CryptoAM: EtherDelta vs. the SEC, Shipping on the Chain, and Fork Madness

Thursday, November 8th

📉 Happy Thursday CryptoAM crew!

Some big news dropping today with the announcement of an SEC action against Zachary Coburn, the Founder of EtherDelta. The markets took a slight dip on the news.

Come join us on telegram, and discuss all this madness.

3 things you need to know:

One: SEC charges EtherDelta founder with operating an unregulated securities exchange

The first SEC lawsuits involving a decentralized exchange dropped today, sending a warning shot to all exchange operators with U.S exposure. The SEC claims that Zachary Coburn knowingly facilitated the exchange of securities on the EtherDelta platform without regard for U.S securities law.

“EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division.

Without admitting or denying the findings, Coburn consented to the order and agreed to pay $300,000 in disgorgement plus $13,000 in prejudgment interest and a $75,000 penalty. The Commission's order recognizes Coburn's cooperation, which the Commission considered in determining not to impose a greater penalty.

- SEC Report

Be smart: SEC investigations take time and it’s unlikely that EtherDelta is only one they will be hitting. Over the next few years, expect to see many different organizations hit with fines, cease and desists, etc. We’re in the first inning of a very long game.

Robert Jackson Jr, an SEC Commissioner has claimed there is not a single ICO on the market that doesn’t fit the mold of a security — so legally, every single exchange was/is breaking the law. However, the SEC has made it clear they don’t want to stifle innovation, and take “good faith” into account meaning that they are likely to be lenient towards those that make an effort to stay lawful.

Decentralized exchanges are particularly vulnerable, as they often invite an “open door” policy towards coin listings meaning that any coin can list itself. I expect to see this action stall the development of truly decentralized exchanges, as they scramble to stay compliant. Only anonymous devs will be able to effectively create a truly decentralized exchange moving forward.

Go deeper: Read the SEC Press Release and the CoinCenter Analysis

Two: Nine leading shipping companies and terminal operators have signed a MoU to pilot a DLT platform

The MoU is aimed at forming a consortium of shipping industry leaders focused on the nascent distributed ledger technology; participants include:

  • CargoSmart who initiated the alliance and will provide the software solution for the network

  • Large port operators and shipping groups such as PSA International, Shanghai International Port Group, CMA CGM, and Yang Ming Marine Transport Corporation

This is not the first logistics/shipping blockchain alliance; Maersk and IBM launched a similar alliance back in August with 94 participants. So, while this isn’t the first or biggest such organization, it is still significant in that more and more maritime logistics companies globally are looking to blockchain technology to usher in new efficiencies.

Go deeper: Read the announcement

Three: Poloniex introduces the ability to trade pre-fork versions of BitcoinSV and BitcoinABC

Polo is allowing users to trade the Bitcoin Cash fork tokens before the fork actually happens, in one of the most innovative plays I’ve ever seen by an exchange.

Some context: Poloniex is backed by Goldman Sachs and was once the top exchange, but has fell to the wayside in recent times. The exchange is trying to rebrand itself as an institutional-grade exchange and is rapidly de-listing sh*tcoins. On top of that, they are offering this never-before seen pre-fork trading service that is sure to draw in significant interest and volume from speculative traders and investors - both retail and institutional.

“Pre-fork trading is available for the following pairs: BCHSV/USDC, BCHABC/USDC, BCHSV/BTC, and BCHABC/BTC.

Customers can convert Bitcoin Cash into equivalent amounts of BCHABC and BCHSV and, also convert BCHABC and BCHSV back into BCH if they’d like to withdraw funds.

Customers won’t be able to withdraw BCHABC and BCHSV ahead of the hard fork.”

- Poloniex press release

Poloniex is taking a neutral stance on the fork and is facilitating a market for both ends, and Poloniex BCH traders and hodlers can choose whether or not they would like to participate in those markets.

Since there are now liquid pairs for these tokens, we can use them to see what the market is thinking. As of now, BCH ABC is leading the fight, at almost 5x the BCH SV.

