Alternative Markets Update 2019 - Cryptocurrency & blockchain 2020 outlook

The hedge fund industry performed strongly in 2019, as the industry achieved a steady gain of 9%, whereas several single managers beat the market and gained double digits. Despite those positive numbers, hedge funds still underperformed the equity market and the trend of the past years continues. In order to compete, hedge fund reduced their fees. In each of the last five years, more hedge funds have been shut down than launched. In total, more than 4,000 hedge funds have been liquidated in this period. 2019 was a good year, as all of our strategies yielded positive returns. Particularly strong this year were the equity strategies, especially in H1 2019 and towards the end of 2019. Furthermore, the tactical trading strategies performed even better until summer 2019, but faced losses at the end of 2019. Regarding the macroeconomic environment, the assassination of Iranian general Soleimani by the US and the counterattack of Iran on a US military base causes high uncertainty. The passenger plane, which got hit by a missile in Iran, further

increases tensions, even though the launch of the missile was likely unintentional. As a reaction of this newly escalated situation, safe haven assets, such as gold, which is now at a seven-year high, see increased demand. Similar developments were observed for Bitcoin. A cryptocurrency 2020 outlook is provided by BeQuant and a blockchain 2019 review and 2020 outlook is provided by Pantera Capital below.

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RESEARCH PERSPECTIVE VOL.123 January 2020 Download Research Perspective Alternative Markets Update January 2019 The hedge fund industry performed strongly in 2019, as the industry achieved a steady gain of 9%, whereas several single managers beat the market and gained double digits. Despite those positive numbers, hedge funds still underperformed the equity market and the trend of the past years continues. In order to compete, hedge fund reduced their fees. In each of the last five years, more hedge funds have been shut down than launched. In total, more than 4,000 hedge funds have been liquidated in this period. 2019 was a good year, as all of our strategies yielded positive returns. Particularly strong this year were the equity strategies, especially in H1 2019 and towards the end of 2019. Furthermore, the tactical trading strategies performed even better until summer 2019, but faced losses at the end of 2019. Regarding the macroeconomic environment, the assassination of Iranian general Soleimani by the US and the counterattack of Iran on a US military base causes high uncertainty. The passenger plane, which got hit by a missile in Iran, further increases tensions, even though the launch of the missile was likely unintentional. As a reaction of this newly escalated situation, safe haven assets, such as gold, which is now at a seven-year high, see increased demand. Similar developments were observed for Bitcoin. A cryptocurrency 2020 outlook is provided by BeQuant and a blockchain 2019 review and 2020 outlook is provided by Pantera Capital below.   2019 Summary & 2020 Predictions by Pantera Capital I got this idea of idea of doing predictions from Fred Wilson and think it’s a great idea to reflect upon the previous year and to put thoughts together on the next year. I started doing it last year and therefore in addition to summarizing 2019 and making predictions for 2020, I get to evaluate how my predictions fared. Coindesk has been featuring articles on trends and predictions so you can also read my thoughts here also. 2019 has been a fantastic year for blockchain and crypto––the space has seen tons of action. Here’s some predictions for where I see the space going in 2020! Libra/Calibra: The launch of Facebook’s cryptocurrency Libra and digital wallet Calibra will be instrumental in testing the potential of cryptocurrency across billions of mainstream users, Halving: The halving of BTC’s mining rewards in May 2020 will spike the price of BTC significantly––and likely keep it there for the remainder of the year. Gaming: Some critical infrastructural developments across tech performance and digital asset management will likely increase the ability for game developers to incorporate blockchain in their new games. DeFi: Decentralized finance was a huge area of growth for 2019, and in 2020, I expect to see even further growth across major platforms like Maker, Compound, and InstaDapp, and more traditional financial use cases powered with crypto. Centralized Banking Currencies: China’s digital yuan is probably the closest thing we have to mainstream use of a cryptocurrency––its performance will signal critical confidence for mainstream use of decentralized assets (for retail, consumer finance, etc.) in Western markets. Infrastructure/Web 3.0: With things like the Lightning Network and Alchemy, we’re hoping to see a boom in Dapps for 2020. We’re also looking towards more compute platforms provisioned through digitized tokens and blockchain infrastructure. Regulation: A persistent theme throughout the blockchain life cycle, with all the growth we’ve seen in 2019 and what we’re going to see in 2020, we’ll see more progress on the debate of how to define a security vs. commodity, how to preserve privacy without trading off security, and how to launch a mainstream cryptocurrency for everyday use cases. 