Bitcoin Nose Dive – November 2019

Bitcoin Nose Dive – November 2019

The month of crushing hope!  November 2019 stands out in the history of the Bitcoin market because it’s practically impossible to find anything positive to report.

Worse still, the market is treading on thin ice, which is fortunately still holding and hoping for some upside action, even though the odds have diminished dramatically in the last few days with the drop to the ~6-6.5K area.

Before we look at what happened, let’s begin with a key point from our October briefing:

On October 25, Coindesk reported, “  Bitcoin Jumps 12% as China’s Xi Embraces Blockchain, Boosting Crypto Sentiment”.

The rally, which was set off by President Xi’s statement that China should “seize the opportunity” afforded by blockchain technology, has been completely erased. We have repeatedly warned against jumping to conclusions based on politicians’ statements in general, and in this case in particular because the actions of the Chinese government do not appear to be aligned with the sentiment expressed in Xi’s statement.

Less than one month later, China’s central bank orders probe of cryptocurrency activities in Shanghai

The investigation targets businesses that conduct cryptocurrency trading, token sales, and distributions of tokens from overseas initial coin offerings (ICOs). Once identified, these firms will be reported to the PBOC and the financial regulatory bureau. They will also be required to shut down.

Also in November, according to this report, a Chinese Agency Scraps Plan to Eliminate Bitcoin Mining Industry

The National Development and Reform Commission (NDRC), a top-level economic planning agency under China’s State Council, published a new Catalog for Guiding Industry Restructuring, which will take effect on Jan 1, 2020. In this final version, the agency removed Bitcoin and any virtual currency mining activities from the initially proposed category of industries that should be eliminated from China. In fact, there is no description related to virtual currency or Bitcoin mining.

An unenthusiastic sentiment toward cryptocurrencies reverberates in other parts of Asia with Reuters reporting that BOJ Kuroda says cryptocurrency won’t threaten yen, largely speculative.

Bank of Japan Governor Haruhiko Kuroda said in parliament: “Cryptocurrencies aren’t legal tenders and don’t have assets to back up their value,” adding that the prospect of them threatening the role of globally-trusted legal tenders such as the yen was low.

Developed Countries Have Little Need for CBDCs, Says Bank of Korea Official

The Bank of Korea poured cold water on the idea of adopting a central bank digital currency (CBDC) with remarks made by Director of Financial Settlement Hong Kyung-sik. He argued that in Korea, as in most advanced economies, there is very little need for a CBDC. “We already have advanced payment and settlement infrastructure. In addition, the degree of openness is also internationally high. The possibility that CBDC issuance will soon become a reality in major countries is still small.”

The Bank of Korea has been skeptical of CBDCs and expressed concern about the development of these currencies in the past. Meanwhile, developments in Canada are not encouraging either.

No, Royal Bank of Canada Isn’t Opening a Crypto Exchange, Coindesk reports. “While RBC does not comment on ongoing proprietary research and development, we can confirm that these patent filings are not in support of work towards a cryptocurrency exchange for clients. RBC has no near-term plans to launch a cryptocurrency exchange for clients,” a Royal Bank of Canada spokesperson said.

A British Columbia cryptocurrency exchange shuts doors owing more than $16M to customers.

The RCMP notified about possible money-laundering concerns at Einstein Exchange. Under a cloud of complaints, investigations, and lawsuits, the controversial Vancouver exchange shut its doors with more than $16 million owing to customers.

Meanwhile, Binance are aware of a large-scale user email leak from another exchange.  “If you are an affected user and have a Binance account under the same email address, we recommend changing your email immediately,” warned Binance’s official Twitter account.

Bitcoin Needs ‘Real Use Cases’ to Become Digital Gold, Says ICE Chief.

Because I’m old I think of [how] gold became a store of value because at one point it was a currency. We had gold coins; it was in circulation and, over time, it became a store of value and today, you know, in a crisis we all accept gold as a form of payment,” Intercontinental Exchange’s Chief Jeffrey Sprecher said, adding that Bitcoin may follow a similar trajectory. “We don’t think that that whole space will be relevant and grow unless there are real use cases, and we do… think that a use case is going to be the digital transfer of value through payments.”

