[header date=”2 November 2018″]Greetings from Devcon4 in Prague! Coinbase’s profits soar despite lower customer activity, a company plots an ethereum metropolis (literally), and a long-time bitcoin advocate issues a word of warning.[/header]
What you need to know—and why
Coinbase counts its stacks. For this year, the exchange projects $1.3 billion in revenue and $450 million in profit, putting it on track for another record-setting year, per Bloomberg. The robust outlook comes despite a market-wide decline in cryptocurrency prices and trading volumes. This week, Coinbase closed a $300 million financing round at a valuation of $8 billion. The company plans to use the funds to expand globally, add new crypto-assets for trading, and draw institutional investors to cryptocurrencies.
[takeaway]Even though Coinbase’s bottom line seems eye-popping, there are questions about how many investors remain interested in buying cryptocurrencies. In early October, the exchange’s active US customer base had declined by nearly 80% from the crypto-bubble peak in December. (It would also be useful to know what share of the company’s fortune comes from commissions versus gains on its own digital asset holdings.) Coinbase is burning bright, but declining user numbers could hurt the company if and when it goes public. ➡️[/takeaway]
An exchange changes hands. NXMH, a Belgian investment firm, has purchased Bitstamp, a Luxembourg-based cryptocurrency exchange that operates throughout the EU. Bitstamp is a venerable institution in the crypto world, dating all the way back to the pioneering days of 2011. Last year, NXC, NXMH’s parent company, acquired majority ownership in Korbit, a South Korean cryptocurrency exchange.
[takeaway]Bitstamp says NXC plans to keep the two exchanges operations separate, but this latest move still represents a minor consolidation in an industry where users demand decentralization of all things. ➡️[/takeaway]
Blockchains, LLC founds a new city. Last night in Prague—at Devcon4—Blockchains, a holding company for various crypto projects, unveiled plans for an Ethereum-based city on a $170 million parcel of land in rural Nevada. The company says the city will incubate artificial intelligence, nanotechnology, and 3D printing, though it was light on the details. Blockchains CEO Jeffrey Berns and president David Berns were joined on stage in Prague by a holographic girl, who has featured prominently in the company’s ubiquitous “sandbox” advertisements. While attendees were impressed by the splashy launch party, it seems many were left with more questions than answers. (Disclosure: Private Key writer Matthew De Silva is a former reporter at ETHNews, a Blockchains company.)
[takeaway]Nobody can accuse the Berns brothers of lacking ambition. The launch event was a clear highlight of Devcon4, attracting plenty of Ethereum luminaries, but there are serious questions about the viability of a project of this magnitude. When you consider that regular old cryptocurrency exchanges still struggle with hacks and digital asset security, building an entire city on a public blockchain seems, well, audacious. Regardless, here’s to the dreamers. ↗️[/takeaway]
The UK takes a hard look at crypto assets. Britain’s Financial Conduct Authority is considering a prohibition on cryptocurrency-tied financial derivatives for retail investors; it will launch a “consultation” (paywall) in the first quarter of 2019 to study them. Also, the Cryptoassets Taskforce—which includes the Treasury, the Bank of England, and FCA—published its final report, which addresses cryptocurrencies and distributed ledger technology, in which it perceives “the potential to deliver significant benefits in both financial services and other sectors.”
[takeaway]Regulation has been a long time coming for the British crypto-derivatives market, which has infamously featured some of the most volatile (and opaque) digital asset derivatives in the world. Thankfully, it seems the FCA has come to its senses and appears ready to stomp out the most egregious products. While some might consider this paternalistic, it seems sensible. ↗️[/takeaway]
Kitties teach blockchain. Dapper Labs—the company behind the Ethereum gimmick-slash-goldmine CryptoKitties—closed $15 million in fresh funding, from venture capital firms Venrock, Samsung Next, and GV (formerly Google Ventures). CEO Roham Gharegozlou suggested that CryptoKitties could help teach users about blockchain, comparing it to how classic computer games like Minesweeper and Solitaire taught early Microsoft users how to right-click and click-and-drag with a mouse.
[takeaway]The bar to learning (or even vaguely understanding) blockchain remains extremely high, and it’s not obvious whether decentralized applications like CryptoKitties will have nearly as much demand as Microsoft’s early games. Any educational initiative ought to be applauded, but are digital collectibles (or most non-fungible tokens) anything more than the pet rocks of the crypto age? ➡️[/takeaway]
[supplemental headline=”Chart interlude”]
What a long, strange trip it’s been.
