Die United States Securities and Exchange Commission (SEC) hat eine Stellungnahme zu den Rahmenbedingungen für ‘Investment Contract’ Analysis of Digital Assets” veröffentlicht. Dabei geht es beispielsweise darum welche Token als Security (Aktie) behandelt werden. Regulatorisch ist das Dokument eher für geplante ICO’s interessant als für den eigentlichen Token-Nutzer. Zudem handelt es sich dabei eher um eine Richtlinie als ein verbindliches Schreiben.

Hier das Original der SEC: SEC – DLT framework pdf

TL;DR: Zusammenfassung von Katherine Wu auf Twitter

Glen Weyl is the co-author, with Eric Posner, of Radical Markets: Uprooting Capitalism and Democracy for a Just Society. Despite its subtitle, the book is decidedly pro-market, arguing that price mechanisms are invaluable tools for allocating resources and building healthy societies. But those markets have to be carefully designed to achieve that goal.

Glen Weyl

The book argues, among other points, that large-scale private property actually distorts the function of markets, and that public goods like land should be managed through structures that benefit everyone (like auctions). The ideas, as the authors acknowledge, are in many ways a 21st-century update of the work of Henry George, who campaigned against private monopolies of natural resources, and in favor of collectively-owned systems like public transit. The book has been greeted with something close to rapture: Harvard economist Ken Rogoff called it “perhaps the most ambitious attempt to rethink democracy and markets since Milton Friedman.”

The book has attracted another big-name fan: Vitalik Buterin. The Ethereum creator saw “multifaceted and plentiful” connections between the book’s ideas and the goals of his smart contract platform. Buterin and Weyl have since worked together on papers refining the book’s ideas, and to start RadicalxChange, a conference and growing organization.

More >>>

Source: https://breakermag.com/vitalik-buterin-thinks-this-mans-ideas-can-break-americas-political-logjam/

Ausführlicher und schön umfassender Artikel von Nick Paumgarten im New Yorker zum Thema Blockchain und Ethereum im Speziellen:

New Yorker – The Propeths of Cryptopcurrency Survey The Boom And Bust

“The people who were in the space early were there for philosophical reasons, for political or economic reasons not tied to their personal wealth.”

“At a certain point, you break through it, you come to understand it all, and then the door closes behind you, and then you just get it but can’t explain it. All the words you use to explain it are words people on the other side of the door don’t understand.”

Auszug:

Inside the ongoing argument over whether Bitcoin, Ethereum, and the blockchain are transforming the world.

Not long ago, I was in Montreal for a cryptocurrency conference. My hotel, on the top floor of a big building downtown, had a roof garden with a koi pond. One morning, as I had coffee and a bagel in this garden, I watched a pair of ducks feeding on a mound of pellets that someone had left for them at the pond’s edge. Every few seconds, they dipped their beaks to drink, and, in the process, spilled undigested pellets into the water. A few koi idled there, poking at the surface for the scraps. The longer I watched, the more I wondered if the ducks were deliberately feeding the fish. Was such a thing possible? I asked the breakfast attendant, a ruddy Quebecer. He smiled and said, “No, but it is what I tell the children.”

My mind had been marinating overnight—and for more than a year, really—in the abstrusities of cryptocurrencies and the blockchain technology on which they are built. Bitcoin and, subsequently, a proliferation of other cryptocurrencies had become an object of global fascination, amid prophecies of societal upheaval and reform, but mainly on the promise of instant wealth. A peer-to-peer money system that cut out banks and governments had made it possible, and fashionable, to get rich by sticking it to the Man…

Source:

https://www.newyorker.com/magazine/2018/10/22/the-prophets-of-cryptocurrency-survey-the-boom-and-bust

Es hat ein wenig gedauert, bis das Bundesfinanzministerium das Urteil des Europäischen Gerichtshofs zur bundesdeutschen Tatsache gemacht hat. Aber nun ist es soweit. Sorgen, dass es irgendwie doch noch zu einer Verumsatzsteuerung von Bitcoin-Verkäufen kommt, haben sich damit endgültig erledigt.

Nachdem wir vor etwa zwei Wochen die Meldung hatten, dass das Finanzamt Bonn-Innenstadt versucht, von einem Bitcoin-Unternehmer die Umsatzsteuer für den Verkauf von Bitcoin zu verlangen, hat dies für ein gewisses Entsetzen in der Szene gesorgt. Unbestätigten Berichten zufolge hat dies zu Schlaflosigkeit unter Bitcoin-Tradern geführt und in einem extremen Fall sogar eine Psychose ausgelös. Manch ein Trader begann, sich wegen der potenziell hohen Umsatzsteuernachforderung um seine wirtschaftsliche Existenz zu fürchten. Mit ausgelöst wurde die Unruhe etwa durch Berichte des Steuerberaters Rüdiger Quermann sowie des Rechtsanwalts István Cocron.