2019 has been an incredible year for the blockchain and cryptocurrency space––we’ve been through immense market fluctuations, regulatory battles and financial scandals, Senate hearings, and the launches of several key abstractions that enable some really interesting applications.  We’ve got some high hopes for 2020––the innovation we’ve seen in the last year enable a diversity of awesome use cases for crypto, highlight some critical areas for improvement, and represent a huge advancement in the technicality and complexity of the industry. On Last Year’s Predictions A year ago, I made similar predictions for the direction of blockchain in 2019. Here’s a look back at how those performed throughout the year. I’ve rated the strength of my predictions on a 1 to 5 scale, with 1 being the least predictive and 5 being the most predictive of how the year actually went. Consolidation: 2019 saw some significant acquisitions, many of which propelled the year’s most significiant projects. Some ones to note are ConsenSys’s acquisition of Infura (an ETH node hosting service), Coinbase’s acquisition of Neutrino (crypto analytics), and Facebook’s acquisition of Chainspace (of which, presumably much of the talent contributed to Libra/Calibra).  Accuracy: 4 Security-Token Offerings (STOs): Institutionally, I saw a lot of crucial STO growth, including Blockstack, $33.8 million Bond-i by the World Bank, a $20 million bond on Ethereum by Santander, and a partnership with Asia’s largest real estate investment trust to launch Link REIT. Still, purchases were slow due to (1) persistent regulatory concerns and (2) little value add beyond higher relative liquidity, which wasn’t enough to convert most investors to purchase STOs. The space is growing, but slowly. Accuracy:3 Death of ICOs: This turned out very true––ICO closures in 2019 were incredibly sparse compared to 2018 (August and October both had none, while January 2018 had 160 projects). That said, 2019 projects raised more funding on average ($6.8 million) compared to 2018 ($132,000). Still, ICOs are losing popularity because of (1) concerns with funded projects (2) regulatory hurdles with selling the tokens and (3) the crypto bear market. Accuracy: 5 Institutional Capital: With higher education on cryptocurrency, 2019 did see more institutional interest and investment than prior years. There were projects like JPM Coin (by JP Morgan), the launch of Fidelity Digital Assets, and whispers of interest and proposed projects from other major institutions like Goldman Sachs and the World Bank. Still, we didn’t see a ton of tangible projects in this space, but as crypto matures, the traditional giants of the finance industry are becoming more and more interested.  Accuracy: 2 Scalability: Scalability (primarily sharding and payment channels) was a huge thesis for 2019. The Lightning Network’s growth was one of the most critical vehicles for the wave of development of decentralized apps in 2019; developers are becoming less wary of blockchain’s high fees and low speed and are capitalizing on its other features, with similar convenience to traditional development platforms. In a similar vein, I also saw significant work in abstractions for developers, like the Alchemy API.  Accuracy: 5 Seven Key Areas to Look Out for in 2020 For 2020, I’ve identified some key concepts and projects that I think will advance significantly. I’ve discussed my thoughts on each below! Libra/Calibra: In 2019, Facebook announced its Libra project, a cryptocurrency that will be integrated with the Facebook suite of products (Facebook, Messenger, WhatsApp) through a new platform called Calibra. Facebook expects the Calibra wallet to launch in 2020 for its messaging applications––this will likely be the largest mainstream launch and use case for cryptocurrency that the world has ever seen. Facebook’s user base is massive, to say the least, at 2.45 billion individuals, and Calibra will likely present an easy-to-use, convenient platform for these users to pay each other and pay online services through single-sign-on with their Facebook credentials. A launch at this scale would introduce millions of users (many of whom have little to no background with crypto) to the idea