The development team behind the Cardano blockchain is unveiling new details surrounding its smart contract release.
In the wake of its Mary protocol release this March, Charles Hoskinson’s Cardano is revealing that its Alonzo upgrade will launch this coming August.
IOHK (Input Output Hong Kong), Cardano’s development company, announced this week that the Alonzo upgrade will add support for smart contracts to the Cardano blockchain. The update will allow developers to start building on the Cardano platform – a highly anticipated functionality that the Ethereum network currently possesses.
IOHK notes that the upgrade aims to support businesses and provide support for developers wishing to build decentralized finance (DeFi) dApps.
“Smart contracts mark the next phase in Cardano’s evolution as a worldwide distributed ledger. When supporting everyday business, a blockchain must guarantee that individuals can move their funds and pay for products in a secure way.”
Smart contracts help ensure that a transaction or a purchase is only made when certain conditions are met, allowing for reliable and discreet settlements.
In May and June, IOHK anticipates allowing users to test the new product, which will also allow crypto exchanges and wallets “time to upgrade and prepare for the Alonzo protocol update.”
This year, Cardano’s native token, ADA, has skyrocketed in value by roughly 722% from $0.18 in January to an all-time high of $1.48. The asset is currently trading around $1.19 and holds a market cap of nearly $40 billion.
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Amid a weekend pump carrying multiple cryptocurrencies higher, Ripple’s XRP looks to be leading the way with a push as high as 30% on the daily — carried on the back of a string of legal victories and rumors of relisting at some exchanges.
Where Bitcoin and Ethereum are up merely 2.7% and 3.4% respectively on the day, XRP climbed to $1.36 before retreating to $1.32, where it sits at the time of publication. The digital currency is now up 111% on a 7 day basis, and a staggering 544% on the year. The recent push has also buoyed XRP back into the top 10 cryptocurrencies by marketcap, behind only BTC, ETH, and BNB at #4.
🙂 pic.twitter.com/qYIf6RPOoY
— sats (@satsdart) April 10, 2021
The rally flies in the face of a lawsuit from the Securities and Exchange Commission, which charges that XRP’s $1.3 billion ICO was an “unregistered securities offering.” The news led multiple exchanges to delist the currency, and XRP lost its place as the 3rd largest currency by marketcap, at time looking as if it would even fall out of the top ten.
The bad news for XRP didn’t stop with the SEC, either. In March Ripple CEO Brad Garlinghouse announced that the company would be “winding down” its relationship with Moneygram — a once highly-touted partnership that investors often pointed to as proof of the digital currency being on a path towards becoming “the standard” for payments and settlement.
Despite the deluge of negative headlines, it appears all buyers needed was a small ray of hope to jump back in — and they’ve gotten exactly that. Ripple lawyers have notched two victories in their legal battle against the SEC, including winning access to internal SEC discussion history regarding cryptocurrencies, and a court denied the SEC the ability to disclose the financial records of two Ripple execs, including Garlinghouse.
Ripple executives themselves seem heartened by the news, with CTO David Schwartz saying the US isn’t “prepared” to regulate cryptocurrencies (a possible dig at the ongoing legal proceedings).
All in all, it’s just another week for one of the most controversial cryptocurrencies in the space.
Taking the market by storm, OlympusDAO’s native OHM is up 95.8% this week alone and 31.1% in the past two weeks. At the time of writing, OHM is trading at $812,76 with 7.3% profits in the 24-hour chart.
With a market cap of just $68 million, OlympusDAO might have gone unnoticed by many investors. However, it has a mechanism called Bonds which promises to be one most important and lucrative in the DeFi sector.
According to research firm Messari, this protocol is attempting to create a stable currency backing every OHM with DAI and OHM-DAI. The objective is to maintain a “fundamental check on inflation” and a currency with an undiluted purchasing power.
