Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 4th September 2017

The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.

For the intro to this weekly series, please go here.

News Item 1: $5,000: Bitcoin Price Hits Historic New Milestone

Decrypted: When a plane exceeds the speed of sound it is said to be supersonic. Following a record-setting month in August, primarily fueled by optimism for faster transaction times, on September 2, Bitcoin went supersonic and blasted through the $5,000 milestone, hitting a new high of $5,013.91.

Currently, Bitcoin’s market value is around $78 billion and digital currencies collectively are worth over $170 billion. It looks like the entire cryptocurrency is heading for $200 billion market cap, with over 866 coins, 230 assets and trading in 5416 markets.

However, the new record price triggered a $13 billion sell-off, causing the Bitcoin price to drop to its price levels earlier in the week. Its only normal that traders take some money off the table. At the moment there are a lot of buyers and by no means does this represent a significant pullback.

Our take: Since the beginning of the year, Bitcoin has been very volatile, yet prices have climbed more than 400%, generating strong gains for investors and increased visibility for the entire cryptocurrency market. The highest trade volumes for Bitcoin are currently coming from Japan, China, the U.S., South Korea, and India.

All cryptocurrency markets are doing extremely well following Bitcoin’s suit. Ethereum is close to $400, Bitcoin Cash (BCH) at the $600 territory, while Litecoin reached a new all time high at $90.

With all the profits investors have been making, its no surprise that the IRS has put Bitcoin and cryptocurrencies on the radar. While many may think that profits from Bitcoin and Bitcoin Cash are not necessarily taxable, the IRS thinks otherwise. A recent post on Cointelegraph, says that the IRS will be going after profits from Bitcoin and Bitcoin Cash.

Since 2010, Bitcoin has died over 154 times and it keeps coming back like Lazarus, stronger than before. The idea of Bitcoin breaking the $5,000 mark was an unimaginable for most in early 2017. The new price record is likely to trigger more talks that Bitcoin and other crypto are in a bubble and the big collapse is coming.

Critics believe the crypto market cap is a bubble. But forecasters are weighing in on the cryptocurrency, trying to foresee where Bitcoin’s price is headed. Recently, Ronnie Moas of Standpoint Research predicted a $7,500 price target and anticipates that Bitcoin will reach $20,000 by 2020. In early July, Thomas Lee became the first major Wall Street strategist to issue a report on Bitcoin. Lee said Bitcoin could reach $20,000 to $55,000 by 2022.

Bitcoin’s price surge is due to a variety of factors, that include recent technical upgrades, increased interest by institutional investors, announcements by countries exploring the use of cryptocurrencies and a growing number of innovative startups holding Initial Coin Offerings.

News Item 2: Why Big Investors Are Betting Real Money on a Kik Cryptocurrency

Decrypted: Kik, a Canadian social messaging platform valued at $1 billion, plans to launch an ICO in a couple of weeks and expects to raise $125 million.

Kik has already raised $50 million in a pre-sale round from leading crypto investment firms Polychain Capital, Pantera Capital and Blockchain Capital. It wants to raise another $75 million, when the token sale launches on September 12.

Our take: Kik is a free chat and messaging application with about 300 million users. It was founded in 2009 by a group of students from University of Waterloo.

Kik is creating Kin, an ERC20 token on the Ethereum Blockchain, that will be integrated into Kik as the primary transaction currency. Kik will create a decentralized ecosystem of digital services, intended to promote Kin as a common currency.

Users will be able to earn and redeem Kin in a variety of ways, by interacting with chatbots and other services on the platform that are created by brands, publishers and other companies. Brands might find Kin as a useful way to reward people for carrying out various tasks or activities, offering Kin in exchange for posting about them or interacting with an experience. Users can then spend their Kin on interactions with a chatbot or through tipping.

Kik wants to take on Facebook with developer ecosystem built on the blockchain. Kik plans to use the sale proceeds from ICO to develop a monetization system for its messaging app, which will allow app developers to be paid based on attention, rather than relying on advertising or in-app commerce. The cryptocurrency could also make it easier for developers to create businesses outside of walled gardens like Facebook. One of the most prominent failures of a social network attempting to adopt a cryptocurrency and build a user system that incentivized user interactions was Facebook. In 2013, Facebook shutdown its Facebook Credits program after not even two years.

With millions of users, Kik hopes to drive mainstream adoption of Kin, potentially making it the most adopted and used cryptocurrency in the world. The idea is that as more people use Kik, the value of Kin will rise. Also, because Kin is an ERC20 token, it will be possible for to trade on exchanges and redeem it for fiat currency.

Kik’s ICO will be open to US investors. In July, the SEC announced, that in some cases, ICOs could be considered securities and be subject to strict regulations. Up to now, many ICOs have been closed to US investors to avoid regulations.

ICOs have spread like wild fire in the past year, raising more than $1.3 billion for dozens of startups. Now securities regulators around the world are starting to pay attention.

China and Canada are latest countries to issue announcements about ICOs, following in the footsteps of the United States and Singapore. China has issued a warning about the dangers of participating in ICOs, as the companies raising funds could use misleading information, while Canadian regulators issued a notice that Initial Coin Offerings are likely to be securities. These announcements hardly come as a surprise, given the ICO mania we’ve seen in recent months.

ICOs aren’t going away and regulations were only a matter of time. Initial Coin Offerings are changing the way entrepreneurs raise money to fund their work, making it much easier than ever before. Regulations complicate things, but they’re a sign that ICOs are maturing and can be applied to other industries and help them innovate.

