Crypto-digest 05.14: New York Plans Blockchain center to stake claim as industry hub; CoinDesk releases Q1 2018 State of Blockchain report; BitGo Courts wall street with new Bitcoin Custody products; CME Group Partners to launch Ether reference rate index; Florida tax collector to accept Bitcoin, Bitcoin Cash payments; Bitcoin risks drop toward $8K after 3-week low.
New York Plans Blockchain center to stake claim as industry hub
It’s Blockchain Week in the Big Apple, but if city leaders have their way, New York will become more than just a nice place for the industry to visit.
Announced Monday, the New York City Economic Development Corporation (NYCEDC) is launching several initiatives to put the city on the map as a blockchain technology hub. Foremost among them is a plan to open a “Blockchain Center” that will both promote public awareness of the technology and facilitate conversations among industry stakeholders.
A key topic of the center’s conversations will be making the regulatory environment more attractive to innovative businesses – which will inevitably mean examining New York State’s BitLicense regulations, widely blamed for driving away startups since they took effect in 2015.
The NYCEDC also announced a competition, expected to launch in late 2018, intended to generate ideas for improving municipal services with blockchain tech. As a first step, the agency will issue a request for proposals (RFP) from organizations that want to run the contest.
Kicking off its charm offensive, over the weekend the NYCEDC, along with the non-profit GrowNYC and CoinDesk, co-sponsored a hackathon in Times Square where developers worked to come up with blockchain-based solutions for tracking the food supply chain for farmers markets around the city.
Last but not least, the agency is co-sponsoring Blockchain Week with CoinDesk. Underscoring the NYCEDC’s motivation, the series of events around town will include a free job fair Wednesday at the New York Hilton Midtown, the venue for Consensus 2018.
Karen Bhatia, a vice president at the agency, said it sees the city’s major industries – finance, healthcare, media and real estate – as potential beneficiaries of blockchain.
“We’ve been looking into blockchain for probably close to a year now. We’ve been monitoring it,” Bhatia told CoinDesk. And while New York already boasts more blockchain job openings than Silicon Valley, according to analytics firm Burning Glass, she added:
“We saw an opportunity to be at the forefront of experimentation in blockchain as sustaining more of a foothold.”
A strategic industry
Taken together, these moves signal that the NYCEDC views fostering blockchain activity as a strategic play that can create thousands of jobs for New York. The NYCEDC is the city’s official economic development corporation, and its board members are appointed by the mayor and other senior leaders.
For the Blockchain Center, the NYCEDC will provide $100,000 in seed funding for the first year “as a pilot test, to see what the learnings are,” Bhatia said, though she expects additional funding to be available as needed from private sources, given the amount of investment in the sector overall.
“Funding is not really the biggest issue when it comes to blockchain,” she said.
The plan is for the center to have a full-time staff, she said, though the NYCEDC is not yet sure how big it will be. The agency is looking at several potential locations, including a city-owned property at South Street Seaport.
Ideally, the center will have street frontage and be open to passersby, Bhatia explained.
“The goal of this is to be a community center where people can walk in and learn more about what blockchain is, both the public as well as people who are working on new ventures and want some sort of a roadmap for how they should proceed,” she said.
Elephant in the room
Yet the center will also likely play host to some heated discussions since another of its express goals is to get entrepreneurs and regulators to – in Bhatia’s words – “sit down and have a real discussion about how these regulations are affecting innovation and entrepreneurship in New York City.”
While federal regulators will be invited to take part, so will the New York State Department of Financial Services, which created the BitLicense.
Bhatia noted that the NYCEDC took part in a February roundtable hosted by two state senators on revisiting the controversial regulation.
And though the NYCEDC recognizes the need for regulations to protect consumers, the center will look for ways to do that without squelching startups, Bhatia said, concluding:
“We’re very well aware that the regulations are affecting blockchain companies here in New York.”
CoinDesk releases Q1 2018 State of Blockchain report
After reaching historic highs in 2017, cryptocurrencies languished across multiple fundamental metrics in this year’s first quarter.
Unease permeated the industry, mostly from regulatory uncertainty and pull-back after a year of parabolic growth.
To shed light on a tumultuous Q1, CoinDesk’s latest State of Blockchain report provides a 90-plus slide analysis of some of the most significant data points.
Released Monday, the report covers public blockchains, distributed ledger technology (DLT), consortium chains, initial coin offerings (ICOs), trading and investments, and regulation. It also features the results of our 50-plus question sentiment survey, which provides insight from over 420 CoinDesk readers.
