IP Australia and National Rugby League Use Blockchain Against Fake Products

The intellectual property rights issuer of Australia will use blockchain to help NRL fight the sale of counterfeit merchandise.

Australia’s top-tier rugby league, the National Rugby League, along with IP Australia will trial a blockchain-based application to curb the sale of counterfeit products.

IP Australia is an agency of the Department of Industry, Innovation and Science that orchestrates and regulates the issuance of intellectual property rights and legislation relating to patents, trademarks, registered designs and plant breeder's rights in Australia.

Genuine products will be tagged with trust badges

According to a ZDNet report, the new application uses blockchain to enable trademark owners to link their products to the government register. It acts as proof of their products’ authenticity, their origin and helps them control the use of their mark. 

As part of the trial, NRL will link two of its online merchandise stores NRL Shop and Savvy Supporter with the platform. Doing so will attach a “trust badge” to each of these websites which will be visual proof for their customers that the websites have been verified by IP Australia. Customers will also be able to view information regarding the registered trademark by clicking on the trust badge.

Karen Andrews, Minister for Industry, Science and Technology, said that they can use the application to prevent the counterfeiting of Australia-made products. It “is a great example of how new technologies can be applied in very practical ways to grow the economy and create local jobs,” she added.

The “trust badge” initiative of IP Australia is part of the agency’s Smart Trade Mark platform which they are trialling across various industries to improve tracking and tracing of authentic products and minimize the sale of counterfeit products. 

IP Australia is also working with Indigenous Land and Sea Corporation and the Australian Nuclear Science and Technology Organisation to test the use of their blockchain application.

Bitcoin Price Seals Best Weekly Close in 2.5 Years: 5 Things to Know

Bitcoin has put in a crucial bull market sign for long-term investors as $12,000 returns to the market — can it hold?

Bitcoin (BTC) greets another week with a push to $12,000 and its highest weekly close since after it hit $20,000 — will it return?

Cointelegraph takes a look at five things that stand to impact BTC price performance in the coming five days.

BTC: A two-and-half-year record weekly close

Bitcoin hitting $12,000 again early Monday was more than just a boon for traders — in doing so, BTC/USD sealed its highest close on weekly time frames since January 2018.

This means that no single week of price action ended at such high levels since, including during the height of last year’s bull market.

Having pleased analysts for several months in the short term, Bitcoin thus followed through on longer timeframes — a crucial move to cement the upward trajectory.

Now, investors seeking confirmation that the bull market will continue may well have received it — versus daily and hourly developments, a multi-year high weekly close is significant.

BTC/USD was thus up 2.4% on the day, with weekly gains sitting at 7% and monthly returns at over 30%.

Price-wise, $12,000 represents the highest that Bitcoin has reached since June 2019, three months after a Q2 bull market took the cryptocurrency from $4,000 to $13,800 — a level which this cycle has yet to reach.

BTC/USD 7-day price chart

BTC/USD 7-day price chart. Source: Coin360

Trump pushes fiat instability

Bitcoin’s price surge comes the week after United States president Donald Trump added to existing geopolitical tensions by banning Chinese social media platform TikTok. 

The resulting escalation of ties with Beijing adds to existing weakness in the U.S. dollar and ongoing concerns over Coronavirus — a perfect storm for a flight to safe haven assets.

At the same time, Trump signed a series of executive orders on Coronavirus stimulus, something which now has a curious impact on markets which are already subject to heavy intervention from the Federal Reserve. 

This time around, however, the measures will have a smaller direct effect on the average American. A payroll tax delay, for example, does not go far enough in the eyes of critics.

“This fake tax cut would also be a big shock to workers who thought they were getting a tax cut when it was only a delay,” Bloomberg quoted Democratic Senator Ron Wyden as saying in a statement.

“These workers would be hit with much bigger payments down the road.”

It is this delaying the inevitable financial cost to personal wealth, which lies at the heart of the pro-Bitcoin argument — high-time-preference economic behavior ultimately costs much more in the long term than the immediate benefit to the target audience.

Bitcoin correlation: stocks or gold?

Where Bitcoin might head in the short term is now less clear cut when considering its historical performance versus other macro assets.

The period since March, which saw a cross-asset crash, was marked first by a correlation to stock markets, and then to safe havens and specifically gold.

Gold hit its all-time highs in U.S. dollar terms weeks before Bitcoin began significantly gaining, and its run has continued — until now.

A slight correction took XAU/USD to $2,030 from highs of near $2,075 — should the trend continue, Bitcoin may likewise cool off from its upward momentum.

Nonetheless, as Cointelegraph reported, incoming action from the Fed looks set to buoy the precious metal further in a “wildly bullish” policy shift to expanding inflation way beyond its current rate of 0.6%.

Stocks were likewise looking less stable — analysts were warning over fallout for developing markets thanks to Turkey’s currency crisis, and China sanctioning U.S. officials over Hong Kong added to pressure.

“Bitcoin up as tensions rise in Asia. Capital flight out of Asia taking the Bitcoin express,” RT host Max Keiser summarized, adding: 

“You can’t take it with you, unless it’s Bitcoin - then you can take IT ALL with you (Something near impossible with Gold).”

Futures gaps open below for BTC/USD

Another volatile weekend has opened up a classic feature for short-term Bitcoin price forecasting — a “gap” in CME Bitcoin futures markets.

The weekend’s volatility means that futures finished Friday at $11,680 and began again at $11,750. The resulting void provides a key price target, with Bitcoin historically filling such “gaps” within days or even hours.

Last week saw just such a setup emerge, with volatility aiding the trend after weeks of flat price action removed gaps from the market altogether.

Another gap lower down at $9,700 still remains from July.

CME Bitcoin futures chart showing recent latest gaps

CME Bitcoin futures chart showing recent latest gaps. Source: TradingView

All on schedule

For quant analyst PlanB, creator of Bitcoin’s stock-to-flow price forecasting model, the bullish action of the past weeks is exactly to be expected.

Earlier in August, PlanB noted that BTC/USD was filling out the stock-to-flow chart according to historical precedent — since May’s block subsidy halving, dots have confirmed that current behavior falls within the rules.

Bitcoin stock-to-flow chart as of August 10

Bitcoin stock-to-flow chart as of August 10. Source: Digitalik

On the topic of major players flipping bullish, meanwhile, he added last week that “when bitcoin was $4k in 2019, lot of big accounts were bearish, predicting $1k.” 

Behind the scenes, however, signs were that if $6,000 appeared, the mood would change to favor the bulls.

“That actually happened, we shot through $6k. Now many were bearish at $9k .. $13.5k will be interesting,” PlanB wrote.

Canadian Weatherman Frankie MacDonald Is Bullish on Bitcoin

Frankie MacDonald is the latest internet personality to use his platform to push adoption of Bitcoin to a seemingly new audience.

Frankie MacDonald, an amateur meteorologist based in Nova Scotia, has recently been using his platform to talk up Bitcoin in his charismatic voice.

In a series of tweets beginning Aug. 8, MacDonald posted videos stating his views on the cryptocurrency to his 118,500 followers. The Canadian weatherman said that Bitcoin (BTC) is “worth more than American dollars,” taking viewers through the numbers if they owned anywhere from 1 BTC — $12,007 as of press time — to 10 million BTC, or over $160 billion at the time.

New Bitcoin meme is born

The 36-year-old YouTuber began making videos on the platform in 2009, which focused on meteorology in Canada and the United States. MacDonald gained momentum online, standing out with his unique style of forecasts. 

After seeing a video of MacDonald shouting “Bitcoin” on Aug. 7, the crypto community has quickly picked up on the Canadian’s charisma and turned him into a new meme as the token surged past $12,000 on Aug. 10.

One of MacDonald’s mantras, featured in the title of his book and one of his songs, is “be prepared.” He has yet to associate the phrase with the volatility of cryptocurrency.

Influencers adopting Bitcoin?

A number of high-profile individuals not normally associated with cryptocurrency have been bullish on Bitcoin lately. 

After speaking with Anthony Pompliano on his July 1 podcast, comedian Bill Burr said he would be investing in Bitcoin for the first time. Podcaster and celebrity Joe Rogan has been using his platform to talk up the cryptocurrency to his more than 200 million listeners as part of his sponsorship with Cash App.

Even online personalities with more of a connection to the financial sector are speaking out. Cointelegraph reported on Aug. 4 that Dave Portnoy enlisted the help of Gemini co-founders Tyler and Cameron Winklevoss regarding Bitcoin. Portnoy told the twins he wanted them to “explain Bitcoin in a way that I would understand.”

China’s National Blockchain Network Launches International Website

China’s first government-backed blockchain initiative has just launched an official international website.

China’s blockchain-based Service Network (BSN), the country’s nationwide blockchain project, has just launched an official international website.

Appearing on Aug. 10, the new english-language BSN website aims to help bring global developers to the project.

Integration with six permissionless blockchains

He Yifan, CEO of Red Date Technology, a local private company and a founding member of the BSN, told Cointelegraph that the new website allows developers to use BSN services and public chain services via the portal.

As part of the new global effort, the BSN now features live integration of six public chains including Ethereum, EOS, Nervos, Tezos, NEO and IRISnet. This allows developers to build decentralized applications (DApps) and run nodes through the data storage and bandwidth at overseas BSN data centers.

Google and AWS are among major BSN partners

According to the website, the BSN project is planning to launch the so-called “Interchain Communication Hub” via IRITA interchain service hub and decentralized network Chainlink in October 2020.

Additionally, the new website features a number of major global tech and blockchain firms as BSN partners. Google and Amazon Web Services are listed as cloud service providers, while Hyperledger is noted as a permissioned blockchain supplier. “We have good support from several of the major cloud service providers because they really like the idea and vision of BSN,” He said.

First piloted in October 2019, China’s BSN network is a government-backed blockchain initiative that was initially positioned to help small to medium-sized businesses build and deploy blockchain apps on permissioned blockchains. The program was officially launched in April 2020 for global commercial use.

New York Financial Regulator Greenlights 10 Tokens for Custody

The regulator responsible for issuing licenses to crypto firms in NY greenlisted 8 coins for trading, including all 3 Paxos tokens.

The New York State Department of Financial Services has issued a greenlist of 8 virtual currencies for sale and trade, and 10 coins approved for custody by licensed entities.

According to a Aug. 3 update on the New York Department of Financial Services website (NYDFS), state regulators have approved 8 cryptocurrencies for listing and trading. These tokens include Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Binance USD (BUSD), Gemini Dollar (GUSD), Pax Gold (PAXG), and the Paxos Standard Token (PAX). The NYDFS also greenlighted the same coins for custody as well as XRP and Ethereum Classic (ETC).

“Any entity licensed by DFS to conduct virtual currency business activity in New York may use coins on the Greenlist for their approved purpose,” the NYDFS stated. However, it clarified that any licensed business needed to inform the regulatory body prior to using any greenlisted token. 

The announcement also stated that the NYDFS has the authority to remove any of the tokens from the greenlist at any given time, limit the activity of any coin, as well as discontinue the list entirely.

Regulating crypto in the US

The NYDFS is one of primary regulatory agencies for crypto-related businesses in the state of New York, as the regulator issues a major business license for cryptocurrencies, the BitLicense. As the home of the financial capital of the United States, the NYDFS is often at the front line of new regulation.

In June, the regulator announced that it would be allowing a conditional type of license for crypto firms to list tokens. Firms may be able to partner with an existing BitLicense holder to obtain dedicated guidance relating to the structure, capital, systems and personnel requirements.

Number of Bitcoin Cash Whales Drop Following 39% Price Surge

The number of Bitcoin Cash investors holding at least $3M dropped by 10 since Aug. 1 following the price surge to more than $311.

Following a 39% price surge at the end of July, at least 10 Bitcoin Cash whales have left the network, possibly trading or selling their millions in holdings. 

According to Crypto Twitter user Ali Martinez, data from analytics site Santiment shows the number of investors holding between 10,000-100,000 Bitcoin Cash (BCH) — roughly $3-30 million — has fallen by 10 since Aug. 1. The drop comes after the token surged 38.7% from $224.46 on July 17 to a three-month high of $311.34 on July 31, implying that a number of whales could have sold their holdings.

BCH continues to be the fifth largest crypto asset by market capitalization at $5.6 billion, with Chainlink (LINK) trailing at $4.6 billion. At the time of writing, Bitcoin Cash is trading at $307.84, having risen 3% in the last 24 hours.

Adjustments to BCH difficulty algorithm

Bitcoin Cash uses the SHA256D algorithm — the same as that used by Bitcoin. However, its hashing power is less than 5% of that of Bitcoin, which has sometimes left it vulnerable to a 51% attack.

In response, the BCH community has floated changing the algorithm as part of the network’s November upgrade. Cointelegraph reported on Aug. 7 that developers have worked out a compromise between two proposed solutions. The network will implement the ‘Aserti3-2d’ difficulty adjustment proposed by lead BCHN maintainer Jonathan Toomin, and an infrastructure funding plan.

Bitcoin Price Tackles $12,000 After Breaking Through a Key Resistance Zone

Bitcoin price has pushed through $12,000 for the second time this month but will it hold?

Within the last hour Bitcoin (BTC) price pushed through the $11,800 resistance and finally made its way back above $12,000. 

Crypto market daily price chart

Crypto market daily price chart. Source: Coin360

The sharp upside move came after a relatively quite weekly close as altcoins like Chainlink (LINK) and Band Protocol (BAND) had been basking in the spotlight with daily double digit-gains.  

As mentioned earlier by Cointelegraph contributor Rakesh Upadhyay, Bitcoin price had been consolidating into a pennant on the daily timeframe, thus a breakout to $12K was expected by many traders. 

Upadhyay said: 

“The BTC/USD pair has formed a pennant, which usually acts as a continuation pattern. A breakout and close (UTC time) above the pennant will be the first sign that bulls have gained the upper hand. The target objective of such a breakout is $14,756. However, as the overhead resistance of $12,304.37 is close by, traders can wait for the price to sustain above this level before turning positive.”

Now that the price has rallied through the $12K mark, bulls will need to provide enough volume to push to a new daily high above the August 2 high at $12,122.

 Bitcoin daily price chart

Bitcoin daily price chart. Source: Coin360

As Bitcoin price surged above $12,000, altcoins took a slight pummeling, especially BAND and Chainlink which saw sharp double-digit losses. 

LINK price dropped by 10% but has since recovered to trade above $13. BAND corrected by 31.34% as the price plummeted to $12.19 but at the time of writing the altcoin trades for $16. 

Cardano (ADA) also pulled back slightly, dropping by 2.39% to trade $0.145. 

According to CoinMarketCap, the overall cryptocurrency market cap now stands at $364 billion. Bitcoin’s dominance index currently at 60.9%.

Keep track of top crypto markets in real time here

Japanese Messaging Giant LINE’s LN Token Trading on BitMax

The native token of Japanese messaging giant LINE is now available for trading on crypto exchange BitMax.

