Bitcoin: Will only a drop to $5,000 tempt buyers back?

Our award-winning crypto analyst rounds up all the latest industry news and price movements.

Bitcoin has just taken bulls on another bipolar ride, with market participants likely swinging from depression to ecstasy in short order in response to the latest episode of frenzied trading. 

Ever-volatile, at one moment it was time to forget about hopes for bitcoin Santa rally – it looked more like The Grinch had come to town as bitcoin took out its $7,000 support on Monday, with losses deepening on Tuesday. 

The price bottomed out at around $6,400 on Wednesday, bouncing back strongly in the US session to more than make up for those recent losses, topping out at $7,450. 

Bitcoin at the time of writing is priced at $7,138 on the Coinbase exchange.

Fears that a Ponzi scheme by the name of PlusToken was about to offload its hoard of bitcoin on the market, may have been the trigger for the selling, according to analysts at Chainalysis. PlusToken scammers are thought to have amassed 20,000 bitcoins.

As usual, trying to ascribe a single cause to the latest gyrations in the bitcoin market should be treated cautiously, especially at this point when the market has been trapped in a down channel on low volumes. Bulls caught out in a long squeeze has also be cited as coming into play. Regardless of the alleged fraud perpetrated by PlusToken on its many Chinese victims, further retrenchment was likely. 

The deflation of the Libra-induced enthusiasm seen earlier this year is still running its course it would seem, with the next meaningful support level after crashing through $7,000 at the $6,500 mark.

Bulls might not want to hear it, but the possibility of revisiting the $5,000s, last seen in May, has not gone away. The latest bounce again saw a rejection of attempts to hold above $7,400.  Successive lower highs and lower lows means is an undeniable negative for bulls.

Before yesterday’s recovery, some traders were targeting the $5,500-5,700 region to take long positions, although volume profile data (see chart below) shows that buying interest doesn’t pick up until the price enters the lower $5,000, so caveat emptor on a $5,700 bottom. 

However, it might be argued that the sooner such a capitulation comes to pass and a bottom is formed the better.

The strength of the recovery from $6,400 will encourage bulls. They can take comfort from the physically settled Bakkt bitcoin futures market hitting another all-time high in trading volume – a welcome indication of growing institutional interest, albeit of open interest probably being generated by traders as opposed to longer-term investors buying and holding. 

(BTC/USD 1-day candle, Coinbase 18 December 2019. Courtesy TradingView)

Zooming out from these near-term gyrations, with block rewards paid to miners halving next year, the bitcoin price is expected to firm and advance, with the price  expected to reclaim $10,000. 

On that view, the current downturn presents a buying opportunity according to some market insiders, but this being bitcoin, the upcoming supply constraints may not see it react as a traditional commodity might be expected to do.

Ethereum, XRP and the rest always fall harder than bitcoin

And if bitcoin is under the weather, some altcoins (all crypto other than bitcoin) looked like they might be approaching a near-death experience when bitcoin was giving up $7,000. 

That might be an exaggeration where the leading coins are concerned, but the fragility revealed in the double-digit drop of the past couple of days must be worrying for their bagholders. Every time bitcoin falls, the rest of the market falls even harder.

Top of the worry list must be second-placed coin Ethereum, down 15.8% yesterday, according to data site cryptocompare. Other top 10 coins were hurting to similar extents, with Ripple’s XRP token off $17.5%. Recent outperformer Chainlink (LINK) was at one stage 21% lower. 

The Ethereum network is still the star of the DeFi space (decentralised finance) because of its brand power and relative network strength as the original smart contract platform. It remains the most popular platform for launching tokens and as a route for digitising a host of asset classes, from gold to stocks.

But Ethereum has a problem that doesn’t look like it will be solved anytime soon: it is slow.

When an application called CryptoKitties starting gaining traction back in the bull market days, the network almost slowed to a halt. If you can’t run one frivolous “collectibles” game without transaction speeds on the network for everyone else falling over, that’s an issue.

The solution was to move away from the bitcoin approach to verifying transactions. Known as proof-of-work, with a pivot to so-called proof-of-stake (PoS) consensus system.

The advent of Ethereum 2.0, which makes changes to the protocol to enable this shift, starts in January 2020, but it is fraught with technical difficulties which needn’t bother us here.

Suffice to say the chain will split or even splinter, with some following the official roadmap, others staying on the old system and yet others picking and choosing the parts they like.  As the shift to PoS develops, there will need to a bridging mechanism between the two. This all gets very complicated.

Coinfloor delists Ethereum (ETH) and Bitcoin Cash (BCH)

Because of its convoluted software upgrade roadmap, the UK’s oldest crypto exchange, Coinfloor, has decided to delist Ethereum. In a wider move to concentrate its firepower on bitcoin, Coinfloor, one of the few crypto exchanges able to access the UK Faster Payments system, is also dropping Bitcoin Cash, a fork from the bitcoin network.

