CWC Newsletter #5 (November 15, 2019)
By Taylor Ryker, Analyst
Top 10 Updates:
1. A Popular Stablecoin called Tether is Shrouded in Controversy. Stablecoins, cryptocurrencies that peg their value with fiat currencies such as the US dollar, have become widely popular in a space filled with highly volatile cryptocurrencies such as bitcoin whose dollar value can swing in the double digits over days. Tether (USDT) is a heavily-used stablecoin in the world and has allowed traders to use USDT to maintain the value of their portfolios during volatile times and to trade with bitcoin and Ethereum along with other crypto tokens. A University of Texas professor also claims that USDT was instrumental in the crypto bubble of 2017 that saw bitcoin reach $20,000 a coin (bitcoin is now around $9,000). However, Tether has pushed back on this claim recently by stating that the authors “demonstrate a fundamental lack of understanding of the cryptocurrency marketplace and the demand that drives Tether token purchases.” Another contentious issue is whether Tether’s USDT is fully backed by reserves. The claim of fully backed reserves is the subject of an inquiry by the New York State Attorney General’s office. Tether has taken steps to provide transparency in their reserves to maintain confidence in the use of USDT in the crypto trading market. Tether is very important in the crypto trading market, and it will be wise to follow any future developments in this situation because of its large impact on the trading market.
2. Ripple CEO Foresees a Market-Wide Purge. Ripple (XRP), the third-largest crypto market cap, is a payment token that has recently seen companies such as MoneyGram begin to use Ripple’s technology for their payment transfer business. Ripple is seen by some pundits in the community as a remedy to the inefficiencies of the Society for Worldwide Interbank Financial Telecommunications (SWIFT), which is a messaging system used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions. Ripple CEO Brad Garlinghouse explained in a recent interview that he believes the vast majority of cryptocurrencies that are currently trading on the market will eventually plummet to zero due to lack of use-case and market need. Ironically, some analysts and investors view XRP will reach zero because of they believe that the utility surrounding XRP is fabricated and won’t be used in the banking system. It will be interesting to see if XRP will ultimately be adopted by the banking system even though private banks such as J.P. Morgan is already in the midst of creating and launching their own cryptocurrency, JPM coin.
3. Pension Funds Double their Position in Morgan Creek Digital Fund. Morgan Creek Digital is a hedge fund specializing in digital assets and backed by institutional powerhouse Morgan Creek Capital. Two Fairfax Retirement Fund pensions have invested $55 million in October doubling their digital asset holdings to 1 percent of the hedge fund’s assets. The police officer’s pension fund contributed $22 million and the county employee’s fund invested $33 million. This is a trend that has followed in the footsteps this past year of larger institutional endowments such as Yale and Harvard who are dipping their investments into the blockchain space. Some analysts predict that the next crypto bull run will need the financial firepower of large institutional money flowing into the space to replace retail investors who predominantly fueled the last bull run of 2017.
4. Litecoin’s security is called into question. Recently, Litecoin’s blockchain experienced a “halving” in which it became more difficult and less profitable for miners to secure the network. With a situation of less profits from mining, it is no surprise that the Litecoin halving has seen a reduction in hashrate where a higher hashrate means a more secure network. Twitter crypto analyst Oscar Pacey (@oscpacey) has speculated that miners are breaking even on their operations and will need investors and Litecoin holders to increase their transaction fees (paid to miners) or increase their purchases of Litecoin to incentivize miners to continue their operations. In other words, the halving didn’t see an adequate price climb, which many were hoping, to compensate the increase difficulty of miner operations. New capital is needed to enter the Litecoin ecosystem for it to remain a viable blockchain for payment transactions. With the increased encroachment of other non-crypto specific companies providing competitive payment services (Venmo, Paypal, Stripe, Square, and Zelle), Litecoin needs to upgrade or evolve in order to maintain its relevance in a crowded market.
