Crypto Market Recap 01/16/17

Crypto Markets Crash But The Future Is Bright

Adoption And Free Enterprise

Crypto markets are on a downtrend and Kraken’s blackout stuck fear in the hearts of traders. That being said, blockchain implementations are on the rise with both IBM and Unicef formalizing respective projects that should lead to the continued adoption of 2018’s favorite new technology.

• Crypto Market Finally Cools Down: Cryptocurrency markets sharply declined this morning following a plethora of news from South Korea and China that appears to have deeply shaken market sentiment. Korean authorities have reported new fines for cryptocurrency traders who are unwilling to use personal identification data. China has announced that they’re expanding the range of their crypto sanctions reportedly to “end” centralized trading of all cryptocurrencies. The total cryptocurrency market cap has fallen as much as $174B at the time of writing, with current values at $578.2B at the time of writing, levels we last saw at the end of December. Today’s movements again show how a young and burgeoning market is extremely sensitive to the changing winds of sentiment. Notable features of the current dip are the relative uniformity of the pullout across all coins, perhaps solidifying that even in times of almost totally unwarranted panic, speculators have started to see alt coins as equal to the traditional giants in terms of their penchant for risk.
• Unicef Investing In Blockchain For Good: The United Nations is continuing it’s interest in blockchain technology aiding in world development by announcing a fund that will invest in early stage blockchain startups aimed at helping children. The program is offering equity free investments ranging from $50–90,000, stating in a press release, “We are interested in companies that use distributed ledger tech in new, groundbreaking, ways that are scalable, and globally applicable.” The initiative comes from the UNICEF Innovation fund, which will also offer guidance to projects that make it through the selection process. Chris Fabian, in charge of the UNICEF Office of Innovation Ventures, states, “I believe that there is a very near future where we will be using blockchain, the bitcoin blockchain maybe, other distributed ledgers, to do central operational tasks.”
• Mike Novogratz Announces Vision For Crypto Bank: Former hedge fund manager and notable Billionaire Mike Novogratz has announced that he plans to develop a merchant bank that sources have dubbed “[the] Goldman Sachs of crypto.” Under the name Galaxy digital, the bank will be a “full service, digital assets merchant” bank. For his part, Novogratz is reportedly moving all of his roughly $400MM in crypto assets as well as stakes in Ripple Labs, Bitstamp, and Xapo over to the project. As per a press release, the firm will trade crypto assets and partake in exchange arbitrage opportunities, make equity and venture investments across the blockchain ecosystem, and offer advisory services and asset management. Notably, Novogratz had previously announced that he was going to launch a $500MM crypto asset hedge fund, shelving the plan last month of concerns of market conditions. As the crypto world inevitably finds its way towards more stability and regulation, giant gaps in the market (like the need for crypto focused investment banking) are going to be filled at an increasing pace.
• Kraken Gives The Crypto World A Scare: The San Francisco based cryptocurrency exchange Kraken was down for over 24 hrs this week during a period of maintenance the organization had told users would take only two hours. As time went on, Kraken made a relatively paltry attempt to ally customer fears by tweeting, “We are in the final stage of installing the upgrade now — We are getting close but hard to give an exact ETA since it depends on how the final testing goes.” When the platform went back online, several changes were apparent, such as new account verification being relegated to the realm of “lowest priority.” In an effort to try and appease customer complaints, Kraken has offered free trades to users affected by the shutdown. The 5th largest cryptocurrency exchange being halted by what their development team described as “an elusive bug” is a real indicator of the many growing pains endemic to any new marketplace, especially one that’s experienced unprecedented levels of growth in such a short period of time.
• Vitalik Ready To Deliver On The Promise of ETH: Vitalik Buterin, famed creator of Ethereum, has announced to the world that 2018 “will be the year of action” as the team begins to turn a number of their projects “into real, live working code.” Vitalik was quick to criticize the unbelievable growth experienced by cryptocurrency markets, stating that, …”hype in crypto…has far exceeded the reality of what existing blockchain systems can offer.” He went on to say, “I expect 2018, at least within the Ethereum space that I’m best able to speak about, will be the year of action. It will be the year where all of the ideas around scalability, Plasma, proof-of-stake, and privacy that we have painstakingly worked on and refined over the last four years are finally going to turn into real, live working code that you can play around in a highly mature form in some cases on testnets, and in some key cases even on the public mainnet. Everyone in the Ethereum space recognizes that the world is watching, and we are ready to deliver.” These advancements suggest that a reality of Ethereum being able to handle as many transactions as Visa is not altogether far away. Considering that the Ethereum network serves as the backbone platform for the vast majority of tokens, major advancements and continued developments like these portend extremely well for the future of blockchain technology and its ability to scale to levels that will truly begin to change the way the world moves information.
