CryptoAM: Binance burns, Regulators rule, and Trump tweets


Zac here. Today marks the last edition I'll be writing from the US (I'll continue writing alongside Avi however!). I'm heading to Mexico City to start up a new role as Portfolio Development Manager for Finnovista - Latin America's leading Fintech Accelerator and Fintech research organization. 

I'm bullish on Latin America’s prospects and feel especially strongly about the potential to see a large uptake of crypto and blockchain technology in the region. My bet is that in a continent that has historically been let down by poor governance and corruption, these technologies will have a clearer path to adoption. There's no better way to test that theory than to get on the ground.

If you're interested in learning more about the Latin American Fintech scene or have any general thoughts re: crypto and the continent, ping me here.  



Three things you need to know:

One: Binance burns the BNB tokens of its team

The Binance juggernaut roles on. Yesterday in a company blog post and live stream CEO Changpeng Zhao (CZ) announced that the company was giving up the Binance team’s allocation of BNB tokens (40% or 80M of all issued tokens at time of launch were allocated to the team) and instead will be burning those tokens.

There has been some misinformation floating around about this burn, so let’s clarify a few things:

  • Binance will be burning these tokens as part of their quarterly revenues burns. This will not supplement those returns, but rather change which tokens are burned. Historically, Binance has burned BNB collected from fees on the exchange. Now they will be burning their teams allocation. At the end of burning, there will still be 100M BNB. What is changing is the BNB that is being burned.

  • This probably does change the dynamics of BNB. There have been some people claiming that this shouldn’t affect the price of BNB, since they aren’t burning additional tokens, just different tokens. I disagree with this. A distinction should be made between company allocated tokens and team allocated tokens, with respect to the likelihood of ending up on the market. If tokens were distributed individually to team members, it’s far more likely that they would be sold on the open market than if those same tokens existed on the company balance sheet. By restricting the ability of the individual to sell their tokens, this move has effectively reduced free float supply.

  • This move was probably made for compliance reasons. Binance recently ran into some difficulties with the US, and have to bar US customers from the exchange. The usage of profits to burn BNB and team allocation make BNB a potential security in the eyes of the law, and doing away the team allocation makes a stronger case that BNB is in fact a utility token.


Two: Regulated token offerings have finally arrived (in the US)

Image result for regulation A+

The future of retail investing in crypto has been rewritten. Over the last 48 hours two crypto companies, Blockstack and Props Network, both announced that they had received the blessing of the SEC to conduct regulated token offerings under a framework called Reg A+. Blockstack is raising $28 million of the sale of its tokens, while Props Network is simply looking to distribute its tokens legally.

Why this is important: This is huge from a capital raising perspective in crypto. Ideologically it also allows retail (Mom and Dad) investors to gain access to deals at an earlier stage which could help them generate greater returns (but are generally riskier).

If you’re a small company that is looking to raise money to grow, your options usually looked like this (simplified):

  • Take money from accredited investors (rich people) in exchange for equity in the company (traditional approach)

  • Take money from rich investors in exchange for tokens on the platform (e.g. Algorand, Cosmos) - usually in the form of SAFT agreements.

  • Raise money by token sales (e.g. IEO) but you have to exclude US investors

  • Borrow money from the bank (difficult if you’re small)

  • Crowdfunding platforms (Kickstarter - can raise a maximum of $1.07M)

Initial Coin Offerings, which were the primary mechanism that crypto projects used to raise money in 2017 and 2018, raised money from retail (Mom and Dad) investors by selling them tokens. This was attractive to many teams because a) they didn’t need to give up equity b) conducting an ICO was relatively low cost and c) at the time token prices were generally going up and up.

The problem? Nearly every single one of these token offerings that sold to US retail investors broke security laws in the US, and since then the SEC (the US regulator in charge of policing securities laws) has sued projects or forced them to close down for breaking these laws.

Now however there is an approved legal pathway for crypto companies to raise up to $50M under Reg A+ by selling tokens to these retail investors. It’s true that this $50M cap is less than many ICOs raised during the 2017/2018 heyday, but it nonetheless gives companies another prominent fundraising tool.

What to expect: More crypto projects being approved to conduct regulated token offerings via RegA+. Blockstack and Props have done other companies in the industry a huge favor by essentially fronting a large burden of the legal costs necessary to develop a framework for conducting regulated token sales in the US.

Food for thought: Complaining about the US regulatory environment for crypto and blockchain projects has been a staple of the industry for the last couple years (at least) and has led many crypto projects to incorporate outside the US. One thing to watch is whether these most recent announcements begin to draw projects back to the US, which still has the best capital markets in the world.


Three: NEAR Protocol Raises a 12.1M Series A Round

The race for a scalable blockchain continues! NEAR is a nifty protocol focused on building a better tooled and scalable Ethereum-like blockchain. As it stands right now, Ethereum is still trying to figure out it’s transition to Proof-of-Stake and is even further away from releasing a sharded version of its blockchain, which would significantly improve scalability.

There are quite a few teams working on “scalable Ethereums” as of now, but NEAR differentiates itself because the team claims that they have already cracked the nut on a new sharding solution without a “theoretical limit” to its capacity.

NEAR is also working on a developer friendly interface and tooling kit, which most blockchains are currently lacking. Building applications on Ethereum is currently more difficult than building traditional web applications due to the lack of pre-made infrastructure. As of now, there’s no good “Heroku” for Ethereum, a tool that makes traditional web applications dead-easy to deploy.

NEAR raised funds via a SAFT, and will not be offering a public sale at this time. Investors got access to both equity and tokens in this round, similar to other protocols raising via SAFT these days.

Disclosure: Wave Financial also invested in this round


One Fun Thing: Trump tweets about Bitcoin!