Crypto exchange BitMax just made Japanese messaging app LINE’s token available for trading.

According to an Aug. 6 notice from LINE, the biggest messaging app in Japan with 84 million active monthly users will be making its native LINK (LN) token available for trading through crypto exchange BitMax. This makes LN the sixth crypto asset currently supported by the exchange, including Bitcoin (BTC), Ethereum (ETH), XRP, Bitcoin Cash (BCH), and Litecoin (LTC).

The LN token was originally issued in 2018 for users as part of a rewards program through the messaging app. BITFRONT, LINE’s native exchange that covers areas outside Japan, started supporting the token in October 2018. 

LINK or Chainlink?

Though the unabbreviated name of LINE’s token is LINK, it has absolutely no connection to crypto asset Chainlink (LINK). LINE’s LN token launched in August 2018, almost a year after Chainlink debuted.

Perhaps in an attempt to differentiate itself from Chainlink, LINE’s website and LN whitepaper no longer refers to the original blockchain name of “LINK chain,” but rather the LINE blockchain.

However, In a statement to Cointelegraph, a representative from LINE said the company had no plans to rebrand or rename the cryptocurrency.

The price of the LN token is $20.99 at the time of writing, having risen 31.8% in the last 24 hours.

How Miners Can Hedge Their Inventory to Increase Return on Investment

Strategies from the world of traditional finance could offer promise for miners who want to lower the risk associated with holding inventory.

To a newcomer, crypto mining may sound deceptively easy — essentially, a way to switch on a machine, walk away and watch the lucrative crypto rewards roll in. But the reality is a little more complicated.

The oldest and most powerful crypto out there, Bitcoin (BTC), uses a proof-of-work algorithm to ensure it’s blockchain’s security, and plenty of other influential cryptos have followed suit. Miners in PoW protocols receive a crypto reward whenever they’re the first to submit a correct answer to the cryptographic math problem that seals each new block of data on the blockchain. The more miners there are operating on one blockchain network, the stiffer the competition becomes to solve this problem and win a crypto reward. 

To improve their chances, miners generally use hardware rigs that demand more and more hardware components and electricity to become more powerful. Crypto miners need to make significant rig investments and pay high monthly electricity bills if they want any chance of earning a mining reward more than once or twice in a blue moon.

Regions with cheaper electricity tend to attract more miners, but even among these operations, profit margins tend to be tight. As a result, miners generally sell off their mined crypto as soon as they can. Selling their earnings for fiat not only helps them keep their rigs turned on but also lowers the risk of wiping out their profits or even having their capital sunk into mining equipment if market prices drop. That cautious business model also makes it harder for miners to earn a high return on investment, which is enjoyed by more institutional crypto traders — especially when they have access to sophisticated strategies borrowed from the world of derivatives and traditional finance.

But as crypto markets continue to mature, more and more asset classes become available to miners and can help them earn a higher ROI on their mining investment — without risking huge losses in a volatile crypto market.

Interest-bearing accounts

High-interest accounts are an ideal low-risk solution for any crypto owners who feel bullish about their assets and prefer to hold. Miners can deposit their inventory with account providers, who use those held assets to provide loans to vetted crypto users looking for extra capital. 

The borrowers repay their loans to the account providers over time with interest, and the account provider shares that interest with the account holder. These accounts tend to generate more interest the longer account owners agree to lock up their funds. Typical accounts with popular services such as Compound, BlockFi, Celsius and DeFiner offer 5%–10% annualized returns.

Futures contracts

Crypto experiences market volatility like any other commodity — and futures contracts can help miners turn that volatility into a revenue generator. Futures contracts are securitized agreements to sell and buy an asset at a price and time agreed upon when the future is created. Crypto miners can lock up some of their crypto inventory in a futures contract and sell that contract for more than the crypto’s current marketplace value.

During periods of a market condition called contango, futures contracts are priced higher than their current “spot price” — the market price traders pay to immediately acquire the asset. The difference between futures prices and spot prices is also referred to as the premium to spot pricing. Instead of selling their newly mined crypto for the current spot prices, miners can sell a dated futures contract to lock in that premium.

While exploring futures contracts, miners should be aware that they’re often cash-settled, meaning upon expiration, the futures seller will transfer the cash equivalent of the buyer’s promised position in the underlying asset’s market rather than the asset itself. Cash settlement is of limited use to crypto miners who actually own and eventually want to transfer their tokens, so miners should focus on physically settled futures contracts to ensure that their inventory actually changes owners.

Options contracts

Someone selling an option isn’t selling an asset itself — rather, they’re selling the right, but not the obligation, to buy that asset at a set price (called a strike price) at a later, agreed-upon time. Miners can sell options on their existing inventory and future inventory. 

After selling options on future inventory, they can use revenue from the sale to increase their mining operation’s output per day, setting them on the right track to meet future obligations created by the options. Traders can also sell options that are “in the money,” which means that their eventual strike price is lower than the crypto asset’s current price. 

If the market price is still above the strike price when the contract expires, the option holder is likely to exercise it, and the miner sells their inventory at the agreed-upon strike price as indicated in the options contract. If the market price is below the strike price, then the holder won’t exercise it because they could get the same amount of crypto for cheaper going directly through the market. With the option expired and unused, the crypto miner gets to keep both the original crypto inventory and the premium they made selling the option in the first place.

Contracts are key to implementing a “Collar,” one of the most common hedging strategies for crypto inventory. To use a Collar, miners buy two kinds of options simultaneously. They would buy a put option below the market price of the asset, which is the right to sell the token at a set time and price. However, they would sell a call option above the market price of the asset, which is the right to buy the token at a set time and price. 

Sale of the call option generates the revenue needed to cover purchasing the put and only cuts into the trader’s profit if the token’s spot price eventually increases above the price delineated in the call option. If the token’s market price drops below a certain benchmark, miners can exercise their put option at its expiration and sell off their inventory at the put’s price rather than actual, lower market prices. The Collar thus keeps the miner from experiencing huge losses or huge gains even in a volatile market.

Collar options strategy setup example

In this example, the miner has asset protection in the event the price drops below $220, however, the profit is limited if the asset price rises past $260 due to the sale of the call option. The net cost of protection is a profit here due to the difference between the sale and purchase of the call and put, respectively. The maximum profit is limited to $23 and the maximum loss at $17, given the current ETH/USD price of $239.

Over-the-counter negotiations

Over-the-counter negotiations go through avenues outside of exchanges and other public venues, happening instead mostly through brokerages and private transactions. Most crypto miners who use OTC services sell forward contracts. Forward contracts, much like futures contracts, consist of agreements to sell an asset at an agreed-upon time and price. But while futures contracts are standardized to be bought and sold in trading venues, forward contracts tend to be customized to meet the needs of each buyer and seller. 

Some customizable aspects include the amount of the asset and the agreed-upon date but can generally include any terms, given all parties involved agree to them. Miners can sell forward contracts on inventory they don’t even own yet through OTC negotiations and use the sale revenue to expand their mining operation, which makes it more likely they’ll end the contract both meeting its inventory terms and possessing a more powerful mining rig.

Conclusion

The aforementioned strategies are from the world of traditional finance, and they can offer some promise for miners who want to increase their ROI without increasing the risk associated with holding inventory. In addition to immediate ROI increases and higher inventory retention, these strategies could also make overall market conditions better for market participants as a whole. Without the constant supply pressure of miners trying to offload their mining rewards immediately, crypto prices are likely to go up, making rewards more valuable and mining more profitable.

In practice, sophisticated miners will likely use a combination of these strategies. For example, miners may opt to hold the majority of their inventory in interest-bearing accounts and a smaller portion on a derivatives trading venue where traders buy and sell options and contracts to hedge their overall position. 

Derivative platforms typically provide leverage on the collateral posted at the venue, and miners will benefit from the time duration associated with the derivative contracts. Executing this strategy will undoubtedly both increase the return on the investment for the mine operators and improve market pricing as a whole.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article was co-authored by Warren Lorenz and Aly Madhavji.

Warren Lorenz is the chief strategy officer of Pipefold — a non-custodial clearinghouse for digital assets that eliminates counterparty risk, liquidity risk and hacking risk, helping institutions to efficiently allocate capital across crypto markets. Warren is also a limited partner at Weave Markets — a digital asset hedge fund — and was the previous managing director of trading operations at Amplify Exchange. As an entrepreneur, Warren has built multiple products that were licensed and sold to hedge funds, proprietary trading offices and family offices.

Aly Madhavji is the managing partner at Blockchain Founders Fund, which invests in and builds top-tier venture startups. He is a limited partner at Loyal VC. Aly consults organizations on emerging technologies, such as INSEAD and the United Nations, on solutions to help alleviate poverty. He is a senior blockchain fellow at INSEAD and was recognized as a “Blockchain 100” Global Leaders of 2019 by Lattice80. Aly has served on various advisory boards, including the University of Toronto’s Governing Council.

BAND Token is Now Available for Trading on Huobi Global

The BAND native token will be supported for trading on Huobi Global beginning August 10.

Band Protocol, the cross-chain data oracle platform, said that its token BAND has been listed on Huobi Global exchange.

The company clarified in a press release on its blog that trading on BAND token will start on August 10. Huobi will support BAND/U.S. dollar, BAND/BTC and BAND/ETH trading pairs. 

Regarding deposits, the company stated that they will be available from August 9 and for withdrawals, they will be available from August 10.

The company noted that at present, withdrawals and deposits will be limited only to BAND-mainnet coins and that the time for opening and withdrawing BAND-ERC20 coins will be notified later with another announcement.

It is worth noting that BAND token listing on Coinbase Pro was announced on August 5th, with transfers to begin on August 10. Accepting transfers will be during business hours, Pacific Time, and limited to all jurisdictions supported by Coinbase, except New York State.

Last month, Band announced a partnership with South Korea’s ICON blockchain network.

Ethereum Options Data Suggests Pro Traders Expect ETH Price to Break $400

Ethereum price has stalled below $400 but ETH options data suggests the altcoin will push through the resistance level soon.

Ethereum (ETH) options open interest increased by 5 fold over the past three months to reach $337 million. 

Although this figure pales in comparison to the current $1.8 billion Bitcoin (BTC) options market, Ether options have grown to reach the same size the BTC options market was roughly 15 months ago.

ETH options open interest in USD terms

ETH options open interest in USD terms. Source: Skew

Options are divided into two basic instruments: calls, aimed mostly for bullish strategies, and puts, used chiefly on bearish trades. 

This is a simplistic view, but it provides a bird’s-eye-view of what professional traders expectations are as large trades weigh heavier on the index.

ETH options open interest put/call ratio

ETH options open interest put/call ratio. Source: Skew

This put/call ratio touched 0.37 in mid-March, indicating put options (bearish) open interest was 63% lower than call options (bullish). All this changed after the crypto market crash on March 12 when Ether price collapsed by more than 40%.

Traders began building protective positions at an impressive pace, and the put/call ratio reached 1.04 in early-June, indicating put options had higher open interest than calls. 

As Ether (ETH) failed to break $250 level, open interest receded a bit to 0.84 in mid-July.

Oddly enough, despite the recent 64% rally to current $390 since July 20, options markets continue to add more bearish put options. This indicator shouldn’t be analyzed on a standalone basis as these puts could be worth pennies if their odds are considered low.

Strikes above $400 are not common

Another widely used indicator is the comparison of open interest above and below current market levels. 

To reduce the impact of the $400 expiry concentration, one should analyze open interest 6% below the current $390 Ether price and 6% above, thereby excluding such levels.

ETH options open interest by strike (thousand)

ETH options open interest by strike (thousand). Source: Skew

There are currently 530K ETH options below the $370 expiry, versus 280K ETH with strikes above $400. This indicates 65% options strikes regardless of calls or puts, below current market levels.

Such an indicator might prove most traders were not expecting such a strong rally, although it doesn’t necessarily translate to bearishness. 

Given enough time, more trades should go through expiries above $400, and this ratio could balance itself.

Not every indicator is bearish

Options skew measures how much more expensive call options are relative to similar risk put options. A hands-on approach of measuring it compares a call option price 10% above underlying futures reference to a put option 10% below.

In a neutral market, the mark (fair) price for both should be very similar. If the call option is more expensive, it indicates market makers are demanding more money for upside protection. 

This is a bullish signal, whereas the opposite with a more expensive put option equates to bearishness.

Deribit Ether (ETH) options for September 25 expiry

Deribit Ether (ETH) options for September 25 expiry. Source: Deribit

On August 8, ETH markets relative to the $400 underlying September futures are signaling bullishness. Upside protection (call options) 10% above are trading at 0.082 ETH while downside protection (put options) at 0.0693, hence 15.5% cheaper.

This is undoubtedly a bullish indicator, and shouldn’t be biased by recent price changes as market makers continually reevaluate bids and offers according to volatility and market conditions.

Futures contracts also favor bulls

The single most important indicator of a futures contract is the basis level. This is measured by comparing 1-month and 3-month contracts versus the current spot price. 

A healthy market should display a contango situation, with futures trading at a 5% or more annualized premium.

Bearish markets will either display a neutral basis, below 5% annualized, or even worse in a situation known as backwardation as the basis goes negative.

ETH 1-month futures annualized basis

ETH 1-month futures annualized basis. Source: Skew

Currently, ETH futures annualized basis has been sustaining levels above 10% for the past two weeks, indicating a very bullish tone from the standpoint of futures trading. 

One should note that the current 20% contango might indicate excessive leverage from buyers, but it is not necessarily dangerous. If most of the leveraged futures positions have been created below current price levels, buyers are comfortable enough to pay for the high carry cost.

Past performance is no guarantee of future results

Many technical analysis traders only analyze the daily and weekly charts to provide insight on an asset’s future possibilities but this generates an incomplete view of the asset’s situation. 

Monitoring how market makers are currently pricing options markets and the status of the  current future contracts’ premium seems a better way to gauge professional traders sentiment.

Both options put/call ratio and the amount held at each strike level seem contaminated by volumes that happened over two weeks ago, when Ether was trading below $300.

At the moment, trading data on options and futures markets points to a strong bullish perspective from professional traders. This is a good indication that the $400 resistance can be broken over the next couple of weeks.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Minneapolis Fed’s Kashkari Calls for Stricter Lockdown

The president of the Minneapolis Federal Reserve calls for stricter lockdowns to help save the economy.

The president of the Minneapolis Federal Reserve, who once claimed the Federal Reserve was flush with cash, called for a nationwide lockdown to fight COVID-19. 

In an op-ed in The New York Times, Neel Kashkari and co-writer Michael T. Osterholm of the Center for Infectious Disease Research and Policy at the University of Minnesota said a more restrictive lockdown of up to six weeks is necessary to fight the virus and save the economy. 

