Real Cryptocurrency Fundamentals on Exchanges & Programmer Project Interest
|Mar 28|| 1|
As I’ve said before, the entire purpose of this newsletter is to sort news from nonsense, signals from the noise and info from hype. I know you agree the hype factor even in the midst of ‘crypto winter’ is unreal some days.
This week we have 2 big, juicy, informative reports with new, actionable information and analysis. Let’s take a look.
Bitwise Research Reveals the ‘Real 10’
When Bitwise Asset Management tweets this out a few days ago and the TL;DR (which means too long didn’t read) says 95% of reported (Bitcoin trading exchange) volume is fake, I took notice.
Bitwise is working with the SEC to try to get their Bitcoin ETF approved. As part of that process, the first 86 pages of their 226 page report were all about Bitcoin exchanges and their volume. View online as a pdf or download the entire report from Bitwise to the SEC.
How this fake volume happens is most exchanges are unregulated. They have no incentive to publish accurate numbers on their trades, let alone separate real trading from wash trading, a form of market data manipulation. Unregulated exchanges have more motivation to inflate their numbers since many earn more money from exchange listing fees than from trades. To list on one of these unregulated exchanges could cost a token $1-3 million, according to Bitwise. This alone is a great reason to make it look like your exchange trades more than it does.
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So through lots of research and scrubbing of data, Bitwise uncovered the ‘Real 10’. The Real 10 are the 10 regulated exchanges who are reporting their numbers honestly. Here they are, taken right from a slide on the Bitwise report:
Bitwise is trying to show that real market information from honest, regulated exchanges is much closer to other regulated, orderly, and traded markets. These markets like gold, commodities, currencies or stocks are more like Bitcoin than this perception that everything in Bitcoin is unregulated, easily manipulated, and operating like it’s the Wild West. Wild West environments are not good to the SEC.
The entire Bitwise thread on Twitter is available here:
Our CNON Take: Yes, it’s in Bitwise’s own interest to make the market look more orderly to get their ETF approved. Yet, the detail in this report on exchanges from pages 21-83 have the best information on Bitcoin exchanges that’s been released to the public.
With the possible exception of a quality Bitcoin wallet where you control your private keys, Bitcoin exchanges are the most important part of the crypto-economy today. They provide the on ramps and off ramps between government currency and cryptocurrency. And while we believe there will always be separation between the crypto-economy and the ‘conventional’ economy, we also believe there will be some inevitable overlap. Real information for traders, other speculators, institutions, and those wanting to move back and forth between government currency and cryptocurrency all benefit from real information about exchanges.
Here’s what other info Bitwise found out about exchanges:
Average daily volume from the ‘Real 10’ is $270 million, 95% less than all reported volume from exchanges that claim they do $1 million in daily volume (p.61)
Bitcoin’s average daily trading is in line with Gold. Gold trades 0.53% daily on a $7 trillion market (or ~$37 billion) while Bitcoin trades 0.39% daily on a $70 billion market (~$270 million) (p.62)
Arbitrage (p.106) has improved, meaning markets for the Real 10 are more efficient. The spreads that are arb opportunities are smaller and shorter than ever, now at less than 0.10%
CoinMarketCap, still the largest data aggregator of crypto exchange information, is no longer credible
CoinMarketCap is No Longer Credible
As the first big exchange information site, CoinMarketCap (CMC) has done some great things especially with altcoins.
But you CANNOT rely on their current information as it’s set up to make your investing or trading decisions. CMC has been reporting all this fake exchange data for months and done nothing about it.
CMC says they are introducing new tools and metrics after conceding that they have some bad data on their site. These tools, according to CoinTelegraph, will include liquidity measures, hot and cold wallet balances and traffic data so you can see that if only 600 people go to an exchange in a month, they are probably not doing $35 million in trading volume.
Until CMC makes these changes, their information cannot be trusted and no timeline has been given on when the new tools will launch on the site. Look to other sources for information to confirm your ideas before investing or trading.
Now, our 2nd story of real information, this time about software developers……
Software Developer Activity: Voting With Their Time & Resources
All the worthwhile projects in crypto are open source. This means an important factor in determining which crypto projects are the most promising is developer activity. After all, if programmers are devoting their own time and resources to writing code, checking code or testing out features, then this is a good sign of interest in the project.
Wouldn’t you agree? I’m no techie and even I can understand this…..
For this story, we look at a report from Electric Capital on Developer Activity. They publish this report every quarter. It’s long and detailed, a 66 page pdf but click the link if you want to read the report yourself. An Executive Summary of it is here on their Medium blog.
Our CNON Take: We love information like this. It is still VERY difficult to get this kind of information in the crypto-economy. Some projects lack transparency. Other projects are transparent, but just don’t have that much information yet because they are so new. So we applaud what Electric is doing. Here are some of the highlights:
From the peak in prices at Jan 2018 until now, our so called crypto winter, the number of monthly active developers on public coin projects only dropped by 4% while the market dropped by 80% (Report, p. 10). A public coin is a coin (not a token like REP from Augur which is an ERC-20 token on Ethereum) available to the public.
Ethereum has the highest number of developers (99) working on their core (main) protocol (Report, p. 18). Bitcoin, by contrast, is still healthy with the 2nd highest number of 47 (p.19) developers on average working on the code each month (Report, p. 18)
What smaller network value coins (not BTC, ETH, LTC or XRP) have lots of monthly active developer interest? The top 5 in order are Cardano, Status, EOS, Tron & Monero.
Cardano, EOS, & Tron all have 25+ active monthly developers working on their projects, the most after ETH (Report, p.20). Status is the smallest of the 5 next biggest platforms of developer activity (36 developers, p.22) and the only coin of these 5 not in the top 50.
Like this kind of detailed analysis to save you time on staying current in crypto?
Are these 5 a potential buying opportunity based on their developer activity?
Is Status a potential buy due it having the developer activity that matches much larger projects?
These are some of the questions you should think about when considering developer activity as a factor for investment.
In total code, not just the core protocol, the top non-BTC, ETH and XRP platforms are Status, Cardano and Aeternity all with 50+ developers working on any and all aspects of the code.
Litecoin, one of my favorite projects and I have a position in it, has seen a drop from 40 active monthly developers in early 2018 to only 3 now (Report, p.43). I can’t really say if this should be seen as a warning or not but if developer activity is important to you, then it probably is a sign.
Excluding $5 billion+ market cap coins (mostly top 10 coins), the projects with the most developer protocol activity are Cardano, Tron, & EOS in that order (Report, p.54).
Looking for a diamond in the rough? Or maybe a low market cap project that could explode in value? The low market cap projects with the most developer protocol activity are Komodo, Holo, Zilliqa, IOST, Lisk, & Aelf (Report, p.55). Maybe these are projects you need to research in more depth if you like active developer networks.
And now one last good starting point for considering a project as an investment. Electric divided the projects up as either Money, Platforms or Apps. I like this thinking.
So think of what is important to you in a crypto-economy project. Maybe it’s privacy so that leads you to Monero or ZCash first, or maybe its medium of exchange so you look at Litecoin or Dash. This is a good way to start your own research on which of these crypto projects is a worthwhile investment for you.