Know & go
- A closer look: As a follow up to the recent Boston and New York Blockchain Week conferences, we discuss the current state of crypto data and research, and the critical role both play in the maturation of the space.
- Three things to know: (1) CME reported a new all-time high in daily contracts sold this Monday (2) Bitfinex raised $1 billion in 10 days from private LEO token sales (3) Microsoft is building a decentralized identity solution on Bitcoin.
- Market snapshot: Total crypto market capitalization is around $215 billion at press time (up 19% w/w). BTC is trading at $7165 (up 14% w/w), ETH is at $235 (up 37% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 71.9%, up from 46.5% last week. (5/17 11:20AM ET)
Weekly market snapshot
Top story: Signal vs. Noise
Last week, I (Ria) was on a panel on the state of data in crypto. A question someone asked is “Why are data and research companies needed when all the data in the space is public and free?”
The answer is that while almost everything is public, in its raw and unfiltered form, a lot of the data can also be noisy and misleading. The process of aggregating, filtering through and standardizing crypto data is not a trivial task — it’s a full time job, and it’s not efficient or scalable for individual stakeholders like institutions or funds to do for themselves. But high quality data is a necessity for the space to mature and attract institutions and asset managers as well as gain regulator support.
The challenges weighing down the current state of crypto data can be analyzed by considering three key criteria – data comprehensibility, integrity, and accessibility. So what are the challenges that pertain to these criteria, and what are the research and data companies doing or still need to do to address these issues?
Comprehensible data is easy to understand and analyze to extract accurate insights. Generally, if you look at data on traditional companies and assets, it meets this criteria. Traditional companies fit nicely into sectors, and companies within a sector have metrics that are easy to track and compare. We know that if Samsung sells more phones at a higher profitability than Apple does, then it’s probably doing better as a company at that point in time.
The same can’t be said about crypto assets and networks. And a key reason for this is that seemingly standard metrics are accompanied by a set of caveats that aren’t intuitive and aren’t easy to account for. A couple examples that come to mind include transaction volume and transaction count on the bitcoin network.
Transaction volume is the value of all transactions taking place on chain. What isn’t intuitive is that when we say transaction volume we’re often referring to the gross amount, which includes real economic volume but also non-economic volume like change outputs. Change outputs are the leftover portion of transaction volume that are sent back to the originating wallet — it’s incorrect to include the value of these outputs as economic volume. It would be like if I went to the deli and paid for a $5 bagel with a $10 bill, and received $5 back as change and said that the economic value of my transaction was $10. A couple data providers that have rolled out adjusted measures of economic volume include CoinMetrics and TokenAnalyst.
Another metric that’s often used to track performance of Bitcoin is transaction count, or the number of transactions taking place on chain. The limitation with transaction count is that it doesn’t separate out all the transactions and payments within batched transactions. Transaction batching is a practice used by businesses like exchanges, mining pools or other heavy users of the network to lower transaction fees and save precious block space. One problem is the level of batching on bitcoin can vary over time, which makes it difficult to compare bitcoin’s transaction count to itself historically. Further, the level of batching on other chains can also vary, which makes it difficult to make apples-to-apples comparisons of transaction counts on different networks. A more appropriate metric that incorporates all payments being made within batched transactions is payment count.
Arriving at reliable, economic metrics becomes harder as the complexity of the network under analysis increases. That’s why we need research and data providers — to first educate stakeholders about the pitfalls of using raw data and provide them with more comprehensible alternatives.
High integrity data is reliable, trustworthy, and consistent. While there’s a lot of rich data in crypto, certain datasets are susceptible to intentional or unintentional gaming, manipulation or inconsistencies.
A few frequently cited examples of data that are prone to gaming or inconsistencies include the number of users and transactions on low fee blockchains, exchange volume, certain measures of development activity on Github, and inputs of — for lack of a better word — market cap.
In the case of market cap — calculated as spot price times the total number of tokens in circulation on chain — a lot of the challenges in obtaining an accurate measure of market cap or network value arise from inconsistencies in supply. For example, when considering traditional companies, price is variable, but supply is fixed for the most part. In crypto, both price and supply are variable, making it hard to know whether an increase in market cap is the result of an increase in the price or supply. Moreover, if it’s the result of an increase in supply, the reasoning behind the supply change can be just as opaque.
