Is Bitcoin Evergrande’s hostage?

On By mehranmuslimiblogIn Bitcoin, EconomyLeave a comment

After the excitement of bitcoin breaking through $68k to reach a new ATH, we were all brought back to earth again on 10th November, as the price dropped and it looked as though there had been a minor bloodbath in the crypto world, with so many tokens showing red. Why did it happen? One theory is that conflicting announcements about Evergrande, the Chinese property giant caused the wobble due to questions about whether or not it would default on its overdue loan payments.

Evergrande Group is China’s second-largest property developer and has debts of $300 billion, a significant amount for sure, and there is a fear that if it defaults it could cause a collapse across the world’s financial markets. According to Cointelegraph: “Two minutes after Evergrande’s payment was due, the Deutsche Markt Screening Agentur (DMSA) issued an announcement on Nov. 10 at 4 p.m. UTC stating that it was preparing bankruptcy proceedings against Evergrande.” Shortly after that, bitcoin’s price fell to $62,800 over the course of several hours.

Another media outlet also published information saying Evergrande had defaulted, supposedly confirming the approach of disaster, and it wasn’t until  Bloomberg issued a story saying that it hadn’t that the price of BTC started climbing again. Eventually, the price started to stabilise around $64,500 when Allison McNeely of Bloomberg tweeted “contrary to what you may have heard ~on the internet~ Evergrande did not default today.”

A collective sigh of relief reverberated around the globe amongst bitcoin owners, but the spectre of Evergrande has not gone away. William Fong, senior trader at Australian crypto-asset investment platform Zerocap, commented that whilst Evergrande had not defaulted, he does not believe it will be bailed out any time soon, because “Chinese regulators were the initiators of a cap aimed at over-expansion in developer’s leverage.” He added, “This has created potential contagion risk across the entire property developer space and has expanded towards financial institutions and industries dependent on the sector as well.”

A stock market meltdown is another fear in the cryptosphere, and there are questions about the amount of Tehther’s exposure in terms of ‘commercial paper’, which is a corporate debt note with a short expiration date, usually under a year. Tether says it doesn’t have any in Evergrande, but the fact that Tether has about fifty percent of its reserves in commercial paper valued at $30 billion is making some rather nervous, especially as some of this commercial paper is in Chinese companies.

There will always be fears around markets, but we must hope that we’re not all forced to hold our breath every time Evergrande has to make a payment, or bitcoin and its owners will be held like hostages every month.

Can bitcoin clear $70k?

On By mehranmuslimiblogIn Bitcoin, cryptoLeave a comment

It was a nice surprise for bitcoin holders when the leading crypto sailed past $68k to reach a new all time high (ATH). Its market cap has also outstripped that of Tesla and Facebook. Some traders have declared it “clear for take-off” and are ready to begin a further price discovery beyond $70k.

As Cointelegraph notes, the BTC/USD pairing has enjoyed two consecutive nights of gains following a weekend of lingering around $62k. Since then it is up a total of 11.4% in just over two days.

Filbfilb, co-founder and analyst at trading platform Decentrader, commented that Bitcoin was now tackling what he called the “Great Wall of Finex”: this is a large sell wall on exchange Bitfinex around $70,000 contrasting with recent heavy whale accumulations. Indeed, according to another article in today’s Cointelegraph, the share of Bitcoin’s supply that has remained inactive for the past three months spiking to a record high of 85%, indicating that a lot of holders are intent on holding on to their BTC in hopes of even higher prices.

To the moon?

Will we see a revival of the popular bullish Twitter sentiments and a return of ‘When Lambo’? There are traders predicting $98k by the end of November. A few days ago this most would say this was impossible, but now there is less disbelief in that figure.

On the other hand, what we have seen in 2021 is relatively modest market movements compared with the patterns seen in 2013 and 2017, when the velocity of gains that followed Bitcoin’s block subsidy halvings were more sensational. The market behaviour is similar now to those two years, but it’s just a bit lower key.

