CryptoAM: Initial Exchange Offerings, Blockchain Lobbyists, and Interest Accounts

Hey CryptoAM team. We wanted to welcome those of you who aren’t already in to our Telegram group. Fire conversation, punting altcoins and vaporwave memers are welcome.

3 things you need to know:

One: IEO is the new ICO?

Here’s a funny story. This new hot thing suddenly becomes illegal. So someone invents a slightly different version of that hot thing, and then offers that hot thing to the world?

Not so funny actually. But, effective! That’s whats happening with these so called “initial exchange offerings” which is just a different and splashier way of getting listed on a major exchange. Binance introduced this idea earlier this year with the formation of Binance Launchpad.

So, what is an IEO exactly?

An Initial Exchange Offering (IEO) relies on having an exchange (or set of exchanges) function as the counter-party. Developers mint the project’s tokens and send them to the exchange, which will then sell the tokens to individual contributors for Ether. Subject to the agreement between the developers and the exchange, conditions traditionally found in an ICO can be emplaced in an IEO. These conditions include capping the contribution per individual and having a fixed price per token.

From the perspective of a contributor, instead of sending Ether to a Smart Contract governing the ICO, each IEO participant has to create an account with the exchange and send ETH to this account. When the IEO commences, the participant can purchase the token directly from the exchange.

Since the original Binance announcement many exchanges have indicated their intention to have their own versions of IEOs.

Already announced include:

  • Huobi

  • Bitmax

  • KuCoin

I would expect more to be coming soon, as this is actually a great deal for both tokens and exchanges. Exchanges get a cut (usually 10%) of the tokens, and tokens get access to an eager market, ready to drive up the price of their token. The key will be getting access to high quality tokens and getting access to high quality buyers — which indicates to me the smaller exchanges are going to have a tough time.

Two: Blockchain lobbying efforts triple in DC

Entities lobbying on blockchain related issues increased from 12 to 33 from 2017-2018, according to Politico.

The majority of this lobbying spend goes towards shaping securities laws. This kind of lobbying can be retroactive or proactive: Projects that have already been launched want to ensure that they don’t face future regulatory action if their launch may have broken securities laws at some point. Other lobbying may be to shape future laws so that there is clear regulatory clarity for future projects and token sales.

Why you should fight against your libertarian impulses: We’ve written recently about the superstar status of the SEC and their commissioners in the crypto space. But the SEC only enforces existing securities laws, Congress is the one who actually helps shape them. If Congress were to grant clear exemptions to securities laws for cryptocurrencies that met certain requirements, as we saw recently in Colorado, then this would be a game changer for the blockchain industry in the US.

The big picture: Securities law reform will take time and so the SEC will continue to be a major player in the US Crypto space for the foreseeable future. The key bill to watch going through Congress is the Token Taxonomy Act, which clearly defines digital tokens and when they are not securities.

Blockchain lobbyists 101 of who matters in town: Kristin McKenzie Smith of The Blockchain Association, Jerry Brito of Coin Center, and Perianne Boring of The Chamber of Digital Commerce. Politicos leading the charge in favor of the industry include Darren Soto and David Schweikert of the Blockchain Congressional Caucus.

P.S. Totally unverified comment from a friend working on the Hill - Ripple has the strongest lobbyist presence in town which makes sense, given they have the most to lose from potential regulatory action…

Three: BlockFi Savings Account Attract Significant Interest

BlockFi announced yesterday that it had attracted more than $35 million in crypto and 10,000 customers for their interest-yielding deposit accounts, with $25 million in the last two weeks alone. This follows their announcement earlier this month that they would offer deposit accounts yielding 6.2% interest on Bitcoin and Ethereum deposits.

BlockFi isn’t making money on this. In fact it’s a loss leader, according to BlockFi CEO Zac Prince. He went on to explain:

“This product will be for some amount of time, probably for 3 to 18 months…”

BlockFi can change this interest rate as they please. While 6.2% is an unbelievable rate, this is unlikely to be an offering that lasts over the long run. Also as we explained in an earlier edition, funds deposited in BlockFi’s accounts aren’t covered by Federal Deposit Insurance. That means that if BlockFi goes bankrupt, account holders could lose up to 100% of their savings unlike in traditional fiat deposit accounts.

Expect to see more of this from BlockFi. They’ve already announced their intention to introduce a new product every six months as they look to rapidly increase their user base. The reason why they can afford to this is because they’re heavily venture backed, including a $52.2 million round in July 2018.

Our thought bubble: Passive income in cryptocurrency has become a hot topic. Prediction: All the loan platforms, staking platforms, etc. that are discussing passive income will have a hard time in a bull market just as exchanges did in the bear market. Even 100% APR wouldn't stop someone from punting altcoins.

