Hi all!
Greetings from Dublin, where I’m at the Blockchain for Finance conference, moderating a panel on “The Reformation of Capital Markets”, which will look at the impact blockchain technology is likely to have on the next generation of securities infrastructure – a subject that is evolving from wistful imagination to working examples in front of our very eyes. It’s complex, though, as indeed it should be.
Speaking of complex, the tension around Facebook’s Libra project is still making significant noise. Rather than list all the headlines, I’ve compiled the relevant ones into a more compact format, in “Libra Watch”, below.
In THE BRIEFING this week, my colleague Galen Moore shares a few charts that show bitcoin is not exactly fulfilling the “safe haven” narrative we were hoping for. That doesn’t mean it won’t, though – just not yet.
As always, there are plenty of links below to keep you entertained and informed. And charge your headphones, last week produced an extraordinary amount of interesting podcasts.
Read on…
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Is Bitcoin Like Gold? 4 Charts Say Not Yet
Investors are beginning to have a clear sense why bitcoin exists: it's digital gold, a narrative that has emerged clearly as other assets flounder, gasping for air in the muddy water of shallow memes. Ethereum has hopped from story to disjointed story; now it's "money" (OK). Nobody knows what Ripple is.
If bitcoin is digital gold, then it must be a haven in times of crisis – a "risk-off" asset, like gold. Any thoughts of bitcoin being a safe haven have been put to bed in the past 10 days and can be found there thrashing in their own clammy sweat, racked by fever-nightmares of 2018.
The question is, can bitcoin become a safe haven? We may be about to find out. Born during the last global financial crisis, bitcoin has yet to see one. In the CoinDesk Research white paper, "Is Bitcoin a Safe Haven?" we look at some of the theories around how bitcoin might perform during a macroeconomic crisis and present a few metrics that might be used to measure bitcoin's response. You can download the paper here . This article will present an up-to-date look at a few of those metrics.
Bitcoin vs. gold
Some people you run into may want to show you a bitcoin chart next to a gold chart and point out similarities in their shape. Don't listen to them. Bitcoin's price has never shown a correlation with gold, positive or negative, for any length of time, since early 2015. Over the long term, it's moved toward less correlation, not more.
Bitcoin vs. the yuan
A haven is in the eye of the beholder. Bitcoin may be a risk-on asset for venture investors in Silicon Valley, and a risk-off asset for people caught in a currency crisis. Bitcoin adoption in Venezuela is often cited to indicate the latter.
Bitcoin adoption in China may be another measure. China also has authoritarian currency controls and a wobbling economy; its population and total wealth are orders of magnitude greater than Venezuela’s. Thus, its potential impact on the bitcoin price is greater.
The past five years have seen several significant periods of strong correlation between USD-CNY and bitcoin. That is, when the yuan wavers in dollar terms, bitcoin's dollar price often tends to rise. This may be a positive indicator for those who hope that a yuan currency crisis could ignite safe-haven demand for bitcoin.
Bitcoin vs. ETH & Bitcoin vs. XRP
Bitcoin is the only crypto asset about which rational people could even discuss a haven narrative. Other crypto assets may be compelling, but they clearly represent risk-on bets against a vision of future adoption that may take years to prove. If bitcoin is becoming a "risk-off" asset, bitcoin returns ought to start decoupling from other crypto assets.
Hmmm, nope.
With both ethereum's ETH and Ripple's XRP, bitcoin returns are clearly establishing a stronger positive correlation over time. There is no decoupling here.
Conclusion and a note on the data
None of this is to say that bitcoin doesn't have a credible story as a safe haven asset. It's clear that it isn't one today, but that doesn't mean it might not become a risk-off asset during the next downturn, or the one after that. Even Jerome Powell understands this: bitcoin is a "speculative store of value," he has said. Its investors are speculating that it will become a store of value.
It's difficult to pinpoint whether bitcoin is moving toward realizing that narrative, or not. Bitcoin's volatility and 24/7 trading frustrate any attempt to correlate its daily returns with those of other assets. For this blog post, we took a 30-day moving average of daily returns and measured 90-day correlation over time. The results are mostly similar to the 30-day returns we used in the white paper, "Is Bitcoin a Safe Haven?" They also match results we obtained using weekly returns. The data run from four years old or the earliest available, through the last market close on the morning of Monday, Sept. 30.
