Bitcoin

By | December 7, 2017

The price of bitcoin has broken yet another all-time high today, crossing the $13,000 line for the first time.

The CoinDesk Bitcoin Price Index (BPI) has posted a high of $13,017.96, representing a gain of more than 10 percent since the day’s open and an overall rise of over $1,300. It also brings bitcoin’s total market capitalization to roughly $217 billion, according to the BPI.

Bitcoin

The move continues the trend reported earlier today when the price of bitcoin posted a $1,000-gain over the course of 24 hours, pushing past $12,000 for the first time earlier today.

At press time, the price of bitcoin is trading at $13,002.44, BPI data shows.

Additional data from CoinMarketCap.com shows that South Korean exchanges continue to trade well above the rest of the market, with Bithumb, Coinone and Korbit reporting trades above $15,000 at press time.

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Bitcoin

By | December 1, 2017

Billionaire investor Carl Icahn has jumped on the bandwagon of those in finance who have recently claimed bitcoin is in a bubble.

The business magnate and founder of Icahn Enterprises told CNBC that the cryptocurrency “seems like a bubble” and that he didn’t understand the hype around bitcoin.

Bitcoin

Icahn stated:

“I got to tell you honestly, I don’t understand it … I just don’t get it. I just stay out of something if I don’t understand it.”

The investor further compared the bitcoin market to 18th-century Mississippi land bubble before it finally collapsed. “To me, this is what this is,” he said.

His comments follow similar comments from investor Warren Buffett in October, describing bitcoin as a “real bubble“. Buffett said at the time, “People get excited from big price movements, and Wall Street accommodates,” while criticizing the idea of applying a value to bitcoin.

Additionally, Credit Suisse CEO Tidjane Thiam stated last month that bitcoin is “the very definition of a bubble,” calling the anonymity of the cryptocurrency a “challenge.”

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Bitcoin

By | November 30, 2017

The former chief economist of the World Bank wants bitcoin banned.

“Bitcoin is successful only because of its potential for circumvention, lack of oversight,” Joseph Stigliz, currently a professor at Columbia University, said in an interview on Bloomberg Television today, as the cryptocurrency reached new all-time highs this week.

Bitcoin

Because of this, he added:

“So it seems to me it ought to be outlawed. It doesn’t serve any socially useful function.”

However, Stiglitz, who also chaired the U.S. President’s Council of Economic Advisers during the Clinton Administration, said he does support technological innovation in payments, but thinks digital money should still be fiat created and controlled by the government.

“Let’s move away from paper into the 21st century of a digital economy,” he said.

Like many other members of the Davoisie, Stiglitz – who won the  Nobel Memorial Prize in Economic Sciences in 2001 – called the run-up in bitcoin’s price unjustified and unsustainable.

“It’s a bubble that’s going to give a lot of people a lot of exciting times as it rides up and then goes down,” he said. “The value of a bitcoin today is expectations of what the bitcoin is going to be tomorrow.”

And even though bitcoin is a decentralized network, with participants scattered around the globe, Stiglitz seemed to think Washington could easily nip it in the bud.

“If the government says ‘the reason bitcoin is being used is circumvention,’ they could close it down at any moment,” he said. “And then it collapses.”

You can watch the clip here:

Joseph Stiglitz photo via Wikimedia Commons.

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Bitcoin

By | November 20, 2017

Bitcoin’s price rose above $8,100 for the first time on Sunday.

Data from CoinDesk’s Bitcoin Price Index (BPI) indicates that the price climbed to $8,101.91 between 20:00 and 20:15 UTC. This move came after bitcoin – which toed the $8,000 line during Friday trading – crossed that threshold several hours earlier.

Bitcoin

That the price of bitcoin would surge above this height was in the cards last week, as was suggested by analysis at the time. Conversely, last week saw some dramatic movements on the price front, with markets dropping below $6,000 only to recover days later. Market commentary throughout the week was led, in part, by speculation around pending futures product launches and interest among institutional investors overall.

Indeed, the move confirms a possibility floated by analysts from investment bank Goldman Sachs earlier this month. The firm’s analysts have published several forecasts since earlier this year, notably predicting some of the developments seen over the summer.

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Bitcoin

By | November 8, 2017

Edan Yago is CEO and founder of Epiphyte, a startup performing FX funds settlement on the bitcoin blockchain for financial institutions. 

