https://youtu.be/pH2bXT72uTo

In a true headline-grabbing and epically questionable (to put it kindly) move, Substratum has decided to turn over a large portion of its ethereum balance to be day traded for potential profits. They are doing this with the hope that any gains will extend the life of their project and push them through the bear market. Oof.

Here is the stream that details the move and why/how they plan to execute it. Judge for yourself the value of this strategy. As for us, it wreaks of desparation and misguided leadership: https://youtu.be/pH2bXT72uTo

Anybody want to grab a new bag of Substratum and fill it to the brim with hopium? Hard pass.

From Substratum’s white paper:

“Substratum is creating an open-source foundation for a decentralized web which will provide unrestricted access to content and sharing of information for users across the globe. Our mission is to bring forth the free and fair internet of the future by combining proven technological building blocks with emergent technologies in an innovative and holistic way to help solve many of the problems that plague the modern internet.”

“Substratum will gain mass adoption by revolutionizing the hosting industry with per- request billing via micro-transactions and incentivizing users to run nodes to create the network by paying node hosts in Substrate. This is all being managed by blockchain technology and machine learning.”

Does funneling corporate funds into a day traders hands sound like ‘decentralization’ to you? Uh, no. Bad, bad look for crypto.

And more from their white paper:

“The Substratum Network combines innovative technologies from the cryptocurrency, and community hosting realms to not only usher in a free, peer-to-peer internet, but to revolutionize the hosting industry. The Substratum Network is made up of nodes— networks of peer-to-peer computers—who then can deliver secure content anywhere using industry-leading cryptography, effectively ending the need for VPNs and Tor. It changes web hosting by incentivizing network users with its own cryptocurrency token to essentially rent out their unused computing resources as a hosting platform for websites. Hosting costs are billed through per-request micro-transactions, inhibiting the payment of unutilized resources.”

“One of the biggest frustrations of the decentralized web and its users is that it isn’t always easy for those who aren’t technically inclined. Part of the beauty of the Substratum Network is that you don’t need any additional software or a special browser to run it. The network integrates into existing internet frameworks, meaning the end user won’t have to change the ways in which they interact with the web.”

Wondering if you can short Substratum on Bitmex with a healthy amount of leverage? Asking for a friend.

INSIDER: CFTC AND ETHEREUM: As The CFTC Requests Ethereum Comments, Insider Considers Commodity Designation A ‘Done Deal’

Yesterday the CFTC formally requested ‘public comment’ concerning whether or not Ethereum should be designated as a commodity or not (the ‘not’ would then throw it into the security designation and open up a whole mess of issues). Obviously, Ethereum and every coin/dapp that has been built on it has a vested interest in a commodity designation by the CFTC.

Here is the body of the request by the CFTC:

The Commodity Futures Trading Commission (“Commission” or “CFTC”) in furtherance of the LabCFTC initiative is seeking public comment and feedback on this Request for Input (“RFI”) in order to better inform the Commission’s understanding of the technology, mechanics, and markets for virtual currencies beyond Bitcoin, namely here Ether and its use on the Ethereum Network. The Commodity Exchange Act (“CEA”) grants the Commission regulatory authority over the commodity futures markets. The Commission is seeking public feedback in furtherance of oversight of these markets and regulatory policy development. The input from this request will advance the CFTC’s mission of ensuring the integrity of the derivatives markets as well as monitoring and reducing systemic risk by enhancing legal certainty in the markets. The RFI seeks to understand similarities and distinctions between certain virtual currencies, including here Ether and Bitcoin, as well as Ether-specific opportunities, challenges, and risks. The Commission welcomes all public comments on these and related issues.

Many have made the case that Ethereum is significantly more ‘centralized’ than Bitcoin and thus have serious questions about its commodity-type traits. Others believe that the breadth of the ERC-20 (at a minimum) ecosystem makes the case for its decentralization – thus making it a clear commodity.

Whatever the arguments are either way we believe, based on one conversation with a staffer at the CFTC, that the request for comment is a mere formality. Internally the decision to designate Ethereum as a commodity is all but made.

**We have two separate and reliable sources connected to the CFTC. One was willing to give us an anonymous comment, the other spoke with us but asked that the comments be left out of this article.

As per the thinking at the CFTC:

“The request for comment is seen as a reasonable procedural process to check the box before announcing the commodity designation. Chris understands the digital assets landscape really, really well and knows that there is less consensus on this than there was for Bitcoin. This step will give some background to the decision and he expects the comments to be largely in favor of a commodity designation.”

