Cryptocurrencies – Separating the Myths From Reality with Demelza Hays

hello there my friends Chris Marcus here with you for inside the market and today excited to have a new guest on the show who's fortunately going to break down the crypto market for us as Demelza Hayes of the incremental fun in Liechtenstein has just put out a great crypto report I read it again for the second time last night and I appreciate demelza's joining us from the Malta blockchain summit where she was also recognized as one of Forbes 30 under 30 so really doing a lot of great stuff and digging into the Crypt owes a lot so Demelza thanks for joining us today and how is everything going at the conference thank you so much for having me Chris well Malta is a great place this is my first time here and it seems like they're really trying to attract cryptocurrency and blockchain entrepreneurs so it's really exciting exciting week there's over 7,000 people in attendance yeah and you were mentioning that over there a bit of a different environment than in the u.s. regarding the cryptos where as you mentioned in your report often a lot of the regulators and existing infrastructure a little bit nervous about Kryptos yet sounds like a different environment over in Europe that's a great point so I was speaking at the Federal Reserve Bank of Cleveland in late July on cryptocurrencies and then I also attended with the SEC at Wharton in September and my main impression was that the regulators in the US are a little bit less risk Lovings compared to Liechtenstein and Malta they're a little bit more concerned about the ability for this technology to circumvent existing regulations right and at the same time they don't want to stifle innovation so it's it's it's a hard topic for regulators and here in Malta and in Liechtenstein and G part are there actually openly trying to attract business different position yes certainly that's the feeling I've got here where it seems like the banks are in many ways afraid of what blockchain could potentially do of taking away the need for a lot of the banking infrastructure we have and so it's interesting though seeing how in other places that's quite a bit different perhaps to get into it a bit more I know in your report you touched on the bear market obviously the last year or so we've seen the prices of the Kryptos go lower so maybe you could give an overview of obviously there was some manic pricing last year and where things stand right now from everything you're seeing a bear market with Bitcoin since the beginning of 2010 and currently we're in a bear market that's gone on for about 240 days and it has had a drop of over 60% however in the past barracks were often great opportunities to get involved with cryptocurrencies because the bull markets that followed had returns of hundreds of percent of hundreds of percent so there was full markets that had fourteen hundred percent return three hundred percent return and basically you know over the past couple so over the past year Bitcoin has held steady at above 6,000 so Bitcoin across the 6,000 mark last October and now for over a year we've been above 6,000 and that seems to be a strong lower bound for the price of Bitcoin right and where do you see it heading from here obviously there is this debate in the US there's a lot of people who say drip those as a whole or a scam there's no value there I personally disagree with that I mean it seems to me that especially with all the dollars that go missing in the govern and regulation in the US it's essentially an honest accounting system where we actually see where the money goes and things don't disappear in fact there was a I take CNBC with a grain of salt although it was interesting they had an article that 84% of companies are adopting blockchain in some fashion and again like you mentioned I think it is a very different environment outside of the US so in terms of the adoption what do you see happening and is this something that's here to stay or oh it's definitely here to stay in my opinion so in quarter to 2018 the initial coin authoring market raised forty five percent of the initial public offering market in the United States so if you take all the ice notes that occurred in the United States the global ICO market was equal to forty five percent of US and this number is growing every quarter so basically more and more people are issuing tokens in order to raise capital that's one very valuable use case another very valuable use case as you mentioned Chris is being used as a global medium of exchange and store value and there are more and more people that are using Bitcoin and other cryptocurrencies to store value and send value so I think that in general the future is definitely going to have some kind of distributed ledger money and distributed ledger capital market I'm not sure if it's gonna be Bitcoin but I think that this technology is definitely here to stay because many investors are barred from entering certain markets right and this technology allows investors anywhere in the world to decide for themselves if they want to invest or not it also there's lower transaction fees if they do decide to invest so for example if you want to trade stocks when I used to have my account with TD Ameritrade I think it was seven dollars and 95 cents per trade or something like that $6.95 per trade now with ERC 20 tokens I can invest in a startup for fractions of a penny as my transaction fee and I can trade stocks I can trade you know shares of these companies for fractions of a penny also the companies themselves have lower entry to be able to raise capital so if the company wants to raise capital through the normal process it costs a lot of money there's a lot of very good story red tape and with icos any firm anywhere in the world can just go online and offer their product their ideas to people and basically get get get to business right away and so I think that's definitely attractive for many people on the other hand being used as a medium of exchange is especially prior to the last century we've had gold as the global money and a lot of people argue that that was the cause for LaBella pork in France and also the Renaissance in different ways and in the end the way that the capital markets formed in Europe so I think that definitely having a global currency is something that's very attractive to many people yeah I appreciate you pointing that out Demelza because again I find a lot of the coverage here it doesn't actually get into the some of the actual uses where a couple weeks ago I had some money