Facebook Reportedly Talking to Exchanges About Listing Its New Cryptocurrency

Apparently, Facebook, Telegram and Signal are all working on developing their own cryptocurrencies with the idea being to allow users on these platforms to make payments to each other using these new tokens/coins, with Facebook being the furthest along the development path.

According to five anonymous sources that talked to The New York Times, Facebook is "working on a coin that users of WhatsApp, which Facebook owns, could send to friends and family instantly." Per this report, four people said that Facebook's project is "far enough along that the social networking giant has held conversations with cryptocurrency exchanges about selling the Facebook coin to consumers." Three people said that Facebook has more than 50 engineers working on this project.

This latest report about Facebook's involvement with crypto mostly confirm earlier reports by Cheddar and Bloomberg in December 2018.

According to Cheddar's report (published on 13 December 2018):

"In recent months, the world’s largest social network has been quietly trying to recruit product managers, engineers, academics, and legal experts with experience in cryptocurrencies and payments, according to people familiar with the effort. Nearly 40 employees — including several former PayPal execs — work in Facebook’s ($FB) secretive blockchain group, and the company recently appointed a head of business development to oversee acquisitions and deals in the space. Since officially forming its blockchain group just eight months ago, Facebook has sent staffers to crypto conferences around the world to recruit researchers, cryptographers, and top academics in the field. At a private dinner Facebook hosted during a recent crypto conference, one attendee told Cheddar that Facebook employees pitched the idea of creating a decentralized digital currency for the social network’s 2 billion users."

And according to Bloomberg's report (published on 21 December 2018):

"Facebook Inc. is working on making a cryptocurrency that will let users transfer money on its WhatsApp messaging app, focusing first on the remittances market in India, according to people familiar with the matter. The company is developing a stablecoin -- a type of digital currency pegged to the U.S. dollar -- to minimize volatility, said the people, who asked not to be identified discussing internal plans. Facebook is far from releasing the coin, because it’s still working on the strategy, including a plan for custody assets, or regular currencies that would be held to protect the value of the stablecoin..."

However, The New York Times article says that according to "three people briefed on the plans," Facebook is "looking at pegging the value of its coin to a basket of different foreign currencies, rather than just the dollar," and that Facebook "could guarantee the value of the coin by backing every coin with a set number of dollars, euros and other national currencies held in Facebook bank accounts."

And since Facebook is currently "overhauling its messaging infrastructure, which would connect" its three messaging apps, Messenger, WhatsApp, and Instagram, once this integration is done, it would allow Facebook's new cryptocurrency to reach "across the 2.7 billion people who use one of the three apps each month."

The New York Times article goes on to say that "Facebook employees have told the exchanges that they are hoping to get a product out in the first half of the year."

Eric Meltzer, a co-founder crypto-focused venture capital firm Primitive Ventures, reportedly had this to say about the efforts by these three major messaging platforms to create their own cryptocurrencies:

“It’s pretty much the most fascinating thing happening in crypto right now. They each have their own advantage in this battle and it will be insane to watch it go down.”

On Wednesday (February 20th), Mark Zuckerberg, the Chairman and CEO of Facebook, released a video of a recent discussion he had with Harvard Law Professor Jonathan Zittrain, during which Zuckerberg said that he was considering the idea of making Facebook more decentralized by implementing some kind of blockchain-based user authentication system.

The issue of decentralization came up when Professor Zittrain asked Zuckerberg his thoughts on Solid, a new project led by Professor Tim Berners-Lee, the inventor of the World Wide Web, that is focused on the idea of "true data ownership." Under this protocol, user data is decoupled from apps and held in some kind of "locker" that is under the user's control, which means the user controls who can access this data and also the user is able to avoid the problem of vendor lock-in.

Zuckerberg replied:

"So, I think it's quite interesting. You know, certainly the level of computation that Facebook is doing and all the services we are building is really intense to do in a distributed way... I think the more interesting questions there are not feasibility in the near term, but are the philosophical questions of the goodness of a system like that.

