Messari's Weekend Reads 😎 - Unqualified Opinions

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We’re keeping things light with some weekend reads.

But the one thing you absolutely must read this weekend is the presentation from Bitwise to the SEC this past week.

The company shows (clearly and thoroughly) how bitcoin market volumes are overstated by some ~95%. It’s an excellent analysis, and we’ve been getting roughly similar figures in recent weeks of our own team’s work. We’ll be updating many of our feeds in OnChainFx in the coming weeks to prioritize data from the following exchanges, and believe it’s incumbent on those whose volumes seem specious to prove otherwise, and open up their full order books to closer public inspection.

We agree with this slide and support these efforts:

-TBI

📚 Messari’s weekend reads:

Have a good weekend, y’all.

- The Messari Team

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Messari Compression Algorithm

Content and thoughts from around the web as summarized by the Messari team.

🎮 [Analysis] Can a crypto-gaming platform compete with BitMEX? - Aenigma Capital

Arthur Hayes, CEO of BitMEX, calls his exchange's account holders degenerate gamblers, and a new gaming studio wants to compete for those customers. In this report, Aenigma Capital profiles Hxro Games, a crypto startup building a gamified trading platform that offers parimutuel betting with a native utility token. Like BitMEX, but with even less pretense, Hxro Games aims to capitalize on the excitement of crypto price volatility. Aenigma Capital identifies the potential market opportunities that give startups like Hxro Games a chance to compete with BitMEX. (share or read more)

📈 [Analysis] Do Fundamentals Drive Cryptocurrency Prices? - Siddharth Bhambhwani, et al.

The relationship between the fundamental value in a digital asset's supporting protocol is tricky and often lost or dismissed almost entirely amidst in the irrational and bizzare behavior seen in certain sectors of nascent crypto-markets. But this analysis identifies two fundamental indicators that appear to consistently track with a cryptocurrency's price: expended computing power and adoption levels. Based on data for the most prominent digital assets determined by age and value, analysis shows a significant long-run relationship between prices and these two fundamental factors. (share or read more)

Quick Bits (Don't read that, I read it for you)

Choke Points (Exchange News)

  • 👀According to The Block, Bakkt has a post-series A valuation of $740 million. The high valuation is raising returns concerns for investors and parent company Intercontinental Exchange has agreed to a capital-refund window with external investors, putting pressure on the yet to launch Bitcoin ($BTC) futures platform. (share or read more)

  • 🆕 CoinMarketCap has launched two cryptocurrency benchmarks on Nasdaq, Bloomberg, Thomson Reuters, and Börse Stuttgart. The indices will be administrated by Solactive and track the top 200 cryptocurrencies by market capitalization. (share or read more)

Startup Signals (ICOs, Cryptos, and Startups)

  • 🗳️ Tezos ($XTZ) has completed the first round of voting for two protocol amendment procedures, Athens A and B. Athens A won out with 25,855 community votes, although half of the entire community abstained from voting. Athens A incorporates higher gas limits for increased transaction throughput and decreases roll sizes from 10,000 XTZ to 8,000 XTZ. (share or read more)

  • ⛏️ An expected abundance of hydroelectric power is drawing Bitmain into China, where the mining manufacturing firm is expected to place some 200,000 units worth $80 million. Bitmain is talking with farmers in China's southwestern provinces to set up the rigs which could earn about $7.7 million per month in total, according to CoinDesk calculations. (share or read more)

The Powers That Be (Legal/Reg/Policy)

  • 👨‍⚖️ Jared Rice, the former CEO of AriseBank, has plead guilty to a federal court following his November arrest by the FBI. Rice was charged with securities violations and wire fraud in his scamming of investors out of $4.2 million with claims of offering full banking and cryptocurrency services. He faces up to 20 years in prison and will be sentenced in July. (share or read more)

Did I miss something?

