Sui network, a layer 1 blockchain developed by Mysten Labs, is experiencing a network outage on Thursday after the project said its mainnet had “stalled,” temporarily halting transaction processing.
“Sui Mainnet is currently experiencing a network stall. The Sui Core team is actively working on a solution,” the project posted on X. “Be aware that transactions may be paused at this time. Updates will be shared as soon as they are available.”
The disruption appeared to pause activity across the network, though the team had not yet disclosed the cause of the issue at press time.
The incident marks another in a series of technical disruptions for Sui. The blockchain has previously faced periods of degraded performance and outages, including one earlier this year.
Sui, which launched in 2023, is among a group of newer layer 1 blockchains competing with Ethereum and Solana by offering high-speed transactions and low fees. The network’s native SUI token is down 8% in the last 24 hours, though broader crypto market conditions were mixed.
Blockchain outages remain a closely watched issue for traders and developers, particularly for networks that market themselves as high-performance infrastructure for decentralized finance and gaming applications.
The Sui team said it would provide additional updates as the investigation continues.
Read more: Crypto for Advisors: Breaking down the Sui blockchain
In today’s newsletter, Hassan Ahmed outlines the state of crypto, stablecoins and regulations in Asia, comparing growth to regions with clarity.
Then, in “Ask an Expert,” Xin Yan, CEO of Sign, answers questions about crypto and stablecoin adoption in Asia.
Crypto Adoption In Asia: What Advisors Need To Know
The reality of crypto in Asia
The idea that Asia is an emerging market trying to catch up on crypto is outdated. In fact, Asia is one of the most integrated markets for digital assets. Today, jurisdictions across Asia are already embedding digital assets, such as stablecoins, into financial infrastructure across payments, settlement, treasury and remittances, treating them as more than just speculative trading tools.
The clearest evidence is the region’s stablecoin flow. Asia accounted for $12.5 trillion in stablecoin transaction volume in 2025, a 67% jump from $7.5 trillion the year prior, the highest of any region globally. This volume did not come from speculative trading. It reflects real utility, as businesses and individuals use stablecoins to move money faster and more cheaply across borders.
Singapore as a case study
Singapore presents a strong example of what a well-run framework looks like in practice. A study conducted by Coinbase and MoneyHero Group found that 61% of finance-forward Singaporeans now hold crypto. Among these crypto holders, Gen Z ownership doubled from 18% to 36% in a single year. This is in sharp contrast to the early days, when ownership was concentrated among tech enthusiasts and early adopters.
This did not happen by chance. Singapore built a deliberate regulatory runway spanning nearly a decade, with regulators and industry moving in tandem at each stage. As early as 2016, Singapore launched Project Ubin for early blockchain infrastructure trials and later established a licensing framework for digital payment tokens through the Payment Services Act. This was followed in 2019 by institutional DeFi pilots with Project Guardian in 2022 and, most recently, BLOOM in 2025 to deepen institutional infrastructure.
The result is a market where regulatory clarity, institutional infrastructure and industry participants operate in sync. The effects are already visible. Singapore is home to over 700 fintech firms and more than 300 Web3 companies, with institutional crypto trading volumes in the tens of billions. Singapore is less an outlier and more a preview of what other markets are building toward.
Significant use cases across Asia
Adoption across Asia is also structurally diverse. While other regions tend to concentrate around a single use case, Asian markets are leading in different areas, shaped by their regulatory environments and economic structures. This breadth reflects how crypto functions as a multi-purpose financial infrastructure. Hong Kong, Korea and India are prime examples of how adoption can take different forms.
Hong Kong has positioned itself as a hub for institutional digital asset activity through intentional pilot programmes and clear regulation. Spot bitcoin and ether ETFs were approved in 2024, giving institutional investors direct, regulated exposure to crypto for the first time. In early 2026, two stablecoin licences were issued to HSBC and Standard Chartered-led groups. This is a signal that Hong Kong’s digital asset ecosystem welcomes established financial institutions as active participants, not just observers.