Kashkari and Osterholm said the U.S. “gave up on our lockdown efforts to control virus transmission well before the virus was under control.” For them, there is no trade-off between health and the economy, but, for a lockdown to truly work, only truly essential workers must be allowed to work. 

They said the problem with the earlier lockdowns from March to May was that some states deemed a large portion of its population essential workers. But the Economic Policy Institute said only 39% of workers in the U.S. are essential. 

“If we aren’t willing to take this action, millions more cases with many more deaths are likely before a vaccine might be available. In addition, the economic recovery will be much slower, with far more business failures and high unemployment for the next year or two. The path of the virus will determine the path of the economy. There won’t be a robust economic recovery until we get control of the virus.”

Kashkari previously said the Fed had infinite cash. As Cointelegraph previously reported, this kind of quantitative easing strategy provides long-term benefits for Bitcoin and other cryptocurrencies. The pandemic and economic recessions usually offer people ample opportunities to invest in non-traditional assets such as crypto. 

Lockdowns due to COVID-19 vary state by state. For example, New York entered Phase 4 of re-opening as of July 20, allowing the opening of zoos, resumption of sporting activities sans spectators, and the resumption of film production activities. Some states, however, paused reopening.

More Than 10,000 New Blockchain Companies Established in China in 2020

LongHash said China’s blockchain companies have increased substantially and recorded an all-time high in 2020 despite Covid-19.

Blockchain and crypto data platform LongHash revealed on August 8 in a tweet that China’s blockchain sector has grown substantially despite the pandemic this year. It stated that over 10,000 blockchain companies were established between January and July. 

The report also shows the current number of blockchain-related companies in China is on track to surpass 2017’s total figure. LongHash said 2020 could also pass 2018’s total of 18,500 and for a new all-time high.

LongHash Tweet

Source: LongHash Tweet

The figures show that there are 84,410 registered companies and, of these, 29,340 are in operation. The Guangdong Province in Southeast China has the highest number of blockchain startups with Yunnan Province in the southwest coming in second. 

However, the majority of the blockchain companies registered with only a small capital.  It shows the maximum registered capital was 5,000 yuan, which is about $717. Meanwhile, only a few of them registered with over 50,000 yuan, about $7,175.

As Cointelegraph previously reported, the Chinese government is implementing blockchain for trying to bring more efficient government services. China’s central bank also got $4.7 million in funding for its blockchain trade platform in the next three years. The country approved 224 blockchain projects from major companies, including JD, Walmart, China, and Baidu.

Top 5 Cryptocurrencies to Watch This Week: BTC, ETH, XRP, XMR, XTZ

Bitcoin and most altcoins are likely to remain range-bound for a few more days before resuming the next leg of the up move.

The U.S. markets have rallied sharply from their March lows, led by the tech sector and Fed injections designed to hold up the ailing economy. 

Markets across the globe have also joined the party as a steady economic recovery from the coronavirus pandemic picks up steam. 

The fast-paced rally in global stock markets has pushed the Buffett Indicator into the bubble territory, which suggests that the markets might be overheated in the short-term.

Similarly, gold has seen a sharp rally in 2020 and last week the asset reached a new lifetime high. Silver also followed suit and is trading near multi-year highs. 

This suggests that traders have been diversifying their portfolio into various assets to protect against the debasing of fiat currencies.

Crypto market data daily view

Crypto market data daily view. Source: Coin360

These circumstances are also favorable for Bitcoin (BTC), which has rallied sharply from its March lows. 

However, the biggest cryptocurrency is trading well below its all-time highs, which signals that if the bullish trend continues then there is plenty of potential upside. 

Therefore, even if stocks and gold correct, Bitcoin could behave as an uncorrelated asset during that period. 

BTC/USD

The average directional index (ADX), a component of the directional movement indicator, is above 41, which suggests that Bitcoin is in a strong trend. The positive directional indicator (+DI) is above the negative directional indicator (-DI), indicating advantage to the bulls.

BTC/USD daily chart

BTC/USD daily chart. Source: TradingView

The bulls purchased the dip on Aug. 2 but they are facing resistance close to the overhead zone of $12,113.50–$12,304.37. The BTC/USD pair has formed a pennant, which usually acts as a continuation pattern.

A breakout and close (UTC time) above the pennant will be the first sign that bulls have gained the upper hand. The target objective of such a breakout is $14,756. However, as the overhead resistance of $12,304.37 is close by, traders can wait for the price to sustain above this level before turning positive.

The bears are likely to pose a challenge at $13,000 but that level is likely to be crossed. However, at $14,000 a minor consolidation or a correction is possible.

Contrary to this assumption, if the price dips below the pennant, a drop to the 20-day exponential moving average ($10,957) and then to $10,400 is possible. 

A break below this level will be the first sign that bears are making a comeback. If the $10,000 level cracks, the correction is likely to deepen.

BTC/USD 4-hour chart

BTC/USD 4-hour chart. Source: TradingView

The ADX on the 4-hour chart has dropped to 17.6 level and the +DI and -DI are close to each other, suggesting a range-bound action in the short-term.

A breakout and close (UTC time) above the pennant will signal strength. However, the bears are unlikely to give up without a fight. They will again attempt to stall the up move in the $12,113.50–$12,304.37 zone.

If the price turns down from this zone, a few days of range-bound action between $10,400 and $12,304.37 is possible. However, if the bulls drive the price above $12,304.37, the momentum is likely to pick up.

ETH/USD

Ether (ETH) is currently consolidating in a strong uptrend, with the ADX above 59 levels. The bulls have not allowed the price to dip below the $366 support, which shows that traders are not booking profits in a hurry.

ETH/USD daily chart

ETH/USD daily chart. Source: TradingView

After the strong rally, if the ETH/USD pair does not give up ground, it is a sign that traders expect the uptrend to resume. In this case, a breakout and close above $415.634 will indicate the possible start of the next leg of the up move.

The first target to watch out on the upside is $480 and above it the rally can extend to $542. However, instead of the breakout, if the bears sink and sustain the price below $366, a drop to the 20-day EMA ($347) is possible. If the pair rebounds off this support, the bulls will attempt to resume the uptrend.

If the bears sink the price below the 20-day EMA, a drop to the next support at $320 is possible. 

The deeper the pullback, the longer time it will take for the next leg of the uptrend to begin. A break below $320 will indicate that the advantage is with the bears.

ETH/USD 4-hour chart

ETH/USD 4-hour chart. Source: TradingView

The 4-hour chart shows a symmetrical triangle formation, which generally acts as a continuation pattern. The ADX has dipped below 18 and the +DI and -DI are close to each other, suggesting a consolidation in the short-term.

If the bulls can push the price above the triangle, it will indicate strength but the momentum is likely to pick up only after the price sustains above $415.634. 

On the other hand, if the bears sink the price below the triangle, it will suggest profit booking by the bulls and will increase the possibility of a deeper correction.

XRP/USD

XRP started a strong up move from $0.194008 on July 21 that carried it to a high of $0.326113 on Aug. 2, which is a 68% rally within a short time. This has pushed the ADX close to 52 level, suggesting a strong trend. 

XRP/USD daily chart

XRP/USD daily chart. Source: TradingView

Currently, the XRP/USD pair is correcting the uptrend as short-term traders book profits. This could drag the price to $0.275649, which is the 38.2% Fibonacci retracement level of the most recent leg of the up move. Below this level, the next support is likely to be the 20-day EMA ($0.264).  

If the pair rebounds off either support, it will suggest that the bulls are buying the dips. If they can push the price above the flag, it will be the first sign that buyers have overpowered the sellers.

Above the flag, the first resistance could be $0.326113 and then $0.346727. If the bulls can propel the price above this zone, the momentum is likely to pick up. The next target to watch out for is $0.422. 

This bullish view will be invalidated if the bears sink the price below the flag. Such a move could signal a deeper correction.

XRP/USD 4-hour chart

XRP/USD 4-hour chart. Source: TradingView

The ADX on the 4-hour chart has dropped to about 21 level and the price is consolidating inside a symmetrical triangle, which suggests a balance between the bulls and the bears.

If the bulls can push the price above the triangle, a move to $0.326113 is possible. A break above this level might signal the resumption of the up move.

Conversely, if the bears sink the price below the triangle, a deeper correction to the 68.2% Fibonacci level of $0.244472 is possible.

A break below this support could result in a complete 100% retracement of the most recent leg of the up move, dragging the price down to $0.194008.

XMR/USD

Monero (XMR) hit an intraday high of $96.5594 on Aug.6, which met the target objective of $95 as suggested in an earlier analysis. The rally of the past few days has pushed the ADX to above 54 levels, which suggests a strong trend.

XMR/USD daily chart

XMR/USD daily chart. Source: TradingView

During two previous occasions (marked via ellipses on the chart) the XMR/USD pair had reversed direction from close to the $97.4615 level. Hence, the bears might again mount a strong defense at this resistance.

However, the pair has formed two successive inside day candlestick patterns in the past two days, which suggests uncertainty among the bulls and the bears about the next directional move.

A breakout and close (UTC time) above $97.4615 is likely to resume the uptrend. The next target objective is $121, with a minor resistance at $107, which is likely to be crossed. Traders can turn positive after the price sustains above $97.4615.

Conversely, if the bears sink the price below $90, a deeper correction to the 20-day EMA ($84) is possible.

VET/USD 4-hour chart

VET/USD 4-hour chart. Source: TradingView

The ADX on the 4-hour chart has dropped to below 15 levels, and the +DI and the -DI are close to each other, suggesting a balance between the bulls and the bears. The 20-EMA is also flattening out, which is another indication of a consolidation.

A breakout of $97.4615 will signal the likelihood of the start of the next leg of the uptrend while a break below $90 will indicate that the bears are making a comeback.

XTZ/USD

Tezos (XTZ) broke out of the $2.63–$3.25 range on Aug.8, which suggests that the bulls have overpowered the bears. The 20-day EMA ($3.08) is sloping up, which also suggests that the bulls have the upper hand.

XTZ/USD daily chart

XTZ/USD daily chart. Source: TradingView

If the bulls can sustain the price above $3.25, the next target objective is $3.87, which is just below the Feb. 19 highs of $3.97. The bears are likely to mount a stiff resistance at this level but if the bulls can scale the price above it, the momentum is likely to pick up.

Currently, the ADX is close to 18 levels, which suggests that the trend has still not picked up strength. The bears will make an attempt to drag the XTZ/USD pair back below $3.25. If they succeed, the pair could remain range-bound for a few more days.

XTZ/USD 4-hour chart

XTZ/USD 4-hour chart. Source: TradingView

The 4-hour chart shows that after two failed attempts, the bulls have finally managed to sustain the price above the range. The 20-EMA has turned up, which suggests that the bulls have the upper hand.

If the bulls purchase the retest of the $3.25 support, it will be a positive sign and will indicate that the sentiment is to buy the dips. A strong bounce off this support could offer a low-risk entry opportunity to the traders who are bullish.

Conversely, if the bears sink the price back below $3.25, then it will indicate that the current breakout was a bull trap.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Researchers Claim Crypto Exchange Hacks Happen in Three Ways

Hacks into crypto exchanges target open-source libraries and take advantage of inside jobs researchers said.

Researchers at the Black Hat security conference revealed that crypto exchanges might be vulnerable to hackers. Although crypto exchanges have high privacy and security to protect their funds, researchers still found three ways hackers can attack these crypto exchanges, according to Wired on August  9.  

The crypto exchange attacks were operating more like “an old-timey bank vault with six keys that all have to turn at the same time,” the report said. Cryptocurrency private keys were broken into smaller pieces. It means an attacker has to find them together before stealing funds. 

Aumasson, a cryptographer, and Omer Shlomovits, cofounder of the key-management firm KZen Networks broke down the attacks into three categories: an insider attack, an attack exploiting the relationship between an exchange and a customer, and an extraction of portions of secret keys. 

An Insider’s job, open-source library flaws and trusted parties verification 

An insider or other financial institution exploiting a vulnerability in an open-source library produced by a cryptocurrency exchange is the first way where hackers can attack the exchange, says the report. It explained that:

“In the vulnerable library, the refresh mechanism allowed one of the key holders to initiate a refresh and then manipulate the process so some components of the key actually changed and others stayed the same. While you couldn't merge chunks of an old and new key, an attacker could essentially cause a denial of service, permanently locking the exchange out of its own funds.”

An attacker could also leverage another unnamed key management from an open-source library flaw in the key rotation process. The attacker can then manipulate the relationship between an exchange and its customers with false validation statements. Those with malicious motivations can slowly figure out the private keys from exchange users over multiple key refreshes. Then a rogue exchange can start the stealing process, according to the report. 

The last way researchers said attacks could occur is when crypto exchange trusted parties derive their portions of the key. Each party reportedly generates a couple of random numbers for public verification. Researchers pointed out that Binance, for instance, didn't check these random values and had to fix the issue back in March. The report added that: 

“A malicious party in the key generation could send specially constructed messages to everyone else that would essentially choose and assign all of these values, allowing the attacker to later use this unvalidated information to extract everyone's portion of the secret key.”

Shlomovits and Aumasson told the news that the goal of the research was to call attention to how easy it is to make mistakes while implementing multi-party distributed keys for cryptocurrency exchanges. Specifically, these mistakes can be even more vulnerable in open-source libraries. 

As Cointelegraph reported before, CryptoCore launched a phishing campaign against several crypto exchanges and managed to steal $200 million in two years.

China’s Mining Dominance Unlikely to Last: Lopp

With more chips produced outside of Asia and more countries offering cheaper power, China’s mining dominance may not last said Jameson Lopp.

China’s dominance in Bitcoin mining may not last as more mining chips are produced and other countries offer cheap power sources, said cypherpunk Jameson Lopp in a blog post

Lopp noted China has a virtual monopoly on Bitcoin mining mainly because most of the facilities that manufacture of mining chips are in Asia and its cheap power.

“Over the very long term I expect we will see semiconducter foundries outside of Asia begin producing more mining chips and countries with even cheaper power sources will continue to become more industrialized, thus providing more competition when miners are seeking out new locations to set up shop. China's mining dominance is unlikely to last.”

Decentralizing mining from mining pools gives individual hashers more control, Lopp said. He points to two projects already implementing further decentralization to Bitcoin: Betterhash and Stratum V2. 

Despite China’s mining dominance, however, Lopp still believes the country doesn’t entirely pose a threat to Bitcoin. Even if a state actor wants to seize control of all mining activity, there are far too many independent observers on the Bitcoin network. As it is, Lopp said, bots exist that monitor orphaned blocks. Any action by a state or even an individual bad actor immediately gets noticed. 

“It's hard to imagine a scenario in which a state actor would be able to quickly and covertly seize enough hashpower to perform an ongoing attack that lasts more than a few hours. A worst case scenario in which state actors did seize all of the physical equipment could result in China only mining empty blocks and orphaning other blocks that did contain transactions, essentially halting all transaction confirmations on the network. Then it would become a game of either patiently waiting for them to give up or coordinating a code change that would make their hashing machines worthless.”

