With Bitcoin and the blockchain, life continues to be damned if you do and damned if you dont. On August 1, if you hold any bitcoin, then youll receive the equivalent in a new cryptocurrency called Bitcoin Cash. The reason why is messy, but you can think of it as a kind of dividend.

Theres a catch. If your Bitcoin is held on certain platforms, including the largest one, Coinbase, then you wont receive your due. Thats because for reasons political or technological, those platforms are automatically rejecting the new currency. (Although Coinbase noted in a tweet yesterday that theres a possibility it will change its mind.)

The rational thing to do then if you own Bitcoin on one of those platforms is to move your funds elsewhere, claim your free Bitcoin cash on August 1, and then move back when things have settled down. Thats the common refrain youll find online, but because this is the cryptosphere were talking about, that refrain needs to come with a fat warning sticker.

Consider Coinbase. For many years its been the de facto platform for less techy folks to buy and store bitcoin. Coinbases easy-to-use design and PayPal-like features stand in contrast to the tech horror that is the rest of the industry. Thats a problem.

If Coinbase is all you know, then youre not equipped to beam your money to another platform or to a private wallet; its too different and too much can go wrong.

Use a malicious website to generate your private key? Your funds vanish. Hash a bad password? Your funds vanish. Copy and paste the wrong hash? Your funds vanish. Choose the wrong exchange? Your funds vanish. Save your key on a malware-infected computer? Your funds vanish. Store your key on a sheet of paper that your roommate throws away? Your funds vanish.

The list is endless and many items apply even to sophisticated investors. The point is that moving large sums of cryptocurrency from one place to another has non-zero risk attached and may lead to catastrophic loss.

Yet, ignoring the free Bitcoin cash distribution is also a bad option. Bitcoin cash will have value, maybe small, but also maybe very large. You never know in this space and if the creation of Bitcoin cash leads to a devaluation in regular Bitcoin, then staying put means taking an automatic loss.

Theres no good move here and this situation is representative of the whole space, one where tech gimmicks continue to trump basic safety and accessibility.

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Bitcoin holders face sticky decision before August 1 split - VentureBeat

This week, one of Bitcoins largest and most notorious coin exchanges was brought down by law enforcement and police and prosecutors are now beginning to explain why. On Thursday, the Department of Justice unsealed an indictment against Alexander Vinnik thought to be the operator, or one of the operators of Bitcoin exchange BTC-e charging him with 21 counts of money laundering and other related financial crimes. The counts range from operating an unlicensed money transmittal business to a variety of money laundering charges, including laundering associated with ransomware payouts and a theft from the now-defunct Mt Gox exchange. More generally, the indictment paints BTC-e as a hub of criminal activity, laundering the proceeds of everything from drug trafficking to ransomware attacks.

As some suspected, Vinniks alleged crimes go beyond just operating the exchange. Feds believe he played a role in the theft of more 800,000 bitcoin about $400 million at the time from Mt. Gox, a staggering loss that ultimately shuttered the exchange. According to the indictment, 530,000 of those bitcoin ended up passing through wallets controlled by or associated with Vinnik, although his role in the larger scheme remains unclear.

Vinniks alleged crimes go beyond just operating a Bitcoin exchange

Vinnik himself is in custody, arrested while on vacation in Greece, but the Bitcoin world is still sorting through the larger implications of his arrest. BTC-e was one of the last major exchanges outside the reach of conventional finance, and now that its gone, its unclear what might replace it. There are many legitimate uses of Bitcoin, but Bitcoin transactions have also become essential for online crime whether its ransomware or Silk-Road-style online marketplaces. There will continue to be demand for exchanges like BTC-e, and with feds directly targeting exchanges that dont play by the book, the split between the two halves of Bitcoin is becoming starker and starker.

BTC-e, founded in 2011, always stood out as an anomaly among the major Bitcoin exchanges. Even a cursory look at BTC-e flagged it as a little strange. Their exchange prices always seemed weird and out of line with every other exchange, and I had wondered why, Matthew Green, a professor at Johns Hopkins University told The Verge in an email.

Nicholas Weaver wrote at Lawfare that BTC-e was noted for its sketchy ownership and control. The exchange was supposedly located in Eastern Europe, but there were no clues as to who ran it until now.

300,000 bitcoin from Mt. Gox went to wallets tied to BTC-e administrative accounts

But the big surprise in the indictment is how closely tied BTC-e is to a massive theft at Mt. Gox, one that eventually bankrupted the exchange in 2014. Founded in 2010, Mt. Gox dominated the Bitcoin world for years, at one point processing 80 percent of all bitcoin-to-currency transactions. Mt. Gox first suffered a multimillion-dollar theft in June 2011. When the exchange collapsed in 2014, the equivalent of nearly half a billion dollars was unaccounted for.

On Wednesday, in the wake of the arrest of Vinnik, WizSec published a blogpost presenting the findings of an investigation into the Mt. Gox thefts that they have apparently been preparing for years. According to WizSec, the Mt. Gox hot wallet private keys were stolen sometime in 2011, and the hacker (or multiple hackers) continued to steal bitcoin through 2012 and 2013. The bitcoin were laundered through wallets controlled by Alexander Vinnik. The indictment claims that 300,000 bitcoin were stolen from Mt. Gox went directly to three connected BTC-e accounts directly linked to BTC-e administrative accounts that only BTC-e admins and operators could have had access to. At least one of the accounts under the name Vamnedam was controlled by Vinnik and others known and unknown. (The others known are either not named in the indictment or have been redacted from the published document.)

Many of the charges allege more straightforward money laundering

More bitcoin from the theft were sent to other Mt. Gox wallets and wallets at a third exchange the now-defunct Tradehill, which operated out of San Francisco, California. From there, they eventually ended up at BTC-e, in an account that was directly controlled by Vinnik.

WizSec also claims that the wallets that laundered Mt. Gox coins also handled coins stolen from Bitcoinica, Bitfloor and several other thefts from back in 2011 and 2012.

Its not clear whether Vinnik was directly involved in the Mt. Gox theft, or how close he is to any of those previous thefts, or even the CryptoWall ransomware hackers whose funds he is accused of laundering. But when it comes to Mt. Gox, at least, BTC-es proximity to the theft is fairly suspicious.

Anybody who thought about this for a second understood that law enforcement was working on a case against BTC-e

While the Mt. Gox allegations are the most eye-catching, many of the charges that brought down BTC-e allege more straightforward money laundering. The very first count listed in the indictment is for operating an unlicensed money-transmitting business: a criminal charge based on failing to register with FinCEN, an intelligence network thats mandatory for all financial companies dealing with US customers.

Participating in FinCEN comes with a range of requirements, from registration to internal anti-money laundering programs. Since 2013, its been clear that Bitcoin exchanges had to follow those same rules, and for the most part, exchanges have complied and prosecutors havent been shy about filing charges against services that dont. In recent years, BTC-e has been the largest Bitcoin exchange not registered with FinCEN, a distinction that made it an obvious target for law enforcement, even without Vinniks alleged Mt. Gox involvement.

Anybody who thought about this for a second understood that law enforcement was working on a case against BTC-e, said Jerry Brito, executive director of Coin Center. The question was just whether the government would catch them.

designed so that criminals could effect financial transactions under multiple layers of anonymity

Where other counts in the indictment focus on money transfers linked to theft and ransomware, the first two operation of an unlicensed money transmitter and conspiracy to commit money-laundering focus on the technological capabilities of BTC-e itself, claiming that the exchange had a criminal design.

BTC-es system was designed so that criminals could accomplish financial transactions with anonymity and thereby avoid apprehension by law enforcement or seizure of funds, the indictment says, pointing out that BTC-e only required a username, password, and an email address, unlike legitimate payment processors or digital currency exchangers. The indictment also points to suspicious usernames like ISIS, CocaineCowboys, blackhathackers, dzkillerhacker, and hacker4hire as additional support for the money-laundering allegations.