It wasn’t the Bitcoin tweet we were hoping for — but at least we got one. In the words of a good friend:

“There is now a non-zero percentage of 61.9M people that just heard the word cryptocurrency for the first time”

The really interesting part of this tweet thread is the last tweet. It’s clear what the true reasoning for this tweet is — the danger of losing USD hegemony.

In fact Jerome Powell recently admitted that Bitcoin could be considered a store of value and may potentially pose a threat to the US dollar. In a different, previous hearing, Rep. Brad Sherman (D-CA) stated that:

"An awful lot of our international power comes from the fact that the U.S. dollar is the standard unit of international finance and transactions”

"So whether it is to disempower our foreign policy, our tax collection enforcement or traditional law enforcement, the advantage of crypto over sovereign currency is solely to aid in the disempowerment of the United States and the rule of law”

It’s clear that the U.S is now seriously considering and evaluating the cryptocurrency world, and has recognized the potential dangers it poses to the current economic system. This is pretty much unthinkable to anyone in the space even just 3 years ago! Take a moment to appreciate just how far we’re come…


Also in the news:


Market Outlook:

Quick Take

Direction: This is what we call a wait and see market. Bitcoin volatility is all over the place, and so is the price action. I’m still net long, but based on historic upside/downside volatility and weak price action thus far, I’ve taken some risk off the table. I’ll be cutting all longs if we revisit price below 10.8, and find it more likely than not to revisit 4 digit bitcoin if we trade below that support level. That being said, we are in a bull market, and it’s important to keep in mind to not fight the trend too much…

Key Support:  11.2, 10.56

Key Resistance: 11.8, 12.2


What I’m thinking today:

How Futures Trading Changed Bitcoin Prices

Here’s an interesting article written by the Federal Reserve Bank of SF about how the introduction of futures impact the price of Bitcoin. (As a side note, it’s funny to me that the Fed likes to deride BTC while also continuing to furiously research it.)

Here’s the abstract:

From Bitcoin’s inception in 2009 through mid-2017, its price remained under $4,000. In the second half of 2017, it climbed dramatically to nearly $20,000, but descended rapidly starting in mid-December. The peak price coincided with the introduction of bitcoin futures trading on the Chicago Mercantile Exchange. The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.

Basically, the article makes the case that the introduction of CME futures allowed for pessimists to voice their opinion and go short — whereas previously only optimists could voice their opinion by buying. This led to a natural imbalance of buyers and sellers.

Now, this isn’t a completely accurate statement. During the entire 2016/2017 run, it was possible to short Bitcoin in a variety of ways. There were lending desks (although thin) and you could go short on Bitfinex and BitMEX. A counter argument to this is that people that wanted to short with real size were not comfortable with the current infrastructure, and that the introduction of the CME allowed those participants to voice their opinions. This also doesn’t hold much weight, as the volumes and open interest on BitMEX / Bitfinex at the time were much higher at the time than the CME volumes.

That being said, derivatives contracts provide an interesting conundrum. Does the introduction of derivatives lower the volatility of Bitcoin or do they increase it?

Theoretically if going long and short were of equal ease, Bitcoin price would see a dampening of volatility. The confounding factor is leverage. The largest cryptocurrency trading platform in the world, BitMEX, offers users up to 100x leverage. This makes the potential for cascading margin calls in incredibly high. We’ve seen multiple flash crashes on exchanges that allow for leverage (such as the famous 2017 ETH flash crash on Coinbase), and volatility seems to be exacerbated by this excessive leverage.

The wicks on up and down movements are usually much more violent on platforms like Deribit and BitMEX vs spot exchanges like Coinbase because of liquidations that force price to continue in one direction during times of high volatility. There’s no perfect answer right now, but the best one I can offer is that short term day to day trading on highly levered platforms is more volatile with leverage and derivatives, whereas on the macro long term basis they can help provide stability to the markets.

-AF


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: China goes digital, Fortress buys claims, and Polo launches fiat



Three things you need to know:

One: China steps up efforts on Central Bank Digital Currency

Image result for chinese crypto

China’s colorful crypto story continues. In light of the continuing discussion around the implications of Facebook’s Libra, China has accelerated efforts to create an officially sanctioned cryptocurrency. According to China Daily, the Chinese Central Bank is working with “market-oriented institutions to jointly research and develop a central bank digital currency…”

Chinese concern centers around two main areas:

  1. Capital controls. Beijing is worried about Libra’s impact on Chinese cross border payments and monetary policy. On the topic of cross border payments, it is worth noting that China has relatively strict capital controls that means cross border payments must go through regulators. Cryptocurrencies are an obvious threat to this system, as the government would not be able to control inflows and outflows. Commentators have drawn attention to the fact that Bitcoin prices might be affected by changes to Chinese capital controls. Although Facebook and Whatsapp are banned in China, Libra might be accessed through 3rd party wallet providers.

  2. Financial sovereignty. The government is concerned about the role the US dollar will have in Libra’s basket of currencies that will be used to maintain Libra’s stability. From a Chinese perspective not only is the Chinese Yuan not featured in the basket of currencies that Libra has announced, but it does not (nor does anyone else) know what percentage of this basket of currencies the US dollar will be.

    This is an important point. If the US dollar comprised 90% of Libra’s basket of currencies and then received mainstream adoption, US monetary policy could have significant consequences for countries outside its borders including China and other governments around the world (see dollarization in countries like Panama and Ecuador as case studies). Not being able to anticipate or manage these changes in US monetary policy is something that China and other countries fear.

The key quote comes from Wang Xin, director of the People’s Bank of China (PBOC)’s research bureau:

“There would in essence be one boss, that is the US dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences.”


