Spring has sprung! Accordingly, bitcoin and crypto assets jumped on the bandwagon as their prices surged across the board over the past month as investors took notice too and also observed the return of FOMO. It’s left many questioning whether or not the bottom is in for bitcoin. The price per coin in US dollars has soared over a thousand dollars since the last blog post when bitcoin was roughly $3,850 and is trading for around $5,200 at the time of this writing. It also sparked enthusiasm for another iteration of “alt-season,” when crypto asset prices increase broadly following Bitcoin’s price momentum and spikes in public interest. The financial news covering crypto prior to the run up in prices was raising doubts about inaccurate data reported on exchange trading volumes and now is expressing its concerns with “Flash Boys”-like trading bots deploying algorithmic and quantitative high-frequency trading strategies on crypto exchanges. April 2nd was the single largest intraday price swing from roughly $4,175 to $5,050 (about 20%) per coin since December 2017, which as we all know was when bitcoin reached its all-time high. The timing of it led many to speculate if it was an April Fool’s hoax, short squeezes and liquidations, or a lone buyer with $100M and orders spread across various exchanges.
Bitcoin and crypto asset prices have mostly traded down since about August 2018 when FUD was rampant still with talk of protocol wars as well as questions surrounding the regulatory environment concerning initial coin offerings (ICOs) from the Securities and Exchange Commission. Since that time, progress has been made but the only thing missing has been some encouraging regulatory news or a distinct catalyst like an ETF approval. The SEC has postponed their decision to mid-May as to if the Bitwise Bitcoin ETF (that tracks their Bitwise Bitcoin Total Return Index drawing prices from trusted exchanges) application fits their criteria and is ready for investors. Valerie Szczepanik, Senior Advisor for Digital Assets at the SEC, at the SXSW conference last month indicated that even some stablecoins may be viewed as security tokens in their eyes recommending that companies contact the commission regarding possible problems and to ask for permission. She also explained that no matter the name of the stablecoin or token at the end of the day what really matters is what’s “behind the label.” While this includes algorithmic and digital-asset backed products, it highlights the need for a deeper examination and some basis to decide which stablecoins and digital assets can be perceived as securities with legitimate issues under the current laws as well as a withstanding investment framework (perhaps multiple).
The institutional outlook has brightened as skeptics are becoming more accustomed to the price swings. Enthusiasm for bitcoin has not disappeared even despite the Chicago Board Options Exchange (CBOE) delisting their bitcoin futures product, which in comparison to the Chicago Mercantile Exchange (CME) had far less daily historical trading volume and was subject to more manipulation since it was only derived from one exchange providing its information. CME’s bitcoin futures product was superior and benefited from having more clients available to it being a bigger exchange as well as from using an index that is comprised of multiple exchanges providing its information. It is another sign of maturation too because there seems to be a real demand for products that are physically-backed to give the buyers the option to “hodl” the asset or sell at a later time of their choosing at a “real” price. To this point, Intercontinental Exchange’s (ICE) yet-to-be-launched futures trading platform with physically-backed products for institutions, Bakkt, raised $182.5M last year and following its recent Series A funding round saw a post-money valuation approximating $740M. Reaching unicorn status can be a sentiment indicator for these products, and Bakkt’s latest valuation could allow it to exceed $1B at its next capital raise without sacrificing any considerable equity.
The decentralized finance ecosystem just got a little more interesting last week with news of Harvard University’s endowment venturing into crypto and purchasing crypto assets, directly. This comes after other notable news of Yale’s endowment making a similar investment last year and pension plans investing into a venture-capital fund for the blockchain and digital asset industry earlier this year. According to Bloomberg, citing a recent SEC filing, Harvard Management Co. joined two other investors in backing Blockstack Inc. by purchasing 95.8M Blockstack Tokens, valued at $11.5M. Blockstack’s offering is said to support its decentralized computing network, which utilizes the token. The New York City-based company has built a “parallel internet” where those who access and build on the platform maintain autonomy over all of their own data on blockchain applications. It’s also expected to be the first industry firm to have a token sale approved by the SEC’s “regulation A+ framework.” While the investment was not Bitcoin or other crypto assets themselves, it is especially exciting to see that the endowment is happy holding their own tokens.