Experten wie der Steuerberater Diplom-Kaufmann Christian Densch aus Essen, der als „Kryptotaxpert“ Gastgeber einer beliebten Facebook-Gruppe ist, haben von Anfang an energisch darauf hingewiesen, dass hier unnötig Panik verbreitet wird. Die Forderungen des Finanzamtes Bonn-Innenstadt seien in keinster Weise zu halten. Sie seien auch kein Ausfluss einer wie auch immer gearteten Verschwörung der Finanzämter, die nun versuchten, Bitcoin kaputt zu machen und die Bitcoin-Trader zu ruinieren, sondern lediglich das Ergebnis einer gewissen Trägheit der Behörden. Es sei weder notwendig, sich Sorgen zu machen, noch angebracht, Ängste zu schüren oder gar das persönliche Armageddon zu verkünden.

Wie sich bald darauf zeigte, hat der Steuerberater Christian Densch recht. Ihm gelang es im persönlichen Gespräch und einem darauf folgenden E-Mail-Verkehr, eine zur Veröffentlichung freigegebene Einschätzung von Dr. Christian Hufen zu bekommen. Dr. Hufen ist Persönlicher Referent des Parlamentarischen Staatssekretärs des Bundesministeriums für Finanzen, Dr. Michael Meister. Er schreibt, dass sich Kryptotaxperts „Vermutung, dass der Umtausch von Bitcoins in andere Währungen unter eine Umsatzsteuerbefreiung fällt, bestätigt“ hat. Es gilt die Entscheidung des Europäischen Gerichtshofes im Fall Hedqvist. „Danach handelt es sich bei dem Umtausch konventioneller (gesetzlicher) Währungen in Einheiten der virtuellen Währung ‚Bitcoin‘ und umgekehrt um eine Dienstleistung gegen Entgelt, die unter die Steuerbefreiung nach Art. 135 Abs. 1 Buchst. e der Richtlinie 2006/112/EG des Rates vom 28. November 2006 (sog. EU-Mehrwertsteuer-Systemrichtlinie, MwStSystRL) fällt.“

Der Steuerberater Densch hat noch einige weitere Fragen gestellt – etwa zum Mining oder zur steuerlichen Handhabung von Zahlungen mit Bitcoin – auf die der Persönliche Referent interessante, und im großen und ganzen auch erfreuliche Antworten gibt. Aber dazu ein andermal mehr. Hier sollte man feststellen, dass das Thema der Umsatzsteuer für den Verkauf von Bitcoins vom Tisch war.

Ein Schreiben des Bundesfinanzministeriums an die obersten Finanzbehörden der Länder vom 27. Februar, das auf der Webseite des Ministeriums veröffentlicht ist, bestätigt nun auch gegenüber den Behörden die Anwendung des Urteils des EuGH und bestätigt den Inhalt der E-Mail, die “Kryptotaxpert” bereits am 21.02.2018 auf seiner Seite veröffentlicht hat. Beim Umtausch von Bitcoin in Euro handelt es sich um eine „steuerbare sonstige Leistung, die im Rahmen einer richtlinienkonformen Gesetzesauslegung nach § 4 Nr. 8 Buchst. b UStG umsatzsteuerfrei ist.“ Die Grundsätze dieser Anordnung seien in allen offenen Fällen anzuwenden. Wer also sich noch irgendwie von der Umsatzsteuer bedroht fühlt, kann nun offiziell aufatmen.

Warum aber hat das Bonner Finanzamt nun trotz all dem einen Umsatzsteuerbescheid erlassen? Die Antwort darauf dürfte einen interessanten Einblick darin geben, wie deutsche Behörden zu arbeiten verpflichtet sind. Die Hauptsachgebietsleiterin Betriebsprüfung und Gewerbesteuer beim Finanzamt Bonn-Innenstadt verwies im Rahmen eines Telefonats mit Herrn Densch darauf, dass ohne Anwendungsschreiben der vorgesetzten Behörde ein EuGH Urteil nicht unmittelbar durch das Finanzamt umgesetzt werden darf. Unglücklicherweise orientierte sich die Verwaltungsmeinung noch an der Auffassung des BMF die Umsätze mit Bitcoin unterliegen der Umsatzsteuer. Das Finanzamt Bonn-Innenstadt hatte somit keine andere Wahl, als den mißliebigen Bescheid zu erlassen, auch wenn es sich selbst im klaren war, dass dieser nicht rechtens sein kann.

