Quarterly Blockchain Newsletter - Q4 2022

Meghan Chen, MFE, CFA | Digital Asset Strategist
As at December 31, 2022

SECTION ONE: PERFORMANCE

Performance overview

In the final quarter of 2022, the price of bitcoin fell by 15.2%,^[1] while the price of ether fell by 10.6%,^[2] resulting in 2022 performances of -63.9% and -67.2%, respectively. Coin Metrics’ CMBI 10 Excluding Bitcoin Index, which measures the return of a basket of the ten next-largest crypto-assets after bitcoin, weighted by their free-float market caps, finished the quarter down 17.2%, resulting in a 2022 performance of -74.1%.^[3] The table below shows that bitcoin and ether underperformed key traditional market indexes in the fourth quarter.

FIGURE 1: Standard period returns (as at December 31, 2022)

Note: Returns greater than one year are annualized. Returns of ether are represented by the Fidelity Ethereum Index, bitcoin by the Fidelity Bitcoin Index, U.S. equities by the S&P 500 Index, U.S. growth equities by the NASDAQ Composite, Canadian equities by the S&P/TSX Capped Composite Index and IG bonds by the Bloomberg Global Aggregate Index. All returns are in base currency (US$, except for the S&P/TSX Capped Composite Index, which is in CDN$) and gross of fees. The performance shown above is for illustrative purposes only and does not reflect the actual or hypothetical performance of Fidelity Advantage Ether ETF^TM or the Fidelity Advantage Bitcoin ETF^TM (the “ETFs”), but reflects the performance of ether and bitcoin based on the price of ether and bitcoin reported by the Fidelity Ethereum Index and the Fidelity Bitcoin Index, respectively. The ETFs are not index-tracking ETFs and may be subject to, among other things, management fees, brokerage fees and other fees and expenses. The Fidelity Ethereum Index was launched on December 31, 2020, and accordingly, data for ether that is for a period prior to the launch date are hypothetical back-tested data based on calculations of the hypothetical index price over that time period had the Fidelity Ethereum Index existed, using the Fidelity Ethereum Index’s existing index price calculation methodology. The Fidelity Bitcoin Index was launched on December 31, 2019, and accordingly, data for bitcoin that are for a period prior to the launch date are hypothetical back-tested data based on calculations of the hypothetical index price over that time period had the Fidelity Bitcoin Index existed, using the Fidelity Bitcoin Index’s existing index price calculation methodology. There could be material differences between back-tested performance and actual results. Past performance, whether actual or back-tested, is no guarantee of future results. Past performance is not indicative of future returns. For more information on the Index methodologies, please see https://research2.fidelity.com/pi/FidelityIndex/RebalanceSchedules. Investing directly in an index is not possible.

FIGURE 2: Standard period volatility (as at December 31, 2022)

Note: Standard deviations are annualized based on monthly return data. Returns of ether are represented by the Fidelity Ethereum Index, bitcoin by the Fidelity Bitcoin Index, U.S. equities by the S&P 500 Index, U.S. growth equities by the NASDAQ Composite, Canadian equities by the S&P/TSX Capped Composite Index and IG bonds by Bloomberg Global Aggregate Index. All returns are in base currency (US$, except for S&P/TSX Capped Composite Index, which is in CDN$) and gross of fees. The performance shown above is for illustrative purposes only and does not reflect the actual or hypothetical performance of Fidelity Advantage Ether ETF^TM or the Fidelity Advantage Bitcoin ETF^TM (the “ETFs”), but reflects the performance of ether and bitcoin based on the price of ether and bitcoin reported by the Fidelity Ethereum Index and the Fidelity Bitcoin Index, respectively. The ETFs are not index-tracking ETFs and may be subject to, among other things, management fees, brokerage fees and other fees and expenses. The Fidelity Ethereum Index was launched on December 31, 2020, and accordingly, data for ether that are for a period prior to the launch date are hypothetical back-tested data based on calculations of the hypothetical index price over that time period had the Fidelity Ethereum Index existed, using the Fidelity Ethereum Index’s existing index price calculation methodology. The Fidelity Bitcoin Index was launched on December 31, 2019, and accordingly, data for bitcoin that are for a period prior to the launch date are hypothetical back-tested data based on calculations of the hypothetical index price over that time period had the Fidelity Bitcoin Index existed, using the Fidelity Bitcoin Index’s existing index price calculation methodology. There could be material differences between back-tested performance and actual results. Past performance, whether actual or back-tested, is no guarantee of future results. Past performance is not indicative of future returns. For more information on the Index methodologies, please see https://research2.fidelity.com/pi/FidelityIndex/RebalanceSchedules. Investing directly in an index is not possible.