Also in the news:

Market Outlook:

Quick Take

Direction: This is natural profit taking, and the pullback that we expected on Tuesday. Fundamentals are slowly shifting positive, as are many major indicators. As long as we hold above the bottom of the red area outlined (3850) we are still likely to trend upwards in my opinion. The red area is a good place to accumulate a long position.

Key Support:  3910, 3850

Key Resistance: 4040, 4100

Overall Market: We’ve seen select altcoins begin to pop off, while BTC trends upwards or mostly flat.

In early 2017, we saw Ethereum lead the market forward and then saw its gains spill over to altcoins and fuel the meteoric rise. I’d expect much of the same to fuel the next bull run, and will be looking for specific milestones that will inform how to construct the more lucrative portfolio. I’d expect a similar run by a 2nd tier protocol to lead the market before we can officially call a bull market. This protocol in my opinion is likely to be one (or more) of the following: Binance Chain, Holochain, Tezos, EOS, Dfinity, Cardano, or BAT (despite not being a protocol - feel free to ask in our telegram chat why).

The end of the bear market will look like the following:

High caps -> mid caps -> small caps. I’d assume Bitcoin will lead the charge, and bring back some semblance of hope to the markets. Once you see correlations begin to unwind combined with an upward trend, it is likely an EV positive play to enter into some long BTC positions. Once BTC breaks above 6k, we will see the steam begin to pick up in a large way.

As a note, the altcoins gains you are seeing here are due to BTC losing volatility and speculators pouring. Proportionally the alt market is gaining against BTC despite the overall market-cap remaining flat, suggesting that this is just the sloshing around of speculative capital trying to catch gains rather than new capital inflows (needed for a true bull run).

One confounding factor here is the introduction of new fiat portals which may lead to alts with fiat entries rising sharply with Bitcoin before spilling to the rest of the market.

What I’m thinking today:

Exploring Crypto-assets and Central Banks

I’d like to take a moment to dig into where cryptocurrencies fit into society overall, and what the drivers of growth and implications of success might look like. These are complicated questions and will not be answered in full (or maybe even at all) here, but hopefully the resources, materials and discussion below will help frame the journey.

I want to make the distinction between something like Bitcoin (a cryptocurrency) and something like Ethereum (a crypto-network). This may seem like a trivial distinction but it’s important for the following discussion because cryptocurrencies and crypto-networks have very different uses.

I believe it’s best to start with the large scale question of “how does our current financial system operate and then dive into the next question of “where do cryptocurrencies fit.”

The first question is relatively simple. Countries issue currencies, and generally a central bank will attempt to manage the inflation and interest rates of said currency in order to create economic stability. The issuance of a cryptocurrency attempts to circumvent two institutions, the money issuer (Dept. of Treasury in the U.S) and the money manager (the Federal Reserve).

As currencies work today, if you search “central bank” and cryptocurrencies, you’ll come across a variety of different takes but by far the most common are (1) cryptocurrencies are a threat to central banks and (2) central banks will issue their own cryptocurrencies.

With respect to (1), there are a variety of reasons why cryptocurrencies could be disruptive to traditional financial systems:

  • Return to commodity based money from the credit based system we use today

  • Faster settlement for large amounts of capital

  • More divisibility, micropayment enabled

  • Insulated from currency mismanagement (seen in many countries)

  • Same level of anonymity as cash

There are also risks:

  • Deflationary risk

  • Software risk

  • Non-management risk (If no one controls it — can anyone fix it?)

If cryptocurrencies became more widely accepted, it would likely be driven by mistrust in our current institutions to upkeep both infrastructure and manage our economies. This would likely displace central banks, but I do not think it would replace traditional banks at all. What would be the most likely outcome is a similar banking system, but with a unit of account that is Bitcoin instead of the dollar, similar to countries that use the dollar as a unit of account despite having a local currency.

With respect to (2), it’s unlikely a central bank would issue a digital currency in a country with a robust financial system, as that currency would eat deposits from banks, reducing lending and reducing consumption, leading to lower growth rates.

Further reading:

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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: A Stellar IBM, Citi's Loss and CBOE Abdicates

3 things you need to know:

One: IBM + Stellar = Global Payments

IBM announced Monday the launch of a global payments network powered by the Stellar protocol, with six international banks already having signed letters of intent. The new network is called IBM Blockchain World Wire and attempts to help financial institutions improve the services they deliver to their clients in foreign exchange, cross border payments, and remittances. The launch follows a pilot program that IBM had begun in 2017.

