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CO I NCORNER NEWSL E T T ER

C O I N C O M P A S S . C O M

No v embe r 20 1 8

This month:

CO I NCOMPASS UPDATE S

Summary of PSA

Recommended Exchanges

Wa l lets

Co ld Storage Dev ices

I N DEP TH

Tether (USDT) explained

B LOCKCHA I N EXP LA I N ED

Discover the s ize of the b i tco in b lockcha in .

CRYP TONOM I C S

Sign if icant economic , techno log ica l , and po l i t ica l

deve lopments in b i tco in and cryptocurrenc ies .

CoinCompass.comDisclaimer: this is not financial advice

Coincompass provides educational material only. 1 November 2018

http://www.coincompass.com/

COINCOMPASS UPDATES

An upgrade to Trezor has been released (firmware 1.6.1). CoinCompass is recommending that anyone with a Trezor Wallet who access it regularly installs this upgrade by:

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Summary of PSA

Ensure you have your recovery seed on handGo to https://wallet.trezor.io/#/ and follow the update instructions on screen, or for more detailed instructions and info about the update visit: https://blog.trezor.io/trezor-one-firmware- update-1-6-3-73894c0506d

Trezor announced that you can use the Wallet itself now to exchange one cryptocurrency for another without logging into an exchange. What Trezor has done was create a shortcut to certain third party exchanges. You will be able to sell your bitcoins directly from your Trezor wallet to a selected exchange for a different cryptocurrency. It is not an atomic swap but a trade. CoinCompass does not advise you use this service because you’re exposing your Trezor Address.

Trezor Wallet: New Feature.

Trezor Wallet: Upgrade. Action Required



https://blog.trezor.io/trezor-one-firmware-%20update-1-6-3-73894c0506d

https://coincompass.com/


CoinCompass Updates

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Exchanges

If your intent is to accumulate bitcoin over several different purchases we recommend Bitstamp. However if you are a US resident for tax purposes we recommend GDAX, also known as Coinbase Pro. If you want to purchase a small amount of Bitcoin (less than 5) and you wish to do so privately we recommend LocalBitcoins.com Video interactions on using exchanges, wallets and getting your coins off the exchanges can be found on the CoinCompass members portal.

Exchanges are temporary means to buy bitcoin. Use them then get your

coins off!

Exchanges Private Competitive Price

KYC/AML compliant

USA Tax resident

Bitstamp

GDAX

LocalBitcoins

The exchanges listed below have been tried and tested by CoinCompass. Everyone's purchase reqirements differ so please use this as a guide only.



https://coincompass.com/members/


https://coincompass.com/members/


CoinCompass Updates

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Wallets

Mobile wallets (that you access on your smartphone) are short term storage solutions for your bitcoins and other cryptocurrencies. CoinCompass only recommends hardware wallets for long term storage.

Hardware Wallets

Device Bitcoins Alt-coins

Ledger Nano S

Trezor

Wallet/ Attributes

Operating system

Bitcoin Altcoins 2 Factor authentication

Green Address

Copay

Apple, Android, Linux

Apple, Android, Linux

Be sure to view our video guide on using cold

storage devices and extra security

protocols.




https://coincompass.com/individual/


IN DEPTH

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Understanding Tether (UDST)October 15 saw a very large swing in the price of bitcoin and other cryptocurrencies. From the chart below you’ll see the price of bitcoin rocket up by over 23%, from US$6,294 to US$7,788 in two hours before immediately retracing.

The debated reason for this return of short term volatility to what has been a very quiet market in bitcoin and other cryptocurrencies was the token, Tether. Tether (USDT) is a token that exchanges such as Bitfinex use to allow its customers to sell their bitcoin and other cryptocurrencies. Bitcoin exchanges created the token Tether because they’re unable, or in some cases unwilling, to be admitted as commercial financial institutions with the capability of holding customer deposits. Commercial banks that we use every day have to comply with ‘Know Your Customer’ (KYC) and ‘Anti-Money Laundering’ (AML) laws. This is why you have to provide proof of identity and residency when you open a bank account. This allows the bank to receive funds from yourself or your employer and ‘hold’ them on your behalf while comply with domestic and international regulations. Whereas institutional banks are providing a service, most bitcoin and cryptocurrency exchanges are selling you a product. That product being bitcoin and other cryptocurrencies.

