It was another one of those weeks. Crypto prices hit rock bottom around $186 billion. Goldman Sachs backs away from it plans to offer a crypto trading desk. Vitalik Buterin tells Bloomberg how little he thinks of Ethereum. Technical analysts give us little hope for getting bullish anytime soon.
But that was before The New York Department of Financial Services approved Gemini and Paxo cryptocurrency exchanges. Both GUSD and PAX are based on the Ethereum ERC-20 token and backed by physical dollars custodied in FDIC-insured U.S. bank accounts. This insulates investors for whatever else may be rocking the wider crypto market. This development alone is a step forward for investors and regulators.
The most negative news of the week appeared in a Forbes article, written by Pawel Kuskowski titled: “How To Stop Ether Going To Zero: Defusing The ‘Difficulty Bomb’. The negative slant of the title alone reflects the mindset of the crypto market these days. It hard to expect anything else with the market having lost a tidy $600 billion in value this year.
Pawel’s strength is his ability to spell out a core unknown to Ethereum’s immediate future. That is if ETH developers will solve the much talked about Difficulty Bomb with modifying Proof of Work or moving to Proof of Stake. This is hardly a new issue but Pawel does a solid job explaining how either choice still produces uncertainty. As for the price of ETH, uncertainty is no friend.
So the question becomes simply this. If Vitalik Buterin and his group fail to solve the Difficulty Bomb and ETH goes to zero, won’t this produce a similar result on virtually every other ERC-20 token built on the Ethereum platform? The answer is so apparent that is makes you want to liquidate your investment position even at current depressed levels.
Unfortunately, there is no immediate answer to this riddle. That doesn’t mean that we should cut and run from crypto. Let’s take some of this week’s developments and apply the principles of a reasonable person.
The Sun Still Shines
And now for something that lends hope that the crypto world is not coming to and end.
On a purely technical note, Hacked.com’s Greg Thomson documented a $1 billion trade influx in the five days up to September 13th producing a tidy little bump of 23% in the price of ETH.
On a more fundamental point comes the word that the big Wall Street investment bank, Morgan Stanley is building a Bitcoin swap trading product. The key feature here is that the new product will create so called synthetic exposure to the price of Bitcoin.
Just how this will function remains to be seen but the implications both for individual and institutional investors is promising. The ability to create a security that addresses the custody issue for institutions and protects parties from loss from hackers is a real value added proposition.
According to CCN, Morgan Stanley is one of several major Wall Street firms that even includes Jamie Dimon CEO of JP Morgan Chase.
So what does all this focus on Bitcoin have to do with the rest of the crypto market? Moreover, what does any of this have to do with solving the Difficulty Bomb? Simply put, the answer is money or more precisely, the expected return on investment.
Each of these Wall Street firms has some serious money behind these decision to commit capital and human resources to crypto currencies. Their initial interest may be in Bitcoin, but it would be foolish to assume that it is limited to a single coin in a multi billion asset class.
So it is important to assume that these folks have done their homework and have gotten comfortable with the many short term uncertainties of the current crypto marketplace. Apparently their crystal ball can read beyond some of the recent negative price action. This may not entirely remove the uncertainty, but it is good to be in the company of smart money.