CryptoAM: China's CBDC, BAT's Publishers, and Bitex's Bitcoin


Happy (?) Tuesday CryptoAM! The markets are red — but on the bright side that means less time looking at Blockfolio, or Delta. Or another non-mainstream app if you’re truly a savage.



Three things you need to know:

One: China “close” to issuing Central Bank Digital Currency

Expect to hear a lot more of the words “China takes on Bitcoin/Libra” in the near future. According to Mu Changchun, deputy director of the PBOC (Chinese Central Bank) ‘s payments department, the Central Bank is “ready” to launch its central bank digital currency (CBDC).

The announcement comes after five years of research by the PBOC, one of the oldest and most sustained efforts by a central bank worldwide to fully understand the implications of CBDC and build technical architecture to support it.

The PBOC has decided to adopt a two tier operational structure. The PBOC will not issue the digital currency directly to the public, instead issuing it to commercial banks who will then issue it to the public. This is interesting because much of the discussion around CBDCs have been that they could allow the public to open up bank accounts directly with the central bank, bi-passing commercial banks. The PBOC has indicated that they do not want to see financial disintermediation.

Important to note also is that the digital currency won’t fully rely on blockchain technology, for fear that it wouldn’t be able to handle the transaction volumes needed in the Chinese economy.

Here’s a glimpse into how things might work on a practical basis:

“According to patents registered by the central bank, consumers and businesses would download a mobile wallet and swap their yuan for the digital money, which they could use to make and receive payments.”  - Bloomberg


Centralization and control is also a key objective
of the new CBDC:

“Unlike decentralized blockchain-based offerings, the PBOC’s currency is intended to give Beijing more control over its financial system…Crucially, the PBOC could also track every time money changes hands.” - Bloomberg


Why it matters:

  • This decision is inherently political. China fears the ability of Libra to strengthen the dominance of the US Dollar worldwide (the Chinese Yuan is not included in the planned basket of currencies for Libra) and also its potential to impact monetary policy. For a deeper analysis of this, see here.

  • Libra’s launch date isn’t scheduled until early next year, and recent comments by regulators indicate that in many jurisdictions this launch date will be much later. The rhetoric coming from this announcement seems to indicate that China’s CBDC will be launched before this, giving it time to gain traction in the world’s most populous nation.

  • China is already a society where the vast majority of payments are made digitally on apps like WeChat and AliPay. This has led some commentators to question the utility of introducing a CBDC. It will be therefore be interesting to observe how China’s CBDC fairs, and could go a long way to convincing other central banks around the world to do the same.

My thought bubble: We now have three vastly different visions for what the future of digital currencies could could like with Bitcoin, Libra and now the Chinese CBDC:


Buckle on in, the future of currency is about to go through some drastic changes in the coming years.


Two: The # of publishers on Brave increased 1,200% since mid-2018

Brave — the web browser — is on the rise. According to BATgrowth.com, the number of publishers accepting BAT through the Brave rewards program has grown from ~19,000 in July 2018 to ~231,000 a year later. Currently Youtubers make up the largest population of publishers, but Brave also boasts more traditional publications such as the Washington Post.

Brave is a rare example of an ICO whose token is actually being used as utility token, and is currently being circulated around the proposed ecosystem. It’s also one of the only tokens whose value does not come from being a “store of value” — but rather the value comes from being a transitory and in-ecosystem token that improves economic coordination.

Economic Coordination as a Service. ECaS? Doesn’t really have a ring to it. Regardless, that’s what I like to believe protocols like Brave are tackling. When people discuss cryptocurrency, they often discuss the merits of decentralized money (as there are many) and ignore the other types of interesting benefits that purely digital money and application specific money can have.

  • Money that is inherent to a system can be a powerful tool that aligns incentives for all participants in a system. For Brave, the actors that must be aligned are the consumer, the advertiser and the publisher. Brave attempts to coordinate the needs of all through the use of their token.

  • A generalized example: If there is a park, and people must pay to enjoy the park, they are less likely to ruin the park. They are even *more* unlikely to ruin the park if they must pre-purchase a tradable entry pass (of which there are a fixed amount). Why? Imagine these passes are exchangeable, and with more demand for the park comes more interest for the pass. The passes will go up in value (supply is constant, demand is growing). So the early park users are actually incentivized to improve the park and drive up the price of the pass. Eventually a theoretical equilibrium will be reached where a maximum price is present and people are incentivized through fear of loss of value. Hooray, the park has been saved from abuse. (This is simplified, and there are many approaches to solving this problem.)

Why this matters: There are many applications for cryptocurrencies, beyond Bitcoin. It’s important to recognize who is making headway in this space and learn from their successes and also from their mistakes. These are very difficult problems to solve, and I don’t expect them to be solved quickly or without failure. That being said, if there is one area in which I believe there will be strong progress, it is in within economic coordination on the internet.

