Squared Capital Archives - 21000NEWS

BrankoJune 24, 2019

17min18

June 21: The crypto market experienced a rapid surge this week. Bitcoin first broke $9k on Sunday and almost touched $10k today, with a healthy increase of 29% in “Real 10” market turnover. Even though the market performed well, the hot topic of the week was the reveal of Facebook’s Libra project, which we explore below. Additionally, Ethereum developers set a target launch date for the Ethereum 2.0 genesis block, IBM unveiled a new version of their enterprise blockchain, and Binance announced wrapped coins on Binance Chain.

 


NOTEWORTHY NEWS

Ethereum 2.0 Planned For Launch on January 3, 2020-June 15, Trustnodes

Phase 0 of Ethereum 2.0, the Beacon Chain, is targeted to launch on January 3, 2020, with the code to be finalized by June 30. Initially, a deposit contract will be launched ahead of the genesis block to allow validators to make deposits. This could take place in October at Devcon in Japan with a deposit contract ceremony so that there will be no confusion about the deposit address. The target balance in the deposit address will be at least 2m ether and at least two clients to reach production status. This means that the cross-client testnet must be running without suffering from major issues for a healthy amount of time. The full Eth2.0 Implementers Call #19 can be viewed  here.

 

IBM Unveils Upgraded 2.0 Version of Enterprise Blockchain-June 18, Coindesk

IBM has launched an upgraded version of its enterprise blockchain platform. The rearchitected IBM Blockchain Platform allows clients to deploy to public clouds like IBM Cloud, AWS, and Azure, or on company-hosted private clouds like LinuxOne. It also adds support for app management and deployment platform Kubernetes. In addition, the revamped IBM Blockchain Platform has a number of new and improved capabilities allowing firms to manage the entire lifecycle of a blockchain network.

 

Binance is Launching Crypto-Pegged Tokens on Binance Chain, Starting With Bitcoin—June 17, Binance Blog

Binance will issue a number of crypto-pegged tokens on Binance Chain in the coming days, starting with BTCB, a BEP2 token pegged to Bitcoin. Pegged tokens will be 100% backed by the native coin in reserve, and addresses will be published publicly. The ordinary Binance exchange will offer native-to-pegged trading pairs (BTCB/BTC). Binance will maintain large buy orders with a 0.1% price spread that will be used to convert back to the native coin. The benefit is that Binance’s DEX service will be able to operate various trading pairs that would otherwise be impossible.

 


 DIGITAL ASSETS ON THE MOVE

Facebook Finally Reveals Libra

What does this mean for crypto?
Facebook released the Libra whitepaper on June 18, announcing the digital asset Libra as a “simple global currency and financial infrastructure that empowers billions of people” and will provide financial access to the 1.7 billion unbanked adults who have a smartphone and internet access. 

The Libra Blockchain is open source and supported by a new programming language called Move. The core mechanism of the blockchain enables the creation of a unique governance mechanism that will initially be permissioned, similar to Proof-of-Authority-based networks, but that aims to eventually become permissionless. Libra will use pseudonymous accounts, just like traditional public blockchains, and will support smart contracts that can enable various activities. Initially, Libra will be governed by The Libra Association, a not-for-profit independent entity based in Geneva, Switzerland. The founding members of the association each run one of the validating nodes, for which they had to contribute $10m. The currently committed organizations come from various fields: Mastercard, Visa, PayPal, Ebay, Uber, Vodafone, Coinbase, Andreessen Horowitz, and others. It is notable that the current committed members do not include any other tech giants like Amazon, Google, or Apple, or any banks at all. 

The digital asset Libra will be backed by a collection of low-volatility assets, including bank deposits and government securities in currencies from stable and reputable central banks held in The Libra Reserve. Customers who buy Libra will transfer their interest earned from deposits and securities to the network operators, and this interest will be used to cover the costs of maintaining the network. Founding Members will be given an allocation of the Libra digital asset that will be given away in incentive programmes. Founding Members and others will be able to purchase Libra investment tokens in return for their capital pledges. This is a security that differs from the Libra digital asset and will entitle the holder to the cash flows derived from interest payments once the system is profitable. Calibra is a regulated subsidiary of Facebook created to “protect users from data-based conflict of interest” and will build and operate services on top of the network. The first product of Calibra will be a wallet for Libra that will be available as a standalone application but will also be integrated into Messenger and WhatsApp. Calibra is registered as a money services business in the US and will implement the necessary KYC measures for its customers.

There was instant political opposition from around the world soon after the project was revealed. The French Finance Minister opposed the idea of “Libra becoming a sovereign currency,” a US lawmaker called on Facebook to pause the project, Russia will not legalize the use of Libra, Australia’s central bank governor expressed concerns about regulatory issues, the Bank of England will not keep “an open door” to Libra, and Libra may not be welcomed in India.

The project is very interesting, as it presents a centralized but completely new governance system compared to existing solutions. The Libra digital asset is definitely not a cryptocurrency in the traditional meaning like bitcoin is. It is a new type of asset on a new type of infrastructure. It still depends on fiat currencies (and thus monetary policy from central banks) as they are included in the basket, but it could include other assets like bitcoin or ether in the future. The project is positive for the crypto space because it brings a lot of attention from regulators, companies, and consumers around the world. It has the potential to introduce billions of people to the concept of digital assets issued on distributed ledger technology. It does not compete with Bitcoin or Ethereum, but rather competes with commercial banks and even with central banks to some extent. Smaller and not globally important currencies are under direct threat, as citizens can now easily avoid the negative effects of domestic monetary policy, such as currency devaluation, by converting to Libra, which is less radical for an average consumer than converting all their savings into bitcoin, for example.


 MARKET OVERVIEW & METRICS

Weekly Market Overview, June 14 to June 21, 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value is $303.04B, 15.51% weekly delta.
  • Global crypto market turnover is $67.66B, 36.26% from ATH.
  • Real 10 market turnover was $3.16B, 28.98% weekly delta.
  • Bitcoin dominance is 57.86%, with 4.06% weekly delta, and beta of 0.86.
  • Ethereum dominance is 10.17%, with -2.02% weekly delta, and beta of 1.25.
  • Bitcoin hashrate is 53.04B TH/s, with -5.28% weekly delta.
  • Ethereum hashrate is 162.96K GH/s, with 3.65% weekly delta.

CHART OF THE WEEK

BTCUSD Realized Cap compared to Network Value – Historically it is a good indication to buy when network value falls below the realized cap.

Source: Twitter @nic_carter

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.


BrankoJune 10, 2019

13min54

June 7: This week, the crypto market experienced a correction after rapid growth in the previous two months, and major crypto assets experienced a decline on the weekly chart. The biggest loser of the week is EOS, which declined right after the big announcement on Jun 1, explained below. Apple and Facebook revealed more information regarding their crypto-industry-related projects, Binance will issue various fiat-backed stablecoins, and the SEC charged the Kik project with an unregistered securities offering.