Chief executive Obi Nwosu says the resources required to support Ethereum trading were not worth the effort, in a sign of the pressures exchanges are under as two hundred or more venues compete globally over a relatively small pie, especially in comparison to traditional asset classes. 

“You have to maintain that currency, every time they make an update or a change, and Ethereum has got a long way to go with updates and changes to the platform,” Nwosu said in justification of the delisting.

“No other cryptocurrency currently comes close to Bitcoin’s track record, industry support, or brand recognition, so focusing on Bitcoin made perfect sense,” he added.

The exchange is going all in on bitcoin, which Nwosu says is gaining traction.

“The ecosystem of businesses and consumers using or holding bitcoins is growing every day as more people start to recognise its worth. Coinfloor has the opportunity to create financial services that not only meet the Bitcoin ecosystem’s needs, but also contribute to making this future form of money available to everyone.”

Nwosu says Coinfloor is “thinking hard about how we can build new products and services”.

As part of that, Coinfloor plans to target bitcoin lending and custody. In comments provided to interactive investor Nwosu said: “We think there is a big opportunity to offer services such as Bitcoin loans and insured custody of Bitcoin, and are looking at how we can provide these facilities in the near future,” says Nwosu.

Bitcoin lending is moving up the agenda for the industry and Coinfloor wants in on the action. In a recent podcast for interactive investor Karl Turner, head of business development at cryptocompare, said the data and analytics company was looking at expanding its coverage of the area.

Despite Ethereum’s tortuous roadmap, it still has sufficient network activity to continue to lead the way in DeFi, but this delisting is surely a warning that the software upgrades will need to proceed expeditiously and safely, or it risks other exchanges following suit.

Simon Peters, crypto analyst at investment platform eToro, highlights the continued growth in the sector:

“Latest figures from the decentralised finance analytics platform DeFi Pulse shows that the amount of funds locked in the DeFi market is near its all-time high of over $650 million. This is an increase of more than 200% over the same time last year when it was roughly $220 million. In 2017 it was around $10 million.”

According to ConsenSys, the blockchain software company founded by early Ethereum contributor Joseph Lubin, more than 20 million accounts were created on the Ethereum network this year alone; there were four million new active addresses and number of live Ethereum nodes stands at 8,516. As far as decentralised app (dapp) launches goes, there were 520 launched in 2019. The Ethereum-based Dai stablecoin has also helped the network to enable more dapps. 

Smartlands launches digital payments app

The UK-based start-up Smartlands has seen success with the tokenisation of property, with the recent regulated £1 million security token sale of student flats in Nottingham, completed at the end of the summer, and appears to be strengthening its overall offering with a number of new initiatives.

It has launched a mobile app and card for digital payments called Smartee. The app is entering a crowded “neobanking” space, but by way of differentiation, users of the app will be able to avail themselves of part ownership of the product, with 10% of equity available to customers as part of an innovative co-ownership scheme. 

Six million member-shares are up for grabs. The first one million customers receive three Smartee shares. Taking part in the referral programme will give customers the opportunity to earn an additional three shares. The app plans to introduce banking-type services that would allow customers to pay in their salary and set up direct debits, although a spokesperson for Smartee was keen to stress that they are not a bank or aiming to be one as such, preferring describe the app as a digital payments platform.

Holding company Smartlands has an ongoing security token offering in which 3.5% of its equity is on offer to UK and international investors. That has now been expanded to access the US capital markets in a deal with broker-dealer IIP Securities. The US Financial Industry Regulation Authority (FINRA)-registered broker will enable Smartlands to attract funds from US accredited investors.

And if that isn’t enough corporate activity to be getting on with, Smartlands this week announced that it has been selected by UK Sotheby’s International Realty to explore the tokenisation of luxury property. Part of the Sotheby’s group, UK Sotheby’s International Realty is a global estate agency network.

Robin Paterson, joint chairman and chief executive of UK Sotheby's International Realty, commented:

“Collaboration with Smartlands will help us explore how innovative tech can help us add value to our proposition. With this approach, the benefits for international sellers and buyers are immense.”

Paterson was effusive about the possibilities for opening up the international marketplace for luxury real estate by providing greater ease-of-use and tradeability. “Smartlands is transforming the value exchange on a global level creating a wide array of opportunities for private high-net-worth individuals the world over by allowing them to find each other easily, create offers, issue equity, diversify their portfolios, and grow their wealth without ever having to lift their fingers off the computer keyboard or a mobile device.”

