CryptoAM: LedgerX Stress, Squares Success, and a Protocols...play
|Aug 2, 2019|| 3|
Three things you need to know:
One: LedgerX — Are they launched? Are they not?
If you’ve been paying any attention, you’re probably aware that there are, like, a million different companies trying to launch physically backed futures. Why? To be honest I’m not 100% sure. Cash settled Bitcoin futures seem…fine to me. I don’t necessarily need to actually be given a Bitcoin on the expiry of a contract. How many traditional hedge funds do you think currently trade on CME and think, when they make a bunch of money, “Actually, I would much rather be handed a Bitcoin right now.”
Regardless, there was a lot of noise when LedgerX announced that they had just beat out Bakkt, ErisX and the CME to physically backed Bitcoin futures.
That was until…this:
The Commodity Futures Trading Commission (CFTC) told The Block today that LedgerX does not have the necessary derivatives clearing organization (DCO) license to trade futures. Its 2017 DCO license approval permitted the clearing of swaps, not futures.
Last market insiders noted it was not clear whether the futures would go live anytime soon. There were no official rule filings about an approved futures contracts either on the LedgerX website or on the primary U.S. derivatives regulator, the CFTC website. A “derivatives specialist” named Thomas G. Thompson also tweeted yesterday: “The CFTC does not show any futures contracts certified by #ledgerX.” There was also no futures volume listed on their publicly available market data.
“Don’t see any reported trade volume either. Vaporware launch,” one industry insider questioned.
Not a great look for LedgerX — but wait, it gets better:
In response to the CFTC’s comment on lack of approval, CEO of LedgerX, Paul Chou, has taken to Twitter, alleging that the CFTC’s actions are illegal and saying he plans to sue the commission if they don’t “do the right thing.” He also alleged the CFTC previously asked LedgerX to censor its tweets. An insider told The Block that Chou has expressed concerns internally that the CFTC’s action are tied to the agency playing favorites with its competitors, including Bakkt and ErisX. Chou has not responded to an email seeking comment.
Since Chou’s tweeted comments, LedgerX press representative Ryan Gorman told The Block due to his concerns surrounding the issue that he will no longer be working with LedgerX.
Their PR person presumably didn’t want his other clients to believe he encourage this behavior and just resigned as well! Can’t be any good going on there. Not the best look for the industry when a crypto native organization threatens to sue a regulatory body over the delay of licensure.
What this means: Same old news of U.S regulation holding back advancement? Not quite sure. This is a classic start-up move, move fast and break thing. Ask for forgiveness, not permission. While these mantras may work in other industries, it’s clear that the financial regulatory bodies does not take disruptive behavior lightly. When scoping out the eventual winners of this space, it may make more sense to focus efforts on those companies that already know the ins and outs of regulation — and those that have moved slowly at the seeming expense of progress.
Two: Square’s Q2 bitcoin sales hit new record
According to the most recent Square earnings release, over $125 million worth of Bitcoin has been bought through their mobile app. This is up over 240% over the last year and almost 100% Q/Q (Q1 saw 65.5m worth of Bitcoin bought).
Kevin Rooke @kerookeSquare customers bought $125 million of Bitcoin last quarter on Cash App! That’s 5 straight quarters of *accelerating* revenue growth for Square's Bitcoin business, and 237% growth YoY. TO THE MOON 🚀 https://t.co/6A3bNtaMTF
Square is making a truly conscious push into the Bitcoin space, and the CEO Jack Dorsey has made it abundantly clear that he believes in Bitcoin. How do I know? Well, he ended the conference call by saying:
“We love you Bitcoin!”
So he hasn’t exactly been shying away from praise. In June, Square enabled BTC deposits, becoming a fully fledged BTC wallet. Also in June, Square announced that it would be hiring to independent BTC devs to work on improving Bitcoin full time.
Three: SpankChain launches SpankPay
I promise you this story is safe for work. SpankChain, the adult-industry focused blockchain initiative, announced the launch of a cryptocurrency payments platform on Wednesday called ‘SpankPay’. The platform allows companies in the adult industry to easily accept cryptocurrencies on their websites, and already has two integration partners.
SpankChain has been the company in crypto most commonly associated with the adult-industry since it raised $6 million in an ICO in 2017. Before the recent announcement the company was a standalone website for webcam performers called Spank.live, taking only 5% of performers’ revenues instead of the 50% that other webcam websites allegedly charge.
