under tighter regulatory watch. This shift, albeit challenging, is likely to bolster user and investor confidence in the long run.

In conclusion: A promising but volatile future

The crypto sector is on the cusp of potentially significant short-term catalysts, including the anticipated approval of ETFs and the forthcoming halving event. These developments could substantially boost confidence and investor interest in this burgeoning technology.

Yet, it's crucial to bear in mind that we are currently navigating a market characterized by low volumes, a condition that often contributes to heightened volatility and rapid shifts in sentiment. Regardless of the market's direction, we at Whale are committed to closely monitoring all developments, providing insightful analysis with a balanced approach of cautious optimism.

🎓 Whale Crypto Academy: An Introduction to Digital Asset Custody and Its Difference from Traditional Asset Custody

Written by Ariel Navarro, CEO and Managing Partner at Whale Capital

The saying "Not your keys, not your coins" is a frequently echoed mantra in the digital assets realm. This phrase underscores the principle that investors can only be assured of their cryptocurrency holdings if they possess complete control and ownership of their private keys. Opting to store assets on exchanges or with other unregulated entities is a path chosen by many, yet it comes with its own risks that must be fully understood to prevent potential loss of assets.

Trading in traditional markets

Let's begin with a straightforward explanation of how securities trading functions in traditional markets.

Since the 1920s, traditional markets have been developing their infrastructure and regulations, primarily focusing on establishing centralized, regulated financial institutions to reduce counterparty risk. Central to these developments are two key concepts:

  • Segregation of duties: This involves a clear division of responsibilities - brokers are responsible for executing trades, while custodians manage the settlement and safekeeping of the securities.

  • Centralization: the system is anchored by Central Securities Depositories (CSDs) and Clearing Houses. CSDs hold securities on behalf of custodians, who keep detailed records for each client, ensuring that assets remain accessible even in the event of a custodian bank's failure. Meanwhile, Clearing Houses serve as intermediaries, ensuring the enforcement and fulfillment of contracts, thereby enhancing the market's security and stability.

The mechanics of this system are depicted in the chart that follows:

Trading in cryptocurrency markets

In the realm of digital assets, the operational landscape differs markedly from that of traditional markets: 

The infrastructure for crypto is still in its early stages and continues to evolve. Regulatory frameworks are also just beginning to take shape. For instance, some markets like Japan started their regulatory journey in 2016. In the European Union, the Markets in Crypto-Assets (MICA) regulation, aimed at safeguarding investors by regulating digital asset counterparties and products, was recently approved and is set to be fully implemented between 2024 and 2025.

Key differences from traditional markets include:

  • Combined Execution and Custody: Unlike the segregation of duties seen in traditional markets, crypto markets often see these functions combined within exchanges.

  • Decentralization: In the crypto space, there is no centralized equivalent to clearinghouses that mitigate counterparty risk. Instead, the blockchain technology itself records all transactions and asset balances. When assets are purchased through an exchange, they are typically stored in a wallet controlled by the exchange, which holds both a public key and a private key. This setup grants the exchange complete control over the assets, introducing a degree of risk.

The structure and operation of this system can be visualized in the chart below:

A brief Introduction to Public and Private Keys

Before delving further, it's essential to clarify the concepts of public and private keys, as these are crucial for transaction execution and asset ownership on the blockchain:

  • Private Keys: This is a lengthy, randomly generated sequence of letters and numbers, created using cryptographic methods. Private keys validate the ownership of digital assets linked to a corresponding public key and enable the authorization of transactions. If these keys were to fall into the hands of an unauthorized third party, that entity could potentially gain control over the associated assets. Analogous to the key to your house or the PIN for your bank account, private keys are a critical component of blockchain security. A typical private key on the Bitcoin blockchain might appear as follows:


  • Public Keys: Similarly, a public key is a long sequence of letters and numbers, but unlike private keys, they are generated to be publicly visible on the blockchain. A public key is created from a private key using a one-way cryptographic function. This function is intentionally designed to be straightforward to execute in one direction (creating a public key from a private key) but virtually impossible to reverse, making it highly improbable to figure out the private key based on the public key. You can liken a public key to your home address – it's something you can share with others to receive digital assets. The format of a public key on the Bitcoin blockchain would resemble the following:


