2019 April 30 - Volume.3 Issue.12

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2019 April 30 - Volume.3 Issue.12

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Bitcoin On-Chain Volumes Move Back into Growth Following Lows

Bitcoin on-chain transaction values have hit new lows quarter-on-quarter since coming of media attention age mid-2017. Still, however, monthly US Dollar value transacted on-chain has reversed the downtrend with April hitting a 10-month high. But this remains, in all likelihood, the cause of trading increasing due to Bitcoin’s recent price surge rather than actual use-case.

Numbers from blockchain data provider TokenAnalyst show real Bitcoin volumes (sans change transactions) on the rise 3 months in a row following significant price rallies in March and April.

On-chain value of both Bitcoins and US Dollar value continue to follow price trends indicating the king of cryptocurrencies has yet to find any footing outside of speculative trading almost two years on from entering the financial challenger hall of fame (see charts).

Bitcoins moved on-chain outpaced dollar value hitting a 14-month high in April. With a value of over $130Bn, the transaction volume closes in on June 2018 levels when the price of Bitcoin averaged $7000 – 35% higher than today.


Quarterly totals tell a different story – one of decline. Whilst 1Q19 remains almost a whopping double the volume than that for the same period in 2017 in USD terms, quarter-on-quarter on-chain activity for Bitcoin has been in decline since the end of 4Q17.

And the first quarter of 2019 has already recorded a 35% decline versus 4Q18, despite the little volatility that has shown to spark off on-chain volume as traders look for an exchange.

2Q19 has kicked off on a higher note compared to previous years.

Bitcoin USD Volume Moved On-Chain

Bitcoin Volume Moved On-Chain

Quarterly Bitcoin USD Volume Moved On-Chain

Quarterly Bitcoin Volume Moved On-Chain

Bitfinex, Tether Tie-Up Sparks Systemic Risk Concerns

While Tether woes have become an industry norm, the latest news that Bitfinex is sitting on a potential loss of $850Mn has sparked on systemic risk fears as the stablecoin sponsor grants the exchange a loan for the cash. There is now, by official statement from Tether representatives, a 26% shortfall in cash-reserves against the outstanding tokens.

Stuart Hoegner, general counsel to both Tether and Bitfinex, has confirmed that the stablecoin outfit is effectively running a fractional reserve against its outstanding tokens following a court order by the New York General Attorney looking into a loan agreement between the two major cryptocurrency organizations.

Bitfinex has had a whopping $850Mn of its funds “seized” by its payment processor Crypto Capital leaving one of the oldest exchanges high and dry and having to skim Tether reserves to cover its own operating expenses.

Lest Mr Hoegner wishes to see inside a jail cell, Tether did indeed have the reserves of the outstanding stablecoins up until its recent change in their terms of service indicating that the company would also hold cash-equivalent assets (Diar, 18 March). Mr Hoegner confirmed that the Tether still holds $2.1Bn in cash in an affidavit.

On the flipside, of course, is that the 8th largest cryptocurrency now doesn’t have the $2.8Bn cash for the outstanding tokens. But despite these clear as day facts, cryptocurrency trading remains pegged to the contentious stablecoin despite many sound alternative options who offer a higher degree of transparency and comply with US regulations.

The confirmed and official stance that the organization is ready to bail out its failing partners at the expense of creditors abandons in clear sight, although suspected character, the 1 to 1 US Dollar equivalent backing.

Tether Coming Back, But Not Quite There Yet

Source: Nomics
Exchange: Kraken USDT/USD

The stablecoin, now representative of shares as part of the loan agreement between the two entities, has now shifted into securities territory in its essence as a large portion of its reserves will be on the back of an exchange not defaulting.

However, markets have remained much more tolerant than last October when Tether lost its peg to as low as $0.95, and remained off the Dollar mark for over 6 weeks following a crisis in their banking partnerships (Diar, 22 October 2018).

Tether remains below its intended peg on Kraken who offers a USD off-ramp for the stablecoin (see chart).

Third Time a Charm as Dai Raises Stability Fee, Again

The crypto industry can find solidity in the most likely scenario that every week as of late the stability fee to attempt to get Dai back onto its peg will increase.

Now standing at 16.5%, the stability has increased for the third time this month, more than doubling the 7.5% that was being settled at the start of April. The result has been a mere 4.9% reduction in the circulating supply.

At press time, Dai had finally managed, a few days after the fee increase, and a massive Tether debacle (see story), to bob over to the other side of $1, floating a cent above.

Stablecoin Projects Eye Wider Use Case Opportunities

A16z backed tokenized securities platform Harbor has partnered up with Gemini in order to onboard clients through the exchange issued stablecoin. It might be a ways ahead of itself, however, as Harbor's only publically known token was a real estate deal that was canceled last month.

Meanwhile, TrustToken has been moving fast to add more fiat currency stablecoins to its portfolio following the British Pound that was added earlier this month. It now boasts the Australian Dollar and said to be eyeing Canadian and Hong Kong Dollars, as well as the Euro. This would place TrustToken in a prime position to address forex markets, should one develop within the space.

Blockchain Brand Bandits
In what's becoming a recurring theme, large multinational brands are finding themselves pursuing crypto or blockchain type projects with the latest coming from both Nike and Jaguar Land Rover following Louis Vuitton last month. Jaguar, known for its timeless and ever sought after classic E-Type car, was not only Steve McQueen's choice of cool but the British island nation's favorite among thieves, is now pursuing the idea that would allow the bandits earn IOTA for sharing road condition data from the getaway car.
You Win Some...
Fidelity/Nasdaq backed ErisX has gone live with its spot market platform after the company raised $27.5Mn less than six months ago. It has now raised an additional $20Mn as it sets its eye on launching a Commodity Futures Trading Commission (CFTC) regulated futures exchange within the year too. Competition for a still marginal institutional clientele is being split by multiple start-ups from Bakkt (coming soon, maybe) to Fidelity's own Digital Asset arm. But is the pie big enough to share profitability?
...You Lose Some
Over $100Mn was recorded as a loss from selling cryptocurrencies at infamous hedge fund manager Michael Novogratz's Galaxy Digital for 2018, filings show. To make matters a little more stark, the company itself closed off the year at a $272.6Mn loss. The operation will now need a good bull market to recoup and right the ship as the meager $4.2Mn earned from advisory and management fees isn't going to help with the company's expenses of over $88Mn per year.
SEC Goes In Circles
The SEC jointly sounded alarm bells with the CFTC alerting potential investors to the risks posed from fraudulent Digital Asset and “Crypto” Trading Websites. The warning familiar from regulators highlights the sales pitch promising the Bahamas, so to speak. Meanwhile, the SEC granted Circle's SeedInvest an Alternative Trading System (ATS) license for non-tokenized securities. As it stands, both Coinbase, who purchased an ATS, and tZero, have yet to make headway with tokenized assets in replacing ICO/IEOs.

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