Any policy decision in the crypto space will have long-lasting and even unintended consequences. It makes sense to consider every angle and every reasonable outcome of a commodity designation for Ethereum. Several institutions are counting on the decision going in that direction.

ErisX, Bakkt, Goldman Sachs and others have plans to list/trade Ethereum based on its eventual designation as a commodity. ErisX has already announced its intentions, Bakkt initially listed Ethereum as one of its two launch tokens before they decided to wait for the formal word from the CFTC, and Goldman Sachs is preparing to offer an Ethereum based product for its upper-crust clients.

The ripple effects of this decision will resonate throughout 2019 and give context to every other token that claims to be a commodity/utility and not a security.

The CFTC and Chris Giancarlo are playing it smart.

GOLDMAN SACHS: INSTAGRAM STORIES: Goldman Pushes Blockchain Virtues Via Social Media Spend (pics)

If you are doubting Goldman Sachs’ push into the blockchain/crypto space you are whistling past the graveyard. Goldman intends to lead amongst the UHNW (ultra high net worth) crowd and is using all manner of means to reach them.

If you thought that Goldman would remain a stuffy, white shoe firm for the next couple decades you are wrong. Goldman is touting blockchain and its capabilities on Instagram and other social media platforms. Specific to Instagram, the message connected Blockchain to concert ticket sales. Oh, how millennial of them.

Here is the screenshot:

If Goldman believes in the ‘enormous potential’ of blockchain they clearly have designs on offering the monetization tools of blockchain to clients big and not so big. In other words, Bitcoin and Ethereum for starters.

A reminder about Goldman’s current flirtation of adding Ethereum to their Bitcoin availability to clients:

“Goldman has been actively exploring the creation of a client offering that is based on Ethereum futures, not all that different from the Bitcoin products that they are offering clients at the moment. This would represent the penultimate global investment bank staying significantly ahead of its competitors in the race to gather client crypto assets.”

Goldman prides itself on not only staying ahead of the global investment banking pack but leading it as well. The push into social media, blockchain dialogue and the inclusion of discussions around Ethereum keep them solidly ahead of their competitors; JP Morgan, Morgan Stanley, Bank Of America Merrill Lynch, etc.

And that is just how Goldman likes it.

They’ve remained strategically placed in the crypto conversation over the past 12 months or so. Nobody at the firm has come out and made inflammatory or derogatory remarks about crypto, and some would claim they even promoted a crypto friendly executive to CEO, David Solomon (who also happens to moonlight as a DJ).

The overall message here is that Goldman Sachs is going to lead the global investment banking space into digital assets and blockchain. That is clearly their intentions. They’ve seen the surveys, they’ve done the math. The next huge wave of UHNW individuals is about to inherit a boatload of money from their parents. And they are comfortable with crypto.

Goldman Sachs intends to meet them right where they are.

 

REPORT: COINBASE AND IRELAND: Why Has The Popular Exchange Established Corporate Residency In Ireland

After Brexit, the UK is likely to remain the European hub for digital asset firms, but digital asset firms with offices only in the UK or firms entering the EU for the first time will have to establish an office in a European Union (EU) member state in order to maintain an EU-wide presence.

These firms will remain reluctant to establish offices in Ireland. The one major exception is Coinbase, which chose Dublin as its post-Brexit base in March, so it could continue operations and services in EU member states after the UK departs the EU in March 2019.1

Other digital asset firms have been hesitant to establish operations in Ireland for a number of reasons. Ireland has not enacted legislation that explicitly regulates digital assets, offerings or services. In addition, the Central Bank of Ireland (CBI) has expressed guarded acceptance of digital asset firms, and Irish banks have also been reluctant to conduct business with digital asset firms.

In March, the CBI released a discussion paper that signaled a change in Ireland’s position on digital assets. Since then, the CBI has established a FinTech “Innovation Hub” to assist firms in developing or implementing innovations in financial services based on new technologies.

These nascent efforts will not be enough to draw firms to Ireland in the short-term, as other EU member states are aggressively pursuing similar strategies.

Lack of a Comprehensive Legal Regime Enhances Regulatory Uncertainty

Ireland has not enacted laws or rules that explicitly regulate digital assets, offerings, and services. This provides digital asset firms that are operating in or considering operating in Ireland with a low degree of regulatory certainty.