So, one of the things that I've been thinking of a lot is a use of blockchain that I'm potentially interested in, although I haven't figured out a way to make this work out, is around authentication and basically giving access to your information to different services, basically replacing the notion of what we have with Facebook Connect with something that is fully distributed...

Basically, you take your information, you store it on some decentralized system, and you have the choice of whether to log in to different places, and you are not going through an intermediary, which is kind of what you are suggesting here in a sense.

OK, now, there's a lot of things that I think would be attractive about that... But let's look at the flip side... Question is if you have a fully distributed system, it dramatically empowers individuals on the one hand, but it really raises the stakes, and it gets to your questions around what are the boundaries on consent and how people can really actually effectively know that they are giving consent to institutions. In some ways, it's easier to regulate and hold accountable large companies like Facebook or Google because they're more visible, they're more transparent than the long tail of services that people would choose to interact with directly. So, I think this is a really interesting social question...

I think if you are doing fully decentralized Facebook, that would take massive computation, but I'm sure we can do fully decentralized [user] authentication if we wanted to. I think the real question is do you really want that? And I think you'd have more cases where... people would be able to not have an intermediary, but you'd also have more cases of abuse, and the recourse would be much harder."

Featured Image Credit: Photo via Pexels.com

Wall Street Cheat Sheet: Understanding Market Cycles

A couple of years ago, in 2017, the crypto markets went on an epic bull run. Between January and December 2017, we saw a 20x rise in the price of Bitcoin – and then the market crashed. Then, people shared a Wall Street Cheat Sheet chart.

This type of massive boom-bust scenario, while not typical in the short run, has happened many times in the history of organized capital markets. So many times, in fact, that the generic event has been made into a meme which is the subject of this piece: the so-called “Wall Street Cheat Sheet” (or alternatively “Market Cycle Cheat Sheet”).

Here, we will discuss the Wall Street Cheat Sheet and what we believe it is trying to express, and what you as a trader or investor in crypto – or anything else – can take away from it.

A Market is a Market

It seems clear that crypto has become, for some, an entry point to the larger and more general world of trading-investing. And while all markets have their respective differences and idiosyncrasies, they also have some things in common.

One of the uniting forces common to all markets is emotion: whether it’s the S&P, mortgage-backed securities, or Bitcoin, the dual emotions of caution and anticipation (more commonly put as "fear and greed") — and the emotional spectrum which lies between these two poles — are assumed to dominate the flows of any market.

Perhaps no other image captures the emotional component of trading-investing as concisely as this Wall Street Cheat Sheet, which any intermediate-level market watcher has probably seen. The Bitcoin market alone has seen at least three major market cycles that could be grafted over this general template, depicted below.

chart

The Wall Street Cheat Sheet shows the market cycle of a hypothetical asset bubble bursting, after a so-called "parabolic" price runup. It’s a generic pattern, not taken from any actual chart (that this staff writer is aware of), and thus any asset bubble can fit within the pattern.

That this is not an actual chart, but rather a notional one, is fine because what’s important is not the specific market structures or patterns in the chart, but instead the generalizations about a market’s typical, collective emotional reaction to this kind of price action.

If we distill the Wall Street Cheat Sheet down to its basic message, what it aims to show is the emotions that propel huge, volatile movements in markets, the aforementioned fear and greed.

To be more specific, the emotions depicted on the Wall Street Cheat Sheet are those of the "dumb money", the mostly un-profitable participants in this particular market pattern. After all, we can presume that both successful and unsuccessful traders/investors experience fear and greed on some level. Critically, they do not occur at the same time; and nor should winning traders be overcome by emotions.

Losing traders/investors, whose emotions are depicted here, are always at least one step behind the market's trend. Their emotions are firing always too late. Put another way, they're having the correct emotions at the wrong times: they are scared when they should be greedy, and greedy when they should be scared.

