[header date=”5 September 2018″]The genesis issue: Our plans for the future, a report scrutinizes the world’s largest stablecoin, and an industry veteran discusses bitcoin’s relationship to conventional markets.[/header]
Hello, world
It can be hard to keep up with things in crypto, so consider this your guide to making sense of it all.
Quartz was obsessed with bitcoin when we were founded six years ago, and since then our coverage has expanded greatly. Our reporting has taken us from massive bitcoin mines in Inner Mongolia to decommissioned military bunkers serving as crypto vaults in Switzerland. Along the way, we have met students mining cryptocurrencies in MIT dorm rooms and Nigerian entrepreneurs using digital assets to speed up cross-border payments.
Like everything else we cover at Quartz, we aim to make crypto both accessible and approachable. We aren’t here to wallow in snark, or overwhelm with jargon. We also acknowledge that there are large, established financial markets that serve many people’s needs, and that blockchains, tokens, and decentralization aren’t always the answer.
We will leverage our global reach to bring you news and analysis about the issues that matter most to the markets for stateless digital assets. For example, we are currently watching India’s supreme court in Delhi, which will hold a final hearing next week on a challenge to the central bank’s ban on lenders dealing in cryptocurrencies.
Each week, you will receive two issues of Private Key. The first will take a step back and analyze major trends in crypto markets, with dispatches from reporters around the world, Q&As with newsmakers in the industry, and more. The second, on Fridays, will round up the week’s news, giving busy subscribers a quick way to catch up on what’s important, with clear takeaways highlighted throughout.
In these emails, we will share notes and tips we pick up during reporting as well as give you a sneak peek at forthcoming features and investigations. For instance, we have been making calls and running the numbers on Binance Coin, the token associated with one of the world’s largest crypto exchanges. According to our calculations, its intrinsic economic value is less than where it currently trades—a lot less. Stay tuned for more on that.
In the meantime, thanks for joining us at the beginning, and let us know what you think we should cover at privatekey@qz.com. We look forward to decrypting the world of crypto for you, one block at a time. —Jason Karaian
[supplemental headline=”Market chatter: The Tether trade”]
[img src=”https://cms.qz.com/wp-content/uploads/2018/09/btc-usdt-chart.png”]
The murky relationship between Tether, Bitfinex, and the price of bitcoin has been a long-running source of controversy and intrigue in the crypto world. Tether tokens are supposedly backed one-for-one by US dollar deposits, making the USDT “stablecoin” a popular way to trade crypto-to-crypto on some exchanges (especially Bitfinex, whose CEO also runs the company that issues tethers).
Chainalysis, a research firm, estimated in a recent report that USDT trading volumes have increased by 15 times since October 2017, versus a threefold increase for US dollar-crypto trading pairs over the same period. Although the link between the USDT supply and bitcoin’s price appears to be breaking down, USDT trading volumes have been rising for “low-volume cryptocurrencies and, at times, pump and dump schemes,” according to the research firm.
Tether has issued a defense of its business practices and USDT usage overall, claiming that “monumental economic activity” has buoyed demand for the token. Tether “does not enable illicit price manipulation of low cap assets or pump and dumps any more than any other asset, digital or otherwise,” it added.
[takeaway]Take note: If there is real demand for a coin, it should probably be reflected in rising volumes across a range of trading pairs, not just USDT—or any other single token or currency.[/takeaway]
[/supplemental]
On the record: Arianna Simpson
[img src=”https://cms.qz.com/wp-content/uploads/2018/09/arianna_simpson.jpg”]
Arianna Simpson is founder and managing director of Autonomous Partners, a digital-asset investment fund backed by Cohen Private Ventures and Union Square Ventures. She is one of the most influential, forward-thinking investors in the virtual-asset sector. She was an early employee at BitGo, and before that worked for Facebook. She spoke with Quartz’s Matthew De Silva.
Quartz: The US stock market is in the midst of its longest bull run in history. How would you respond to people who say bitcoin hasn’t been tested by a proper bear market in stocks?
Simpson: Right now, the narrative is that [bitcoin] is a great place to put your money because it’s completely uncorrelated to other things. I’m fairly skeptical whether that would be the case in a serious macro bear market. Generally, in those instances, you see a flight to quality, and people move out of everything and into the safest [assets] they can find. As much as I would love to believe that, “Oh, look, the money’s all going to flow into crypto,” I don’t actually think that’s accurate.