The language in the indictment about BTC-es criminal design mimics the indictment against Liberty Reserve an anonymous currency service taken down by law enforcement in 2013 which also accused the online exchange of having a criminal design and a system designed so that criminals could effect financial transactions under multiple layers of anonymity. (The Liberty Reserve indictment also took the time to point out that account names on the site included Russia Hackers and Hacker Accounts.)

BTC-es website claimed that they required customers to provide proof of identity namely, a scanned ID card and a scanned utility bill or bank statement and forbid any US customers, letting them off the hook for FinCEN registration. But neither turned out to be true, according to the indictment.

Exchanges will go one of two ways. Either theyll clean up their act... or theyll go fully underground.

Now that BTC-e is down for good, it could have a profound impact on the criminal ecosystem more broadly. BTC-e handled about 5 percent of total Bitcoin transactions, but recent research found that as much as 95 percent of ransomware cashouts happened through the platform. With most comparably sized exchanges already registered under FinCEN, the takedown could make it both harder and riskier for criminals to cash out something law enforcement seems to be counting on. In the same Lawfare piece, Weaver says he thinks taking down BTC-e will probably prove more important than the AlphaBay and Hansa takedowns in fighting online crime.

For Bitcoiners less invested in law enforcements war on dark web marketplaces, the lesson is a more ambiguous one. Cornell professor Emin Gun Sirer says the focus on FinCEN compliance could lead to a lasting split in Bitcoin markets, as exchanges face the choice of whether to comply with US government demands.

Exchanges will go one of two ways, Sirer says. Either they will clean their act, by first shopping for the most lenient jurisdictions and complying with relevant KYC/AML laws, or they'll go fully underground, and operate with no rules, behind Tor and other anonymous communication technologies. The most colorful drama ahead will involve exchanges, such as Bitfinex, that operate in the gray zone, where they seem to neither comply with relevant laws nor go fully underground.

For a technology with a surrounding community built on libertarian ideas, that may be a difficult pill to swallow. But as the past week has made clear, those that dont will be taking a very serious risk.

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Why the feds took down one of Bitcoin's largest exchanges - The Verge

The user-activated hard fork (UAHF) on the Bitcoin network is looming around the corner. Bitcoin Cash (BCC; BCH) is slated to break away as a new fork from the Bitcoin blockchain on August 1 at9:20PM JST or 12:20PM UTC.

Also read:Fork Watch: JP Powerhouse Coincheck Now Unlikely to Suspend Bitcoin Payments

Multiple bitcoin exchanges have signaled support for Bitcoin Cash. This news comes alongside the inevitability that a UAHF event will occur.

Last week, Bitcoin.com detailed many of the exchanges and platforms that will be rejecting Bitcoin Cash (BCC), but now more appear to be settling into the idea that it will exist as a legitimate digital token. At the time of writing, futures of BCC are being traded on Viabtcs exchange for roughly $390.

Kraken

The large bitcoin exchange Kraken made an announcement yesterday in support of Bitcoin Cash. They said they will be providing users with the ability to trade it on their platform. They pledged to credit clients with an equivalent amount of Bitcoin Cash based on their current holdings of bitcoin.

Although the Bitcoin Cash fork is expected to be minor, it may be successful. Provided that unforeseen circumstances do not make it prohibitively unsafe or difficult for us to do so, Kraken will support Bitcoin Cash

However, Kraken warned margin traders on their platform to be very cautious across the fork. They were told to either greatly reduce their position or cease margin trading altogether to ensure a smooth transition. In the least, they should set stops and not rely on Kraken to function optimally while the fork is in progress.

Bitfinex

The bitcoin exchange platform Bitfinex also announced they would be supporting bitcoin cash. They plan on providing an amount of bitcoin cash tokens equivalent to that of bitcoin in their customers wallets.

They said, A minority of Bitcoin miners will be forking on August 1st, 2017 to create a newchain calledBitcoin Cash. The fork does not impact Bitcoin balances, but it creates a new token. At the time of the fork, all Bitcoin addresses holding a balance will automatically have equivalent balances in Bitcoin Cash.

The company, however, mentioned they will not be using BCC for the bitcoin cash ticker symbol. They said it is already in useon their platform. Instead, they will use BCH. The company will distribute BCH tokens with the UTC timestamp of the first forking block, which will occur August 1. Their page contains details on how they plan on ironing out the kinks and managing technical issues.

Besides exchanges, major hardware wallets manufacturers are also supporting Bitcoin Cash. Both Trezor and Ledger have provided details on securing bitcoin cash in their wallets when the fork occurs.

Trezor wallet said they can safely adopt bitcoin cash functionality with their wallets sincethe currency supports replay attack protection. They said, Bitcoin Cash has implemented the necessary protection againstreplay attacks, meaning Trezor can support the currency safely. We will provide an interface, accessible from Trezor Wallet, where you can access and safely claim your Bitcoin Cash coins. You will be prompted by Trezor Wallet once you select Bitcoin Cash in the currency selector.

As a result of the in-built replay attack protection, Ledger will also provide full functionality for bitcoin cash via their wallets. They say users will be able to gain access to bitcoin cash after the fork by using a special tool. They said users could view bitcoin cash currency as free air-dropped money.

As a result, all bitcoin holders will be granted a new duplicated Bitcoin Cash balance (literally airdropped free money) if the fork activatesthis post and the follow ups will describe how you can best secure this new balance, then decide to trade it, hold it or sell it as you wish.

Both hardware wallet companies wrote details on their page explaining how to respond to the fork and gain access to freshly minted bitcoin cash.

Several other exchanges and wallet providers are also signaling their support for the hard-forked token. Exchanges include Quoinexchange, Viabtc, Kcoin, Btcbox, Bithumb, Kex, Mercury Cash, Huobi,Quadrigacx, Toubi, Korbit, Bittrex, and Btcpop. Wallet providers who are adopting Bitcoin Cash include, Bitcoin ABC, Bitcoinclassic, Electrum Cash, and btc.com.

The exchange Quoinexchange said, We have also received many inquiries regarding BCC(Bitcoin Cash) crypto currency. As an exchange, our goal is to provide a fair exchange platform which is highly secure and compliant. As a result of the fork, users that hold BTC in their balances at the time of the fork will be credited equivalent BCC. If your account balance at the time of the fork holds 1 BTC, youwill be credited 1 BCC.

These announcements seem to suggest stronger community backing for the fork token. It does not look like the currency will die immediately in the rip and roar of the fork. The future of the digital asset remains uncertain, for sure.

However, the basic rules of forks still apply to everyone regardless of what happens: keep private keys safe. No matter what coin wins out, every bitcoin user should try to maintain their coins with their own securely held private keys. This ensures that control of both coins remain in the users hands.

Will bitcoin cash continueto grow after Aug 1? Will it have more supporters? Let us know in the comments section below.

Images courtesy of Shutterstock, bitfinex.com, and crunchbase.com

Bitcoin.coms own store features a wide range of interesting Bitcoin-related products. Looking for a hardware wallet? We got em. Want a good-looking t-shirt? Its there. Want to gift a nice Bitcoin tea cup? Go shopping.

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Fork Watch: 'Bitcoin Cash' Support Grows as August 1 Draws Near - Bitcoin News (press release)

The price of digital currency bitcoin rose Friday, putting it on track for a modest weekly gain, while rival cryptocurrency Ether extended its recent weakness.

At latest check, a single bitcoin BTCUSD, -3.71% was up 3.8% to $2,783.18, according to cryptocurrency research-and-data site Coindesk. While it remains down from an all-time high above $3,000 on June 11, its recent trend has been largely positive. It is on track for its second straight positive session, and it is up 3.3% over the past week.