• Ameri Holdings Becomes Latest Corp To Hop On The Blockchain: One of the more amusing if not worrying indicators of the blockchain frenzy has been the amount of companies changing their name to include the word “blockchain” or making blockchain related announcements and seeing a stratospheric rise in stock value. The latest entrant to the blockchain moniker party is Ameri Holdings, a “digital cloud” company purporting to adopt the technology in manner that according to a press release will “bring greater efficiency and transparency to the supply chain.” According to a report on the matter by Seeking Alpha, “We believe that nothing has changed in the business fundamentals of AMRH. The company’s revenue growth has stagnated over the past three quarters — In addition, losses have continued to grow on surging general and administrative expenses. Cash flow has been negative recently, and cash levels stand at $0.8 million — Working capital is a significant concern.” Nonetheless, share prices rose 71% on the news of a press release laden with profitable “blockchain” terminology.
• Baidu Launches Blockchain As A Service Platform: Chinese search engine Baidu has launched a proprietary blockchain-as-a-service platform, said to be the most “user friendly” blockchain service. Dubbed Baidu Trust, users will be able to conduct and trace transactions with digital currency, bank credit management, insurance, financial auditing, and more. Baidu boasts that the technology has already been applied in asset securitization and exchange, going to on say they contributed to “the first asset-backed securities exchange products…in China.”
• Swiss Crypto Valley Association ICO Code of Conduct Gains Traction: Not for profit Swiss entity Crypto Valley Association has released a code of conduct for ICO and token offerings that it hopes will serve as guidelines for best practice in the increasingly crowded crypto fundraising space. According to Luka Müller, chair of the policy and regulatory working group of the CVA, “…because of the rise in popularity of ICOs, new categories of contributors participate who are often unaware of the true nature of their investment, and the documentation published to accompany token launches often minimizes or ignores the associated risk.” The guidelines stress transparency and also suggest that those who breach the code could face regulatory action.
• Washington Can’t Handle Its Crypto Mining Boom: Douglas County in Washington state is feeling the pressure of cryptocurrency mining as people flock to its confines to take advantage of electricity that sells for 4 cents per kilowatt, vs an average of 7 in the rest of the nation. Port of Douglas County Economic Development Manager Ron Cridlebaugh stated “Our infrastructure is actually being put to the test. We’re full…It’s going to take some time to catch up because growth has been so quick.”
• Japanese E-Commerce Giant Launching Crypto Exchanges: Japanese E-commerce entity DMM group has launched their own cryptocurrency exchange called DMM Bitcoin following the release their mining operation in September of 2017. The exchange currently offers BTC, ETH, LTC, XEM, XRP, ETC, and BCH. The company had reportedly been planning on launching the exchange for months after increasing evidence of Japan’s new status of a supposed regulated cryptocurrency trading hub after the country released a method of official licensing for exchanges.
• IBM And Maersk Collaborating On Blockchain Shipping Solution: Global shipping colossus Maersk has teamed up with IBM, using their Hyperledger Fabric to create a blockchain to help keep a shared and trusted record of transactions. Interestingly, Maersk wants the platform to be collaborative in order to function most ideally, and in that vein the two entities have spun off the project into a seperate company in order to attract Maersk’s competitors to the technology. The as of yet nameless new company is awaiting regulatory approval. DuPont, Dow Chemical, and food processor Tetra Pak have already used an earlier version of this platform in addition to customs agents in Rotterdam and Houston. Interest is already budding for technology, with companies like General Motors, Procter & Gamble and more expressing early interest. According to IBM Global Industry senior vice president Bridget Van Kralingen, “Our joint venture with Maersk means we can now speed adoption of this exciting technology with the millions of organizations who play vital roles in one of the most complex and important networks in the world, the global supply chain.”
• Swift Investigating Blockchain For Post-Trade Processes: Swift, the group that powers the banking world’s international remittances, has signed an agreement with seven central security depositories to explore how blockchain technology can be used for post-trade processes. The agreement, known as the CSD Working Group of DLT, was announced between agencies in the U.S., RUssia, Switzerland, South Africa, Abu Dhabi, Argentina, and Chile. At this point in time, the agreement is more exploratory in nature, according to Swift Head of Standards Stephen Lindsay. He went on to say, “It’s a complex area, and there are regional variations in the way that it works, so one thing is to bring the CSDs around the world [together] to actually focus in on the commonalities…It’s not something where we’ve seen a lot of cooperation in the past, because different markets do things differently. But this is a chance to do something even more different.” Lindsay summarized things by saying the overall goal is to makes sure that post-trade processes are compatible with DLT technology, “…some of which are not broken.” It’s worth noting that the very premise of Swift is greatly threatened by the speed, security, and automation presented by blockchain technologies.

