The World of Digital Currency - Societies World of Digital... · The World of Digital Currency ... • Type of digital token which relies on cryptography. ... (essentially) an online

Digital Currency Labs Inc. – Copyright © 2015

The World of Digital CurrencyPresentation to CFA Society – Naples, Florida

______________________________________________________

Ron Quaranta, Chairman - Wall Street Blockchain Alliance

December 8, 2015 1

“In the future, virtually every function in the world of Financial

Services will be displaced, disintermediated and

decentralized.”

Wall Street Blockchain Alliance – Copyright © 2015 2

• Inter-person/community trade began 150,000 years ago.

• Barter person to person, within tribe or between tribes.

• Trust became increasingly difficult; barter grew inefficient.

• As barter became widespread, it was aided by credit,

brokerage.

• Development of money as a unit of account to price items.

• Rise of organized barter exchanges; overcame limitations of

barter.

• Barter exchange operates as a broker and bank.

A Bit of History

3Wall Street Blockchain Alliance – Copyright © 2015

Our technology has finally caught up with our desire to transact,

without the need to trust the other party, and without the need for an

intermediary.


“Finance 2.0”

• Internet gave us a powerful way to share and access information.

• Bitcoin now gives us a powerful way to share and access value.


• Digital currency = internet based form of currency or

medium of exchange.

• Not physical like banknotes, coins, but exhibit similar

properties.

• Instantaneous transactions.

• Borderless transfer-of-value/ownership.

• Includes virtual currencies or cryptocurrencies.

• Not the other way around!

• Began in ‘90’s; Internet bubble.

• Can be used real world; facilitate payment for physical

goods and services.

What is a digital currency?


Cryptocurrencies

• Type of digital token which relies on cryptography.

• Cryptography – is practice of techniques for secure

communication.

• Data confidentiality.

• Data integrity.



Cryptocurrencies (cont’d)

• Authentication.

• Non-repudiation.

• Chaining together digital signatures of token

transfers.

• Peer-to-Peer networking; decentralization.

• Proof-of-work creates and manages.



• Bitcoin is (essentially) an online payment system.

• Invented by Satoshi Nakamoto.

• Published “Bitcoin: A Peer-to-Peer Electronic Cash

System” in 2008.

• Released as open-source software in 2009.

• The system is peer-to-peer; transact directly without

needing intermediary.

• Transactions verified by network nodes.

What is bitcoin?


• Recorded in public distributed ledger; the

“blockchain”.

• Ledger unit of account is the bitcoin.

• No central repository; no single administrator.

• Thus it is a decentralized digital currency.

• Largest of its kind in terms of total market value.

What is bitcoin?


Characteristics of bitcoin:

• Decentralized.

• Anonymous.

• Completely transparent.

• Easy to set up.

• Immutable.

• Fast, relatively speaking.

What is bitcoin?


Graphic - How It Works (courtesy American Banker)


• Ripple

• Ethereum

• Litecoin

• Dogecoin

• Stellar

• PeerCoin

• Dash

Other Digital Currencies


• Ripple

• Ethereum

• Litecoin

• Dogecoin

• Stellar

• PeerCoin

• Dash

• Over 675 digital currencies, as of 12/1/15!

Other Digital Currencies


• Core value = blockchain.

• Most secure record-keeping technology

ever devised.

• Every bit of information stored on an

immutable time-stamped list.

• Replicated on servers across the globe.

Bitcoin, Blockchain & Modern Financial Markets


•Blockchain is also a platform that can be coded and

built upon.

- Smart Contracts

- Asset creation/exchange

• Totally distributed 1-2-1 networks that can connect

anyone anywhere in a totally anonymous way—and

build value between people.

•Blockchain solutions as an online general ledger has

barely been explored…

Importance of blockchain and additional use cases


Blockchain getting a lot of attention!


Financial Institutions of All Types Getting Involved


• All time total of funding = almost $1 billion.

• Funding bitcoin infrastructure companies that

provide payment systems, exchanges, wallet

services, analytics, etc.

• Prominent VC’s:

- Peter Thiel

- Tim and Adam Draper

- Marc Andreessen

- Barry Silbert

Venture Capital Money and Trends


Bitcoin Has Its Critics

Berkshire Hathaway CEO Warren Buffett:

“Stay away from it. It’s a mirage, basically…

…The idea that it has some huge intrinsic value is just a joke in my view.”

Economist Paul Krugman:

“Bitcoin is Evil…”


• “It’s a Ponzi Scheme/Scam”.

• “They’re all like Mt. Gox”.

• “Only illegal activity happens in BTC.”

• “It has no intrinsic value”.

• “Anarchists trying to tear things down”.

• “Gov’t intervention/regulation will end it”.

Past Perception in Financial Markets


But…in 1998:

Revisiting Critics

“…By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater that that of the fax machine’s”.


Critics Miss The Point

• Many concerns have nothing to do with

Bitcoin.