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The UBI Multiplier - Unqualified Opinions

universal basic income would cause a crypto stampede

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#YangGang

Democratic Presidential candidate Andrew Yang recently got me thinking about what sectors of the economy would get a boost if his plan for a $1000/mo “Freedom Dividend” (i.e. Universal Basic Income) for every American over the age of 18 were to get implemented. I conducted a very scientific poll of the crypto-community on how much of that $3T/year might flow into crypto:

My followers (almost all crypto folks) were unsurprisingly bullish on their assessments. Maybe the more interesting question is: “How much would UBI inflows move total crypto marketcap”?

New entrants to the crypto-community (or finance in general) might think that if $10B were used to buy bitcoin, then bitcoin’s marketcap might also go up by $10B.

Traders, though, will quickly tell you this is almost never the case, at all, in any market, ever. Here’s an example to illustrate…

Say the current price of some asset, YangCoin (YGC), is $10.00, and there are 1 million YGC in existence. The marketcap, price times supply, is $10 million.

Now someone places an order to sell 5 YGC for $10.10, and I decide to buy it. It costs me $10.10 * 5 = $50.50 to buy that order, and now the last price quote is $10.10.

Marketcap now reads as $10.10 * 1,000,000 = $10,100,000. I just spent fifty bucks to increase marketcap by a hundred grand!

(TBI Note: This is also why many crypto folks say “marketcap” is bullshit as currently defined, and that “liquidity” is what actually matters….keep your eyes on OnChainFX for new metrics dealing with this soon.)

Trading prices and marketcaps are often calculated in ways that smooths these extreme effects, but you get the idea: every incremental dollar invested will usually have a much bigger effect on marketcap than $1.

How much?

This has been an open question that analysts have tried to tackle at various times over the years. It’s impossible to tell exactly (as you’d have to have perfect knowledge of all exchange and mining activity ever), but there are reasonable ways to estimate it.

For example, in late 2017, Placeholder General Partner Chris Burniske used some basic assumptions and polls to estimate the number of new exchange users over a certain period, as well as how much crypto they tended to buy. He showed that new money yielded an “inflow-multiplier” effect of anywhere between 2x and 25x. That is, every dollar used to buy a cryptoasset contributed between $2 and $25 to total marketcap over the period he reviewed.

From a later post in 2018 that addressed this from the opposite perspective (net outflows due to tax payments), Chris and co-author Jonathan Cheesman wrote:

Historically, the fiat amplifier has been stubbornly hard to pinpoint given the fragmentation of fiat onramps, and lack of standardization around exchange reporting. As shown above, however, this tax crisis gives us an opportunity to quantify a large, specific flow and examine the fiat amplifier effect. And in crypto we’ve learned to never let a good crisis go to waste[…]

Turning to the current bear market, we can divide the loss in network value thus far in 2018 by the estimated tax liability outflow, to define a maximum fiat amplifier. Dividing the $590bn drop from early January highs to present, by our estimate of $14bn net outflows, yields a maximum fiat amplifier of 42x. If instead we use the more aggressive $29bn estimate of outflows, then the maximum fiat amplifier drops to 20x. It is important to recognize these amplifiers represent the maximum, as if net outflows have been greater due to FUD, then that would dampen this ratio by increasing the denominator.

Again, we’re looking at potentially double-digit multipliers. Goes to show you how little it would take (in institutional investment terms) to spark a new bull run.

How about a little more very-scientific twitter polling?

The crowd pegs the range at 4x-20x, which dovetails nicely with the estimates above. This is a huge range by financial standards, but like many things in crypto, just getting to a somewhat justifiable ballpark range means you’re probably way ahead of the pack.

Now, for fun, let’s go back to our original question: how would President Yang’s $1000/month “Freedom Dividend” - some $3 trillion per year - impact crypto markets?

If we neutered crypto-twitter’s bullish assessment, and assumed just 1% of UBI went to crypto (I know many of us would be auto-exchanging 100% of this garbage fiat), and assumed the multiplier was 10x, we’d see $30 billion per year in net new inflows with a $300 billion increase in marketcap.

That’s 3x today’s market size, and would get us back to levels not seen since Feb 2018.

Maybe it’s not institutional money, ICO FOMO, or a global macro event that triggers the Next Crypto Bull Market™ after all.

