bitcoin price rise

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.

A reported 20% of all crypto trades are made using tether.

What Caused the Tether Sell-off?

According to Bloomberg, the implosion appears to have been caused by renewed rumors of insolvency at crypto exchange Bitfinex. Bitfinex has been plagued by speculation over its financial health and banking relationships.

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.

Binance CEO, however, confirmed it was a faked Photoshop image. While this may have initially caused a panic sell-off in tether, it should have no further impact on the price.

For now, the price of bitcoin has dropped from its spike to a stable $6,640.

China destroy bitcoin

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.

bitcoin mining pools

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).

This, coupled with cheap electricity in China, is centralizing mining power in one country. And that’s a problem.

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.

Venezuela petro cryptocurrency

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.

But the petro isn’t without controversy. Its creators have been accused of ripping off the Dash whitepaper. The US government has also accused Venezuela of using the petro to defraud investors, and critics say the petro pre-sale didn’t generate nearly as much as the Venezuelan government claims.

Cryptocurrencies Pose No Risk to Global Financial Stability

In somewhat brighter news, a report this week concluded that cryptocurrencies are not a risk to the global financial system.

The report carries some weight. It was released by the Financial Stability Board and is backed by the Bank for International Settlements, the world’s oldest financial institution.

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.

Price News

The cryptocurrency market suffered an epic $16 billion wipeout on Thursday. It took place in just a few hours, dragging bitcoin down 4%.

bitcoin price
Chart: Coinmarketcap.com

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.

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Wall Street - Bitcoin hedge funds

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.

With the launch of a bitcoin futures market in 2017, rapid hedge fund growth, and an exchange-traded fund (ETF) on the horizon, the “big money” is coming.

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bitcoin mining profitability

Bitcoin mining has become drastically less profitable this year, despite soaring revenues. What’s behind this dip in profitability? Block Explorer editor Ben Brown explores.

New research from Diar reveals that Bitcoin mining has generated record revenues of almost $5 billion so far this year. That’s already higher than 2017 with three months to go.

However, that revenue hasn’t translated into profit.

High energy costs and increased competition in the space means the average bitcoin miner is struggling to make a profit.

In fact, September marked the first month when bitcoin mining became unprofitable for anyone paying retail prices for electricity.

Worryingly, this means bitcoin mining will increasingly be dominated by the “deep pockets” of mining corporations like Bitmain.

bitcoin mining profits infographic
Credit: Genesis Mining

Mining a Bitcoin Costs More Than Buying One

According to further data by Fundstrat, it currently costs $7,300 to mine one bitcoin.

Yet, we can go to Coinbase and buy one bitcoin for less than that – $6,600 at the time of writing.

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.

bitcoin hash rate chart
Chart from: Blockchain.com

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.

As you can see in the chart, bitcoin mining is already dominated by a small number of pools (Bitmain owns BTC.com and Antpool. At one point in June, Bitmain edged close to 51% of bitcoin hashrate).

bitcoin mining pools chart
Chart from: Coin.dance

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.

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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?

“I just bought Bitcoin for my parents. It’s too obvious that it’s about to explode…” That was the tweet from CNBC’s Ran Neuner this week.

Expanding on the statement, he said that bitcoin exchange-traded funds (ETF) will trigger the upcoming price rise:

Ran Neuner tweet bitcoin will explode

So what exactly does this mean?

Bitcoin “Futures” Triggered the 2017 Price Explosion

As Neuner writes, last year’s bitcoin price explosion was triggered by the launch of a bitcoin futures market.

The futures market allows traders to bet on the future price of bitcoin (without actually buying bitcoin itself). It was a new way of funneling big investors towards the crypto market.

And it worked. The speculation (and subsequent launch) of bitcoin futures sent bitcoin to an all-time high of $20,000.

“An ETF Is a Way Bigger Deal” Than Bitcoin Futures

Ran Neuner is absolutely correct about that.

Like the futures market, an ETF is a simple way for investors to put money into bitcoin, without buying the cryptocurrency itself.

ETFs track the price of an underlying asset, in this case, bitcoin. They trade on a public stock exchange, making it easy to buy and sell.

Crucially, ETFs are cheaper and more accessible than futures contracts. They are a phenomenally popular investment tool, making up a huge portion of institutional portfolios.

what's an ETF infographic
Credit: Stocks to Trade

The financial world has increasingly shifted towards ETFs instead of futures across the board. Pictet’s investment manager, Shaniel Ramjee explains:

“[Our] ETF usage has gone up, mostly because the cost has come down and the variety of ETFs has increased.”

ETFs are among the most widely used investment tool on the planet.

So a bitcoin ETF would allow mainstream investors and institutions to add bitcoin to their portfolios with less risk and hassle.

There’s a strong argument that “big money” would flow into bitcoin should an ETF become commercially available.

Do Bitcoin ETFs “Require Actual Purchase of BTC”?

Neuner’s second point is that bitcoin ETFs require the actual purchase of BTC, whereas futures do not.

The implication being that an ETF will directly push money into the cryptocurrency market rather than simply track its movements.

This is half-true.

Only some bitcoin ETF proposals are based on physical bitcoin. The recently rejected Van Eck ETF, for example, was a physical bitcoin product. It means Van Eck would physically buy bitcoin before pooling it to create an ETF.

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.

Regulation Stands in the Way

Unfortunately, the US Securities and Exchange Commission (SEC) keeps rejecting ETF proposals.

It’s important to note that the rejections have nothing to do with bitcoin itself. instead, the SEC has an issue with:

  1. Small market size.
  2. Manipulation and fraud.
  3. High volume outside the US.

ETF Approval More Likely in 2019

Since very little has changed since the September rejections, don’t expect a miracle. The SEC is unlikely to reverse the decision in the near future.

Most in the industry expect an ETF approval in 2019 at the earliest. Ran Neuner predicts “before end Feb.”

Promising developments like Gemini’s new insurance and custodial services may take us one step closer, but this is a long game.

Will ETF Approval Trigger a Price Explosion (or Collapse)?

ETFs are coming. It may be weeks, months, or years away, but the stepping stones are in place. The approval will likely attract a new wave of “big money” to the cryptocurrency market.

However, let’s not forget what happened after bitcoin futures were finally introduced.

The market crashed.

That’s partly because bitcoin futures contracts also allowed traders to bet against bitcoin.

ETFs will allow a similar function. Traders will be able to “short” bitcoin ETFs, potentially sending the price down again.

One thing’s for sure. A bitcoin ETF will funnel enormous sums of money into the cryptocurrency market. It may trigger the next bull run, but it will also increase selling pressure.

Something to bear in mind as we edge closer to SEC approval and institutional involvement.

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