.
Trust & Privacy
- Governments spying on citizens: Echelon, Snowden’s revelations, Huawei’s uncompetitive bids for 5G and other communications roll outs and CCP backing
- How WhatsApp’s privacy has discredited itself https://telegra.ph/Why-WhatsApp-Will-Never-Be-Secure-05-15
- Trust. The uniting theme is reducing need for trust between parties. Civilization is predicated upon trust. Humankind has developed by individuals continuously specialising in narrower and narrower areas of expertise and exchanging the product of their labour. Exchange between ancient people was limited by how much one could trust the counterparty. Development of law and court enabled exchange between a greater number of individuals because it required less trust in the counterparty by compensating with trust in the court’s ability to ensure the counterparty honours the exchange agreement. While now, for the first time in human history, using open networks bound by cryptography and free-market economics, we can participate in a much wider types of exchange with a much wider set of people without the requirement of trusting the counterparty, the middleman or the state.
- Google I/O 2019 most discussed topic was privacy. Google pushed back on Apple’s statement that Google offered free services in exchange for “surveillance”. Instead, Google proclaimed to providing secure, privacy-respecting services that everyone could afford [read: not carrying iPhone price tag]. For Web2 companies, building trust might be just as valuable as building a better product. Via AngelList’s newsletter as of 10 May 2019
Regulation
June 2019
- Venezuela and Russia actively against USD https://www.coindesk.com/venezuela-tries-to-avoid-us-sanctions-by-trading-in-rubles-and-crypto
- Kik Foundation reserving $10mn to force SEC to provide clarity on token sales. More on Kik https://www.coindesk.com/the-8-biggest-bombshells-from-the-secs-kik-ico-lawsuit
- Morgan Rockoons, a LocalBitcoins trader who was arrested in late 2018 for allegedly operating an unlicensed money transmitting business, has been sentenced to 21 months in prison according to the U.S. Attorney’s Office for the Southern District of California
May 2019
- FinCEN issued new guidance on how the Bank Secrecy Act (BSA) applies to cryptocurrencies and its users. Software wallet providers, multi-sig providers, decentralized exchanges, and other non-custodial services are not regulated as money transmitters.
Blockchains
- Technical comparison of most smart contact platforms https://github.com/dexon-foundation/wiki/wiki/Blockchain-Comparison
Bitcoin
- The only way for government to kill Bitcoin is to out compete it through a superior technology with greater incentives https://www.forbes.com/sites/ktorpey/2019/04/30/economist-shares-a-unique-take-on-how-governments-could-kill-bitcoin/?ss=crypto-blockchain#369099ee3cde
Mining
- Bitmain Discloses 88% Reduction In Own Bitcoin Mining Power https://www.coindesk.com/bitmain-discloses-88-drop-in-its-own-bitcoin-mining-power
- Bitcoin Mining is 80 Percent On Renewables. Average Miner ‘Running At A Loss’ https://bitcoinist.com/bitcoin-mining-renewable-coinshares/
Further reading:
Usage of crypto as money
- Square revenue $65mn from Bitcoin in 1Q19 https://www.reddit.com/r/CryptoCurrency/comments/bjmuq1/square_nearly_doubles_bitcoin_revenue_in_q1_year/
Stablecoins
- History of Tether https://messari.substack.com/p/tethered-to-risk-unqualified-opinions [p]
Trading strategies
June 2019
- Most VCs make money on C-round (scaling). In 2016 Bitcoin was in the C-round. Ethereum was in A-round. A-round has a 10–20% of survival chance. https://woobull.com/startup-investment-analogies-applied-to-alt-coins/
- Identify undervalued alts that are likely to receive love (e.g. a centralised company building on top of them) and sell for BTC at the top relative valuation
- Tokens with equity-like features that do not risk being forked
- Staking if there’s money left on the table
- IEOs have generated money if one participated (see the IEO section)
- Bitcoin bull market ahead of halving has not been caused by the halving https://messari.substack.com/p/halving-hot-takes-unqualified-opinions [p]
- Rebalancing at best provides a 5% improvement in portfolio performance. But at worst it gets to -50%. So better to not rebalance https://www.hodlbot.io/blog/should-you-rebalance-your-cryptocurrency-portfolio
DeFi
June 2019
Types of protocols: on-chain lending, lending on crypto exchanges and lending without self-custody with 3rd parties (including Bitcoin accounts), staking that involve some risks and are native to the blockchain / smart contract, DEXs (UniSwap) and others
Benefits of on-chain lending: auditable, transparent, always have the custody
On-chain lending players: Compound, Dharma, Nuo, dYdX
Comparison: lending terms, lending rates, collaterisation requirement, audit of contract.