 


NOTEWORTHY NEWS

SEC Charges Kik With Conducting $100M Unregistered ICO—June 4, SEC

As alleged in the SEC’s complaint, Kik had been losing money for years on its sole product, an online messaging application, and the company’s management predicted internally that it would run out of money in 2017. In early 2017, the company sought to pivot to a new type of business, which it financed through the sale of one trillion digital tokens. Kik sold its Kin tokens to the public at a discounted price to wealthy purchasers, raising more than $55 million from US investors. The complaint alleges that Kin tokens traded recently at about half of the value that public investors paid in the offering.

 

Binance Confirms Stablecoin Offering Coming Soon-June 6, Coindesk

Binance has confirmed that it will soon issue its own stablecoins, each pegged to other fiat currencies, starting with GBP. Binance’s chief financial officer, Wei Zhou, said the first stablecoin will be launched on the platform “in a matter of weeks to a month or two.” According to Zhou, the token will be called Binance GBP and will be fully backed by reserves of British pounds. More coins tied to other fiat currencies will follow, he said, while Binance will also work with partners wanting to issue their own stablecoins on the exchange’s native blockchain, Binance Chain.

 

Apple to Introduce CryptoKit in iOS 13—June 4, The Block

CryptoKit will allow developers to carry out common cryptographic operations, including hashing, key generation, and encryption. Developers will now be able to automatically handle tasks that make their app more secure rather than handling them in lower-level interfaces. According to Alejandro Machado, co-founder of Open Money Initiative, the implications for cryptocurrency developers are significant: “For the first time, developers can leverage the secure enclave to manage a user’s keys in an iPhone, achieving a similar level of security to hardware wallets.”

 

Facebook Plans June 18 Cryptocurrency Whitepaper Debut—June 6, TechCrunch

Facebook is finally ready to reveal details about its crypto project, codenamed Libra, and its GlobalCoin cryptocurrency. A whitepaper explaining the cryptocurrency’s basics is currently scheduled for a June 18 release. The cryptocurrency will indeed be pegged to a basket of currencies rather than a single one like the US dollar to prevent price fluctuations, and Facebook employees will be able to receive their salary in Facebook’s cryptocurrency. Facebook is planning to launch the network with 100 nodes and will be charging $10M to companies that wish to run a node on the network.

OUR OPINION: Given the set number of nodes, we assume the network will be using the Proof-of-Authority (PoA) consensus algorithm, which is a type of a permissioned network or Delegated Proof-of-Stake (DPoS) algorithm that is currently used in EOS and Tron. Time will tell if Facebook will improve or worsen the unfavorable narrative that accompanies these two projects.

 


 DIGITAL ASSETS ON THE MOVE

Big Announcement From Block.one is a Social Network Platform on EOS

The heavily hyped announcement from Block.one (B1), a company that raised $4B to release EOSIO blockchain protocol code, is a blockchain-based social network platform called Voice. The platform will be hosted on EOS and according to B1 will be free of bots and fake accounts, which might prevent fake social engagement and volume. The announcement can be seen in this video, where Daniel Larimer further hints at how the platform will function. There will be an associated Voice token that will be generated by creating content and used to upvote quality content, showing many similarities with Daniel Larimer’s previous project, the Steem blockchain and the Steemit application hosted on top of it. Since the platform will be free of bots and fake accounts, it will have to use some form of “KYC.” Hopefully, it will be conducted in an alternative way than passports and proof of residency. Either way, if anyone is able to create an account, social engagement, volume, and interest can still be manipulated by purchasing accounts or bribing real users to upvote content.

B1 also announced upgrades to the EOSIO protocol. The most important upgrade in EOSIO version 2.0 is an improved EOS virtual machine that will be able to process smart contracts 12 times faster compared to the 1.0 version. The 2.0 version will also adopt the WebAuthn authentication standard. While the majority of public blockchains are trying to improve user privacy by implementing various technologies, B1 is moving in the opposite direction.

The EOS price appreciated in anticipation of the announcement on June 1, peaked on that day, and later declined toward the “preannouncement of the announcement” levels, as can be seen inn the EOSBTC chart below.

Binance EOSBTC, hourly chart from May 10 to June 7, 2019. Source: Tradingview


 MARKET OVERVIEW & METRICS

Weekly Market Overview, May 31 to June 7, 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value is $253.72B, with a -3% weekly delta.
  • Global crypto market turnover is $70.83B, 30% from ATH.
  • Real 10 market turnover was $2.43B, -51.3% weekly delta.
  • Bitcoin dominance is 55.4%, with -1.6% weekly delta, and beta of 0.86.
  • Ethereum dominance is 10.44%, with -0.5% weekly delta, and beta of 1.26.
  • Bitcoin hashrate is 58.22B TH/s, with -1.8% weekly delta.
  • Ethereum hashrate is 169.2K GH/s, with 2.7% weekly delta.

 


CHART OF THE WEEK

Since the beginning of the bear market, there has been a 26% increase in the number of BTC wallet addresses that hold between 1,000 and 10,000 BTC. The Bitcoin address bracket in December 2018 was likely the result of Coinbase shifting approximately 5% of supply into new cold storage security facilities.

Source: Diar

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.


BrankoJune 4, 2019
getty_882340742_360164-1280x594.jpg

17min79

May 31: The week ended with a steep dump all across the crypto market, but the majority of crypto assets still achieved positive gains for the week, and some assets even set yearly highs before the decline. Market sentiment is increasingly bullish, as bitcoin crossed 9K USD mark for a short period and on-chain transactions and hashrate is nearing ATH levels. Traditional companies are continuing to launch their solutions related to blockchain technology or crypto assets and Tezos stakeholders successfully upgraded the network via a three-month-long process. We further explore what might be additional factors behind the recent surge in the crypto market.

 


NOTEWORTHY NEWS

Wall Street’s FOMO: Grayscale Gobbling Up 21% of Newly Mined BTC—May 29, Bitcoinist

According to a recent tweet by Bitcoin analyst Rhythm, Grayscale bought more than 11,000 BTC in April 2019. With 54,000 BTC being mined per month, the largest cryptocurrency asset manager is buying up about 21 percent of the monthly bitcoin supply. This suggests an increasing demand for crypto assets from Wall Street.

 

First Tezos Amendment Protocol Activates Network Upgrade-May 30 Coindesk

After three months of on-chain voting, the first Tezos Amendment Protocol process has been completed, and two backwards-incompatible changes have been automatically activated. The baking roll was reduced from 10K to 8K XTZ, and the block computation limit was increased. This is the first network hard fork executed via such a process, with more than 80% of stakeholders casting their vote.

OUR OPINION: The successful activation could be important not just for Tezos, but for the governance of public blockchains in general, which are currently governed by informal DAOs. This was the first amendment process where the activity of stakeholders was more significant than the network upgrades themselves and was a social and technological experiment. In this upgrade, no changes were contentious, and the real test of this governance approach will be tested when the majority of stakeholders split into two or more camps regarding the best approach for further progressing the network, as Bitcoin experienced, resulting in a network and community split.

