CryptoAM: Goldman Balks, ShapeShift Concedes, and Wash Traders Rejoice

Wednesday, September 5th

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3 things you need to know:

One: Change of plans at Goldman. Given the choppy regulatory landscape, Goldman will be delaying its plans to open a bitcoin trading desk for the foreseeable future, instead focusing on attempts to develop a leading custody solution for institutional clients.

  • Trust is gold: Goldman is a trusted name in the financial services industry, and when it comes to providing custodial services, trust in the counter-party is a necessity. With Goldman and other bulge bracket banks eyeing the custody market, we see an ecosystem of large and trusted providers rising, bringing confidence to institutional investors who otherwise would have been hesitant to invest in/trade digital assets.

  • The market is still maturing: The regulatory landscape has not evolved to the point where a large institution such as Goldman would be willing to take the plunge and open their own crypto deck. The markets are still the wild west, and they will be for some time. Regulators and market participants need to work together to introduce effective regulation to provide a framework for continued growth and to create innovative products such as an ETF or crypto trading desk.

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Two: Wash trading on Bithumb. There has been approximately ~$250mm+ daily in fake daily volume on Bithumb since they re-opened. Why? Traders looking to exploit the recent promotion where fees are paid back to traders in airdrop tokens at a 120% rate with a daily limit of 1bn KRW.

  • Volume spikes: The promotion begins at 11AM every day and is first come, first serve, so there are huge volume spikes with wash trades occurring at 11AM on-the-dot. This could lead retail investors using volume indicators to be mislead into entering or exiting positions.

  • Swept under the rug: Despite the fact that wash trading and other manipulative practices are not explicitly illegal in the crypto markets, they are in traditional markets, and probably will soon be illegal in crypto as well. There is clear evidence of manipulative activity in several exchanges, but it has been swept under the rug mostly. Once there is clear regulation in place, there is a strong possibility that some of these exchanges may have to face the music.

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Three: Shapeshift caves to pressure and introduces KYC/AML. The announcement was a shock to the cryptocurrency community, as Shapeshift was built on the principles of anonymity and privacy. Historically, Shapeshift allowed anyone to trade on their platform with no account. It was the exchange of choice for those who wanted to buy and sell cryptocurrency without compromising their identity.

  • Libertarian to the extreme: As some background, Shapeshift was founded by Erik Voorhees, one of the most successful cryptocurrency entrepreneurs and a well known figure in the Libertarian community. Erik often voices his opposition to government interference and privacy violations, which prompted the crypto community to call out this seeming hypocrisy. However, it’s likely this has nothing to do with Erik changing his views. It’s probable some government organization threatened to shut down Shapeshift if they didn’t comply with KYC laws. Erik hinted at the possibility in a cryptic tweet…

    Erik Voorhees@ErikVoorhees

    What I write is being watched very closely. Please give us time.

    September 4, 2018

  • Why this matters: If you currently trade on an exchange that requires KYC like Poloniex or Coinbase, just know it’s likely the government has all your information. Whether this is a good thing or a bad thing is not something I will debate, but just know that it is the case. If you’re investing on a Binance, Bitfinex, or BitMEX…know the risks. Most of these exchanges are operating illegally, and it’s only the fear of stifling innovation holding the U.S/EU governments back. This forced implementation of KYC on Shapeshift is the first of likely many actions that governments will take to curtail illegal activity in the cryptocurrency space.

  • Read more…

Also in the news:

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Market Outlook:

Quick Take

Direction: My small short call from yesterday turned into a big winner. That being said, it turned into a much bigger winner than expected. We saw an 5% intense drop in the span of 30 minutes, as BTC broke through all key supports.

Right now, we’re resting on the 5D EMA as a support. Either we make a run back above 7000 quickly, or we are looking at a drop to the 6830 level. Sell volume has been much stronger than buy volume, so my take is we will be revisiting 68xx in the near future.

Key Support:  6900, 6830

Key Resistance: 6980, 7020

Actions: I would take a long out around the 6850 and 6800 level. I would short at 6980.

Daily Chart

Fear & Greed

Here’s a reminder of what these criteria mean

Around the corner:

What I’m reading today:

A Qualitative Framework for Investing in Digital Assets

Yes, this is an old article I wrote. Yes, I think think it’s important to read. Yes, I am shilling my own stuff :)

I’m sharing now because I’ve had quite a few people reach out and ask how I evaluate crypto projects.

Well, evaluating a cryptocurrency is similar to a VC evaluating an early stage business. It involves a high degree of speculation, and willingness to take high risk in return for outsized reward. The failure rate of projects currently trading on open markets is likely to be the same, if not higher, than the failure rate for start-ups (which hovers around 90%).

With this in mind, it is important to develop a robust framework that allows you to make intelligent decisions. Digital assets are the only investment open to everyday investors that is not heavily regulated, leaving vetting to individuals. Due to this, we are seeing massive speculation (and in January of 2018, a massive correction). A lot of projects that do not fulfill basic investment criteria have reached 100M+ valuations!

The General outline:

  1. Project Overview: How would you summarize the project?

  2. Technology: Do they have a strong (and proven) technology or good tech team?

  3. Business Case: Are they solving a real problem?

  4. Crypto-Economics: Do they actually need a token?

  5. Community: Is their community strong, happy and enthusiastic?

  6. Legal/Compliance: Could they come across legal issues?

There are crypto-specific questions that I explore in depth in the article, but just remembering to think of these six topics when looking at a project can help guide your thoughts, and help you make better decisions.

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