Bitcoin rally gets legs as other crypto stalls

Award-winning cryptocurrency writer Gary McFarlane shares his latest updates for the crypto curious from bitcoin's recent surge to the UK being a potential blockchain hub.

Building on last week's gains, bitcoin had a late weekend spurt that took the price up to $7,737. It is currently holding at $7,690. Last Tuesday the top cryptocurrency leapt $700 in 30 minutes in a rare sign of bullish strength this year that, with the ongoing steady consolidation, may signal the worst of the bear market is over. 

Bitcoin this week needs to successfully attack resistance at $7,800 and push on through to $8,000 to maintain momentum. Volume is now moving higher ($4.7 billion) again having dropped below $4 billion at the weekend. 

Analysts are divided on the implications of the surge. Some have pointed to short-sellers seeing their stop-losses taken out, forcing them to buy in order to close their positions – known as a short squeeze, while others see the higher trading volumes and the stronger dollar/bitcoin component of that compared to the tether/bitcoin trading pair, as indicative of new money entering the market.

BitMEX exchange co-founder and chief executive Arthur Hayes says market participants should be prepared for another drop towards $5,000 before the bottom is definitively set. He sees the price rising to “just shy of $10,000” before it begins a new descent.

"I would like to see us test 5,000 to really see if we put a bottom in," Hayes told CNBC.

Hayes has one of the more bullish price targets for crypto, at $50,000 by year's end.

The $5,000 level would take the market back to where it was in October, arguably before the market rose too far too fast as new retail money flooded into the sector chasing stratospheric gains.

With the bitcoin price now up 30% from recent lows at around $5,800 and trading volumes doubling last week from $2.9 billion on 14 July to $6.1 billion on Wednesday 18 July, the bears are on the defensive. However, with volumes still on the low side, the return to $10,000 is hardly a foregone conclusion, let alone $8,000, but today's price action bodes well. 

One industry influencer who sees the bottom is Barry Silbert, the chief executive of the Digital Currency Group, a company with its fingers in many crypto pies, with investments in Coinbase, Circle, CoinDesk and much more.

"I think the bears just kind of ran out of energy,” says Silbert, who went on to assert that more institutional money was entering the market. Silbert based his thoughts on a report from Grayscale Investments, another company of which he is the chief executive. Grayscale is the provider of the Bitcoin Investment Trust (BIT) and in a report published this week related that “56% of $250m raised till date [first half of this year] came from institutional investors".

Grayscale has launched a number of other crypto-based  investment trusts but it is the bitcoin product that attracts most of the money. 

Institutional interest in BIT stems from it being a regulated product that’s easily traded. The trust holds bitcoin directly but it is priced at an outsized premium to its net asset value of 48%, which makes it an expensive way to gain exposure, and there’s the management fee of 2% to be added on. BIT is at $11.06 with total assets of $1.45 billion. As to be expected, the trust has lost 50% of its value this year in line with the performance of its underlying asset, bitcoin.

Hedge fund manager Marc Lasry of Avenue Capital Group is another bullish voice making a noise. Lasry, who has 1% of his own money invested in bitcoin, predicts the price will reach $20,000 to $40,000 on the back of growing adoption, "as it gets more into the mainstream and as more markets end up allowing it to trade".

Altcoins slipping

Although Silbert is an early adopter of bitcoin and should be considered a true believer in that respect, it is a different story when it comes to his view of altcoins; he thinks 99% will end up being worth nothing. Judging by the market action of late, many agree with him. 

Bitcoin dominance of the crypto market is rising, currently at 45% as it forward thrust fails to bring the altcoins with it. For example, although bitcoin is 0.79% higher in the past 24 hours, top alts are languishing in the red.

Ripple's XRP token, the third-placed token by market capitalisation, is a particular laggard at $0.45, rising in the wake of bitcoin's breakout, but falling in the days since, suggesting some traders may be selling to buy into the bitcoin rally. Ethereum is in the same boat, initially rising with bitcoin on Tuesday but dropping back since, down 3.4% today at $464.

Cardano, Stellar, Dash, Digibyte, Augur, MaidSafe, Kin and ZenCash are among those faring better among the top 100 coins in recent sessions, with two (Cardano, and Stellar) of that number still benefiting from the afterglow of the news that Coinbase is considering listing them and there's Stellar's IBM stablecoin news too (see below). 

Kin adoption progress stands out

Kin, the native token of the Kik messaging app, launched its wallet, called Kinit, early last week and the token has been steadily rising in value ever since. To drive development, Kin has set up a fund worth nearly $3 million to be distributed among those developers accepted on to the Kin Developer Program. Kin is selecting 25 developers. To receive the reward for their work the app the build will be required to have at least 50,000 minimum active wallets.

