Author: Thomas Connolly

A PDF version is attached for download purposes
Insurance on the Blockchain

Insurance on The Blockchain
By Thomas J Connolly
Connolly Financial Advisors, LLC
October 2019

Insurance on the Blockchain

The insurance market was originally a community sponsored way to share risk and in doing so the community protected the individual. In many ways, the blockchain provides an opportunity to disintermediate the insurance industry by bringing together a geographically dispersed community to fund protection against specific event risks.

Insurance needs of this generation are more about experiences in an event lifestyle with an asset-lite way of living. Therefore, housing and automobile insurance needs remain but the ownership of these assets by the individual appears to be less of a priority vs shared ownership or usage. Focusing on providing insurance in a matching new way that meets the lifestyle needs is important. Creativity in insurance products is a clear part of our future.

A new insurance offering that protects against specific common risks, risks that exist throughout the world, is an ambitious goal. Focusing initially on broad based insurance opportunities through the blockchain may be the best starting point for economic returns. More individual type service offerings for new forms of asset ownership/use will be next as larger user bases with real economic viability develop, but for the moment a more pressing and innovative blockchain insurance opportunity does exist today.

Lloyd’s of London recently reported that less than half of the world’s natural catastrophe exposure in 2018 was covered by insurance. To put a value on this, Lloyd’s reports that natural catastrophe losses amounted to $225 billion, yet only $90 billion of coverage for such losses was in place.

Further, the economic losses from cyber-attacks were estimated by Lloyd’s in 2017 to be $53 billion, yet the value insured was only 17%, or $9 billion.

There is significant opportunity in building a new insurance alternative DAPP on the blockchain.

An Event Insurance DAPP

Over the years we have witnessed many events that have caused destruction and economic loss. Hurricanes, Floods, Tsunamis, Earthquakes and other natural based events are not alone, as man-made disasters exist too, particularly cyber-attacks. These are all significant public events, with no need for any third-party agencies to validate their occurrence. Traditional insurance focuses on specific damage to a specific property to set the premiums, and the profit element to the insurance industry is large. Creating an Event Insurance product, that has capped exposure, which is automatically payable via the blockchain on the occurrence of the event, with no need to file a claim, gives the world the opportunity to participate in buying protection for these costly and often uninsured areas of life.

1. Natural Disasters covered by insurance

Currently, if you live in an area prone to hurricanes, tornadoes or other natural disaster related events, your individual insurance needs to protect your assets against loss is very expensive or not available at all. For example, hurricane insurance increases a homeowners’ insurance premium by 69.7%. One of the reasons for the significant premiums is that the density of the population near hurricane zones comprise the population buying this insurance, and their number is low compared to the national population, so the loss coverage for dollar of premium must also be low, which means premiums are high.

What if the insurance pool included the entire community of the United States? The amount of the premiums collected would expand significantly thereby reducing the per person dollar of premium needed to cover the exposure.

a. Example: A new insurance enterprise develops or builds on their platform a DApp that offers Natural Event Insurance in the form of tokenized smart contracts. Assume the local market in a Hurricane zone, Houston, TX as an example, wants an alternative to traditional insurance. The DApp offers them that, as it prices policies for an amount of coverage based on the multiple of the capital to coverage within the DApp (custody maintained on the blockchain) and an actuarial derived risk of the event occurring (event defined as a category 3 or higher hurricane occurring). This hurricane coverage is available to anyone who wants it, regardless of where you live, at coverage amounts selected by the buyer (which are capped at a maximum coverage amount) in the form of tokens on the blockchain platform.

b. The Rub: Current insurance laws in the U.S. require an insurable interest in the asset in order to receive loss coverage, and that would limit the number of policyholder participants. In this example, the asset is not insured for a damage event, but the occurrences of the event itself is insured against.

The recommendation above warrants research as to whether a capped and pre-defined value of coverage would be viewed differently than a policy based on an assessment of an owner’s discrete asset damage. It would also be important to extend the research to look beyond the U.S. border at event insurance opportunities. The growing nature of natural disasters, whether that be fires destroying property and agriculture, stronger and more frequent hurricanes/typhoons, etc, requires a different type of coverage from the existing insurance industry that must change to better serve the world.

Alternatively, selling tokenized Futures Contracts on a Crypto-exchange that provide a level of protection from global economic fallout that occurs when any Nature driven disruptive event (hurricane, tornado, tsunami, fires, etc.) strikes a critical finance center, or agricultural basin, or transportation pathway, etc., would provide some level of purchased protection that lies outside of the traditional Insurance industry.

2. Hack Insurance:

The existence of hackers and ransomware is a reality. Damage done by hackers most often results in a court settlement against the hacked enterprise requiring money to be distributed to the injured parties. This is after the fact money at pennies on the dollar of what was lost. There must be a better way to insure against a hack. This is where a DApp offering members of the community hack insurance for any specific Ethereum Contract Address or other blockchain platform, for a defined coverage period of time, with a pre-defined payout selected by the buyer (subject to caps), at a calculated premium that is paid upfront and mathematically supported to project profits, all done with a branded token used as the currency of the Hack Insurance business DApp.
There are tens of millions of blockchain users and that will only grow. The insurance buying population is potentially huge, and the number of DApps being built with contract addresses is growing even faster (there are 71 million unique addresses today and over 1 million smart contracts). This a potentially very serious community driven and member participation platform that is needed now and will grow exponentially in the future.