 

JP Morgan Blitzing Towards Privacy for Its Ethereum Fork, Quorum—May 31, Blockonomi

Banking giant JP Morgan is continuing to build out the privacy functionalities of its permissioned Ethereum fork, Quorum. The bank’s blockchain developers have built out a modified version of Zether, a zero-knowledge proof (ZKP) system that allows users to conceal transaction amounts on Ethereum or similar account-based smart contract blockchains, e.g. Stellar. Morgan’s rendition, “Anonymous Zether,” goes one step further, allowing users to obfuscate their identities in addition to the transacted sums.

 

Yahoo! Japan to Enter the Crypto Trading Fray with Upcoming Taotao Launch—May 28, CCN

Yahoo! Japan is launching its FSA-licensed cryptocurrency trading platform Taotao on May 30. It is rumored that the new exchange will largely focus on BTC and ETH spot trading, and options trading on BTC, ETH, BTC, LTC, and XRP are expected. They have also announced that these are only the first offerings and additional crypto assets might be listed later.

OUR OPINION: This is a positive development, as it means more traditional financial firms are entering the crypto exchange business, improving ease of access for institutional investors and risk-averse individuals and increasing the legitimacy of the asset class. Such services, especially outside the US and licensed by a relevant financial authority, are much needed for the possible crypto ETF in the US. One of the main reasons the SEC has not approved a crypto ETF yet is the limited ability of the SEC to prevent spot price manipulation. Cryptocurrencies are global assets not limited to a single juridistriction, meaning financial authorities need to cooperate in order to surveil spot markets and prevent illicit activity. Licensed exchanges from reputable companies in countries where crypto trading activity is high are a positive sign for the convergence of cryptocurrency and traditional financial companies.

 


 DIGITAL ASSETS ON THE MOVE

Possible Reasons Behind This Spring’s Price Surge

The crypto market started to surge rapidly in the beginning of April; here are some possible reasons why. 

Since crypto became more popular, several individuals and companies have developed many different metrics and approaches to analysing crypto networks and native cryptocurrency price dynamics. While many fundamental metrics and statistics are being widely used and interpreted today, only a few of them are resistant to manipulation. For example, social metrics from different social networks can be manipulated by bots and fake accounts, and the focus of the average investor can also be manipulated by timing news to create social buzz. On-chain statistics like number of transactions can also be manipulated, especially on networks with low or zero-fee models.
One factor that is set in stone and cannot be manipulated that has great impact on network economics and native coin price dynamics is block reward halving. The next block reward “halvenings” are less than one year away for several large networks: Litecoin is 66 days away from a 25 LTC to 12.5 LTC halvening, and Bitcoin is 356 days away from reducing the block reward from 12.5 BTC to 6.25 BTC. Many other Bitcoin forks will have halvenings in a similar time period. Halvenings have an important impact on the price of native coins because the constant selling pressure from miners is cut in half; currently miners mine approximately 1,800 BTC per day, the majority of which is most likely sold to cover costs.
Large IT and financial companies around the world are launching products based on blockchain technology. While this is not directly related to cryptocurrencies, as most of these products are permissioned and offer completely different solutions, they are still based on the same technology, which raises the general level of knowledge and interest. Facebook’s Libra project can potentially introduce their stablecoin to millions of users (Facebook, Instagram, WhatsApp), who will be more open to real cryptocurrencies after they have some experience with similar technology.
As prices achieved new 2019 heights, social sentiment became more bullish and prices started to react more to positive news and developments. Many projects are exploiting this fact, so we see more “announcements of an announcement.” Such announcements can be about real development progress, but the crypto industry has already figured out that hype is more important for short-term price increases than actual positive development. Short-term price increases later have a multiplicative effect, as they raise even more interest and are generally a very effective marketing tool. For example, Daniel Larimer, the founder of EOS, has been hinting at a big announcement on June 1 by Block.one (B1); at the same time, B1 is conducting share buybacks and has bought a large amount of RAM, a resource on the EOS blockchain. Coinbase is also planning to capture some of the hype, as they have just listed EOS on Coinbase.com. The same positive sentiment was recently exploited in China, where gambling is very popular. Fake news that Craig Wright had proven himself to be Satoshi by transferring 50K BTC from one of the early addresses that was used to mine some of the earliest blocks by Satoshi was shared on social media, resulting in a more than 100% increase in the BSVBTC market in a span of 24 hours.
Lastly, the Tether USDT supply is growing quite fast and is currently at ATH with 3.125B tokens issued. Many things have happened with Tether and Bitfinex lately, including the clarity that reserves can include crypto assets such as bitcoin. According to Bitfinex, their 1B USDT IEO for LEO tokens was successful, but the whole situation is not very clear for those not directly associated with the organisation. Given everything that happened, it is hard to imagine who would deposit fiat with Tether and issue USDT this days. Nevertheless, there is still a possibility that issued tokens are being used to purchase crypto assets that then serve as a reserve, especially when the USDTUSD market is above 1.

 


 MARKET OVERVIEW & METRICS

Weekly Market Overview, 24 to 31 May 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value is $261.65B, with a 6% weekly delta.
  • Global crypto market turnover is $101.32B, 1% from ATH.
  • Real 10 market turnover was $5B, 114% weekly delta.
  • Bitcoin dominance is 56.3%, with -0.9% weekly delta, and beta of 0.85.
  • Ethereum dominance is 10.49% with 1.8% weekly delta, and beta of 1.26.
  • Bitcoin hashrate is 59.33B TH/s, with 12.67% weekly delta.
  • Ethereum hashrate is 164.79K GH/s, with 2.79% weekly delta.

 


CHART OF THE WEEK

Bitcoin mining difficulty—an indicator of how strong Bitcoin network security is—has just hit an all-time high.

Source: Source: Twitter @kerooke

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.


BrankoMay 27, 2019

9min44

May 24: The crypto market is currently crisscrossed with positive as well as negative news. The Positive news is focused primarily around fundamental developments in various crypto projects and their expanding adoption, while negative news is mostly comprised of the usual trinity: tether drama, dubious projects, and crypto exchange malfunctions.

 


NOTEWORTHY NEWS

FINRA Approves Grayscale Ethereum Trust for Retail—May 23, The Block

Grayscale by Digital Currency Group manages $1.9B in a number of funds with underlying crypto assets, but the funds are only available to accredited investors. The company has gained approval from FINRA to list eligible shares of its Grayscale Ethereum Trust on OTC markets, making it the first publicly listed security tied to ether.

 

Coinbase Now Supports Another Stablecoin, Dai—May 23, Coinbase Blog

DAI is a decentralized stablecoin running on Ethereum that was designed with the goal of maintaining a target value of approximately US$1.00. Starting yesterday, Coinbase.com and the Coinbase Android and iOS apps added support for Dai (DAI) trading. DAI will be available for customers in most jurisdictions, but will not initially be available to residents of the state of New York.