Some existing laws apply to digital assets offerings or assets. For instance, if a token issued in an initial coin offering (ICO) is deemed to be a “transferable security,” a range of financial services legislation, including the 2014 European Union Markets in Financial Instruments Directive (MiFID II), will apply.2

In other instances, the specific classification and regulation of a digital asset or offering are determined on a case-by-case basis.3 The lack of clarity poses significant problems for digital asset firms, as issuers who do not adhere to the existing regulations are subject to legal penalty.4

Banks Deny Services to Digital Asset Firms

Digital asset firms ceased operation or were compelled to open foreign bank accounts after Irish banks refused their business.5 The Bank of Ireland explicitly stated that it does not offer services to digit asset companies.6

Allied Irish Banks (AIB) stated that it “does not discriminate” in providing banking services to digital asset companies, but AIB requires digital asset firms to ensure they are in full compliance with domestic AML/CTF laws and regulations before accepting them as clients.

The denial of banking services will likely continue until regulations are enacted that explicitly categorizes digital assets and clarifies the required AML/CTF, customer due diligence and reporting practices.

Virtual Currency and Blockchain Technology Discussion Paper Released in March

In March, the Department of Finance issued a discussion paper that signaled a fundamental change in the government’s approach to digital assets.

The key objectives of the paper include the proposal to create an intra-departmental working group to coordinate the approach to virtual currencies and monitor developments in blockchain technology, and the initiation of further research into the potential implications of digital assets and blockchain. The discussion paper also reiterates earlier concerns, namely risks to consumers and investors.7

The CBI’s Assessment of Digital Assets Has Shifted from Disapproval to Guarded Acceptance

The CBI contributed to the production of the European Securities and Markets Authority (ESMA) statement, published on 13 November 2017, which warned investors of the “high risks” associated with ICOs and virtual currencies. The statement by ESMA also cautioned investors that ICOs are “highly speculative investments” and, in some cases, investors “do not benefit from the protection” that comes with regulated investments.8

A month later, the Central Bank of Ireland (CBI) issued an “Alert on Initial Coin Offerings” that stated ICO investors should be aware of unregulated activity; fraud or illicit activities; the high risk of losing all invested capital; lack of exit options ; extreme price volatility; inadequate information; and flaws in the technology”.9

The CBI has recognized that it needs to incorporate emerging technologies, including digital asset firms, into its existing framework. In April, the CBI established an “Innovation Hub” that allows FinTech firms to engage with the CBI “outside of existing formal regulator/firm engagement processes.”10

The hub will allow digital asset firms to test products, services, business models and delivery mechanisms in a controlled environment.11

Legislative Hurdles Will Continue to Limit Digital Asset Activities

Ireland is actively competing with a number of European jurisdictions that have pursued a more aggressive regulatory path or have been more accepting of digital asset firms, including Estonia, France, Gibraltar, Isle of Man, Jersey, Lithuania, Netherlands, Luxembourg, Malta, Switzerland, and the UK.

Ireland maintains a number of advantages over some of these states, but without a comprehensive regulatory framework in place, the traditional strengths of Ireland, such as a favorable corporate tax regime, strategic geographical location, and a tech-savvy population, will not be sufficient to set itself apart from its European competitors.


  1. “Coinbase expands with new Dublin office,” Coinbase Blog, 15 October 2018, https://blog.coinbase.com/coinbase-expands-with-new-dublin-office-fc2e5ebcbeb6 (accessed 19 November 2018). Coinbase’s headquarters outside the U.S. will remain in London.
  2. “Tomorrow’s yesterday: financial regulation and technological change – Gerry Cross, Director of Policy & Risk,” Speech at Joint Session: Banknotes / Identity High Meeting 2018 Security Printers, International Conference & Exhibition Hosted by Intergraf, 20 March 2018, https://www.centralbank.ie/news/article/financial-regulation-and-technological-change-gerry-cross (accessed 19 November 2018).
  3. “Tomorrow’s yesterday: financial regulation and technological change – Gerry Cross, Director of Policy & Risk,” Speech at Joint Session: Banknotes / Identity High Meeting 2018 Security Printers, International Conference & Exhibition Hosted by Intergraf, 20 March 2018, https://www.centralbank.ie/news/article/financial-regulation-and-technological-change-gerry-cross (accessed 19 November 2018).
  4. “Tomorrow’s yesterday: financial regulation and technological change – Gerry Cross, Director of Policy & Risk,” Speech at Joint Session: Banknotes / Identity High Meeting 2018 Security Printers, International Conference & Exhibition Hosted by Intergraf, 20 March 2018, https://www.centralbank.ie/news/article/financial-regulation-and-technological-change-gerry-cross (accessed 19 November 2018).
  5. “Bitcoin sellers claim they are being denied banking services by Irish lenders,” The Irish Times, 21 June, https://www.irishtimes.com/business/technology/bitcoin-sellers-claim-they-are-being-denied-banking-services-by-irish-lenders-1.3537508 (accessed 19 November 2018).
  6. “Bitcoin sellers claim they are being denied banking services by Irish lenders,” The Irish Times, 21 June, https://www.irishtimes.com/business/technology/bitcoin-sellers-claim-they-are-being-denied-banking-services-by-irish-lenders-1.3537508 (accessed 19 November 2018).
  7. “Discussion Paper: Virtual Currencies and Blockchain Technology,” Department of Finance, March 2018, https://www.finance.gov.ie/wp-content/uploads/2018/03/Virtual-Currencies-and-Blockchain-Technology-March-2018.pdf (accessed 19 November 2018).
  8. “ESMA Alerts Investors to the High Risks of Initial Coin Offerings
    (ICOs),” European Securities and Markets Authority Statement, 13 November 2017, https://www.esma.europa.eu/sites/default/files/library/esma50-157-829_ico_statement_investors.pdf (accessed 19 November 2018).
  9. “Alert on Initial Coin Offerings,” Central Bank of Ireland Information Notice, December 2017, https://www.centralbank.ie/consumer-hub/consumer-notices/alert-on-initial-coin-offerings accessed 19 November 2018).
  10. “Innovation Hub,” Central Bank of Ireland, https://www.centralbank.ie/regulation/innovation-hub (accessed 19 November 2018).
  11. “Innovation Hub,” Central Bank of Ireland, https://www.centralbank.ie/regulation/innovation-hub (accessed 19 November 2018).

