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Monday, August 20, 2018

CryptoAM: Coinbase Woes, Australia Goes Blockchain, and Chinese Hacks

Monday, August 20th


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3 things you need to know:

One: Australian Stock Exchange’s migration to blockchain could eat into $23 billion worth of costs. It is estimated that large investors pay ~1.2% of their position size in fees for expenses related to settling and clearing transactions. The new blockchain-based system, which is replacing the old CHESS system for clearing and settlement of trades, is being developed by Digital Asset Holdings. It is expected to go live in two years.

  • “By doing all of this within a highly secure environment where permissioned users have access only to the data that they are entitled to see, ASX is safely liberating the source of truth information in real-time such that it can be used by participants and other providers to build new services across the value chain”

  • Big Leagues: ASX’s implementation of blockchain will be one of the largest uses of DLT in mainstream finance once it is deployed. It will reduce risk, costs, complexity, and time associated with transactions.

  • Read more...

Two: Coinbase has seen an 83% decrease in trading volume since its peak in January 2018. Coinbase’s decreasing volume can be attributed to a few factors including (but not limited to):

  • Thinning retail interest: Coinbase’s meteoric drop in activity came during a market correction in which funds flows into the asset class from retail investors have been negligible. As the United States’ most vanilla and regulatory compliant crypto exchange, Coinbase is the preferred gateway for investors to enter the market through fiat. It makes sense that as retail interest has declined, so have Coinbase volumes.

  • Tether availability: The lack of Tether availability on Coinbase could also be affecting its posted volumes. Tether is the second most liquid cryptocurrency behind BTC, and contributes to ~$2 billion+ in daily volume across participating exchanges. Tether is the preferred risk-off crypto asset for many traders and long-term investors, and hundreds of millions of dollars of the token were issued in recent weeks. It could be the case that the lack of the stable token on the platform has led users to other platforms, such as OKEx, which almost doubled its volume between June and July.

  • Keep your eyes open: A huge amount of volume during the December bullrun were people looking to cash in on cryptocurrencies, with no real interest. As Coinbase was the place to go for retail traders, it gained the most usage. We are now in a market where the majority of active participants are those who already have interest in crypto, which is why we are seeing a slow decrease in volume. So, what does this mean for the average CryptoAM reader? You’re playing in a slightly more sophisticated market right now, so trading will get harder. If you’re just trying to time an entry to the crypto markets — look towards Coinbase volume and interest.

  • Read more...

Three: Chinese hackers arrested for theft of $87 Million worth of cryptocurrencies. The police were tipped off of their activities by one victim who had $14.5 million stolen from his computer. Over the course of three months, the police were able to trace the origin of the hacks by employing the help of various internet companies.

  • Pest Control: As far as hacks go, $87 million is a pretty massive sum. It’s not clear whether any of these funds were stolen from exchanges, but that certainly could be a possibility.

  • Traceability: It’s good that investigators were able to identify these individuals as quickly as they did. It acts as a strong deterrent against other hackers, and shows the world that cryptocurrency is not some perfect, untraceable tool for money laundering and criminal activities. Unless, of course, you use Monero.

  • Read more...


Also in the news:


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Market Outlook:

Quick Take

We’ve seen some sideways trading in recent sessions after (likely) finding a local bottom in the 6k area. BTC has been trading in a tight band between ~6.3k and ~6.6k, with each level being a key short-term support or resistance, respectively. Until some event violently drives price action in one direction or the other, we expect continued sideways price action between these levels.

A strong break into the yellow box and a retest of 6.8k becomes likely. If we break down through the yellow box, 6k becomes likely. I’m buying resistance and shorting support for the next move. Volume has been declining and an impulse move is coming any day.

Daily Chart

Fear & Greed

F&G suggests we are more likely to bounce here than breakdown. Momentum is picking up, and traders are now closing shorts at highest rate in the last month. Speculation is incredibly low right now, and I believe alts will run with BTC.

Here’s a reminder of what these criteria mean

Around the corner:


What I’m reading today:

Is Financialization A Double-Edged Sword For Bitcoin And Cryptocurrencies?

Decentralized. Anti-government. Anti-bank. Libertarian. Cypherpunk. All words that one would have used to describe the cryptocurrency fanatics of 2013. Today? Not so much.

One of the funniest things about crypto is the increasing influence of traditional finance, which can be seen in the plethora of re-invented traditional finance products in the crypto space. We see things like crypto-banks, crypto-loans, crypto-brokerages, crypto-money market accounts...etc. It often seems as though we are just building the exact same traditional finance system -- but instead of being built around fiat, it’s built around crypto. While some of these developments are objectively good, others are arguably detrimental to the ethos of cryptocurrency.

In this article, Caitlin Long goes over two types of financialization, one which she characterizes as good, the other bad. The first “good” type of financialization is liquidity from new entrants to the system who will all start offering services and building products around cryptocurrencies. The more people in the system providing liquidity, the better the system becomes. The second, “bad” type of financialization comes from debt based liquidity.

What should be understood before proceeding, is that the majority of our current financial system is debt based, and not equity based. What this means is, the majority of money that exists in this world is not actually held by the people who technically “own” that money. Rather, they actually own an IOU from a bank (or institution) that says “yes, we owe you this particular asset/amount of money, etc”.

The worry about the second type is the financial system can actually create derivatives that are not backed 1-1 with physical assets, which is what happened during the 2008 crisis when credit default swaps (a type of derivative) grew to almost 10x the size of the underlying market. This created a situation where the derivatives markets moved the underlying…

Caitlin worries that a similar derivatives market would spring up around cryptocurrencies, and allow major institutions to “capture” cryptocurrencies.

Personally, I believe that what matters is the underlying. If a new financial institution is to be built around crypto, that’s okay -- as the underlying money is sound. If you believe in the future of Bitcoin, it will benefit greatly from the increased exposure and ease of use that comes with financialization, regardless of the type. At the end of the day, as a crypto user you are able to exist to outside the system if you choose! That’s the beauty!


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