Beyond the ticker Obviously, the price of a cryptocurrency matters, but it's only one of several measures of a blockchain's success. Only by looking at several different dimensions, including developer activity, transaction volume and social engagement, can one get a full picture of a network's value. |
TOP TRENDS ON COINDESK
Unicorn variations
As we were wrapping up this newsletter Friday, two significant stories broke, each involving one of the cryptocurrency sector's most highly valued startups.
First, Coinbase announced that David Marcus is stepping down from its board six months after joining. When he took the directorship, Marcus (a former PayPal president) was a vice president at Facebook in charge of payments and mobile, but since then the social media behemoth put him in charge of blockchain research, and he cited this assignment as the reason for his resignation.
More significantly, Bitmain, the crypto mining Goliath, plans to go public next month, seeking to raise as much as $18 billion through an IPO on a Hong Kong stock exchange, documents obtained by CoinDesk's Ada Hui reveleaed.
This would be one of the largest initial public offerings of all time, topping Facebook's. And at the target price, Bitmain would boast a market capitalization of $40 billion to $50 billion, or more than five times the last reported valuation of Coinbase.
The documents also offer a rare glimpse at the financials of one of the most influential and controversial companies in crypto. In the first quarter alone, Bitmain made a cool $2 billion.
ETF watch
It was a week of disappointed sighs heard round the world.
The U.S. Securities and Exchange Commission (SEC) delayed making a decision on a proposed bitcoin exchange-traded fund (ETF), pushing its final determination to September 30. Many had expected the agency to give an answer to the applicants — investment firm VanEck and crypto startup SolidX — by Friday. So news of the postponement likely contributed to a sell-off in bitcoin, which reverberated throughout the cryptocurrency markets.
This is VanEck’s third attempt to list a bitcoin ETF, and the SEC has nixed a number of other firms' proposals, including one put forward by Tyler and Cameron Winklevoss, the twins behind crypto exchange Gemini. But the VanEck-SolidX Bitcoin ETF is different from past efforts and in a stronger position for approval, given its unique qualities, including insurance against theft and hacks and overall institutional orientation.
But those who found this week anticlimactic can look forward to a fall filled with cliffhangers, as the SEC will weigh in on no less than nine other ETF proposals over the next two months.
Why so much fuss over a prosaic legacy financial instrument that happens to be tied to the value of a cryptocurrency? Tuur Demeester, an economist and investor explains: "A bitcoin ETF approval, even if it's delayed, would be a huge deal because it makes the asset extremely accessible for the retail investor. After the first gold ETF went live in 2004, the gold price rallied by 350 percent." Nevertheless, Demeester isn't holding his breath; while he's bullish in the long term for bitcoin, he doesn't expect new highs in 2018, in part because of pessimism over an ETF approval this year.
Indeed, analysts at Canaccord, the largest independent investment dealer in Canada, argue that an approval on a bitcoin ETF in the U.S. likely won’t come until 2019. So don't bet the farm on such an outcome.
Eye on enterprises
Get this: Blythe Masters is open to using crypto assets. Well, sorta.
The founder of Digital Asset (DA) and former JPMorgan executive was perhaps the personification of the “blockchain not bitcoin” zeitgeist of a few years back. But in a recent interview with CoinDesk’s Ian Allison, Masters said she wouldn’t rule out corporate use of tokens, even on public networks.
Certain conditions would have to be met, however. "It won't be until the kind of controls you routinely expect around transactions and post-trade processing of a stock or bond today can also be produced for the transaction of a tokenized instrument ... that we will see widespread enterprise adoption of tokenized instruments that rely on public chain technologies," she said.
Masters also discussed DA's broadened ambitions to bring DLT to a wide range of industries, not just finance, and her startup's new partnership with Google Cloud. Read the whole thing.
Similarly nuanced and ambivalent are the views of executives at State Street, the giant U.S. custody bank, which is seriously thinking about using DLT to transform securities lending into a peer-to-peer market.
The product and tech teams are jazzed about the idea, seeing potential to streamline processes and bring efficiencies. But the front office is a bit more wary, noting that as it stands, this market relies heavily on intermediaries, and like Chesteron's fence, sometimes intermediaries are there for a reason.
Finally, U.K. megabank Barclays is holding a hackathon next month, but it's not just the coders who will be put to the test.
The event will also aim to suss out which of the major enterprise blockchain platforms — R3's Corda, Hyperledger Fabric or ethereum — works best for the use case at hand: post-trade processing of derivatives, using a common set of data standards from the industry group ISDA.
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QUOTE OF THE WEEK "The blockchain actually gives us a lot of tools to be able to identify people. I actually want [criminals] to keep using them. "
– Lilita Infante, a special agent at the U.S. Drug Enforcement Administration, which found that criminals now account for only 10 percent of bitcoin transactions, down from 90 cents five years ago. |
Peter Ryan is a research analyst at CoinDesk.
In Robert Heinlein’s novel “Stranger in a Strange Land,” the character Jubal Harshaw asks one of his secretaries to identify the color of a house in the distance. She replies, “it’s white on this side.”