Maybe it’s “free” money that actually flows to people vs. banks.

Andrew Yang Freedom Dividend GIF - AndrewYang FreedomDividend Yang2020 GIFs

-Dan

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Messari Compression Algorithm

Content and thoughts from around the web as summarized by the Messari team.

🧾 [Analysis] Taxation, tokenization, and misinformation - Katya Fisher

Few things are more stressful than cryptocurrency tax filings, and the questions taxpayer have are nearly as numerous as the advice other professionals are willing to offer. But a lot of that advice needs to be taken with a proverbial grain of salt, explains Katya Fisher. As she addresses some specific advice she takes exception to published by a digital asset financial firm, she more broadly explains that not everything you read about taxes should be accepted as true. Ultimately, she advises to be sure to “talk to an experienced advisor” about crypto tax questions because bad advice can make something already complicated and frustrating into something exponentially more painful. (share or read more)

🤔 [Analysis] The difference between App Coins and Protocol Tokens - Will Warren

Understanding the differences between protocols, applications, and the financial tools that can be leveraged to incentive participation and user growth is critical to comprehending why certain products create native tokens, make certain design decisions, and build atop a given platform. Will Warren explains and differentiates these building blocks to give observers and investors a better idea of how to categorize and value different projects building with "smart contracts", specifically on Ethereum, because current terminology can be confusing and ambiguous and needs improvement. Ultimately, Warren wants to communicate that "app coins" and "protocol tokens" are two completely separate classes of digital assets with different use cases and unique value propositions. (share or read more)

Quick Bits (Don't read that, I read it for you)

Choke Points (Exchange News)

  • 📆 Coinbase has changed its exchange structure features to increase liquidity, price discovery, and price movement smoothness. Five total updates were made including changing the fee structure, updating order maximums, and turning off stop market orders. The new rules will go into effect March 22nd. (share or read more)

  • 👩‍⚖️ Law firm Stewart McKelvey has withdrawal from the QuadrigaCX case being heard by the Nova Scotia Supreme Court. Ernst & Young Inc., the court appointed monitor, had expressed concern over possible conflict of interest, although no information was disclosed. The firm will continue to represent the estate of deceased CEO Gerald Cotten and his wife, Jennifer Robertson. (share or read more)

Startup Signals (ICOs, Cryptos, and Startups)

  • 🚀 Donut, a startup addressing mass tokenization, has finished a $1.8 million seeding round supported by Redalpine and TinyVC. The project, which did not exist ten months ago, is building systems and applications for saving and investing in the new token economy. Donut is using the funds to expand its team and launch its 'Donut Test Kitchen' this summer. (share or read more)

  • 👩‍💻 Six banks have signed letters of intent to join IBM's World Wire, a stablecoin backed remittance and foreign exchange system run on the Stellar Lumens ($XLM) public blockchain. World Wire is still awaiting regulatory approval in many places, such as the U.S. in which IMB expects a late 2019 endpoint launch. IBM is also testing its 'pay-as-you-go' revenue model to increase profitability with the service. (share or read more)

The Powers That Be (Legal/Reg/Policy)

  • 🇮🇱 An Israeli court has blocked Union Bank of Israel from closing an account linked to cryptocurrency mining firm Israminers Ltd. The judge ruled that the closure was unreasonable based on occupation of the depositor alone. Forced closure based on money laundering concerns was deemed permissible. (share or read more)

  • 💭 Over the last year, the number of blockchain-related lobbyists has tripled in Washington D.C. According to disclosures, only 12 blockchain-related firms were lobbying in Q4 2017 while Q4 2018 had 33. Those familiar with the scene believe the chief cause is lack of regulatory clarity regarding the SEC's securities laws. (share or read more)

Did I miss something?

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A Novel Idea: A Crypto Podcast - Unqualified Opinions

we're growing our unqualified opinions podcast and newsletter

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A less crappy Unqualified Opinions podcast

There are a LOT of good crypto podcasts.