In the white paper, we also look at data from fiat onramps to bitcoin in emerging markets, as well as the behavior of long-term holders, tracked via time stamps of ownership records on the bitcoin blockchain. You can download the paper here, along with papers on custody, derivatives and crypto fundamentals. If we missed anything, please contact us: [email protected].
– Galen Moore
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* you’re busy, we know – here are six heavy-hitting items to start with, but at least skim the rest, ok?
BIG IDEAS
*Adapting a Famous Quant Value Strategy to Crypto Assets: Some New Ideas About Value Indicators for Crypto (Jesus Rodriguez) – An introduction to what could become sector-wide metrics for crypto asset valuations; some intriguing ideas here.
*Confessions of a Reformed Crypto Doubter (Bloomberg, paywall) – It’s not the store-of-value argument, it’s that the philosophical basis for currencies has never been more fragile.
Crypto exchanges and the America problem: Is a check-box enough? (The Block) – Jurisdictional issues for crypto trading are complex, vague and hard to work around.
What is the Optimal Market Structure for Digital Assets? (ErisX) – Shedding light on the convoluted structure of crypto markets, and how fully displayed, broadly accessible CLOB platforms allows for a more efficient interaction of participants.
Digital Assets Will ‘Trickle, Trickle, Trickle—Then Flood,’ State Street Exec Says (Fortune) – Jay Biancamano, State Street's head of digital assets and blockchain in capital markets, believes that “digital representations of traditional assets” are a much more interesting avenue of exploration for the bank than cryptocurrencies such as bitcoin.
What Bitcoin Trading Volumes Can Tell Us About The Strength of The Chinese Currency (Blue Poles Capital) – Rather than focus on what macro indicators can say about bitcoin’s prospects, Jorgen Veisdal looks at what bitcoin indicators say about macro trends, such as Chinese confidence in the yuan.
An Introduction to Bitcoin Cash (Grayscale Investments) – A primer on the bitcoin alternative that is now the fifth largest crypto asset by market cap.
What Is Custody of Digital Assets? (TabbFORUM) – State Street's Swen Werner highlights how crypto custody is different from the traditional variety, and how the sector needs a more holistic approach to the concept than just safe-keeping of private keys.
MARKETS
*Institutional OGs of Bitcoin (BlockFi) – Combing through the public filings of private funds, the team at BlockFi mapped out the sector that provides services to crypto funds. Illuminating.
Digital Asset Futures Have Arrived (Digital Asset Research) – An overview of crypto derivatives, covering markets and regulation.
*September Cryptocurrency Macro Commentary (David Martin) - The third quarter performance of bitcoin, the evolution of the derivatives market, what volatility’s been doing, and more.
Bitcoin Is 2019’s Best-Performing Asset, Even After Recent Price Downturn (CoinDesk) – In spite of (or because of?) its volatility and youth, bitcoin is starting to attract interest from a new wave of institutional investors.
Bitcoin maturing process accelerating; Growth spurt almost done (Bloomberg Professional, paywall) – Bitcoin’s trading fundamentals point to continued outperformance relative to other crypto assets, and declining volatility going forward.
The New ICOs: A Primer on IEOs and STOs (SFOX) – Both Initial Exchange Offerings and Security Token Offerings play on the old Initial Coin Offering Model, only with more restrictions and much lower volume; many also are falling into the same trap of not having market-tested business models and products people want.
Galaxy Digital, XBTO Just Made the First Block Trade of Bakkt Bitcoin Futures (CoinDesk) – In spite of the futures exchange’s slow beginning, the institutional sector appears to have conviction in its long-term value.
Ari Paul (@AriDavidPaul) reminds us of where the vulnerabilities in crypto custody really are (hint: it’s people).
Crypto trading fees aren’t compressing yet, but here’s how exchanges are preparing for when they do (The Block, paywall) – With traditional investment managers dropping their trading fees to zero, crypto exchange business models are coming under scrutiny.
Coinbase Pro Is Increasing Its Fees – And Users Aren’t Happy (CoinDesk) – As of today, the crypto exchange is raising fees for lower volume accounts.