In this opinion piece, Yago discusses one of the biggest theoretical attacks against bitcoin, and why he believes an upcoming software change fits its definition. Follow Edan Yago on Twitter.

Bitcoin

In bitcoin’s Necronomicon of possible attacks and weaknesses, one reigns supreme – the 51% attack.

If there is a fear that has played on people’s minds as the end-of-days scenario for bitcoin, it is this. Attackers who hold more than 50% of hashing power could stop transactions from confirming and even reverse some transactions. They could undermine the whole project.

Bitcoin’s design and its system of economic incentives has been set up specifically to combat the destructive potential of a 51% attack. And it has worked. The 51% attack has remained a hypothetical bogeyman. Until now.

By all indication, a coordinated 51% attack will begin on, or around, Nov. 16. That’s when a consortium of miners representing substantially more than 50% of the network’s hashing power and an allied group of blockchain startups will seek to increase the block size.

This will require a hard fork, which while controversial, is a legitimate desire. In itself, this is not an attack.

Where it goes wrong

However, the consortium‘s effort has evolved beyond a simple fork. It is now being developed not simply as an effort to fork the chain, but to do so in such a way as to deliberately prevent the continued existence of the status quo chain.

Specifically, the developers involved have declined to introduce replay protection.

The 2x fork will create a situation where transactions performed on one fork, can be “replayed” on the second fork. In effect, users will have funds on both blockchains, but any transaction they perform on one blockchain could lead to a loss of funds on the other blockchain.

Replay protection is a fairly easy-to-implement method to protect users from this risk. Network attacks are those actions taken with the intention of disrupting the protocol’s normal functioning. The 2x change, bereft of replay protection, causes massive disruption. This is by design.

Without replay protection in place, a minority chain becomes less likely to survive.

Question of motives

The preferred outcome for the consortium is that the status quo chain ceases to exist, that its transactions fail to confirm.

This is the literal definition of a 51% attack. If it sounds a bit bizarre to call the consortium’s effort an attack, that’s because it is. The consortium comprises many real supporters of bitcoin, acting in what they believe is good faith. They don’t mean to be attacking bitcoin.

However, without replay protection their efforts are like an autoimmune disease, having become overzealous and perverted.

So, bitcoin is finally coming to come face-to-face with the mother of all attacks. This is a watershed moment. The very worst outcomes are bad indeed.

Transactions could grind to a halt, faith in the system could be lost, bitcoin and by extension, the entire blockchain world could prove to be far more vulnerable to attack than we hoped.

We shall overcome

However, there is also another possible, even more likely, outcome.

Bitcoin could prove resilient to the consortium’s attack and emerge battered but unbroken. In so doing, bitcoin will have proven itself resilient to even its greatest foe.

It is hard to overstate how important this will be to bitcoin’s perceived reliability. Bitcoin has always been haunted by the risk that its rules might come to be dictated by special interest groups or hostile, state-sponsored parties.

This risk is never going completely away, but instead of the risk being a hypothetical bogeyman, it will become a much more prosaic thing: a successfully managed risk.

The 51% attack is bitcoin’s boss level. I don’t think it’s an exaggeration to say that we are now at the end of the beginning. If we successfully overcome this coming challenge, bitcoin will no longer be just an experiment, it will be a fact.

But don’t expect less drama — we are now entering bitcoin’s adolescence.

HODL on tight, things will get hairy.

Disagree? Have your say on the Segwit2x debate. Email CoinDesk managing editor Marc Hochstein at marc@coindesk.com to pen your rebuttal.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which helped organize the Segwit2x agreement.

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Bitcoin

By | November 7, 2017

The price of bitcoin has slid below $7,000 just a day after climbing above the $7,600 level.

The turnaround represents a more than $400 decline amid today’s trading, according to data from the CoinDesk Bitcoin Price Index (BPI). As previously reported, prices jumped to an all-new high yesterday before starting to pull back as Monday’s trading got underway.

Bitcoin

The tumble below $7,000 began around 18:58 UTC, according to the BPI, with the market slipping as low as $6,948.57.

At press time is trading at around $6,989.64, a decline of roughly 5.6 percent on the day.

Broader market data indicates that the fall in the price of bitcoin stands in contrast with market developments for other cryptocurrencies.

For example, per data from CoinMarketCap.com, the privacy-oriented cryptocurrency monero’s price is up more than 13 percent in the last 24 hours. Ethereum, the second-largest cryptocurrency by market capitalization, has risen roughly 2.5 percent during the past day of trading.