Beyond the marketing glitz
the World Wire is comprised of two key parts. IBM’s role is as a payment API and providing the software that handles accounts and money flow for participants. Stellar provides the pipes for this, ensuring money can be sent in a secure way using its blockchain protocol. Working together you have a system that can handle the messaging, clearing and settlement of financial transactions simultaneously. Here’s a simplified example of how it works:

1. Institutional A (based in USA) wants to transfer a client’s money to Institution B (based in New Zealand).

2. Institution A sends money in the local currency (USD) which is then converted by World Wire to an agreed upon digital currency that runs on the Stellar network. This currency can be a stablecoin, central bank digital currency, or a digital asset such as a Stellar Lumen.

3. World Wide then automatically converts the digital currency into Institution B’s local currency (NZD) and ensures that B receives this payment.

4. The transaction is recorded onto the Stellar blockchain, using the Stellar Consensus Protocol.

IBM sounds like an intermediary…and that’s because it is. To my mind the reason why this could gain traction is because it’s IBM and banks and their shareholders trust IBM. IBM is making the case that they can help make international payments real time, reduce costs, and (perhaps most importantly) do this while making sure financial institutions comply with AML/KYC laws.

IBM’s revenue model for this is worth mentioning. According to Coindesk, participants can join World Wire for free and don’t pay a subscription to use the software either. Instead IBM makes money on the transactions, charging on a basis point value so that as volumes increase, so too does IBM’s revenue. The benefit for Stellar lies in demand for Stellar Lumens; if this system scales then you potentially reach a situation where there is consistent, non-speculative demand for Lumens. However most signs so far point to banks issuing their own stablecoins on the network as the digital currency of choice instead of using Lumens.

Why Stellar? According to IBM’s Lund the choice was made because of the:

“…capacity to issue tokens and have scalability…we needed to support the transaction volumes we were looking at, which is thousands of transactions per second.”

The key takeaway:
There’s plenty of noise about different institutions trialling various blockchain payment platforms. Given IBM’s reputation with large institutions and relative success on the enterprise blockchain side, I wouldn’t be surprised if this was successful over time. World Wire is actually a pretty clever way to ensure banks can benefit from cryptocurrency without really having to change their existing behaviors or interfaces.

Two: Citi Scraps Bank-Backed Crypto

In an interesting contrast to JP Morgan, Citi announced that it was scrapping its plan to introduce its own digital currency, apparently nicknamed ‘Citicoin’. The project was first announced in 2015 yet failed to progress to even a proof of concept stage. As reported by Coindesk Citi concluded that there were better avenues to achieve efficiencies outside of creating its own coin, such as through traditional fintech and improvements to SWIFT.

The main problem, according to Citi’s Gulru Atak, was that for the currency to be successful in changing the cross-border payment network they would have to onboard all the world’s banks.

Let’s take a step back to examine that statement.
Already we’ve seen a different approach to cross-border payments as seen by IBM’s announcement yesterday. IBM doesn’t require all the world’s banks for this system to work and doesn’t require them to transact in one specific digital currency.

The difference between this and JPM Coin is that JPM Coin is intended to be for internal use only. As we wrote last week, it’s more for internal accounting purposes and internal clients rather than transforming cross-border payments for a number of different stakeholders. Citicoin on the other hand had aspirations to be used by a number of different external stakeholders. This is hard to achieve because it’s unlikely that many stakeholders, especially other banks, would want to accept Citicoin as settlement. Citi’s announcement then is likely less about the infeasibility of a blockchain backed cross border payments network, and more to do with a flawed strategic approach.

Three: CBOE Announces The Suspension of Bitcoin Futures Trading

CBOE, the issuer of the first ever Bitcoin futures contract, has decided to suspend trading due to lack of interest.

This can be explained nicely in the single chart:

Bitcoin Futures aren’t going away anytime soon, it’s just that the CBOE wasn’t particularly good at them. Despite what CNBC liked to claim, it’s less about the lack of interest in Bitcoin derivatives and more about the inability of the CBOE to offer a interesting and differentiated product. It also shows that just because a traditional institution enters the cryptocurrency space, doesn’t mean it will succeed. It also doesn’t mean it’s always good for the space either.

As of right now, the biggest exchange for Bitcoin derivatives is BitMEX — a crypto native exchange, showing that incumbents do have the potential to be displaced.

Also in the news:

Market Outlook:

Quick Take

Direction: Like we discussed last week, a break of the 3850 level sent us up an additional 2%. Hope you were paying attention. BTC is experiencing continued upwards momentum, with major indicators such as OBV pointing towards a healthy run. If we selloff here down past 3950 and end up at the 3900 level structure has been broken and we’re probably looking at further damage. If we break 4000 and stay there (there has been a lot of resistance) it’s more than likely we take out 4200 in the coming weeks.