If you buy BCH and hold through the fork, as of now you make a cool 17.50!

Also in the news:

Market Outlook:

Quick Take

Direction: We experienced a slight pull as expected yesterday, dropping about 1.2% down to the 6410 resistance level.

Key Support:  6410, 6380, 6320

Key Resistance: 6460, 6500

Actions:  I’m looking toward the green band. I’m leaning bullish, but will reduce my long position if we break below 6380. I will exit completely on a break of 6320.

Fear & Greed

Still decidedly greedy today. Based on overall market structure, I’m still bullish — but, we could be due for more pullback.

Here’s a reminder of what these criteria mean

CoinSavage: Truth in Crypto

There’s a big problem with crypto trading. Too many fraudulent actors. People actually take trade signals from random people in twitter— with no way to vet anything.

CoinSavage is the platform to change all of that. They have built a fantastic (and free) platform where all portfolios, trades, and ideas are open sourced and timestamped. No more hindsight TA, now you can actually see for yourself if people are performing, and prove to your audience you know what you’re talking about.

Around the corner:

What I’m reading today:

Closing the Cash Gap With Cryptocurrency

I read this Bloomberg article yesterday and thought it provided great examples of why Bitcoin is both so hard to grasp by most in the high income world, while being simultaneously so attractive for those in low income countries.

Fundamentally, Bitcoin is about trust. When you buy into a system, you’re staking trust in the system as collateral for the value the system provides — because if the system you’re using crashes tomorrow you are now left with nothing. Bitcoin removes this element of “trust in people” and introduces the ability to “trust in code”. Generally, I view code as more trustworthy than humans (when audited). It’s difficult to audit the intentions, intellect and capability of us meaty humans.

People in low income countries have every reason to mistrust their governments and financial institutions. Mismanagement of finances has ruined thousands of societies before, and it will continue to do so long into the future. People in developed nations are lucky to have robust institutions and competent people in charge (and in the minority).

What’s is also interesting to me is the concept of leapfrogging, in which low income countries skip technological developments that are widespread in high income countries because by the time the tech reaches them it’s already outdated.

Take credit cards for example. Credit cards never really took hold in China, because by the time China was wealthy enough for it’s citizens to demand better payment models, digital payments were already on the scene. So China went straight from cash to Venmo-like equivalents in WeChat and AliPay.

This preponderance of digital payment systems is not unique to China. Mobile payments are not ubiquitous in India, Kenya, and other formerly low income countries. This makes it easy to introduce the concept of cryptocurrencies, and easier to get people to adopt.

This perfect storm of tech infrastructure, cultural acceptance and mistrust in institutions leads me to believe that the revolution will take off in low income countries, and I will be looking for any opportunity to help!

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CryptoAM is a Ledger Group project. We offer consultancy, advisory and research services for established companies and start-ups interested in the blockchain & digital asset space.

CryptoAM: More Banks, Reliance on Blockchain, and a Chinese Crackdown

Wednesday, November 7th

Hey team we’re still giving away one LEDGER NANO to a lucky subscriber. All you have to do is retweet this tweet, and be subscribed to CryptoAM :)

3 things you need to know:

One: 15 banks have entered the testing phase of the Depository Trust and Clearing Corporation’s main blockchain project

DTCC is building a cloud based distributed ledger for its credit derivatives trade and information warehouse; Barclays is the largest global bank involved in the trial - the other 14 institutions remain unnamed.

  • DTCC’s TIW distributed ledger will go live after 1Q2019, and an open testing phase will open by the end of the year if all goes according to schedule.

    “We are pleased to be working with DTCC, our partners and colleagues on this exciting project to bring distributed ledger technology to life in a demonstrable way that will enhance efficiencies and lower costs and risks for the industry”

    - Lee Braine of Barclays

TIW provides lifecycle event processing services for ~98% of credit based derivatives transactions globally ($11tn) - this may well be one of the most ambitious and consequential enterprise blockchain/distributed ledger projects to date!