The market capitalization of bitcoin rose to nearly $46 billion, meaning it once again accounts for more than half of the entire market cap for cryptocurrencies which stands at $89.9 billion, according to Coinmarketcap.com.

This is the first time since May that bitcoin has represented 50% of all crypto assets, according to Tuur Demeester, a bitcoin investor who is also the founder of Adamant Research. Earlier this year, cryptocurrencies topped $100 billion in market capitalization.

Thus far in 2017, bitcoin prices have gained more than 180%.

Related: Bitcoin investors: things may get very ugly soon, if this chart overlay is right

Ether, the digital currency that runs on the Ethereum network, fell 5.7% to $192.70 on Friday, extending its recent weakness. For the week, Ether is down more than 15%, trimming its market cap to $18.2 billion.

The chief rival to bitcoin remains the bigger year-to-date gainer by farit is up nearly 2,300% in 2017although it has struggled since hitting an all-time peak of $395.16 on June 13. At current levels, Ether is trading at levels last seen in May, according to Coindesk.

Much of this weakness has come on recent regulatory moves, including a recent announcement from the Securities and Exchange Commission that signaled it would scrutinize a recent torrent of so-called initial coin offerings, or ICOs. ICOs refer to previously unregulated offerings of digital currencies, many of which were tied to the Ethereum blockchain.

Read: What is an ICO? What investors need to know about initial coin offerings

More broadly, cryptocurrencies have come under increasing fire of late.

Howard Marks, the co-chairman of Oaktree Capital Management, said they were nothing but an unfounded fad, adding that bitcoin was based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.

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Bitcoin prices rise as Ether extends recent weakness - MarketWatch

The price of bitcoin across global exchanges hit $2,833 today, the highest figure observed since July 23.

The five-day high comes amid what has been largely a week of stability in the price of the digital asset against the dollar. Bitcoin prices fell to a seven-day low of $2,433 on Wednesday, but have traded as high as $2,889 as recently as July 21.

Still, the fluctuations come ahead of what could emerge as a turbulent time for the price.

While bitcoin's long-raging scaling debate may soon reach a conclusion of sorts (with the integration of the Segregated Witness now scheduled for early August), it's not going to be without twists.

For one, the cryptocurrency is about to see the first large-scale fork of its live blockchain, with some miners and businesses vowing to create a separate project called Bitcoin Cash.

Already trading at $300 (though it hasn't been released), it's hard to say exactly how the move may impact prices.

Still, if the project does come to pass, those on either side of the debate may now be able to more easily move the market in their preferred direction, potentially leaving the door open for volatility ahead.

Markets image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [emailprotected].

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Bitcoin Inches Above $2800 to Hit 5-Day High - CoinDesk

ATHENS (Reuters) - A Russian national suspected of masterminding a money-laundering operation using bitcoin was transferred to prison in Greece on Friday, while the United States prepares documentation to back an extradition request for him.

Russian national Alexander Vinnik, 38, is suspected of operating a digital currency exchange which was the alleged conduit for more than $4 billion in proceeds from illicit transactions.

He was arrested in northern Greece on July 25 on the basis of a U.S. warrant for his arrest and extradition.

"He has gone to a prosecutor, a jail order was issued, and he was escorted to prison today," a senior police official told Reuters.

The official, who spoke on condition of anonymity, said that according to regulations the United States has a two-month window in which to submit the relevant documentation to appeals prosecutors regarding Vinnik's extradition.

Vinnik was arrested at a hotel in the Chalkidiki region. Police seized five mobile telephones, two laptops, two tablets and a router during the arrest.

Local media have reported that Vinnik denies allegations against him. It was not immediately clear if he had a lawyer.

Officials have described Vinnik in a U.S. Justice Department statement as the operator of BTC-e, an exchange used to trade the digital bitcoin currency in operation since 2011.

Vinnik, justice officials alleged, committed crimes which went beyond the lack of regulation of the bitcoin exchange he operated. They have alleged Vinnik and his firm received more than $4 billion in bitcoin, and that BTC-e 'obtained' funds from Mt Gox, a Japan-based bitcoin exchange which collapsed in 2014 after being hacked.

A 'sizeable portion' of the stolen Mt Gox funds were deposited in accounts controlled, owned and operated by BTC-e and Vinnik, the indictment said.

Mt Gox was one of the most prominent examples of how the lightly regulated digital currency could burn investors, after an estimated $450 million worth of bitcoin and $27 million in hard cash vanished when it collapsed.

Reporting By Angeliki Koutantou; Writing by Michele Kambas; Editing by Hugh Lawson

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Alleged bitcoin fraud 'mastermind' sought by US held in Greek prison - Reuters

When initial coin offerings emerged as a new way for startups to raise money a few months ago, there was much speculationand some doubt about whether the cryptocurrency crowdfunding method could disrupt or even replace the traditional venture capital industry .

Now, the early numbers are in, and there is no question that ICOs , an unregulated form of fundraising by which companies can sell their own form of digital currency or tokens to investors, are winning this race, at least in the blockchain industry.

ICOs have now raised nearly four times as much money as bitcoin companies raised in venture capital dollars so far this year. Thats according to PitchBook, which tallied up the latest numbers: ICOs have raised almost $1.3 billion in 2017 so far, while only about $358 million in traditional VC money went to blockchain startups over the same period.

And that's at a time when venture capital is booming among blockchain companies. Last quarter was the best quarter for blockchain and bitcoin VC funding on record, more than doubling the amount raised in the first quarter and up 89% year over year, according to CBInsights.

But ICOs are growing much faster, having already raised almost six times as much this year as they raised in all of 2016.

Now, a fundraising method that you likely had never heard of until a few months ago is on track this year to exceed all prior VC investment in blockchain, which has totaled a cumulative $1.7 billion over the past eight years, PitchBook says.

To underscore just what a whirlwind trend this has become, even entrepreneurs doing their own ICOs are astonished by the craze.

At a panel discussion hosted by BlockchainDriven Thursday night, Morgan Hill, an investor at Attis Capital, announced that he was launching a new cryptocurrency hedge fund called AxionV in August. But unlike the crypto hedge fund startup MetaStable , which recently received funding from Sequoia, Andreessen Horowitz, Founders Fund, Union Square Ventures and Bessemer Venture Partners, AxionV has a different plan. It will do an ICO itself, targeting a $30 million fund, which it will then use to invest in other ICOs, Hill said.

He also told a story of another hedge fund manager in London who was planning to launch an ICO of a company that aims to put the entire Quran online, and use the new cryptocurrency to compensate people who contribute to the digitization of the religious text. Hills take: The first thing I thought was, this is categorically insane.

He later came around, he said, acknowledging religion is a very important piece of information and that the project actually does provide a huge value.

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Cryptocurrency ICOs Are Making Bitcoin Startups Richer than VCs Ever Did - Fortune

The provider of a bitcoin exchange-traded note (ETN) in Sweden hassaid that it will track what the market considers to be "bitcoin" following a possible network split next week.

XBT Provider AB released a statementoutlining its plans ahead of what could be a split in the bitcoin blockchain on August 1, one pursued by the proponents of an alternative implementation called Bitcoin Cash. The first of two ETNs launched by XBT Provider went live in mid-2015 following approval by the Swedish government.

The firm said that, as the ETN holders don't actually possess any bitcoin, they won't be directly affected. But XBT Provider said it is moving proactively to protect the bitcoin holdings that the ETN tracks, steps which include safeguarding the assets themselves in the event of a chain split.

"The Guarantor's group companies have moved as much of their bitcoins held on account as is practicable in the circumstances to custodian infrastructure that will support both coins should a new coin result from the anticipated fork," the company stated.

