Crescent Talks Crypto

ALL YOU NEED TO GET CAUGHT UP ON THE WORLD OF CRYPTO IN 10 MINUTES OR LESS

 

Weekly Newsletter

04/17/2018 - 04/23/2018

 

Market Recap: Winners & Losers

Crypto assets gained another 25% over the last week, adding nearly $80 billion, bringing the market's total value to ~$400 billion. Among assets with at least $100 million in market cap, TokenPay (TPAY), Bitcoin Private (BTCP), and Bitcoin Cash (BCH), were the largest gainers, while Verge (XVG) was the only crypto asset within this market cap threshold in the red, down 18%, according to data complied by Coinmarketcap. All of the top 10 current largest cryptoassets posted gains over the last seven days, led by Bitcoin Cash, EOS, and IOTA. Litecoin, NEO, and Bitcoin lagged the group.

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BCH Token Burn: A "Buyback" of Paltry Proportions

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Source:  Bitcoincash.org


What happened?

Antpool, the Bitmain controlled mining pool, announced on 4/20 that it will burn 12% of the transaction fees collected to support the Bitcoin Cash price by reducing the supply. This token burn will be accomplished by sending mining fees to a black hole address, an address that the coins can never been removed from. While the Antpool team believes that Bitcoin Cash is supposed to be the transactional crypto currency with Bitcoin shifting more towards a store of value, they are now attempting to incentivize users to hold the coin by introducing a deflationary mechanism into the token structure. This is a completely voluntary decision by Antpool and they are calling for other miners to follow suit.
 

Why does this matter?

The gesture of support from the mining community to create bullish sentiment seems to matter considerably more than the actual price impact of the token burn. Putting this announcement into perspective, over the past 24 hours there have been roughly 27,500 transactions on the Bitcoin Cash blockchain with an average transaction fee of $.05. Antpool averages about 10% of the blocks, which we’ll use as a proxy for mining fees collected. Multiply that by the 12% token burn allocation they set and we get a grand total of $16.50 per day. At first glance this number might appear unreasonably low, but that’s because they’ve established that they’re only burning transaction fees and not block rewards. Based on the math, this appears to be much more of a public relations play looking to take advantage of a broad market recovery.

 
What’s the word on the street?
 

The Bitcoin vs Bitcoin Cash debate has been going strong since the fork with each side looking to leverage any information to buoy their claim as the “real” bitcoin, so BCH holders have taken very positively to this news. It might also be the fact that Bitcoin Cash is up about 40% since the announcement on a USD basis. It appears that many don’t realize the minimal financial impact this change will have and are happy to continue to buying on this news with the hopes that the bullish sentiment will have other buyers coming in behind them. Despite Antpool’s call for other miners to also begin burning tokens, there haven’t been any public announcements made from other mining pools. At the same time, based solely on the BCH price reaction to Antpool’s announcement relative to the execution cost for the mining pool, it wouldn’t be unimaginable for others to do the same.


Coinbase Continues To Grow
 

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Source: CoinsNewsUpdate


What happened?

Coinbase made two acquisitions last week, making this a total of five acquisitions for them since their inception. One of the acquisitions was of a decentralized app browser and wallet for the Ethereum blockchain called Cipher Browser. Interestingly enough, Coinbase already has a decentralized mobile browser of its own called Toshi. Similarly to Cipher Browser, users can utilize Toshi as an Ethereum wallet while also browsing Ethereum apps and sending secure messages. Coinbase will be combining the Toshi and Cipher Browser teams and one of the first new features coming to Toshi will be Testnets, which will allow developers to test and experiment with their apps without having to use real cryptocurrencies. Additionally, Coinbase announced a much bigger acquisition of Earn.com early last week. While we don’t have specific numbers, TechCrunch reports that “it provided investors – who had collectively given Earn.com nearly $120 million in funding over the years – with a positive return on their investment”. Earn.com (formally known as “21E6” or “21.co”) initially started off as a Bitcoin mining operation in 2013. Once Bitcoin’s price started falling, the company began struggling due to its expensive operational costs. They eventually pivoted and re-launched as Earn.com, a company which rewards users for completing basic tasks such as replying to emails.

Why does this matter?

