CryptoAM: Gambling, Stablecoins and Yield Galore

Welcome back to the Tuesday edition of CryptoAM. I hereby dub this the CryptoPM edition. I’m writing from sunny LA where Crypto Investment Summit is going on. If you’re around, don’t hesitate to give me a shout. You can find me hanging out in the CryptoAM telegram room.

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3 things you need to know:

One: Gambling, Cryptocurrencies and the Non-Western Market

Despite repeated shaming by prominent figures in the cryptocurrency industry and plenty of PR missteps, the Tron network has been steadily attracting both volume and developer talent. The way the Tron network was treated over 2018 was very similar to the derision that EOS faced during it’s building period in 2017. However, similar to EOS, Tron has seen a surge in use and volume.

This is the case for a few different reasons:

  • The majority of people who are skeptical of Tron are westerners who don’t have a pulse on the Chinese market. Most Tron users and fans are based out of China and other East Asian nations, so those in the english speaking world are not exposed to the large following and trust that the protocols garnered during their building period

  • There is a strong contingent of cryptocurrency users who deemphasize decentralization place more emphasis on usability, UX, and personality.

  • Usability to most people can mean a variety of things, but to the core supporters of EOS and Tron, usability means ease of use for gambling. The vast majority of volume for both EOS and TRON come from gambling applications, which are much better suited building on top of EOS and Tron because they have much faster settlement than Ethereum.

  • Many more fake accounts and volume because of the lack of fees. Since both Tron and EOS allow for fee-less transactions, it’s much easier to fake volume on these blockchains

Go deeper: Read the Coindesk report

Two: Facebook reportedly looks to raise $1B for its cryptocurrency

The intrigue over Facebook’s in-the-works cryptocurrency deepened yesterday with a tweet that claimed the company is looking for investment from VC firms of up to US $1billion for the project. The claim comes from NY Times Technology Reporter Nathaniel Popper who originally wrote the story on Facebook’s plans back in February.

Why the hell does a company like FB need to be raising? Two theories:

1. Collateral. By all accounts FB is creating a stablecoin which is pegged to a basket of foreign currencies. To make sure there’s enough fiat in case people want to redeem their FB coin, you’re going to want to make sure you’ve got enough money to cover that obligation. Especially when your potential user base is 2.6 billion.

2. Decentralization. Not the type of decentralization that makes us crypto lovers swoon though (it’s going to be centralized as hell). Instead if this is indeed a play, my best guess is that it’s so that governments don’t regulate against Facebook having 100% ownership of the entity in control of the currency. Remember there are already calls to break up Facebook - becoming the largest stablecoin provider isn’t exactly going to make these calls any quieter so having VC’s invest is a way to reduce this risk.

What you should be thinking about:

  • Are they going to build their own blockchain for this or use an existing one? If they build on top of an existing one it’ll likely give a large boost to whichever blockchain they choose. That blockchain would also need to be able to handle large amounts of transactions at low cost. I would be oh-so-happy if they ended up using Omni, which is the protocol that Tether is built on.

  • Does Facebook partner with a major bank to help with this? Akin to what Apple has just done with Goldman to introduce its new credit card. Tech companies are increasingly encroaching on the territory of traditional finance, so it’s possible they go it alone.

  • What happens to other stablecoins if this gets introduced? Stablecoins are a network play: FB has the best network in the world to draw on, and could displace other stablecoins quickly leading to a loss in value.

There’s plenty of criticism about centralized stablecoins and what the point of using these are over regular fiat, but I highly doubt a company like FB, which has access to many of the top minds, makes a bet like this without having done years of research and thinking. Remember they’ve already experimented with virtual currencies through Facebook Credits, and you can already send fiat via Facebook Messenger in many countries.

I can’t help but draw parallels between their efforts to integrate the backends of Messenger, WhatsApp and Instagram (allowing free flow of FB coin between all three), the company’s pivot towards privacy centered communication (need a new revenue stream if they can’t sell as many ads or harvest as much data), and how these two things feed into paving the way for their own stablecoin.

I hope they have a damm good security team - I hear the black hats chattering from a mile away.

Go deeper: Read the original tweet thread and check this link to learn more about the business of stablecoins.

Three: Binance’s Trust Wallet announces new staking feature

Binance’s official digital wallet app, Trust Wallet, announced last week that it was adding a staking service for cryptocurrencies which is set to be implemented by the end of Q2 2019. Trust Wallet also indicated that it would offer support for Tezos, and as a Proof-of-Stake token would be the first to be included in its new staking service.

The move means that Trust Wallet mobile users can indirectly be participants to secure and validate the Tezos network. Tezos most certainly won’t be the last token to be added to this service over time, especially as more and more proof-of-stake coins go live.

The move continues an industry wide trend towards staking as a service. For those readers who are unfamiliar, staking as a service involves consumers providing their idle coins from proof-of-stake protocols to third party staking services like Staked and Figment. These companies use these tokens to participate as validators in these POS protocols. The rewards for validators are then distributed back towards the original consumers who contributed the tokens after the staking service has taken their profit.