EXPANSION: COINBASE ASSETS: Additional Digital Assets Are Announced Via Medium Post; Who Makes The ‘Exploratory’ Cut?

Coinbase is moving quickly. As the regulatory clouds are set to clear in the United States, Coinbase is positioning itself to dominate the retail cryptocurrency market. As the largest US exchange, and most well-known from a branding standpoint, the firm is readying itself for mass onboarding of a ‘who’s who’ of digital assets.

Per Coinbase’s blog post earlier today:

As we announced in September, Coinbase’s goal is to offer support for all assets that meet our standards and are fully compliant with local law. Over time, we intend to offer our customers access to greater than 90% of all compliant digital assets by market cap. To make this vision a reality, we evaluate prospective assets against our Digital Asset Framework to assess factors like security, compliance, and the project’s alignment with our mission of creating an open financial system for the world.”

“Towards that end, Coinbase is exploring a broad range of assets which include, in alphabetical order by symbol: Cardano (ADA), Aeternity (AE), Aragon (ANT), Bread Wallet (BRD), Civic (CVC), Dai (DAI), district0x (DNT), EnjinCoin (ENJ), EOS (EOS), Golem Network (GNT), IOST (IOST), Kin (KIN), Kyber Network (KNC), ChainLink (LINK), Loom Network (LOOM), Loopring (LRC), Decentraland (MANA), Mainframe (MFT), Maker (MKR), NEO (NEO), OmiseGo (OMG), Po.et (POE), QuarkChain (QKC), Augur (REP), Request Network (REQ), Status (SNT), Storj (STORJ), Stellar (XLM), XRP (XRP), Tezos (XTZ), and Zilliqa (ZIL).”

“Adding new assets requires significant exploratory work from both a technical and compliance standpoint, and we cannot guarantee that all the assets we are evaluating will ultimately be listed for trading. Furthermore, our listing process may result in some of these assets being listed solely for customers to buy and sell, without the ability to send or receive using a local wallet. Finally, as per our listing process, we will add new assets on a jurisdiction-by-jurisdiction basis, which allows us to add assets efficiently and responsibly.”

The listing process and exploratory work referenced in the post could and can have all manner of nuance to it. No promises or claims of expectancy can be made as the SEC, CFTC and other regulatory agencies have yet to finalize broader guidelines that would free up Coinbase to execute a ‘mass listing’ of the coins listed above.

It is worth noting that Coinbase has put together a serious lobbying effort in Washington DC which, we assume, keeps them close to the regulatory processes and what the substance and timing of any regulation would be.

This is an interesting strategy and is clearly part of a larger plan to stay ahead of the competition here in the US – presumably Gemini and it’s attempt to gather retail customers along with their institutional operations.

It is also the kind of sign that should serve as a reminder that the pain of a bear market should be buttressed by the truth of how infrastructure across the crypto ecosystem continues to expand.