3. Revenue Share:

Each year the loss experience vs the premiums collected and assets on hand should provide a surplus available for distribution back to policy holders or as a reduction of premiums for the next policy period. Prior to policy holder distribution or premium adjustment, the blockchain based member participants will receive a 20% share of the surplus as a return on its services that support the platform.

Policies will be contracts on the blockchain and evidenced by tokens stored in each policyholders wallet.

A PDF version is attached for download purposes
Student Debt Relief Program Final

Student Debt Retirement Program
By Thomas J Connolly

In the United States there is $1.6 trillion of outstanding student debt. This debt is held by 45 million individuals. For too many, the student debt burden is financially suffocating, preventing capital formation and delaying the life chapters of marriage, family, and home ownership.

This issue has become a political topic given the desire of politicians to attract these young educated voters to their campaigns. The only solutions offered focus on debt relief through taxation of the wealthy and free college in the future. There needs to be a better way.

The blockchain, creative finance, and the tokenization of student debt in the form of Security Tokens may offer a rational solution for those student debt holders that are willing to let others invest in them in exchange for a return on their investment that is based on a small percentage share of the student debt holder’s future income.

The program described below was financially modeled using published statistics on student debt, student debt default rates, and income levels of college educated workers in the United States. The financial model assumed 25% of the existing debt would be accepted into the program and that the number of participants would equal 25% of the student debt population.

The capital raised to retire the debt would be in the form of zero-coupon bonds sold to Pension Funds, Insurance companies and other financial institutions in need of long-term assets with a fixed return.

The financial model indicates that the entity offering the program (the “Operating Entity” or “OE”) would realize as income $28 Billion over the 25 to 30-year life of the program.

Important features of the Student Debt Retirement program

The solution is not tied to the payroll system of employers at this time (in the future, when payrolls operate through a blockchain, smart contracts will automate the process). The current solution is represented by a contract on the blockchain between each student debt holder and the entity operating the program.  Program features include:

• The solution requires, per the terms of the contact, for the participating student debt holder to submit each year a copy of their IRS tax return with an accompanying payment to the Operating Entity based on the contractual income rate schedule of their % of income. At a future point in time this will be done automatically through smart contracts on the blockchain when the IRS is blockchain enabled.

• Due dates, notice dates, late payment dates and default actions are clearly disclosed.

• Annual payments are made by the student debt holder based on their filed tax returns, with participants encouraged to pay quarterly in advance based on estimated earnings for the year.

• Participating student debt holders must have received a four-year degree evidenced by a Bachelor of Science or the Arts degree.

• Participating student debt holders must have graduated from College at least 18 months prior to applying for the program.

• Participating student debt holders must be earning a minimum of $60,000 per year to qualify for the program

• A 10% default rate is assumed in the program’s financial projections

U.S. Student Debt Community
Debt Retirement Program
Facts and Recommendations

• Enroll Community members approximating 11,250,000 participants from the Student Debt community (based on assumed 25% participation for modeling purposes and as an example for discussion).

• The Contracts between each student debt holder and the OE reside on the blockchain and are evidenced by issued tokens in fixed dollar amounts.

• Eligible participants must have completed a four your degree program and received a Bachelors’ degree.

• Eligible participants must have graduated with a BS/BA degree and been out of school for at least 18 months

• Eligible participants must be earning no less than $60,000 per year at the time of electing to participate in the program (note: this income level could be adjusted downwards based on actual experience of the program. To start, this threshold is deemed within the range of debtors that are less likely to default)

• If the program performs in-line with the modeled example, generating cash flows to the OE that exceed the level needed to retire the zero-coupon debt and the modeled return from operating the program, then additional program modifications may be implemented that target those earning under $60,000 per year who are contributing to society in important ways that add to the social good (Teachers as one of the best examples)

• Each participant, based on annual income level, will pay between 1% and 5% of their annual income to the OE in exchange for the retirement of their Student Debt (under $100,000 in income has a 1% of annual income payment due ($1,000), between $100,000 and $300,000 has a 2% annual income payment due, etc).

• Community members make direct payment to the OE each year over 25 to 30 years (in Fiat or Crypto Stable Coins).

• Compliance of providing the Annual IRS income tax filing and payment of income % that is to be provided by Student Debt holders will be recorded to the OE’s Reputation and Identity platform on the blockchain. This is a self-policing and credit worthiness aspect of the program.

• $1.7 trillion of value is collected over 25 – 30 years from annual Tuition Income Participation Payments (“TIPPs”), before an assumed 10% level of default is applied.

• Existing student debt of $400 billion is retired based on issuance of security tokens to institutional investors such as Pension Funds, Insurance companies, etc. STOs represent zero-coupon bonds at a 4.25% annual rate of return. At maturity, $1.4 trillion is paid to STO Institutional holders based on the initial debt of $400 billion.

• $111 billion of $139 billion in excess TIPP collections returned to Students

• $28 billion of $139 billion in excess TIPP collections retained by the OE

• Custody of funds/tokens, disbursement of funds/tokens, managed through a Custody solution

• Student Holders may prepay at any time the future value of their TIPPs obligation based on a 3.64% CAGR of their current income over the remaining years of their contract

• Receipt or failure to pay Tuition Income Participation Payments becomes part of a Reputation solution on the blockchain.

• Failure to pay notice issued 60 days after October 15. Uncured failure to pay by January 31 triggers an acceleration to the current date of the remaining 25 to 30-year projected TIPP collections at a 3.64% CAGR from current income level.

