CryptoAM: EOS issues, The Fed on Bitcoin, and Maltese Love

Thursday, August 28th

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3 things you need to know:

One: The EOS bug. The EOS network reportedly has a vulnerability that makes it possible for malicious actors to steal network resources (like RAM) directly from user accounts.

  • Plugging the hole: The EOS team is already rushing to create a sustainable fix, but as a short term band-aid solution users must use a proxy account that has no RAM to steal. RAM is a finite resource in the EOS ecosystem, and once its stolen it can’t be given back. You can only be effected by this bug if you interact with a malicious account. Users must protect themselves until an official fix is released.

  • One big experiment: This just goes to show that crypto and blockchain is just one big experiment, and many things will need to tried and tested for the technology to evolve to become viable and scalable for a broad range of use cases. It will be interesting to see where the space will go in the next few years, but one truth is that we will see many, many failures in the coming years.

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Two: The St. Louis Fed loves bitcoin. The St. Louis Fed published a report validating the legitimacy of bitcoin as a currency and a medium of exchange in facilitating private transactions.

  • Bitcoin is maturing: As the bitcoin markets mature, expect more reports like this to come out in support of bitcoin from legitimate institutions such as the Fed. As the use cases of cryptocurrency proliferate, it becomes harder to refute arguments based on appeals to authority. With major institutions such as the IMF, Federal Reserve and World Bank all issuing reports about the increasing viability of Bitcoin, I expect many others to come around and see the same.

  • Decentralization FTW: The paper argues that central bank sponsored digital currencies are unlikely to gain support due to public mistrust of centralized institutions - it is all too likely that a back door would be installed to undermine privacy of transactions. A truly decentralized currency, such as BTC, is the true solution for a transaction network that is trustless, transparent, and immutable.

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Three: Iconiq index funds. Iconiq funds is launching a series of digital asset funds slated to begin releasing in 4Q18.

  • It starts in Malta: The first digital asset fund is planned for release under Maltese jurisdiction and is currently under review by the pertinent regulatory agencies. This comes as no surprise given the fact that Malta recently released a regulatory framework for crypto and blockchain firms. The fund will be a PIF (Professional Investor Fund), so it won’t be accessible to the average investor.

  • Tokenized: Iconiq has its own token, ICNQ, that can be redeemed for products and services offered by the company. The Iconiq team hopes that the token will grow to become a derivative in and of itself that reflects capital flows into the asset class.

  • ETFs and ETNs: Iconiq’s aim is to make crypto investments accessible to institutional and retail investors through regulated vehicles, and it plans to release ETFs and ETNs in 2019 under the supervision of government watchdog MSFA (Malta Financial Services Authority). The presence of regulated financial products will draw in plenty of capital and add a lot of liquidity and efficiency to the market, paving the way for similar products to be introduced in other countries.

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Also in the news:

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Market Outlook:

Quick Take

Some learning: We talk about support and resistance alot in this section, and many people have been asking me why. It’s because horizontal support and resistance are often the best ways of figuring out where to set buys and sells once you’ve made up your mind on the direction of the market. If you want to understand where the market is going…momentum indicators, volume and price action are keys.

To make this clearer moving forward, we will be dividing up this section into four parts.

Direction: Over the past week, the market has experience a slow “melt-up” that is often indicative of reversals. We have also witnessed the first 7/21 EMA crossover since the last run-up in July. The volume has been low, indicating a large volume day is coming soon. My bet on the direction of move is up based on technicals.

Key Support: $7020, $6900, $6750

Key Resistance: $7080, $7200

Actions: A long in the low 7k area with a stop at 6.8k provides good r/r. If we reject 7080 hard again I will close out the long. If we break down to 6900 before retesting 7080 I will also close. I expect some sideways trading in the 6950 and 7050 range for some time before a big move.

Daily Chart

Fear & Greed

We are moving further into the greedy range, but are still relatively neutral indicating room for more run up. There are still more shorts out than longs, so a massive squeeze is in play if we break 7.2k (average entry of the shorts).

Here’s a reminder of what these criteria mean

Overall Market

The overall market structure has returned to a bullish nature. As predicted yesterday, alts have begun to take off. Bitcoin is also in the process of confirming the first higher low of this bear market, a sign of reversing tide.

Expect to see retracement in alts over the next day before a resumed run, pending Bitcoin staying above 7k. This market has starved investors for gains. There are likely more double digit alt days coming soon if BTC doesn’t break down. Remember that alts suffer during large BTC movements and this slow melt up has provided a fantastic chance for alts to regain footing. I’m buying retracements of major altcoins.

Around the corner:

What I’m reading today:

An Explanation of DAICOs by Vitalik Buterin

It’s obvious to anyone in the cryptocurrency markets over the past year that there is a lot of fraud in this space. ICOs fleecing people, hackers extorting your grandpa, telling people you’ll give them trimmed BTC if they just give BTC to you first, etc. (…was the last one just me?)

Scam is a word used a lot in this space, but it’s often misplaced. Scamming implies that there was malicious intent. Often, projects fail because of incompetence and misaligned incentives — not due to any malicious intent at all. It’s difficult to fix incompetence, but one can definitely fix incentives.

A lot of the issues that crop up come from the massive amounts of money raised by ICOs. Last year there were plenty of 3-5 person teams with no product that raised well over $10M — a life changing amount of money in return for nothing but promises. Compare that to the average seed round size of $800k! It’s easy to give the project a shot…but if you’ve got $10M in your pocket already the incentive to work isn’t quite there. You have enough money to fund years of business expenses. Moving quickly and proving traction isn’t a huge issue.

So, how do fix this? Enter Vitalik and his proposal to combine the concept of an ICO with the concept of a DAO (Decentralized Autonomous Organization).

The idea is as follows. A DAICO contract is published by a single development team that wishes to raise funds for a project. The DAICO contract starts off in “contribution mode”, specifying a mechanism by which anyone can contribute ETH to the contract, and get tokens in exchange. This could be a capped sale, an uncapped sale, a dutch auction, an interactive coin offering, a KYC’d sale with dynamic per-person caps, or whatever other mechanism the team chooses. Once the contribution period ends, the ability to contribute ETH stops, and the initial token balances are set; from there on the tokens can become tradeable.

After the contribution period, the contract has one major state variable: tap (units: wei / sec), initialized to zero. The tap determines the amount per second that the development team can take out of the contract. 

There is also a mechanism by which the token holders can vote on resolutions. There are two types of resolutions:

  • Raising the tap

  • Permanently self-destructing the contract (or, more precisely, putting the contract into withdraw mode where all remaining ETH can be proportionately withdrawn by the token holders)

Tl;dr: Investors get to vote on how much money the team gets and when. If enough investors get annoyed with the progress, they can vote to get all their money back and to destroy the equivalent amount in tokens. It provides incentive for investors to stay engaged with the process, and also encourages the team to actually do work.

Personally, I think ICOs would benefit greatly from following this model. I’d love to hear any thoughts from you readers — feel free to leave a comment below!

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