My perspective on the Crypto Eco-System

Connolly Financial Advisors, LLC

This document does not serve as a recommendation of any specific asset or as an advertisement. This document represents an update on events underlying the crypto-environment, with links to websites of various companies and to relevant media announcements, and has been sanitized to enable publication for education purposes only.

My perspective on the Crypto-eco system
Prepared for XYZ by Thomas J Connolly
January 31, 2019

Charles Dickens: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”

Executive Summary

It has been a brutal twelve months with no signs of a lessening on the downward pressure on prices. Given the price declines in the overall crypto-asset market, companies that raised capital in late 2017 and early 2018 and did not convert the BTC or ETH that was raised into fiat currency are finding their treasuries are limited and many will face bankruptcy. Similar to the internet exuberance of 1999 and early 2000, the euphoria is followed by a hangover. How long this period of malaise continues is only a guess, but it will not likely end until a spark of intrigue emerges that captures the mindshare needed to bring greater numbers of consumers into the demand curve for crypto-assets. That event is out there. I believe this. The strong and well financed companies and foundations are advancing technological innovation, and it is only a matter of time before that spark ignites, and a fire emerges that burns hot.

2018 was a year of investment and building out platforms for the future. While the prices of coins fell dramatically during the year (ex. BTC from approx. $20,000 per coin to $3,000 per coin), the global expansion and deeper penetration into business and society showed significant strides.

In the case of Bitcoin, the overall coin supply is limited to approx. 20 million coins. Think about that for a moment. There are over 7 billion people in the world. BTC and a few other value-based coins represent the ability to transfer value across borders in seconds, something the existing bank infrastructure cannot do. Additionally, the number of unbanked people in the world total 1.7 billion. These people transfer $400 billion to relatives across borders in slow and costly ways. The average fee for these transfers is 7.45%, with certain geographies significantly higher. The average fee to transfer BTC from Coinbase is 1.49%, and the fee structure in the crypto-world continues to decline.

With only 20 million BTC serving the world, the demand potential for BTC is beyond what most think about. This demand will drive the price ever higher. Imagine only 100 million people adopted crypto-currencies as a way to move value across borders. That would mean each person, assuming equal proportional ownership, could only have one-fifth of a BTC. The demand potential will create scarcity, and with institutions such as pension plans, university endowments, insurance companies, and banking institutions entering the demand side as investors, the potential expansion in price given the limited supply should follow simple economic principles.

Beyond the value transfer quality, there are coins representing blockchain platforms that are serving to create through smart contracts the digital asset derivatives of physical assets. The opportunity to have a fractional ownership in any asset in the world is compelling and is consistent with the “New Normal” of only owning what you will use (think AirBNB, Uber, WeWork, etc). Blockchain platforms and smart contracts will enable people to own a piece of the greatest art works in the world, the most luxurious homes, the greatest vacation destinations, precious metals, stocks in the largest companies in the world. The opportunities are endless.

Existing businesses will be challenged by crypto-based competitors. A simple example is travel. Priceline serves the online world for hotel bookings, airline reservations, etc. Travala is the crypto-equivalent https://www.travala.com/ . They have a hotel, vacation, and airline reservation platform, all with the ability to pay for your travel and accommodations with crypto-currencies or their own coin. Participating hotels exceed over 500 at this time. The world is changing and being at the forefront of change is often exhilarating yet challenging. The early days are the most exciting, followed by the turbulent and the most fearful days of the journey as adjustments are made and corrections are deployed, with many new entrants dying off on the hard path to maturity. Eventually, the strong, the survivors, the innovators will find their place in society with broad acceptance and functionality. These are the assets to own now, the assets that will be the industry leaders in the world of tomorrow.

 

Top eight holdings for Client XYZ

The links to the websites of each of the noted holdings are as follows:

1. BNB https://www.binance.com/en
Largest Crypto Exchange generating in excess of $500 million in annual profit

2. PlayUp https://www.playchip.global/
Australia based Global Sports betting and Fantasy Sports platform

3. BTC

4. ONT https://ont.io/
China based Blockchain directed at authentication of digital assets and identities

5. NEO https://neo.org/
China based Blockchain that is similar to Ethereum. Smart contracts and decentralized business platform for the future
smart economy on the internet

6. POLY https://polymath.network/
A Security Token platform to facilitate the securitization of assets in compliance with government regulations

7. ZRX https://0x.org/
A software platform that serves as the backbone of decentralized exchanges built on the Ethereum blockchain

8. LRC https://loopring.org/
A software platform that serves as the backbone of decentralized exchanges built to support multiple blockchains, including
Ethereum, NEO, QTUM, etc

 

2019 expected market moving events

There are many anticipated events in 2019 that will serve to deepen the penetration of Crypto assets into the broader community. A few examples are as follows:

BAKKT

ATLANTA & NEW YORK–(BUSINESS WIRE)– Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges, clearing houses, data and listings services, announced today that it plans to form a new company, Bakkt, which intends to leverage Microsoft cloud solutions to create an open and regulated, global ecosystem for digital assets. The new company is working with a marquee group of organizations including BCG, Microsoft, Starbucks, and others, to create an integrated platform that enables consumers and institutions to buy, sell, store and spend digital assets on a seamless global network.

