Crescent Talks Crypto



Weekly Newsletter

05/01/2018 - 05/07/2018


Market Recap: Winners & Losers

Crypto assets gained 4% over the last week, adding nearly $17 billion in marketcap, bringing the market's total value to ~$444 billion. Among assets with at least $500 million in market cap, Bytecoin (BCN), 0x (ZRX), and Zilliqa (ZIL), were the largest gainers while Bitcoin Private (BTCP) and Bytom (BTM) were the most in the red, according to data complied by Coinmarketcap. Almost all of the top 10 current largest crypto assets posted gains over the last seven days, lead by Bitcoin Cash (BCH) and IOTA. Stellar (XLM) and Tron (TRX) were the only assets in the top 10 in the red, with only single digit % losses.


Coinbase Strengthens Institutional Client Product Offering with the Introduction of Block Trades



What happened?

Coinbase has announced that it plans to begin supporting block trades on its professional trading platform, GDAX. Almost simultaneously, Business Insider broke a story that Coinbase also plans on opening an office in Chicago, a city known for its abundance of trading firms, by Q3 2018.

Why does this matter?

Both of these actions give further credence to the idea that institutional money is looking to move into the crypto space. Despite its prominence in the U.S, Coinbase is not the first major stateside accessible exchange to introduce block trades, with Gemini adding that feature just last month. Block trading functionality is an institutional friendly trading feature because of the additional liquidity it offers for large trades that would otherwise cause significant price movements. It’s a staple of most widely traded asset classes and will be one of the necessary building blocks for cryptocurrency penetration into institutional portfolios.

What’s the word on the street?

This announcement has been met with optimism because of the general understanding that the introduction of institutional cryptocurrency ownership will be a tailwind in 2018 and beyond. OTC trading currently exists in the space, but it’s far from ubiquitous and that might be giving some institutions a reason to pause. Although custodianship and regulation remain as some of the other major concerns for institutions, improved functionality and accessibility to OTC markets will surely help bring new big players to the table.

Goldman Launches Bitcoin Trading Desk


What happened?

Last week, Goldman Sachs finally confirmed they would be launching a Bitcoin trading desk. This move makes them the first Wall Street bank to have a Bitcoin trading operation, and comes after months of rumors (most of which were denied at the time). It is important to note that the desk will not be buying and selling actual Bitcoin and will instead help give their clients exposure to the digital asset in a variety of contracts linked to BTC’s price. That being said, New York Times reports that the bank hopes to receive regulatory approval from the Federal Reserve to begin trading actual Bitcoin.

Why does this matter?

Until now, regulatory financial institutions have steered away from the cryptocurrency with a few of their leaders going as far as calling Bitcoin a “fraud” (see Jamie Dimon). Goldman made headlines last month when they hired cryptocurrency trader Justin Schmidt to head their digital assets division, which will ultimately help the bank watch the space more closely. Moves like these not only help get institutional money comfortable with the digital asset, but shows that there was enough demand for them to consider this a reasonable play. Rana Yared, an executive at Goldman who helped launch the desk, said the bank had received various inquiries about the digital asset.

“It resonates with us when a client says, ‘I want to hold Bitcoin or Bitcoin futures because I think it is an alternate store of value,’” she said.

What’s the word on the street?

A few years ago, a Wall Street bank trading Bitcoin would sound almost impossible. This was a moment which helps bring credibility to the space in the eyes of institutional investors, while also causing other banks to re-evaluate their stance on the digital asset. This was exemplified by the rumors flying around that Barclays was considering launching a crypto trading desk, which their CEO ultimately denied at their annual meeting last Tuesday. It will be interesting to see how other banks react to this announcement. Meanwhile, the crypto markets reacted positively to the news with the total crypto market cap reaching $452 billion…its highest point in almost two months!


Runaway Inflation in Argentina Puts Spotlight on Bitcoin



What happened?

Argentina's central bank hiked interest rates 3 times in a matter of 8 days last week, with the final increase amounting to nearly 7%, pushing the country's benchmark rate to 40%. The central bank has taken an extremely aggressive position as it attempts to combat surging inflation and a falling currency. 
Why does this matter?

A country's currency is heavily dependent on central bank activity. When central banks decrease short-term interest rates, they are said to be conducting "looser" monetary policy in an attempt to stoke economic growth and, at times, price inflation. A lower interest rate reduces the attractiveness of an investment, all things held equal, and is one reason why currencies often depreciate when central banks implement looser monetary policies. In Argentina's case, the country's prior regime printed excessive amounts of money to finance its debts on top of looser monetary policy, all while publishing false statistics to tone down the country's true inflation rate. All of this helped spark higher prices, eroding people's purchasing power as the peso becomes worth less and less.
What’s the word on the street?

