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RelayNode NYC #53 - May 18 - Harry Nakamoto & The Crypto Echo Chamber.

David Gogel

Welcome to RelayNode NYC Area edition! The NYC blockchain ecosystem is growing. Our goal is to harness its energy & innovation for the benefit of New Yorkers, & provide a weekly curated list of personal thoughts, interesting content, upcoming (virtual) events, and jobs.

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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

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Market Stats (as of Sunday, May 17th, 9:30 PM EST)

  • “Normalization” continues to progress as several countries and U.S. states ease their lockdowns. While equity markets started off last week brightly, they surrendered gains mid-week, driven by record drops in retail sales, industrial production, and consumer confidence, concerns over the US-China relationship, and 36M total unemployed in 2-months. The DJIA, S&P 500, and NASDAQ decreased by 2.7%, 2.3%, and 1.7%, respectively. Meanwhile, concerns about global growth and dovish comments from the Fed pushed gold prices to a 7 year high. Demand for oil picked up while OPEC supply cuts began to take effect.

  • Expectations for a rebound in 2H 2020, coupled with support from central banks, have helped equity markets recover. Further, the Fed’s promise to buy government debt and launch of the Secondary Market Corporate Credit Facility making purchases of corporate bonds / ETFs invested in the asset class provided support for US fixed income markets. However, supporting credit markets will not reopen businesses or get the unemployed to make new purchases. COVID-19’s ripple effects have led to deflation, with the US core CPI falling 0.8% in April. If demand for USD remains high and deflation persists, Treasuries are likely to gain, accelerating the rate of debt monetization.

  • It was another strong week in crypto markets with most assets enjoying price gains. Bitcoin made the headlines after successfully completing its 3rd halving and rose by ~14%, while Ether and Ripple rose by ~14% and ~6%, respectively. The total crypto market cap increased by ~11% and now sits at ~$270B.

1 Big Thing: Halving post-mortem

Bitcoin successfully underwent its third halving on May 11, 2020.

The last block before the halving, block 629,999, was mined by F2Pool and included an ominous yet sentimental headline from the NYT as a message:

"NYTimes 09/Apr/2020 With $2.3T Injection, Fed's Plan Far Exceeds 2008 Rescue.”

As expected, the miner reward then dropped from 12.5 BTC to 6.25 BTC per block, decreasing the annual issuance rate to ~1.8%.

Keep an eye out on mining metrics (e.g. hash rate, miner revenue, transaction fees). Since the halving, miner revenue from transaction fees as a percentage of total daily miner revenue has increased from ~3% to ~17%, driven by a rise in the average transaction fee.

While the halving event came and went, it was a timely reminder of deterministic monetary policy and generated a lot of interest from mainstream media, crypto enthusiasts, and institutional newcomers alike.

Meanwhile, Chris Dixon and Eddy Lazzarin from a16z explain the implications of price movement in the Crypto Price-Innovation Cycle:

“These cycles appear chaotic but have an underlying order, roughly characterized as 1) the price of Bitcoin and other crypto assets goes up, 2) leading to new interest and social media activity, 3) leading to more people getting involved, contributing new ideas and code, 4) leading to projects and startups getting created, 5) leading to product launches that inspire more people, eventually culminating in the next cycle.”

I am excited to see what the next wave of innovation will bring.

Go Deeper:

What To Read

🌐 MACRO / WHY BITCOIN?

  • 🌐 Entering the 4th epoch: Crypto Twitter tried to explain Bitcoin to Harry Potter author, J.K. Rowling. While entertaining to watch, most responses were confusing. Delphi Digital released its slightly longer than 140 characters 2020 State of Bitcoin report covering network metrics, market performance, software upgrades, and underlying narratives. Must read.

  • 🌐 Post-halving surge and peak in activity on CME: Investor interest in bitcoin options listed on the CME peaked to record highs in the days after the halving event. According to Coindesk and data from Skew, on the day of the Bitcoin halving, daily options trading volume on the CME jumped to $17M, surpassing the lifetime high of $9.9M. Volume has continued to grow ever since.

  • 🌐 New monetary asset that is climbing an adoption curve: Matt Huang, co-founder and Managing Partner at Paradigm, released a paper titled “Bitcoin for the Open-Minded Skeptic” outlining a simple and intuitive framework for Bitcoin as a new monetary asset. “We believe Bitcoin offers a compelling risk/reward profile for patient, long-term investors willing to spend the time to truly understand Bitcoin. We hope this paper provides a helpful starting point.”

