Questions on the Cryptocurrency Space: August 2020
Rather than a full-fledged article, I will share quick thoughts on the cryptocurrency space and mostly end up asking a bunch of questions in the hope of grabbing your attention with some of them.
Too many coins?
A quick glance at coinmarketcap.com shows 6,586 cryptocurrencies. A huge number but only 103 of them have over USD 100 million network value.
Does this mean innovation? Or is it too many low quality projects and a host of zombies?
Top Ten: Does the shift mean anything?
Today’s top ten includes Ripple, USD Tether, Crypto.com’s CRO and Binance Coin. 4 out of 10 have specific functions either as a Stablecoin or a utility. This is different from 2017 and before. Does this signal something for the cryptocurrency and/or blockchain space evolution?
Top Ten: Value investing?
If we assume Bitcoin is a value proposal, then what does it mean to have Bitcoin Cash, Litecoin and Bitcoin SV also on the list?
If they are considered somewhat equally valuable, then why are all together only USD 12 billion versus Bitcoin’s USD 209 billion?
If they are not that competitive, why are other coins not higher up in their place?
Does Bitcoin enjoy a special privilege due to its scarcity? There are others as well.
Does Bitcoin enjoy a special privilege due to its decentralization? Same again.
Does Bitcoin enjoy a special privilege due to its technology? No.
Surely, the network effect is there and it is absolutely critical. But yet again, I will rephrase the question: Does the Bitcoin have inherent qualities that structurally stand apart from other coins to make it stand apart this much from others?
I am actually content to accept that the beauty is in the beholder’s eye and such that Bitcoin is valuable because we think it should be that way.
I am not arguing whether this is a fair assessment but it is perfectly acceptable.
Beware the Dollar Overdone?
All risk assets are behaving similarly. Dollar goes down, equities go up. And gold as well.. And cryptocurrencies too..
Is this trade too outstretched now?
If and when this trade breaks down, will all assets react in the same manner?
Is the lack of regulation globally helping to create price arbitrage in the cryptocurrency space?
Exchange Consolidation Strategy: Will that day ever come?
Referring back to coinmarketcap.com again, there are over 330 spot exchanges and 14 derivatives exchanges. These are the ones that share data with the website. Therefore, the actual number of spot exchanges globally is higher. In addition, there are decentralized exchanges to increase the tally.
How come an asset that is native digital and essentially borderless have so many different trading outlets?
When will a consolidation take place?
Are the fiat currency on-ramping limitations driving this number up?
As likes of Binance, Coinbase and Kraken among others build multi country presence, when would these developments lead to industry consolidation?
Some De-Fi Next Steps
Remember Augur and Gnosis — two projects that were about prediction markets? Ultimately, this was decentralized finance in a way that let you create your event and put a price tag on it. So it could be betting on one extreme and insurance contract on the other.
Which of the current crop of DeFi platforms let you create your own synthetic contracts? Such as building your own investment product by integrating 50% S&P 500 with 50% Palladium.. If not, when?
Similarly, could DeFi lead to a burst of peer-to-peer lending? Could the blockchain space become a new banking platform where individuals take loan risk? How could this be enabled? What would regulators say?
I guess this is a time where I have more questions than answers. Sharing them with you is blissful. Perhaps you have some of the answers you could share?
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