The Argentine Peso is one of the worst performing currencies in the world this year, relative to the U.S. dollar, despite the country's desperate attempts to combat rising prices. Monetary policy missteps have reduced the central bank's credibility, forcing many investors out of the country's debt markets. Sky-rocketing inflation has pushed many citizens toward alternative investments in the hope of maintaining their purchasing power. Data from LocalBitcoins, a website that connects users from various countries interested in buying or selling Bitcoin, shows a rapid increase in Bitcoin volume transacted in Argentinian pesos as inflation growth accelerates.



Regulatory Update

The New Face of Crypto Regulation in South Korea

South Korean president Moon Jae-in approved the nomination of Yoon Suk-heun to lead the Financial Supervisory Service (FSS). The FSS is part of the Financial Services Commission (FSC) and forms the largest financial regulatory body in South Korea. This was immediately seen as a positive sign by markets as Mr. Yoon has been quoted as being positive on the blockchain space. “Regarding cryptocurrencies, there are some positive aspects” he was quoted saying to reporters after his approval by President Moon. When pressed for specifics he was calculated saying “There are a lot of issues that need to be addressed and reviewed. We can figure them out but gradually” (emphasis mine). These brief statements should tell investors that Mr. Yoon understands the potential of cryptocurrencies and wants to ensure that any regulation that takes place is careful and deliberate.

This is welcome news for investors as South Korea finds itself at a crossroads with regards to regulation. Currently, the FSC requires that cryptocurrency traders pass a ‘real name identification’ checking process whereby retail investors had to convert their virtual bank accounts to real-name accounts to continue trading. This meant that in order for an individual to interact between their crytocurrency exchange account and fiat account the names must match. Some of the largest exchanges in the country including Upbit, Coinone and Korbit all adhere to this rule.

Next up will be the results of the exchange inspections which started on May 1st and will scrutinize the self-regulatory regime that was implemented recently. Additionally, there are draft proposals for creating a framework for legal ICOs which will no doubt fall in the purview of Mr. Yoon and his team.

Ethereum Under the Micrscope of U.S. Regulators

The SEC and CFTC discussed whether or not Ethereum is a security in a closed door meeting on May 7th. The significance of this meeting cannot be understated though the nuances of both sides need to be considered. This is not as simple as passing the Howey Test in which an investment is considered a security if profits are expected from the efforts of a third party. CFTC chairman Christopher Giancarclo, no stranger to the cryptocommunity, has hinted that anything that has gone through the ICO process is considered a security. SEC chairman Jay Clayton has expressed a similar sentiment repeatedly stating that “I believe every ICO I’ve seen is a security”.

On the other end of the spectrum are key developers in the community like Joseph Lubin (Ethereum, Consensys) who understand the importance of this ruling but are confident in the steps they have taken up to this point. He has been quoted as saying “We spent a tremendous amount of time with lawyers in the U.S. and in other countries, and are extremely comfortable that it is not a security; it was never a security”.

In reality, regulators will probably be trying to answer two distinct questions.

      1. Was Ethereum a security during the crowd sale that took place in 2014

      2. Is it still a security today?

The Ethereum Foundation was (and still is) based out of Switzerland though U.S. investors were able to participate in the sale. The funds were used to kick start development of the Ethereum project though ether was explicitly stated as the necessary ‘fuel’ for the operation of the network:

“Ether is a necessary element — a fuel — for operating the distributed application software platform we are building: Ethereum,” the company’s home page reads. “Without the requirement of payment of ether for every computational step and storage operation within the system, infinite loops or excessive storage demands could bog down Ethereum and effectively destroy it.”

The fact that U.S. investors were allowed to participate and that the proceeds would help fund the company could be at the heart of what regulators will be looking at to answer the first question. As for what the status is today it would be more difficult to argue against the utility of ether in that it provides access to the Ethereum network.

A third and very relevant question for other platform developers is how will regulators treat projects that seem like securities when they are first financed and later have a clear utility when they come to fruition. Whatever the outcome of this meeting it is clear that it will set a precedent both for Ethereum and ICOs more broadly.

Anything Else?

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Billionaire Warren Buffet shared a few words regarding Bitcoin at the 2018 Berkshire Hathaway Annual Shareholder meeting this past weekend. He’s stated that he viewscrypto as speculative gambling rather than investing in the past, and he went a step further at the meeting by stating that Bitcoin is “probably rat poison squared”.  On Monday, Bill Gates joined in on the topic stating that “I would short if there was an easy way to do it”. He went further to say “As an asset class, you’re not producing anything”.  While Buffet and his close friends, Munger & Gates, seem to believe Bitcoin hasn’t really produced anything, an excellent write-up by AVC combats their arguments and points out that “crypto-assets produce decentralized infrastructure”.

Meanwhile, there are numerous younger billionares who remain bullish on Bitcoin and the space in general. Over the past few months, we’ve seen tech gurus like Twitter CEO Jack Dorsey, PayPal co-founder Peter Thiel, and tech venture capitalist Tim Draper repeatedly state their view that Bitcoin is here to stay and is a revolutionary breakthrough.


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Anil Lulla