  • 🌐 Where will capital find returns in the 2020s? With global interest rates for government “guaranteed” debt near zero (or negative), the asset class that was fixed income has disappeared. David G. Leibowitz, a veteran macro trader, explores different asset classes and makes a bullish case for Bitcoin.

  • 🌐 Crypto hedge funds Part Deux: PwC released its crypto hedge fund report estimating that AUM increased to $2B+ in 2019, up 100% YoY. The percentage of funds owning $20+M increased from 19% to 35%. The average fund size has nearly doubled with the median AUM increasing from $4.3 to $8.2M. The most common fund strategy is quantitative (48% of funds), followed by discretionary long-only (19%), discretionary long/short (17%), and multi-strategy (17%).

  • 🌐 Active managers outperformed passively holding bitcoin in Q1 2020: According to Vision Hill, on a net basis, the Vision Hill Active Crypto Indices-ACI (Composite) was up +8.8% on average, the VH-ACIF (Fundamental managers) was up +2.4%, the VH-ACIQ (Quantitative managers) was up +17.3%, and the VH-ACIO (Opportunistic managers) was up +16.9%. Putting these active management returns in context relative to some passive, public counterparts, BTC was down -10.5% on the quarter, the Bitwise 10 Large Cap Crypto Index was down -7.7%, and the Bloomberg Galaxy Crypto Index was down -1.5%.

  • 🌐 The future is unknowable: Howard Marks, Co-Chairman of Oaktree Capital Management, makes the case the world is more uncertain today than at any other time in our lifetimes. One has to be confident in active investing but if that confidence turns into hubris, the results could be catastrophic. Quoting French philosopher Voltaire, Marks signed off, says: “doubt is not a pleasant condition, but absurd certainty is.”

💰 FUNDING, M&A, EXITS

  • 💰FalconX, a crypto brokerage and digital asset trading platform for institutions, raised $17M in funding from Accel, Accomplice VC, Coinbase Ventures, Fenbushi Capital, Flybridge Capital Partners, Lightspeed Venture Partners, Avon Ventures, and a venture capital fund affiliated with Fidelity Investments. Funds will be used to introduce new products, expand its trade execution suite and scale infrastructure to support institutional demand.

  • 💰Blockdaemon, a blockchain node infrastructure provider with 250 institutional customers supporting 20+ protocols, raised $5.5M in strategic funding from investors including Hashkey, CoinShares, Blockchain.com Ventures, Kenetic, SPiCE VC, and Fenbushi Capital. Investment by major players in the Asia-Pacific region (Hashkey, Fenbushi Capital, and Kenetic) will help support expansion into the growing region.

  • 💰cLabs, the company behind the Celo Platform, a new Proof of Stake layer-1 blockchain digital payments, raised $10M through a Dutch Auction of the Celo Gold (cGold) token on CoinList’s platform. 500+ investors participated in the sale. The cGold tokens are expected to be distributed later this year.

  • 💰Lolli, a Bitcoin rewards application that has partnered with 750+ brands and merchants, raised $3M in a Seed II round led by Founders Fund's early-stage investment vehicle, Pathfinder, with participation from Michelle Phan, Ashton Kutcher's Sound Ventures, and Bain Capital Ventures. Funds will be used to launch a mobile app this summer and expand services internationally.

🔓 DEFI / CEFI / OPFI

  • 🔓 Cross-chain compatibility: Matt Luongo, founder of Thesis, announced that tBTC launched on mainnet. tBTC is an ERC20 token that is trustlessly backed by and redeemable for Bitcoin. It is a way for users to mint Bitcoin tokens on Ethereum. If tBTC brings BTC liquidity into DeFi, ETH could grow significantly.

  • 🔓 Decentralize and diversify governance: Balancer, a second-generation Automated Market Maker, announced the Balancer Protocol Governance Token (BAL), a native governance token that rewards users for providing liquidity to Balancer Pools. Jake Brukhman, Founder & Managing Director of Coinfund, has a great tweetstorm on how to evaluate governance tokens, which are being positioned as monetization for investors in zero-margin DeFi products.

  • 🔓 The perpetual swaps market is heating up: After running in Alpha, dYdX announced the launch of a BTC-USDC Perpetual Contract Market. The protocol released a report examining the different types of perpetual markets available, how they’re structured, and what traders should know before using them.