Targeting high-earning individuals in locale such as the US, UK, United Arab Emirates, India and China, Smartlands chief executive Ilia Obraztsov said: “The option to invest using fiat currency or cryptocurrency makes it an especially lucrative opportunity for overseas investors. The Sotheby's centuries-old tradition and Smartlands’ technological edge is a perfect combination.”

The pilot project is a newly built duplex apartment at Lillie Square near Hyde Park, London. Further details will be announced in the first quarter 2020 after fitting out has been completed.

Fidelity Digital Assets homes in on European institutions

Fidelity Digital Asset Services (FDAS) is creating a new company with the specific aim of targeting European institutional investors.

Offering custody and trading services for bitcoin, Fidelity hopes to attract interest from family offices, hedge funds and financial intermediaries.

Chris Tyrer, who left Barclays’ investment bank in September 2018, where he was managing director and led the bank’s digital assets project, will run the new European operation, having joined Fidelity in April 2019. 

President of Fidelity Digital Assets, Tom Jessop, says there is “significant interest and engagement” from institutions.

"These and other market indicators, alongside interest expressed from U.K. and European client prospects, indicate a market with increasing potential which gives us the confidence to expand the digital assets business geographically,” Jessop added.

The European operation will be based in London. Micheal O’Reilly, chief operating officer of Fidelity Digital Assets explained to the Financial News why London was chosen: “Both the fintech and crypto communities in London are strong, and that’s evident from what we’ve seen from client demand and client requests.”

O’Reilly said Fidelity Digital Assets is keeping an eye on opportunities in Asia.

Kraken buys Circle’s OTC crypto business

San Francisco-based Kraken exchange has bought Circle’s over-the-counter business, Circle Trade. Circle, the crypto payments technology company backed by Goldman Sachs, intends to focus on its stablecoin, USD Coin (USDC).

Circle appears to be cooling on its enthusiasm for crypto having sold off the Poloniex exchange acquired in February 2018. 

Co-founder Sean Neville had previously announced that he will be giving up his position as chief executive. Although he is leaving Circle he “will remain connected to the company”.

CoinShares’ DGLD gold token starts trading on Blockchain.com’s The Pit exchange

CoinShares’ “digital gold” token DGLD, backed by an allocation of $20 million in gold held in custody in Swiss vaults, started trading on Blockchain.com’s Pit exchange on 12 December. 

The company is a pioneer of crypto exchange traded products. The DGLD network is secured with the bitcoin network, using a sidechain that periodically updates transaction history with reference to the bitcoin chain.

“Too often gold has been pitted against bitcoin as rivals,” says Charles McGarraugh, head of markets at Blockchain.com. “With DGLD we’ve thrown that question out of the window to say that the world’s two hardest assets are ideal complements for investors across the world. Market conditions are likely to increasingly favour hard assets in coming years, and I see this mutually beneficial interplay only increasing over time.”

Roger Ver’s Bitcoin.com site lists alleged scam coin HEX, denies BitClub involvement

Bitcoin.com exchange lists HEX, much to the chagrin of Bitcoin Cash (BCH) fans who fear it could taint by association the token of the bitcoin fork. HEX is the butt of unproven accusations that it is an elaborate Ponzi scheme.

Owner of bitcoin.com, Roger Ver, is also a vocal supporter of BCH, which split from the bitcoin chain in August 2017 in a dispute over increasing block sizes. BCH blocks are 32 MB compared to bitcoin’s 2MB. 

BCH subsequently split in November 2018 when Bitcoin SV was created with its yet another millionaire backers, this time  Dr Craig Wright and Calvin Ayre, with the latter having a net worth of $1.2 billion.

Ver has this week also been at the centre of a controversy concerning an alleged scam company called the BitClub Network, in which he is pictured dining with a number of its executives. Three employees of BitClub have been arrested by US authorities and charged with running a Ponzi scheme. Ver has denied any business involvement with BitClub. The BitClub Network is accused of fraudulently acquiring $722 million worth of bitcoin.

One of the three arrested men, Jobadiah Weeks, was also been pictured in 2016 with Virgin founder Richard Branson, although there is no suggestion of impropriety on Branson’s part.

Jan Van Eck says bitcoin is a hedge against central bank inflation

Chairman and chief executive of ETF provider VanEck, Jan Van Eck in an interview with the Financial Times on. Monday, expounded upon why the company had jumped in to the bitcoin space.

VanEck is one of a number of firms that has been rebuffed by the US Securities and Exchange Commission in its proposals for a bitcoin ETF. However, it did successfully launch in September 2019 the VanEck SolidX Bitcoin Trust, but it is only available to accredited institutional investors.

Expounding on why bitcoin is an area of interest for the firm, Van Eck said:

“It’s not exactly like gold [but] it’s a form of private money that will act as hedge against central bank inflation.”

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