The Blockchain Weekly Front Page is a CXO level briefing. Our mission is to serve the mainstream business community by selecting one major theme in the Blockchain Economy each week and three news stories to illustrate that theme. This 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, in your email inbox each Monday at 7am CET.
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Last week our theme was “Big Old Money Bets on Bitcoin & Blockchain”.
Lately, Tether has been anything but stable. Earlier this week the USDT lost its peg to the dollar, after rumors surfaced about Bitfinex’s insolvency, driving is price down by eight cents, to $0.92.
In a post on Medium, Bitfinex has dismissed the rumors stating that “Stories and allegations currently circulating mentioning an entity called Noble Bank have no impact on our operations, survivability, or solvency.” Bitfinex was a customer of Noble Bank, based in Puerto Rico, and the banking institution has found itself practically on the brink of bankruptcy.
Tether (USDT) is eighth largest cryptocurrency, with a market capitalization of $2 billion. A crisis with Tether would cause serious ripple effects on the entire market. More than 21% of all crypto transactions are made up of USDT pairings. A loss of value would wipe out a billions of assets.
For months now, Tether has been haunted over transparency issues, ranging from its murky relationship to Bitfinex, to whether it USDT is fully backed by dollars and to what bank is holding these assets.
Tether is not the only stablecoin and the idea of a price-stable cryptocurrency has been around for a long time. There are basic types: fiat-collateralized, crypto-collateralized, non-collateralized and we have several examples in the market (TUSD, USDC, PAX).
Some of the newer ones, like the the Gemini dollar, are regulated by the New York Department of Financial Services. Now, if supply is a metric of success, Paxos, a new stablecoin, is taking an early lead, doubling its supply in circulation.
The fact that cryptocurrencies can be very volatile, poses risks. Today, no retailer in their right mind would price their products based on Bitcoin or any other cryptocurrency. No employee would want to be paid in crypto.
There are many critics that doubt whether stablecoins will be able to hold their pegs, over time. Some argue that creating cryptocurrency backed by a fiat currency inherits the same problems as fiat, because its supported by the same old traditional banking system.
Stablecoins offer low volatility, and have the potential to unlock the future of cryptocurrencies. While many of today’s solutions look viable, its still a crapshoot, and very early to make any kind of predictions, both from a technology and regulatory perspective.
Over the last ten months, as prices have dropped, mergers and acquisitions have reached a record high in 2018. According to JMP Securities and data from PitchBook, crypto M&A activity has doubled this year and is expected to reach a total of 145 deals by the end of 2018. Since 2010, the industry only had 88 completed M&A transactions, according to PitchBook. Crypto’s busiest years were 2015 and 2017, with 23 deals, each year.
For any growing industry, mergers and acquisitions is a big part of the game. A lot of companies use M&A as means to grow faster. Mergers and acquisitions happen for all kinds of reasons, but most of them have economic motives. The crypto industry is witnessing a “land grab” for new and innovative technologies, access to markets, customers, intellectual property, and talented employees.
In March, Coinbase hired Emilie Choi, and right after it acquired Earn for around $100 million. Also, with exchanges being some of the hottest real estate in crypto, earlier this year, Circle, announced the acquisition of Poloniex.
In many cases, many of these startups and their coins will just fall short and disappear into the night, after spending huge amounts of money from investors. Everyone is trying to position themselves for a piece of the pie, but some times its like pulling a rabbit out of a hat. With are over 2,100 cryptocurrencies on Coinmarketcap.com, no one really knows what will succeed or what will fail.
Consolidation is still relatively low, since most of these platforms are still building their core products. We can expect to see more of it, as many of these platforms try to build ecosystems that combine utility and currency tokens.
There is even a blockchain startup for M&A, Lexit, which is trying to disrupt the way companies and their intellectual property are being bought, sold, and licensed. Who knows, we might even see cryptocurrencies being used to pay for shares or assets in an M&A transaction.
For now there is a a lot of repetition, just like in the early days of the Internet. But there will be some cases, where the merger could have a significant impact, both on the crypto world and beyond.