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Crypto for Normies

This series of posts is geared towards people who are new to crypto and want to figure out the best way to start trading. The most logical place to start is trading different coins and analyzing the differences between them. This will naturally lead us to discussions on the current trends in the overall ecosystem. If there is a topic that you would like to explore please feel free to leave a comment.

I think it is safe to assume that if you took the time to follow this link you are somewhat familiar with Bitcoin. In case this assumption is wrong here are a few highlights.

  • Reached new all time highs continuously for the past month
  • Current value: $52K
  • Increasing institutional adoption
  • Posseses many of the same monetary qualities as gold but without the overhead (storage, security and transmission)
  • Use cases: scarcity and a hedge against fiat currency debasement
    People can argue about valuation of Bitcoin but the purpose of Bitcoin is pretty straightforward. It is a store wealth of a hedge against inflation.

Bitcoin is the first crypto currency and also has the most liquidity. Every major exchange supports Bitcoin and has the most exposure in the media. Most newcomers to the space will almost certainly start trading with Bitcoin. As most major exchanges also support many other tokens many investors will quickly avert their attention to these alternatives. Making sense of these alternatives is quite challenging. There is a debate between the fundamental analysis and technical analysis camps in crypto, but I feel both have a place. The best method of trading really depends on the timelines of your trades.

The next currency most people look at is Ethereum. Bitcoin is very limited in what it can do. For the sake of this discussion Bitcoin can really only transfer coins between parties. This alone is immensely valuable to a lot of people as evidenced by its price. Ethereum took the Bitcoin idea and made it programmable. With Ethereum, instead of just simple transfers of value, programmers can write custom programs. If Bitcoin was a calculator then Ethereum would be a PC. I realize that this is still very abstract but hopefully over the course of this and the following posts the difference will become clear.

Both Bitcoin and Ethereum are networks. It is important to note that these networks cannot communicate with each other. There are mechanisms that enable cross chain communication but this will be discussed in future posts. Bitcoin, being a single purpose network only has one currency, Bitcoin. The Ethereum network being programmable supports any number currencies (or tokens) based on one of several token standards. The most common Ethereum token standard is ERC20. The core token of the Ethereum network is ETH. ETH is used to buy access to the compute resources of the network.

While Ethereum was the first programmable blockchain, many others have followed and are currently in the pipeline. Each new programmable blockchain can host any number of tokens. As explained earlier, blockchain networks cannot communicate with one another. The makes it extremely difficult to analyse a token as you need to research not only the token but also the base layer (eg. Ethereum). On the centralized exchanges alone, there are at least a dozen base layer coins mixed in with programmed tokens. While all of this may seem overwhelming most of the future potential will be in these new chains and their associated tokens.

In the next post we will look more closely at the Ethereum network as a trade as well as what it is being used for.

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DeFi is Freedom

DeFi tokens are continuing to rally even as ETH is hitting all time highs and Bitcoin is also showing signs of life again. Sushi and 1inch are up more than 100% in the past 7 days. DeFi shows no signs of stopping and with the shenanigans of the traditional markets in the spotlight I expect interest will continue to grow.

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What is DeFi?

DeFi is an abbreviation for decentralized finance and is a set of services found in traditional finance implemented on the blockchain. The vast majority of DeFi activity is occurring on the Ethereum blockchain but this will most likely evolve as the ecosystem matures. The DeFi ecosystem is based around the ERC-20 token standard.

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Bitcoin double spend scare: What actually happened?

Yesterday the report of the first verified Bitcoin double-spend was making the rounds. BitMex Research posted details of the incident via Twitter. For several minutes the transaction in question showed up in two separate blocks but in the end the protocol worked as designed.

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Ethereum on the rise

Ethereum has started 2021 with a bang seeing it’s price double in the past 3 weeks. Ethereum usually follows bitcoin’s lead in price moves but the past few days has seen ETH continue to climb while Bitcoin has been relatively stable. Part of this divergence can be explained by ETH simply playing catchup with Bitcoin but there is also growing excitement around the ecosystem and its price potential.

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First US digital asset bank conditionally approved

The Office of the Comptroller of the Currency (OCC) has just announced the provisional approval for the Anchorage Trust Company to convert to the first federally chartered digital asset bank. This lays the ground work for the new entity, Anchorage Digital Bank, to offer services that so far have been limited to fiat currencies.

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Regulator clears US banks to use blockchain

The the Office of the Comptroller of the Currency (OCC) provided guidance allowing US banks to use blockchains and stablecoins for payment activities and “other bank-permissible functions”. This will provide less expensive and real time alternatives to the existing networks such as SWIFT or ACH. While there are unique risks involved the OCC recognizes that banks are well suited to manage these risks.

This is likely to add more fuel to the bull market in Bitcoin and Ethereum as both are used to host the most popular stable coins such as USDT, USDC and DAI. This news should also have a positive effect on Ethereum’s growing DEFI ecosystem which uses stable coins as a foundation. This is rare welcome news from US regulators and provides hope that the US is not entirely hostile to crypto currencies. This is in contrast to the December 18 FinCen request for comments on requiring identity verification for unhosted wallets, which if implemented would risk pushing users and exchanges further away from the US.

The OCC guidance can be found here: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html

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ETH Jumps Above $730

After lagging behind bitcoin during the recent bull market we saw ETH peak just shy of $740 overnight. This is the first time since 2018 ETH has seen these prices. Catalysts for the move include spillover from Bitcoin’s growing acceptance as an institutional treasury asset and the launch of ETH futures by the CME in February 2021. As the DEFI landscape matures ETH should also see upward pressure in price from demand for use as collateral.

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Ripple sued by the SEC

The SEC announced it has filed charges against Ripple Labs and two of it’s executives for allegedly raising $1.3 billion through an unregistered and ongoing digital asset securities offering. In 2013 Ripple Labs launched a cross border payments network and minted 100 billion XRP token to be used as the native token of the Ripple network . It is the sale and use of the proceeds of the XRP token that is at the center of the charges.

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A rising tide lifts all boats: Bitcoin passes $23,000

Over night, bitcoin continued reaching new all-time highs hitting $23,441 before easing back. The overnight crypto charts are a sea of green of with the exception of USD pegged tokens.