Daily Archives: July 14, 2017

Got some bitcoin? An internal dispute over the digital currency could soon mean financial losses, whipsawing prices and delays in processing payments.

It's also possible that nothing much changes. It all depends on whether the people who maintain bitcoin can agree by July 31 to implement a major software upgrade one designed to improve capacity on the increasingly clogged network.

Not everyone is on board. In particular, some bitcoin "miners," who are rewarded for verifying transactions, aren't supporting the changes. Any split between miners and others who use bitcoin, including a number of startups and a few big companies, could cause a panic in the $39 billion bitcoin marketplace.

So far, bitcoin's value in U.S. dollars has soared amid the uncertainty. It's currently at about $2,300, more than triple what it was a year ago. But bitcoin is notoriously volatile; because the price spiked so rapidly, it also fell quickly, and bitcoin has lost about a quarter of its value since its peak in June at above $3,000.

Here's a look at the current dispute.

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Dispute could mean financial panic in bitcoin - CNBC

Bitcoin and other so-called cryptocurrencies have plunged in value in recent weeks, prompting some observers to wonder whether that's a sign of a market bubble bursting.

Prices for bitcoin, recently changed hands at $2282, a decline of about 12 percent over the past month. Rival ethereum has fared worse, plunging 47 percent during that same period to $191.92 even when this week's gains are included. The third-largest cryptocurrency, called ripple, has slumped nearly 25 percent over the past month, rebounding from earlier losses. Ripple, however, is priced at about 19 cents, so small price swings can have dramatic impacts.

Even with the recent drop, bitcoin prices have surged more than 130 percent this year. Still, given how unpredictable the market has proven to be, potential users may be leery about embracing the digital currency, said Wolf Richter, a financial blogger who edits the Wolf Street site. He expects bitcon, which was $10 in 2013, to continue falling.

"Given the volatility, bitcoin is not a usable currency," Richter wrote in an email. "And given transaction costs, it's a very expensive form of payment. And it takes a long time to process a transaction. So unless you're trying to hide your identity, it doesn't make economic sense to pay with bitcoin."

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The bitcoin market has already crashed three times between 2011 and 2014, plunging more than 50 percent on each occasion. Prices tumbled earlier this year after the U.S. Securities and Exchange Commission rejected plans by twin-brother entrepreneurs Tyler and Cameron Winklevoss to offer a bitcoin exchange-traded fund (ETF). By comparison, the S&P 500 index, the broad stock market barometer most closely followed by professional money managers, has gained "only" 9 percent this year.

Richter and Tone Vays, a derivatives trader and consultant who hosts a podcast on the digital currency, differ on the question of whether the market for bitcoin is in a bubble. According to Richter, it's bound to crash "someday," though he declined to provide a forecast. Vays' view is that the cryptocurrency market isn't in a bubble because prices have only tripled in price at the peak as opposed to prior bubbles when markets surged between 10 and 100 times.

One reason bitcoin prices have pulled back lately concerns debates over what code will be used to increase the number of transactions that can be done on the currency's network, according to Vays.

"The bitcoin ecosystem has been debating for a year on how best to scale bitcoin," Vays wrote in an email. "This should all be resolved by end of August, but it's hard to say if it will end with a good ending, or we end up with two coins both claiming to be the real bitcoin."

For bitcoin's rivals, however, the situation is different, especially with those who have crowd-funded new offerings through what's known as internal coin offerings (ICOs). Ethereum, which began this year priced at $8.17, has gained more than 2,600 percent. Ripple has skyrocketed more than 326,000 percent from less than half a penny to about 20 cents during that same time.

"A token like ethereum has gone up 10 times faster than bitcoin, and it's fueling an ICO bubble no different then the dot-com IPOs of the late 90s," Vays said. "It's possible that this bubble has popped with ethereum never reaching above $400 again, and many of the ICOs, which on paper made hundreds of millions on their token sales, may find their tokens to worthless in the near future."