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Bitcoin

By | November 2, 2017

“The chain will fork, life will go on.”

Pseudonymous Bitcoin Core contributor BTCDrak views bitcoin’s upcoming Segwit2x hard fork – which has a chance of splitting bitcoin into two competing networks – with a bit of boredom.

Bitcoin

And that blase tone seems to resonate with several of bitcoin’s most active developers, even those who were vocally unhappy when the Segwit2x proposal was first unveiled in May. But just a couple weeks away from the fork itself, it appears this outrage has turned steadily into annoyed acceptance.

In short, the contributors to bitcoin’s open-source code are optimistic for a simple reason: they don’t think Segwit2x will succeed in its attempt to become the main bitcoin blockchain.

Against the backdrop over the past few months, in which two hard forks led bitcoin to split into new assets with different developer teams, bitcoin’s long-time developers largely believe neither has come close to surpassing bitcoin by any significant metric.

And they don’t expect differently from Segwit2x.

While the group behind the effort has secured the support of a number of startups and mining pools, they argue there’s not much of a difference in the support as compared to previous forks. Though the next fork has yet to occur (it’s expected in mid-November), they already see Segwit2x as a blip in bitcoin’s history.

BTCDrak told CoinDesk:

“Miners will continue to mine bitcoin.”

No more compromise

And other developers feel similarly.

Blockstream CEO Adam Back and Bitcoin Core contributor Eric Lombrozo claim they tried to be diplomatic when the proposal was first unveiled in June, arguing they wanted to work with those supporting Segwit2x to come to a scaling agreement.

Back explained that he sincerely wanted to “build on the proposal,” although he advocated for a longer hard fork timeline and a specific hard fork mechanism.

Yet, both are less willing to compromise as the hard fork date inches closer.

Central to this sentiment is that, ultimately, developers think Segwit2x will fail because the way it’s implemented goes against how bitcoin is intended to work – that, and because it tries to push through a change that doesn’t have broad support.

As a result, developers contend that the group is using a centralized strategy to drive decision-making on a decentralized network.

“I was hopeful that the intent of this whole thing was to activate SegWit and then work together, as a community, on building consensus for further upgrades in the future,” Lombrozo said. “Instead, it turned into a coup.”

Back voiced similar concerns.

“It sets a very bad precedent that a small group of CEOs can get in a hotel room and make a pact that they then try to impose on bitcoin. That is no longer bitcoin.”

And with that, both developers believe the proposal will die by its own hand.

Tale of two bitcoins

But before it dies – or launches – crypto investors are trading on the possibilities.

Future versions of bitcoin (should bitcoin remain whole after the fork) and a new Segwit2x bitcoin (should the hard fork create a new coin) are trading on a handful of exchanges. And it seems developers believe this sheds light on events to come.

According to Back, the price of the Segwit2x coins – trading at about 14 percent of the price of bitcoin currently – is a sign of just how successful the cryptocurrency will be.

Back continues, pointing out that this is just about the same percentage that bitcoin cash coins were trading at before it launched via a hard fork of bitcoin in August.

“Investors will sell Segwit2x [coins] in droves,” Back claimed.

And he can say that because he’s offered to sell his own bitcoin for the new Segwit2x coin at a series of different swap rates, starting with a 1-to-1 rate.

“When [investors] didn’t buy that, I offered a 3-for-2 swap, and now I am offering a 2 -for-1 swap – a chance to double their [Segwit2x coin] holdings,” he said. “None of them bought. So, clearly, they do not have commitment, nor belief in what they are saying.”

Still, many Core developers believe the Segwit2x hard fork will result in another cryptocurrency.

And while many bitcoin users and investors see previous forks as a net positive (since they were effectively airdropped free money) Lombrozo hopes something else will come out of the process.

Summing up his feelings, Lombrozo displayed almost a sense of exhaustion.

He told CoinDesk:

“The whole thing is stupid, I just hope this serves as a good lesson for everyone on how not to do these things.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which helped organize the Segwit2x proposal, and has an ownership stake in Blockstream. 

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Bitcoin

By | November 2, 2017

The price of bitcoin has reached yet another all-time high this week, rising past $6,600 for the first time.

Markets hit an average high of $6,629.00 around 16:34 UTC, data from the CoinDesk Bitcoin price Index (BPI) shows.