Key Support:  3960

Key Resistance: 4000

Overall Market: Come back on Thursday for an in depth look at the overall market.

What I’m thinking today:

Infrastructure is Coming: Institutions Pt. 2

If you’d like to buy an asset, there are usually two questions that you have to answer before you become a proud owner. (1) Do I want to buy this asset and (2) where can I buy this asset. These are normally very easy questions to ask for someone buying a stock. (1) Is either a yes or no question. (2) is pretty simple.

You Google (Bing, DuckDuckGo, whatever) “where to buy X” and you go buy it. If it’s broccoli, you’re probably going to go to the grocery store near you. If it’s a stock, you’re probably going to use E-trade, Fidelity, Robinhood, etc.

Not once have I bought anything and thought to myself “well, what should I buy this with?” I know, as an American, that I’m going to buy it with my native currency, the U.S Dollar. An Australian would probably go buy their broccoli with Australian dollars and an Indian citizen with Rupees. Not very often do I go to the grocery store and think to myself, hmm are they going to accept these dried beans I never used? Because that’s not how it works.

Cryptocurrency is a bit different. Here’s a look at the different ways you can buy Ripple on Binance.

You can buy Ripple with Bitcoin.

Or maybe Binance Coin. Looks like you can get a good price.

Or actually how about Ethereum — an even better price!

Too many options? Okay, let’s just use a stablecoin. It’s basically the dollar. Only one choice.

God help me…

Cryptocurrency has a fragmentation problem. It has a choice problem. When you’re buying something like Ripple — all you care about is the price. You don’t care what you buy it with (usually). If you only held Binance Coin, but the price to buy Ripple with Bitcoin was 10% cheaper, you’d cash out to Binance. Now, for the active traders this can be nice. All sorts of price discrepancies. But most people don’t have the time or systems to take advantage.

This isn’t the only problem! Volumes and trading activity happen over HUNDREDS of exchanges. The biggest exchange in the world (Binance) doesn’t have anywhere close to the market share the biggest exchange in the US does (NYSE). In fact, there are only two relevant exchanges in the US. The NYSE and NASDAQ control 95%+ of all volumes. This is far from the truth in the cryptocurrency world.

This is the reason we are seeing platforms like Bakkt, ErisX, Tagomi and others spring up. They are all trying to create liquidity pools to make it easier for investors and consumers to buy into the market and be sure they’re getting fair price.

As for you, the intelligent CryptoAM reader, what does this mean?

One word: Mergers. Over the next 2 years, more and more exchanges will consolidate as market participants demand higher quality sources of liquidity. The ones with tokens will likely have their tokens exchanged for the buying exchange’s tokens or be worked into the model of the buyer. Some, I assume, will be dropped.

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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: NYT & Blockchain, Colorado & Blockchain, Cosmos & Crypto

Good morning CryptoAMers, Zac here writing from a sunny NYC. Avi’s laptop broke last night and had to type half this up on his phone so you know it’s going to be a good day (karma for moving out West).

3 things you need to know:

One: The New York Times Looks for a Blockchain Lead 

The NYT surprised everyone yesterday with a job posting for a Blockchain Lead to help it explore using blockchain in publishing - only to promptly take down the posting shortly afterwards. The role was advertised only as a temporary 12 month position. According to the listing the individual will be:

"...a forward looking leader who will help envision and design a blockchain-based proof of concept for news publishers." 

Haven't we heard something like this before? Companies attempting to leverage blockchain in news publishing isn't exactly new. Civil most famously partnered with Forbes last year in an effort to bring their content onto the Civil network and compensate journalists using their native token, CVL.  A week after the partnership with Forbes was announced, Civil announced that it was issuing a full refund to token holders after failing to attract enough interest in its token sale.  

In Civil’s case readers were meant to be able to use CVL and Civil’s platform to tip journalists for stories and subjects that they enjoyed. In theory, this was meant to better align incentives towards good journalism. If more and more people joined the Civil network the utility of CVL would increase - benefiting journalists and readers who were holding the token.

Don't be quick to dismiss the Times. Much of the criticism around Civil centered around their difficulties explaining their token model and how difficult it was to purchase the token. Utility tokens are tough to structure in a way that help raise money for a company (legally dubious also) while aligning stakeholders' incentives. The Times likely won't be using this as a way for them to raise money - making any token structuring cleaner. Also, as a traditional news organization, the Times isn’t so bad at explaining things…

Check out the full job description 

Two: Colorado passes its “Digital Tokens Act”

Last week Governor Jared Polis signed a bill to exempt some digital tokens from the state’s securities laws assuming they comply with certain conditions. Companies can raise via tokens assuming that they have a “primarily consumptive purpose.” In other words, assuming people actually have a real need to use them on a platform. The money quote:

“…creating a Colorado Digital Token Act, with limitations to protect consumers, will enable Colorado businesses that use cryptoeconomic systems to obtain growth capital to help grow and expand their businesses.”

