Bitcoin recovers from year lows as XBT Provider tracker fund launches in US

Bitcoin has taken a hammering on the back of dashed ETF hopes but the positive background music of institutional adoption is still in place, writes award-winning cryptocurrency writer Gary McFarlane.

Bitcoin has had a tumultuous couple of weeks. Hopes of a sustained bullish breakout have melted away with the cryptocurrency at one stage pushed below $6,000 for the first time since November last year.

The downtrend has been re-established as the delay in the approval process for the VanEck Solid X bitcoin exchange traded fund (ETF) takes the wind out of the sails of bulls.

Although there has been no uplift in prices resulting from the Turkish Lira crisis and the contagion effect in other emerging markets, interest in bitcoin has ticked higher in Turkey. 

For example, a 42% increase in traffic to bitcoin.org is accounted for by interest from Turks, presumably looking to send capital out of the country as they watch the value of the lira drop. 

The recent price action has undermined crypto's perceived strength as an asset class uncorrelated to equities and as a safe-haven diversifier for investment portfolios.

Arthur Hayes, the co-founder and chief executive of BitMEX exchange, predicted that the recent climb in the bitcoin price to $8,000 was premature and that revisiting of the $5,000s was likely and welcome as a confirmation of the market bottom.

However, bitcoin has repaired some of the eye-watering damage and is currently trading at $6,492. Bitcoin has also grown in its dominance of the crypto asset space, accounting for 52.9% of market capitalisation.

Misplaced and unrealistic expectations of the imminent approval of a bitcoin ETF by the US Securities and Exchange Commission (SEC) has undoubtedly contributed to the market’s undoing. 

Exchange traded note to the rescue

However, it is with regard to those very same expectations that the new firmness in the bitcoin price can be attributed. Although no ETF has been approved, an exchange traded note (ETN) – an unsecured debt instrument –  already popular in Europe is now available to retail investors in the US.

The XBT Provider Bitcoin Tracker ETN is listed on the Swedish Stock Exchange and is denominated in Swedish Krona, euro and now the US dollar. US investors will now be able to gain exposure to crypto through a regulated vehicle that can be held in pension accounts and bought and sold as readily as equities.

XBT Provider also has an Ethereum tracker but it is not yet available in the US.

The XBT ETN may go some way towards calming the SEC’s fears about the lack of depth in the market and regulatory protection for investors, which in turn could help it to take a more favourable view on a possible bitcoin ETF.

Ethereum and Ripple meltdown as tokens tank

The precipitous collapse in the price of many tokens, especially lower down the market cap league table, may be leading to panic selling by blockchain project teams that see their development funds being whittled away. 

That, and the typical weeding out that takes place in bear markets and the preponderance of retail investors in the market, adds to the market fragility, notwithstanding continuing positive news flow on adoption and institutional interest.

The divergence between bitcoin and the top alts is widening, with Ripple and Ethereum two prominent victims.

The pedestrian pace of development on the Ethereum network, with software upgrades such as Casper to implement proof-of-stake on the Ethereum blockchain to speed up transaction times, is taking the shine off.

Additionally, the spamming of the Ethereum network with useless transactions, is leading to congestion, underlining the need for the Casper and other software fixes. Researchers last week discovered that around 25% of transactions were initiated from one address. 

Ethereum was down 9% on 14 August at $291 for a nine-month low but has managed to get its head above $300 today, trading at $301.

Ripple has its own worries, in its case centred on a growing field of class action law suits claiming that Ripple was selling a security in the form of its XRP token and investors suffered losses as a result. The plaintiffs are seeking compensation from Ripple Labs, the owners of Ripple and the largest holder of XRP tokens at around 60% of supply. Ripple has fallen to as low as $ .28, although has recovered today to $0.31.

Hayes for one thinks Ethereum could be about to implode. In his occasional newsletter to BitMEX clients he contends that ether prices have been artificially inflated by initial coin offerings (ICO), with venture capital firms that bought into many of the more popular ICOs may start offloading their Ethereum-compliant tokens, pressuring the decentralised application platform token’s price back to double-digit.

The president of crypto custody services company Xapo Ted Rogers is bearish about everything other than bitcoin. He suggests the current selloff may lead to an "extinction-level event" for crypto. Rogers said on Monday that "90%+ of CoinMarketCap list will disappear eventually – might as well happen now."

Square, Bitfi, LINE and VeChain

There was positive news from Square Cash, the payments app from US startup Square of which Jack Dorsey is the chief executive in addition to Twitter, in its roll out bitcoin trading to all 50 US states.

Tech entrepreneur John McAfee's ultra-secure wallet Bitfi which was hailed as being unhackable has been hacked for the second time. Whitehat hackers are now queuing up to claim the $100,000 bounty.

In other news, as of Monday the Petro cryptocurrency must be used as a unit of account by the state oil company of Venezuela, the PDVSA.

