Should we focus more on bitcoin’s use case than its price?

The crypto rollercoaster has morphed into ride with only slight dips and rises this month. It seems s if every few days traders need to take a rest and the bitcoin price sags a bit, The majority of the leading altcoins appear to follow what happens with bitcoin, although not uniformly.

As we head into next week, it’s hard to predict what we might see, although the weekends tend to bring some dips, suggesting that on Friday traders think about exiting the market for a couple of days. Jim Preissler writing at Forbessuggests: “Heading into the new week, expect possible dips to still be well supported at $4,700 in BTC and $154 in ETH. $5,800 and $187 could be tough resistance.’

As Preissler points out, XRP does not seem to have benefited from the latest crypto rally as much as BTC. ETH and LTC and there appears to be resistance at the $0.38 mark. ETH has been consistently outperforming XRP since February and it doesn’t look like there is going to be much change there.

Omkar Godbole at Coindesk suggests that what is needed to move the market along is a breach of BTC’s new resistance level of $5.200. As I write on 17th April, we have a slight glimpse of that as BTC touched $5,200.14. The market-leading cryptocurrency picked up a strong bid at lows below $4,200 on April 2 and jumped to 4.5-month highs above $5,300 on April 8, confirming a bullish reversal. However, over the last couple of days that rally paused, which Godbole attributed to BTC being overbought amongst other factors. But momentum seems to moving in an upward direction again. And, as Godbole has pointed out, “the longer duration outlook will remain bullish as long as prices are trading above $4,236.”

For the moment, bitcoin is trading above that level, but are we too focused on price?

As more real life use cases for bitcoin appear, such as the news that UK’s largest travel agency Corporate Traveller is now accepting bitcoin for payments, and the town of Innisfil in Ontario accepts BTC to pay property taxes, it is to be hoped that the public sees more advantages to using bitcoin for a range of payment purposes. That should encourage more belief in the cryptocurrency, and boost the number of people owning e-wallets and joining exchanges to purchase crypto. Slowly, slowly, cryptocurrency is edging forward toward mass adoption. We are a long way from that yet, but there’s no need to panic. It takes time to adjust to the new, even when the use case and the benefits are clear to a few. Just think back to the beginning of the Internet and the length of time it took the average consumer to feel comfortable with it. When people understand the benefits of using bitcoin and focus less on the price it is trading at, I believe that is when we’ll see a sea change in the crypto market.

The bitcoin rally: fact or fantasy?

Image result for bitcoin

It was perhaps unfortunate that the most recent bitcoin rally happened to coincide with 1st April, also known as April Fool’s Day in a number of countries. The tradition of the day is to see if you can fool people into believing the story you tell them. Some newspapers are expert at it: the UK’s Guardian newspaper is renowned for its April Fool stories, such as the discovery of the island of ‘Sans Serif’, which any printer would immediately have spotted as a hoax. So, it’s unsurprising that there were those who thought the bitcoin rally was also some kind of 1st April joke, as Bloomberg reported.

 

But it wasn’t a joke, as the surge went on past noon on 1st April, the cut-off time after which one cannot play any more pranks. It continued to increase in price with some dips until 9th April, when we saw a almost all the major cryptos go red again, but only slightly.

 

Multiple theories about bitcoin surge

There have been other theories. One analyst, Tone Vay, suggests there is no particular trigger; it’s just normal speculation: “Shorts are liquidated, there were short squeezes, more people jumped onto the hype, and a lot of news media always look for a trigger to cause big drops and big rises. I would say more than half the time they are just trying to match news to something that it did not necessarily need news to happen.” Bloomberg also put forward the idea that it could be down to algorithmic trading. This is a method where automated software detects trends and determines when trades should be made. And Reuters suggested that a 20,000 BTC order was spread across United States-based crypto exchanges Coinbase and Kraken, as well as Luxembourg’s Bitstamp was the trigger for the surge. Some even connected it to the UK’s interminable Brexit situation and to people selling off GBP in case the UK crashes out of the EU and the Pound falls through the floor. Meanwhile the bulls were in the press talking about the end of the so-called ‘Crypto Winter’ and predictions about bitcoin hitting big figures were in the headlines.

 

The problem for the average person looking at the bitcoin market is this: who should you believe? It really is a tough call, even for those who know the market fairly well.

 

Not everyone is bullish on bitcoin

And then there are those who will tell you not to trust in what you are seeing. Brendan Coffey at Forbes claims that the “smart money” expects bitcoin to drop. He points to the  weekly Commitment of Traders  report from the Commodity Futures Trading Commission. This says “says that while small speculators (classified as non-reportable in the report) increased their long positions 18% and shrunk their short positions 27% compared to last week, large traders – hedge funds and other large speculators – raised their short bets almost 45%.” Also, large trader long positions in bitcoin were trimmed back by 24% this week, which is a bearish manoeuvre.

 

What does this mean for the price of bitcoin. Coffey suggests it may not create a big rise or fall. However, he does advise taking a look at the last bitcoin rally in 2017, when bitcoin futures first launched as well. These futures allowed people who were sceptical about bitcoin to bet against it, and he indicates that while we are seeing short-term gains, the longer-term picture may prove more challenging. Why?  He says, “As a purely speculative investment with a heavy amount of non-trading professionals betting on it, bitcoin has tended to display classical chart patterns.” And according to his charts, there is still a “thick blue line of resistance” to overcome. That stands at about $6,000, “but expect the sellers to come in at $5,500 and continue to sell on moves into the $6,200 area,” Coffey says. His reasoning, which is perfectly logical, is that people who “got caught holding bitcoin when it plunged will want to get out with what they put in.”