Es wäre interessant, wenn sich der Betroffene auch einmal zu Wort melden würde, bei der Aufregung, die um dieses Thema erzeugt wurde, dürfte ihm das ja nicht entgangen sein.

Source: https://bitcoinblog.de

How to protect your digital assets from fire, flood, phishing, forgetfulness, and other forces of nature.

“Be vigilant and you will thrive.” –Nick Dodson

There’s a “cold room” in Attinghausen, Switzerland — it’s lined with slabs of steel, and it sits some 300 meters down inside a granite mountain in an old, repurposed military bunker. What’s inside? Air gapped hardware with the private keys of high value crypto holders who are looking for a little peace of mind.

These security measures might sound extreme, but the attack vectors are many in the cryptosphere: shams, scams, extortion, friends turning on friends, spoof friends. Users can’t flag fake accounts fast enough:

Fake Vitaliks. Fake Joe Lubins. How hard does anyone really look at social media handles? Someone flying through twitter is prone to miss the “l” in @etlhereumJoseph.

For many users, the bulk of their crypto is still sitting “hot” — in online wallets on centralized exchanges, which have had their share of reckonings over the years: the infamous Mt. Gox hack in 2014, in which hackers made out with approximately 740,000 BTC, and the Bitfinex breach more recently, which drained almost 120,000 BTC from the exchange.

And then of course the age-old threats, fire and forgetfulness (one man accidentally threw out $9 million worth of bitcoin). Attack vectors can be unassuming, furry even:

The problem is, misplaced crypto has a way of altogether disappearing — sometimes across jurisdictions and beyond the reach of the law, sometimes into cryptographic black holes (in 2011, 2,609 BTC vanished on Mt. Gox because of a scripting error). What’s liberating about blockchain is that you can become your own bank. But that can also be a daunting thing for many of us who have grown comfortable letting central institutions manage our lives for us. It’s time we educate ourselves.

Snowden-grade.

Thankfully, Nick Dodson, founder of BoardRoom (now GovernX), just published his GitBook, “Pro Tips for Ethereum Wallet Management,” a security manual for naifs and tin foil hat types alike. Dodson’s personal security measures are admittedly Snowden-grade — we’re talking blanket over the screen and everything — but his mission is to empower users, not scare them off. He acknowledges the tradeoff between convenience and security. Too many security layers and you end up stumping even yourself when trying to access your crypto. Dodson gives you the resources to decide for yourself how sophisticated you want to get.

A word of caution: Compiling these pro tips brings with it the meta-anxiety that any tools or security measures we recommend here will now become the focus of bad actors. So stay sharp. But stay with it. Blockchain isn’t just about surviving. It’s about creating choices for yourself. As Dodson writes, “Be vigilant and you will thrive.”

1. Know the attack vectors.

AKA Know your enemy. Watch out for the proverbial “man in the middle” — someone trying to get in between you and your destination. Spoof sites, malicious websites that mimic other sites, can be picture-perfect nowadays. Make sure you double check URLs. Better yet, bookmark your crypto sites, and stick to your bookmarks (MetaMask also blacklists MyEtherWallet clones for you). Verify software downloads. A copy of Tails OS is no good if it’s infested with spyware. A man-in-the-middle attack can even be literal: one guy lost his life savings to a reseller on Ebay who pulled the recovery seed from a hardware wallet and repackaged the wallet. Always buy your hardware wallet directly from the manufacturer. Now think two steps ahead. Maybe your URLs look good. But how do you know someone hasn’t hacked your Wi-Fi, spoofed the DNS, and redirected you to different IPs? Safe computing is like chess: always assume your opponent is smarter than you.

2. Generate strong passwords.

You should know the drill by now — no birthdays, street addresses, song lyrics, etc. (don’t even get me started on my mom’s passwords). But even if you mash the keys on your keyboard, that’s still not random enough (you are not a good source of entropy). Password-crackers can rifle through 350 billion guesses per second. Use a random mnemonic generator to create a passphrase, or buy a hardware wallet to generate powerful keys and signatures for you. Multiple passwords are better than one. Multi-signature wallets, like Gnosis’, require multiple keys to validate transactions. And use two-factor authentication for everything: email, exchanges, Steam, etc. Heads up: the countdown might be annoying, but app-based two-factor is much more secure than SMS. Let this be your warning.

