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The Hard Fork – Weekly Market Commentary

This Week’s Topics:
1) SEC takes action against ICOs
2) Trading volumes rise on centralized exchanges, yet DEX activity is subdued
3) Contentious Bitcoin Cash fork results in two new chains

Indices Round-up 

TradeBlock Index Asset1 Price ($) 7d∆2
XRX XRP 0.51 2.67%
ZCX Zcash 113.32 -11.70%
XBX Bitcoin 5,538.03 -12.21%
LTX Litecoin 42.00 -15.97%
ETX Ethereum 174.34 -16.02%
ECX Ethereum Classic 7.47 -17.38%
BCX Bitcoin Cash 312.94 -40.21%
1. Underlying Asset sorted in descending order by 7-Day Price Change.
2. 7-Day Price Change monitored from 10/28/2018 16:00 UTC thru 11/04/2018 16:00 UTC.


7 day price movers 
The digital asset market sold-off broadly this past week, and continues to bleed lower this morning, with the largest leg down occurring on November 14, 2018. Around noon ET, XBT prices began declining precipitously with, at the time, no discernible catalyst for the sell-off other than general volatility around the Bitcoin Cash hard fork scheduled for November 15th.  XBT lost approximately 15% on the day reaching a low of nearly $5,500 per coin (see figure 1 below). Two days later on November 16th, the SEC announced settled charges against two companies, which launched ICOs in 2017, AirFox (AIR) and Paragon Coin (PRG). This was the first time the SEC put forth penalties against an ICO issuer for securities registration violations–the other past instances included fraudulent activities.

The crash brought back some trading activity to an asset class which had recently reached lower volatility levels than more traditional financial assets, such as equities. Among our indexed assets, Bitcoin Cash showed the largest move to the downside, but this movement takes into account the recent fork. TradeBlock’s BCX index tracks the BCH token, which in the case of the following exchange constituents, represents the Bitcoin ABC implementation following the fork: Coinbase Pro, Kraken, Bittrex, and Bitstamp. Among our indexed assets, XRP was the only positive gainer this week as it traded up a modest 2.67%.

Figure 1: Bitcoin Prices Crash Amidst Heightened Trading Volumes

Data for chart sourced from theTradeBlock Professional Platform


SEC takes action against ICOs 
On Friday, November 16, 2018, the SEC announced settled charges against Airfox and Paragon Coin for selling digital tokens in an ICO yet failing to register the tokens as securities (or file an exemption). Airfox (AIR) and Paragon Coin (PRG) conducted ICOs in 2017, raising proceeds of $15 million and $12 million, respectively. This was the SEC’s first time imposing civil penalties against an ICO for securities offering registration violations. The SEC has imposed $250,000 in penalties against each company and will enforce processes to compensate harmed investors who purchased tokens in the offerings. This includes paying back ICO sale participants in their US dollar equivalent investment at the time of purchase plus interest. Both AirFox and Paragon Coin community Telegram channels remain open and both tokens are still trading on certain exchanges.

The SEC’s actions will likely impact markets in several ways. First, it is becoming apparent that there are likely many companies that are facing similar actions for violating securities laws through an ICO offering. This could adversely impact these companies’ treasury reserves and their ability to build out the platform and reach stated timelines. Additionally, this will impact exchanges as well. At time of writing, Paragon Coin is traded on HitBTC, Livecoin, STEX, Tidex, and IDEX, while AirTokenis traded on HitBTC, RadarRelay, and IDEX. Considering both of these tokens were labeled as securities by the SEC, it seems possible that these various exchanges could be subject to regulatory actions from the SEC for transacting in securities sales without proper exchange registration. If such action were to take place, it would not be the first time the SEC has charged a digital currency exchange operator. Last week, the SEC charged the EtherDelta founder with operating an unregistered national securities exchange.


Trading volumes rise on centralized exchanges, DEX volumes remain subdued
The broad digital asset market sell-off on November 14, 2018, saw a significant uptick in trading volume at centralized exchanges. We analyzed trading volumes in the three most active trading pairs for the largest US compliant digital currency exchanges. Daily trading volume at centralized exchanges rose to the highest level in more than 90 days.

Figure 2: Trading Volume on Centralized Exchanges 

Data for chart sourced from the TradeBlock Professional Platform 

Decentralized exchanges, however, failed to see a similar uptick in trading volume during this period of heightened volatility. Trading volumes at the three largest DEXs remained inline with average daily volumes for the past 90 days.
Figure 3: Trading Volume on Decentralized Exchanges
Data for chart sourced from DappRadar 
Further, trading volume on DEXs are fractions of the trading volume seen on centralized exchanges. In the chart below, we diagram aggregate trading volume for both centralized exchanges and DEXs over time.
Figure 4: Aggregate Trading Volume on Centralized Exchanges and Decentralized Exchanges
Data for chart sourced from the TradeBlock Professional Platform and DappRadar


Contentious Bitcoin Cash (BCH) fork results in two new chains
The Bitcoin Cash network forked into two competing chains this past week: Bitcoin Cash Adjustable Blocksize Cap (ABC) and Bitcoin Cash Satoshi’s Vision (SV). At block height 556767, timestamped November 15th, 2018, at 06:02:16 UTC on the Bitcoin Cash ABC chain, the Bitcoin Cash chain forked into two competing chains. The bifurcation was solidified upon propagation of block 556767 on the Bitcoin Cash SV chain, roughly 20 minutes later. The development teams behind both chains are looking to solve scalability concerns.

The Bitcoin ABC roadmap has laid out a plan to increase scalability via a two pronged approach:
1) Remove immediate bottlenecks to increasing the block size limit
2) Lay the technical ground work for significant future on-chain scaling

While the Bitcoin Cash ABC development team will not directly adjust the current block size limit (32 MB), the team has embarked on several initiatives which, notably, reduce various message sizes, restructure the logic for transaction throughput, and allow for more efficient block validation and encoding. In addition, Bitcoin Cash ABC client 0.18.0 lays the foundation for oracles and cross-chain atomic contracts which was made apparent with the introduction of a new op-code: OP_CHECKDATASIG.

Bitcoin Cash SV, on the other hand, will increase the block size limit from 32 MB to 128 MB but will not move to replace topological transaction ordering as the Bitcoin Cash ABC development team is seeking to do.Those offering support for Bitcoin Cash SV, including notable community advocates like Craig Wright, believe that an increase to the block size is necessary for scaling; larger blocks will lead to cheaper and faster transactions.

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