The crypto asset universe has us all waiting for the technology to materialize and scale to the point where it serves as the foundation of the next generation’s mainstream consumer applications such as e-commerce, gaming, social media, and more. While that will take an ample amount of time to happen, decentralized finance or “DeFi” is a sector where scalability is not such a priority and a place that blockchain, bitcoin, and crypto assets are already showing their promise. It encompasses all the ICO activity that has largely been built on top of Ethereum and the ERC-20 token as well. Coinbase’s CEO, Brian Armstrong, issued The State of Crypto with a statement that the company tweeted saying, “Crypto may have started with speculation, but that’s not where its headed. Decentralized lending, interest, derivatives, prediction markets – there’s so much happening to be excited about.” It is thrilling to think of applications and platforms where there isn’t any intermediaries, clearinghouses, or “trusted” third-parties, and DeFi won’t be the only sector where blockchain technology and crypto assets shine because people will soon realize the use-cases beyond just money and banking for applications to be built for the mainstream consumers using them. There is a growing consensus of people who are coming around to the idea of trusting algorithms over humans when it comes to making accurate, disciplined, and speedy monetary policy decisions.
Bitcoin and other crypto asset penetration around the world is likely to be over 10% now, but the amount of people really using it and spending it probably is much slimmer. The value and investment returns though have increased quite significantly over the years, yet commercial adoption remains low despite there being a successful global payment network that’s immutable and irreversible as well as was fast, frictionless, and free to accept without fees. This gives them their money in hours not days through strong security measures and without middlemen, delivering consumers as well as merchants true ownership and control over the multiple currencies and assets they opt to accept and/or hold. Hypothetically speaking, if accessibility and adoption spreads to the point for bitcoin as well as other crypto assets that the global penetration rate rises into the double-digits, where do you think prices would be compared to now? I can see a future where bitcoin and crypto assets are so ubiquitous they’re integral not only to online shopping and transactions, but they extend themselves so far to become common in stores as well as during dining experiences, entertainment, sporting events, and more globally. It’s hard to imagine where they may go from here and what that might look like exactly, but institutional and commercial adoption can certainly help them get there and reach new heights along the way!
Taking this all into consideration, there is a myriad of reasons why Bitcoin is poised to carry on its fresh bullishness. Above all, the economic landscape appears to be uncertain about its future facing slowing GDP numbers that are posing the growing threat of a recession around the corner while the Federal Reserve is also tightening monetary policy that will thoroughly cap growth. Bitcoin and crypto assets, as alternatives to other current investment opportunities, display uncorrelated and asymmetric return profiles and are emerging as the supreme hedge against market shortfalls and contractions as well as devaluation of global currencies. Looking at the hourly chart for the BTC/USD pair on Coinbase (see below), it looks positioned for Bitcoin to continue its strong uptrend through the end of the month into May. Best case scenario would be seeing it reach $6,000 before then, and worst case scenario would be prices skidding well below $5,000 to break the trend and fall around $4,600. As fears of a slow down and recession looms in the minds of investors, I’m confident in the bull case for Bitcoin and the greater crypto asset market to continue and prolong its current bull market.
Notable Bits of News:
Cryptocurrencies are ‘clearly shaking the system,’ IMF’s Lagarde says – (CNBC) The Managing Director of the International Monetary Fund, Christine Lagarde, urged that the emerging crypto industry should be monitored and regulated in hopes of limiting the disruption caused to global stability. Speaking in her interview with CNBC (below), Lagarde regarding the disruptiveness of the technology expressed her view that it is already changing the way companies do business. Notably, she was quoted saying that she thinks “distributed ledger technology, whether you call it crypto, assets, currencies, or whatever…” is so powerful that too much innovation could apparently “shake the system so much that we would lose the stability.”
A Unique Look Under the Hood of One of the World’s Most Comprehensive Crypto Insurance Programs – (Coinbase Blog) Coinbase, the major San Francisco-based exchange, has held an insurance policy placed by Lloyd’s registered broker Aon and sourced from a global group of US and UK insurance companies (including certain Lloyd’s of London syndicates) covering its hot wallet crypto holdings since mid-November 2013. In particular, the policy was to protect against what the exchange identifies as being the highest-risk consumer loss scenario in the crypto industry – theft by hacking. The details have been disclosed according to Coinbase’s Chief Information Security Officer (CISO) Phillip Martin who outlined the two chief insurance classes involved in crypto insurance (Crime and Specie marketplaces) noting, “Importantly, that means that a Specie policy would not be responsive to a loss of funds that occurred due to an on-blockchain failure (e.g. a vulnerable smart contract multi-sig implementation).” He provides insight and an analogy to explain the distinction between the two classes, proposing that while Crime policies insure “value in transit,” Specie policies cover “value at rest.”
