Bitcoin Cash is king after 25% surge

Award-winning cryptocurrency writer Gary McFarlane discusses the latest movements in crypto assets and why one guru predicts a huge rally into year-end.

The crypto market saw a change in leadership over the past week as the focus turned to Ripple's XRP.

Bitcoin reached a near-term high last Saturday at $6,800, but has since slipped back to $6,463. Bitcoin has been rangebound with volatility dropping to a two-year low, suggesting a big movement up or down is imminent.

As for XRP, on 17 September it was priced at $0.265 but in subsequent days almost tripled in price to $0.70, although has since pulled back to $0.516. 

The price action came on the back of hopes for Ripple Lab's xRapid system, which uses the XRP token for liquidity, being adopted by banks. Ripple now has 120 banks testing its RippleNet technology with customers spanning 40 countries. 

Coinbase listings hopes

XRP has also been boosted by hopes for a Coinbase listing. The US exchange currently lists five crypto assets and issued a statement this week saying that it has introduced a new more transparent system for assessing assets for listing.

Coinbase attracted criticism when the price of bitcoin fork Bitcoin Cash soared after what some suspected was insider dealing by Coinbase employees who had got wind of the planned listing of the asset.

The likelihood of a listing soon for XRP seems overdone, given that Coinbase issued a list of crypto assets it was considering for inclusion and XRP was not among them. 

In July Coinbase said it was "exploring the addition of several new assets, and will be working with local banks and regulators to add them in as many jurisdictions as possible."

The assets Coinbase is currently assessing are: Cardano, Basic Attention Token, Stellar Lumens, Zcash, and Ox.

The most recent addition to the exchange was Ethereum Classic, alongside the other four coins – Bitcoin, Litecoin, Ethereum and Bitcoin Cash.

The exchange has developed what it describes as a Digital Asset Framework in response to criticism about its processes. 

In a section simply named "decentralization" we get an inkling of why it is unlikely XRP will be entering Coinbase’s world any time soon. 

The document states states: "The network is public, decentralized, and enables trustless consensus." That's a problem for Ripple's XRP.

One of the main criticisms of XRP is its centralisation, underlined by the fact that Ripple owns 60% of total supply and decides who can and cannot operate a node.

Indeed, it is the "semi-permissioned" yet open-source nature of its distributed ledger technology (DLT) that appeals to banks and other financial companies.

Coinbase is expanding its asset offerings as the competition from altcoin exchanges heats up, with newer outfits such as Binance gobbling up market share.

A Coinbase spokesperson wrote in a blog post:

"We believe this new listing process allows us to quickly add assets while remaining compliant with local law and continuing to offer our customers the safe, high-quality experience they have come to expect from Coinbase."

XRP token is currently trading at $0.53, having fallen 89% from its highs in December.

Also, selling Ripple co-founder Jed McCaleb has intensified.  McCaleb left Ripple and, after a dispute with the company, agreed a settlement which sets out a schedule for future sales of the token – McCaleb owns roughly 10% of the total supply. 

McCaleb is the founder of Ripple rival crypto asset Stellar Lumens, which, in contradistinction, was built as a public blockchain.

One result of the XRP price run-up was the pushing of Ethereum out of second place in the asset rankings, but that didn’t last, with XRP currently back in third place.

Bitcoin Cash's Bitmain connection

Leadership – if that's not too strong a word – has today shifted again, this time to Bitcoin Cash (BCH), which is an even more unexpected development than the XRP rally. 

In the past two days Bitcoin Cash has risen $100 to $529 for a 25% gain. Supporters of Bitcoin Cash, which has larger (32MB) block sizes than bitcoin (1 MB), hopes it has a better chance of being adopted as a means of payment.

BCH has been supported by large miners such as China's Bitmain, which owns around 6% of total supply of BCH (one million). The bounce in the BCH price coincided with the filing of its IPO document. 

Because Bitmain is "hodling" its BCH, it has the effect of putting a floor under the price, with investors expecting Bitmain to use some of the proceeds from its fundraising in Hong Kong to further develop the Bitcoin Cash ecosystem.

Bitmain revealed in its filing that despite the bear market the exchange has been piling on the profits, or so it would appear. 

According to the documents, the company made a profit of $743 million in the first half of 2018 on revenue of $2,845, although it didn’t show what the discrete quarterly returns were. 

Fintech news and analysis website Techcrunch thinks those numbers are not all that they seem. Its analysis determines that Bitmain probably made a loss in the second quarter of about $400 million on much-reduced revenue of $800.

As well as owning the largest bitcoin mining pools, Bitmain is also the main manufacturer of the specialised ASIC processors that have come to dominate mining.

Novogratz calls the bottom again

Mike Novogratz, the hedge fund guru and founder of Galaxy Digital, sees a fourth quarter rally ahead for bitcoin, predicting a 30% price appreciation to around $9,000.

Speaking to CNN Money, Novogratz thinks bitcoin is digital gold: "It's become a digital store of value - it is the first digital asset that people are now vesting with store of value. 

"And that alone is a significant thing, [as] within 10 years, somebody (Satoshi Nakamoto) created this idea that now has $120 billion of value tied up in it."

Novogratz has high hopes for the Bakkt initiative from Intercontinental Exchange (owner of the NYSE). He sees it becoming a crucial “scalable on-ramp for merchants, institutions and consumers” getting into the crypto market.

Bakkt tweeted two days ago that its first product would be a bitcoin futures contract.

Crypto volumes bigger than US corporate debt market?

