Bitcoin Fundamentals Briefing, October 2019
Breaking the Mid-Autumn Slumber. October 2019
All summer, the Bitcoin market was primed for big shifts. The headlines were mostly promising, looking forward to Bitcoin options, a Bakkt futures launch, institutional investors entering with new money, and so on. There were also many reports about blockchain and cryptocurrency applications in spheres beyond trading, as well as optimistic voices suggesting a rally in the near future.
October revealed the reality, however, and autumn has seen a quiet market so far. Hopes of fast and furious breakthroughs were dashed. Bakkt showed shy trading volumes, and there’s no evidence of growing interest among institutional investors, despite that Bitcoin is starting to trade on exchange markets (previously on CME and now ICE). BTC options launching on CME suffered the same fate.
Still, one event shook the market by 15% a few days ago…
Positive October events
Although this is the last headline in October chronologically, we begin with it because it was the most powerful – an upswing created by the following statement by Chinese President Xi Jinping:
“We must take the blockchain as an important breakthrough for independent innovation of core technologies. […] [We must] clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.”
Despite China’s ban on cryptocurrency exchanges in 2017, comments by the leader of the world’s second-largest economy could boost sentiment toward digital assets in general, and provide a positive backdrop for the BTC market, according to eToro’s Mati Greenspan:
“It’s bullish for the entire crypto industry, in general, when you have the leader of one of the world’s largest economies coming to embrace blockchain technology like this. Bitcoin, as we know, is a central player in the blockchain industry.”
The Chinese president’s statements are believed to be his first in-depth remarks on the technology. At the same time, China is developing a digital version of the country’s currency while forbidding other coins from being traded.
“The nature of money is changing,” and more than 40 countries have already developed or are working on national digital currencies, Reps. Bill Foster (D-Ill.) and French Hill (R-Ark.) said in a letter to Federal Reserve Board Chairman Jerome Powell. The Senior House Financial Services Committee members asked the Fed for its views on “developing a US dollar digital currency.”
Anthony Pompliano, co-founder and partner at Morgan Creek Digital, twitted the following regarding a possible tokenization of US dollar:
“Bitcoin was released in 2009. A decade later, it has grown to a $200+ billion asset. Now the US government is talking about tokenizing their fiat currency in response. In a few years, they will likely be talking about adopting Bitcoin as a national currency. Patience.”
Germany has passed a blockchain strategy that prevents any parallel currencies from being issued in the country. According to WiWo (WirtschaftsWoche) magazine, Finance Minister Olaf Scholz said, taking a jab at Facebook’s proposed stablecoin Libra:
“A core element of state sovereignty is the issuing of a currency; we will not leave this task to private companies. […] Such a payment system would be good for financial center Europe and its integration into the world financial system. […] We should not leave the field to China, Russia, the US, or any private providers.”
Germany’s second-largest stock exchange has opened a venue for digital assets. Trading began on September 23 on Boerse Stuttgart Digital Exchange (BSDEX), a fully regulated digital asset exchange under the German Banking Act. For the time being, BSDEX is trading only one pair, Bitcoin-Euro. According to CTO Peter Großkopf:
“BSDEX will give retail and institutional investors direct access to digital assets and provide flexible and relatively low-cost trading. We believe blockchain is set to bring about significant changes in the financial industry, and we want to leverage its potential to create the trading venue of the future.”
Fintech firm Amun AG and cryptocurrency custodian Bitcoin Suisse AG have partnered to launch an ETP, which will allow Swiss investors to add a basket of BTC and ETH to their portfolios. Currently, the product is 90% of BTC and 10% of ETH. According to Amun AG:
“This physically-backed ETP is fully collateralized, which means that for every Bitcoin and Ether bought for the ETP, there will be an equal corresponding crypto amount stored securely in the Bitcoin Suisse Vault.”
In 2017, the founder of McAfee Associates made the bold prediction that Bitcoin would hit US $1 million by the end of 2020. In a recent Forbes interview, John McAfee defended his reasoning for the price, citing Bitcoin’s total supply and logic:
“Let’s get real; there are only 21 million Bitcoins. Seven million of which have been lost forever, and then, if Satoshi is dead, add a few more million. […] In any case, just run some numbers. If Bitcoin gets to be 5% of world financial transactions, which, you all know it will, then it would be worth $10 million per coin, based on those numbers.”
