2018 February 11 - Volume.3 Issue.5

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2018 February 11 - Volume.3 Issue.5

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Coinbase Eyes Emerging Markets in 2019 Push

In an interview with Dan Romero, Coinbase’s Vice President focusing on international expansion, Diar discusses the exchange’s growth plans in the next year. Having already secured key fiat ramps in developed countries, and awaiting a license in Japan, Coinbase has put in motion its efforts in addressing key emerging markets.


Coinbase has been working close with Japan’s Financial Services Agency (FSA) in order to obtain a license to operate in the country with the aim of launching later this year, almost a year after the official announcement. Having already a close partnership with one of Japan’s largest Banks, MUFG, Coinbase is more focused on localizing the user experience in an effort to address each market with its own set of expectations.

But the developed markets are no longer the sole primary target with the exchange now looking to expand into underserved areas that suffer from currency devaluations and financial inclusions hurdles. “Use cases in developed markets will be different to those in emerging markets as the US and Europe have a fairly well-developed financial system. Our mission is to build out the ecosystem so that we can move away from the narrative of crypto only being a speculative investment. We need to move the technology into the Utility Phase” Dan Romero stated.

|| BIG PUSH

While Mr Romero was hesitant to specify any countries due to a long-winded process, as seen by an already educated and robust Japanese regulatory framework, the exchange has actioned securing the right banking partnerships and government approvals. “What you’ll see in 2019 and beyond is a big push to dramatically expand the number of countries offering an easy on-ramp into crypto. We are actively exploring countries in Latin America, Africa and South East Asia.”

“People speak about remittances as a use case for crypto but the reality is that in emerging markets the access for fiat on and off ramps is very low” Mr Romero said. And Coinbase has laid out certain considerations and opportune measures that should be accounted for when looking at potential markets – regulatory stance, currency volatility, banking infrastructure, age demographics and smartphone usage.

|| EVOLVING LANDSCAPE

For 2018, the three regions represented $240Bn annual money inflows and over half the world’s remittance corridors. But with over 300 money transfer operators (MTO) and transaction costs declining across the board, competition will not be sparse. Though fees currently stand at an average of 9%, this has been in decline for the past decade as more players entered the market. From developed countries, the average is even lower at 6%.

But regional differences do make a case for cheaper transaction costs as smaller corridors continue to see remarkably high fees (see table).

|| SPEED SCOREBOARD: DEUCE

Cryptocurrencies advantage of instant transfers has taken a back seat as MTOs are quickly gaining speed in that area with nearly half of the corridors offering settlement within the hour and over 75% offering payment on the same or next day (see chart).

|| CONVENIENCE THE NEW KING?

While network coverage for MTOs has become a near non-issue, accessibility hurdles for senders have yet to be overcome by traditional brick and mortar operators with only 38% of corridors offering the ability to transfer money online to these regions. The number is even more stark for mobile money transfers accounting for less than 1% of available remittance corridors – the main user group target for Coinbase.

|| POTENTIAL OR POTENTIAL PROBLEMS?

The average cost of transactions in Sub-Saharan Africa remain quite high with MTO exclusivity clauses in place raising the mark-up with no alternative options. And countries in both South East Asia and Latin America have witnessed the ongoing weakening of their local currency (see charts).

Still, volatility is also going to be a hurdle that would require the immediate need to convert back into fiat – ultimately a key purpose of an exchange.

“We haven’t operated in these emerging markets to see how the behavior develops, but you’ll likely see less disposable income being used for investment purposes. Our first priority for us is to educate people about crypto. We’ll have to tailor our approach to address the specific questions and needs that are unique to each region that we operate in. We have to focus on building trust in markets where Coinbase isn’t yet a household name, because everyone is one click away from moving their Bitcoin somewhere else” Mr Romero concluded.

Latin America, South East Asia & Sub-Saharan Africa

Near Instant Transfers Become the Norm for Money Transfers...


...But Internet and Mobile Transfer Corridors Still at Large


While Top Remittance Outflow Corridors Have Competitive Rates...

wdt_ID Country Average Transaction Cost (%)
1 United States 5.6
2 United Arab Emirates 4.0
3 Saudi Arabia 6.1
4 Switzerland 8.3
5 Germany 8.8
6 Kuwait 2.8
7 France 6.1
8 Qatar 5.5
9 Korea 4.8
10 Netherlands 7.4


...Regional Remittance Fees Still Prove Costly

wdt_ID From/To Transaction Cost (%)
1 Angola to Namibia 21.7
2 South Africa to Botswana 18.7
3 South Africa to Angola 18.6
4 Nigeria to Benin 18.5
5 Nigeria to Mali 18.4
6 South Africa to Zambia 18.3
7 South Africa to Nigeria 17.9
8 South Africa to Mozambique 17.1
9 South Africa to Malawi 16.8
10 South Africa to Tanzania 16.7


Western Union, MoneyGram Hold Reigns (Firms/Number of Corridors)