Regulation And Government

Venezuela continued its calls for adoption of its national cryptocurrency and Ukraine announced it is exploring its own digital currency although they clarified it will not necessarily be blockchain based. China may be gearing up for regulation round 2 as it goes after “exchange-like” services and South Korea continued it’s regulatory march forward.

• Venezuela Asks South American Nations To Embrace Its New Crypto: Venezuelan President Nicolas Maduro continues his fervent push for Venezuela oil backed cryptocurrency. Despite congress deeming the currencies issuance illegal, Maduro is pushing for all ten member nations of the Alba (Bolivarian Alliance for the Peoples of Our America — Treaty of Commerce of the Peoples) to adopt the Venezuelan Petro. The Venezuelan president is framing it as an opportunity for the nations to embrace the 21st century and unite around a common purpose. He went on to say, “I put on the table, brother governments of the ALBA, the proposal of the cryptocurrency, the petro, so that we assume it as one of the projects of the integration of the 21st century in a bold way, but also in a creative way.” Time will tell whether Venezuela can truly launch a government backed digital currency.
• US Financial Stability Oversight Council Forms Cryptocurrency Working Group: As cryptocurrency trading heats up in the United States, the government is beginning to signal a little more interest in regulating the market. Up until now the most critical pieces of “regulation” to come out of the United States are regulatory guidelines from SEC concerning ICOs. In a recent announcement, U.S Treasury Secretary Steve Mnuchin claimed the Financial Stability Oversight Council had formed a working group on cryptocurrencies. The expected outcome of the working group is still vague with Munchin eloquently stating, “We want to make sure that bad people cannot use these currencies to do bad things.” Munchin also clarified that the United States was not actively considering its own digital currency at this time.
• Russia Fights Itself As Crypto Fuels Debate: Russia is in a bit of a crossroads when it comes to cryptocurrency. In the future home of the CryptoRuble the Moscow’s Minister of Finance is all in on legalizing cryptocurrency trading as well as promoting cryptocurrency derivatives on Moscow’s stock exchange. Unfortunately Russia’s Central Bank isn’t as bullish on the proposal based on a statement by Russia’s Deputy Finance Minister Alexei Moiseev, “The Central Bank does not support our proposals to legalize crypto trading.” Despite the legislative back and forth, Moscow Exchange (MOEX) is eager to provide digital assets to the market after announcing, “We are ready to organize the trade of financial products that are in demand, provided sufficient legal protection is guaranteed.”
• Big Banks Keep Putting The Brakes On Crypto: Swedish bank Nordea seems to be taking the JP Morgan route and coming down hard on employees invested in cryptocurrency. Recent news suggests that a December internal memo, “forbids all their employees (at least in Sweden) to stop owning and trading $btc and other crypto currency. This applies to secretaries, IT personal [sic], cleaners and any bank staff employed by the company.” The statement has been regarded by some as overarching but given the banks overall stance on Bitcoin, with Nordea executives calling the cryptocurrency “a joke”, these kinds of issuances are perhaps not all too surprising. While companies like Goldman Sachs seem to at the very least entertaining the notion of cryptocurrency, banks like Nordea may risk being left behind.
• South Korea Continues Its Regulatory Frenzy: South Korea’s finance minister sent crypto traders into a panc amidst reports that the nation was planning a full out ban. While it turns out the government is not in fact implementing a ban on cryptocurrency trading, members of the South Korean government have been noted as claiming the cryptocurrency market is “overheated” and new actions suggest increasing regulation is on the horizon. South Korea has already required all crypto traders to stop using anonymous accounts to help ensure nefarious actors cannot fall through the cracks and has imposed standard anti money laundering laws. An official from a major South Korean Bank declared, “We’ve developed a system to introduce identifying virtual account customers in accordance with the government’s efforts to curb the cryptocurrency craze. However, we decided to scrap the service enabling the trade of digital tokens which has become a serious social issue.”
• China Ups The Regulation Ante: When it comes to regulation, China is still the only major nation to have imposed an outright ban on cryptocurrency exchanges. This largely led to Chinese citizens using other platforms such as Telegram to buy and trade cryptocurrencies as formal exchanges were no longer an option. The Chinese government is now catching up with the market and according to a Bloomberg report “the CCP is preparing to “target individuals and companies that provide market-making, settlement and clearing services for centralized trading.” China serves as an important use case as to whether cryptocurrencies decentralized nature truly makes regulation close to impossible.