  • The warehouse has a massive customer base of over 2,500 buy-side institutions in over 70 countries

  • This means that despite their view on crypto and blockchain, over 2,500 buy side clients will be utilizing distributed ledger technology in their derivatives transactions - all that should matter to them is the front end interface, anyways

Key buildout participants:

  • IBM for program management and integration services

  • Axoni for DLT and smart contract functionality

  • AxCore blockchain protocol

  • R3 is acting as a solutions advisor  

Two: India’s largest company is now trialing blockchain for trade finance

Reliance Industries, India’s largest private corporation and a key player in the country’s energy markets, has completed its first trade finance transaction using blockchain technology.

“This transaction validates the commercial and operational viability of blockchain as an alternative to conventional exchanges for paper-based documentation.”

India has taken a negative stance with regards to cryptocurrency, and the RBI (central bank) decided to implement a ban on crypto trading in the summer. This news, especially coming out of India, is quite encouraging, given the fact that it illustrates the general acceptance of blockchain as an emerging, revolutionary technology that can and will exist with or without the presence of cryptocurrencies.

Key details:

  • The counterparty to the blockchain powered transaction was Tricon, a US-based global chemicals distributor

  • HSBC and ING Bank Brussels facilitated the letter of credit for the shipment between the two energy giants in a fully digitized transfer of title. Using blockchain technology, the process takes up to one full day relative to 7-10 days through traditional channels

  • The use of blockchain is a significant step toward digitizing trade…The overall efficiency it brings to trade finance ensures cost effectiveness, quicker turnaround and potentially unlocks liquidity for business.” - Hitendra Dave, HSBC India Global Banking Head

Three: The People’s Bank of China is cracking down on crypto airdrops from blockchain projects.

The PBoC is going after what are essentially ICOs in the guise of airdrops. Last year, there were 65 ICOs executed within Chinese borders, and approximately 105,000 chinese residents were involved in them, contributing roughly ~$375mm (USD) to these projects. This year, projects are attempting to orchestrate pump and dump schemes through airdrop.

Malicious actors will exist in any and every market, and when safeguards are put into place, they are sure to find alternative means to conduct their desired activities. No more ICOs? Enter airdrops.

Key details:

  • The PBoC is reportedly planning to conduct an investigation into crypto firms distributing tokens through airdrops

  • In its most recent financial stability report, the bank stated that airdrops are essentially ‘disguised’ ICOs, and there are an increasing amount of these ‘opportunities’ being presented in the Chinese markets. Last year, China clamped down on ICOs; this year, the regulatory trend continues with airdrops

  • In August, the Chinese National Internet Finance Association (NIFA) included a token sale section in its website, and is encouraging residents to report potential crypto scams

Also in the news:

Market Outlook:

Quick Take

Direction: Bitcoin continues it’s slow climb upwards, and increasing volumes, alt appreciation and fundamental developments lead me to believe that a bullish test of 6800(+300) is significantly more likely than a drop down to 6200(-300).

We broke through the upper resistance painted yesterday. Next target is 6580. If broken, we would likely see more rapid appreciation as shorts begin to cover.

Key Support:  6460, 6410

Key Resistance: 6520, 6580

Actions: I will be moving out of the alts in my portfolio that have appreciated significantly, and redistributing gains to Bitcoin and other similar tokens that haven’t moved. I will be opening up small longs on BTC here, laddering them down due to an overly greedy F&G

Fear & Greed

We’re decidedly greedy today. Based on overall market structure, I’m still bullish — but I’ve laddered my longs along support levels to catch a pullback.

Here’s a reminder of what these criteria mean

CoinSavage: Truth in Crypto

There’s a big problem with crypto trading. Too many fraudulent actors. People actually take trade signals from random people in twitter— with no way to vet anything.

CoinSavage is the platform to change all of that. They have built a fantastic (and free) platform where all portfolios, trades, and ideas are open sourced and timestamped. No more hindsight TA, now you can actually see for yourself if people are performing, and prove to your audience you know what you’re talking about.

