Circle research

Weekly Crypto Recap 2/22-2/28

Know & go

  • Top story of the week: Bitcoin and crypto use in Venezuela is growing, though is still a ways from widespread adoption.
  • Three things to know: (1) Coinbase listed XRP for institutional and retail customers this week (2) Multiple messaging platforms (including Facebook, Signal, Kakao, Line) are planning to launch native tokens (3) Ethereum’s Constantinople and St. Petersburg updates went live.
  • Chart of the week: Weekly LocalBitcoins volume in Venezuela in BTC and USD.
  • Market snapshot: Total crypto market capitalization is around $134.1 billion at press time, down 2.5% w/w. BTC is trading at $3813 (down 2.9% w/w), ETH is at $133 (down 8.9% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 48.2%, an increase of over 10% compared to last week.
    (3/1 10:30AM ET)

Weekly market snapshot

Chart of the week

diagram

Top Story

Crypto in Venezuela

“Venezuela presents a unique opportunity for crypto-adoption. Typical cryptoasset volatility pales in comparison to the high currency inflation of the Bolivar.” Blockchain in Venezuela by Elena Sofia Giralt

The stories of crypto use in Venezuela have garnered significant attention in the past few months. The New York Times even published an Op-Ed titled Bitcoin Has Saved My Family by Carlos Hernandez (a Venezuelan Economist) last week.

Venezuela has been experiencing an economic and political crisis driven by the country leadership’s lack of fiscal and monetary discipline. One of the consequences has been rising hyperinflation of the bolivar (Venezuela’s national currency). In November 2017, people created a piece of art called Billete Alzao with 3,000 bills to signify the extent of hyperinflation in the country.

According to this week’s NYT article, annual inflation exceeded 1.5 million percent1 in 2018, making it impractical (to say the least) to hold wealth in bolivars. Additionally, while the price of goods in bolivars is constantly rising to keep up with the inflation, wages don’t rise as quickly. Many Venezuelans are converting their bolivars to US dollars, but this is challenging as the government controls the trade of currencies. Residents might resort to acquiring US dollars on the black market, but this carries the risk of being cheated.

In this Planet Money podcast episode from June 2018, Ricardo Hausmann (a Venezuelan economist based at Harvard) outlined a metric he and his team came up to put the economic situation in Venezuela into perspective. Each month, he tracks how many calories of the cheapest food can be purchased with minimum wage. In 2012, if a minimum wage worker spent every single bolivar from his wage on the cheapest food available that day, he could buy 57,000 calories worth of food. This dropped to less than 900 calories when the podcast was recorded and is likely even lower by now.

The situation has caused those armed with knowledge and appropriate infrastructure to turn to bitcoin and other cryptocurrencies. In the NYT article, the author explains that he stores his wealth in bitcoin and uses LocalBitcoins to convert Bitcoin to bolivars only when he needs to make a purchase. The author’s brother used a bitcoin brain wallet to cross the border from Venezuela to Colombia to avoid having his money seized by the military. With a brain wallet, you store your crypto assets in your head by memorizing your wallet’s seed phrase. This is very risky because if you forget the seed phrase, your assets are lost forever. However, when the alternative is having your assets seized, it is probably worth the risk.

In this Let’s Talk Bitcoin episode from May 2018, Christian Garcia explains how he uses LocalBitcoins to convert bitcoin into bolivars to buy a carton of eggs. He checks the LocalBitcoins listings for low volume traders and makes an offer to sell $5 worth of bitcoin for bolivars. He sends the trader his banking information and once he receives the bolivars, he releases the bitcoin.

Another use case for crypto in the region has been remittances. A large portion of Venezuela’s population has fled the country to find work. Some of these people are using bitcoin as an alternative way to send funds home to family members that are still in Venezuela.

The evidence of increasing bitcoin usage in Venezuela is not just anecdotal. Upon examining volume in BTC in Venezuela on LocalBitcoins in our Chart of the week, we see that weekly volume has been steadily increasing over the past year. Weekly volume is up from $2.7 million (157 BTC) the week of January 6, 2018 to $8.1 million (1960 BTC) the week of February 23, 2019, an increase of almost 200% (in dollar terms).

However, crypto adoption is still very low and users of bitcoin and other cryptocurrencies are likely in the middle to upper class rather than those living in extreme poverty or the people most in need. José Rafael Peña Gholam warns us that the country is still far from achieving widespread adoption due to skepticism about the asset class, infrastructure gaps (poor internet connectivity, high cost of smartphones), the unfamiliar user experience and a lack of education. Skepticism against crypto could be fueled by the Venezuelan government’s attempt to launch its own coin, which has shown limited signs of development.