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Unlike Tether and other stablecoins, OHM is not pegged to any other asset. Its stability is achieved via the DAO (Decentralized Autonomous Organization) when it alters variables to obtain more profitability for stakers.
This is done via the sales contract connected to the protocol’s treasury and a liquidity pool (OMH-DAI) on decentralized exchange Sushiswap, as shown below. Messari explains:
When OHM trades above 1 DAI, the protocol mints and sells new OHM. When OHM trades below 1 DAI, the protocol buys back and burns OHM. In each case the protocol makes a profit. Olympus DAO distributes these profits 90% to OHM stakers pro rata and 10% to a DAO.
Source: Messari
How OlympusDAO’s bonds operate
The Bonds are a treasury component to get liquidity with it users can trade Stake Liquidity Provider tokens to get OHM directly with the protocol, as an OlympusDAO developer explained.
Once the trade is completed there is a vesting schedule of 5 days. During this time, the user can redeem the tokens but has incentives to get them at a discount. The latter is determined by the number of bonds in the protocol, more bonds are equal to a lower discount.
Via this mechanism, as the developer said, OlympusDAO restrains its own growth, to have become “steadier”.
The liquidity from a bond is locked in the treasury and used to back new $OHM. That liquidity now belongs to the market and, by extension, the token holders. The more liquidity the protocol builds up, the more confident holders can feel.
The users are basically contributing to OlympusDAO by adding liquidity. In retribution, the user gets a reward in OHM at a much cheaper price during a specific period. That way, both the user and the protocol can benefit.
We are already seeing this happen. Since launching bonds a week ago, the protocol has accumulated 26% of the pool (~$1.7m worth of liquidity) pic.twitter.com/kGoPQYGDyq
— ZΞUS Ω (3, 3) (@ohmzeus) April 8, 2021
OlympusDAO offers LP a variety of strategies around OHM which they can leverage to obtain a bigger profit than on the spot market. The developer claims:
All of this serves to create a long-term, sustainable bootstrapping mechanism for the protocol, with participants as the main beneficiaries. A good system shouldn’t offer one opportunity to “make it”; it should offer them in perpetuity with diminishing returns. This is how you produce wealth; slowly, through compounding gains.
Ethereum is trading at $2096,58 with a 1.2% profit in the 24-hour chart, after dropping from its ATH at $2,198.
ETH with small profits in the 24-hour chart. Source: ETHUSD Tradingview
A widely-followed crypto strategist and trader believes that Bitcoin, Ethereum and three other cryptocurrencies have more upside potential as they are trading well below their fair value this year.
In a new tweet, the analyst known as Flood tells his 118,900 subscribers that Bitcoin (BTC) has an upside potential of nearly 200% from its current valuation of $58,000. The crypto analyst believes that this year, Bitcoin’s fair value stands at $172,000.
As for Ethereum (ETH), Flood says he can see the leading smart contract platform increasing by over 60% this year with a fair valuation of $3,333.
Flood is also looking at FTX Token (FTT), the native asset of crypto exchange FTX. He believes that FTT is poised to skyrocket by 344% from its current price of $50 to a fair value of $220.
Smart contract platform Solana (SOL) is also on the trader’s radar. With a fair value of $77 according to Flood, SOL has room to grow by over 185% from its current price of $27.
Last on the trader’s list is Nerve Finance (NRV), an automated market maker running on the Binance Smart Chain. Flood is bullish on NRV as he sees it trading at $22.22 this year, representing a possible surge of nearly 500% from its current price of $3.73.
Flood is also updating the crypto assets that make up his portfolio. He says he’s adding more FTT and NRV amid recent bullish price action while trimming his holdings in Solana. He adds that he let go of his holdings in Ethereum, Aave, and Raydium (RAY) after less than stellar performances. The trader also highlights that decentralized exchange PancakeSwap (CAKE) is now part of his portfolio after buying it at an average price of $17.2.
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Ethereum is likely to outperform Bitcoin, at least in the short term, said veteran trader Scott Melker in an exclusive interview with Cointelegraph.