of managing assets and payments via a cryptocurrency––and will test the resolve of the space against the masses. It’s also likely that Libra and Calibra will open critical conversations on regulatory issues and data privacy; Davis Marcus, the head of the project, has already testified against the doubts of the US Senate and ongoing criticism of Facebook’s data scandals will highlight the power––and necessary improvements––of a platform like Libra/Calibra. Halving: The latter half of 2019 has not been kind to Bitcoin––we hit a price maximum of roughly above $13,000 around the middle of the year but have since dropped back down to hovering around the $8000 range. Nonetheless, the price has nearly doubled since the beginning of the year. More importantly, in May 2020, Bitcoin will undergo its next halving event; to put it succinctly, having is a protocol built into Bitcoin that “halves” the reward that miners receive for mining a block every few years, forcing the total amount of BTC to ever be in existence to cap at 21 million. The reward for mining a block will halve to 6.25 BTC (nearly $40,000 given the current price of BTC). Halving will likely create a significant bull run in the Bitcoin market, for two main reasons. First, it perceptually represents a shrinking supply of “remaining BTC” for investors, which makes investors see each new unit of BTC with more and more value (since less remain). Secondly, since the mining reward is less, less miners will be incentivized to mine transactions––this relative scarcity of miners (compared to the status quo) will also drive up the value of the cryptocurrency. Halving will likely keep the price of BTC relatively high for the entirety of 2020 and may bring some more confidence to the space. Gaming: Game developers and enthusiasts are increasingly exploring what blockchain can do for their gaming systems and how they can incorporate cryptographic assets into (1) the way they provision technological resources and (2) gameplay, in terms of in-game purchases, assets for different players, credits, etc. We’ve seen a fair amount of this already––Splinterland on Steem and the collaboration between Enjin and Microsoft Azure Heroes, but still, there’s a lot of work that remains in the space. Blockchain gaming will likely boom in 2020 because of important developments in high-performance tools that allow games to run on previously-rate-limiting blockchain technologies, better architected smart contracts, second-layer solutions, and abstracted infrastructure/digital asset storage that makes it easy for game developers to build digital assets into the gameplay and character experience. Hopefully, we’ll see something mainstream on a platform like Steam or Twitch that really puts the power of blockchain in the context of the average gamer.  DeFi Growth: DeFi has undoubtedly been one of the largest areas for growth of cryptocurrency in 2019––and I expect that this trend will follow through with 2020. Services like Maker, Compound, InstaDapp, etc. will likely see more monthly active users and locked value in its platform as more and more mainstream consumers and crypto enthusiasts alike catch onto the real world potential of DeFi––for lending, taking out a mortgage, retail payments, arbitrage, etc. Dai is also increasingly becoming the “stablecoin standard” and a strong performance in 2019 sets high hopes for its potential growth in 2020 across mainstream users. With the move from single-collateralized Dai to multi-collateralized Dai earlier this year, we’re also likely going to see an onboarding of more users onto the platform and a diversification of the collateral behind Dai, both of which provide critical strength to Dai as a stablecoin and its signaling about the blockchain space. We’ve also seen growing institutional interest in blockchain from the likes of consumer finance products and major banks––we’re keen to see more of this growth in 2020. Centralized Banking Currencies: This is unlikely to happen within the United States, but China earlier this year launched a digitized version of their yuan currency for mainstream use in a diversity of applications––loans, retail, taxes, etc. This digital currency isn’t strictly a “cryptocurrency” per se, because it’s delivered through a centralized agency, but it does represent growing global interest into shifting the financial ecosystem online. This digital yuan will be a promising signal as to how digital assets perform in mainstream use cases, particularly in online venues like Alibaba and Baidu. Strong outcomes may signal higher confidence in digitizing the financial space, which ultimately brings more confidence to cryptocurrency and DeFi. Infrastructure & Web 3.0: The past year has also been huge for infrastructural solutions for blockchain––some key ones include the growth of the