Numerai Token Sale Raises $11 Million From VC Firms Paradigm, Placeholder – (Coindesk) Mentioned in last month’s post with incredible timing, Numerai, made headlines with prominent crypto VC firms purchasing the NMR token directly to invest in the Erasure protocol rather than its parent startup. The opportunity was attractive to the VCs who liked Numerai for its existing track record, strong team, and community of 44,000 registered users with weekly data science competitions on its current platform. Erasure, the decentralized offspring of Numerai’s existing marketplace, is said to launch later this year according to the founder, Richard Craib. Erasure.xxx will offer users the ability to see how much was staked, paid, greifed, and more allowing them to track how much hedge funds spend buying predictions on its marketplace including Numerai’s own fund itself to draw more users to Erasure, Numerai, and the NMR token.
Chicago Mayor Says Crypto Adoption Could Be Inevitable – (Forbes) Chicago’s mayor, Rahm Emanuel, at a meeting discussing the city’s FinTech movement explained his position on the community saying, “I think we have something really unique and special here in Chicago.” Emanuel mentioned he thinks an alternative currency dealing with the debt markets is going to happen at some point in the future too. The purpose of the meeting was to talk about how to base Chicago as a top hub, or in more straightforward language as “The Crypto Trading Capital of the World.” He certainly thinks the city has the makings and necessities for crypto innovation success. Emanuel also went on the record to add that he believes the trends show that the movement has an affirmative future, especially in Chicago with its rich trading history. The city also made crypto headlines recently on CryptoPotato with the announcement from the popular crypto asset exchange BitMEX partnering up with Chicago-based Trading Technologies (TT).
Square is Staffing Up For a New Cryptocurrency Unit – (Fortune) Jack Dorsey, CEO of Square and Twitter, as one of bitcoin’s most distinguished advocates tweeted “I love this technology and community. I’ve found it to be deeply principled, purpose-driven, edgy, and…really weird. Just like the early Internet! I’m excited to get to learn more directly.” This came after another tweet announcing that the firm was hiring to create a team of 3-4 crypto engineers and 1 designer to work full-time on open-source contributions to the bitcoin and crypto asset ecosystem for Square Crypto. The motto of Square’s first open source initiative is “Vires in numeris.” (Latin meaning, “Strength in numbers.”) Appropriately, it will be independent of their business objectives and will focus on “what’s best for the crypto community and individual economic empowerment,” with all resulting work being open and free.
Kraken is Delisting BSV – (Kraken Blog) An official announcement from another U.S.-based crypto asset exchange, Kraken, posted on its blog saying alongside upstanding members of the community and in consultation with their users their decision to delist Bitcoin SV and included the opinion poll results taken from Twitter. The news comes after months of community criticisms and scrutiny over the supporters and team behind Bitcoin SV, specifically taking offense to fraudulent claims and threats to various members of the crypto community with lawsuits for speaking out about their doubts regarding the true identity of Satoshi Nakamoto. Kraken joined other exchanges and wallet operators in ceasing support like ShapeShift, Binance, SatoWallet, and Blockchain. Jesse Powell, Kraken’s CEO, also hinted in another interview that the exchange will probably start listing two coins a month beginning next month in May.
Goldman’s Trading Floor Is Going Open-Source—Kind of – (Wall Street Journal) The Wall Street firm plans to release some of the code that its traders and engineers use to price securities and analyze and manage risk. Just from what has been said in other news and reading by reputation, Goldman does not seem like the type that would shed its trademark secrecy and it could not care less about the loyalty of code-driven traders. This news comes as there has been an open-source push across the entire financial industry, thanks to bitcoin and blockchain, but personally it just seems to be geared for their own in-house technology resources to boost efficiency, enhance speed, and otherwise cut cost while charging clients more fees. Going open-source eliminates the need for as many analysts and back office employees, plus given the rise of automation and artificial intelligence it will help simplify the work for remaining employees as well as allow them to perform other functions outside of their traditional scopes.