ACCUMULATION: Billionaires Keep Piling Into Bitcoin; Cohen, Miller, Lasry Accumulate Crypto During Bear Market

Crypto enthusiasts have taken to begging the gods to turn things around in the current bear market. And this time, it may have worked. Having scooped an investment made by Steven Cohen (of fiat hedge fund fame, who famously outwitted several levels of the US government as they pursued him for insider trading and securities fraud – yet ultimately were unsuccessful) into a crypto hedge fund.

“The investment was made through his Cohen Private Ventures, said the person, who asked not to be named because the information is private. The hedge fund, Autonomous Partners, was started last year by Arianna Simpson, an early advocate of cryptocurrencies. It has also secured investments from Union Square Ventures, Coinbase Inc. Chief Executive Officer Brian Armstrong and Craft Ventures Co-Founder David Sacks, Simpson said in an interview Thursday.”

As you can see the crypto hedge fund itself is well respected amongst some of cryptos most elite investors and it seems that Cohen may be attempting to BTFD with this particular bid. That would be quite befitting his style over the years – a style that has made investors in his funds’ outsized returns, no matter the means by which they came.

Just as important as the investment is from a headline standpoint, even more important is the small detail that this is Cohen’s personal funds that are being allocated:

“Cohen Private Ventures invests in private equity and other longer-term investments on behalf of Cohen, who runs Point72 Asset Management. A representative for the firm declined to comment.”

In other words, this isn’t some sort of committee decision executed after quarterly allocations were made within Cohen’s organization. This was Cohen making a personal commitment to the crypto space and attempting to do it at just the right time so as to maximize his personal returns.

As we’ve covered here over the past six months the crypto hedge fund space continues to explode. New funds are opened daily and the raw numbers of crypto hedge funds are approaching 300 at this point. And those are the ‘registered’ funds – there is probably double that number amongst the OTC market across Asia, Russia, and other parts of the globe.

And then there is the case of Marc Lasry.

According to Lasry, Bitcoin is poised to see an increase in utility in the coming years as more people warm up to the emerging asset class. Speaking to CNBC, the Avenue Capital Group chief said: “As it gets more into the mainstream, and as more markets end up allowing it to trade where it’s freely tradable, to me that’s more of the bet.”

Another billionaire who is bullish on Bitcoin. Bill Miller.

n a recent Bloomberg interview, the self-proclaimed ‘Bitcoin observer’ revealed that he is a Bitcoin investor both personally and as part of a partnership portfolio. He recognized the nascent nature of the market, declaring that no one knows how the asset will end up. Regarding his views of the asset itself, Miller said:

“I think that it’s an interesting technological experiment. Every day that it doesn’t blow up or get regulated to zero, what’s going to happen is that more money flows into the ecosystem.”

Miller considers Bitcoin to be a ‘non-correlated’ asset that holds superior store of value qualities when compared to gold. High praise for sure.

These well-known billionaires follow other names like Novogratz, Lubin, and other crypto billionaires who are all-in on the development of the crypto ecosystem. When added to the institutional adoption and architecture set to explode onto the scene in 2019, the bear market seems to have shorter and shorter legs.

If you were looking for a longer term bullish point of reference, this could be just that sign.

 

BREAKING: ERISX COMPLETES SERIES B FUNDING: Big Names Go All In On ErisX Model And Expected Success

There is never one way to get to a particular destination. Several routes are usually at your disposal and it is just a matter of choosing which one makes the most sense for you at the moment. That is part of the narrative for ErisX and the differences that exist with other crypto platforms set to come to market over the next 90-120 days.

ErisX announced today that they have successfully completed a Series B funding round with big names taking a stake in the firms expected success. Planning to launch crypto trading for institutions and individuals via spot contracts in Q2 of 2019 and futures contracts in the second half of next year. While competitors are generally offering Bitcoin spot and futures trading only, ErisX is set to launch with four digital asset brands: Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.

Notable contributors to the Series B funding round are Monex Group, Fidelity, Nasdaq Ventures, Bitmain, and ConsenSys.

Attached is the firm’s press release regarding the Series B round:

We wanted to let you know that today we announced the closing of Series B funding from an influential group of investors spanning the traditional capital and digital asset markets including; Bitmain, ConsenSys, Fidelity Investments, Nasdaq Ventures (NDAQ) and TradeStation Securities’ parent company, Monex Group Inc. (TSE: 8698).  We are also receiving additional support from existing investors including CTC Group Investments, Digital Currency Group, DRW Venture Capital, Pantera Capital and Valor Equity Partners.