Lightning Network, which provides critical speed and scalability improvements for decentralized apps, and Alchemy, which offers a suite of APIs and infrastructural tools that greatly simplify the decentralized development process. These advancements will likely spur a wave of new decentralized applications and web 3.0 technologies, enabled by abstractions and enhanced simplicity of development. We’re hoping to see more decentralized compute platforms (in the likes of Orchid, a VPN provisioning solution that capitalizes on a decentralized digital token system), that may also capitalize on increasing growth in cloud and SaaS technologies next year. This will likely broaden to other, more consumer-oriented use cases too, like privacy-centric browsers, gaming, social networks, information retrieval, and more. Regulatory Hurdles: With the diversity of crypto projects that have launched in 2019 and those to come in 2020, it would be naïve to not anticipate the regulatory hurdles that come with these nascent technologies. Some key ones to watch out for include (1) regulation of technologies that employ zero-knowledge proofs (Zcash, for example) that might present powerful, unregulatable tools for criminal financial use, (2) data privacy concerns with the mainstreaming of blockchain and electronic digital finance (concerns surrounding the Libra launch, for example), and (3) the ongoing fight about recognizing certain tokens and currencies and securities versus commodities. As crypto projects become increasingly nuanced and different in highly-specified ways, we’re also hoping to see greater education about these projects amongst regulatory agencies to understand the nuances and how they might affect their regulation and characterization. Final Thoughts Ultimately, with a space as nascent as cryptocurrency, it’s hard to identify exactly what might be big in the coming year––projects go through extremes of success and failures, currencies go through peaks and plateaus, and the industry goes through intense controversy and spells of confidence. That said, I’m confident that 2020 will be a significant year for the industry and we’ll see some incredible innovations. Happy New Year! Paul Veradittakit ¦ Partner Venture Capital Pantera Capital E : paul@panteracapital.com M : +1 415 494 9001 Paul is a partner at Pantera Capital, where he works since almost six years. He is an allrounder with several different activities and is highly interested in the blockchain technology. Furthermore, he is a board member at Blockfolio and at Staked. He also works as advisor for several companies, such as Ampleforth, Audius and Al Foundation. The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, Stone Mountain Capital LTD. Readers should refer to the Disclaimer. This perspective is neither an offer to sell nor a solicitation of an offer to buy an interest in any investment or advisory service by Stone Mountain Capital LTD. For queries or for further information around our research and advisory services please contact email: research@stonemountain-capital.com under Tel.: +442037228175.   Cryptocurrency Outlook January 2020 by BeQuant The past is the past, you can’t change it It is that time of the year again that crypto experts gaze into their crystal ball and give their predictions for the coming year. It is of course all too easy to get distracted by constant screen watching the price swing from $4k to $14k and overlook that in the background, a look of groundwork has been made to facilitate institutional flow. In fact, the institutional flow that 2019 was expected to deliver, has been delivered and one can even argue, over delivered. The trading spreads compressed dramatically, traded volume on derivatives exchanges has grown exponentially over the last 12 months and while the CBOE discontinued its Bitcoin offering, Bakkt launched its physically settled Bitcoin contract, as well as options trading. At the same time, market participants came to realisation that while regulation is not a nemesis, nor it is a panacea for the fast-growing world of digital assets. However, clearly defined regulatory policies, together with a regulatory approach which does not stifle innovation can foster growth. In fact, from next year, banks in Germany will be allowed to offer the sale and storage of cryptocurrencies under new legislation. Previously, banks were barred from offering direct access to crypto assets, but as per local press reports, the new law implementing the fourth EU Money Laundering Directive would change that. The bill has already been passed by the German federal parliament, the Bundestag, and is expected to be signed off by the nation's 16 states. The bill goes further than what had been previously planned. Originally, banks  were not to be allowed to act as crypto custodians, and were