3. Use cold storage.

You don’t have to go 300 meters underground, but you should keep the majority of your crypto “cold” — that is, air gapped and offline. Only keep an amount in exchanges and online wallets that you are willing to lose. You can either build an air gapped computer by removing the network card from your PC or laptop (Tails is an operating system that you can run offline), or buy a hardware wallet. When generating the seed phrase, plug your hardware wallet into a wall outlet to keep it as cold as possible. Paranoia tips: cover the mic/camera of your laptop and remove any electronic devices from the room.

4. Test everything.

Make small test transactions or practice with a tiny bit of funds on a test network before going full monty. Never manually type out addresses (over 9000 ETH have been lost forever due to typos). Copy and paste, use Ethereum Name Service, or scan QR codes. Make sure your scan app is secure (Pro Tip #1: Know the attack vectors). Double-check the identicon of your target address. Before transferring any crypto onto your hardware wallet, test your seed phrase. If you’re building an air gapped computer, record and re-check the MD5 checksum before and after you load data onto the SD card. For the love of Ethereum, test everything.

A little paranoia is a good thing. Maybe not this much. When’s the last time you got out of the house?

5. Store your seed phrase(s) across different devices and locations.

A standard Bip39 seed phrase is that curious string of 24 words from which you can derive a private key. Manage your seed with utmost care. If you write it down on paper, consider making two copies and storing them in separate locations. SD cards are another storage option, but they rarely last more than five years, and they could be wiped by a pinch (EMP bomb). Use both analog and digital just in case (some people hammer their seed phrases into steel). If you want to level up: store pieces of your seed phrase in separate, safe locations. And remember: meticulously record your steps, so you (or your heirs) can recreate the seed.

6. Maintain plausible deniability.

Plausible deniability in the cryptoverse means the ability to keep certain data hidden. Here’s a helpful public emission guideline: don’t broadcast your holdings, and especially don’t tell the world (over social media) the exchanges where you keep all your crypto (again, this guy). All your crypto shouldn’t be hot anyway (Pro Tip #3: Use cold storage). You can hide accounts under different HD paths on your hardware wallet in case someone comes knocking. Also, minimize your risk exposure by distributing your holdings across multiple wallets.

7. Level up. Help the ecosystem.

Dodson finishes his GitBook by recommending four different levels of wallet setup, Level 4 being for the most rigorous users. It’s your call how sophisticated you want to get. But remember: your security choices affect not only you but the ecosystem. If you don’t use two-factor authentication, and someone seizes your email (that, say, you left open on a library computer), when that bad actor starts phishing your personal network, that’s on you. So challenge yourself to level up. Experiment with hardware wallets, Tails, and multi-sig. Channel your inner Snowden. Learn by teaching. Tell your friends about cold storage, and your mom about strong passwords. Help the community flag spoof sites and fake accounts. Dodson’s “Pro Tips” are a gift to the ecosystem, and something we can pay forward.

Source: https://media.consensys.net

Seit einiger Zeit erreichen die BaFin vermehrt Anfragen, ob Token oder virtuelle Währungen (einheitlich als „Token“ bezeichnet), die bei Initial Coin Offerings (ICOs) an Anleger vertrieben werden, als Finanzinstrumente anzusehen sind.

Sie hat nun ein Hinweisschreiben veröffentlicht, in dem sie zur regulatorischen Einordnung von Token im Bereich der Wertpapieraufsicht Stellung nimmt. Dieses betrifft alle Marktteilnehmer, die Dienstleistungen in Bezug auf Token erbringen, mit diesen handeln oder Token öffentlich anbieten.

Um etwaige gesetzliche Anforderungen lückenlos zu erfüllen, sind diese Marktteilnehmer gehalten, genau zu prüfen, ob ein reguliertes Instrument vorliegt, beispielsweise ein Finanzinstrument oder ein Wertpapier. Im Zweifel sollten sie die zuständigen Fachreferate der BaFin frühzeitig kontaktieren.

Source: https://www.bafin.de/dok/10485474

DISCLAIMER: This is not an investment advice or strategy; only an introductory material. If interested in using CDP, you should read more detailed materials involving more detailed descriptions of the liquidation process, fees, etc. Also, always do the math yourself and check your results. Do not trust the provided formulas if you have not checked they apply to your situation. Make sure you understand what you are doing. Be cautious and stay safe.

What is a CDP?

