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What Will The Chinese Crypto Do To Bitcoin?

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What Will Chinese Crypto Do To Bitcoin?

What Will The Chinese Crypto Do To Bitcoin?

China’s long-fabled “cryptocurrency” launch is finally on the horizon.

According to Bloomberg, People’s Bank of China (PBoC) payments department deputy director Mu Changchun confirmed at the China Finance 40 Forum that the country’s cryptocurrency is nearing its release following a year of research and development.

Given Beijing’s history of antagonism toward decentralized cryptocurrencies, what does the impending launch of a PBoC-approved digital currency mean for bitcoin?

CHINA’S ‘CRYPTO’ PLAY IS ABOUT RESTRICTING FREEDOM

 

China, which has had strict capital controls in place for many years to restrict the outflow of the depreciating Chinese yuan, is expected to use the PBoC-issued cryptocurrency to exercise even stronger control over the national currency.

By utilizing a centralized blockchain network or a system modeled after the blockchain, replacing cash in circulation with a digital asset would enable the PBoC and the government of China to better monitor -and control – the flow of the yuan.

Cash – by nature – is anonymous in that it is difficult for the authorities to scrutinize offline transactions made in a peer-to-peer manner. A digital system would ease the process for regulators to oversee so-called suspicious transactions.

However, whether it can truly be described as a cryptocurrency remains a separate issue as a blockchain protocol, as seen in the structure of the Bitcoin network, often demonstrates a certain level of decentralization through the presence of nodes and open-source communities.

Regardless, China’s so-called “crypto” project is about restricting freedom – not enhancing it.

‘DIGITAL YUAN’ WON’T STUNT DEMAND FOR BITCOIN

In recent months, reports have indicated that major cryptocurrencies, including bitcoin and tether (USDT), have seen rising inflows from China.

China accounts for 60 percent of Tether volume, indicating cryptocurrency interest
China accounts for 60 percent of tether volume (source: diar.co)

Crypto research firm Diar stated that 62 percent of tether’s on-chain volume in the second quarter of 2019 came from China.

“Data provided to Diar by blockchain analysis firm Chainalysis highlights the magnitude of Chinese Tether demand with over $16Bn received by exchanges based in that market in 2018. This year the number has already surpassed an outstanding $10Bn, setting the stage for the biggest year yet. 2019 to date flows into exchanges catering primarily for Chinese traders beat the $7Bn of all the transactional value for 2017,” the report stated

The popularity of bitcoin in China reflects the growing interest in BTC as an alternative store of value. It’s clear that Chinese crypto users view BTC as a store of value – not an everyday payment tool – because efficient digital currency system platforms like Alipay and WeChat have already onboarded hundreds of millions of users in the region.

As such, the nation-backed cryptocurrency is highly unlikely to impose any impact on China’s stance towards bitcoin – or stunt investor demand for BTC.

SAFE HAVEN ASSET NARRATIVE

Still, it’s not clear whether bitcoin has definitely proven its value as a safe-haven asset.

Throughout August, as the bitcoin price slightly declined, the volume of the asset decreased, and its premium in major markets like China and South Korea dropped.

bitcoin price in south korea
The bitcoin price is trading at a discount in South Korea relative to Western markets. | Source: CoinMarketCap

In South Korea, a major cryptocurrency market that accounts for a relatively large portion of global bitcoin volume behind the U.S. and Japan, bitcoin is trading at a rate that is lower by more than one percent when compared to the global average price. With increasing geopolitical risks and intensifying conflicts across the globe, analysts expect traditional safe havens like gold to outperform. Bitcoin has a chance to prove similar resilience.

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Crypto Exchange Poloniex to Remove 23 Trading Pairs

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Crypto Exchange Poloniex to Remove 23 Trading Pairs

Crypto Exchange Poloniex to Remove 23 Trading Pairs

Top #cryptoexchange platform #Poloniex is set to delist 23 trading pairs because of low volume.

In a Twitter statement shared on August 15th, the San Francisco-based crypto exchange Poloniex announced its intention to remove 23 trading pairs from its platform due to low volume and demand for them. According to the tweet, users will be able to trade each of these assets independently after removal.

The trading pairs being removed include:

LTC/XMR, DASH/XMR, ZEC/XMR, MAID/XMR, NXT/XMR, BCN/XMR, LSK/ETH, GNT/ETH, MANA/ETH, QTUM/ETH, STEEM/ETH, OMG/ETH, LOOM/ETH, SNT/ETH, CVC/ETH, KNC/ETH, GAS/ETH, BNT/ETH, LOOM/USDT, SNT/USDT, KNC/USDT, BNT/USDT, FOAM/USDC.

While all exchanges are continuously reacting to market needs, adding and removing assets and market pairs as needed, Poloniex has been particularly active in the past year.

Earlier in May 2019, the cryptocurrency exchange announced that it would no longer allow its American customers to trade Bytecoin (BCN), Ardor (ARDR), Augur (REP), GameCredits (GAME), Nxt (NXT), Lisk (LSK), and Omni (OMNI).

The reason Poloniex gave for the removal of those assets at the time was the unpredictable regulatory environment in the United States. In the statement shared on Twitter, the company said it is impossible to be sure whether US regulators “will consider these assets as securities.”

Poloniex also recently added trading pairs for XRP, one of the most traded coins on its exchange – the XRP/USDC pair which includes the exchange’s native stablecoin USDC, as well as a XRP/USDT market.

It is not clear how this latest move is affected by the recent Binance decision to restrict US users. The market is awaiting a US-compliant exchange from Binance. In the meantime, Poloniex may be able to attract US traders to its platform, but illiquidity in some of its markets may deter some new customers.