Ultimately, the firm said it will align with whichever chain the market deems to be "bitcoin", explaining:

"The Issuer wishes to further clarify that its Certificates are designed to track "bitcoin" and not any alternative coin which results from a forking event and which shared a common transaction history prior to the fork. Therefore, the Issuer's Certificates will, after a fork, be referenced to the coin which the bitcoin community and exchanges define, and consider to be, 'bitcoin'."

This approach isn't set in stone, however, as XBT Provider will undertake a three-month observation period, during which it will wait and see which chain comes to attract the most support.

Train yard imagevia Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [emailprotected].

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Bitcoin Investment Vehicle Adopts Open Strategy Ahead of Blockchain Fork - CoinDesk

Howard Marks has some harsh words for the bitcoin community and the rise of digital currencies, which have become all the rage lately.

Digital currencies are nothing but an unfounded fad, said the co-chairman of Oaktree Capital Management, who was among the first to sound the alarm on the 2008 financial crisis.

Bitcoin BTCUSD, -3.71% is based on a willingness to ascribe value to something that has little or none beyond what people will pay for it, wrote Marks in his latest memo to clients.

Read: Bitcoin isnt real, and markets are darn hot, warns Howard Marks

The billionaire investor believes an increasing lack of faith in fiat currencies on top of millennials love of all things virtual have allowed cryptocurrencies to emerge as a potential investment tool.

Maybe Im just a dinosaur, too technologically backward to appreciate the greatness of digital currency. But it is my firm view that the ability of these things to gain acceptance is just one more proof of the prevalence today of financial naivet, willing risk-taking and wishful thinking, he said.

Marks boasts a net worth of $2 billion, according to Forbes. His investing letters are often parsed by market participants for insightful nuggets.

He freely admits he is stumped by cryptocurrencies and says he isnt alone among savvy Wall Street investors puzzled by its rise.

But they are not real!!!!! Nobody has been able to make sense to me of these currencies, he said.

One of the biggest pitfalls of bitcoin and its digital peers, according to Marks, is that they are mostly used to buy other imaginary money or to invest in companies that will create other new currencies.

But regardless of whether bitcoin is real or not, the more important question posed by Marks is whether the digital currency is suitable for investment or if it should be treated as just another tool for speculation.

Serious investing consists of buying things because the price is attractive relative to intrinsic value, explained Marks. Speculation, on the other hand, occurs when people buy something without any consideration of its underlying value or the appropriateness of its price, solely because they think others will pay more for it in the future.

Related: What are ICOs and why is the SEC taking steps to protect investors from them?

Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch, earlier this week also stressed that for all the buzz generated by bitcoin, it still has some ways to go before it can be considered a legal tender.

Most regulated financial institutions allow their clients to borrow against financial or physical assets, but we are not aware of any major institution that takes cryptocurrency as collateral at the moment. Thus, in our view, a key step for bitcoin would be for it to become pledgeable collateral, he said.

Treasury Secretary Steven Mnuchin said cracking down on illicit activity in cybercurrencies is a focus of regulators. I share your concerns about bitcoin and others and them being used for illicit activity, said Mnuchin during congressional testimony on Thursday, referring to the recent arrest of a Russian man accused of laundering some $4 billion using bitcoins.

Meanwhile, prominent financial adviser Josh Brown, who proclaims to idolize Marks, had a bit of an existential take on the whole cryptocurrency debate.

He agrees with Marks that bitcoin isnt real and its value is based on nothing.

But so what? he asks. Nothing is real, in truth.

He goes on to argue that anything that doesnt appear in nature may not be realeven countries, religion, and currencies.

Read: Bitcoin may have reached a tipping point, now that Downtown Josh Brown just invested

Things become real enough when people begin to believe and agree that they are. The Declaration of Independence didnt make America real, it made people believe that it could be real and then will it into existence with their cooperation and their actions, said Brown.

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Howard Marks says bitcoin isn't realand we can all blame millennials for its rise - MarketWatch

The popular cryptocurrency, bitcoin, may be highly volatile, but that didn't deter early adopter Roy Trimboli.

Roy calls himself '11,' since he's the proud owner of the eleventh-ever BitcoinIRA. He says he's been a conventional guy since 22, always maxing out his 401(k) and investing in blue chip mutual funds, but a year ago, he put 10 bitcoins into a BitcoinIRA. He says he's now up about 300 percent.

"It's a couple of generations worth of returns," he says.

'11' is now just one of over 700 individual account holders, including clients as young as 20-years-old.

But even with these kinds of returns, the fact remains, a speculative asset like bitcoin or ether comes with a certain degree of risk. Cryptocurrencies don't sleep. They're literally always moving, and if recent history is any indication, they're prone to seismic price moves in a very short space of time.

Campbell Harvey, a finance professor at Duke University, says this kind of volatility is brutal. "We're talking six times the volatility of the S&P 500 or five times the volatility of gold." He says it has to do with the fact that this is new technology, "and it's not easy to think about the fundamental value of a cryptocurrency."

That brutal volatility he's talking about is partly to do with the fact that these cryptocurrencies aren't collateralized. They're valuable, because people believe they're valuable. That's a big part of why Campbell says he's really worried about the BitcoinIRA.

"I'm worried that people will put too much of their retirement in an asset like this. It's a very small piece of the market right now and it's extremely volatile. To put this into your savings, you need to be willing to lose everything. If you put your retirement savings into the stock market, there is almost no chance that you're going to lose everything."

Risk aside, a BitcoinIRA itself isn't free. If you sink any less than $50,000 into your crypto nest egg, you'll face a hefty 15 percent set-up fee. But clients like Damon Smedley remain undeterred. He invested $330,000 into his BitcoinIRA last November.

"You look at where I was one year ago, versus where I'm at today, and it's quite a drastic difference," Smedley said.

It's not just the promise of a crazy return that's intrigued savers, it's also the fact that it's a hedge against the inflationary tendencies of mainstream currencies. Central banks in countries around the world have been printing cash to prop up their struggling economies, but that goes hand in hand with inflation.

In the U.S., gold, stocks, and bonds have long been the traditional hedge against inflation and the rising dollar. But now, bitcoin and ethereum offer an alternative way to beat inflation, though it's clearly not for the faint of heart.

One thing is for sure, despite its volatility, this new cryptocurrency asset class isn't going anywhere.

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Here's why some Americans are risking their life savings on a BitcoinIRA - CNBC

Another day, another round of all-time highs?

The Federal Reserve and earnings-season winner Facebook easily could help deliver a trifecta of record closes like we had yesterday.

Bulls apparently have scented a softening in the Feds stance on inflation, as they keep sniffing at the somewhat dovish handout from Janet Yellen & Co.

But billionaire investor Howard Marks smells something rotten, going by his latest cautionary memo and that provides our call of the day.

The Oaktree Capital co-chairman gives plenty of reasons to worry about markets right now. Some examples: the recent exuberance over cryptocurrencies, the cheering for FAANG stocks, and the warm embrace of passive investing (index funds and ETFs).

They show the temperature of todays market to be elevated. Not a nonsensical bubble just high and therefore risky, he writes.

Regarding bitcoin BTCUSD, +5.64% and its cryptocurrency rivals, Marks says theyre not real and perhaps even a pyramid scheme.

Read: This is what it will take for bitcoin to become a legit currency

Here, in Markss own words, are the red flags he lists near the end of his 23-page memo:

Some of the highest equity valuations in history.

The so-called complacency index at an all-time high.

The elevation of a cant-lose group of stocks. [the FAANG names]

The movement of more than a trillion dollars into value-agnostic investing. [indexing]

The lowest yields in history on low-rated bonds and loans.

Yields on emerging market debt that are lower still.

The most fundraising in history for private equity.

The biggest fund of all time raised for levered tech investing. [Softbanks fund]

Billions in digital currencies whose value has multiplied dramatically.