Do you think a country will ever recognize a cryptocurrency as legal tender?
Definitely. Certain countries are already moving in that direction. The Marshall Islands made plans to issue its own cryptocurrency. I’d be shocked if we don’t see that more in the next few years. In some cases, it will be countries issuing their own currency on a blockchain and in other cases, folks starting to recognize bitcoin. I firmly believe that a number of countries have already begun stockpiling bitcoin to hedge against the greater geopolitical forces.
Do you think bitcoin will ever function as a global reserve currency? Or, could it be displaced by one of the other cryptocurrencies?
It depends what time horizon you’re looking at. Obviously bitcoin has a significant lead at this point in time and has a number of advantages, like liquidity, security, and history. It’s been battle-tested. Over time, it could certainly be replaced by something else, but for now, it’s clearly the leading contender for that role.
Are you worried about crypto market manipulation?
I think the market manipulation concern is generally overstated. I have friends who spent 20-30 years trading in traditional markets and they said the Libor manipulation was way worse than anything they’ve seen in crypto. I don’t think [manipulation] should be a reason to not be involved, but of course if you’re looking at a cryptocurrency that has a much smaller market cap and circulating supply, then yes, that would be much more susceptible to manipulation.
Lastly, what’s your opinion of Ripple?
I don’t know what to say about them anymore. There are always tradeoffs between centralization and scalability and speed, but at the end, if we just reinvent the existing systems and add a token to them, I don’t think we’ve accomplished much. I think the decentralization aspect is very much an integral piece of how these systems were conceived and designed. If you eliminate that, all you have is an inefficient database. What’s the point of that?
Simpson’s recommended reading, listening, and more:
Books: Technological Revolutions and Financial Capital by Carlota Pérez, The Most Important Thing by Howard Marks, More Money Than God by Sebastian Mallaby, The Innovators by Walter Isaacson, and Masters of Doom by David Kushner
Podcasts: Unchained and Unconfirmed by Laura Shin, Invest like the Best by Patrick O’Shaughnessy, and The Knowledge Project by Shane Parrish
Follows on Twitter: Meltem Demirors, Elizabeth Stark, Jill Carlson, and NeckarCap
Projects that deserve attention: TokenDaily and Marble Protocol (one of Simpson’s portfolio companies)
Advice for investors: “Do your own homework! There’s a lot of misinformation out there, so it’s important to cross-check information sources and not take everything at face value.”
[mailto filter=”Simpson” subject=”I have thoughts”]Who should we profile next?[/mailto]
[supplemental headline=”De-jargonizer: Private Key”]
It’s a basic term, but seems appropriate to address in the first edition of an email with the same name. In the cryptocurrency world, a private key is a critical code which allows a person to access a wallet. While often compared to a password, a private key cannot be changed or reset, and if you lose it, there’s nowhere to turn for help. Crypto investors frequently store their private keys in several secure locations—in several formats, online and offline—to guard against loss.
You can give out the public key associated with your crypto wallet, but if you ever share your private key, assume that the funds in that wallet will be compromised forever.
[mailto filter=”Jargon” subject=”What other terms should we de-jargonize?”]What other terms should we de-jargonize?[/mailto]
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Crypto calendar
🗣 Sept. 5-11: Berlin Blockchain Week. The ETHBerlin Hackathon is fully booked, but keep an eye out for the founders of Basis, Oasis, and Tezos at Dezentral on the 6th. (Also, use the code “BerlinBlockchainWeek” for 10% off Dezentral tickets.)
⚖️ Sept. 11: Final hearing on central bank’s crypto ban in India’s supreme court. Policymakers appear to be rethinking their crackdown on virtual coins in the world’s second-most populous country.
📚 Sept. 13: Adobe’s quarterly earnings. The tech company tends to opine on blockchain technology’s potential, especially in the healthcare and advertising industries.
🗣 Sept. 19-20: Consensus Singapore. The CoinDesk-led event will feature conversations on gaming, mining, and blockchain forensics in a burgeoning crypto hub.
Please send news, tips, and alternative global reserve currencies to privatekey@qz.com. If this email was forwarded to you, click here to sign up for your own subscription, which includes a free two-week trial. We wish you a safe journey to the moon.