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Alt szn is upon us
Melker sees this period of Bitcoin’s price consolidation as particularly bullish for the second largest cryptocurrency, that recently reached new all time highs. Melker sees Ether’s outstanding performance as the main catalyst of the recent altcoin market bull run.
He also revealed he has been largely switching his dollar-cost averaging strategy from Bitcoin to Ether in the last few months, in order to take advantage of Ethereum’s “tremendous upside potential”.
“It’s like investing in the Internet in the early 1990s to me.”, Melker said.
According to Melker, Etherum could reach the $10K price target within the end of 2021.
“ I don’t see why that’s crazy. It’s basically just under a five X from here. […] Bitcoin did almost three times that last year.”
To find out about Melker’s outlook on Ether, XRP and other large-cap altcoins, watch the full interview on our YouTube channel and don’t forget to subscribe!
Coming every Saturday,Hodler’s Digestwill help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more — a week on Cointelegraph in one link.
Top Stories This Week
Bitcoin suddenly hits $60,000 as a new resistance battle liquidates $850 million
A bout of long-overdue volatility has hit the crypto markets, propelling Bitcoin to highs of$61,276.67on Saturday.
A sudden push allowed BTC/USD to exit the$50,000 price rangein the early hours of the morning.This move had been weeks in the making, with the digital asset repeatedly trying (and failing) to break $60,000 for most of March.
Analyst Lex Moskovski said Bitcoin is now grinding up to a new all-time high, writing:“Being a bear is expensive.”
But it’s unclear how much staying power this rally has, and as we’ve seen over recent months, erratic market movements over weekends don’t always endure.
The favorable market conditions led to new all-time highs for Ether and Binance Coin on Saturday… and another altcoin has also been making a comeback, too.
XRP surpasses $1 for the first time since 2018: What’s behind the new rally?
XRP has had a remarkable week, and over the past seven days, it’s almost doubled in price.On Tuesday, the altcoin smashed through the $1 zone for the first time since March 2018, with its price going from strength to strength in the days that followed.
It is currently trading above the next resistance level at about$1.20, prompting some to set their sights on a macro sell-wall of$2that dates all the way back to December 2017.
XRP has now regained the coveted position of the fourth-largest cryptocurrency by market cap.The uptick in trading volume may have been linked to Ripple unveiling a new acquisition designed to enhance its cross-border payment capabilities.
There was also some upbeat legal news for Ripple this week.Ripple Labs has been granted access to the SEC’s documents “expressing the agency’s interpretations or views” on the subject of crypto assets.
Counsel representing Ripple’s CEO, Brad Garlinghouse, believes it may be “game over” for the SEC’s suit should they find any evidence that the regulator has deemed XRP akin to Bitcoin or Ether.
Speaking to Cointelegraph, Ripple Labs chief technology officer David Schwartzurged U.S. regulatorsto “look at the rest of the world,” warning America risks falling behind when it comes to crypto and blockchain regulation.
Coinbase’s first-quarter revenue hits record $1.8 billion ahead of its Nasdaq listing
It’s been a week of upbeat statistics for the crypto sector. We sawthe total market cap hit $2 trillion, meaning that the industry is now worth as much as Apple. There was a big milestone as 100 cryptocurrencies all securedtheir own $1-billion market capfor the first time. It was also revealed thatthe crypto industry got more funding in Q1than all of last year.
Next week is also shaping to be a significant one as Coinbase gears up to make its stock market debut. And ahead of Wednesday’s direct listing, we got an insight into the company’s finances — revealing that revenues hit$1.8 billionfrom January to March.
The exchange’s numbers seem very healthy, indeed, undoubtedly because of the bull run that emerged during the first quarter.Net income has been estimated at between$730 millionand$800million for the period — with monthly active users now exceeding6 million.
