CryptoAM: Citi Finds a Way, Gemini Dollars, and Vitalik's Worry

Monday, September 10th

🍎 Happy Monday morning, and Shana Tova to all you CryptoAMers today! We’re looking at another rainy day in the nations capital, as I write to you from my desk. The forecast in DC this week reminds me of Bitcoins price action: depressing.

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3 things you need to know:

One: Citigroup and the DAR. Citi has created what is called a DAR (Digital Asset Receipt), a security similar to an ADR (American Depository Receipt), which allows interested parties to invest in cryptocurrency without actually owning the underlying.

  • How it works: The underlying digital assets will be held by a trusted custodian, and Citi will be issuing the DARs.

    “In this case, the cryptocurrency is held by a custodian and the DAR is issued by Citigroup, the people said. The bank will alert the Depository Trust & Clearing Corp, a Wall Street middleman that provides clearing and settlement services, once it's issued the receipt, one of the people said. That lends an important layer of legitimacy and gives investors a way to track the investment within a system that they're already familiar with, the person added.”

  • Why this is important: The DAR will provide the Street with a way to invest in cryptocurrencies under current regulatory structures, which will be less risky than holding the underlying themselves. With this new receipt, we may see more asset managers and funds allocating capital towards cryptocurrency investments.

  • Read more…

Two: The Winklevoss twins and the Gemini Dollar. Gemini Trust Co. is launching the Gemini Dollar, a stablecoin pegged to USD on a 1:1 basis.

  • A familiar tethering mechanism: The token will be pegged to the US dollar through cash reserves on a 1:1 basis, similar to Tether. However, the difference between the Gemini Dollar and Tether is that the GD will be transparent - the USD reserves will be held at State Street and will be audited by an independent auditing firm on a monthly basis.

  • Regulatory compliant: The stablecoin is subject to oversight by regulatory agencies and is subject to New York banking laws, making it the first regulated stablecoin introduced to the digital asset markets.The Gemini Dollar will be hosted on the Ethereum network, and the Winklevoss twins hope that the currency will be accepted by retailers as a means of transaction.

  • Why this is important: Tether is a pillar of the crypto ecosystem, but no one knows whether the 1:1 USD/USDT reserve backing is legitimate. Tether is unaudited and opaque. Finally, the crypto world has a stablecoin backed by fiat in a legitimate and transparent way. Further, cryptos have been used as a store of value or a speculative instrument, but not so much as a means of exchange. The Winklevoss twins hope that their GD will change that and be used widely as a means of transaction.

    “When something is a store of value, you generally don't want to spend it. We use the word digital currency as an umbrella term in this space, and early on this term was used, but not many of these digital assets behave like currencies. And it makes sense. You don't buy things with your gold or with your shares of Apple. Similarly it doesn't make sense to do that with an ICO or bitcoin. A stable coin is different and necessary for the ecosystem as that medium of exchange.”

  • The two big announcements today are hilariously opposite. Citigroup is now telling people "Hey, now you can get Bitcoin through us, a bank!", and Gemini is saying "Don't want to hold the US dollar in a bank? Now you can get it through a blockchain!”

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Three: Vitalik proclaims an end to explosive growth. Vitalik, the founder of the world’s second largest cryptocurrency, Ethereum, has stated that the days of explosive growth - he’s talking 1000x’s - in the digital asset space are behind us.

  • Ethereum in freefall: Ethereum has plummeted to the $200 area in the period of market softness that we have endured over the past week or so. On the back of this large depreciation, Vitalik has made comments regarding growth in the space:

    “If you talk to the average educated person at this point, they probably have heard of blockchain at least once. There isn’t an opportunity for yet another 1,000-times growth in anything in the space anymore. That strategy is getting close to hitting a dead end.”

  • Real world adoption: Vitalik believes that the future is not in marketing with the goal of adoption, it depends on generating interest in the real world applications of crypto. 50%+ of Americans know what blockchain or cryptos are; the awareness is there already. We need to focus on getting people to actually use the blockchain and crypto in their daily lives and business.

  • Bob the ‘Buidl’er: We are very much so in the ‘buidl’ phase of crypto market maturation. Now that the hype and speculation has died down (at least relative to last year), those left standing are true blockchain enthusiasts that are looking to build, sorry ‘buidl’, the infrastructure of the future, a global blockchain and crypto ecosystem.

  • Scaling: Ethereum network, in its current form, cannot support large-scale adoption in the way that Vitalik envisions, but there is a large and strong network of high-quality developers working hard to the scalability problem and increase Ethereum throughput speed. Only time will tell whether they will succeed, but there has been increasing competition from well funded and well researched competitors.

  • Something to keep in mind: It’s often easy to build a better solution from scratch than to fix a broken platform.

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Also in the news:

Market Outlook:

Quick Take

Direction: BTC is holding its ground in the 6.2-6.4K area; we expect a period of sideways trading that will preclude a large move in either direction. Volatility is decreasing and we are seeing a BB squeeze appear on the 4hr chart.

There has been a lot of promising news coming out; so it’s possible sentiment will shift to a more bullish outlook and break the current bearish trend, but as of now I expect further tests of the 6175 resistance.

Key Support:  6175, 6100

Key Resistance: 6400, 6480

Actions: We are still in a no-trade zone; the wise move is to wait for a clear confirmation of market bias, whether it be a large bullish or bearish candle, before entering into new positions. Taking out a short or a long is risky here, especially if you are playing with high leverage.

Daily Chart

Fear & Greed

Here’s a reminder of what these criteria mean

Around the corner:

What I’m reading today:

What’s eating crypto? A tale of Bitmex, s***coins and opaque valuation

In which Jonathan Cheesman explores the reasoning behind the past 8 months of the cryptocurrency bear market. The main point of the article is that crypto is experiencing natural and massive capital outflows.

If you read the article, Jonathan focuses mostly on the supply side issues of cryptocurrency, which have already been discussed at length by many in the community.

These sell pressures include:

  1. Miners selling their rewards

  2. People paying taxes

  3. Cryptocurrency exchanges cashing out profits

  4. ICOs selling off their treasuries.

These issues are real, and complex. It is important to understand the inflows and outflows of the markets, and Jonathan does a good job of detailing market participants and the demand/supply dynamics of the cryptocurrency markets.

I contend that these issues are less important than the massive overvaluation of cryptocurrencies we saw and the subsequent profit taking by institutional investors and early adopters who understood what was happening in the markets.

Since the cryptocurrency markets are relatively illiquid, it only takes a small about of money to move price. According to research by Fundstrat, $1 in inflow equals $25 added to the overall market cap. During the months of September - January, we saw a fundamental shift of the cryptocurrency markets towards retail investors. This was evident when looking at the volumes coming from exchanges like Coinbase, which outweighed non-retail options.

On the way up, we saw projects with no working product get valued as highly as $30B — at which time it was clear to non-retail investors that it was time to start taking profits. On the way down, we saw valuations shrink massively due to early adopters and institutional investors bringing valuations down to earth. What we witnessed was merely a reversion of the market to “fair” valuations.

The bear market was not due to fundamental oversupply, but rather a massive drying up of demand.

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