 

The answer would seem to be that the current bitcoin rally is both fact and fantasy. Yes, we have seen it surge to over $5,000 from hovering around $4,000 just a few days earlier. The fantasy bit? It is going to be some time, if it ever happens, before it reaches $50,000, even if that is the prediction of a crypto guru!

 

 

 

 

 

 

 

 

 

Hype: a manipulator of the Bitcoin market

From time to time some people get on their high horse about the potential for manipulating the price of bitcoin. And there may be a compelling argument for thinking this. Michael K. Spencer thinks there is, or at least there was.

He writes, “as Bitcoin’s volatility rose from a minority pre 2015 to a hype “get rich” story of 2017 and into 2018 that went a bit mainstream, it was clear to me Bitcoin’s price was and is, incredibly manipulated.” He cites the idea of a ‘Bitcoin World’ that “has its own terms, norms and what’s considered normal might not actually be accurate.”

In his opinion, “Bitcoin’s price was clearly manipulated and vulnerable to pump-and-dump schemes,” and then adds, “The positive social network effect had grave consequences to a sort of collective fraud taking place.” However, as he says, he has been willing to play devil’s advocate with this topic while personally being able to see both sides of the story.

Crypto turns from cool to not so cool

The downturn in the market price certainly had the effect of making Bitcoin less cool than it had previously seemed to many. There was also the issue of the media’s approach to cryptocurrency, which has been either exceedingly negative to overly positive, and in a nutshell, all over the place. There is also the accusation that the crypto-focused media is corrupt and that the mainstream financial media has created a series of clickbait articles that are deliberately negative about Bitcoin and have thus engendered mistrust of crypto amongst readers.

What Spencer is talking about is the manufacture of hype “in an era of existential innovation that always seeks to re-create the wheel, in this case the value, money, transactions, digital assets and investment communities on the blockchain.”

Did the hype scam us all?

He points to a Bitwise study that claims 95% of “spot bitcoin trading volume is faked by unregulated exchanges.” The takeaway question from this and the media behaviour is: Did the hype make the public feel that cryptocurrencies were bigger than they really are?

Spencer also points to another Bitwise finding. In a March 2019 report it said that “substantially all of the volume” reported on 71 out of 81 exchanges was wash trading. This refers to the practice of buying and selling the same stick simultaneously to give the appearance of market activity.

All these factors raise concerns over the potential for abuse of the manipulation of the price of Bitcoin, and as Spencer writes, “If a lot of Bitcoin’s movement was “faked” or was and is falsified data, than essentially companies like Coinbase and Binance grew up in the hype with a heart of a lie.”

It’s certainly food for thought, even if you are a crypto supporter.

3 predictions for the digital financial future

The financial industry is going through a sea change. So many aspects of it are under scrutiny: from debates over cashless societies, to universal basic income, and the implications of digital currencies. Money has always been a hot topic, but it has become even hotter.

Blockchain changed the conversation

The advent of blockchain technology is in part a reason for this sudden increase in interest. As Lauren deLisa Coleman writes for Forbes, we are seeing financial giants like JP Morgan enter the digital currency space, alongside Facebook and IBM. And she points out, “But amidst such vast activity around digital currency overall, there is a specific and growing interest toward trend shifts pertaining particularly to token exchanges.

Talking about Token Exchanges

Coleman reports on the discussions at a New York event: Token Exchanges: The promise of liquidity, compliance and stability, where lawyers comprised the majority of the audience. Joel Telpner, partner and Chair Fintech & Blockchain Practice at Sullivan & Worcester LLP, addressed the issue of turbulence in the digital currency space: “We’re all collectively paying the price at the moment, but it’s important to keep in mind that this is not a bad thing. Most all new forms of technology have experienced a high level of unreasonable exuberance in the early days and after that period, business becomes much more stable.”

A more mature environment

Interestingly, he also suggested that now is the time to create a new ecosystem with new players: “”We’re at the end of the beginning,” he remarked. “This is about moving from the wild, wild, west to a more mature level of the digital currency space and tokens. Those that remain have to work hard and understand that success will come from fundamental principles in business and governance, and it will certainly pay off.”

3 key things to watch out for

He then identified what he believed are the three key regulatory areas to watch this year that could be game changers:

1. He believes the US Securities and Exchange Commission (SEC) will make a statement about the status of digital currencies and tokens — which are tokens and which are not.

2. The CFTC (Commodity Future Trading Commission) will become more involved in the token space given that this collective regulates commodities.

3. Stablecoins will come under a regulatory spotlight and decisions will be made about how to regulate this particular type of digital currency.

The event also revealed that a consensus of opinion indicates the issue of custodianship will come under focus this year as well. In addition, there will also be an eye to how trade is conducted in this space and how securities are managed securities once they are issued.

But, one of the most hotly debated topics in the industry is which jurisdiction will establish itself as a leader in the space: Telpner’s response to this was: “”But this approach was wrong in 2017, 2018 and still wrong to think like this in 2019, because all countries are working hard to regulate this space. Stop chasing jurisdiction.”