Other countries are vying for a piece of the Bitcoin mining market. The Iranian government approved a national strategy for mining owing to its affordable electricity offerings.

Bitcoin Halving and Ethereum 2.0 Bring Big Changes for Crypto Miners

How Bitcoin’s third halving, Ethereum 2.0’s launch and the COVID-19 pandemic are affecting the crypto mining industry.

Although over two months have passed since the halving happened on the Bitcoin network, the crypto mining industry is still heaving from the frantic pace of events that have followed suit. The rollercoaster of hash rates has left Bitcoin (BTC) and Ether (ETH) prices soaring while provoking mixed feelings among crypto miners.

The COVID-19 pandemic has left its mark on the industry as well, forcing dozens of pools to either switch off or shift their focus from Bitcoin, with its increasing mining difficulty, to less complicated altcoins that are trailing the Big Daddy of crypto.

The impending launch of Ethereum 2.0 is giving food for thought for all miners in their strive to maintain profitability in light of the challenges facing the mining hardware market. After the Bitcoin halving and the onset of the coronavirus pandemic, private miners were left reeling, but large manufacturers were also affected. Will the upcoming Ethereum upgrade aggravate the situation for mining device producers, or is it just another milestone that will be easy to adapt to?

Fewer, but still in business

The Bitcoin halving resulted in a serious cleansing in the mining market, with small miners losing all sense of remaining, but the near extinction of private farms was not followed by a significant reduction in major pools.

Alejandro De La Torre, vice president of the Poolin mining pool, stated that 15% to 30% of private miners producing Bitcoin’s hash rate are under immense pressure to remain afloat and are gradually shutting down. A decline of up to 20% in the hash rate is also expected in the short term, with an average daily drop of 6.5%. In total, the hash rate seesawed after the halving from highs of 135 exahashes per second to 98 EH/s, or a 27% decline. But that did not affect interest in the cryptocurrency, as institutions poured into the derivatives market, with Bitcoin options open interest increasing by 1,200% over two weeks.

The Chinese factor in the statistical field cannot be ignored — Chinese pools make up to 65% of all of Bitcoin’s hash rate. The pandemic has had its impact on the local mining industry, forcing more than 40 production facilities to stop deliveries. The delays have had a major effect on all miners, as older versions of mining rigs could not be replaced with newer equipment that could have increased the hash rate and compensated for the halved reward and increased difficulty requirements.

The drop in the price of Bitcoin in May from $10,500 to $8,100 saw the shutting down of almost 2.3 million Antminer S9 mining rigs, which is clearly reflected in the drop in hash rates from China, where most old mining equipment became unprofitable and was sold for scrap.

Not everything is bad

Although the rapid spread of the coronavirus pandemic at the start of 2020 affected supply chains and halted the operations of major mining equipment manufacturers, the disruption did not last long, as companies in China and South Korea — home to the largest manufacturers — quickly resumed deliveries. Bitmain launched deliveries from Malaysia of its chips produced in Taiwan and Korea, while Whatsminer rushed a new model onto the market to compensate for lost time and profits.

After resuming business in February, Hangzhou-based Canaan also announced the launch of AvalonMiner 1066 Pro, its latest chip model boasting a computing power of 55 terahashes per second.

Powerry, a cryptocurrency mining operator with 100 megawatts of capacity, announced the expansion of its capabilities by placing a $20 million order for new mining hardware. The equipment will be provided by Bitmain and MicroBt, while farm powering will be handed to Genesis Mining’s enterprise crypto-mining-farm software HEXA.

It is thus possible to conclude that even the expansion of the pandemic’s effects on the world will not have a significant impact on the manufacturers of mining software, which will be under pressure to deliver more new mining rigs to miners seeking to keep pace with industry requirements. The most that can be expected in the event of a second wave of the pandemic is delivery delays and increased equipment prices, which the producers would only benefit from.

The pandemic has not affected the operations of the largest Chinese mining farms, as any disruption would have undermined the Bitcoin network’s hash rate. But even the worst-case scenario of a China-wide shutdown is not likely to result in serious losses, as other miners will pick up the opportunity and keep the hash rate steady. A possible drop in the hash rate of major currencies due to the shutdown of Chinese farms would lead to digital money becoming approximately twice as easy to mine, and the profitability of mining would double.

What about Ether and altcoins?

On the one hand, the volatility of altcoins can play into the hands of miners. With the rise in the price of Bitcoin, other digital assets trail it even faster, thus significantly improving the economics of their production.

Experts believe that Bitcoin will remain the most suitable cryptocurrency for mining in the long term, despite the halving, because its price is more stable than that of altcoins, which can devalue sharply. Those still willing to stay in the mining game can opt for safer assets with high liquidity and capitalization, such as Litecoin (LTC) and Dash.

Rashit Makhat, co-founder of Powerry, stated:

“As a result of the Bitcoin block halving that took place on May 11, 2020, the block reward [...] was halved. In order to stay ahead on the market, miners must promptly update their equipment fleet. The most popular machines until 2020 – S9 ceased to be profitable for miners from almost any region, including regions with low energy costs, such as China.”

Migrating, are we?

The price of BTC seems to be of little consolation for many, as Valarhash — which operates some of China’s largest mining pools — decided to switch to altcoin mining.

Despite the recent 33% hike in Bitcoin’s hash rate, Valarhash dropped its contribution to the network from 4,000 to 200 petahashes per second in March. The company’s mining pools Bytepool and 1THash, which at one point accounted for 9% of the total Bitcoin hash rate, have had their processing power redirected to other coins.

The transition to altcoins may require a significant upgrade of mining farms. Investments in equipment for mining ETH and LTC have longer payback periods compared with BTC mining equipment. Mining ETH and LTC requires higher operating margins, and the equipment is more expensive. Scrypt-based altcoins like LTC cannot compete with Bitcoin in terms of profitability and return on investment. As such, the upcoming transition of Ethereum to proof-of-stake is unlikely to usher in a revolution for the industry.

Miners and manufacturers still afloat

Despite the technical setbacks spawned by the halving, Bitcoin is likely to remain the cryptocurrency of choice for mining for years to come. The main reason is the relative stability of its price in comparison with altcoins, which are far too volatile to be reliable as profit-fixing assets.

In the long term, miners will become less dependent on events such as halvings. With the development of the coin’s infrastructure, the reward for processing transactions on the network will increase and, over time, may exceed the reward for finding blocks.

As for the manufacturers, they will keep churning out equipment and offering both attractive prices and upgrades to stay afloat and adapt to the rapidly changing requirements of various networks.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Sarah Austin is head of content for Kava Labs, a DeFi-for-crypto startup company based in Silicon Valley. Sarah is the host of the web show Decentralized Finance. She is an entrepreneur, author and TV personality who has formerly worked with Forbes, MTV and Bravo, and was marketing manager for Oracle, SAP and HP.

Facial Recognition Could Help to Stamp Out Bitcoin Social Media Scams

Coincurve’s Rod Hsu says facial recognition can stamp out social media Bitcoin scams.

Facial recognition can help prevent future Bitcoin (BTC) scams like those that hit Twitter and YouTube, said Rod Hsu, president and co-founder of virtual currency platform Coincurve. 

During an interview with Cointelegraph, Hsu said Bitcoin is an electronic form of currency that is non-reversible and somewhat anonymous, “coupled with this gap in understanding makes it appealing for scam artists.” But because of the negative publicity the cryptocurrency got with the scams, it may have discouraged many from adopting it. 

“Due to the nature of this, people may see scams and Bitcoin being synonymous. In either traditional payment methods or Bitcoin, it's up to the individual to understand the situation and determine its legitimacy. With more public awareness of these schemes and education on Bitcoin, we hope to decouple that negative association.”

Facial recognition also balances the goal of a better user experience

Hsu believes facial recognition is one possible solution to stamp out Bitcoin fraud since it is much harder to duplicate. He adds that such a system relies on biometrics, which is “much more advanced than simply a photo image”:

“We have seen a light version of facial recognition where not only does a consumer provide their identification, but also they perform a Liveness check which takes multiple angles of a person's profile. This adds a layer of difficulty if someone is attempting to use another person's payment instrument.”

Hsu added that facial recognition is a good tool to use when re-authenticating a person once they have been initially verified, “balancing the goal of better user experience while minimizing fraud.”

Privacy still needs to be guaranteed on facial recognition systems

However, Coincurve’s co-founder warns that systems like facial recognition should keep ethics top of mind for verification purposes:

“I think the ethics surrounding facial recognition boils down to consent and security. With consent, the user must be aware, provide consent, and be in control, of how the data is being stored, shared, used, and accessed as well as the ability to remove it at any time. With security, this relates to how that data is stored and safety protocols implemented. These requirements may shift based on the age of the end-user as well.”

Services need to consider these considerations when leveraging new technology, such as facial recognition since the implementation will affect many layers of the service from “the user experience through to the architecture and security of the system,” Hsu added.

The Top 5 Defining Trends for Crypto in Late 2020

What are some trends in the crypto and blockchain space that may take hold and remain ongoing throughout the rest of 2020?

The cryptocurrency field is a place where everything changes in the blink of an eye. New technologies, key market players and trends shift much faster than in any other industry. From the current point of view, many exciting developments seem viable. Still, this chaotic industry can bring more opportunities within the upcoming months, and everything we’ve seen before will be surpassed by something truly outstanding. However, let’s quickly check in.

The shift toward a cashless society

One of the most society-redefining trends of 2020 came unexpectedly. Right after Christmas, the world seemed safe and sound despite dreadful news from China. Later in the winter though, it had been taken over by a deadly virus in the blink of an eye. The COVID-19 pandemic has paralyzed, disrupted and stopped a lot of industries and made people rethink their attitude toward many things in life. Such previously questionable practices like remote jobs or crypto payments have become of significant importance and seem like they will remain present even after the pandemic ends. Why work from the office when everything can be efficiently managed from any spot in the world? Does it make sense to continue to overspend on luxurious offices if there is simply no need for that in the digital age?

Moreover, it’s about time to get rid of cash — we have to take a step toward a new quality of life. Meanwhile, the blockchain field has also blossomed, as a new era requires more professionals in the field of distributed ledger technology. In today’s world, apps for interaction with the crypto world have become advanced and straightforward enough to enable the purchase of digital assets with just a credit card. Stablecoin wallets are in high demand, and this evident trend is no more a millennial-only kind of thing as institutions join the club in substantial numbers.

Crypto is not for geeks anymore

The image of cryptocurrency is changing globally faster than ever. Bitcoin (BTC) and Ether (ETH) are not a bubble anymore, as BTC’s market capitalization is now bigger than Coca-Cola and Intel, and blockchain is integrated into many fields and operations. Moreover, institutional crypto involvement is rising as the demand for Bitcoin soars amid the coronavirus crisis, with Grayscale experiencing a drastic increase in assets this year. More hedge funds are accumulating digital wealth fast — and that is sure to continue this year.

While the Facebook-led Libra project still has many stumbling blocks in the face of the United States Securities and Exchange Commission and other regulators, its launch is continually delayed. Because mixing different monetary policies is questionable for the project’s success, we’re not sure that Libra will ever see the light of the day in the current condition.

One thing is undoubtedly evident: The world of mainstream users needs more convenient interfaces to interact with crypto — and they are coming. The digital divide steadily reduces, as in 2020, it’s easier to open a checking account in dollars or euros than ever before. 

Growing DeFi adoption 

Decentralized finance, or DeFi, has become one of the most prominent trends in crypto since late 2019. The sector has been growing at a fast pace over the past six months, and a new milestone was recently reached by the sector as the total value locked in DeFi hit an astonishing new height of $4 billion.

Many companies that operate in the blockchain field have already introduced their DeFi products. Popular protocols such as Compound, Balancer, Curve and other platforms have opened the door to a whole new world of crypto opportunities for investors looking for deep liquidity, varying risk-reward ratios, and exciting, affordable modern financial instruments.

We’re about to see further adoption alongside user-base growth as institutional capital comes to the digital asset field. DeFi is growing insanely fast, and it’s of crucial importance to have a simple, effective, inexpensive on-ramp and off-ramp solution for this segment.

The advent of CBDCs 

Nowadays, central bank digital currencies, or CBDCs, are either a hot topic to talk about or a solution in development in many countries. China, one of the world’s most extensive tech breeding grounds, has started to engage in creating the local digital asset. It would be exciting to see how a digital yuan launch and implementation could change the crypto world and shift the balance of economic power, taking out the dollar’s status as a global reserve currency. Could this example inspire other leading countries? The competition may be fierce in this field.

Stablecoins initiatives are still massively underappreciated throughout the world — most crypto holders are subject to volatility and counterparty risk. It’s not only global or local bank-lead projects that will be in the space in the future, as private companies are continuing developments as well. Projects such as USD Coin (USDC), Paxos Standard (PAX) and Stasis’ Eurs combine the benefits of blockchain with the reputation and relative stability of fiat. 

Enhanced privacy with blockchain technology

Real progress happens when a crisis looms ahead. Back in the 90s, the internet was something of a miracle, magic or an arcane invention. Today, in the mobile-driven age of social media networks, we can hardly imagine our daily existence without the need to interact or communicate online. But with the growing engagement in digital life, we forget that all the available services, which are being used not only by casual users but also by most well-known CEOs and even presidents, are still too fragile, despite technological advances.

The latest Twitter hack compromised many high-level politicians, celebrities and individuals in technology. The problem leads to the question of what to do next. Discussions on blockchain-based improvements have heated up in a blink of an eye. We may see more problems, as hacking activity and ransom demands in crypto will not vanish anytime soon. Still, DLT will surely be noted when developing a shield for this particular dagger.

Looking into 2020 and beyond

Many analysts make distant forecasts for the crypto field and the price of Bitcoin, envisioning the further possible trends of the next decade. It’s undeniable that this once niche field is set to transform into a global mainstream ecosystem. Be sure to expect more price records, more inventions and more adoption.

What will the world be like in 10 years? Back in the 20th century, this question was much easier to address, but any predictions made today will highly likely become obsolete after a year. However, we can be sure that decentralized technologies and DLT-driven services will shape humanity’s further progress and development.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Gregory Klumov is a stablecoin expert whose insights and opinions appear regularly in numerous international publications. He is the founder and CEO of Stasis, a technology provider that issues the most widely used euro-backed stablecoins with a high transparency standard in the digital-asset industry.

South Korean Highways Will Have Blockchain-Powered Toll Payments

One of the biggest commercial banks in South Korea has partnered with the Korea Expressway Corporation for a blockchain-based toll system.

KEB Hana Bank, one of the biggest commercial banks in South Korea, reached an agreement with the state-backed highway operator, the Korea Expressway Corporation, to bring blockchain-based toll payments system across the nation’s highways.