[img src=”https://cms.qz.com/wp-content/uploads/2018/11/atlas_HJUrF0dnm@2x.png”]
[/supplemental]
Crypto meets finance
Morgan Stanley says the market has made up its mind. In a research report, the investment bank says financial markets, which once considered cryptocurrency a form of digital cash, now regard it as a”new institutional investment class.” The report notes that $7.1 billion worth of crypto assets are held by banks, hedge funds, and private equity firms, and that established financial firms are investing in crypto startups like Binance, Seed CX, and Coinbase. The report also offers the usual caveats: crypto assets exist in a regulatory gray zone, with a lack of regulated custodial institutions and few large institutions getting involved.
[takeaway]The Morgan Stanley report is further confirmation of what most observers have known for a while: Cryptocurrencies are increasingly mainstream, and the big players steadily entering the space are going to make their presence felt. As they do, crypto may lose its countercultural cool, but gain security and stability in its place. ↗️[/takeaway]
[supplemental headline=”Reasonable doubt”]
Patient zero urges patience. Argentine entrepreneur Wences Casares earned the nickname “patient zero” because of his role as an early cryptocurrency evangelist in Silicon Valley. The founder of Xapo, a bitcoin storage startup with underground vaults on three continents, Casares is credited with coaxing tech titans like LinkedIn’s Reid Hoffman into the world of bitcoin.
Last year, as bitcoin mania was building, Casares gave the token a 20% chance of failure, and a greater than 50% chance of success. In an interview this week, however, Casares seemed to revise those odds. “It may work, it might not work,” he told Bloomberg TV, comparing it to the embryonic internet in 1992.
Bitcoin is unlikely to replace national currencies, he said. Instead, its true measure of success might be whether it becomes a universally recognized standard of value, like how a kilogram is a universal standard of weight. [/supplemental]
Regulatory watch
India mulls a ban. The nation’s financial stability and development council (FSDC) met this week to contemplate banning “the use of private cryptocurrencies in India,” the government said in a release. The FSDC is a high-level committee of officials, headed by finance minister Arun Jaitley, to study risks to the Indian financial system.
Crypto exchanges in India are already choking from a hostile regulatory environment. Since July, Indian banks have been barred by the Reserve Bank of India from having any business relationship with exchanges and traders. Trading volumes have plummeted since then. While exchanges have managed to stay alive by moving to peer-to-peer and crypto-to-crypto trade, a blanket ban is something else.
Some exchanges, such as Zebpay, have already moved overseas, and in the event of a ban, others may be tempted to follow suit, but that’s only an option for the largest and best-funded operators. Other companies may shift their emphasis to other applications for the blockchain, a technology which the Indian government is eager to develop.
[takeaway]Government in India moves slowly—usually—and any changes are expected to take time, particularly if they propose making owning coins illegal even for retail investors. “There can’t be an overnight ban. Considering so many Indian investors have bet on these digital currencies, they will be given time and avenues to divest their stakes,” Pramod Emjay, a blockchain consultant, told Quartz. ↘️[/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
We’re sorry, eh? MapleChange, a small Canadian crypto exchange, says it was looted over the weekend, the victim of a hack that emptied its customers accounts. The exchange, which initially claimed it couldn’t refund the lost funds, then made a sticky situation worse by shuttering its website and closing its social media accounts. Suspicious clients demanded answers, and MapleChange eventually resurfaced on Twitter, although its website is still offline. The exchange says it’s providing refunds for some coins, but is unable to refund any lost bitcoin or litecoin. Ultimately, the exchange released a screenshot that indicated that the hackers were only able to steal 8 bitcoins, all that was available. Despite the small stakes, MapleChange’s former customers are still out for blood. [/supplemental]
Crypto calendar
🗣 Nov. 5-8: DC FinTech Week. Hosted by Georgetown’s Institute for International Economic Law and the International Monetary Fund, the conference includes two days of discussions regarding cryptocurrencies. At last year’s conference, CFTC commissioner Brian Quintenz suggested that tokens may require different regulatory classifications (paywall) over time.
🗣 Nov. 14-15: Blockchain for Finance Conference. Speakers at the Boston event include Microsoft’s Marley Gray (principal architect – Azure Blockchain engineering), Todd McDonald (co-founder and head of partnerships for R3), and John Stecher (managing director and chief innovation officer for Barclays).
🗣 Nov. 27: Consensus: Invest. The CoinDesk event in New York will “forecast the evolution of digital assets through 2019, and will focus on how digital securities, commodities, and utility tokens will drive the boom behind the alternative financial system.”
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