2018 August 20/27 - Volume.2 Issue.33 & 34

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2018 August 20/27 - Volume.2 Issue.33 & 34

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Letter from the Publisher

Bitcoin’s rise to fame was certainly not the result of media focus and speculation gains witnessed for the better part of 2017 alone. It was the result of the devotion of a very zealous community who developed, shared and promoted a concept nobody had fathomed – a currency aimed for the masses, with no intervening power.

The 2008 Financial Crisis that motivated Satoshi Nakamoto to develop such a cryptocurrency wasn't the worst the world has seen since. Citizens in Venezuela, Iran and Turkey burden a massive devaluation to their national currency. World debt continues to climb unabated. And with no end in sight for Quantitative Easing policies in Europe – and despite recent Federal Reserve tightening, economists are fearing the overheating of the US economy. The cherry on top, two powerhouse economies, the US and China, have seen both sides amp up rhetoric resulting in glimpses of a trade war.

In Cyprus, systemic bank failures led to the seizure dubbed "Bail-in" of customer deposits in the Billions of Euros - with no responsibility or remorse. And Capital Controls in Greece following painful austerity measures invoked by the European Central Bank, the International Monetary Fund and the European Commission left people stranded at ATMs across the country to pull out their allotted allowance of 60 Euros a day. Both events this editor lived through first hand.

Bitcoin's value does not solely come from its monetary policy. The real ownership of an asset class that is spendable in a digital era are remarkable traits.

And Central Banks have taken serious note of technological and societal developments. They are now faced with digital currency design decisions as Stablecoins are set to enter the market. The prospect of both cannot be understated. Central Bank Digital Currency has the opportunity to provide social good should the design be geared towards retail as opposed to wholesale. Otherwise, Stablecoins could pose challenges should developers create a user-friendly experience that can also attract commerce in the face of behemoths such as Visa and Mastercard.

|| TIME TO LOOK AT THE WHOLE PICTURE

While this vibrant cryptocurrency community has drawn people in with great fervor, so has it repelled intelligence of contrary opinion. There comes a time to discuss progress with reason and debate without the risk of being ostracized and labeled peddler spreading fear, uncertainty, and doubt. The "either you're with us or against us" has proved a false mantra time and time again.

The data are in - it's not flattering for Bitcoin as a trade unit. Decentralized Apps have also failed to find a loyal crowd. Efforts on this front would only turn pear shaped should the community fail to examine the current status of the whole currency and financial ecosystem with critical consideration.
--
Fadi
Aboualfa
Publisher & Editor-in-Chief

Bitcoin: Volatility Downtrends, Commerce Audience Still at Large

There is little doubt that Bitcoin is now on the radar for most in the financial industry. What the cryptocurrency has yet to achieve, and in fact, lost ground on, is on the commerce side. The heavy focus that has fallen upon Bitcoin is now seeming to be a double-edged sword. On the one hand, major financial institutions are witnessing investor demand to trade the cryptocurrency. On the other hand, this very fame has, at this point in time at least, moved Bitcoin away from being used as money, and more as an asset class testing the nerves of traders. But volatility is setting an actual trend downwards for the first time.


Despite not only the ease of purchasing Bitcoin growing exponentially since last year, but also its very existence falling onto the world stage, transaction count has dropped below 2016 levels.

Transaction batching doesn’t help resolve the juxtaposition either. While major exchanges began batching transactions at different stages from June last year, this has only accounted for a 5% increase in batched transactions (see chart).

And transaction fees are certainly not to blame either as median charges are now no more than a dime since March – also a 2-year low.

|| WE DON’T ACCEPT BITCOIN

At peak, cryptocurrency market capitalization stood above $800Bn. It’s by no means a small market to be able to cater to. However, the lack of a clearly defined regulatory framework around Bitcoin, ironically, could continue to pose a disadvantage for the cryptocurrency. Businesses will likely remain unwilling to take on the risk of regulators digging through their affairs after a near-decade of media focus on illicit activities revolving around Bitcoin.

