In the Market
There was blood in the street as Bitcoin breaks the floor, finding itself below $6k. This price was an important support level and one where some mining operations stop becoming profitable leading to some loss of hash power in the short term. The DCX index finished deep in the red at -15.8% while the DCEX Index bled by -20.4%. The Protocol layer (DCPX Index) was the hardest hit declining by -21.3%. EOS continued to weigh down the performance of protocols as governance issues remain unresolved. Cryptocurrency (DCCX Index) was the better performer closing at -15% while the Token layer (DCTX) finished at -18.2%. Trading volumes seem to have stabilized, albeit they remain at very low levels.
Monaco, which is a cryptocurrency funded visa card, was the only positive performer this week, increasing by 4.2%. WAX, a decentralized exchange token, was by far the worst performer at a hurtful -35.9%. Wax was followed by UP, an ATM token, and CRB, a token-based cryptocurrency, which dropped by -31.9% and -30.9% respectively.
In The News
Summary: The Digital Currency Research Lab at the People’s Bank of China (PBoC) has filed more than 41 patent applications so far. In PBoC own words: the goal is to “break the silo between blockchain-based cryptocurrency and the existing monetary system so that the digital currency can sport cryptocurrency-like features, while being widely used in the existing financial structure.”
Commentary: So far, this presents the clearest evidence of the development of a government backed centrally issued cryptocurrency. It is highly probable that other central banks are developing similar tech. Should this technology be deployed it would send shockwaves through the industry. The stability and legitimacy of a central bank issued cryptocurrency could potentially corner the liquidity and become the ‘de facto’ reserve currency of the crypto economy. A role which is currently played by Bitcoin.
Summary: Tether, a cryptocurrency which is hard pegged to the dollar (i.e. 1 tether = 1 USD), has come under scrutiny yet again. This time, due to the inconsistent price movements relative to trade sizes. This comes in the context of empirically backed claims that tether is being used to manipulate Bitcoin prices as well as heated debates on the existence on where are the dollars backing each tether.
Commentary: Tether plays a very important role for traders and very liquid markets have formed around it. This is because, it is faster and much cheaper to trade out of Bitcoin into tether to hedge downside risk. This presents a large systemic risk to the crypto economy. Therefore, should these claims be true, the tether markets would implode, not a welcome news for anyone.
Summary: Walmart and nine other companies have partnered with IBM in order to release a blockchain for tracking food globally through its supply chain. The WSJ states that the Food Trust’s goal is to improve the companies’ ability to identify issues involved with food recalls, such as tracing outbreaks more quickly to limit customer risk.
Commentary: This is an important advancement for the crypto industry as it demonstrates a real use case of the blockchain technology which are still few based on the amount of money pumped into the industry.
Summary: Andreessen Horowitz on Monday debuted a $300 million investment fund that will specialize in crypto assets and projects that build on blockchains. The firm’s main fund has invested more than $100 million in companies such as online exchange Coinbase, hedge fund Polychain Capital, and most recently the blockchain-based social payment app Celo.
Commentary: The announcement comes right after bitcoin hit one of its lowest price points after the massive rally to $20k in December. This signifies the belief that some of the most prolific investors, who’ve got a track record of identifying successful primitives are bullish on crypto, irrespective of market conditions. This is a big win for the entire ecosystem.
Summary: Cryptocurrency exchange Bithumb claims that it has recovered nearly half of the funds stolen in a recent high-profile hack at the South Korean trading platform. Bithumb said that the recovery was made possible through coordination with other cryptocurrency exchanges located throughout the world. In what is likely welcome news for customers, Bithumb has also stated that it would cover the losses arising from the breach from its own reserves
Commentary: Although the Bithump hack was disturbing for the crypto industry, there is a glimmer of light. The fact that crypto exchanges came together to return the stolen funds which is also a sign of a maturing industry. This kind of coordination has never happened before and present welcome news to the overall robustness of the crypto financial system.
Summary: A nice explanation of the three primary types of consensus algorithms used in blockchain. This algorithms are important to understand because it is the way that transactions are cleared and security in the network established.
Interesting quote: “Proof of Stake (PoS) doesn’t require computers to perform repetitive computations thus being more environmentally friendly. PoS replace miners with validators where they will lock up some of their coins as stake (deposit).”
Summary: A very interesting read which tackles one of the most difficult issues in blockchain networks, governance. This particular article focuses on EOS, but much of the writing is broadly applicable.
Interesting quote: “There is widespread belief that there is no “governance” of Bitcoin or Ethereum and that these protocols are decentralized. There is further a belief that the code should be law. In reality all blockchains have human governance processes that reveal themselves in emergencies and when the protocol upgrades. All code has bugs; and bugs in the law create injustice and violation of expected property rights.”
Summary: A review of the various blockchain governance models as they are applied to nine different crypto assets.
Interesting quote: “Given the fact that most Blockchain projects are open source, copying them is trivial. Thus, the biggest competitive advantages for blockchain projects stem from the community’s size and speed of adaptation. The more supporters a project have and the quicker the developers can react to issues and competitors, the greater the chances of survival.”
Summary: The advent of Bitcoin’s Lightning network may imbue the cryptocurrency with an easily observable measure to estimate the opportunity cost and therefore a Bitcoin interest rate.
Interesting quote: “Once Lightning banks establish LNRR, they can reference this rate and charge a spread for loans that are not secured by the Bitcoin blockchain. They can use the reference rate to attract deposits which would also not be secured by the blockchain.”
Summary: A classification and analysis of all the Bitcoin investment theses out there. This is the second edition. Here is the first.