• Uncured defaults after 180 days are pursued through the US courts, with no relief in bankruptcy as a tuition financing mechanism. Given the program enrollment criteria, the overall assumed level of uncollected defaults is no greater than 10% of the debt retired from the participating population.

• Reputation and Identity blockchain systems will record and maintain data related to the program, providing universal KYC/AML/Verification, privacy protections of participant data, and validation capability for credit worthiness/credit scoring, thereby providing a self-policing community function above and beyond the risk of legal remedies that a participant bears.

• Potential Extension of this OE solution/platform to the University Educational system to support Individual school Endowment programs is an additional application and opportunity of this approach in engaging alumni at the earliest stages of connection to the Universities.

The named entities or Blockchains set forth below do not represent recommendations to purchase or in any way reflect investment advice. One of the key variables that is critical for deciding to invest is missing. That variable is the current valuation of each token or asset vs the overall market and a reasoned forecast of future performance vs the market. What is presented below attempts to inform and to encourage research, to learn about each, and to come to an opinion of whether any of them or all of them strike you as being an important participant in the future development of digital asset platforms. Charts of technical price levels and movements are presented to educate those unfamiliar with price patterns. These examples of real price activity show how prior price levels may be used to identify market points of price resistance or support. Use this information as you see fit, but it is recommended that you see this as an educational/informative tool only. This information is only part of the array of focus areas needed in making any investment decision, accordingly, it is best to not rely on one type of analysis for your capital allocation decisions.

A PDF version is attached for download purposes
A discussion of Custody & DeFi in a Blockchain World

August 2019
Custody and DeFi
By Thomas J Connolly

The Crypto Custody Marketplace in an emerging world of Digital/Crypto Assets

The nature of digital assets that require custody solutions is unique. These are not physical assets that you can hold in your hand or give to another from the wallet in your purse or pants pocket. These are bits and bytes, computer-enabled assets, that need protection from those that would steal them, or even from our own mistakes in making a keystroke error that would send these assets into the ether (no pun intended). Owners of Crypto-assets need to hold these assets in protected and secure repositories. For the individual this is often a custodial wallet (on an exchange), a non-custodial wallet (where the owner has the only keys that access the wallet), a hardware wallet (Trezor, Ledger, etc), or a cold wallet (keys stored completely off-line).

For the Institutional investor or Company treasurer, digital assets in the form of Crypto-assets cannot be kept in the more basic platforms that serve the retail consumer. Either required by regulation or by self-governed choice, the Institution or Company needs a more highly protected, insured, and safe environment to store the value they own in crypto-assets as they fulfill their fiduciary duty. As a result, new enterprises have emerged to provide this service.

Crypto-Custodians offer an enterprise-grade cold storage solution, fork management, asset insurance, multi-sig access, a user-friendly interface, and around the clock customer service. Some also offer Staking support (which is growing as more blockchain companies move to or begin life as a PoS platform).

In regard to cold-storage, the challenge has been to provide immediate access to customers/owners to their assets. Cold Storage solutions often require a day or more of pre-notice to the custodian. Xapo, one of the largest custodians before its acquisition by Coinbase, required a 2-day notice period to bring your keys online manually for you to make a transaction. This has been the typical delay for air-gapped cold storage, as the keys are kept off-line in cold-storage and need to be brought online to enable a transaction.

The development of Remote Automated Air Gap Security (“RAAS”) by Golidlock (patent pending), appears to be a game changer. Goldilock uses a combination of biometric gateways, one-time codes, two factor authentication, multi-signature security and encryption to make sure that only the owner of a particular vault can access stored data. Importantly, Goldilock uses a non-internet-based trigger, specifically the Public Switch Telephony Network (PSTN), to bring a vault online. Once the user has finished transacting, the vault will go back to being physically disconnected.

Today, the Institutional investor community is modestly involved in owning Crypto. Those that are invested in crypto-assets hold smallish positions (a study done by PwC indicated that there are 150 active crypto hedge funds with $1 billion in AUM). About 22% of institutional investors have purchased some crypto-assets, albeit relatively small positions. This compares to 40% who say they are open to crypto-investments over the next five years. This participation data is sourced from a survey released in May from Fidelity. More than 400 U.S. institutional investors were surveyed, including pension funds, family offices, cryptocurrency and traditional hedge funds, financial advisers and endowments.

A recent quote from Andrew Palmer, chief investment officer of the $52.7 billion Maryland State Retirement & Pension System, noted that at the moment the system doesn’t invest in any cryptocurrency funds. But he said, “We’d feel more comfortable with bigger custodians getting involved.”

The opportunity exists today, and once Institutions add Crypto to their portfolios, the size and importance of the Custodial provider will increase.

For those Institutional Investors and Companies that need the benefits of an Institutional Grade Custodian, the major providers of Crypto-Custody solutions include:
• BitGO
• Bakkt
• Fidelity Digital Assets
• Coinbase
• Gemini
• Kingdom Trust
• Xapo
• Vo1t
Within the group above, Xapo which at the time of this report had 700,000 BTC within its custodial platform (total assets under custody in excess of $7 billion) has been an acquisition target of Fidelity and Coinbase (Xapo subsequently agreed to be acquired by Coinbase). The acquisition price has been reported in the May 2019 timeframe to be in the $55 million range. As one of the largest custodians, the valuation points to modest current earnings from its custodial operations. The future storage needs will expand dramatically to the extent large Institutions add Crypto-currencies and assets to their portfolios, which will drive the desire of others to buy a company like Xapo.