And while cryptocurrency merchant processors do reduce such friction, this hasn’t helped adoption by businesses. In fact, major outfits that did accept the cryptocurrency have stopped citing volatility concerns (Diar, 29 January).

Merchant processing plummeted a near 85% in US Dollar terms from its September 2017 high according to data by blockchain analytics firm Chainalysis (see chart). In Bitcoins, the drop is even worse at 93% from April 2017 BTC trading high (a 65% drop in US Dollar terms).

The drop, whilst incriminating, might not be completely indicative however. Speaking to Bloomberg, Bitpay, one of the largest Bitcoin merchant processors claimed a five-fold increase in acceptance from various businesses this year. Overstock.com has also said to see an uptick in cryptocurrency payments.

|| VOLATILITY ON DOWNWARD TREND

CME’s then Chairman Leo Melamed believed that the introduction of Bitcoin futures would ease the cryptocurrency’s volatility. “We will regulate, make bitcoin not wild, nor wilder. We'll tame it into a regular type instrument of trade with rules." And while Bitcoin swings are still quite noticeable, Mr Melamed wasn’t entirely off the mark.

Month-on-month volatility has decreased from December 2017 peak, when futures began trading, from 8% now down to 3% (see chart). Whether or not Bitcoin Futures are at play in this instance would be speculative considering that both CME and CBOE Bitcoin Futures trading volume account for a mere 2% against spot trading (Diar, 6 August). Perhaps coincidentally, perhaps not, volatility in 2018 only increased when Bitcoin Futures saw a decline in traded volume.

|| LESS VOLATILITY BUT NOT ENOUGH LIQUIDITY

The US Securities and Exchange Commission (SEC) is set to make a final decision this week on the application from ProShares for a Bitcoin Exchange Traded Fund (ETF). And the regulator has another three to consider within the next 6 months. But not much has changed since July when the SEC rejected the Winklevoss Bitcoin ETF for the second time (Diar, 30 July). Cboe President Chris Concannon says “the problem with a futures-based ETF is, what is the right level of liquidity? It’s never been tested before.”

|| INVESTOR OPTIONS PICK UP SPEED

Should major investors seek exposure to Bitcoin outside of personal custody, options are available (Diar, 6 August). Grayscale’s Bitcoin Investment Trust has seen weekly inflows to the tune of $6Mn a week despite the bear market witnessed since peak in December last year (Diar, 6 August). And if that’s not an investors cup of tea due to a steep premium, come 22 August, Bitcoin Tracker One, an Exchange Traded Note (ETN) will be available to trade through US brokerage accounts. However, the premium in this case might be the exchange rate fluctuations, as the ETN may be listed in USD, but is based on the Swedish Krona, which has seen a 10% decline against the Green Back this year. Still, there are a dozen more options through regulated outfits. The latest coming out of Atlanta, Intercontinental Exchange (ICE) announced its latest venture into the space with Bakkt, a physical futures market set to go live before the end of the year (Diar, 6 August).

|| BE CAREFUL WHAT YOU WISH FOR

The interest from major financial houses is a significant step forward for the cryptocurrency. However, the institutional drive could metaphorically strip Bitcoin’s utility as a currency for trade, should it become seen a holding asset as it forms into what enthusiasts have been voicing all along – digital gold.

Small Miner Abandonment? Bitcoin’s difficulty level and current hashrate, in line with Diar estimates in June, puts miners running Bitmain’s S9 Antminer near the point of little returns (Diar, 04 June). The price decline has accelerated our forecasted date.This reality will bode well for major mining operator Bitmain who is seeking to float with a whopping $18Bn raise target on the Hong Kong Stock Exchange come September (Diar, 13 August). With small miners being forced to switch offline, or move to mining other coins, large mining operations with economies of scale, technological prowess and wholesale electricity costs could come out ahead, cementing their market share of the coinbase reward and transaction fees further.

Bitcoin Monthly Volatility Downtrends to 14-Month Low (%)


1/3 - As Access to Bitcoin Grew With Exchanges Coming Online...


