Notes from a panel on the cryptocurrency derivatives market in 2020, featuring our Head of Research Ori Cohen.

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Amber: In recent years, the world has seen many macro-changes, including Brexit, oil price changes, protests, Covid-19, etc. What’s going on?

Ori: The world has become crazy, and volatility is how we measure the craziness. Crypto volatility is historically very high. The options market is the only tool that can protect an investor from this type of volatility, but only if they use it right. However, it can emphasize the problem with volatility if used incorrectly as well.

Uriel: The market conditions are looking bullish for Bitcoin and digital assets. The macro conditions are becoming more and more attractive (for Bitcoin), with all the money printing going on. In the next 5–10 years, we are bullish on Bitcoin and digital assets. However, the volatility of trying to trade assets such as BTC is very high and makes trading this difficult. …

A New hedging product for Bitcoin miners

Recently, FTX released its new product: hashrate futures. The arrival of exchange-traded futures presents an interesting tool for miners to be able to hedge out changes in future difficulty and also gives speculators the ability to bet on the future of Bitcoin’s mining difficulty.

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FTX Hashrate Q3 Futures Chart

According to FTX, hashrate futures are futures that expire to the average BTC mining difficulty over a period of time, which means that they roughly represent the total hash power being used to mine BTC. FTX hashrate futures are calculated at expiry by averaging the difficulties of each block during the quarter and dividing by 1 trillion. The number is divided by a trillion, because the difficulty is in the trillions so this makes the index much easier to work with. Technically speaking, they are not measuring the future hashrate but rather the difficulty of mining the block. However, given that Bitcoin’s mining difficulty adjusts to match a 10 minute block time, the average hashrate will generally be proportional to average difficulty and thus, difficulty futures should behave similar to hashrate futures. Despite this correlation, difficulty is not a perfect solution for this, as it is adjusted every 2,016 blocks (~2 weeks), meaning that it is difficult to price in the beginning part of the contract. …

Notes from a panel on the state of the derivatives market, featuring our CEO Roei Levav

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Challenges in the Industry

  • Black Thursday
  • Death spiral situation because it was collateralized in BTC
  • High leverage
  • OSL Perspective — OSL’s parent company is a publicly listed company, audited by PWC. They want to see a continued maturing of the space.
  • Everyone loves retail money — Yet, it’s still more about engaging more sophisticated, institutional counterparts and mature the space. We need to continue to build world class infrastructure, professional services.
  • Michael: We probably need to get one product right first — Professional money understood that collateralizing with BTC is dangerous and needed to be moved elsewhere. …

How Bitcoin fits into the Austrian Business Cycle and Monetary Framework

Austrian economics and Bitcoin have been tied together since the very early days of the Bitcoin community, largely because they both draw in a libertarian-leaning audience. In fact, I first became interested in Bitcoin because of my passion for Austrian economics. Since then, Bitcoin and crypto have seen a huge change in their communities, and the prevalence and understanding of Austrian economics has since decreased significantly in crypto circles. As we are now in a time of rapid change and economic panic, much like when Bitcoin came into inception, it is fitting to bring Austrian economics back into the spotlight.

Early Bitcoiners and the Cypherpunks

When I first entered the Bitcoin space in 2014 by joining the Bitcoin Association of Berkeley, now known as Blockchain at Berkeley, many of the people I encountered were drawn to the concept of Bitcoin because of its anti-establishment nature as a decentralized currency. At the time, Bitcoin was seen not only as digital gold but also as peer-to-peer cash, in the sense that startups were mostly building products like micropayments and payment processors for Bitcoin and had hopes that Bitcoin would be used for payment with everyday things like a cup of coffee. Nowadays the digital gold narrative is stronger than the p2p currency narrative, as price volatility, transaction fees, and concerns about deflation have possibly made the goal of becoming a global p2p cash unviable. But this does not mean that the libertarian culture of the Bitcoin community has died; nor does it mean that everyone has given up on the dream of hyperbitcoinization and Bitcoin as p2p cash. …

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Efficient Frontier is proud to announce that we are opening our Hong Kong office with our new team member, Justin Leung. Until recently, our primary focus was on Western markets, as we come from the traditional capital markets and wanted to play in more familiar waters. In the recent two quarters, however, we have begun to expand our efforts in proprietary trading in derivatives markets, thus naturally leading us to Asia. In this short span of time, we’ve rapidly scaled our team and are now trading over $1 billion every week.

Reflections on Meridian, Mexico City and real-world impact

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Going to Meridian, the first-ever Stellar conference, I honestly had no idea what to expect. Before attending, I knew little about Mexico City, the Stellar ecosystem, and the Latin America cryptocurrency ecosystem. I can only say I was pleasantly surprised by the vibrant community and the kind people I met throughout the experience. …

Reviewing and reflecting on last year’s Crypto-Economics Security Conference

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If you haven’t yet heard, the Cryptoeconomics Security Conference is happening again from October 10–11, 2018 as part of SF Blockchain Week!

Last year, Blockchain at Berkeley began CESC as part of an effort to bring a more academic presence to the space. We were tired of all these business conferences shilling us with poor projects and low-quality presentations. To address this, we envisioned an event that brought the best academic talent in the space together to discuss actual technical content. In this article, we’ll review four presentations that were presented during CESC 17 (there are twenty-six in total; I just chose four at random). …

Exploring areas of intersection between Islamic Finance and Blockchain

By Andrew Tu and Maaz Uddin

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Just as blockchain technology shows great promise for the financial services industry in general, it could also significantly improve processes within the Islamic finance industry. In this first article, we will be introducing Islamic finance and discussing several potential use cases for blockchain (which many within financial services prefer to call decentralized ledger technology) within the Islamic finance industry.

Introduction to Islamic Finance

Islamic finance is financing activity that complies with the Shariah (Islamic law), which prohibits riba, or usury, and investment into businesses that provide un-Islamic goods and services, such as pork and alcohol. Because of the prohibition on interest, Islamic financing models should differ significantly from Western models. (There is a minority opinion that usury is not equivalent to interest, but that is beyond the scope of this article.) Ideally, Islamic finance is designed to be ethical and emphasize profit and risk sharing, with a focus on social good maximization rather than profit maximization. However, for a multitude of reasons, the usage of true profit-loss-sharing contracts, namely musharakah and mudarabah, has decreased significantly, while fixed-return financial contracts such as murabahah are the primary methods of Islamic financing.¹ The modern Islamic finance industry is in its infancy in comparison to Western finance, having developed mostly in the wake of the Islamic revivalist movements of the 1970s. However, the roots of modern Islamic finance lie in the Islamic Golden Age, during which entrepreneurs and traders of the then flourishing Caliphate developed many different financial and economic models.² As of the end of 2017, the Islamic finance industry was estimated to be around $2.1 trillion, making up 1–2% of global financial assets.³ Due to recent negative economic developments in the GCC countries, as well as Turkey and Iran, the rate of growth of Islamic finance is expected to slow to 5% in 2018, slower than the double-digit rate growth of the previous decade and around the same rate of growth as traditional finance.⁴ …


Andrew Tu

Partial f | Cal 18 | Ex-Head of Marketing for Blockchain at Berkeley

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