Tag: Explainers

How Crypto Transforms Prediction Markets

by Coindesk

Prediction markets are speculative platforms where traders can place bets on the outcome of future events, such as “Will Joe Biden win the 2024 presidential election?”. If their bet was correct traders earn money but if they are wrong they lose the wagered amount.

Users obviously want to make money from these markets, which include PredictIt and Iowa Electronic Market. But the reason the type of prediction market has drawn so much academic interest is that they have a solid track record of making correct predictions, sometimes even predicting the future.

Some believe crypto assets can play a role in improving these markets. Right now the markets are highly regulated in the US, and participating in them costs relatively high fees.


Advocates argue that cryptocurrencies can dodge these issues. That’s because with cryptocurrencies users don’t have to place trust in a central entity. With Ethereum, the idea is the rules embedded in its code can guide certain actions in the project.

To test out this lofty hypothesis, a few prediction markets, including Augur and Omen, are now deployed on Ethereum.


Prediction markets FAQs

How do cryptocurrencies improve prediction markets?

There are a number of key reasons why advocates think cryptocurrency helps prediction markets:


  • Open: Cryptocurrencies have no boundaries. Users from around the world can purchase ether and other cryptocurrencies powering the prediction markets. Once users buy cryptocurrency they can send it anywhere around the world. Usually, prediction markets are restricted to use in the countries in which they were created. With cryptocurrencies, restricting this isn’t as feasible.

  • Less restrictive: Many of today’s most popular prediction markets pile on restrictions. If a user is winning in a lot of markets, for instance, they aren’t allowed to bet anymore. Cryptocurrency prediction markets strip away such restrictions, Augur’s website argues.

  • Lower fees (sometimes): Fees on centralized markets are higher than Ethereum fees most of the time. But this isn’t always the case. Ether fees have been swelling recently as the network has grown more popular and, as such, congested.

  • Can’t be closed down: Central prediction markets have been shut down before. Most famously, Intrade stopped serving customers in the U.S. to comply with U.S. law, leading to the demise of the platform. One goal of adding cryptocurrencies to the mix is users can make markets that governments can’t shutter.

That said, experts argue there are other reasons these types of markets haven’t gained more traction so far, including the fact they can be easily rigged. For example, someone could bet that Apple will announce the release of its latest iPhone during a certain time and possess insider knowledge about the event.



How do they work using crypto?

They use smart contracts, a type of innovative computer program that can execute actions automatically without needing an intermediary in the middle to help. In the case of prediction markets, smart contracts receive the money sent in by bettors, then automatically distribute it out to the winners when each market concludes.

In other words, users don’t have to trust decentralized prediction markets with their funds. The smart contracts will execute automatically. The flip side of this, though, is that users have to trust smart contracts, which are still a relatively new technology. Many smart contracts have contained bugs or flawed code leading to loss of funds in the past.

Now, how do smart contracts know who guessed correctly? So-called oracles are data services that feed real-world data to smart contracts. Say a prediction market asks, “Will the temperature be below 30 degrees tomorrow in New York City?” We might use weather.com as an oracle source to help us figure out what the temperature is expected to be on the day of the bet.

Central oracles also have their flaws. Weather.com could be hacked by a bettor who placed a lot of money on “yes,” for example. That bettor could hypothetically hack weather.com and alter the weather data to ensure he or she wins. The prediction market Omen, for instance, is trying to fix this with a decentralized oracle that compiles data from a number of oracles and removes oracles that do not display accurate data.


Can I make money on prediction markets? 

It’s a zero-sum game. If you bet correctly, you will win money from those who bet incorrectly. But if you bet incorrectly, you will lose money.

What are some popular crypto prediction markets?

The best-known prediction markets in crypto are:




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What Is a Flash Loan?

by Coindesk

A flash loan is relatively new type of uncollateralized lending that has become popular across a number of decentralized finance (DeFi) protocols based on the Ethereum network.

These types of loans have made headlines recently because they have been used to exploit a number of vulnerable DeFi protocols, leading to millions of dollars in losses. Yet, advocates argue flash loans introduce an innovative and useful tool to the world of finance for arbitrage and quick trades that weren’t possible before blockchains.

Most of us are familiar with normal loans. A lender loans out money to a borrower to be eventually paid back in full. The lender receives a payout from the borrower for temporarily parting with its money. 

Flash loans are similar, but they have the following unique properties:

  • Smart contracts: Flash loans use smart contracts, tools enabled by a blockchain that don’t let funds change hands unless certain rules are met. In the case of a flash loan, the rule is that the borrower must pay back the loan before the transaction ends, otherwise the smart contract reverses the transaction – so it’s like the loan never happened in the first place. 

  • Unsecured loan: Often lenders require borrowers to put up collateral to ensure that if the borrower can’t pay back the loan the lender is still able to get their money back. But in an unsecured loan, no collateral is required. This lack of collateral doesn’t mean the flash loan lender will not get its money back. It’s just sent back in a different way. Instead of offering collateral, the borrower needs to pay back the money right away, which brings us to our next point.

  • Instant: Usually, obtaining and fulfilling a loan is a long process. If a borrower gets approved for a loan, he or she typically has to pay it back steadily over a period of months or years. A flash loan, however, is instantaneous. The smart contract for the loan must be fulfilled in the same transaction that it is lent out. This means the borrower has to call on other smart contracts to perform instant trades with the loaned capital before the transaction ends, which is usually a few seconds.

This type of loan can be useful in certain instances, such as for traders looking to quickly profit from arbitrage opportunities when two markets are pricing a cryptocurrency differently. 

Ethereum lending platform Aave pioneered the idea in early 2020. The concept is new and still has a lot of kinks because new hacks are making abundantly clear. “There is no real-world analogy to Flash Loans,” as the Ethereum lending platform Aave puts it in its documentation. 


Flash loan FAQs


Where does Ethereum fit into flash loans?

This speed and other unique properties are enabled by Ethereum, which aims to expand blockchain to other use cases beyond simple transactions. Flash loans are one popular experiment amid Ethereum’s decentralized finance movement, which has cultivated financial alternatives without intermediaries. Instead, by using DeFi apps, users are supposed to be more in control of the financial instruments, such as loans, derivatives and other contracts. 


Advocates argue DeFi-style apps could give users more control over their finances, in contrast to big Wall Street corporations and other traditional financial institutions.

But that’s not why everyone is interested. DeFi has also drawn a lot of enthusiasm because a some traders have succeeded in making high returns from speculating on new coins.


Why would I want to use a flash loan?

In short, it’s one way to potentially make substantial gains without having to risk your own money.

There are times when the unheard-of speed of a flash loan makes sense.

Flash loans can be used for:

  • Arbitrage: Traders can make money by looking for price discrepancies across a number of different exchanges. Say two markets are pricing pizzacoin differently. It’s priced at $1 on Exchange A and $2 on Exchange B. A user can use a flash loan and call a separate smart contract to buy 100 pizzacoins for $100 at Exchange A, then sell them for $200 at Exchange B. The borrower then repays the loan and pockets the difference.