Bitcoin

The market ramp came hours after CoinDesk’s Bitcoin Price Index reported a first-ever high of $6,500 on November 1, pushing the total market capitalization of Bitcoin to over $110 billion.

Recent price advances have increased the share of bitcoin’s market capitalization compared to the rest of the cryptocurrency ecosystem. According to the data from CoinMarketCap, bitcoin accounts for nearly 60 percent of the entire $183 billion cryptocurrency market.

As of press time, the price had fallen back below $6,600, trading at around $6,579.

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Bitcoin

By | October 31, 2017

The price of bitcoin has hit a new all time high, crossing the $6,300 mark for the second time this week.

According to data from the CoinDesk Bitcoin Price Index (BPI), the price has reached $6,341.10. On Oct. 29, the price of bitcoin rose to $6,306.58, a move that came just over a week after markets moved above $6,000 for the first time.

Bitcoin

Markets, the data shows, have consistently traded above this level since Oct. 29. Overall, the price is up more than 500 percent since the start of the year, having begun the year just below $1,000.

Today’s climb also represents a gain of more than $200, per data from the BPI, bringing bitcoin’s market capitalization to roughly $106 billion.

At press time, the price of bitcoin is trading at $6,330.85, a gain of about 3.4 percent on the day.

The other top-10 cryptocurrencies (by market capitalization) have seen mixed results in terms of trading today, including bitcoin cash, which is down more than 4 percent at press time. The cryptocurrency’s price has been trending down in the run-up to a planned technical change.

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Bitcoin

By | October 13, 2017

Bitcoin hit a new record high of $5,856 on CoinDesk’s Bitcoin Price Index this morning, but the question everyone will be asking is, can the rally continue?

At press time, bitcoin is trading at $5,610 levels, as per CoinMarketCap data. Bitcoin’s week-on-week performance of over 28 percent (up more than $1,200,) is double S&P’s year-to-date gains of 14 percent.

Bitcoin

Further, the cryptocurrency is up 96 percent from its Sept. 15 low of $2,980, and, on a year-to-date basis, is up almost 500 percent.

Following a rally of such astonishing proportions, it would be quite logical to assume bitcoin prices will trade sideways, or witness a healthy pull-back in the short run

The price action analysis indicates that bitcoin could find a short-term top in the range of $5,800-$6,000.

Daily chart

The daily chart shows that:

Bitcoin’s price suffers a corrective pull back every time the stochastic and the relative strength index (RSI) signal overbought conditions (marked by hand sign and red circles on the chart). The stochastic oscillator is a chart analysis indicator that helps determine where a trend might be ending.
The trend line drawn from the July 16 low and Aug. 22 low and extended further is seen offering resistance around $6,100 levels.
Though overbought, the RSI is still rising. Meanwhile, the stochastic is looking to retreat from the overbought territory.
A technical correction would gather pace once the RSI starts losing altitude.

View

A short-term consolidation around $5,800 or brief spike to $6,000 followed by a short-term pull back to $5,000-$5,300 looks more likely.

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Bitcoin

By | September 21, 2017

When the price of bitcoin plunges — as it did last week — seasoned investors are caught in a market that doesn’t exactly have the mechanisms they’re used to.

Case in point, hedging long positions, is today a difficult prospect. Unlike most traditional stocks, where investors can open a margin account with their broker that allows them to short most shares, the tools in bitcoin are few and far between.

Bitcoin

Yet, while some see betting big on bitcoin as a gamble in and of itself, a new casino-like exchange type is filling the gap for those seeking to bet – or otherwise prepare for – the cryptocurrency’s drops.

Enter parimutuel betting pools.

Far from a familiar term, it’s nonetheless an important one should traders want to know what they’re buying into. In simple terms, parimutuel pools are a way of speculating on the future price of cryptocurrencies without actually owning the coins themselves.

Or as Lanre Sarumi, CEO of Level Trading Field, which last month launched parimutuel pool Bitcoin Market Predictor, told CoinDesk:

“Parimutuel [betting] is a group of people essentially predicting something, and the person with the most accurate prediction wins.”

Yet, their structures can differ dramatically. One might look more like a cryptocurrency Powerball, while the other is an intense derivatives exchange touting triple-digit leverage.

While their use for short exposure is a bit underdeveloped, more investors are participating in these pools – knowingly or not – to fill the gap.

And if they’re not aware of the limitations and risks involved, they could end up surprised – after all, parimutuel betting isn’t the most sophisticated structure for providing short exposure.