Why that’s cool: Regulatory uncertainty and concern is the first thing that comes to mind when thinking about raising via token sales in the US. This is basically saying that you can legally raise money via utility tokens in the state of Colorado.

BUT: How does the SEC react to this? With crypto friendly regulations coming from states like Colorado and Wyoming, we might find ourselves in a similar situation to the cannabis industry, where the federal government maintains strict laws while individual states innovate. Colorado again finds itself at the blunt of another new industry.

Pro tip: Governor Polis was leader of the Congressional Blockchain Caucus before his gubernatorial win. I wouldn’t be surprised to see further regulatory support in Colorado for blockchain and crypto companies while he’s in charge. I want to note that growing interest from regulators and government agencies is a double edged sword. As more attention is given to cryptocurrencies, the more risk that the grey area’s we have all come to appreciate will evaporate.

Three: Cosmos Main-Net is Finally Live

Note: The founder of Cosmos, the TV show. No affiliation with Cosmos the Blockchain.

One of the most highly anticipated projects of the last year has finally launched. Cosmos is a blockchain designed to allow for interoperability between other blockchains, and the first of it’s kind to launch, marking a big day. As some background, Cosmos was built by Tendermint, inc. a for-profit enterprise that develops tools for blockchains and developers based on the Tendermint protocol. Cosmos even before launch proved itself to be a valuable tool, as the Binance DEX is partly based on Cosmos technology. 

Staking: Cosmos have a native token, called ATOM which is used to secure the network through a proof-of-stake system. Estimated yearly returns on staking at 9-16%, which is relatively high. If you’re thinking of getting some exposure, it would be a good idea to route through one of the more developed validators (like Staked) as there are strict penalties for those who fail to upkeep their nodes in a reasonable fashion.

Why this is important: Over the next year, we’re going to see launches of tens if not hundreds of protocols all meant to capture the market from Ethereum & EOS. Inevitably, there will be bubbles that form and as the world gets more fractured, it will become increasingly important to have ways to connect. The ability to choose is an important and needed thing in the markets, and having platforms like Cosmos reduce the downside of choosing as your choice leaves you less restricted. Today, if you build a Dapp it’s difficult to port it over to other chains. Moving forward, this won’t be the case. 

Go deeper: read the Cosmos Whitepaper & explore the Github

Also in the news:

Market Outlook:

Quick Take

Direction: We’re still trading within range. I’m still expecting more upside momentum and I’m definitely expecting volatilities to pick up. Vol ticked up slightly in the last 2 days but is still cheap. The $8000 BTC Sept Call on Deribit looks like the most interesting instrument right now. I have nothing else to say, not my fault the market is capital B Boring.

Key Support:  3850

Key Resistance: 3910

Overall Market: Notice that while select alts are popping off, the overall market-cap is remaining relatively flat, indicating that this is just a sloshing around of capital, and net inflows are staying flat. This tells me that we’re going to see alts die much harder than usual if BTC tanks, so would set shorter than usual stop losses if you’re playing the alt market, as a break in trend for an alt right now probably means it’s broken the trend for a while and won’t see a large bump again until new capital inflows start. BNB is the exception to this, as usual.

Fear & Greed

Rockets. F&G sees rockets.

Here’s a reminder of what these criteria mean

What I’m thinking today:

Chasing Fake Volume: A Plague

This is an oldie but a goodie. In this article, the epidemic of faked volume on cryptocurrency exchanges is explored. This article uses the concept of “slippage” to test whether or not exchange volume is faked or not.

“I expected that slippage should generally be a decreasing function of volume, but that some differences might show from one currency to another. After all, if you have a gargantuan volume on a given pair, there has to be a very high competition between market makers to satisfy the avid buyers and sellers. And that kind of competition is bound to densify orderbooks and reduce spreads.”

As it turns out, for the majority of Chinese exchanges — this doesn’t hold true. Volume has no impact on slippage, indicating there is large amount of fake volume.

Here, in chart form:

It’s a representation of the average slippage and volume of all pairs among a selection of a score of cryptocurrencies with a daily volume over $100k over four major exchanges: OKex, Kraken, Bitfinex and GDAX, over the course of 24 hours.

