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Analysis

Reclassification of Cryptocurrencies by Major Credit Card Companies

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Some of the major credit card companies are no longer allowing for the purchase of cryptocurrency on credit. These companies include Chase, Citibank, Bank of America, and Capital One. This recent change has been implemented in the wake of the dropping price and market cap of Bitcoin and other crypto currencies.

This will, however, not affect the debit card purchases of cryptocurrency that users of these banks may wish to proceed with. The move denies the ability of users to leverage cryptocurrency to the point where a major downward shift in the market could render an inability to pay back longstanding debt or to create a potential credit default for many users. The banking industry seems to be worried about this as a possible future scenario.

However, what is interesting is that some banks will allow cash advances for a higher fee rate. In an email to users on Wednesday, January 31st, Coinbase stated,

“Recently, the MCC code for digital currency purchases was changed by a number of the major credit card networks. The new code will allow banks and card issuers to charge additional “cash advance” fees. These fees are not charged or collected by Coinbase. These additional fees will show up as a separate line item on your card statement.”

The MCC code stands for Merchant Category Code, and this does mark a change in the institutional view on Cryptocurrency as an asset. This change, along with the governmental tax classification of cryptocurrency as property subject to capital gains, makes it appear as though cryptocurrencies have become, both institutionally and governmentally, supported as an asset class.

It is possible that some of the downswing in cryptocurrency this month could be attributed to the sell off and deleveraging of some user assets as credit card owners could no longer use various types of short term leverage strategies. Only time will tell if this possible deleveraging might create a more consolidated and consistent market cap for a cryptocurrency commodity asset class to build on.

Daniel is an editor at The Hodlr and graduate from UCLA with a B.A. in Psychology. He has always been interested in both the behavioral and quantitative aspects of finance. He is currently enrolled in the UCLA Extension Finance Certificate with Concentration in Investment Management and Analysis so that he can obtain the educational requirement to sit for the Uniform Certified Public Accountant Examination.

Analysis

Bitcoin is Beginning to Trade Like a Commodity

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For much of the last year Bitcoin’s price appreciated at exponential levels. Clearly this was due to demand side pressure driving the price upwards, as the supply of Bitcoin, currently circulating at 17,000,587 coins, will only able to marginally increase over time, with a max capacity of 21,000,000 coins. A small, potentially immaterial amount of supply side pressure can be added, as people will inevitably lose private keys to their Bitcoin due to cold storage failure or hardware corruption.

However, in the recent time frame of the last three months, Bitcoin has seen a marked change in its price action. This particular cryptocurrency now has taken on attributes of the price action commonly seen in the commodities market. The two types of traders of cryptocurrency and commodities also share a similar profile. Commodities traders will seek to purchase futures to hedge crop prices needed to run a business or lock in profit on a sale so that they are guaranteed to meet all operational and living expenses. Many Bitcoin purchasers also seek to hedge against the inflation of their local government’s fiat currency or governmental political risk of losing ownership of physical assets in times of political instability.Additionally, speculators in both markets trade the price swings and, at times, can amplify price movements in either direction. While price volatility is seen as commonplace in the cryptocurrency space, the commodities market has its share of volatility also, however. An important caveat to note is the difference of the reference time frame.

We can see the apparent departure from extreme volatility as Bitcoin traded within a 43.60% band from its height in this three-month span.

data source: https://coinmarketcap.com/currencies/bitcoin/historical-data/?start=20180127&end=20180427

Here we can see the chart for oil as it fluctuates 73.63% percent from its high over a 5 year span. It is important to note that even blue chip commodities can go on long losing streaks before rebounding.

data source: http://www.macrotrends.net/1369/crude-oil-price-history-chart

 

It can be seen below that gold fluctuated 27.7% over this 5 year period of time. While it would have been a good choice to hedge against rampant inflation, buying gold on leverage or holding a large position in it would have seen a sizeable downswing for many years in a portfolio.

datasource: http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

Bitcoin would have to maintain a track record of many years of trading within a relative band to match some of these long time commodity giants. Perhaps recent volatility can give us hints to a potential price floor and some illiquidity from amongst those owners who keep their coins off exchanges. Regardless of the degree, volatility has, and always will, behoove one to correctly construct a portfolio with asset allocation matching his or her appetite and ability to sustain risk (volatility).

 

 

 

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Analysis

Coin Spotlight – Monero

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An open-source value transfer digital asset which has been around since 2013. Monero is secure. Monero is private. Monero is untraceable.


