RelayNode NYC #52 - May 11 - Houston, We Have Halving; Institutional Barbarians at the Gates
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RelayNode NYC is curated by:
David Gogel: Founder @GogelX/Definancier, Advisor/Operator/Investor, Advisor @Paperchain.io, Wharton MBA/BS/BA, fmr Associate @Techstars' Blockchain Accelerator, Co-president @Wharton FinTech, Corp Dev @LinkedIn @AIG
I have written RelayNode NYC every week for the last 52 weeks. Please reach out via email / social with any feedback. Thanks for reading 🙏.
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Market Stats (as of Sunday, May 10th, 7:30 PM EST)
As economies begin to re-open, the gulf between Wall Street and Main Street is widening. While the equity markets continue to recover, with the DJIA, S&P 500, and NASDAQ increasing, respectively, by 2.6%, 3.5%, and 6.0% last week, the economic picture remains terrifying. The U.S. unemployment rate hit 14.7% and 20.5M jobs were lost in April — levels not seen since the Great Depression.
According to Jerome Powell, the Fed Chairman, "this is the time to use the great fiscal power of the United States to do what we can to support the economy and try to get through this with as little damage to the longer run productive capacity of the economy as possible." In this vein, the Treasury announced that it will borrow ~$3T in Q2 to pay for COVID-19-related relief. Unsurprisingly, traders are now pricing in the possibility that the Fed will cut its policy rate below zero.
The crypto market remains highly volatile. The market cap of all crypto assets sits at ~$237B, up +24% YTD and up +88% after hitting 2020 lows on March 12th. Bitcoin increased 16% from its weekly low on Monday to break through the psychological $10,000 level on Friday. Bitcoin then pulled back over the weekend, falling ~17%, now sitting at ~$8,700. Expecting high volatility pre & post halving.
1 Big Thing: the Bitcoin Halving - a timely reminder of deterministic monetary policy
Bitcoin's supply schedule is predictable, encoded in its consensus algorithm, maxing out at 21 million units in 2140. Every ~4 years, bitcoin, an asset with a pre-programmed monetary policy, undergoes a halving, an algorithmic decrease in new supply.
The 3rd Bitcoin halving will occur TODAY at ~22:25:48 UTC, making new bitcoins more scarce. The network's per-block coin issuance will be cut in half from 12.5 BTC to 6.25 BTC, at which point 87.5% of bitcoin ever to be mined will be in existence. With annual inflation approaching 0.5%, miners will be compensated for processing transactions and securing the network through fees on high transaction volumes.
While there are many factors at play, history has shown that scarcity *MAY* (can we really rely on 2 historical data points?) impact demand and price:
Meanwhile, in a post-COVID-19 world, central banks are increasing the supply of money at an unprecedented pace and scale. Because the Fed buys securities from non-banks - and there have been large drawdowns of credit facilities - there has been an immediate impact on the broad money supply. By the end of 2020, analysts estimate the Fed's balance sheet will have risen to ~$10T and the world's six largest central banks will have taken their holdings from around $15T to ~$25T worth of assets.
Amidst increasing macro risks, unconventional monetary policy, and geopolitical tensions, large institutional investors are finally waking up to the fact that bitcoin is perhaps the only monetary asset with a credible guarantee of fixed supply and is likely to prosper as a digital store of value that is difficult to seize, freeze, or devalue.
According to Michael Novogratz, Founder of Galaxy Digital:
“The Bitcoin halving is perfectly timed. As the rest of the world is quantitative easing, BTC is quantitative tightening, showing there is still such a thing as a scarce asset. It’s a great counterpoint to the problem of rampant money printing.”
Most notably, last week, legendary macro investor and hedge fund manager Paul Tudor Jones released an investor letter, titled "Great Monetary Inflation", outlining a strong case for buying bitcoin as a hedge against central bank money printing. He indicated that his Tudor BVI fund will trade bitcoin futures via the CME.
Arthur Hayes, CEO & Co-Founder at BitMEX, explains the consequences:
https://twitter.com/CryptoHayes/status/1258528384025391109
Ahead of the halving, data shows institutional investors have already entered the crypto gates. Grayscale announced it saw its AUM surge to $3.7B in the last several days. Further, CME Bitcoin futures and options have seen a ramp-up in activity:
YTD Bitcoin futures ADVs reached 8,456 contracts, up 43% YoY. YTD average daily OI of 5,269 contracts (26.3K equivalent bitcoin), up 33% YoY; 58 average large OI holders (entities that hold 25+ contracts) in April; 4,500+ unique, active accounts have traded since launch. 844 new accounts added YTD, 2.3x more YoY.
