Bitcoin fundamentals – August 2019

Bitcoin fundamentals – August 2019

Breathe out

This month market was more quiet compares to June-July period. Investing society were waiting for big releases, real breakouts in the crypto world. Really big projects were on the surface and near to get launched – Bakkt, Libra, crypto Hedge funds and others. It was seemed that puny push would be enough to launch new era of Crypto world, but… not yet. As market has not got realization of any of potential projects – it takes a breath in August and stands in “standby” mode. There are just few interesting news and events that have appeared in August and that are worthy of our attention. Bitcoin price action corresponds to fundamental content as well. Price stop growing and turn to consolidation in $10K-$12K area.


The “Good”

So, as usual we start with significant August events and first place takes LedgerX –

LedgerX launches physically delivered bitcoin options and custody

After obtaining a so-called designated contract market license (DCM) from the Commodities Futures Trading Commission (CFTC) in June, LedgerX has now launched physically delivered bitcoin options and custody for retail investors. According to a statement from the company, the company’s OMNI platform soft-launched last week and is now fully operational and serving both retail and institutional players.

In first, Swiss regulator issues banking license to two blockchain firms

Switzerland’s Financial Market Supervisory Authority (FINMA) has issued banking and securities dealers’ licenses to two new blockchain firms – SEBA Crypto and Sygnum.

“Institutions supervised by FINMA are only permitted to send cryptocurrencies or other tokens to external wallets belonging to their own customers whose identity has already been verified and are only allowed to receive cryptocurrencies or tokens from such customers,” the regulator said, adding:

“FINMA-supervised institutions are thus not permitted to receive tokens from customers of other institutions or to send tokens to such customers.”

Bitmain buying 600K more crypto mining chips that could bring $1.2 billion in profit

Cryptocurrency mining giant Bitmain Technologies has reportedly placed a new order to buy 600,000 mining chips. The new mining chips are projected to bring as much as $1.2 billion in profits to Bitmain, which could put Bitmain’s valuation at $12 billion, per the report.

The mining giant has also been planning to go public in the U.S. via an initial public offering (IPO), aiming to raise $300-$500 million. The IPO is expected to launch “as soon as the second half of this year.”

Coinbase Custody receiving $200-400M per week in new crypto deposits from institutions, says Armstrong

Coinbase CEO Brian Armstrong has said that the exchange’s custody unit has been receiving $200-400 million per week in new cryptocurrency deposits from institutional customers. Coinbase said it has over $7 billion in digital assets under its custody at present.

“Trusted/safe infrastructure for institutions is just one small step on the journey to building the [crypto economy],” Armstrong added.

China’s central bank digital currency is “ready” after 5 years of development

A senior official at China’s central bank announced at the China Finance 40 Group meeting today that the country will soon roll out its central bank digital currency (CBDC.)

“According to Mr. Changchun, the currency has been in the research and development phase since 2014. At the meeting on Saturday, he said, “People’s Bank digital currency can now be said to be ready.”

New Zealand Rules Receiving Income in Bitcoin Is Legal, Taxable

New Zealand’s tax authorities have ruled that income in cryptocurrencies is legal and provided guidance on how exactly it should be taxed.

In a tax information bulletin published on July 4, the New Zealand Inland Revenue Department summarized the provisions of the public ruling, made under s 91D of the country’s Tax Administration Act 1994.

UK High Court ruling over $1 million hack implies Bitcoin is “property”

In a first, the British High Court recognizes Bitcoin as “property,” for now, in an interim judgement on a cryptocurrency hacking case. The decision, though subject to ratification, sets for now a legal precedent in the 800-year-old system, making it easier for victims of hacking to claim cryptocurrencies locked away in exchanges.

The “Bad”

About 15 countries plan to develop a crypto system to combat money laundering

Governments of about 15 countries, including Australia, Singapore and the Group of 7 (G7) members, have joined hands to develop a system to fight money laundering in cryptocurrencies.  The system would collect and share personal data on individuals who conduct cryptocurrency transactions, and would be managed by the inter-governmental body, the Financial Action Task Force (FATF), Nikkei Asian Review reported Friday.

“The goal is to draw up detailed measures by 2020, and to have the system up and running a few years later,” per the report.

U.S. Secretary of State Pompeo says crypto should be regulated like SWIFT and other electronic financial transactions

U.S. Secretary of State Michael Pompeo, one of Donald Trump’s closest advisors, has said that cryptocurrencies, such as bitcoin and Facebook’s upcoming cryptocurrency Libra, should be regulated in the same manner as all other electronic financial transactions.

Pompeo shared his thoughts in an interview with CNBC on Tuesday, saying:

“The same set of requirements that apply to things flowing through SWIFT or flowing through our financial institutions ought to apply to those transactions as well.”