💸 STOs / TOKENS / DAOs

  • 💸 Community-based tokens: Reddit, the “front page of the internet” with 400M users, announced it is testing Ethereum-based tokens for users to earn rewards for contributing content. Two tokens, $MOONS and $BRICKS, will be issued to members of the subreddits /r/Cryptocurrency and /r/FortniteBR. Tokens or “Community Points” are a way for users to earn a piece of their communities by being rewarded for submitting quality posts and comments. Points can then be spent on premium features and are used as a measure of reputation. If successful, I expect other platforms to launch similar types of community points.

  • 🔓 Financialization of fandom: Grammy-winning producer and songwriter André Allen Anjos, known as RAC, released his new album BOY and a tokenized, limited-edition cassette tape. There will only be 100 of these tapes, and they are being sold using the $TAPE token, a digital token that can be redeemed for the physical cassette, on Zora, an Ethereum-based online marketplace. The $TAPE token was sold on a bonding curve on Uniswap with a starting price of $20 per token and reached an all-time high of $929.77 ($TAPE is currently trading at ~$293.) Zora charges a 1% trading fee and retains ~10% of generated revenues.

💱 STABLECOINS & CBDCs

  • 💱 Different regional use cases for stablecoins: Nate Maddrey and the Coin Metrics Team released a report on stablecoin transfer patterns showing that different stablecoins are used for different purposes. USDT-ETH transfers are concentrated during Asian and European market hours. USDC transfers are also clustered during Asian market hours, but not as densely packed as USDT-ETH. PAX transfers are more dispersed, which could signal that it is being used for non-institutional purposes. And DAI transfers mostly occur during U.S. hours.

  • 💱 Libra Association is growing membership: The Libra Association, charged with rolling out and monitoring Libra, announced that it has added several new investment firms as members. Singapore’s Temasek and venture investors Paradigm and Slow Ventures have joined the Switzerland-based oversight body.

  • 💱 Turning fiat into CBDC: Visa has filed a patent that would allow central banks to mint “digital fiat currencies.” The creation of the digital currency and the removal of the physical currency from circulation in a fiat currency system would be recorded on a blockchain.

🌉 INFRASTRUCTURE & PARTNERSHIP

  • 🌉 Banking crypto exchanges: According to the Wall Street Journal, JPMorgan has begun offering banking services to Coinbase and Gemini. The bank is offering cash management services to process wire transfers, and deposits and withdrawals through the ACH network. Adding credibility to the maturing industry.

  • 🌉 Institutions can now access regulated ether markets: On the heels of receiving a BitLicense, ErisX announced it is launching the first Ethereum futures trading platform in the US, regulated by the CFTC. The physically-settled futures contracts are the first to be authorized by US regulators.

  • 🌉 Hashrate futures: FTX, a crypto derivatives exchange, launched a new hashrate futures product, “that expire to the average BTC mining difficulty over a period of time. This means that they roughly represent the total hash power being used to mine BTC.” Futures contracts that are long Bitcoin’s hashrate for the next three quarters surged in price.

  • 🌉 Funding for derivatives trading infrastructure: The Block reported that of the $1.2B invested in “institutional infrastructure and client services”, $552.4M was invested in derivative trading firms. Bakkt accounted for 87% of the total investment for derivative products. Before 2018, 89% of all investment toward institutional solutions was either for custody or derivative products.

⚖️ LEGAL

  • ⚖️ Failure to launch: Telegram announced that it has canceled its blockchain network, the Telegram Open Network, following a long dispute with the SEC, which alleged that Telegram’s $1.7B ICO constituted an unregistered securities offering. Telegram started the process of buying out its US investors at 72% of their initial investments.

  • ⚖️ A self-regulatory organization in response to growing institutional interest in staking: The Proof of Stake Alliance (POSA), an industry advocacy group which includes Bison Trails, Coinbase, Polychain, Tezos and Cardano Foundation, published a series of recommended standards for companies participating in a proof-of-stake consensus protocol in an effort to reduce regulatory clampdowns on different networks. The group met with members of the SEC to discuss their proposals and discuss staking more broadly.

🎥 VIDEOS OF THE WEEK

Upcoming Virtual Events / Conferences

🎓Highlighted Industry Jobs (non-exhaustive list for NY)

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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.