Without discussing each of the above custodians, it is worthwhile to point out Kingdom Trust. Kingdom Trust serves both institutions and individuals. It has over $12 billion under management. It offers IRAs to the individual, including self-directed IRAs in Digital currencies. The breadth of their asset coverage, including real estate and precious metals, may position them very well for the advent of Security Tokens and the custodial services that will be needed as equities, real estate, art and other asset classes move to digital transactions and record-keeping of ownership on the blockchain.

Revenues to be generated from the custody services for institutional and company entities, including those enterprises that operate in the OTC markets vs the public exchanges, are typically based on a percentage fee on the value of the assets held. Coinbase, for example, charges 0.50 percent on the value of assets held. Coinbase had assets under custody of $1.3 billion. A 0.5 percent fee yields $6.5 million in annual revenue. It should be noted that Coinbase and Grayscale have just agreed to a custodial relationship where Grayscale will move $2.7 billion in assets from Xapo to Coinbase, and with the subsequent acquisition of Xapo, Coinbase has custody of over $7 billion in assets. Interestingly, Grayscale’s assets grew by $1.5 billion when compared to its AUM at March 31, 2019.

One final interesting Custodial platform is Vo1t. They operate a series of underground bunkers for cold storage. They recently partnered with Lendingblock, the securities lending exchange that was looking for what Vo1t describes as a “military-grade cold storage capability” for its institutional clients. Vo1t’s features include multiple layers of encryption of private keys, geographic distribution of private keys, thermal, vibration and motion detection, Faraday shielding to prevent against wireless infiltrations, 24/7 patrols and alarm monitoring with police response. Serving the Institutional investor community will become more competitive. Having the right assets and platform will be critical to winning a material share of the market.

As the financial world moves forward in accepting/adopting crypto-assets, the amount of assets in need of custody solutions will grow. The growth will likely be dramatic, particularly if equities and bonds advance and become part of the crypto-asset investment portfolio. There is a lesson to be learned here from looking at the U.S. equity and bond markets. This comparison is important as to the potential demand from the two sources and the decision as to whether to focus on one market (retail or Institutional) versus both markets. The retail owner’s needs are very different than the institutional owner’s needs, particularly in the frequency in which they transact (retail owners transact more frequently with shorter time horizons).

• In the U.S. equity market 34% of the market’s value is held by households. The U.S. equity market value is approx. $48 trillion (Global Equity mkt size is approx. $70 trillion according to the World Bank)
• In the U.S. bond market, 12% of the market’s value is held by households. The U.S. bond market value is approx. $44 trillion (Global Bond mkt size is in excess of $100 trillion according to the Bank of International Settlement)

Clearly, the Institutional investor will provide the largest demand in value to be stored. The retail investor will likely have less value to be stored in the aggregate.

Finally, the greater need for crypto custody solutions is occurring due to the ever-expanding and emerging New Finance and Banking industry. Why is there expansion? Because DeFi or Decentralized Finance is bringing the most important asset to the crypto asset world, its lifeblood, and that is liquidity.

DeFi is accelerating its growth into financial services

Deposit interest rates on fiat in a U.S. bank earn less than 1%. Sovereign bond rates in some of the largest markets in the world have negative interest rates. Equities are traded in whole units which excludes the small investor who wants to have equity ownership (93.3% of U.S. equities held by households are owned by only 20% of the population). This is compelling to those who want to build the finance platforms for the future in a world of crypto assets, fractionalized ownership and a greater dispersion of wealth.

DeFi is rapidly developing and creating an alternative to the traditional ways of raising capital, of consumer banking, of margin trading, of short-selling, of simply transacting in the world of today in anticipation of the world that is coming.

The above custody discussion revealed the size of the global equity and bond markets (close to $200 trillion). These are huge asset pools that will migrate to digitization and tokenization. The disintermediation of the middleman, the traditional financial institutions, is happening right in front of our eyes as new innovative products are being launched which are faster, cheaper, and more convenient than the existing products. The change will open the door to everyone who wants to invest in these asset pools.

In the world of banking the large financial institutions have been slow to embrace DLT and the blockchain. They have also lost touch with the retail banking sector, the sector that is most dominant in the crypto space. This has led to the development of NEO Banks which are preferred by millennials over traditional banks. They are 100% digital and reach their customers on mobile apps and personal computer platforms. Currently, there are 15 million Europeans using NeoBanks and that is forecast to grow to 85 million by 2023 (sourced from A.T. Kearny in their 2019 Retail Banking report).

As the banking relationship is changing, blockchain based companies are offering services that out-compete the historical financial institutions.

o Blockchain companies accepting crypto deposits are paying interest at rates significantly higher than fiat banks pay on fiat deposits. Interest rates on crypto deposits from 3% to 15% per annum are realizable today. For example, the Celsius platform accepts deposits and pays interest on seventeen different crypto assets. They launched in 2018 and have made over $2 billion in loans, have over $300 million in deposits, and over 40,000 wallets. (Please note that the writer of this article owns Celsius tokens). A quote from Celsius claims “ The average Celsian is earning over $400 annually on Crypto deposits, with over $3.7 million in interest income distributed to our community!”

