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Tuesday, September 25, 2018

Bakkt Futures, Blockchain Lettuce, and Andreessen's Stable Bet

Tuesday, September 25th


☕️ It’s a rainy Tuesday, and I’m writing to you as I’m on my way to NYC. Bitcoin has taken a nosedive, and we’re back in the comfortable 6300-6600 range that has become too familiar to us. Which way will we go next?



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3 things you need to know:

One: Andreessen Horowitz buys 6% of the total supply of MakerDAOs governance token.

Andreessen dipped into their behemoth $300m blockchain focused fund, and bought approximately ~$15M worth of MKR (the governance token of the MakerDAO system) directly from the core team at a 25% discount from market price. According to the MakerDAO team, this $15M will be used for operational purposes.

  • MakerDAO is the issuer of the ethereum based stablecoin, DAI. The system uses staked ethereum as collateral to back the DAI token, unlike Tether or G-USD, which are backed 1-1 by the U.S dollar.

  • DAI is pegged to the dollar, and keeps its value by allowing anyone to buy or redeem 1 DAI for $1 worth of Ethereum at any time. This ensures arbitrage opportunities and incentivizes people to take advantage if the open market begins price DAI above or below $1.

  • MKR is the governance token of DAI. MKR grants holders the ability to vote on and manage collateral limits and rules of the DAI system, in exchange for some of the fees that the system accrues.

  • Stablecoins are hot. That much cannot be denied. The issuance of decentralized and non-pegged stablecoins present a real threat to general cryptocurrencies. Volatility truly terrifies your average person (more than us crypto people realize), and adoption is much more likely to be driven by a stable asset than a volatile one. At least in the short run (1-2 years), I would not be surprised if countries experiencing hyperinflation turn towards stable coins instead of Bitcoin, as stable coins become more prevalent and battle tested. 

  • Read more about the DAI system…


Two: Bakkt announces physically delivered Bitcoin contracts.

These will be the first of their kind, as both the CME and CBOE futures are cash settled. This is a big departure from the status quo, and indicates that Bakkt either has built out or has found a custodian that is both regulated and able to handle the high volumes they expect on their platform.

Bakkt@Bakkt

Our first contracts will be physically delivered Bitcoin futures contracts versus fiat currencies, including USD, GBP and EUR. For example, buying one USD/BTC futures contract will result in daily delivery of one Bitcoin into the customer’s account.

September 25, 2018

  • This is the first major development that Bakkt has announced since they first launched in early August. This is a big step forward for the institutionalization of crypto, which is the main goal of Bakkt. The products they are developing will focus on ease of access and regulatory compliance, theoretically opening the doors to many companies, funds and investors who were previously locked out of Bitcoin due to regulatory or custodial issues.

  • In their own words:

    “Bakkt’s secure global platform will connect investors, merchants and consumers, making it easier, faster and more cost-effective to access, trade and use digital assets. Bakkt’s open-source, neutral platform will be designed to meet applicable regulatory requirements, and to support innovation around digital assets and blockchain applications.”

  • Go deeper…


Three: Walmart is rolling out a blockchain solution to track shipments from food to plate.

The massive retailer made the announcement on Monday after a two year pilot.

  • In the wake of the romaine E. coli outbreak this spring, Walmart is implementing blockchain technology to manage its romaine and spinach supply chains. They claim that the technology will allow them to identify compromised points in the chain and respond to issues like this more quickly. The Walmart blockchain solution will be powered by IBM.

    “Last year, Walmart conducted an experiment trying to trace the source of sliced mangos. It took seven days for Walmart employees to locate the farm in Mexico that grew the fruit. With the blockchain software developed by IBM, the mangos could be tracked in a matter of seconds, according to Walmart.”

  • This is one of the first blockchain trials of this scale. All eyes will be on the trial to see how it pans out; if it goes well, other corporates are sure to follow in Walmart’s steps. We need more large first movers to take the plunge into blockchain so that others can learn from them and follow in their footsteps.

  • Note that they are using a permissioned (read: private) blockchain. There has been a lot of negativity from the broader cryptocurrency community surrounding the use of private blockchains, with many convinced they have no real value add. This trial will be a test run for one of the largest private blockchain implementations yet, and will hopefully provide some answers about feasibility and usefulness.

  • Read more...


Also in the news:


Market Outlook:

Quick Take

Direction: We invalidated the bull thesis relatively quickly yesterday, and the break below 6520 level mentioned yesterday indicated further downside, as there we likely many stops placed at that level. Alts have pared most of their gains, and we are back in familiar trading ranges. Based on overall sentiment, and the lack I’m expecting a test of lower support at 6320.

One of the things you can do to remove yourself from retail traders is to try to understand what your average trader is thinking, where their stops are and how much leverage is being used. Many of the rapid drops/appreciations we’ve experienced (and all of the bart patterns) are due to stop runs, of the the intensity can be reasonably predictable.

Key Support:  6380, 6320

Key Resistance: 6450, 6515

Actions: I’m flat right now, waiting to see the next large move. Overall, the market structure looks weak, with 6700 being the fifth consecutive lower high. Low selloff volume is the only sign of potential upwards action.

Fear & Greed

F&G is unfortunately high for the 6400 level, which is usually a solid predictor of further downside to come. F&G has generally been in the mid 20s - 30s when BTC is trading around 6400, so having it at 46 indicates we are “normalizing” lower prices.

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 watching today:

Here’s a fantastic video with two of the best algorithmic crypto traders in the game. Ateet Ahluwalia & Nikhil Kalghatgi are both partners at CoVenture Crypto, an crypto hedge fund. Ateet is a former Goldman Sachs quant, and Nikhil Kalghati is a Harvard MBA, and former principal at SoftBank. They both approach crypto with a uniquely quantitative angle, and I highly suggest this video to those interested in trading.


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Most newsletters tell you the news. We help you do something with it 🔥