Kik has 300 million users, mostly among young people in North America. With the weeding out that’s going in alts, Kin is getting attention, and some credit, for its adoption progress which has a strong chance of surpassing the transactions on many currently busier blockchains with much higher market capitalisations. 

"Kinit is the first publicly available app dedicated to Kin. Our goal with Kinit is to get Kin into more consumers' hands. It's a major step towards making crypto truly consumer-friendly through fun and engaging experiences, and we plan to learn and iterate based on real-world user behaviour. We’re excited to get even more people earning and spending Kin – all on the Kin Blockchain," wrote Rod McLeod, Kik’s vice president of communications.

Kin started life as an Ethereum token but due to the scaling issues on the platform it decided to use Stellar but then forked from Stellar to create its own blockchain. The Kin token now uses Ethereum and Stellar-based networks in tandem, with Ethereum providing the liquidity and the Stellar technology being used for transactions within the Kin ecosystem. Users of the Kinit app can earn Kin by filling in surveys, doing quizzes and watching interactive videos, with Kin looking to drive adoption through giveaways. Kin raised $100 million in its initial coin offering last year.

BlackRock dabbling, IBM's 'stablecoin' and Coinbase institutional business

On the wider adoption front, BlackRock, the giant US-based fund manager, last week revealed it was exploring how to get into the crypto assets markets while IBM announced it was developing a so-called stablecoin with startup Stronghold. Stablecoins are cryptocurrencies pegged to another asset, typically a fiat currency.

The token from IBM and Stronghold, USD Anchor, is backed by the US dollar and is a first of its kind in that the dollars being held as collateral will be covered by the US Federal Deposit Insurance Corporation. Prime Trust, which is responsible for custody, will deposit dollars at FDIC-approved banks. 

In other industry news, Coinbase walked back on an early statement in which it reported that it had gained approval from the US Securities and Exchange Commission to trade securities. The confusion arises from Coinbase's acquisition of broker Keystone Capital and the inference from that that the SEC had approved Coinbase as a securities dealer.

A spokeswoman for Coinbase, Rachael Horwitz, told Bloomberg it is "not correct to say that the SEC and FINRA approved Coinbase's purchase of Keystone because SEC was not involved in the approval process". It is not clear why Coinbase released information to the contrary in the first place. 

Coinbase has also just acquired a large customer for its institutional trading offering Coinbase Prime, not to be confused with the recent makeover and rebranding of its GDax exchange as Coinbase Pro. A report by Business Insider said a $20 billion hedge fund is now a customer but the name was not revealed or any other details.

Proof-of-stake blockchains moving forward

China's IT ministry has just updated its blockchain project rankings and EOS stays in first place. Surprise inclusions in the top 10 of the Global Public Chain Technology Assessment Index are the smaller blockchain networks Nebulas (69th placed by market cap) and GXChain (61).

Block.one, the creator of EOS, completed a funding round this week in which major investors included entrepreneur and PayPal founder Peter Thiel as well as Chinese crypto-mining company Bitmain.

Jihan Wu from Bitmain said of its investment:

"The EOSIO protocol is a great example of blockchain innovation. Its performance and scalability can meet the needs of demanding consumer applications and will pave the way for mainstream blockchain adoption."

EOS raised a record-breaking $4 billion in its ICO and given that Block.one is the largest single EOS token holder it is not exactly short of funds. Block.one initially took a hands-off approach with EOS after the network went live, saying it would not take part in voting for the 21 block producers that verify transactions. It has since reversed that decision.

The common thread to the blockchains favoured by the Chinese ratings is their proof-of-stake (PoS) systems – although Ethereum is still using proof-of-work (computers compete to solve cryptographic puzzles as with bitcoin) but has signposted an upgrade to PoS which is more efficient and more scalable. 

Tron, another blockchain platform using PoS has started elections for its "super representatives", which play a similar role to block producers on the EOS platform. Justin Son, Tron’s founder, has been elected as one of the super representatives, after initially saying that he would not be taking part. With only 11 out of a possible 27 SRs elected, Son presumably wanted to get things moving as the verification and governance systems prove somewhat problematic in practice than in theory, as seen with EOS. 

Son remarked:

"I hope that my candidacy will make all the TRX holders, supporters and believers see the significance embedded in voting. I hope it will enable all of us to contribute to the establishment of a truly democratic, decentralized Tron community." 

UK well-placed as blockchain hub

According to a report by Big Innovation Centre, DAG Global and Deep Knowledge Analytics, the UK is well-positioned to become a global hub for blockchain development. The report's authors pointed to the £500 million worth of investment in UK blockchain projects over the past 12 months and London's position as a global financial centre and government encouragement as three key positive factors.

Chief executive of DAG Global Sean Kiernan, said:

"The UK is a major global financial hub and in recent years has become a fintech leader as well. At the same time, it is starting to demonstrate significant potential to become a leader in blockchain technologies and the crypto economy."