India represents a different kind of adoption: driven by economic necessity rather than institutional infrastructure. With around 119 million crypto users, India has the largest user base in the world, which contributes to over $100 billion in annual remittances. The country’s digital foundation makes this possible. The Unified Payments Interface (UPI) processes over 20 billion transactions a month, and a large base of smartphone users has allowed crypto adoption to spread well beyond major cities into wider parts of the country.
Korea stands out for its retail participation. Around 33% of Korean adults hold crypto, roughly twice the rate in the US, while trading volume across Korean exchanges reached approximately 1.76 trillion Won at the end of 2025. This is proof that crypto trading has become a mainstream financial behaviour for a significant share of the population. Korea’s regulators are advancing this demand as they work to bring structure to a market that has already matured beyond the early-adopter stage.
Future outlook
The next phase is interoperability, not just adoption or regulation. Asia has already established strong regulations and built up a good base of institutional and retail adopters. But siloed markets remain a bottleneck. The next phase of growth depends on coordination across jurisdictions. A unified framework would allow funds and users to move more freely across borders, reducing the friction that currently limits the region’s potential.
The CLARITY Act, on the near horizon, will set a new global benchmark. When the world’s largest economy defines rules, others follow. Asian regulators will need to update their frameworks to stay current and to preserve their regulatory edge.
Advisors should track a few signals over the next twelve months: growth in cross-border stablecoin flows, the emergence of region-wide settlement frameworks and how swiftly individual markets respond to the CLARITY Act. Proactive policy design and regional coordination will determine Asia’s position in the next era of finance.
– Hassan Ahmed, country director, Coinbase, Singapore
Ask an Expert
Q. What does the Asian economic situation look like in terms of long-term crypto and stablecoin adoption?
Asia is right at the center of real-world stablecoin adoption, particularly for payments, remittances, treasury management and cross-border commerce. Data shows that over half of institutions in the region already operate stablecoins, while a growing number are either piloting or planning to implement them.
Stablecoins are actually fast becoming a foundational layer of the region’s evolving payments infrastructure. A new stablecoin-backed payment system is emerging across Asia: P2P, real-time and multi-currency, enabling people to travel and pay freely across borders.
Q. What is your advice for investors and advisors looking to further integrate crypto and stablecoins in their portfolios with the current Asian market outlook in mind?
Stablecoins are not speculative vehicles: their value proposition comes from their utility and not price appreciation. They are designed to maintain a stable value, hence the name. The popularity of stablecoins actually requires investors and advisors to separate crypto investing from the rise of stablecoin-powered financial infrastructure.
As the crypto regulation gains clarity across Asia, we are likely to see rapid growth in on-chain FX, cross-border remittance corridors, B2B payment infrastructure, tokenized treasury operations and more related use cases. So the investment opportunity lies in what is built on top of it.
This means businesses, payment networks, infrastructure providers and financial applications that are built around on-chain settlement and programmable money.
Q. Do you believe that regulations and perspectives on crypto will change the way crypto is handled in the region, or should advisors have a different approach moving forward?
Regulators across the region are increasingly aligning on core principles, which serves as a massive tailwind for companies operating across borders.
Currently, the region is moving away from lightly regulated speculative markets toward institutional-grade digital asset frameworks focused on compliance, licensed issuers, reserve backing, guaranteed redemption rights, consumer protection and payment utility. This shift is giving financial institutions and enterprises greater confidence to participate in the ecosystem.
As jurisdictions adapt these ideas to their own financial structures at different speeds and in alignment with their priorities, we are seeing regulatory convergence that creates a more predictable environment for crypto companies to operate in.
As cross-border inconsistencies are reduced on the way to harmonization, the compliance playbook is becoming more legible and transferable for advisors, though jurisdiction-level due diligence still matters.
For advisors, the mandatory pivot is to transcend outdated crypto-native narratives to understand regulated applications. As stablecoins become financial plumbing, those with a deeper grasp of both TradFi and blockchain-based infrastructure and who are building frameworks suited to the emerging regulated environment will be better positioned for the future.
HEK and the Tezos Foundation are launching 404_LAND, a virtual digital art exhibition opening June 12 and running through August 9, 2026.
The exhibition is curated by Auronda Scalera and Dr. Alfredo Cramerotti.