The Difference between Traditional and Crypto Markets

From the point of view of infrastructure and regulation, the primary distinction between traditional markets and crypto asset markets lies in the maturity of investor protection measures. Unlike traditional markets, where the focus is on safeguarding securities within a centralized system, the crux of ensuring digital asset custody revolves around the management and safekeeping of private keys. Losing private keys is akin to losing access to the underlying assets. Therefore, understanding the current market custody options and their respective advantages and disadvantages is crucial in selecting the one that aligns with our needs.

Based on whether the management of private keys is delegated or retained, two primary custody solutions emerge: custodial solutions and self-custody solutions.

Custodial Solutions

Centralized Exchanges

These platforms are where the exchange controls the order book. The exchanges are responsible for executing, settling, and safeguarding the assets, requiring investors to access their assets via the exchange.


  • Operational simplicity.

  • Cost-effectiveness.


  • Investors lack control over their private keys.

  • Uncertainty regarding the exchange's regulatory status and the segregation of client assets from the exchange's own assets.

Key players in this space include Binance, Coinbase, and Kraken.

Digital Custodians

Digital asset custodians are independent entities that specialize in safeguarding private keys. For investors to utilize these services, they must transfer their assets to the custodian's wallet, effectively delegating control over their private keys to the custodian.


  • Segregation of Execution/Settlement from Custody.

  • Institutional-Grade Expertise in Private Key Management.


  • Variability in Fiduciary Responsibility: The extent of fiduciary duty custodians owe to their clients can vary depending on their jurisdiction and the legal form under which they operate.

Key players in this space include: Bitgo, Zodia and Anchorage.

Self-Custody Solutions

Cold Wallets

Cold wallets are physical devices designed to securely store a user's private keys for cryptocurrencies in an offline environment. To use them, assets are transferred from the exchange's wallet to a public address that is managed by the private keys held within the cold wallet. Utilizing cold wallets effectively separates the execution/settlement of trades from the custody of the assets.


  • Full Control over keys.


  • The security of a cold wallet heavily relies on the user's ability to securely manage the device and its backup passphrase. Misplacing or losing these can result in irreversible loss of access to the stored assets.

Key players in this space include: Ledger and Trezor.

Hot Wallets

Hot wallets are online wallets that hold private keys, enabling users to manage their digital assets over the internet. When using a hot wallet, assets are transferred from the exchange's wallet to a public address controlled by the keys stored within the hot wallet.


  • Immediate access to assets, facilitating easy and fast transactions.


  • Online Security Risks like hacking or phishing.

  • Critical Backup Management: Proper management of the backup passphrase is essential for hot wallets. Losing this passphrase can lead to permanent loss of access to the stored assets, as it is the key to wallet recovery.

Key players in this space include: Metamask and Exodus.

Custody Technology Platforms

Institutional-grade technology solutions for storing and managing digital assets, functioning similarly to cold wallets but adhering to institutional standards.


  • Scalability and flexibility.


  • Operational complexity.

Key Providers: Fireblocks, Copper, and Metaco.


Grasping the operational and legal aspects of digital assets is crucial for secure engagement in this market. Vehicles such as the Global Digital Assets Fund employ institutional-grade custody solutions to protect investor assets. For individual investors navigating the digital asset space, it's vital to comprehend the associated risks of execution and custody to maintain access to your investments.

🔍 Did you know that…?

If you imagine job interviews as merely tense and preparative events, think again. The largest crypto scam to date was orchestrated through a phony interview, with an unsuspecting engineer as the candidate and North Korean government-backed hackers posing as interviewers. It does sound like something straight out of a film, doesn't it?

The Ronin Network, developed by gaming company Sky Mavis, is a blockchain tailored for video games. It emerged as a solution to limitations faced with Ethereum during their development of Axie Infinity, such as prohibitive fees and slow transactions.

