September— Blockchain Industry Report
(September 1st — September 30th, 2018)
This monthly report is published by OK Blockchain Capital .
September is still not an optimistic month for crypto market. We saw some news about stablecoins and there are many global policy created around the world.
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Introduction
- September was a busy month. New stablecoins and crypto mining machines trended, and the regulatory situation also affected market nerves. The market also continued its downward trend.
- In order to analyze the industry as comprehensively and deeply as possible, this report will focus on three aspects of market development：
Investment Sentiment Survey. We conducted a survey targeting blockchain digital asset holders. The survey had a total of 16 questions, including their income and position structure this month, projections for the next month and coming half-year, monthly position adjustment plans, favored industry verticals, and their demographic characteristics and investment habits. 212 valid responses were collected.
Blockchain asset market analysis. We statistically analyzed secondary (trading and circulation platforms) and primary (private offerings or public placements) digital asset markets. We divided blockchain digital assets into four basic categories: currencies/payment, base chain/protocols, vertical industry chains/protocols, and vertical applications. The latter two categories were further divided into segments including finance, copyrights, digital identity, deposit notarization, forecasting, games, social media, entertainment, E-commerce, education, and tourism.
Major Industry Events. We first took stock of major industry events and selected the key events of the month based on impact for focused analysis. The blockchain industry keywords for September were the Ethereum “Difficulty Bomb”, stablecoins, bitcoin mining machines, and Bitmain.
- Sources and statistical criteria are indicated for all data shown in this report. We strive to make its content as accurate and open as possible, and welcome criticism in case of any inadequacy.
Contents ：
- Investor Sentiment Survey
- Earnings status and position structure this month
- Market projections for the next month and coming half-year
- Plans for position changes next month
- Favored currencies
- Investment amounts and ratios
2. Blockchain Digital Asset Market Analysis
- Overview of markets this month
- Analysis of top 200 blockchain assets
- New currency listing analysis
- Primary digital asset markets
- Analysis of public offerings completed this month
3. Major Industry Events and Analysis
- Important global policy news items
- Overview of the giants
- Industry buzzwords this month: the Ethereum “Difficulty Bomb”, stablecoins, Bitcoin Mining Machines, and Bitmain
Chapter 1
Investor Sentiment Survey
- Earnings status and position structure this month
- Market projections for next month and coming half-year
- Plans for position changes next month
- Favored currencies
- Investment amounts and ratios
September Returns Leave Little Room for Optimism
- The September OK Blockchain Capital questionnaire survey drew the following conclusions about the respondents: the three largest groups were small losses, essentially flat, and large losses, at 25.47%, 24.53%, and 23.58% of investors, respectively. The situation was rather bleak. 14.15% of investors made small gains, while 5.19% are waiting on the sidelines.
（*Notes: “Large gains” refers to market returns ≥ 100%;
“Moderate gains” refers to 30% ≤ market returns ＜100%;
“Small gains” refers to 10% ≤ market returns ＜ 30%;
“Essentially flat” refers to -10% ≤ market returns ＜ 10%;
“Small losses refers to -30% ≤ market returns ＜ -10%;
“Large losses refers to -100% ≤ market returns ＜ -30%）
Largest September Investor Holding is Platform Tokens
- In the survey, 42.92% of investors selected platform tokens as their largest holding in September. The top three of the top four were BTC (23.11%), EOS (16.04%) and ETH (12.26%).
Optimism about Platform Tokens, Gaming and IoT
- The survey showed that the top five investment areas in September were platform tokens (57.08%), gaming (37.26%), IoT (33.96%), social media (19.81%), and finance (18.4%).
- Fewer investors favored tourism, transport, and advertising, accounting for 3.3%, 3.77% and 5.19% respectively.
Investment segments most favored in September
Over 69% of Investors Are Bullish on Digital Assets; Most Are Watching for Opportunities.
- The survey results showed that over 59% of investors believed that digital asset markets will rise in October, and over 69% in next half-year. Most investors are optimistic about the long-term market.
（*Notes: “Large gain” refers to market returns ≥ 30%;
“Small gain” refers to 10% ≤ market returns ＜ 30%;
“Essentially flat” refers to -10% ≤ market returns ＜ 10%;
“Small loss” refers to -30% ≤ market returns ＜ -10%;
“Large loss” refers to -100% ≤ market returns ＜ -30%）
- Based on a long-term bullish view of blockchain digital assets, 48% of respondents said they will watch for opportunities next month, 46% will keep their positions unchanged, and only 6% plan to reduce their position and wait on the sidelines.