Six artists are participating: Gabriel Massan, dmstfctn, Varvara & Mar, Hind Al Saad, Kat Zhang the Poet Engineer, and Alida Sun.
Each artist will also release NFTs on Tezos through objkt.com.
HEK and the Tezos Foundation will open 404_LAND, a new virtual group exhibition examining digital error, unstable identity and algorithmic interpretation.
The exhibition opens on June 12, 2026, on HEK’s virtual platform and runs through August 9, 2026. It will also have a physical presence at HEK in Basel during Art Basel week, according to the details shared with AlexaBlockchain.
The show brings together six artists: Gabriel Massan, dmstfctn, Varvara & Mar, Hind Al Saad, Kat Zhang the Poet Engineer, and Alida Sun.
Curated by Auronda Scalera and Dr. Alfredo Cramerotti, 404_LAND takes its name from the HTTP 404 error.
But the exhibition does not treat the broken link as a dead end.
Instead, it uses the error as a way to explore political disappearance, machine misreading, fragmented memory, data extraction and planetary instability.
HEK’s website lists 404_LAND as the first virtual exhibition in its 2026 partnership with the Tezos Foundation. The broader collaboration includes digital art programming, virtual exhibitions and an outdoor presentation tied to Art Basel 2026.
Art Basel’s Basel edition is scheduled for June 18–21, 2026, placing the HEK presentation inside one of the global art market’s most closely watched weeks.
The exhibition reflects a wider push by cultural institutions to treat blockchain not only as a market infrastructure for NFTs, but also as a distribution, preservation and public-access layer for digital art.
Tezos has positioned itself strongly in that field.
The blockchain has previously been used in cultural programs involving institutions including Serpentine, Musée d’Orsay and LAS Art Foundation.
The project fits the institutional focus for HEK.
The Basel-based House of Electronic Arts is a museum and Switzerland’s national centre of excellence for digital art, with a program focused on technology, media art, conservation and public education.
404_LAND’s participating artists work across machinima, generative systems, AI dialogue, machine vision, interactive simulation and speculative worldbuilding.
Gabriel Massan’s Victims, from the ongoing Ball Of Terror series, places the idea of error inside systems of violence and fear.
The machinima work builds a looping world of falling bodies, gunfire and suspended motion, presenting terror as routine rather than exception.
Massan has previously worked with Serpentine on Tezos-based digital collectibles connected to a custom computer game.
The London-based duo dmstfctn, made up of Oliver Smith and Francesco Tacchini, contributes The Models.
The work is described as an infinite interactive simulation featuring two AI-driven characters modelled on Commedia dell’Arte masks.
The characters improvise across 26,880 possible scenes, with dialogue generated using access to Supercomputer Leonardo.
The piece uses theatre to expose how machine intelligence can appear knowledgeable while still performing obedience, absurdity and misunderstanding.
Varvara & Mar present Everything Is In Your Hands, a webcam-based net.art work.
Visitors navigate a glitch system using hand gestures.
In the work, signs of love, protest and refusal become keys, data and misreadings, turning participation itself into a form of exposure.
Hind Al Saad, working with Martin Juras and Levi Hammett, presents SELF(ENCODED).
The work places the viewer inside a recursive exchange with a machine.
Facial features are converted into pixels, patterns and language until the signal becomes difficult for both human and machine to read.
The work asks what remains of the self when a face becomes extractable data.
Kat Zhang the Poet Engineer contributes Hypomnemata: Memory is a Flock of Birds.
The game-like landscape draws on Hopfield networks, a model of associative memory where memories exist as valleys in an energy landscape.
The work frames corrupted or incomplete memory not as failure, but as the beginning of new forms of relation.
Alida Sun’sThe world isn’t ending / Their world is ending expands the show’s focus from computational error to climate, social and planetary instability.
The work questions who is forced to adapt, who disappears and who gets to continue when systems collapse.
Sun’s practice includes daily hand-coded generative systems, which the announcement says she has continued for more than 2,500 days.
The exhibition’s interface also follows its theme.
404_LAND will not have a conventional home screen or map. Visitors enter mid-stream and move through six artistic zones connected by thresholds, fragments and atmospheric transitions.
