Bitcoin is dead…again. According to 99bitcoins “Bitcoin Obituaries”, Bitcoin has died 337 times since 2010 (91 times in 2018, alone). Despite the clickbait, last year saw great strides for blockchain and distributed ledger technologies (DLT), particularly for the transportation and logistics sectors. Since its debut as a fundamental component of Bitcoin 10-years ago, in 2009 (see an article on its origins here), DLTs have experienced a tumultuous journey from the basements of cypherpunks tonow receiving daily coverage on major networks and even gaining its own ticker symbols of XBT, NYXBT and BTC.
At the time of writing this article, Bitcoin is priced (USD) at around $3,600 ($16,000 YTD), with a market cap of $63B (total of all 2071 listed cryptocurrencies is $120B) [source: coinmarketcap.com]. Although most of MarEx’s coverage on this space has been primarily directed towards blockchain applications, it is fundamentally important to recognize the direct correlation with cryptocurrencies such as Bitcoin. Understanding how the research and development of either, fosters and benefits the other, will convey a more meaningful appreciation for the transformation at hand within the new cryptoeconomics.
As mentioned earlier this year in the article, A Force Awakens, “business as usual” is being vastly disrupted, and new technologies are being adopted. Such adoptions are removing both friction and middlemen in “trustless” environments (i.e. “seller A” has never met “buyer B” but can still trade or interact confidently and with verifiable traceability). This year, to better understand and share with our audience, MarEx was an official media partner with four different blockchain-related conferences. So, for purposes of providing a sampling of demand signals in the sector and a recap of this year’s summits, we offer this review.
Follow the Money
Despite its lackluster performance with respect to their prices, what perhaps the layperson fails to understand is the amount of infrastructure and acceptance these technologies have gained in 2018. As William Mougayar points out in a recent article, “That’s because the largest mindshare has been on the price of tokens and cryptocurrencies. That is an unfortunate frame of reference, because it symbolizes the velocity of hype, more than enlightens on the real measures of progress in the industry.”
One admirable aspect of financial markets is its propensity to cut through the nonsense and find the most efficient paths. However, the hype cycle associated with blockchain has also made it a depot for snake-oil salespersons. In one instance, last December, the Long Island Ice Tea company, in threat of being delisted from NASDAQ, pivoted and changed its name to Long Blockchain (LBCC) and saw its stock price quadruple almost overnight. Its stock has since flatlined.
Nonetheless, by following ‘smart money’ one can begin connecting the dots and better understand the operational and fundamental shifts occurring in organizations, along with industry trends. Tim Draper, a well-known venture capitalist who was an early investor in Tesla, Hotmail, and Skype, stated back in April that bitcoin will “be bigger than all those [previous investments] combined.” Draper, who is bullish on Bitcoin and predicts a [BTC] price of $250,000 within four years, debated that, “This is bigger than the internet. It’s bigger than the Iron Age, the Renaissance. It’s bigger than the Industrial Revolution. This affects the entire world and it’s going to be affected in a faster and more prevalent way than you ever imagined. In five years, you are going to try to go buy coffee with fiat currency and they are going to laugh at you because you’re not using crypto.”
As it were, Draper is not solo on his long position. Big league players and institutions have made significant investments in several notable projects and/or announcements. Below is a sample of a few of the major demand signals that are expected to drive the sector in 2019:
Bakkt – Created back in August by Atlanta-based Intercontinental Exchange (ICE), owners of the NYSE, in order to facilitate Bitcoin futures markets along with “enabling consumers and institutions to seamlessly buy, sell, store and spend digital assets.” Subject to regulatory approval, they have been coordinating closely with the U.S. Commodity Futures Trading Commission (CFTC) and set a launch date of January 24, 2019, to begin trading. Kelly Loeffler, CEO of Bakkt, wrote that operations will have no reliance on cash platforms for settlement prices for pricing the daily Bitcoin futures contract. Their platform leverages Microsoft’s cloud and has been working with Boston Consulting Group and Starbucks on cryptocurrency settlement solutions.
Fidelity Investments – With $7.2 trillion in customer assets and providing services to 13,000 institutional advisory firms and brokers, the world’s fifth-largest asset manager has launched Fidelity Digital Assets. Having quietly been working on blockchain technology since 2013 with its Blockchain Incubator, this stand-alone spin-off company has already begun onboarding customers and plans to make products available by early 2019. In a recent Forbes article, Fidelity Investments chairman and CEO Abigail Johnson stated, “Our goal is to make digitally native assets, such as Bitcoin, more accessible to investors.” Interestingly, Fidelity Charitable began accepting Bitcoin donations in 2015. Bringing in more than $69 million, it is the organization’s fasting growing form of donations.
Digital Capital Management – Located in La Jolla, California, this boutique firm led by Managing Director Tim Enneking focuses on actively managing investment portfolios of digital currencies such as Bitcoin and Ethereum for high-net-worth individuals and institutions, as well as early-stage blockchain investing. DCM recently received significant clarification and exemption status from the SEC to operate as an “exempt reporting advisor” or “ERA”, and an exemption from the CFTC as a commodity pool operator (CPO). Together with their Cayman Island feeder, Crypto Asset Fund (CAF), DCM is globally servicing this emerging asset class with, what appears to be, the blessing of the perhaps the sector’s biggest hurdle, the United States. For those wanting to learn more about ICOs and how to assess them, see the MD’s article The Seven Pillars of ICO Investing.
Bank of America – Rivaling IBM and Alibaba’s race to have the most blockchain patents (ironic due to the open-source nature of cryptocurrencies and blockchains), BoA recently filed their 53rd patent. This time it was for blockchain-enabled cash handlers (ATMs).
