Bitcoin rockets 36% in quick time

ii's award-winning crypto writer explains what's fuelled the rebound and discusses a new gold product.

Rallying from $7,700 to $10,500 over the two days of the 24-25 October for a 36% gain makes for a gigantic trading range even by bitcoin standards. 

And the story of that range is bookended by Libra depression, following Mark Zuckerberg's mauling at the US Congressional hearings, and China's subsequent move to "seize the opportunity" afforded by blockchain.

China's President Xi Jinping's pronouncement a week ago has left bitcoin's five-month price low in the dust. 

However, strong resistance above $10,000 has taken its toll as bulls attempt to consolidate, with the price falling back to test levels near $9,000 bitcoin before jumping higher on Thursday to trade above $9,300. 

The bitcoin price at time of writing is printing $9,187 on the Luxembourg-based Bitstamp exchange.

(Source: TradingView)

As the price appears to be consolidating before an expected push higher, all eyes continue to be fixed on China, where the crypto-related positive news keeps rolling.

Since Xi staked out China's mission to harness distributed ledger technology in his remarks to the Communist Party central committee, the announcements have come thick and fast.

"We must take the blockchain as an important breakthrough for independent innovation of core technologies," said Xi a week ago and since then a law has been passed by the national Congress covering encryption, with a focus on passwords and the strategic aim of "safeguarding national security".

China crypto standards development could leave West behind

The new cryptography laws are divided into "core and common codes" of which the state is the custodian and "commercial code" developed by for-profit organisations. 

Cryptography is of course integral to blockchain, and putting the legislation in place is a necessary step for establishing clear and uniform industry standards, something Western countries are still struggling with, as witnessed in the  continuing Libra fallout.

The passing of the encryption legislation was followed by the roll out of the Certification of Fintech Products (CFP) system and accompanying documentation by the People's Bank of China and markets supervisor, the State Administration for Market Regulation.

Certification rules will cover everything from software to hardware products such as point-of-sale terminals, as the country imposes a certification system to provide state oversight with on-site visits to manufacturers and software developers. 

In addition to businesses such as cloud computing platforms and internet-of-things deployments, the new laws will require crypto mining embedded software as well as hardware prototypes to be tested before a certificate can be awarded, valid for three years.

Additionally, China-focused news outlet CNLedger reports that the state censor is removing posts on social media claiming blockchain is a fraud or scam, while adverts for courses in the subject are now appearing widely. 

China banned crypto exchanges from operating in the country in 2017 and the promotion of  initial coin offerings (ICOs), shifting much of that activity offshore, so the statement from Xi on the face of it seems like an abrupt about turn.

However, as we pointed out in the interactive investor New Year crypto predictions, China has homed in on blockchain as a key technology in its Fourth Industrial Revolution and Made in China planning.

Nevertheless, the timing of Xi's intervention speaks to an acceleration of efforts in that direction, likely brought on by the putative launch of Libra, despite the many obstacles Facebook's crypto faces on the regulatory front. 

In China the same worries about fraud and speculative bubbles that led to the banning of crypto exchanges and ICOs are resurfacing. 

There are now worries that the Xi endorsement could lead to a flurry of fraudsters getting in on the action, which in turn is likely adding urgency to government planning and the rollout of legislation. 

Also, given the low level of understanding of the technology, poor quality or outright fraudulent projects could take-off and  government officials in various localities could seek to compete to adopt the technology leading to wasted efforts.

Sichuan province pitch to blockchain industry with cheap hydro electricity  

On a more encouraging note for the nascent crypto industry in the country, Sichuan province is positioning itself as a home for blockchain projects, as it seeks to make the most  of its abundance of cheap hydro-based energy. 

Jiang Yang, a one-time vice-chairman of the China Securities Regulatory Commission, told a Beijing conference last weekend that the province should make its surplus electricity available for the energy-intensive blockchain verification work that so-called proof-of-work blockchain's require, known as mining. China is already  the main centre for bitcoin mining.

Jiang told the Sichuan Daily newspaper: "Sichuan should study further about how the province’s cheap hydropower resources can attract digital currency-related businesses."

