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Welcome to the On the Margin Newsletter, brought to you by Ben Strack, Casey Wagner and Felix Jauvin. Here’s what you’ll find in today’s edition:

• Why is digital asset compliance a low priority for crypto companies? We unpack survey results. 

• VCs are making fewer, but more sizable, crypto deals in Q2. Let’s peek at the numbers.

• It’s Friday! Read on for our recap of this week’s news you may have missed.

Trouble in compliance paradise?

Following compliance rules from the SEC is probably one of the biggest concerns keeping crypto company execs up at night. A recent survey, however, shows that in the TradFi world, digital assets are the least of their concerns. 

A survey of compliance professionals at 595 investment adviser firms shows that digital asset compliance is one of the lowest priorities at these companies today. 

Investment advisers are most concerned with electronic and so-called “off-channel” communications surveillance, the survey, conducted by the Investment Adviser Association, ACA Group and Yuter Compliance Consulting, found. Concerns around communications compliance are now greater than those related to advertising and marketing, which ranked as a close second, per the survey. 

About 93% of respondents cited “no change” to their digital asset compliance testing programs. 4.3% of respondents said they had increased compliance testing related to crypto during the last year. 

Only 1.49% of respondents said digital assets were the focus of their most recent SEC examination, which the securities regulator conducts at will. 

Anecdotally, it seems SEC exams may be on the rise. 85% of survey respondents reported that they were either currently undergoing or had in the past five years undergone an SEC exam. 

The relative lack of interest in digital asset compliance is not surprising. Registered investment advisers (RIAs) in the US are limited in their ability to offer crypto products to their clients. This structure is partly why the recently-approved spot bitcoin ETFs were so groundbreaking; they are one of the only products that RIAs can purchase on behalf of their clients. 

As of May 2024, RIAs had purchased $3.5 billion in spot BTC ETFs, according to data from Bitwise. The interest wasn’t just from the largest funds, either. 

Legacy Wealth Asset Management, a Minnesota-based RIA with 398 clients and $394 million in AUM, bought 352,594 shares of Fidelity Wise Origin Bitcoin ETF (FBTC) for $21.9 million, the firm disclosed in April. Another fund, United Capital Management, based out of Kansas with $304 million in AUM, purchased 349,999 shares for $21.6 million, per disclosures. 

As opportunities for investment advisers to engage with the crypto industry grow (we are looking at you, spot ether ETFs), we’ll be curious to see if compliance concerns similarly increase. Of course, clients will have to show demand for these types of investments for their advisers to engage, so the TradFi sentiment around crypto is another area to keep an eye on.

— Casey Wagner

This is the new planned fee for Grayscale’s Ethereum Mini Trust, according to a disclosure filed late Thursday. 

The number represents a reduction from the 0.25% fee Grayscale floated in a filing one day earlier.

If issuers keep their intended fees ahead of the expected launches next week, the Grayscale offering would be the cheapest spot ETH ETF on the US market.

The Grayscale fee undercuts the proposed price points of ether funds from competitors Franklin Templeton (0.19%), VanEck (0.20%), Bitwise (0.20%) and 21Shares (0.21%). 

Set to carry slightly higher fees are BlackRock (0.25%), Fidelity (0.25%) and Invesco/Galaxy (0.25%). The planned fee of the Grayscale Ethereum Trust (ETHE) is 2.5%.

Grayscale’s Ethereum Mini Trust is designed to receive 10% of the ether holdings within ETHE, giving it a liquidity headstart as well.

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Venture capitalists in Q2 made fewer crypto deals than during the first three months of 2024, but the size of deals increased substantially.  

VC firms poured $3.19 billion into crypto and blockchain-focused companies during the second quarter, a nearly 30% increase from the first quarter. The number of deals, however, fell 4% from the first to second quarter, coming in at 577 by the end of June, according to research from Galaxy Digital. 

The numbers may sound staggering, but they’re far below those from the peak golden era of crypto VC investing in 2021 and 2022. 

During the first quarter of 2022, VCs put $12 billion into digital asset companies. The following quarter, deal totals dropped to $10 billion, still more than triple the numbers we’re seeing today. 

As Galaxy analysts point out, the deals do not appear terribly correlated with bitcoin’s price. But while BTC was clocking all-time highs in 2024, the industry was breaking another record: SEC crypto-related enforcement actions nearly doubled from 2021.

The SEC in 2023 brought 46 crypto-related enforcement actions, most of which were settled outside of court. This allowed firms, and especially smaller startups, to save the money and time that litigation requires. But settlements don’t create precedent, so we find ourselves in a bit of an endless loop, at least for now. 

We can’t imagine crypto VCs have been chomping at the bit to back companies that may soon find themselves forced to discontinue offerings or pay monstrous legal fees. But if the figures from Q2 are any indication, the tides could be turning after all. Plus, just this month, the SEC closed two major investigations into Hiro Systems and Paxos, so maybe Q3 will bring additional VC interest.

— Casey Wagner

• The Democratic party seems to be in disarray amid the continuous release of contradictory news. This morning, for example, NBC reported that Biden’s family was starting to discuss his exit from the race. Moments later, a White House spokesman said that information was false. This trend of contradicting news on the status of Biden’s nomination is leaving people confused as to which way is up.

• After a flurry of weak economic data prints, the Atlanta Fed GDP Nowcast model has started to rebound higher, suggesting that this economic slowdown we’ve been seeing is starting to reverse.

• The German government has run out of coins to sell and crypto is rebounding and catching up to where equities have been for the past month — setting new all-time highs on the daily. BTC is up 3.8% today.

— Felix Jauvin