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Did a bitcoin bubble just burst? - CBS News

The Dread Pirate Roberts was never going to persuade Wall Street to love bitcoin. Maybe John Mack can.

Roberts was the swashbuckler alter ego of Ross Ulbricht, founder of the multimillion-dollar Silk Road online bazaar whos serving a life sentence for allowing customers to use bitcoin to buy drugs, hacking tools and fake identification. Ulbrichts was the early, ominous face of the cryptocurrency and no one on Wall Street wanted to touch it. What investors can no longer ignore is the incredible price gains -- almost 150 percent alone this year for bitcoin. Yet the problem of how to buy and sell digital assets while keeping compliance departments happy remains.

John Mack

Photographer: Chris Goodney/Bloomberg

Enter Mack, the former chief executive officer of Morgan Stanley.

Hes taken an interest in Omega One, a startup that plans to act as an agency brokerage for asset managers and institutional investors who want to own cryptoassets like bitcoin and ether but dont want to run afoul of know-your-customer and anti-money laundering regulations. Mack is one of a few private backers of Venture One, Omega Ones sole investor at this point.

I have been watching and investing in the cryptocurrency market over the last several years, and as a Venture One portfolio company, I find Omega One to be an important next step in the emergence of this new economy, Mack said in an emailed statement. We think Omega One is going to be transformative because it benefits the entire ecosystem -- making crypto assets cheaper and easier to access.

The need for a trusted firm to act as a middleman between the worlds of Wall Street and digital currencies is an indication of the growing pains these new markets face. Bitcoin has always been extremely volatile -- it has dropped about 20 percent since rising to a record last month -- a trait shared by ether and other digital coins. More than half of the computers that make up the bitcoin network are located in China, giving one nation outsized sway over the global market and leaving reputable investors cautious. And a history of alleged thefts and hacks in the last few years have shaken confidence in security measures employed by some digital asset exchanges.

The uncertainty among conservative investors toward cryptocurrencies is playing right into Omega Ones strategy, according to Alex Gordon-Brander, the companys chief technology officer. Were the bridge between the traditional capital markets and the crypto markets, he said in an interview. We will provide everything from balance sheet intermediation to a trusted counter party.

Wall Street has been captivated for the last two years by the prospect of applying blockchain technology to save banks billions of dollars a year in back office operations and slashing settlement times. A type of software that combines distributed computing and cryptography to make bitcoin and ether possible, blockchain is in a basic sense a shared database that has no central authority overseeing it. Rather than blockchain, however, Gordon-Brander said Omega One is focused on convincing the financial world that cryptocurrencies should be viewed as a new asset class.

There are a few signs of this already. Both Fidelity Investments and USAA allow customers to access their bitcoin or ether balances through their accounts if they are linked to the digital exchange Coinbase. Gordon-Brander said this is the year that attitudes will change.

Were seeing the very first signs of institutional adoption of crypto markets, he said.

Investing in bitcoin has never been for the faint of heart. Within two months in late 2013 it shot up from about $125 in October to $1,150 in December, an 820 percent appreciation. Within two weeks, bitcoin fell to $520 on Dec. 18, 2013, according to price data from Coindesk. Earlier this year it dropped to $775 from $1,129 between Jan. 4 and Jan. 11, a 31 percent loss. And then in four months it went from $964 in March to a record above $3,000 in June to a current price of $2,233, according to Coindesk.

Ether spent much of the second half of 2016 in a range between $10 and $12, then shot up to $396 over three months between March and June, an astounding 3,500 percent gain. It has since fallen 53 percent to a current price of about $187, according to Coindesk.

The unregulated nature of bitcoin and ether may also bias traditional investors from getting involved. Bitcoin transactions are verified by so-called miners, who use powerful computers to ensure transactions are valid and the bitcoin belongs to the user who wants to transact with it. For verifying transactions, miners are rewarded an amount of free bitcoin. Chinese miners account for over 50 percent of this network, and the country also produces a large share of the computer hardware used to mine, according to Brian Forde, director of digital currency at the Massachusetts Institute of Technologys Digital Currency Iniative.