NUO
- Nuo.Network, a non-custodial lending protocol backed by ConsenSys Ventures
- margin called with a 10% buffer
- the interest rate is not promised, but subject to others taking up the loans
- For creating a loan order, you need 1.5x of the loan amount as collateral
- You will be required to pay the entire premium regardless if you pay back your loan early.
- https://nuoscan.io/ — very important to check. For REP even though the advertised rate is 6%, it is caused by a single erroneous loan which paid 60 days of 7% interest in only a few days, hence massively skewing the results that otherwise show an average loan for less than 1%
Best BTC lending
- Poloniex offers 3% lending normally with occasional peaks
- Blockfi pays interest monthly but pro rata for average shareholding. You are not bound by any terms there. Funds are lent to large institutions. 6.2% is the compound annual rate. Otherwise it’s 5%
Crypto valuations
June 2019
- Arguement for why utility tokens are worthless, including work tokens that can be abstracted away https://medium.com/@gary_28206/utility-tokens-will-asymptotically-approach-zero-fc16123d999d
- MV=PT is not an equation but an identity. Hence one can’t calculate the network worth using this equation https://medium.com/@gary_28206/the-sheer-nonsense-of-the-quantity-theory-of-money-79244322c5ee
- Value Capture & Quantification: Cryptocapital vs Cryptocommodities https://static1.squarespace.com/static/5a479ee3b7411c6102f75729/t/5cc352619055370001785494/1556304481918/Value+Capture+and+Quantification_+Cryptocapital+vs+Cryptocommodities.pdf
- Valuation depot https://www.kanaandkatana.com/valuation-depot?ref=tokendaily
Venture capital
Venture capital vs crypto
- Trading strategies, such as rebalancing and indexing work well in developed public markets. VCs that have followed this approach (e.g. Ycombinator) have generated some of the lowest returns in the industry, even not accounting for risk, time & lockup. Best funds focus on 20–30 investments as beyond that there’s really no time to go deep in DD / running the company. Hence Multicoin says that they can just have c. 10 given the liquidity. Hence index funds are not expected to generate outsized returns in this space. The strategy here is to identify winners and stick to them. But then there’s also the valuation aspect of valuations going up and down. So it only makes sense when the price has outstripped the natural valuation of the token. But because you can always buy back into the asset, it may mean that now you get a bigger return by trading. Looking into the past,
Overview of stages
- Seed stage. A founding team that has a MVP. They are valued $1–3mn. They raise $10k-$2mn financing, reaching $3–6mn valuation. Money for hires outside of the founding team, market research and product design. Angels dominate here expecting 3–4x returns (12–15% annualized)
- Series A. With established users, revenue and a strategy for monetisation. Less than 50% of seed companies get here. $2–15mn financing at $10–15mn pre-money valuation. Money for more sales channels. Expected 3x returns (10–12% annualized)
- Series B. Is to get company past development stage. Proven that are prepared to scale successfully. B is to build the company to manage that higher demand. Building up on expansive hires: customer service, biz dev, sales, advertising etc. $7–10mn raised here at $30–60mn
- Series C. Scale. Successful companies that want to expand into new products or markets, or acquire other companies. HF, PE come into play here. $100mn+ in funding at $100mn valuation. Used to boost valuation before IPO. Valuation based on hard data. Expected 2x returns (6–8% annualized). Valuations $100–120mn
- Conclusion: most assets are overvalued in crypto if looking at these terms.
Correlation between crypto returns
- During 10–12 May 2019 Bitcoin grew and pretty much everything else fell vs Bitcoin
- Correlation tool https://coinmetrics.io/correlation-charts/#assets=btc-ltc,btc-salt,btc-rhoc,btc-ethos,btc-btcp,aion-btc,btc-ppt,btc-drgn,btc-fun,btc-icx,btc-xem,btc-gas,btc-eth,eth-ltc,eth-salt,eth-rhoc,eth-ethos,btcp-eth,aion-eth,eth-ppt,drgn-eth,eth-fun,eth-icx,eth-xem,eth-gas
- https://www.hodlbot.io/blog/cryptocurrency-correlations-in-2019
- https://bitinfocharts.com/correlation.html
- Bitcoin (BTC) exhibited the highest correlation in USD with other assets indicating that it is the bellwether of the industry. BTC correlations decreased, while USD correlations increased (?)