OKB Is Among the Top 5 Currencies for The Coming Half-year
- We also asked investors about their most favored currencies for the coming half-year using an open-ended question. The results show that the most favored currencies are BTC (supported by 31.98%), followed by OKB at 20.93%, and EOS at 16.28%. ETH beat out BCH for fourth place.
9.43% of Investors Are “All In” Blockchain Digital Assets
- The survey indicated that almost 80% of investors had accumulated more than ¥100,000 of investments in blockchain digital assets. More specifically, 14.62% had invested ¥100,000–190,000, 22.17% had invested ¥200,000–490,000, and 23.11% had invested ¥1 million and above.
- The median percentage of investable assets allocated to the blockchain is between 20%-49%. 31.13% of investors invested between 20%-49%, and 20.75% invested between 5%-19%. Another 9.43% indicated that they were “all in” blockchain digital assets.
Chapter 2
Blockchain Digital Asset Market Analysis
- Overview of markets this month
- Analysis of top 200 blockchain assets
- Analysis of newly issued currencies
- Primary digital asset markets
- Analysis of public offerings completed this month
Blockchain Market Cap Fell Significantly in September, but Daily Volume Rebounded
- Following August, in which average daily market value and trading volume both declined, September data continued its downward slide. However, trading volume rebounded significantly at the end of the month. The average global daily market cap of digital assets was $211.103 billion, down 10.27% from August; transaction volume was $13.526 billion, up 5.15%.
Average global market cap/24h trading volume of digital asset
Among the top 200 digital assets by market value in September, ETN had the largest monthly price increase, at 301.46%.
Vertical Chains & Protocols Fell the Most Among the Top 200 Digital Assets
Analysis of the Top 200
- The average market values of the top 200 digital assets were 0.24% lower than in August. Dividing blockchains into currencies/payments, base chains/protocols, vertical chains/protocols, and vertical applications, the largest drop this month was in base chains & protocols, falling 23.35%.
- On a weekly basis, among the top 200 blockchain assets by market cap, the three segments besides currencies and payments all shrunk in September. Currencies & payments started to rise in mid-September, and their overall market cap exceeded that of the beginning of the month.
IoT and Platform Tokens Led Among Market Verticals
Analysis of the Top 200
- Further subdivision of the vertical chains/protocols and vertical application segments among the top 200 digital assets by market cap shows that the IoT, platform tokens, and finance led the way in September, in line with August rankings. The market cap of IoT peaked at almost $4 billion, of which IOTA accounted for half. Enterprise services, transport, and entertainment had the lowest market caps.
New Listings Mainly in Currencies/Payment, and on HitBTC, Poloniex, and Huobi Pro Exchanges
Analysis of new listings
- Announcements from 30 trading platforms, including OKEx, Huobi, Bitfinex, Bithumb, ZB.com, Upbit, HitBTC, and Bittrex show a total of 59 new trading pairs this month. 47.46% of them declined in price within the first week, particularly those in finance. The new listings were concentrated on the HitBTC, Poloniex, and Huobi Pro platforms.
Highest Soft Cap & Largest Number of Projects in Finance Sector
August Public Offerings
- OK Blockchain Capital statistics show a total of 121 public offerings around the world in September, down 40% from August. Their total soft cap approached $0.73 billion, down 42.94% from August. Public offerings completed in September mainly involved finance, gaming, and corporate services. The soft cap of finance was the highest.
Chapter 3
Major Industry Events and Analysis
- Important global policy news items this month
- Overview of the giants
- Industry buzzwords this month: the Ethereum “Difficulty Bomb”, stablecoins, bitcoin mining machines, and Bitmain
Important Global Policy News Items This Month
Policy News
A Timeline of Important Events
Overview of the giants
Hot Topic This Month
Ethereum “Difficulty Bomb” Delayed; Block Rewards Reduced by Half as Compensation
Major industry events
Keyword：Ethereum “Difficulty Bomb”
On August 31, after one month, the final result of the Ethereum block rewards system vote came out. Of the ETH participating in the voting, 150,821.4 ETH (approximately 99.7%) supported reducing the block rewards to 2 or 1 ETH per block (finalized at 2 ETH). Only 348.7 ETH (about 0.03%) supported raising or maintaining the current amount. An agreement was reached on the delay of the “difficulty bomb” (which will increase ETH mining difficulty).