2/3...And Transaction Batching Still Playing a Small Role


3/3...Bitcoin Transaction Count Fell to a 2½ Year Low 2Q18


Notes: Output group sizes as proposed by Coinmetrics.io
Sources: Blockchair.com, Coinmetrics.io, CoinMarketCap.com


Top Bitcoin Merchant Processing Tumbles


Source: Chainalysis via Bloomberg, Diar Calc.


Bitcoin ETF Applications

wdt_ID Name Type Action/Final Deadline
1 ProShares Long, Short ETF 2018-08-23
2 GraniteShares Long, Short ETF 2018-09-15
3 Direxion Leveraged Bull & Bear Shares 2018-09-21
4 VanEck SolidX Bitcoin Trust Long ETF 2019-03-04
5 VanEck Long ETF Withdrawn
6 First Trust Long ETF Withdrawn
7 REX Long, Short ETF Withdrawn
8 Winklevoss Long ETF Denied Twice
9 SolidX Long ETF Denied


Decentralized Apps Facing Half-Life After Peak

Decentralized Apps (Dapps) are facing problems in maintaining a userbase. The largest Dapps being used currently are exchanges. And if it’s not an exchange, the majority of live Dapps are geared towards platforms catering to speculators. What does seem to be happening is a massive user drop after peak. Few projects have been able to sustain adopters.


Aside from some random bursts of interest in gambling applications or games, which account for most type of Dapps, volumes have been mostly on token exchanges, with the top 3, IDEX, Fork Delta and Bancor eating for the lion’s share.

However, trading volume aside, which still stands miniscule compared to centralized exchanges, users are abandoning Dapps at quick pace (see chart). This hasn’t hindered entry prospects with Coinbase’s purchase of Paradex, and Binance also eyeing the launch of their Decentralized Exchange.

|| REALITY IN CHECK.

Augur which launched a little over a month ago is no exception despite being one of the most awaited projects. Joey Krug, co-founder of the Augur has taken a sober look at the problems the predictions platform faces. "Right now, if you want to use Augur you have a few fees….Add them up you get 11%, making the pay-out ratio on Augur be 89% or worse if you account for spreads. Fixing costs, fees is in my opinion the difference between a fun toy and something that’s actually useful.

I always used to say that when Augur launched it’d be expensive, slow, and difficult to use but hopefully it works at a core level. It does work at a fundamental level now.”

However, the majority of fees that Mr Krug mentions (On-ramping of ETH, Volatility, ETH Gas Fees) aren’t only applicable to Augur, but all Dapps, making the value proposition much harder for the end user who already has to go through multiple channels before ending up on any platform.

|| REALITY OUT OF WHACK

It's a bitter pill to swallow for investors who have backed Cryptokitties with $12Mn, only to see its user base drop 96% within months. However, as far as live platforms backed by major investors are concerned, numbers are even more staggering.

Bancor, which raised a whopping $153Mn peaked at 1747 users on a single day. It's user count is now 76% less (see table). And as far as audiences go, that's the good news. Digital Currency Group backed Decentraland, which raised $25Mn in 35 Seconds, peaked at 163 transacting users on a single day. Its network market capilization stands at $70Mn.

Of course, it's early days. And Decentraland has earmarked $5Mn to finance game studios to develop on it's platform. But Dapps are suffering from an unintuitive, slow, multi-step user experience that will make finding new adopters with current infrastructure difficult at best.

Peak Number of Daily Users on Top 3 Dapp Exchanges


Dapp User Count Drops 56% From Jan-High*


Notes: * Excluding Fomo3D & PoWH 3D. 38% Drop Including.


