CryptoAM: Uncertainty, Lolli and Blockchain


Happy Tuesday! Relatively little movement in the markets over the last week, and the stories this week are certainly less strange



Three things you need to know:

One: Ripple CEO writes open letter to Congress over regulatory uncertainty

One of the worst things in the world for people is uncertainty. This is reflected in the stock market consistently. Whenever there is an “event” that involved a degree of uncertainty, the resolution of that uncertainty leads to happiness. This was particularly relevant a few weeks ago when Facebook stock jumped almost 2% on the news that was being fined.

From a Market Realist article:

While the fine of $5 billion was the largest in FTC’s history on a tech company, it hardly mattered to investors and traders who took Facebook’s stock up by 1.8% on Friday, adding over $10 billion to Facebook’s market cap.

Why? Because people hate uncertainty. This distaste for the unknown extends to regulation as well — with regulatory uncertainty comes a special type of fear. The fear of not knowing whether you might go to jail or not. The cryptocurrency space (in the US, but also abroad) is rife with this fear. Congress has not been explicit in what they expect from cryptocurrency companies, and this has caused many bright and talented individuals to leave the country, and set up shop elsewhere.

People are beginning to address this. On Sunday, Brad Garlinghouse, CEO of Ripple, and Chris Larsen, also of Ripple, wrote an open letter to congress about the issues that companies in this space contend with, and also asked Congress to support reasonable laws, and to recognize that with uncertainty comes fear.

From the letter:

Companies like ours in the United States, and others abroad, employ these innovations in partnership with regulated financial institutions to enable the world to move money across borders like it already moves information—efficiently, reliably, inexpensively. In our view, digital currencies have the opportunity to complement existing currencies like the U.S. dollar—not replace them.

Without a doubt, blockchain and digital currencies will engender greater financial inclusion and economic growth not unlike the internet’s historic impact. As it did with the internet, the U.S. has the chance to lead the way, nurturing this economic opportunity while continuing to protect privacy and stability.

We urge you to support regulation that does not disadvantage U.S. companies using these technologies to innovate responsibly, and classifies digital currencies in a way that recognizes their fundamental differences—not painting them with a broad brush.

This is a timely letter, as there was a hearing being held by the Senate Banking Committee on regulatory frameworks for cryptocurrencies this morning. You can watch a replay of the hearing linked here.


Two: Lolli announces partnership with Safeway

Image result for lolli crypto rewards medium

Bitcoin loyalty rewards app Lolli made a splash last week when it announced a partnership with major US food retailer Safeway. The announcement opens up Safeway’s 900 retail locations to Lolli users, who can now earn Bitcoin each time they shop online with the retailer. 

This isn’t a one off for Lolli, which has steadily built up relationships with 750 different merchants since launching in September 2018, including Walmart and Macys. Lolli users are able to earn Bitcoin each time they shop at a Lolli partner store, usually receiving BTC worth around 3-5% of the purchase price of the item. According to the company, the average Lolli user has so far earned $26 worth of Bitcoin.

Why it matters: Lolli argues that rewarding consumers with BTC is a way to increase mainstream adoption, particular when consumers can do this via well-known merchants. Company CEO Alex Adelman argued recently on Yahoo Finance that BTC is a better loyalty rewards mechanism than your standard company loyalty rewards program, given that “points are deflationary, while BTC is not deflationary, so I think it's a better store of value..." 

There does however appear to be a more important trade off. Consumers that use Lolli don’t appear to eligible for other benefits such as coupons or cashback programs, according to Lolli’s website:

This may help explain why the company is able to offer fairly high BTC repayment rates; they’re saving the partner merchant from a cost they would otherwise incur. 

Key trend: Crypto companies are increasingly becoming more visible by working within existing financial and payment systems. Earlier this year Flexa announced that major retailers like WholeFoods and Starbucks could accept crypto using its system (the trick being that with Flexa these retailers never actually touch crypto). Internet browser BAT also continues to show strong growth among users and also publishers using its browser. 

Perhaps more important than each of these companies’ individual efforts however is the change in behavior that they are helping to facilitate: getting consumers familiar and comfortable with using digital wallets and holding and using cryptocurrencies. That’s on the assumption that previously non-crypto consumers are being brought into the system via these companies - something that only those companies themselves have information about. 


Three: Wallet provider Blockchain.com rolls out new exchange

Image result for The PIT crypto

The world’s largest cryptocurrency wallet provider Blockchain.com today announced that it was launching an exchange, hoping to leverage the nearly 40 million users that already use its wallet service. The exchange will be called ‘The PIT’ and, as seems to increasingly be the case with cryptocurrency products, will be focused on markets outside the US.