In other news from Canada,3iQ expects to launch Bitcoin ETF this quarter after “favorable” ruling .

The Ontario Securities Commission (OSC) has ruled to allow crypto fund manager 3iQ to issue a prospectus for its prospective exchange-traded Bitcoin fund, signaling that Canada’s top securities regulator may be about to approve the launch of the nation’s first Bitcoin ETF.

Incredibly, 3iQ’s custody and surveillance providers are U.S. institutions, suggesting that Canadian regulators have a more progressive view of how a Bitcoin fund could be operated safely in the securities market. 3iQ plans to custody the fund’s BTC with Gemini Trust Company while using VanEck for its index and market data. Both firms are based in New York and, ironically, are amongst the SEC’s rejected ETF applicants.

The negative sentiment toward stablecoins continued in November with reports like this: Crypto tokens are not real money. Libra is under question – Bundestag.From the point of view of the Federal Government, it will be ensured that stablecoins do not establish themselves as an alternative to state currencies and thus call into question the existing monetary system.” The examination of whether Facebook’s Libra concept is lawful with regard to German and European law has not yet been completed. The White Paper published by the Libra Association is not an appropriate basis for arriving at a reliable answer to this question. It requires a further specification of the business model by the Libra Association and its shareholders.

Further to this, in the U.S., Rep. Sylvia Garcia And Rep. Lance Gooden Introduce The Managed Stablecoins Are Securities Act Of 2019. This piece of legislation would protect consumers against certain cryptocurrencies, such as Facebook’s Libra Project. The bill would clarify that “managed stablecoins” are securities under the Security Exchange Act of 1934 and thus regulated by the Security and Exchange Commission.

Alibaba Denies ‘Partnership’ With Lolli, Highlighting Crypto Industry Pitfalls.  Coindesk reported that the shopping app Lolli was offering Bitcoin rewards to U.S.-based Alibaba shoppers for Singles Day. “Alibaba.com’s contractor is terminating the relationship with the subcontractor who was working with Lolli. As a result, Lolli should no longer promote or bring traffic to Alibaba.com.”

EP. SYLVIA GARCIA AND REP. LANCE GOODEN INTRODUCE THE MANAGED STABLECOINS ARE SECURITIES ACT OF 2019

Congresswoman Sylvia Garcia (D-TX) and her colleague Congressman Lance Gooden (R-TX) introduced the Managed Stablecoins are Securities Act of 2019. This piece of legislation would protect consumers against certain cryptocurrencies, such as Facebook Libra Project. The bill would clarify that “managed stablecoins” are securities under the Security Exchange Act of 1934 and thus regulated by the Security and Exchange Commission.

Elliptic Launches the World’s First XRP Transaction Monitoring System – Identifies $400M of Illicit Activity in XRP Transactions

According to the report, Elliptic, the leading provider of crypto-asset risk management solutions for crypto businesses and financial institutions, announced transaction monitoring support for XRP, the currency of the Ripple payment network. “We began researching XRP more than a year ago and have already identified several hundred XRP accounts linked to illicit activity ranging from thefts to scams and the sale of stolen credit cards,” said Dr. Tom Robinson, Chief Scientist and Co-founder.

Over $400 million worth of illicit activities are conducted via XRP, a large portion of which are scams and Ponzi schemes, according to Elliptic’s research.

One interesting report comes from Italy. It appears that Italians Prefer BTC to Visa or Mastercard When Shopping Online. La Stampa reported that Bitcoin comes in at third place, just behind PayPal and PostePay, in the list of the most used methods of online payment systems. Italians use Bitcoin for shopping online more widely than traditional credit cards. It is used more than 215,800 times per month for online purchases in Italy, while American Express is used just 189,000 per month. Visa, Mastercard, and other credit cards lag with only 33,950 online transactions per month.

Technical briefing

In this month’s technical briefing, we look at two very interesting questions:

1. Is possible for one big BTC owner to move the market?

University of Texas Professor John Griffin and Ohio State University’s Amin Shams

created a stir last year with a study that alleges that Bitcoin’s astronomical surge in 2017 was probably triggered by manipulation. Now, Griffin is doubling down with the claim that a single market whale was likely behind the misconduct, seemingly with the power to move prices at will.

