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In the Market
As predicted last week, markets continued their downward trend. We think this slide downward will likely continue in the short-term and present itself as a good opportunity to enter the market. This week’s underperformance was driven by the lower market cap coins with the DCX index sliding by -7.6% while the DCEX Index clocked a steeper -11.3% drop. The Cryptocurrency (DCCX) Index had the best relative performance decreasing by -7.8%. This was largely driven by Bitcoin as traders sold their altcoin positions into BTC. The Protocol Layer (DCPX Index) dropped by -12.7% as EOS continued to weigh down the overall performance of the protocol ecosystem. The Token Index (DCTX) was the hardest hit with a painful -17.4% decline, reversing all of its gains from last week. Correlations across cryptocurrencies have begun to decrease this week dropping from 0.6 to 0.5.
DigiByte (DGB), one of the older cryptocurrencies, was the best performer this week with a 23% return. Basic Attention Token (BAT), a blockchain-based digital advertising platform, followed far behind with a 5.4% return. On the negative side of the spectrum, Bytecoin (BCN), a privacy-focused cryptocurrency, was pummeled dropping by -40.4% drop. Bancor (BTN), an Ethereum-based decentralized exchange, bled by -33.7% following this week’s news of a $25mn hack (see article in news section).
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In The News
Augur Launches Decentralized Prediction Marketplace – Bitcoin Magazine
Summary: Augur, a blockchain-based predictions platform, has finally arrived in the market. The platform becomes the “world’s first” decentralized prediction-market platform.
Why it matters: This presents a major milestone for Augur and one that was highly anticipated. This unlocks powerful ways of building forward looking probabilistic models (e.g. estimating S&P500 long-term returns) inside the blockchain itself (i.e. automated from end-to-end).
Crypto regulatory breakthrough in South Korea – DailyHodl
Summary: South Korean cryptocurrency exchanges will soon be categorized as “crypto asset exchanges and brokerages” and platforms like Ethereum will be classified as “Blockchain-based software supply and development businesses.” The government is expected to release all the details later this month.
Why it matters: South Korea is among the three largest cryptocurrency markets. By categorizing cryptocurrency exchanges as legal entities will potentially drive more widespread adoption of crypto in the nation and help mature the industry within its borders. South Korean regulations will likely model those of Japan. Having fully embraced crypto, Japan is at the forefront of crypto regulations.
Bancor, a decentralized exchange, has been hacked for $23.5mn – Fortune
Summary: Another exchange was hacked, bringing the total number of exchanges hacked for 2018 to 5. This time the victim was a decentralized exchange.
Why it matters: Decentralized exchanges aim to construct the trading infrastructure entirely on-chain, and in our opinion is the future of asset exchanges. While centralized exchanges have experienced continued thefts this year, Bancor, touted itself as theft-resistant through decentralization. The hack drives the point home that there are still many security issues that need to be resolved for both centralized and decentralized exchanges.
Summary: Binance, currently the largest crypto exchange by volume, has recently backed a Malta-based decentralized bank project. This will be done under German regulation and in collaboration with one of Europe’s major stock exchanges will allow all market participants to become co-owners of Founders Bank.
Why it matters: This is huge for two reasons: 1) it is the first project to create a decentralized banking, and 2) it solves one of the primary problems in offshore blockchain projects, finding a suitable bank. Most of these projects use Malta as jurisdiction, which is now deemed the “blockchain island.”
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Summary: R3 is a consortium of over 200 companies that research and develop blockchain applications for the industries of finance and commerce. It has just released the first-ever enterprise blockchain that is able to be deployed behind an enterprise firewall.
Why it matters: This is important because it could unlock a very large, previously unreachable set of new customers, namely corporate ones.
Why you can fork but not replicate Bitcoin – Solomon Stavis, CFO @DigiCor
Summary: Network effects are important, and they are the primary driver why Bitcoin is here to stay and unlikely to be replaced in the future. Additionally, due to the strength of Bitcoin’s network effect, hard-forks have little impact in diluting the value of the cryptocurrency.
Interesting quote: “Cardano is a smart contract platform that aims to solve the scalability, sustainability, and interoperability that platforms like Ethereum are currently facing. The development team takes a layered approach where the accounting and computational functions are separated… Unlike the rest of crypto assets, the Cardano developers emphasize a peer-reviewed, research first approach.”
A Brief History of Stable Coins – BitMex Research
Summary: A history of distributed stablecoins, focusing on two case studies, BitShares (BitUSD) and MakerDAO (Dai). The efficacy of design choices to produce stability are reviewed.
Why it’s important to know: It is important to understand the various approaches to produce price stability. Stable coins present the holy grail of financial technology. If successful, they would enable a cryptocurrency that bears the benefits of Bitcoin’s decentralization and security properties with the stability of the US dollar.
Analogies, the Big Picture, and Considerations for Regulating Crypto – Scott Kupor and Sonal Chokshi from Andreessen Horowitz (a16z)
Summary: An interesting perspective on how current regulations do not take into account the evolving nature of blockchains and what features regulators should consider.
Interesting quote: “All of this means we need to turn to the “efforts of others” prong of the Howey test to complete the analysis. This is where the definition of “functional” really matters: If the network is functional and its success — and thus the realization of profit — is no longer substantially dependent on the creator/sponsor, but rather on the market’s demand for the functioning utility of the network, then we’re no longer relying on the “efforts of others”. Of course, the network sponsor may still be involved in the network by doing software updates and bug fixes. But under Howey, the tokens themselves in functional networks should not represent investment contracts.”
Summary: An interesting interview with one of the central figures of blockchain. Lots of good info!
Interesting part: Centralized vs decentralized crypto exchanges minute: 27:43 onwards.
The 15 Best Resources To Learn More About Bitcoin – Niklas Goke
Summary: Great set of sources about to learn about Bitcoin, the pioneer of blockchain.
Most useful link: Jameson Lopp’s Bitcoin Resources.