The role of China in crypto:
Despite “banning” cryptocurrency trading two years ago, China has continued to pay close attention to developments in the space. The Chinese Central Bank has been studying digital currencies since 2014 and the Chinese government actually sponsors monthly analyses on different crypto and blockchain projects. The country is also home to the largest mining pools in the world, crucial to the security of major crypto networks such as Bitcoin and Ethereum.

Why it matters: It seems like a strong possibility that governments across the world will look to compete with Libra through a combination of regulatory restraints and/or through launching their own digital currencies. Let’s not forget that Chinese social media platforms like WeChat have over a billion users, allowing it to potentially replicate the Libra model in a way that benefits the Chinese government.


Two: Fortress Offers to Buy Mt. Gox Claims for $900/BTC

The Mt. Gox saga continues! One of the early institutional investors in Bitcoin, Fortress Investment Group, has sent letters to Mt. Gox creditors offering to buy their claims out for $900 a Bitcoin, twice the amount that Bitcoin was worth at the time of the hack ($451).

$900 represents 7% of a Bitcoin at current prices, implying that Fortress believes that for every 100 Bitcoin they buy the rights to they expect to recover 7 Bitcoin. Of course, they view this as a strong asymmetric bet, as even a 20% recovery puts them up 3x on their investment.

Fortress has been quite active in the cryptocurrency for a while. In 2013, they considered opening a Bitcoin investment vehicle, and in 2014 they spent $20m buying Bitcoin on the market.

You can check out the letter below:


Three: Poloniex is launching a fiat - crypto gateway

Poloniex announced today that they are launching a fiat gateway for their customers.

According to the press release:

Poloniex customers can now fuel their crypto trading by depositing and withdrawing funds using cards and bank accounts.

With these updates, there are two new ways to move value on and off Poloniex. The first lets customers directly transfer money to and from their bank accounts. The other allows customers to use their debit or credit cards to buy bitcoin.

Over the last few months, we’ve been seeing a variety of state changes in the exchange ecosystem. Bitfinex ran into banking troubles and issued a new cryptocurrency, Bittrex was removed from NY state, and Binance announced it would be barring cryptocurrency investors from the United States.

It’s clear that the regulatory environment for exchanges in the U.S is turning sour. Just yesterday the NYAG produced evidence that Bitfinex was operating in NY state, giving jurisdiction to try the original case they brought the the courts. (Personally, it seems odd that the NYAG would go after Bitfinex heavily and leave every other exchange alone, despite the fact that many overseas exchanged clearly offered trading access to U.S customers.)

  • As a note, last year I attended a dinner with SEC commissioner Robert Jackson. He was asked why the SEC was not pursuing exchanges with more vigor, and his response was that the government did not want to “stifle innovation”. There are almost certainly unregistered securities in the eyes of the law being traded on many exchanges — but there hasn’t been much action. I would be surprised if this remained the case over the next few years.

This move by Poloniex seems like a hail mary to capitalize on the lack of good “altcoin” exchanges based in the U.S now that Binance has distanced itself from the arena. The U.S altcoin market is now officially up for grabs, and the exchanges with the greatest ease of use and liquidity have an unprecedented chance to capture the throne from Binance.


Also in the news:


Market Outlook:

Quick Take

Direction: Sometimes it’s okay to not know what’s going on. The last few weeks of price action have been full of chop, incredible bullishness, and then much of the opposite. The chop exhibited by Bitcoin has washed out a lot of leverage, and we are now looking at a much less levered market compared to where it was at the start of June.

Generally, the macroeconomic backdrop is very positive for Bitcoin. People are becoming alerted to the dangers of currency manipulation and the need for “safe haven” assets is growing. The ability for Bitcoin to act as a currency of last resort is becoming more feasible in eyes of institutions.

Based on current technical indicators, it seems we have entered the fourth “expansion” trend of the bull market. Expansion is the divergence upward (or downwards) of moving averages after a consolidation. 5, 10, 20, and 50 day EMA's just consolidated then expanded. Measuring the rate of change of the area between those "lines" is basically taking a derivative of momentum. It's nice trick. The boxes in green show what happens when the rate of change speeds up a lot.

I view it as more likely than not we are about the enter another parabolic advance over the next week, and that collecting long spot positions is a positive EV move.

Currency of last resort explanation from a previous CryptoAM — in case you missed it:

A currency of last resort is important for those people trapped in a governmental crisis rather than a liquidity crises. When you hold your countries currency, you are implicitly trusting the government and banking system with full faith to manage the affairs of your country. If they fail to implement effective monetary policy, then you as a citizen and holder of the currency bear a massive cost.

If you believe there is a slight chance that your central bank will not execute effectively, then it’s in your best interest to hold a currency that is not impacted by your state. It’s your hedge. It’s your currency of last resort. If you live in a country with a 1% chance of failure, you should rationally hold 1% of your savings in assets not tied to that country. 50%? Hold 50% of your savings in alternative assets.

Key Support:  12.2k

Key Resistance: 13.8k

Overall Market: Don’t buy altcoins right now. The only ones that are moving are moving on news. Unless you can predict moves — it’s not worth it. The closure of Binance to U.S customers will meaningfully hurt liquidity.

Altcoins that have large Asian followings are the best bet if you’re going to be punting.


What I’m reading today:

Thumbs Down to Facebook’s Cryptocurrency - Joseph Stiglitz

This is an interesting one. Stiglitz is an economic lion on the world stage. A former Nobel laureate in Economics and former Chief Economist of the World Bank, he’s a frequent commentator on world economic affairs. If you believe the speculation, he’s also fairly likely to have an economic role in any future Democratic administration.

The theme: Stiglitz is massively critical of Facebook’s Libra. His main argument centers around three key themes:

1. Libra would be a huge gateway for money laundering activities. He argues that changes in recent years to the banking system have made it harder to launder money, and that Libra would be a risk to this progress.