There are a number of well-funded companies that provide services to help consumers profit from their idle tokens. BlockFi is another prominent example that we’ve previously mentioned. However, with recent price increases in the market a key unknown is whether consumers will stick with these services or look to punt altcoins that offer greater potential rewards.

Prediction: Staking as a service will grow exponentially in narrative in the coming months, but ultimately will not take a large hold in the years to come as UX/UI for PoS coins is built out and setting up nodes because both easy and cheaper.

Also in the news:

Market Outlook:

Quick Take

1 Hour Chart:

Daily Chart:

Direction: Bitcoin broke above it’s 200D exponential moving average for the first time since April 2018, a sign that the bear market is coming to a close. In order for me to have confidence, I’ll be looking for the 50D EMA to cross the 200D EMA. We’ve also seen rising volumes from both retail investors (Coinbase) and institutional investors (CME). If there was ever a time to bet on bullish continuation, it would be now.

Level predictions:

  • A break above 5310 would confirm continuation and I would expect 5700-5900 to follow soon after and would long at the 5300 level.

  • If we break below 5130, it’s likely we revisit 5000 shortly after.

  • If the 5000 level was breached, the bullish nature of the run is put into jeopardy and we would be likely to revisit 4500.

More important than charts when looking at cryptocurrency prices is the overall sentiment of potential market participants. Since the fundamental value of cryptocurrencies comes from people believing that cryptocurrencies have value, it’s important to understand the psychological state of the market.

We are far enough removed from the majority of the 2018 downturn, and when a new investor comes to the market and checks 2019 performance, they will see mostly green which is a huge psychological boon for the markets. I personally believe this is incredibly important and will drive the reflexive cryptocurrency market this year. Fresh inflows of capital happen when people sitting on the sidelines feel comfortable enough to enter and also feel as though they might be missing potential profits if they don’t enter now.

Now even more so than 2017 do we have people closely watching the market for signs of life. As those signs are being given right now — expect a mad rush to the entrance.

Key Support:  5130, 5180

Key Resistance: 5280, 5310 

Overall Market: During the recent run, most altcoins besides a select few have suffered when it comes to Bitcoin ratios. Generally when Bitcoin performs well, other coins will lag because most alt-coins will trade in BTC pairs and it’s easy to exit to Bitcoin. For coins with more fiat pairs (Ethereum) this affect is less pronounced. At this stage, many coins that have suffered losses are looking like attractive bets. Generally coins with loud and positive communities outperform in the weeks after Bitcoin appreciation. For sentiment data, I personally use and some internal tools.

What I’m thinking today:

Is Financialization A Double-Edged Sword For Bitcoin And Cryptocurrencies?

An oldie, but a goodie by a favorite former-wall-street-now-crypto Caitlin Long.

Decentralized. Anti-government. Anti-bank. Libertarian. Cypherpunk. All words that one would have used to describe the cryptocurrency fanatics of 2013. Today? Not so much.

One of the funniest things about crypto is the increasing influence of traditional finance, which can be seen in the plethora of re-invented traditional finance products in the crypto space. We see things like crypto-banks, crypto-loans, crypto-brokerages, crypto-money market accounts...etc. It often seems as though we are just building the exact same traditional finance system -- but instead of being built around fiat, it’s built around crypto. While some of these developments are objectively good, others are arguably detrimental to the ethos of cryptocurrency.

In this article, Caitlin Long goes over two types of financialization, one which she characterizes as good, the other bad.

  • The first “good” type of financialization is liquidity from new entrants to the system who will all start offering services and building products around cryptocurrencies. The more people in the system providing liquidity, the better the system becomes.

  • The second, “bad” type of financialization comes from debt based liquidity.

What should be understood before proceeding, is that the majority of our current financial system is debt based, and not equity based. What this means is, the majority of money that exists in this world is not actually held by the people who technically “own” that money. Rather, they actually own an IOU from a bank (or institution) that says “yes, we owe you this particular asset/amount of money, etc”.

The worry about the second type is the financial system can actually create derivatives that are not backed 1-1 with physical assets, which is what happened during the 2008 crisis when credit default swaps (a type of derivative) grew to almost 10x the size of the underlying market. This created a situation where the derivatives markets moved the underlying…

Caitlin worries that a similar derivatives market would spring up around cryptocurrencies, and allow major institutions to “capture” cryptocurrencies.

Personally, I believe that what matters is the underlying currency and not necessarily how that currency is used/rehypothecated, etc. If a new financial institution is to be built around crypto, that’s okay -- as the underlying money is sound.

If you believe in the future of Bitcoin, it will benefit greatly from the increased exposure and ease of use that comes with financialization, regardless of the type. At the end of the day, as a crypto user you are able to exist to outside the system if you choose. The value of Bitcoin in my mind comes from the fact that inherently it is a hedge against the mismanagement of an economic system by the government. Whatever the free market wants to do with that currency is fine with me, as that’s the choice of 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.