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Token Daily Newsletter #35

COVID-19 is bigger than anything written below. Still, there's substantial activity in crypto that's worth tracking while isolating at home. Stay safe and stay informed.

Apply for DeFi: Zero to One

Apply to attend the first ever Chicago DeFi Alliance panel with Jump Capital's Peter Johnson, CMT Digital CEO Colleen Sullivan, TD Ameritrade's Sunayna Tuteja, and Volt Capital's Imran Khan.

During this panel we’ll be answering questions about the CDA, navigating liquidity challenges, sourcing talent, and more!

Apply here.



Why bitcoin's price usually falls during the halving

If you’re reading this you probably know what the bitcoin halving is. Or, at least, that something called the halving will occur in 8 days (to access the most important timer across the economy, go here). As part of bitcoin’s issuance, bitcoin miners are rewarded a number of bitcoins per block produced, and in 8 days, that number will drop from 12.5 to 6.25 coins per block. This means roughly $8m in bitcoin daily, gone. Over time, that sum adds up quickly.

What does this mean for bitcoin’s price?

Within the crypto space, there’s a sort of taboo around discussing price. People often pick less controversial motives for why they’re here - excitement around a new technology or humanitarian use cases - and feign disinterest when the topic of price is brought up. This unwillingness to admit the importance of price is, however, misguided. I think Marc put it best in his post Why Bitcoin Matters:

Though we believe trying to time or beat the market is a low-yield activity, we do think it’s important to have an understanding of fundamentals and empirical behaviors around price.  

Contrary to popular belief, bitcoin’s price typically does not appreciate immediately upon the halving.

Since the halving is due next week, we thought it would be timely to re-share our halving analysis from last year. 

What past halvings tell us


To begin, bitcoin getting crushed at halving has so far been the rule, not the exception. Analyzing price changes around the past two halvings on Nov 28th, 2012 and July, 9th 2016 offer a better picture of what we might expect to see next week. The usual argument against referencing the past two halvings is that trends can’t be extrapolated from two data points. What this argument fails to account for is these are two data points over a 12 year period, and in those 12 years no evidence to the contrary has emerged.

The following tables on the 30-day price average for bitcoin display a number of points in the one year preceding the halving and the one year after the halving. It can be easily observed that the positive price action in the 1, 3, and 6 months before and after the halving is moderate compared to the price action of 12 months. This means that the halving effect on price takes a long time period to materialize. 

Additionally, the price changes related to the second halving are smaller compared to the first halving for the same time period. The cause is probably related to the smaller delta of the inflation rate between the first and second halvings. The first halving changed the median inflation rate from ~60% to ~10%, while the second halving changed it from ~10% to around ~%4. For the same level of demand, a smaller inflation shock would require a longer time frame for the price to respond to the change.

                                         Data from TradingView using BItstamp BTC/USD trading pair

If the price action around the third halving next year followed the same trajectory (median inflation changes form ~4% to ~1%), we may not observe dramatic price changes until the middle of 2021.

Wait but why?

Though there are several forces acting on bitcoin’s price, we believe this anonymous post best sums up some of the largest ones around the halving.

As we inch closer to the halving, whatever immediate price action may be, remember that paradigm shifts take decades to happen, and that decades are not measured in days. 




⚡️ Will Argentina Follow Venezuela's Bitcoin Steps?  

Beginning with an observation of a recent spike in Argentina Localbitcoin volumes, Matt Ahlborg goes on to analyze how Argentina may end up adopting bitcoin differently than in Venezuela, debunking the notion that Latin America can be reduced to a single bitcoin case study. 

Venezuelans use BTC mainly as a tool to convert local currency to USD. On the other hand, Argentinians have this need fulfilled via the informal Cuevas system. For these reasons, the article argues that Bitcoin-based financial products can be a better fit for the Argentinian market. These products include Valiu's BTC-backed synthetic dollar, Bitsika's virtual visa cards, and Abra's synthetic stocks and ETFs. 




🔹  WBTC Approved as a DAI Collateral 

The Maker community voted on Friday to approve WBTC as a valid collateral type for multi-collateral DAI. The vote is an effort to improve DAI liquidity and salvage its price parity with the US dollar. Initially, the MCD system would require 150% WBTC collateralization with only 1% of interest rate (stability fee), which is 8 times lower than the current interest rate paid by users using ETH as collateral. 
🔹  tBTC Launch and Keep Stakedrop

Last week, tBTC, a decentralized bridge between Bitcoin and Ethereum, took the first steps toward the mainnet launch by launching the Keep token contracts on the Ethereum mainnet. The launch received extensive support from major DeFi protocols and companies in the crypto ecosystem. The tBTC bridge will start on May 11th. Initial participation will be limited to users who own Keep tokens. On June 8th, the project will perform a Keep token drop for anyone who stakes ETH essentially allowing anyone to participate in providing liquidity to the tBTC bridge.

🔹  UMA Uniswap Offering and The Underlying Financial Engineering

The UMA protocol team decided to experiment with a new type of ICO. Instead of a vanilla centralized token sale, or an IEO, the team decided to use Uniswap and institute the first Initial Uniswap Offering. The interesting part, in addition to the fact that this is a decentralized ICO, is the token price financial engineering that hides in using Uniswap as a tool for the sale. Although the UMA team started at the private seed-stage token price, using Uniswap guaranteed a quick increase in price with any moderate demand for the tokens.

🔹  Ethereum's Top Addresses Analysis

ICYMI, Adam Cochran of MetaCartel, wrote a great analysis on the top 10,000 Ethereum addresses. The analysis shows that Ethereum token distribution is neck-in-neck with that of Bitcoin and both are further ahead than any other project. The other findings generally portray a bullish case for ETH. 



TD Labs Celo Network Participation

As discussed in last week's newsletter, our network participation entity, TD Labs, is participating in the Celo network that is graduating to mainnet on May 13th. The TD Labs validator is launched in collaboration with Staked. Voting for mainnet validators has already started and allows voters to earn 6% annual return on their Celo cGLD tokens. The voting instructions for TD Labs/Staked validator are listed here.

Tari Launches a Testnet

This week Tari Labs launched the Tari testnet. Tari is a private digital asset protocol built using Mimblewimble that natively runs over Tor. The testnet focuses on a user-friendly UX designed for both developers and nontechnical users by using one-click installers. If you want to leave the team feedback on usability, they've set up a store for users to experiment using testnet Tari (tXTR) to get Tari items. 



Disclosure: Volt Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.

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