Each artist will also release NFTs on Tezos through objkt.com.
A kiosk inside HEK’s Basel lobby will provide public access during the exhibition run, while a virtual opening tour with the curators is scheduled for June 12.
The above article “HEK and Tezos Turn the 404 Error Into a Digital Art Exhibition” was first published on AlexaBlockchain. Read the complete article here: https://alexablockchain.com/hek-and-tezos-turn-the-404-error-into-a-digital-art-exhibition/
Read Also: Is India Moving From Crypto Uncertainty Toward a Clearer Policy Framework?
Disclaimer: The information provided on AlexaBlockchain is for informational purposes only and does not constitute financial advice. Read complete disclaimer here.
Image Credits: HEK, Shutterstock, Canva, Wiki Commons
Argentina’s government is moving to restrict banks, payment firms and crypto providers from serving unauthorized online gambling platforms as part of a broader crackdown on digital betting.
The government presented a Bill for the Prevention of Gambling and Regulation of Online Gambling to Congress, according to an official notice from the Ministry of Health published on Tuesday.
The bill seeks to address gambling addiction by tightening rules on payments, advertising and access to betting platforms.
The legislation directly ties gambling regulation to financial infrastructure, including payment systems and crypto rails, potentially reshaping how unauthorized betting platforms access payment and crypto rails in Argentina.
Crypto and payments face direct restrictions
A central feature of the bill is its treatment of payment infrastructure, which includes traditional banking systems as well as crypto asset service providers.
According to the ministry’s statement, the bill would empower authorities to block transactions linked to unauthorized gambling platforms.
“It [the bill] establishes that financial entities, providers of payment services or virtual assets (cryptocurrencies) are prohibited from offering their services to unauthorized gambling operators,” the announcement states.
Source: CryptoNoticias
The measure would potentially extend compliance obligations to crypto intermediaries such as exchanges and fiat on-ramps, requiring them to identify and block transfers tied to gambling-related wallets or merchant flows. This could affect how users fund offshore betting platforms that rely on crypto deposits as their primary payment method.
Cointelegraph contacted MoonPay after the company appeared in onboarding materials reviewed by Cointelegraph from a local crypto gambling site, but had not received a response by publication.
A local court previously ordered a nationwide block of Polymarket
The bill would also expand enforcement beyond online betting to any platform facilitating unauthorized betting activity, including a ban on advertising across digital media. Platforms promoting unlicensed operators could face penalties or be required to verify the authorization status of the services they advertise.
The new legislation adds to Argentina’s broader push to curb illicit online betting and tighten oversight of digital gambling activity.
Related: Spanish authorities block Polymarket and Kalshi over gambling laws
Local authorities have already taken action against prediction markets, with Argentina’s national communications and media regulator instructed by a court in March to block access to Polymarket. The case was brought by the Buenos Aires City Lottery, the state-owned entity responsible for regulating gambling in the city.
Restrictions on prediction markets have been increasingly emerging in multiple jurisdictions globally, with major platforms such as Polymarket and Kalshi facing scrutiny over concerns that event-based trading may constitute unlicensed gambling activity.
Magazine: Should users be allowed to bet on war and death in prediction markets?
Nearly $934 million in crypto positions liquidated across 167,400 trader accounts, with Bitcoin and Ethereum taking the heaviest losses amid market volatility.
Crypto liquidations reached $934.24 million in a 24-hour period, wiping out approximately 167,400 leveraged trading accounts.
Bitcoin liquidations accounted for $363 million of the total, while Ethereum saw $240 million in closed positions. The largest single liquidation—a $15.34 million Bitcoin long position—closed on decentralized exchange Hyperliquid.
The liquidation cascade skewed heavily toward long positions, with 93% of closed accounts betting on price recovery. This concentration of losses among leveraged longs suggests rapid deleveraging across the broader market as traders reduced exposure to risk. The concentrated losses in BTC and ETH reflect their dominance in leveraged trading markets.
The sharp uptick in liquidations underscores the volatility currently gripping crypto markets. Traders holding leveraged long positions faced cascading margin calls as asset prices declined, forcing automated liquidations across major trading venues. CoinGlass data tracked the real-time liquidation activity across exchanges during the event.