Around the corner:

What I’m thinking today:

A brief on Consensus Mechanisms

In this great post, Jordan Clifford from Scalar Capital breaks down consensus mechanisms. This is now the #1 article I send people when they ask me about consensus.

Jordan breaks down consensus mechanisms into two types:

  1. Mining algorithms

  2. Non-mining algorithms.

Mining Algorithms:

CryptoAM: A Bitcoin Cash Hardfork, a Plain English Guide, and a Goldman's Touch

Tuesday, November 6th

🔥We’re back in action this week from our hiatus, sorry to keep you all waiting. It’s been a wild couple of weeks for us over at Ledger Group. CryptoAM is a hobby of mine that started taking up a lot of time — so when our research business picked up, it was a scramble to sort out the AM. We’ve figured the time out, and we’ll be back up an running for the foreseeable future!

To keep things interesting, we’re giving away one LEDGER NANO to a lucky subscriber. All you have to do is retweet this tweet, and be subscribed to CryptoAM. Simple stuff. Think of it as my way of saying sorry for the dark times.

3 things you need to know:

One: The Bitcoin Cash Hardfork — what’s going on?

You may have noticed over the past few days, Bitcoin Cash (BCH) has been on a run. BCH is up about ~30% since November 2nd, with the clear driver being the upcoming hard fork.

For context, the BCH roadmaps plans for network upgrades twice a year. In theory, these will be non-contentious forks. In reality, we are seeing a battle between two different BCH implementations.

  • The first (BCH-ABC) is a continuation of the current roadmap, with a focus on slowly laying the technical groundwork for scaling.

  • The second (BCH-SV) is a proposed change to the network that would increase block sizes to 128MB, and forgo all other changes to the code, which the developers of BCH-SV deem unnecessary.

  • These upgrades are incompatible with one another, and may lead to a fork similar to the BTC fork we saw in August 2017 — the one that birthed BCH.

  • BCH-ABC is being supported by Binance, who announced their decision on November 2nd, sending the price of BCH flying. Coinbase followed suit later that day at around 8pm, saying they would also support BCH ABC.

  • BCH-SV has gained support from popular influencer Craig Wright, CoinGeek, and the anonymous owner of, Cobra.

  • The prospect of a contentious fork generally drives price up until the fork date as investors accumulate the to-be forked coin. Prices often tumble after the fork, as investors cash out both the newly created coin, the old one and move to new assets.

Bitcoin Cash is expected to conduct a hardfork upgrade at about 16:40 UTC on 15th November 2018, so I’ll be keeping an eye on it until then. Forks and Airdrops are some of the most profitable

Go deeper: Read the SV proposal and the ABC proposal

Two: The SEC claims that a plain english guide to ICOs is coming

The SEC is planning to announce a “plain english guide” to ICOs later this year, according to William Hinman, a director at the SEC. Seeing as the SEC hasn’t released any clear guidelines on which ICOs, this would be a great step in the right direction.

It wouldn’t surprise me if the “plain” guidelines are just a rehashed version of the same old Howey test. After all, the Chairman of the SEC has said as much before. In a statement last December, Jay Clayton cautioned lawyers that laws remain laws, and didn’t give any indication that new frameworks will be introduced.

“When advising clients, designing products and engaging in transactions, market participants and their advisers should thoughtfully consider our laws, regulations and guidance, as well as our principles-based securities law framework, which has served us well in the face of new developments for more than 80 years.”

Go deeper: Read the Coindesk report on Hinman’s remarks

Three: Goldman Sachs has signed up a small number of initial clients for a bitcoin trading product

Another day, another wall street bank is in crypto. This comes a few weeks after Goldman claimed they were shutting down plans to advance their trading desk. This a typical for the news cycle re: crypto. Reports that institutions are entering the crypto space are often follow by retractions, clarifications, and then confirmations.

In an industry fraught with uncertainty, move slow and break nothing is often the best approach — and it’s clear that to me that banks are just as obsessed with controlling the narratives as retail investors are with their entrance into the markets.