Additional challenges include comparing the supply schedule of different cryptoassets and flaws in calculating the circulating supply. The supply schedule of cryptoassets differ significantly from one asset to another and often aren’t clearly stated. All else held equal, a crypto that has a higher inflation rate will see it’s market cap metric increasing at a faster rate than an asset that has a lower inflation rate. In terms of circulating supply, the measured on-chain supply may not account for lost coins, coins that are contractually locked, and unclaimed coins of forked assets.
So are we beholden to using low integrity metrics forever? Thankfully not.
Crypto analysts and data companies have introduced proxies that account for some of these challenges. One example is the realized cap metric created by Nic Carter and Antoine Le Calvez. Realized cap makes an attempt to account for lost coins and unclaimed coins of forked assets. Another proxy is liquid market cap, recently introduced by Messari, which tries to account for coins that have restrictions, among other adjustments.
But these proxies also have limitations. That’s why it’s important to include complementary measures of strength and performance for a comprehensive analysis of these networks. Some examples are hashrate or fees paid to miners on PoW chains or coins locked in staking on PoS chains.
Progress has been made to help stakeholders separate signal from noise. Data integrity, however, continues to be a prevalent issue the space faces, and as more institutional capital enters the space, data and research companies need to continue acting as stewards.
Accessibility refers to how easy it is to gather and manage data. In traditional markets, investors and analysts have a single point of access to most of the financial data they need in Bloomberg, Factset, or Thomson Reuters. These companies also have consultants that clients can contact if they need help finding or evaluating anything.
But crypto data is fragmented across hundreds of websites and quite the opposite of easy to find and manage. Many of these websites offer a sliver of market or network data with varying levels of context and sophistication.
There are a few key reasons for this level of chaos and fragmentation. Crypto has different categories of data — market data, on-chain data, off-chain data — each of which have their own challenges and each of which requires a different skillset and tooling to aggregate, clean and standardize. Another issue is that unlike in traditional markets, the crypto space does not have a uniform set of data reporting standards. Crypto companies are not required by overseeing agencies to disclose performance. Finally, when it comes to market data, a challenge that’s unique to the crypto space is that these assets are traded across multiple venues globally which have varying levels of transparency, integrity and accessibility.
However, there are a number of companies leading the charge to create industry data standards and provide self-regulation among crypto projects. And integration, consolidation and investment of time and money to attack the challenge of accessibility should continue over the next few years.
While there’s a long way to go, it’s important to remember that this industry is still only ten years old, and it’s impressive to see how far of crypto data and research has come in such a short time. The number of data and research providers has exhibited strong growth within the last year as attention has increased towards separating signal from noise. Why? Because we understand that it’s critical, not optional, for the crypto industry to start offering comprehensible and accessible data and research that existing and future members of the crypto community can trust if we want to see the space evolve.
If you’re interested in learning more on the evolution and current state of crypto data, we recommend these readings:
- Consensus 2019 Circle Research Signal vs. Noise presentation
- 1Q19 Crypto Retrospective by Circle Research
- An analysis of batching in Bitcoin by Hasu
- Bitcoin as a novel market institution — Nic Carter (talk at Baltic Honeybadger 2018) by Rain Dog Dance
- Crypto Market Cap: An In-Depth Review & Survey Of Emerging Alternatives by Clay Collins and Nathaniel Whittemore, Nomics
- When did Bitcoin’s investment era begin? A study using NVT by Willy Woo
- Messari Methods – Cryptoasset Supply by Messari
- The State of Bitcoin by Delphi Digital
- The Next Wave of Crypto Unicorns by Mohamed Fouda, Token Daily Research
In other news
- Microsoft announced it will be launching a decentralized identity (DID) solution, dubbed Ion, on the Bitcoin blockchain. Ion will enable users to maintain control of their data and personal information as they port between different applications. The project aligns with some of Microsoft’s recent business moves to engage with and develop open source software. The article also states Facebook rejected an invitation to participate in Microsoft’s DID projects. Source.