With such authoritative firms behind us, our position is cemented as an industry-needed solution for a fair and transparent platform in the digital asset space.  The new investors are part of an earlier group that saw a void in the market; including DRW Venture Capital, Valor Equity Partners, TD Ameritrade (AMTD), Virtu Financial (VIRT), NEX Opportunities, Cboe Global Markets (CBOE), CTC Group Investments, Digital Currency Group, Nico Trading, Pantera Capital, Third Stone Partners, CMT Digital, Susquehanna International Group, XR Trading, C2 Capital Management and ED&F Man Capital Markets Inc.

Led by Chief Executive Officer Thomas Chippas, Chief Commercial Officer Kelly Brown and Head of Clearing Liz James, among other derivatives and digital asset experts, we will operate an intermediary-friendly, CFTC-regulated futures exchange (registered) and clearing organization (registration pending), as well as a spot market for digital assets.

“With increasing financial support from leading edge firms, ErisX stands to provide the most robust, secure and regulated digital asset offering available to both institutional and individual participants,” said Chippas. “Closing this second round of funding enables us to continue building our modern platform and expand our team.”

We will leverage our investors’ strengths, experiences and knowledge in pioneering a single platform for digital asset spot and regulated futures contracts.  

“Many of our customers have been seeking various hedging solutions and would be happy to see US regulatory compliant exchanges like ErisX provide spot and futures’ contracts in one platform,” said Jihan Wu of Bitmain. “We are confident that our customers will find this strategic partnership beneficial.”

“The formation of ErisX is an important step in continuing the convergence of digital and traditional asset classes in global institutional financial services,” said Joseph Lubin, CEO of ConsenSys. “We are excited to invest and to be working with the extremely credible team.  We look forward to seeing ErisX drive significant growth in institutional flows in both spot and futures digital asset markets in 2019.”

“Our customers are increasingly interested in the digital asset space,” said John Bartleman, President of TradeStation Group.  “We believe ErisX recognized a gap in the crypto market and we are excited to partner with them to bring sophisticated traders into this space.”

Competing with Nasdaq, Bakkt, and Fidelity for institutional business will make for an interesting race. Launching with four different tokens may give ErisX a leg up on the competition. Time will tell.

BAKKT: FUTURE PRODUCTS: Bakkt Foreshadows ‘Future Crypto Products’ In Dialogue; Bullish Hopium

As if we needed another reason to continue to anticipate the launch of Bakkt. In a late Sunday tweet Bakkt foreshadowed the future of their ambitions with the following line:

“…which could open the door for other products around crypto.”

This from a tweet at 4:42 PM. Deconstructing the backstory on ‘other products’ is the key here. Clearly, Bakkt doesn’t aspire to simply create and trade, ad infinitum, bitcoin futures and bitcoin futures alone. As competitors such as Nasdaq and ErisX push forward with multiple cryptocurrencies and futures that will be traded at their respective launches, Bakkt won’t be left behind.

To get a bit more clear-eyed on what other products Bakkt may be talking about that will come from a more orderly price book from Bitcoin take a look at the gold futures markets, spot markets, etc. What type of products has evolved from the ‘physically deliverable’ gold markets dominated by ICE, the parent company of Bakkt?

Orderly gold markets trade better than $100B worth of the commodity per day. The products that have been born from that type of volume have been the following:

  • Physical gold is readily available to the public from all manner of sources.
  • Gold ETF’s have been approved across the board and trade on several exchanges.
  • Gold mutual funds have also become mainstream.
  • Gold derivatives are traded amongst commodity exchanges.
  • Gold futures are also traded across multiple commodity exchanges.
  • Gold options.

**The collective trading in the above products approaches $500B on a daily basis.

Can anyone guess who manages the largest gold-based ETF’s in the world? Anyone? Anyone? BlackRock. Yes, that BlackRock – the worlds largest asset manager. And there just happens to be a story or two out there that connects BlackRock to Coinbase as the two comingle their efforts on potential crypto ETF products.

Bakkt aspires to be the foundation on which firms like BlackRock, State Street (SPDRS), Invesco, Vanguard, VanEck, and Deutsche Bank create Bitcoin and digital asset ETF’s. Collectively the aforementioned firms manage nearly $4T in ETF assets. FOUR TRILLION.

So it makes a bit of sense for Bakkt to have an interest in processing the type of digital asset volumes connected to an ever-expanding ETF ecosystem.

And this is the reason that Nasdaq, Bakkt, ErisX, and Fidelity have rushed into the custody and trading markets for Bitcoin and other large market cap digital assets. The fees and profits on ETF’s, mutual funds, options, and derivatives are in the 10’s if not 100’s of billion dollars a year.