Market movers

Macro drivers

Macroeconomic factors continued to play an important role in driving the prices of cryptocurrencies, as well as other risk assets. Throughout the fourth quarter, the correlation of bitcoin with major stock indexes remained high, at over 50%. Taking a longer time frame, one of the drivers of the increasing correlation between crypto and stocks is the rising participation of traditional institutions and investors in the space.

FIGURE 3: Rolling 90-business-day return correlation between BTC and stock indexes

Crypto prices were relatively stable in October, with bitcoin generally hovering between $19,000 and $21,000. In early November, prices drew down sharply, largely due to the collapse of crypto exchange FTX (more on this below). In the wake of the collapse, bitcoin has largely remained in the $16,500 to $17,000 range (after having tumbled to around $15,500), with ether prices hovering around $1,200^[4].

Prices for bitcoin and ether, like other risk assets, continued to be responsive to the release of key macroeconomic figures such as inflation, target interest rates and jobs growth. On October 25, for example, bitcoin and ether were up after investors regained appetite for riskier assets following encouraging third-quarter earnings reports. The rally continued on October 26, after the Bank of Canada announced a smaller-than-expected rate hike (50 basis points (bps) rather than 75 bps) and new home sales in the U.S. continued to weaken.^[5] On December 13, bitcoin and ether rose on weaker-than-expected November CPI, but lost hold of the gains the following day after the Federal Reserve raised interest rates another 50 bps at its last meeting of 2022 and signalled that further increases were likely in 2023.^[6]

FTX collapse

In early November, a crypto market drawdown was spurred by insolvency concerns regarding FTX, previously a major cryptocurrency exchange. FTX Group filed for bankruptcy on November 11,^[7] after a significant devaluation of assets on its balance sheet and mass client withdrawals. ^[8] FTX is currently being investigated by various authorities, including the Department of Justice, the SEC and the CFTC. The company’s founder and former CEO, Sam Bankman-Fried, has been arrested and charged with multiple criminal counts including those related to wire fraud, securities fraud, and money laundering. The full details behind its insolvency may take a while to emerge.

FTX’s collapse has had contagion effects on the broader crypto ecosystem. Crypto lender BlockFi has filed for bankruptcy following the failure of FTX. Genesis Global Capital, the lending unit of crypto broker Genesis Global Trading, suspended redemptions and new loan originations due to the “extreme market dislocation” caused by the FTX implosion. Other companies that have admitted exposure to FTX include Galaxy Digital and Crypto.com.^[9] Solana’s native token, SOL, has fallen by more than 70% since early November, and several major projects are leaving or expanding beyond the Solana network, including top Solana NFT projects DeGods and Y00ts, NFT marketplace Magic Eden and crypto wallet Phantom.^[10]

It’s important to highlight, however, that the problematic practices of centralized cryptocurrency companies do not call into question the functionality, security or fundamental value proposition of the decentralized Bitcoin or Ethereum networks. FTX is a centralized entity and is by no means part of the foundational layers of blockchain. If anything, the collapse of big, centralized players strengthens the case for systems, like Bitcoin and Ethereum, that aim to be independent of centralized entities. Recent developments may encourage users and investors to see the advantage of self-custodying their assets, instead of keeping them with a third party. Following FTX’s collapse, hardware wallet firm Trezor reported a 300% surge in sales revenue.^[11]

That being said, centralized crypto companies currently play an important role in facilitating user and investor access, serving as intersection points between fiat currencies and cryptocurrencies. The bankruptcies of FTX and other crypto companies in 2022 may spur greater regulatory scrutiny and foster better practices with regard to transparency, segregation of client assets, internal controls, etc. Several crypto platforms have posted “proof-of-reserves” (PoR) since FTX’s collapse, which seeks to ensure that a custodian holds the assets it claims to on behalf of its clients. However, it should be noted that PoR may not provide a complete picture of a company’s liabilities and risks. In December, accounting firm Mazars Group suspended all work with its crypto clients after releasing PoR reports for several digital asset exchanges, including Binance, KuCoin and Crypto.com, “due to concerns regarding the way these reports are understood by the public.”^[12] Bitcoin and other crypto tokens fell on the news.