Alex Kruger (@krugermacro) showed that Coinbase’s recent fee hike brings the total fee increase for low-volume traders to over 230% since March, while high volume traders have seen their fees drop 60% in the same period.
Joe McCann (@joemccann) set out to talk about Coinbase’s fee increase and ended up with a thread about crypto exchange business models.
Coinbase-Led Crypto Ratings Council Draws Skepticism From Legal Experts (CoinDesk) – Concerns range from potential anti-competitive cartel accusations to suspicions of vested interests and lack of transparency, but many agree that any clarity and coordination is better than none.
Marco Santori (@msantoriESQ) also pointed out that, although vested interests are a worry and the lack of clarity is at best misleading, the initiative is better than no guidance at all.
Larry Cermak (@lawmaster) dives further into the lack of clarity, potential conflicts of interest and the danger in simplifying security determination.
Coinbase Chief Legal Officer responds to concerns about Crypto Rating Council (The Block) – Among the questions raised by the community: Do the ratings constitute investment advice? Will regulators heed its recommendations? Will it actually be useful?
Vanguard to Challenge Banks’ Grip on $6 Trillion Currency Market (Bloomberg, paywall) – The investing giant is testing a blockchain-based platform for FX trading, with the aim of moving markets away from large banks in order to lower costs.
Max Boonen (@maxboonen) points out that Vanguard’s initiative is unlikely to have any impact at all on their bottom line (which means it probably won’t get off the ground).
CRUNCHING NUMBERS
*Coin Metrics' State of the Network: Issue 19 (Coin Metrics) – What comparing the number of bitcoins that move at these prices to the average buy-in cost can tell us about investor sentiment, and how derivatives impact volatility.
Leveraging Order Book Data To Execute Better Trades (Kaiko) – How to extract trading behavior from aggregated market information.
Jack Purdy (@jpurd17) looked at bitcoin’s historical intra-day volatility.
PROFILES
What It’s Like Being CIO of a Crypto Fund (CoinDesk) – Jeff Dorman, CIO of Arca Funds, shares insights and challenges from his first year of managing an investment fund focused on cryptoassets.
Who’s behind this? #21: Max Boonen, Co-Founder and CEO of B2C (Etienne) – Max Boonen, CEO of crypto trading firm B2C2, talks about the firm’s evolution, crypto market technology and the outlook for the sector’s infrastructure.
CoinAlts Fund Symposium 2019: The Block Interview Series (The Block) – A series of video interviews with representatives from crypto market structure firms such as the CME, Bitwise, Tagomi, Amun, Grayscale, KNØX, Outlier Ventures, Union Square Ventures and Fireblocks.
REGULATORS AT WORK
*In an epic thread on the legality of token sales, Jake Chervinsky (@jchervinsky) analyzed the SEC’s recent settlements with the issuers of EOS and Sia tokens, and stressed that the actions seem to support the view that an asset is not necessarily a security just because it was part of a security sale.
Preston Byrne (@prestonjbyrne) triggered a lively thread that further examined “what” makes a token a security or not, in light of recent SEC statements.
The Bible, SEC crypto enforcement, and the Buttonwood Agreement (The Block) – Stephen Palley expounds further on the differences between the recent SEC rulings on ICOs, with his usual insight and wit.
Hong Kong regulates crypto funds (Decrypt) – The region’s Securities and Futures Commission has published detailed guidance to fund managers on all aspects of handling crypto assets, including a framework for dealing with ICOs.
Bitcoin isn’t a security according to SEC staff (The Block) – In responding to a filing by Cipher Technologies, the SEC disagreed with the investment firm’s claim that bitcoin was a security, in the first official statement from the regulator confirming its position.
STABLECOINS
Former JPMorgan, Intel staff launch USD-backed stablecoin with a twist (The Block) – The Global Currency Organization has launched USD Digital (USDD), a stablecoin that will share its revenue with participating exchanges, wallet providers and OTC desks.
SECURITY TOKENS
Six Major Japanese Brokerages Form Security Token Offering Association (CoinDesk) – The Japan STO Association, which Nomura and Daiwa, will draw up STO issuance guidelines and lobby on the sector’s behalf.