Axios reported that U.S. and Iranian negotiators reached a draft 60-day memorandum of understanding to extend the ceasefire and begin talks around Iran’s nuclear program, though President Donald Trump has yet to approve the agreement.
The report followed overnight U.S. airstrikes on an Iranian military site near the Strait of Hormuz, the critical energy shipping route that has dominated macro traders’ attention over the past months.
Though traders at this point have lost count of the number of imminent Middle East peace deals, they nevertheless bid stocks and bonds higher and oil lower on the Axios report. In the red earlier in the session, the Nasdaq is now up 0.6%, while WTI crude oil has tumbled below $90 per barrel.
Crypto markets, however, remain stuck in the doldrums, with bitcoin BTC$72,648.43 failing to hold even the modest of bumps higher, now having sunk back below 73,000, down 2.7% over the past 24 hours.
Following the Axios story, Treasury Secretary Scott Bessent warned the U.S. would “not tolerate” any attempt to impose tolls on shipping through the Strait of Hormuz, vowing aggressive sanctions against parties involved in disrupting commercial transit through the key waterway. “Oman, in particular, should know that the U.S. Treasury will aggressively target any actors involved – directly or indirectly – in facilitating tolls for the Strait and any willing partners will be penalized,” he wrote.
Fed’s preferred inflation gauge hits highest level since 2023
The first inflation report released under Federal Reserve Chair Kevin Warsh showed price pressures strengthened in April, with the Fed’s preferred inflation gauge, the Personal Consumption Expenditure Index (PCE), rising to its highest level in nearly three years to 3.8% year over year, up from 2.8% in February.
“The inflation picture is becoming increasingly uncomfortable for the Fed. This is not just a headline inflation problem: core inflation is moving the wrong way too,” said Olu Sonola, head of US economics at Fitch Ratings. “Price pressures are likely to persist over the next few months, and while the Fed cannot fix a supply shock, it cannot ignore one that is feeding into underlying inflation. The Fed is stuck — and the heat is clearly being turned up.”
Bitcoin (BTC) has created its last classic price magnet as a staple chart feature disappears forever.
Key points:
Bitcoin is set to lose popular short-term price targets as CME Group’s futures market goes 24-hour.
CME futures gaps will no longer be created over weekends.
Several open gaps still remain on the chart, with the lowest near $67,000.
Bitcoin futures gaps to disappear permanently
Starting on Friday, CME Group’s Bitcoin futures market will trade 24 hours a day, seven days a week, ending the phenomenon of futures “gaps.”
Futures trading on a 24-hour basis was announced in February.
“Client demand for risk management in the digital asset market is at an all-time high, driving a record $3 trillion in notional volume across our Cryptocurrency futures and options in 2025,” Tim McCourt, CME’s global head of equities, FX and alternative products, said in a press release at the time.
The result of the change is that weekends will not generate discrepancies between the end of one futures trading week and the start of another.
These have often resulted in a “gap” opening up in the market, with BTC/USD subsequently attempting to “fill” it by rising or falling once the new week begins. How long the process takes can vary, with some gaps staying unfilled for months or more.
Commenting, trader Daan Crypto Trades flagged three nearby gaps remaining, both above and below price.
“Closed last weekend’s CME gap and is now trading in the big area between the other few remaining gaps,” he told X followers in a post on Thursday.
“This weekend, 24/7 trading starts for the Bitcoin CME futures so there won’t be any new gaps created anymore going forward. The ones left standing will of course still sit there on the chart.”
In particular, the platform’s large-volume traders, or whales, could be pointing the way to renewed BTC price strength.
“Bitfinex whales’ short positions in $BTC are shrinking further. Their short-term bearish bets are decreasing,” trader CW reported on X.
CW added that a “new uptrend could be beginning” based on whales’ stagnating long exposure, but subsequently showed that they were still adding positions.
Bitfinex BTC/USD long positions. Source: CW/X
Earlier, Bitfinex research flagged missing ingredients to support a full bullish trend reversal for Bitcoin.
The payments-focused blockchain Tempo has settled 3.9M transactions across 177K addresses since mainnet launch in March, with stablecoin supply exceeding $25M and full Dune Analytics integration live.
