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By Frances Yue

Hi! Welcome back to Distributed Ledger. This is Frances Yue, reporter at MarketWatch.

While the U.S. Securities and Commission recently took a slew of enforcement actions against crypto companies, it seems some financial institutions are still bullish on the industry.

In the past week, Cathie Wood's ARK Investment Management and crypto asset manager 21Shares amended their application for a spot bitcoin exchange traded fund to include a surveillance sharing agreement, which was similar to that in BlackRock's filing earlier this month. The move could place the firm and 21Shares ahead of BlackRock in the competition of launching a spot bitcoin ETF, analysts said.

Meanwhile, the head of digital assets at Franklin Templeton, which manages over $1.4 trillion in assets, said in an interview that cryptocurrencies can become "regular parts of people's portfolios" once regulations become clear in the U.S.

For this installment, I talked to Matt Zhang, founder and managing partner at Hivemind, a Web3 and blockchain technology focused investment firm, to learn about his vision of cryptocurrencies' future.

Find me on Twitter at @FrancesYue_ to share any thoughts on crypto or this newsletter.

AI plus crypto?

While some market participants said the AI craze has lured some venture capital money away from crypto, Zhang, a former Citigroup Inc. (C) executive, said he thinks AI could be the next catalyst for the mass adoption of bitcoin.

Zhang said he expects AI and blockchains to be the two key pillars for the next generation of the Internet, which is often referred to as Web 3. Bitcoin could be used for transactions when AI agents interact with each other, with smart contracts eliminating the need for human intermediaries, Zhang noted.

"How do you open a bank account for AI?" Zhang said in an interview.

"AI will actually have intelligence, and it will be another participant in the economy. I think there could be a point when AI agents all make transactions to each other," said Zhang. To reduce the need of human intermediaries, "you are gonna have them using Internet native currencies, which is bitcoin."

Zhang also said he expects further consolidation in the crypto space in the future.

"Not every blockchain needs a native token that is tradeable," Zhang said. "For the past three years, almost every project had a token. Sometimes I don't know why they need a token. They don't even know what the token does."

"You should only issue a token when you have a well-capitalized business that has organic growth while the token is native to this business model," according to Zhang.

Zhang said he expects many cryptocurrencies other than bitcoin and ether to fade away in the next cycle, but tokens that actually have utilities may have the potential to become leading players.

Ark amends bitcoin ETF filing

Cathie Wood's ARK Investment Management and crypto asset manager 21Shares amended their application for a spot bitcoin exchange traded fund to include a surveillance sharing agreement, which was similar to that in BlackRock's filing earlier this month.

The Cboe BZX Exchange Exchange, where the ARK 21Shares Bitcoin ETF will be listed, expects to enter into a surveillance-sharing agreement with "an operator of a United States-based spot trading platform for Bitcoin," according to an updated filing with the Securities and Exchange Commission on Wednesday.

ARK Invest and 21Shares originally filed their application two years ago.

The SEC approved several bitcoin futures-based ETFs in the past, but has yet to greenlight anything that is backed by bitcoin itself.

Read more here about why the amendment is important.

Crypto in traditional portfolios?

Cryptocurrencies can become "regular parts of people's portfolios" once regulations become clear in the U.S., according to Franklin Templeton.

While investors now can buy crypto directly, there are limited ways for them to include digital assets in traditional portfolios, said Sandy Kaul, head of digital asset and industry advisory services at Franklin Templeton.

Kaul said she is expecting more regulatory clarity from the U.S. regulators. While some regulators said existing laws are adequate for crypto, "they're not giving a pathway of how to use existing law, which makes people feel maybe existing law is not adequate. I think [regulators] they are leaving too much uncertainty in the system," noted Kaul.

If the SEC could clarify which crypto can be registered as U.S. securities, "we can include them in broader portfolios," said Kaul.

Read more about my conversation with Kaul here.

Crypto in a snap

Bitcoin gained 1.2% in the past seven days and was trading at around $30,512 on Thursday, according to CoinDesk data. Ether declined 2.6% during the same period to around $1,852.

-Frances Yue

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06-29-23 1649ET

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