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How Altcoins Could Increase the Fault Tolerance of the Digital Ecosystem

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How Altcoins Could Increase the Fault Tolerance of the Digital Ecosystem

How Altcoins Could Increase the Fault Tolerance of the Digital Ecosystem

A finely tuned engine involves not only a lot of moving parts but also just the right mix of fuel to air for optimal performance. Too much air and it will lock up, and too much fuel is a waste, leading to weak performance, higher emissions, and bad gas mileage.

This analogy for investing has been around as long as the combustion engine itself, but let’s take a look at correlations and focus on volatility. Obviously, what goes up must come down, and any future recession could prove to be a drag on many asset classes, but diversification provides some protection— and could actually drive further adoption of cryptocurrencies.

Asset correlations are generally a sign of market health and performance, right? Since 2008, correlations between different asset classes have been trending upwards. That is, the improving economy has led to higher correlations as one indicator of strength, but there is a downside.

Typically, to balance risk, you may have a portfolio that includes some negatively correlated assets. As one goes down, the other goes up. Of course, in reality, you’re not likely to find “pure” correlations (be they positive, neutral, or negative).

The increasing interdependence of assets means an increase in correlations. An increase in the role of central banks has also pushed correlations up, as bond yields dropped. Really, the biggest reason for the increase could be attributed to an increase in access to information.

In a world where everyone has access to the same information, instantly, herd mentality can lead to market swings. This information, efficiency combined with access to trading and more connected trading patterns, adds up to higher correlations.

But the good news is that while fixed income returns aren’t what they used to be, they’re still doing a good job of offering risk protection. In fact, just recently correlations have seen a bit of a decline, which is also a good thing.

Investors May be Overcrowding Their Positions

Why? As Bloomberg points out, investors may be overcrowding their positions, and unwinding those moves could mean a blip of volatility. As the article reminds us, in early 2018 just such an event happened, triggering a sell off as volatility spiked.

The proverbial “house of cards” effects occurred. As with all things, you can’t have it both ways. Stability versus risk is a constant dance, and like magnets, if you push them too close they will repel each other away with force at some point.

And yet, cryptocurrencies aren’t tied to traditional asset classes. This analysis by The Block shows the value of the disconnection: True diversification. In other words, since crypto doesn’t show much correlation to other asset classes, it provides a useful way to diversify investments. From the article,

There is no statistically significant correlation with any other asset class, which could indicate that exposure to cryptocurrency markets could be useful to diversify a traditional portfolio.

Although it should be noted that Jeremy Allaire of Circle is hoping to convince the U.S Congress to treat digital assets as its own asset class.

Further illustrating how crypto is disconnected from assets volatile or not, this Yale study shows that “Cryptocurrencies have no exposure to most common stock market and macroeconomic factors. They also have no exposure to the returns of currencies and commodities.”

The study goes on to say,

Our main conclusion is that indeed cryptocurrency represents an asset class that can be assessed using simple finance tools. At the same time, cryptocurrencies comprise an asset class which is radically different from traditional asset classes.

Of course, what investors have to concern themselves with when considering crypto is the volatility within its own ecosystem. The issue with cryptocurrencies right now is they’re still highly correlated with one another.

Increasing Crypto Space’s Fault Tolerance

To increase the fault tolerance of the digital ecosystem we need new assets like AMPL that are designed to be neither correlated with traditional assets nor Bitcoin. One need only look at the June 2018 flash crash that wiped out $15 billion in value.

Martin Young, writing for NewsBTC noted, “In an opposite correlation to last year, all cryptos are tied together so when the big one falls they all do, but harder.” If we zoom out further, this graph shows many altcoins increasingly correlating to Bitcoin over the past 5 years.

Altcoins' correlations to bitocin over the past 5 years

To help advance Decentralized Finance there has to be an in-between space from Stablecoins to coins that exhibit any range of volatility.

Purely digital assets like Bitcoin have mainly traded on technicals and proxies for media attention. They’re hard to value based on fundamentals and this randomness is what makes Bitcoin’s movement pattern uniquely valuable.

Nevertheless, when the stock market saw a plunge in 2018, Bitcoin’s value dropped with it. When the Dow dropped 1,500 points, Bitcoin lost 9% of its value. Meanwhile, if a stablecoin’s peg is broken, it’s no longer the safe bet it should have been.

The case of NuBits breaking its peg twice is one particular example, although some say the first break was a negative correlation — Bitcoin surged, causing investors to sell NuBits: “It seems that when the Bitcoin and volatile crypto assets’ prices spike, investors with capital in stablecoins

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Cardano Works With Venture Studio To Push Adoption

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Cardano Works With Venture Studio To Push Adoption

Cardano Works With Venture Studio To Push Adoption

The Cardano Foundation has partnered with Berlin blockchain venture studio Konfidio to accelerate Cardano adoption.

An announcement published by the Cardano Foundation on Aug. 15 reveals that the foundation has partnered with Konfidio. The partnership will aim to enable real-world business cases on the Cardano blockchain. Per the announcement, the initial focus of the collaboration will be on use cases in banking, logistics, pharmaceutical industries, and trade finance, with government and public service use cases to follow. Chairperson of the Cardano Foundation, Nathan Kaiser, pointed out that the partner’s location is also important:

“Konfidio’s homebase, Berlin, is a major global blockchain center and its worldwide relevance will help us put the spotlight on our one-of-its-kind platform.”

Dr. Mervyn G. Maistry, Founder and CEO of Konfidio, explained his company’s anticipated role in the project:

“Our aim is to increase the understanding of the protocol in both corporate and startup environments and accelerate value-add for both Cardano, the blockchain community and our clients.”

As Cointelegraph recently reported, Charles Hoskinson, a co-founder of the Ethereum Network and current CEO of IOHK, has announced that IOHK-created project Cardano is rolling out version 1.6 within a few days.

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