So what to do now? Many market participants dont have the option to not invest, Marks notes. Oaktree will continue to follow its move forward, but with caution mantra, he writes.

His full lengthy memo (Ive cut what I could, Marks says) is available here and worth a read.

Futures for the Dow YMU7, +0.46% , S&P 500 ESU7, -0.04% and Nasdaq-100 NQU7, -0.68% are higher, after the Dow DJIA, +0.39% , S&P SPX, -0.10% and Nasdaq Composite COMP, -0.63% each achieved an all-time closing high yesterday.

The dollar DXY, +0.55% is adding to yesterdays loss, and analysts are blaming the fall on the Fed swtiching its language on inflation to running below its target from running somewhat below.

Gold GCQ7, +0.73% is capitalizing on the dollars drop, while oil CLU7, +0.86% has been choppy, but staying up big for the week. Europe SXXP, -0.11% is mixed, after Asia closed with gains.

See the Market Snapshot column for the latest action.

The ICE U.S. Dollar Index is touching a fresh 13-month low this morning, stretching its year-to-date decline to 8.5%.

An ETF that tracks the buck the PowerShares DB US Dollar Index Bullish Fund UUP, +0.37% is showing a similar 2017 drop. And its the only currency ETF in the red for the year in the chart above from Charlie Bilello, the Pension Partners chart slinger.

Read more: Stocks are ignoring U.S. political uncertainty, but the dollar isnt

And see: U.S. stocks could get a powerful tailwind from the weaker dollar

$500 billion Facebooks FB, +2.92% market value might hit that milestone if this mornings earnings-fueled premarket gain holds.

On Wednesday, Amazon AMZN, -0.65% joined the $500 billion club, a select group that includes Apple AAPL, -1.89% ,Google parent company Alphabet GOOG, -1.45% GOOGL, -1.33% and Microsoft MSFT, -1.20% .

See: Facebook keeps warning about growth, but growth doesnt stop

Some big institutional investors look set to steer clear of Snapchat parent Snap SNAP, +4.48% after FTSE Russell announced a key decision on its indexes. The index provider plans to exclude companies that basically dont give public shareholders a voice.

Amazons secret skunkworks lab called 1492 is looking into electronic medical records and other opportunities in health care, says a CNBC report.

Too hot for a slice? Nestle NESN, -0.97% says warm summer temperatures have weakened spending on pizza and other products.

AstraZeneca AZN, -14.91% AZN, -15.41% is on track for a big down day after a closely watched clinical trial failed.

In five years time, scandal-hit Libor should be no more.

Earnings season remains in full swing. Companies on the docket before the open include Comcast CMCSA, +0.20% , Twitter TWTR, -14.13% , Verizon VZ, +7.68% , Southwest LUV, -4.96% , Dow Chemical DOW, +0.21% , P&G PG, +1.55% , UPS UPS, -4.01% and Mastercard MA, -1.57% .

Amazon, Starbucks SBUX, +2.69% and Intel INTC, +0.63% are among the names due to report after the close.

In terms of economic data, reports on jobless claims and durable goods are on tap before the open.

Check out: MarketWatchs Economic Calendar

Ive been saying for months we should start with what we agree on, and try to build up. The previous strategy was to start big and try to have the whole kitchen sink in there. Sen. Rand Paul (R., Ky.) is among those signaling support for a skinny repeal of Obamacare.

Read: GOP senators win further support for skinny repeal of Obamacare

And see: Heftier bill to repeal Obamacare fails in Senate

A ride broke apart at Ohios state fair, killing one person and injuring seven others.

The things each state really dislikes are random. For N.D., its tapas.

Swedens government is in trouble over its handling of a huge data breach.

Brits are having fun writing captions for new photos of their MPs.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

Or Follow MarketWatch on Twitter or Facebook.

And sign up here to get the Friday email highlighting 10 of the best MarketWatch articles of the week.

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Bitcoin isn't real, and markets are darn hot, warns Howard Marks - MarketWatch

Alexander Vinnik being led into a Greek court. Greek police described Vinnik as a an internationally sought mastermind of a crime organisation. Photograph: Giannis Papanikos/AP

The Russian internationally sought mastermind of a crime organisation accused of laundering more than $4bn in bitcoin, including funds obtained from the hack of failed bitcoin exchange Mt Gox, has been arrested in Greece.

A US jury indicted Alexander Vinnik on Wednesday after his arrest in a small beachside village in northern Greece on Tuesday, following an investigation led by the US justice department along with several other federal agencies and task forces.

Vinnik was described by the justice department as the operator of BTC-e, an exchange used to trade the digital currency bitcoin since 2011, which was allegedly used to launder more than $4bn for people involved in crimes ranging from computer hacking to drug trafficking.

US authorities also linked him to the failure of Mt Gox, the Japan-based bitcoin exchange that collapsed in 2014 after being hacked. Vinnik obtained funds from the hack of Mt Gox and laundered them through BTC-e and Tradehill, another San Francisco-based exchange he owned, they said in the statement.

Just as new computer technologies continue to change the way we engage each other and experience the world, so too will criminals subvert these new technologies to serve their own nefarious purposes, said Brian Stretch, US attorney for the Northern District of California.

Vinniks arrest is the latest in a series of US operations against Russian cybercriminals in Europe, including the taking down of two of the biggest dark web marketplaces for drugs, guns and other illicit items, AlphaBay and Hansa, last week.

The prosecutions also coincide with intensified scrutiny of Russian hackers after US intelligence officials determined that Russia interfered in the 2016 US presidential election using cyber-warfare methods to help Donald Trump, something Moscow denies.

During his time in the digital currency market, US authorities allege Vinnik facilitated crimes including hacking, fraud, identity theft, tax refund fraud, public corruption and drug trafficking. Greek police described Vinnik as a an internationally sought mastermind of a crime organisation.

BTC-e, which has been out of service for more than a day, attributed this to unplanned maintenance. In a tweet on Wednesday after the arrest of Vinnik, BTC-e said it would restore service in the next five to 10 days.

The exchange is one of the oldest virtual currency platforms. It allows users to trade bitcoin pseudonymously against a variety of fiat and virtual currencies, and is known in cryptocurrency markets as having relaxed standards for checking users identity, and for not collaborating with law enforcement.

Read the rest here:

'Criminal mastermind' of $4bn bitcoin laundering scheme arrested - The Guardian

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Follow this link:

Making Bitcoin work better - The Economist

Information recently surfaced that someone in North Korea has started mining bitcoin. According to Recorded Future, a threat intelligence company, on May 17 North Korea initiated a rather large mining operation. Prior to this date, there was minimal bitcoin node activity in the country.

Also Read:Indian Multi-Industry Survey Shows 97% Awareness of Bitcoin

The website said, Before that day, there had been virtually no activity to Bitcoin-relatedsites or nodes, or utilizing Bitcoin-specific ports or protocols. Beginning on May 17, that activity increased exponentially, from nothing to hundreds per day.

The website explored an intricate theory about why North Korea began mining bitcoin. They made a connection between the bitcoin mining start date and the timeline of the Wannacry ransomware attacks in May. The ransomware effectively encrypted over 75,000 businesses computers worldwide, and then asked for a bitcoin ransom in return for access to the files.

Apparently, North Korea started the bitcoin mining process to produce bitcoin activity within the country, so they can stealthily move bitcoin from the ransomware wallets around while preserving deniability of the attacks, according to Recorded Future.

This notion is not the only theory about the origin of Wannacry, though. According to reports from Financial Times and other media outlets, the Wannacry software is linked to the NSA exploits as well as the Shadow Brokers group. In this sense, there is no immediate, clear connection between North Korea and Wannacry aside from the present analysis by Recorded Future. Nonetheless, someone in North Korea is still leading a large scale bitcoin mining operation.

