Weekly Insights #28

Written by on April 30, 2019

April 26: Despite the good news regarding Samsung, which is developing its own blockchain and making an investment into crypto wallet startup Ledger, the crypto market has experienced a downward move. Supposedly triggered by problematic news concerning Bitfinex and Tether, the entire crypto market lost 5% in value this week. Interestingly, demand for the DAI stablecoin spiked the moment the Tether (USDT) news broke out.

 


NOTEWORTHY NEWS

NY Attorney General Sues Bitfinex and Tether Due to Fraud —Apr 25, Coindesk

The New York State Attorney General (NYSAG) is suing iFinex Inc., which operates the Bitfinex crypto exchange, the  company behind controversial stablecoin Tether (USDT), as they have reasons to believe that US-based users transact on the exchange and that Bitfinex and Tether are engaged in fraud. The suit document explains that Bitfinex and Tether engaged in undisclosed transactions to cover Bitfinex losses out of Tether reserve funds. Bitfinex partnered with Crypto Capital Corp. to handle customer withdrawals and sent them a sum of $851M, which included customer funds and funds from their own balance sheet. According to Crypto Capital, the funds received were seized by government officials and cannot be accessed. Funds from Tether’s reserves were used to make up the loss, but neither the loss nor the fund movement was disclosed to customers. The loss of funds was the reasoning behind problems with fiat withdrawals that started in October 2018, despite Bitfinex claiming they were moving without any interference. Bitfinex is covering the loss using a $900M line of credit from Tether, with 6.5% annual interest secured by iFinex shares. This act is most likely the reason for Tether changing the description of the Tether reserves on their website from 1-1 backed by USD to reserves that include cash, cash equivalents, and other assets and receivables from loans.

OUR OPINION: Under the assumption that USDT was fully backed by USD in deposits before the incident, which is most likely not true for many reasons, currently approximately 25% of reserves are in the form of receivables from issued loans to Bitfinex. The peg was broken after the news, as benchmark market USDTUSD on Kraken fell to 0.955 and is currently floating around 0.97. The broken peg is causing premiums on all USDT-denominated markets, and the whole crypto market reacted negatively to the news, as Tether/Bitfinex insolvency presents systemic risk to the industry. Bitfinex is one of the rare large exchanges that does not require KYC, and Tether is still the dominant stablecoin used as a trading pair on many exchanges that do not support fiat. The main risk is that Tether/Bitfinex going under could cause other exchanges to become insolvent, and users could lose money because of their deposit being haircut to cover the loss of the exchange or because of direct loss due to holding USDT. As we saw with MtGox, when traders lose money due to an exchange being hacked or other non-market-related reasons, the appetite is lost, and prices tumble. On the other hand, this threat to the crypto market presents a great opportunity for Dai, which could replace USDT as a trading pair across many crypto exchanges, increasing its much needed demand.

 

Samsung Developing its Own Blockchain Based on Ethereum—Apr 24, Coindesk

South Korean electronics giant Samsung is developing its own blockchain network and eyeing the issuance of its own token further down the road. When the development of the blockchain is completed, Samsung may also move to launch a “Samsung Coin” token, according to the report. According to the source, the blockchain will most likely be permissioned, but the decision has not yet been finalized. It is also not yet clear what the platform and the Samsung Coin will be used for.

OUR OPINION: Samsung has been eyeing the blockchain space for some time. They introduced their cryptocurrency wallet in their latest smartphone, the Galaxy S10, which supports Ethereum, ERC20 tokens, and interactions with dapps, and they recently invested $2.9M in Ledger, a startup developing hardware wallets for cryptocurrencies. Like JP Morgan, they chose to build on Ethereum, which is a strong signal that Ethereum is the de facto leader in the industry, despite many projects labeling themselves the “Ethereum killer”.

 

Societe Generale Issues the First Covered Bond As a Security Token On Ethereum—Apr 23, Societe Generale

Societe Generale SFH, the covered bond vehicle of Societe Generale, has issued the first covered bond (EUR 100m) as a security token on a public Ethereum network. OFH Tokens have been rated Aaa/AAA by Moody’s and Fitch and have been fully subscribed by Societe Generale.

OUR OPINION: Currently it is not clear which on-chain contracts correspond to this product, and we will report further as more information becomes available. This act is significant for the crypto space in general, as a large bank has issued a financial instrument on Ethereum, the global public financial infrastructure. 

 

JP Morgan Partners With 200 Banks to Use Quorum—Apr 22, Blockmanity

JP Morgan is developing a banking network called the Interbank Information Network (IIN) on their permissioned Ethereum-based blockchain Quorum. According to a JP Morgan press release, 200 banks have already agreed to join the IIN.

OUR OPINION: Traditional financial institutions will prefer to use a bank-created permissioned blockchain solution than a product from a startup like Ripple. Quorum is not the only bank-produced blockchain-based platform in the space, and it is based on Ethereum, which has proven itself to be robust and useful as a financial settlement and issuance platform. Ethereum has the largest developer base of all public blockchains, which are working on different aspects of improving blockchain capabilities. JP Morgan can always implement innovations developed for public Ethereum into Quorum.

 

Forbes Introduces Blockchain 50 List—Apr 17, ConsenSys

Forbes has released a new list featuring 50 companies with a minimum revenue or valuation of $1B that are exploring or integrating blockchain technology into their operations. The list will later include top 100 companies, but only 50 companies have been released so far. More than 60% of the initial 50 companies are building on Ethereum or Enterprise Ethereum; other popular DLTs are Corda and iterations of Hyperledger. The full list is available here.


THE WEEK AHEAD

ETH/USD and BTC/USD Golden Cross

The entire crypto sphere has been talking about the golden cross on ETH/USD and the BTC/USD charts for the past few days. What is not so talked about is the fact that the recent crossover of 50-MA/200-MA indicators did not have both moving averages rising, only the former. A golden cross occurs when both moving averages are rising. Otherwise, as is currently the case, it’s just a 50-MA/200-MA crossover, which is still bullish, but not golden cross bullish.

MA-50 and MA-200 Crossover on BTC/USD. Chart by TradingView


 MARKET OVERVIEW & METRICS

Weekly Market Overview, 19 Apr to 26 Apr 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value reached $169.81B, with -5.41% weekly delta.
  • Global crypto market turnover was $56.67B, 21.27% from ATH.
  • Real 10 market turnover was $2.24B, 71% weekly delta.
  • Bitcoin dominance is 54.8%, with 5.6% weekly delta, and beta of 0.83.
  • Ethereum dominance is 9.87% with -3.33% weekly delta, and beta of 1.29.
  • Bitcoin hashrate is 51.48B TH/s, with 8.72% weekly delta.
  • Ethereum hashrate is 146.6K GH/s, with -2% weekly delta.

 


CHART OF THE WEEK

Demand for the DAI stablecoin spiked the moment the latest Tether (USDT) news broke out.

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.


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