[header date=”28 September 2018″]India’s crypto exchanges are in deep trouble, Ripple has a party — and XRP climbs, and allocation strategies for every bitcoin investor.[/header]
India’s agony
Nearly a year ago, cryptocurrency exchanges in India were thriving.
Investors were eager to take part in the roaring bull market, transactions multiplied, and business was booming. Now, the picture is vastly different. A chill has set into the market and the situation is so grim that bourses are hanging up their boots. This year, Zebpay and Coinsecure, two major exchanges have folded. A few others are also on shaky ground.
Tighter regulations in the country hamstrung Zebpay’s operations in the last few months. “At this point, we are unable to find a reasonable way to conduct the cryptocurrency exchange business,” the company said in Sept. 28 blog post announcing its closure.
Zebpay alone accounted for half of the estimated 5 million to 6 million virtual currency investors in India. Its sudden decision to shutter its operations has caused tremors in the market.
From the exchanges’ peak in November and December of 2017, when firms were adding up to 300,000 new customers a month, additions have fallen to just 1,500 to 3,000 new customers, according to industry estimates.
Since July, the Reserve Bank of India (RBI), the banking regulator, has prohibited Indian financial institutions from doing business with the crypto-linked companies in India. The central bank had been wary of bitcoin and its ilk since 2013, concerned that digital currencies can be used for money laundering and to fund illegal activities. Price volatility and the prevalence of international scams have also been red flags.
In order to circumvent the ban, exchanges changed their business model to peer-to-peer and crypto-to-crypto trade. Revenue “is one-tenth of what it was before the Reserve Bank of India’s (RBI) crackdown,” the founder of a cryptocurrency exchange who requested anonymity told Quartz.
The RBI’s decision also spooked investors, who are choosing to stay away amid the uncertainty.
Even though the exchanges put up a brave fight against the RBI’s ruling by dragging it to the courts and arguing there are sufficient safeguards in place, fatigue is setting in. The Internet and Mobile Association of India (IAMAI), which counts bitcoin exchanges as members and had been at the forefront of the battle, may withdraw from the fight. Members have been asked to cough up more funds or else the IAMAI will have to bow out.
“High legal costs is burning a hole in our accounts. And that too at a time when business has been so bad,” said the CEO of a New Delhi based virtual currency exchange, who requested anonymity. ” He added the RBI made a powerful case in court, “Comparatively, our arguments look weak.”
It appears the exchanges are fighting a losing battle. There have been times when such lackluster phases have come and gone in the domestic market but the industry in India is concerned that this time is different. “Cryptocurrencies can never be banned but the good times may be over,” the CEO added. —Nupur Anand in Mumbai
[supplemental headline=”Market Chatter: Ripple makes a splash”]
As much as Ripple pleads it’s a disinterested user of XRP, the company is doing an awful lot to bring attention to the controversial digital asset. This week it’s hosting the Swell conference in a swank San Francisco event space, with a keynote speech from Bill Clinton and a concert from Counting Crows.
The flashy event doesn’t just elevate the company, however. It’s also boosting Ripple’s crypto token, XRP, whose price has shot up in recent weeks. In the month preceding Swell, XRP has more than doubled in value and at one point, XRP even briefly surpassed the market cap of ethereum.
[img src=”https://cms.qz.com/wp-content/uploads/2018/10/XRP-Price-Spike.png”]
[takeaway]Along with the hype surrounding the conference, XRP’s climb might have been due to Ripple fueling speculation on Sept. 17 about an impending live product. On Monday, the company announced three companies—MercuryFX, Cuallix and Catalyst Corporate Federal Credit Union—are apparently using XRP in a commercial setting. Ripple CEO Brad Garlinghouse denies that the company’s statements have had an impact on the XRP price though. Speaking to Private Key Sept. 28, he noted that the price jump occurred a few days (rather than hours) after the company hinted at expansion. ↘️[/takeaway]
[/supplemental]
Crypto in the real world
Allison Schrager is a Quartz finance and economics reporter. She’s also an economist who studies investments, pensions, and retirement. We asked Allison how much money investors should have in bitcoin.
The answer is probably none if your investing aim is to finance basic things like retirement or a spell of job loss. But there are some good reasons to invest in bitcoin or another cryptocurrency and your reasoning determines how much you should have. Here are some allocations based on your investing goals:
You want some extra risk to spice things up
Investing in bitcoin is speculative. It may surge or it may crash. There are many risky assets out there but bitcoin is exciting because it is the next big thing (maybe). It adds an element of risk to your portfolio, and sometimes risk can pay off.
Some argue bitcoin is valuable because it is uncorrelated with the stock market, so it adds some diversification and reduces risk. There are reasons to be skeptical of this argument. A reliable measure of correlation takes decades of data, and bitcoin has only been around since 2009. Like the US stock market, bitcoin has generally climbed since then, but it’s also fallen. We can’t know if bitcoin really can hedge stock market risk until stocks experience a meaningful and sustained fall. Investing in crypto for diversification’s sake is purely speculative at this stage.
