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The Hard Fork – Weekly Market Commentary

This Week’s Topics:
1) PayPal launches crypto integration
2) Franklin Templeton invests in crypto company Curv
3) Largest US exchange experiences outage

 

Indices Round-up

 

TradeBlock Index Asset1 Price ($) 7d∆2
LTX Litecoin 58.06 22.80%
XBX Bitcoin 13,111.45 14.20%
ETX Ethereum 406.96 8.28%
BCX Bitcoin Cash 268.19 8.01%
XMRX Monero 126.20 -1.54%
EOSX EOS 2.71 6.43%
XRX XRP 0.25 3.71%
ECX Ethereum Classic 5.70 2.25%
ZCX Zcash 63.10 -0.99%
XLMX Stellar Lumens 63.10 -1.40%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 10/19/2020 06:00 ET thru 10/26/2020 06:00 ET.

 

7 day price movers
Digital currencies posted a broad rally on the week with bitcoin reaching its highest level of 2020 at just over $13,000 per coin. Among our indexed assets, LTX traded up the most gaining 22.8%. Conversely, XLMX traded down the most, losing 1.4% on the week. Digital currencies continue to attract investment capital from traditional fund managers and companies with Paul Tudor Jones stating on CNBC this past week that the bitcoin rally was still “in the early innings.”
 

In traditional markets, US equities and other risk-on assets declined on the week. The S&P 500 closed down almost 1%. Since the COVID-19 sell off in March, ethereum and bitcoin have led traditional financial assets outperforming gold, bonds, and stocks YTD.
 

Figure 1: Asset performance year-to-date


 

PayPal launches crypto integration
In the biggest story of the week, PayPal announced the launch of a new digital currency platform in a partnership with Paxos. Over the next few weeks, PayPal plans to roll out digital currency buying options to its some 300 million customers. The first digital currencies on the platform will be bitcoin, ethereum, litecoin, and bitcoin cash. PayPal represents one of the largest fintech companies in the world with a market cap of over $230 billion–more than double that of some of the largest US banks, such as Citi and Wells Fargo.
 

PayPal’s jump into digital currencies comes just weeks after another payment provider increased its presence in the space. Earlier this month, Square announced it purchased $50 million in bitcoin to add to its balance sheet. In addition, Square has seen QoQ growth in its bitcoin business lines over the past year.
 

While the PayPal announcement is great news for the space, there do remain some limitations in the product offering. PayPal customers will not be able to transfer digital currencies outside of the platform. For example, PayPal users cannot send ethereum from their PayPal wallet to a DeFi app or even transfer their holdings to another private wall address not associated with PayPal. These limitations, however, may only prove to be of concern initially as PayPal could see integrations with more outside companies and networks in the future. For instance, it has been reported just over the last few days that PayPal is in talks to acquire BitGo, a digital currency custodian and trade platform.
 

Franklin Templeton invests in Curv
One of the largest investment firms in the world is jumping into the space. This past week it was revealed that Franklin Templeton has invested in Curv’s latest funding round. Curv is a cloud based digital currency custodian that removes the need for private keys for custody. Franklin templeton invested in Curv’s $23 million Series A offering over the summer. Curv’s total funding to date comes to just under $30 million.

Franklin Templeton joins a long list of traditional Wall Street firms that are now entering the digital currency market. While the firm has participated in equity deals, it is not known if it has invested directly in digital currencies as other firms have. If Franklin Templeton were to enter the space more aggressively with direct purchases of digital currencies, they would represent one of the largest investment firms in the world to do so. At time of writing, the firm has over $715 billion in AUM.
 

Largest US exchange experiences outage
This past week, the largest US based digital currency exchange by trading volume, Coinbase, experienced an outage across all trading pairs. The outage highlights the increased demand for institutional grade digital currency indexes. During this anomalous period, TradeBlock indexes maintained reliable reference rates across products.

On Tuesday October 20th at 3:39 p.m. ET, TradeBlock’s institutional-grade infrastructure identified degraded activity at the exchange. Accordingly, TradeBlock index algorithms began de-weighting the Coinbase Pro influence in the indexes. In the figure below, we diagram constituent weightings for the TradeBlock Bitcoin XBX Index during the outage.
 

Figure 2: TradeBlock XBX Bitcoin Index exchange weightings


 

The TradeBlock index algorithm also de-weighted Coinbase in the ETX Index during this period. Similarly, LMAX Digital’s weighting was adjusted for inactivity during and after the exchange’s scheduled 5-minute daily break. As designed, the ETX Index de-weighted Coinbase during its outage as well as LMAX Digital during its daily maintenance period. Read our full report documenting the incident.
 

Figure 3: TradeBlock ETX Ethereum Index exchange weightings


 

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