  • Collateral swaps: Quickly swapping the collateral backing the user’s loan for another type of collateral.

  • Lower transaction fees: In a sense, flash loans roll what would normally take several transactions into one. Each transaction costs a fee so flash loans potentially mean lower fees. 

Aave describes some other potential use cases here. 



Can I make money with a flash loan?

Potentially, provided you have thoroughly researched both the protocol you intend to borrow from and send the borrowed capital to. Some people have used these types of loans to earn money very quickly. But as attacks on flash loans have shown, the technology is definitely not without risks. 


How do I use a flash loan?

Flash loans are available on a variety of Ethereum-based DeFi lending platforms, such as Aave and dYdX. 

They started off as a tool solely for those tech-savvy enough to use the command line, a method for developers to send textual commands to a computer. But now more user-friendly interfaces are emerging, too. 


What if I don’t pay back a flash loan?

Then you won’t get the loan in the first place.

Remember that the entire flash loan takes place within just a single transaction. If both parties, the lender and the borrower, fail to follow the rules, the loan won’t be issued. That’s the advantage of a smart contract. It won’t allow money to move unless a condition is met. 


So if the money isn’t paid back by the borrower instantly in the transaction, the smart contract will simply reverse the transaction and hand the money back to the lender.


How secure are flash loans?

Flash loans have been the subject of several attacks leading to millions of dollars in losses. There are an array of ways that malicious actors can game the loaning mechanism.

This highlights a broader problem with Ethereum and DeFi. The problem is that smart contracts can be gamed if they aren’t written to execute exactly as intended or if the data flowing into them is corrupted or exploitable. But the technology is new. Some argue that these kinds of issues will evaporate as the technology matures, while others believe these attacks will remain a persistent challenge. 


How does a flash loan ‘attack’ work?

Flash loans are less than a year old and there have already been a long line of attacks, with different characteristics. 

Ethereum trading and lending protocol bZX was the subject of a flash loan attack where the borrower was able to trick the lender into thinking he or she repaid them in full, but the borrower really hadn’t. This was done by temporarily pushing up the price of the stablecoin being used to repay the loan.  

In another recent event, one entity used a flash loan to secure extra votes in a MakerDAO vote impacting the whole community. 

Meanwhile, computer science researchers wrote a post at security blog Hacking Distributed exploring some of the ways to attack flash loans “for fun and profit.” 


These are just a couple of examples of flash loans not being used as intended. Engineers are looking into various ways to ensure they work without unexpected loopholes. 


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How Dogecoin Became So Popular

by Coindesk

Dogecoin started off as a joke cryptocurrency but now has a market capitalization of $7 billion and a huge global following. How did it all happen?

Dogecoin was a parody cryptocurrency created by Adobe Product Marketing Manager Jackson Palmer and software engineer Billy Markus in late 2013. The two set out to make the project “as ridiculous as possible” and centered it around a popular internet meme of a Japanese Shiba Inu “doge” that would say nonsensical phrases like “much wow” and “such tired.”

The total supply of 100 billion coins was another one of the “wacky decisions” the co-founders made to “make [Dogecoin]… undesirable as a cryptocurrency so that it [didn’t] become serious.” Eventually, though, the supply limit was removed to promote the use of the crypto token and discourage hodl’ing.

Dogecoin was forked from Lucky Coin – a fork of Litecoin, which is a fork of Bitcoin – because Lucky Coin had a random block reward schedule where miners could receive zero or potentially thousands of free coins for producing new blocks. Palmer and Markus implemented this feature in Dogecoin hoping the randomness would irritate doge miners and prevent them from actually using the token as a payment solution long-term. Just one month after the project launched, however, the official Dogecoin website was visited more than a million times and quickly amassed a substantial following. 

In March 2014, the block reward schedule was decidedly changed to a fixed one similar to Bitcoin’s and most other cryptocurrencies to make it more feasible as the number of users continued to grow exponentially.

Dogecoin didn’t take itself seriously

Dogecoin officially went live on Dec. 6, 2013, and became an instant hit with the community. Not only was it a comical cryptocurrency that could be easily mined and cost fractions of a cent to buy, but the outrageousness of its creation came as a welcomed breath of fresh air for people who just wanted to freely play around with cryptocurrencies.


Within 2 weeks, the r/Dogecoin Reddit channel had over 19,000 users and doge’s price skyrocketed 300%, despite China announcing a ban on payment companies from dealing with Bitcoin, at the time. 

On Dec. 25, the community was rocked by its first major hack. Dubbed “the Dogecoin Christmas hack,” a malicious attacker reportedly broke into DogeWallet – a third-party Dogecoin wallet provider – and stole 11 million doge (worth approximately $12,000 at the time). According to the official response from DogeWallet members, “the attack originated from the hacker gaining access to our filesystem and modifying the send/receive page to send to a static address.”

A community-driven effort to reimburse victims of the hack called “SaveDogmas” began two days after the attack. Despite having only formed a few weeks ago, the “shibes” community – as they would come to be known – pulled together and donated 15 million doge to the SaveDogmas wallet. This act of generosity would become a key defining characteristic of the Dogecoin community in the year that followed.

Real utility and a caring community

In 2014, the Dogecoin community was eager to prove the meme-based cryptocurrency did, in fact, have real-world utility and began raising funds through doge donations to help support a wide range of sporting and charitable causes. The first saw the community raise $30,000 in a matter of hours to help send the Jamaican bobsled team to Sochi, Russia, for the 2014 Winter Olympics. The story was picked up by a number of mainstream news outlets including Business Insider, The Washington Post and The Guardian, and helped broadcast the dog-themed crypto project to the rest of the world. By mid-January, doge daily transaction volumes briefly overtook bitcoin and every other cryptocurrency (in USD equivalent). Another community-led initiative called “Doge4Kids” started in February and raised $30,000 for the 4 Paws For Ability charity which provides service dogs to children with special needs.

Also that month, a Washington Post article was shared in the Dogecoin Reddit channel describing an Indian luger named Shiva Keshavan who desperately needed funding to make it to the 2014 Sochi Winter Olympics, after his home country was suspended by the International Olympic Committee for corruption. Within twenty-four hours, over $7,500 worth of doge was raised by the Reddit community, allowing Keshavan to enter the competition.

On Mar.11, 2014, the Dogecoin community contributed $50,000 to support a Charity: water project that builds clean water facilities in Kenya. The generous donations allowed the US-based non-profit organization to construct 2 new water wells in the area.

On Mar.17, 2014, a Nascar driver by the name of Josh Wise was struggling to secure sponsorship that would enable him to enter into the Talladega Superspeedway race. A post appeared in the r/Dogecoin Reddit channel once again rallying the community to put their doge to good use and become the leading sponsor of Wise’s vehicle. Over 67 million doge amounting to $55,000 was donated in total. The car named “#98 Moonrocket” was emblazoned with the infamous Shiba Inu meme and was the first time the project had ever been physically advertised at a major sporting event.



