How bitcoin bulls may beat the bears

by from interactive investor |

For the non-believers it's the long deflation as the bitcoin bubble continues to lose air. For believers it is the boom and busts the network has seen before.

Nevertheless, the confident advice to buy the dips or to take the opportunity to diversify crypto holdings to weather the storm is less in evidence, as the entire crypto market falls in lock-step with the faltering bitcoin price.

Bitcoin is off nearly 3% today at $5,941, with other top altcoins are showing deeper loses. EOS, Litecoin, Stellar and Cardano are all down 6%, with the only bright spot in the top 100 being Ethos, up 20% at $1.39 on news of a "big announcement" being imminent, probably regarding a release date for their universal cryptocurrency wallet.

The Bank of England did its bit to help the slide, warning bank and insurance companies to steer clear of the volatile sector in comments yesterday.

An alternate view sees the narrowing trading range and lessening volatility as signs of calm before the bulls re-emerge. Yet others look to past performance as a guide to the future, where past corrections of 70% and more have occurred several times in Bitcoin's still short history.

Overall market capitalisation of crypto has now slumped to $237 billion, and, in a sign of the struggling state of altcoins, bitcoin dominance of the sector has risen to 42.9%, with all other coins underperforming by comparison.

Will the miners stop the slide?

Brian Kelly at crypto investment firm BKCM hopes that the cost of mining bitcoin, which he posits at around $5,900, will encourage miners to put in a floor at that level. "There's an incentive for miners to keep that price [of bitcoin] above that level" claims Kelly.

But do miners have the financial firepower to make that happen? Maybe.

It was claimed this week that Bitmain, the Chinese crypto mining operator, is close to controlling more than half of the computing power (hash rate) on the bitcoin network, through its mining pools, AntPool, BTC.com and ConnectBTC and its influence over other pools.

However, a pool can consist of lots of individual miners who could change pool at any moment, so Bitmain's control is by no means absolute. Nevertheless, Bitmain does have both the computing power and the deep financial pockets to bid up the price of bitcoin, especially given the current low volumes.

Bitmain co-founder Jihan Wu said recently that the company was looking at the possibility of conducting an initial public offering. Being a private company, Bitmain does not have to publish financial results, but US stockbroker Bernstein estimated last year's operating profit at anywhere between $3 to 4 billion.

There have been fears expressed in some quarters that Bitmain would be in a position to launch a 51% attack on the bitcoin network by, for example, refusing to validate blocks from miners not under its control, but the short-term gain of doing that would be more than offset by the damage it would do to the credibility of bitcoin by undermining the decentralisation of the network.

Bitcoin lower from here?

Despite the 60% loss since the beginning of this year, the bitcoin price is still up 132% year-on-year, which for the early "hodlers" is a comfort, but for more recent speculators none whatsoever. Bitcoin is down 21% on one-month view, but still 131% higher since this time last year, a higher annual return than Bitcoin Cash, Ethereum and Litecoin, with Ethereum only 38% higher in that period.

Spencer Bogart from Blockchain Capital, sees bitcoin going lower from here, helped along by crypto-focused hedge funds coming to the end of their lock-ups, with investors seeking to realise profits before the market falls further. Hundreds of new funds were opened last summer when the crypto price explosion was just getting going.

"They’re saying, 'hey, I want to redeem out of that fund,'" Bogart explained to CNBC. "That means forced selling on behalf of all of these new crypto funds that have popped up. I think that could take prices artificially lower."

Alibaba announces blockchain-powered remittance product

The "hate bitcoin but love the tech behind it" school of thought was bolstered on Monday, when Ant Financial (formerly AliPay), the payments subsidiary of China ecommerce giant Alibaba, announced at a Hong Kong news conference that it was launching a blockchain-based cross border remittance service.

Founder Jack Ma, speaking to the Wall Street Journal about the venture, said: "It is…not right to become rich overnight by betting on blockchain. Technology itself isn’t the bubble, but bitcoin likely is."

It is not known which blockchain Ant Financial is using for the service, although Qtum has been active in Asia remittance field. Partnering in the launch is Philippines company GCash, part of Globe Telecom group. The service is aiming at the Philippines-China sector of the market, which is the third largest in the world.