- Background
Ethereum founder Vitalik Buterin divided Ethereum’s development into four stages: Frontier, Homestead, Metropolis and Serenity. Ethereum is currently in Part 1 of its third stage, Metropolis: Byzantium. When Serenity, the final milestone, is achieved, it will embrace a major change: transition from Proof-of-Work to a Proof-of-Stake consensus.
Back in the Frontier stage, the “difficulty bomb” was incorporated into the Ethereum blockchain, and it was scheduled to go off in stage 3. The start of the “difficulty bomb” will exponentially increase mining difficulty and block time, making mining impossible. Eventually ETH based on PoW consensus will lose its attraction to miners, the number of miners will gradually decrease, and the difficulty of reaching a future agreement on an upgraded blockchain based on PoS will be reduced considerably, thus completing the smooth transition from PoW to PoS.
If miners cannot be stopped from continued PoW mining, before entering the final stage, Serenity, the Constantinople Hard Fork, three Ethereum cryptocurrencies will be created: ETC, ETH-PoW, and ETH-PoS. This will not only hurt Ethereum’s credibility and economic value, but also dilute the hashrate for the entire system, making it more vulnerable to hacking.
- What Does the Result Mean?
This decision on the “difficulty bomb” is actually a concession to Ethereum miners. As compensation, block rewards will be reduced from 3 ETH to 2 ETH. But the delay does not mean cancellation. It is expected that by the end of 2019, the “difficulty bomb” will officially commence. At that time, the difficulty level of Ethereum blocks will increase sharply, block time will be extended indefinitely, and block rewards may be further reduced. When Ethereum is upgraded to Serenity, the PoS mechanism will be in full swing. At that stage, Ethereum will become a blockchain business empire with bank-level processing speed. Its programming language will be used by developers, companies and the real economy to create contracts, applications and systems.
The Birth of GUSD,
the World’s First Regulated Stablecoin
Keyword：Stablecoins
On September 11, the GEMINI Exchange announced its official issuance of GUSD, the world’s first regulated price-stable cryptocurrency, pegged to the US dollar at 1:1. GUSD is structured as an ERC-20 token issued by Gemini Trust Company in New York, and regulated by the New York Department of Financial Services (NYDFS), with initial circulation of $100,000.
The stability mechanism of GUSD is similar to that of USDT. The Gemini Trust Company is responsible for the US dollars held in reserve as an exchange guarantee, and for disclosing its US dollar deposit balance, under the supervision of US regulators. The Trust promised that users will be able to redeem GUSD into the US dollar at a 1:1 rate. They can directly convert US dollars to GUSD on the Gemini Exchange. To withdraw the funds, they can automatically convert Gemini dollars into US dollars by depositing them into a specified account. Therefore, GUSDs are created at the time of withdrawal from the Gemini platform, and redeemed or “destroyed” at the time of deposit onto the platform. The GUSD circulating in the market should be equal at all times to the US dollar deposit balance held in reserve by Gemini Trust.
- The Meaning of Stablecoin
Many exchanges are currently not allowed by policy, laws and regulations to trade in fiat currency, so stablecoins have become a temporary substitute, and are used as a transaction pair. The main stablecoins currently include USDT, TrueUSD, DAI, and BitUSD. USDT dominates the market, and the main exchanges essentially all trade in USDT.
- The Importance of Regulation
Stablecoins currently on the market mainly use three stability mechanisms: fiat currency backing, encrypted asset backing, and dual currency construction. The first of these, being simple and reliable, is currently a popular practice. The most salient problem however is centralized fund management. Fund managers’ reliability is often questioned, because without regulation, they can misappropriate or transfer users’ pledge funds.
With the participation of regulators, the past situation can be improved in the following ways. First, the security of the fund is guaranteed. Since trust funds adopt a co-managed account structure, regulators are able to find out about changes to the account, and can promptly stop any fraudulent transfer, and recover the losses. Second, the accuracy of information disclosure has been improved. To prevent moral hazard, audit of trust fund accounts is provided by a third party designated by the regulators.
- Possible Impact
The launch of GUSD boosted confidence in the entire cryptocurrency market. Although its current circulation is still very small (no more than $100,000), its launch moves stablecoins towards the direction of supervision, transparency and compliance. It may eventually become a powerful challenger to the USDT.