- Securitize, a blockchain platform for digital securities compliance, announced the startup open-sourced the code behind its in-house Digital Securities protocol. Developers can now access the code on Github and start building dapps on top of the protocol. The news comes less than a week after Securitize partnered with security token exchange and Overstock.com subsidiary tZERO to start listing Securitize tokens on tZERO’s alternative trading system (ATS). Source.
- Security token issuance platform Polymath teamed up with Charles Hoskinson, co-founder of Ethereum and Cardano, to create a new security token blockchain. Polymath has reportedly launched 120 security tokens on the Ethereum blockchain, but adoption levels remain low. The company believes the new purpose-built platform, called Polymesh, can help spur the adoption of security tokens by providing a more regulation compliant alternative to existing networks. Source.
- Bitcoin surged above $8,000 earlier this week, reaching its highest level in nine months. The rise in price coincides with the recent faltering of traditional financial markets “amid escalating trade tensions” between the U.S. and China. Bitcoin is now up over 50% for the month of May and is on pace for its best month since Nov 2017, which has many advocates declaring the cryptocurrency bear market over. Source. Investors have been pointing to increasing institutional support and investment demand as a possible explanation. Facebook announced its intentions to integrate a cryptocurrency payments system into its social media platforms earlier this month. Further, The Block discovered investments in the Grayscale Bitcoin Trust, a fund primarily consisting of institutional allocations, have progressively increased throughout 2019 and Bitcoin inflows into GBT reached an all-time high in April.
- Bakkt is looking to start testing its physically-settled bitcoin futures products in July. Instead of awaiting U.S. Commodity Futures Trading Commission (CFTC) approval, the company will self-certify the futures contracts through its parent company Intercontinental Exchange (ICE). The CFTC will have ten days post-launch to raise any issues, otherwise the products will move forward. This is the same approach imposed by the CME and Cboe before their Bitcoin futures contracts launched in late 2017, though neither exchange attempted to physically settle in bitcoin. Source.
- Startup goTenna is planning to integrate its products with Blockstream Satellite, a Bitcoin transmission network created by Blockstream (for a primer on Blockstream Satellite, see our Weekly Crypto Recap 3/15 -3/21). goTenna develops mesh networking devices that enable users to communicate without relying on internet or mobile service providers. By integrating with the Bitcoin Satellite, goTenna users will be able to exchange bitcoin “from a Bitcoin full node via a local mesh network” — no direct internet connection required. Source.
- CME Group, the world’s largest options and futures exchange, reported a new all-time high in daily contracts sold this past Monday (5/13). The exchange apparently sold 33,700 contracts, surpassing the previous ATH set last Spring by ~50%. Since each contract is worth five BTC, the total value traded was greater than $1 billion (or 168,500 BTC). Source.
- Payments startup Flexa, in collaboration with crypto exchange Gemini, launched a new app (dubbed Spedn) that will enable users to spend cryptocurrency at big name retailers — including Whole Foods, Nordstrom, and Baskin Robbins. Flexa reportedly persuaded these retailers to “configure their scanners to recognize payments” from the Spedn app. Consumers will be able to pay in BTC and ETH, among a few others, and merchants can choose to receive in the form of their choosing (cash or crypto). Source.
- New research from blockchain analytics company Chainalysis revealed just 376 people hold one-third of all Ether. By comparison, the report found 448 people own 20 percent of all Bitcoin. Chainalysis also said large holders (aka “whales”) do not move their crypto often, but there exists a small yet “statistically significant” effect on market volatility when they do. The data on Ethereum was collected from early 2016 to April of this year. Source.
- Cryptopia, a New Zealand-based cryptocurrency exchange, halted trading and later announced it is in liquidation. The news comes after the exchange suffered a $15 million loss in a security breach five months ago. According to the post, Cryptopia was unable to cut costs and return to profitability post-hack. Source.
- The Stellar network went down for almost two hours this past Wednesday. According to co-founder Jeb McCaleb, the Stellar Development Foundation (SDF) nodes were unable to “close ledgers safely” because too few nodes in the network were responding. The price of Stellar lumens, Stellar network’s native cryptocurrency, increased over 25 percent despite the network stall. Source.
