The price of bitcoin spiked more than 10% on Monday morning. Ethereum, XRP and bitcoin cash also exploded to double-digit gains before settling later in the day.
Bitcoin Price Teases $7,000
According to CoinMarketCap, bitcoin’s price spike hit $6,965 before dropping back to $6,660. However, Bitfinex – a cryptocurrency exchange in Hong Kong – charted bitcoin at $7,788 at its highest point.
So, what accounted for this rapid price rise?
Huge Sell-off in Tether
Bitcoin’s surge was triggered by traders selling tether – a “stablecoin” which is pegged to the US dollar.
Tether is typically used to trade cryptocurrencies against the dollar without having to use fiat currency itself. Tether is also used to keep money “on the sidelines” before entering a particular trade. Since it’s pegged to the US dollar, it is a relatively stable asset.
That’s a problem for tether because Bitfinex and tether share a CEO.
The nerves about Bitfinex’s financial health appear to have spilled over into concerns over tether.
In an attempt to downplay concerns, Bitfinex was quick to point out that “all cryptocurrency and fiat withdrawals are, and have been, processing as usual without the slightest interference.”
FALSE RUMOR: Binance is Delisting Tether
One rumor circulating Twitter on Monday morning hinted that Binance – the world’s largest crypto-to-crypto exchange – was set to delist tether. It was fueled by an image that reportedly showed an email from Binance announcing the forthcoming delisting.
Welcome to the weekend, folks. Grab a coffee and let’s recap the biggest news stories of the week in cryptocurrency and blockchain.
China Has “Capability” and “Motive” to Destroy Bitcoin, According to Report
A new report this week claims China could destroy Bitcoin. The report, authored by researchers at Princeton University and Florida International University outlines 19 different ways China could attack the Bitcoin network.
Is it based in truth?
Theoretically, yes. The report points to the fact that 74% of Bitcoin mining hash power comes from China. And five of the six largest Bitcoin mining pools are located in the country.
If those mining pools collectively orchestrated a 51% attack, they would control the network, and bring it down if they wish.
However, it’s important to point out that the Chinese government doesn’t own these mining pools. And the mining pools themselves have little incentive to execute a 51% attack (it would kill the value of bitcoin, making their efforts worthless).
What is concerning is the level of Bitcoin centralization in China.
The report goes on to explain how China’s “Great Firewall” appears to give Chinese miners an advantage. It slows down miners outside China and incentivizes those within the firewall to generate “empty blocks” (the blocks contain no transactions, but the miner receives a bitcoin reward anyway).
Note: the report in question has not yet been peer-reviewed.
Venezuela Is Forcing Citizens to Use Its Controversial Cryptocurrency to Buy Passports
As Venezuela’s fiat currency, the bolivar, soars towards 1,000,000% inflation, the government is putting its faith in a state cryptocurrency, petro.
The petro was created by the Venezuelan government and its value is backed by the country’s oil price to keep it stable. Citizens are now required to pay for passports and renewals using only the petro cryptocurrency.
However, it does go on to say there may be a tipping point in the future.
If they continue to grow, the report claims, cryptocurrencies may one day pose a threat to the reputation of current banks and financial systems. There may be a risk of exposure if traditional banks adopt crypto on a wider scale.
And there may be risky consequences if bitcoin or other cryptocurrencies become a common payment method.
The cryptocurrency market suffered an epic $16 billion wipeout on Thursday. It took place in just a few hours, dragging bitcoin down 4%.
As usual, altcoins bore the worst of the fall. Ethereum, XRP, and others fell in the region of 10%.
That’s all for this week. We’ll be back bright and early on Monday.
Crypto hedge funds are launching at a record rate in 2018, despite the ongoing downtrend in the market.
20% of all hedge funds launched in 2018 are crypto-related, according to new research from Crypto Fund Research. It’s a sign that “big money” and institutional investors haven’t been put off by the year’s selling pressure.
90 Cryptocurrency Hedge Funds Launched in 2018
90 new crypto hedge funds have appeared this year, and that number is expected to rise to 120 before the end of December.
Compare that to 2016 when just 3% of all new hedge funds were crypto-related.
Approximately half the new crypto hedge funds are based in the US, while others have popped up in the UK, Netherlands, Switzerland, China, Australia, and the “Blockchain Island,” Malta.
Rapid growth aside, however, let’s put things in perspective. The total number of crypto hedge funds still account for just 3% of all hedge funds. In terms of market capitalization, crypto funds manage $4 billion compared to the global hedge fund total of $3 trillion.
What’s a Cryptocurrency Hedge Fund?
A crypto hedge fund invests predominantly in crypto assets like bitcoin and ethereum. They may also invest in ICOs (initial coin offerings – a form of crowdfunding capital in the crypto space).
They differ to crypto venture capital funds and private equity funds which invest directly in blockchain projects and crypto startups.