But not everyone is cracking open the champagne.Some analysts have warned that Coinbase’s $100-billion valuation is far too high.
David Trainer, CEO of the investment research firm New Constructs, wrote in a note to clients:“It’s hard to make a straight-faced argument that the firm can justify the lofty expectations baked into its valuation given increasing competition in a mature cryptocurrency trading market and the lack of sustainability in its current market share and margins.”
Paris Hilton drops surprisingly well-informed article about NFTs
Paris Hilton has written an impassioned article about NFTs, declaring that she sees them as “the future of the creator economy.”
The entrepreneur and former reality star appears to be aiming to position herself as an authority on the NFT space, at least for a mainstream audience, as she readies to release a new drop soon.
Celebrating their role when it comes to digital art and fashion — not to mention bringing the world of trading cards into the 21st century — she wrote:
“Some of these applications might even change the way we live. What if we could use NFTs as collateral for physical items? Or as a way to trade for them?”
Hilton sold her first NFT in August 2020 before the mania arrived in 2021 — an NFT depicting a painting of her cat, which sold for$17,000. She donated all the proceeds to charity.
Couple gets married on Ethereum blockchain for $587 in transaction fees
Coinbase employees Rebecca Rose and Peter Kacherginsky have gotten married using the Ethereum blockchain — adding a whole new meaning to the vows “for richer or poorer.”
In addition to a traditional Jewish wedding ceremony, Kacherginsky wrote an Ethereum smart contract named Tabaat that issued tokenized NFTs, the “rings.”
The ceremony itself consisted of two transactions: the transfer of the NFT “rings” from the contract to Rose and Kacherginsky. In total, the ceremony took four minutes to be validated by the Ethereum network and incurred$50in miner fees.
By contrast, the average physical wedding in the United States costs roughly$25,000.
The NFTs depict an animation of two circles merging to become one and were illustrated by artist Carl Johan Hasselrot.
Rose wrote on Twitter:“The blockchain, unlike physical objects, is forever. It is unstoppable, impossible to censor, and does not require anyone’s permission. Just as love should be. What could possibly be more romantic than that?”
Announcement of the week
Markets Pro delivers up to 1,497% ROI as quant-style crypto analysis arrives for every investor
It’s now been a month sinceCointelegraph Markets Prolaunched — bringing professional crypto market intelligence to every investor.
New figures this week showed that 41 of the 42 trading strategies tested by Markets Pro are currently beating Bitcoin’s investment returns, and 36 of them are winning against an evenly weighted basket of the top 100 altcoins.
Two key features are offered to subscribers. The first is theVORTECS™ Score, which is derived from an algorithm that examines multiple different variables (including sentiment, tweet volume, price volatility and trading volume) and compares those with historically similar marketscapes.
And the second isNewsQuakes™: alerts on events that have historically had a significant impact on an asset’s price over the following 24 hours.
Cointelegraph Markets Pro isavailable exclusively to subscriberson a monthly basis at $99 per month, or annually with two free months included.
Winners and Losers
At the end of the week, Bitcoin is at$60,531.89, Ether at$2,165.46and XRP at$1.31. The total market cap is at$2,054,795,567,223.
Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week areBitcoin Gold,KuCoin TokenandXRP. The top three altcoin losers of the week areKlaytn,HoloandDent.
For more info on crypto prices, make sure to readCointelegraph’s market analysis.
Most Memorable Quotations
“Fascinating to see that since inception ETH has outperformed BTC by 250%. It only fell below its initial price in BTC for the first 5 months of its existence in 2015.”
Raoul Pal, Real Vision co-founder
“The pandemic, quite frankly, was a catalyst for institutional adoption, and specifically Bitcoin and the narrative, or use-case, around digital gold.”
Tom Jessop, Fidelity
“Industries from across the global economy are beginning to decarbonize their operations. We can do the same in crypto. We have the opportunity to decarbonize the industry.”