According to D Daily, the project is expected to launch before the end of the year. The system will connect KEB Hana’s smartphone banking app, Hana One Q, for motorists to arrange their toll payments, defer them, or even receive toll fee refunds.

The report states that both parties involved in the deal reached to implement the blockchain solution aim to remove the cash-based or credit card payments, in part due to the COVID-19 pandemic that encourages them to offer contactless solutions.

The Korea Expressway Corporation and KEB Hana Bank want to use blockchain to share data to strengthen synergies along with the payment system project.

Strengthening contactless payments’ adoption

Kwang-Ho Lee, head of the sales division at Korea Expressway Corporation, commented on the announcement:

"We will continue to expand customized non-face-to-face (contactless) services to the public by applying blockchain technology, which is part of the Korean version of the digital new deal policy to lead the global economy after the coronavirus."

The Ministry of Science and ICT and the Korea Internet & Security Agency approved the deal. KEB Hana also got a nod for its blockchain mobile electronic verification program from the same agencies last year.

Recently, the South Korean government unveiled its intent to invest over $48.2 billion in Blockchain and other Industry 4.0 technologies by 2025. The nation’s goal is to promote the digitization of all industries in the coming post-pandemic era.

Andong, a city in the Gyeongbuk province of South Korea, announced on July 7 that they’d been granted a permit to operate a free trade zone for industrial hemp.

Crypto Artists and Investors Trusts NFTs to Transform the Art Industry

With Nifty Gateway recently auctioning a digital artwork and NFT for a record $55,555.55, the art world is on alert.

Nifty Gateway, a leading marketplace for nonfungible tokens with the backing of the Winklevoss brothers, recorded its largest-valued auction to-date on July 23 when the digital artwork and NFT “Picasso’s Bull” sold for $55,555.55.

The milestone comes as benefits of fractionalized ownership, decentralized provenance verification and the global liquidity pool enabled by blockchain technology are enticing both art creators and investors to explore NFTs.

Cointelegraph spoke to Trevor Jones, the creator of the record-priced NFT, and the artwork’s buyer, Pablo Rodriguez-Fraile of Museum of Crypto Art, to find out why they believe cryptographic tokens are the future of art.

Sam Haig (SH): How long have you been active in the cryptocurrency and blockchain space?

Trevor Jones (TJ): I don’t have a technical background per se but after a successful solo exhibition at the end of 2016, I had some money to invest, which led me to Bitcoin. I spent the latter half of 2017 researching and investing in cryptocurrency and then decided to work toward a crypto-themed painting exhibition for 2018, which was called “Crypto Disruption.”

Pablo Rodriguez-Fraile (PRF): We have been investors in the space for about four years now, having been early to Ethereum and major participants in the 2017 ICO season and beyond [...] Outside of investments related to NFTs, we have participated in early investments in Algorand, Hashgraph, Klaytn or Avalanche, to name just a few.

SH: When did you first encounter NFTs?

TJ: I was invited to show some of my work at CoinFestUK in Manchester in April 2019. It was my first crypto conference, so there was a lot for me to take in. I ended up chatting with David Moore, the CEO of the NFT art marketplace KnownOrigin. He was trying to explain the concept behind NFTs to me. 

All I remember thinking at the time was that this wasn’t going to work, and especially with me being an artist creating physical work in paintings, there was no point in me exploring it. I was so wrong!

PRF: Like a fair amount of people, CryptoKitties was our “first encounter.” But we did not really begin to see the power of NFTs until we connected the dots on blockchain-based virtual land (Somnium Space, in particular) and crypto art. We used this as the building block to understand how important NFTs would become in representing both digital identities and brands for individuals and businesses alike. 

Jones’ first NFT auction sparks a bidding war

SH: When did you begin exploring creating art in the form of NFTs?

TJ: It was five or six months after my conversation with David around September when I began noticing a lot more artists appearing on crypto-Twitter and talking about NFTs and the various marketplaces popping up. A lot of interest and excitement was developing around the digital art scene and when I saw a few artists selling their work for decent prices, I had to admit I was wrong (after my conversation with David) and that I needed to investigate this art phenomenon much more thoroughly and with an open mind

I waited until December to mint my first NFT, which was a collaboration piece with the talented digital artist Money Alotta. Alotta had already been working in the NFT space for some time and so he helped me out a lot with the technical aspects of the process. There was a lot of excitement generated around our NFT drop “EthGirl” and after a serious bidding war, it was sold for 70 ETH ($10,080), smashing the ATH record on SuperRare by seven times. 

Due to the fact that my NFT animations derive from my physical paintings, my work is exceptionally scarce. Since “EthGirl,” I’ve only created 12 NFTs (in nine months) and I believe this is one of the key reasons why I’ve hit the ATH sales record on all the major marketplaces — SuperRare, KnownOrigin, MakersPlace and now Nifty Gateway.

SH: What appealed to you about NFTs as an asset class to invest in?

PRF: Recording both land titles and art provenance on a blockchain always made sense to us. Some of the primary benefits of NFTs are low-cost transferability, ease of storage, display options between physical and virtual worlds, lack of incentive for theft (as opposed to Bitcoin or Ethereum, which can be mixed). NFT projects also offer automated secondary sale royalties and the ability for artists to represent themselves to global markets without gallerists as intermediaries.

SH: What was the first NFT you purchased?

PRF: Land acquired during the Decentraland auctions. Our first piece of crypto art, fittingly enough, was “LADY LUCK” by miss al simpson.

SH: Will you continue to invest in NFTs, and in what ways would you like to see the space evolve over time?

PRF: Of course, we will always be interested in acquiring historic pieces of crypto art for [MOCA]. Frankly we feel this is a beautiful and wonderful community, and there is not a lot we would change. As new money enters this space, we will be tested, and I hope everyone can remain true to what attracted them here in the first place. If we could make one critique, we would encourage all collectors who are just speculating with assets held in “vaults” to find ways to further prove the use case for NFTs!

Related: NFT Week by Cointelegraph Magazine

NFTs are the future of art

SH: What are some of the benefits offered by NFTs that are most appealing to you as an artist? 

TJ: Now that I’ve fully got my head around the rare digital art market and art concept, I see so many benefits, especially from the viewpoint of a physical artist/painting like me:

Creating digital animations with soundtracks is super exciting for me. NFT animations enable me to express my creative ideas and traditional artwork in completely new and dynamic ways that I’d never even thought of before and, importantly, to be able to monetize them.

Physical paintings and prints can be damaged over time if not properly cared for, whereas my digital work will always remain in the exact same visual state as when created.

Selling my physical painting via a JPG or “still image” NFT not only adds extra value to the painting but it ensures future collectors have access to my sales records. This transparency of my painting sales prices instills buyer confidence in my work and reputation — i.e., they know that I’ve not overinflated my prices, as they can easily see what other pieces have sold for and when. 

Cost of international artwork delivery is very expensive (customs tax, insurance, professional packaging, etc.), whereas purchasing an NFT costs only a small gas fee.

It’s a lot easier for buyers/collectors and artists to benefit from the secondary art market. Auction houses are the main place to sell paintings on a secondary market. They take around 30%, and it’s a lot of hassle even getting an artwork in and up for sale. Moreover, artists are now getting a material percentage on secondary sales. So, for example, my “Picasso’s Bull” art drop on Nifty Gateway has allowed me to twice realize income from the sale, on the initial drop and also the secondary sale. An artist getting a piece of the secondary market sale is almost unheard of in the traditional art market.

Editions can be created easily — the digital version of the traditional print edition concept — so buyers/collectors who can’t afford a 1 of 1 can still collect an artist’s work in the form of an edition.

Fractionalizing (offering “shares” in an artwork) is now possible, and I’ll soon be offering fractional ownership of my physical paintings through NFTs.

Of course, being a painter for the better part of 20 years, I’ll always be partial to the experience of standing in front of a physical work of art. This feeling can’t be replicated in the metaverse… yet. Who knows what will happen, but I’m 100% confident that although digital art and experiencing it in virtual reality will become a huge part of the story of art, physical artworks will always be cherished and valued.

The interviews were edited and compressed for clarity.

Global Stocks in ‘Bubble Territory’ — But Bitcoin Traders Aren’t Fazed

Bitcoin traders not fazed as the global stock market enters bubble territory, according to the Buffett Indicator.

According to the Buffett Indicator, the global stock market has entered a “bubble territory,” says Welt market analyst Holger Zschaepitz on Aug. 9. The recent correlation between Bitcoin and stocks could mean BTC is also at risk of a pullback.

The global stock market enters bubble territory

The global stock market enters bubble territory. Source: Holger Zschaepitz, Bloomberg

Stocks have continuously rallied in recent weeks, buoyed by the surging appetite for risk-on assets. In the past month, the Dow Jones Industrial Average (DJIA) rose from 25,706 points to 27,433, by 6.7%.

Why stocks are showing hints of a bubble, and how it could affect Bitcoin

The Buffett Indicator measures the stock market’s valuation by dividing its market cap by the United States’ GDP. It attempts to find a fair valuation of stocks relative to the U.S. economy. When the indicator is above 100, it signals that the stock market is heading into bubble territory.

Since April, after the pandemic began, U.S. stocks surged due to favorable market conditions and multi-trillion dollar stimulus. Specifically, tech stocks substantially outperformed the rest of the stock market, pushing the market upward.

Due to various macro factors, the valuations of tech stocks are at historically high levels, relative to their earnings. Consequently, global markets entered bubble territory for the first time in 2018. Zschaepitz said:

“Global stock mkts have hit another milestone. All stocks now worth more than 100% of global GDP for the 1st time since 2018, pointing to stretched valuations. For Warren Buffett, a Market Cap to GDP Ratio >100% means stocks in bubble territory.”

There is no conclusive link between stocks and Bitcoin other than BTC has followed the trend of stocks in the past four months. Data from Skew shows that since early July, Bitcoin closely resembled the performance of the S&P 500.

If stocks begin to drop as investors seek safety in bonds and treasuries fearing an overvalued market, it could negatively affect Bitcoin. The momentum of the stock market remains strong, and during a bullish trend, the market can remain overheated for prolonged periods.

The correlation between Bitcoin and the S&P 50

The correlation between Bitcoin and the S&P 500. Source: Skew

Analysts not concerned about BTC in the near-term

In the short-term, analysts generally expect an uptrend due to a temporary spike in shorts. Bitcoin tends to see a short squeeze when traders start to aggressively short the market with overly-leveraged contracts during consolidation.

A pseudonymous trader known as Byzantine General suggested an uptrend is likely as many traders are holding short positions.

A Bitcoin liquidation level chart hints that the liquidation prices of a large number of shorts are present at around $11,800. For buyers, short liquidation levels present liquidity, and whales have the incentive to seek liquidity at higher levels. 

A chart showing liquidation levels of Bitcoin shorts

A chart showing liquidation levels of Bitcoin shorts. Source: Byzantine General

The market structure could cause Bitcoin to rally towards the $11,800 to $12,000 range in the near term if buyers move to liquidate overly-leveraged short contracts. Another pseudonymous trader named “Satoshi Flipper” said BTC looks to be seeing a “clear consolidation before the next leg up for BTC.”

A General Strategy on How to Select a Crypto Fund, Part 2

There are about 800 crypto funds today, making it a daunting task for investors to decide how to invest.

With about 800 crypto funds relying on a new asset class, which has its own properties, it is essential to assess them through an appropriate framework. We provide a basic framework of useful metrics to assess the true risk of a crypto fund as a quantitative screening tool. Short-listed funds can then be assessed in more detail through a classic due diligence process.

Assessing the return/risk profile of a directional trading crypto fund

Assessing the expected return of a directional fund

Investors in a directional fund should first have a clear understanding of the dynamic of the fund’s overall strategy in order to realize where the performance will come from and over what period before assessing whether the risk taken to achieve such results is worth it. This is achieved through discussions with the fund manager.

Warning: If a fund manager refuses to explain any of the fund’s strategies, beware!

When asking about a fund’s strategies, a truthful and experienced manager should be able to explain it in plain English. If a fund manager doesn’t want to disclose anything stating that it’s a trade secret, you could still try to understand what the fund tries to achieve by analyzing its past track record. However, in such a case, it’s unlikely that the manager will provide daily returns of the strategy for a more granular analysis, which may thus be worthless.

A transparent fund manager inspires trust, a secretive one inspires defiance, but even if a manager is transparent about strategy, investors should verify that these pitches from fund managers are credible and not take their word for granted. The Bernie Madoff Ponzi scheme was just that. Madoff explained that he was trading S&P 100 options as the basis of his strategy. Why not? But given the size of this specific market (~$100 million daily on average), there was no way he could have been trading the size of his fund ($6 billion), but he still lured many naïve investors.

Understanding the fundamentals of the strategy

Directional funds try to achieve their goals in different ways, and investors have to understand in which market environments they are going to perform well or not; some funds may perform very well during smooth trending markets but can be crushed during times of high volatility, whereas funds performing well during hectic markets can dramatically underperform in strong trending markets.

No single strategy can perform well in every market environment, as each strategy is designed to only fully capture specific moves and avoid being crushed otherwise. Directional funds tend to embed different strategies, each designed to capture specific market moves; but since these strategies are usually blended together, the resulting blend should perform well during most market environments, but will always underperform the best single strategy in a given market environment.

Understanding the strategy timeframe

Understanding the timeframe through which a fund strategy works — i.e., intraday and/or on a several-day basis — and the broad expectations of the strategy in terms of capturing market movements — e.g., captures 80% of an upward move, 30% of a downward move on average — are necessary to make a meaningful comparison against a potential benchmark.

In the example just quoted, such a fund would underperform a passive index representative of the traded underlying asset during strong upward movements but should prove its value when the passive index reverses course by limiting the losses, leading to a better performance against the passive index but over a full up/down market cycle. 

Assessing the risk profile of a directional fund

In order to assess the risk profile of a directional fund, an advanced — i.e., nonlinear — hedge fund analysis framework is useful, but metrics of a crypto fund cannot be compared with the metrics of a traditional hedge fund — e.g., volatility, Sharpe ratio, etc.

We will assume that the past behavior of a fund is expected to continue more or less in the near future if the manager’s strategy is robust and well designed.

A nonlinear analysis framework

If an instrument behaves the same during different market conditions, it is said to have a linear behavior, but if it behaves differently during different market conditions, it is said to have a nonlinear behavior.

For example, when a fund gains 1% every time the broad market gains 1% and loses 1% every time the broad market losses 1%, it is linear; but when a fund gains 1% every time the broad market gains 1% and loses 2% every time the broad market losses 1%, it is nonlinear, as its behavior during negative markets doesn’t have the same amplitude as during positive markets.

Assessing the nonlinearity of a fund

The question is: “Is a given fund linear or nonlinear?” The quick answer is that most active funds will be nonlinear, but there’s a statistical test to answer the question more precisely, the Jarque–Bera test for normality.

However, metrics from a nonlinear framework can also be used to assess linear instruments, but not the other way around. 