2014 also saw the creation of DogeTipBot, a third-party tipping service that interfaced with Reddit and allowed users to send dogecoin microtransactions to each other for posting favorable content. This service was instrumental in encouraging the early use of doge and also played a huge role in exposing non-crypto users to digital tokens for the very first time. By August, DogeTipBot had become the crypto industry’s leading tipping service with over 70,000 sign-ups.

In 2017, however, the creator of DogeTipBot, Josh Mohland, took to Reddit to announce he had gone bankrupt, was closing down the service and had squandered all doge held on the platform to cover operating costs and his own debts.

Celebrity Dogecoin supporters

Another major contributor to Dogecoin’s global popularity in more recent years is its growing list of influential celebrity endorsers who frequently voice their support for the Shiba Inu-themed cryptocurrency on social media. The list includes Netflix’s Tiger King star Carole Baskin, Kiss co-lead singer Gene Simmons, former professional bodybuilder Kai Greene, former adult film star Mia Khalifa and American rappers Snoop Dogg and Lil Yachty.

The most notable celebrity endorser of Dogecoin, however, is none other than Tesla CEO and the world’s richest man, Elon Musk.


Musk first came into contact with doge back in September 2018 when he publicly enlisted the help of former dogecoin creator, Jackson Palmer, to combat Twitter scam bots that were impersonating Musk to steal people’s crypto. Seven months later, Musk tweeted “Doge might be my fav cryptocurrency. It’s pretty cool.” in response to winning an April Fools day poll to become the project’s newly elected CEO.

In March 2020, Musk followed up with another doge-related tweet stating “Dogs rock… they have the best coin”, and four months later shared a dogecoin meme to his 46.9 million Twitter followers with the caption “it’s inevitable”.

Towards the end of 2020, Musk continued tweeting about doge – causing prices to pump 25% on Dec.20 after he posted “One word: Doge.” He even jokingly commented that dogecoin could one day become the official currency of Mars.

During the WallStreetBets stock market frenzy that gripped the traditional financial markets in January 2021, Musk sent dogecoin prices soaring 800% towards a new all-time high above $0.08 after tweeting an image of a dog on the cover of a “Dogue” magazine.

So how did Dogecoin become so popular? In short, it seems the selfless community, the light-hearted origin of the project and the real-world utility were the biggest contributors to dogecoin’s early success in the crypto market. Over the last few years, however, Dogecoin has really become a kind of cryptocurrency avatar for meme culture, fueled by online communities and support from internet personalities like Elon Musk. As that culture has risen in influence, Doge has risen in value — essentially taking on a life of its own that its creators never intended.


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CME Ethereum Futures, Explained

by Coindesk

Investors can now attempt to profit from the future price movements of Ethereum’s main crypto token, ether (ETH), on the Chicago Mercantile Exchange (CME). 

On Feb. 8, ether futures went live on the CME – the world’s largest derivatives exchange – 53 days after the first official plans were announced.

What is futures trading?

A futures contract is where the buyer agrees to purchase – and the seller agrees to sell – the underlying asset at a fixed price at a future date. In the case of the ether futures, that underlying asset is the Ethereum cryptocurrency. 


But rather than having the seller deliver ether to the buyer on the settlement date, ether futures contracts are settled for cash; if the settlement price of ether ends up being higher than the contract price, the seller agrees to pay just the dollar difference between the contract price and the settlement price. Likewise, if the settlement price is lower than the contract price, the buyer pays the seller the difference. 

So what price do they use? The contract tracks the price of ether using the CME CF Ether-Dollar Reference Rate (ETHUSD_RR). The system collects price data on ether trades from major crypto exchanges including Kraken, Coinbase, Bitstamp, itBit and Gemini, and works out a volume-weighted average price (VWAP) for ether each day.

Each contract is worth 50 ether and priced in U.S. dollars. There is a maximum order size of 100 contracts on CME Globex, the exchange’s electronic trading platform that runs continuously to accommodate traders from all time zones. Whatever the price of ether is at the point of expiry (when the contract is scheduled to be settled) both the buyer and seller have to uphold their promises to buy and sell the contract, respectively.




At the start of March, Bob is bullish on ether and thinks the price will rise over the next four weeks. Barbara, however, is bearish on ether and believes the price will drop by the end of April. Bob and Barbara both enter into an ether futures trade on the CME.

Bob agrees to buy 1 ether futures contract with an April expiry (Apr. 30). Ether’s current price is $1,800 so the notional value of the contract equals $90,000 (50 x 1,800). Barbara agrees to sell 1 contract worth of ether on Apr. 30.

Bob is hoping by the end of April, ether’s price will have risen so when the contract reaches settlement he will profit from the difference between the initial contract price and the settlement price. Barbara is hoping ether’s price will have fallen so that she can profit from the difference.

Scenario A: Upon expiry, ether’s price is $2,000 per coin which means the settlement price of the ether futures contract is $100,000 (50 x 2,000). Barbara now has to pay Bob $100,000 as part of the futures contract agreement, which leaves Bob with a $10,000 profit.

Scenario B: Upon expiry, ether’s price is $1,600 per coin which means the settlement price of the ether futures contract is $80,000 (50 x 1,600). As per the agreement, Bob has to pay Barbara $90,000 for a contract that is now worth $80,000, which means Barbara has made a $10,000 profit.

CME Ethereum futures FAQs

What are the pros and cons of trading Ethereum futures?


  • Stand to profit from the future movements of Ethereum’s ether cryptocurrency.

  • Gain exposure to the digital asset market without having to navigate unregulated crypto exchanges and set up digital wallets.

  • Ability to use leverage to increase capital efficiency.


  • Not eligible for any Ethereum forked coins. Forked coins are produced from “hard forks” which is when a blockchain splits to create an entirely new chain. This occurs for a variety of reasons, including when a major change to the protocol needs to be implemented that is not backward compatible with the old chain, if someone wants to create a spin off of an existing open-source project like Bitcoin, or when there’s an internal disagreement between miners and/or developers and they decide to part ways. When a new blockchain is created, a new cryptocurrency is also created and distributed to all holders of the original blockchain tokens.

  • No airdrops. Airdrops are where crypto projects distribute free tokens to people for completing certain tasks, being in certain associated communities, or to encourage adoption.

  • High barrier to entry for regular investors. The minimum purchase amount is 1 contract which costs the USD equivalent of 50 ether – currently $85,000 as of Feb.10, 2021.

  • Potential to lose more than initially invested. Futures trading carries an “unlimited liability” risk where traders can lose significantly more than just the initial money they invested. In some extreme cases, traders have even gone bankrupt from trading futures contracts. This is because there is no limit on how high or low the price of the underlying asset can move. For example, Barbara enters into another ether futures trade with Bob for one contract with a notional value of $90,000 and a May expiry. Over the course of May, the price of ether rises dramatically to $4,000 per coin. Barbara now has to pay Bob a whopping $200,000 to settle the contract (50 x 4,000).

How easy is it to trade Ethereum futures on the CME?