Crypto Climate Accord
“What we need is for the United States to be the leader here. We need to embrace this, so we need to make sure that we use this technology to continue to be a leader on the global stage.”
Anthony Pompliano, Morgan Creek Digital co-founder
“Even though I’m a pro-crypto, pro-Bitcoin maximalist person, I do wonder whether if at this point, Bitcoin should also be thought of in part as a Chinese financial weapon against the U.S.”
Peter Thiel, PayPal co-founder
“I’m not using crypto to buy fiat; I’m not using crypto to buy houses. I just want to keep crypto. And I don’t plan to convert my crypto into cash in the future.”
Changpeng Zhao, Binance CEO
“Not for nothing, $XRP technically has taken all necessary strides to be bullish. After the exchange delistings and write-off by most of CT, this essentially left the market short from both a positional and sidelined standpoint. This can move much higher.”
Cantering Clark, crypto derivatives trader
“If you look at gold as a $10 trillion market cap, Bitcoin is about 10% of that, and if we believe Bitcoin is a 100 times better version than that, then it’s fairly safe to say that there’s a stark chance that Bitcoin captures a lot of gold and market share, and more.”
Yassine Elmandjra, Ark Invest analyst
Prediction of the Week
Ark Invest and JPMorgan expect Bitcoin to hit $130,000–$470,000
JPMorgan Chase expects Bitcoin to reach$130,000, while Ark Invest anticipates the market valuation of BTC to surpass that of gold.
The optimistic macro prediction from both funds revolves around the scarcity of Bitcoin, which has buoyed its popularity as a safe-haven asset.
Bloomberg Intelligencealso has high hopeswhen it comes to the second quarter of 2021.This week, it predicted that the second quarter was more likely to deliver a further surge to $80,000 than a capitulatory move to $40,000.
FUD of the Week
Bitcoin to zero? Not while this Redditor has $187,000 to spend
There have long been doomsday predictions that we’ll see Bitcoin prices plummet to zero, but one person has vowed that this won’t happen, not on their watch.
Reddit user u/Substantial-Ad-5012 wrote: “Bitcoin will never go to zero in my lifetime. Because I am willing and able to buy all the Bitcoin ever mined at one cent each.”
In the unlikely event that Bitcoin does in fact drop to$0.01, it would cost a mere$187,000to pick up every coin in circulation — not accounting for the fact that up to20%of all Bitcoin are inaccessible.
They’re not alone.Binance CEO Changpeng Zhao told his followers last March that they shouldn’t be worried about BTC hitting zero.“So long as I have a penny left, it won’t happen,” he wrote.
Paxful denies reports of customer data leak
An anonymous online source was recently spotted trying to sell private customer and employee data allegedly obtained from crypto exchange Paxful.
However, a spokesperson from the company has told Cointelegraph that no customer data has been jeopardized.
Explaining that Paxful hasn’t fallen victim to a data breach, the spokesperson added:“The employee data that the person claims to have was obtained illegally from a third party supplier that Paxful previously used; Paxful terminated its contract with this supplier in September 2020.”
The person attempting to sell the information claimed to have phone numbers, names and addresses, as well as other private information belonging to users — and the “dump” purportedly boasted more than 4.8 million entries.
Ledger faces class action from phishing scam victims
Ledger and Shopify have been hit by a class-action lawsuit over a major data breach that saw the personal data of 270,000 hard wallet customers stolen between April and June 2020.
Phishing scam victims John Chu and Edward Baton filed the lawsuit in California against the crypto wallet provider and its e-commerce partner Shopify on Tuesday.
The plaintiffs alleged that the firms “negligently allowed, recklessly ignored, and then intentionally sought to cover up” the data breach.
The data was stolen when rogue employees of Shopify accessed the company’s e-commerce and marketing database for Ledger, with the hackers then selling the data on the dark web.
“Had Ledger acted responsibly during this period, much of that loss could have been avoided,” they claim.