EToro’s Mati Greenspan tweeted the following in response to the high demand for BTC during the Hong Kong unrest:
“Bitcoin volumes in Hong Kong have spiked to their highest level ever recorded LocalBitcoins trading site. About $13 million HKD exchanged in the last week. For a portfolio manager, BTC is still considered a risk asset, but by some people, it is clearly treated as a safe haven.”
This is important not because of the exchange volume, but because Bitcoin is being used during periods of unrest and political turmoil when other sources of financing are not easily accessible.
Speaking at DC Fintech Week at Georgetown University, Commodity Futures Trading Commission Chairman Heath Tarbert expressed the belief that the crypto world will see Ethereum futures contracts in 2020.
“I’d say it is likely that you would see a futures contract in the next six months to a year,” he said but cautioned that simply launching a futures contract isn’t the be-all and end-all. He added:
“The volume to which it’ll trade, no idea, that’s where the markets decide, but my guess is now that we’ve provided at least … a little bit more clarity on [Ether’s eligibility for futures contracts], my guess is market participants will consider that.”
Bitmain Fulfils Commitment To Rockdale, Texas, With Launch Of Cryptocurrency Mining Farm To Construct 50MW Facility
Bitmain has launched its 50MW mining farm in Rockdale, Texas. Clinton Brown, Rockdale Lead Project Manager said:
“We are excited to launch this facility, which is significant to Bitmain’s global expansion plans. The stable and efficient energy resources in Texas are fundamental to the inevitable scale of growth for the cryptocurrency mining industry.”
Construction of the initial 25MW on a 33,000-acre site owned by Aluminum Company of America began in 2018 as part of the company’s plan to build the world’s largest crypto mine. Bitmain will continue expanding the 50MW facility to more than 300MW, making it the largest Bitcoin mining facility in the world.
Rockdale, Texas, Mining Facility
Until the rally caused by Mr. Xi’s statement and some other positive reports, the overall sentiment in October was far from optimistic. And there were reasons for that – let’s start by looking at the statistics, which raise concerns about the near future.
According to the following tweets by Larry Cermak on September 25:
“Nearly $710 million was liquidated on BitMEX in the last 24 hours ($643M in BTC and $53M in ETH, $14M in EOS and XRP). Traded volume spiked a bit to $1.95B but still way lower than volume BitMEX saw in June and July.”
Coinbase Pro announced that it is implementing a new fee structure. The latest update increases trading fees for lower-volume customers and reduces fees for high-volume customers. Any customer with more than $50,000 in transactions per month will either see a reduction in their trading fees, or no change. The new fee structure also introduces three tiers below $100,000 a month.
In a tweet on October 1, CoinExchange.io announced: “We regret to inform our community that CoinExchange is closing down.”
PayPal was the first company to pull out of the alliance, which is trying to launch Facebook’s digital currency Libra. PayPal made the announcement on October 4 without specifying what prompted the decision.
Facebook’s Libra Cryptocurrency Coalition Is Falling Apart As eBay, Visa, Mastercard and Stripe Jump Ship
EBay, Visa, Mastercard, and Stripe also announced that they will no longer be part of Facebook’s Libra project. The news came one week after PayPal announced its withdrawal as government regulators continue to scrutinize the plans. Facebook CEO Mark Zuckerberg is set to testify on the currency at an October 23 hearing before the House Financial Services Committee.
The Trump administration took action to deflate the Bitcoin bubble of 2017 by allowing futures products, according to a former official. Christopher Giancarlo, who left the US Commodity Futures Trading Commission at the end of his five-year term as chairman in April, told CoinDesk:
“One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC, and the [National Economic Council] director at the time, Gary Cohn, believed that the launch of Bitcoin futures would have the impact of popping the Bitcoin bubble. And it worked.”
The major feature of derivative instruments is enabling investors to take short positions on the asset, which allows investors who think that BTC is too expensive to express their opinion and take bearish positions. Without shorts, a market has no pessimists. “If you do believe it’s a ridiculous price, but you don’t own, there’s no way to express that view,” Giancarlo said.
An ING executive warned banks may drop Facebook as a customer if the social media giant continues with its experimental foray into cryptocurrency without addressing regulatory concerns.
