Trade Bitcoin & Other Cryptocurrencies Instantly on a Fully Regulated ExchangeExchange
This publication will focus on
Bitcoin, which is currently the largest and most popular cryptocurrency.
Bitcoin is a digital cryptocurrency
that allows users to make peer-to-peer transactions without the use of a
trusted third party by using algorithms to verify transactions and utilizes
blockchain technology. It is decentralized, meaning there is no one server,
organization, or computer that “runs Bitcoin.”
While the future of Bitcoin and other
cryptocurrencies remains to be seen, the concept and technology behind them may
influence innovation going forward. Bitcoin has already gained significant
traction in institutional adoption and a rapidly growing market capitalization,
exceeding many S&P 500 companies and country money supplies.
What Are Cryptocurrencies?
Cryptocurrencies are virtual
currencies with no physical form that operate on a
peer-to-peer basis without a central authority such as the Federal Reserve.
They are digital in that unlike the US dollar, they have no physical form and
do not have a central repository. The decentralized nature of
cryptocurrencies requires computers to use cryptography, computerized
encoding and decoding of information, to verify transactions and attempt to
prevent counterfeiting.
Unlike traditional currencies, which
use a trusted third party such as a credit card company or bank to verify that
the funds are available to complete a transaction, cryptocurrencies rely on
a network of computers to confirm the transaction and that the spender has the
coins to transfer. When a transaction is initiated, it is broadcast to the
network where it awaits verification from computers that solve an algorithm to
determine if the transaction is legitimate.
This presentation focuses on Bitcoin1, the largest
cryptocurrency, though more than 1,000 others exist.
Some could be classified more as currencies; some more as equities; and others
somewhere in between. How Are Cryptocurrencies Created and Funded?
How Are Cryptocurrencies Created and Funded?
| Initial Coin Offering | Initial Coin Offerings (ICOs) occur when new coins or tokens are sold to the public to fund a project in what is called a crowdsale. Early backers hope that the coin will be successful and rise in value |
| Treasury System | A
Treasury system distributes newly into coins (inflation) to developers,
marketers, or other organizations that submit proposals Certain Treasury systems hold a vote among certain large stakeholders to decide which submitted initiatives should be funded |
| Forking | A “Fork” occurs when developers create
a copy of the existing blockchain and code, make adjustments, and release the
new cryptocurrency. Before they allow others to use the network, they create
enough coins for themselves to fund development This recently happened when Bitcoin developers disagreed on the size of each block on the blockchain, resulting in a new cryptocurrency with larger blocks |
| Yield Farming / Liquidity Mining | Yield Farming
(also known as Liquidity Mining) is the act of providing liquidity
through cryptocurrencies to decentralized exchanges (DEXs) DEXs look to reward users who bring capital to their platform by providing a “yield” (rate of return). “Yield Farmers” look for the greatest return in various “liquidity pools,” which consists of tokens. Platforms bring about “token swapping”, incentivizing with increasing yield and governance rights |
| Donations | Somecryptocurrencies (like Bitcoin) rely on donations (both monetary and programming time) from users to continue to evolve their ecosystem |
These top 5 cryptocurrencies account
for ~85% of the market cap of all Cryptocurrencies
1. Bitcoin
- $954.7B – The first, and most liquid
cryptocurrency with the largest market capitalization. Primarily used as a
store of value and for making censorship-resistant payments. Many advocates
market Bitcoin as Digital Gold because of the low growth in supply.
2. Ethereum - $187.1B – The second most liquid cryptocurrency. The Ethereum network is a
decentralized cloud- based software that creates a virtual computer that allows
third parties to create applications (called smart contracts) that run on the “computer.”
These application developers use Ether, the currency of the network, to pay the
network for the processing power and data storage their applications require.