Augur Users Drop Off


Source: Dappradar.com


Major Investors Live Dapps Status

wdt_ID Dapp Key Investors Raised Market Cap. Peak Current % Drop
1 CryptoKitties A16Z, DCG $12Mn - 14194 510 -96
2 Bancor Blockchain Capital $153Mn $82Mn 1747 457 -74
3 Kyber Network Julian Sarokin $49Mn $57Mn 422 165 -61
4 Numerai Fred Ehrsam, USV $7.5Mn $8.4Mn 419 14 -97
5 AirSwap B.Pierce, M.Novogratz $36Mn $12Mn 172 45 -74
6 Decentraland DCG $25Mn $70Mn 163 23 -86
7 LivePeer DCG, Pantera - - 46 33 -28

Note: User count reflects unique addresses with transactions on the platform, not visitors.


Coinbase Vies for Binance, Huobi Traders with Paradex Listings

Over 50% of traded volumes on cryptocurrency markets revolve around the majors, Bitcoin, Ethereum, XRP, Bitcoin Cash and Litecoin. However, the market downfall is taking major US exchanges in its wake. Traded volumes on Coinbase, Bitstamp and Kraken have seen steep declines. Meanwhile, token exchanges outside the US, that have lax regulator scrutiny, are now seeing an increase in traded volume with the majors.

Whilst traders are waiting on Coinbase to follow through with their recent announcement of possible listings, the company's modus operandi may have slightly taken a different form.

The popular exchange has opened a second front with Decentralized Bulletin Board Paradex which as of last week has 19 cryptocurrencies.

|| IF YOU CAN'T BEAT THEM.....WELL..YOU KNOW

Coinbase's ethos for an Open Financial System took a step forward on the back of the new Paradex listings. It's not all altruistic however. Paradex now lists two major competitor's native exchange tokens - Binance's BNB which trade into 80 tokens, as well as Huobi's Token, HT, which trades into 10 tokens, in an effort to win traders over onto their platform. Both BNB and HT are tradable into Stablecoin DAI. True USD, another Stablecoin traded on Bittrex, has also been listed.

Coinbase has renamed their ERC20 mobile wallet Toshi, to Coinbase Wallet, in an effort to streamline the brand across the board. As well as creating a better user experience to send to contacts, rather than long-string addresses, the new app will also support airdrops.


Underlying data has been provided by our partner CoinApi

Coinbase US Dollar Traded Volume Plummets 83% From 2018 High


Bitstamp Fairs Only Slightly Better at a 73% Volume Drop


With Kraken Suffering the Least with 17 Listed Cryptocurrencies


Notes: Only USD has been accounted for. EUR, GBP and other currencies not part of data. Calculations based on daily averages of OHLC at exchanges.

Binance Gets 21% Uptick on Major Cryptocurrencies vs. Jun-18


OKEX Hits New Record in July


Tokens / Number of Pairs By Exchange


Notes: Bittrex remains reliant on USDT trading, however has begun rolling out fiat trading for approved customers.


OPINION: USER EXPERIENCE ADDENDUM

Cupertino Makes Headway with Apple Pay Adoption

Whilst Bitcoin and other cryptocurrencies continue to suffer from a notoriously poor user experience, from on-boarding to spending, Apple is on its way to deliver the ease that everyone has become accustomed to from the tech giant for sending payments. It might not be decentralized, and still dependent on banks. The question is, can the staple traits of Bitcoin win the public over when users are set to become used to sending each other money with a seamless user experience?

Apple Pay has now, by some estimates, over a quarter million users. And the number of transactions has exceeded 1Bn, cumulatively, as confirmed by Apple’s CEO Tim Cook in a recent earnings call. 4900 banks now support the on-boarding of their clientele onto Apple Pay worldwide.

In its latest promotion of Apple Pay Cash, Cupertino maybe having bit of a chuckle under its breath at the ease of sending money to other iPhone users. “Just text them the money” – sending people payments is not going to be much simpler than that, and Apple has the advantage of natively incorporating such mechanisms. It’s also instant, free, and lacks the required memory of the 12-phrase keywords as with cryptocurrency wallets. And as far as the general public is concerned, it’s safe.

Should cryptocurrencies wish to be in the race, this might very well be the first barrier to overcome – improving the user experience to cater to public expectations for sending and receiving money.

The second barrier is much harder – merchant adoption.


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