In order to trade ETH futures on the CME, you’ll need to set up an account with a registered futures broker. A list can be found here. Once you’re set up, you can place an order through your broker and tell them how many contracts you’d like to buy or sell and select an expiry month.

How much are transaction fees?

A full breakdown of all transaction fees associated with ETH futures can be found on the CME website.

What impact could CME futures have on ether’s price?

The launch of ether futures gives institutional investors an opportunity to hedge against spot market positions – a market where assets and securities are traded with immediate delivery, like Coinbase – which makes the Ethereum native cryptocurrency a much more attractive investment. This has the potential to encourage more big money to enter the crypto market and help improve overall maturity.

There are, however, some instances where ether futures may have a detrimental impact on the underlying price of ether. When futures markets close for the day or the weekend during periods of high market volatility, gaps can appear on futures charts. This is where the price closes at a certain point and then reopens for the new day or week at a completely different price point. For reasons unknown, these CME gaps have a tendency to get filled most of the time, where traders drive the asset back to its original price before the gap appeared. Whenever this happens, it also causes the underlying asset’s price on the spot market to move in tandem as arbitrage traders profit from the difference between the different exchanges.


This means if gaps appear on the ether futures chart it may well have a direct impact on the actual price of ether and cause increased volatility.


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The Grayscale Bitcoin Trust: What It Is and How It Works

by Coindesk

The Grayscale Bitcoin Trust (GBTC) is the world’s largest bitcoin fund and the first investment vehicle of its kind to report financials regularly to the U.S. Securities and Exchange Commission (SEC).

GBTC shares are part of a range of traditional financial products that track cryptocurrency prices offered by Grayscale Investments; the world’s biggest digital asset management firm and part of the Digital Currency Group (DCG) led by founder and CEO, Barry Silbert. DCG is also the parent company of Coindesk.

Originally launched in 2013 as the Bitcoin Investment Trust (BIT), the Grayscale Bitcoin Trust offers accredited investors the opportunity to gain exposure to the leading cryptocurrency by purchasing shares of an open-ended private trust that holds in excess of 649,130 BTC to date – equating to almost 3.1% of bitcoin’s current circulating supply.


The fund tracks the price of bitcoin using the XBX index published by TradeBlock – a company recently acquired by CoinDesk. During periods of high bitcoin market volatility, GBTC shares trade at a discount or premium depending on investor demand. For example, when bitcoin experiences a sharp increase in price, there’s generally a higher demand for GBTC shares from institutional investors which in turn drives their price up.

On May 31, 2017, the shares traded at an eye-watering 137% premium as bitcoin began its ascent to $19,783 before sharply correcting. Since 2019, GBTC premiums have oscillated in a much narrower range between 6% and 38%.

The minimum buy-in is $50,000 and Grayscale charges a 2.0% annual account fee which is accrued daily, according to the official website. Each GBTC share, as of Feb. 5, 2021, entitles the holder to 0.00094825 BTC (approximately $40).



Grayscale FAQs

What are the benefits of purchasing GBTC shares over Bitcoin?

Simply put, the main selling point is: bitcoin without the hassle and stress.

The Grayscale Bitcoin Trust allows investors to speculate on bitcoin without having to buy it directly. This eliminates the need to organize the safe storage and custody of the digital asset, and saves a number of associated costs. It also allows institutional investors to complete large buy orders with minimal slippage compared to centralized crypto exchanges which often lack sufficient liquidity. Slippage is when a trade is executed at a different price than expected, for example when placing a large buy order drives up an asset’s price.

Because GBTC shares are a form of traditional security, there is also much clearer tax guidance and the opportunity to hold shares in a number of tax-advantaged accounts, such as Roth IRAs or 401(k)s.

Who can invest in the Grayscale Bitcoin Trust?

Only accredited investors can invest in Grayscale financial products. 

An accredited investor, according to the United States Securities Act 1933 Rule 1 Regulation D definition, is someone who can show an annual income of at least $200,000 or a combined spousal income of $300,000 for the past 2 years with the expectation of receiving the same or more during the current year. In August 2020, the United States Securities and Exchange Commission expanded the definition to include people with “defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth”. This means that individuals who are able to demonstrate a level of sophistication can also qualify as accredited investors without needing to earn a six figure salary.

When the Grayscale Bitcoin Trust first went live almost 8 years ago, it was initially a private fund for a select number of investors. In 2015, however, the Grayscale Bitcoin Trust received approval from the Financial Industry Regulatory Authority (FINRA) to sell GBTC shares publicly. These are available on OTCQX, an over-the-counter market for financial securities. 

Who are the main investors in the Grayscale Bitcoin Trust?

According to the latest company reports, the top 5 largest holders of GBTC shares are:

  • Ark Investment Management LLC with 6,257,925 GBTC shares worth a total of $200 billion.

  • Horizon Kinetics Asset Management with 2,319,090 GBTC shares worth $74.2 million.

  • Churchill Management Corp with 309,330 GBTC shares worth $9.8 million.

  • IFP Advisors Inc. with 210,945 GBTC shares worth $6.75 million.

  • Toroso Investments LLC with 212,328 GBTC shares worth $6.74 million.

What other products does Grayscale Investment offer?

Grayscale provides investors with a range of similar trusts that track a variety of different cryptocurrencies, including;

  • Grayscale Ethereum Trust (ETHE) with a minimum investment amount of $25,000 and charges an annual 2.5% fee.

  • Grayscale Bitcoin Cash Trust (BCHG) with a minimum investment amount of $25,000 and charges an annual 2.5% fee.

  • Grayscale Ethereum Classic Trust (ETCG) with a minimum investment amount of $25,000 and charges an annual 3.0% fee.

  • Grayscale Horizon Trust with a minimum investment amount of $25,000 and charges an annual 2.5% fee.

  • Grayscale Litecoin Trust (LTCN) with a minimum investment amount of $25,000 and charges an annual 2.5% fee.

  • Grayscale Stellar Lumens Trust with a minimum investment amount of $25,000 and charges an annual 2.5% fee.

  • Grayscale Zcash Trust with a minimum investment amount of $25,000 and charges an annual 2.5% fee.

Grayscale also allows accredited investors to gain exposure to a basket of cryptocurrencies through the Grayscale Digital Large Cap Fund. This allows investors to diversify across multiple crypto-assets and reduce risk. The fund contains bitcoin (BTC), bitcoin cash (BCH), litecoin (LTC), and ether (ETH). For a time, the basket of assets also contained XRP; however, following the SEC lawsuit against Ripple over the asset, it was decidedly removed. Shortly after, the single-asset Grayscale XRP Trust was liquidated.

Each share of the Digital Large Cap Fund entitles the holder to: 0.00047385 BTC, 0.00047433 BCH, 0.00166948 LTC and 0.00286382 ETH (respectively). On Dec. 21, 2020, Grayscale reduced the annual fee attached to this product from 3.0% to 2.5%.


