August 13 – 19, 2018 | Trading Revenues, Blockchain Testing & More Crypto News
3iQ Research Group consolidates the top five cryptoasset stories of interest
to investment advisors and our investors.
Revenue Generated From Crypto Trading May Double
August 17, 2018 – Analysts at Sanford C. Bernstein & Co. note that the revenue being generated at crypto exchanges might more than double this year, topping around $4 billion USD. In their report titled “Crypto Trading — the Next Big Thing is Here?”, the analysts have estimated that the buying and selling of cryptocurrencies such as bitcoin on the largest crypto exchanges generated around $1.8 billion USD in fees last year. The fees being generated from crypto trading are already at 8% of the revenue found on traditional market exchanges. The analysts have also found that in terms of segments, only the global cash equities market currently tops crypto trading.
Despite traditional market players taking a more cautionary approach, perhaps due to regulatory uncertainty, some top Wall Street firms such as Goldman Sachs and JPMorgan Chase & Co. have invested in crypto trading businesses. “As the [cryptoasset] class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms,” said the analysts. Opportunities still lie in the custody, asset management, and market-making services of the crypto realm. Since many traditional market players are taking a more cautionary approach, the major cryptocurrency exchange and service provider Coinbase may end up having a “unassailable competitive position”. The analysts estimate that Coinbase already has about 50% of the transactional revenue pool.
August 15, 2018 – The Bank of Montreal (BMO) and the Ontario Teachers’ Pension Plan (OTPP) have successfully tested a Canadian dollar debt deal utilizing the blockchain, furthering the notion that blockchain technology could revolutionize today’s fixed-income markets. According to BMO, they sold $250 million CAD of one-year floating rate deposit notes to the OTPP while simultaneously mirroring the transaction using blockchain technology. BMO’s capital markets division has built their own blockchain settlement system, which allows both the issuers and buyers to view the transactions through the distributed ledger system. By utilizing the blockchain, the bank will cut costs in areas such as compliance, reporting, and the clearing and settlement of cash-based transactions.
BMO is not the first bank to pilot a debt deal in North America. JPMorgan Chase & Co. and the National Bank of Canada tested a US debt deal using the blockchain back in April this year, which involved $150 million USD of one-year floating rate CODs and also mirrored the sales process using JPMorgan Chase & Co.’s blockchain application. “This is an important first step in developing a fully functional blockchain capability that we think will eventually allow primary and secondary trading of securities,” said Kelsey Gunderson, the head of global trading at BMO Capital Markets.
August 17, 2018 – Major crypto exchange and service provider Coinbase has filed a patent for a new system which could allow users to make bitcoin payments more secure while online. The patent was filed on August 14, and will also allow its users to make payments online directly from their Coinbase wallet. The patent describes that “existing systems do not provide a solution for maintaining security over private keys while still allowing the users to checkout on a merchant page and making payments using their wallets.” By allowing users to pay online directly, while using “key ceremony” technology that encrypts user passphareses into a masterkey, it could greatly reduce the risk of having keys being stolen while doing online payments. The masterkey essentially encrypts the private keys and transaction signing, and upon completion, will delete the masterkey.
Perhaps more importantly, the patent also describes an API generation service for other websites and merchants. The API service can be integrated into traditional online marketplaces, allowing merchants to accept bitcoin payments while applying a two-part security service. The API service will be stored on Coinbase’s web service system while also on the host’s server, allowing for two-part security as transactions confirm. The development of this payment system could open the door to millions of online retailers to accept bitcoin as a means of payment.
JD.com Releases Open Blockchain App for Invoice Tracking
August 17, 2018 – China’s largest retailer and e-commerce company, JD.com, has released an open blockchain application that allows its users to create their own blockchain solutions when conducting business online. The new blockchain application will allow its users to improve the transparency, efficiency, and security of their existing online operations without the need for their own independent blockchain. The “JD Blockchain Open Platform” will provide the ability for online retailers to build smart contracts on both their private and public enterprise cloud networks. Online retailers will be able to implement a number of features to their existing operations, such as the tracking of product movement, property assessments, digital copyrights, and authenticity certificates.
The China Pacific Insurance Company (CPIC) was announced as the first partner to use the JD.com’s open blockchain platform. By using a unique blockchain ID to each invoice document, the company can essentially streamline their existing accounting process and strengthen the governance of their electronic invoices. “We are confident its blockchain e-invoice system will create greater efficiency in our operations,” said Yanhong Pan, the vice president and chief financial officer at the CPIC.
How Does Bitcoin Correlate to Existing Financial Markets?
August 15, 2018 – While it may seem that bitcoin and other cryptocurrencies have developed stronger ties to existing financial markets, their non-correlated natures and other safe-haven aspects remain a major selling point for adding cryptocurrencies to financial portfolios. Upon testing the correlation of bitcoin against major equities, currencies, and commodity indexes, its correlation coefficient rarely rises above 0.5. At a coefficient rating of 1.0, the cryptocurrency would signal a strong positive correlation, where as -1.0 would signal a strong negative correlation. Despite bitcoin sitting somewhere above the middle, at a 0.5 correlation coefficient, it is interesting to note that in times of economic crises, such as the recent events surrounding Turkey and the devaluation of the Turkish Lira, trading volumes on Turkey’s cryptocurrencies exchanges jumped while the Lira declined. To some extent, the correlation to traditional macroeconomic activity increased; however, it wasn’t enough to boost bitcoin higher on its correlation coefficient to existing financial markets.
“Non-correlation is not the same as inverse correlation so there’s no guarantee that when the market goes down crypto will go up,” said Matt Hougan, the vice president of research and development at Bitwise Asset Management Inc. “Over the long term, we think the fundamental drivers of crypto are different from the fundamental driver of equities and other assets, and we would expect the low correlation to persist.”
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