Tempo, a Layer 1 blockchain incubated by Stripe, has processed 3.9 million transactions across 177,000 addresses since mainnet launched on March 18, according to data shared by Dune Analytics.
The chain’s native TIP-20 stablecoin standard now supports circulating supply exceeding $25M across multiple issuers and yield-bearing token variants.
The TIP-20 standard makes stablecoins native to the Tempo protocol through precompile-based implementation rather than ERC-20 contracts. Issuers gain access to programmable policies including transfer rules, allowlists, and fee logic enforced at the chain level.
Stablecoin supply is distributed across multiple issuers: pathUSD anchors the network at $8.2M, while USDB, USDT0, and Stargate-bridged USDC.e and EURC.e each hold between $4.5M and $5.5M in circulating supply.
The ecosystem also supports yield-bearing variants including Ethena’s sUSDe and USDe, Frax Finance’s USD, Capitole’s cUSD and stcUSD, and Maple Finance’s syrupUSDC.
Tempo’s architecture enables gas payment directly in stablecoins, differentiating the chain from networks that require native tokens for transaction fees. The combination of stablecoin-native design and early transaction volume metrics suggests the protocol is gaining adoption within its target payments use case.
Tempo is now fully indexed on Dune alongside major blockchains, with a maintained stablecoins dataset that normalizes supply, transfers, and holders across issuers and networks. The integration enables direct comparison of Tempo’s TIP-20 stablecoins against Tron USDT, Solana USDC, and Ethereum’s stablecoin float in single queries.
Gemini (GEMI), the cryptocurrency platform founded by the billionaire Winklevoss twins, unveiled “Command Center,” a new AI-powered intelligence layer built into its prediction markets platform, in a blog post Thursday.
The feature integrates SpaceXAI models directly into the Gemini app, delivering real-time market summaries, sentiment analysis and personalized signals tied to users’ portfolios, watchlists and prediction activity.
Gemini described the product as a “mission control” interface for tracking prediction markets across crypto, sports, commodities, economics and politics.
“Command Center introduces a true ‘For You’ experience to predictions markets,” the company said in the release. “Rather than forcing you to dig through news and social feeds to find what’s relevant, Command Center meets you where you are.” The feature analyzes users’ positions, watchlists and prediction activity to surface personalized market intelligence.
Prediction markets have surged in popularity over the past two year as traders increasingly turn to event-based contracts to speculate on everything from crypto prices and central bank policy to elections and sports.
Platforms such as Polymarket and Kalshi have seen record trading volumes during major political and macroeconomic events, while crypto-native prediction markets have gained traction for offering around-the-clock access and blockchain-based settlement.
The sector’s rapid growth has also drawn renewed interest from technology firms looking to layer AI-driven analytics and personalized market intelligence into the trading experience.
Gemini’s platform initially includes coverage across cryptocurrencies such as bitcoin BTC$72,729.12, ether (ETH), solana (SOL) and zcash (ZEC), alongside sports betting-style prediction markets tied to baseball, basketball, golf and hockey events.
The product also delivers updates tied to commodities including gold, silver and oil benchmarks, as well as macroeconomic and political developments.
Gemini said the underlying SpaceXAI models are designed to synthesize large volumes of fast-moving information into concise market intelligence and contextual insights.
The company described itself as the first crypto-focused predictions platform to integrate “frontier AI” powered by SpaceXAI models directly into the trading experience.
Command Center is now available through the Gemini app.
Read more: Winklevoss’ Gemini jumps 25% on $100 million bitcoin infusion despite deepening losses
The scale up of STRC and SATA has drawn in many detractors.
Recently Onramp published a paper highlighting some issues of Digital Credit. There were some errors and the paper was clearly AI-generated in most places. My favorite error actually had little to do with Digital Credit, and it appeared in the preface of the report (imagine you haven’t even started reading the actual paper and you already see a factual error, this is the level of AI we are dealing with).
Onramp writes on Page 3: “Strategy has released AI-generated advertising featuring a young, attractive model in a tropical setting”
But a quick viewing of the 30-second ad they are referencing shows that the woman worked “hard as an engineer”, not a model. This is literally 10 seconds into the ad, which is about the same amount of time it took me to spot the error in Onramp’s preface.