There is still speculation about who is running the operation, but Recorded Future suggests that it is probably government. The website clarified:

It is not clear who is running the North Korean bitcoin mining operations; however, given the relatively small number of computers in North Korea coupled with the limited IP space, it is not likely this computationally intensive activity is occurring outside of state control.

Furthermore, even accessing an Internet connection for common people in North Korea is nigh impossible. The government does not provide access to the worldwide web to many people, unless those individuals are high ranking military or government officials. Most people can only sometimes access the countrys internal intranet, which only has a handful of basic websites. This is another point if why it is probable that State actors in North Korea are running the operation. At this point, no one knows for certain.

Do you believe that North Korean government officials are mining bitcoin? Why do you think they are mining bitcoin? Let us know in the comments section below.

Images courtesy of Shutterstock

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See the original post here:

North Korea Commences Large Scale Bitcoin Mining Operation - Bitcoin News (press release)

Depending on whom you believe, Ted Price of Hatfield is either one of the most audacious cybercriminals to hit the internet in almost a decade or a drug-addled fabulist with delusions of grandeur.

Federal investigators and the unemployed 30-year-old himself say he pulled off one of the largest bitcoin thefts in the short history of the supposedly fraud-proof virtual currency, stealing the equivalent of nearly $50 million.

He also claimed, during a rambling confessionto Homeland Security investigators July 12, to have developed hacking exploits for use by foreign governments and to have plotted his escape with the use of a fake passport and a private jet.

But his lawyer and family contend that the jet-setting expert hacker described in the story Price spun for investigators bears no resemblance to the man they know a jobless addict who they say still relies on his parents for gas money and who was high on oxycodone and other opioids at the time of those damning admissions.

On Thursday,both sides will ask a federal judge to weigh in on the likelihood that Prices claims are true in a hearingin what could become one of the regions most significant cybercrime prosecutions in years one that already has drawn interest from cybersecurity experts.

If this guy actually did what he said he did, thats breathtaking, said Edward McAndrew, a former federal cybercrimes prosecutor who now helps to lead Ballard Spahrs privacy and data security group. If he could actually pick the bitcoin wallets of this many people, that really calls into question the security of the system.

Yet there is reason for doubt, his lawyer Catherine C. Henry said at a hearing in federal court in Philadelphia last week chiefly, that the man who contends he has access to currency worth millions and a private jet to aid his escape initially came to the attention of authorities as a suspect in a string of petty thefts.

An Inquirer and Daily News review of Prices history in various online forums for bitcoin enthusiasts and hackers reveals that his screen name, cited in court filings, had relatively little activity in those worlds prior to this spring. It is possible, however, that he used other online monikers in the past.

If he is a millionaire and has a private jet, then of course hes a flight risk, Henry said in court last week while arguing for her clients release. But if thats made up and if, on the other hand, he has no income, lives with his parents, and has a 7-year-old child, then these are just grandiose statements.

Police in Northampton Township, Bucks County,began probing Prices background earlier this month after the parents of an ex-girlfriend accused him of stealing two laptops and a gold necklace from their home.

Officers later recovered the missing items from various resale shops where Price had sold them, according to the arrest affidavit filed in his case. His ex-girlfriend discovered the evidence of his alleged cybercrimes including 105 printed pages listingstrings of alphanumeric code later identified as bitcoin keys in two laptop bags she retrieved from Prices family condo when she went to confront him, the affidavit said.

Authorities concede that theyre not yet sure whether Price has the ability to access the bitcoins he claims to have stolen.

Although they initially charged him July 13 with one federal count tied to his alleged bitcoin thefts, they later withdrew the charge and refiled the case based on charges tied to dozens of stolen credit card numbers also found in Prices laptop bag that he said hed bought from hackers on the dark web.

Investigators say theyve been unable to verify Prices story in other ways, including locating the fake passport Price claimed he obtained to flee the country under the name of Jeremy Renner, an actor he says he admired after seeing him in the 2012 Marvel movie The Avengers.

And yet, said Assistant U.S. Attorney Lesley Bonney, the investigation continues and additional charges could be added by the time Prices case goes before a grand jury.

Most people dont carry around hundreds of pages of bitcoin keys with them, she said at court hearing July 19.

Bitcoin, a decentralized, virtual currency existing entirely on the internet, quickly drew adherents after its debut in 2009 because it enables anonymous transactions untethered to third-party banks.

The system relies on what experts have described as a fraud-proof public ledger, known as a blockchain, that records every confirmed bitcoin transaction and provides a foolproof way to track currency assigned to the bitcoin wallets ofusers.

A users accesses his or herbitcoin with two strings of complex alphanumeric codes a public key, similar to a bank account number, and a private key, akin to a password or signature that allows the money to be spent or exchanged to a physical form of currency. At the current exchange rate, onebitcoin is worth about $2,600.

But the same qualities that make bitcoin attractive to users have made it a prime target for scammers. Unlike major banks or credit cards, nearly all of which offer some form of fraud protection, bitcoin transactions are irreversible. And although victims of theft might be able to track their stolen funds through the public ledger of the blockchain, the anonymity built into the system makes it nearly impossible to identify the thief.

Price, according to court filings, told investigators earlier this month that he developed a malware program that would surreptitiously divert bitcoins into his own wallet by disrupting the transactions of other users. With the program substituting his own bitcoin keys for those on either end of an exchange, he managed to funnelbetween $40 million and $50 million into bitcoin wallets under his control, he said.

Because the bitcoin wallet address [was] a legitimate address, the user[did] not realize that bitcoin transaction [was] being diverted into a wallet other thantheirs, wrote Emily J. Evans, a special agent with Homeland Security Investigations, in the affidavit drafted for Prices arrest.

Yet now,two weeks after investigators took Priceinto custody, even hisfamily seemsuncertain what to believe. Most of his close relatives either did not respond or declined to respond to requests for comment.

But during a brief conversation outside the condo where he lived with his son, Prices father, Samuel Price Sr., appeared conflicted.

Its all hearsay, he said when approached by a reporter. The truth will all come out in open court.

Then the elder Price paused.

Did he do what they said, as far as those bitcoins? Probably, he said. But I guess theyre still trying to figure it all out.

Published: July 26, 2017 12:36 PM EDT | Updated: July 26, 2017 12:39 PM EDT

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Feds: Jobless Montco man is no bit player in $50M bitcoin theft - Philly.com

Bitcoin fell to its lowest in five days Tuesday amid uncertainty over whether the digital currency will still avoid a split.

Bitcoin dropped more than 10 percent to $2,487.13, its lowest since last Thursday when it hit a low of $2,276.16, according to CoinDesk.

The digital currency last traded just below $2,500, unchanged for the month but still more than double in value for the year.

Bitcoin one-week performance

Source: CoinDesk

Last Thursday, more than 80 percent of developers signaled support for BIP91, a bitcoin improvement proposal intended to resolve differences between the Aug. 1 User Activated Soft Fork and SegWit2x.

Now, there's worry that activation of SegWit2x might not go smoothly.

"I believe the market is currently somewhat torn between the optimism around BIP 91 locking in, which could lead to SegWit activating if all goes smoothly, and the fear of the second half of SegWit2x proposal, the 2MB block size hard fork, still being contested," Alex Sunnarborg, research analyst at CoinDesk, told CNBC in an email.

Developers must unanimously agree on the 2MB block size by its scheduled November implementation, otherwise bitcoin will split.

Read this article:

Bitcoin slammed by more than 10% to below $2500; Ethereum down big too - CNBC

Greek police have arrested one of the central figures in the Bitcoin exchange BTC-e on suspicion of money laundering. Russian citizen Alexander Vinnik was arrested in Greece at the request of US law enforcement, according to a Reuters report.