Ohio & U.S. Congress – The Buckeye State is rolling out the red carpet for blockchain companies as their state treasurer Josh Mandel announced in November at the Consensus Invest conference in New York that Ohio would accept Bitcoin for payment of taxes. Currently only available to businesses, Bitcoin payments can be made through OhioCrypto.com and are verified by third-party payment processor BitPay (which also issues Visa debit cards in the U.S. that can be loaded with Bitcoin). Mandel, a former U.S. Marine Corps Intelligence Specialist with multiple combat tours, told CNBC that, “By leading the charge at the state level, we hope that will inspire other states and ultimately the federal government to allow people to pay their federal taxes [with Bitcoin].”
In addition to Ohio, the U.S. Congress has now had several of its members reach an “ah ha!” moment and founded the Congressional Blockchain Caucus in the 114th Congress. It is a bi-partisan group of Members of Congress, Co-Chaired by Representative (now Colorado Governor-elect) Jared Polis (D-CO), Rep. David Schweikert (R-AZ), Rep. Bill Foster (D-IL) [a Ph.D. whose team helped discover the neutrino burst], and Rep. Tom Emmer (R-MN). Their areas of focus are government applications, data ownership, and healthcare, with a vision that declares a “hands-off regulatory approach, believing that this technology will best evolve the same way the internet did; on its own.”
We the People expect great things from the Caucus, but no pressure.
Ripple – A blockchain-based solutions providers, whose associated cryptocurrency, XRP (a htird generation coin currently ranked no.2 by market cap), is focusing on financial institutions with offices in San Francisco, New York, London, Luxembourg, Mumbai, Singapore, and Sydney. Ripple, along with RippleNet (Ripple’s Global Payments Network), have made significant progress through their strategic partnerships with over 160 financial institutions and banks around the world.
Strategic partnerships with the likes of PNC Bank, Santander Bank, SWIFT, MoneyGram, WesternUnion, National Australia Bank, Bank of Montreal, Barclays, CIBC, Royal Bank of Canada, Standard Charted, Bank of England, Bank of Thailand, and American Express have provided confidence for more and more institutions to join the collective ranks. You can see a live list of their strategic partners here.
Most recently, the CEO at Malaysian Banking Group CIMB, Tengku Dato’ Sri Zafrul Aziz, stated, “We are delighted to be part of RippleNet and look forward to a fruitful partnership with Ripple by leveraging each other’s strengths and capabilities. This innovative blockchain solution will revolutionize international cross-border remittances, and is a testament to CIMB’s ongoing efforts to enhance its digital banking proposition by providing speedy and cost-efficient solutions to our customers across ASEAN.”
In the same press release, Ripple’s CEO Brad Garlinghouse elucidates that, “We’re seeing banks and financial institutions from across the world lean into blockchain solutions because it enables a more transparent, quicker and lower cost payments experience.”
EOS – One of the most fascinating projects to emerge has been that of the EOS coin (a 3rd generation coin currently ranked no.5 by market cap) and eco-system. During their yearlong initial coin offering (ICO) crowdsale, they raised a record-breaking $4 billion, without even having a live product (now live since June). With an unrivaled war chest, they have laid the foundation for an entirely new eco-system that uses common and familiar coding languages such as C++ and Python (compared to Ethereum’s apparently more difficult Solidity). This eco-system serves a sandbox for others to teach and learn how to build other projects as well as launching their own cryptocurrencies and decentralized applications (dApps) through the use of “sidechains” on the EOS platform.
The EOS mainnet reached a significant scalability landmark this year and was able to demonstrate 3,996 transactions per second (tps). For reference, Visa is apparently capable of 24,000 tps, but it only receives 4,000 tps at peak hours. This may well solve the scalability issue presently holding adoption back.
And if that wasn’t intriguing enough, as the ICO market seems to have died by way of regulation (and lack of trust), genius minds prevail and have discovered a workaround. Instead of soliciting for money and possibly violating securities laws, projects may simply ‘airdrop’ their tokens to other holders of EOS token and then let the market provide a valuation (let’s see how regulators react). For example, say your project puts 100M tokens out into circulation through a free “airdrop,” and then that market values your coin at $0.30; your project would have a $30 million market cap. If your team held 30 percent of those coins, then WHAM! Your company just raised $9 million and didn’t have to ask for a dime.
Granted there are several more variables involved, but you get it. Furthermore, because these ‘airdrops’ are happening all the time, EOS holders are essentially getting free money. Better still, to play in the EOS platform, projects need to purchase and then “stake” their coins (think escrow), thus adding even more scarcity and demand for the EOS token. Here’s a comprehensive video explanation by The Modern Investor. Also, watch this video on The Million Dollar EOS Bet, which someone is about to lose.
To further articulate the potential upcoming tsunami, a recent podcast with Trace Mayer explains how the world economy has gained tens of trillions of dollars more debt than was accumulated before the 2008 Global Financial Crisis (GFC). He reminds listeners that Bitcoin spawned out of frustration from the mishandlings of the GFC. Now that the technology has experienced a rapid professionalization of the space, legacy models and institutions are in for a rude awakening on the dawn of the “everything bubble.”
As outlined by an article in Forbes, “since the GFC’s low in March 2009, the S&P 500 stock index has gained over 300 percent, taking it nearly 80 percent higher than its 2007 peak.” Mayer continues that, as we move forward with this new technology, a new financial paradigm shift is occurring both psychologically and fundamentally. That shift is going to be…
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.” – Satoshi Nakamoto