SECTION TWO: ADOPTION

Adoption stats

Overview of BTC and ETH adoption

Source: Coin Metrics. Transfer value adjusted per Coin Metrics’ methodology. Abbreviations: K, thousand; M, million; B, billion; T, trillion. EoP stands for end of period.

NFT trading volume

According to a report compiled on blockchain data site Dune Analytics in December, wash trading accounted for 58% of total NFT trade volume on Ethereum in 2022.^[13] Wash trading is a form of market manipulation in which the buyer and seller in a transaction are the same entity or collude in order to artificially inflate the price and/or trading volume of an asset.

To identify probable wash trades, the researcher filtered for activity such as transactions between the same blockchain address, back-and-forth trades between two addresses, etc. These filters flag about $30 billion of NFT trading volume as wash trading, which represents about 45% of all-time NFT trading volume on Ethereum. However, it’s important to note that this amount only represents about 1.5% of all NFT trades that have taken place on Ethereum. While the vast majority of trades do appear legitimate, they tend to happen at a lower price than the wash trades, thus heavily skewing the overall trading volume.^[14]

Wash trading is nothing new in crypto. In 2019, Bitwise shared a report with the SEC showing that roughly 95% of BTC spot trading volume reported by CoinMarketCap, a crypto data site, was fake.^[15] More recently, the wash trading issue appears to have grown within the NFT market. As NFT marketplaces have become increasingly competitive, several platforms seeking to attract volume dole out token rewards to active users, strengthening incentives for users to inflate their volume in order to get more token rewards. Much as Bitwise concluded in its bitcoin report, the portion of wash trades differs significantly across platforms. For several major platforms like OpenSea (currently the largest NFT marketplace by all-time volume), wash trades appear to make an insignificant contribution to volume and transaction counts. Other platforms like LooksRare and X2Y2 (both platforms dole out token rewards for usage), appear very dependent on wash trades for their volume.

All-time wash trading stats (estimated) – NFT marketplace

These findings highlight the potential caveats associated with high-level blockchain adoption metrics such as trading volume.

Adoption stories

Google announced in October at its Cloud Next conference that it will start accepting crypto payments for cloud services in early 2023, via an integration with crypto exchange Coinbase. Crypto payments will initially be rolled out to a handful of customers involved in the Web3 industry. Google will also use Coinbase's custody service.

In October, BNY Mellon, the world’s largest custodian bank, added cryptocurrencies to its custody services. The company had received approval from financial regulators in New York in the fall to begin holding bitcoin and ether for certain customers.

In October, Toronto-based crypto exchange Coinsquare became a member of Canada’s top self-regulatory organization, IIROC, making it the first crypto-native platform to join that body.

A new program called “Crypto Source” from Mastercard and Paxos aims to allow banks to offer cryptocurrency trading to their clients. As part of the program, Paxos will handle crypto custody and trading, while Mastercard will help on the regulatory side in terms of following crypto compliance rules, verifying transactions and providing AML and identity monitoring services.^[16] Regulatory compliance and security are two core reasons banks cite for avoiding the asset class.

Fidelity’s fourth annual Fidelity Digital Assets Institutional Investor Digital Assets Study indicated that more than half of those surveyed (58%) had invested in digital assets during the first half of 2022, and 74% planned to invest in the future.^[17]

In November, Fidelity Investments officially opened retail crypto trading accounts for its customers. Investors with Fidelity brokerage accounts can fund a separate crypto trading account to purchase BTC and ETH in spot markets. Unlike other popular retail trading platforms such as Coinbase, however, Fidelity crypto trading accounts currently have no crypto wallet features allowing the transfer of crypto-assets off Fidelity’s platform.