- Bitfinex CTO Paolo Ardoino announced the crypto exchange was able to raise $1 billion via private token sales in just ten days. The post claimed a number of “industry giants” made investments of over $100 million each. Bitfinex initiated the issuance of LEO tokens to cover its frozen funds — totalling ~$850 million — at the center of New York Attorney General’s investigation into the exchange. Adoino also said the firm still holds some unsold tokens, which it might offer in a public sale. Source.
- It was revealed Joseph Lubin, Vitalik Buterin, the Ethereum Foundation, and a group of ConsenSys employees will be contributing 1,000 ETH each — a total value of ~$700k at the time — to the MolochDAO co-operative (for a primer on MolochDAO, see our Weekly Crypto Recap 2/15-2/21). MolochDAO, founded by Ameen Solemani, is a decentralized autonomous organization designed to help fund open source development on the Ethereum blockchain. The new influx of funds will push total value held within the MolochDAO contract to over $1 million. Source.
- Polish-British fintech firm Billon received a €2 million grant (~$2.1 million) from the European Commission’s SME Instrument program. The funds will help Billon develop its proprietary distributed ledger technology solution called B4TM, a document management system built to store, sign, and share electronic documents. Source.
- San Francisco startup InfStones raised $2 million Danhua VC and Plug and Play Ventures. The startup is looking to expand its staking-as-a-service operations, in particular its block producing capacity. InfStones is currently a block producer for nine Proof-of-Stake blockchains, including EOS, Cosmos, and Tezos. Source.
Global regulatory roundup
- California Superior Court awarded an individual cryptocurrency investor $75.8 million in a civil judgement against a New York resident for conducting a scheme that defrauded the plaintiff out of his cryptocurrencies. The defendant and others stole the tokens in question by illegally gaining access to the plaintiff’s phone, allowing them to “reset passwords and access online accounts.” The defendant was also arrested last Fall in relation to six additional crimes that are still under investigation. Source.
- The U.S. SEC issued a cease-and-desist order to Canadian crypto firm NextBlock Global as well as a $25k fine to CEO and author Alex Tapscott for violating securities law. According to the SEC, NextBlock never registered its investment offerings with the government agency prior to soliciting U.S. investors. The firm also falsely advertised prominent blockchain figures as company advisors. Source.
What we’re reading
- Bitcoin’s Security is Fine by Dan Held
- Vision Hill Crypto Hedge Fund Returns: First Quarter 2019
- A Journey Through Phase 2 of Ethereum 2.0 by Will Villanueva
- Free Markets and the Future of Blockchain by J. Christopher Giancarlo
- Inside the Room at the Spring 2019 Multicoin Summit
What we’re listening to
- What Grinds My Gears: ETF! F No?
- What Bitcoin Did: Bitcoin Block Reorgs Explained with Adam Back and Bryan Bishop
- Unconfirmed: Binance Hack: Should the Threat of Reorgs Be Used to Deter Hackers?
- Unchained: Parity’s Jutta Steiner and Gavin Wood on Polkadot, Substrate and the Frozen Funds
- Off the Chain: Nic Carter, Partner at Castle Island Ventures: The Quality of Crypto Data and FUD Dice
- Blockchain Insider: Democratization of Bagholding
- Base Layer: Tyler Spalding (Flexa) & Lasse Clausen (1KX)
ICYMI Panels and Talks from Blockchain Week
- Joe Lubin keynote at Ethereal Summit
- Value Capture at Layer 1 and Layer 2: The Competition and Tradeoffs at Ethereal Summit featuring Tushar Jain, Jinglan Wang, Jack O’Holleran, Ameen Soleimani, Tanaya Macheel
- Nathaniel Whittemore on Narrative Battlelines at Ethereal Summit
- Chris Burniske on Taxonomy and Value Capture in a World of Liquid Asset at Ethereal Summit
- Jill Carlson on Money Hacking in Venezuela at Magical Crypto Conference
- Blockhack: Most Informative Signals & Separating Signal from Noise featuring Maya Zehavi, Nic Carter, Dan Held, Qiao Wang
Circle in the news
- Circle Assistant General Counsel Christina Spiliakos was featured in a Consensus panel on blockchain consortia engagement at the enterprise level.
Where we’ll be in May
- FINRA Annual Conference, Washington DC, 5/16-17