Thursday, September 13, 2018

BTC Swaps, Blockchain MOUs, and Exchange Excitement

Thursday, September 13th


☕️ Good Thursday morning. The markets have turned on the heat. A low simmer. If you were paying attention to CryptoAM yesterday, you might have noticed we called for a leg up :)



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3 things you need to know:

One: BTC swaps at Morgan Stanley. Morgan Stanley plans to offer trading in complex derivatives tied to the largest cryptocurrency, according to a person familiar with the matter, joining other Wall Street firms in creating ways for clients to play the digital currency market.

  • A developing market: With this announcement, we see Morgan Stanley join the likes of other bulge bracket banks, such as Goldman and Citigroup, in the race to create crypto-based derivatives (and other) products to offer to their institutional clients. I expect to see more institutional money come into the space to participate in the broad range of crypto financial products being developed, once they come to market.

  • How it works: The bank will give clients synthetic exposure to BTC price movements through BTC price return swaps, with Morgan Stanley taking a spread on each transaction. Morgan Stanley does not intend to trade Bitcoin directly, and the swaps will be tied to futures contracts. The firm is already prepared to offer these swaps and plans to once investor demand is proven and internal approval is received.

  • Read more…


Two: India approves blockchain research MoU involving BRIC nations. The Union Cabinet of India, a decision making body led by Prime Minister Modi, has signed an MoU on collaborative DLT research.

  • A group effort: The collective will conduct research aimed at fostering a better understanding of DLT and its many potential use cases/implementations and will housed under the BRICS interbank Cooperation Mechanism.

    “The research will be jointly conducted by the Export-Import Bank of India (Exim Bank) and banks from the other BRICS member states; Banco Nacional de Desenvolvimento Economico e Social (BNDES, Brazil), China Development Bank (CDB), State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank, Russia), and the Development Bank of Southern Africa (DBSA).”

  • Join the club: India is just one of many countries that have recently made announcements regarding research into DLT and blockchain integration. Having large, high-profile countries commit to this burgeoning space will certainly encourage smaller countries to learn from the research of their predecessors and attempt to incorporate similar programs of their own.

  • Read more…


Three: Japan’s financial regulator will be hiring 12 additional employees. The reasoning? They’re being hired to handle the high volume of crypto exchange license applications.

  • Get in line: Japan’s Financial Services Agency (FSA) is dealing with ~160 applications with a team of just 30 individuals who have other responsibilities outside of reviewing applications. They haven’t made too much progress yet:

    “According to a document released after the meeting, the FSA has to date been reviewing sixteen cases, twelve of which withdrew their application at the FSA’s request and one of which has been rejected. Three, including Coincheck — which notoriously suffered the largest hack in crypto industry history this January — await a final decision.”

  • Exchange proliferation: This story is indicative of a broader trend in crypto, the proliferation of exchanges. As the markets heated up, we saw a large number of new players enter the exchange space in order to capture a small piece of the pie. In a drawn out market cool down, only the fittest will survive. I see a lot of consolidation coming in the next few years in the crypto exchange space, and only time will tell what the landscape will look like when the market matures and all is said and done. Expect many exchange “mergers” to happen in the future. The fragmented liquidity of the cryptocurrency markets can only last so long!

  • Read more...


Also in the news:


Market Outlook:

Quick Take

Direction: We climbed higher, testing 6.4k like expected. We broke through the two medium resistances of 6400 and 6480, and are now trading around 6500.

Based on the strength of the breakthrough, I’m expecting a test of the 6600 range soon. If we rejected 6600 with a shooting star or experience a high wick, 6400 is likely to be revisited. If we break 6600, we are likely to test the 6800 price level. Volatility being low suggests a large move is coming. Price action suggests the move is up.

Key Support: 6400, 6480

Key Resistance: 6580, 6700

Actions: Keeping the long taken out at 6300, with a hedge short at 6600. Will close out if we head below 6400.

Fear & Greed

According to F&G, a continued bounce is more likely than a retrace. I’ll be watching closely.

Here’s a reminder of what these criteria mean

Around the corner:


What I’m reading today:

An Exploration of 3 types of Crypto Valuation Models

Ask anyone and they’ll probably say:

  1. Look at the website

  2. Look at the team

  3. Read the whitepaper

  4. Think they can actually do the things in the whitepaper?

This has served okay, mostly because we are all massive speculators, and speculation is what has driven these prices to their sky high valuations.

Moving forward, assigning real value to currencies will require a more rigorous approach.

In this article, 3 types of more rigorous valuation models are outlined.

1. Discounted Cash Flow Analysis (DCF). This is the traditional model used by institutions (and first year business students) to price companies with cash flows. This is useful for utility tokens.

2. Dividend Discount Model (DDM). For digital assets that offer dividends, such as exchange coins (in the form of a fee share), a DDM can be used. 

3. Cost of Production. This is a completely new model that has not found its way from traditional finance. It is important to understand that part of a digital asset’s value comes not only from buying them or exchanging them, but also from producing them through processes like mining.

For an in depth look at these models, check out the linked article!


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