To sum up some major bank moves in crypto & blockchain over the past month:

Some key points about the product itself:

  • The product will be a cash-settled non-deliverable forward that will be traded on the OTC market

  • The source of this news also dismissed claims that the financial giant is exploring ethereum derivative products. BTC has gained a strong foothold in terms of approaching widespread institutional acceptance, but ETH has yet to see comparable progress.

Other participants are currently/planning to be operating in the BTC derivatives market, such as the CME, Bakkt, CBOE, and LedgerX. Although Goldman won’t be offering them, derivatives products for new underlying cryptos (i.e. ETH, XMR, etc.) are coming soon from these other players.

Something fun: Scientists say mysterious 'Oumuamua' object could be an alien spacecraft

Harvard researchers raise the possibility that it may be “a fully operational probe sent intentionally to Earth vicinity by an alien civilization.” - NBC News

It’s a ridiculous, non crypto related story.

Also in the news:

Market Outlook:

Quick Take

Direction: We’re currently in one of the tightest ranges BTC has experienced since the bear market of 2014. BTC volatility has plummeted and we’re at the lowest point ever on the .BVOL index since BitMEX started running calculations back in Feb 2017.

Bitcoin dominance peaked at about 55% this cycle, and has slowly trended down as select alt coins have been popping off. We’ve seen the addition of two alts, ZRX and BAT to Coinbase, both experiencing 30%+ pops due to the listing. I’d expect similarly positioned alts to perform well, as alt coins generally outperform in times of low BTC vol.

Bitcoin volume has declined dramatically since it’s December peaks, and over the past two months BTC has lot a decent amount of volume to alt coins as speculators seek higher returns (see: flight to risk-on assets during stable periods).

Thanks to coinhills, a great resource!

Charting BTC in this range offers little insights, so I am just including the chart to indicate the key levels we need to break on high volume to indicate direction. On balance volume shows that there has been significant accumulation though, which is a bullish indicator. I’m leaning towards a bullish retest of 6500 at this time.

Key Support:  6320, 6250

Key Resistance: 6410, 6460

Actions: During this time, I would suggest trading alts — or trying to play both sides of the tight range if you are scalping BTC. Special situation/event driven alpha is the best alpha to chase in times of sideways actions.

Playing actions such as suspected listings, main net launches, news announcements and forks will likely be the best way to trade these markets for the next few weeks until volatility returns. I’ll be picking up XLM and ZEC as potential Coinbase additions, as well as accumulating low cap coins which show promising roadmap results, and have market caps below their ICO raises (there are a lot…)

Fear & Greed

CryptoAM: The OTC Explosion, Another Tether Take, and Fidelity's Vision

Monday, October 15th

Good Monday to the crew!

“This weekend has been short on both news and action. Here’s hoping to a more adventurous week.”

Is what I wrote last night before I woke up today. Thankfully, Tether answered my prayers and more. We’ll be discussing the craziness of the past few days below.

For those New York based AM’ers, I’ll be here for the next three days. Drop me a line on Telegram, or hit me up at the Battle of the Cryptos event!

3 things you need to know:

One: Circle claims to be processing over 2B a month in OTC volume

Claire Wells, the head of legal & business affairs at Circle confirmed in an interview with CryptoGlobe that Circle is still doing about $2B a month in volume even as exchange volumes have declined dramatically since the start of the year.

“We are still in a bear market but out desk is doing well and average is still over $2 billion a month.”

OTC desks have become the preferred method for whales to buy and sell Bitcoin, as the desks allow for the large movements of crypto without incurring significant slippage issues. According to a TABB group research group, OTC desks now account for the majority of BTC volume.

“This week, TABB Group claimed that the OTC market of bitcoin is at least two to three times larger than exchange market. Given that the bitcoin exchange market processes around $4 billion worth of trades per day, if the TABB’s assessment is accurate, the OTC market of bitcoin is processing more than $12 billion worth of trades on a daily basis.” - CCN

Some large OTC desks worth mentioning:

Go deeper: Read Claire’s full interview transcript

Two: Fidelity launches a new digital assets company focused on custody and trade execution

The title may seem routine…however the reality is anything but. Fidelity announced a an operational project (and an entirely separate company) that will focus on giving institutional investors access to top notch trading and custody solution for digital assets. They’ve fittingly named the company “Fidelity Digital Assets”.