• Arizona May Welcome Pure Crypto Taxes: While it is unlikely to pass, Arizona Bill 1091 would effectively allow Arizona citizens to pay their taxes in cryptocurrency. The bill suggests that the state would set up a “payment gateway” where cryptoasset holders would be able to directly pay with the assets they so choose. This kind of gateway could be enabled by existing companies like Coinbase or BitPay. Arizona would ultimately sell the redeemed cryptoassets into US dollars as the bill reads, “The department shall convert cryptocurrency payments to United States dollars at the prevailing rate within twenty-four hours after receipt and shall credit the taxpayer’s account with the converted dollar amount.” Whether or not the bill is passed, its existence demonstrates the dizzying pace of crypto adoption and regulators understanding that it’s time to create clear policies.
• Germany Believes Global Crypto Regulation Is The Only Way Forward: The director of Germany’s central bank Joachim Wuermeling has stated the cryptocurrencies need to be regulated at a global level, stating the need for heightened cooperation from countries around the world. To that end, he stated, “Effective regulation of virtual currencies would therefore only be achievable through the greatest possible international cooperation, because the regulatory power of nation states is obviously limited.” His remarks come at a time when cryptocurrency markets are reeling from increased regulatory action coming out of South Korea and China, with other nations all around the world making headlines with various warnings or bans. Wuermeling is the second European leader to appeal for greater cooperation in the regulatory space, after France’s finance minister Bruno Le Marie pushed for discussion around cryptocurrency reform at the next G20 economic summit. For certain, the underlying blockchain technology powering digital currency is growing at a far more rapid rate than global policy legislation, resulting in the not unsurprising scramble for government response as blockchain advancement stands to effect nearly all facets of industry.
• Ukraine Considering National Digital Currency: As part of its cashless economy project, the National Bank of Ukraine is considering a government sponsored digital currency to be known as the e-hryvnia. The government has clarified that the currency would not necessarily be a blockchain based cryptocurrency, although that is still up for discussion. As countries around the world continue to play with idea of digital currencies, it is likely that many of these will be blockchain based or use another form of distributed ledger technology.
• SEC Puts The Breaks On Bitcoin ETF: A bevy of organizations have revoked their applications to the SEC for Bitcoin ETF funds following concerns from the regulatory agency. According to fund managers who filed the applications, the SEC’s qualms stemmed from lack of liquidity in Bitcoin futures markets and the current contract prices. Angela Brickl, secretary of Direxion (who had filed for an ETF) stated, “On a call with the Staff on January 5, 2018, the Staff expressed concerns regarding the liquidity and valuation of the underlying instruments in which the Fund intends to primarily invest and requested that the Trust withdraw the Amendment until such time as these concerns are resolved.” With Goldman Sachs’s announcement of an upcoming cryptocurrency desk, we can expect a flood of other investment banks joining the market soon, which may parlay into an inevitable explosion of new cryptocurrency investment vehicles. Regulatory agents will have to balance the tenuous notion of protecting consumers with the potential upside of massive capital infusion.
• LBChain Initiative Is Lithuania’s Digital Foray Into Blockchain Regulation: Lithuania’s central bank has announced a new regulatory sandbox for startups working on blockchain projects. Dubbed the “LBChain”, the new endeavor will see the country create a platform around the technology for which companies can develop services in a fashion that is condoned by regulators. According to Marius Jurgilas of the central bank’s board, “Blockchain technology has a tremendous adaptation potential for innovations conducive to consumers in both the financial and public sectors. Giving room to regulated development of this technology would provide our country with particularly favorable opportunities for investment and attraction of talents as well as acceleration of advanced innovations.” Lithuania has previously taken a relatively mild stance on regulation, stating that ICOs should be assessed on a case by case basis.