Here are six of the most important trends that defined Q1 2018:
1. Bear market for crypto
Following an all-time high of nearly $20,000 in the previous quarter, bitcoin suffered a 51% decline in Q1. Other fundamental metrics, such as transaction volume, transaction count, and exchange volume, saw similar drops.
Most altcoins mirrored this behavior and followed bitcoin down, with correlation coefficients of returns ranging from 0.7 to 0.9. The entire cryptocurrency market capitalization lost about $348 billion.
The numbers may look grim, but that didn’t show up in overall sentiment: 79 percent of the respondents to our CoinDesk Sentiment Survey thought this bear market would be short-lived.
Eighty-six percent said this was a correction after the rampant over-speculation of the prior quarter while 62 percent said that regulation was a depressing factor.
2. Market matures
After the introduction of bitcoin futures markets at the end of Q4, we’ve seen steady growth in this activity through Q1. Both long and short positions grew – but strikingly, the shorts outnumbered the longs.
Short positions ended the quarter at about 5,000 and long positions ended at about 3,000. It appears that it’s mostly pessimistic investors taking advantage of these contracts.
And this, in turn, appears to have contributed to the slump in the underlying asset.
According to researchers at the Federal Reserve Bank of San Francisco, “the new investment opportunity led to a fall in demand in the spot bitcoin market and therefore a drop in price.”
3. Miners stay long
Bitcoin miners didn’t appear phased by the dips, however.
Over Q1 we saw the slope of hash rate – the amount of processing power devoted to securing the bitcoin network – diverge from market cap, instead of each moving in the same direction, as in Q4 2017. The hash rate grew 47% over the quarter with little deviation.
Bitcoin’s hash rate held strong against the competition; bitcoin cash, the cryptocurrency with the second-strongest hash rate, averaged only 12 percent of bitcoin’s hash rate over the quarter.
It’s also important to note that miners tend to take a long-term view and offer a counterpoint to short-term pessimists. Seven percent of our respondents said they learned more about miner dynamics during Q1.
4. Taxes loom large
Taxes were top-of-mind for many investors, with cryptocurrencies generating an estimated $70 billion in global tax revenue for 2017, based on the total gains in the market and the average of various governments’ tax rates.
The tax parameters surrounding cryptocurrencies remain in flux. Thirty-one percent of survey respondents said they paid taxes on gains; however, the number of those obligated to pay taxes might be higher than those that report taxable gains.Of U.S.-based respondents, 82 percent indicated that it wasn’t easy to understand their tax liability while 62 percent of non-U.S. based respondents said the same. These observations lend support to the theory that people (regulators included) are genuinely confused about the legal and tax status of the entire asset class.
The 20 percentage point difference in tax understanding between the U.S. and non-U.S. respondents could indicate the U.S. is failing to embrace the next generation of financial technology as competing countries consider friendlier strategies.
5. ICO growth continues
ICO activity remained brisk, with $6.3 billion raised in Q1. Monthly breakdowns of ICO raises show each individual month of Q1 was higher than the record amount set in December.
Telegram’s $1.7 billion ICO was a large outlier that accounted for over 25% of the funding in Q1. The next-largest ICO in this period was Dragon’s $320 million offering. Without Telegram, the tally for March would have been below December’s.
Yet larger ICO raises appear to be a growing trend. The average raise amount almost doubled from Q4 to Q1, from $16 million to $31 million. The distribution of ICOs shifted towards larger raise amounts and fewer total deals.
The number of ICOs declined each month from December’s high of 78, except for a slight uptick in March. While the reduction in the number of ICOs might seem like a bearish signal, 40% of survey respondents participated in an ICO, up from 30% last quarter.
6. Fees fall
Transaction fees on the bitcoin network dropped from drastic highs set by the feverish demand of Q4 2017, when on some days fees averaged $40. Over Q1, fees settled on an average of $9.49 per transaction.
Most other cryptocurrencies saw 60 to 90 percent declines in fees as well, but in absolute numbers, they were never so high prior to Q1.
High fees might have discouraged users from transacting, but it’s unusual to see fees come down and still see declines in transaction counts. Fee levels are also a barometer of demand. As more people bought into cryptocurrencies in Q4, we saw increases in fees. So a reduction in fees could imply that demand is shrinking.
There are solutions to help mitigate fees further, most notably the lightning network, which made important strides in the first quarter and shows promise as a stable, second-layer solution for frequent and smaller transactions.
Seventy-eight percent of our respondents considered lightning a positive development and look forward to using it. And while 21 percent suggest lightning will centralize bitcoin more, the other 79 percent think there will be no change or less centralization because of it.