Fidelity has been dabbling in the digital asset space for quite some time, with their CEO confirming last year that they have been mining Bitcoin since 2014. Fidelity has also made numerous statements in support of the future of digital assets (and cryptocurrencies, more specifically).

  • In the words of Fidelity CEO Abigail Johnson:

    “Our goal is to make digitally native assets, such as bitcoin, more accessible to investors, we expect to continue investing and experimenting, over the long-term, with ways to make this emerging asset class easier for our clients to understand and use.”

Why this matters: Fidelity is massive company, managing over $7 trillion in assets for retail investors and institutions alike. They are also one of the biggest 401k providers in the U.S, and offer many different financial products they could theoretically incorporate Bitcoin and other assets into. It’s abundantly clear Fidelity is making large investments into the digital asset space — and that this isn’t just a PR play.

One thing that I’ve always found interesting is the recreation of traditional finance but in the cryptocurrency world. There are many people in crypto who have never had any real experience in the world of finance, and as they build solutions for the “new world”, they often end up replicating traditional finance without actively realizing it. My reasoning for this is that there are generally good reasons for why the system is the way it is. There is obviously room for upheaval, and change — but often the system is built that way for a reason! So it always provides a little solace to me, when titans of the finance industry enter the world of crypto, and decide it is a good place to be.

Go deeper: Read the reasoning behind Fidelity’s push

Three: Week two of the Tether / Bitfinex Saga — a lesson of vice, greed, and digital tokens

As if anyone needed another take on Tether. Well anyways — here I am giving you the goods. Over the last week, we’ve seen pretty massive depreciation of Tether value, with Tether now trading at 10% discount to USD on Kraken and has continuing to decline against new stablecoin competitors as well, trading at a 12% discount to both Paxos and TrueUSD, the second and third largest stablecoins respectively.

  • Last night BTC ripped upwards at about the same time that Tether crashed, fueling speculation that the wick was caused by a flight from Tether to BTC — and sending the crypto-markets into full blown confusion mode (more than normal).

  • It’s likely the premium is being fueled by American Bitfinex whales who currently cannot access their funds, and are exiting to BTC (or XRP for fast withdrawals) to move their capital to another, less risky exchange.

The Bitfinex (and tether exchange) premium has continued to rise, reaching an almost 10% premium up from around ~1% last week. Bitfinex put out a clarification today, noting that all BTC/USD trading on their exchange which makes the premium suspect, and a great opportunity for arbitrage if you believe the insolvency risk of Bitfinex is low.

  • Unfortunately, Bitfinex is not processing USD deposits or withdrawals at the moment, likely due to banking issues with their prime bank HSBC. In their clarification note today, Bitfinex claims they will have all USD functionality back to normal by Tuesday, October 16th. So, tomorrow. We will wait and see!

The big takeaway: If you don’t own your keys, you don’t own the coin. Unless Tether begins the process of getting regulatory approval, it’s days are numbered. I would caution those with current Tether exposure to consider moving into a regulated stablecoin or just moving back into fiat for the time being. Often when there is confusion and uncertainty, the best move is to wait.

Also in the news:

Market Outlook:

Quick Take

Direction: We broke out the range with a strong bounce (as predicted), but wicked down strongly from 6800 to 6400. The Tether situation is making the charts difficult to trade, so I’d suggest just going off the Coinbase charts to avoid any issues. We broke both resistance levels and have now turned the 6380 resistance into short term support. I’m expecting BTC to channel for a few days, but after that I’m really not sure (sorry) where it’s going.

Key Support:  6380

Key Resistance: 6500

Actions: I’m currently just holding spot BTC, and not taking any leveraged positions as it’s unclear where it’s going.

