Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


What is the Stronghold USD Cryptocurrency?

The IBM (NYSE: IBM) public relations department has apparently become a major source of “news” about cryptocurrencies. At least one cryptocurrency, Stellar Lumens (XLM) saw its 24-hour Market Volume increase by 87.35% on July 17, 2018 because of IBM press releases.

Stellar Lumens achieved a 24 hour Market Volume of $56.936 million largely because of hype about a new altcoin. The new altcoin is Stronghold USD which was designed to mimic the attributes of two popular cryptocurrencies; Bancor (BNT) and Maker’s Dai.

Stronghold USD Combines the Attributes of DAI and Bancor

Like the Dai (DAI), Stronghold is a stablecoin which means its price is pegged to a fiat currency. Stronghold USD imitates DAI by pegging its altcoin to the most popular fiat currency around the US dollar.

Stronghold USD is also a liquidity cryptocurrency like Bancor. Bancor protects the liquidity or value of its coins by offering fast conversion to a variety of popular ERC20 cryptocurrencies.

Stronghold USD offers fast conversion to Lumens (XML), Bitcoin (BTC), the US Dollar (USD) and Ethereum (ETH). This solves one of the flaws in the Stellar Lumens, lack of convertibility into the popular ERC20 (Ethereum-based) cryptocurrencies.

Like Bancor, Stellar operates a distributed exchange. Stronghold USD and the Lumens are currencies designed to trade on the exchange. The potentially lucrative difference is that Stronghold USD might provide convertibility into the world’s popular currency the greenback.

A good way to think of Bancor is a basket of cryptocurrencies that functions as money. The Stronghold USD is a basket of both cryptocurrency and fiat currencies.

Are Stablecoins Really Stable?

An interesting question is why Stronghold USD is not pegged to other popular fiat currencies such as the Pound, Euro, and the Swiss Franc. My guess is that we will see stablecoins pegged to those fiat currencies at some point.

A problem that stablecoins are designed to solve is that fiat currencies are not necessarily that stable. A handful of big fiat currencies such as the US Dollar, British Pound, Swiss Franc, and Euro are extremely stable. Most fiat currencies are unstable, which creates a huge potential demand for stablecoins. Especially in developed countries like Venezuela that lack a stable currency.

Even some major fiat currencies like the Russian Ruble are not that valuable or liquid. The rate of exchange on July 17, 2018, was 62.55 rubles to the dollar.

An obvious use for stablecoins like the Dai and Stronghold USD would be to give all the world’s people access to stable, liquid, currency. That would be a real game changer because it would let private individuals escape problems like hyperinflation and avoid policies like currency devaluation.

Allowing a stable, liquid currency to circulate during economic troubles can create problems. Greece’s government was unable to erase its debts by devaluation a few years ago because it adopted the Euro as a currency. That was good for average Greeks whose savings were not wiped out by devaluation, it was bad for the bankrupt government.

This means stablecoins have the potential to destabilize economies and neutralize monetary policy. One has to wonder if governments would allow such altcoins to circulate when they realize that.

Is Stronghold USD a Good Investment?

The disturbing thing about Stronghold USD is that it does not seem to have been issued yet. Instead, Stronghold is planning a Beta test for business that conduct more than $50,000 in cross border payments a month for Stronghold USD.

The Stronghold USD will be used to cross-border payments, institutional trading, and foreign exchange transactions. It will be used to ensure liquidity by providing a reserve of US dollars to back transactions.

The idea, apparently, is to transform Stellar’s decentralized blockchain exchange into a currency transfer mechanism. To that end Stellar and IBM must have accessed to a sidechain or some other mechanism for bypassing the blockchain.

The present day blockchain is simply too small and slow to effectively move volumes of payments. Ethereum can reportedly move only 20 transactions a second, while Bitcoin moves at seven transactions a second. This is the infamous blockchain scalability problem which is stymying some of the world’s best minds.

That makes high-volume trading of the kind, Stronghold is claiming to offer impossible in the blockhain. It sounds as if IBM might be testing a potential solution to the blockchain scalability problem.

If so that makes Stronghold USD the killer app for the blockchain with a potential value of billions. A scalability solution would allow an organization to build a blockchain-based bank or offer cryptocurrency credit card payments.

An FDIC insured blockchain

The most interesting thing about Stronghold is that claims to offer a blockchain product insured by the Federal Deposit Insurance Corporation (FDIC). If true that means Stronghold users would enjoy the same insurance protections as US bank accountholders.

This might Stronghold and Signature bank to offer banking services through the IBM blockchain platform, Venturebeat claimed. That would be a force and begin the transformation of blockchain into a widely used financial technology.

That makes Stronghold USD a financial technology test rather than a cryptocurrency. Stronghold is certainly a fascinating piece of technology but it is not an investment yet.

The potential value of $1,421 that CoinMarketCap assigned to Stronghold USD on July 25, 2018 is purely theoretical. Investors should wait until the Stronghold USD Beta tests are completed to buy Stronghold Hold or Stellar Lumens (XLM).

Stronghold’s Coin Price is Purely Theoretical

One obvious problem with Stronghold was that the only active markets for it are in Stellar Lumens (XLM). Coinmarket listed two coin pairs as “active markets” for Stronghold on July 25, 2018.

They were XLM/BTC (Bitcoin) and XLM/ETH (Ethereum). The XLM/BTC market was worth $1,363 less than the “Coin Price” of Stronghold on 25 July 2018. The only activity registered for XLM/ETH on the same day was $68. Therefore Stronghold’s Coin Price was purely theoretical and should be ignored by speculators.

Despite that, the Stronghold USD is potentially a super disruptive cryptocurrency. Speculators should watch Stronghold USD carefully because it has the potential to completely disrupt the cryptocurrency markets.

Investors should definitely consider buying IBM stock. Stronghold USD proves that IBM is a potential leader in blockchain and financial technology. IBM might have the resources to take blockchain mainstream and transform banking in the process.

Watch IBM, Stronghold USD, and Stellar Lumens closely because big things are happening here. The IBM Blockchain Platform is about to become a major perhaps, a dominant player in cryptocurrency. Stronghold USD might be the key to that domination.