Andreessen Horowitz launches fund to invest in crypto

Californian venture capital firm Andreessen Horowitz has launched a $300 million fund to invest in cryptocurrency-related projects. Venture capital (VC) firms have been left behind, to some extent, by the burgeoning initial coin offering market which has become the preferred way for blockchain start-ups to raise funds. The new Andreessen Horowitz fund will take long-term bets as opposed to trading its holdings, according to comments by firm partner Chris Dixon made to the Financial Times.

With a handful of internet companies dominating the landscape, blockchain offers one way to disrupt those businesses and the sectors they operate in by supplanting centralised systems with decentralised one. "The tech incumbents are very centralised… it's inherently misaligned with their existing businesses," Dixon told the FT.

EOS to scrap constitution and Tron shows better execution

Regarding the battle as to which networks will emerge as winners, many look to so-called third generation blockchains that differ from bitcoin and Ethereum in being able to deliver enterprise level scaling.

However, one of the main examples of the new blockchains, EOS, has run into difficulties barely two weeks since its launch. EOS uses a delegated proof of stake system where 21 block producers are elected by token holders and has tried to bolt onto that a written constitution to formalise its governance.

However, with accounts being frozen by block producers and the EOS Core Arbitration Forum (ECAF) set up to resolve disputes, the network has attracted a firestorm of criticism from supporters and naysayers alike.

Accounts were frozen to protect token holder funds from phishing attacks, but the way the interventions were made has raised concerns, to such an extent that Dan Larimer the chief technical officer at EOS inventors Block.one has proposed scrapping the constitution. In one example of the apparent chaos, it turned out that one of the orders to freeze accounts purporting to be from the ECAF was actually a forgery.

It is also not known to the wider community who the members of the ECAF are. Rohan Abraham from EOS Authority, one of the elected block producers, when asked about the composition of the ECAF group and whether they were volunteers, replied in remarks to Interactive Investor: "Yes, [they are] pretty much volunteers and not paid yet. They are still working out all that has to be done. We have lots of changes coming to this area including new ways to look at this coming from all directions. I think ECAF's intentions are clear."

Things have proceeded in a far more orderly fashion at Tron, another third-gen contender.

As with EOS, the Ethereum version of the token bought in the ICO and on exchanges had to be migrated to the Tron network (mainnet), so that token holders could start voting for Super Representatives (SRs), who play a similar block validating role as EOS’s block producers.

The Tron mainnet token swap went ahead as planned on 25 June, with the token migrating from Ethereum. Fifty-four exchanges and wallets supported the 1:1 swap.

To mark Tron's "Independence Day", one billion of the total supply of 100 billion TRX tokens was burned. Of the remaining supply, 33,251,807,524 is in the hands of the Tron Foundation and is locked up until 1 January 2020. The hoped for bump in the price as a result of the burning did not materialise.

TRX holders will be voting for 27 SRs in all from a total of 100 candidates. The first official node elected was CryptoDiva, a group associated with Blockchain Capital. In order to vote, TRX tokens must be moved to the TRX wallet. Voting is updated every six hours. Tron is the 11th-placed coin with a market cap of $112 million and is trading 8.6% lower on Friday at $0.035.

In other crypto news, Facebook has dropped the advertising ban it introduced in January. Facebook is putting in place a system that will require potential advertisers to go through an application process in which they will have to answer questions about their business.

NEO, another third-gen contender, sees its close partner Ontology, the 19th-placed coin with a market cap of $733 million, launch its mainnet on 30 June.

Facebook lifts crypto advertising ban

Facebook product management director Rob Leathern said of the company's new approach: "We'll listen to feedback, look at how well this policy works and continue to study this technology so that, if necessary, we can revise it over time."

The crypto space is rife with fraudsters and Facebook was/is an avenue being used to lure unsuspecting individuals into fraudulent schemes, especially in initial coin offerings.

Even with the Facebook ad ban in force there were still reports of users seeing scam adverts in their news feed. In the UK, one advert doing the rounds is from "BitCoin Trader", which describes itself as an "automated bitcoin trading platform", and falsely claims endorsements for its product from the stars of BBC angel investment pitching show Dragon's Den.

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