Altcoins: Alts were hammered by the BTC upswing. Now that BTC is stable, I expect selected alts that are now back at their price floors to begin moving. I’m looking at ICX specifically.

Fear & Greed

Here’s a reminder of what these criteria mean

CoinSavage: Truth in Crypto

There’s a big problem with crypto trading. Too many fraudulent actors. People actually take trade signals from random people in twitter— with no way to vet anything.

CoinSavage is the platform to change all of that. They have built a fantastic (and free) platform where all portfolios, trades, and ideas are open sourced and timestamped. No more hindsight TA, now you can actually see for yourself if people are performing, and prove to your audience you know what you’re talking about.

Around the corner:

What I’m thinking today:

How To Think About Crypto Investing, For Institutional Investors by a16z

Tl;dr: Diversify your assets, choose the assets that people are building on top of. There are a ton of different applications of decentralized networks, spread your roots!

“Think about all the internet-based applications and services we have today, and about what it took to get here — layers of infrastructure, storage, compute, native apps, more — and now, imagine a decentralized version coming for each of those.”

My take: Don’t diversify, concentrate your wealth. I think a16z is fundamentally flawed in their approach here and overestimates the ability for tokens to derive meaningful value (only a few will actually accrue value). It’s unclear if any assets besides SoV assets and Platform (gas) assets will actually accrue value over time. Many things are better decentralized, but most are seemingly not. Many different approaches will be proven and unproven over time! Also, cryptoassets are insanely correlated, so diversifying among tokens in the short term (especially in a bear market) is not a great idea! Institutions that claim to have long time horizons, and will claim entries don’t matter. All I can say is — you can always do better.

Join the conversation on Telegram and Twitter

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CryptoAM is a Ledger Group project. We offer consultancy, advisory and research services for established companies and start-ups interested in the blockchain & digital asset space.

CryptoAM: Security Token Mania, Dr. Dooms Predictions, and Bitcoin Whale Watching

Friday, October 12th

🍁Hey everyone, happy Friday! Hope you guys have fun plans for weekend outside of crypto. Last days of summer here in DC are coming to a close, so I’ll be outside for at least an hour. If you’re missing your CryptoAM fix, don’t forget to join us on Telegram.

3 things you need to know:

One: NASDAQ joins the security token fest, confirming their intent to scope out a token exchange

As reported by the Block, NASDAQ is exploring the possibility of opening it’s own securities token exchange:

U.S. exchange operator Nasdaq could gatecrash the crypto market with a new platform, according to people familiar with the situation. 

Nasdaq is speaking with a number of firms as part of its efforts, including blockchain startup Symbiont. The people said the platform would issue tokenized securities as well as trade them. If such a platform were to successfully come to market it would join a number of firms offering such services including Polymath, tZero, and TrustToken. 

Security tokens have been the “new hot thing” ever since ICO mania died down amidst. Many people have shifted their rallying cry from “decentralize the world” to “tokenize the world” as they’ve realized the whole decentralization thing is pretty hard. That being said, tokenization is a fascinating and powerful use case for blockchain technology, and we’ve already seen some major applications of tokenization such as the equity issuance on the blockchain of the famous Aspen property, St. Regis.

  • We’re seeing traditional institutions like ICE and new start-ups like TZero fight for control here. In my view, it’s more likely for traditional exchanges to win on the exchange building, and for the start-ups (like Polymath) to win significant market share in the issuance of security tokens.

  • Companies like Coinbase are also exploring the security token arena, getting approval from regulators to start listing and trading the tokens when they become publicly available.

Big picture: Of all things in the cryptocurrency space, security tokens seem to be the safest bet. A security token is at it’s essence just an infrastructure upgrade to our current settlement and exchange system. Betting on infrastructure plays here is the move. Figuring out issuance in my opinion is more important than developing exchanges. They key of course, is backing the right horse.

Go deeper: How are security tokens changing the landscape?