wired ended up taking a couple of hours and was probably about $40 fee versus with some of the cryptos I'm a light going fan myself in particular you know you really it ends up being a lot quicker whether it's a couple minutes and the fee usually is a couple of pennies so it's interesting to hear you're actually seeing more adoption and actual use of the Kryptos rather than just the holding waiting for the price to go up it sounds like definitely it depends on the coin it does seem like certain coins are more designed for store value whereas other points are more designed for babyman exchange so for example litecoin and – our variant seen as meme of exchanges on the other hand bitcoin is maybe more interesting as a store of value because of the high transaction fees however Bitcoin you know currently it has such a large network of users and it also has such a secure network because of the miners that contribute mining power to the network it's it's very secure in the sense that it cost approximately 8 billion dollars to attack the Bitcoin network with a 51% attack litecoin and – have a lower cost of a 51% attack however it's not necessarily a requirement to have such a secure network when you're just being used as a medium of exchange when you have a store value that's very important that people cannot attack it but on the other hand that comes with really high costs right so yeah so I think that there's there's different coins that are fulfilling different purposes and it's gonna be a very interesting future to see how this plays out on the market yeah especially because if my standpoint if they continue to be adopted and used that would have to affect the price at some point right now it's almost I equated similar to a startup where you know the the products are getting exposure but we really especially here in the US we hear a lot of talk but not actually being implemented and used although as you mentioned in your report and I've been looking at for a couple months there is the rumors of an Amazon or Starbucks adoption curious if you have any insight on that heard varying degrees of whether that's going forward or not but certainly would seem to be perhaps the thing that would be able to catch the public's attention and get actually usage here in the US so any thoughts on that proposed deal well I think that's transaction fees that are too high and I don't think that the Lightning Network is going to actually solve the scalability problems with Bitcoin so it seems like if any of these establishments do begin to accept cryptocurrency its most likely going to be a point like – or a coin like iota where they have some micro payments enabled where they can send transactions to firms and they can effectively have very low transaction costs so I'm not really sure what companies will adopt these tokens but I know that – is really making extensive efforts to try to get more and more firms integrated with the – payment Network interesting because actually will be talking with one of the folks from – later this week so I will follow up on that one of the things that you mentioned in your report that certainly for investors is a key question you got into the valuation of the cryptos a bit which certainly again you know whether it's you're looking at a start-up or something where it's not quite an established business model with revenues yet makes Challa a bit of a challenge to figure out how much the thing is actually worth again I know you talked about that in your report which we can have a link to at the bottom of our interview so folks and check it out it really was a great report you put together and again maybe if you can speak to a little bit of the valuation and how people are trying to get a framework might go about looking at some of these points great question Chris well okay basically people are trying to adopt traditional valuation models to the cryptocurrency market so for example you have fundamental analysis where they're trying to basically look at characteristics and try to understand how do currencies what is the actual value use-case and within the fundamental analysis you have relative valuation models and then you have absolute valuation models relative valuation models are basically something like network effects where they try to take for example Metcalfe's law and estimate the value of the Bitcoin network by looking at the number of people that use the Bitcoin network now it's very hard to accurately estimate that because of the pseudonymity involved with this network however for example what you can do is you can take the number of active user addresses per day and this is basically accounts that are sending amounts we can see this on the blockchain so we can see how many accounts per day are active and then what you do is you basically take that as the denominator and the numerator would be the market capitalisation of Bitcoin and then you basically divide the market cap which is the number of shares a number of bitcoins outstanding times the price and then you divide that by the number of active user addresses and then you get some kind of ratio and now you can compare this ratio amongst all the cryptocurrencies so this is a very interesting relative measure and you can also compare it to Facebook for example so right now in our data analysis we found that Facebook has a net network effect ratio of 250 so the market cap is about 500 billion they have 2 billion users approximately 500 billion divided by 2 billion you get 250 it's the same with Bitcoin and Bitcoin right now is at about 30 so you you still see a big difference between Bitcoin and other networks on the other hand you also have absolute value evasion models where they basically try to find a a point estimate for the price there's a very good website called coin fair value and they are basically trying to understand how velocity works with cryptocurrencies and how the demand for these cryptocurrencies will change over time and then what they try to do is they estimate what's called the target market so they basically the target addressable market for each of these blockchain technologies so they'll basically say ok we estimate that if they take that if the claim takes over 1% of Gold's value here's where the price would need to be and then they basically try to estimate velocity and try to see what what the price would would be right on the other hand you have you know kind of technical analysis that's trying to be used to forecast price however I'm not I'm not a technical analyst so I basically try to stick more to