CDP is a Collateralized Debt Position, a smart contract where you store your ETH funds as collateral in order to take out a loan. Maker’s CDP allows you to take out a decentralized loan denominated in DAI stable coin.

As an ETH hodler, why should I care?

Suppose, as a true believer in Ethereum, you have invested all your available fiat into ETH already. Suddenly, there is a market situation such that you would like to “buy the dip” or simply increase your stack of ETH but you cannot since you have no fiat left. Nevertheless, thanks to CDP you can lock your already owned ETH as a collateral, take out a loan in DAI (~USD), and buy more ETH with it. This is called leverage and the principle is the same as margin trading.

What is the catch you are not telling me?

Well, the catch is that you have to repay your money otherwise your CDP gets liquidated and/or you lose your collateral. Please, never let your CDP liquidate! It is way more expensive than repaying.

Can you give an example of a bad loan setup?

Suppose you lock 150 ETH in CDP, Ether price is currently 900 USD. The max collateral/loan ratio of Maker CDP is currently set to 150%. Therefore, you can take out 90 000 DAI (100ETH*price) as a loan. Remember the loan is always in DAI. However, since you borrowed the maximum amount allowed (two-thirds of collateral), your liquidation price is exactly 900. If the price drops to 899.9, your CDP will be liquidated because its collateral is insufficient. Always make sure the liquidation price is sufficiently low.

OK, I see I shouldn’t go too much into debt here. Is that all?

No, there is another case that may arise. Suppose the previous situation, however, you take out only 30k Dai instead of 90k. Since your collateral/loan ratio is now higher, you are protected from liquidation as long as the price of ETH is above the liquidation price of around 300 USD (sounds sufficient). Remember again that the loan is denominated in DAI. If the ETH price goes to 500 USD, nothing changes and you still owe 30k DAI. This may cause issues when investing the borrowed funds. Suppose you invested the whole loan in ETH at the initial price of 900 but now one is worth 500 and you have no other money available. The CDP does not go into liquidation this time. However, you cannot repay the debt and free your collateral (you can partially but it’s still quite bad).

What do you suggest to avoid this?

If you plan to invest the borrowed DAI, never collateralize your entire bag of ETH. Always save an appropriate amount of money (form irrelevant) to be able to pay off the CDP at liquidation prices.

How do I find out how much is “appropriate”?

You need to do the math. I derived some formulas that may be helpful. They apply to the case of leveraging ETH only, i.e. using your bag of ETH to get a loan and invest in ETH again. As have been mentioned, you should have enough ETH left elsewhere to be prepared to repay the debt if the price begins to approach the liquidation price. I assume the purchase of ETH is at the same price as at the time the CDP is opened.

Notation: S = all ETH holdings you have prior to CDP, P = the current price of ETH in USD, LP = your desired liquidation price (yes, this is a parameter you must choose – please be cautious and set it at a safe low level that you consider unlikely to be reached)

Calculating the amount of ETH to deposit as collateral (deposit): D = S/[1-(2LP-2P)/3P]

Calculating the amount of DAI to “draw” from the CDP (loan): L = (2/3) *D *LP

Remember, you must always have S-D amount of ETH available to step in and avoid liquidation of your CDP. That should guarantee you are safe from the liquidation or the need to use additional funds. Nevertheless, it is still possible your investments will not be profitable and you end up losing money.

I am only waiting for the next paycheck and need the funds only temporarily to buy the dip right now. Can I collateralize my whole stack of ETH?

Yes, you can since you know you will get additional funds to repay the debt. However, remember not to go too much into debt to avoid liquidation.

I used the loan to buy ETH. Can I collateralize these funds as well?

Yes, you can but be VERY careful. You’d better do the math right! I would not recommend this since things may get messy and you may lose track of your debt easily.

I want to learn more and maybe get a CDP. What should I do next?

You should check the Maker CDP dashboard (https://dai.makerdao.com/) out and watch their introductory video and terminology guide. There is a couple of advanced things that I omitted and you should look into them (e.g. WETH, PETH). Further, visit the maker subreddit r/makerdao (please read the sad stories of liquidated CDPs) or other of their communities. Make sure you understand what you are doing before creating a CDP. It may be worth it to test the process on the Kovan testnet.

Why did you write this tutorial?

There was no complex material for beginners around that would highlight CDP’s possibilities as well as risks. I hope I introduced the instrument properly and it will get more traction eventually. Also, I am a big fan of the DAI stable coin.

I think there is something wrong in this text or something important is missing.