In other words, if you see something only from a certain angle, you can’t be confident you have the full picture. This goes for cryptocurrencies as well as for physical objects.
While it would be disingenuous to claim the price of a coin doesn’t matter, it’s only one of several ways to measure the value of a blockchain network. Looking at these in aggregate offers a more useful perspective than obsessively checking U.S. dollar exchange rates on your phone every hour. (Or every minute, for some. Stop that, it’s not healthy.)
To that end, CoinDesk Research’s crypto-economic compass shows more activity going on than just price movements. It compiles a variety of different sub-factors to make up four other composite measures: developer, network, social, and exchange.
Using this multi-dimensional analytical tool, let’s take a look at bitcoin cash (BCH), the splinter currency that recently celebrated its first birthday. We’ll compare it to the network it seceded from, the original bitcoin (BTC), which is the gold standard for cryptocurrencies, along these five axes.
The most observed metric, price, saw very little deviation during BCH’s first year of existence. For most of that period, it remained around twelve percent to that of BTC. The price saw all-time-highs of around twenty percent of BTC in the fall 2017 rally but slowly diminished back down to normalcy.
The network category refers to activity concerning the on-chain network. Transaction volume occurring on the BCH blockchain remained on average under ten percent of BTC’s on-chain volume throughout the year.
However, this last month saw the number of transactions consistently increasing to about thirty to fifty percent of BTC’s. This could signal increased microtransactions due to new app development or stress testing by large entities.
One such app is CoinText which allows users to send and receive BCH through text messages. Its CTO, Vin Armani, said: “When high fees and slow confirmation times began plaguing BTC, I shelved Bitcoin projects that I had been working on steadily for years...I know I wasn't alone in walking through 2017 feeling discouraged...In this past year, Bitcoin Cash has brought hope and creative exploration back to Bitcoin.” Exchange activity was a bit more varied over the year. BCH volume transacted on exchanges reached all-time-highs in 2017, even briefly exceeding BTC’s exchange volume on August 19 and November 11. Over 100 exchanges currently list BCH, many of which added the support in Q3 of 2017. When the general crypto rally of fall 2017 dissipated, exchange activity withered away to eight percent of BTC’s volume in Q1 and twelve percent in Q2.
Developer activity on the protocol level has been relatively low for BCH. While it benefits from the legacy code from before the fork, since then the breakaway network has not maintained the same level of developer interest as BTC.
Meanwhile the most unique observation concerns bitcoin cash’s high levels of social activity, reaching about fifty-seven percent of BTC’s. The sub-factor driving much of this phenomenon is the posting on the BCH-oriented r/btc subreddit. Another key social media advantage has been the commandeering of the @bitcoin twitter handle with its 800,000+ followers.
It appears that these highly engaged online communities have grown offline. Event meetup groups have maintained steady growth. According to the BCH Fund, there are 101 meetups in 40 different countries with about 12,000 total members.
In this way, crypto-economics sheds light on all sides of the house, as it were, and reveals a more holistic understanding of a cryptocurrency’s state of affairs. BCH on-chain and developer activity remained low relative to BTC, but exchange activity drastically fluctuates with speculation. Bitcoin cash’s price has been able to stay afloat this past year, thanks in no small part to the small but strong group of social communities invigorating this coin.
— Peter Ryan |
BEYOND COINDESK
WHAT OTHERS ARE SAYING
CNBC: Despite what you just read above, investors are still very keen to divine which way the price of bitcoin is headed. After analyzing historical patterns, researchers at Yale University have found two indicators that hint at future price movements of the digital asset.
The first one is called the “momentum effect,” which means if the price of bitcoin increased sharply over a week, it would be likely to continue increasing for the following week. Therefore, the best historical strategy, according to that research, would have been to purchase bitcoin after its price already soared and sell just seven days after buying.
Following that strategy, "the investor would have made an 11 percent [return] during the periods we looked at," said economics professor Aleh Tsyvinski, one of the study's authors.
The second one is the “investor attention effect,” meaning that investors can predict price movements based on the amount of interest and hype around cryptocurrencies. An increase in searches online about bitcoin was a leading indicator that its price would increase in the coming weeks, according to the study.
PC MAGAZINE: Writer Rob Marvin explores the multifaceted role cryptocurrency has played in the economic deterioration of Venezuela in a lengthy, detailed report.
The inflation-ridden South American country, he writes, “is a microcosm of the best and worst potential of cryptocurrency technology: as a tool for enabling authoritarian oppression, and a beacon of hope for the Venezuelan people to escape it.”
WIRED: Blockchain gets a cameo mention in this article about how pushing the U.K. toward a cashless system hurts the homeless, since fewer and fewer passersby have spare change.
While digitization of money may be part of the problem, accoring to the piece, it is also part of the solution: an app called Giving Streets is integrating PayPal and blockchain via a QR reader to automate passing donations.
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CoinDesk
ReplyDeleteThis is one of the top new sources for bitcoin enthusiasts. In fact, it is the largest bitcoin news media platform in the world. The site is packed with reports and tools that break down the trends and patterns in cryptocurrency. I recommend checking out the reports on the research page.