Go deeper: Read the BAT whitepaper


Three: 60 Latin American Banks Can Now Use Bitcoin for Cross-Border Payments

This one is pretty nifty — a leading bank tech provider in LatAm just partnered with a cryptocurrency exchange to improve their international remittance systems.

Bantotal is a core banking service provider based in Uruguay that services over 60 different financial institutions across 14 different countries, and they just recently integrated with Bitex to help them move money around using Bitcoin.

A money quote on Bantotal’s significance:

“Bantotal is one of the biggest banking providers in Latin America and is a huge player not just in Latin American but the greater Pacific,” said Sebastián Olivera, founder of the Uruguayan Fintech Chamber. “For me, Bitex provides a great solution for payments and they will be boosted by the structure and name of Bantotal.”

The way it works: Bitex will act as an intermediary between the sending and recieving party. For example if someone in Uruguay wants to send money to Brazil, they will send over their local currency, Bitex will transform it into Bitcoin and then convert it into the Brazilian Real in Brazil. This can theoretically speed up the process of remittance significantly.

The CMO of Bitex claims that “payment times for exporters between Argentina and Paraguay in one instance last February dropped from one month to one hour after switching to Bitex’s cross-border payment services.”

Why this matters: Don’t sleep on LatAm and cryptocurrencies. There is a lot of activity and progress being made in South America and many of the countries there have historical and current political climates that position the population nicely when it comes to grasping the concept of a non-sovereign money.


Also in the news:


Market Outlook:

Quick Take

Direction: The bullish thesis from last week obviously didn’t play out, but the bearish case did nicely. As predicted, a break of 11650 turned into a very nice shorting opportunity, and subsequently traded down to the 10800 level. We bounced nicely off support, and as of writing are trading at 10900.

I’m currently looking for opportunistic longs here, and am staying on the 1h - 4h timeframes when looking at price action. I believe the coming days will have pivotal candles for the direction of the next few months, and would like to be in the right position to take advantage of them.

Currently there is significant buy support from 10750 - 10850, and a failure at that level is likely to send us down 10400, and 9900 shortly after if 10400 falls. Something to note now is that sellers are in control and there will likely either be a strong candle that signals reversal. Sideways trading can now be considering bearish. I’m personally hedging here, and taking some exposure off the table as I wait for bulls to regain resolve. A reclamation of 11.3 would be bullish here.

Key Support:  10.8k, 10.4, 9.9k

Key Resistance: 10.9k, 11.0k, 11.3k


What I’m thinking today:

Electric Capital Developer Report 

Electric Capital does a hell of a job at capturing the true amount of dev activity in the crypto ecosystem. The report they just released tracks dev activity for a full year (June 2018-June 2019) and follows on from their inaugural report on this earlier in the year.

This report is important for two key reasons:

1. Devs buidl things and can also help reduce the likelihood of there being major software bugs. I tend to assume that a large amount of devs working on projects increases the chance that applications will also be built; helping to increase overall adoption of a protocol. If you have greater adoption of a protocol, throughout time this might help increase the price of that protocol’s token (e.g. increased demand for gas).

2. Before these reports came out people at Consensys would tell me that across Ethereum and related projects there were around 250,000 active devs. Good to know what the actual numbers look like 🙂 

Here are some of the highlights from the report:

Overall Dev Numbers

  • The overall number of open source crypto developers are down by over 800 from 7671 to 6842. This loss mainly comes from a strong reduction in the number of developers who contribute once a month. The number of full-time developers working on crypto is actually up 13% on an annual basis.

  • Most of the loss in developers come from crypto projects outside the top 100 coins, which have shed 19% of their devs compared to a 4% loss for devs inside the top 100.


Bitcoin and Ethereum

  • Number of BTC devs hasn’t really changed (318 in 2018 vs 314 in 2019)

  • Ethereum still crushes it with number of devs at 1243 (up about 6% from last year). This represents 18% of all open source crypto devs.

Other projects

  • On a percentage and raw number basis, Maker saw the biggest increase in number of devs during the period. On the hand Bitcoin Cash saw the biggest percentage decrease in number of devs while EOS saw the greatest raw number decrease in devs (although EOS still has the third most number of active devs overall).

Also some food for thought:

Overall thoughts:

1. It looks like we’re seeing a consolidation towards the top 100 projects, particular after the death (they’re dead) of ICOs. In retrospect, it looks as though the vast majority of these ICOs failed to achieve positive returns. However there are a number of big winners also - see this twitter thread for more details:


2. The increase in the number of full-time developers and reduction in the number of one-off contributors is interesting. One reason for this could be that crypto projects have established more mature foundations which have more formal processes for developer grants - allowing devs that would otherwise be part time or one-off to focus fully on the project. The flip side to this is that one-off devs could now be less needed or less incentivized to contribute.

-ZT


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