 

SIX Stock Exchange is Working on a Swiss Franc Stablecoin—May 22, Coindesk

Swiss stock exchange SIX, which is a developing blockchain-based asset settlement and tokenization solution, is now working on a fiat-backed Swiss franc stablecoin. It is not clear whether the stablecoin will be used inside their blockchain system or be issued on a general public blockchain and transferred freely.

 

Tether Admits to Investing Some of Its Reserves in Bitcoin—May 21, The Block

According to a court transcript obtained by The Block from the ongoing Bitfinex/Tether vs. NYAG case, David Miller, an attorney for Bitfinex, said that Tether used its reserves to buy bitcoin. While there is no information regarding the size of the bitcoin position, Bitfinex CTO Paolo Ardoino tweeted that Tether owned a small amount of bitcoin for paying miner fees.

 


 MARKET OVERVIEW & METRICS

Weekly Market Overview, 17 to 24 May 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value is $246.6B, with a 7% weekly delta
  • Global crypto market turnover is $72.66B, 29% from ATH.
  • Real 10 market turnover was $2.33B, -60.7% weekly delta.
  • Bitcoin dominance is 56.8%, with 0.9% weekly delta, and beta of 0.85.
  • Ethereum dominance is 10.68% with 4.91% weekly delta, and beta of 1.27.
  • Bitcoin hashrate is 52.66B TH/s, with 8.26% weekly delta.
  • Ethereum hashrate is 160.31K GH/s, with -4.66% weekly delta.

 


CHART OF THE WEEK

China has devalued and revalued the yuan multiple times since the early 1980s, and this fact is not lost on the population. The People’s Bank of China (PBOC) has kept the yuan relatively stable since early 2017. They even made moves to tighten credit conditions. However, the trade war changed all that, and now they are printing money like it’s 2008. That pressure will build around the exchange rate, and at some point, either the PBOC will tighten credit, slowing GDP growth, or it will devalue the yuan. Chinese asset holders are not stupid. They see the writing on the wall, and while the CNY recently crept higher towards the magical 7.00, BTC exited the doldrums and more than doubled in price.

Source: BitMEX Crypto Trader Digest

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.


BrankoMay 21, 2019

15min50

May 17: Crypto market prices increased drastically in the past week and experienced a big decline only this morning. The origin of this recent dip is being attributed to the Bitstamp exchange, which experienced odd trading activity and had all of their USD/crypto markets crash nearly 20% in minutes, causing a $250M long squeeze on BTC alone. Other news includes a new Gemini partnership with Flexa, a global cryptocurrency payments network, and some of the biggest companies—including Microsoft and Amazon—developing tools on the Bitcoin and Ethereum blockchains.

 


NOTEWORTHY NEWS

Flexa and Gemini Partner to Make it Easy to Use Cryptocurrency —May 13, Tyler Winklevoss

Gemini announced a partnership with Flexa, a global cryptocurrency payments network that enables major retailers to accept cryptocurrency payments in stores. Consumers can now easily spend their Gemini dollars (GUSD), bitcoin, ether, and bitcoin cash using the SPEDN mobile wallet app. In addition, all cryptocurrency deposited on the SPEDN mobile app is custodied with Gemini, providing security for those using this new payment technology.

 

Microsoft Launches Decentralized Identity Tool on Bitcoin Blockchain—May 13, The Coindesk

Microsoft is launching a decentralized identity (DID) solution called Ion on the Bitcoin public blockchain. The solution’s usability is similar to the “log in with Facebook or Google account” feature on external services, except that the user owns and fully controls the data. While the solution is currently on the testnet, it will shift to the mainnet later this year. According to the whitepaper, the public blockchain (what they call a decentralized system) is solely used for anchoring identifiers and authentication for the DID owner without risk of censorship, while the data is kept off-chain.

OUR OPINION:  While the whitepaper never mentions Bitcoin, it mentions participation in the development of standards and technology that support a variety of blockchains and ledgers, and Bitcoin makes the most sense. They use a public blockchain for timestamping and authentication, and Bitcoin is the safest network with by far the largest amount of hash power. Large IT companies are starting to understand the advantages of public decentralized blockchains.

 

Ethereum is The Platform of Choice for JP Morgan, Amazon, Microsoft—May 16, Yahoo Financ

Among the 50 largest companies integrating blockchain technology into their operations, 32 are working with Ethereum. JP Morgan is building Quorum, the permissioned blockchain based on Ethereum for international settlement and clearing for institutional clients. They have tokenized USD, and 220 banks are already included in the Interbank Information Network hosted on Quorum. Amazon Web Services added Ethereum as an option for its Amazon Managed Blockchain, a service that helps companies launch their blockchain. Microsoft released a suite of tools that enables the development and deployment of Ethereum-based applications on the Azure Blockchain Service or on Ethereum.

 


THE WEEK AHEAD

Decentralized Stablecoin Dai Achieves Parity

MakerDAO, the decentralized organization that governs the system behind Dai, has voted to increase the stability fee several times in the past two months in order to lower the issued supply of Dai and increase its price towards parity with USD. While the last hike increased the stability fee by 3 percentile points to 19.5% annually and Dai achieved parity with USD, the community is now voting on whether to lower the fee. 

The increase in the stability fee was much needed, as it signaled to all participants of the systems—CDP owners and Dai issuers, Dai holders, market makers, and MKR token holders—that Dai is in fact stable and that the community is prepared to hike the stability fee in the case of a Dai discount. The belief in a functioning system, either a fiat system or the current MakerDAO and Dai system, is very important for the expectations and actions of the participants of the system. While governance was successful, we believe that factors other than the stability fee played an important role in Dai retracing towards the peg. 

Factor 1: Increasing demand for alternative stablecoins after Tether uncertainty
The first and probably most important factor that influences demand for Dai is the current uncertainty about Tether (USDT) and the Bitfinex exchange. Tether is the oldest and still the most dominant stablecoin in the industry by market capitalization, on-chain volume, and exchange trading volume. Several alternative stablecoins that operate on public blockchains exist today, some of them regulated, but they are all “fiat coins”—tokenized USD with a custodian—and they are mostly not permissionless. Dai is an exception, as it is not a 1:1 custody-based tokenized form of fiat, and it might be the first go-to alternative. Since the news about Tether started to circulate, the issued supply of alternative stablecoins has increased in general, but daily Dai on-chain volume increased by more than 300% since parity was achieved, and Dai is leading the on-chain volume metric while having one of the lowest issued supplies.

Source: Block Analitica

Factor 2: Increasing number of alternative secondary lending platforms and lack of direct competition to MakerDAO
The main purpose of opening a CDP and issuing Dai is creating a leveraged long position. This could be in ether, bitcoin, or even an ICO, but the issuer supports his new position or consumption with debt. This means that other money markets are competing, and while the price of the debt or the interest rate is not the only factor to consider, it is the most important one. Compound Finance, which is not a direct substitute for MakerDAO but rather a secondary P2P decentralized lending market on Ethereum that supports alternative collateral than ether, has a lower interest rate on Dai. This means a trader can use a token with an objectively higher market risk than ether for collateral and borrow Dai with a lower interest rate compared to the stability fee in MakerDAO.