Bank Account Ownership Nearly Half of that in Developed Countries

wdt_ID Region Inflows ($Bn) Tx Cost % Ages 15-24 (%) Ages 25+ (%) Smartphone Usage %
1 Latin America 84 5.8 38 52 60
2 Sub-Saharan Africa 82 9.5 26 53 44
3 South East Asia 73 7 46 52 30
4 Euro Area 133 -/- 79 98 72
5 North America 6.5 -/- 88 95 76


Source: The World Bank, Remittance Prices Worldwide (Link)


Binance Bets on Initial Coin Offerings Second Coming

With less than 1% of Binance volume trading into pairs with the exchange's coin, BNB, the popular trading venue has announced the imminent release of their Decentralized platform that would by design amp up demand for their native coin. And with an inbuilt Initial Coin Offering mechanism raising capital in the exchange’s native currency, Binance could be aiming to see liquidity shift over to their Decentralized Exchange should traders wish access to early investment opportunities.


Promising a user experience akin to its current centralized trading platform, Binance is set to launch their Decentralized Exchange (DEX) after forking the Cosmos Tendermint blockchain and stripping it away from key features sacrificing smart contracts for seamless and high frequency trading.

The choice over Ethereum to build the dubbed 'Binance Chain' now marks the second major cryptocurrency operation after Aragon in recent weeks that have opted for a different network both with the future promise of blockchain interoperability (Diar, 4 February).

Interoperability though was not the primary driver for the choice but rather the intent of creating an optimal trading experience that would be able to handle the throughput that Binance currently handles.

|| OVERCOMING HURDLES

A recent demonstration of Binance’s platform does indeed address some of the main concerns that have hampered current DEX adoption. The user experience is well integrated and with blocks being confirmed every second, speed is no longer a concern.

But shifting people to a Decentralized Exchange would require more than the promise of holding one’s own keys, an option few choose. Chainalysis estimates that over 80% of transactions flow to third-party custodians.

|| DANGLING THE CARROT OF FORTUNES

It's fairly evident that Binance is steering far clear from the regulatory hurdles Security Token Offerings (STO) face, as well as the platforms that host them.

Instead, Binance has gone in the opposite direction making it ever-so-simple to quickly create tokens and raise funds in the exchanges native coin.

Whether or not securities laws will be considered before allowing a company to raise funds remains unclear.

|| WIN-WIN-WIN?...

Access to Binance’s userbase doesn’t come cheap. The $100K listing fee, however, might be a drop in the bucket after seeing BitTorrent raise in excess of $7Mn in a bear market and selling out in minutes on Binance who hosted the Initial Coin Offerings (ICO) just weeks ago.

And with traders clearly still hungry for high-risk exposure, with or without project merit, liquidity is likely to shift over to their DEX - another problem solved that has notoriously been a pain point that has riddled on-chain exchanges to date.

|| YOUR KEYS, YOUR CHOICE

While Binance has been of the more selective exchanges when it comes to listing tokens, it is ultimately the traders who hold the bags (Diar, 15 October 2018). For Binance, whether markets up or down, it’s business as usual.

2018 Binance % of Total Traded Volume From Pairs (Asset Quote)


Binance Number of Pairing Options


2018 Binance Trading Volumes


Decentralized Exchange USD Volume Hits All-Time-Low


Bitcoin Fees Drop to 4-Year Low as Transaction Count Continues Rise

Bitcoin transactions hit a one-year high last month nearing levels seen in the 2017 ramp up to the price boom. Median Fees are also at levels not seen since 2015 despite the total monthly Bitcoins moved on-chain standing at higher levels than seen throughout most of 2018. But the Median transaction value in Bitcoins has dwindled to new lows, as has the equivalent total USD Volume which last month fell below May 2017 levels.

Bitcoin Median Fees Drop to 2014 Levels ($)...


..As Transaction Count Hits 1-Year High Near Bull Market peak

And While Median Bitcoins Transaction Value Dwindles...


...Total Bitcoins Moved On-Chain Remain Healthy

Sources: CoinMetrics, Blockchain


Abra To Offer Fractional Stocks

Cryptocurrency start-up Abra has taken a big leap of faith in their hedging processes, as well as with securities regulators after announcing that the firm will allow users to take positions in traditional stocks, commodities, and Exchange Traded Funds (ETF) using Bitcoin.

The company that started up in 2014 and accessible in 155 countries is taking a risk should the US Securities and Exchange Commission (SEC) deem the trading mechanism as a Contract for Difference (CFD) where it is illegal in the United States.

Abra has not mentioned any possibilities of leverage, the main culprit behind the US ban. But the lack of Know-Your-Client procedures could very well trigger a response by the now crypto-adept regulator.

The idea of quality tradable assets with ease utilizing blockchain is indeed one of the most promising ideas that would open up global access and increase liquidity. But with Abra opening up itself to risk the proof is in the pudding as to whether or not it will hold up.

Bitcoin Time Zone Favors

Fees per Kb More Than Double-Up From 12AM vs 1PM UTC (Sats)...


Notes: Data analyzed for January 2019 (Averages) Source: Blockchair

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