2. Lack of competition and regulation of companies that control transactions is the real issue with the existing system. He cites the billions in profit that Visa, Mastercard and others make each year as evidence that consumers “pay a multiple of what payments should cost.” He is not convinced that Facebook would help drive down these costs.

3. Lack of trust. He doubts that Facebook would truly step away from the potential goldmine of financial data available through Libra. He also raises questions about how safe a deposit would be, given prior experiences of banks not being able to redeem deposits during crisis situations (e.g. bank runs).

What I think he gets right: The issue of how much trust should be put in the basket of currencies and securities maintaining a stable value for Libra. There’s definitely a bad precedent of countries trying to stabilize the value of their currency and ultimately failing. What happens if things go wrong - do governments bail out Libra so that regular consumers can access their fiat deposits?

What I think he gets wrong:

-
The implication that Libra would act as some massive gateway for money laundering is misplaced (and your libertarian parts of crypto world are actually upset that Libra is too government regulated). Any quick search on the Libra design and AML/KYC standards reveals pretty quickly that the way Libra is currently setup would allow on-chain analysis by firms like Chainanalysis, mitigating much of this concern.

- He seems to think because Libra was created from currencies like the Dollar, Euro and Yen that its purpose is to mitigate against changes in these currencies. That is miles off the mark - the idea is that people who haven’t traditionally been able to access stable currencies (think Venezuelans, Zimbabweans, Iranians) can now do so.

Overall thoughts: There’s some major misunderstandings in key areas. Whether purposeful or just ignorance, this article really drove home how much of an uphill battle Libra has to convince the traditional power players of this world that it should exist.

-ZT


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: The Holiday Edition


Welcome to a special Wednesday edition of CryptoAM. We’ll be off Friday for the July 4th holiday, so have a slightly longer version for you today. As always, we have a party going on in the telegram group. Come say hi!



Three things you need to know:

One: The battle for the cryptocurrency derivatives space rages on

Over the last week, we’ve seen a public explosion of interest in cryptocurrency derivatives products, with many teams announcing their intention to begin building out different types of derivatives.

Binance put feelers into the space last month with their announcement of margin trading, and then a few weeks later Bitfinex announced their intention to offer futures on their platform with up to 100x leverage, in an attempt to compete with the current leader, BitMEX.

The race continued yesterday when CZ revealed at the Asia Blockchain Conference that Binance would be launching futures contracts with 20x leverage on select trading pairs.

At the same conference BitMEX CEO, Arthur Hayes, announced his intention to introduce a Bitcoin denominated zero-coupon bond (which we have discussed previously). The trend is clear — cryptocurrency derivatives are here to stay. If you’re still doubting, just look the data…

Today, the Wall Street Journal published an article about the rise of cryptocurrency derivatives, and pointed out that firms are now exploring exotic structured products that give very specific types of exposure to the cryptocurrency markets. The products range from futures based on Bitcoin volatility to more complicated things like reverse convertibles (very popular in Asia). The future of cryptocurrency derivatives is massive, and it’s incredibly likely that over the next year there will be a Cambrian explosion of cryptocurrency derivatives.

If you’re a cryptocurrency fund that wants to stay cutting edge, being on top of these developments should be a top priority. If you’re an individual investor that wants smarter ways to invest in crypto — you should be aware that derivatives can be useful tools. It’s important to understand how these instruments work, but they can be incredibly powerful for portfolio hedging and reducing all sorts of exogenous risk (sell your Bitcoin + buy call options, buy Bitcoin + buy puts, short perpetuals + hold spot to collect funding rates…)

Some interesting ideas for investment products (disclosure, we are along the path of working on some these at Wave Financial)


Two: Tezos leads the way on major STO developments

STOs have definitely received a bad reputation due to the early 2018 landscape, where the term was being used by scammers to pump “the next thing after ICOs!” Over the last 12 months though, it’s become abundantly clear that security tokens are here to stay — but in a very different way than originally pitched.

STOs are now focused on improving liquidity in assets that were previously illiquid or have a good return curve, but require a significant amount of capital in the beginning to kick off. Assets such as:

  • Real Estate

  • Art

  • Whisky

There is now a rush by protocols to brand themselves at *the* STO platform. Currently Ethereum is the main protocol used for STO’s but now….well…

Banco BTG Pactual S.A., Latin America’s largest standalone investment bank, together with Dalma Capital, a prominent Dubai asset manager, announced today plans to utilize the Tezos blockchain for Security Token Offerings (STOs), including the ongoing REITBZ STO. By utilizing the new platform for digital securities transactions, the financial institutions address a deal pipeline in excess of $1bn for existing and prospective token issuances – with an outlook to utilize Tezos to tokenize a wide variety of traditional and alternative investments.

Tezos! Look who is is. They’re up 16% today on this news — and for good reason. They’ve recently started branding themselves as a great platform for enterprise blockchain and for STO issuance, and it seems to be working well. The question becomes: will value accrue to Tezos because of this?

My take: Yes, value will accrue to Tezos. The general framework for my answer is that the actual demand for a token is driven by two things 1) actual demand for the token via usage of the network 2) perceived demand by holders of the token.

  • If the Tezos protocol is used for issuing STOs, and becomes the de facto protocol for STOs, then it will of course be used to transact and track these security tokens. This will of course require tx fees. Additionally, large issuers of STOs will want to hold and stake Tezos in order to ensure the protocols governance stays healthy and useful for their projects. On the second point, I believe that it’s impossible to understate the importance of speculation as a value accrual method. People often write off speculation for not being “true” value but I vehemently disagree.

  • Speculation on price (if upwards speculation — on good news for example) sets into motion a self-fulfilling prophecy. If enough people buy XTZ because of this announcement, then a feedback loop starts. As Tezos announces more usage of their platform, speculators will push up the price. The price becomes a function of usage even if usage does not warrant the price…! This status-quo leads to volatility but can also lead to true appreciation (see: Bitcoin….)