I just thought this anecdote was funny. Onto my main point.
Their core argument was that Digital Credit could be better replicated by combining U.S. treasury securities with BTC. (This is what Onramp calls “the simpler trade” but I also fail to see how this is simpler considering that buying digital credit involves just one single ticker while “the simpler trade” involves a dynamic re-laddering of maturing treasury bonds combined with BTC held on a separate venue.)
This conclusion is wrong. It is trivial to show that it is wrong empirically (one just has to look at the daily returns time series of Digital Credit instruments vs a portfolio of IBIT and SGOV or IEF). But this missive will present multiple economic arguments for why we can know a priori that the claim is incorrect.
Reason 1: Collateral
Digital Credit is overcollateralized by corporate bitcoin holdings. This cannot be replicated with one’s own equity because there is no committed external capital in the case of owning BTC and treasuries—it is all your own money and no one else is on the hook. Credit is different. Even though the principal is yours, there is external capital in the form of the issuer’s assets that are committed to ensuring you are made whole. This capital is “external” because it existed before you ever put your principal in and it remains well after you sell your position.
To be precise, an unencumbered bitcoin balance sheet isn’t collateral in the strict sense, but it serves as collateral in a flexible sense. For instance, a BTC-backed loan with margin call is collateralized in a strict sense because the collateral is set apart for the debt. Digital Credit gives the issuer more flexibility with collateral management, but it also gives the investor more flexibility because the security is fungible and liquid. This is an understanding that both parties agree to.
The presence of the collateral is protection for the investor. This coverage is expressed in the BTC Rating metric, which is the ratio of Bitcoin NAV to the sum of the notional value of a particular credit series and all more senior series.
A portfolio of BTC and treasuries has no external capital. This fact alone makes it impossible to economically replicate what is going on in Digital Credit with BTC and treasuries.
Before I move on, I should address treasuries. It is true these are backed by the full faith and credit of the Federal government, and this might be considered a type of collateral. Some might even call this infinite collateral coverage. However this implicitly assumes that the U.S. will not default on its debt. Onramp mentions that because the government can print money and it is constitutionally illegal to not pay the debt, the treasuries position is therefore a sure thing.
This does not account for a case where the government revises its policy and defaults on some debts but not others. Such a move should not be deemed impossible considering the growing influence of modern monetary theory, which posits that sovereign debt is a mere construct constrained only by inflation. MMT sees debt as a reallocation of society’s resources across time to generate the highest social benefit in the present. This line of thought is really the final destination of fiat finance where everything is relative and based on high time preference decision-making.
But under this logic, a move to “delete” the debt owed to some parties while honoring the debt owed to others would, assuming the parties are selected correctly, constitute a partial debt jubilee that would still allow currency stability to persist. Is the treasuries risk worth taking? Everyone must decide for themselves. If this does happen, then STRC will be fine (since the dollar would be fine, because we already said that currency stability persists) but the treasuries and BTC portfolio could see some heavy losses.
Combining BTC with treasuries therefore introduces that avenue for risk which Digital Credit, being a fully structured overcollateralized bitcoin position, does not have.
In other words, the real difference between Digital Credit and a synthetic replication is the type of risk that the investor endures. Keep this point in mind, because it is a recurring theme.
Reason 2: Correlation
Markowitz portfolio theory shows diversification as the only free lunch in finance. When multiple uncorrelated things are stacked together, they can create higher risk adjusted returns.
Digital Credit is rather uncorrelated to bitcoin and other assets. STRC is at 0.63 correlation to BTC and 0.33 correlation to SPY and a 0.33 correlation to the S&P preferred stock index.
Strategy.com’s STRC dashboard. Note the correlations in the bottom row. Other Digital Credit instruments have similar numbers.
Like everything else, it is true that it can be positively correlated during times of high stress. But the lower correlation most of the time means that Digital Credit can improve the diversification of portfolios.