The Bakkt ecosystem is expected to include federally regulated markets and warehousing along with merchant and consumer applications. Its first use cases will be for trading and conversion of Bitcoin versus fiat currencies, as Bitcoin is today the most liquid digital currency. The effort is designed to address evolving needs in the estimated $270 billion digital asset marketplace.

BTC ETF
It is expected that during 2019 the United States Securities and Exchange Commission will approve an ETF for trading on
U.S. exchanges of a security backed by Bitcoin

Stable Coins
A number of coins are being issued that are backed by Fiat currencies (every crypto Stable coin will be backed by a designated unit of the associated fiat currency, such as dollar for
dollar by the designated Fiat currency the U.S. dollar)

Gaming
Multi-player games and betting game platforms are a focus of the crypto world given the high value of transactions that
take place online. The Blockchain is a perfect vehicle for these types of large consumer-based interests.

Lending
Loans in crypto currencies and Fiat loans collateralized by crypto currencies are gaining traction in the market as a new
form of financing

Interest earning deposits
Interest earning deposits are expanding to include more crypto assets. Interest rates of between 3% and 7% are currently
being paid for deposits of Bitcoin, Ethereum, LiteCoin, etc. The video link below is very important to watch. It will
explain some key reasons why a new way of finance relationships based on blockchain technology is coming.

https://www.youtube.com/channel/UC3yZY7UVs-zPKBuyNuPinbQ

 

 

Articles that present important developments in the Crypto Industry sector:

.  Binance records $446 million profit for 2018
https://www.theblockcrypto.com/2019/02/06/analysis-binance-brought-in-446-million-in-profits-in-2018-despite-the-bear-market/

Celsius records $630 million in loans in 2018
https://www.forbes.com/sites/rachelwolfson/2019/02/05/leading-cryptocurrency-platform-completes-over-630m-in-crypto-loans-in-six-months/#7e7af15c526d

• One of the largest publishers in the world addresses the paywall and transaction costs by utilizing a blockchain wallet
https://cryptobriefing.com/digital-publisher-stellar-payments/

Wyoming accepts Bitcoin as money
https://ambcrypto.com/wyoming-senate-passes-bill-recognizing-bitcoin-btc-and-other-cryptocurrencies-as-money/

• A forecast from the former CEO of NASDAQ that by the year 2022 all securities will be tokenized
https://ethereumworldnews.com/what-will-happen-if-the-508-trillion-global-market-is-tokenized-as-projected-by-former-nasdaq-ceo/

Harvard, Stamford, MIT and Yale have included Crypto in their Endowment portfolios
https://www.ccn.com/breaking-harvard-stanford-mit-have-all-invested-in-cryptocurrency-funds/

• New Hampshire and Indiana follow Ohio in tax collections using crypto-currencies
https://ambcrypto.com/us-states-new-hampshire-and-indiana-introduce-bills-for-taxes-to-be-paid-in-cryptocurrencies/

QTUM Blockchain becomes Amazon Web Services partner in China
https://www.coindesk.com/amazon-web-services-china-partnering-blockchain-qtum

Robinhood, a mobile application that enables you to trade stocks on your phone has been given a New York license to trade crypto-assets. New York is the most stringent state in regulating trading of crypto-assets and is a model for other states, this approval opens many doors for Robinhood and crypto trading.
https://ambcrypto.com/cryptocurrency-exchange-robinhood-conferred-bitlicense-by-new-york-regulators/

• One of the needs of the Bitcoin platform is to be able to process transactions with greater speed during times of peak demand. The Lightening network is being designed to sit on-top of the BTC Blockchain and will manage the high volumes off-chain or not within the BTC Blockchain. As Blocks of data are filled, they are re-entered into the BTC Blockchain as completed blocks subject to verification, resulting in thousands of transactions processed per second on the BTC Blockchain, targeting millions of TPS in the next generation release.
https://www.investinblockchain.com/bitcoin-lightning-network-accelerated-growth/

Futures Contracts for future delivery of Bitcoin, that require physical delivery of Bitcoin is coming and this will drive demand for BTC ownership to ever higher levels.
https://www.ccn.com/nasdaq-to-launch-bitcoin-futures-2-0-in-early-2019/

• Head of the New York Stock Exchange indicates Crypto-assets are here to stay
https://www.ccn.com/unequivocal-yes-nyse-chair-says-bitcoin-and-crypto-are-here-to-stay/

 

Closing Thoughts

The Crypto asset class is one of the higher-risk sectors that one may invest in. Many leaders in the financial and regulatory world believe the sector will fail and that the activity in 2017 and 2018 represented a bubble and a bust that will not be recovered. They may be right.

The counter to the position of a bubble and bust, is the number and talent of the brightest minds in engineering, computer science, and the financial industry that are moving ever more deeply into this sector. The most desperate plea coming from the crypto eco-system is for more engineers and computer scientists. There is an unrelenting demand for the best and the brightest.

Across the globe, Blockchain companies are holding workshops for developers in an effort to uncover the next critical discovery, the next idea that will springboard the Crypto and Blockchain sector into the mainstream. Today, there are more brilliant people investing their time and effort in the future of this technology than there has ever been. I have faith in what they are doing, and I will remain committed to this asset class until proven wrong. I just do not think I am or will be proven wrong.

Best regards,

TJC