  • The longer Tezos holds a value (any value), the more valuable it becomes as money. So speculation and price increases on good news actually generate value for the network. So the question: ‘will value accrue’ is answered. It has already accrued value! It’s up 16%!


Three: Bank of International Settlements learns to love digital currencies

Image result for bank of international settlements

Mainstream opinions towards digital currencies continue to evolve. Last week Agustín Carstens, the head the Bank of International Settlements (BIS), told the Financial Times that central banks across the world are looking at speeding up their research and development of Central Bank Digital Currencies (CBDC).

What’s the BIS and the CBDC?

The BIS is basically the central bank for central banks.
Its stated role is to ‘serve central banks in their pursuit of monetary and financial stability’ and to promote international cooperation in these areas. Think of it as the organization that represents central banks all around the world. Until recently the BIS and Carstens had been extremely critical of crypto, comparing it last year to a ponzi scheme.

A CBDC is a native digital currency issued by a central bank. It’s like a digital representation of a country’s fiat currency, except with a couple key differences:

  1. A CBDC would not require an intermediary when transacting between two parties. This is one of the core concepts of cryptocurrencies and allows for greater efficiencies and reduced risks.

  2. CBDC’s could open up the possibility of the public being able to borrow directly from a central bank. Currently only commercial banks or other private sector lenders can borrow directly from central banks, who then lend to the general public.

The limitations of CBDC: Central Banks have been exploring this concept for years and blockchains like R3’s Corda and J.P. Morgan’s Quorum have been testing this concept. However Carstens noted that part of the reason why we haven’t yet seen the release of a CBDC is:

“There needs to be evidence for demand for central bank digital currencies and it is not clear that the demand is there yet…”


Flashback: The South Korean Central Bank, one of the more technologically progressive central banks, issued a report earlier this year on how a Central Bank Digital Currency could affect financial stability. It found that the issuance of a CBDC could cause financial instability by causing a run on commercial banks as people shifted from using commercial banks to opening up deposit accounts directly with a central bank.

Key narrative:
All the talk of CBDC vs Bitcoin vs Libra ultimately comes back to one key point - it’s a question of who has control of the monetary supply for a country. This is something that has significant consequences, if not only because monetary policy has a significant impact on the economy and central banks use monetary policy as a key tool to combat recessions. Depending on who you ask, taking away the ability to manipulate monetary policy from governments and central banks is either a huge step forward - or a recipe for disaster.

What I’m thinking: CBDC could end up being a last ditch attempt by some governments to maintain control of the monetary supply. If CBDC’s are issued worldwide but consumers overwhelmingly opt for non-governmental controlled currencies like Bitcoin and Libra, what will be the governmental response?


Four: David Marcus responds to Libra firestorm

Image result for david marcus

The Head of Calibra released a post earlier today attempting to clarify some of the misunderstandings he believes there are about Libra. The response comes after criticism by governments, regulators and many voices in the crypto community in the two weeks since Libra was announced.

Why it matters: Regulatory pressure is the thing that is most likely to prevent Libra from ever being fully released. Yesterday the US House Financial Services Committee sent a letter addressed to David Marcus, Mark Zuckerberg and Sheryl Sandberg requesting an immediate halt to implementation plans for the project.

The key takeaways from Marcus’s post:

  1. On the openness of Libra and decentralization: Marcus accepted the critic that for Libra to be sustainable over the long run, there needs to be fungibility of nodes (nodes can come and go without friction and with limited cost), which is something the project is working towards. He did however defend the initial design, arguing that “one hundred geographically distributed, industry-diverse organizations is quite decentralized."

  2. On financial inclusion: He strongly refuted comments from several critics who stated that the real reason people are unbanked is because they don't actually have enough money to be banked. Instead he positioned Libra as fighting against services that charge exorbitant fees and rates. In his own words:

    "...anyone with a $40 smartphone and connectivity will have the ability to securely safeguard their assets, access the world economy, transact at a much lower cost, and over time access a whole range of financial services."

  3. On engaging with regulators: His main point here was that Libra would actually help law enforcement to reduce financial crimes by bringing activity on-chain where it can be analyzed. As per the post:

    “…we believe that a network that helps move more cash transactions — where a lot of illicit activities happen — to a digital network that features regulated on and off ramps with proper know-your-customer (KYC) practices, combined with the ability for law enforcement and regulators to conduct their own analysis of on-chain activity, will be a big opportunity to increase the efficacy of financial crimes monitoring and enforcement."

  4. On whether Facebook can be trusted: Marcus again pushed back on the notion that Facebook would have control over the network, the currency, or the reserve backing it, given that it would be only 1 of 100 members of the Libra Association by launch. He also mentioned that although Facebook owns and controls Calibra, it won’t see financial data from Calibra. The bottom line, in his own words:

    You won’t have to trust Facebook to get the benefit of Libra. And Facebook won’t have any special responsibility over the Libra Network."

    5.
    On what the benefit for Facebook is:

    "If Libra is successful, Facebook will first benefit from it by enabling more commerce across its family of apps…if we earn people’s trust with the Calibra wallet over time, we will also be in a position to start offering more financial services, and generate other revenue streams for the company."


Our thought bubble: Expect to see a whole lot more of David Marcus and these types of announcements. Because of the significant implications of Libra for multiple different industries and governments, you can expect there to be a strong PR offensive to win over the public and governments around the world.


Also in the news:


Market Outlook:

Quick Take

Direction: Tweezer bottoms on the daily chart and the recent bullish action tells me that we have likely bottomed out for the foreseeable future. Moving averages are converging upwards on the 4hr mark, and when that happens in a bull market — parabolas generally come next. 12.1 and 13.8 are the next key levels to watch for.