Nonlinear risk metrics

The four main metrics of a linear framework adapted to assess nonlinear asset behaviors are volatility, correlation, beta and value at risk. 

Simple time series are used in the section below to illustrate the purpose.

  1. Volatility

Volatility measures the degree of dispersion of returns around their mean. The higher the volatility, the higher the dispersion of the returns. If an asset has a linear behavior, a high dispersion of returns around their mean indicates that returns can be far above but also far below their mean, and this is generally considered as an easily understandable measure of risk. However, if the asset has a nonlinear behavior, overall volatility can be highly misleading, either over or underestimating the risk of loss.

In order to assess the behavior of a nonlinear asset from a volatility point of view, we will split the metric into two sub-metrics: positive volatility and negative volatility. Positive volatility is a classic volatility measure but is only applied to the positive returns of the asset. Likewise, negative volatility is a classic volatility measure but is only applied to the negative returns of the asset. Thus, we assess the dispersion of the returns on the positive side and on the negative side. If the asset is linear, these two metrics are close to each other.

Example: Let’s consider three funds, A, B and C as having had the following returns over the same period:

Fund A: { -3%; -8%; 5%; 58%; -1%; 2; 48%; -2%; 1%; 38% }

Fund B: { -3%; -8%; 5%; 12%; -1%; 2; 6%; -2%; 1%; 4% }

Fund C: { -45%; -8%; 5%; 12%; -1%; 2; 6%; -2%; 1%; 4% }

High volatility does not equate high risk

The volatility of Fund B is 5.3%, whereas the volatility of Fund A is 23.1%. Thus, if considering the overall volatility as a risk measure, then Fund B is much less risky than Fund A, whereas Fund C lies between.

When assessing the positive and negative volatility of funds A, B and C, we have:

Volatility of Funds A, B and C

Looking at the positive and negative volatility of each fund leads to a very different conclusion from just looking at their overall volatility: Fund C having the highest negative volatility and the lowest positive volatility is actually the riskiest of the three funds, whereas fund A having the highest positive volatility and the lowest negative volatility is the least risky, and fund B lies in between.

In fact, by taking a closer look at the returns of the three funds, Fund A contained its losses as much as Fund B but was able to capitalize on three strong returns that Fund B couldn’t capture. On the other hand, Fund C is similar to Fund B but has only been heavily hit once, whereas Fund B hasn’t.

Therefore, would one rather invest in a fund that delivers good returns, controlling the downside, but without any upswing either (Fund B), or invest in a fund that controls the downside as well, but which can deliver a winning lottery ticket from time to time (Fund A)?

Assessing the volatility of a crypto fund with a nonlinear framework is the only way to assess its true risk from a volatility point of view — i.e., understanding what contributes to high volatility.

Debunked myth #1: A crypto fund with overall high volatility doesn’t necessarily equate a highly risky one.

  1. Correlation

Correlation measures how an asset is moving in relation to another one. The closer an asset is to 1, the more the assets will move in sync; the closer an asset is to -1, the more the assets will move in the opposite direction one from each other.

Again, measuring the overall correlation of a nonlinear asset can lead to misleading conclusions about how one asset moves in comparison with another.

Example:

Fund A: { -9%; 13%; -1%; 15%; -9%; 1; 28%; -6%; -2%; 0% } 

Fund B: { 5%; 13%; 1%; 28%; 6%; 1; 25%; -5%; 2%; -1% }

Benchmark: { -28%; 2%; -33%; 34%; -19%; -15; 21%; -10%; -6%; -5% }

High correlation does’t mean move in tandem

The correlation of Fund A to the benchmark is 0.81, which is similar to the correlation of Fund B to the benchmark. By looking at how these two funds correlate with their common benchmark, they are identical when assessing their overall correlation.

Now assessing the positive and negative correlations of Funds A and B with their benchmark, we have: a more subtle manner to assess the correlation of a fund with a benchmark. It consists of breaking the global correlation measure described above into two sub-correlation analyses: The positive correlation is the measured correlation of the fund with a benchmark only during positive returns of the benchmark, whereas the negative correlation is the measured correlation of the fund with a benchmark only during negative returns of the benchmark. The positive and negative correlation measures range like the standard correlation measure between -1 and +1 with the same meaning.

Therefore, an investor should look for a fund that has a high positive (i.e., the closest to +1) positive-correlation, meaning the fund moves up when the benchmark moves up, and a low negative (i.e., the closest to -1) negative-correlation, meaning that the fund moves up when the benchmark moves down.

Correlations of funds A and B

Fund A exhibits a moderate positive positive-correlation with its benchmark (0.23) and a moderate positive negative-correlation with its benchmark (0.30), whereas Fund B shows a very high positive positive-correlation with the benchmark (0.97) and a medium negative negative-correlation with its benchmark (-0.45).

This means that Fund A moved more or less in sync with its benchmark either on the upside or the downside, whereas Fund B moved upward when the benchmark was up most of the time but moved also upward from time to time when the benchmark was moving down. This is exactly the characteristic of a fund investors should look for, but this is only visible in a nonlinear framework.

Debunked myth #2: A high global correlation of a crypto fund to a benchmark doesn’t necessarily mean that the fund will move in sync with the benchmark most of the time.

  1. Beta

The beta measures the amplitude of how an asset is moving compared to another. Its value is a rough estimate of how much an asset will move vs. another one considered. A value above 1 means that an asset moves more than 1x than another one in the same direction; a value between 0 and 1 means that an asset moves less than 1x than another one in the same direction. Negative values can be interpreted as positive values in terms of multiplying effect, but with moves on the opposite directions.

Note: The beta of an asset vs. another should only be calculated if there’s a statistically significant correlation between the two assets.

Example: Let’s consider the two funds used previously with the correlation analysis, which were both highly correlated with the benchmark (0.81).

Fund A: {-9%; 13%; -1%; 15%; -9%; 1; 28%; -6%; -2%; 0%}

Fund B: {5%; 13%; 1%; 28%; 6%; 1; 25%; -5%; 2%; -1%}

Benchmark: {-28%; 2%; -33%; 34%; -19%; -15; 21%; -10%; -6%; -5%}

Beta doesn’t always mean "move as much as"

The beta of Fund A to the benchmark is 0.46, and the beta of Fund B to the benchmark 0.43 — i.e., both funds have a similar beta to their benchmark. But are they really equal?

Assessing the positive and negative beta of Funds A and B with their benchmark, we have: 

Beta of funds A and B

Unsurprisingly, when looking at the beta of these two funds through a nonlinear prism, we have a different story. Fund A tends to capture on average about 11% of an up or down move of its benchmark, whereas Fund B tends to capture on average 48% of an up move of its benchmark while capturing -15% of a negative move of its benchmark — i.e., capturing 15% of the amplitude of the down move of its benchmark, but delivering it in positive terms instead.

Just like with the correlation, investors should seek to invest with funds showing an as-high-as-possible positive positive-beta and an as-high-as-possible negative negative-beta vs. the funds’ benchmarks. 

Debunked myth #3: The overall beta of a crypto fund has no value unless it is assessed in a nonlinear manner.

  1. Value at Risk

The value at risk, or VaR, is an estimate of how much an investment might lose, with a given probability, given normal market conditions, and in a set time period.

Example: VaR (Fund, 95%) = -7.5% means that over the considered period, the fund can lose more than -7.5% with 5% (= 100%–95%) probability. In other words, there’s a 95% chance that the fund will lose less than -7.5% over the considered period.

There are many ways to compute the VaR of an asset that go beyond the scope of this paper, but again, if the nonlinear behavior of the asset is not taken into account in estimating the VaR, the results lead to false conclusions.

However, given the often-hectic behavior of digital assets, it is difficult to assess their VaR, no matter the model used, and the obtained results may not be of great help to calibrate risk. This is why VaR is not really used to assess crypto funds. 

Comparing the risk metrics of traditional hedge funds and crypto funds

Now that the main die-hard myths about fund metric analysis have been debunked, another misleading analysis aspect of crypto funds is to compare the metrics side by side with the well-known metrics of traditional assets.

Essentially, digital assets are way more volatile than their traditional cousins, and some of their metrics can be of several orders of magnitude different: from annualized return and volatility to the Sharpe and Sortino ratios.

Sharpe ratio

For example, a Sharpe ratio above 1 is more of an exception rather than the norm for funds dealing with traditional assets, as their annualized return is usually in the 5%–15% range and an annualized volatility of 10%–15% that doesn’t imply insignificant returns from their means. 

However, with Bitcoin (BTC), for example, its annualized return from 2016 to date has been slightly above 100%, while its annualized volatility is close to 85%, leading to a ratio above 1 despite its frequent booms and busts.

Thus, the Sharpe ratio of a good crypto fund — one that is able to provide to capture most of the upside of its underlying asset while protecting on the downside — can be in a high single to a low double-digit range, which can appear highly suspicious if compared to the Sharpe ratio of a typical hedge fund.

Sortino ratio

The same is even more true for the Sortino ratio. For example, Bitcoin has a 30% annualized downside volatility, which is roughly three times that of the S&P 500, meaning negative returns reaching three times further than the ones of the S&P 500, which leads to a three times lower value of the denominator of the Sortino ratio of Bitcoin. However, if Bitcoin has an annualized return 10 times bigger than that of the S&P 500, the numerator of the Sortino ratio of Bitcoin will be 10 times higher than the numerator of the Sortino ratio of the S&P 500. Thus, when calculating the Sortino ratio of Bitcoin, dividing a numerator that is 10 times bigger (than the one of the S&P 500) by a denominator that is 3 times bigger (than the one of the S&P 500), we obtain roughly a ratio for Bitcoin that is about 3.3 (=10/3) times higher than that of the S&P 500. More precisely, the Sortino ratio of Bitcoin is above three, whereas the Sortino ratio of the S&P 500 is about 0.8.

Therefore, for a good crypto fund, posting a high annualized return over limited downside volatility can easily lead to a high double-digit Sortino ratio.

Drawdowns

Drawdowns are bounded metrics between 0% and -100%, contrary to the unbounded metrics that are the Sharpe and Sortino ratios described above. Thus, an investor can compare side by side the drawdowns of a crypto fund to the ones of a traditional fund without having to take into account the scaling of the metrics.

However, investors have to understand that the magnitude of drawdowns of crypto funds can be more substantial than the ones of a fund trading only traditional assets, as the digital assets can swing more wildly. For example, a 40% drawdown for a crypto fund can be “equivalent” to a 15% drawdown for a traditional fund, but the crypto fund lost is nevertheless more than the traditional fund. The idea is just to put things into perspective here.

A loss due to a drawdown is never pleasant to experience, especially when it is a big loss; therefore, investors have to pay more attention to the shapes of the fund drawdowns. The shape of a drawdown refers to the shape described by the drawdown curve of a fund. These shapes are triangles more or less tilted, which tell how the fund manager dealt with losses and are highly instructive, as we will detail below.

Let’s consider these three funds:

Fund A: { 1%; 3%; -1%; 5%; 2%; -23.5; 2%; 6%; -2%; 3%; 1%; 5%; 2%; -3%; 6%; 3% }

Fund B: { 1%; -2%; -1%; -0.5%; -2%; -1.5%; -2%; 0.5%; -2%; -3%; -1%; -2%; -1%; 23%; -1%; 2% }

Fund C: { 2%; -1%; 3%; 1%; -0.5%; 1%; -0.5%; -19%; 21%; -3%; 2%; 1%; -0.5%; 2%; 0%; 1% }

They all have the same performance (around +5%) and maximum drawdown (around -20%) over the same period, but the shapes of their drawdowns depict a very different story for each fund.

Drawdown shapes matter

Generally, there are three cases:

  1. A sudden loss followed by a steady recovery over several weeks. This is the shape of the drawdowns one could expect. At some point, the fund manager’s strategy is caught wrong-footed and a sudden, steep loss occurs. As discussed earlier, as the old Wall Street adage says “markets take the elevator down, but the stairs up” — i.e., a sudden panic move downward happens quickly, but it takes time for the markets to calm down and realize that what caused the panic move in the first place is over, which explains the slow recovery. These drawdowns are normal and inherent to the strategy. Investors have to simply make sure that all of the past major drawdowns were about the same magnitude, showing the robustness of the underlying strategy; bad trades occur, but they are always controlled and will eventually recover.

Drawdown curve type A

  1. Continuous and increasing losses over several months recovered in just a few weeks. Such drawdowns are more problematic, as they may show that the manager’s strategy hasn’t worked for a long time, but facing investors’ redemptions, the fund manager went “all in” in order to stop the bleeding: It’s make or break. However, such drawdown shapes can sometimes also be explained by the way the strategy works and may not be a sign of a gambling fund manager. This is why it is always important to understand what the fund strategy tends to capture in order to assess its behavior.

Drawdown curve type B

  1. A sudden loss, followed by a quick recovery. These drawdowns can take place from time to time and are usually linked to a market dislocation, leading to a fast and deep loss followed by an equally strong recovery.

Drawdown curve type C

Finally, when looking at fund drawdowns, having data-sampling as precise as possible is key: Looking at drawdowns on a daily basis or on a monthly basis can lead to very different conclusions.

If managers just report their performance on a monthly basis, as is generally the case, only the change of the fund’s net asset value, or NAV, between the last day of the current month and the last day of the previous month are disclosed. There’s no information about what occurred during the month. For performance-reporting purposes, that’s fine, but for risk assessment, this can be highly misleading.

Indeed, if the fund witnessed a 30% drawdown during the month that fully recovered by the end of the month, then looking only at monthly NAVs won’t show it, and investors will have a false sense of confidence by assuming that the fund never had any 30% drawdown in this example. Reporting performance on a daily basis shows what happened from day to day, which is far more informative than just from month to month.

For passive index, drawdowns measured on a daily or monthly basis are very close because there’s no active management involved. However, with actively traded strategies, short but steep drawdowns can occur from time to time, and if investors are not aware of that possibility, they may be in for a rude awakening, possibly panicking and selling their holdings. 

Conclusion

Crypto funds come in different shapes and sizes, as we have briefly described in this article.

No matter their nature, since they are all dealing with highly volatile underlying assets, they tend to exhibit nonlinear behavior, which requires a proper framework to analyze them. Through a nonlinear analysis of such funds, we have highlighted that:

  1. A crypto fund with overall high volatility doesn’t necessarily equate to a highly risky one. 
  2. A high global correlation of a crypto fund to a benchmark doesn’t necessarily mean that the fund will move in sync with the benchmark most of the time.
  3. The global beta of a crypto fund has no value unless it is assessed in a nonlinear manner.

Another point we touched upon is that comparing metrics of traditional funds vs. crypto funds is like comparing apples to oranges, given the very different nature of the underlying instruments traded.

We concluded on the drawdowns of crypto funds, which, to us, are a very powerful risk metric when properly analyzed. If an investor had to look at just one risk metric to assess the risk taken vs. the delivered performance, it would be the fund drawdowns, not just their depth, but also their shapes.