Would Bakkt, Fidelity, and Nasdaq really announce large-scale crypto infrastructure if the smartest people in those firms have yet to do extensive due diligence on the expected profits? And those expected profits far outweigh the risks involved in digital assets? Of course, they have put the scales to it and their eyes have widened at the expected and potential profits.

Take a look at some commentary directly from Bakkt’s CEO, Kelly Loeffler regarding where Bakkt is headed – and we will highlight specific phrases that point to significantly more than just Bitcoin futures:

“Our goal is to make digital assets more liquid, trusted and accessible; allowing meaningful innovation to follow. Many in our space are working toward this objective.”

“By virtue of passporting ICE Futures U.S. and ICE Clear U.S. into other jurisdictions outside the U.S., institutions operating on a global scale can better serve their customers. Bakkt’s first contracts will be physically delivered Bitcoin futures contracts versus fiat currencies, including USD, GBP and EUR.For example, buying one USD/BTC futures contract will result in daily delivery of one Bitcoin into the customer’s account. This aspect of physically delivery adds to the utility of Bitcoin, beyond simply trading.”

“While there are many aspects of Bakkt that we’ll continue to develop and share, our initial focus is supporting regulated institutions in serving customers in this emerging asset class. The foundation on which we are building our solutions for buying, selling, storing and spending digital assets is not a piece of Italian Carrera marble, like the statue of David, but is built upon the time-tested, regulated futures markets — which have advanced markets ranging from coffee to gold for hundreds of years.”

“Key to cryptocurrency’s success is a trusted market price. We are working to create a regulated for of price discovery, which could open the door for other products around crypto.”

Again, the implications here over the next three to five years are enormous. A regulated and orderly market for large-cap tokens will turn a $150B – $200B market capitalization ecosystem into a $1T – $2T industry of scale. If the gold markets are any indication of what lies ahead for digital asset structured products and daily trading volumes – fill your bags right now.

Don’t be blinded by the pain of a bear market. Bakkt, Fidelity, Nasdaq and other global firms of scale are building and loading up. Shouldn’t you be?

 

 

EXCLUSIVE: BAKKT AND ETHEREUM: Ethereum Contracts Were Included In Bakkt’s Initial Launch Plans; Next ‘Additional Contracts’ Product

Bakkt remains a hot topic of discussion across the crypto ecosystem. It is seen in some corners of crypto as a bear market savior while others see it as another institution watering down the original intent and purity of Bitcoin itself. Either way, it is the most talked about institutional initiative among many – and a who’s who of crypto venture capital firms have made bets that Bakkt will be a roaring success.

Of interest over the past week, with appearances at Coindesk’s Consensus Invest conference and other appearances, CEO Kelly Loeffler and Intercontinental Exchange CEO Jeffrey Sprecher made comments that hinted at more crypto futures contracts being traded on their network. Bakkt then sent out a tweet that did more than hint at the idea, rather claiming that they remain open to adding ‘additional contracts as the landscape evolves’.

The ‘landscape evolving’ is a reference to regulation, pure and simple. The guidance principally given by the SEC and CFTC will be what rule the day for institutions. But don’t fool yourself here – Bakkt already has a pretty good idea where regulation is going and are planning there next move.

Could that move be adding Ethereum contracts? We believe that it will be and we have information that gives us confidence in that call.

According to three separate sources Bakkt offering documents originally listed Bitcoin and Ethereum as launch cryptocurrency contracts. Sources familiar with those documents disclosed that Bakkt took a step back when they couldn’t get clear regulatory clarity on Ethereum that would make them comfortable enough to launch with it.

One specific quote from a well-connected source:

“Their original offering docs had ETH included but they backed away. The next time we took a look at it (Bakkt), from an investment standpoint, ETH had been removed and only Bitcoin remained. Regulatory approvals are paramount in a launch of this scale, so they thought better than to go the route of ‘ask for forgiveness’ after the fact. I would expect the next contract they offer to be Ethereum.”

The original Bakkt offering documents touted Ethereum in the same way that Bitcoin has been featured on its network. The same custody solution and physical warehousing/delivery facilities that have been all the rage for institutions since Bakkt announced its intentions.

The original inclusion of Ethereum as an ‘additional contract’ in its offering documents sends a strong signal that Bakkt will eventually offer ETH contracts and effectively mushroom ETH trading of scale.

Comments from regulators in different forums have hinted that Ethereum could be the next cryptocurrency to be dubbed a commodity instead of a security. When that happens (and we believe that it will) you can expect Bakkt to add Ethereum contracts.