Conclusion

Despite the recent “dip” in the crypto markets, which many would argue is simply part of crypto’s natural cycle and perhaps an expected outcome after weeks of unfathomable gains, the future of cryptocurrency and even more significantly blockchain technology is brighter than ever. IBM’s Hyperledger framework continues to be adopted the world over, and Unicef’s blockchain fund will enable entrepreneurs across the globe to spend ample time crafting blockchain tech for good. While scaling solutions will be needed for mass adoption, Vitalik Buterin and the Ethereum foundation seem up to the task based on Vitalik’s recent optimistic remarks.

The all out frenzy of activity has led governments to take cryptocurrency seriously and begin to enact tangible regulatory frameworks that will be needed for crypto to truly flourish. Germany’s global regulatory approach seems like the best avenue to encourage discourse and sensible regulation if nation states can truly band together. China is perhaps swinging too hard a hammer with a full out ban, but South Korea’s inclination to end anonymous trading and enforce verified accounts is an approach that could be rationally implemented by other governments. Meanwhile, Japan and several Eastern European nations (namely Belarus, Estonia, and Lithuania) embrace of cryptocurrency could set them up as future crypto powerhouses. The United States appears to be continuing its wait and see approach, which may prove fortuitous if they can properly integrate regulations after observing how markets are formalizing. That being said, at the state level there is plenty of activity from Arizona considering how citizens could pay their taxes in the cryptocurrency of their choice to Delaware, which is embracing blockchain tech for company incorporation. While we all believe 2017 was massive, it may prove to be but a little spark compared to the furious pace of change yet to dawn upon us.

To speak with Abacus regarding ICO strategy and implementation please contact david@theabacus.io.