A simple game

Lanre’s Bitcoin Market Predictor, what he calls a “game of skill,” is the latest evidence that parimutuel pools could add some cushion to the cryptocurrency market’s lack of shorting options.

But while theoretically it gives users the ability to bet on bitcoin’s price dipping, the rules of the game are strict, allowing only groups of 10 to bet on the price of bitcoin only 60 minutes in the future. The three players with the most accurate predictions, whether the price is up or down, split the money from the group’s betting pool, so at $50 per player per round, the most an investor can make off their prediction is $225.

Obviously, this presents problems for serious retail investors, since the price of bitcoin (which they might hold) could drop substantially, and all they’ve done is make $225 at most betting that it would.

And if three other players predict closer to the actual price, an investor loses even the money they put in the pot.

In this way, Level Trading Field’s parimutuel pool is less a sophisticated way to short bitcoin, and more an enticing platform for those interested in gambling, and only gambling on bitcoin.

Still, the latter limitation could be especially important in today’s cryptocurrency market, since in early August all bitcoin investors got equal parts of another cryptocurrency, when a group of enthusiasts split from bitcoin’s blockchain creating bitcoin cash.

After all, if free money is being given out to bitcoin holders, it isn’t exactly to the investors benefit to be caught in a limited short position.

Moral hazard

The bitcoin-only limitation carries over to the other end of the parimutuel betting pool spectrum with BitMEX’s full-blown derivatives exchange.

The high-octane exchange is run by former Citigroup trader and ferocious bitcoin bull Arthur Hayes, who told CoinDesk its 100 times leverage was not only its differentiator, but its sex appeal. Traders come to BitMEX wanting to place high-powered bets with very little money down. But, clear that kind of colossal leverage isn’t without risk.

Parimutuel betting means that one trader’s gains are offset by another trader’s losses — so every dollar you win is offset by a dollar someone else in the parimutuel pool has lost – which creates what Hayes calls “moral hazard.”

And that hazard means if your trades are crushing it on BitMEX, there might not be enough equity in the system to pay out your winning bets.

In a way, it’s like breaking the bank at a casino. If the market makes huge moves too fast, traders with losing positions have those bets closed and sold. And without enough equity in the system to payout on the other side, traders with winning positions will also be closed out early, in essence capping the returns they can get.

To Hayes’s credit, he’s incredibly upfront and transparent about it:

“If you want 100x leverage – which obviously you do, because that’s why you’re here – you accept that we at BitMEX can’t put our balance sheet on the line to settle these contracts.”

Yet, still, candid or not, this risk doesn’t allow traders to get a foolproof short opportunity.

In this way, the market – however mature it’s becoming – is still struggling to offer investors refined mechanisms as they prepare for another possible plunge.

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Bitcoin

By | September 19, 2017

It’s safe to say Friday wasn’t the most stable day for the (BTC/USD) exchange rate.

After news of exchange shake-ups in China triggered a wave of panic selling, prices fell below $3,000 for the first time in months. Overall, this was the lowest total observed on the CoinDesk Bitcoin Price Index since August 5, when a V-shape recovery saw prices rise all the way to $3,875.

Bitcoin

Yet, just a few days later, the price is already back at that level, having gained 33% in three days.

The sharp recovery could be attributed to oversold technical conditions and to the relief offered by news that China’s exchange ban would not impact all forms of cryptocurrency trading.

But while the exact causes are uncertain, it seems safe to say the bad news has already been priced in by the market.

The recovery from the low of $2,980 followed by a bout of consolidation (ongoing) in the range of $3,500 to $3,800 over the weekend and move above the resistance of $3,900 (September 5 low) today further indicates there’s confidence in the current market state.

So, is bitcoin out of the woods?

Price action analysis says bitcoin could be setting up for a solid rally to record highs, the likes of which it saw from mid-July. However, the bulls still need to clear some key technical resistance levels, before claiming victory over the bears.

Daily chart – 100-day moving average support & an oversold RSI

The price action witnessed over the last 48 hours is similar to conditions seen in mid-July, i.e. the dip below the 100-day moving average was short lived as the RSI (relative strengh index) was oversold.

At that time, the market saw a huge breakout, followed by a rally to record high of $5,000.

Still, the daily chart shows back-to-back Doji candles (on Saturday & Sunday), a candlestick pattern which shows indecision in the marketplace. A bullish reversal is confirmed if the Doji is followed by a positive candle. If bitcoin ends on a positive note today, preferably above $3,958 (50-day moving average), a bullish reversal would be confirmed.