You may for example read that the blue dot at the bottom right represents a GDAX pair, with a volume close to $200m, and a slippage of less than 0.1%

The chart is striking. It shows how, although all first three exchanges seem to behave rather similarly, OKex pairs, in red, all have a massively higher slippage with regards to their volume. Like I explained before, this can only mean that most of the volume OKex claims is completely fabricated.

As always, be skeptical of things in crypto. Nothing is ever as it seems, especially volumes. Consider this a warning for those trying to value exchange coins based on the reported transaction volumes. A better (but harder to get) metric would be to evaluate based on order book depth.

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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: Securities Law, a Brave New World, and JPM thoughts

Tuesday, March 12

3 things you need to know:

One: SEC Chair (kind of) Implies that Ethereum is Not a Security

Yesterday, the Chairman of the SEC affirmed that he agreed with SEC Director Hinman’s prior analysis that it’s possible for a cryptocurrency to go from being a security to not. What it legally becomes at that point is unclear, but it’s more likely than not that it becomes classified as a commodity.

The money quote:

“I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.”

…“No one is creating it for their own … control of bitcoin, it’s designed to be a payment system replacement for sovereign currencies. We’ve determined that that doesn’t have the attributes of a security … as far as I’m concerned, that’s designed to be akin to the dollar, the yen, the euro … and it operates that way. People who purchase it are expecting it to operate that way.”

There are unfortunately many lingering questions. Technically there are “groups” of people that maintain Bitcoin and Ethereum. If a group messes up and implements bad code, the project would lose value. It just so happens that the group is massive and ever changing. Where do you draw the line between the two?

The other statements betray the lack of understanding in the regulatory world of the makeup of Bitcoin enthusiasts. The vast majority of people definitely do not expect Bitcoin to act as a euro, yen, or even a dollar. They expect it to act as an early stage investment and to deliver high returns. Bitcoin is also highly decentralized. So where does that land? Ultimately, I believe that we’re going to need different securities laws than the Howey test.

It’s also interesting to me that the SEC and CFTC commissioners have suddenly become rockstars in the world of crypto, and are now appearing at many different conferences around the country to share their views — in no other industry are regulators so sought after and given such stage time. Despite Elon Musks best efforts to drag down the (S)hortseller (E)nrichment (C)ommission, the commission and its counterpart the CFTC seem to be massively growing in popularity in the cryptocurrency world. Chris Giancarlo (CFTC) and Hester Pierce (SEC) are showered with praise on a daily basis! What a weird world we’re living in.

Two: Brave browser enters phase two as downloads surge past 20 million 

The Brave internet browser, which looks to reward users with its Basic Attention Token (BAT), announced over the weekend that it had entered phase two of its Brave Ads Developer Channel Preview. Phase one never actually involved giving users BAT for viewing ads, instead being a trial period for stakeholders to test the browser. Phase two involves users actually being compensated with BAT for opting in to view ads.   

Users will be compensated with 70% of all ad revenues that are generated. The other 30% will be split evenly between publishers (websites that host the ads) and between Brave browser itself. How much revenue this generates is yet to be seen, especially as advertisers so far have primarily been crypto companies.   

Why this is important: Lack of adoption is crypto's Achilles heel. Brave browser however has been downloaded over 20 million times and has been in the top 1% of all android app store downloads. This is with a product that is avidly privacy focused - imagine what it would be like to be compensated for every ad you viewed on Chrome or Safari?

Three: Kakao raises $90 million for new blockchain in private coin offering 

South Korea's main messaging app Kakao announced Monday that it had raised $90 million in a private coin offering. The company also plans on raising an additional round of the same amount as it prepares to launch its own blockchain platform in June. The platform's name will be Klaytn. 

26 companies are signed up to run their applications on the new platform. While a wide range of services will be offered gaming apps are seen as particularly promising. 

How they were able to raise the money legally: According to Cointelegraph, the tokens were only made available to registered and pre-vetted investors. The company's blockchain subsidiary, Ground X, is also based out of Japan. This allowed it to circumvent the increasingly strict regulation coming out of South Korea.   

Unlike other messaging services like Telegram and Signal, Kakao hasn't yet confirmed that it will bring its messaging service onto the platform. Messaging apps launching their own token have been the subject of intense interest recently, particularly in the case of Facebook and Telegram that are expected to launch tokens later this year. 

Remittances, remittances, remittances. The value of integrating a token with messaging applications is explored below, and also briefly in the previous sentence.

Also in the news:

Market Outlook:

Quick Take

Direction: Bitcoin has stabilized over the last week, trading in the range of 3850 (previous resistance) and 3900. Based on overall past movement, there seems to be strong support at these price levels and the market is indicating Bitcoin is fairly valued around the 3500-4000 level for now. Looking at transaction volumes, we’ve seen a steady increase to early 2018 levels despite a decrease in price, telling me that Bitcoin is becoming *more* fairly valued based on network value to transactions ratio.