The BTC-e exchange has long been a favorite of criminals, as its headquarters in Russia places it outside the reach of US and European law enforcement. Recent Google research found that 95 percent of ransomware cash-outs occurred through the BTC-e exchange, although its unclear whether the exchange itself would be liable for those payments.

Those payments have made BTC-e one of the largest bitcoin exchanges, regularly handling more than 3 percent of total Bitcoin transactions. The exchange has been down since Tuesday evening.

Our chief suspect for involvement in the Mt Gox theft

The charges against Vinnik are still sealed, and are likely to remain sealed as prosecutors attempt to extradite him to the US. However, law enforcement officials indicated that as much as $4 billion is suspected to have been laundered through the platform.

Some analysts also believe Vinnik is connected the massive theft that brought down the Mt Gox bitcoin exchange in 2014. In a report released shortly after the arrest, the security firm Wizsec described Vinnik as our chief suspect for involvement in the Mt Gox theft (or the laundering of the proceeds thereof). Analyzing transactions on the blockchain, the group claims to have seen the proceeds from several high-profile Bitcoin thefts pass through wallets listed under Vinniks name.

Mt Gox was the most popular exchange of early Bitcoin users, until it was revealed to be catastrophically insolvent as a result of a long-running theft, which made off with as much as $400 million in bitcoin. The culprit has never been identified, and has remained a subject of intense speculation throughout the bitcoin community.

Early analysis of the theft indicated the crucial compromise occurred as early as 2011, with subsequent withdrawals going unnoticed until years afterward. BTC-e was founded in July 2011.

Sarah Jeong contributed additional reporting to this article.

View original post here:

Bitcoin exchange chief arrested amid new questions about Mt Gox theft - The Verge

It's a hedge fund savvy enough to have scooped up Bitcoin when it was free. One of its founders is the well-known CEO of AngelList, Naval Ravikant . It's backed by a roster of Silicon Valley's top venture capital firms, and boasts returns of more than 500%. And you've probably never heard of it.

Meet MetaStable Capital, a stealthy startup hedge fund based in San Francisco that invests only in cryptocurrencies such as Bitcoin and Ethereum. Since its launch in September 2014, MetaStable has delivered such eye-popping performance that it apparently lets the numbers mostly speak for themselves; it shuns publicity and never announced its recent fundraising round.

Still, Fortune has learned many of the details. In the spring, Andreessen Horowitz, Sequoia Capital, Union Square Ventures, Founders Fund and Bessemer Venture Partners all invested in MetaStable, according to several of the VCs and other people close to the fund.

Notably, it's only Sequoia's second investment in a blockchain-related company in that venture capital firm's 45-year history; the first was earlier this year, in Polychain Capital , in a $200 million round in which Andreessen, Union Square Ventures and Founders Fund also participated.

In contrast to MetaStable, though, Polychain has been much more welcoming of press (its founder, Olaf Carlson-Wee, is on the cover of Forbes ' latest issue). It also differs in its strategy: Whereas Polychain specializes in investing in other blockchain companies through what's known as an initial coin offering (or ICO)an investment style that has been likened to venture capitalMetaStable invests directly in digital currencies that it believes could become a new form of money.

Now, MetaStable owns about a dozen different cryptocurrencies, including Bitcoin (which one of the fund's co-founders, Lucas Ryan, originally received for free in 2011), Ethereum, and Monero (of which the fund holds nearly 1%, or about $6 million worth, of all outstanding coins), according to a pitch deck seen by Fortune.

Josh Seims, MetaStable's third co-founder, says the fund takes a value investing approach, "sort of what you imagine a Warren Buffett doing, but its kind of oxymoronic to use these terms in the space because everything is so ephemeral." An example in the pitch deck illustrates the fund's skill in "Bitcoin crisis investing," a Buffett-like concept of investing when others are fearful: When Bitfinex, a major cryptocurrency exchange, was hacked last summer, the price of Bitcoin swiftly plunged more than 20% to under $550, and MetaStable took the opportunity to double its Bitcoin position within the next few hours. The price of Bitcoin has since more than quadrupled.

Rather than try to time the market or buy into the newest blockchain trend, MetaStable looks closely at the real-world use cases of various digital currencies, and aims to make at least decade-long bets on the most "credible candidates," Seims tells Fortune . "There's a handful of, say between five and 10 of these major use cases that could be trillion-dollar blockchains," he says. "Its all very long-term focused, and we think were in super early days right now. It really comes down to which do we think is the strong enough technology, that we think can win." (So far, MetaStable has also exhibited an edge in dodging some of the duds: It skipped The Dao's token offering last year, correctly predicting that it would be hacked; and also steered clear of the cryptocurrency Steem, which has largely turned out to be a flop.)

Through mid-March, MetaStable's flagship fund had returned 539% over its short lifetime, including 86% in the first two-and-a-half months of 2017 (a time period in which the Bitcoin price was up almost 28%).

Since then, though, Bitcoin and Monero have each more than doubled; Ethereum, meanwhile, is worth more than five times what it was four months ago. (Year to date, the Ethereum price has risen more than 2,300%.) That means that MetaStable's returns are actually much, much higher than the ones listed in its March presentation documents. A person close to the fund simply says it has "vastly outperformed Bitcoin;" that puts its 2017 returns at a minimum of 170% and likely far greater. Fortune estimates that MetaStable's returns since its inception now exceed 1,000%.

One caveat is that the fund is likely relatively small by hedge fund standards, which makes it somewhat easier to post outsized return figures. Still, in the fledgling industry of cryptocurrency hedge funds, MetaStable appears to be one of the heavyweights. A recent Forbes report listed its assets at $45 million, but that was before the recent surge in cryptocurrency prices over the last few months. MetaStable's portfolio more than doubled in value in May alone, according to a source close to the fund; on June 23, after a Bitcoin and Ethereum price crash , the hedge fund reported total assets of $69 million in a regulatory filing.

It's not clear how much of those assets are venture capital dollars; typically, when VC firms invest in other funds (the startup accelerator Y Combinator, backed by Sequoia, is one prime example), they can choose to invest in the company itself (or "general partner") or in the actual fund that company manages, or both. In the case of Polychain, for one, Union Square Ventures said it backed the firm but also put some money into the hedge fund.

The abundance of capital is also enticing a slew of other cryptocurrency hedge funds to test the waters for themselves. According to Hedge Fund Alert , there are at least 15 such funds already up and running, but as many as 25 more are in the works.

Investors should expect similar restrictions and high fees as the ones that exist with traditional hedge funds: MetaStable requires a minimum investment of $1 million, and has a "2 and 20" structure for one of its funds, charging a management fee of 2% of assets, and a performance fee of 20% of the profits. A riskier fund has a 1.5% management fee and a 25% performance fee.

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Sequoia and Andreessen Horowitz Are Secretly Backing This Cryptocurrency Hedge Fund - Fortune

Bitcoin Cash could easily dissolve into irrelevance the level of support for it is still unclear but the concrete plans to move forward have underscored, once again, how hard it is to govern a decentralized, open-source technology like Bitcoin with no single set of leaders or ownership.

In the long run it will be forced to develop some real political structure to take these kinds of decisions, but it just isnt there yet, so the result has been chaos, said Joseph Bonneau, who has studied Bitcoin and is a fellow at the Electronic Frontier Foundation, which describes itself as a nonprofit defending digital privacy, free speech and innovation.

The Bitcoin divide is part of a wider splintering of the world that has sprung up around virtual currencies.

Many people who initially got excited about the unique technology behind Bitcoin have taken advantage of the public, open-source nature of the technology and created their own new virtual currencies, like Ethereum, Ripple and Litecoin. These other systems run according to different rules than Bitcoin, with some emphasizing more speed and complexity, and some more focused on anonymity and security.

