Ethereum fights off its ‘killers’

On By mehranmuslimiblogIn EthereumLeave a comment

Ethereum has hit another all time high (ATH), even though the gas fees associated with using some complex DeFi protocols has increased above $1,000. This makes many decentralized finance protocols unusable for casual investors, with average Ethereum transaction fees now at a record $17.67, according to Cointelegraph. However, Bitcoin’s gas fees are not much lower.

But this is not deterring DeFi developers, who appear to be abandoning the so-called ‘Ethereum killers’, such as EOS, and sticking with the old guard. According to a Blockchain Development Trends report by venture capital firm Outlier Ventures, reported by Cointelegraph, “Ethereum remains the most actively developed blockchain protocol, followed by Cardano and Bitcoin.” The report adds, “while some new platforms such as Polkadot, Cosmos, and Avalanche are seeing an increase in developer activity, many of the traditional Ethereum competitors are seeing a decline in core development.”

You can read the Outlier Ventures Full Report here.

DeFi strength supports Ethereum

Certainly in 2020, the majority of DeFi platforms were Ethereum based, and even now “Ethereum still remains the king overall though, with 14% more developer activity than its closest rival, Cardano, and almost double that of Bitcoin in terms of commits,” Outlier Ventures says.

“Ethereum miners have been the key beneficiaries of the fee spike. The industry earned some $830 million in ether last month with 40% attributed from fees alone,” Coindesk reports, also noting that the increase in fees correlates with ETH’s current bullish price run, which also reflects the high demand for ERC-20-based tokens for stablecoin and DeFi projects.

It would also appear that Ethereum’s new ATH is bringing DeFi tokens along with it. Coindesk says: “According to research firm Messari, after ether went on a tear several DeFi tokens including chainlink (LINK), sushiswap (SUSHI) and aave (AAVE) followed the bullish trend, logging historic high prices Wednesday.”

Hunain Naseer, senior content editor at crypto exchange OKEX’s research unit, OKEx Insights said: “Ether made a significant push [since Tuesday] and that is causing projects linked to the DeFi space – as well as DOT, which is seen as a potential ‘Ethereum killer’ – to appreciate and aim for new all-time highs.”

Ethereum also got a big push from Grayscale, which added approximately 24,800 ETH on Tuesday, then worth more than $37.8 million, and it reopened its Ethereum Trust (OTCQX: ETHE) for accredited investors. This had been closed in late December, but as of 29th January 2021, the Grayscale Ethereum Trust had more than $4 billion in assets under management.

What is causing this price drive? It is thought that more investors are starting to see value in the projects behind these DeFi tokens, so market excitement is building. And with so many on the Ethereum blockchain, it seems the Ethereum killers may have more of a fight on their hands than they realised.

Shorting: how to do it like a hedge fund

On By mehranmuslimiblogIn TipsLeave a comment

‘Shorting’ has become the talk of the town, following the GameStop share-buying story. But what does shorting really mean, and why might it have value, rather than being seen as an attempt by ‘robbing’ hedge funds to ruin a business?

A recent tweet from Elon Musk got a lot of attention:

“u can’t sell houses you don’t own, u can’t sell cars u don’t own, but u can sell stock u don’t own!”

And that, in brief, describes shorting. It stems from the fact that there are always some stocks that are of “short interest”, which is finance-speak for stocks that investors believe will go down in price in the future. That’s what certain hedge funds thought about GameStop.

It may seem odd to those of us who think in terms of investing in stocks in the hope the value will go up. Shorting is just the opposite: using this method investors attempt to profit from a stock’s price going down instead of up. As Rob Isbitts says in a recent Forbes article: “short selling is to investing what sword-swallowers are to entertainers: it is way, way at the high end of the riskiness spectrum.” So, it’s not something to try at home, in other words.

How do investors ‘short sell’ stock?

It’s definitely more complicated than buying a stock and then selling it. That’s the easy option.

The thing to remember is that the stock market revolves around ‘valuing’ a business. A business launches a new product that proves popular, and its share value rises. That’s what most investors look for: a company that is producing something which is perceived as valuable. Short sellers have a very different approach.

As Isbitts’ says: “They look for businesses that the market thinks too highly of. In other words, businesses that are, in their judgement, “overvalued.”

Hedge funds and others are always analysing markets, and often they are looking for stock selling at a higher price than they believe it is worth. Now, if they buy that stock there is no way that they can make a profit from their ‘buy’, because they predict it will be going down. However, their research has shown them an opportunity to sell the stock short.

In order to do this, they ‘borrow’ shares of the company they want to short from a broker. These shares are then owed to the broker at some point in the future. When they return them, they receive the profits of the short sale. Isbitts sums it up neatly: “If the stock price goes down, those same shares will be worth less than the short seller received. That allows them to repay those shares to the broker, but pay less to do so than they received when they shorted.”

There is of course a lot of risk involved in doing this, as a few hedge funds found out after the r/WallStreetBets community pushed the share value of GameStop up.

If you invest $5000 in shares priced $50, the most you can lose is $5000. But if you enter into a short on stock that is valued at $50 per share, and the share price rises to $500, then you owe the stock back to the broker at the new price of $500, not the $50 you shorted it at. In other words, you have lost a lot of money, because you never owned the stock in the first place.

The hedge funds believed that GameStop’s share price would fall, and so initiated short sale trades, but got caught out by a large group of retail investors who followed the crowd.