In contrast, it is easy to show that bitcoin and treasuries cannot do this because it is simply a watered-down bitcoin position: bitcoin levered by some number between 0 and 1. For example, 20% BTC and 80% treasuries is really just 0.2x levered BTC. 0.2x levered BTC still has a 1.0 correlation with BTC, so it offers zero diversification benefits to a larger portfolio that already holds BTC. In finance jargon, we might say that this has a 0.2 beta but a 1.0 correlation.
The reason Digital Credit can generate lower correlation is precisely because of the capital structure behind it. The company has many different options that are unavailable to the investor that holds only BTC and treasuries. These options create idiosyncratic factors that are independent from and therefore uncorrelated with BTC.
And just to reiterate the earlier point, these idiosyncratic factors are also different risks that the Digital Credit investor accepts.
Reason 3: Tax
This is probably the biggest error from Onramp. Return of Capital is a tax benefit in the case of STRC and SATA. Onramp argues that it isn’t a benefit because the company has no earnings and so the capital really is return of principal and therefore economically similar to the return of principal in their laddered treasuries model. While this is true for many cases of ROC, it is not the case for Digital Credit.
First, understand that the ROC tax rule for negative taxable earnings and profits was designed with the assumption that companies would make their money via fiat-denominated cash flows rather than taking advantage of the fiat’s debasement to accumulate appreciating assets.
For just a moment, I want you to seriously consider why a distribution from a company without earnings would be a reduction of cost basis. Why is this rule fair and why did it come about?
The answer is that a company that doesn’t have income but pays a distribution is economically liquidating itself, which means the principal (cost basis) of all equity investors should be reduced to reflect this partial liquidation. In most cases of ROC, the entity gets smaller as the distributions occur, because the distribution was literally part of the entity. You can see this for yourself in covered call ETFs that go through brutal NAV erosion while paying out ROC distributions.
Brutal NAV erosion of QYLD, one of the largest covered call ETFs out there. These are ROC distributions.
But again, this whole dynamic assumes as a premise that companies only make money with cash flows and not by investing in appreciating assets. If in fact there existed a company that could make money by investing in appreciating assets, then it could easily take advantage of the ROC tax rule by making it look like it was partially liquidating while in reality growing larger and larger.
And if you look closely, this is exactly what Strategy is doing. Its enterprise value gets larger as it pays out more ROC distributions. This is completely the opposite of what one would expect to see with ROC when thinking from first principles, or what one actually sees in other ROC cases. When BTC starts to rally, this difference gets even clearer.
This distinction alone should make it clear that Digital Credit offers something very unique. It has ROC, which we may think of as an accounting treatment of principal erosion, without the economic reality of principal erosion being reflected by a lower share price. This is, in short, a structural arbitrage made possible by an oversight in the tax code (the oversight being that C-Corps do not make money by holding appreciating assets). This is unique to Digital Credit and cannot be replicated by BTC and treasuries.
But just like Digital Credit today benefits from this tax rule, it could also stop benefiting should the rule change. We should expect a reprice of Digital Credit in that kind of event. This is a risk that Digital Credit investors accept, and it is a risk that the BTC and treasuries portfolio does not have.
Reason 4: Value Investing
Value investing is about buying undervalued assets. Assets are undervalued when the market does not assess the risk correctly. It is possible that the risk associated with the corporate structure is not priced correctly, and therefore the Digital Credit investor earns a higher risk premium than what is justified. This could explain the double digit yields on Digital Credit instruments.
Therefore, getting a potential bargain is another benefit. It is of course true that treasuries might be a bargain. And it is of course true that BTC is a bargain. But it is also undeniable that neither can ever express the unique bargain of a misunderstood capital structure, which is what Digital Credit offers.
Conclusion
Finally, it is fair for an investor to believe that the risks of Digital Credit are not worth it. However, this would not be the point of the article, which is to demonstrate that Digital Credit offers at least four unique benefits that a BTC and treasuries portfolio cannot replicate.
The claim that such a portfolio can better replicate digital credit is false because such a portfolio does not at all replicate the underlying economics of Digital Credit.
The benefits of Digital Credit derive from a different set of risks inherent to the unique capital structure of a Bitcoin treasury company. Therefore the economic facts prove that Digital Credit cannot be replicated without a similar capital structure.