Both implied volatility & realized volatility are trending down, which indicates the next move will be explosive rather than a slow melt up/down. The gulf between implied volatility & realized, while narrowing, is still indicating it’s a good time to buy long term volatility.

I personally am not taking directional trades here because I view most price action in this range as noise, anyway. I’m more comfortable taking bets on volatility, and bets on the decline of BTC dominance as generally periods of stability lead investors to pile into “undervalued” alt-coins.

Key Support:  3730

Key Resistance: 3850

Fear & Greed

F&G agrees with technicals, and suggests it’s more like that we experience a run up than down.

Here’s a reminder of what these criteria mean

What I’m thinking today:

Some thoughts on JPM Coin, Bitcoin, Ripple & the Future.

As you may or not know, JPMorgan has a coin now. They introduced it about a month ago to much fanfare and cries from the general public that this announcement was the beginning of the institutional wave. (Note, they are definitely not coming in for JPMcoin, but ok). 

For the may nots, here’s a link.

Now the feasibility and use of this coin depends on your point of view. If you’re JPMorgan, you’re probably very excited about launching a blockchain product. It’s nifty, it’s cool and now people are looking to you as a leader not just in credit card bonuses but also in blockchain technology. JPMorgan (to their credit) actually has an incredibly strong tech team, and their own implementation of Ethereum (called Quorum) is a really interesting application.

Going back to the coin, it’s function is to be a stable-coin within the walls of JPMorgan and improve transaction efficiency by losing less money when moved around. I imagined this conversation:

Jamie: “We need to improve. It takes way to long to move money around”

Engineer: “Well, we could copy Bitcoin, or Ethereum. They seem to be decent settlement layers.”


Engineer: “How about we use blockchain instead?”

Jamie: “Sounds great.”

If you’re building a financial system, you want three things. (1) you would like things to be neat and function efficiently (2) you want a lot of people to be able to access your system (3) you want to make sure things don’t blow up too much.

Now JPMcoin seems to address (1) & (3) pretty well, as money will probably move faster within the system but (2) poses an issue.

You have to think to yourself why Citibank, Bank of America or any other institution that would greatly benefit from their own coin actually use JPMcoin? The answer is they aren’t going to. While JPMcoin may work neatly within the confines of it’s walled garden, it probably isn’t going to be adopted by the broader financial system any time soon.

This is where third parties like Ripple have an advantage. Ripple succeeds at (1) & (2) but not necessarily (3), as people are skeptical that the whole thing won’t just blow up one day for a myriad of reasons.

This is not to say all “institutional” stablecoins are doomed to fail. It’s just hard to imagine adoption of a JPMcoin in a place where regulations and risk-averse managers are abound. Can you imagine Johnson&Johnson doing a transaction with JPMcoin and accepting the coin as settlement? They wouldn’t want to lock themselves into the system, and they aren’t going to go to a BoA right after and expect them to accept JPM.

A Facebook coin has a much better angle of attack. Starting with their massive base of consumers, they can issue coins that in the beginning with mainly be used for p2p transactions. Slowly people stockpile these coins in their “accounts” and will eventually require usage for them and will tire of constantly cashing out. For example, you can now use Venmo to pay for Uber, because a ton of people have Venmo balances and wanted to do something with it. With monetary adoption, starting with the individual is a lot easier than starting with an institution.

The last point about this is a little bit more philosophical in nature. This stablecoin, along with most other 1–1 fiat collateralized stable coins is not really a cryptocurrency in any meaningful way. It may use blockchain technology, but it’s most definitely not a cryptocurrency. I believe people tend to get mixed up between the two, and in a deeper way than most people tend to think.

This application of JPMcoin is not the issuance of a new cryptocurrency, but rather the moving of the JPM ledger to a blockchain. The “coin” part is meant to confuse and move you away from realizing that this is just a back office efficiency, a way of tracking movements a little better. They’ve upgraded their database, not switched to a new currency.

The wonders of branding though made it seem as though a new currency was hitting the market.

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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: Deposit Accounts, Cold Storage, and College Kids

3 things you need to know:

One: BlockFi Introduces a “Crypto Deposit” account with 6.2% interest

Interest rates on deposits in most parts of the world kind of suck. In the US for example a quick search of the best savings rates at traditional banks shows a top interest rate of 2.45%. This is actually up about 50x from 10 years ago, and this is mostly due to the rising Fed interest rates and the emergence of online banking.