At the same time, companies like Dharma are offering subsidies to lenders and borrowers in order to attract customers, and borrowing with them is cheaper. Some MakerDAO users seeking leveraged long exposure may have switched to cheaper alternatives, and some users who use MakerDAO for its decentralized nature or the size of their position (the total supply of Dai in Compound is 7.2M) do not have any real alternatives. In both cases, the stability fee is not necessarily so relevant, as alternative platforms will always have lower interest rates (except in the case of reaching the debt ceiling of Dai or a very low stability fee in single collateral Dai), as they are secondary markets, and since there is no direct alternative to MakerDAO for some CDP whales, it is the only option.

Factor 3: General price increase since the beginning of April
The last factor that played a role in Dai reaching the peg is general market dynamics. The crypto market has been experiencing a large price increase since the beginning of April, and some CDP owners may have taken profits. Some spot market traders may have bought into Dai to hedge their portfolios, which is supported by increased on-chain volume.

 


 MARKET OVERVIEW & METRICS

Weekly Market Overview, 10 to 17 May 2019. Source: Coin360

Weekly Crypto Stats

    • Global network value reached $230.45B, with 19.8% weekly delta.
    • Global crypto market turnover reached a new ATH and is currently $110.84B.
    • Real 10 market turnover was $5.93B, 261.6% weekly delta.
    • Bitcoin dominance is 56.3%, with -3.10% weekly delta, and beta of 0.84.
    • Ethereum dominance is 10.18% with 4.9% weekly delta, and beta of 1.30.
    • Bitcoin hashrate is 48.64B TH/s, with -2.7% weekly delta.
    • Ethereum hashrate is 168.15K GH/s, with 9.5% weekly delta.

 


CHART OF THE WEEK

Halvening centric perspective on Bitcoin price. Source: Twitter @TuurDemeester

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.


BrankoMay 11, 2019

13min51

May 10: The crypto market is experiencing a rally led by BTC and ETH, with the latter nearing the $200 mark, and it’s turning the sentiment positive across the entire crypto space. There is still some doubt in the air regarding drama surrounding Tether and the recent Binance hack, but investors don’t seem to mind these issues. This behavior may very well mean the bear market is indeed over because bear markets typically end when the news remains bad but the market stops going down.

 


NOTEWORTHY NEWS

Ethereum 2.0 Proof-of-Stake Testnet Blockchain is Live —May 8, Cointelegraph

An Ethereum (ETH) 2.0 Proof-of-Stake testnet blockchain is now live, announced Preston Van Loon, co-founder of sharding development firm Prysmatic Labs, on May 7. An upcoming new Ethereum chain will feature improvements in security, scalability, and decentralization, and will not be introduced to the current Ethereum network by means of a hard fork. Instead, users will be able to transfer value from the current Proof-of-Work (PoW) chain to the new PoS ETH 2.0 chain via a one-way smart contract.

 

Facebook Softens Policy on Crypto and Blockchain Ads—May 9, The Coindesk

Over a year after its outright ban, Facebook has further lifted some restrictions on cryptocurrency and blockchain-related advertisements. In an updated policy announced on May 8, Facebook said ads involving blockchain technology, industry news, educational content, and events related to cryptocurrency will no longer require prior written approval.

 

Binance CEO Publishes Security Incident Update—May 10, Cointelegraph

Changpeng Zhao (CZ), CEO of Binance, has published an update on the exchange’s security revamp and investigation into this week’s 7K BTC hack ($40M). CZ also apologized for having fuelled community concerns by openly discussing the possibility of incentivizing a blockchain re-organization—or transaction rollback—as a possible response to the attack.

OUR OPINION: The fact that CZ even thought about a potential Bitcoin re-org is very strange, as someone who is leading one of the largest crypto exchanges should know that immutability is one of the most important aspects of cryptocurrency and that the suggested re-org is virtually impossible to conduct in practice, suggesting that he was trying to move the focus from the hack to something else. Binance is one of the most exposed exchanges to the systemic risk of Tether, and it’s possible that they just wanted to prevent users from withdrawing funds, as they restricted withdrawals until the situation with Tether settles. Another strange aspect of this hack is that the hackers obtained a large number of API keys and 2FA codes, but trading was not suspended like it was in July last year when API keys were compromised. Funds might not be #SAFU, and we suggest avoiding Tether-based exchanges.

 

Schnorr Signatures Await Bitcoin Cash as Next Upgrade Draws Near-May 7, Bitcoin.com

Bitcoin Cash has a network upgrade via hard fork every 6 months in their road map, and the next one is scheduled for May 15. The main feature of the upcoming upgrade is the addition of Schnorr signatures, which will reduce transaction size and improve privacy, with future upgrades enabled by Schnorr signatures.

 

Chinese Social Media Giant WeChat Bans Crypto Transactions in its Payment Policy-May 7, Cointelegraph

WeChat, a popular messaging and payment provider in China, has banned cryptocurrency trading deals via their app in new policy changes. The new rules will be enforced on May 31, and accounts engaging in cryptocurrency trading will be terminated. Many OTC crypto deals in China currently happen via WeChat.

OUR OPINION: China is turning into a digital totalitarian state with its social credit score system, and companies in China are heavily influenced by the state. It is very likely that this decision was not made by the company itself, and it is expected that crypto will be forbidden entirely, as it directly enables citizens and companies to conduct permissionless transactions and store wealth in vehicles that cannot be controlled by the government.

 

US Rep Sherman Calls for Crypto Ban, Says It Threatens to Diminish American Power-May 7, Cointelegraph

US Congressman Brad Sherman suggested outlawing cryptocurrencies for US citizens because they undermine the global power of the US due to the current status quo of USD as a world reserve currency and its relation to oil purchases. The video can be seen here.

OUR OPINION: What Rep. Sherman stated is exactly what Bitcoin is trying to change, in addition to other things. USD gives the US enormous global power, and they have been trying to keep the status quo for many years, waging wars against oil-producing countries that want to sell oil for other currencies.

 


THE WEEK AHEAD

Blockchain Week and Consensus Begin in New York

Historically, excluding the crypto market movements of 2018, the bitcoin price has gained on average 77% and altcoins 161% in the two months following Consensus. The rally we’re seeing at the moment may have been caused by the positive sentiment of traders and investors who are currently attending one of the world’s biggest crypto conferences in New York.

 


 MARKET OVERVIEW & METRICS

Weekly Market Overview, 3 to 11 May 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value reached $192.4B, with 6.65% weekly delta.
  • Global crypto market turnover was $55.3B, 23.2% from ATH.
  • Real 10 market turnover was $1.64B, 36.67% weekly delta.
  • Bitcoin dominance is 58.1%, with 5.83% weekly delta, and beta of 0.84.
  • Ethereum dominance is 9.7% with 0.21% weekly delta, and beta of 1.29.
  • Bitcoin hashrate is 49.98B TH/s, with -7.46% weekly delta.
  • Ethereum hashrate is 153.60K GH/s, with 0.14% weekly delta.