“Our results suggest instead of thousands of investors moving the price of Bitcoin, it’s just one large one,” Griffin said in an interview. “Years from now, people will be surprised to learn investors handed over billions to people they didn’t know and who faced little oversight.”

Tether rejected the claims, with General Counsel Stuart Hoegner arguing that the paper is “foundationally flawed” because it is based on an insufficient data set. The research was probably published to back a “parasitic lawsuit,” he added. Griffin and Shams’s hypothesis that Bitcoin was manipulated is based partly on the theory that new Tethers are created without the dollars to back them and then used to buy Bitcoin, leading to rising prices. For more on this read: Tether Used to Manipulate Price of Bitcoin During 2017 Peak: New Study

Without a doubt, this is an interesting subject but one that adds nothing positive to the overall sentiment. Many wealthy individuals and conservative institutional investors are keeping a close watch on cryptocurrencies; such allegations are making them leery about investing.

2. How do BTC price and mining volume impact one another?

The second technical question is the relationship between mining and BTC price. The theory suggests that mining value and price are closely related. As the price starts to drop, it becomes less attractive to mine more. Miners hurry to sell what they have mined while the price is still high. This sell-off triggers another wave of price drops, and the cycle repeats.

Of course, this suggests that a good time to buy is at recovery. Charles Edwards, one of the most active followers of this strategy, tweeted on November 19: “There is ~60% chance of a Bitcoin miner capitulation. But the extent of this HR growth plateau has never occurred before in Bitcoin’s history. Miners face a tough choice: 1) Mine more & accumulate more 2) Cut back & potentially ‘miss’ a major bull run.”

In another tweet, he writes: “No idea why anyone would interpret Miner Capitulation as FUD. Historically, all occurrences have been excellent buy opportunities. The best buys are DURING a capitulation. But it’s very hard to time. A safe bet to minimize losses, and get huge returns, is to buy on recovery.”

The followers of this theory mostly look at the hash rate dynamic. When it starts to slow, it serves as an early sign of a mining contraction and possible decrease of BTC value.

According to another tweet by Edwards: “Miner Capitulation is playing out exactly like the prior 10 years. Price fell -17% from confirmation, representing the best buy since May (6m ago). But… Hash Rates continue to fall… For best risk/reward: –> Buy recovery”

As a bottom line is…

Those who follow our reports know that the Bitcoin market is at a precipice, barely holding above a very thin and fragile border, risking a drop into the abyss.

It is crucial that it holds above the current 6.4K area and starts rising again. Otherwise, technical analysis suggests a drop to 4.4K first, and then to the 1.8K area. We are speaking about the long-term, weekly and monthly charts, which reflect not short-term fluctuations but a long-term sentiment.

The fundamental analysis shows that the market is stagnant. Investors are frustrated because the big hopes of institutional funds revitalizing the market have not been realized, and no one knows what to do next.

With that said, we do not see any significant change from last month’s sentiment, which – regrettably ­– promised nothing positive either.

 

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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.

At the Forex Peace Army, he is known as an author of Forex Military School, which quite unique free forex trading course. We do not know of any other free forex trading education covering such a broad spectrum of forex market concepts in such details while keeping it easy to understand and practically use.

As if that wasn't enough, he is the part of the Shoulders of Giants Program. He shares with his fellow traders at FPA his view and forcast of the Gold Market, Currency Market, and Crypto Market in form of weekly analytics and daily video updates.

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Comments

VinceStern
5 months ago,
Registered user
Hi @Sive Morten,

I really appreciate your calm and pondered analysis on Bitcoin, a refreshing professional view very different from those who are crypto enthusiasts and cannot distance themselves.

I'd like to point you to a fresh article on the miner's "financial firepower":

https://medium.com/paradigma-capital/stop-blaming-miners-for-falling-btc-prices-3c2a149cde11

According to this study, it is very, very small in relative size of the market and thus should not be able to move the market significantly. That does not mean the market will not respond to the break of the supposed miner's production cost level, as it is a very emotional market which responds strongly to these beliefs and self-fulfilled prophecies.
Interesting read to have in mind.

Thanks again and keep posting the good stuff, BR!