Whatever Elon Musk might say, shorting is not a scam: it’s an investment position, largely based on research and opinion about a company. What happened with GameStop is not necessarily good news for the small guy. They may go searching for other companies that have been heavily shorted and attempt to repeat their GameStop action. But tracking down overvalued businesses in a bid to make money could really bite them on the ass. This has been a particularly crazy episode, and it appears the subredditors have turned their attention to silver this week. Let’s hope that in this case ‘every cloud does indeed have a silver lining’.

The Gamestop frenzy that shocked Wall Street

On By mehranmuslimiblogIn Blockchain, cryptoLeave a comment

Shareholders in video game retailer, Gamestop, have had a fantastic week, especially the top three thanks to a “frenzied dual between Wall Street traders and small investors, “ as The Guardian reports. Please note that it’s a story so big that has hit the MSM as well as the crypto media.

On Wednesday, the company shares hit a fresh “52-week high of $354.83, making the 13% stake held by Ryan Cohen, 34, GameStop’s largest single shareholder, worth more than $1.3bn.” CNBC reported that Cohen’s wealth   increased an average of $90m a day, or nearly $4m per hour over the last two weeks. The other two major shareholders, Donald Foss and George Sherman made $500m and $350m respectively. Let’s not forget that the stock was trading at less than $20 per share earlier this month. However members of a subreddit group believed Gamestop stock was under attack by a hedge fund that had disclosed a large short position in the stock.

For these small investors the action took place in a Reddit chat room called r/WallStreetBets, where they organised their strategies, their aim being to beat Wall Street traders and funds, such as Black Rock, which holds Gamestop shares now valued at $3 bn. The subreddit members coordinated a pump action on the stock on Reddit, which was executed by individual traders using platforms like TD Ameritrade and Robinhood.

What happened is that these subreddit small investors poured their money into the retailers stocks, while the hedge funds, which had been betting against Gamestop ultimately lost billions. The action became so heated that even the Biden administration announced they were monitoring it.

Over at Cointelegraph, the commentary is focused more on the implications for decentralization. It says, “The success of the GameStop short squeeze in pumping the price above $370 has highlighted the need for decentralized finance, according to some in the crypto industry.”

Why are they talking about decentralization? Because, “Various centralized trading platforms have now put limits on trading the stock and the president of NASDAQ — the exchange on which GME is listed — suggested that trading could be temporarily halted on stocks deliberately targeted by internet users, in order to give investors a chance to ‘recalibrate’.”

Anthony Scaramucci of SkyBridge Capital, believes these recent events surrounding GME are good for crypto and especially bitcoin. He told Bloomberg, it was “more proof of concept that Bitcoin is going to work.”

Furthermore, thanks to activity by derivatives and futures specialists FTX, which has listed a tokenized version of Gamestop futures that can be traded against crypto collateral, the price of GME opened at $354.83 on Wednesday, representing a 140% gain overnight. Keep an eye on this story, as it could be the beginning of something very interesting.

Biden puts crypto wallet regs on hold

On By mehranmuslimiblogIn crypto, Governments, Regulations, Smart ContractsLeave a comment

Finally the inauguration of Joseph R Biden, 46th president of the United States took place on 20th January, and the whole event concluded without so much as a sneeze. He didn’t waste time when he sat down at the Resolute desk for the first time, signing a swathe of executive orders that overturned some of his predecessors more contentious policies, such as leaving the Paris Climate Agreement. As of yesterday the USA is back in, for which many are thankful.

However, there was something else he did that is of great interest to the cryptocurrency community. He put a freeze on FinCEN’s proposed crypto wallet regulations proposed by former Treasury Secretary, Steve Mnuchin, a known ‘hater’ of crypto. These rules would be detrimental to the crypto industry and were already seen as controversial.

Cointelegraph says: “The announcement came in a White House memorandum for the heads of various federal agencies, the Financial Crimes Enforcement Network (FinCEN) included.” As it remarks, the wallet proposal wasn’t specifically mentioned, but it comes under the general edict.

Mnuchin’s seldf-hosted wallet proposal, which alarmed the crypto industry, if passed, “would require that banks and money service businesses submit reports, keep records, and verify the identity of customers who make transactions to and from private cryptocurrency wallets.”

This goes against the basic philosophy of decentralization, and as Jack Dorsey said, “counterparty name and address collection should not be required for cryptocurrency just as it’s not required for cash today.”

Other critics of the proposal also pointed out that anyone using smart contracts, as one example, couldn’t comply with the proposed regulation, because “smart contracts do not contain name or address information.”

Now we must wait and see what Janet Yellen, the new Treasury Secretary will do. She is not known for being a massive fan of crypto, but some industry insiders see her in a positive light. Compound Finance General Council Jake Chervinsky is optimistic, saying: “We fought hard & earned the right to take a breath & reset. Janet Yellen isn’t Steve Mnuchin. I’m optimistic.” He believes that unlike Mnuchin, Yellen will be more open to learning about crypto and listening to its experts when it comes to making decisions about new regulations. Furthermore, as everyone has been pointing out for weeks now, Biden appointed Gary Gensler to head up the Securities and Exchange commission, and he appears to be much more sympathetic to the idea of decentralization than those who went before him.

It’s early days, but it would seem that we are entering a period of compromise, rational thinking and cool heads, and this may just be what the US crypto industry needs to progress.