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You can avoid using Tether altogether by removing your bitcoins from the exchange. You could then sell them for fiat through other exchanges such as LocalBitcoins or using a bitcoin ATM. But for traders who want to get in and out of the market on a daily basis the aforementioned method is inconvenient as you may miss your entry price while your bitcoins are being transferred and converted, and you will also incur fees in doing so. Tether allows you to exit the bitcoin market, it keeps your tethers on the exchange and allows you to place limit orders to buy bitcoin at a different price. The system was set up so one could sit out the volatile price swings that have become synonymous with crypto and quickly re-enter the market. As you convert your bitcoin into Tether, Bitfinex needs to hold the same amount of US Dollars as there are Tether. Therefore every Tether is a token that it is backed by US Dollars. If everyone wanted to convert their Tether back into bitcoins then Bitfinex would have to use their US dollars to purchase that amount of bitcoin. However the issue that arose on 15 October is one that has been of rumour and concern for over a year now, that Bitfinex and potentially other exchanges do not actually have the equivalent US Dollars to Tether on hand. Such rumours have led to the depreciation in the price of Tether but also questions as to the liquidity and solvency of the exchanges themselves. Looking at the chart below, the price of Tether on October 15, is a mirror image of the price of bitcoin on that day;

Understanding Tether (UDST) cont.





Understanding Tether (UDST) cont

Commercial banks that we use every day have to comply with ‘Know Your Customer’ (KYC) and ‘Anti-Money Laundering’ (AML) laws. This is why you have to provide proof of identity and residency when you open a bank account. This allows the bank to receive funds from yourself or your employer and ‘hold’ them on your behalf while comply with domestic and international regulations. Whereas institutional banks are providing a service, most bitcoin and cryptocurrency exchanges are selling you a product. That product being bitcoin and other cryptocurrencies. You use your credit card to buy bitcoin from an exchange and they immediately provide you with your bitcoin. It’s the same process as buying any product online; it is a transfer of your fiat currency in exchange for a product. Most of the cryptocurrency exchanges cannot receive deposits from account holders. This would change the nature of their business from a merchant to a banking institution; and the latter has been very difficult for them to achieve as bitcoin is a currency that is disrupting the banking institution itself.

Tether (USDT) is pegged to the US

Dollar, it was designed to facilitate

cryptocurrency trading.

So you can buy bitcoins through an exchange but what happens if you want to sell them into their US dollar equivalent? This is where exchanges such as Bitfinex use Tether. Tether is actually a token and its value is ‘pegged’ against the US dollar.

One Tether (USDT) is designed to be the equivalent of one US dollar (USD). So for example if you were trading bitcoin and believed that the price of bitcoin was too high, wanted to sell your bitcoins and re-enter the market at a lower price you would sell them for Tether and then should the price of bitcoin drop you would sell your Tether for bitcoin thus resulting in a greater amount of bitcoins than you had earlier





So as rumours emerged again that there were not enough US Dollars available for these exchanges to purchase the required bitcoin to the value of their Tether holdings, customers started selling their tethers and converting them into bitcoin and other cryptocurrencies. This large sale of tethers is what led to its nose-dive and then a ramp up in the demand and thus price of bitcoin. However as quickly as the price of bitcoin rose, it then immediately capitulated from US$7,000 back to US$6,400 and due to the inverse correlation the price of Tether rebounded from USD$0.85 back to USD$1:00 at the very same time. At time of writing the price of Tether is stable above US$0.97, just shy of its 1:1 peg. This is not the first time that Tether has undergone such volatile swings. From the chart below it is noticeable that Tether has periods of extreme volatility, but in 2018 it managed to maintain its peg very well.


Tether exists as a point of convenience for cryptocurrency traders. It exists because exchanges are being prohibited from receiving and holding fiat currency. CoinCompass itself ran into this hurdle. When we set up our business the first two banks we approached prohibited us from opening a very basic business account. We were not applying for a loan or an overdraft, just an everyday bank account so that we could set up a PayPal account and receive dollar deposits.