5. Recent EOS Congestion Scares Away Users and Propels Dapp Evolution. With cheap EOS tokens becoming more scarce, the average user is experiencing difficulties with transacting on the network. Average users are forced to use more EOS tokens to use the network which is becoming cost prohibitive to less affluent users. This has seen a reduction of daily average users from about 150 thousand in August to about 20 thousand the past several days. Although the network is congested, some analysts have pointed to the fact that the congestion reveals that the EOS network is the most used public blockchain in the world, the EOS token is becoming more valuable, and the EOS network needed this stress test to find flaws and correct them in order to onboard hundreds of millions of users. One significant development is that leading decentralized applications (Dapps) are now providing the resources (staking EOS) for their users to interact with their Dapps on the EOS network. In other words, users that want to use the social media Dapp Karma, gaming Dapp Prospectors, encyclopedia Dapp Everipedia, or EOS wallet Dapp Wombat do not need to have EOS tokens. This is important because it allows for a better user experience and puts the responsibilities of EOS resource management not on the user but on the developers.
6. Bitcoin Makes Front-Page News in China. Xinhua, a Chinese state news agency which has millions of readers, published a front-page article “Bitcoin: The First Successful Application of Blockchain Technology.” The article echoes the large blockchain interest following the endorsement of President Xi a couple weeks ago but now specifically highlights bitcoin. Recently, blockchain news in China shied away from openly discussing bitcoin, which pundits believed was a safe way of not undermining China’s digital yuan. Although at first glance the title would assume a positive coverage of bitcoin, the article focuses on the misgiving of the cryptocurrency—bitcoin is centralized, is bad for climate, and is only used for black market transactions. Analysts have pointed to the fact that China has a tough balancing act because the Chinese government cannot ignore bitcoin’s global relevance but needs to legitimate their digital yuan as a more viable option in the blockchain space for its citizens.
7. Blockchain Could Pay Patients for Their Health Data. This past week the Wall Street Journal reported that Google’s Project Nightingale is collecting the personal health data of patients in 21 States. Working with Ascension, one of the US’s largest health-care systems, Google’s data collection consists of a complete health history of their patients—lab results, doctor diagnoses, patient information, and hospitalization records, among other categories. Google and Ascension both benefit from this arrangement because it allows Google to use the data framework to sell similar products to other health systems while Ascension creates a comprehensive search tool for metadata of their patients. However, the patients have not been notified that they are a part of this data collection nor are they being compensated for their data. In the blockchain realm, health care startups such as EDNA and other are seeking to create a more equitable arrangement where the patient’s privacy is upheld while they are compensated for their health data. With EDNA, patients are compensated for their DNA data to help labs with DNA research.
8. Former Federal Reserve Chairman Greenspan Sees No Need for a US Digital Currency. On Tuesday, Alan Greenspan sees no need for central banks to issue digital currency. Greenspan pointed out that national currencies are backed by sovereign credit, which other organizations such as Facebook’s Libra could not rival. However, Philadelphia Federal Reserve President Patrick Harker said in early October that it was inevitable that central banks would adopt a digital currency. Harker’s thoughts are in the minority at the Federal Reserve. This tension within the Federal Reserve reveals that the issue of digital currencies is something that is not easily dismissed like it was several years ago. In addition, the idea of a Federal Reserve digital currency called FedCoin, which was earlier dismissed as well, is something that is now being explored with more urgency. The Federal Reserve is incentivized to maintain the monetary status quo where they dictate the monetary policies that affects the entire global economic order. A digital currency may pose a threat to the Federal Reserve’s supremacy with the rise of China’s digital currency and other public cryptocurrencies such as Bitcoin.
9. Block.one plans to vote for EOS Public Blockchain Upgrades. On Wednesday morning, Block.one, the company that created the eosio source code, announced on Twitter that they would begin to take a more active involvement in creating a more vibrant, secure, and valuable EOS mainchain. In the note, Block.one explained that they would begin to vote for upgrades, block producers, and help shape the direction of EOS. This comes at a moment when the SEC recently gave them more guidance on the EOS token, a smart contract has created much congestion on the network, and the block producers are predominantly geographically located in Asia. This shows that Block.one is still committed in making EOS more valuable to its users and token holders.
10. China’s Central Bank Debunks Reports Surrounding Digital Currency Launch. This past week saw the Chinese Central Bank shoot down reports that announced the release of China’s digital currency. The Central Bank clarified that they are still in process of research and testing. This announcement attempts to mitigate the influx of fraudulent reports that the Chinese will or have launched a digital currency in the near future. In addition, this clarification should temper investor enthusiasm.
Disclaimer: KJ Kingsley is not a financial advisor and holds the digital tokens or cryptocurrencies represented in the content above. This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this post constitutes a solicitation, recommendation, endorsement, or offer by myself to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of any of the author’s employers.