Chu lost $267,000 worth of Bitcoin and Ether, and Baton lost $75,000 worth of Stellar in phishing scams that impersonated correspondence from the firms.
Best Cointelegraph Features
DeFi’s critical missing piece: Credit scores
Traditional finance is built not on collateral but on reputation, and DeFi will grow by following suit, Rafael Cosman argues.
You don’t own me: XRP price surge defies SEC’s clampdown on crypto
Since the start of April, the surge in price of XRP has been backed by high tweet volumes, which approached relative highs.
Crypto at risk after Facebook leak: Here’s how hackers can exploit data
Attacks on digital asset exchanges and trading platforms have decreased drastically in recent years, but data leaks still leave users vulnerable.
Mike Novogratz, a veteran investor, and a huge Bitcoin supporter noted the U.S. is currently in a good economic position. Still, the nation can face a major competitive disadvantage unless it engineers a digital dollar soon.
The Importance Of An E-Dollar
Novogratz, chief executive of digital merchant bank Galaxy Digital GLXY, underlined the value that a digital dollar could bring to the US. In a Friday interview with MarketWatch, he stated:
”To me it is an existential crisis, we need a digital dollar.”
Furthermore, the investor expressed his view over the current COVID pandemic and the negative impact on the U.S. market and the world, in general. He referred to the trillions of dollars of monetary and fiscal spending done to help eliminate the worst of the economic aftershocks the disease caused:
”If our fiscal and monetary policy starts looking like it’s from a Banana Republic…you are going to run into some Minsky moment where confidence breaks down.”
With his statement, Mike Novogratz referenced Hyman Minsky, who exposed a view in the recent past that a period of distortions in the financial system eventually ends very badly.
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The existence of a digital dollar sounds even more important after some stock-market investors have been warning about a surge in US inflation in the past weeks.
The Competition With China
During the interview, Novgorotz claimed that while in the U.S., the development of an e-dollar is still under question and researches, China has fired the first salvo on the digital currency front.
The biggest economy in Asia conveys great support to its digital yuan. According to some experts in the field, its new currency is a weapon that the country can use to compete with the U.S. and other developed economies.
As CryptoPotato recently reported, PayPal CEO Peter Thiel said that Bitcoin could be used as a Chinese financial weapon against the U.S.
In the meantime, Novogratz said that there is ”zero evidence of the Chinese government buying Bitcoin” much less weaponizing it, referring to the comments made by Peter Thiel:
”Sometimes he likes to say things that are provocative.”
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After a consolidation phase spread over the last few weeks, Bitcoin is trading back above $60,000. With 3% gains in the daily chart, at the time of writing, and 2% profit in the weekly chart BTC still looking for confirmation on its rally.
BTC with bullish momentum in the 24-hour chart. Source: BTCUSD Tradingview
As it approached its all-time high zone, the funding rate for BTC’s futures market across all exchanges took an explosive jump towards 0.14%. Meaning there are higher incentives to take short positions for investors in this sector.
As the chart below shows, this metric remained relatively low (0.03%) in recent days as Bitcoin’s price moved sideways.
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Source: Glassnode
However, after BTC’s upward movement, as has happened in recent months, a large number of short positions were liquidated.
Data from Glassnode, shared by Moskovski Capital CIO Lex Moskovski, indicates that in less than an hour, $163 million were liquidated across all exchange platforms.
Source: Glassnode
Trader Adam Mancini is bullish on Bitcoin’s current price action. Setting support at $53,000, Mancini believes the cryptocurrency has been “coiling up” in its past sideways movement. Losing this level could invalidate Mancini’s theory.
The cryptocurrency has formed a “clean bullish triangle pattern”, as shown in the chart belove. And is targeting $75,000 with an upper target at $95,000. The trader said:
Bitcoin in the process of breaking out of this triangle right now – lets see if it can start the leg up to 75k from here.