In December, Reuters reported that CPPIB has ended its effort to study investment opportunities in the crypto market.^[18] This move comes after two of Canada’s largest pension funds (OTPP and CDPQ) had written off their investments following the collapse of crypto exchange FTX and crypto lender Celsius in 2022.

PayPal launched an integration with crypto wallet MetaMask in December, allowing users in the U.S. to buy and transfer ETH by logging into MetaMask, tapping the “buy” button and logging into PayPal to make a purchase. Adding PayPal to MetaMask may broaden the user base for Web3 applications such as play-to-earn games and certain metaverse platforms by making it easier to acquire crypto in a crypto wallet.

SECTION THREE: OTHER KEY DEVELOPMENTS

General

SPOTLIGHT: Crypto legislation in Europe heads toward final stages

Markets in Crypto-Assets (MiCA) regulation is heading toward the final stages of its legislative approval process. MiCA is intended to close gaps in existing E.U. financial services legislation by establishing a harmonized set of rules for crypto-assets and related activities and services.^[19] In October, the European Parliament Committee on Economic and Monetary Affairs (ECON) voted overwhelmingly in favor of MiCA. ECON’s approval paves the way for a wider European Parliament vote on MiCA that is expected to take place in early 2023. MiCA will enter into force shortly after formal approval by both the European Parliament and the Council of the European Union.^[20] However, MiCA will only generally start applying after a transition period of 18 months, meaning that it is expected to take effect in 2024. MiCA would be the first comprehensive regulatory framework for crypto among major economies. Providing crypto market operators with more legal certainty through better defined authorization procedures may ensure greater market integrity, encourage broader participation and drive more innovation to the E.U..

The regulation would introduce various requirements for companies seeking to provide crypto services in the E.U., such as crypto trading platforms or crypto custodians. These “crypto-asset service providers” or “CASPs” would need to be registered and authorized in an E.U. member state (various exemptions apply), and adhere to various requirements for governance, transparency, capital, etc. In addition, the Transfer of Funds Regulation (TFR) is expected to be implemented around the same time as MiCA. This legislation pertains to AML and would apply the FATF’s travel rule (identify information on the sender and receiver in transactions) to crypto-asset transfers between crypto-asset service providers and unhosted (self-custody) wallets.^[21]

MiCA specifies three types of crypto-assets: two types of stablecoins and a third catch-all category that includes other crypto-assets such as utility tokens. MiCA introduces authorization, capital, reserve, reporting and other requirements for stablecoin issuers. Algorithmic stablecoins would not be permissible under the MiCA regime. As it currently stands, MiCA also includes a cap on the use of non-euro-denominated stablecoins (which is likely to help ensure that crypto-assets would not displace the euro as the premier currency in the E.U.). MiCA would also permit public offerings of crypto-assets (except stablecoins) with proper disclosures in a white paper and notification to the relevant authorities (various exemptions apply).

There’s still work to be done in terms of setting specific standards, procedures and guidelines for implementation. European regulators such as the ESMA and EBA are expected to spearhead these efforts.^[22] It should be noted that certain areas in the crypto ecosystem fall outside the scope of MiCA. NFTs that are “unique and not fungible with other crypto-assets,” including digital art and collectibles, are outside the scope of MiCA. MiCA also does not extend to DeFi or DAOs, so long as their services are provided in a “fully decentralized manner without any intermediary.”^[23] These areas may be the subject of future legislation.

In related news, the U.K.’s Financial Services and Markets Bill is set to have its second reading in the House of Lords in early January. If passed, the bill could give regulators such as the Financial Conduct Authority and the Bank of England more power to regulate the crypto industry and stablecoins.