The divisions have, if anything, increased the excitement and the value of all the virtual currencies in the world and banks and governments have announced their own projects to harness the technology.

The price of Bitcoin has recently been at record highs, near $3,000, and several other coins have grown to be worth billions of dollars on their own. A whole class of companies have raised money in recent months by creating and selling their own new digital tokens.

Until now, though, Bitcoin has remained the most valuable digital token of them all, and it has kept its followers united by a single set of rules, despite all the warring behind the scenes.

The divisions, though, appear to have grown too stark to keep everyone on the same blockchain, as the ledger of all Bitcoin transactions is known.

Mr. Ver has been one of the leaders of a contingent that has long wanted to change the rules governing the Bitcoin network so that it can handle more transactions and compete with the likes of PayPal and Visa.

Bitcoin Cash is set to increase the limit on the number of transactions that can be processed by the Bitcoin network every 10 minutes. Currently, the network can process only blocks of transactions that are smaller than one megabyte, which allows for roughly five transactions in a second.

The move to increase the size of the so-called blocks, though, has run up against intense opposition from the programmers who maintain the Bitcoin software.

These programmers, known as the core developers, have said that increasing the amount of data included in each block of transactions would make it harder for individual users to process the blocks and easier for a small number of companies to take control of the Bitcoin network.

It destroys the Bitcoin ethos, which is open and permissionless, where nobody is telling you what to do, said Samson Mow, the chief strategy officer at Blockstream, a company that employs some of the most prominent core developers.

The core developers have come up with their own solution to increase the number of transactions flowing through the system with software known as Segregated Witness, or SegWit. Mr. Ver and others, though, have said SegWit does not expand Bitcoin fast enough to keep up with its recent growth in popularity.

The arguments have given way to vicious mudslinging and hacking attacks against the leaders on both sides, leading some prominent developers to leave the project.

Proponents of increasing the block size, like Mr. Ver, have put forward proposals in the past that have failed to garner majority support in the community, in part because of concerns about the sophistication of the programmers working on the projects.

But the big block camp has not, until now, announced a definite plan to split off from the rest of Bitcoin.

While Bitcoin Cash will not exist until next week, a small number of exchanges have begun trading futures contracts, tied to the expected price of Bitcoin Cash. On Tuesday, it was trading around $450, or a fraction of the $2,600 value of an ordinary Bitcoin.

As recently as last week, it appeared that the major Bitcoin players had found a compromise that would avert a split in the network, or a fork as it is known in Bitcoin world.

Many of the largest Bitcoin companies agreed in May that they would install the SegWit software the core developers created, while also moving toward a doubling of the size of each block of transactions, to two megabytes, in November.

The largest Bitcoin processors had signaled last week that they intended to begin running the new software on Aug. 1. But the developers have suggested that they do not intend to move forward with any increase in the size of the blocks in the coming months.

One of Mr. Vers many investment holdings, Bitcoin.com, announced on Tuesday that it would put all of its resources behind Bitcoin Cash if the block size has not been doubled by November.

To gain traction more broadly, Bitcoin Cash will have to win backing from the broader community of so-called Bitcoin miners.

Bitcoin miners are best known for using specialized computers to unlock, or mine, new Bitcoins. But miners also process Bitcoin transactions and have voting power over any changes to the Bitcoin network in direct proportion to the amount of computing power they dedicate to the network.

Most of the largest mining operations are now in China, thanks to the availability of cheap hardware and electricity.

One significant Chinese mining operation, ViaBTC, has been an outspoken supporter of Bitcoin Cash and has said it will begin backing the system next week.

The largest Bitcoin mining operator in the world, a company known as Bitmain, is a primary investor in ViaBTC. That has led many in the Bitcoin world to expect that Bitmain will also provide backing to Bitcoin Cash. But Bitmain has so far said only that it does not rule out supporting Bitcoin Cash.

When Bitcoin Cash comes into existence, every current holder of Bitcoins will have access to an equivalent amount of Bitcoin Cash, but from that point forward the two systems will diverge.

In the coming weeks, Bitcoin enthusiasts on all sides of the debate will be watching closely to see which big Bitcoin companies offer support for people who want to hold, trade and mine Bitcoin Cash.

A version of this article appears in print on July 26, 2017, on Page B1 of the New York edition with the headline: Some Bitcoin Backers Defect To Create a Rival Currency.

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Some Bitcoin Backers Are Defecting to Create a Rival Currency - New York Times

Bitcoin still has a lot to prove.

As the debate rages on whether bitcoin is a legitimate currency or just imaginary money, one Wall Street analyst stripped down the argument to three simple parameters safety, liquidity and return.

These attributes are the hallmarks of reserve currencies like the U.S. dollar, the euro or gold, according to Bank of America Merrill Lynchs head of global commodities and derivatives research, Francisco Blanch.

For now, bitcoin BTCUSD, -3.66% falls short in making the cut even though it is gaining in popularity among a certain class of investors who believe the cryptocurrency will soon come out of the shadows and claim its rightful place as a legal tender.

See story: SEC concludes initial coin offerings are securities

Safety

Of the three criteria, safety remains the biggest problem as the absence of a central governing authority not only makes the digital currency more vulnerable to chaos but also susceptible to hacking, identity theft and fraud, according to Blanch.

Other issues more specific to the functioning of cryptocurrencies, such as finding an agreement regarding the adoption of certain protocols, are also worth mentioning. For example, should bitcoin split into two digital tokens because miners cannot find common ground, a collapse in confidence and value could follow, writes Blanch.

Bitcoins value nose-dived earlier in July on fears that a possible split could result in multiple versions. That event was averted last week, but investors are now bracing for what is known as a hard fork, which will lead to a splinter blockchain.

Read: Bitcoin, digital currencies retreat from records

The volatile nature of the cryptocurrency also undermines its credibility.

Volatility is the key parameter to understand the concept of safety in a reserve currency, in our view, he said. In that regard, bitcoins score has improved in recent years as volatility has continued to drop.

Even compared to emerging market currencies, bitcoin is viewed as extremely volatile. Some of that, according to Blanch, may be due to the fact that many of these countries China, Malaysia, Pakistan, Philippines and India have repressive capital controls in place.

Nonetheless, as the chart shows, on at least two occasions last year, bitcoins volatility fell below silver, which was for some 400 years the worlds currency.

Liquidity

Interest in digital currencies has soared recently with daily trading volume in the cryptomarket jumping to $2 billion today from $400 million in 2012.

For a digital token to become a currency, it must build to a certain scale, said Blanch. In some ways, this is exactly what has been happening in recent quarters, with the total market value of digital tokens growing exponentially from $1.5 billion to around $87 billion at present. Put differently, cryptocurrencies have built scale rapidly and are now accepted as a means of payment by some corporations and individuals.

At last check, companies like Microsoft Corp. MSFT, -0.38% Expedia Inc. EXPE, +1.38% and CVS Health Corp. CVS, -0.61% are among U.S. enterprises accepting bitcoin.

Returns

Unlike reserve currencies, bitcoin does not have an interest rate that is set by a central bank so it is difficult to quantify its returns. It also does not offer much in the way of diversification given its lack of correlation to other major currencies, precious metals, bonds or equities.

Still, bitcoin has offered phenomenal returns in terms of absolute value that few assets can come close to matching.

But exceptional returns do not make for a fiat currency and bitcoins ultimate test will be whether banks will capitulate and accept it as collateral.

Most regulated financial institutions allow their clients to borrow against financial or physical assets, but we are not aware of any major institution that takes cryptocurrency as collateral at the moment. Thus, in our view, a key step for bitcoin would be for it to become pledgeable collateral, said Blanch.

In other words, bitcoin still has a long way to go.

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This is what it will take for bitcoin to become a legit currency - MarketWatch