Two: Nouriel Roubini goes head to head with Peter Van Valkenburg at a Senate hearing

Yesterday, the Senate heard both the bull and bear case for Bitcoin from two well respected (?) names. Nouriel Roubini, an economist best known for his predictions of the 2008 housing bubble, and Peter Van Valkenburg, the Coincenter head of research. The aim of the hearing was to “sort through the static” and get a better understanding of crypto and it’s place in society.

Roubini’s arguments centered mostly around the inefficiencies and “useless” nature of Bitcoin. He called bitcoin the “mother and father of all scams and [now busted] bubbles.” Roubini also complained that:

  • Blockchain is overhyped

  • Bitcoin cannot scale and it is not decentralized

  • Only criminals and terrorists use bitcoin

  • Crypto is a libertarian’s dream and not realistic

  • Utility tokens will return us to the Stone Age

One of my favorite quotes: “Even the Flintstones knew better than crypto — they used clamshells as their own one currency”.

Roubinis full written testimonial can be found here.

Peter’s arguments focused on the access to to finance that crypto opens up for historically disenfranchised populations, and blockchains ability to transform electronic payments, identity and the internet of things. Peter argued:

  • We are still experimenting with blockchain technology, and the next few years will see marked improvement in scaling and efficiency

  • There is a need for an the choice to be involved in an open financial system, where you do not have to rely on governments or banks

  • The internet lacks a native identity layer, and payments layer. Blockchain & crypto could help solve this issue.

Peter’s full written testimonial can be found here.

Key takeaway: Stepping back from the arguments for a second, it’s a great step forward to see the Senate requesting a hearing like this and to see some solid questions from our government on the state of cryptocurrency. It’s dialogue like this that will lead to thoughtful legislation. The disheartening part of this dialogue was the ferocity and toxicity that accompanied Roubini’s arguments. Of course, writing a newsletter called “CryptoAM” I am most certainly biased — but I believe there are better people to represent the bear case.

Go deeper: Check out Jake Chervinky’s take on the debate

Jake Chervinsky@jchervinsky0/ The US Senate Banking Committee held a #CryptoCongress hearing this morning entitled "Exploring the Cryptocurrency and Blockchain Ecosystem." I went & watched live. Here are my thoughts. Thread.

Three: The Not-So-Killer Whales of Bitcoin

According to Chainalysis, we should be thanking the whales of Bitcoin for propping up the markets — not manipulating them down.

Intensive analysis of bitcoin’s 32 largest wallets, however, shows these fears to be overblown. Our data demonstrates that Bitcoin whales are a diverse group, and only about a third of them are active traders. And while these trading whales certainly have the capability of executing transactions large enough to move the market, they have, on net, traded against the herd, buying on price declines. They appear, in aggregate, to have stabilized the market during recent price declines, rather than exacerbating price movements. This makes sense since these trading whales are professionals with no vested interest in abruptly tanking the market. When they require liquidity, traders are likely to use OTC trading platforms equipped to manage large transactions with minimal market disruption.  

According to the firm, there are four types of “whales”.

  • Traders:  These whales regularly engage with exchanges to buy and sell bitcoin. With nine wallets controlling over 332,000 coins, worth just over $2 billion, whales who actively trade make up the largest category, but only about a third of total whale holdings. Traders are also relatively recent arrivals in the Bitcoin universe: most got into the market in 2017.

  • Miners/Early Adopters:  The second largest group of whales entered the market much earlier, prior to 2017. This group includes 15 investors, also holding a total of 332,000 coins, worth a bit more than $2 billion. Current trading activity for this group is extremely low. Many of them made significant divestments in 2016 and 2017 as the bitcoin price soared and are now, we assume, extremely wealthy.  

  • Lost: Lost whales make up another large part of the pod with five wallets holding over 212,000 coins, worth approximately $1.3 billion. These are wallets where the owner has lost their private keys and can no longer access their bitcoin. By definition, there have been no transactions at all from these whales since 2011. 

  • Criminals: This is the smallest segment amongst the whales with three wallets, over 125,000 coins and just short of $790 million in asset value. Two of these whales are connected with the Silk Road darknet market, while the other appears to be involved in money laundering.

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