U.S. seizes 50K bitcoin related to Silk Road marketplace

In November, the U.S. Attorney for the Southern District of New York said that authorities had seized 50,676 bitcoin that was stolen from Silk Road a decade ago. Silk Road was an online darknet marketplace that operated between 2011 and 2013 and that primarily used bitcoin as a method of payment. The bitcoin was hidden in devices in the home of defendant James Zhong, who pled guilty to unlawfully obtaining the funds from Silk Road in 2012. Zhong had executed his scheme by creating a string of fraudulent Silk Road accounts and triggering a series of transactions that tricked Silk Road’s withdrawal processing system into releasing roughly 50,000 bitcoin into Zhong’s accounts. Zhong then transferred this bitcoin to a variety of separate address under his control, in a manner designed to “prevent detection, conceal his identity and ownership, and obfuscate the bitcoin’s source.”^[24] This seizure recovers a significant chunk of crime proceeds in bitcoin and highlights the power of blockchain forensics and cryptocurrency tracing techniques available to law enforcement.

Scalability improvements unlikely in Ethereum’s next major upgrade

In December, Ethereum developers determined that the network’s next major upgrade, called “Shanghai,” will have a target release time frame of March 2023. The Shanghai upgrade will include code, known as EIP 4895, that will allow staked ether withdrawals, following Ethereum’s transition to proof-of-stake consensus in September 2022 (see last quarter’s newsletter for more detail on this). Although Shanghai was originally expected to also include improvements to Ethereum’s scalability, developers have since decided to implement the next scalability proposal (EIP 4844) in another upgrade sometime in the fall of 2023. The main motivation for splitting up these upgrades is to prevent delays to staked ether withdrawals. Once this is enabled, users will be able to withdraw ether that they have staked in the Ethereum network, either directly or through a third-party service provider.

U.S. senators introduce new digital assets bill

In December, U.S. Senators Elizabeth Warren and Roger Marshall introduced the Digital Asset Anti-Money Laundering Act. The proposed legislation would extend Bank Secrecy Act responsibilities, including KYC responsibilities, to digital asset wallet providers, miners, validators and other network participants that may act to validate, secure or facilitate digital asset transactions, by directing FinCEN to designate these actors as money service businesses (MSBs).^[25] It would require banks and MSBs to verify customer and counterparty identities, keep records and file reports in relation to certain digital asset transactions involving unhosted (self-custody) wallets.^[25] In addition, the bill would prohibit financial institutions from using or transacting with digital asset mixers and other anonymity-enhancing technologies.^[27]

Coin Center, a non-profit organization focused on policy issues facing cryptocurrencies, called the act an “opportunistic, unconstitutional assault on cryptocurrency, self-custody, developers, and node operators.”^[28] Although this bill comes in the wake of FTX’s collapse, it does not address the issues of corporate control and mismanagement that caused the firm’s downfall. Interestingly, rather than imposing further regulation on centralized crypto companies, the bill appears to be primarily directed at participants in decentralized networks, imposing onerous and perhaps impossible requirements on these actors. As it stands, the bill, if implemented, may seriously hinder the development and undermine the value proposition of blockchain/cryptocurrencies and further force people to rely on centralized gatekeepers for electronic transactions.

Apple plans to enable support for external iOS apps

In response to the E.U.’s Digital Markets Act legislation, Apple is preparing to allow third-party app stores on iOS, allowing users to download apps outside of the App Store. This should enable iOS apps to avoid the up to 30% commission Apple imposes on in-app purchases.^[29] The changes are expected to come as an update to iOS 17 and are currently expected to only take effect in regions governed by E.U. law.^[30] It remains to be seen if and when the U.S. and other major countries will implement similar laws. Web3 applications may stand to benefit from this change of policy, especially when it comes to in-app purchases. For example, Coinbase recently tweeted that Apple was blocking the latest update to its digital wallet on iOS unless Coinbase disabled NFT transfers or paid Apple a 30% cut of gas fees (transaction fees on Ethereum) from NFT sales.^[31] The updated app store policy may introduce Web3 native app stores for iOS, and accordingly drive user adoption for DeFi and NFTs.