We’re currently rangebound between 11k and 11.6k. I’ll personally be adding to my long at 11-11.2k, reducing positions at 10.6 and exiting below 9.8, Upside aiming for 13.8k, taking small profits on the way up, and if rejected taking full profit.

We’ve flushed out a leverage on the long side, and have recently seen funding rates actually turn negative for the first time in weeks. The market finally returned to its 30D EMA after more than a month trading higher, indicating normalization. We retracted ~30% from the peak which is typical for a bull market blow off top. Hope you’re ready to sell into euphoria the next time it happens :)

Volatilities have also come off a bit, after implied volatilities hit almost 150%(!!) during the peak. We’re still far above normal, but are slowly coming back down to earth. Personally am scaling into long dated 20-30 delta calls because I believe there is a lot of hot air above 13.8k, and a break there will see similar gap up behavior to when we broke 10k. Asks will be pulled and Bitcoin will likely be sent up quickly and with haste.


What I’m thinking today:

Here’s a truly elegant tweet thread Dan Zuller about distributed consensus. For the holiday weekend I encourage you to dive into a topic you should know more about but you don’t. For me (and a lot of other people who are enamored with the markets), it’s the evolution of distributed consensus.


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.


CryptoAM: EU worries, Goldman leans in, and Polkadot closes


Happy Friday folks!



Three things you need to know:

One: EU banks feel the heat from Facebook

Image result for eu banks

Moving money between banks can be a frustrating experience. Especially internationally, the process is often fraught with fees and can take days to go from one bank to another.

This looks likely to change however among EU banks, who have been jolted by Facebook’s Libra announcement and the threat it could pose to them.

The response: A new push by the European Payments Council (EPC) for real-time payments between all banks in the Euro Zone. The end goal is to ensure that bank clients can transfer payments to any other bank in the EU instantaneously and at any hour of the day. Those last words are like music to the ears - no more having to wait on banks’ regular Monday to Friday, 9-5 schedule to make and receive payments.

Coordination between banks is key. It’s also the toughest part of the process. Real- time payments have technically been available in the continent since 2017, and the European Central Bank (ECB) has been pushing its own settlement system called TIPS since 2018. However the key is getting banks to adopt a common standard, or at least to reach a stage where these existing systems work together. The key quote, as per Piet Mallekoote, the CEO of the Dutch Payment Association:

“The challenge now is to make these mechanisms interoperable.”


Reality check: Facebook is not the only player putting pressure on these banks to adopt real time payments, nor is it necessarily the most important. There are other large players such as PayPal and Tencent, as well as Fintechs like Revolut and N26. Libra’s announcement however, with the accompanying media attention, has put bank transfer delays in the spotlight and renewed pressure to change.

The bottom line: Moving money to any place in the world instantaneously at very little cost is not a matter of if, but when. That much is obvious and is something that Fintechs, Libra and crypto companies like SendFriend are all aiming at achieving. The next great hurdle will be convincing consumers to keep the majority of their savings in companies like these as opposed to traditional banks. If anyone has recently tried to convince a friend to keep their life savings in a non-custodial wallet it’s clear - that transition is still in its nascent stages.


Two: Goldman CEO leans in on crypto

0601484269802_web_tete.jpg
Source: Les Echos


Goldman Sachs isn’t a firm you’d likely associate with a financial revolution.
The firm has built up a colorful reputation over the years and is a bastion of the traditional financial system. And yet they’ve been actively exploring crypto for some time now, and have made investments in notable blockchain and crypto companies such as Axoni and Circle.

CEO David Solomon opined about crypto, Facebook’s Libra, and how he believes they will shape the payment system during an interview with French newspaper Les Eschos. Here are the key takeaways:

1. Speaking about Libra and stablecoins, Solomon commented:

“This is the direction in which the payment system will go. But as to whether it is this platform or one of the other fifty that people are watching that will make the most progress, I can not tell you.”


2. On whether Goldman would look at launching a currency similar to JP Morgan’s Coin:

“Assume that all major financial institutions around the world are looking at the potential of "tokenization", "stable wedge" and frictionless payments.”


3. If he thought technology companies like Facebook and Apple would threaten traditional financial companies:

“…these companies have a lot of customers and will certainly try to monetize them… however…they will try to seal partnerships with banks rather than become banks themselves. We are Apple's partners in credit cards.


The key takeaway: Here you have the leader of one of the world’s most famous financial institutions saying, on record, that the world payment system will shift towards stable digital assets. That is no small feat.

The crypto community is diverse. In recent weeks there have been countless arguments about what it stands for, the ideals it upholds, and what it actually wants the world to look like in the future. As institutions like Goldman Sachs take a greater interest in the industry, watch to see how this impacts divisions in the community and how high profile companies and figures in the industry react.


Three: Polkadot Successfully Closes 1.2B Round

Image result for polkadot blockchain

The large protocol valuations keep on coming. So far this year we’ve had Cosmos valued at over a billion at launch, Algorand valued at 24B, and now Polkadot valued at 1.2B. These valuations are high, but now that we are officially in a bull market they may make more sense.

Cosmos has performed relatively well since listing, although Algorand has seen its token shed over 50% despite the lack of supply on the market currently.

According to reporting by The Block:

Although the foundation did not specify how much it had raised, the sale is said to be on track with the protocol’s $1.2 billion valuation reported by the WSJ earlier this year. The latest round saw the foundation liquidate and sell 5% of the total token supply, meaning Polkadot’s managing team would have expected to raise $60 million, although it did not confirm the figure.

This is a continuation of a larger trend of promising projects finally going live. 2019 and 2020 are shaping up to be critical years for the growth of blockchain infrastructure. Keep an eye out on serious Ethereum competitors and also the burgeoning interoperability projects like Cosmos and Polkadot. It’s likely the protocol wars are just heating up, and over the next year or so we’ll see a lot of different competition and fragmentation.


