Weekly Insights #24
March 22: The crypto market slightly increased this week, with the most notable price movement achieved by Tezos (XTZ), which increased by 65% after completing its first blockchain vote, the first period in Tezos Protocol Amendment Votes. More banks are preparing to launch fiat-backed stablecoins, CoinMarketCap is launching two crypto benchmark indices that will be included in leading financial data feeds, Lightning Labs announced the alpha release of Lightning Network offramp Lightning Loop, and Bitmain launched a more efficient and powerful Equihash ASIC. Additionally, we explore TheTie’s research on the largely overestimated reported trading volume in the crypto market and current interest rate policy decisions in the Dai ecosystem.
NOTEWORTHY NEWS
Six Global Banks Sign Up to Issue Stablecoins on IBM’s Now-Live Blockchain Network—Mar 18, Cointelegraph
Six international banks are planning to issue fiat-backed stablecoins on IBM’s Stellar-powered cross-border payment network Blockchain World Wide (BWW). Reportedly, reserve currencies will include the Brazilian real, the South Korean won, the Philippine peso, the Indonesian rupiah, and the euro. IBM’s BWW is another distributed-ledger-technology-based service for international settlements between banks; according to the report, 44 banks are currently on the service.
CoinMarketCap Crypto Indices Launch on Nasdaq, Bloomberg, Reuters—Mar 20, Coindesk
CoinMarketCap will launch crypto benchmark indices in collaboration with financial indices provider Solactive. Initially, they will offer two indices: the CMC Crypto 200 Index (CMC200) and the CMC Crypto ex BTC Index (CMC200EX). CMC200 will cover the top 200 projects by network value, while CMC200EX will exclude bitcoin from that list. The indices will launch on Nasdaq Global Index Data Service, Bloomberg Terminal, Thomson Reuters Eikon, and Germany’s Börse Stuttgart.
Lightning Labs Releases Alpha Version of Lightning Offramp Solution Lightning Loop—Mar 21, Cointelegraph
Lightning Labs has announced the alpha release of Lightning Loop, a non-custodial Lightning Network offramp. The Loop currently offers a “Loop Out” feature, which allows payment channel users to withdraw funds from the channel into a Bitcoin wallet. This will enable receiving more payments without the need to close and reopen the channel. Lightning Labs is also working on a “Loop In” feature to enable payment channel refills.
Bitmain Claims to Have Tripled Hashing Power with Latest Zcash Miner—Mar 19, Coindesk
Bitmain has launched the new Equihash ASIC Antminer Z11, which produces 135K SoI/s, making it three times more powerful than their last miner, Z9. Furthermore, the new miner is more efficient, as it can save 60% on energy consumption due to a new internal circuit structure. There are several cryptocurrencies using the Equihash algorithm, most notably Zcash, Bitcoin Gold, Komodo, and Mimblewimble-based BEAM.
DIGITAL ASSETS ON THE MOVE
Majority of Reported Crypto Trading Volume is Fake, According to TheTie
According to research conducted by TheTie, almost 90% of reported trading volume in the crypto financial market is suspect, and 59% of the exchange platforms they analyzed report 10 times higher trading volume than predicted by their model. The analysis used website viewership metrics but did not account for API and mobile users. They weighed the average trading volume per user visit on exchange platforms with relatively longer histories and where trading activity is most likely to be organic: Binance, Coinbase Pro (GDAX), Gemini, Poloniex, and Kraken. The metric was later applied to other exchanges, which showed that false reporting of volume and wash trading is a common practice among crypto exchanges. The full research data can be found here.
The fake volume from exchanges that has emerged in recent years is worrying, as many technical and fundamental investors follow trading volume dynamics carefully. Increasing volume in the recent past is seen as a positive indicator for the crypto market, but it could be completely misleading. A good indicator for this purpose is analyzing trading volume dynamics from respected exchanges only, which should give more accurate results of the overall trading activity. Another reason this practice is unhealthy is a single asset valuation. For example, Augur (REP), one of the most respected ICO projects on Ethereum, currently has 24% of its total reported trading volume on the LATOKEN exchange and another 20% on BiteBTC, according to CoinMarketCap. It is questionable whether these two exchanges really have such high REP trading volume. The crypto exchange market is highly saturated, which is why they use fake trading volume as a marketing tactic. Data aggregators such as CoinMarketCap should introduce much stricter rules before including these kinds of suspicious exchanges and the data from their markets.
THE WEEK AHEAD
MakerDAO Vote for Stability Fee Increase
In the upcoming days, MakerDAO will present a vote that should change the stability fee from the current 3.5% to 7.5%. The 400bps rate increase was voted on by MKR token holders in this week’s pool and is a direct consequence of the DAI price hovering 3–4 cents below the 1$ peg.
As promising as MakerDAO looks due to its fast-growing ecosystem revolving around DAI borrowing and its usage for leveraged long ETH positions or spending DAI without selling core ETH holdings, its policy leaders are still largely unaware of what exactly drives the dynamics of DAI demand. Is it purely ETH price expectations, or are people using it to hedge and hoarding it? The fact is that the DAI price is below $1 because of an oversupply of DAI on the market caused by borrowers who collateralize their DAI loans by staking ETH. The most probable explanation is that users are too bullish on the short-term ETH price and don’t mind paying a high stability fee as long as they can extract a DAI loan without selling their core ETH holdings. In theory, there can always be a high enough interest rate found for DAI that will stop users borrowing at such a fast pace, but the real challenge will be dynamically adjusting it to ETH price expectations, which can change rapidly in short time periods.
Chart showing why MakerDAO policymakers are trying to find a “high enough” interest rate to bring DAI supply down and push its rate up toward $1.
MARKET OVERVIEW & METRICS
Weekly Crypto Stats
- Global network value reached $139.66B, with 3.13% weekly delta.
- Global crypto market turnover was $34.77B, 51.7% from ATH.
- Bitcoin dominance is 50.8%, with -0.2% weekly delta, and beta of 0.81.
- Ethereum dominance is 10.36% with -0.96% weekly delta, and beta of 1.32.
- Bitcoin hashrate is 43.141B TH/s, with -7.74% weekly delta.
- Ethereum hashrate is 147.56K GH/s, with -0.74% weekly delta.
CHART OF THE WEEK
USDC on-chain volume has been declining in recent months. USDT is regaining the majority of on-chain activity.
This content has been put together by Marko Štemberger and Tilen Držan. Feel free to contact us for any feedback or if you have questions.
Information provided above is not to be considered as an investment advice.
ANNOUNCEMENT
Block Analitica, the company behind Squared Capital, has just launched its digital asset metrics dashboard to the public. Though still in beta, if you are interested in a more in-depth analysis of blockchain fundamentals — everything that’s happening with stablecoins, development activity, exchange balances, and much more — we invite you to register for a free account.
Branko
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