Even though we emphasised that CoinCompass is educational in nature and is not a broker it took us several months to find a bank that would eventually let us open an account. So Tether was created as an alternative because governments and financial institutions are still weary of bitcoin and prohibit their customers and citizens from using the SWIFT banking service as a runway to invest in bitcoin and other cryptocurrencies. So as Bitcoin becomes more mainstream and investors are allowed to speculate in it then Tether would be required less and less. Arguments have been rampant on crypto twitter that the events of 15 October was an orchestrated setup whereby market makers took advantage of these price swings to make a quick buck. Peter Brandt, a trader with 40 years experience in the futures market and who actively trades crypto had this to say:


CoinCompass is not endorsing any exchange or the Tether token itself, our mission is to educate.

For more information regarding Tether we recommend the following podcast: One on One with Andy Hoffman - Episode 23 - Special Guest Simon Dixon.

10 March 2018.



https://www.bitcoinnewsline.com/world-crypto-network/one-on-one-w-andy-hoffman-episode-23-special-guest-simon-dixon/



This month we are exploring the numbers related to the blockchain itself; not just what they are but what they mean. The blockchain is a database that is decentralised. Anyone can download it and have it updated running a full node or running a miner. So as new transactions are verified on the blockchain then you will see those transactions updated on yours, and everyone else’s database. At time of publication the blockchain size is 188,623 MB; or 184.2 Gigabytes. Downloading a file this size would be the equivalent of watching 90 hours worth of Netflix content. Due the limit of 1 megabyte blocks (a topic we will address in a future issue) after almost ten years of being online it is still possible for someone to download the entire blockchain and run a full node (which will also be addressed in a future CoinCorner issue).

Blockchain explained

From the table above you’ll see the blockchain size has grown very quickly. This chart would not look dissimilar to the adoption chart on the next page and highlighted in our publication “Bitcoin Begins” where we reveal that if bitcoin follows the adoption curve of new technologies then potentially we’re still in very early days.





With an estimated 7% percent of the United States owning bitcoin, the chart below would be accurate in its depiction of where bitcoin fits (very bottom right). Even if only 20% of the population end up using bitcoin then that is a 300% increase from current levels. Yet a network effect means the more other people use something the more likely you are to use it. Personally I hated cell phones when they were becoming in the early 2000's. You would be mid-conversation with someone, hear a shrill and they say excuse me, answer their phone and you’re left mid-sentence. But eventually it became such an inconvenience for me not to have a cell phone and on so I caved in.

BLOCKCHAIN EXPLAINED

Potentially the same could happen with bitcoin, as more people and merchants start to use it the ‘peer-pressure’ factor would kick in and you would find it inconvenient not to be using bitcoin...but this is still a long way off. As Jeffrey Gundlach, the found of DoubleLine Capital (AUM$9.3 Billion) declared, ‘you want to invest in something that has room to improve’...though in that interview he was not referring to bitcoin!



https://www.reddit.com/r/Bitcoin/comments/9vwcex/adoption_of_technology_in_the_us/



Prior to reading this section we want to remind you that these are opinions only. CoinCompass is not a financial advisor. We are educators. We are presenting these arguments as a concise summary of bitcoin traders we follow and respect. This is not trace advice, just opinions. Your entry and exit points are your own responsibility. Tone Vays believes that bitcoin is in a bear market and that the price is heading below $5,000. He reflects that the current market environment reminds him of the 2014-2015 period. Tone Vays, a former Bear Stearns Vice President does not trade bitcoin himself and advises the accumulation and ‘hodl’ strategy.

BITCOIN PRICE DEVELOPMENTS

Peter Brandt, who is a highly respected independent technical analyst, was early in recognising the parabolic trend in 2017. In December 2017 in a RealVision interview he hypothesised that crypto markets were headed for a 95% correction. He too argues that Bitcoin is in a bear market and based on charts believes that prices are headed below $5,000.





