Weekly Roundup: Bitcoin Derivatives, Stablecoins and Crypto Bounty Hunters Explained
After a sudden dip early Monday morning, bitcoin ended the week largely flat, with most investors now waiting for the outcome of the SEC’s Bitcoin ETF decision, scheduled for September 30th before deciding what to do next. In this week’s decision, we take a break from our usual coverage on BTC’s recent price movement to reflect on how it has fared in the long haul, talk about how corporate finance giants might still introduce a flux of new investors regardless of the SEC decision outcome, explain to you why “stablecoins” have been increasing in popularity and diversity, and delve into the little-talked about (and not so glamorous) world of “crypto bounty hunting.”
BTC Annual Returns Still Extremely Positive on Average
Despite the fact that bitcoin has suffered a brutal 2018, positive statistics about the long-term profitability of bitcoin have recently been circulating in crypto and social media, demonstrating that even in the face of a bad year the investment strategy of “HODLing” has generally paid off quite handsomely. Since it first started trading on a perceivable scale in 2011, bitcoin has seen 1,000%+ gains in 3 years, with only 1 year ever ending in the red (2014, though so far in 2018 it is still down some 54%).
Bitcoin Annual Returns, 2011-2018… pic.twitter.com/eJcXU9MzSm
— Charlie Bilello (@charliebilello) September 10, 2018
The data was confirmed to be correct by Bitstamp price charts (the longest-standing bitcoin exchange), giving both long- and short-time HODLers a reason not to call it quits with their bitcoin investments. Whether bitcoin’s long-term moonward trajectory will continue is of course anybody’s guess, but in this particular instance, going by the numbers may be reason enough to continue holding one’s investment.
Morgan Stanley Announces Bitcoin Derivates Trading
Finance titans Morgan Stanley announced on Thursday their plans to begin bitcoin derivatives, which would allow their customers to indirectly trade or invest in bitcoin by letting the firm do it on their behalf. Regardless of BTC’s price decline which has put a damper on interest in cryptocurrency trading as a whole, Morgan Stanley said they were making the move due to customer demand. Using a trading method known as “price return swaps,” their bitcoin derivatives service would allow customers to establish either long or short positions against bitcoin, meaning they could bet against bitcoin’s rise just as easily as they could bet for it.
Just last week, another financial services giant, Goldman Sachs, announced they were also working on a bitcoin derivatives trading service known as non-deliverable forwards, also spurred by an ever-increasing customer demand for access to the cryptocurrency markets. Regardless of how bitcoin has performed in 2018, the introduction of derivatives-type financial service products not only brings an air of legitimacy to cryptocurrency trading but also opens its doors to a potential new investor class – one that tends to be not only well-funded but ubiquitous as well. This means that Morgan Stanley and Goldman Sachs could very well be the catalysts for a new explosion of interest in crypto, regardless of the outcome of the much anticipated SEC ETF decision a mere two weeks away.
Stablecoins on the Rise
Last Monday, cryptocurrencies became a tad bit closer to being recognized as legitimate financial instruments, as New York state’s Department of Financial Services decided to approve Gemini Trust Company’s and Paxos Trust Company’s dollar-backed digital currencies. The decision helped propel the price of BTC out of its slump and above $6,300, serving as a much-needed boost in investor confidence. Known as “stablecoins,” digital currencies whose value is tied to that of a fiat currency (such as the USD) offer a refuge for traders looking to escape the all-too-frequent wild price swings that tend to dominate the crypto markets.
By moving their coins into a dollar-based stablecoin like Tether (USDT) or TrueUSD (TUSD), traders do not have to go through the laborious process of converting their holdings into fiat currency or even move them off an exchange if they don’t want, making them a very popular option for those seeking to escape market volatility. Indeed, the majority of all dollar-based BTC trading is already conducted in terms of Tether, which currently sits in 8th place on the list of all cryptocurrencies by market capitalization value.
Time to take refuge in #Tether. If you’re holdin’ right now, you’re losin’, and riskin’ even more. Retreat to your stable coin of choice, or Fiat.
You can always enter back into a position, but you can’t get your capital back once it’s gone.
— Darth Crypto (@ToolFreeCrypto) September 17, 2018
Stablecoins are thought to have their own problems, however, such as those faced by Tether when they failed an audit earlier this year to prove they had $2 billion in cash reserves to back up the issuance of their digital coins on a 1:1 scale. If there was a mass exodus performed in Tether by people demanding their actual USD back in exchange for their USDT holdings (a function performed by Tether), and Tether did not have the means to cover the transactions, this would render the remaining USDT still in circulation next to worthless, as confidence in their ability to perform their stated business functions would plummet. All stablecoins that cannot provide an absolute degree of certainty that they have cash reserves to back up their digitally-issued coin run the risk of quickly collapsing, leaving their holders with useless tokens that nobody will exchange for anything.