Chinese Communist Party launches blockchain-based "loyalty app"

In a perhaps more frivolous indicator of the blockchain fever beginning to take hold in China, a new blockchain-based app has been launched inspired by "the teachings of President Xi Jinping" 

Dubbed the "loyalty app", it allows members of the Chinese Communist Party to record for posterity on the blockchain the reasons why they joined up.

Called Lian Shang Chuxin, which roughly translates as Aspirations On Chain, the app was launched last week by party newspaper the People's Daily. 

The app is one among a host of propaganda apps, the most popular of which is the Study Xi Strong Country app, which, according to the South China Morning Post, was the most downloaded app in February after it became mandatory for officials to use. Journalists are required to pass an exam that is only available on the app.

Crypto decentralisation becoming centralised?

All this speaks to a serious concern among crypto industry folk around the world about how the promise of enhanced individual freedom through decentralised networks is being turned on its head by the centralised approach of both Libra and, perhaps more importantly, the Chinese government.

A central bank digital currency issued by China would certainly enable a step change in the level of oversight and intervention regarding monetary transactions and policy afforded to the authorities, with the peer-to-peer anonymity of cash replaced – or more likely, augmented – by the granular possibilities of all-seeing "permissioned", i.e. centralised, blockchain infrastructure.

CoinShares launches DGLD digital gold token

When it comes to corporate blockchain innovation, much of the work is still, for now, taking place outside of China.

One important example is seen in the recent launch by CoinShares of a new tokenised gold product - DGLD - that hopes to combine the transparency and security of the bitcoin network with the store of value credentials of physical gold.

Each DGLD token is backed by one tenth of a troy ounce of gold. The network has launched with a first tranche of $25 million worth of gold.

In exclusive comments provided to interactive investor chief executive Danny Masters said:

"The unique selling point is that unlike exchange trade funds (ETFs), which have special purpose vehicles between you and your gold, this is an upgrade on the ETF mechanism."

CoinShares is a pioneer of exchange traded note (ETN) digital asset products with its XBT Provider Bitcoin Tracker and Ethereum Tracker products. 

For the DGLD launch it has teamed up with digital assets firm Blockchain, owner of one of the oldest digital wallets around and the 50-year-old MKS (Switzerland) S.A. and the related MKS PAMP Group – operator of a highly regarded precious metals refinery and fabrication facility and arguably the world's leading bullion brand.

To buy the token investors are not required to be an accredited investor. Masters explains: "Swiss gold is very, very well reputed as being verified and stable and secure but it is not a specified investment, so not within the regulatory framework [for shares and debt securities] in that sense.

"The tech we used makes certain the gold is identified to personal ownership. Because there is no intermediary, the gold is your direct property and is not a pooled investment. Anyone can buy it."

The gold is stored in safe hands and could transform the way in which gold is traded and used. 

(Pic: courtesy of PAMP – inside the group's refining and fabrication facility)

Chairman of MKS, Marwan Shakarchi, said of the launch: "DGLD is the natural progression of our work with gold, and gold formats at MKS. With DGLD, we've created a new format for gold ownership which makes vaulted physical gold, digitally useful, 24/7. This has the potential to profoundly change the way gold is used in everyday life."

DGLD token transaction records are stored on a 'sidechain' to the bitcoin. London-based CommerceBlock has developed the blockchain infrastructure through its Ocean platform.

CoinShares holds approximately $1 billion in digital assets under management, with its largest customer bases in Scandinavia, Germany and the UK. 

The DGLG launch comes as CoinShares' main products – its crypto exchange traded notes – face the prospect of being banned from sale to retail investors in the UK as part of a Financial Conduct Authority clampdown on what it deems to be overly risky crypto products being sold to retail investors. A consultation period canvassing industry and private investor opinion on the FCA's proposals has recently closed.

Even as the FCA moves to clamp down not just on highly leveraged contracts for difference products but ETNs too, in Germany things are moving in the opposite direction. This week saw news of a proposal from German fintech Iconic to list bitcoin ETNs on the Frankfurt and Luxembourg stock exchanges, according to German business news outlet Handelsblatt.