The Evolution of the Security Token Industry (Security Token Academy, video) – Adam Chapnik interviewed Josh Stein, CEO of digital security platform Harbor.
LIBRA WATCH
The big news in Libra-land over the past week was the official exit of PayPal from the Libra Foundation, and rumors are swirling that Visa and Mastercard are also contemplating leaving. In an unexpected Twitter thread, the project’s lead, David Marcus, pushed back against accusations that information was scarce about efforts to prevent illicit activity on the network.
Regulators and industry representatives continue to express concern. In the U.S., COO Sheryl Sandberg has reportedly been invited to testify before the U.S. House of Representatives Financial Services Committee on October 29, but the hearing will not be finalized until CEO Mark Zuckerberg agrees to also testify before January 2020. Executives from some of the largest banks in the U.S. submitted a letter to the Federal Reserve expressing concerns that Facebook’s cryptocurrency Libra would pose a threat to monetary policy in the U.S.
On the other side of the Atlantic, Margrethe Vestager, the European Commissioner for Competition, wants to know whether Libra will be an open platform for commerce, what currencies will be accepted and whether organizations or individuals who use the currency will get “a special advantage.” Separately, the European Commission has asked Facebook and the Libra Association for more information about their plans to combat money laundering and tax evasion. Meanwhile, a rare glimmer of “support” came from the Swiss financial regulator – FINMA has said that it won’t impede development as it’s not there to “get in the way.”
In a leaked transcript of a private Facebook meeting, Mark Zuckerberg addressed concerns about potential illegal activity on the network, and hinted at further work ahead on the identity issue. And the Libra Association has published its first roadmap detailing upcoming milestones, starting with the onboarding of five partners to deploy full nodes on the network.
One fascinating consequence of the Libra announcement is the surge in interest in central bank digital currencies. The president of the Philadelphia Federal Reserve, Patrick Harker, said at a community banking conference in St. Louis that the U.S. should not be the first large country to issue a national coin , but that it was the next logical evolution for payments systems. And in Europe, according to a report, German finance minister Olaf Scholz wants Europe to introduce a digital euro, since “such a payment system would be good for financial center Europe and its integration into the world financial system."
As if proof were needed that markets don’t rest, crypto derivatives exchange CoinFLEX will offer physically settled Libra futures, allowing traders to bet on whether Libra will launch by 2020 or not.
PODCASTS
WHAT BITCOIN DID: Peter McCormack spoke to pseudonymous crypto trader PlanB (whose day job is in traditional finance) about his bitcoin stock-to-flow model, how it has held up over time, and what it says about the bitcoin price outlook going forward.
THE SCOOP: Frank Chaparro chatted to Tom Lee, head of research at Fundstrat Global Advisors, about the role and evolution of investing research, what’s holding institutions back, the importance of Libra and the “fundamentals” of bitcoin.
VENTURE COINIST: Luke Martin chatted to Jeff Dorman of Arca Funds about what traditional investors look for, the importance of low correlation and how you sometimes need to just put away the charts.
FLIPPENING: Clay Collins talked to John Jansen, the founder of crypto options exchange Deribit, about the difference between spot and derivatives exchanges, the evolution of options vs. futures and the outlook for crypto liquidity.
THE CRYPTO STREET PODCAST: Jake Ryan of Tradecraft Capital spoke about privacy coins, technology cycles and the macro outlook for bitcoin.
BASE LAYER: David Nage interviewed Gavin Gillas of growth equity fund YGC about how to value a protocol, the outlook for enterprise applications and the migration towards hybrid blockchains.
BASE LAYER: David also chatted with Sunayna Tuteja, head of blockchain for TD Ameritrade, about the growing interest from “mainstream” investors, how to approach regulators and the importance of crypto education.
LEDGER CAST: Brian Krogsgard spoke to Philippe Bekhazi, the CEO and Co-founder of XBTO, about crypto market plumbing, the development of a stablecoin clearing house and the potential evolution of the lending market.
OFF THE BLOCK: Aleks Svetski, founder of bitcoin platform Amber, joins Anthony Pompliano for a stirring and expletive-laden conversation about the meaning of money, the combative nature of the hard-core bitcoin community and why bitcoin is the only cryptocurrency that really matters.