When you invest in a cryptocurrency hedge fund, your money is pooled with others and the returns are shared. Bear in mind, however, that participating in a hedge fund usually involved high minimum deposits.
Undeterred by Low Prices
The rapid growth of hedge funds in a year when bitcoin has dropped almost 70% is curious. Traditionally, hedge funds sprout up during boom markets to capitalize on an uptrend.
Founder of Crypto Fund Research Joshua Gnaizda said:
“These seemingly unfavorable market conditions have not deterred managers from launching new crypto hedge funds at a record pace. While we don’t believe the rate of new launches is sustainable longer-term, there are currently few signs of a significant slowdown.”
Profit From Volatility
While the market conditions might appear unfavorable, a number of crypto hedge funds still make money when prices are down. Hedge funds can profit from volatility, which is why one crypto hedge fund, Amber AI Group, was able to make a 30% profit in the first quarter of 2018, when crypto prices slumped.
Hedge funds are notorious for short-selling, or profiting from an asset’s decline. By doing this, they can “hedge” their losses and, in some cases, make a profit when the whole markets moves downwards.
Wall Street Embraces Bitcoin
The rise of crypto hedge funds is yet another sign that Wall Street is edging closer to broader cryptocurrency adoption.
To come up with its $7,300 figure, Fundstrat takes into account a $4,000 energy fee (at $0.06 kW/h) and $3,300 for equipment, wear-and-tear and other overheads.
So what makes bitcoin mining currently so unprofitable?
More Mining Competition Than Ever
Despite the bitcoin bear market, mining activity is stronger than ever. Bitcoin’s hash power has doubled since May, which means more and more miners are competing to generate Bitcoin blocks.
Hash rate explained: In order to generate a bitcoin block, miners compete to solve mathematical puzzles. The first to solve the puzzle with computational power generates the block and receives the bitcoin reward. The total number of attempts to solve the puzzle per second is called hash rate. The more miners working to solve the puzzle, the higher the hash rate.
The hash rate hit a record high in August. In other words, there are more miners working to generate bitcoin blocks than ever before.
More competition means each miner requires more energy and computer power to generate a bitcoin block.
Energy Rates are Choking Mining Profits
Because miners need more and more energy to compete, electricity prices are choking their profits.
Diar estimates that anyone paying a retail energy price of $0.10 kW/h can no longer make a profit on bitcoin mining.
Add that to overhead costs such as equipment, rent, and salaries, and you begin to see why profits are declining.
It’s no surprise that 81% of bitcoin’s hashing power originates in China. That’s because energy rates are relatively lower – an average of $0.08 kW/h at retail price.
Bitcoin Mining: Dominated by “Deep Pockets”
Energy prices are even lower when bought at wholesale prices, which only large mining pools can afford to do.
In other words, the dominance in bitcoin mining will shift more and more towards big companies like Bitmain. Bitmain owns two of the largest bitcoin mining pools and commands up to 75% of the world market for mining equipment.
With bitcoin prices in a bear market, hash rates at a record high, and fierce competition, miners are increasingly incentivized to join larger mining pools.
And here’s where it interesting. The vast majority of Bitmain’s revenue comes from selling mining equipment (95%). So it’s in Bitmain’s interest to keep bitcoin mining profitable for its miners, wherever they are in the world.
Since Bitmain can purchase cheap energy wholesale in China, where it owns 11 giant mining facilities, it can offset the more expensive mining costs in, say, the US. Bitmain can therefore lure miners to a larger pool by offering more security.
Big Companies Can Afford to Take a Short-Term Hit
The profitability issue is also linked to the fact that bitcoin is at a significantly lower price today than it was in January, offering a lower return. Companies like Bitmain can afford to play the long game, betting on higher profitability when the crypto market turns around.
By that point, Bitmain will have swallowed up more miners and increased its market share.
This all means that power, dominance, and control over bitcoin mining will shift yet further to just small group of mining pools.
“Bitcoin is about to explode,” according to a tweet by CNBC cryptocurrency analyst and host Ran Neuner. He points to the upcoming bitcoin ETF decisions which he thinks will act as a catalyst for a new bull run. But how accurate is this prediction?
Other proposals were “futures-backed.” In other words, the banks would not buy bitcoin itself. Instead, they would buy futures contracts to back the ETF.
It’s true that a physical bitcoin ETF is more likely to gain approval than a futures-based product. The Securities and Exchange Commission (SEC) has hinted that the futures market is not large or mature enough to support an ETF.
However, if and when a bitcoin ETF is approved, it remains to be seen whether it will involve the physical purchase of bitcoin.
Bitcoin ETF Deadlines Loom
The SEC has set a new deadline of October 26th for comments on nine ETFs. These ETFs were each rejected back in September. However, the SEC has changed the rules, allowing for public comments of support or opposition.
It suggests the SEC is taking these proposals seriously. But don’t take it as a hint that an ETF approval is pending.