o Blockchain companies are providing loans and margin loans to broaden out the financial offerings. Loans are available in stable coins that are easily convertible into fiat to assist fiat transactions, typically under $25,000. In the area of margin loans, DyDx is a platform that accepts deposits to earn interest, but more importantly enables users to deposit crypto as collateral for loans that are used to increase positions or to short the market. Credit/Collateral ratings for individuals are maintained and changes in that rating will adjust the margin requirement.
One of the key important aspects of this is that the above functions provide greater liquidity to the market. As of now, Bitcoin, Ether, etc., have not become transactional currencies for everyday use. They are more of a long-term hold (called HODLERs), and this ties up a great percentage of the supply, which decelerates innovation and market dynamics. The offering of attractive interest rates for deposits effectively stimulates the HODLER to deposit the tokens and from there the tokens value moves into the market to fund all types of activities through lending, thereby expanding the market for everyone.
A community aspect within the blockchain lending sphere is providing loans to small businesses, enterprises that often are shut out of traditional banking avenues due to their youth as a company or other limiting factors. A Global Credit Reputation blockchain DApp for small businesses is being introduced. The solution, created by the FintruX Network enables businesses to create a Trust Profile that showcases on-time payments, credit reviews and other useful insights about them, so as to access credit, secure payments, perform equipment/inventory financing, and negotiate mutually beneficial credit terms.

o The establishment of stable coins that are backed by collateral which enables a 1 to 1 matching with fiat (1 SC = $1) has been a significant development. It builds liquidity and attracts a different type of buyer that wants a stable valued crypto currency. This helps engage industry and provides finance solutions for those looking to hedge positions, leverage positions, and protect from market downturns. The blockchain company Compound, which pays interest rates on deposits of the token DAI (rates at the time of this report were 12.24% per annum), is one alternative in the market for earning interest on DAI. The creation of DAI occurs when a Collateralized Debt Position is entered into, depositing Ether in exchange for DAI. Today, there are 1,750,000 ETH ($400 million, see chart below) locked as collateral for finance transactions. Of that $400 million, 92% of the locked ETH resides on the Collateralized Debt Platform of MakerDAO, the entity behind DAI. This fuels the overall market and its continued development through the liquidity effects of adding capital to the system.

o Staking Services will expand as the number of platforms (blockchains, sidechains, DApps) move more to a PoS consensus vs a PoW consensus. Staking has become more popular with investors and Crypto token holders as a way to earn income in the form of the Staked Token. Enterprises have come into the market which track staking platforms and report on the best returns offered in the market. Other enterprises have emerged that will take on the responsibility of staking your tokens for a fee. Being able to perform staking services in the future will be an important addition to the DeFi company portfolio. This is particularly relevant as the Ethereum Blockchain is moving from PoW to PoS. A recent quote from an institutional player reflected the Staking opportunity: “If we want to stake a token like Qtum, it can take BitGo six months to provide support for that,” explained Jason Stone of Battlestar Capital. “That’s just far too long in a market that’s moving this quickly. I think if someone built an insured staking service that was a lot more proactive, there would be tens of millions of dollars’ worth of crypto moving into that business almost immediately. If they build it, we will come.”

o Payments and cross-border transactions using crypto currencies are improving rapidly. One of the most important features of Crypto-currencies is the ability to transact anywhere in the world. The speed of transactions on the blockchain is not fast today, particularly for processing immediate trades or transactions, however, the blockchain is still much faster than the global banking system for cross-border payments which typically take 3 or more days to settle, whereas the Ethereum and Bitcoin blockchains typically affirm a transaction in seconds to minutes.

o For cross-border transfers of value, the Blockchain is proving to be a money saver for those that need it most, ex-pats sending money back home. The last estimates of how much money is sent across borders to family members approximated $400 billion per year. The number of unbanked people in the world total 1.7 billion. The average fee for these transfers is 7.45%, with certain geographies significantly higher (north of 20%). That equates to $30 billion a year in fees. The average fee to transfer Crypto-currencies is significantly below that average rate, and this will bring a whole new segment of the population to the crypto asset class who will want lower fees.

o Another area to include here is the offering of Crypto based Prepaid cards for everyday merchant transactions anywhere in the world. Today, these represent partnerships with major credit card enterprises (VISA, UnionPay, etc). They often require a membership fee under a subscription plan that the blockchain based enterprise retains, as well as a percentage of the transaction value.

o Convertibility of one Crypto token into another crypto token is an important service to offer community members and those transacting with a DeFi service enterprise. Building a platform for this capability is one route to take, but in today’s market there are partners that can make that decision a simple one by using the partner’s platform to service your community. Kyber Network is a good example of a platform that sits atop many other enterprises’ wallets and finance offerings. It offers a seamless and fast exchange service (Note: The writer of this article owns tokens of Kyber Network, 0X, and Loopring). There are other platforms that enable this functionality and they include 0X (Zero X), Loopring, and a number of others.

o The development of Security Tokens is in its infancy. Being a part of this journey may prove to be a brilliant decision should the blockchain evolution result in all securities becoming tokenized. Investigating relationships with those enterprises that are building platforms to service the STO market should be assessed. Suggestions would include TZero, NOW, and Polymath to name a few (Note: The writer of this article owns tokens of NOW and Polymath).

Finally, Identity and reputation solutions are vital to the Custody and DeFi platforms. For security reasons, for incentive reasons, for fee-based decision making, for customer acceptance processes, and for regulatory filing requirements, the DeFi integration into the overall business/consumer custody and service platform is paramount.