In Japan, messaging giant LINE has set up a token venture fund with starter funding of $10 million. In related news, BitBox, the crypto exchange owned by LINE, announced it was listing the TRX token of the Tron network, pushing its price 17% higher to $0.020.

VeChain saw its price rocket as much as 70% after it emerged that it had launched a vaccine tracking solution for the Chinese markets. VeChain has been officially endorsed as a provider of blockchain technology although there is no official partnership, although the price hike suggests investors are already pricing in the China potential. VeChain is working with Norwegian company DNV GL to develop the technology.

Big news from NYSE owner Intercontinental Exchange

Intercontinental Exchange, the parent company of the New York Stock Exchange, is setting up a crypto exchange and warehousing service to be called Bakkt. 

The move also involves partnership with the likes of Starbucks and Microsoft as Bakkt sets sail on its mission to make it easier to use crypto as a currency as opposed to just another speculative investment vehicle.

Bakkt would be a regulated exchange and ecosystem and it would help to bring an exchange traded fund closer to approval by the Securities & Exchange Commission.

Analyst Brian Kelly told CNBC he thinks the Baakt news is the biggest story of the year.

ICE chief executive Jeffrey Sprecher said:

"In bringing regulated, connected infrastructure together with institutional and consumer applications for digital assets, we aim to build confidence in the asset class on a global scale."

In the opposing corner is usual suspect investment bank UBS with its long record of derision when it comes to all things crypto. UBS says bitcoin is "too unstable and limited to act as money".

Goldman Sachs, meanwhile, is convinced things can only get worse for bitcoin and crypto – its analysts think the market is going to fall a lot lower from here. In its half-yearly economic report, the bank highlights "cryptocurrency mania" as one of six factors that could negatively impact global markets.

Chief investment officer Mossavar-Rahmani said:

"Our view that cryptocurrencies would not retain value in their current incarnation remains intact and, in fact, has been borne out much sooner than we expected."

Miners still working hard and coming to market

The number of computers mining on the bitcoin network has continued to rise despite the price falling. Industry watchers had expected miners to exit as their margins were squeezed but the opposite is happening. 

Hashrate is seen as something of a proxy for adoption and as such the extent of the activity on the network is a leading price indicator. "There are still major expansions happening, especially from more efficient miners," Marco Streng, chief executive of Genesis Mining, said in remarks to Bloomberg.

The increased efficiency of mining operations, either through better chips of cheaper electricity sources also helps to explain the surprising robustness of bitcoin mining.

The centralisation of bitcoin mining is exemplified in the dominant position of Bitmain Technologies which is seeking to make good on its success with an initial public offering of shares in the company. The IPO could raise $3,000 billion by some estimates.

Another cryptomining firm dabbling in the public capital markets is Argo, which raised £25 million in its London Stock Exchange listing for an overall valuation of £47 million. 

Argo plans to open retail outlets to help educate the public about crypto mining and how to buy a contract.

Co-founder Jonathan Bixby said:

"So we're starting to put plans in place for [Argo's] first retail location in London, followed by Soul, Tokyo, and Singapore. It's all about education education education." 

Facebook's Marcus resigns from Coinbase board

In a statement on 10 August Facebook's David Marcus let it be known that he is leaving the board of US exchange Coinbase. 

Marcus is responsible for Facebook's blockchain efforts and the reason given by a Facebook spokesperson, that it was to "avoid the appearance of conflict, rather than because of an actual conflict", has got the juices flowing of the rumour-mongers.

Marcus made a later statement providing further clarification: "Because of the new group I'm setting up at Facebook around Blockchain, I've decided it was appropriate for me to resign from the Coinbase board. Getting to know Brian, who's become a friend, and the whole Coinbase leadership team and board has been an immense privilege. I've been thoroughly impressed by the talent and execution the team has demonstrated during my tenure, and I wish the team all the success it deserves going forward."

Marcus was previously VP for Messenger at Facebook.

FCA pushes global sandbox, crypto fraud rising

The industry this week welcomed the news that the UK's Financial Conduct Authority (FCA) has launched the Global Financial Innovation Network in conjunction with 11 other regulators that includes Canada, Singapore, Hong Kong and Dubai. The objective is to bring firms together in an "environment in which to trial cross-border solutions".  A consultation paper has been published with consultations sought by mid-October.

A survey by Citrix has found that a third of UK companies have fallen victim to cryptocurrency mining software. 60% of the companies that have been hit by the malware says it affected less than 50 machines.

Separately, the UK's City of London police says that in July 203 instances of fraud were reported to it with a total value of £2 million, with initial coin offerings and trading scams being a particular problem.

The FCA has followed that with a report today highlighting the growing problem of cryptocurrency scammers, in which it says celebrity images and swanky addresses are being offered up to lure unsuspecting investors.

"UK consumers are being increasingly targeted by cryptocurrency-related investment scams," an FCA spokesperson said. 

The FCA found that the fraudsters tended to operate from outside the UK "but will claim to have a presence, often a prestigious City of London address".