The Hard Fork – Weekly Market Commentary

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This Week’s Topics:
1) Bakkt futures launching next month
2) Zcash mining profitability hits recent lows
3) Coinbase acquires Xapo, reaches $7bn in assets

 

Indices Round-up

TradeBlock Index Asset1 Price ($) 7d∆2
ECX Ethereum Classic 5.60 -3.14%
BCX Bitcoin Cash 320.45 -3.23%
XRX XRP 0.28 -4.71%
XMRX Monero 86.07 -4.90%
ETX Ethereum 199.64 -5.90%
XBX Bitcoin 10,671.95 -5.96%
XLMX Stellar Lumens 0.07 -6.32%
ZCX Zcash 53.57 -7.07%
EOSX EOS 3.73 -9.73%
LTX Litecoin 77.44 -10.69%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 08/12/2019 06:00 ET thru 08/19/2019 06:00 ET.

7 day price movers

Digital currencies extended their losses on the week as global equity markets were roiled on recession fears. Last week, the yield curve on US government issued bonds inverted, as the yield on the 10-year Treasury temporarily fell below the yield on the two-year Treasury for the first time since 2007. While bitcoin has behaved similar to gold in the past, which acts as a safe haven asset and should outperform on recession fears, it has also resembled risk-on assets such as US equities over certain periods.

Among our indexed currencies, LTX declined the most, losing 10.69% on the week. Conversely, ECX traded down the least, falling 3.14%.

 

Bakkt futures launching next month

Last week, the derivatives exchange Bakkt announced that the firm received approval from the NY Department of Financial Services (NYDFS) for a NY state trust charter. With the charter, Bakkt now has the green light to physically custody bitcoin. The exchange had already received approval from the CFTC earlier this year.

Bakkt expects to launch its physically deliverable bitcoin futures offering as early as next month. The exchange’s product offering is expected to pave the way for additional institutional adoption of bitcoin, which has been limited as exchanges faced custody challenges due to exchange attacks and fraudulent exchange practices. Bakkt’s bitcoin futures product will be under the purview of the CFTC and follow the same regulatory and compliant standards as the firm’s parent company, The Intercontinental Exchange (ICE).

 

Zcash estimated mining profitability hits recent lows

We estimate that zcash mining profitability for a commercial operator has declined to a recent low, as the price has slumped over the past several weeks. While TradeBlock’s ZCX Index had seen considerable gains in March and April, as the digital currency space rallied, recently ZCX has declined relative to other digital currencies, including bitcoin and ether. Zcash is down a few percentage points year-to-date, while bitcoin is up ~170% and ether is up ~50% over the same time frame.

Zcash’s price decline comes as its founders and the community deliberate and publicly debate how best to move forward with development incentives as the network’s “founder’s reward” is set to end next year. The founder of zcash, Zooko Wilcox, has recommended that the community vote to extend the founder’s reward or the network risks losing considerable development from Wilcox’s Electric Coin Company–which has been using proceeds from the founder’s reward to increase development and promote the zcash network.

Despite the recent slump in prices, the zcash network hash rate has risen close to all time highs before declining modestly recently. Given the falling zcash prices, but the sustained network hash rate, we estimate that zcash mining profit margins have compressed to recent lows. In the figure below, we diagram estimated gross zcash mining profits over time for a commercial operator, assuming blended device price points, low electricity cost locations, and power usage effectiveness of traditional mining warehouses.

Figure 1: Zcash mining profitability over time

Data for chart sourced from the the TradeBlock Professional Platform

 

Coinbase acquires Xapo, reaches $7bn in assets

This past week, Coinbase announced that it has acquired Xapo’s institutional digital currency wallet and custodial business. The acquisition allows Coinbase to significantly grow its institutional custodial business, which has now become the largest digital currency custodian by the amount of assets under custody (AUC). Over the past year, Coinbase has dramatically increased its AUC, rising to just over $7 billion.

Coinbase’s custody business has grown especially quickly over the last several months, seeing a 350% growth in AUC over the most recent one month period. Additionally, Coinbase can offer a range of products to its custodian clients, including staking services which have seen an increase in interest lately. In our report last month on staking services, we diagrammed the recent growth in the amount of capital that is being staked across various proof of stake (PoS) networks. Staking has allowed digital currency holders the opportunity to receive a yield on their assets, with some networks offering yearly pay outs of more than 100%.

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