- High USD correlation supports BTC-denominated trading of alts, because if the correlation is 1, it means that for a 5% BTC price increase in USD, the alts will also increase by 5%, thus the BTC-denominated price remaining unchanged.
- High BTC correlation means that if ETH grows by 5% in BTC value, another alt will grow by 5% in BTC value. This is a measure of how homogeneous altcoin movements are. If they are homogeneous, you can just use an index and not care. If they are not homogeneous, you should pick altcoins individually. So if BTC correlation is low, then one altcoin’s price movement in BTC does not impact the other. So all of them are on their own.
- My question is whether BTC USD return is correlated with Altcoin BTC return. We know that BTC USD return is correlated with Altcoin USD return but not perfectly. So the difference could be due to alt BTC price changing inversely
- There is a downward trend since late 2017 in BTC-denominated alt returns. Until Mar-19 it was 0.24. Means that if one fell others fell also but not by as much.
- But then From 2018 to 2019, the average correlation coefficient across the top 200 cryptocurrencies by market cap decreased from 0.89 to 0.58. in a sideways market
- https://info.binance.com/en/research/marketresearch/crypto-correlations.html
- So we know that over 1-year periods only hand-picking assets can deliver growth in BTC. So the timeframe should be shorter. We also know that there is a weak yet
Indexes
- ROI before mid-2017 — BTC same as funds
- ROI after mid-2017, having invested before mid-2017-altcoins up due to Ethereum
- ROI after mid-2017, having invested after mid-2017-BTC up
Market sentiment
Exchanges
June 2019
- Poloniex socialised a loss of 1,800 BTC ($13.5mn) amongst margin lenders due to a CLAMs price crash
- Of the ten biggest Bitcoin exchanges according to Bitwise, nine have U.S. Department of the Treasury Money Services Business Licenses and six have New York BitLicenses. Arbitrage on the exchanges was extremely quick too, with 50% of 1% discrepancies gone in one second and 90% in 49 seconds. via Messari
- The high volume ($1bn per day at its peak) of bitcoin at the CME futures market indicates that when inflated volumes are removed, a relatively large portion of the bitcoin volume, at least that coming from the U.S., is transparent and strictly regulated
May 2019
- State of derivatives trading https://messari.substack.com/p/crypto-derivatives-unqualified-opinions
- Kraken has opened up a minuscule round in an effort to raise approximately $10Mn at a $4Bn valuation, similar to what it sought in 2018. This time around, the exchange is parting ways with a mere 0.255% equity on a third-party platform in its effort to also onboard smaller investors with a ticket size of only $1000
- May-19 Bitfinex managed to raise $1bn to recover $850mn missing
- https://www.theblockcrypto.com/2019/05/14/bancor-had-a-front-running-problem-so-it-hired-one-of-the-manipulators-to-fix-it/ and https://arxiv.org/pdf/1904.05234.pdf paper on DEXs
- Binance holds 350,000 BTC for customers worth $2bn
State-free money
- Mike Novogratz Says Bitcoin Won the War of Cryptocurrencies. “I feel better about Bitcoin today than I have at any time in my career,” Novogratz said. https://www.bloomberg.com/news/articles/2019-05-08/mike-novogratz-says-bitcoin-won-the-war-of-cryptocurrencies
- https://uncommoncore.co/why-monetary-maximalism-could-fall-short-of-expectations/
- https://www.theblockcrypto.com/2019/02/15/rehypothecation-btcs-path-to-becoming-king-of-collateral/
Staking, inflation etc
- In-depth look into staking https://messari.substack.com/p/staking-on-eth-20-and-its-frenemies
Money inflows
June 2019
- https://twitter.com/KyleSamani/status/1143968313359437824 — for indicators of retail inflows
- https://www.tokenanalyst.io/exchange — for exchange flows
- Retail addresses remain steady inflation-adjusted. Over 26% of circulating supply, $36Bn worth of Bitcoin, now sit in addresses that have a balance of 1000–10k BTC. In August 2018 when Bitcoin was also at $8000, these ‘Firm Size’ addresses held under 20% of the circulating supply showing a sharp accumulation of nearly 7% in less than a year. But what is notable is the long-term trend that on-chain data shows since the start of the bear market in January 2018. Since then, 955k Bitcoins have been minted through inflation as a reward to miners. For the same period, firm size addresses have slurped up half the new market supply. Via Diar
- $GBTC Grayscale Bitcoin Trust accumulated 11,236 bitcoin in April alone. Currently 54,000 bitcoin are mined per month. Right now, the trust is buying up 21% of the new supply of bitcoin. In a year, the halving will double that number to 42% of the supply.