A New Arms Race
in Bitcoin Mining
Keyword：Bitcoin Mining Machines
On September 19, Shenzhen MicroBT Electronics Technology Co., Ltd. held a product launch event for its new Bitcoin mining machine Shenma M10, based on the sha256 algorithm. Shenma M10’s computing power reaches 33T hash/s, and its power consumption ratio is 65W/T, 35% less than Bitmain’s Antminer S9, the current mainstream device. The Avalon Miner A9, based on 7nm tech, with a power consumption ratio of about 80W/TH, the product of the world’s second-largest Bitcoin mining machine manufacturer Canaan Creative, will also start shipping on September 20. Having dominated the market for 2 years, the S9 is now facing strong challengers. A new arms race has officially begun in the mining industry.
- Evolution of Bitcoin Mining Chips
Since Bitcoin’s mining algorithm has not changed for many years, the mining industry has naturally and gradually moved towards scale and centralization. Top players are constantly striving to optimize costs and improve efficiency. The former is mainly the result of reducing electrical and management costs through scale. The latter mainly refers to continuously declining power consumption ratios. From CPUs, GPUs, and FPGAs, chip manufacturing has eventually evolved into ASICs.
- Mining Machines’ Main Performance Parameters
The most important performance/price technical indicator for mining machines is the power consumption ratio, generally expressed by W/TH (Watts/terahash) , representing the power cost of performing 10¹² hash operations. There are usually two ways to reduce the ratio. One is to optimize each part of the existing chip production process. The effectiveness of this method is limited. The other, more fundamental solution is to reduce the width of the wire connections between triodes on the chip. In theory, the finer the width, the lower the power consumption, and the better the performance becomes. However, the width is also limited by physics. The smaller it becomes, the more significant quantum effects also become, complicating the manufacturing process.
- Potential Market Impact
Antminer S9, Bitmain’s current flagship product, first went on sale in June 2016. This mining machine, independently developed by Bitmain, uses the 16nm chip BM1387. The initial computing power of Antminer S9 was 11.85T, and its power consumption ratio was about 100 W/TH. At the time, it was the lowest power-consumption chip in Bitcoin mining history, which directly laid the foundations for its near-monopoly position in the market.
In the more than two years since the S9 was released, however, Bitmain has not introduced any new mining chips, except for optimizing the S9’s computing power to 14.5T. Such a gap is rare for a leading company in a fast-growing industry. With competitors chomping at the bit, it needs to respond with new products as soon as possible in order to maintain its current market position.
The development of the mining industry can be compared to what the Red Queen said in Through the Looking-Glass: “It takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Bitmain Prospectus
submitted to HKEX
Keyword：Bitmain
On September 26, Bitmain uploaded its A1 prospectus to the official website of the Hong Kong Stock Exchange (HKEX), officially initiating its listing plan on the main board of HKEX. Founded in 2013, Bitmain started off by manufacturing and selling Bitmain mining machines. In August 2018, it closed its Series B funding round, bringing its valuation to $14.5 billion. Its financial statements show that it earned $742.7 million (approximately 5.1 billion yuan) in net profit in the first half of 2018.
- Single Revenue Source
Although Bitmain defines itself as a cryptocurrency mining and chip company, with business lines including mining machine sales, mining pool operations, mine services, and self-operated mines, its financial reports show that mining machine sales account for more than 90% of its total revenue. Such reliance on a single business line is potentially risky.
Bitmain floats its mining machine prices based on crypto markets. As the market goes down, the demand for machines declines, giving manufacturers less pricing power. The price of mining machine falls, and gross margins decline. In such a case, it is doubtful that Bitmain’s profitability and revenues will still be able to maintain current growth.
2. Volatile Asset Values
In the first half of 2018, cryptocurrencies including BTC, ETH and BCH — valued at $886.9 million, mostly from mining machine sales settled in cryptocurrency — made up about 28.03% of its total assets. Bitmain estimates and records cryptocurrency values using the cost approach, and the cost is calculated using the weighted average. When selling these cryptocurrencies, the gain or loss is determined by the difference between net sales revenue and face value, and is recognized as profit or loss on the date of sale.
In the first half of 2018, cryptocurrency prices took a nosedive. Bitmain estimated an impairment loss of $103 million in its held crypto assets. Crypto assets also risk being lost through hacking. According to the prospectus, Bitmain suffered a hacker attack in the second half of 2017, losing $27 million. The volatility of cryptocurrency pricec makes it difficult for investors to know the total value of their holdings.
3. Summary
With the winter coming in cryptocurrency markets, mining machine is in the midst of a sell-off crisis. Bitmain’s model, which relies on mining machine sales for most of its revenue, faces many problems. If it succeeds in its IPO, investors should still be concerned about potential risks.
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*Credits to Quqi Deng for his superb research!