to have relied on external custodians or dedicated subsidiaries. It was also the year that Bitcoin spent much of its time trading in contango and at times, the delta spread extended close to levels not seen since Dec’17 during the phase that saw Bitcoin reach $20k before enduring a lengthy period of downward price adjustment. What is interesting is why crypto maximalists are so determined to see the futures trade in contango. Unlike WTI, there is little in the way of carry or storage costs. In fact, crypto may be the ideal commodity for proving Keynes’ long standing theory that the natural state of commodity markets is backwardation, driven by the fact that rational speculators should insist on compensation relative to the spot price at execution time to offset the risk that the commodities they acquire in the future may be worth less than they are today. There were also plenty of flash crashes to contend with which exposed the missing pieces of the puzzle that the aforementioned institutional crowd is well accustomed to. One particular price crash stands out and that is May 17, 2019 - 20% Flash Crash. Bitstamp experienced sudden sell pressure of 4,300 BTC. This was roughly one-third of Bitstamp’s average daily volume in the preceding weeks. As pointed out by Deribit Insights, under no trading  onstraints, arbitrageurs could buy bids on Bitstamp and simultaneously sell on other exchanges like Coinbase Pro, Kraken, and Bitfinex at higher prices. That would blunt the price impact of a massive sell on one exchange by redistributing the liquidity across exchanges that were not affected. In reality, nobody had sufficient fiat balance on Bitstamp to absorb the selling pressure. Crypto arbitrage is a strategy that largely depends on efficient management of working capital, and arbitrage traders do not hold large amounts of fiat on exchanges waiting for sudden crashes. Moreover, the average confirmation time for BTC transactions have been increasing, thus limiting arbitrageurs’ ability to transfer the coins from Bitstamp to other exchanges quickly enough to be able to sell them. In fact, even if they did, they still would not be able to transfer the USD back to Bitstamp fast enough to do a new cycle. The main lesson to take from the above is that since robust brokerage offerings were not easily obtainable and arbitrageurs were not able to trade the mispricing, consequently, crypto derivatives markets were affected. Two solutions already existing today could have helped: leveraged spot trading, and federated transfer of BTC across exchanges. Finally, another facet that crypto markets will look to build on next year in further institutionalisation of structured lending products, as well as introduction of more complex derivatives, be that for hedging or speculative purposes. On that note, it is worth recapping the Q3 2019 report from Genesis Capital, which noted that the cash lending program grew from 23.5% of the firm’s active loan portfolio in the second quarter to 31.2% in the third quarter. The loans were denominated in fiat or USD-pegged stablecoins like USDC, PAX, TrueUSD or USDT. Interestingly, international counterparties comprise 45% of outstanding cash loans, with nearly 70% originating from Asia. Furthermore, it noted that China has been experiencing currency “flight” for a number of years, and the government has been attempting to restrict Yuan transfers out of the country. Although the Chinese government has attempted to restrict transfers of Yuan directly into Bitcoin, there are still many liquid on-ramps for Yuan into the digital currency ecosystem, through pairs such as Yuan/USDT, localbitcoins (a peer to peer bitcoin transaction site) and transacting directly with miners. Once in the digital currency, getting to USD or another stablecoin is straightforward and it is thought that this flow of funds is one of the larger drivers of cash demand out of Asia. Additionally, Asia is home to some of the largest bitcoin mining firms in the world. As mining companies become more sophisticated, they can optimize their balance sheets by leveraging BTC holdings for cash financing to pay costs such as electricity. A squirrel is just a rat with a cuter outfit Back to the crystal ball gazers and the first and foremost point to note is that 2020 is the year of the Rat. The Rat is the first of all zodiac animals. According to one myth, the Jade Emperor said the order would be decided by the order in which they arrived to his party. The Rat tricked the Ox into giving him a ride. Then, just as they arrived at the finish line, Rat jumped down and landed ahead of Ox, becoming first. In Chinese culture, rats were seen as a sign of wealth and surplus. Because of their reproduction rate, married couples also prayed to them for children… One of the main narratives that is expected