There are currently over 400 crypto currencies out there, and 9 have a market cap in excess of $1 billion.
1. Two Sides To The Coin: Is Cryptocurrency a “Currency” or “Commodity”?
Answer: It depends who you ask. The complexity exists because coins have attributes of a currency (e.g. presented and trusted by some medium of exchange) and commodity (e.g. limited resource). The classification of cryptocurrencies varies by country, government and even application. In the U.S., the IRS has ruled that virtual currency does not have legal tender status in any jurisdiction. For tax purposes, the IRS treats virtual currency as property.
2. How Big Is The Cryptocurrency Market?
Answer: Nearly $120 billion. Bitcoin remains the largest and accounts for nearly 50% of the total market cap (Exhibit 5).
3. What Is Ethereum?
Answer: A Platform 1st, a Cryptocurrency 2nd. Ethereum differs primarily from Bitcoin in the latter is set up to be an alternative to ‘real money’ while the former is more of a platform set up to run any decentralized application and automatically execute “smart contracts” when certain conditions are met. Ethereum offers a digital currency like Bitcoin – called Ether – but this is just one component of its smart contract execution and primarily used to facilitate and reward using the network. However, the rise of Ethereum has not come without setbacks, including the ~$60 million hack of “The DAO”, a venture capitallike organization with the mission of “investing” in Ethereum-related start-ups and projects (and is no longer operational today).
4. How Does One Trade Cryptocurrencies in the United States?
Answer: Digital Exchanges, Block Trades and (soon to be) Options. Individual investors can trade virtual coins on various online exchanges. Institutional traders have largely stayed out of the cryptocurrency market due to its relatively small size, structure of mandates and volatility, but block trading exists to facilitate the execution of larger orders. In addition, Bitcoin options exist and are traded on offshore exchanges. Futures and options may also be coming to the US soon. On August 2, 2017, the CBOE entered an agreement with Gemini Trust Co to allow cash-settled Bitcoin futures on CBOE Futures Exchange in 4Q-17 or early 2018.
5. What is an Initial Coin Offering (ICO)?
Answer: Fundraiser through token sales. The amount of money funding ICOs has grown exponentially and the speed at which money is raised via a white paper and internet browser has sounded the alarm bells from parties including the SEC and the People’s Bank of China. According to Coin Schedule, ICOs have raised $1.25 billion this year, outpacing global Angel & Seed stage Internet VC funding in recent months.