[header date=”9 November 2018″] The Winklevoss twins’ candidates coast to victory, bitcoin performs a stablecoin impression, and bitcoin cash heads for splitsville.[/header]
What you need to know—and why
The Winklevoss lobby ramps up. Cameron and Tyler Winklevoss, the twin entrepreneurs behind the Gemini cryptocurrency exchange, donated heavily to California’s governor-elect, Gavin Newsom, as well as New York’s Andrew Cuomo, who easily won re-election in the US midterm vote on Tuesday. Newsom, who began accepting cryptocurrency-based campaign contributions in 2014, received $58,400 from each of the Winklevoss brothers for this year’s race. Cuomo, meanwhile, received of $65,000 from each of the crypto bros.
[takeaway]Crypto campaign contributions pay off, even if contributors and recipients deny it. Last month, Lee Reiners—executive director of Duke’s Global Financial Markets Center—published a jarring list of former US financial regulators and officials who have joined as advisors or directors of various crypto companies. American politics is awash with money, and now it’s not just the fiat variety. ↘️[/takeaway]
Cowen calls out crypto. Tyler Cowen, a George Mason University economist, says it’s time for crypto to “put up or shut up.” These are strong words coming from Cowen, who has followed bitcoin’s rise since 2011. In a Bloomberg op-ed, he expressed doubt about the investment value of digital assets (at least in their current state), and argued that cryptocurrencies—and blockchain with them—must demonstrate their utility.
[takeaway]There’s been remarkably little evidence that cryptocurrencies are serving their alleged purpose—that is, as digital currencies. Enough people have wondered whether bitcoin is going the way of Beanie Babies, but when long-time crypto followers like Cowen say they’re feeling antsy, you should sit up and listen. Gloominess after the crash is understandable, but reality is probably somewhere between the hype and despair. ↗️[/takeaway]
Eric Schmidt says blockchain is both over- and underrated. Schmidt, the former Google chairman, offered his assessment of blockchain in a newly-published video interview from Village Global: “In the public format, overrated,” he said. “In its technical use, underrated.” Schmidt also name checked Ethereum, saying that if the project can “figure out a way to do global synchronization of that [execution] activity, that’s a pretty powerful platform. That’s a really new invention.”
[takeaway]Of course, any Googler or Xoogler praising blockchain is like red meat to crypto media. It’s too bad that Schmidt didn’t explain his analysis in more detail, or say if he shares the same enthusiasm for Ethereum mining as the 11-year-old son of current Google CEO Sundar Pichai. ↗️[/takeaway]
Crypto Christmas comes early. Blockchain (the crypto wallet company, and not the Ethereum-city company of virtually the same name) is “airdropping,” or giving away, $125 million worth of Stellar Lumens (XLM) in an effort to drive mainstream adoption of the cryptocurrency. Each unit is currently trading for about $0.25—and each customer will get only about $4 worth—but keep an eye on the XLM price over the next few weeks.
[takeaway]It’s not clear how you can distribute $125 million of a cryptocurrency and not trigger a massive selloff. We’d wager that Blockchain’s customers might cash in their sudden Stellar windfalls, which might drive the XLM price downward, at least in the near term. But hey, free crypto. ➡️[/takeaway]
Bitcoin cash’s hard fork. As bitcoin cash (BCH)—an offshoot of bitcoin—nears a scheduled upgrade Nov. 15, there’s a fair-to-good chance that the coin will split in two (just like what happened to bitcoin last year). On one side of the coin is Bitcoin ABC, or “Bitcoin Adjustable Blocksize Cap.” On the other is Bitcoin SV, or “Bitcoin Satoshi Vision,” which is being pushed by Craig Wright (you may remember that he’s claimed, without substantiation, to be bitcoin’s creator). The Block gives a rundown of the differences between the proposed upgrades.
[takeaway]For most bitcoin cash holders, the most important decision will be where to keep their BCH. Ahead of the split, a handful of exchanges have already announced their intention to support both versions of BCH, if necessary, although it’s not legally required and some may pocket one of your forked currencies. If you want to come out on top no matter what, use an exchange that will give you all descendants which emerge from the fork. ↗️[/takeaway]
[supplemental headline=”Chart interlude”]
Does it feel like bitcoin hasn’t moved in a while? You’re not imagining it. As measured on a weekly basis, bitcoin’s price volatility is approaching a two-year low, says Reuters. Indeed, intraday price movements have gradually tapered off over the past several months, with the daily spread falling under $100 in recent weeks.
[img src=”https://cms.qz.com/wp-content/uploads/2018/11/2018.11.09-Bitcoin-Intraday-Trading-Spread-Draft-1.png”]
[mailto filter=”Chart” subject=”Here’s a chart idea…”]Got a killer chart idea? Let us know[/mailto]
[/supplemental]
Crypto meets finance
Could shorting get rid of scam coins? Wang Chun Wei, a finance lecturer at UQ Business School, analyzed parody tokens like Dogecoin, based on an internet meme, which at one point had an overall market value of more than $1 billion, as well as so-called scam tokens linked to Ponzi schemes. Joke coins are useful for tracking pure speculation—the belief or bet that someone else will buy it later at a higher valuation (also called the resale option). That’s because they lack other valuation characteristics like utility, a claim on future cash flows (like a stock), or acceptance as a currency.