A 90%-95% correction in bitcoin fits within its short history. Mark Yusko, the CEO and CIO of Morgan Creek Capital in a recent interview (28 May) on RealVision compared the recent price movements in virtual currencies to the share price of Amazon. "The biggest companies in the internet space today were all formed after the crash (referring to the 2000 dot.com crash). Amazon went public in 1998 and went down 95%. Every year that Amazon has been public (20 years now) it has had a double digit (percentage) decline. The average being 35%. Twice down more than 90%. Now, what does the average person do when something's down 90%?...They sell and they never go back"

Bitcoin Price Developments

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Fidelity Investment to launch bitcoin/crypto services. Fidelity Investment, which at over $7 Trillion Assets Under Management is the world’s fifth larges asset manager announced that it would launch a vehicle designated to allow indsitiuional investors the ability to invest in bitcoin and cryptocurrencies. Fidelity Digital Assets is set to start operating in early 2019. One of the services it said to provide is custody for bitcoins. To CoinCompass this is a raises eyebrows as you’re being provided the means to purchase bitcoin but then leaving your private keys with a third party, and potentially a very large honey pot that would be very, very appealing to crypto-thieves.

CRYPTONOMICS

Economic, Financial and Legal developments in bitcoin and crypto.

Poor AML/KYC laws encourage illegal activity in bitcoin.CipherTrace released a quarter 3, 2018, report titled ‘Cryptocurrency AntiMoney Laundering Report’. They uncovered that approximately 380,155 bitcoin were transferred from criminal sources. The main finding was that criminals were moving their bitcoins into exchanges that had lax KYL/AML laws.

Essentially, criminals are flowing large amounts of dirty bitcoin into these poorly regulated exchanges and other services—such as mixers—turning it into

“clean” cryptocurrencies. Then, they can move funds into the global financial payments system with little risk of being detected.

This extensive analysis shows that criminal transactions are reduced in the presence of strong AML regulation—with the obvious benefit of reducing illegal

and illicit activity in general. Since criminals use the funds to finance illicit activity—such as international drug gangs that use the laundered funds to

produce and distribute more illegal substances—the benefits of well- enforced AML regimes to society are obvious. (page 3)



https://www.forbes.com/sites/michaeldelcastillo/2018/10/15/fidelity-launches-institutional-platform-for-bitcoin-and-ethereum/#4df9dce993c4

https://www.forbes.com/sites/michaeldelcastillo/2018/10/15/fidelity-launches-institutional-platform-for-bitcoin-and-ethereum/#4df9dce993c4https://ciphertrace.com/wp-content/uploads/2018/10/crypto_aml_report_2018q3.pdf



Disclaimer

CoinCompass provides educational consulting based upon industry best practices and our extensive expertise. CoinCompass never receives commission for recommending any product or service. We try and test new products and services ourselves before we post an opinion on it. CoinCompass is not a financial adviser and therefore never provides investment advice. Do your own financial research of when and what to buy or sell. CoinCompass is not a money transmitter nor broker so cannot receive any money for buying Bitcoin or any other crypto asset. CoinCompass takes no responsibility for out-of-date information because this industry is new and can change overnight. View our various consultancy packages including emergency alerts, to keep up-to-date. CoinCorner is presented for informational purposes only. The information presented in CoinCorner should NOT be construed as investment advice. Always consult a licensed investment professional before making important investment decisions. The opinions expressed in CoinCorner are those of the participants. CoinCompass, its directors and editors shall NOT be liable for losses resulting from investment decisions based on information or viewpoints presented in CoinCorner.

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https://coincompass.com/services



What we do

In-person workshops. All day interactive and highly practical workshop. Begin with little or no Bitcoin knowledge and walk away with full control of your private keys. Video Guides - Online DIY. We guide you through all the steps from securely buying to storing your bitcoins while improving your security hygiene along the way. Newsletter. Stay informed with the state of Bitcoin and blockchain developments, news and comprehensive summary of price movements from technical and fundamental analysts. Included is access to infrequent but important PSAs (Public Service Announcement- emergency alerts) Helpdesk - In person or online. We offer in-person help desk consulting sessions and at prearranged times online. Contact us first for a quote and if we can't help you we won't charge you but as Bitcoin nerds we think we probably can. Visit CoinCompass.com for more details.

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CoinCompass is an educator providing up-to-date industry best practices on bitcoin risk mitigation.

We are not a broker nor money transmitter so cannot buy bitcoin on your behalf.

CoinCompass provide you with the knowledge and tools to safely

buy, store and control your own coins through our proprietary

services such as:



https://coincompass.com/individual



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