Overwhelmed by what they perceive to be an ironclad trend, these people/entities are trying to enter the market that they falsely perceive as being virtually risk-less.

Market Trends are Complex

In principle, they are doing the right thing. The saying goes that "the trend is your friend", and it is completely accurate. The basis of all trading and to some extent investing is defining trends. Spotting the trends on an array of different timeframes, and being able to jump on them for the ride is what trading is all about. The rest is just details.

However, this saying is packaged with a second, often unmentioned subjunctive clause: "the trend is your friend -- until it's not".

Trends are complicated and multi-dimensional, and not actually that simple to parse accurately and across every timeframe. After all, if it were easy, everyone would do it. And here on the Market Cycle Cheat Sheet, there is visible a classic conceit: an impossibly strong trend that seems like it will never end.

All trends — all, we assume — end, but before they do, they often fake, reverse, zig-zag, go against the technical indicators, zig-zag again, and defy expectations. There is an entire mature, fully elaborated methodology called Elliot Wave Theory dedicated to looking into where the trends are in a market and defining their structures in minute detail; and although its principles are simple enough, it is rather difficult to learn and requires a trained hand to apply.

All of this is to say that, for a novice, it can be difficult to accurately say what the trend is on X timeframe; more to the point here, it is very difficult to say when a trend is ending. Recent examples include the seemingly unending S&P500 bull run, the Tesla bull run, among others. Indeed, the Market Cycle Cheat Sheet could be easily grafted over Tesla’s chart.

In fact, this difficulty in spotting trend-ends is the essence of the foreboding trading maxim "don't try to catch a falling knife", which statement naturally applies to both longs and shorts. The falling knife is an ending trend, and trying to time the trend’s conclusion is, as the saying implies, extremely risky.

Thus, entering a trend which seems very established and sure to continue can be just as tricky as betting against a trend that seems like it should be ending very soon. Any bubble pop that the Wall Street Cheat Sheet can be grafted-over will include many traders who lost big betting on a trend reversal (again, like Tesla shorters recently), and traders who entered believe the trend was safe.

Here we can return to our losing traders, first considered above, who were "doing the right thing". The thing they were doing right was going with the trend, jumping aboard to a clear direction in price movement. This is reflected in the Wall Street Cheat Sheet right about at the Disbelief phase ("Time to get fully invested"), and then at the Thrill phase ("Gotta tell everyone to buy!").

The Right Move at the Wrong Time

These traders/investors are too late to the trend, and presumably not guarding against the danger of reversal at what is likely the end of a trend. They are buying into the trend after the trend has become very obvious to everyone; they are doing the right thing at the wrong time. They should have bought into the trend sooner, when it was first detectable, which takes significant skill, but not so soon that it's just gambling, or catching the falling knife.

The result is what we see on the far side of the asset's collapsing price: complacency, anxiety, denial and panic. These people are sure that they are still invested in what is ultimately an uptrend. Because of greed, they do not see that the trend has likely ended and is reversing.

This makes Complacency portion of the chart perhaps most compelling. We can see a real-life example of this area on the 2018 Bitcoin chart, below.

bitcoin price chart in 2018Source: TradingView

Here, we can see in early January that the unbelievable uptrend was likely over, and a reversal had begun setting in. This was a last chance for any decent trader to sell (better traders had likely been incrementally exiting positions all December), but many held on for a while believing that it was just a speed bump before the next monster bull run.

Ultimately, the key lesson from the Market Cycle Cheat Sheet is the lesson of trends. Knowing what the trend is of a given asset is, in a sense, the only thing that matters in trading.

As in chess, what starts as a simple game becomes almost impossible to answer definitively. Unless you actually control a market — which would be fraudulent — it is impossible to say for sure when a trend is starting or ending.

You can never know beyond any doubt; it is always a risk, and the best response is to make the most educated and informed guess possible while tightly managing risk. When education and experience replace emotion, a trend can be gleaned — most of the time.

Featured image via Pixabay.