Censorship rises on the Ethereum network

Since the Merge (covered in last quarter’s newsletter), there has been a significant decoupling of block building and block proposing on Ethereum. Currently, many Ethereum validators do not build blocks themselves, but source new blocks from block builders via services called relays and software called MEV-Boost. The separation of block building from block proposing aims to democratize maximal extractable value (MEV) extraction across validators. (MEV broadly refers to the value that can be extracted by including, excluding or changing the order of transactions in a block.) Relays manage the block auction process between builders and validators, as well as the transfer of block content between these parties. As consensus rewards decreased post-Merge, MEV became a bigger part of total rewards for validators. The percentage of Ethereum blocks relayed using MEV-Boost has climbed from around 10% at the Merge to greater than 80%.^[32] A drawback of MEV-Boost adoption is the facilitation of censorship on Ethereum. In December, around 60% of Ethereum blocks were relayed by a relay that filters out transactions that have interacted with addresses on the FinCEN’s SDN List (of sanctioned entities).^[33] This highlights that relays are currently a centralizing force on the Ethereum network – one that may challenge Ethereum’s neutrality and censorship-resistance.

3Commas API leak leads to millions in stolen user funds

In December, an anonymous Twitter user announced that they had obtained and intended to publish around 100,000 API keys that belong to users of the crypto trading service 3Commas. 3Commas allows users to set up trading bots that automatically execute trades on their behalf on crypto exchanges. Crypto exchanges generate API keys that users plug into 3Commas to grant the platform access to their accounts. The leak comes after dozens of users of 3Commas claimed that their API keys were used to execute trades on crypto exchanges such as Binance, KuCoin and Coinbase without their consent.^[34] 3Commas CEO Yuriy Sorokin confirmed the authenticity of the leak in a tweet, adding that “as an immediate action, we have asked that Binance, KuCoin, and other supported exchanges revoke all the [API] keys that were connected to 3Commas.”^[35] This development highlights the risks associated with granting access to third-party platforms via API keys. Depending on the level of API access, having an API key stolen can allow the full theft of funds. Events such as the 3Commas hack and the collapse of FTX once again show the risk of relying on the security and good governance of third parties.

DeFi

CFTC charges decentralized organization behind DeFi protocol

In September, the CFTC filed a federal civil enforcement action in the U.S. District Court for the Northern District of California charging the Ooki DAO, a decentralized autonomous organization (DAO), for “illegally offering leveraged and margined retail commodity transactions in digital assets, engaging in activities only registered futures commission merchants (FCM) can perform, and failing to adopt a customer identification program as part of a Bank Secrecy Act compliance program, as required of FCMs.”^[36] Ooki DAO is the decentralized successor to bZeroX llc, a company whose founders have already settled their equivalent charges with the CFTC.

bZeroX previously operated the Ooki Protocol, a decentralized finance protocol that supports lending, borrowing and margin trading. In 2021, bZeroX transferred control of the protocol to the Ooki DAO, allegedly in an attempt to evade regulatory oversight. The CFTC is now trying to hold Ooki’s decentralized management accountable for the platform’s alleged wrongdoing. Ooki DAO is the first DAO dragged to court over alleged lawbreaking in the U.S. The Ooki DAO complaint relies on the novel idea that all the Ooki DAO’s token holders who voted for the operation of the protocol should be held liable for legal violations.^[37]

The CFTC’s method of serving notice to Ooki DAO was to post documents in Ooki DAO’s online discussion forum and help chat box. There was some controversy over this method of serving the defendant, but it was finally ruled acceptable by the U.S. District Court for the Northern District of California on December 20. The judge also concluded that Ooki DAO could be sued and served as an unincorporated association, although judgment was reserved on whether the Commodity Exchange Act (CEA) applies to Ooki DAO as an unincorporated association.^[38] It will be interesting to see how this case develops, and specifically if and how a DAO can be held liable under the CEA. The CFTC’s actions against Ooki DAO, like the U.S. Treasury’s sanctioning of Tornado Cash in August (covered in last quarter’s newsletter), indicate increasing regulatory pressure on decentralized platforms and organizations.