to dominate the market is the upcoming Bitcoin block reward halving, alongside that of – Bitcoin Cash and BitcoinSV. As a guide, since Bitcoin’s launch, the Bitcoin block reward has halved twice. The first halving occurred in November 2012 when the block reward was halved from 50 BTC to 25 BTC. The second halving occurred in July 2016 when the block reward was halved from 25 BTC to 12.5 BTC. In mid-May 2020 when Bitcoin will reach its 630,000th block, the block reward will be cut in half for the third time, reducing the block reward from 12.5 BTC to 6.25 BTC. What makes this a particularly interesting play is the fact that Bitcoin Cash (BCH) is scheduled to halve on April 8, 2020 and Bitcoin (BTC) is due to undergo block reward halving on May 14, 2020. BSV’s block reward is also scheduled to halve slightly ahead of Bitcoin. As a result, this alone will create plenty of confusion and mispricing in the market, as some miners will look to capture the arbitrage created from different block rewards. The market is yet to show any meaningful indication that the event will be price positive and looking at the performance of Litecoin following its own block reward halving in August 2019, there is a risk of negative price adjustment. There is plenty of research that suggests that there is no evidence that cryptocurrency assetsexperiencing a halving event outperform the broader market in the months leading up to and following a reduction in miner rewards. In fact, an asset’s return distribution prior to and following a halving is statistically the same as the rest of its return distribution with a high degree of confidence, suggesting that there is no evidence of abnormal pricing action from a shift in supply and demand dynamics. The opposite camp will argue that the reduction in new supply will have a far greater and more positive impact on the price than any other factor that may be at play. However, the reality remains that the market is still very inefficient, more so than traditional assets, controlled by long-term “whales” that have proven to be opportunistic in the past and feed on momentum. At the same time, there is still a limited amount of data to truly understand how the market will behave and as such, irrational exuberance may become the main factor at play. Something to keep an eye on is the trend is the number of transactions and while the number of BCH transactions has halved since last May, BSV transactions have increased 10 times, largely due to on-chain storage of data. On the one hand, BCH has demonstrated that at least at this stage, transactions alone are not enough to generate interest in large block sizes. While BSV is keen to emphasize that storing large data on chain is sufficient to generate large block sizes. Net-net, both need enterprise level demand and utility usage to achieve the desired outcomes. Into the ether The market may have ended the year on a positive note but even with the limited volume of news flow given the festive season, there was room for controversy. Specifically, Ethereum required an emergency fix following reports that Ethereum nodes running on Parity Technologies’ ETH Client have been “randomly falling out of sync.” This took place shortly before the network was set to undergo a scheduled hard fork, dubbed “Muir Glacier”, which delays the planned increase of Ethereum’s mining difficulty by an estimated 611 days. The goal is to prepare for the cryptocurrency’s transition from a Proof-of-Work (PoW) consensus algorithm to a Proof-of-Stake (PoS) consensus algorithm. According to some Ethereum developers, it’s likely to be years before the old Ethereum PoW chain is fully merged into the new PoS network, leading to current discussions around ways to create a secure bridge between the two chains. What has made this transition more interesting from relative value (RV) perspective are the recent network upgrades to Ethereum Classic (ETC) and with the mid-January planned hard fork, ETC Labs confirmed its intention to ensure full compatibility between ETC and ETH. Dubbed Agharta, the update is expected to create backward compatibility between the two networks. Interestingly, ETC ended the year on a high note and witnessed an increase in hash rate and much of the risk-on mode was attributed to this move towards compatibility with Ethereum while maintaining its PoW protocol. In another blow for Ethereum, it was announced that Parity Technologies, which has been working on its own blockchain protocol - Polkadot, will no longer run Parity Ethereum, the second-largest Ethereum client after Geth. Instead, the company announced it would turn over ownership of the codebase and maintenance of the project to a decentralized autonomous organization (DAO). It’s calling the project OpenEthereum DAO. Among those named were the Ethereum