May 2019
- 47% of institutions believe digital assets have a place in their investment portfolios. 22% of institutional investors already own digital assets https://www.crowdfundinsider.com/2019/05/147120-fidelity-22-of-institutional-investors-own-digital-assets-more-are-interested/
IEO
June 2019
- Return vs first traded exchange date has been mostly negative for both ICOs and IEOs. The returns for those participating in ICOs and IEOs have been much better and often positive
- IEO stats https://blog.bitmex.com/initial-exchange-offerings/
May 2019
ICO
June 2019
Infrastructure
- Overview of digital asset custody https://medium.com/proofofcapital/digital-asset-custody-primer-and-landscape-a88979e05115
Interesting projects
- Amoveo — 3rd solution to the Oracle problem after Augur and LINK
Augur
- May-19. Augur’s REP token is to be delisted from Poloniex for US citizens as it’s deemed to be a security
Grow BTC value
- Currencies that are used for money raising — yes! BTC, ETH (ICO), BNB, HT etc (IEO)
- From all of the below strategies I learned to (1) follow HMA for BTC price, (2) follow HMA for ALTs and try looking at BMP for alts in total and individual or look at the guy’s shrimpy portfolio, (3) apply HMA to the assets I want to buy to see if it’s a good time to do so & backtest. Apply HMA when deciding when to sell. I learned that you should also refit the parameters of the HMA so that they work best for the current markets. I could try to borrow that guys HMA to start with
BMP Strategy 1.0. https://www.etherschtroumpf.money/
- BTC Macro Trend (Super Guppy) is a combination of exponential moving averages designed to signal when price action flips from bearish to bullish and vice versa https://www.investopedia.com/terms/g/guppy-multiple-moving-average.asp
- But I found HMA to be a better signal for buying & selling BTC than SuperGuppy
- BMP is Buy Market Percentage, calculated by TurtleBC, the graph shows % of alts that are a “buy”. Important to use the USD one, not the BTC one as the correlations are falling. This is a strategy for momentum trading that relies on things like moving averages. BMP measures the percentage of bulls in the market https://www.investopedia.com/articles/trading/08/turtle-trading.asp and https://bigpicture.typepad.com/comments/files/turtlerules.pdf
- Hull Moving Average reduces lag compared to other moving averages (like SMA and EMA) by giving more weight to latest price movements
- This strategy is using high time frames. You will never catch bottoms and tops but you should be able to follow it with minimal daily time investment.
- https://www.turtlebc.com/ looked at their signals, most of which are now free. In their own self-reported success rate for signals the rate is in the 25%-50% range, which is reasonable for professional traders who minimise losses on their losers and let their winners pull the overall account into the green with their larger magnitude.
- For the first time also looked at some other signal groups in Telegram and most of them do not even publish their losses and thus position themselves as sharing constantly profitable alerts. Especially I liked when their targets were achieved within 30 min of the alert being sent, or otherwise when it was achieved after 60 days following lower lows.
With further analysis
- Projects that fell a lot in USD value, or fell in BTC value for currencies
- Short overvalued cryptos
- Projects that did well in preceding year — BNB, LINK. But not without further analysis
Not really working
- exposure to alts if BTC dominance falls by over 10%. Sometimes it’s triggered wrongly so not really a strong indicator
- ICOs. But many have caps of upto 3k USD. So only those that don’t have caps. Require much maintenance to monitor when go live on exchange, KYC etc https://icodrops.com/ico-stats/
- Projects that are used as money — Does not really explain much due to projects like XRP, DASH, NEO, NEM etc
Binance
- May-19
- Picolo research: A significant rise in MV/Vol multiple (from 3.67 to 8.10), with markets perceiving higher valuations of exchanges on the back of IEO hype. Number of employees doubled from 400+ to 800+ signalling aggressive hiring for future growth. https://picoloresearch.com/64/binance-bnb