3. Tether - $35.9B – Tether is a token that represents one US dollar. As the leading “stablecoin,”
tether generally has very little volatility, though it has ranged between $0.92
and $1.06 since 2017. The company behind Tether, Bitfinix, a cryptocurrency
exchange, claims it has $1 in bank accounts for each unit of tether.
4.
Polkadot – $34.3B – Polkadot
is a heterogeneous multi-chain interchange network, meaning it can process many
transactions on several chains in parallel "parachains." This allows
for interoperability with any data or asset type, not just tokens, to establish
a decentralized and private web controlled by its users. The network is secured
by a highly sophisticated user-driven governance system.
What Is Bitcoin?
Bitcoin is a digital cryptocurrency that
allows users to make peer-to-peer transactions without the use of a trusted
third party by using algorithms to verify transactions.
Bitcoin was invented in 2009 by Satoshi Nakamoto, an
anonymous person or organization. There is a fixed amount of 21 million
bitcoins that can be created. Close to 18.6 million have been mined so far.
The design is public; no one person/group owns or controls Bitcoin, and anyone
can participate. It is decentralized, meaning there is no one server,
organization, or computer that “runs Bitcoin.” Rather, different
stakeholders control different aspects of Bitcoin
The Bitcoin network includes
two main components:
The actual currency, bitcoin and the technology behind the
transaction verification, the blockchain
Sprinting Toward a Regulatory
Framework for Crypto Assets
Policymakers are progressing toward a
regulatory framework for crypto-related banking services faster than we
previously thought. Expect further regulatory clarity on a broad range of
potential crypto-related services throughout 2022, which could be a positive
for
Coinfield.
Regulators are on the fast track
toward developing a framework for the crypto banks.
The Federal Reserve, FDIC, and OCC
issued a joint statement on Tuesday outlining what they call a 'policy sprint'
to create a regulatory framework for banks to potentially offer crypto-related
services. We view this statement as a positive for the crypto banks because it
underscores policymakers' commitment to creating a regulatory framework around
crypto assets, helping to promote increased adoption across the industry. The
joint statement would suggest that investors and management teams could expect
much more clarity on crypto regulations for the banks in 2022.
CoinField is a cryptoasset exchange located in Canada. Their volume over the last 24 hours
is $33.84M. They have 76 markets, with the most popular markets (trading pairs)
being ETH/USD, BTC/USD, and ETH/USDT.
The exchange is rated “A” which means “Transparent.”
Out of 531 exchanges, they are ranked #142 by transparency and volume.
CoinField accounts for <1% total volume in the cryptosphere indexed by us.
They've executed 34,304 trades over the last day, which accounts for 100% of
trades indexed by our platform. They allow trading with the following fiat
currencies: AED, CAD, EUR, GBP, JPY, and USD.
What does this mean for the crypto banking
industry?
Investors and management teams should
expect increased clarity throughout 2022 addressing how a broad range of
crypto-related services are going to be regulated within the banking industry.
While we already knew that regulators were working on creating a regulatory
framework for banks to potentially offer crypto-related services, this
statement underscored regulators' sense of urgency on the task, which we
believe is a positive for getting a working framework in place sooner rather
than later. We believe that well-crafted regulation will help to promote the
adoption of crypto-assets and their related services, which is ultimately a
positive for the crypto banks (specifically Silvergate and Signature within our
coverage). The primary risk, in our view, is that policymakers move too quickly
and implement measures that inadvertently inhibit adoption of cryptocurrencies.
We would also note that the statement did not explicitly say what types of
crypto-related services would or would not be allowed to be performed by banks.
While not our base case, regulators could still in theory adopt a highly
restrictive stance on crypto-related services (or prohibit them altogether)
that severely inhibit their growth. This would clearly be a negative for the crypto
banks, but we view it as a low probability event. Instead, we would like to
believe that policymakers will take a more balanced approach to regulation that
ultimately promotes increased adoption of crypto assets. While the final
regulatory framework for crypto-related services is still yet to take shape, it
appears that policymakers are progressing there faster than we previously
thought.
