α🥬#37 - Bitcoin, Ether at ATH / US Banks Cleared to Process Payments on Public Blockchains.
Weekly Crypto Market Insights and More.
Hi investors, welcome to α🥬, a (mostly) crypto-focused weekly-newsletter.
Today on the menu:
Bitcoin breaks above $35k USD
Ethereum trades above $1000 USD
US Chartered banks cleared to use public blockchains for payments
STRIKE launches free, permissionless, worldwide payments on Bitcoin
Bits and bytes (don’t miss these!)
DISCLAIMER: This content is not financial advice and only represents my personal opinions.
Always do your own research.
Credit: Teigue John Blokpoel
Bitcoin and Ether Markets.
Bitcoin is starting 2021 on a tear, we’re trading at $34,925 USD at the time of writing after briefly breaking out above $35k.
We’re up 332.37% over the past year and the market is, well, euphoric.
Meanwhile, Ethereum’s native currency ETH is also creeping up back towards ATH and forming the exact same cup and handle pattern that we observed on Bitcoin last month before the big break out.
Together, both chains are now settling over $27 billion a day in value.
Source: Money Movers
And Bitcoin is now the biggest financial service network in the world ahead of VISA, PAYPAL and JPMorgan.
Source: companiesmarketcap.com
So what’s going on exactly?
First, institutional investment into large caps crypto assets is going parabolic.
Open interest for BTC futures contracts on the CME is at an all-time-high…
…and monthly revenues generated by Grayscale’s GBTC (in blue) and ETHE (in red) products shows December 2020 as the biggest month in the fund’s history.
To give you some perspective, Grayscale currently holds an ATH number of over 600k bitcoins (equivalent to 2.85% of the maximum supply cap of Bitcoin!!) and 2 million ethers into its funds.
These are frankly mind-blowing numbers and a huge success for Grayscale. Whether this influx of capital represents real interest about the asset or institutions flipping GBTC shares on the secondary market for a juicy 20% premium is missing the point.
Crypto is going mainstream as an asset class.
Second cause of the bull market, retail seems to be pouring back into crypto to get a share of the action. Google trend for the word “crypto“ is gaining a lot of momentum…
…while the number of active addresses (30 days average) in Bitcoin and Ethereum are creeping back to ATH levels.
Active addresses count is admittedly an imperfect metric (1 individual/entity can have multiple addresses) but it shows a general level of use and busyness on the networks.
Corollary to heightened demand is also a steep decrease in supply.
Last month, blockchain analytics firm Glassnode released a report which estimated that as much as 78% of Bitcoin current supply might be kept in cold-storage off of exchanges.
In other words, investors are hodling their coins and waiting to higher valuations before taking serious profit.
Adding fuel to the fire, yesterday the Office of the Comptroller of the Currency (the authority that regulates chartered banks in the US) dropped a bomb-shell.
From the letter:
The agency letter concludes a national bank or federal savings association may validate, store, and record payments transactions by serving as a node on an INVN. Likewise, a bank may use independent node verification networks (INVNs) and related stablecoins to carry out other permissible payment activities. In deploying these technologies, a bank must comply with applicable law and safe, sound, and fair banking practices.
Any lawyer worth his/her salt will tell you that words are ambiguous. I read the letter 4 or 5 times (I am not a lawyer) and there doesn’t seem to be any ambiguity there.
This letter allows banks to interact with public blockchains to process payments.
👀
PS: There’s also a paragraph about banks needing to update their compliance policies and learn the subtleties of blockchain AML/CFT.
If you work in compliance and would like to know more, blockchain analytics company CypherTrace offers
certified training
. These are pricey but will cost you less than the CAMS certificate and frankly will put you way ahead of the curve in term of crypto compliance.
If you work in compliance and would like to know more, blockchain analytics company CypherTrace offers
In my opinion, this is very bullish news for the whole space and could open many avenues for banks to dip their toes into DeFi products further down the line.
Accordingly, the market reacted with an insta-pump across the board with a notable strength in the (Ethereum-based) DeFi segment.
Source: Messari
DeFi could indeed be a great beneficiary of this regulation as some banks might want to plug into existing solutions rather than develop their own.
However, it’s good to keep in mind that not all DeFi is happening on Ethereum and that most of the discovery will likely happen on proven network like Bitcoin first before financial institutions feel comfortable taking the plunge into DeFi. Baby steps.
Speaking of Bitcoin.
Earlier last year, Bitcoin developer (and Forbes’ 30 under 30 nominee) Jack Mallers unveiled STRIKE a VISA-like global payment solution built on top of the Bitcoin Lightning Network which has now launched in 200 countries.
In a very recent episode of The Investor Podcast, Mallers described STRIKE as a neobank built on top of Bitcoin. STRIKE allows anyone to send and receive money instantly, with no fees, anywhere in the world. Best of all, STRIKE is agnostic to the user’s currency. You can pay someone in dollars using bitcoin or settle fiat to fiat transactions or get paid in Bitcoin from fiat, all of these are possible.
Watch Mallers demonstrate Strike live:
Think about it for a second. International payments, no fees, no counterparties and instant settlement, all going through the Bitcoin network.
No wonder that the OCC allowed banks to interact with public networks.
If you can’t beat them, join them.
This is just another proof that software is eating the world and now is finance’s turn to be disrupted and commoditized by the internet. Going forward, I believe that the banks that survive will be the one embracing the ethos of open source, API, permissionlessness and zero-fee payments.
Of course, underneath all that enthusiasm for crypto is also the realization by many that cash is trash at storing value. I also detect a profound desire to… well, become rich.
Love it or hate it, people want a piece of the pie. Crypto assets like Bitcoin aren’t just stores of value, they’re political and philosophical communities propelled forward by techno-utopism mixed with greed, anger at the elites and dreams of a better future all wrapped into one
As the next cycle rolls forward you can expect euphoria to reach a fever pitch. Crypto bull runs are messy affairs, they attract degenerate traders, scammers from all corners of the world and regular folks without a clue about what they’re doing.
If you’re a retail investor looking to get into crypto, the key is to relax and to not trade. Buy a reasonable amount (i.e adjusted to your risk profile) of crypto every month, store it securely on a hardware wallet (like a Ledger wallet) and hold it over a 4-year horizon.
Again, don’t trade, don’t go all in (particularly at current prices), keep your portfolio diversified and remember that dollar-cost averaging is the name of the game.
Up next.
Bits and Bytes.
Van Eck is filing for a Bitcoin ETF again, will 2021 be the year?
XRP got delisted from Bitwise and Grayscale funds following SEC lawsuit against Ripple. If you’re still holding XRP….why?
Neat review of Bitcoin tech development in 2020 by Bitcoin Magazine.
Stephen Wolfram talks about its theory of computation on Lex Fridman’s podcast. Mind-bending conversation which will challenge you and your views of the world. Like Nick Bostrom, I believe that there is a non-zero chance that we might actually be living inside a computer simulation so this kind of stuff hits really close to home.
Sam Harris shares his hopes for 2021. I love Sam Harris, I know he’s a very controversial figure, I just think he’s very smart and often misunderstood.
A fantastic discussion on portfolio asset allocation with ex-Bridgewater associate Damien Bisserier on The Investor Podcast. Damien is very eloquent about strategies to de-risk a portfolio and shares a touching story about Ray Dalio at the end.
Vitalik Buterin talks about Why Proof of Stake on Bankless and shares his thoughts on 2020 on his blog. Vitalik is one smart 🍪
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See you next weekend for more insights.
Until then,
🦁