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Which Crypto Projects Are Based on Ethereum?

by Coindesk

According to the crypto app tracker, State of the Dapps, there are nearly 3,000 decentralized apps (also known as “dapps”) currently running on the Ethereum blockchain. These apps differ from regular mobile and web-based apps because they aim to hand users more control over the data the apps manage. Traditional apps, such as Robinhood or Twitter, are managed by a central authority, which ultimately has the last word on how their customers’ data is secured and used – for better or worse. 

Dapps take a decentralized approach to data management, theoretically putting control back in the hands of the user with the help of blockchain technology – the basis of the Ethereum network. Ethereum is the name of both the world’s second-largest cryptocurrency by market capitalization (after bitcoin) and the first platform to facilitate the creation of dapps.

While the promise of Ethereum is tantalizing to proponents of the technology, it’s an open-source platform, meaning the projects built upon it are often experimental and sometimes outright scams. Conducting diligent research before investing is highly recommended.

Top Ethereum projects

Right now, many of the top Ethereum projects are focused on decentralized finance, or DeFi. DeFi aims to expand the utility of cryptocurrencies from day-to-day transactions to more complex financial use cases, such as loans and derivatives. 


The DeFi space gained significant traction in 2020, with the total value of crypto assets locked in its protocols rising over 2,000% from $650 million at the start of the year to $16.05 billion at the close. 

Ethereum dapps have become so popular that the increased congestion has pushed transaction fees – the amount of ether required to send payments over the network – higher than ever. This is a direct result of dapp users competing to get their transactions processed faster by miners. The higher the fee attached to a transaction, the more likely an ETH miner will add that to the blockchain sooner.  


MakerDao

Stablecoins are an effort to improve upon one of the pain points of cryptocurrencies. Crypto prices fluctuate unpredictably, making them unsuitable as a means of payment and as a reliable store of wealth. While most stablecoins are centralized, MakerDAO is different in that it has put forth a detailed plan for how to eventually decentralize the control of its stablecoin, dai.

Uniswap



Uniswap is a decentralized exchange, meaning that unlike most exchanges it never takes control of a user’s funds. It’s the most popular decentralized exchange so far. This exchange is a cornerstone of Ethereum’s recent booming DeFi movement, facilitating trades from coin to coin. The project even attracted a “vampire” competitor, SushiSwap, which tried to suck up all its users. Another unique aspect of Uniswap is that it utilizes an automated market maker (AMM) system to facilitating trading, meaning the underlying liquidity pools that manage the actual coin-swapping are run by smart contracts as opposed to a traditional order book system.

When trading on a regular centralized crypto exchange, the market price for an asset is determined by supply and demand. In order to buy and sell, a trader must find someone on the opposite side of the order book to provide liquidity to complete a transaction. With AMM-based exchanges like Uniswap, a pricing algorithm determines the market price of each asset. Investors are incentivized to provide liquidity which is pooled together and used to execute all trades at the set market prices.

Chainlink

Chainlink is an oracle platform, which means it connects smart contracts with real-time data from the outside world such as weather information or stock prices. A smart contract uses that data to execute pre-defined instructions. For example, payout an insurance claim in the event of a hurricane.

While Chainlink has been around since 2017, the project didn’t really come to the forefront of the space until 2019 – after it partnered with Google. Chainlink is fuelled by an ERC-20 crypto token, LINK, and runs on top of the Ethereum network.

Axie Infinity

Axie Infinity is an online role-playing game where users collect and raise digital, fantastical characters called “Axies.” Under the hood, Axies are types of nonfungible tokens (NFT), which means each one is cryptographically unique, gamers have full ownership over them and in some cases have a monetary value due to their scarce, collectible nature. 

Aave

Aave is a decentralized lending and borrowing platform that recently raised $25 million from leading venture capital firms Blockchain.com and Blockchain Capital.

According to tracker DeFi Pulse, Aave is currently the fourth-largest DeFi app based on the $1.14 billion locked up in the app. It was briefly the largest earlier this year. 

Other up-and-coming Ethereum dapps

  • Compound: A decentralized lending platform, Compound is credited with inventing liquidity mining, where the company releases a unique coin that only those providing liquidity to the platform can obtain. This DeFi technique has since become foundational, with users tapping the technique to make money and companies copying the idea to attract users. 

  • WBTC: Wrapped bitcoin is a token on Ethereum that is backed 1:1 by bitcoin. The goal is to bring bitcoin’s liquidity to Ethereum. It has grown in popularity partly because investors can earn interest on the bitcoin they lock up on Ethereum.

  • SushiSwap: This decentralized exchange (DEX) is a fork of the popular decentralized Uniswap exchange that rewards liquidity providers with its own native SUSHI token. To date, it is a top 10 Ethereum DeFi app, according to DeFi Pulse.

  • Status: An ether wallet and private messaging system.

  • Unstoppable Domains: One of the oft-touted goals of Ethereum is to decentralize the internet by making apps that are not controlled by tech giants. Unstoppable Domains is playing its part by creating domains that can’t be taken down by a central entity or government. 

  • Kyber Network: A popular AMM, like Uniswap, created by researcher Loi Luu.

  • Band Protocol: An oracle solution for sending data to smart contracts. 

  • Basic attention token: An ERC-20 token on Ethereum exchanged between users, publishers, and advertisers on the browser Brave. When using the browser, users receive BAT from advertisers for their attention. BAT is a project led by the creator of JavaScript and co-founder of Mozilla, Brendan Eich.

  • OpenSea: A marketplace for buying and selling NFTs, including Axies (described above), unstoppable domains, digital art, etc.

  • Livepeer: A network for decentralized live-streaming, providing an alternative to YouTube.

  • Decentraland: A decentralized virtual reality game, where users own virtual plots of land and can build structures such as theme parks and casinos that can be monetized.

Additional types of Ethereum blockchain dapps

There are dozens of other crypto dapps with smaller user bases than the above services. Some were more popular prior to the DeFi boom and have historical importance.

Decentralized Exchanges (DEXs)


Lending Platforms 


Stablecoins




Prediction Markets


Storage Apps




Misc. dapps


This is just scratching the surface. State of the Dapps ranks other Ethereum dapps based on a variety of factors, including current active users, transaction volume, and developer activity. Meanwhile, DeFi Pulse ranks DeFi apps by how much value of ether is locked in them. 


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What Does Hashrate Mean?

by Coindesk

“Hashrate” refers to the total combined computational power that is being used to mine and process transactions on a Proof-of-Work blockchain, such as Bitcoin and Ethereum (prior to the 2.0 upgrade). A “hash” is a fixed-length alphanumeric code that is used to represent words, messages and data of any length. Crypto projects use a variety of different hashing algorithms to create different types of hash code – think of them like random word generators where each algorithm is a different system for generating random words. For instance, the hash for “coindesk” using the hashing algorithm that Bitcoin uses, SHA256, = f2429204b339475a3d94dd5450f5ebb3c80130a85fbb91d62768741a3b34a6b6

Before new transactional data can be added to the next block in the chain, miners must compete using their machines to solve a difficult mathematical problem. More specifically, miners are trying to produce a hash that is lower than or equal to the numeric value of the ‘target’ hash by changing a single value called a ‘nonce’. Each time the nonce is changed, an entirely new hash is created. This is effectively like a lottery ticket system, where each new hash is a unique ticket with its own set of numbers. For example, if we take “coindesk” and change the first letter to make “foindesk,” we get this hash = 5a12a9af1b5794bf6855c15944339d41ff713665e415b5434b8c9f081c61b66a Since each hash created is completely random, it can take millions of guesses – or hashes – before the target is met and a miner wins the right to fill the next block. Each time that happens, a block reward of newly minted coins is given to the successful miner along with any fee payments attached to the transactions they store in the new block. 