Source: Adam Mancini
In support of the above, former Goldman Sachs executive Raoul Pal said BTC’s price breaking above its 3-month range could be massively bullish for the cryptocurrency. Pal expects the price to “create a powerful move to the upside” towards $80,000.
Kind of feels like a big deal to see BTC break a 3 month range and a wedge. It should create a powerful move to the upside. (Axis scrunched on chart to hint at the upside for dramatic effect. 😉 )#Bitcoin pic.twitter.com/q65CjBn7i6
— Raoul Pal (@RaoulGMI) April 10, 2021
Bitcoin’s fundamentals support further upside move
Per an ARK Invest research conducted by Yassine Elmandjra, Bitcoin’s rally has strong fundamentals. According to Cointime Destroyed, the metric use to measure BTC coming from cold wallets to exchanges sits at an estimated 30% than from the 2017 bull run.
Despite Bitcoin’s price has almost tripe since that period’s ATH at $20,000, investors are keeping a tight grip on their coins. In that sense, Glassnode co-founder Rafael Schultze-Kraft shared Bitcoin’s 3-month Coind Days Destroyed on a downwards trajectory, he said:
This is beautiful. Experimenting with Coin Days Destroyed: Despite $BTC prices above $50k, 3-month CDD at low levels and recently declining. Old hands extremely strong here, HODLers showing conviction and doing what they do best. Doesn’t look like a top to me.
In a report titled “Why Is The Bitcoin Futures Curve So Steep?” JPMorgan Chase analysts examined the growing futures and derivatives market surrounding bitcoin, provided insights as to why the contango is so steep and explored what the future holds for the monetary asset as it becomes increasingly financialized.
Here are some of the highlights from the report.
“As has often been the case in the past, the growth and gradual maturation of cryptocurrency markets has naturally generated interest in derivatives and other sources of leverage. Though futures trade against a range of pairs, Bitcoin unsurprisingly dominates this nascent marketplace. Similarly to the spot market, these products trade within a highly fragmented ecosystem, with nearly 30 active venues. The vast majority is traded offshore as well, with less than 15% of the total open interest listed on major, regulated domestic venues like the CME (Exhibit 1). Normalized depth in futures has also kept pace with the deepening of the cash market, suggesting it too is benefiting from institutional inflows and improved liquidity provision in spot (Exhibit 2).”
With the launch of CME bitcoin futures contracts in late 2017, institutional investors in the United States began to have access to bitcoin derivatives exposure, but access to “spot bitcoin” has been harder to come by, even as the bitcoin market cap has increased more than 200 percent above the 2017 peak.
The analysts offered up potential reasons for why the contango has remained so large. Among the possible explanations provided by JPMorgan is counterparty and repatriation risk in offshore markets, complications with obtaining spot BTC exposure in the legacy system and, subsequently, the Grayscale Bitcoin Trust (GBTC) being a main source of BTC exposure on the street (and all of the premium/discount problems that come along with the investment vehicle).
“Why has such attractive pricing not simply been arbitraged away? One could perhaps blame counterparty and repatriation risk in unrelated offshore markets, but certainly not the CME. In a market with rampant bullish sentiment and heavy retail involvement it is tempting to simply blame demand for leverage. And that is certainly true to some extent. However, there are also some more idiosyncratic but equally important aspects of how these contracts are designed in the context of market segmentation that are specific to Bitcoin and likely explain a substantial fraction of this richness.”
Annualized yields offered via the cash and carry bitcoin trade. Source.
JPMorgan believes that the introduction of a bitcoin exchange-traded fund (ETF) will compress the yields offered by the trade, as a liquid investment vehicle that trades at net asset value (NAV) will give investors the access to “spot BTC” that they need in order to execute the arbitrage trade.
As shown in the chart below, net positions in the CME bitcoin futures market shows that hedge funds have continued to increase their short positions into 2021, totaling about $1.45 billion at the time of writing. Are hedge funds naked short bitcoin? Absolutely not, they are simply executing the cash and carry trade, and capturing the large spread in the process.