 


CHART OF THE WEEK

Bitcoin has outperformed every coin in the top 10 over the last month. On average, the top 10 coins by market cap are down more than 30% against bitcoin. As the second-best performer, ether has managed to lose “only” 20% vs. BTC. The BTC vs. alt cycle theory is briefly explained here.

Source:   Twitter @yassineARK

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.


BrankoMay 6, 2019
CryptoGurus-Featured-Image-1-min-forest-1280x720.jpg

12min76

May 3: Bitcoin is seemingly waking up from its long winter sleep, but the reasons for its recent spike don’t have much to do with the oldest cryptocurrency’s fundamental developments. The overall crypto market capitalization increased by 6.24% this week, quickly turning the crypto community’s sentiment more positive. While India is looking into banning all public cryptocurrencies, rumors about Facebook’s coin are slowly gaining some solid ground. The current USDT situation is something the crypto market doesn’t seem to mind much, but it could end badly if the Bitfinex/Tether drama doesn’t get resolved in the public’s eye sometime soon, causing a market-wide selloff due to panic.

 


NOTEWORTHY NEWS

Indian Government Again Discussing Ban on Cryptocurrencies —Apr 26, Coindesk

The government of India is said to be renewing its efforts to completely outlaw public cryptocurrencies. A recent report citing anonymous “government officials aware of details” said that a number of government departments in India have backed the idea of a complete ban on the issuance and trading of cryptocurrencies. Banks in India were barred by the Reserve Bank of India (RBI) last year from serving cryptocurrency firms and exchanges. Since then, a number of exchanges have filed legal petitions to overturn the RBI ban. The next Indian supreme court hearing regarding the subject is scheduled to take place in July.

High-Speed Traders Don’t See an Alternative to Tether—May 2, The Block

The ongoing Tether-NYAG dispute surprisingly did not reflect significantly on the price of tether over the past week. There are not many opportunities to short tether at the moment, because a lot of institutional investors are unwilling to lend the stablecoin out due to increased risk. Given the popularity of USDT, no other stablecoins in the market can substitute for it in the near future.

 

Facebook Seeks $1B for FB Coin Amid Talks With Visa, MasterCard—May 3, Cointelegraph

Citing people familiar with the plans, it was revealed that Facebook is talking to major payment networks—namely Visa and MasterCard—about potential support, along with payment processor First Data Corp. Facebook’s cryptocurrency project, dubbed “FB Coin,” has been fuelling rumors for about a year. According to the rumors, Facebook wants to provide in-house payments to users. As more information reaches the outside, it appears various payment options are under consideration by executives, including payments via users’ Facebook profiles.

OUR OPINION: Facebook is clearly looking to extend its reach into our lives by creating something in the form of a mobile wallet focusing on banking-like services for its users. Banks’ revenue per customer is said to be $800 per year, while Facebook’s average revenue per user is $7 per year. Putting these numbers together, Facebook adding payment services represents an opportunity for 100x growth. With its existing enormous ecosystem, Facebook could quickly grow—or even enforce—the adoption of their own cryptocurrency, even if in a more centralized way. An interesting thought here is that Facebook will not necessarily compete directly with other public blockchains such as Bitcoin or Ethereum, but rather with services like Google Pay and Apple Pay.

 


THE WEEK AHEAD

BTC/USD Trading at a $400 Premium on Bitfinex

The Bitfinex BTC/USD price difference on Bitfinex compared to the BTC/USD pair on BitMex has crossed $400 today, which is the highest it’s been since November when BTC broke $6k and fell by nearly 50%. 

One trader says, “This price difference is a measure of the market’s lack of confidence in Bitfinex’s solvency. The simplest interpretation is that insiders who were confident in solvency are losing confidence and getting out and this will not end well.”. 

The situation with Bitfinex’s premium, while at the time of this writing bitcoin is trading at north of $6k, means that people are willing to pay a premium for bitcoin in order to get out of USDT, which is only 74% backed by USD or equivalent assets, so many consider it a very risky position to hold. Meanwhile, the USDT price on Bitfinex remains steadily above its $1 peg, trading at $1.05, while most other exchanges where USDT trading pairs are available have it trading below $0.99. This percentage difference is then reflected in the $400 premium evident on Bitfinex.

 

 


 MARKET OVERVIEW & METRICS

Weekly Market Overview, 26 Apr to 3 May 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value reached $180.4B, with 6.24% weekly delta.
  • Global crypto market turnover was $47.94B, 33.4% from ATH.
  • Real 10 market turnover was $1.2B, -46% weekly delta.
  • Bitcoin dominance is 54.9%, with 0.18% weekly delta, and beta of 0.83.
  • Ethereum dominance is 9.68% with -1.93% weekly delta, and beta of 1.30.
  • Bitcoin hashrate is 54B TH/s, with 4.91% weekly delta.
  • Ethereum hashrate is 153.39K GH/s, with 4.63% weekly delta.

 


CHART OF THE WEEK

Despite the bear market, the percentage of people who indicated that they are “very” or “somewhat” likely to buy bitcoin in the next five years rose by nearly half , from 19% in October 2017 to 27% in April 2019.


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.


BrankoApril 30, 2019

16min54

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.


BrankoApril 13, 2019

18min51

April 12: The crypto market experienced a slight price slump in the past week, likely just a healthy correction after a quick run-up of almost 30% the week before. This week’s news ranges from Vitalik Buterin urging South Korea to deregulate blockchain and embrace crypto to his rapping on stage at 2019’s EDCON. Additionally, managing director of the International Monetary Fund (IMF) said cryptocurrencies are shaking up the system, and the volume of CME bitcoin futures rose 950% in April. Though it’s a slightly longer read, we have also written a more in-depth piece about the usage of popular DeFi applications that you can read below.

 


NOTEWORTHY NEWS

Vitalik Buterin Urges South Korea to Embrace Crypto—Apr 7, Yahoo Finance

Ethereum co-founder Vitalik Buterin and a bipartisan group of lawmakers urged the South Korean government to deregulate the blockchain industry. They say the current laws are overly restrictive and inhibit innovation.

IMF Managing Director: Cryptocurrencies ‘Shaking the System’—Apr 10, CNBC

Christine Lagarde, the IMF’s managing director, pointed to the changing business models of commercial banks as evidence that innovations like cryptocurrencies are having a clear impact on financial sector incumbents. The IMF boss warned that such financial industry changes must be accompanied by regulation.

CME Bitcoin Futures Volume Skyrockets 950% in April—Apr 5, Bitcoinist

The leading traditional bitcoin futures market has seen an increase in bitcoin futures contract volume since the last crypto rally, which started at the beginning of April. The highest volume of 22,542 contracts was recorded on April 4, when it was 950% higher than on April 1. Each contract represents 5 BTC, which means approximately $563M was being traded.