While there is much work to do before crypto is widely adopted anywhere in the world, it is exciting to hear about instances where people are turning to bitcoin and crypto as a way to safeguard their wealth.

Lightning Network Trust Chain

When the trust chain reaches 4.2 million satoshis (the maximum transaction limit), the funds will be donated to Bitcoin Venezuela, an organization focused on humanitarian relief and increasing crypto adoption and awareness in Venezuela. Hodlonaut, the creator of the trust chain, has created a separate fundraiser for those who cannot make it into the trust chain but want to donate to the effort. You can donate here.

AirdropVenezuela

CryptoGraffiti and Airtm partnered to raise funds in crypto for Venezuelan refugees via an interactive mural of Maduro comprised of 1,000 painted bolivar bills in Cúcuta. Anyone can donate in increments of $10 or more by digitally removing a bill from the painting here. Participants then remove bills one by one from the physical mural. So far, they have already surpassed their goal to raise $10,000. 50% of the proceeds will be used to rebuild a roofless daycare called Fundación Renacer and 50% will be used to further merchant adoption of crypto locally.

To learn more about the situation in Venezuela, we recommend the following resources:

In other news

  • The New York Times published a piece on messaging platforms Facebook, Telegram, Signal, Kakao (South Korea), and Line (Japan) rolling out native crypto tokens for their users. Source.
  • Ethereum's Constantinople and St. Petersburg updates went live on February 28. St. Petersburg removes EIP-1283 from Ethereum's testnets. This EIP was was found to contain a vulnerability, which delayed Constantinople from block 708000 to 728000. Source. Refer to our weekly recap from 1/4-1/10 to learn about the other EIPs in Constantinople.
  • Coinbase listed XRP on its institutional and retail platforms. XRP was up 10% on the news. Source.
  • Fluidity Factora released a real estate token called FACTOR-805, which will allow investors to make payments and receive interest in MakerDAO's Dai. Source.
  • Samsung's Galaxy S10 will feature a "Blockchain Keystore" app that will allow users to make crypto payments to merchants, create digital signatures and store their crypto in cold storage. It will support Bitcoin, Ether, Enjin, and Cosm. Source.
  • LedgerX is giving customers the option to speculate on exactly when the next bitcoin halving will occur. It is currently estimated to take place in May 2020. LedgerX will offer five contracts ranging from March 27 (riskiest) to July 31 (safest). Source.
  • In 1Q19, the average daily volume (ADV) and open interest of CME's bitcoin futures contracts rose 13% and 21.5%, respectively, over 4Q18. Large open interest holders (LOIH) - those holding over 25 contracts - has been around 43 since November. Source.
  • 2.1 million EOS (worth $7.3 million) was stolen due to an improperly configured blacklist. Source.
  • The first upgrade proposals for Tezos, called Athens, have been submitted and will put the platform’s on-chain governance to the test. The Athens proposals include changes to the “baking” threshold and gas limits as well as the introduction of developer invoices to help fund future upgrade proposals. Source.

Crypto funding

  • Coin Metrics, a crypto data provider raised $1.9 million from Castle Island Ventures, Fidelity Investments, Highland Capital Partners, and Dragonfly Capital. Source.
  • Figure, ex-SoFi CEO's new startup, is a blockchain-based fintech company that raised $65 million in a round led by PM Ventures, DST Global. Source.
  • Pangea Blockchain Fund, a Swiss investment firm, raised $22 million to invest in blockchain tech. Source.
  • Blockchain startup Nivaura raised $20 million in a round led by the London Stock Exchange. Source.

Global regulatory roundup

  • There were over 7,000 crypto laundering reports in Japan in 2018, ten times more than 2017, though they made up a small fraction of 420,000 total money laundering cases in Japan in 2018. Source.
  • In August 2016, crypto exchange Bitfinex suffered a security breach, resulting in almost 120,000 stolen bitcoins (more than $60 million at the time). Earlier this week, the US government returned 27.663 bitcoins (or 0.02% of the stolen funds) to Bitfinex following an investigation. Source.

What we’re reading

What we’re listening to

Circle in the news

  • We published our first insights piece highlighting key takeaways from ETHDenver (by Wilson Withiam).
  • In the second insights piece, we outlined our experience ordering Domino's pizza using ln.pizza and BlueWallet (by Connor Dempsey).

Where we’ll be in March

  • ETH Community Conference, 3/5-3/7, Paris, France
  • Boston Conference on Cyber Security, 3/6, Boston, MA
  • TenX Community Meetup Hong Kong #1, 3/12, Hong Kong
  • Token 2049, 3/13-3/14, Hong Kong

1This article says the inflation rate was 80,000 percent.

If you have any thoughts or questions, please reach out at [email protected].

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