That is, of course, possible. In such a case, please, comment or pm me. I will be updating this text continuously.

DISCLAIMER: This is not an investment advice or strategy; only an introductory material. If interested in using CDP, you should read more detailed materials involving more detailed descriptions of the liquidation process, fees, etc. Also, always do the math yourself and check your results. Do not trust the provided formulas if you have not checked they apply to your situation. Make sure you understand what you are doing. Be cautious and stay safe.

Source: https://reddit.com

Cryptoasset prices have been quite turbulent in the past few weeks. At times like this it’s especially important to look at the fundamental foundations of cryptoasset prices, and quantitative metrics. Today I will share with you one of the main metrics we use in our investing decisions at Cryptolab Capital.

Emerging field of cryptoeconomic ratio analysis

In traditional finance, ratio analysis is one of the most widely used valuation methods. Lacking the detail of other valuation approaches, such as DCF analysis, ratio-based valuation is much faster and is still a good proxy of fair value. It also allows one to easily track asset price dynamic over long periods of time as well as compare different assets to each other.

Over the course of the last year, a new study of cryptoeconomic ratio analysis emerged. The main idea behind this new field is to study the relationship between price of a cryptoasset and its fundamentals. One of the most widely known ratios is Network Value to Transactions, or NVT. Introduced and popularized by Chris Burniske, Willy Woo, and the team behind Coinmetrics, NVT is often called “crypto PE ratio.” Here’s the definition of the ratio:

In a traditional PE ratio, the earnings metric in the denominator is used as a proxy for the underlying utility of the company created for the shareholders. While cryptoassets don’t have earnings, one can argue that the total value of transactions flowing through the network is a proxy for how much utility users derive from the chain. It is worth highlighting that Daily Transaction Volume in NVT takes into account only on-chain transactions. All the trading activity that happens on exchanges and is, for the most part, speculative is not included in this volume.

This Forbes article argues that NVT can be successfully used to detect bitcoin price bubbles when valuation is not supported by fundamentals and differentiate them from consolidations. The chart below concisely illustrates this argument.

This chart also greatly illustrates what we at Cryptolab Capital don’t like about NVT in its current form. The spike in NVT follows the bubble with a considerable lag of a few months. Peak NVT coincides with the middle of a correction period. NVT is neither predictive (doesn’t precede the overvaluation), nor descriptive (doesn’t coincide with it). You can only detect the bubble a few months after it bursts.

Rethinking NVT ratio

Trying to dissect this issue and improve this ratio, we started by looking at the ratio definition:

“Ratio has been smoothed using moving averages, 14 day forward and 14 day backward facing…”

Mathematically speaking, this means the following:

Hereinafter:

  • NVT_Classic stands for “Classic definition of NVT”
  • 28 MA is “28-day Moving Average”
  • NV is “Network Value in USD”
  • TV is “Transaction Volume in USD”

Let’s pause here and look back at the conceptual meaning of NVT. In this ratio, Transaction Volume is used as a proxy for fundamental network utility value. When you look at Transaction Volume on a daily basis, there is a lot of noise, so I completely agree with the decision to smooth it by using a 28-day Moving Average. But we asked ourselves a few questions:

  • Why 28 days, and not 10, 30, 90, or 180? A 28-day average might be not enough for a truly fundamental metric.
  • Why 14 days forward and backward? If we are trying to develop a predictive, or at least descriptive, indicator we shouldn’t rely on future data.
  • Do we need to smooth both parameters — ratio as a whole — or just the denominator?

We then experimented with different Moving Average periods, and came to an empiric conclusion that the optimal solution is to divide daily Network Value by 90 days Moving Average of Transaction Volume. So here’s a definition of our new NVT ratio:

Comparing old and new NVT for bitcoin

Source: author’s calculations

As can be seen from the chart above, when we move from a 28-day Moving Average to a 90-day Moving Average NVT definition, we get rid of the time lag issue described above. We can also see that every time NVT went to the Yellow or Red zone (autumn 2013, spring 2014, December 2017), a price correction followed.

We claim that this refined NVT ratio is a better descriptive metric of bitcoin bubbles. Conceptually, this makes sense. Given that Transaction Volume in NVT is a proxy for fundamental utility value of the network, a 90-day Moving Average is a better proxy for long-term fundamental value than a 28-day Moving Average.