As a believer in the future of blockchain technology and the need for a global currency I remain committed to this sector. For those that ask why, I offer something I wrote a few years ago:

“In 2008 and 2009, as the financial and banking world was thrown from side to side in a world of uncertainty, I recall some of the most respected people, individuals of great intellect, leaders, those that saw the world through logic that was without panic or undue fear, talking about what we needed to right the ship. Their comments were not about remedies borne from Central Banks pumping liquidity into the system, buying bad debts from banks and other financial entities, and funding government obligations to suppress interest rates. They spoke of the need for technology to emerge, to once again bring about innovation that would change the dynamics of our economies, that would ignite new growth, that would raise the standard of living for a global population, and, in their words, instill the confidence that humankind, that human curiosity, would be the engine that would bring stability, promise, optimism, economic and social growth to a wounded world. I embraced those words, not knowing what the next chapters would bring, but believing that there would be a better tomorrow that was not cobbled together with band-aids and unsustainable one-off remedies. Why were those words so memorable for me? History. History provides the backbone needed to understand and to believe, and it is history that raised those words, those ideas, to the forefront of my mind.

Assembly lines, motorized vehicles, the railroad, the internet, fracking, electricity, the steam engine, the printing press, the telephone, the computer, air travel and the airplane, are all discoveries, forms of innovation, ideas that changed the world. The Blockchain may be, in the context of making new history, the development we write about in the future that freed commerce, that connected economies throughout the world in ways that were never thought possible, that brought the unbanked population into the world of innovation and participation, that took the internet to a new level of integration in life that empowered the individual. I am betting that we are possibly at a junction that strikes fear into the mainstream, those that rely on the comfortable way of doing things, while emboldening those that are explorers and entrepreneurs with the promise of success borne from ideas that feel boundless. The next chapters in time will be driven by the Blockchain and all its implications as it joins with the Internet of Things, Artificial Intelligence, Contract Law, Foreign Exchange, Banking, Commerce, and the fundamental engagement by people in all aspects of being connected together for progress and a better existence than we have known to date.

That is what history tell us. New ideas, birthed from existing practices and understanding, seen through a different lens, changes the path we are on. Progress and the human mind are intertwined, and that is why the global engagement around the Blockchain and the emergent forms of new means of exchange between people are being driven today by the grass roots which embrace progress as the most exciting form of life. There is a growing voice backed by empowering new technology which is changing the world, adding to history, as we try to understand the possibilities of becoming unencumbered by the myriad of middle-men and regulation that stifle economic and social growth. Are you ready for this new adventure, this new chapter? It is scary and exciting, but it is one change I do not want to miss!”

I wrote the above to share with everyone what I feel about the potential promise of the next iteration of the internet, moving from a social/news/commerce communication platform to an empowerment and value platform. While I am no less optimistic about what I see occurring, the Headline above of Hold, Hold, Hold….is meant to indicate that the available data tells me that I should not invest more at this time in Crypto-assets until further signs emerge of greater participation by the people of the world. This is not because of a diminution in my belief of the value that is to be created here, but is about the data informing me of the current market state, a state that reflects strong building underneath but weak participation of the world’s people in owning/using crypto-assets. Growth is present, but it is not viral growth that reveals mass interest and adoption. The price swings are still significant, the volume of crypto-currencies that move each day is static over the longer-term, and the political and financial institutional resistance remains high. Patience is the keyword, along with Hold, Hold, Hold.

In the menu section of Charts, you will find the latest data on volume and price as of October 4, 2019. I hope they are informative to you and help you in the decisions you may make.

Wishing you all the best,

Tom

The named entities or Blockchains set forth above/below do not represent recommendations to purchase or in any way reflect investment advice. One of the key variables that is critical for deciding to invest is missing. That variable is the current valuation of each token or asset vs the overall market and a reasoned forecast of future performance vs the market. What is presented below attempts to inform and to encourage research, to learn about each, and to come to an opinion of whether any of them or all of them strike you as being an important participant in the future development of digital asset platforms.  Charts of technical price levels and movements are presented to educate those unfamiliar with price patterns.  These examples of real price activity show how prior price levels may be used to identify market points of price resistance or support. Use this information as you see fit, but it is recommended that you see this as an educational/informative tool only. This information is only part of the array of focus areas needed in making any investment decision, accordingly, it is best to not rely on one type of analysis for your capital allocation decisions.

The named entities or Blockchains set forth below do not represent recommendations to purchase or in any way reflect investment advice. One of the key variables that is critical for deciding to invest is missing. That variable is the current valuation of each token or asset vs the overall market and a reasoned forecast of future performance vs the market. What is presented below attempts to inform and to encourage research, to learn about each, and to come to an opinion of whether any of them or all of them strike you as being an important participant in the future development of digital asset platforms.  Charts of technical price levels and movements are presented to educate those unfamiliar with price patterns.  These examples of real price activity show how prior price levels may be used to identify market points of price resistance or support. Use this information as you see fit, but it is recommended that you see this as an educational/informative tool only. This information is only part of the array of focus areas needed in making any investment decision, accordingly, it is best to not rely on one type of analysis for your capital allocation decisions.

The market will tell us when to invest

As I noted, the compression of pricing and the decline in volatility were at points that strongly indicated a breakout in prices was imminent. The move could have been higher or lower, but regardless of direction, it was going to be meaningful. My initial observation that BTC had established a new bottom at the $9,000 level was proven wrong.

Well now we know which way the price move took: the break was lower.