A report last week on crypto assets by Satis Group, as part of its initiation of coverage of the sector, found that total global trading volumes in crypto assets are set to pass the US corporate bond market this year.

By the end of the year Satis reckons that crypto trading will amount to $7.3 trillion compared to $7.05 trillion for US corporate debt.

Satis includes estimates for over-the-counter trades in the figures as well as data on public exchanges.

In 10 years’ time Satis projects crypto trading volumes to reach $17.8 trillion. Additionally, it estimates crypto exchanges earned $2.1 billion in trading fees last year.

Camila Russo and Benjamin Robertson at Bloomberg have been looking at bit more closely at trading volumes. They conclude that the unregulated nature of the industry means it is hard to believe some of the figures being reported by exchanges.  

One company in particular caught the eye – Singapore-based  BitForex – claiming daily global trading volumes of up to $5 billion a day, as it quickly climbed to the top of the volumes league.

Manipulative stratagems long outlawed in other asset classes are thought to be all-pervasive on a number of crypto exchanges, where surveillance in many cases is non-existent or rudimentary at best. 

Researchers have compared the reported volumes data spike and discovered there was no corresponding increase in traffic to exchange websites.

Although there is no direct evidence of exchanges themselves encouraging manipulation, the practice of "trade mining". This incentivizes trading activity by letting customers to earn exchange tokens in proportion to the amount of trading fees they have paid.

It the transaction mining system that BitForex vice-president Garrett Jin says explains the expansive growth in its user base.

Another issue is "wash trading" where volumes are inflated by people conducting trading between themselves with the deliberate aim of making it appear that there is more activity than there in fact is in a particular coin. 

Jin did admit in comments to Bloomberg that it was possible for one person to set up two accounts and trade with themselves. He added that the incentive programme will be coming to the end of its life soon.

Alongside custody, the lack of transparency and safeguards on crypto trading venues are among the issues preventing the approval of a bitcoin ETF by the US financial authorities.

On that note, the earliest it now appears there will be a decision on the CBOE VanEck Solid X Bitcoin ETF by the Securities and Exchange Commission (SEC) is December following two earlier postponements.

Round-up of other crypto news…

UK-based investment management firm Rathbones commissioned a survey of 1,500 investors to get a better understanding of attitudes towards crypto and ownership patterns.

The survey, unsurprisingly, found that younger people were more interested in crypto assets than the older generation. Of the under 35s, 37% are considering buying crypto in the future compared to just 4% of the over 45s. A more surprising discovery is that a third of high net worth investors in the UK have invested in crypto, with those most bullish crypto tend to live in London.

Robert Szechenyi, investment director at Rathbones, said: "Lucrative returns made by the early adopters of Bitcoin and other crypto-currencies have been widely publicised. These early investors have been followed by others looking to make similar gains.

"Younger investors who perhaps have shorter investment goals have been more susceptible to the 'Bitcoin craze', whilst older generations with their mind on retirement savings have mostly stayed clear of what is a high-risk asset class. Buying crypto-currencies can come back to bite you."

Baidu blockchain, mortgage-backed securities and stablecoins

Search giant Baidu has issued a whitepaper detailing the blockchain it is building.

Baidu is looking to offer its XuperChain in a blockchain-as-a-service (BaaS) setting.

Initially Baidu envisages six applications at the core of the product offering: Totem, Degree Universe, Baidu Association, Treasure Chest, Encyclopedia Online and Hubert.

Through deploying “multi-core parallel processing” Baidu says its network will be much more efficient and scalable than other chains.

Staying in China, one of the country's massive state-controlled banks, Bank of Communications, has issued residential mortgage-backed securities (RMBSs) on a private blockchain to the value of $1.3 billion, according to the China Securities Times.

Elsewhere, "stablecoins" – a crypto asset pegged to the value of another asset class – are the flavour of the month as merchants and consumers struggle with how to use a volatile currency as means of payment. 

Circle, the Goldman Sachs-backed crypto-aligned financial services group, announced it had developed a stablecoin callled USD Coin earlier this year, which it claimed would be the first federally insured effort in this particular corner of the crypto world. 

Explaining the move, Circle chief executive Jeremy Allaire, said: "A fundamental building block of this vision is the tokenization of fiat currency itself, through what are now referred to as fiat stablecoins. 

He continued: "A safe, transparent and trustworthy layer for fiat to operate over open blockchains and within smart contracts is a necessary precondition to the broader and more revolutionary potential of a crypto-powered global economy."

Andreessen Horwitz, the venture capital firm with a tech focus, has invested $15 million for a stake in Maker (formerly named MakerDAO). To maintain its peg, Maker uses an algorithm to adjust token supply in response to price changes to keep its value stable.

Cannabis and crypto – the odd couple

Finally, crypto is not the only bubble in town. 

If you haven’t noticed, cannabis stocks in North America have been on fire, so to speak. 

For example, Tilray rocketed 77% in three days only to then fall 48%, giving up most of those gains. 

Food and drinks companies and big tobacco are all eyeing the sector, with some already making their move. 

Coca-Cola is in talks with Aurora and Canopy Growth, with a market cap of $14 billion, has received a large investment from Constellation Brands.

Bloomberg today labelled the two markets "perfect post-crisis bubbles". 

The speculative rallies in cannabis stocks mirror the parabolic gains seen in the crypto world last December. The traders themselves also seem to be cut from the same cloth – young men.

The bottom line: millennial traders, be they in the crypto or marijuana stocks market, love volatility.

Disclosure: the author has holdings in crypto assets and cannabis stock.