We gave some directions on which metrics to look at and analyze, but metrics without their context are meaningless. This is why such an analysis should always be conducted under the supervision of the professional fund manager’s explanations about his strategy.

This is part two of a two-part series on how to sort crypto funds — read part one with an overview of the main types of crypto funds here.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

David Lifchitz is the chief investment officer and managing partner at ExoAlpha — an expert in quantitative trading, portfolio construction and risk management. With over 20 years of experience in these fields and 8+ years in information technology with financial firms, he has notably been the former head of risk management at the U.S. subsidiary of Ashmore Group, which had $74 billion in assets under management in 2018. ExoAlpha has developed proprietary, institutional-grade trading strategies and infrastructure to operate seamlessly in the digital asset markets applying strong risk management principles.

Cryptocurrency Mining Profitability in 2020: Is It Possible?

In the emerging global crypto economy, crypto mining is probably going to remain and even become more profitable in the upcoming years.

Miner profitability metrics are based on a handful of factors regulating difficulty and emission, which are hard-coded into the blockchain’s attributes, making it predictable to work with. While predictability does not always immediately translate into profitability, it gives a blockchain certain parameters to rely on when predicting when mining cryptocurrency will become profitable, at which price level, and at which difficulty level during the emission cycle.

Some cryptocurrencies, such as Bitcoin (BTC), go through emission cycles with events such as the halving. In Bitcoin’s case, halvings occur once every 210,000 blocks — roughly every four years — until the maximum supply of 21 million Bitcoin has been mined. 

This feature, self-adjusting difficulty, provides an incentive for an individual miner to join or leave the network depending on the current Bitcoin price level. Together, these incentives create a logarithmic price regression curve, which represents a probable Bitcoin exchange rate and, therefore, predictability of profitability in the current emission cycle. If Bitcoin’s price falls under this regression curve where the bottom line is roughly around the 200-week moving average in this emission cycle, nearly all of the miners should be at a net loss. If the price stays above this figure, at least some of the miners should be at a net profit.

Bitcoin mining difficulty is currently at an all-time high between 110 and 120 million terahashes per second, indicating that a lot of new mining capacity has been added to the network, but since the price hasn’t fully recovered from the dip caused by the emergence of COVID-19, we should expect most of the miners being temporarily at a loss. However, should Bitcoin’s price rise back up again into the current emission cycle and go into a bull run, the economic risk miners would have taken at that point should be greatly rewarded.

Ethereum mining has been, for a while, among the most profitable in the altcoin space primarily because of the high average price of its token. However, Ethereum as a network has a primary focus on building a blockchain with a slightly different purpose compared to Bitcoin. Ethereum is a smart contract platform. While mining has previously supported the network in the phase where it isn’t widely used for transactions, in the future, the network will be compelled to take on staking nodes as validators in order to provide sufficient transaction capacity. In the long run, this may have a positive effect on mining if we assume that mining will be phased out gradually. A substantial amount of coins are predicted to be locked in staking, which is going to drive up the price.

Staking is a mechanism that allows users to deposit some of their coins into a staking address owned by a validator node and locks them for a period of time. The validator node then secures the network by producing blocks relative to the number of coins deposited in it. The blocks are produced according to a hard-coded voting mechanism that calculates the staking reward from the total amount of coins staked in the network for each node.

Related: ETH Miners Will Have Little Choice Once Ethereum 2.0 Launches With PoS

The price of electricity is a defining factor in miner profitability. Currently, most industrial miners reside in countries with cheap electricity on power purchasing agreements with electricity producers ranging from hydropower to solar. However, most retail miners mostly depend on retail price fluctuations and have to calculate this factor into their investments. Moreover, the price of electricity isn’t a factor when mining profitable altcoins with GPU rigs.

Equipment prices tend to fluctuate according to price cycles. At the bottom of each cycle, buying equipment is relatively affordable, but toward each cycle peak, equipment may not be affordable but also unavailable. At this point, it would likely be profitable to take a moderate risk in mining, especially in GPU mining. Regarding profitability alone, mining Bitcoin would probably require an investment beyond the reach of most retail miners on the initial cost to be remarkable at the peak of this emission cycle.

Apart from only turning a profit, mining is a way to produce coins with no prior history. For users who care about their privacy, mining represents economic freedom, making a means of payment with no ties to a specific entity accessible. This unique feature is only present in proof-of-work cryptocurrencies and connects many people on the fringes of society with often legitimate use cases to the wider world, acting as a guarantor of human and social rights.

For some organizations, maintaining a blockchain at a nominal loss can act as an investment either by supporting profitable services or by maintaining infrastructure to run services for public use. In legacy systems, this type of arrangement is comparable to public service, or a utility.

While utility provision can be an advantage for a network of entities running on a permissioned blockchain or a PoW blockchain intended for a well-defined use, on open public blockchains, in the long run, miners can be assumed to operate on a profit motive. With difficulty adjustments and profitability in public blockchains with significant utility value such as Bitcoin, mining can be seen as a profitable business in the foreseeable future.

The only credible factor that may upset the status quo in mining PoW cryptocurrencies at the moment seems to be the theoretical introduction of widespread quantum computing with enough accessible tools to create an incentive to attack public blockchains. However, this kind of risk can be exaggerated because quantum computing proof algorithms exist and are likely to be developed precisely to mitigate a risk arising from this quite predictable factor.

In this light, mining will probably not become profitable in the upcoming bull market, but more relevant in ways that are not only economically.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Iskander Khasanov is a crypto miner and trader. He established himself first as a real estate entrepreneur and then became involved in the cryptocurrency business in 2016. Iskander is the director at Crypto Accelerator community and shares ideas of mass adoption of cryptocurrency.

Yield Farming Fuels Buzz Around DeFi, but Fundamentals Are Lagging

DeFi has been the name of the game since the start of the summer, but how much is the sector really growing?

The hype surrounding decentralized finance is sometimes credited with triggering a wider market rally in July, as new protocols began releasing tokens that were immediately posting gains of many times their initial value. Despite undeniable price growth, however, it is not immediately clear if the sector as a whole has grown, as reliable metrics to measure the fundamental performance of DeFi protocols are incredibly hard to come by. 

The projects lend themselves to fairly rigorous analysis methods, as they will often have well-defined revenues and expenses. But the rise of liquidity mining, or yield farming, is throwing the metrics off balance in some ways. Protocols reward their users with their own governance tokens, essentially as a payment for using the platform. A frenzied movement to maximize the yield for these tokens distorted the prevailing DeFi success metric, the Total Value Locked, or TVL. 

A clear example of this is the Compound protocol where the value of Dai supplied to it surpasses its total amount of tokens by almost three times — $1.1 billion vs. $380 million in existence as of writing. This is due to Compound users entering leveraged positions on Dai — something that normally does not happen with stablecoins. While this led the community to discuss the merits of TVL, some other similar measurements have been distorted as well.

Evaluating a DeFi lending project

Valuation metrics will change slightly based on the type of project. In the case of lending protocols like Compound and Aave, TVL represents the supply-side liquidity of the project or the total sum of all deposits currently held by them. It is worth noting that TVL only takes the on-chain reserves into account. According to DeFi Pulse, there are only around 220 million Dai locked in Compound, not 1.1 billion.

DAI locked in Compound

DAI locked in Compound. Source: Defipulse.com

However, lending providers are generally evaluated based on book value, or how much is being borrowed. Since that is what generates revenue, it’s considered a much more direct measurement of the protocol’s financials.

Due to the distribution of the network’s coin, COMP, however, all tokens except Tether (USDT) and 0x (ZRX) have negative effective interest when borrowing, according to Compound’s dashboard, meaning that users are paid to do so. The Compound protocol is currently offloading that cost to the buyers and holders of COMP through dilution. 

Though it may be difficult to filter out how much liquidity there is only to speculate on COMP yields, this may not be necessary. The purpose of evaluating the bank’s or lending protocol’s revenue is to gauge how much of that value can be captured through the stock or token, but since the token is being used to subsidize the cost of borrowing, the value is being effectively extracted from its holders. This can be seen through COMP’s token price. Since its release, it has continued to fall in value due to the dilution and selling pressure from newly mined tokens.

COMP token price chart

COMP token price chart. Source: TradingView

Due to this phenomenon, an evaluation strategy for Compound could easily ignore, or even subtract, the part of the book value that is extracting value from token holders. Even in the former case, Compound’s book value would just be $25 million out of a claimed $1 billion — the total sum of the USDT and ZRX being borrowed. 

Though obviously not all assets are there just for the yield, Cointelegraph previously reported that only $30 million worth of Dai was being borrowed just before it became the go-to currency for liquidity mining. Andre Cronje, the founder of the yEarn protocol, told Cointelegraph that the market has not been taking these nuances into account: “We have this weird TVL equals evaluation mentality, which I do not understand at all, where if the TVL is $100M, then the market cap — circulating, not fully diluted — should be $100M.” Although he finds it “completely insane” to ignore revenue, he continued his thought exercise:

“So, if circulating market cap equals TVL, what’s the best way to increase that? Increase TVL. How do you increase TVL? Reward with tokens. Token value goes up because of TVL speculation, and repeat the loop.”

Effects on other protocols

Compound started the yield farming trend, but it was not the only protocol that saw sizable increases in activity. Decentralized exchanges like Uniswap, Balancer and Curve have seen their trading volumes jump dramatically since June. Volume on Curve, a DEX focused on swapping stablecoins with one another, jumped as yield farming began in June. 

Monthly volume across decentralized exchanges

Monthly volume across decentralized exchanges. Source: DuneAnalytics

Uniswap has a more varied offering, and most of its volume comprises Ether (ETH) to stablecoin pairs, especially Ampleforth — which saw a powerful boom-and-bust cycle occur. It has also taken in a lot of the volume for new tokens like YFI, often being the first place where they were listed.

MakerDAO saw its TVL almost triple from $500 million. The majority of that is due to the Ether price rally, though it grew in terms of ETH and Bitcoin (BTC) as well. As Cointelegraph previously reported, the community decided to increase the total amount of Dai that could be minted in an effort to return its price to $1.

While at face value, the growth of Dai may be considered a success story, the Maker community decided to put interest rates for virtually all liquid assets to zero, foregoing any revenue from the growth. At the same time, Compound has been the primary recipient of new Dai, with locked value having risen from about $140 million to $210 million since late July, over 55% of all Dai. 

Is the growth real?

The liquidity mining boom had an undeniably positive impact on some general metrics, specifically the visitor volumes for DeFi platform websites and the number of users interacting with the protocols. Data from SimilarWeb shows that traffic to Compound has quadrupled since June to about 480,000, while for Uniswap it has more than doubled to 1.1 million, and Balancer established a strong presence in two months with 270,000 monthly visits. 

Additionally, DeFi exchange aggregator 1inch.exchange almost tripled its traffic in the last two months. Protocols with a weaker relation to yield farming benefited as well, with MakerDAO and Aave posting more modest but still significant growth. 

Related: Compound’s COMP Token Takes DeFi by Storm, Now Has to Hold Top Spot

In terms of user volume, Compound saw the number of monthly average unique wallets using it quadruple to 20,000 in June, though that number has since been decreasing. Also worth noting is that more than 80% of recent activity has been from just 30 wallets, according to DappRadar data.

User activity on Compound

User activity on Compound. Source: DappRadar

The overall number of DeFi users, according to a DuneAnalytics visualization, increased by about 50% from June 1 to Aug. 1. This is in contrast to the previous two-month period from April 1 to May 31, which saw a 30% growth. 

The majority of new users are coming from decentralized exchanges, with Uniswap having doubled its total user base since June to 150,000. However, this metric shows all the users who have interacted with the protocols, not only those who are active at any given moment.

Total DeFi users

Total DeFi users. Source: DuneAnalytics

What will remain?

In summary, the DeFi growth in the last two months is multi-faceted. While the liquidity mining hype and subsequent price gains have likely contributed to attracting additional attention, fundamental metrics became highly distorted due to the speculation. 

Decentralized exchanges appear to have benefited the most from the hype, both in terms of new users and volumes, but that appears to be an acceleration of an already positive trend. Whether the growth will stick remains an important question. Kain Warwick, a co-founder of Synthetix — a crypto-backed asset issuer — told Cointelegraph:

“It’s always possible that people will farm the yield and then find a fresh field, so bootstrapping liquidity is not a guarantee that your protocol will retain users. [...] But bootstrapping liquidity with some sort of incentive is a great way to attract newcomers because if you have anything resembling product-market fit, then there is likely to be some stickiness.” 

Cronje was somewhat more negative, using a farming analogy to describe what could happen, saying: “All the yield chasers just running in to farm yield and then leaving,” which is a negative thing according to him, acting like a swarm of locusts, adding: “But after they have ruined the crops, sometimes, a stronger crop can grow, and some locusts remain, and they end up being symbiotic instead of the initial parasitic.” 

Cronje believes that the initial effects of yield farming are unsustainable, creating a false perception among newcomers that 1,000% yields are the norm. Once that is no longer the case, users will be left with a bad taste in their mouths, he argues: “Right now, it’s overhyped; soon, it will be hated; and what remains after that, I think, will be pretty cool.”

Distributing tokens in a new way

Warwick described the purpose of liquidity mining as incentivizing early participation with partial ownership. Cronje was much more skeptical, saying: “All liquidity mining currently is, is getting paid for propped up TVL.” Still, he ran a liquidity mining program himself, though he stressed that it was just a way of distributing tokens. 

“My goal was to get an active and engaged community. And I think yEarn managed to accomplish that,” Cronje concluded. By contrast, yEarn forks like YFFI and YFII were “pure liquidity mines, and all that happened was people sold,” he said. The price of YFII has collapsed by 90% since its high on July 30.

Warwick noted that “there possibly is a better way to distribute ownership while bootstrapping growth,” though he does not know how. He still finds it preferable to initial coin offerings, as users only need to temporarily commit their liquidity: “They’re obviously taking on some platform risk, but it’s preferable still to losing their capital by using it to buy tokens.” But while the risks for the liquidity miners may be low, the example of YFII clearly shows that the effects of dilution and speculative demand can turn catastrophic for the buyers of these tokens.

South Korean Beachgoers Can Now Use Bitcoin to Pay for Services

The Haeundae Beach System in Busan is part of a pilot project that aims to offer crypto payment solutions to beachgoers in the summertime.

A pilot project run by Bitbeat-affiliate company CIC Enterprise wants to provide crypto payment solutions at two of the busiest beaches of the country for tourists to use.

According to ZDNet Korea, the firm partnered with card and cash payments provider Innotech for the token-powered payments solution in the Haeundae Beach System on the beaches of Busan in South Korea famous with tourists.

The program will allow people to pay for water sports-related activities, life jackets, and even parasol rentals, among others, with Bitcoin (BTC), Ethereum (ETH), along with MCI and WAY ERC20 tokens through a smartphone-based application.