NFTs

IRS expands key U.S. tax language to include NFTs

In October, the tax division of the U.S. Treasury Department released an updated draft for its 2022 instructions for Form 1040 filers that replaces the old category for “virtual currency” with broader new language on “digital assets,” including an explicit recognition of NFTs.^[39] Form 1040 is what individual taxpayers use to file their taxes with the IRS. “Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology,” according to the draft instructions. “For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.”^[40]

NFT trading goes live on Uniswap

In November, NFT trading was enabled on decentralized exchange Uniswap, allowing Uniswap users to trade digital collectibles across OpenSea, X2Y2, LooksRare, Sudoswap, Larva Labs, Foundation and NFT20 marketplaces using the platform’s NFT aggregator tool. The platform says its new open-sourced Universal Router contract can save users up to 15% on gas fees compared to other NFT aggregators.^[41] “NFTs and ERC-20 tokens have largely existed as two separate ecosystems within crypto, but both are essential to growing the digital economy,” the company said in a statement. “Launching NFTs on Uniswap is our first step in building more interoperable experiences between the two.”^[42]

Metaverse

Underwhelming adoption of Horizon Worlds

In October, a report by The Wall Street Journal (WSJ) indicated that Horizon Worlds, Meta’s metaverse platform, is reportedly struggling to gain and keep users. According to internal documents obtained by the WSJ, Horizon Worlds had around 200,000 monthly active users, a dip from the 300,000-user milestone Meta confirmed it hit back in February.^[43] In addition, while Meta said it had around 10,000 separate worlds as of February, the WSJ reports that only about 9% of these worlds are visited by more than 50 users, and that most users don’t return after one month of using the platform.^[44] In related news, CoinDesk reported in December that the active population of virtual world platform Decentraland on an average day is less than 1,000, according to its research.^[45] Decentraland leverages the Ethereum blockchain to keep track of user assets on the platform, as well as to implement its decentralized governance model.

Metaverse initiative to come in 2023 in E.U.

The E.U. intends to present an initiative on “virtual worlds, such as the metaverse” sometime in 2023. The initiative was one of the key new initiatives for 2023 outlined in the latest State of the Union letter of intent by the President of the European Commission.^[46] Various existing regulations could be relevant with regard to the metaverse. For example, the E.U. Digital Markets Act, which entered into force in November,^[47] provides an antitrust framework that may be applicable for any companies that may act as major gatekeepers to the metaverse. In addition, frameworks such as the European Union’s General Data Protection Regulation (GDPR) and the Digital Services Act (DSA) could be extended to cover data collection and user protection in the metaverse.

[1] Fidelity Bitcoin Index as at December 31, 2022.

[2] Fidelity Ethereum Index as at December 31, 2022.

[3] https://indexes.coinmetrics.io

[4] Bitcoin price today, BTC to USD live, marketcap and chart | CoinMarketCap

{5] https://www.bankofcanada.ca, https://www.reuters.com

[6] https://www.federalreserve.gov

[7] https://cointelegraph.com

[8] https://www.reuters.com

[9] https://www.forbes.com, https://www.coindesk.com

[10] https://coinmarketcap.com

[11] https://cointelegraph.com

[12] https://www.cnbc.com

[13] https://community.dune.com

[14] https://www.coindesk.com

[15] https://www.forbes.com

[16] https://www.cnbc.com

[17] https://www.fidelitydigitalassets.com

[18] https://www.reuters.com

[19] https://www.mayerbrown.com

[20] Once formally approved by both the Parliament and the Council, it will be published on the Official Journal of the E.U. and enter into force on the twentieth day following the publication. https://www.skadden.com

[21] https://www.europarl.europa.eu, https://blog.chainalysis.com

[22] https://blog.chainalysis.com

[23] https://www.mayerbrown.com

[24] https://www.justice.gov

[25] https://www.warren.senate.gov, https://www.warren.senate.gov

[26] https://www.warren.senate.gov, https://www.warren.senate.gov

[27] https://www.warren.senate.gov

[28] https://www.coincenter.org

[29] https://www.bnnbloomberg.ca

[30] https://www.macworld.com

[31] https://fortune.com

[32] https://dune.com

[33] https://transparency.flashbots.net, https://www.galaxy.com

[34] https://www.coindesk.com

[35] https://www.coindesk.com

[36] https://www.cftc.gov

[37] https://www.winston.com

[38] https://www.morganlewis.com, https://www.morganlewis.com

[39] https://www.coindesk.com

[40] https://www.irs.gov

[41] https://www.coindesk.com

[42] https://uniswap.org

[43] https://www.theverge.com

[44] https://www.theverge.com

[45] https://www.coindesk.com

[46] https://state-of-the-union.ec.europa.eu

[47] https://ec.europa.eu