 

What is Monero?

Monero (XMR) is a cryptocurrency project which is centered around privacy and value transfer. It uses an immutable blockchain as a ledger but utilizes several advanced technologies to keep transactions secret. XMR is essentially the closest thing to physical cash in the cryptocurrency realm.

 

Fundamentals Summary:

Purpose Monero (XMR) is aiming to be used as an electronic cash that is untraceable and censor resistant. Its focus is on privacy while still trying to maintain decentralization, security, and scalability.
Product Monero is:

  • Secure and all transactions are confirmed by distributed consensus.
  • Private, using ring signatures, ring confidential transactions, and stealth addresses to hide where transactions come from, their destinations, and their amounts, making it untraceable.
  • Fungible and therefore individual units of XMR cannot be discriminated against.
Team & Community Monero’s Research Lab, Core Develop Team, and community developers are all contributing to the project. Over 314 people have contributed, including 30 core developers.
Key Competition Zcash & Zcoin, although it is the community’s consensus that Monero is the king of privacy coins.
Outlook Monero is posed to gain more traction and adoption through 2018. One of the primary areas of uncertainty lies in the fact that XMR cannot be tracked by governments. It is expected that government organizations may speak negativity on it in the future or attempt to regulate its use.

 

monero wallet

The official Monero Wallet

Technology Overview:

Algorithm CryptoNight-based PoW hash algorithm, designed to be ASIC-resistant and fungible at its core.
Privacy Ring signatures allow the sender to hide while stealth addresses hide the receiving address of a transaction. Also, RingCT technology keeps the amount of a transaction hidden. This technology is already developed and functional.
Wallet Released by The Monero Project
Plans for 2018 Second-layer solutions for scalability and fees, improving RingCT to decrease transaction fees

Price Summary (3/7/3018):


Marketcap: 5,004,397,165 USD

Circulating Supply: 15,800,698 XMR

52 week range: 15.43 – 495.84 USD

 

Relevant Links

Website

Whitepaper

Wallets & Downloads

CoinMarketCap Page

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Analysis

Coin Spotlight – NEO

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, an open network for smart economy.

NEO Network

NEO is a network which brings together digital assets, digital identities, and smart contracts. Using blockchain technology, NEO aims to build the infrastructure of the “intelligent economy of the future.” It is similar to Ethereum in that it is a platform where individuals can pay for distributed computing and smart contract deployment onto the network. The three core components of NEO are as follows:

Digital Assets- NEO has two types: global and contract assets. Global assets exist throughout the entire NEO network while contract assets only exist in the realm that recognizes them.

Digital Identities- NEO has a verification model that includes facial features, fingerprints, voice, SMS, and multi-factor auth. NEO also implements a X.509 compatible system.

Smart Contracts- NEO has its own system, NEOContract which tries to make it as easy as possible to deploy smart contracts. Developers can use mainstream programming languages unlike Ethereum which requires Solidity.

The combination of digital assets, digital identities, and smart contracts allows NEO to be a powerful player in revolutionizing how money moves.

NEO is the use of blockchain technology and digital identity to digitize assets, the use of smart contracts for digital assets to be self-managed, to achieve “smart economy” with a distributed network

Like many projects in this space, NEO is open source. It was founded in 2014 and is still built by the community. The development team provides tools, documentation, training, and financial support to groups who help expand the project. This includes things such as designing hardware wallets, for example. NEO outlined several applications as well that they would like to see built on their network. Some of these include:

  • Smart fund
  • AI-assisted legal smart contract
  • Social networking
  • Automated tokens liquidity providers
  • Decentralized exchange
  • Secure communication protocol
  • Data exchange market
  • Intellectual property trading market
  • Prediction market
  • Advertising market
  • Hashpower market
  • NeoGas market

The whole point of NEO, like Ethereum, is to be a space in which developers can launch applications and make use of blockchain technology. Combining smart contracts in applications with digital assets on NEO, we can make use of all of the benefits of blockchain. These include: decentralization, trustlessness, trace-ability, transparency, and direct interaction (no middle man, all automated). When someone transacts through an application on the NEO network, they are utilizing all of the aforementioned benefits.

How does it work?