Options on Bitcoin futures total volume is 2,250 contracts and a record 216 contracts traded on May 6. OI in both futures and options reached new highs on May 7 of 9,783 contracts (48.9K equivalent bitcoin) and 555 contracts (2.8K equivalent bitcoin), respectively.
Go Deeper:
Messari: Bitcoin’s Third Halving Investment Theses & Implications
Macro Impact On Bitcoin: Pantera Blockchain Letter, April 2020
John Pfeffer: An (Institutional) Investor’s Take on Cryptoassets
What To Read
🌐 MACRO / WHY BITCOIN?
🌐 Portfolio diversification: BitWise released its “The Case for Bitcoin in an Institutional Portfolio” report exploring adding bitcoin to a diversified portfolio consisting of 60% equities / 40% bonds under different market regimes. The paper shows that bitcoin would have contributed positively to a diversified portfolio’s cumulative and risk-adjusted returns in 74% of one-year periods, 97% of two-year periods, and 100% of three-year periods since 2014, assuming rebalancing.
🌐 Why is institutional adoption taking so long? “What more is needed than a $250B market cap, CFTC approval of regulated futures, and the best track record of any asset, period, for the last 10 years?” Nick Prince shares his perspective on why it’s taking so long for pension funds to allocate to the space.
💰 FUNDING, M&A, EXITS
💰 NEAR Protocol, a decentralized app platform backed by a public Proof-of-Stake blockchain, raised $21.6M in a token sale led by Andreessen Horowitz, with participation from Pantera Capital, Electric Capital, Blockchange, Libertus Capital and Distributed Global. Using sharding, NEAR provides the scale and programmability to allow any data (digital currency, karma, gaming items or stock certificates) to become a fully portable, programmable and tradable asset. The NEAR Protocol PoA mainnet is live but currently has limited functionality.
💰 TokenAnalyst, a crypto data analytics firm, announced its plans to shut down, with some members of the team headed to Coinbase. I expect more acquihires to materialize with dev talent gravitating to mature crypto profit centers (i.e. centralized exchanges) as tough times hasten industry consolidation.
💰 Ember Fund, a non-custodial app for easily investing in crypto portfolios, raised $700K through a Reg CF sale held on Republic, an investment platform.
💰 Abra, a crypto wallet provider, raised $5M from the Stellar Development Foundation. Funds will be used to expand products and services on Stellar.
🔓 DEFI / CEFI / OPFI
🔓 A new DeFi primitive enabling decentralized leverage: Yield, a protocol enabling fixed-rate lending and borrowing on Ethereum, raised a seed investment from Paradigm. Financial terms were not disclosed. Yield’s yTokens are like zero-coupon bonds and are secured by collateral. In October, I saw a demo of how tBTC can collateralize yDai from @yieldprotocol on UMA and then be traded on Uniswap. Before expiration yTokens trade at a discount allowing investors to infer an interest rate, enabling users to create a BTC/USD yield curve. Full write-up by yours truly on the demo here.
🔓 Bitcoin micro-payments via Lightning: Ryan Gentry, analyst at Multicoin Capital, reviews the current state of the Lightning Network and explores the idea of the Lightning Network as the base of Web 3.0.
🔓 Crypto dollar yields: Many have been drawn to DeFi due to high USD-denominated yields. DyDx published research on crypto dollar yields across centralized exchanges, institutional and retail lenders, decentralized protocols, automated market makers, and synthetic dollars through derivative exchanges.
💸 STOs / TOKENS / DAOs
💸 The Rise of Personal Tokens: Individuals are tokenizing themselves, offering investors access to upside via an Ethereum-based asset. Kerman Kohli introduced the “Initial $KERMAN Offering” to raise $30K in exchange for granting token holders governance rights over his life and access to his writings, information, and network. Kerman claims “$KERMAN exists as a utility-driven tool for my digital community and is not a security or investment contract and purely the redemption of my time.” Is this the next wave of unregistered security offerings or the next iteration of cool new financial products for freelancers?
💸 Privacy coins: Zooko Wilcox, founder of Zcash (fantastic Forbes profile here), asked the RAND Corporation to investigate how crypto is being used for criminal activities. “While privacy coins may intuitively appear likely to be preferred by malicious actors due to their purported anonymity-preserving features, there is little evidence to substantiate this claim.”