As expected, Wei found evidence that the resale option influences prices for jokes and scams, but also mainstream cryptos like bitcoin. “In a market where there is limited or no short-selling, a small group of delusional, overconfident or optimistic traders can bid up the price of the asset from intrinsic value,” Wei wrote.
[takeaway]The research provides empirical support for the widely held belief that crypto prices are often based on little more than hope that the next person will pay more than the previous buyer did. The research’s faint hint that more short-selling (the ability to bet against cryptos) could make bids and offers more accurate is unlikely to be much of an antidote. Serious short sellers are unlikely to make a bet on thinly traded tokens at risk of being manipulated. ➡️[/takeaway]
[supplemental headline=”Reasonable doubt”]
We’re not ready for blockchain voting. The idea of putting voting online and on the blockchain got a prominent airing this week when the New York Times ran an op-ed from Alex Tapscott—co-founder of the Blockchain Research Institute —endorsing the concept. But numerous election experts and cryptographers are vocally opposed to the idea.
Timothy B. Lee, senior tech policy reporter for Ars Technica, explains that while a blockchain can record votes for later verification, it does nothing to protect voters from hostile agents who might hack their devices or send them phishing emails and texts to pry loose passwords. Further: “Hardly anyone understands how a blockchain works, and even experts don’t have a good way to observe the online voting process for irregularities the way an election observer does in a traditional paper election.”
[/supplemental]
Regulatory watch
EtherDelta founder settles with the SEC for nearly $400,000. The US stock market regulator viewed the platform—a decentralized exchange, or DEX—as an unregistered securities exchange. Zachary Coburn, the platform’s founder, hasn’t been involved with EtherDelta since selling it in December 2017 but was ordered to repay (pdf) $313,000 in ill-gotten gains, plus $75,000 in penalties.
[takeaway]This is a critical, but complex, issue. EtherDelta resides on the Ethereum blockchain in the form of “smart contracts.” But, the SEC says, because the digital assets EtherDelta supported included securities (though it didn’t name any), Coburn was responsible for either registering the service with the commission or seeking exemption. This probably doesn’t bode well for the future of any other US-originated DEXs, but non-US DEXs may continue unabated. ↘️[/takeaway]
The US commodities chief embraces smart contracts. J. Christopher Giancarlo, chairman of the US Commodity Futures Trading Commission, offered a technologically enhanced vision of regulation at DC FinTech Week. US financial watchdogs may digitize rulebooks and build them into corporate compliance departments, using smart contracts that adapt to changing financial conditions, Giancarlo said.
[takeaway]While the chairman’s statements seem fairly grandiose, his plans for “quantitative regulation” appear commendable, if loosely defined. ↗️[/takeaway]
FINMA recommends high risk stance for cryptocurrencies. The Swiss financial regulator said financial institutions should estimate risk coverage for bitcoin and its kind at 800% of market value, per Swissinfo.
[takeaway]Such a high recommended capital reserve might dissuade banks from holding or trading cryptocurrencies, especially if the regulator’s recommendation becomes a requirement. ↘️[/takeaway]
[supplemental headline=”Hacks, scams, and capers”]
The First Felon’s foolhardy finances. Charlie Shrem earned the nickname as bitcoin’s “First Felon” after doing prison time for his role in a bitcoin-for-drugs scheme. Now enjoying his liberty, his ostentatious lifestyle could prove his undoing again. After Shrem splurged on Maseratis, power boats, and million-dollar real estate, the Winklevoss twins suspect that he might have made the purchases using stolen funds. They filed a lawsuit against Shrem in federal court, alleging that he stole 5,000 bitcoins from them back in 2012, an accusation that Shrem’s attorney has called “nonsense.”
If Elon Musk asks for your bitcoin, don’t send him any. Con artists impersonated the Tesla founder by hacking an unrelated verified Twitter account, then changed the user name to “Elon Musk.” In garbled English, the fake account promised participants to multiply their bitcoin if they posted small amounts to a wallet address, and raked in about $150,000 (several copycats scams have since appeared). Since Musk, in his oddball humor, tweeted about bitcoin last month (which made Twitter think he was hacked), this bitcoin bilking may have seemed more believable.
[/supplemental]
Calendar
🗣 Nov. 12-14: WSJ Tech D.LIVE. The event in Laguna Beach, California, will feature a few crypto execs/advisors, including Coinbase CEO Brian Armstrong, Ripple board member Zoe Cruz, and Abra advisor Gwyneth Paltrow. Tickets cost a little more than 1 bitcoin (oof!), but the lineup is superb.
🗣 Nov. 14-15: Blockchain for Finance Conference. If you really, really like bankers working on distributed ledger proofs-of-concept, then this Boston event is the one for you. The discussion on post-trade processing might be one talk to circle on your agenda.
🗣 Nov. 27: Consensus: Invest. Hosted by CoinDesk, the one-day event in New York “will focus on how digital securities, commodities, and utility tokens will drive the boom behind the alternative financial system.” SEC chairman Jay Clayton will be there for a fireside chat. Be sure to ask him when the commission will approve a bitcoin ETF.
[mailto filter=”Calendar” subject=”This is happening”]Tell us about your upcoming news and events.[/mailto]
Please send news, tips, and hanging chads 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 Matthew De Silva and John Detrixhe, and edited by Oliver Staley and Jason Karaian. Happy birthday, Carl Sagan.