A faster payment solution for tourists

Bitbeat said that such payments could be processed in less than 10 seconds by relying on the use of QR codes for any wallet in the world, making it different from similar projects that often require customers to download separate apps to complete all the process.

The company adds:

“We hope that the virtual currency used in the Haeundae-gu beach system will be more widely used in real life. We will try to provide a cryptocurrency payment environment.”

Busan authorities expect that on summer days, people will prefer to rent services within the Haeundae beaches, instead of bringing their own things to enjoy the time spent on the beaches. Another beach in Songjeong is also running a similar crypto pay pilot.

Also, in Busan, a private-public consortium in South Korea announced on June 20 their intention to build a blockchain-powered medical tourism platform. A launch date has not bet set, and according to Gyeongnam Ilbo, the initiative will be led by Busan Bank.

Massive Short Squeeze Prompts Chainlink (LINK) Price to Rally 52%

A massive short squeeze in the futures market is the likely reason behind Chainlink (LINK) price surging by 52% on Saturday.

Chainlink (LINK) price continues to set new records as the DeFi-related token surged 52% to reach a new all-time high at $13.8799 today. 

Over the last 24-hours, LINK has surged by 52%, rallying from $9.05 to as high as $13.8799 on Binance exchange. 

LINK-USDT daily chart

LINK-USDT daily chart. Source: TradingView.com

As Chainlink demonstrated a strengthening uptrend, its competitor Band Protocol (BAND), which also operates as a network for oracles, spiked 50% to reach a new all-time high at $12.44.

What’s behind the Chainlink rally?

The sudden uptrend of LINK was likely caused primarily by the squeeze of short contracts in the futures market. As LINK was continuously rising, its funding rate stayed below 0%, hovering at -0.02%.

The cryptocurrency futures market employs a mechanism called “funding” to ensure the market is balanced. When the market is heavily swayed toward buyers, then buyers have to incentivize sellers and vice versa.

As an example, if there is an overwhelming number of traders shorting Chainlink on Binance Futures, then the funding rate would turn negative. In this situation, short contract holders or sellers need to pay long contract holders to maintain their positions.

Throughout the past several hours, as LINK price soared, its funding rate on Binance Futures remained negative. This is indication that as its price was soaring many traders were attempting to short the asset.

A continuous loop of short contracts caused a short squeeze, which, in turn spurred buying demand and fueled Chainlink’s momentum.

A pseudonymous trader known as Benjamin Blunts emphasized that while LINK is theoretically appealing to short, the market sentiment is bearish. When the market is overcrowded by one side, which in the case of LINK was bears looking to short the asset, it tends to move in the opposite way. 

The trader said:

“I actually would be inclined to start looking for shorts soon, however it seems my entire feed is doing the same. So I will wait for another push higher I think, not really interested in standing in front of the strongest, fastest horse right now.”

Zeus Capital and their infamous LINK short

The biggest narrative around LINK during the entirety of its rally revolved around Zeus Capital. The investment firm has publicly maintained a skeptical stance toward Chainlink, expecting LINK price to decline sharply. On August 9 the firm said:

“The ‘get rich fast’ narrative is a true indicator for manipulation. You can only win if you sell your $LINK before it goes to $0.”

A cryptocurrency investor called “Light” suggested that Zeus Capital holds a big short position on LINK, which was apparently at risk of liquidation. He said:

“And in one more poetic twist to the Zeus Capital story, for now, due to delays in the pricing oracle for their Aave borrow, even though LINK breached their liquidation price, their remaining DeFi short has not been liquidated (yet).”

It remains unclear whether a single short seller could have an immense impact on a cryptocurrency with a $2 billion daily volume on paper.

Price Highs, Bull Runs, and Thieves: Bad Crypto News of the Week

Check out this week’s Bad Crypto podcast.

Another good week for Bitcoin last week. The dollar price rose more than 5 percent, taking it to around $11,700. That rise wasn’t smooth. A flash crash took $1,500 off the price at one point, although investors remain bullish and the VIX volatility index, which is based on the S&P 500, is “extremely bullish.” Other volatility measures, though, suggest another drop to $10,000 before a new rally, while the Winklevoss twins think that the amount of infrastructure and capital in the crypto markets will make this bull run very different from the 2017 run.

It’s not just Bitcoin that’s been on a run, though. Ethereum has hit a two-year high of $400, supported by decentralized finance protocols, the anticipated arrival of ETH 2.0, and the general rise in the altcoin market.

Meanwhile, in the analog world, the US printed more money in June than it did in the first two centuries after its founding.

Where there are riches, there are also thieves, and hackers have broken into a cryptocurrency trading platform in Europe. The thieves stole more than $1.3 million from 2gether. The platform has offered customers its own 2GT token as a replacement. 

Bitfinex is still trying to track down hackers who stole more than 120,000 Bitcoins back in August 2016. The exchange is offering a reward of up to $400 million and is even willing to give the hackers 25 percent of the total property recovered.

As for that big Twitter hack that saw accounts as large as Elon Musk’s, Joe Biden’s and Bill Gates’s ask for Bitcoins, authorities have now arrested a 17-year-old in Tampa, Florida. He has been something of a trend-setter, though. Hackers have been taking over big YouTube channels, changing their names to topics like SpaceX and Elon Musk, and offering similar Bitcoin giveaways. The hackers appear to be using phishing attacks targeting the owners of large channels.

Not all law evasion is bad though. Chinese Internet users have turned to the blockchain to share a censored news article. The article is about a company that gave faulty vaccines to babies. 

In Tel Aviv, the stock exchange is now launching a blockchain-based securities platform. Audius has raised $3.1 million to support its “SoundCloud on the blockchain.” The company previously raised $5.5 million but now has 250,000 users and 40,000 artists.

And according to Heath Tarbert, chairman of the Commodity Futures Trading Commission, a large part of the financial system could soon end up using the blockchain. It’s on a run. 

Check out the audio version here:

Joel Comm is an internet pioneer, New York Times best-selling author, futurist speaker and co-host of The Bad Crypto Podcast. That’s a fancy way of saying he writes words, says things and loves to play with cryptos

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Cryptocurrency Cards: An Unnecessary Solution That Should Be Stopped

It is high time for traditional financial institutions to see that the crypto industry has matured enough and does not possess high risks.

Crypto cards have become a must-have for many crypto services. Hoping to reduce the risk of blocking transactions, companies have been looking again and again for reason why their customers should use “plastic.” But a crypto card is a placebo that does not solve the problems of either users or fintech companies — its only goal is to bring profit to payment systems and intermediaries.

Crypto cards are not needed in the same way that special financial instruments are not needed to buy gold, oil, precious metals or any other resource. The word “cryptocurrency” — like “dollar” or “euro” — indicates only the currency for transactions with which the card can be used and does not make the banking product any more innovative. However, until banks and payment systems recognize this, we will be forced to eliminate the consequences of cooperation with Wirecard, WaveCrest and other processors that aren’t the most conscientious, wanting to make money by taking risks but without being able to manage them.

Do Visa and Mastercard deserve a cut of every transaction?

Bank card technologies have gone through a rapid evolutionary path in a very short period of time. They are the fundamental and connecting element for all retail trade relationships. According to Nilson Report, there are currently more than 22 billion payment cards in circulation around the world — debit, credit and prepaid. Taking into account that 1.7 billion people do not use banking services at all, for each of the remaining 6 billion people, there are on average 3.6 cards.

All cards are serviced by payment systems that create a closed consumption ecosystem. Here’s what happens:

  • Banks and processor companies pay Visa, Mastercard, UnionPay, American Express and other international payment systems for the possibility of issuing cards.

  • Cardholders pay banks an annual fee or transaction fees.

  • Sellers transfer to banks on average 1%–4% of the transaction amount for acquiring servicing.

  • Various intermediaries, aggregators, API providers, etc. also collect a commission.

The main thing is that in each commission payment between all participants, a share of Visa, Mastercard or another payment system is included. If we are talking about cryptocurrency transactions, then the commission of payment systems will be higher, since the traditional financial industry regards these transactions as high-risk.

And yet, bank cards are almost indispensable for transactions worth up to $5,000. This is the fastest and most convenient way to buy crypto from numerous wallets and/or exchanges. Therefore, it would be naive to think that fintech companies could quickly get rid of the intermediation of payment systems and stop paying them for every transaction.

Nevertheless, Visa and Mastercard can do a lot to make their native cards much friendlier to crypto and become a part of the solution, not part of the problem, which Wirecard has been trying to get around, making this kind of change seem inevitable.

Where does Wirecard come from?

Today, when the volume of non-cash payments in many countries has surpassed cash payments, any company wanting to issue bank cards under its own brand, in theory, has three options.

1. Become a principal (direct) participant in the international system. To do this, you need to meet a number of mandatory criteria: have the necessary technological platform and qualified personnel, meet information security requirements, provide security funds, etc.

For example, last year, a principal Visa participant had to have capital of at least $56 million directly with the Visa payment system. Therefore, you need to have an account in United States dollars in the U.S. or in euro in the European Union. The licensing procedure itself can cost about $1 million, excluding the funds required for the security deposit and direct royalties. This is not a realistic option for small and medium fintech companies.

2. Become an associated member of the payment system through the sponsoring bank. In this case, it is the bank that takes care of the compliance with the payment system requirements. The license fee is $200,000–$300,000, plus a deposit of several million dollars.

However, even under such conditions, financial organizations do not want to directly cooperate with crypto companies since transactions with cryptocurrency are classified by payment systems as high-risk due to the lack of a unified approach to regulating this area. This results in higher fees and chargebacks for transactions that have been challenged by the cardholder.

3. Contact a processing company. Unlike banks, processors are responsible for issuing payment cards. Among such processors, crypto services usually find partners with a high-risk appetite that are willing to cooperate. Such companies are ready to use various tricks so that payments passing through them are not blocked by the payment system. For example:

  • Conceal or falsify before the payment system the main activity of the company for which the issue occurs.

  • Use incorrect Merchant Category Codes.

  • Issue crypto cards on their own Bank Identification Number, while according to the rules of payment systems, a separate BIN must be allocated for each individual product.

  • Issue co-branded cryptocurrency cards, which are, in fact, bank cards “with an individual design” and are then sold through a crypto service.

  • Expand the limits of card transactions, regardless of the requirements of payment systems and/or the regulator, etc.

All of these are often unjustified risks that processors like Wirecard take on, increasing the cost of issuing and maintaining crypto cards for both crypto services and end-users. Meanwhile, the value of these crypto cards continues to depreciate.

Until recently, people were forced to buy a fourth or even fifth payment card, only for the sake of the “crypto” prefix in order to save their money from being blocked during operations with cryptocurrency. However, regulated crypto services have already learned to tackle this problem differently — by acting strictly within the framework of compliance requirements and forging links with traditional financial institutions.

Banks should take crypto into their own hands

High-risk processors like Wirecard or Wavecrest can be compared to microfinance institutions, or MFIs, that lend out at huge interest rates. Usually, people turn to MFIs after numerous — and not always objective — refusals by banks to issue a loan. Sometimes, the money is needed urgently, and the consideration of the application in the bank is delayed; sometimes the bank’s scoring system does not like the place of work, marital status or the gender of a person. There may be many reasons, but the result is the same: The bank does not want to take risks and people go to less discerning financial intermediaries. Crypto services are forced to do this, too.

A cryptocurrency card is a ridiculous, temporary and forced necessity because banks and payment systems do not want to manage risks on their own. All the risks that Wirecard once assumed when working with crypto companies are now easily eliminated. 

Licensing of activities in the field of cryptocurrencies, the implementation of KYC/AML procedures, obtaining a compliance certificate of the payment card industry data security standards and other measures allow crypto services to successfully work with the traditional financial system.

Banks should have the courage to start making money by partnering with regulated crypto services. And for this, above all else, it is necessary to develop internal expertise in the field of compliance. As bank employees have had little motivation to deal with the peculiarities of high-risk transactions, it is easier for them to refuse service to potential clients and/or stop transactions.

However, if a bank’s compliance service monitors and skips high-risk transactions on a regular and systematic basis, this will create additional cash flow, from which banks could also receive commissions. I am sure that cryptocurrency users’ right to dispose of honestly received assets should be ensured in an absolutely transparent, legal way, and not by gray schemes. Any card can be crypto, and this is the reality we should all be living in — sooner rather than later.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Alex Axelrod is the founder and CEO of Aximetria and Pay Reverse. He is also a serial entrepreneur with over a decade of experience in leading world-class technological roles within a large, number-one national mobile operator and leading financial organizations. Prior to these roles, he was the director of big data at the research and development center of JSFC AFK Systems.

Kava Labs Partners with BNB48 Club to Raise BNB DeFi Awareness

Kava Labs partners with BNB48 Club to raise awareness of BNB DeFi opportunities.

Kava Labs announced a new collaboration with the BNB investor club - BNB48. 

The popular platform added in a press release that under the agreement, BNB48 will act as a technical advisor for the Kava community and provide services such as professional product reviews and technical consulting services for Kava's Chinese validators, staking users, and lending platform users.

From its part, Kava Labs will work with the BNB48 Club to raise awareness of BNB DeFi opportunities and assist BNB48 Club to increase its community members participating in DeFi. Kava Labs will delegate a validator from BNB48.

This is not the first collaboration

This is not the first collaboration between Kava Labs and BNB48 Club, as BNB48 Club is one of the first users of the Kava lending platform. After BNB48 Club obtained the mandate from its Board of Directors, BNB48 Club participated in the Kava CDP platform and the USDX00 instrument.

Kava Labs added BNB as an additional asset to provide BNB holders with the largest returns. BNB holders can also participate in BNB on the Kava CDP platform and draw USDX, Kava's stablecoin, in addition to earning additional coin bonuses in the protocol.

In the meantime, both sides are working to establish a long-term future partnership to maximize the value of BNB ecosystems and increase the DeFi services available to the BNB ecosystem.

Partnership Benefits

For BNB48, it will work with Kava Labs to build and maintain the BNB Staking and BNB DeFi communities. Also, BNB holders will be provided with further guidance and suggestions on BNB creation value. 

An education system will be created to help more BNB holders have a deep understanding of the risks of BNB staking and BNB DeFi staking. Regular online meetings will be held to provide the latest information to the community related to the development of the BNB ecosystem. All of the community members' comments and suggestions will be collected and there will be discussions about the evolution of the BNB ecosystem.

As for Kava Labs, BNB48 Club will be its ambassador in China to promote Kava DeFi to contribute to the popularization of Kava lending products in the Chinese community. Also, Kava Labs will make the BNB48 club one of the officially recommended node service providers for the Kava blockchain to provide staking technology and consulting services. 

BNB48 Club will have an active role in managing Kava network governance and product improvements and providing solutions and suggestions to ensure the quality of the Kava ecosystem.