The parent company by which Bakkt was birthed, Intercontinental Exchange (or better known as the I-C-E) trades trillions upon trillions of global futures contracts connected to commodities and securities of all make and manner; while also being the owner of the ‘crown jewel’ of global stock markets, the NYSE. Ergo, could Bitcoin and Ethereum be seen as the gold and silver of cryptocurrency futures contracts? We believe that to be the case.

A final download and reminder of what Bakkt actually will be doing at launch:

Bakkt is the brainchild of Jeff Sprecher, the founder, chairman, and CEO of ICE, and a disrupter par excellence. Sprecher (pronounced “Sprecker”) stands alone as the leading force in modernizing the world’s exchanges in recent years from open-outcry pits into super-efficient electronic marketplaces. Along the way, Sprecher built a flailing electricity exchange that he reportedly purchased for $1 into a global trading and data empire now worth $44 billion. “In 25 years he’s gone from nothing to the most powerful exchange entrepreneur in the world,” says Larry Tabb, chief of consultancy the Tabb Group. “He hasn’t failed yet.

“Sprecher and his investment partners are putting this one-of-a-kind mission in the hands of a first-time CEO who’s Sprecher’s soulmate in both business and in life: Kelly Loeffler. The ICE executive has ridden shotgun alongside Sprecher since the company’s fledgling days in 2002. In 2004, they married. Loeffler long ran marketing, investor relations, and communications for ICE. Now she’s giving up her ICE roles to run Bakkt.”

Keep your eyes on regulators over the coming weeks and into 2019. They hold the keys to the pace and potential scale of crypto adoption and market cap growth.

 

MORGAN STANLEY: TRADER TALK: “We talk about crypto every day around here – you can bet we’ll trade the sh** out of it in 2019…”

We spoke to three Morgan Stanley trade desk sources regarding the news from Bloomberg that the global investment bank was set to begin offering clients a ‘synthetic’ Bitcoin product and the conversations were ‘illuminating’ to say the least.

As the news of continued ‘legacy’ exchanges adding Bitcoin futures (which will, of course, be followed by other token type listings) the anticipation for client uptake and profits continues to ramp up.

Nasdaq’s announcement of a Bitcoin futures product had traders at Morgan Stanley all abuzz earlier this week. And the talk was all about volatility and profits.

**A brief description of a Morgan Stanley trade desk dude – early 30’s, unmarried, adrenaline-addicted, and in a constant search for volatility to produce market-beating performance and year-end bonuses. Good, got that out of the way.**

These three guys are all well versed in cryptocurrency lingo and practice, as each was able to produce proof that they owned cryptos. We promised to keep their identities anonymous.

One trader talked about the lust for volatility: “Price movements are everything for a trader. The larger the swings the better. As we execute or either the firm or institutional clients, the more volatility the better. If pushes action in large accounts and keeps emotions on edge. Even the choppy movement in the equity indexes over the past three months have been useful in that regard. But cryptos…wow, dude. The volatility in Bitcoin alone would be better than sex for us! Movements of 10%-20% over the course of 24 hours. Huge!

Another trader echoed the profit potential: “Just take the idea that these things trade 24 hours a day and seven days a week. That alone would create renewed profitability on trade desks everywhere. And, of course, the volatility would make bank execs wet. That is why bean counters (lawyers) here are working overtime trying to quantify risks and policies to get us on, at a minimum, Bitcoin, and eventually Ethereum. The bottom line on cryptos, we talk about them every day and the plan is to trade the sh** out of them next year. Nearly all of us have built in those profits into our projected earnings next year.”

Our final contact kept things short: “Give me all of the cryptos and watch what I could do for this place. Clients won’t stop asking about them. I’ve not seen anything like this in my career. I’ve heard, from oldheads, what it was like in 98-99 with the dot-com bubble. But even those guys say this is bigger and more emotionally driven. We’d make a sh** ton if we had access, institutionally speaking.”

These comments and the Bloomberg scoop earlier from Alistair Marsh have set off another round of institutional FOMO:

“The U.S. bank will deal in contracts that give investors synthetic exposure to the performance of Bitcoin, said the person, who asked not to be identified because the information is private. Investors will be able to go long or short using the so-called price return swaps, and Morgan Stanley will charge a spread for each transaction, the person said.”

“The bank is already technically prepared to offer the Bitcoin swap trading, and will launch once there is proven institutional client demand and after the completion of an internal approval process, the person said. A spokesman for Morgan Stanley declined to comment on the initiative.”

Every major institution that has an interest in satisfying the requests of its biggest clients and generating outsized trading profits with significant margins is offering or planning to offer access to Bitcoin and cryptos. Everybody.

It is no longer ‘Institutional FOMO’, but rather Institutional Adoption.