The details:

  • The PIT will be a custodial exchange, like nearly all crypto exchanges with large volume (this means the exchange holds the private keys to your crypto)

  • 26 assets will be offered in over 200 countries eventually, once the company acquires licenses in the different jurisdictions

  • The company already has plans to add more digital assets in the future, according to Blockchain’s head of retail products Nicole Sherrod


The firm claims its key differentiators
will be speed, liquidity, and customer service. Sherrod claimed via Coindesk that the customer support team has become the second-largest division at the company, and that the trading engine for The PIT was in part designed by the former Chief Architect of the New York Stock Exchange.

To understand the company’s strategy, here’s the key quote:

“Folks are logging in to transfer their funds to outside exchanges. This will help us pull them deeper into our ecosystem,” - Blockchain CEO, Peter Smith

What I’m thinking: 40 million existing wallet users (without knowing how many are active) is no small number, especially when considering the relatively small size of the crypto market. Coinbase, one of the world’s largest exchanges, currently claims to have over 30M registered users.

If The PIT is successful I’d be looking to see whether other large wallet providers like Electrum and BRD take similar steps, and if The PIT’s growth comes at the expense of other non-US focused exchanges.

Here’s a great way to think about the move, as per Leigh Cuen of Coindesk:

“Only time will tell if the new revenue flows Blockchain users generate through transaction fees will justify this expansion into the heavily saturated exchange space, with fierce competition for market makers and heavily regulatory costs.”


Also in the news:


Market Outlook:

Quick Take

1 Day Timeframe:

Here was my original daily chart from the July 26th CryptoAM — notice the white line cutting across the green zone (which was my “buy” area)

Here is the current daily chart:

We hugged the support line exactly, and if you were buying in the green, you are currently sitting pretty. Hopefully some of you took advantage!

Other than that, I’m going to be incredibly lazy and copy and paste last weeks market update. Mostly because it’s the *exact* same situation. Buy in the green, sell at the red.

Since the breakdown from 13k, I’ve been calling for sideways trading / churn.

I still believe the market structure is very bullish based on both price action, indicators and the overall macro position of Bitcoin. I believe we will continue to churn between 8.8k - 12.2k, and then enter into a new parabolic advance. If we break down past 8.8k (and more importantly 8.2k) I would revisit the overall bull structure of the market. Accumulating a long position on the lower end of this range has a very positive R/R in my opinion.

You can see in the graph above the key areas. I expect volatility to continue to fall off over the next few weeks, and would look to take on some longer dated calls at that point to be ready for the next explosive move.

Things I’m watching:

Like mentioned last edition….it might be time for a mini alt szn!

  • FTT hit the market at a 2x on launch. FTT is the token of FTX exchange

  • The judge presiding over the NYAG vs Bitfinex case punted the decision, and LEO was up on the news

  • XTZ just got added to Coinbase (one of the more interesting protocol plays on the market in my humble opinion) + rumors that DCR is next

  • Golem (GNT) is up 17% on…no news


What I’m thinking today:

Here’s a fantastic paper by the IMF on the Rise of Digital Money.

Digital monies (not just Bitcoin, but things like Alipay, Libra, PayTM, USDC, etc) influence in the world has began to slowly creep up, and it now being noticed some of the premier monetary institutions in the world. Many major central banks, banking institutions and economic institutions are now grappling with one major question:

What does the future of money look like?

It’s a difficult question, mostly because of the complex monetary system that the world currently runs on. There are major players in the world economy that stand to be disrupted by digital money, and the world will look very different depending on the cooperation or adoption of digital money by these major institutions.

Will central banks issue a digital currency (probably not, would eat into checking accounts and reduce monetary expansion via lending)? Will banking institutions attempt to build their own digital currencies (probably yes)? Will Bitcoin become a world reserve currency? How will this affect managed economies?

All of these are good questions, and all require complex understanding of what money is, how it operates, and

The opening question:

Alipay. Libra. M-Pesa. Paxos. Stablecoins. Swish. WeChat Pay. Zelle. All, and many others, are increasingly in our wallets as consumers and on our minds as policymakers. But how should we think of these new digital forms of money? Are they money at all, and does that matter? Will they really benefit from rapid adoption? If so, what might their implications be, on the banking sector to start with—where money is customarily created and managed today? And how might central banks react? Is there an opportunity to benefit from these rapid transformations, or just a need to regulate?

In order to define types of money, the report put together a wonderful “money tree” that attempts to separate out all the different kinds of money by intrinsic properties. The tree provides a great overview of what different kinds of monies currently exist, and how they break down.

The conclusion of this report was simple: digital money is here to stay, and it will prove significantly disruptive to traditional banking institutions — and likely less disruptive to central banks. They recognize the value of Bitcoin and decentralized currencies, but generally believe that in order to succeed a money will require a low volatility.

I will be going deeper on this report in a later edition — keep an eye out and read the main report for now!

-AF


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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.