Ideal portfolio allocation: 5 to 10% depending on how much risk you can take
You fear a world where everything falls apart but we still have lots of computing power
Bitcoin might be valuable if the dollar collapses or there’s severe inflation. There may indeed be some value diversifying your currency holdings, especially if you plan to live abroad one day. But you can end this benefit, with a lot less risk by holding a different government-backed currency. Of course there always exists the extreme tail risk that civilization will collapse and all government-backed currencies will be worth the paper they’re printed on. In that case, bitcoin may be our primary currency. A bitcoin-backed economy would still require good Internet service, though, and it is not clear that will be available when we are living through a Hunger Games reality.
Ideal portfolio allocation: 0% because you should save your money for therapy
You are really into privacy or want to do something illicit
The other main crypto advantage is privacy. You can conduct your transactions with total privacy, unlike with credit cards. Some people really care about privacy. And if that’s your preference, the crypto risk is the price you pay for anonymity. Though be mindful of the cost. Vendors on the dark web sometimes complain that bitcoin volatility can wipe out their profits.
Ideal portfolio allocation: 30 to 40% depending on the volume of your transactions
Someone is blackmailing you or you want to be prepared for such a thing
The relative anonymity bitcoin offers also has a dark side. It is how criminals often do business. If you are a victim of a cyber attack, hackers often demand ransom in bitcoin. If you must pay-up, having some bitcoin handy could be useful. It can act as insurance for a criminal act, which in an increasingly connected world, is not nothing.
Ideal portfolio allocation: 1 to 5% depending on the odds you’ll be attacked
[supplemental headline=”De-jargonizer: Multisig Wallet”]
A multisig wallet—short for “multi-signature”—is a cryptocurrency account that requires more than one key to authorize a transaction. These keys can be divided among several people, so sending funds would require each of their approvals, or perhaps a majority. Sometimes though, a single person might use a multisig wallet simply for enhanced security, like the two-factor authentication, like on a Google account.
In the cryptocurrency world, accessing a multisig wallet requires “M-of-N” keys (where “M” represents the minimum number of keys required and “N” represents the number the total number of assigned keys). According to Coin Center, “blockchain does enforce some limits as to the size of N, and by far the most typical multi-sig implementations are of the form 2-of-2 or 2-of-3.” That is, wallets commonly have two or three keys, and users might need some or all of them for access.
[mailto filter=”Jargon” subject=”What other terms should we de-jargonize?”]Heard a new crypto term? We can tell you want it means.[/mailto]
[/supplemental]
Crypto calendar
🗣 Oct. 5-6: Scaling Bitcoin. The Tokyo event is geared toward the “engineering and academic community.” Focuses include throughput, network resilience, block size proposals, and anti-spam measures.
🗣 Oct. 5-12 SF Blockchain Week. A collection of crypto superstars, including Kyber Network CEO Loi Luu and 0x co-founder Will Warren will be at ETH San Francisco, the world’s largest Ethereum hackathon (Oct. 5-7). Meanwhile, Epicenter (Oct. 8-9) will feature Parity Technologies CEO Jutta Steiner and Litecoin founder Charlie Lee, among others.
🗣 Oct. 10-11 Crypto Economics Security Conference (CESC). If there’s just one conference you attend this year, CESC—also in San Francisco— would be a fantastic choice. Keep an eye out for MIT’s Silvio Micali, one of the brilliant minds behind ALGORAND, and Dawn Song, a UC Berkeley professor and CEO of Oasis Labs. The conference also features an array of postdoctoral researchers focused on privacy, security, economics, and scalability, so there’s a little something for everyone.
📚 Oct. 12 Quarterly earnings for JP Morgan Chase, Citigroup, PNC, and Wells Fargo. Among this group, JP Morgan has clearly led blockchain-related development through Quorum, which now powers the 75-bank Interbank Information Network. Meanwhile, PNC’s Treasury Management division recently joined RippleNet and earlier this year, Citigroup was part of a testing for LedgerConnect, a distributed ledger platform for financial services. In the cryptocurrency world, Wells Fargo might be most notable for its prior banking relationship with Bitfinex, a major cryptocurrency exchange.
🗣 Oct. 21-24 Money 20/20. The Las Vegas event features a bevy of crypto personalities ranging from Coinbase president Asiff Hirji and Andreessen Horowitz’s Katie Haun to Senegalese singer Akon and Virgin Group founder Richard Branson. Stellar’s Jed McCaleb is also a featured speaker.
[mailto filter=”Calendar” subject=”Blockchain and cryptocurrency events”]Attending a blockchain or cryptocurrency event? Let us know![/mailto]
Please send news, tips, and Clinton sightings 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. Today’s Private Key was written by Nupur Anand, Allison Schrager and Matthew De Silva, and edited by Oliver Staley. Keep calm and HODL on.