That concentration risk may spur other countries to become involved in bitcoin mining to blunt Chinas effect on the global market, he said earlier this year.

There have been high profile losses of bitcoin and ether as well. The former head of Mt. Gox, the bankrupt Japan-based bitcoin exchange that imploded in 2014 after losing hundreds of millions of dollars worth of the cryptocurrency, began his trial earlier this week. Chief Executive Officer Mark Karpeles pleaded not guilty in Tokyo on Tuesday to charges of embezzlement and inflating corporate financial accounts.

Last month, Korean Bitcoin exchange Bithumb was hacked and users personal information was stolen, according to the exchange. Last year, about $55 million worth of ether was stolen from the DAO, a smart contract meant to crowd-fund development projects on the ethereum blockchain. The money was later recovered.

Omega One is also pitching itself to current cryptocurrency investors who want to limit transaction costs, Gordon-Brander said. He should know about that, as he previously was instrumental in building the algorithmic trading system for BridgewaterAssociates, the worlds largest hedge fund. The system helped break up large currency orders for Bridgewaters customers, a system known as smart order routing, to save Bridgewaters clients money in foreign-exchange trades, he said.

The same issue arises in cryptocurrency transactions, as difficulty in filling orders can cost users hundreds of dollars in transaction costs, he said. The system will be a dark pool, meaning orders are hidden, unlike a public exchange with an open order book. If Omega One cant fill a trade from resting orders in the dark pool, it will be shipped off to other exchanges around the world for completion, Gordon-Brander said.

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Users of Omega One will have to possess a digital coin native to the system, what will be known as an Omega Token. The company plans to offer an initial coin offering in either mid-August or mid-September, Gordon-Brander said. He declined to say how much the ICO would raise, but put the range within hundreds of millions of dollars. That money will become the firms balance sheet that it will use to buy and sell bitcoin or ether on behalf of its customers, he said.

We can do a lot more with a $1 billion balance sheet than a $100 million balance sheet, Gordon-Brander said. The balance sheet is the grease that makes the liquidity work.

John Mack serves on boards including the Bloomberg Family Foundation, founded by Michael Bloomberg, the owner of Bloomberg LP, parent of Bloomberg News.

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John Mack Takes Bitcoin Where Dread Pirate Feared to Tread ... - Bloomberg

Rep. Dana Rohrabacher

It was one hell of a segue.

Rep. Dana Rohrabacher took to the House of Representatives floor on Friday to defend the Trump administration from charges of collusion with Russia. We know now people are trying to frighten us and others not to meet with people, and not to talk to people, and I wonder why, the California Republican said.

I dont care if it was Donald Trumps relatives or his son or whoever it was, anybody in the campaign whatsoever wants to talk anybody in the world to get information, I think thats a good thing.

But he abruptly changed into a discussion on bitcoin BTCUSD, -3.63% .

Also read: Bitcoin fan who held up sign during Yellens testimony receives $10,000 for his effort

Rohrabacher says he fears terrorists will use the digital currency for nefarious purposes.

[Blockchain technology] empowers the good people of the world, but it could be used by those who have goals that are evil, Rohrabacher said, because of its anonymity.

Banning digital currencies will not prevent terrorists from using them any more than banning guns will prevent criminals from using them, he said. Instead, Rohrabacher, the chairman of the House Foreign Affairs subcommittee on Europe, Eurasia and emerging threats and vice chairman of the House Science, Space and Technology Committee, wants digital currencies to implement full money laundering and know-your-customer standards.

Rohrabacher said the action could be taken on a bipartisan basis. Former U.S. Attorney General Eric Holder has made similar comments in the past.

Earlier this year, Japan required bitcoin exchanges to toughen know-your-customer policies.

The rest is here:
After defending Trump Jr.'s meeting, Rohrabacher says bitcoin world needs to adopt know-your-customer procedures - MarketWatch