News Item 3: Ethereum Founder Strikes Deal with Russian Development Bank

Decrypted: A new entity, Ethereum Russia, will help Russia’s state-owned Bank for Development and Foreign Economic Affairs implement blockchain technology, and establish a training center in Moscow.

Ethereum Russia, is the outcome of the partnership between VEB, Russia’s Bank for Development and Foreign Economic Affairs (Vnesheconombank) and the Ethereum Foundation.

The agreement will foster on a long-term partnership for the implementation of projects using distributed ledger technology and the Ethereum platform, the formation of an expert community on the Ethereum platform, and the joint development and implementation of the educational programs for training specialists in distributed ledger and the Ethereum platform.

Our take: Russia has made no secret of its intention to stay one step ahead of the game when it comes to blockchain.

The launch of Ethereum Russia coincides with Russia’s wider plan to execute digital initiatives that will bring together state-owned companies and government bodies with blockchain engineers, in order to drive the adoption of decentralized technologies within the Russian government.

During the St. Petersburg Economic Forum, Ethereum caught the attention of Vladimir Putin, as a potential platform to diversify the country’s economy. The Russian president personally met Buterin at the forum.

We are already seeing several countries around the world exploring digital currencies and blockchain. But, when comparing Russia to other major global economies, its obvious that its aggressively pursuing blockchain.  China is testing a national cryptocurrency, Estonia has plans to launch a government supported ICO, and there have been reports that the US. Congress will pass a cryptocurrency bill.

In June, the Russian government launched a working group to implement Blockchain technologies in state administrations, assigning a coordinating role to VEB, including the creation of the competence center.

A few weeks ago, the Federal Agency for Technical Regulation and Metrology (Rosstandart) appointed a new technical committee to work on the standardization of software and hardware related to distributed ledger and Blockchain technologies, in coordination with the International Standardisation Organisation.

But, Ethereum has also been making significant strides in various business segments in Russia. Earlier in July, Alfa-Bank and airline S7 teamed up to develop a project to sell flight tickets based on the Ethereum blockchain. This announcement came shortly after the announcement by Russia’s main airline Aeroflot, which considering to accept cryptocurrencies and use blockchain in its operations.

The Russian government is moving towards adopting and regulating blockchain technology, as it believes that crypto and blockchain can shake the country’s economy beyond oil and gas and help them make a major leap in a specific area of technology that hasn’t been dominated by the US. Europe, China or Japan.

These developments, especially in the short term, will have a significant positive impact on Ethereum building investor confidence and driving up the price of the Ether (ETH).

OpinionFinancial Observer Claims Bitcoin is a Bubble Threatening the Larger Economy

People still question whether Bitcoin and the crypto market is a bubble. But the speed of its price growth is unmatched and unlike anything we’ve even seen before. The cryptocurrency has reached an all-time high, breaking the $5000 milestone and it looks like it will continue to blaze along its upward path.

Here are some stats that will put things in perspective:

  • Last year in August, Bitcoin was trading at $576. In 12 months its up by 730%.
  • Bitcoin closed 2016 at $954 and in 2017, it is up 400%.
  • Bitcoin started this August at $2,738 and in one month it surpassed the $5,000 mark.
  • At the current price, Bitcoin has a market cap over $78 billion, larger than such companies like Starbucks and American Express.
  • Ether grew more than 4,600% this year. Its market cap around $36 billion.
  • Bitcoin Cash, that was created a month ago, and already has a market cap around $10 billion.
  • Ripple is up nearly 3,900% this year, with a market cap of $9.3 billion.
  • Litecoin is up over 1,550% since the beginning of this year, when it was trading at just over $4. Its market cap now stands at a little under $3.7 billion.
  • The collective market cap of all cryptocurrencies is over $170 billion, and has grown by more than $20 billion in the past eight days.
  • At current levels, the crypto market cap amounts to nearly one-tenth the value of the physical stock of official gold.

So is Bitcoin a bubble? Investopedia defines a bubble as:

“An economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.”

But the author of a book about identifying bubbles has argued that the rise in Bitcoin price, which has recently overtaken its previous all-time high, is progressing with little signs of being a bubble in danger of popping anytime soon.

Vikram Mansharamani used the framework for identifying bubbles as described in his 2011 book, Boombustology: Spotting Financial Bubbles Before They Burst.

He notes that today’s Bitcoin market exhibits fewer than two of the five major features of a fully inflated bubble. Bitcoin scores 1.5 over five having applied the five lenses that generate a probabilistic assessment of a forthcoming bust

  • Reflexivity: Higher prices increase demand
  • Leverage: Futures contracts and other instruments
  • Psychology: Overconfidence and “religious” conviction
  • Politics: Regulations and moral hazards
  • Maturity: Potential market remaining.

In a LinkedIn post, Mansharamani notes that while short-term price corrections are always possible, there are compelling reasons to believe the long-term outlook for Blockchain-enabled currencies like Bitcoin is bright.

Although Bitcoin’s volatility is high, in its 8 year history it has become the fastest growing asset, as many on Wall Street are only now becoming more interested in the digital currency and the blockchain technology behind it. Bitcoin’s nearly five-fold climb in 2017 looks very similar to tech bubble surge, but, just like the dot-com bubble, companies that were able to utilize the underlying technology went on to become global giants.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

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