This makes sense given the launch of BAKKT futures this week. The weeks leading up to this were characterized by low volume and steady to lower prices. The action of accumulation in anticipation of the BAKKT launch was missing, and this was an indication that institutional demand pre-launch was lacking. The small number of Bitcoin futures that traded on opening day was a disappointment to the market, and the ensuing price declines reflected that disappointment.

What now?

Keep your powder dry. Let the selling exhaust itself. The large volume traded on September 24, 2019 of the crypto-currencies was not record setting, but was meaningful compared to the volumes during the prior time of July through mid-September. Once the dust settles, and there is price and volume stability or a reversal to the upside in price accompanied by volumes greater than the 30 and 60 day averages, then we should consider scaling into new long positions. This will mitigate risk at the cost of missing the early part of the price rise, but in the long-run will serve us well in letting the market confirm price direction on which we may ride the coattails to increasing wealth.

Yesterday, for many, likely felt like my daughter did in this video.

IMG_1202

The named entities or Blockchains set forth below do not represent recommendations to purchase or in any way reflect investment advice. One of the key variables that is critical for deciding to invest is missing. That variable is the current valuation of each token or asset vs the overall market and a reasoned forecast of future performance vs the market. What is presented below attempts to inform and to encourage research, to learn about each, and to come to an opinion of whether any of them or all of them strike you as being an important participant in the future development of digital asset platforms.  Charts of technical price levels and movements are presented to educate those unfamiliar with price patterns.  These examples of real price activity show how prior price levels may be used to identify market points of price resistance or support. Use this information as you see fit, but it is recommended that you see this as an educational/informative tool only. This information is only part of the array of focus areas needed in making any investment decision, accordingly, it is best to not rely on one type of analysis for your capital allocation decisions.

The coiled spring

My interpretation of the data for Bitcoin, Ethereum and Litecoin leads me to believe that we are very close to a significant price move. As a bit of background, I love to analyze things, whether it is life, human behavior, a chess board, stocks, or crypto-assets, I take great pleasure in thinking deeply and finding solutions that make the puzzles of my life sensible and enjoyable.

Watching the behavior of the Crypto-currencies in the context of their aggressive move higher in price during May through June of this year, followed by a decline and a leveling off during July through September, the time appears to be at hand where a new base has been laid from which the next period of growth may be at hand.

Bitcoin is now at a point where it is range bound between $9,500 and $10,500. The interesting thing about this is that the volume of Bitcoin traded has reached a relatively low level, a level that coincided with the December 15, 2018 closing price low of $3,183, yet we are trading within a band that is three times higher in price than that December low. The market is telling us that the base price is now reset to this range of $9,000 to $11,000. The move away from this will occur at higher volume and I believe at higher price points vs lower price points. The chart of this price and volume comparison appears as follows:

Bitcoin Price and Volume Chart

Price, Volume, Market Value and Volatility point to a significant move

Below are three charts that are telling a similar story. Before I go there, it is very interesting to find that the combined Market Value of BTC, ETH, and LTC as of September 6, 2019 is roughly equivalent to the mkt value on November 28, 2017 ($216 billion and $215 billion, respectively). If you remember, on that date in 2017 BTC was at $9,949, ready to move to almost $20,000 over the next month. Be ready for a breakout.

The three charts show:

1) A decline in volatility to a point that historically has preceded subsequent large price moves.

2) In a continuing uptrend, the Bitcoin price is at a low point when compared to the 200 Day Moving Average Price.

3) The 10 day Average Bitcoin Price and Volume for Bitcoin show a continuing uptrend during this current basing period.

BTC, ETH,and LTC Volatility under 2%

BTC Price vs 200 Day Moving Average

Ten day Average Price and Volume for Bitcoin

For BTC and ETH pay attention to price and volume

The BTC price has been falling for 30 days (with BTC avg daily vol on Coinbase =15,600 and an avg price of $10,500 ) . Prior to that the price was rising for the preceding 30 days (with BTC avg DV on Coinbase = 27,312 and avg price of $11,000). Same observation for ETH. Implication is that the recent weakness in prices is more of buyers on the sidelines while a small group of sellers have to raise fiat (maybe those facing margin calls on both equities and crypto needing liquidity to meet the MC).

The named entities or Blockchains set forth below do not represent recommendations to purchase or in any way reflect investment advice. One of the key variables that is critical for deciding to invest is missing. That variable is the current valuation of each token or asset vs the overall market, and a reasoned forecast of future performance vs the market. What is presented below attempts to inform and to encourage research, to learn about each, and to come to an opinion of whether any of them or all of them strike you as being an important participant in the future development of digital asset platforms.

May 20, 2019

Dear Crypto enthusiast and/or curious mind:

Right now is the most exciting time for Bitcoin, Ethereum, and Blockchain based businesses. The market is expanding with established corporations joining the start-ups and early believers. I am as enthusiastic as I have ever been. I truly believe we are on the cusp of a rapid expansion of participants and education within the Blockchain sphere.

Over the past eight weeks I have heard speak or met with the co-founder of Ethereum, the CEO of Loopring, the CEO of Quantum, the CEO of Celsius, and the CEO of Polymath. The progress being made is significant and the leaders are aggressively developing their technologies and are partnering with many industry participants.