The block reward, which is a predetermined amount of free coins given to a miner each time a new block is mined, undergoes a programmed halving in order to incrementally reduce the total supply over the course of a coin’s mining lifespan. For Bitcoin, block rewards are cut in half every 210,000 blocks, or approximately 4 years. As of 2021, miners receive 6.25 bitcoins each time they mine a new block. The next halving is expected to occur in 2024 and will see bitcoin block rewards drop to 3.125 bitcoins per block. Dash is another mineable cryptocurrency that reduces its block rewards by 7.14% every 210,240 blocks, while Litecoin halves its rewards every 840,000 blocks.


Application-specific integrated circuit (ASIC) mining hardware now dominates the crypto mining space and is solely designed to perform hashing functions. Some modern-day ASIC rigs are capable of achieving 110 tera hashes per second (TH/S), which equates to 110 trillion attempts at solving the hashing problem per second.

Miners are motivated to do all this in search of monetary rewards. In the process, though, they play a key role in securing cryptocurrencies, most famously Bitcoin, by making it more difficult (namely very expensive) for attackers to gain a 51% majority control over the blockchain network. 


Hashrate FAQs


What is Bitcoin’s current hash rate?

171 million EH/s, which stands for exa hashes per second, at the time this article was published. 1 exa hash = 1 quintillion hashes.


That means that miners are computing 171 quintillion hashes every second. Find the most current estimate at Blockchain.com.


Why is hashrate important?

Higher hashrate means more resources are being devoted to process transactions on the blockchain. This makes a network more resilient to attacks because a malicious agent would need to spend vast sums of money to outcompete other mining facilities in order to gain a 51% majority control and stop other people’s transactions, or double-spend their own coins. 

It follows, then, that the higher the hashrate, the harder it is for a bad actor to source the necessary hashing power and, as such, the harder the network is to attack. 


What is mining difficulty?

Mining “difficulty” is how difficult it is for miners to produce a hash that’s below the target hash.

In Bitcoin, the difficulty automatically adjusts every 2,016 blocks. Blocks are targeted to be found by miners every 10 minutes. So if miners are finding bitcoins more often than every 10 minutes on average, the difficulty moves upward. If miners are finding bitcoins less often than every 10 minutes on average, the difficulty moves down.  With Ethereum, mining complexity uses a similar system to Bitcoin with the added addition of a “difficulty bomb” that was introduced back in 2015 and went live during the Homestead update in early 2016. This increases the time it takes to mine each new block with the aim of phasing out ether mining to make way for the new Proof-of-Stake (POS) mechanism in the 2.0 upgrade.

Difficulty is a key piece of calculating a hashrate. The more difficult it is to mine, the more hashes will need to be generated to find the block rewards, pushing the total hashrate higher. 



How is hashrate calculated?

There’s no way to know for sure the exact hashrate of a mineable cryptocurrency, though it can be estimated. Hashrate is traditionally estimated based on public data about the underlying cryptocurrency, including the difficulty metric described above.

Though this traditional estimation method is in the right ballpark, this methodology has long been criticized as not precisely accurate. The Kraken crypto exchange proposed another way of estimating the hash rate, using statistics to show with 95% confidence that the hashrate lies in some range. 


Why has Bitcoin’s hashrate gone up?

Graph of bitcoin’s entire hashrate history

Source: blockchain.com

More and more miners have entered the fray in Bitcoin’s short history, pushing the hashrate up. 

The most likely reason for new miners joining the highly competitive space is because of bitcoin’s high price potential. An increase in demand for bitcoin (which is a scarce asset) recently pushed the price above $40,000 per coin (it is lower now, at press time), which in turn has attracted more operators who are seeking to get in on these significant returns.


Any rise in miners pushes Bitcoin’s difficulty up, which then drives the hashrate up.


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What Is Uniswap? A Complete Beginner’s Guide

by Coindesk

Uniswap is a leading decentralized crypto exchange that runs on the Ethereum blockchain.

The vast majority of crypto trading takes place on centralized exchanges such as Coinbase and Binance. These platforms are governed by a single authority (the company that operates the exchange), require users to place funds under their control and use a traditional order book system to facilitate trading. 

Order book-based trading is where buy and sell orders are presented in a list along with the total amount placed in each order. The amount of open buy and sell orders for an asset is known as “market depth.” In order to make a successful trade using this system, a buy order has to be matched with a sell order on the opposite side of the order book for the same amount and price of an asset, and vice versa.


For example, if you wanted to sell one bitcoin (BTC) at a price of $33,000 on a centralized exchange, you’d need to wait for a buyer to appear on the other side of the order book who’s looking to buy an equal or higher amount of bitcoin at that price.

The main problem with this type of system is liquidity, which in this context refers to the depth and number of orders there are on the order book at any given time. If there’s low liquidity, it means traders may not be able to fill their buy or sell orders.

Another way to think of liquidity: Imagine you own a food stall in a street market. If the street market is busy with stall owners selling goods and people buying produce and products, it would be considered a “liquid market.” If the market was quiet and there was little buying and selling going on, it would be considered a “narrow market.”



What is Uniswap?

Uniswap is a completely different type of exchange that‘s fully decentralized – meaning it isn’t owned and operated by a single entity – and uses a relatively new type of trading model called an automated liquidity protocol (see below).

The Uniswap platform was built in 2018 on top of the Ethereum blockchain, the world’s second-largest cryptocurrency project by market capitalization, which makes it compatible with all ERC-20 tokens and infrastructure such as wallet services like MetaMask and MyEtherWallet. 

Uniswap is also completely open source, which means anyone can copy the code to create their own decentralized exchanges. It even allows users to list tokens on the exchange for free. Normal centralized exchanges are profit-driven and charge very high fees to list new coins, so this alone is a notable difference. Because Uniswap is a decentralized exchange (DEX), it also means users maintain control of their funds at all times as opposed to a centralized exchange that requires traders to give up control of their private keys so that orders can be logged on an internal database rather than be executed on a blockchain, which is more time consuming and expensive. By retaining control of private keys, it eliminates the risk of losing assets if the exchange is ever hacked. According to the latest figures, Uniswap is currently the fourth-largest decentralized finance (DeFi) platform and has over $3 billion worth of crypto assets locked away on its protocol.