If bitcoin ends on a positive note today, preferably above $3,958 (50-day moving average), a bullish reversal would be confirmed.

Outlook

The trend line drawn from September 2 high and September 8 high will offer resistance around $4,250 levels. A break higher would open doors for fresh record highs in bitcoin.

View

A bullish reversal confirmation followed by a break above $4,250 would add credence to the rebound from the 100-DMA and shall boost the odds of the digital currency rallying to fresh record highs above $5,000.
Only a daily close below $3,600 would revive the bearish view.

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Bitcoin

By | September 18, 2017

Australia’s government has introduced a bill that delivers on a long-standing promise to solve a “double taxation” problem for cryptocurrencies.

As it stands today, Australians are potentially liable for goods-and-services tax (GST) when they either purchase or spend a cryptocurrency. This state of affairs has been the target of criticism from the country’s local bitcoin community, and in March 2016, the government announced a plan to resolve the issue by removing the tax at the time of purchase.

Bitcoin

Now, months after unveiling a budget that included the tax cut, Australia’s government has introduced legislation that would, if passed, codify the elimination. In a September 14 statement, the Australian Treasury said that the plan would “cement Australia’s reputation as a global fintech centre.”

The government explained:

“The Bill will ensure that Australians are no longer charged GST on purchases of digital currency, allowing it to be treated the same way as physical money for GST purposes. The law change will retrospectively apply from 1 July 2017, in line with the 2017 Budget announcement.”

The measure was framed as part of a wider effort to promote financial technologies in Australia, including its homegrown cryptocurrency ecosystem.

“The Bill will make it easier for new innovative digital currency businesses to operate in Australia, as the government takes action to boost jobs and wages.”

It’s not immediately clear when the bill will be brought up for debate and potential revision. Australia has a bicameral legislature, meaning that both chambers would need to approve the legislation before it could advance and become national law.

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Bitcoin

By | September 15, 2017

The price of bitcoin fell more than $500 today as market turmoil continues in the aftermath of Chinese exchange BTCC’s trading stoppage announcement.

Bitcoin

The CoinDesk Bitcoin Price Index (BPI) has hit a fresh low of $3,350.17 – roughly $523 down from the day’s open of $3,874.26. When accounting for the day’s price high of $3,923.98, that figure swells to approximately $573.

At press time, the price is at $3,363.25, according to the BPI.

Shanghai-based BTCC announced that it would would cease offering trading services on September 30, citing statements issued earlier this month by the People’s Bank of China and other regulatory bodies in the country. BTCC’s move came just a day after China-based BitKan announced that it would halt its over-the-counter (OTC) trading offering.

The new move downward comes hours after bitcoin’s price fell below $3,500, falling below the 50-day moving average for the first time since July 20.

Many other cryptocurrency markets are experiencing sharp declines today, according to data from CoinMarketCap. Of the top-10 cryptocurrencies, litecoin has seen the heaviest decline, falling in the last 24 hours by more than 24% at time of writing with much of the volume being seen in Chinese exchange OKCoin and Huobi.

The collective cryptocurrency market capitalization has fallen below $120 billion for the first time in a month, per CoinMarketCap, hitting roughly $114.4 billion at press time.

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Bitcoin

By | September 13, 2017

In the coming war between digital currencies, which side will your money be on?

If that question sounds crazy, meet Arthur Hayes, a former CitiGroup trader who runs BitMEX, a Hong Kong-based crypto exchange that allows eye-bulging leverage – up to 100 times – when buying and selling cryptocurrency derivatives.

Bitcoin

Not just another Wall Street veteran, Hayes may also be one of the industry’s biggest bitcoin bulls. It’s a bold claim, but you might agree if you saw his newsletter – a regular synthesis of cryptocurrency news, gangster quotes, GIFs and end-of-the-world premonitions.

In fact, Hayes thinks blockchain is lighting a fuse that will ignite open combat between “true cryptocurrencies” (like bitcoin) and a new “digital fiat” controlled by central banks.

These two parallel currency systems are the inevitable outcome of his core investing thesis:

“A digital society needs digital cash.”

In other words, bitcoin has brought the world cryptocurrency and institutions of all kinds will use the technology to their advantage.

