First Mover Asia: Why Is Tron Founder Justin Sun Keeping Some of His Coins in Valkyrie Digital Assets?

Good morning. Here’s what’s happening:

Prices: Bitcoin is flat on its 14th birthday. Ether and most other cryptos in the CoinDesk top 20 by market capitalization were also trading sideways.

Insights: Why has Justin Sun sunk a large amount of his holdings in Valkyrie? CoinDesk's Sam Reynolds considers the Tron founder's decision.

Prices

Bitcoin's Trades Flat on Its 14th Birthday, Holds Over $16.6K

By James Rubin

Bitcoin's 14th birthday was a low key affair.

No cake, balloons or wild price increases on Tuesday to celebrate its launch into public awareness by the pseudonymous, mysterious Satoshi Nakamoto in 2009.

The largest cryptocurrency by market capitalization spent its special day embedded in the narrow $16,400 to $17,000 range it's held for 16 days. BTC was recently trading just above $16,700, almost precisely where it stood 24 hours earlier. What will shake it from its current levels remains uncertain amid the current torrent of bad crypto news, high inflation and worrisome macroeconomic issues.

"I don't believe we've reached bottom," said Bilal Little, president of DFD Partners, a distribution platform for asset managers, on CoinDesk TV's First Mover program. "I still believe that there will probably be one or two more big headline issues that will drop in that will cause some impact on the marketplace. But once we hit somewhere in between, call it $12,000 to $13,000 or so, we should have a good flush of the system."

Ether followed bitcoin's lead to trade just over $1,200, roughly flat from it was Monday, same time and firmly within the range it's held since mid December. Most other major cryptos in the CoinDesk top 20 by market value were mixed with some a few ticks of a percentage point in the green and others slightly red, although SOL, the token of the beleaguered Solana platform, recently jumped more than 22% to continue a nearly one-week surge that started when Ethereum co-founder Vitalik Buterin tweeted positively about the protocol. Yet at just $13.6, SOL was still about 92% off its $176 perch from a year ago – the aftermath of its links to the collapsed Terra ecosystem and FTX.

Equity indexes closed their first trading day of 2023 down with the tech-focused Nasdaq and S&P 500 falling 0.8% and 0.4%, respectively, as investors remained fretful about inflation and the looming prospect of recession. The economic aftershocks of China's decision to relax Covid restrictions also remained unsettling.

Meanwhile, the tortured tale of Sam Bankman-Fried continued as the former FTX CEO pleaded not guilty to eight Federal counts, including wire fraud and campaign finance violations. U.S. District Judge Lewis Kaplan of the Southern District of New York ruled on a tentative October date for the anticipated weeks-long trial during Bankman-Fried's arraignment in a Manhattan courthouse Tuesday.

A report by brokerage firm Bernstein on Monday offered some hope for investors less concerned about the current crypto winter than digital assets' long-range upside. Bernstein said that despite bitcoin’s slump last year, it is up about 60 times from its 2014 low and roughly five times from its 2018 bottom. Ether is up 14 times from its 2018 lows, despite a 68% slide last year.

The crypto industry has a strong track record of fighting back from its lows and “taking punches when down,” the report said.

While the report added that the macro backdrop may be different this time, analysts Gautam Chhugani and Manas Agrawal noted optimistically that “crypto is probably among the few industries that can clock frontier-tech-like growth, in a broadly maturing tech landscape. and that it touches less than 5% of total internet users with “significant headroom for application led adoption.”

Insights

Tron founder Justin Sun Has Significant Holdings in Valkyrie Digital Assets. Why?

By Sam Reynolds

Justin Sun talks a big game about Hong Kong and China, telling CoinDesk TV in October that he’s “optimistic” that one day crypto might return to China and later telling Bloomberg that its free-market oriented territory Hong Kong is in “embrace crypto mode.” Just as common, law-based Hong Kong was the trial zone for free market capitalism for China, so will regulated crypto first kickoff in Hong Kong before moving to the rest of China.

But where is Justin Sun’s money?