It’s apparent that Coinbase’s huge operation has allowed them to officially become the first “Bitcoin Unicorn”, and the company continues to help the crypto space obtain mainstream adoption. While these acquisitions will only help make Coinbase's reach stronger, it is interesting to note Coinbase's acquisition strategy, which centers around targets flush with talent. It seems as if Coinbase primarily acquires based off talent to help with their recruiting. For example, their recent acquisition of Cipher Browser has resulted in Cipher’s Pete Kim (a highly respected developer) taking over as Head of Engineering at Toshi. Meanwhile, the headlines regarding Coinbase’s Earn acquisition focused on Coinbase appointing Earn.com’s co-founder and CEO, Balaji Srinivasan, as its first CTO. According to TechCrunch, “Srinivasan is highly prized in Silicon Valley” given that he is a Stanford graduate who holds a BS, MS, and PhD in Electrical Engineering while holding an MS in Chemical Engineering. Additionally, he sits on the board at investor firm Andreessen Horowitz while also being known as an early investor within the blockchain and crypto space. These acquisitions will not only help Coinbase continue to help grow the space, but have helped the company continue to recruit promising talent in crucial roles which require a certain level of knowledge and experience to properly achieve Coinbase’s vision.

What’s the word on the street?

Coinbase's acquisitions seem to be focused on recruiting talent rather than long-term integration opportunities. While the Cipher Browser acquisition can bring immediate synergies to Coinbase’s Toshi browser, Earn.com has a very complicated history within the crypto space. A portion of the community seems to be confused regarding Earn.com’s place within the Coinbase umbrella. It’ll be interesting to see how Coinbase utilizes Earn.com as well as what acquisitions they make going forward. Nonetheless, the community appears to be in agreement that Srinivasan joining Coinbase will be beneficial to both the company as and the crypto space.


Ethereum Community Debates Proposal to Fix Parity Bug With ~500k Eth at Stake

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Source: Parity

What Happened?

In November 2017, a bug within Parity’s multi-sig wallet was exploited by a developer when code was deleted which resulted in ~500k of ETH being frozen, and inaccessible to their owners. On April 15, a controversial new proposal (EIP 999) was published by Parity Technologies, which essentially suggests restoring the deleted code in order to unlock the funds.  While Parity has suggested other fixes in the past, which also came under criticism, this has been formally documented as an Ethereum Improvement Proposal (EIP), and could be implemented.


Why does this matter?

Anytime changes to a blockchain are proposed, especially in order to recover lost funds, the main issue that always arises is immutability. Those remembering the DAO hack also know that this isn’t the first time the immutability of the Ethereum blockchain has been called into question. While you could argue that precedent had already been set when the chain underwent a hard fork after the DAO hack, this does bring to the forefront whether or not Ethereum will continue to be amended in the future when it suits the needs of important parties. If this proposal is implemented ~500k ETH will be unlocked, and returned to those who unfairly lost access to their funds, however it may also lead some developers to shift to a competing platform whose immutability has not been disputed. If this proposal fails members of the community who prize immutability over all else will receive a victory, and the people at Parity Technologies will probably go back to the drawing board.


What’s the word on the street?

There’s an ongoing community vote, weighted by Ethereum, that ends later today. Currently 3.3 million ETH have voted in the poll, with the ‘No’ vote leading at 50.3%, followed by ‘Yes’ with 43.0%, and ‘Don’t Care’ with 6.7%. The results are even more skewed when you take into account the fact that one of the frozen wallets, which is owned by Polkadot and has ~300k ETH frozen within it, voted in favor of the fix. This isn’t exactly surprising considering the circumstances. Some in the community have equivocated this proposal to a ‘bailout’. The heavily weighted vote by the Polkadot wallet has only further incited angst. It’ll be important to monitor how these poll results play out, and whether the proposal is accepted, but given the current voting distribution a large portion of the community will be disappointed either way.

 

IMF Acknowledges Crypto Assets Opportunities

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Source:  Economist


What happened?

Earlier this week, Christine Lagarde, the Managing Direction of the International Monetary Fund (IMF), expressed her optimism about the future of crypto assets in a post on the IMF's official blog. She noted a number of benefits and inefficiencies crypto assets can be used to improve, notably how "self-executing and self-enforcing 'smart contracts' could eliminate the need for some intermediaries" and how distributed ledger technology (DLT) could "secure storage of important records", citing medical data as a key example. Developing nations, which often suffer from data integrity and transparency, may be also be ripe for disruption by the emerging asset class.