Net positions of CME bitcoin futures by trader category. Source.
“These basis trades are particularly attractive in the cryptocurrency market. As of this writing, the June CME Bitcoin contract offers ~25% annualized slide relative to spot. The richness of futures is even more acute if we broaden our view to include unrelated exchanges, where carry can be as high as 40+% (Exhibit 4). To put this in context, very few fiat currencies, including both developed and emerging markets, offer easily monetizable local yields (e.g., from FX swaps) in excess of 5% (Exhibit 5). There is of course the special case of TRY, but with local consumer price inflation around 10% or higher, as compared to the explicitly deflationary monetary policy and cross-border transferability of Bitcoin, this hardly seems a plausible substitute.”
It is quite bullish for JPMorgan to compare bitcoin with foreign fiat currencies, and not only highlight the massive opportunity offered by the steep futures curve, but also highlight the disinflationary monetary policy, transferability and global liquidity of the asset throughout the report. The analysts also pointed to the global aspect of bitcoin’s liquidity and market penetration, displaying the yield offered on CME futures as well as other offshore markets.
The report also pointed to the introduction of a bitcoin ETF as a key step for the assets liquidity and trading volumes into the future.
“This makes launching a Bitcoin ETF in the U.S. the key to normalizing the pricing of Bitcoin futures, in our view. As has been widely discussed, it could reduce many barriers to entry, bringing new potential demand into the asset class. A risk factor worth considering, however, is that it would also make basis trading much more efficient and attractive at current pricing, particularly if those ETFs can be purchased on margin. We would expect that to bring more basis demand into futures markets, especially the CME but also potentially other onshore exchanges. To the extent that contango normalizes for those contracts, we would expect some pass-through to pricing on unrelated exchanges as well, since presumably there is some arbitrage activity between the two.”
In a large, but expected development, the big banks seem to be eyeing the bitcoin market in a significant way. JPMorgan surely isn’t the only legacy institution eyeing the developments in the ecosystem, and it is only a matter of a time before it begins to get exposure itself, possibly via the cash and carry trade.
The key question for investors is, what happens if the contango doesn’t normalize as the bitcoin spot and derivatives market continue to grow exponentially?
What happens when the markets of an absolutely scarce monetary asset and a fractionally-reserved fiat currency with centrally-controlled discount rates converge?
Maybe, just maybe, the true “risk free rate” is bitcoin…
The founder and CEO of Quantum Economics Mati Greenspan is warning that the U.S. Securities and Exchange Commission (SEC) is jeopardizing the future of cryptocurrencies by waging battle with decentralized content sharing and publishing protocol LBRY.
In a newsletter, Greenspan says that the SEC’s move to press an illegal securities offering charge against LBRY could “kill” the budding crypto sector especially if the courts rule against the blockchain-based publishing platform.
“Should the court side against LBRY, it would literally put the future of all cryptocurrencies, including Bitcoin and Ether, in question.”
The Quantum Economics CEO argues that the SEC is taking too liberal an interpretation of the Howey Test in the case against LBRY, whose native token LBRY Credits (LBC) is mineable and is used as a means of payment as well as a way of incentivizing participation and contribution.
The Howey Test originates from a 1946 U.S. Supreme Court case and states that any scheme, contract or transaction constitutes a security offering if and when participants put their ‘’money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
“To state that LBRY credits, which are the epitome of multifaceted programmable money, are indistinguishable from your traditional investment vehicles, is an extremely thin stretch of the Howey Test that the SEC continues to use as their primary weapon in their war on digital assets.”
Greenspan further warns that only stablecoins could survive regulation if LBRY loses in court.
“A negative ruling here could make it easier for them to kill off any project which utilizes crypto tokens. DeFi, non-fungible tokens (NFTs), smart contracts, and just about everything except possibly stablecoins would potentially be on the chopping block.”
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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