ING CEO Ralph Hamers warned that banks may drop Facebook as a customer if it continues its experimental foray into cryptocurrency without addressing regulatory concerns. In an interview with The Financial Times, Hamers said the Libra project’s unresolved regulatory issues place a degree of risk on banks as “gatekeeper[s] to the financial system.”
A Facebook spokesperson said:
“From the beginning, we’ve said we’re committed to taking the time to get this right. The Libra Association published a white paper to begin a dialogue with the regulators and policymakers who oversee the stability and security of our financial systems. As a member of the Libra Association, we will continue to be a part of this dialogue to ensure that this global financial infrastructure is governed in a way that is reflective of the people it serves. Facebook will not offer Libra through its Calibra wallet until the Association has fully addressed regulators’ concerns and received appropriate approvals.”
France’s Economy and Finance Minister Bruno Le Maire said Libra is “unacceptable,” calling it an intrusion into the state’s political sovereignty.
When the euro was created in 1999, member nations surrendered aspects of their sovereignty to a greater European project. Allowing Facebook and other Libra Association members to issue private money would undermine this effort, Le Maire said.
“Do we really want to give private interests such power, given the consequences it would have on trade and financial stability?” he asked. “I cannot countenance one of a sovereign state’s most powerful tools, monetary policy, falling under the remit of entities not subject to democratic control.”
Le Maire repeated the sentiment on Twitter, saying: “Neither political nor sovereignty can be shared with private interests.”
While governments across the globe consider cryptocurrencies, technical analysis is taking a backseat. However, in this article from NewsBTC.com, we can see the views of well-known Bitcoin opponent (Peter Schiff) and proponent (M. Pompliano).
We cite Schiff’s tweet from October 28:
“The Bitcoin chart looks horrible. Not only does the flag that followed the recent breakdown project a move to $6K, but we are close to completing the right shoulder of a head and shoulders top, with a $14K head, and neck line just below $8K, that projects a collapse to below $2K!”
The bottom line
The enthusiasm caused by President Xi’s statement came at a time when investors were mostly disheartened – as a result, they experienced a blast of euphoria in a vacuum of good news. Their hopes of the swift involvement of institutional investors were dashed. Bakkt is showing anemic trading volumes. The presentation of BTC options on the CME also gives no results. Facebook’s Libra is being strangled to death. On the whole, with no breakthrough in sight, and in the absence of direction, the market is stagnant.
Personally, I do not place much optimism on Mr. Xi’s statement and doubt that it will bring a lasting upswing. Moreover, if we look at what he actually said, we realize that there was no mention of BTC. He spoke mostly about blockchain technology and its application in spheres like medicine, social, science, finance, etc. Also, we have to keep in mind that China has banned crypto exchanges and been attempting to stifle mining. We can’t put much faith in what politicians say – just look Trump’s comments on the China tariffs war, N. Korea, etc.
Although much insight and foresight are required to understand how the landscape is forming, I’m beginning to suspect that Bitcoin has a dual role to play. Its first is public and obvious – this is what we see in news headlines and reports.
Its second role is in the shadows, and this I find thrilling, although it is not restricted to BTC but to the innovation of cryptocurrencies on the whole. I will make my point first by posing a few questions:
- Why are whales like Paypal, Mastercard, and Visa so quick to deny Libra?
- Why are the governments of developed countries rising against Libra?
- Why are US regulators headed by SEC, Congress, and other government authorities putting unprecedented pressure on Bitcoin and Libra?
- Why are countries like the US, China, and Germany talking about national cryptocurrencies?
The more I think about it, the more I believe that Bitcoin is a first step, an experiment in how a cryptocurrency can be adopted and function on a planetary scale. So far, the test has proven mostly successful.
As a result, governments across the globe worry that an alternative financial system may cause them to lose sovereignty. Facebook, in partnership with giants like Visa and Mastercard, would be powerful enough to install an alternative financial system not only locally but also globally. This is the reason why politicians and bankers object to digital assets, and why we are seeing a desire to launch national cryptocurrencies – they are trying to stay ahead of the game.
To me, all this suggests that Bitcoin is a tool for globalization that holds the power to ultimately install one government, one currency, one political structure, etc. It is a successful experiment in the adoption of a single global currency. Some may say that I am overdramatizing or exaggerating, but the facts are obvious and undeniable.
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