Why does this matter?

This blog post was a follow-up to Lagarde's piece last month, titled Addressing the Dark Side of the Crypto World, which discussed the potential risks cryptoassets pose. Terrorism financing and money laundering are two commonly cited risks, but Lagarde also highlighted the potential influence crypto assets could have on financial stability, especially as it relates to central banks' roles as lenders of last resort during times of economic turmoil. The IMF's recognition of this new asset class and its possible benefits, however, serves as a tailwind for the new asset class.


What’s the word on the street?

It's tough to pinpoint exactly how much of this week's price moves were caused by the IMF's comments, but we do know it certainly didn't dampen the recent momentum. Lagarde is calling for a collaborative effort among nations to regulate and, more importantly, understand the world of crypto. It appears more members of the crypto community are coming around to the idea of enhanced regulation, which, if executed thoughtfully, will bring more structure and credibility to the space.

Regulatory Update

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Last Thursday, the European Parliament approved an agreement from the European Council which called for “closer regulation of virtual currencies, like Bitcoin, to prevent them from being used for money laundering and terrorism financing.” The measure was short on tangible specifics, but this is nothing new for anyone who follows the European Parliament which is elected by citizens of each EU country. There were three parts to the reform which essentially build off of existing Know Your Customer (KYC) and Anti-money Laundering (AML) protocols:

  1. EU citizens would have access to data on real owners of firms with the intention of cutting down on fraud and corruption.
  2. Exchanges will have to register and practice stricter customer due diligence controls.
  3. The threshold for identifying holders of prepaid cards was lowered from €250 to €150 ostensibly to bolster AML procedures.

There were other measures outside of these three such as protection for whistleblowers and updated criteria for non-EU country risk though the details still have to be discussed. Overall, this development fits the mold of previous EU action that seeks to regulate cryptocurrencies without discouraging innovation and investment.

In the United States, the Wall Street Journal reported that Andreessen Horowitz and Union Square Ventures met with regulators at the Securities and Exchange Commission (SEC) to discuss policy. They argued that a heavy regulatory touch could slow innovation and cause the United States to fall behind in this innovative space. It should be noted that both firms have multiple portfolio companies that operate in the digital assets space such as Coinbase. While it is an impossible task to prevent the SEC from regulating cryptocurrencies, it is comforting to have esteemed investors have the regulator’s ear on the matter.

The Korean Blockchain Association (KBA) revealed a self-regulatory framework on April 17th which includes five requirements which exchanges must follow in order to protect consumers and operate legally with South Korea. The requirements include management of high net-worth client funds, monitoring and reporting of abnormal transactions, audit procedures and new listing guidelines. This framework is still a ‘first draft’ of the rules that the KBA hopes will establish self-regulation. Next up is a self-inspection report that exchanges are required to submit by May 8th. This was all done with the hope that the Financial Services Commission (FSC), the South Korean equivalent of the SEC, would accept these rules and not put a moratorium on cryptocurrency trading.
 

Anything Else?

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Source: AdvisorHub

Bloomberg reported last week that Barclays, the second-largest bank in the UK, has begun high-level discussions regarding setting up a cryptocurrency trading desk. Similarly to the Goldman Sachs rumors, these discussions are still preliminary and there many hoops a bank has to jump through to justify a full-featured crypto trading desk. Goldman Sachs is still rumored to set up their cryptocurrency trading desk by the end of the second-quarter (despite their CEO publicly denying this). Just yesterday, Goldman hired a crypto trader by the name of Justin Schmidt as Vice President of Digital Assets Markets of their Securities division due to recent client interest. 
 
All said and done, investment banks making markets for cyrptocurrency trades would definitely help comfort institutional investors with the thought of adding crypto to their portfolios. While custodial issues have consistently been used as an excuse for why institutions haven’t dived into the space yet, this could be an opportunity for a bank to help solve that issue.
 

Things we're reading this week:

Kraken's Position on Regulation

Code for Ethereum's Consensus Change Now Ready for Review

Introducing AWS Blockchain Templates for Ethereum and Hyperledger Fabric

DoJ Charges ICO Co-Founder with Securities Fraud

How to Make Sense of Crypto Valuations

Basis Raises $133 Million for Price-Stable Cryptocurrency


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Anil Lulla