Tether’s publicity problems are what helped give rise to a second, competing stablecoin, known as TrueUSD, which although far less established than its predecessor, has made some decent headway in recent weeks, obtaining a listing on one of the top 20 biggest crypto exchanges by volume and receiving a favorable review in a comparative analysis alongside Tether, largely thanks to its advanced auditing protocols that help insure that its users won’t be subjected to fallout due to mismanagement or misappropriation of backing funds. Future stablecoins, such as those just approved by New York’s Department of Financial Services, will not only open up competition in the stablecoin space but provide greater degrees of protection for crypto traders during times of heavy volatility.
Crypto Bounty Hunters Pummeled by Bitcointalk
The world of crypto bounty hunting is not as glamorous as it may sound: completing menial online tasks such as translating white papers and posting on social media forums to aid in the promotion of an upcoming ICO and in exchange being rewarded a share of coins or tokens from the ICO. But for many people, especially those in 3rd world countries or places where work is scarce, but internet connectivity is present, participating in crypto bounties can be a means of significant income, as some ICOs go on to achieve great success, thereby making the value of their earned tokens skyrocket.
In Nigeria, for example, many have managed to find a way out of poverty by learning the basics of cryptocurrency and joining bounty programs. They have become so lucrative that crypto bounty hunting is now seen as a lucrative profession, encouraging many to quit their day jobs in search of relatively easy money. Bounty hunting-specific websites like Bounty0x and Bountyhive help to connect bounty hunters with available jobs, showing them potential rewards for their participation in several ongoing ICOs. Out of all of them, the biggest bounty hunter go-tos has traditionally been Bitcointalk.org, the original bitcoin forum founded by Satoshi Nakamoto.
As the original launch pad for hundreds (perhaps thousands) of ICOs over the years, it would only make sense that Bitcointalk would also be the primary means of communicating bounties as well, as it allows the means for hunters to not only read up on various ICOs but posts the results of jobs they’ve taken as well, allowing them to interact with ICO staff and the community at large. As word spread that there was money to be made by simply posting on Bitcointalk, the forum saw a huge influx of new members, which sees over 440 users signing up every day, and it now is home to almost 2.4 million members.
This might not sound like it would pose a problem to the forum, whose main source of revenue is generated by ad placements and views, but the flood of “newbies” has angered long-time members and those who have been part of the bitcoin community since the days of Satoshi. Complaints from veteran forum members (who include bitcoin developers, early adopters, altcoin innovators and long-standing crypto enthusiasts) are centered around lower-ranking accounts cluttering up the forum with trivial, nonsensical or plagiarized posts in order to meet the requirements for participation in a bounty program, which has diluted the quality of content hosted on the forum and made it rather impossible for serious users to find meaningful information about bitcoin and cryptocurrency.
As a solution to this problem, Bitcointalk head administrator Theymos recently implemented a new system where new members would have to obtain at least 1 “merit” (which is a point system whereby previously-merited users can issue merits to other users whose posts they find valuable) in order to “rank up” and become a “Jr Member,” elevating them out of “Newbie” status. As a point of reference, most ICOs do not include Newbie members in their bounty campaigns, preferring to focus on rewarding more experienced forum participants. In order to reach the next rank (which go Newbie, Jr Member, Member, Full Member, Senior Member, Hero Member and Legendary in increasing order), a user must obtain a set number of merit points from other users, which now applies to Newbies wanting to rank up to Jr Members.
As a result of the new policies, many members with zero merits have found themselves suddenly demoted back to the rank of Newbie, despite some being registered with Bitcointalk since January and having hundreds (or even thousands) of posts to their name. This has rendered hundreds of accounts ineligible for bounty program participation in one fell swoop, causing something of an uproar among the newer user portion of the Bitcointalk community, most of which are bounty hunters. One frustrated member even took to change.org to create a petition to encourage Theymos to reverse the changes. Some members were understanding of the situation, undeterred by their recent demotion, willing to carry on in search of their first merit:
“It is difficult to participate in the signature campaign but need a merit to become Jr will help our forums better quality, avoid the current spam situation. Although I’m back to being a newbie, I’m going to stick with this forum. It is difficult to participate in the signature campaign but need a merit to become Jr will help our forums better quality, avoid the current spam situation…” – Bitcointalk user antran123
Other users, however, were apparently horrified at what had just occurred, perhaps seeing the prospects of their dream jobs go up in flames. Regardless of anyone’s opinions on the matter, the changes are likely here to stay, making the “easy money” appeal of cryptocurrency just a little bit less significant than it was last week.