How Uniswap works

Uniswap runs on two smart contracts; an “Exchange” contract and a “Factory” contract. These are automatic computer programs that are designed to perform specific functions when certain conditions are met. In this instance, the factory smart contract is used to add new tokens to the platform and the exchange contract facilitates all token swaps, or “trades.” Any ERC20-based token can be swapped with another on the updated Uniswap v.2 platform.

Automated liquidity protocol

The way Uniswap solves the liquidity problem (described in the introduction) of centralized exchanges is through an automated liquidity protocol. This works by incentivizing people trading on the exchange to become liquidity providers (LPs): Uniswap users pool their money together to create a fund that’s used to execute all trades that take place on the platform. Each token listed has its own pool that users can contribute to, and the prices for each token are worked out using a math algorithm run by a computer (explained in “How token price is determined,” below). With this system, a buyer or seller does not have to wait for an opposite party to appear to complete a trade. Instead, they can execute any trade instantly at a known price provided there’s enough liquidity in the particular pool to facilitate it. In exchange for putting up their funds, each LP receives a token that represents the staked contribution to the pool. For example, if you contributed $10,000 to a liquidity pool that held $100,000 in total, you would receive a token for 10% of that pool. This token can be redeemed for a share of the trading fees. Uniswap charges users a flat 0.30% fee for every trade that takes place on the platform and automatically sends it to a liquidity reserve. Whenever a liquidity provider decides they want to exit, they receive a portion of the total fees from the reserve relative to their staked amount in that pool. The token they received which keeps a record of what stake they’re owed is then destroyed. After the Uniswap v.2 upgrade, a new protocol fee was introduced that can be turned on or off via a community vote and essentially sends 0.05% of every 0.30% trading fee to a Uniswap fund to finance future development. Currently, this fee option is turned off, however, if it is ever turned on it means LPs will start receiving 0.25% of pool trading fees.

How token price is determined

Another important element of this system is how it determines the price of each token. Instead of an order book system where the price of each asset is determined by the highest buyer and lowest seller, Uniswap uses an automated market maker system. This alternative method for adjusting the price of an asset based on its supply and demand uses a long-standing mathematical equation. It works by increasing and decreasing the price of a coin depending on the ratio of how many coins there are in the respective pool. It’s important to note that whenever someone adds a new ERC-20 token to Uniswap, that person has to add a certain amount of the chosen ERC-20 token and an equal amount of another ERC-20 token to start the liquidity pool. The equation for working out the price of each token is x*y=k, where the amount of token A is x and the amount of token B is y. K is a constant value, aka a number that doesn’t change. For example, Bob wants to trade chainlink (LINK) for ether using the Uniswap LINK/ETH pool. Bob adds a large number of LINK to the pool which increases the ratio of LINK in the pool to ether. Since the value K must remain the same, it means the cost of ether increases while the cost of link in the pool decreases. So the more LINK Bob puts in, the less ether he gets in return because the price of it increases.  The size of the liquidity pool also determines how much the price of tokens will change during a trade. The more money, aka liquidity, there is in a pool, the easier it is to make larger trades without causing the price to slide as much.

Chart by Vitalik Buterin

Source: Ethresear.ch

Arbitrage

Arbitrage traders are an essential component of the Uniswap ecosystem. These are traders that specialize in finding price discrepancies across multiple exchanges and use them to secure a profit. For example, if bitcoin was trading on Kraken for $35,500 and Binance at $35,450, you could buy bitcoin on Binance and sell it on Kraken to secure an easy profit. If done with large volumes it’s possible to bank a considerable profit with relatively low risk.

What arbitrage traders do on Uniswap is find tokens that are trading above or below their average market price – as a result of large trades creating imbalances in the pool and lowering or raising the price – and buy or sell them accordingly. They do this until the price of the token rebalances in line with the price on other exchanges and there is no more profit to be made. This harmonious relationship between the automated market maker system and arbitrage traders is what keeps Uniswap token prices in line with the rest of the market.

How to use Uniswap

Getting started with Uniswap is relatively straightforward, however, you will need to make sure you already have an ERC-20 supported wallet setup such as MetaMask, WalletConnect, Coinbase wallet, Portis, or Fortmatic.

Once you have one of those wallets, you need to add ether to it in order to trade on Uniswap and pay for gas – this is what Ethereum transaction fees are called. Gas payments vary in price depending on how many people are using the network. Most ERC-20 compatible wallet services give you three choices when making a payment over the Ethereum blockchain: slow, medium or fast. Slow is the cheapest option, fast is the most expensive and medium is somewhere in between. This determines how quickly your transaction is processed by Ethereum network miners.


1. Head to https://uniswap.org

2. Click “Use Uniswap” in the top right-hand corner.

3. Go to “Connect wallet” in the top right-hand corner and select the wallet you have.

4. Log into your wallet and allow it to connect to Uniswap.5. On the screen it will give you an option to swap tokens directly using the drop-down options next to the “from” and “to” sections.

6. Select which token you’d like to swap, enter the amount and click “swap.”

7. A preview window of the transaction will appear and you will need to confirm the transaction on your ERC-20 wallet.

8. Wait for the transaction to be added to the Ethereum blockchain. You can check its progress by copying and pasting the transaction ID into https://etherscan.io/. The transaction ID will be available in your wallet by finding the transaction in your sent transaction history.

Uniswap’s UNI token

Uniswaps native token, UNI, is known as a governance token. This gives holders the right to vote on new developments and changes to the platform, including how minted tokens should be distributed to the community and developers as well as any changes to fee structures.

The UNI token was originally created in September 2020 in an effort to prevent users from defecting to rival DEX SushiSwap. One month before UNI tokens launched, SushiSwap – a fork of Uniswap – had incentivized users from Uniswap to allow SushiSwap to reallocate their funds to the new platform by rewarding them with SUSHI tokens. This was a new type of token that gave users governance rights over the new protocol as well as a proportionate amount of all transaction fees paid to the platform.

Uniswap responded by creating 1 billion UNI tokens and decided to distribute 150 million of them to anybody who had ever used the platform. Each person received 400 UNI tokens, which at the time amounted to over $1,000. 


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Top 5 Dogecoin Pumps Through the Ages

by Coindesk

Dogecoin, the popular meme cryptocurrency, hit a new all-time high on Jan. 28 following a meteoric 1,100% gain. Here’s a breakdown of every time dogecoin has shot for the moon. 

Dogecoin is a cryptocurrency that was created by Australian entrepreneur Jackson Palmer and software engineer Billy Markus back in 2013. It was meant to be a mockery of the new alternative coins, or “altcoins,” that were flooding the space at the time. The infamous Shibu Inu “doge” the project is centered around was taken from a viral internet meme that was particularly popular with early crypto adopters.

Dogecoin daily price chart


Dogecoin has a history of experiencing wild price movements that are mainly driven by its popularity as a funny dog-themed cryptocurrency. In the past, TikTok challenges and major celebrity endorsements have contributed to its rise in price, and other times the cryptocurrency surges for no reason at all.

