Insights, news and analysis for the professional investor By Marc Hochstein, Executive Editor September 19, 2021 Sponsored by Bitcoin (BTC) - $48,177.77 Prices as of 09/12/21 @ 8:00 a.m. UTC If you were forwarded this newsletter and would like to receive it, sign up here. Hopium is a hell of a drug.
Remember when bitcoin rallied following a British tabloid's report, citing an anonymous "insider," that Amazon would accept payments in the cryptocurrency before year-end? Amazon quickly denied it, but some Twitter users were in denial about the denial.
If you believe Amazon lied and will go through with the alleged plan, put your money where your mouth is. "Will it be possible to shop on Amazon using bitcoin in the US before 2022?" is a live bet on the Polymarket prediction market, and "yes" contracts are going for six cents each (the winning bettor gets $1 per contract).
In this week's Briefing, my colleague Lawrence Lewitinn looks at how prediction markets are viewing a major global event – the Canadian election. The trading levels tell a different story than the polls.
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Enjoy the rest of your Sunday. – Marc Hochstein, executive editor A message from Crypto.com Buy bitcoin and 100+ cryptocurrencies with 20+ fiat currencies. New users can enjoy 0% credit/debit card fees on all crypto purchases made in their first 30 days. Download the Crypto.com App now. Canada was supposed to be the perfect country, the old maxim goes: It was going to have French culture, American ingenuity and British politics. Unfortunately, it ended up with American culture, British ingenuity and French politics.
The world will once again know how accurate that adage is as Canada braces itself for Monday's election – and the markets are putting up money on what the results will be.
Pollsters and pundits see a tight race; Canadian Broadcasting Company polls show Trudeau at 31.7% and Conservative challenger Erin O'Toole at 31.2%, as of time of writing on Friday.
Yet prediction markets, which require bettors to put "skin in the game" by having cash on the line and are thus considered a more accurate indicator of how things may turn out, show a very different outcome. Investors in these markets are betting strongly that Justin Trudeau will keep his job as prime minister. How the next Liberal government will be formed is a slightly different matter.
The cryptocurrency community has begun to embrace prediction markets as a way to sort the signal from noise on questions it cares about. For example, on Polymarket, investors can bet on whether Amazon will accept bitcoin payments in the U.S. before next year, while Hedgehog Markets allows users to wager on various metrics tracking the Solana blockchain's growth.
The situation in the Great White North, however, is somewhat more nuanced.
How bets are shaping up
On the question of "Will the Liberal Party win a majority in the 2021 Canadian federal election?" Polymarket, one of several blockchain-based betting venues, has "no" trading at 84 cents, while yes is at a mere 16 cents. The two were trading at about even a week after the election was called. A slightly different question, "Will the Liberal Party win the most seats in the 2021 Canadian federal election?" has "yes" at $0.78 and "no" at $0.22. That gap widened from two-thirds saying yes back in August. Thus, the market is saying that while the Liberals will win more seats than any other party, it won't be enough to make a majority.
Polymarket runs on Polygon, a sidechain, or parallel network, to the Ethereum blockchain, and the bets are managed by software programs known as smart contracts. The advantage of this setup is that an open system can allow "anyone, anywhere to create markets on anything," as Polymarket founder Shayne Coplan puts it. But it's hard to use. Bets are denominated in USDC, and the gas, or on-chain computation fees, to deposit and withdraw the dollar-pegged stablecoin to and from Polymarket can cost more than the amount being wagered.
Entry-level users may prefer PredictIt, where you just need a credit card to trade, although since it is a centralized platform, management will always decide what questions are wagered on.
There, Trudeau is trading at 87 cents (in U.S. dollars) on the question "Who will be the prime minister of Canada on Oct. 31?" as of Friday morning, crushing O'Toole's 11 cents.
Read the full column here.
– Lawrence Lewitinn Copper provides a gateway into the cryptoasset space for institutional investors by offering custody, prime brokerage, and settlements across 250 digital assets and more than 40 exchanges. We are committed to providing flexible solutions that adapt to the changing cryptoasset space, while enabling far greater transparency, control, and security for asset managers. To learn more visit copper.co/interest OpenSea took responsibility for NFT insider trading allegations involving its head of product, Nate Chastain. TAKEAWAY: The transparency of blockchain technology helped catch an insider at OpenSea, who was using his position to profit on marketplace users. Chastain was buying specific NFTs before they were listed on the front page of the largest marketplace in the space. The insider scheme cast a negative light on NFTs and highlighted the need for further self-regulation. Prominent investors and billionaires have become more involved with cryptocurrencies, as Ray Dalio, Kevin O'Leary and Steve Cohen have announced their positions. TAKEAWAY: Bitcoin and other cryptocurrencies have been heavily criticized by prominent investors over the years. The pandemic and its effect on monetary policy have helped drive significant adoption of bitcoin as a hedge to inflation and promoted the underlying technology of the space.
Tether denied any holdings in Evergrande debt as the latter company sent shockwaves through China's real estate market. TAKEAWAY: With USDT reserves being exposed to commercial paper, crypto investors worried about the potential for an Evergrande default. Tether's holdings are supposedly majority investment grade, but the whole credit market may be affected by a collapse in the Chinese market.
Franklin Templeton is in the process of creating a blockchain venture fund and hiring crypto experts as the trillion dollar investment firm explores digital assets. TAKEAWAY: While the firm is only looking to raise $20 million, its expansion into the space could signal larger moves down the road. Adoption from trillion-dollar firms could open the floodgates to new liquidity in cryptocurrency markets.
Renowned decentralized finance (DeFi) funds led a $230 million-dollar investment into the Avalanche ecosystem. TAKEAWAY: Three Arrows, Polychain Capital and several other notable funds doubled down on the Avalanche ecosystem. The investment will be used to provide capital and liquidity to DeFi applications built on the protocol, the first of its kind. The raise follows significant interest growth in Ethereum alternatives like Solana.
MUST-READ: "A Deep Dive Into Lightning as a Bitcoin Scaling Solution." In this in-depth, 20-page report, CoinDesk Research analyst George Kaloudis draws on frank conversations with Lightning's developers to produce a balanced, warts-and-all portrait of the scaling project that details its vulnerabilities and explains how they are being addressed. (If pressed for time, read the executive summary.)
AND, LASTLY: Speaking of Canadians, R.I.P. Norm MacDonald. Here's his collateralized lending joke for all you DeFi degens and ex-bankers out there.
– Teddy Oosterbaan and M.H.
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