Here’s what Hayes sees shaking out as a result: Governments will respond to the proliferation of cryptocurrency by withdrawing banknotes from circulation, and governments will issue digital fiat that functions similarly to cryptocurrency.

But don’t be fooled, according to Hayes, the similarities here are all on the surface.

Government-controlled digital fiat will be the antithesis of absolutely everything true cryptocurrency stands for. Central bank’s issuance of digital money will lead to a brave new world where governments are able to monitor and control every single transaction in an economy.

And countering that overreach is the reason Hayes believes bitcoin and other cryptocurrencies have a value proposition not just today, but for years to come.

The digital combatants

When Hayes talks about digital money, he sees the scope of battle on a truly global scale, not just within the U.S., but all across Europe, in China and in India.

What all these country’s governments have in common, according to Hayes, is the desire to use digital fiat as a tool of economic control.

He sees digital fiat as an instrument that will allow governments and global central banks to monitor every financial transaction, tax every sale and even lock out people from the payment system if they don’t have the right government-issued licenses.

Shifting digital fiat into cryptocurrency, he reasons, will be the only way to preserve privacy. Plus, cryptocurrency will allow individuals and businesses to trade in jurisdictions where parties don’t trust electronic fiat – or each other, for that matter – because they know cryptocurrencies cannot be tampered with.

Hayes said:

“If you want to have a financial presence – and not have somebody else know what you’re doing at all times – then you’ll use a form of cryptocurrency.”

A form of cryptocurrency that’s true, like bitcoin, zcash, monero or dash, he says, is one that offers users both privacy and security. These currencies, according to Hayes, have no utility other than being used as anonymous e-money.

In his mind, when a coin has additional utility it detracts from its desirability to be used as money since its value can fluctuate outside of what Hayes call its “moneyness.”

One example of a currency that is not money, according to Hayes, is ether, which he says doesn’t qualify as money because of its use case for distributed applications.

Not for the everyday

But there may be limits to the value propositions of even true cryptocurrencies today.

For example, Hayes believes that small value transactions are out of line with a once resounding narrative in the space, that bitcoin is – and should be – a payment system for consumers.

Hayes told CoinDesk:

“I don’t think bitcoin is going to replace consumer facing activities, like buying a cup of coffee or buying a magazine at a 7-Eleven.”

Hayes called bitcoin’s user experience “terrible” for these purchases, because public blockchains are slower than private payment systems. So, for a trip to Starbucks, buying coffee with Apple Pay is a better experience than paying with bitcoin, he contends.

It’s an interesting observation in that many of bitcoin’s strongest proponents tend to envision a world where the cryptocurrency is used for everything. Even still, Hayes is just as bullish on bitcoin, as he continues to reiterate what a fantastic mechanism it is for online international payments and anonymity.

And “those trade flows are massive,” he said.

But despite his bullishness, Hayes doesn’t own any coins personally. According to Hayes, he believes his stake in BitMEX gives him sufficient exposure to the crypto market, since BitMEX’s performance is tied to higher prices and market caps of cryptocurrencies and digital tokens.

Freedom in derivatives

And BitMEX is exactly the kind of exchange you’d imagine a guy like Arthur Hayes would dream up — a wild, intense, leveraged-fueled ride on a derivatives rocket ship that lets traders place high-powered bets with very little money down.

There’s a kind of freedom in derivatives, since they’re not tied to the physical delivery of any asset. Instead, derivatives bets play in a virtual world, where the only limits are the money flowing through the system.

That kind of world clearly appeals to Hayes:

“When you’re in the derivatives space you can essentially create any type of exposure you want.”

And he’s gone for triple-digit exposure, which not only makes his company “sexy” to traders, but also comes with substantial risk.

Such colossal leverage means BitMEX cannot guarantee the settlement of its trades, meaning Hayes can’t tell you for certain that you’re going to get paid out at 100 cents on the dollar on a winning trade. While Hayes and his BitMEX users enjoy this risk, someone new to the crypto space might be more than a little intimidated.

Yet, Hayes believes that’s not reason for swearing off the crypto scene altogether, instead he gives more level-headed advice to newcomers.

“I would tell that person to buy a small amount of bitcoin,” he said, noting that bitcoin is a safer bet than most cryptocurrencies because of its $80 billion market cap.

He concluded:

“Once they are comfortable with that, start doing research and deciding for themselves which coins fit their investment risk profile.”

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Zerocoin Electric Coin Company, developer of zcash.

Portrait image via Arthur Hayes 

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