• Not just about bitcoin, the “currency”.

• Technology will revolutionize how we

transact.

• Improve money remittances worldwide.

• Better, cheaper, faster payment processing.

• Servicing the unbanked and under banked.


2015 was a transitional year:

• UBS, Barclays, JPM etc launch blockchain

innovation groups.

• ItBit gets Banking Charter license.

• Finalization of NYS BitLicense Requirement.

• TeraExchange adds former head of NYSE.

• Coinbase enables high frequency trading.

• NASDAQ to trial blockchain technology.

• Overstock launches T0 (“tee-zero”).

Developments over the past year


Still Going Through Adoption Chasm & Trough of Disillusionment


Gold and Bitcoin:• Late 2014 – some analysts found positive

correlation between gold and bitcoin. • Magnitudes of change relatively similar in size

and direction. • Growing liquidity and institutional interest

showing bitcoin maturing into commodity assetfor trading or portfolio purposes.

• Bankchain from ItBit.

Price Behavior, Volatility and Correlations


Equities and Bitcoin:

• No significant long term research showing strong

correlation between bitcoin and common stock prices.

• Stock prices of large cap IT companies (Google, etc)

displayed medium to high correlation with the price of

bitcoin (above +0.6) in mid to late 2014. (courtesy

1CoinPool.com)

• In fact…during broad equities market volatilities in

October 2014; bitcoin prices displayed a negative

correlation; relatively quiet amidst the market turmoil.



• Fundamental Analysis: examining underlying forces of economy, company, security.

• No earnings, debt levels, etc to calculate NPV for example.

• Leaves us with proxy categories:


a. Core Developer changes – very rare news event; confidence indicator.

b. Miners – the grease of the bitcoin infrastructure; news tends to be negative price indicator.

c. Digital Currency companies – innovation, new instruments, etc.; liquidity and interest indicator.

d. Corporate bitcoin view – news tends to be positive with adoption.

e. Government intervention and oversight – positive and/or negative.


Digital Currency Labs Inc. – Copyright © 2015 29

• Technical analysis: forecast direction of prices based

on past markets data.

• Primarily historical prices and volumes.

• Each “candle” shows opening price, lowest and

highest price for given time period as well as closing

price.

• Color of candle body indicates whether closing price

was higher than opening (“up-bar”), or lower than

opening price (“down-bar”).



• Some analysts have found clear trend lines and trend channels for bitcoin prices.

• Price trends are highly fractal in nature; they appear very similar, no matter the time frame/zoom factor used.


Copyright © 2015 – Coin Telegraph

• “Long-Term - The 1-year chart (long-term) of Bitcoin remains bearish. The price continues to decline, and remains below all 3 of its Exponential Moving Averages (EMAs). The 50-day EMA will continue to be a major resistance area and right now, that is approximately at ~US$242.”

• Short-Term Trend - Looking at the short-term trend (April 23 high) using Fibonacci retracements, the short-term price trend is finding resistance at the .764 price level of US$231. If it breaks below US$224, then US$220 and US$216, the short-term low of ~US$210 should provide support after being tested, as it was near the low of the latest move. If this doesn’t hold, US$200 will certainly be tested. If the price can break above US$228 it could test ~US$231 as well as the short-term high of ~US$238. A higher price is just a countertrend move until proven otherwise and the resumption of the primary downtrend should continue.”



Copyright © 2015 – Coin Telegraph


• Financial Planning Association (FPA) asserted that for many investors, bitcoin represents a potential opportunity that could both diversify and boost the efficiency of a portfolio.

• Compared performance of bitcoin with other major asset indexes.

• FPA noted: “Trading and investing in a virtual currency, such as bitcoins, is readily accessible to individual investors… given these observations, and the conclusions from the empirical analysis, individual investors can benefit from holding a small amount of bitcoins in a diversified portfolio.”

Is There a Place for Digital Currencies in Investment Portfolios?


• This seems (at least currently) to be a professional investor or trader game.

• Bitcoin funds - first regulated bitcoin fund (GABI) established in Jersey.

• Winklevoss Bitcoin ETF.

• Bitcoin Investment Trust (Barry Silbert / Second Market); operates more like a closed end fund.

Who Should “Invest” in bitcoin?


• Reduced cost of trading.

• Reduced cost of compliance.

• Greater transparency to regulators.

• Smart Contracts, Smart Property.

• Major disruption across a broad range of industries, not just financial services.

Promise of Digital Currencies; What They Mean for Financial Markets in the Future.


The financial markets are changing.

Learn the technology.

Understand how it can be used.

Mainstream banking acceptance sooner than you think.

Prepare for how it will impact your business.


Thank YouRon Quaranta, Chairman, Wall Street Blockchain Alliance

[email protected]


Documents

The World of Digital Currency - Societies World of Digital... · The World of Digital Currency ... • Type of digital token which relies on cryptography. ... (essentially) an online