OUR OPINION: The figure seems small compared to the reported volume of the bitcoin spot market on CoinMarketCap (about $15B in 24h), but not so far behind when compared to the “Real 10 volume” metric (about $700M in 24h), which only considers trading activity from the largest and most trustworthy exchanges.

 


 DIGITAL ASSETS ON THE MOVE

DeFi Apps Are Popular, But What Do They Currently Offer?

Open finance, or decentralized finance (DeFi) applications, is currently one of the hottest topics in the crypto space. We wrote an introduction to the DeFi space a few newsletters ago. Space is very active, with new applications emerging monthly and using one another to offer more convenient and new, previously impossible options for users.

The first building block of the DeFi system was DEX protocols, which enabled token exchange without the need for a centralized entity. They can also be automated and run in the background. The second building block was applications in the lending field. On-demand, permissionless asset borrowing enables other applications to offer more complex services, like financial products that enable leveraged long or short positions with the convenience of buying an ERC20 token. Below are some of the specific applications of DeFi apps.

MakerDAO enables users to issue debt in the form of the Dai stablecoin to themselves. Issued debt is overcollateralized, currently only with ether, but this will change in the future. Since the collateral has to be at least 150% of issued debt at all times, the loan is not directly comparable with traditional loans. Users can open up to 3x leveraged long positions or get some spendable funds without selling their initial ether position. In the first case, leveraged long positions can be synthetic, meaning users who issue Dai are long on ether in the first place. Additionally, they can buy any other asset with the proceeds, creating a diversified leveraged long position. In the second case, the user is confident enough that ether will increase in price, so he doesn’t want to sell it, but he still needs some money for ongoing costs. An example of this could be a DAO that stores capital in ether but needs some cash to pay for ongoing costs.

These two use cases are the main reasons to issue Dai, but when Dai is already issued, it offers other use cases to the rest of the ecosystem participants. Bearish users will buy Dai on the open market to hedge their position without a centralized third party, and different applications on the network will use Dai as a monetary unit. Augur recently announced that in version 2, users will be able to participate in prediction markets with Dai, ignoring the volatility of ether. Dai is becoming a building block of the DeFi system, but it also increases systemic risk.

Lending applications like Compound, Lever, and Nuo enable permissionless lending and borrowing between users. Suppliers of reserves earn interest while borrowers can construct interesting synthetic financial positions. The first and most important feature they enable is short selling. A financial market without short selling is incomplete, as traders can only speculate on asset price increases, while bears have no way of expressing their opinion with a financial position. Most ERC20 tokens did not have a short market prior to lending protocols. A short position constructed using these protocols can differ from a traditional short position because users can pick the type of collateral they want to deposit and define what they want to short the borrowed asset against. For example, a trader deposits BAT to Compound as collateral, borrows ether, and then short sells it into BAT. Effectively, he is shorting ETH against BAT, meaning his position is very specific, as he will profit if BAT outperforms ETH, even if they both appreciate against the dollar, not counting the interest rate. When Dai, which is pegged to the dollar, is used as collateral, the short position is similar to a margin short sell on Bitfinex or Poloniex. Users can also short sell Dai itself.

Prediction markets offer bets on different outcomes. These can be non-asset related markets such as who the 2020 Republican nominee for US president will be, or asset-related ones, enabling complex financial positions and tools for hedging. For example, the prediction market for ETH’s closing price on April 19, 2019 is a multiple-choice market, offering betting on the closing price at different levels—below $100, above $100, above $180, and so on. This enables users to hedge or even leverage their position by betting on the different outcomes. If a user bought ether at $100 and wants to partially hedge his position, he can simply bet that ether will close below $100, or he can bet that it will close above $100 and leverage his position.
Prediction markets also enable hedging against specific risks that are not directly related to hedging market risk. For example, a user who trades actively is always exposed to counterparty risk, such as the risk that an exchange they use will lose his funds or get hacked. Such a user could open a prediction market for whether the exchange will be hacked or not, enabling him to hedge against the specific risk he is exposed to. For another example, miners could hedge against difficulty increases and being squeezed out of profitability by betting that mining difficulty will increase above the point where he can profitably mine.

In theory, prediction markets offer many possibilities, but they are currently limited by liquidity, which is not very high, as well as participation—there is always the possibility that no one will want to participate on the other side of a particular market.

DEX and lending protocols enable even more complex derivatives protocols. They enable margin positions with the convenience of buying a token, meaning that when a user buys this token, smart contracts in the background interact with a DEX and with permissionless lending protocols on behalf of the user. For example, Expo, a derivatives DEX using the dYdX protocol for margin and derivatives trading, enables users to open a short or leveraged long ether position just by buying a derivative token representing this financial position. The system will execute all the required operations on the lending market and spot market in a single transaction, instead of the user having to make the deposit, borrow the asset, exchange it for another asset, and deposit it again.

 


THE WEEK AHEAD

Ethereum Development Conference in Full Swing

EDCON is an annual global conference series aiming to improve communication between Ethereum communities and promote Ethereum ecosystem development. This year’s conference opened yesterday in Sydney, with Karl Floersch and Vitalik Buterin rapping on stage. Their lyrics focused on the scaling and development of ETH 2.0, the next stage of the Ethereum roadmap. The conference will host nearly 100 speakers in total, representing mostly Ethereum and projects surrounding the Ethereum ecosystem.

We’ll write about any interesting announcements or developments from the conference in the next edition of our newsletter.

 


 MARKET OVERVIEW & METRICS

Weekly Market Overview, 5 Apr to 12 Apr 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value reached $170.64B, with -1.74% weekly delta.
  • Global crypto market turnover was $55.1B, 23.44% from ATH.
  • *Real 10* market turnover was $2.12B, with -18.15% weekly delta.
  • Bitcoin dominance is 52.1%, with 3.37% weekly delta, and beta of 0.83.
  • Ethereum dominance is 10.16% with 2.73% weekly delta, and beta of 1.29.
  • Bitcoin hashrate is 49.89B TH/s, with 12.38% weekly delta.
  • Ethereum hashrate is 148.57K GH/s, with 1.45% weekly delta.

 


CHART OF THE WEEK

CVDD (Cumulative Value Days Destroyed), used in conjunction with BTC’s Realised Price, is useful in visualising accumulation bottoms. The resulting chart suggests that bitcoin found its bottom in December 2018.

Source: Twitter @woonomic

 


WHAT CAUGHT OUR INTEREST

1. MARKET SURVEILLANCE REPORT – APRIL 2019

2. DeFi Liquidity Models

3. Augur v2 – A Tour of the Prediction Protocol’s First Major Upgrade

4. Eth 2.0 Economics

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.