Also in the news:


Things Happen:

Yikes — looks like traditional players are trying to make things hard…


Market Outlook:

Quick Take

Direction: Immense volatility over the last few days. ATM 1 Month volatility on Bitcoin options has increased from 86% on June 21st to 127% at the time of writing. At the beginning of the week, Bitcoin was trading at $10,800. In the next 48 hours, Bitcoin posted a monstrous 26% gain, reaching a high of $13,868 on Coinbase. Immediately after printing that high, Bitcoin crashed ~18% in 2 hours to $11,365 and then rebounded to $13,365…and then fell back down to the $11,600 level before close of day.

Phew, lot of action.

Some trading tips moving forward. $13,800 - $13,900 is a huge resistance level. As you can see in the chart above, that level is a strong monthly resistance. It will take a significant push to break that level. It’s no coincidence that Bitcoin rejected at $13,868 so violently. When you see a rejection like that after a parabolic advance, it’s a clear sign that buyers are exhausted. Shorting the bounce is a generally profitable strategy. That chart pattern is actually quite common when trading up against large resistances.

The next key level to watch is the $12,100 level. The longer we trade below $12,100 the more likely it is we take another leg down to $11,500 and then to $10,200. Moves are likely to be violent over the next week.

Once there, we’ll probably see a battle for $10,000 — but I’ll be mostly in fiat at that point! Once we break down past $10,200, I’ll be taking most of my spot profits. Right now, a good course of action is to wait. Buying a breakout of $12,100 or shorting $10,200 are both EV positive trades in my opinion.

Key Support:  $10,200

Key Resistance: $11,600

Overall Market: The overall market is looking very shaky right now. Alt coins are suffering greatly, and Bitcoin dominance is ratcheting upwards hitting 60%+. The volatility of Bitcoin is making it very difficult for alts to recover, and for the time being it seems best to stay away until Bitcoin begins to consolidate.

Further complicating the issue is the closure of Binance and other altcoin exchanges to U.S customers, who historically make up a significant portion of altcoin punters. It’s far from certain that we will see an alt-season like 2017, and if I were making bets I would stick to top 50 alt coins, and preferably those with already liquid trading pairs and engaged communities.


What I’m reading today:

CryptoWords Financial Journal ‘19

I won’t be going too in depth to this “article”, mainly because it’s a 117 page document detailing a massive amount of different valuation indicators for the Bitcoin and cryptocurrency market.

Over the last two years, this area of study has transformed significantly. When I first started looking at metrics, there were very few. Willy Woo had come out with NVT (network value to transactions) and Dmitry Kalichkin has improved NVT slightly using moving averages. Those were the two main on-chain indicators at the time.

Now, we have hundreds — with new indicators popping up every week. I’d highly suggest diving into the report above, which does a fantastic job aggregating the important and useful indicators. It’s definitely a good weekend read!


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: Synthetix Attack, LedgerX Licenses and Dai Saves


Happy Tuesday CryptoAMers. Shaping up to be another full on week of price action, announcements and hacks…just another week in crypto 🔥



Three things you need to know:

One: Synthetix Suffers from an Oracle Attack

Image result for synthetic logo crypto

Synthetix, a decentralized protocol focused on creating synthetic assets, suffered a problem with their price feed (oracle) yesterday that allowed a savvy trader to mint $37M of synthetic Ether, and generate $1B in paper profit over the course of a few hours.

The issue was a simple, but dangerous one. Synthetix employs a variety of different price feeds in order to value their synthetic assets, and determine conversion rates. Normally, a user will take SNX, the native token, and stake it in order to mint synthetic assets such as sUSD or sKRW.

In this case, the price feed being used was misrepresenting the value of a Korean Won (KRW), claiming it was in fact 1000x worth the true value. This allowed a trader to take advantage, mint sKRW, and buy sETH with purchasing power that shouldn’t have existed.

In response, the Synthetix team halted trading, reversed the trades and negotiated a bug bounty payout with the trader who exploited the system. The Synthetix team has been very responsive to the ordeal, and the SNX token rebounded quickly after the fix.

This hammers home a crucial point: Decentralized finance is not all that decentralized yet. There are a variety of different issues that can crop up in these systems, and building them without a failsafe is a surefire way to get yourself in major trouble. It’s import to be diligent and realize that these protocols still carry a significant amount of smart contract and operational risk. Savvy market participants may be able to figure out how these protocols work on a core level, and extract value from using them in a way that it was not designed to be used.

Go Deeper: Read the re-cap from Synthetix


Two: CFTC Approves LedgerX to Settle Futures in Real Bitcoin

The CFTC has given LedgerX the blessing to begin trading physically settled Bitcoin futures on their exchange platform. With this announcement, LedgerX beat Bakkt, ErisX and the CME to the punch, solidifying their place as a leading regulated Bitcoin exchange.

LedgerX is currently known for their options trading platform, and have historically focused on building products for institutional investors. Recently they’ve started to push into the retail markets, opening a platform called Omni which only requires a $10,000 deposit to begin (vs a $5M asset requirement for their institutional version). The physically settled Bitcoin swaps will be available for trading on Omni.

LedgerX has proven themselves to be a leading figure in the realm of exchange compliance, and have spent much of their time focused on getting the relevant licenses, a long and arduous task.

With our new license granted today, both retail and institutional customers can interact in the same transparent marketplace, LedgerX Omni, the first and only regulated US institution to offer these capabilities to the retail audience.

We can now provide a robust market for a much broader audience, providing access to individuals who want to get exposure to the fast-growing crypto investment sector via derivatives products that they could not access in the past.