The adult industry faces a number of problems with traditional payment processors that make crypto a more natural sell for companies and individuals:
Credit card providers like Visa and Mastercard often charge companies in the industry between 5-15% to process payments on their websites. A large part of this is due to a much higher rate of chargebacks in the industry - consumers paying for the service in the moment but then not wanting this transaction to appear on their credit card. These traditional card companies try to mitigate this risk by charging consumers higher rates overall.
SpankPay however claims it will only charge 0.5% per transaction, which is lower than Visa and Mastercard charge even to some traditional businesses. Part of this is because of reduced chargebacks; once the crypto has been paid if the block is confirmed it is not possible for a consumer to request a chargeback.
Part of the larger problem is consumers’ fear about their purchasing history on adult websites becoming more visible. It’s not difficult to foresee situations where consumers would want to be more anonymous and private with their transaction history, which paying with crypto affords them.
Why it matters: SpankChain’s announcement of SpankPay is part of a larger push to increase the number of companies in the adult industry that accept crypto on their platforms. Currently only 470 adult sites, 50 webcam sites and 35 sex shops accept crypto according to a recent Coindesk documentary (less safe for work - you’ve been warned). It is not the only company looking to provide a crypto payment processing service however, with intimate.io also providing a similar option to adult websites.
SpankPay may also herald a change in SpankChain’s fortunes. Last year the company had to cut its team by over 50% in the middle of crypto winter. Regardless of how you feel about the adult industry as a whole, it’s always refreshing to see blockchain projects shipping products.
Also in the news:
Direction: Chun baby, churn. We witnessed a significant push down today, on higher than normal volume and orders. This comes after a mildly parabolic advance from 9100 - 10600. We completed a nicely formed Adam and Eve bottom, suggesting to me that we’ve put the lows behind us.
As stated previously, accumulating BTC between 8.8k and 9.6k was a good play, as it was unlikely to see levels below there based on significant buy support. Now that we’ve broken up 9.6k (and more significantly, 10.4k), I believe we will begin to reset the sideways trading between 9.8k and 10.8. I’m currently net long from 9.6k, but short term bearish based on the smackdown from 10.6k today. I do not think that sub 10k days are behind us, so be ready for that slight correction.
Moving forward, I believe the next few months of Bitcoin price action will bring along significant bullish action. We are still in a bull market, and the macroeconomic case for Bitcoin has never been stronger. This price action is likely forming the base for the next parabolic run, and I suggest you position accordingly.
What I’m reading today:
Circle (one of the most well funded companies in crypto) released a comprehensive report on the crypto industry recently. There is an absolute wealth of information here but let’s highlight some of the key part of the report about Bitcoin, Ethereum, Defi, stablecoins, and overall funding in the market:
Just 3% of miner revenue comes from transaction fees on the Bitcoin blockchain currently. With the block reward halving next year, it’s interesting to think about whether this low transaction revenue represents a long term security threat.
The reason: miners are currently rewarded for their efforts in two ways - via the block record and via transaction fees. When the block reward eventually runs out the only incentive for miners will be via transaction fees. If these transaction fees aren’t sufficient we could see a reduction in the amount of miners, potentially increasing centralization of mining which would increase the possibility of a 51% attack on the BTC blockchain.
Much of the talk has been about other smart contract platforms that have recently been released and are soon to be released. One of the questions asked by the report: These new smart contract platforms may be functionally superior to the current Ethereum 1.0 blockchain - can they eat away at Ethereum’s market share before the vastly improved Ethereum 2.0 is released?
Here’s the current state of play from a valuation perspective:
On the decentralized lending side the sum of total loans originated increased by 140% across the major protocols relative to Q1, attributed mostly to dy/dx launching its mainnet and Compound seeing significant growth. Interesting to note that Maker, while still the leading lending protocol, has seen its market share decrease 25% from 96% to 83%. Still dominant for sure but, will we see this downward trend continue?
Big winners = Tether and USDC. Despite Tether’s parent company Bitfinex having the legal book thrown at it by the NYAG it’s still by far the most dominant stablecoin by market share with 80% by itself. USDC saw its market cap increase by 48.7% during the quarter.
Big loser = Gemini Dollar. The market cap is down a whopping 75% over the quarter.
From a token offering perspective your three largest categories are Initial Exchange Offerings (IEO), Initial Coin Offerings (ICOs) and your Security Token Offerings (STOs). The amount raised by ICOs and STOs is significantly down, with IEOs being significantly up:
From a traditional fundraising perspective the majority of the money has gone towards three key areas - Wallets, Payments and Exchanges. Here’s the breakdown:
Thoughts on funding: How interesting is it that despite all the bad press around token sales they still contribute more in overall funding in this industry than traditional venture investing does? Even if you take out LEO ($1billion), it still looks as though token sales come out on top.
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