I am most excited by Binance. Binance or BNB is the largest centralized exchange and the most engaged with the community. Their reinvestment in their business is dramatic. They have now launched a decentralized exchange, a blockchain incubator, and a charitable foundation to help the economies in Africa (you should listen to the Binance podcast with Helen Hai, it is inspiring)
https://www.youtube.com/watch?v=H3n2Z8K8qZ4

The BNB token price is now at $29 per token, giving BNB a market capitalization of $4.2 Billion. It has increased in value by over 400% this year. To give you an idea of how this enterprise operates, two weeks ago the centralized BNB exchange was hacked for $40 million of Bitcoin. The cause was due to token holders not protecting their passwords and enabling criminals to access their accounts. In response, BNB has redesigned their controls against hackers and have made all affected accounts whole by covering their losses. The behavior of BNB management is the best in the industry. A personal letter from the CEO, “CZ”, provided a recap of the event and the actions and decisions made during the period of the Hack (I have posted it on the website for readers to access under Market Reports and Charts). The letter conveys the deep sense of community and care behind the actions taken by the BNB team. I am proud to be a part of the community that supports Binance.

Bitcoin is presently at $8,000 per coin. I expect it to challenge $20,000 before 2019 is over. Microsoft is now building a decentralized platform based on the Bitcoin blockchain. The level of adoption of the value quality and free movement of BTC across borders in near instantaneous transactions (when compared to the multiple days delay in the traditional banking system) is creating a tidal wave of adoption in the Blockchain world.

Ethereum has risen by roughly 80% so far this year. It is the platform of choice for businesses who want to build a smart contract system within their enterprise solutions. JPMorgan has adopted the Ethereum blockchain in their launch of the JP Morgan coin.

Zilliqa is a blockchain that just proved the value proposition of blockchain within industry. In Asia they partnered with WPP and Pepsi and ran a marketing campaign on their blockchain vs a traditional campaign. The blockchain campaign yielded a 28% better reach with consumers than the traditional methodology that is negatively impacted by BOTS and other false click-throughs that defeat the effectiveness of digital marketing.

DAI, is a stable coin that is matched to be equal to the US Dollar. Deposits of DAI are paying anywhere between 7% and 14% on your deposits. It is a vehicle to move fiat currency (Cash) into crypto to capture returns that are not available in the traditional banking world.

Polymath has brought in a professional CEO to run the business. I listened to him this past week and it is clear that the Polymath vision is now honed and the business is prepared to make significant progress in the Security Token industry. They have partnered with one of the founders of Ethereum, and are building a Security Exchange protocol called PolyMesh. The software platform will enable other enterprises to develop security token initiatives as well as serve as an investment bank type advisor to businesses that wish to register their tokens for public offerings of securities. Imagine the average person now being able to buy 1/1000 of a share of Amazon or Google or any other stock, bond, piece of art, real estate, etc. It is happening.

I recently purchased the HTC Exodus mobile phone. It was the first blockchain enabled phone and was soon followed by the launch of the Samsung S10, the second blockchain enabled phone. This past week, HTC announced they have partnered with Kyber Network (“KNC”) to enable token swaps on the Exodus phone through the KNC platform which gives investors the ability to move value from one blockchain enterprise to another. I used this new platform on my phone and easily exchanged Ethereum tokens for KNC tokens and for Polymath tokens. It was simple, fast and secure. The speed of adoption in the mobile phone sector is accelerating. Apple must follow this trend from a competitive perspective.

Amazon has just filed a patent for a proof of work blockchain platform.

Facebook is expected to issue its own token (an assumed stable coin) on the WhatsApp service. Additional collaborations are being hinted at to enable permissioned activity to off-ramp to public blockchains.

Jaguar Land Rover just announced it is partnering with IOTA, the internet of things peer-to-peer service for rewards that incentivize its car owners to provide data on their driving patterns. The ability to pay tolls or simply bank the token rewards for intelligence generated by your own behavior is a key return of control to the owner of the data. The benefit to future driverless car technology is a key component of interest in this initiative.

There is so much more I could write, but you get the picture. The under-the-covers adoption and build-out of the crypto-sector is moving rapidly, unnoticed by so many, yet the investing opportunity will be coming to every neighborhood. Wall Street brokerage firms are launching crypto-trading solutions, and the appetite in this area will only grow, ultimately causing institutions to allocate foundation funds, pension funds, insurance funds, etc to this emerging successful sector.

The China/Asia based platforms that are trailing from a price appreciation perspective will one day be a source of great opportunity. I met with Loopring, QTUM, and listened to Ontology and NEO. They are building fast, and when Chinese investors get government approval to invest in Blockchain businesses the market there will move higher very fast. It must be noted that China has the greatest number of patents and has made the largest financial investment in Blockchain technology. I believe it is only a matter of time before we are rewarded for our patience with these investments.

That about covers it. Learn and build on your understanding in this sector as it just may change the world.

Tom

An Important Day for BTC as it joins ETH and LTC

For the first time in a year, the price of BTC has positively crossed two important technical hurdles. On April 2, 2019 the closing price of BTC exceeded its 200-day MVA. This was preceded by LTC and ETH doing the same (LTC began the recovery process crossing its 200-day MVA back on February 18, 2019). The second important positive cross is occurring today, as the 50-day MVA price of BTC has just exceeded the 200-day MVA price. This is called the golden-cross, as it portends higher prices in the future.

Beyond, these “Big Three”, the overall constructive price performance over the past eight weeks of the general crypto-market is even more positive. The percentage price increase of Alt-tokens in the market is higher than the price rise in BTC, ETH, and LTC. Add in higher volumes, and the crypto-market is behaving in a very constructive manner, as accumulation is once again rising.

Best,

Tom

Bitcoin

Ethereum

LiteCoin