A significant amount is stashed away in the United States, as CoinDesk reported in December, in the treasury of Valkyrie Digital Assets, where Sun is one of its largest clients.

Specifically, it's in one of Valkyrie’s separately managed account (SMA) offerings, which are designed to give those more familiar with TradFi investment vehicles exposure to crypto.

There’s an angle to be examined if Sun’s outsized holdings domiciled in Valkyrie are a way to mask what the market perceives as institutional demand for crypto. But that’s neither here nor there at the moment.

For someone whose name is literally synonymous with the early days of crypto, it might be strange that they are parking so much capital in a vehicle that’s designed for boomer asset managers who are uncomfortable with self-custody to get exposure to digital assets.

Via Telegram, a spokesperson for Sun told CoinDesk that the Tron founder was looking to allocate "some of his wealth in U.S. holdings," and to support "regulated crypto industry growth."

Link to China

But the decision could stem from conditions in China.

The country’s unpredictable legal system, which is happy to confiscate the wealth of dissidents – both real and perceived – has led to the country’s rich parking money overseas for decades.

As soon as the British announced that it would return Hong Kong to the People’s Republic of China in the 1980s, real estate in Vancouver became the hottest commodity for the territory’s wealthy. Taiwanese who felt that the island would be absorbed into China in the future followed suit. And as China emerged as a global power, minting hundreds of billionaires in the process, its elite bought into North American real estate creating multi-million dollar hedges against China along the west coast in the form of luxury apartments.

While plenty of dirty money has flowed in too, the elite of legitimate means must feel vindicated as Beijing targets billionaires, and those who it feels have grown too powerful, like Jack Ma – who vanished after criticizing regulators and running afoul of Xi Jinping. Interest in Vancouver and other North American real estate has once again increased from Hong Kongers who fear that what little autonomy the territory has left will be removed in the coming years.

There’s nothing to say that Justin Sun has run afoul of the law in China. But he has also been quick to vote with his feet and ditch his PRC citizenship for various Caribbean passports as well as Malta. Now, he holds a Grenadian passport which he purchased along with a representative position to the WTO for the small island nation.

But Beijing’s mood can quickly change.

Authorities are cognizant of what an effective antidote crypto is to capital controls. The market for crypto in China is huge, although it doesn’t officially exist on the mainland, to the tune of hundreds of billions of dollars. Sun is a homegrown ‘success story’ for crypto, and his name is all over the market. Suddenly he could become persona-non-grata.

Reinstating citizenship?

While Sun isn’t a PRC citizen, that doesn’t really matter all that much to authorities in-country. Beijing has a history of forcibly reinstating citizenship for people it is targeting.

Gui Minhai, a Swedish-born Chinese citizen, ran a bookstore in Hong Kong that stocked plenty of titles critical of the Chinese Communist Party.

In 2015, he, and his business associates, some based in Thailand and others in Hong Kong, went missing. It was later revealed that they were victims of an extraordinary rendition back to China and later charged with various crimes like “providing intelligence to overseas operatives.” During this process, Gui had his Chinese citizenship forcibly reinstated, and Swedish citizenship canceled.

Should Sun ever find himself a target of Beijing’s scorn, which isn’t out of the realm of possibility considering how the CCP goes after vocal billionaires, up to the level of Jack Ma, his Grenadian passport isn’t going to do much to help him.

There’s no indication that will happen anytime soon, but smart businessmen like Sun are always hedging bets.

Self-custodying of wealth isn’t that safe when homes and offices can be raided, extraordinary rendition is on the table, and cryptographic keys can be compelled to be turned over to authorities. If they really wanted to, Beijing could easily bully some Caribbean nations into giving up holding companies that store crypto (it’s got plenty of clout in that part of the world) for the types of people that would find their names in the Panama Papers.

But if that day comes, $500 million of Sun’s wealth will be safe and sound behind the U.S. legal system locked in Valkyrie’s treasury.

It’s a bit more complicated than just buying a few luxury apartments in California, but real estate is for boomers.