First Mover: Bitcoin Surges to New 2020 High as Harvest Debacle Provides Costly DeFi Lesson

ALSO: Singapore bank's cached web page reveals digital asset exchange plans

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Oct. 27, 2020 Sponsored by   By the CoinDesk Markets Team Edited by Bradley Keoun If you were forwarded this newsletter and would like to receive it, sign up here.  TODAY: Bitcoin (BTC) +2.5% $13,391 | Ether (ETH) +2.2% $402 (@12:09 UTC) Price Point: Bitcoin rises for ninth day in 11, flirts with end-of-month price record despite U.S. stock market's lurch.  Market Moves: This week's $24M exploit of DeFi platform Harvest Finance shows risks as real as rewards in open-beta cryptocurrency markets, where innovation takes priority over investor protection. Bitcoin Watch: Number of bitcoin held at exchanges falls to two-year low, a sign that few traders are rushing to take profits as prices rise, CoinDesk's Omkar Godbole writes.  What's Hot: Singapore bank DBS's cached web page reveals plans for digital asset exchange, Huobi enables direct credit-card purchases, U.S. Treasury bonds are the new big short.  PRICE POINT Bitcoin reached a new 2020 high around $13,420 after rising on nine of the past 11 days.  The cryptocurrency's recent rally despite a stall-out in U.S. stocks has rekindled speculation that prices for the two asset classes are starting to diverge, after a recent stretch in which they appeared highly correlated.  "We have discussed the potential for a decoupling from traditional financial markets," analysts for the blockchain data firm Glassnode wrote Monday. "It is too early to tell." Matt Blom, head of sales and trading for Diginex, said bitcoin bulls might try to push prices by the end of October above $13,863, the current record for an end-of-month price. After that, the next price target would be the 2019 high of $13,868.  In traditional markets, U.S. stock futures pointed to a higher open, even as lawmakers departed Washington to campaign, an apparent death knell for last-ditch efforts to pass an economic stimulus package prior to the Nov. 3 election.  MARKET MOVES The fast-evolving realm of decentralized finance, or DeFi, has attracted large sums of money this year from venture capitalists and traders alike. At last count, some $11 billion of bitcoin and other cryptocurrencies had been socked into the semi-automated, blockchain-based trading and lending platforms as collateral, a 16-fold increase since the start of the year. But every month or so, the fledgling industry produces a debacle so suddenly and bizarrely that sane observers have no choice but to step back and remember that the whole exercise is really just a giant game, played with real money. Or a laboratory. Or both. Such was the case with the latest exploit to hit DeFi: the siphoning off of the equivalent of $24 million in digital tokens from a protocol called Harvest Finance.  As reported by CoinDesk's Will Foxley, an attacker used a complex and sophisticated strategy involving "flash loans" and a series of arbitrage trades between the DeFi protocols Uniswap, Curve and Harvest. Massive amounts of the dollar-linked stablecoins tether (USDT) and USD coin (USDC) were swapped back and forth, causing their prices to swing wildly and allowing the attacker to profit from the resulting distortions. Prices for Harvest's tokens, FARM, tumbled by 65%, and total collateral in the project plunged to $430 million from about $1 billion. The attacker eventually swapped the proceeds into bitcoin.  There wasn't really any hacking involved, just an exploitation of the Harvest system, which is really just a bunch of computer programming. It wasn't illegal, apparently, so a debate ensued on Twitter over the ethics and optics. Harvest officials called it an "engineering error" in a blog post on Medium. They pledged to explore "remediation methods," but that's yet to be determined.   Later Monday, Jesse Powell, CEO of the Kraken cryptocurrency exchange, unleashed an F-bomb-laced Twitter tirade against "DeFi scams," concluding with the gracious and sagacious dictum that "taking your losses is the only way to enlightenment," as reported by CoinDesk's Sebastian Sinclair.  The lesson is that high profits from DeFi come with the risk not just of bad directional bets but also the chance that some savvier user is playing by different rules. In a market built entirely on a set of codes, what's allowed and what's possible are really one and the same. One reason innovation occurs so rapidly in DeFi is that there's no investor-protection regulator. That's the tradeoff: Wallet casualties are written off in the name of development.    – Bradley Keoun Read More: $24M Attack Triggers $570M ‘Bank Run’ in Latest DeFi Exploit SPONSORED BY KAIKO Kaiko is the premier cryptocurrency market data provider for professional traders, researchers, exchanges, fund managers, and custodians. Our data services enable seamless connectivity to historical and live data feeds from 100+ spot and derivatives exchanges. Highly-granular data for professionals: Trade data, order book snapshots, tick-level order books, OHLCV candlesticks, exchange rates, and more. Extensive coverage: 6+ years of history for more than 40,000 traded instruments (spot, futures, swaps, and options). Flexible data delivery: Robust REST and WebSocket APIs designed for enterprise-use and downloadable CSV files through a cloud-based Data Feed. On-call support: Private slack channels, SLA's and integration assistance. Request a free trial, browse our data dictionary, and subscribe  to our weekly research newsletter today! Learn More BITCOIN WATCH Bitcoin daily price chart. (TradingView) Bitcoin has jumped to 16-month highs despite renewed coronavirus-induced risk aversion in global stock markets. The top cryptocurrency clocked a high of $13,450 a few minutes before press time, a level last seen in July 2019, surpassing the previous 15-month high of $13,300 reached last week. The move higher looks impressive, given that European stock markets are trading in the red on coronavirus concerns. The price divergence comes amid new signs of increasing institutional interest in bitcoin, with several public companies disclosing investments in the cryptocurrency over the past few weeks. The rally looks set to continue as on-chain data shows no signs of investor trepidation due to the risk-off sentiment in stocks. The number of daily on-chain deposits to cryptocurrency exchanges fell to a nine-month low of 26,889 on Monday, and the total number of bitcoins held on exchanges slipped to a fresh two-year low of 2,478,799 BTC, according to data source Glassnode. Investors typically move coins from their wallets to exchanges to liquidate holdings when expecting a price slide and take direct custody of their coins when the cryptocurrency is expected to rally. "The decline in transfers to exchanges despite risk-off in equity markets is a bullish sign," Matthew Dibb, co-founder, and COO of Stack Funds, told CoinDesk in a WhatsApp chat while adding that the cryptocurrency is likely to see further strength in the coming weeks. - Omkar Godbole Read More: Bitcoin Hits 16-Month High Despite Sell-Off in Global Stocks WHAT'S HOT JPMorgan's wholesale payments token, JPM Coin, to see usage from major tech firm starting next week, exec tells CNBC (CoinDesk)   Singapore bank DBS looks to be planning digital asset exchange, cashed web page shows (CoinDesk)  Huobi exchange allows customers to use credit or debit cards to buy cryptocurrencies without redirect to third-party payments portal (CoinDesk)   U.S. government pursues civil forfeiture claim on more than 300,000 tether after they were reported stolen in hack earlier this year (CoinDesk) Wyoming governor says state has opportunity to capitalize on crypto and blockchain tech before some other major blue chip company or university does it (CoinDesk) PayPal's new crypto service could create tax headaches for users, even if they're just buyjng a cup of coffee (CoinDesk) DeFi protocol Notional lets users lend and borrow cryptocurrencies at fixed rates instead of the more typical variable rates (CoinDesk) ANALOGS The latest on the economy and traditional finance There's a new "big short" trade forming on Wall Street – betting against U.S. Treasury bonds (Bloomberg) Wall Street's "fear gauge" jumped to its highest point in almost two months as a result of the uncertainty surrounding the upcoming U.S. presidential election slated for Nov. 3 (Reuters) Volkswagen CEO says auto industry doesn't need another round of stimulus (FT)  Ant Financial IPO subscriptions exceeded allotted shares for institutional investors within first hour (Nikkei Asia) A few pennies on the dollar is as good as it gets for bondholders of J.C. Penney, Neiman Marcus (Bloomberg): Falling values from credit-default swap auctions show just how threadbare recoveries are becoming on soured corporate debt. (Bloomberg)    TWEET OF THE DAY With the U.S. Election Day next week, much is at stake - including crypto policy over the next four years.   Like it or not, this election will matter for the crypto industry. Our latest limited-run newsletter, The State of Crypto: Election 2020 by regulatory reporter Nikhilesh De, aims to walk you through why. At stake: Will new crypto products be approved or allowed to operate in the U.S.? Will regulators target more overseas exchanges and platforms like BitMEX? Will the U.S. launch a “digital dollar” or some other form of central bank digital currency? These questions will come down to who takes the reins at the various financial regulators and government departments. Over the next several days, we map out the possible outcomes and introduce analysis of the candidates.  Our limited-run newsletter runs Mondays, Wednesdays and Fridays at least until Election Day. Subscribe to The State of Crypto: Election 2020. Most Influential 2020: Cast Your Vote Every year, CoinDesk recognizes the “Most Influential” people working to expand cryptocurrency and blockchain’s reach. It’s a list of the 10 outsized individuals who have gone the furthest and done the most. In this most unusual year, we need your help determining who should be named as Most Influential. Check out the list of the top contenders and cast your vote by Oct. 31. Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments. ATTENTION: Scammers have been sending fraudulent emails with links to sites disguised to look like coindesk.com. If you are in doubt about a link, type https://www.coindesk.com directly into your browser; do not copy and paste. Remember, if something seems too good to be true, it probably is. 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