BitGo courts Wall Street with new Bitcoin Custody products
Big Wall Street firms now have new options for storing bitcoin.
Announced Sunday, Palo Alto-based startup BitGo has unveiled a new suite of custodial services aimed at institutional investors who may be eying the market with interest.
The product launch notably builds on BitGo’s move to buy Kingdom Trust, a US qualified custodian of traditional financial assets, in January. But while that acquisition is still awaiting regulatory approval, that isn’t stopping BitGo from bolstering its offerings.
BitGo head of product Tracy Olsen indicated that the launch – which finds BitGo stratifying its service into three offering tiers – is about framing the company as a full spectrum provider of security solutions, one that can now scale from consumer to institutional needs.
Olsen told CoinDesk:
“We’re definitely seeing a lot of bigger names interested in digital currencies. But there are other customers like smaller hedge funds, they just don’t want to have to hold custody themselves. They’re looking to have the security and compliance and storage solutions that they can outsource to, and that’s what BitGo is really delivering.”
The three services tiers include “qualified custody,” in which BitGo offers secure storage and custody through Kingdom Trust; “institutional custody,” a solution that enables clients to manage wallets connected and disconnected from the Internet; and self-managed custody.
As such, Olsen positioned the full offering as one that can appeal to the risk-tolerance of all types of clients, from those who want to set up and manage wallets themselves, to those that want others to manage the sensitive cryptographic keys required to access funds.
“These are really targeted at different market segments. The market is really demanding these three different solutions,” Olsen continued.
As for customer details, Olsen indicated that BitGo would not reveal the total value of the assets it helps custody, though she said 15 percent of bitcoin transactions now occur through the company’s wallet offerings.
Still, that’s not to say there isn’t work to be done on BitGo’s offering.
Olsen indicated that BitGo now provides its custody solutions to over 20 cryptocurrencies, but that the company is “absolutely” looking to increase that number in 2018.
“We see a lot of demand of customers for a wide variety of coins. We evaluate each of them for viability in the market and then we prioritize them accordingly,” he said.
While BitGo primarily started as a bitcoin-only firm, it steadily increased the number of coins it supported over 2017 in line with a jump in the number of crypto hedge funds, as well as wallet and exchange providers that began moving to support multiple protocols.
Notably, however, Olsen hinted that interest at larger institutional firms mirrors this trend, with many indicating an interest in the wide variety of crypto assets on the market today.
“They see it as a compelling asset class and want to diversify their portfolios with ethereum, ripple and other digital currencies,” she said.
Wall Street ambitions
Overall, the announcement also serves to potentially recast BitGo as a rare cryptocurrency startup ready to appeal to those seeking to do business on Wall Street.
Propelled by announcements such as Goldman Sachs’ coming launch of a dedicated crypto trading desk, others are entering the market. Still, investment in security and custody has arguably lagged over the years, as evidenced by the fact that there are only a handful of such providers today.
Among them are Ledger and Coinbase, two companies that have also sought to raise big funding rounds to serve custody products to an institutional clientele.
However, as Olsen indicated, the nascent state of the market today means that all entrants are competing against the sometimes negative perception of the technology.
“There’s a reputation out there for digital currencies that they may be associated to the underworld, but I believe they are coming around and are seeing the value in investing in this asset class.”
CME Group Partners to launch Ether reference rate index
Derivatives exchange operator CME Group is launching an ether reference rate and a real-time ether-dollar index in partnership with UK-based digital asset trading service Crypto Facilities.
The operator noted Monday that it would provide “a daily benchmark price in U.S. dollars” every 24 hours, as well as the real-time price “based on transactions and order book activity” from cryptocurrency exchanges Kraken and Bitstamp, according to a press release. The rates are already available online on both the CME Group and Crypto Facilities websites, and will be provided to the CME Group Market Data Platform starting June 4.
In a statement, CME Group managing director and global head of equity products and alternative investments Tim McCourt said “the Ether Reference Rate and Real Time Index are designed to meet the evolving needs of this marketplace. Providing price transparency and a credible price reference source is a key development for users of ethereum.”
Similarly, Crypto Facilities CEO Timo Schlaefer said:
“Ether, the second largest cryptocurrency, experienced incredible adoption and growth in 2017, evolving into the leading blockchain for smart contracts. We are excited to be contributing to the strong community that has developed around the Ethereum network by providing a reliable reference rate and real-time Ether-Dollar price.”