Foundation, Gnosis, POA Network and ETC Labs. The market for staking and DeFi related offering remains well buoyed but to discount demand for PoW offering would be premature and this was evident in the shift in the hash rate by ECT since the end of December from 8T to 13T. While at the same time, concerns over the transition to PoS by Ethereum chain saw the hashrate slump to its lowest levels of the year. What’s more is that a bet on ETC, is not just a bet on PoW, it is also a bet on decentralisation of mining assets. As a background, Cointelegraph recently reported citing Asia Times, that Bitcoin miners in the Chinese province of Sichuan are reportedly under pressure from local authorities to scale down their operations due to electricity shortages. The report points out that during the dry season, which extends from October through April, the electricity supply drops drastically in Southwest China, which is why local authorities are tightening the screws on mining companies to scale down their operations. Bitcoin, as well as Ethereum mining is known to be heavily concentrated in China. When you look at the distribution of the best Ethereum mining pools you can see that the top five pools mine more than 80% of the Ether blocks. Furthermore, the top three pools mine more than 50% of all blocks. This would suggest that the mining power is rather centralized. However, the pools for Ethereum Classic are spread all over the world. Some of the biggest pool service providers are in France, Russia, US, China, and Germany. This decentralisation, together with the fact that ETC's mining difficulty is much lower than Ethereum and is therefore less energy intensive, suggests there is room for further inflow towards ETC.  Another area of growth in 2020 is DeFi. Unlike other existing DeFi products on the market today, Kava Labs are set apart by their ability to allow users to collateralize a broader range of digital assets, with an initial pipeline of BTC, ATOM, XRP, and BNB, being added to the platform. This is important because while decentralized financial products have been growing over the past two years, they’ve been mainly limited to one blockchain – Ethereum. By opening up DeFi to other large cryptocurrencies such as BTC and XRP, it is expected that this could potentially create a big boost to the ecosystem. Given the current tension in the Ethereum community and the uncertainty surrounding the transition to PoS, as evidenced by flows into Ethereum Classic, the competing DeFi platform should achieve strong adoption. XRP may just turn out to be the dark horse of 2020... Finally, what will be of Tether and NYAG saga? As 2019 was coming to an end, the New York Attorney General's (NYAG) office took an opportunity to lay out in greater detail its case for investigating Bitfinex and Tether. As pointed out by CoinDesk, a New York Supreme Court Appellate Division filing published and dated December 4 fleshed out the NYAG's argument, claiming that the two sister firms had gradually been depleting the reserves backing Tether's eponymous stablecoin, also known as USDT. In a sharply worded brief, the office said that the two firms (which share executives and shareholders) “had, step by step, dissipated the cash backing tethers: first by going from actual cash in hand to $625 million in an inaccessible Crypto Capital account; and then by replacing even that questionable source of backing with nothing more than a $625 million IOU from Bitfinex.” The NYAG claims that Tether, despite previously claiming that every USDT token was backed on a 1:1 basis, had been lending Bitfinex funds to cover up the loss of $850 million. While the New York State Supreme Court ruled that Bitfinex and Tether should turn over specific documents about the financial arrangements made regarding a loan from Tether to Bitfinex, the ruling was paused pending the current appeal.  Both parties are expected to voice their arguments in early 2020… Denis Vinokourov ¦ Head of Research BeQuant ¦ Digital Asset Exchange E : denis.vinokourov@bequant.io M : +44 (0) 2038933214 Denis is head of research at BeQuant and is experienced in cryptocurrencies, in which he works in since the beginning of 2017. Prior, he worked for almost ten year as senior market analyst at RANsquawk. The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, Stone Mountain Capital LTD. Readers should refer to the Disclaimer. This perspective is neither an offer to sell nor a solicitation of an offer to buy an interest in any investment or advisory service by Stone Mountain Capital LTD. For queries or for further information around our research and advisory services please contact email: research@stonemountain-capital.com under Tel.: +442037228175. STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. 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