As you may have noticed, we’ve been spending a good deal of time experimenting with our own format on Periscope because we really wanted to see a daily show that tackled the top trends, announcements, and people in crypto, on a more predictable cadence.

Mainstream financial media shows have defined time slots, but they generally…umm…don’t go very deep on the industry’s inner workings. Our industry media on the other hand, can be pretty scattershot in quality and consistency.

The new Unqualified Opinions pod is designed to bring you a new TED-talk length, live, and interactive interview each day. Little fluff, and a bunch of rapid fire questions that I hope will prove tough, but thorough and fair for the guests. (Good for listeners.)

We racked up 75k views on our shitty little Periscope production in the past five weeks. And given the positive response (and the support of our sponsors at TokenSoft and TokenTax), we thought it was time to professionalize things.

Let us know how you think we’ve been doing so far, by giving us a million stars and “smashing that subscribe button.”

Image result for hello fellow kids

If you don’t, I’ll be sad. (Because I really think you’ll like the show.)

Here’s a partial list of the amazing interviews you can catch on iTunes and Spotify.

  • Erik Voorhees on the new ShapeShift

  • Lily Liu on the insane story of the 21 / Earn near-bankruptcy and turnaround

  • Bill Barhydt on bringing the stock market to bitcoin via Abra

  • Nadav Hollander on DeFi and the rise of Dharma’s margin product

  • Jony Levin on on-chain forensics at Chainalysis

  • Marc Bhargava on the tools Tagomi is building to usher in big money to crypto

  • Sergey Nasarov on how Chainlink connects real world data to smart contracts

  • Taylor Monahan on accidentally building crypto custody juggernaut, MyCrypto

And so many more. :)

Who do you want to see me interview next?

-TBI

P.S. Share. Subscribe. Spread the (rational) crypto love. Tweet at me or Messari for requests, feedback, comments, or questions.


Best of the Rest - What We Missed Last Week

Every weekend, we dig through the past week’s posts from crypto’s other great sources of content to see what we missed in our own weekend reads.

Here’s us curating the curators:

Past, Present, Future: From Co-ops to Cryptonetworks - Jesse Walden
(h/t Circle Research )

Jesse Walden compares the technical and social networks created by digital assets and their underlying protocols to cooperative environments, which usually struggle from inadequate or misaligned incentives. “Cryptonetworks” are are a relatively new phenomenon that introduce voluntary, profitable, and relatively flat organizations to new and existing capital markets. Understanding and optimizing for the strengths of “cryptonetworks” allows users to leverage cooperative governance that can be both efficient and representative, a combination that cooperative and corporate organizations cannot match.

Crypto in 2019: Kleiner Perkins 5 Focus Areas - Kleiner Perkins
(h/t @Token Economy)

Kleiner Perkins outlines five areas of the digital asset industry that are especially important to monitor in 2019 including security tokens, institutional financial infrastructure, and gaming projects. Regarding gaming specifically, the increasingly ubiquitous use of and experimentation with Non-Fungible Tokens (NFTs) is springboarding a multitude of crypto-native and legacy gaming projects from baseball cards and chess to adventure role-playing games and a continuous stream of CryptoKitties riffs. Interfacing with and building atop blockchains is almost universally seen as a valuable growth strategy for mainstream crypto adoption, and 2019 promises big things from team tackling this.

An Introduction to Blockchain Finality - Raul Jordan
(h/t @Token Daily)

For all the criticism aimed at blockchain hype over the last two or three years, the finality of on-chain transaction settlement is one of the most important truths involved in this new technological and financial industry, no matter how imperfect it’s communicated. Raul Jordan explains how network effects, financial incentives and energy consumption requirements combine to create the conditions where transactions on a proof-of-work blockchain like Bitcoin affords radically secure ownership. Jordan also addresses common conceptual misnomers common to blockchain lingo (e.g. “wallets” and “keys”).

Did I miss something?

Send me the link, your twitter handle and your best imitation compression algorithm write up. If I like it, I’ll include your bit next issue (with attribution).

Should your colleagues read daily? We now offer discounts for corporate access. Email us, and we’ll onboard your whole team.

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