A-HA!
Robert Shiller Discusses Narrative Economics (Masters in Business, podcast) – The power of narrative and how easy it is to fall under its spell (any chance we’re doing that now?); and yes, bitcoin gets a look-in.
Bitcoin volumes in Hong Kong skyrocket via LocalBitcoins amid city-wide protests and unrest (The Block) – A reminder that bitcoin is not just about speculation and investment; it does have a potentially valuable use case.
How one NASA image tells dozens of stories (neo, video) – Of sparkling lights and dark places, and what that says about the world; mesmerizing and sobering.
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FUNDING
Crypto market data firm Kaiko has raised a €5 million seed round, led by global financial services investors Anthemis Group and Point Nine Capital.
Security token platform iSTOX, backed by the Singapore Exchange, has raised a Series A round from Thai investment bank KKP.
Vega, a decentralized derivatives protocol, has closed a $5 million seed round led by Pantera Capital, with Ripple’s Xpring, Hashed and KR1 also participating.
FIRMS & PRODUCTS
Tim McCourt, global head of equity index and alternative investment products at the CME, confirmed in an interview that the derivatives exchange has no current plans to offer physically settled bitcoin futures contracts.
Broadridge Financial Solutions, an investor services firm with $4 billion in revenue and a $15 billion market cap, will soon be able to offer post-trade services for cryptocurrencies after acquiring fintech company Shadow Financial Systems.
Fintech firm Amun and crypto fintech service Bitcoin Suisse have launched a Swiss franc-denominated BTC/ETH exchange-traded product, which is based 90% on bitcoin and 10% on ether, under the ABBA ticker.
Stone Ridge Asset Management has filed a prospectus with the SEC that proposes a cash-settled bitcoin futures fund, dubbed the NYDIG Bitcoin Strategy Fund.
Crypto exchange Coinbase now pays interest of 1.25% APY on holdings of the dollar-pegged stablecoin USDC.
Crypto custodian BitGo has added staking to its services, beginning with cryptocurrencies dash and algorand, which allows token holders to earn 7-13% annual returns.
Crypto data firm Nomics has launched a “Transparent Volume” service which calculates the percentage of real volume traded on cryptocurrency exchanges.
Morningstar Credit Ratings is planning an evaluation system for debt securities issued as tokens on a blockchain to make the emerging asset class more credible for investors.
Crypto exchange Coinbase has reinstated U.K. bank deposits and withdrawals following a new partnership with ClearBank, a member of the country’s near-instantaneous Faster Payments Scheme. It has also added five new coins for U.K. clients: XRP, BAT, XLM, ZRX and REP.
Blockchain investigations firm Chainalysis has added support for 10 more ERC-20 tokens, including BAT, OMG, DAI, MKR and ZRX.
PEOPLE
Crypto wallet and data provider Blockchain has hired Howard Surloff, a former BlackRock and Goldman Sachs executive, as its first general counsel.
Haseeb Qureshi has joined Dragonfly Capital as Managing Partner.
Have a tip? Drop me a line at [email protected]. |
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| Our annual Invest: NYC is fast approaching. On November 12th, at the Marriott Marquis in New York City, you can hear institutional investors, infrastructure builders and sector participants discuss the trends in and outlook for crypto markets.
This year will focus on bitcoin’s role in institutional portfolios in an environment where macro indicators are telling conflicting stories and uncertainty seems to be the new normal.
Come join us! It would be great to say hi.
CRYPTO WEBINARS
Crypto podcasts have long been a staple of market education (see links above, for example), but I’ve noticed that there is a growing stable of informative webinars out there that don’t get enough air time in my opinion.
Here you have the crypto market webinars that I know about and that I think you might find interesting. If you’d like your webinar listed here, let me know at [email protected] (no guarantee of inclusion, though).
FATF Guidelines & developing industry led AML & KYC best practices – Global Digital Finance (GDF) - October 9, 9am ET
The Path to Clean Prices in Crypto – Digital Asset Research – October 10, 11am-12pm ET
Demystifying Social Media Analysis for Crypto-Assets – IntoTheBlock – October 23, 12pm ET
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