In fact, we are the only company to have received both a Swap Execution Facility (“SEF”) and a Derivatives Clearing Organization (“DCO”) registration to enable regulated trading of bitcoin derivatives.

By operating both the exchange and clearing house, we can uniquely offer clients a vertically integrated trading and custody solution.

Source

Currently the CME and CBOE offer cash settled futures, meaning that at expiry the positions are settled in USD rather than actual Bitcoin. The CME has seen strong volume coming into these contracts, and have posted new highs over the last few months.

As a note, the majority of traders currently on the CME are hedge funds and institutions. Large traders are generally short on these contracts, with smaller traders and asset managers generally being long.

Source

Why this matters: Pay close attention to the cryptocurrency derivatives market — it’s growing at breakneck pace. New products and platforms are popping up every day, and generating significant amounts of volumes. Venues like BitMEX, Deribit and LedgerX are becoming larger market forces, and paying attention to these market participants and their clients will become increasingly important as this market grows.


Three: Sempo and Consensys run humanitarian pilot in Vanuatu

After a disaster, international organizations often struggle to get aid to those who need it most. An additional complication is how to make sure these aid recipients can get access to the necessities they require.

Sempo and Consensys recently wrapped up a 200 person blockchain pilot program to help solve this problem in the small Pacific island of Vanuatu. The pilot used the Dai stablecoin instead of cash and was run in conjunction with Oxfam, one of the largest nonprofit organizations in the world.

The basic idea: Research has shown that giving aid recipients cash to spend on what they actually need is actually more effective that giving recipients things like rice, or whatever the organization thinks these people need.

The problem: Getting cash to people after a disaster is difficult. There is also the added complication of trying to track where this cash is being spent so that aid organizations can be accountable to their donors. These organizations often suffer from a lack of transparency about how donations are used.

Oxfam originally tried to provide villagers in Vanuatu with cash after a recent earthquake. However the effort was hampered by the need for ID checks and visits to the local bank to receive the cash, requiring around an hour in total.

In contrast Sempo and Consensys
were able to onboard users in six minutes. Users were provided with a tap and pay card loaded with USD$50 worth of Dai on an Ethereum address. They were then able to spend this at 34 different vendors who were provided with Android smartphones - allowing them to accept payments by scanning the users’ QR code on their card.

oxfam crypto
Source: micky.com

The system is also resistant to internet failure, clearly something that is important in a disaster hit area. Aid recipients don’t require internet as they have their cards, and the system stores and updates the user’s balance on the chip of the card itself. This ensures that even in instances where the vendor doesn’t have access to internet, the recipient isn’t able to double spend.

The big picture: Imagine a situation where donors to aid organizations could trace their donations all the way to the end recipient, ensuring that their funds were properly spent.

Why it matters: As we ramp into another bull market, consider the following from the peak of the last one:


Not everyone is motivated by the potential humanitarian impact of crypto, and that’s ok. But whether you care or not there’s no doubt that use cases like this, if they grow in scale, would increase the positive mainstream media attention that crypto receives and change the perception of the industry overall.


Also in the news:


Market Outlook:

Quick Take

Direction: Bitcoin is looking bullish at these levels. There’s a lot of hot air above 11.5k, and I think it’s far more likely we see 12.5k before we seek 10.5k again. Historically, Bitcoin has not spent much time at these levels meaning that there are few strong support / resistance lines to look at, and the majority of trading should be more based on general market sentiment, momentum and catalysts as of now.

I’m long at these levels, and will find invalidation for that thesis if we end up below 10.5k.

Key Support:  11510, 12750

Key Resistance: 10550

Overall Market: At 8:30am UTC on June 26th, Bitfinex will be going down for maintenance. Be on the lookout and aware that when a large provider of liquidity goes down it often coincides with outsized price movements. Plan accordingly, and if you hold margin positions on Bitfinex it would be advisable to close them out prior to the shutdown.

This “maintenance” is likely the integration of derivatives into the Bitfinex platform, which the CTO, Paulo has been hyping up for some time. It looks like there will be 100x leverage offered…

Alt coins are currently bleeding against BTC, with large movers such as VeChain and Chainlink popping only on announcements. Over the last year its been a fools game to try and dive into the altcoin market, as we were in a strong downtrend. Now that we’ve turned bull, it’s time to start paying attention to announcements, and potential catalysts such as mainnet launches once again.


What I’m reading today:

Why Ether is Valuable - Anthony Sassano

With the price of Ether (the native currency of Ethereum) rocketing past $300, what better time to explore some of the factors that make Ether valuable.

The key value drivers of Ether according to Sassano are:

  • to pay for Ethereum transaction fees (gas)

  • as collateral for DeFi applications such as MakerDAO and Compound

  • can be lent or borrowed (Dharma)

  • accepted as payment at certain retailers and service providers

  • as a medium of exchange to purchase Ethereum based tokens (e.g. to purchase any ERC-20 token in an ICO. Also to purchase things such as non-fungible tokens on marketplaces such as Open Sea

  • as a reward for completing bounties

Last year when the price of ETH was nearly at rock bottom, I saw a particularly useful analysis of some of the fundamentals that drive ETH:


The TLDR of the post was that by the end of last year, two of the major drivers of ETH - ICOs and Dapp usage (contributes to gas fees), were seeing dramatically decreased demand.

DeFi products have helped to ease some of this issue. Although the ICO market is still dead, you now have nearly 2% of total ETH supply locked away with DeFi products, representing an increasingly important driver of ETH’s value.

Ethereum’s shift towards Proof of Stake is also likely to increase the amount of locked up ETH. Validators on Ethereum 2.0 who help want to help secure the network will be required to lock up 32 ETH per validator. That’s locking away an additional 0.25% of the total circulating ETH supply if you assume that each one of the current 8000 Ethereum nodes was to participate as validators with the minimum 32 ETH each.


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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

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