So, it makes sense that NEO is this place where people can have their applications connected to a network to make use of smart contracts and other benefits of blockchain. But, what did the team actually build to make this happen?

dBFT- consensus mechanism

Just like Bitcoin uses a proof of work algorithm to ensure consensus of what’s on the blockchain, NEO has it’s own consensus protocol. Instead of using mining though, NEO uses, dBFT, which stands for Delegated Byzantine Fault-Tolerant. NEO has a number of “bookkeepers” who keep track of the blockchain and generate new blocks. People who hold the NEO token can then vote on which bookkeeper has the correct version of the blockchain, generating consensus. New blocks are generated about every 15-20 seconds and 10,000 transactions per second is possible.

NeoContract- smart contracts for the smart economy

NeoContract is the smart contract suite supported on the network. It is built from three main components. The first is NeoVM which is NEO’s virtual machine. The second is InteropService which is similar to the virtual machine and is used to load the ledger, digital assets, digital identities, and storage area. The third component is DevPack which is a compiler and IDE. NeoVM was designed very similar to Java Virtual Machine which is what allows the compiler to compile mainstream languages into NeoVM.

NeoX – cross-chain support

NeoX has two functions. The first aspect of NeoX is to allow for cross-chain asset exchange. This means that digital assets can be traded between NEO and other networks and documented properly. Either the transaction is identical on both chains after taking place or it fails on both chains. The second aspect of NeoX is cross-chain smart contract deployment where parts of the smart contract can be executed on different chains entirely.

NeoFS- storage solutions

NeoFS is a storage protocol which allows large files to be stored on the blockchain and defines how to access stored files. It uses distributed hash technology and can be combined with digital identities to manage permissions.

NeoQS- anti-quantum cryptography

Quantum computing can potentially make today’s security systems obsolete. NeoQS introduces problems that quantum computers cannot solve easily. These include the Shortest Vector Problem and the Closest Vector Problem. Both of these are known to be reliable in terms of quantum resistance.

The above five technologies are the foundation of NEO’s network. They built the base that other developers will launch applications on.

smart economy

Coin Mechanics

NEO

As mentioned previously, NEO is used for voting on bookkeeping in order to form censuses in the NEO network. There are 100 million NEO out there. 50 million were distributed to raise funds at the start of the project and 50 million are held by the NEO council for development activities (see whitepaper for breakdown).

NeoGas

NeoGas (GAS) is the token which is used to power the network. Fees are charged for things such as deploying smart contracts; these fees are paid in GAS. GAS is also paid to NEO holders as economic incentive to act “good” when voting on bookkeeping.

Governance

NEO token holders govern the chain by using their voting power in the network. The NEO Council oversees development and marketing for the project, governing off-chain functions.

Looking Forward

As you can see, there is a reason why NEO is currently a top 10 coin ranked by market cap. There is a ton of development and potential, all centered around the “smart economy”. While Ethereum brought ICO’s to center stage in 2017, it is expected that an increasing number of ICO’s will launch on NEO’s platform in 2018 as it continues to gain more traction.

The ease of usability, such as allowing mainstream programming languages, is one thing that makes NEO so special. Another is the dedication of the team to development as well as marketing. NEO was formerly known as Antshares until June 2017 when they re-branded. Shifts such as this prove that the team recognizes the technical and human aspects of the project.  At the same time, the team returns the power to the NEO holders where it matters, on-chain voting. NEO holders have all the power in terms of network operation and generate GAS as a result. Is NEO a good investment? I don’t know. But, I do know that NEO is a solid project which is poised for technical growth and increasing adoption within the cryptocurrency community.


Fundamental Summary

Purpose

NEO is a smart contract platform which uses GAS as a payment for computation and deployment of contracts

Product

NEO has the following: staking for consensus, smart contracts, cross-chain support, storage solutions, and quantum resistance.

Team & Community

NEO has a fairly large team which can be seen here. They typically updated the community at the blog here. The subreddit is located here.

Key Competition

Ethereum as of now. Potentially Cardano, EOS, Stellar

Price Summary (2/16/2018)


Market Cap

$8,254,545,000 USD

Circulating Supply

65,000,000

52 Week Range

$0.12 – $197.56

Relative Price Performance

Value of $1000 invested on 2/16/2017

NEO- $1,069,000

ETH- $72,500

BTC- $9,920

Exchanges

Upbit

Binance

CoinEgg

Bitfinex

Bittrex

OKEx

Huobi

And most other major exchanges…

Relevant Information

NEO.org

Whitepaper

CoinMarketCapTwitter

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