Let’s now look at the recent bitcoin price performance using the refined NVT ratio in more detail. From January until mid-December 2017, bitcoin has appreciated almost 20x. For the most part of this rally, though, NVT ratio has stayed in the Green Zone. However, in December when price reached almost $20,000, NVT went into the Yellow for a few days. This rapid appreciation was shortly followed by a 30% price correction, and another even steeper price correction in the last weeks. After the correction, NVT has returned to the Green zone. This is another empiric evidence in support of 90 MA NVT.

Looking at the chart below, it is much harder (if at all possible) to foresee the December 2017 correction. Quite the opposite, during late 2017 price rally, NVT went down! How can it be?

Source: author’s calculations

There is a non-static non-linear relationship between the numerator and denominator of NVT. Every time there’s a sharp increase in price, there’s growth in trading activity (off-chain transactions) that is shortly followed by on-chain transaction volume growth as investors liquidate their positions. Exchanges and wallets trade with each other to provide liquidity to their users. All this activity increases on-chain transaction volume, even though it is fully speculative.

In other words, the cryptoassets exhibit reflexivity. In the short run, the price changes the fundamentals. In this case, transaction volume follows price. I don’t want to go into much detail on this, but I can refer you to an excellent article on the topic by the Coinmetrics team: Mean-reversion and reflexivity: a Litecoin case study”.

So why does a longer period average result in a better indicator? Intuitively it makes sense. By definition, the role of Transaction Volume in the NVT denominator is to be a proxy for fundamental utility that users get from using the network. A longer smoothing period helps to get rid of the reflexivity effects described above — spikes in transaction volume that follow sharp price increase. These irregularities are speculation-driven and are bad descriptors of fundamental intrinsic utility of the network. When we remove these irregularities, we end up with a better proxy for fundamental value in NVT denominator, and, as a result, the new NVT ratio becomes a better descriptor of price level.

Analyzing Litecoin using the refined NVT

Source: author’s calculations

Looking at the chart, we can see that there were at least 3 cases since 2013 when the same logic applied: price spikes coincided with, or in some cases were even preceded by, spikes in 90-day NVT

  • Autumn 2013
  • Summer 2015
  • Autumn 2015
  • Late 2017

However, in a few cases it didn’t work as well. Those cases are usually explained by a strong trend or some big external news:

  1. In late 2014, an NVT spike happened during a one-year-long price correction, and the price just kept going down. A similar dynamic can be seen on the BTC graph above during the correction of the second half of 2014. NVT spiked a couple of times while BTC price was steadily declining.
  2. Most interestingly, in April 2017 NVT spiked really high, but price actually went up! Here there were a couple of strong external factors: (1) SegWit adoption speculation, and more importantly, (2) listing on Coinbase in May that propelled asset price to a whole new level and moved LTC to another league. The price did increase significantly, but the fundamentals shortly followed.

Despite these exceptions, the descriptive power of the refined NVT for detection of overvaluation is still quite strong. It is definitely stronger than that of the currently used NVT.

Using new NVT for BCash

Source: author’s calculations

BCash is quite new, and its history has been full of breaking news, hostile attacks on bitcoin, and other exogenous events. Given this, it is hard for us to define the limits of the Green, Yellow, and Red zones for this currency. If we were forced to state Cryptolab Capital’s opinion, we would likely say it is rather overvalued at the moment, the NVT might still be in the Red zone, and the fundamentals have to catch up for the price to make sense.

But one thing that can be seen from the chart above is the sharp NVT spikes coincide perfectly with local price maxima. Yet another win for redefined NVT.

Summary

For every investor it is of crucial importance to understand what is going on in the market right now. As a result of Cryptolab Capital research, we have designed a metric that describes price bubbles well and without a time lag across different time periods and assets.

There is, however, another more fundamental weakness of NVT. It only takes into account total value of on-chain transactions, but it doesn’t factor in the number of transactions or the number of addresses (wallets) participating in these transactions. Let’s call this metric Daily Active Addresses (DAA).

For internet companies, especially marketplaces, social networks, and other businesses with strong network effects, the analogous Daily Active Users (DAU) indicator is one of the most important performance and valuation metrics. This and other metrics that now make up the language of valuing internet companies didn’t exist in the 1990s. It has been developed by technology investors over the last 20+ years. Similar valuation framework for cryptoassets is yet to be developed and is only starting to form.

In our next post, we will try to contribute to this framework and propose a way to use Daily Active Addresses (DAA) in cryptoasset network valuation.