1. 2017 crypto boom

Dogecoin’s first major pump started around March 10, 2017, as a significant rise in retail investment started to pour into the crypto market for the first time, lifting all alternative coins, or altcoins. Over 70 days, the “joke” cryptocurrency rose by more than 1,890% from $0.00021 to a peak of $0.0042 on May 21. This shattered the previous all-time high of $0.0021 and sent the market cap soaring over $423 million. Shortly after, dogecoin slumped 75% during a two-week market pullback that affected all cryptocurrencies. 

2. Bitcoin breaks $19,783, lifts dogecoin

By November of 2017, significant buying momentum had returned to the crypto market, with huge trading volumes driving bitcoin to a height of $19,783. The global crypto market capitalization reached a staggering $830 billion and sent smaller-cap projects like dogecoin parabolic. 

On Jan. 7, 2018, dogecoin broke over $0.02 – 380% higher than its previous high. Its market capitalization at this stage was $1.6 billion. However, this was very short-lived and within eight days the price unraveled over 70% back down to $0.0047. 


3. Crypto markets rebound

On April 14, 2018, just before the entire market entered “crypto winter” and crashed to former lows, a vast majority of crypto projects staged a brief recovery. In three days, dogecoin rose 103% from $0.0020 to $0.0041. For comparison, bitcoin only managed to secure a 40% rise within the same month.

By this time, dogecoin’s market capitalization had been cut by more than half from its all-time high down to $573 million.

4. Ethereum/Dogecoin bridge test

The first major dogecoin rally that was largely uncorrelated to the rest of the crypto market was in September 2018 when a system test of the Dogecoin/Ethereum bridge was completed. 


The bridge was supposed to be a new update that would allow interoperability between the two blockchains. The announcement reignited community support for the project and dogecoin’s price rose 173% in 48 hours.

It later transpired, however, that due to a crash in the price of ether – the main cryptocurrency of the Ethereum project – there was insufficient funding to continue developing the bridge and the update was put on hold. Since then, there has been no mention of whether this bridge between Dogecoin and Ethereum will ever be continued. 

5. WallStreetBets mania, Elon Musk tweet

On Jan. 11, 2021, the traditional financial markets were heavily disrupted by a subreddit group called the WallStreetBets (aka WSB). These amateur stock traders decided to unite against traditional financial institutions and pump a number of stocks that major hedge funds were betting on falling in value, such as GameStop, BlackBerry, AMC, Nokia and Bed Bath & Beyond.

On Jan. 28, the WSB stock market mania spilled across to dogecoin and catalyzed the biggest crypto rally of the year so far. In less than two days, dogecoin skyrocketed to a new all-time high of $0.087 on the Binance exchange – representing a 1,100% gain. The rally was fueled in part by a number of tweets, including one from Elon Musk, the world’s richest man and avid dogecoin fan.


Netflix’s “Tiger” King celebrity, Carole Baskin, also tweeted a video voicing her support for the dog-themed cryptocurrency. 



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WallStreetBets Reddit Group: What Is It?

by Coindesk

A decentralized Reddit forum called WallStreetBets is causing chaos on Wall Street.

The group “r/Wallstreetbets” (aka WSB) is a longstanding subreddit channel where over 3.5 million Reddit users discuss highly speculative trading ideas and strategies. Described as “like 4chan found a Bloomberg Terminal,” the community has caused huge disruption to financial markets this week.

On Sept. 19, 2020, a Redditor with the handle Player896 published a post in the channel entitled “Bankrupting Institutional Investors For Dummies, ft GameStop.” In it, the person outlined a strong bullish case for GameStop (GME), a brick-and-mortar business that primarily sells video games and consoles. Since November 2015 the company’s stocks had been steadily declining due to a shift from physical media to digital, and the arrival of the COVID-19 pandemic.

The GameStop opportunity

The author noted that GameStop stock was being heavily sold short at the time by a number of institutional investors, despite the fact “their books are rock-solid” and Chewy CEO and co-founder Ryan Cohen had spent almost $76 million for a 12.9% stake in the company. Cohen – the largest individual shareholder of Apple Inc. – later joined the GameStop board along with two former associates from his pet health products company on Jan. 11, causing the stock price to soar 50%. 


Even after Cohen joined the board and the stock price began to rebound, a handful of hedge funds and other institutional investors continued to short-sell GME stock. This was likely an attempt by large players to out-muscle amateur traders and induce panic selling. The WallStreetBets Reddit community saw this as an opportunity to push back against the financial elite and decided to whip up a buying frenzy in the hopes of creating a major short squeeze. A short squeeze might sound complicated but it’s actually a relatively straightforward process. When institutional investors short-sell a stock, what they actually do is borrow a number of shares they believe will drop in value, sell them at the highest price possible and try to buy them back later at a lower price. If they’re successful, they hand the initial borrowed amount back and pocket the difference. 

If the market turns against them, however, and the price of the shares increase, the trader is forced to buy the shares back at a loss. If the price rises dramatically within a short space of time it can cause devastating losses for the short-seller. In addition, because short-sellers are forced to buy back into the asset when a short squeeze happens, it helps drive prices even higher. 


WallStreetBets crushes hedge funds, crashes trading apps

Melvin Capital, a U.S.-based hedge fund, and Citron Research were among the short-sellers impacted by the WallStreetBets army short squeeze. Two major hedge funds, Citadel and Point27 Asset Management, have since stepped in to save Melvin Capital with a $2.75 billion bailout.

In nine days, GME stocks skyrocketed over 1,800% from $19.79 to a high of $380. Cohen’s 13% stake in the company is now worth $2.5 billion.

The world’s richest man, Elon Musk, added even more fuel to the WSB inferno by tweeting his support with the word “Gamestonk!” – a deliberately misspelled version of “stock” popularized by an internet meme.


The WallStreetBets traders didn’t stop there. BlackBerry, AMC, Nokia, and Bed Bath & Beyond have become the next set of heavily shorted stocks to enjoy the WSB treatment, posting 24%, 310%, 70%, and 46% gains on Wednesday, respectively.

Mobile-friendly trading apps such as Robinhood and Trading212 both suffered outages during the opening of the American markets Wednesday morning as retail traders flooded in to join the frenzy.

In response to this extraordinary event, Adena Friedman, the CEO of Nasdaq – the second-largest stock exchange in the world – said the platform has begun monitoring social media and will halt trading if another WallStreetBets-driven pump is flagged. TD Ameritrade has also limited GameStop trading on its platform.

The WallStreetBets Reddit channel briefly went private on Wednesday in response to millions of new users pouring in. Discord also reportedly banned the WallStreetBets server due to a flurry of discriminatory posts and hateful comments. In a post, the moderators of WSB commented, “We have grown to the kind of size we only dreamed of in the time it takes to get a bad night’s sleep. We’ve got so many comments and submissions that we can’t possibly even read them all, let alone act on them as moderators.”


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Bitcoin (BTC) $ 27,358.33 0.77%
Ethereum (ETH) $ 1,641.12 1.66%
Litecoin (LTC) $ 64.32 3.11%
Bitcoin Cash (BCH) $ 227.42 8.56%