Ronin functions as a sidechain, operating parallel to and independently from Ethereum, enhancing user experience. To ensure smooth operation, Ronin relies on a “bridge”, establishing virtual “vaults” within each network. Ethereum users who want to use Ronin must deposit the tokens they want to move on the Ronin network in the Ethereum vault. At that time, your tokens available to move on the Ronin network will appear in Ronin's vault. The user will only be able to use their tokens on the Ronin network, since the original tokens are locked in the Ethereum vault until they decide to withdraw from the Ronin network.

Functioning of a bridge between blockchains

Ronin secured its vaults using a Proof of Authority model, requiring only five of nine validators to authorize fund releases. Of these validators, four were controlled by Sky Mavis—the creators of Axie Infinity—and a fifth, intended for the Ronin team, was erroneously delegated to Sky Mavis as well.

Capitalizing on this setup, the Lazarus hacker group, known for significant financial and governmental breaches since 2009, executed a coordinated assault. Posing as recruiters on LinkedIn, they duped a Sky Mavis engineer. Following several interviews, they sent a job offer in a PDF document. When the engineer opened it, he unwittingly compromised Ronin's security.

With this breach, the hackers appropriated 173,600 Ether (worth about $526 million at the time) and 25.5 million USDC, marking the largest hack in history. Alarmingly, the breach went undetected for nearly a week, severely tarnishing the Ronin team's reputation.

This sophisticated heist underscores the critical need for diligent provider selection and thorough vetting in the still-evolving digital landscape.

🔗 Use case: Blockchain’s Crucial Role in Ensuring Trustworthy AI Systems

Written by José García Rosillo, Head of Research at Whale Capital

On October 30th, President Joe Biden signed an executive order to regulate artificial intelligence (AI), aiming to boost transparency within the industry. This directive emphasizes the disclosure of AI model mechanisms and sets guidelines for labeling content produced by AI, to enhance understanding of its origins and nature.

Amidst the surge in the adoption of AI and the current regulatory landscape, a pivotal question emerges: How can we guarantee the development of AI that is innovative, secure, and ethical? Blockchain technology is highlighted by numerous experts as a key complementary tool for AI development, offering:

  1. Data Verification and Reliable Information Sources

    Blockchain's immutable and transparent nature enhances AI by verifying data authenticity and integrity, ensuring learning from dependable sources and reducing misinformation risks. Blockchain's electronic signature capability confirms content origin, bolstering trust in content authenticity.

  2. Security Enhancement

    Blockchain's decentralized infrastructure serves as a protective barrier for AI systems. The distribution across numerous nodes mitigates the risk of a single-point failure, hence fortifying AI applications' security with cryptographic assurances.

  3. Transparency and Accountability – Immutable Audit Trails

    The unchangeable quality of blockchain provides clear audit trails. Each interaction is logged and time-stamped, enabling users to track AI decisions, fostering accountability and trust.

  4. Copyright Protection for Creators 

    Blockchain ensures content traceability and transparency, meeting transparency requirements and ensuring fair compensation for creators whose work is utilized by AI models.

Real-World Example – FICO's Blockchain for Data and Model Governance 

FICO, a leading analytics firm, has integrated an Ethereum-based blockchain for immutable AI data and model governance, securing model provenance and enhancing trust in their models and business practices.

Generated with OpenAI DALL.E

With AI regulation on the horizon, the synergistic pairing of blockchain and AI harbors the potential to achieve Responsible AI—ensuring it is safe, secure, innovative, and inherently reliable.


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See you in the next issue!

Whale Capital is the digital consultant of the fund Global Digital Asset Fund (GDAF), a professional vehicle established for investment in digital assets. GDAF is an alternative fund (NAIF) only available for Professional and Qualified Investors under the criteria of the European ESMA regulation. If you want to request more information you can do so through the following link.

DISCLAIMER: Nothing written here should be considered financial advice. This Newsletter is strictly educational in nature and is not investment advice or a solicitation to buy or sell assets or to make financial decisions. Please be careful and do your own research (DYOR).