Acknowledgements

I wanted to thank a few people who contributed to my understanding of cryptoasset investing, and gave valuable feedback in the process of this research:

Source: https://medium.com/cryptolab/https-medium-com-kalichkin-rethinking-nvt-ratio-2cf810df0ab0


Rep. Tyler Lindholm is a rancher in Sundance, Wyoming, and a Republican member of the Wyoming House of Representatives
. Caitlin Long, a Wyoming native, is former chairman and president of Symbiont and a former managing director of Morgan Stanley.

Wyoming is stepping up to welcome the blockchain community with open arms.

A grassroots group, the Wyoming Blockchain Coalition, has garnered significant momentum to pass a package of legislation that would bring significant benefits to both the blockchain community and the State of Wyoming.

The package of blockchain bills, which will be introduced during the upcoming session in February, will build on two characteristics of Wyoming that make it particularly attractive to the blockchain industry: zero corporate income or franchise taxes, and strict privacy laws governing LLCs formed in the state.

Companies don’t need to move to Wyoming physically to take advantage, just as most Delaware corporations aren’t located in Delaware. But but there are real reasons why businesses might want to move there. Cheyenne, the state capital, has tremendous fiber-optic bandwidth and cheap power that is already attracting major data centers to locate there, for example.

And our initiative has active support by officials at the state’s only university. So Wyoming has “good bones” upon which to build a regulatory framework to attract the blockchain sector.

Licensing exemptions

The blockchain community is likely to be most excited by one of the bills just introduced, H.B.0070, which would exempt tokens issued on an open blockchain from Wyoming’s money transmitter and securities laws, as long as the token has not been marketed as an investment and is exchangeable for goods or services. This bill would also exempt token exchanges (or people exchanging tokens) from being deemed broker/dealers under Wyoming law. The bill has garnered senior co-sponsors, including the Speaker of the House.

As always, whether a token would be considered, under Wyoming law, either a security or exempt pursuant to the new legislation, would be a facts-and-circumstances analysis. Businesses should seek their own legal counsel.

We view non-securities blockchain tokens as a new asset class that is neither money nor securities, and therefore believe existing money transmitter and securities regulations should not apply.

In many cases, for example, such blockchain tokens are simply prepaid software licenses. If tradeable gift cards and prepaid cell phone minutes are not regulated as money or securities, why should prepaid software licenses fall into those categories?

In many states, they do. In Wyoming, they should not, and we are optimistic that the legislature will agree.

Wyoming’s consumers will be protected by its strong anti-fraud and consumer protection laws, which we believe are sufficient to deter bad actors from doing business in the state. And businesses should analyze whether federal securities laws would still apply.

Other measures

The Wyoming Blockchain Coalition also supports two other bills as part of the package for the February session.

The so-called „bitcoin bill,“ H.B.0019, proposes to exempt virtual currencies from Wyoming’s money transmitter laws. Alone, this legislation will allow businesses that pulled out of Wyoming in 2015, such as Coinbase, to operate in Wyoming. This will add a vital new industry to the State’s financial sector. It, too, has garnered many co-sponsors, including the President of the Senate.

The third bill, the so-called „filings bill,“ would enable the Secretary of State to collect registrations on a blockchain, similar to that enacted by the State of Delaware last July. It would cover the filings made for corporations, LLCs and UCC financing statements. The goal of this legislation is to allow the official record of ownership and the official record of changes of ownership to exist on a blockchain. Eventually this will allow the State, counties, municipalities and businesses to eliminate paper trails such as deeds, titles and receipts.

LLC City

Wyoming led the way when it passed the nation’s first LLC law in 1977, and it can again be first by offering the ability to register LLCs on a blockchain. This could attract meaningful business to register in Wyoming, as academic research shows that nearly two-thirds of new companies that register in the U.S. are LLCs.

New types of LLC users, such as those seeking to limit liability for autonomous cars and other internet of things (IoT) devices, could be attracted to efficiencies enabled by blockchain-registered Wyoming LLCs. This is especially true for series LLCs, which is another initiative supported by the Wyoming Blockchain Coalition.

LLCs are so popular in Wyoming today that there is almost one for every two citizens of the state.

Wyoming can become a haven for the blockchain sector, building on its already-attractive attributes, if the package of blockchain bills are enacted. The bills provide tremendous benefits for blockchain businesses that either locate or register in Wyoming, as well as significant upside to the State. We welcome the blockchain community’s support in bringing these efforts to fruition.

As we say in Wyoming, let ‚er buck!

The authors wish to thank David Pope, Rob Jennings, the Wyoming Blockchain Coalition and Coin Center for their assistance.

Source: https://www.coindesk.com/haven-blockchain-case-wyoming