That's why eyebrows were raised on Tuesday when BlockFi announced that it would be introducing a crypto deposit account with an interest rate of 6%, or 6.2% with compound interest. The account is called the BlockFi Interest Account (BIA). 

How it works:

  • Users need to deposit a minimum of 1 BTC or 25 ETH to start an account. You can withdraw your money at any time. 

  • BlockFi lends the crypto to what they call 'trusted institutional and corporate borrowers', most of which I would assume are hedge funds looking for shorting opportunities or working capital. According to BlockFi's website, the reason why BlockFi can offer rates this high is because these institutions pay greater than 6% interest. 

How BlockFi makes sure your crypto safe: 

  • The loans are over collateralized, meaning that for every 1 BTC an institution borrowed they have to put up more than the equivalent amount (e.g. 1.05 BTC). It's unclear whether this collateral is in fiat or in other tokens. The difference is important; collateralized tokens will be riskier than fiat (unless that fiat is the Venezuelan bolivar).    

  • BlockFi liquidates the positions of any borrowers that fall below the collateralized limit to ensure depositors can get their money back at any time. The account holdings are custodied at Gemini Trust Holdings.

It's important to note that unlike your normal fiat savings account, savings in a BlockFi account are not backed by the federal government. That's a fun fact if you didn't know already - your fiat holdings are backed in most cases by some form of federal deposit insurance to make sure if things go really south you won't lose all your money. In the U.S, this is usually the FDIC which insures deposits up to $250,000.

Financial products that allow people to make money off their idle tokens are hot in crypto right now. From staking services to deposit accounts, there has been a profusion of new services to enable this. My hunch is that most people (in crypto) don't immediately care about the lack of deposit insurance, so the higher rate is pretty attractive. The real test will be in unforeseen circumstances; how will BlockFi’s system cope if there's a major fall in crypto prices coupled with high customer withdrawal rates?

Some thoughts: I’ve been saying it since the first CryptoAM, and will continue to do so. We are seeing the creation of traditional financial products, in a rebirth of the current system. The only different is that it’s all based around crypto assets. We are seeing a parallel financial system emerge, complete with banks, money market funds, lenders. Prime brokerages and “investment banks” have been popping up as well, painting a rosy picture for the future of crypto…

Two: BitGo investigates an order book — infrastructure is everything

As first reported by The Block, BitGo announced that they’re working on cold storage enabled trading, allowing firms to trade with major exchanges directly from BitGo cold storage reserves.

This announcement flew under the radar, but is actually quite a large announcement and means a lot for the traders and institutions of the world. One of the difficulties of trading is third party risk. If you have the majority of your funds in cold storage, and you want to exit a position, it often takes up to 48 hours to do so.

This lag obviously causes problems for active trading, leading many crypto funds to execute large positions in a short amount of time, increasingly the volatility of the markets. With the introduction of trading from your cold storage accounts, large buyers and sellers will be more willing to scale into the markets reducing volatility. Institutions will also be more willing to enter into cryptocurrency positions with reduced third party risk. The *party* is just beginning!

One fun thing: The Second Largest Mining Operation: College Kids

College kids are finding genius ways to make the most of their tuition money. According to Cisco researchers, college campuses are responsible for 22% of all mining of virtual currencies. 

Aren't mining profits low right now? Not if your electricity costs are 0, and that's what the majority of these students appear to be doing by taking advantage of free electricity in their college dorms. 

Yea, this is hilarious. I was already living off campus by the time I discovered cryptocurrency (early 2017), but you already know that.

Second thought: move into an apartment where the utilities are included in rent, and set up a miner. This is actually pretty common for older buildings without apartment meters in NYC and DC, so there might be some legs to this…

Go deeper: Read the article & look at some graphs

Also in the news:

Market Outlook:

Quick Take

Direction: LTC & BNB continued to lead the market this week, and is trading up over 20% week over week. Bitcoin is showing significant strength as well, with strong performance and limited pullback. I’ll be looking to how it reacts around the 3900 level. A strong rejection would lead to high likelihood of 3700 being revisited, while a break and hold of 3900 would lead me to believe a long position to 4200 would be EV positive.

Key Support:  3850

Key Resistance: 3910

Overall Market: BNB should theoretically be overbought, but I wouldn’t count it out. Strong fundamentals. It’s outperformance should inspire other alts to follow, and I’d be expecting BTC dominance to decrease by a few percentage points over the next month.

What I’m reading today:

This is just going to be a shoutout to my favorite twitter account. His threads are some of the best analysis of the markets I’ve seen. The tl;dr of the thread is that Ethereum’s recent performance has in a large part been a result of massive leverage. Historically when leverage reaches these levels there has been a large pullback, so be on the lookout for a sharp reversal of recent trends.

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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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