Facebook’s Libra crypto project faces new heat from global privacy regulators

Data protection and privacy authorities in the U.S., U.K., EU, Australia, and Canada have issued a joint statement sharing concerns about Facebook’s cryptocurrency project, Libra. The regulators said Tuesday that Facebook has “failed to specifically address” privacy concerns in the past, and the crypto project further amplifies the concerns as the Libra Network “may instantly become the custodian of millions of people’s personal information,” once it goes live.

“There can be no assurance that Libra or our associated products and services will be made available in a timely manner, or at all,” the company’s risk disclosure section from its latest Q2 report filing with the SEC read in part.

SEC chief who led crypto and ICO investigations is leaving the agency

Robert A. Cohen, the chief of the Cyber Unit at the U.S. Securities and Exchange Commission (SEC), is leaving the agency in August.

CFTC director responsible for bitcoin futures regulation is leaving the agency

Amir Zaidi, director of the Division of Market Oversight (DMO) at the U.S. Commodity Futures Trading Commission (CFTC), is reportedly leaving the agency.

Barclays Is No Longer Banking Coinbase

Barclays, the London-based global bank, is no longer working with cryptocurrency exchange Coinbase, industry sources told CoinDesk. And while Coinbase found a replacement in U.K. upstart ClearBank, according to people familiar with the situation, the change has indirectly inconvenienced the exchange’s users.

Analysis

Here we provide some third party analysis and reports that could appear to be interesting.

Greyscale Investing provides interesting social research of Bitcoin auditory, including BTC to Gold comparison 

They do not make some revolutionary statements but point that

Over the last ten years, Bitcoin has emerged from a nascent protocol into an established, legitimate asset with a strong performance record and significant diversification benefits. Already, our survey shows that roughly one third of individual investors are interested in
Bitcoin. A broad cross-section of investors — across ages, genders, and a variety of income levels — are intrigued by Bitcoin’s strong return potential and they’re eager to learn more. Others remain on the sidelines for now, either because they don’t know enough about Bitcoin or because they’re afraid that it’s too risky, lacks regulatory certainty, or is subject to digital crime. But we think even these investors can be swayed by strong, targeted education that
goes beyond negative headlines to look at the real potential of this investment. Our survey respondents tell us that the future of investing is digital and they want to be part of it. Bitcoin is here to stay.

Federal Reserve’s rate cuts affect bitcoin: Fundstrat Global Advisors co-founder

Fundstrat Global Advisors co-founder Tom Lee on the Fed’s rate cut, the market selloff, the decline of the U.S. dollar and how bitcoin is affected by the Federal Reserve’s interest rate cuts.

Using of Bitcoin  to hedge US – China trading tariffs risk

Another interesting view from Grayscale Investing. Thus, they point:

There are significant shifts taking place in monetary, fiscal, and trade policies around the world that will likely impact global markets well into the future. While we don’t know when or at what levels the current drawdown will end, it is clear that the challenges faced by politicians and policymakers will be difficult to manage given the complexity of our global financial system. Bitcoin could be a useful tool in helping investors insulate their portfolios from any failure to
manage these problems effectively.

Source: Grayscale Investing

Researchers found that if bitcoin’s dominance is adjusted for liquidity by calculating the volume-weighted market capitalization it soars to over 90%,

reducing the rest of the cryptocurrecy market, including major tokens ethereum, Ripple’s XRP and litecoin, to a combined less than 10%—and making their ultimate success more unlikely.

“Every day bitcoin stays ahead, it becomes less likely that any other cryptocurrency can compete as a money,” warned Bendik Norheim Schei, an analyst at Arcane Research, who carried out the study.

“That is important to understand not only for investors and those building out payment infrastructure, but also those building out solutions leveraging the security of a public blockchain.”

Bitcoin currently has a market capitalization of $180 billion, compared to ethereum’s $20 billion, litecoin’s $4.5 billion, and $11 billion for Ripple’s XRP.

Conclusion:

August events do not make a serious impact on Bitcoin market, and long-term process of cryptocurrency integration in the modern economic environment continues. Our “positive” events point on growing interest to Bitcoin from central banks, treating the Bitcoin as “property” in court affairs is big step forward to the legal acknowledgment of cryptocurrencies.  Significant money inflows and increasing mining power tell that positive mood is still on the market. It just needs some push from valuable external factor, which we believe should be Bakkt product.

The negative side is rising control from government authorities across the Globe. Although it is not obvious, but degree of control over the crypto market will set the shape of this market. The big uncertainty and major risk factor is the degree of control. Governments can’t control or expropriate the cryptocurrencies, but they could control its flow and transactions, taking under control crypto exchanges, transfer nodes, mining servers, etc, or try to replace it by own altcoins.  In longer-term perspective it will have direct impact on Bitcoin features and, hence on demand and liquidity.

 

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Sive Morten

Sive Morten

By day Sive Morten works for the large European bank. In that roll he evaluates the markets including currencies market managing bank risks and evaluating the bank portfolio.

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