💸 Organizing cross-border activity at scale: Joel Monegro, GP at Placeholder VC, writes the case for Aragon DAO. “A sovereign digital jurisdiction independent of any single state or government could be important in a post-pandemic, physically-distant society with less travel, more remote work, and more conflict. Blockchains, smart contracts, digital assets provide the building blocks of such new infrastructure. Aragon makes them accessible to everyone.”
💸 Adding real-world assets as collateral to Maker: Paperchain submitted a MIP6 Proposal 3 for the addition of tokenized music streaming invoices to Multicollateral Dai. Paperchain will originate and administer the asset collateralization using Centrifuge’s Tinlake Protocol. This is the continuation of a joint pilot together, with the Maker Foundation where Paperchain tokenized and financed music streaming invoices.
💱 STABLECOINS & CBDCs
💱 Stablecoins & Ethereum: Nic Carter, Partner at Castle Island Ventures, explains the drivers behind Ethereum stablecoins growth and what it means for the value of ETH.
🌉 INFRASTRUCTURE & PARTNERSHIP
🌉 Modernizing securities lending infrastructure: The OCC, an equity derivative clearing organization, announced that it has selected Axoni, a tech firm specializing in multiparty workflows and infrastructure, to develop and implement a DLT solution to replace its existing securities lending infrastructure. The DLT solution will benefit OCC’s clearing member firms by increasing efficiency and reducing reconciliation and associated costs.
🍰 LAYER 1
🍰 Scaling Ethereum: BitMEX research examines Ethereum 2.0, which is set to launch in July 2020. “Ethereum 2.0 is exceptionally complicated. With so many committees, shards and voting types it seems reasonably likely that something will go wrong and that there will be significant further delays. However, despite all these potential issues, Ethereum 2.0 is still probably still worth a try. If this does succeed, the potential rewards are considerable.”
🍰🍰 LAYER 2
🍰🍰 Scaling synthetics: Synthetix, a synthetic asset issuance and trading protocol, and Optimism, an Ethereum Layer-2 research group, teamed up to launch a demo of the Synthetix Exchange, a platform to issue and trade synthetic assets, that’s powered by the Optimistic Virtual Machine.
⚖️ LEGAL
⚖️ NYDFS licensing: ErisX announced that Eris Clearing, LLC, its clearing and settlement arm for spot and regulated crypto futures, has secured a virtual currency license from the NYDFS. According to Superintendent Linda Lacewell, “DFS continues its commitment to fostering financial innovation in New York.”
⚖️ Telegram delays: Telegram’s decision to delay the launch of its TON blockchain for the second time triggered a clawback clause forcing the company to immediately pay investors back 72% of their investments. After offering to pay investors 110% of their investment in equity or GRAM tokens if they wait for the network to go live, Telegram received guidance from lawyers "not to pursue an option involving grams or another cryptocurrency due to its uncertain reception from the relevant regulators." In light of these delays, TON Labs enlisted devs and validators to launch the TON blockchain without Telegram’s participation.
PODCAST OF THE WEEK
Upcoming Virtual Events / Conferences
May 11-15: Consensus 2020 (Virtual)
May 14: ConsenSys: CBDCs & Stablecoins (Virtual)
May 19-20 - ANON Summit 2020 (Virtual)
May 25: Block Conf Digital (Virtual)
June 1-3: The Mainnet by Messari (Virtual)
June 24-26: Remote Crypto Con (Virtual)
June 15-21: Korea Blockchain Week (Seoul)
July 6-7: M2 Asset Management (Oxford)
July 15-16: Asia Blockchain Summit (Taipei)
July 22-23: Mining Disrupt (Miami)
Sep 11-16: Shanghai Blockchain Week by Wanxiang Blockchain (Shanghai)
Sep 28-30: Hong Kong Blockchain W=eek 2020
October 7-8: Token2049 (Hong Kong)
Q3 (tbd): Bitcoin2020 (San Francisco)
🎓Highlighted Industry Jobs (non-exhaustive list for NY)
If you would like to highlight jobs or internships in future editions, please email links here.
Open Roles:
Square CashApp - iOS Engineer - Banking, Cash App (new)
BlockFi - Trading Developer / Product Manager (new)
Transak - Full Stack Engineer (new)
Grayscale - Director, Technical Product Management / Legal Associate (new)
Bison Trails - Protocol Specialist / Various (new)
Fabric Ventures - Web 3.0 talent form (new)
Gemini - Various
Bakkt - Various Engineering
Kraken - Various
LedgerX - Various
Paxos - Various
Pantera Portfolio Co - Various
Chainalysis - Various
Messari - Various
Nothing written in RelayNode NYC is legal or investment advice and should not be taken as such. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.