BrankoApril 6, 2019

16min14

April 5: April has started out as a green month for the crypto markets, with an average price return north of 15% for the top cryptocurrencies so far. Andreessen Horowitz is looking to ditch their venture capital status and transition into the role of financial advisor in order to be able to invest more deeply into crypto, central banks continue exploring how they might utilize blockchain, and the SEC has released long-awaited crypto token guidance. If you’re wondering what caused the recent upturn in the crypto markets, read below for the most likely reason.

 


NOTEWORTHY NEWS

Andreessen Horowitz Ditches VC Status in Favor of Crypto—Apr 2, Forbes

Venture firm Andreessen Horowitz has filed to become a registered investment advisor to have more flexibility to put money in crypto and other assets. The shift comes as venture investing reaches record levels thanks to huge funds like SoftBank’s $100 billion Vision Fund. According to Forbes, Andreessen is raising a growth fund that will pull in north of $2 billion.

44 Central Banks Are Considering Blockchain Applications—Apr 3, Coindesk

According to a new report by the World Economic Forum, 44 central banks are researching or exploring blockchain technology, with the potential to issue central bank digital currencies (CBDCs). According to the report, DLT could offer the greatest advantages in countries where the existing financial infrastructure is not yet highly efficient compared to infrastructure in more developed countries.

OUR OPINION: The situation has not changed much since the January survey on central bank digital currencies conducted by BIS, which we wrote about in Weekly Insights #14. Development in this segment related to CBDCs is more common to bank-issued stablecoins like JPM coin, which is exploring replacing the cash currently used in the economy and is not directly related to cryptocurrencies such as bitcoin. Cryptocurrencies are not just a potential cash substitute, but a potential substitute for the current global financial infrastructure and monetary system. 

SEC Just Released Its Long-Awaited Crypto Token Guidance—Apr 3, Coindesk

The U.S. Securities and Exchange Commission (SEC) has published fresh regulatory guidance for token issuers, which has been nearly half a year in the making. The guidance focuses on tokens and outlines how and when these cryptocurrencies may fall under a securities classification.

 


 DIGITAL ASSETS ON THE MOVE

A Possible Cause of April’s Rally

The crypto market experienced a large spike on April 2, initiated by bitcoin’s sudden price increase by approximately 20% against the USD. This simultaneously pulled the rest of the market upwards, increasing trading activity and general positive sentiment. According to some sources, the bitcoin price increased after a large market order from a single buyer across Bitstamp, Kraken, and Coinbase at the same time, amounting to about 20k BTC all together.

Bitstamp BTCUSD, daily chart. Source: TradingView

The sudden price increase of bitcoin had two effects on other crypto assets. The first is technical, as the majority of altcoins and tokens have a large share of trading volume denominated in BTC. This means that they will generally move in the same direction as BTC (in USD value), especially when looking at BTC’s shorter timeframes.

The second effect is behavioral, as many crypto traders and investors are currently anticipating a market reversal, the end of the crypto winter. A combination of great overall progress and advancements in the industry–such as DeFi, PoS, and governance–and the sudden price increase of bitcoin have certainly given out an important positive signal. The sudden price increase also caused a short squeeze in several markets. A short squeeze occurs when a sudden price increase liquidates a large number of short positions. Short positions are liquidated by buying back the leveraged asset with a market order, which, depending on the depth of the market, can also force other short positions to be liquidated. An example of a short squeeze in the Bitfinex BTCUSD market can be seen in the chart below. Short open interest declined drastically due to short positions being liquidated.

Bitfinex BTCUSD short open interest, hourly chart. Source: TradingView

 


THE WEEK AHEAD

What do High L1 Fees Mean for Lightning Network?

Lightning Network (LN) is a network of payment or state channels, a second-layer technology, that is being developed and implemented on several different blockchain networks, the largest currently being Bitcoin. The basic idea of a state channel is that two parties open a channel off-chain and can make transactions between each other by updating the state of the channel instead of paying transaction fees on-chain for every single transaction. The net outcome of the channel is later settled on-chain by both parties signing the final state of the channel. When Alice has an open channel with Bob and Bob has an open channel with Christine, Alice and Christine can also transact with each other—this is the Lightning Network. Of course, the system is a bit more complicated, but this is essentially how it works.

While there are several approaches to increase the capacity of a blockchain network, Bitcoin chose LN as its main approach, and as it turns out, custodial solutions are required in order for LN to function as intended, while L1 network is experiencing high transaction fees. Transacting in LN requires at least two on-chain transactions: one for opening a channel and one for closing it. For example, suppose an individual opens a channel with a large hub (someone who has many open channels with different parties) with $50 worth of bitcoin. He pays $2 for the transaction to open a channel and is left with the rest, which he can then spend inside the LN. Meanwhile, bitcoin increases in price, which leads to greater general interest in Bitcoin, increased on-chain activity, and, therefore, higher network fees. Now the network fee is $50 (the actual average Bitcoin transaction fee on 12/22/2017) and our individual is left in limbo, as his funds are unspendable.

Funds in a state channel always have a reservation for a network fee, which is required to close the channel, meaning that each state channel needs to be sufficiently funded, as L1 fees will probably increase dramatically if the block size remains restricted to 1MB. The solution to this problem is custodial services, which are already emerging in the form of wallet providers. A wallet provider has many channels open with larger hubs and other similar services, and their channels are well funded and provide sufficient capacity for regular transacting. A custodian takes users’ deposits on-chain and lends them funds on LN so they can make cheap transactions. The only problem with this solution is that it does not solve the first problem, the problem Bitcoin was trying to solve in the first place: having a trustless network for value and information exchange in which participants are not dependent on trusted third parties (banks). LN on its own does not solve the scalability issue of Bitcoin in a trustless way if L1 transaction output does not increase.

In the case of stale L1 capacity, there is another problem to tackle that is yet to emerge. Currently, Bitcoin is in the third reward era. Block rewards are halved approximately every four years. Rewards started with 50 bitcoin per block in 2009, and currently, each block reward yields 12.5 bitcoin. When the protocol issues a small amount of bitcoin per block, the only compensation miners will receive for securing the network is transaction fees. The network will need to host a large number of transactions for miners to keep using their computation power to secure Bitcoin, meaning L1 capacity has to be increased or limited supply has to be changed.

 


 MARKET OVERVIEW & METRICS

Weekly Market Overview, 29 Mar to 5 Apr 2019. Source: Coin360

Weekly Crypto Stats

  • Global network value reached $173.66B, with 20.96% weekly delta.
  • Global crypto market turnover was $62.3B, 13.44% from ATH.
  • *Real 10* market turnover was $2.59B.
  • Bitcoin dominance is 50.4%, with 0.26% weekly delta, and beta of 0.83.
  • Ethereum dominance is 9.89% with -4.54% weekly delta, and beta of 1.29.
  • Bitcoin hashrate is 44.39B TH/s, with -4.76% weekly delta.
  • Ethereum hashrate is 146.44K GH/s, with 3.14% weekly delta.

 


CHART OF THE WEEK

Visualization of the Ethereum ecosystem showing ample interactions and relationships between subcommunities.

Source: kauri.io

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.

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