The new indices will be overseen by the Bitcoin Oversight Committee formed by CME Group, Crypto Facilities and other industry participants, according to the release. This “oversight committee will regularly review the methodology, practices and standards to protect the integrity of the reference rates.”
The news comes just days after Crypto Facilities began trading in ethereum futures, as previously reported by CoinDesk. The platform announced it was launching the first futures contract for the token through a regulated platform on May 11.
Crypto Facilities notably provides CME Group with reference rates for the latter’s own bitcoin futures.
Florida tax collector to accept Bitcoin, Bitcoin Cash payments
A Florida county tax collector has partnered with bitcoin payments processor BitPay to accept cryptocurrency for a variety of services.
Seminole County Tax Collector Joel Greenberg said in a statement Monday that his office will take bitcoin and bitcoin cash for payments associated with driver licenses and ID cards, automobile tags and titles and property tax.
The office decided to accept the cryptocurrencies in an effort to streamline fee collection, reduce the potential for fraud and identity theft and increase the transparency and accuracy of payments. Greenberg’s office added that it does not perceive any “price volatility or risk to the County” in accepting the cryptocurrencies.
Greenberg said in the statement:
“The aim of my tenure in office is to make our customer experience faster, smarter and more efficient, and to bring government services from the 18th century into the 21st century and one way is the addition of cryptocurrency to our payment options.”
The collaboration with the Seminole County Tax Collector marks BitPay’s first government partnership. Head of compliance Jeremie Beaudry said the company was launched because “we recognized the potential for blockchain to revolutionize the financial industry, making payments faster, more secure and less expensive on a global scale.
“With the Seminole County Tax Collector’s office, we have engaged our first government agency to accept bitcoin and bitcoin cash by making it easy and seamless for them,” he added.
However, Greenberg’s office is not the only local government entity that has entertained the idea of accepting cryptocurrency for taxes.
Arizona and Georgia lawmakers both proposed bills this year that would allow citizens to pay their state tax liabilities in bitcoin and other cryptocurrencies, though neither bill made it through their respective legislatures.
Bitcoin risks drop toward $8K after 3-week low
Bitcoin (BTC) is on the back foot having hit three-week lows over the weekend and now risks deeper losses below $8,200, the technical charts indicate.
The cryptocurrency fell to $8,204 on Bitfinex on Saturday – the lowest level since April 19 – and was last seen changing hands at $8,365, down around 16 percent from the recent high of $9,990.
Note, the bears failed to cut through the support at $8,207 (the 50 percent Fibonacci retracement of the rally from the April 1 low to the May 5 high) in a convincing manner on Saturday. However, the ensuing corrective rally was also short-lived: BTC failed to beat the descending 5-day moving average (MA) hurdle, seen yesterday at $8,760 and fell to a low of $8,271 today.
The price action indicates BTC is clearly not out of the woods yet and, if anything, the bear grip seems to have strengthened over the last few days.
The bear flag breakdown indicated on the chart signals a continuation of the sell-off and has opened the doors to $7,300 (target as per the measured height method), although the target looks far fetched as of now. Nevertheless, the pattern does indicate scope for a drop below $8,000.
The relative strength index (RSI) is biased to the bears (below 50.00) and the 100-candle moving average (MA) and the 200-candle MA continue to slope downwards, also in favor of the bears.
The chart shows the rally from the April 1 low of $6,425 ran out of steam near $10,026 (50 percent Fibonacci retracement of the rally from the July 2015 low to the December 2017 high) and the 5-month and 10-month MAs are beginning to slope downwards in favor of the bears for the first time since September 2014.
So, the BTC bulls need progress soon, else the 5-month MA will cut the 10-month MA from above (bearish crossover), confirming a long-term bullish-to-bearish trend change.
The short-term trend remains bearish as indicated by the downward sloping 5-day and 10-day MAs.
This, coupled with the bearish development on the hourly and monthly charts, indicates that bitcoin will likely find acceptance below key support at $8,270 (50-day moving average) and $8,207 (50 percent Fibonacci retracement of the rally from the April 1 low to May 5 high). In such a case, bitcoin risks falling below $8,000.
BTC looks set to take out support at $8,207 and could then drop to $7,787 (61.8 percent Fibonacci retracement of the rally from the April 1 low to the May 5 high) or even as low as $7,698 (61.8 percent Fibonacci retracement of the rally from the July 2015 low to the December 2017 high).
Bullish scenario: Another rebound from $8,207 and a break above $8,760 would open doors for a move back above $9,000. A daily close (as per UTC) above the 10-day MA, currently seen at $9,038 would confirm the sell-off from the recent high of $9,990 has ended.