The BlockByte Weekly - Kidnappings, Banks Enter Crypto & Ripple Lobbies For 'Crypto' Stockpile
Executive Summary
Whilst markets have not jumped in either direction since Trump's inauguration, there have been some major developments in the market over the last week which we'll dive into below.
Market Update
SEC rescinds SAB 121 rule which will have major implications on banks' adoption of digital assets
Following Gary Gensler's stepping down as Chair of the Securities & Exchange Commission, the SEC recently announced the rescission of SAB 121, a rule that required banks to record digital assets held in custody as both an asset and liability on their balance sheet. The new guidance, SAB 122, allows banks to treat digital assets more like traditional securities custody - as off-balance sheet items. This change reduces accounting complexity and improves key financial metrics like return on assets by removing digital assets from banks' balance sheets.
However, it's important to note that while the accounting treatment has become more favourable, banks still face strict capital requirements under Basel III's framework, particularly for 'unbacked' cryptocurrencies which carry a 1250% risk weight. Under the new guidance, banks must assess and disclose potential losses from their custody operations, but they have more flexibility in how they account for these risks. The move is expected to increase banks' willingness to provide custody and lending services for digital assets.
XRP's push for a diversified crypto strategic reserve raises concerns
Brad Garlinghouse, CEO of Ripple, has recently advocated for expanding national strategic reserves beyond Bitcoin to include other cryptocurrencies, particularly XRP. While portfolio diversification generally represents sound financial strategy, his move has garnered significant backlash.
Ripple actively promotes central bank digital currencies (CBDCs), which recently faced a significant setback when President Trump signed an executive order prohibiting their implementation in the United States, citing concerns over surveillance capabilities and centralised control. This positioning already highlights Ripple's divergence from cryptocurrency's foundational principles of decentralisation and financial privacy.
The fundamental issue with including XRP in a strategic reserve lies in its tokenomics and corporate structure. In 2012, Ripple created approximately 100 billion XRP tokens, allocating roughly 80% to the company itself. This allocation means that a strategic reserve including XRP would effectively function as a funding mechanism for a private corporation, rather than serving as a neutral store of value for national interests.
This differs fundamentally from Bitcoin's design as a decentralised, neutral asset. Bitcoin has no corporate beneficiary, and its creation process is ongoing, transparent, and distributed among miners and holders worldwide. We believe a strategic reserve should prioritise assets that serve national interests rather than specific corporate ones.
Kidnapping of Ledger CEO highlights the importance of secure custody
Ledger hardware wallet co-founder Dave Balland and his wife were kidnapped from their French home by criminals demanding cryptocurrency ransom. French authorities successfully rescued both victims - though Balland was hospitalised with injuries including severed fingers. While some ransom was paid, law enforcement tracked and seized the assets. The suspects now face potential life sentences for kidnapping, torture, and armed extortion.
The violent kidnapping of Ledger's co-founder for cryptocurrency ransom starkly demonstrates why secure custody is crucial for digital asset protection. BlockByte offers peace of mind through comprehensive insured custody solutions, safeguarding your assets from both cyber and physical threats.
For A Confidential Discussion
I hope you enjoyed this week's newsletter. If you'd like to discuss any topics in more detail, feel free to reach out to see how we can support you on your digital asset journey. Until next week, James
James Brannan Chief Executive Officer BlockByte Capital (+61) 412 393 634 james@blockbyte.com.au https://blockbyte.com.au/
BlockByte does not provide financial advice. We provide execution support, research and insured custody for investing in digital assets. Reach out to our team to discuss how we can help.