the network effects and also a particular area that I'm researching at the University of Lichtenstein is a hash rate so for example I look a lot at how hash rate for different proof-of-work cryptocurrencies changes over time hash rate is very interesting because it's kind of a proxy for interest in them in that particular coin the miners have to dedicate scarce resources in order to mine these coins and they kind of have to guess which coins will be profitable in the future on the one hand you can say that this is this is a proxy and on the other hand when they when they contribute those new resources to the market sorry wasn't it contribute those new resources to the blockchain they are actually making that blockchain more secure right which is giving that blockchain more value potentially which should push the price up so some of the research I've been doing is trying to unravel the endogenous between price and hash rate and basically try to estimate if price can be predicted with hash rate and and I found very good results so far very very high correlation between these two variables and it also it's just it's basically it's you know it's a straightforward concept you add more mining power but them but the more mining power you add doesn't mean that the supply of coins increases because you know like gold if the price of gold goes up people can go and operate a new mining operation and so they can actually you know dig out gold from the earth let that gold hit the market and that kind of is supposed to balance out you know the price starts to go up that attracts new entrepreneurs into the mining or you know more equipment more investment and then more gold hits the market but with Bitcoin no matter how but how many resources you contribute to mining Bitcoin the supply over time is fixed crazy the only thing that matters there is how many people that are storing Bitcoin decide to sell when the price goes up and that's another thing that you can look at you can look at how old old wallets are holding onto their coins because we can see how often a certain wallet sends their Bitcoin and a lot of the older wallets that bought into Bitcoin early on are still heavily invested they're not letting go of their coins and we can see this so we can see what supply of old coins so to speak are hitting the market and there's been some very nice research on this is called the Hodel wave and it was done by a company called Unchained capital and it's a very good analysis of how people are storing their coins when the price goes up still and the mining equipment the might that the remaining resources do not actually increase the supply so it's a very you know that the supply of Bitcoin is very inelastic to changes in demand and that really makes a unique environment for for the price compared to other commodities yeah and it sounds it's really interesting because I haven't heard what here in the US really look at it like that way and try and actually put some analytics and figure out in a methodical way how we can think about the value of these so I guess that's why they had you over there for the month of lock chain summit again I appreciate you being on here and perhaps and wrapping up is there a coin that people may not have heard of that you think they would be well served look into and then following that if you could just let folks know where they can find you and anything you'd like to share about implementing you're a great resource for this sector that has a lot of people confused so there's a coin and how they can find you yeah I apologize Chris again for being so loud here I'm just at this column for instance very loud in the background but in general one point that I'm very interested in I've been interested in for a long time and I think people probably already know about it is – so basically – is going to be working on this release called evolution they are going to be changing a lot of things one thing that's interesting is that they're going to now have account names for your wallets and I think that this is going to be interesting because you know right now it's very cumbersome use their interface for most people to send transactions with crypto currencies and – has a very interesting solution to the scalability problem Bitcoin with their master node Network and they also have a very interesting solution to this you know typing in long addresses that are not very easy for for each person to type in and there's gonna be basically a way to save people's account names so that if you're sending transactions back and forth between a particular person that's gonna be saved in your wallet and you're not gonna have to deal with it oh did I oh did I make the wrong mistake now okay and you have to wait 20 minutes and freak out for 20 minutes if you sense you know the price of a Mercedes across the Bitcoin network and you don't know if you sent it to the right address or not so that – is a very interesting coin now there's other coins that are trying to solve this blockchain interoperability problem and and I think that's also a very fascinating line of research one coin that I'm interested in is polka polka dot polka dot I think is coming mostly out of the US and it's a very interesting project and I'm looking forward to more updates on that on that project once they've released kind of their their blueprints yeah and going forward people can reach me on LinkedIn I write a report for incremental and Bank font Abell and Zurich and the report is quarterly it's available for free and I'm also a teacher at the University of Liechtenstein where I teach a course on blockchain technology and I'm always happy to answer emails and work on research projects with people so yeah thank you so much Chris for having me on yeah Demelza Hayes thank you for joining us it's I think you may be the top crypto expert I've spoken with I love how I mean it's clear you have the knowledge of what's going on but also do a great job of explaining I can see the teacher background coming in handy and thanks again for making some time I know you're at the conference and we'll let you get back there but thanks for joining us I think this was valuable for folks and again the mills at Hays and ferment them thank you so much

One thought on “Cryptocurrencies – Separating the Myths From Reality with Demelza Hays”

  1. Dash's Instant Send improves security as the inputs are locked. This means, hashpower alone can not double spend as the masternode network would also have to be compromised.

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