Still, institutional demand shows no signs of abating ahead of a possible spot price exchange-traded fund (ETF) launching in the United States. SkyBridge Capital CEO Anthony Scaramucci, a man who is always bullish on bitcoin, said today, “$70k on Bitcoin coming up,” and indicated he is still buying it. He added, “Large institutional demand has finally arrived. Trying to get in orders before 2022.” Back in 2013 and 2017, that demand didn’t exist at the same levels as now, and as we enter an inflationary environment, Bitcoin’s appeal over gold as hedge against it received a boost overnight, its market cap hitting 10.7% of gold’s.

Furthermore, the trend of accumulation does not appear to be slowing down, with the share of supply held on centralized exchanges also dropping to a record low of 12.9% as BTC is increasingly placed into secure storage. This favours a bull market: “Until this trend changes it will continue to put upward pressure on price as demand for Bitcoin has to accept higher prices amongst the limited supply available,” says Decentrader.

Bitcoin’s three-day chart, which Decentrader holds to be an especially accurate price tool, is now bullish, indicating “a probable channel for price action, which could see Bitcoin hit $150,000 by the start of 2022.”

That would be an excellent start to the year for every Bitcoin holder.

What is the impact of Ethereum’s EIP 1559?

On By mehranmuslimiblogIn EthereumLeave a comment

It has been about two months now since the Ethereum hard fork –EIP 1559 – was implemented. This is a very brief time in which to evaluate its effects, but Edward Oosterbaan, in an opinion piece for Coindesk, believes we might already be able to see some of the positives it is bringing, especially the upgrade’s base fee burn.

Ethereum uses block rewards to incentivize miners and validators of the chain under both proof-of-work (PoW) and proof-of-stake (PoS). Bitcoin uses a similar model, except that every four years it decreases the amount paid to miners, “until the reward is extremely negligible and the bitcoin supply tops at 21 million.” Once they reach this point, miners will have to rely on transaction fees for income. This means the network will need to sustain a high level of activity in order to pay miners for their services.

With EIP 1559 Ethereum has taken an action that is the opposite of Bitcoin’s. EIP 1559 took away the vast majority of transaction fee revenue that miners previously received, but Ethereum will continue to emit block rewards to miners (and eventually validators), indefinitely. And, whilst Ethereum has an uncapped supply, the new fee burn system will counteract ETH inflation.

As we know, Bitcoin has become seen as a hedge against inflation, but if it is seen primarily as a store of value, will there be enough in transaction fees to keep miners interested in the network?

This is a difficult question to answer, because Bitcoin’s fixed supply is what makes investing in the asset so attractive. By contrast, as Oosterbaan points out, “Ethereum’s supply will be extremely dependent on network activity and the demand for blockspace.”

As he says, his comparison of the two is entirely based on how they approach miner incentives, something which EIP 1559 addresses, and he believes that if Ethereum can continue to subsidize validators without diluting those that hold ETH then it will be very promising for the network.

Who is buying the doggy coins?

On By mehranmuslimiblogIn Altcoins, cryptoLeave a comment

Almost every time one opens a crypto publication these days, there is likely to be a picture of a dog somewhere amongst the headlines. Now we know that posting images of furry friends both canine and feline is very popular on social media, but they’re apparently just as popular in the crypto sphere.

I’m talking about Dogecoin and Shiba Inu, of course. And as Lawrence Lewitinn writes at Coindesk, “Bitcoin may be the alpha dog of crypto, but for many small retail investors these days, dogecoin and shiba inu are the pick of the litter.”

Craze almost collapses Indian exchange

The buying craze for these two coins reached such a height in India, that Binance subsidiary, WazirX, India’s largest cryptocurrency exchange, suffered outages as traders jumped into the fray, buying shiba inu and stressing out the platform’s servers last Wednesday. Its CEO, Nischal Shetty tweeted that over half a billion dollars’ worth of trades were done on WazirX that day, the highest of any crypto exchange in India.

“It basically brought down our exchange,” Siddharth Menon, one of WazirX’s co-founders and its chief operating officer. ““The kind of active numbers and the active users that we saw in the last 48 hours has actually shocked us. We were not ready for it. We were all ready for the bitcoin move, but we were never ready for shiba inu.”

Menon says he suspects some kind of unit bias is at play here. What he means by this is that novice traders may jump in and buy a lot of one kind of cryptocurrency because the price of one unit of it is relatively small compared with, say, bitcoin even though one can buy the same dollar amount in bitcoin as the low-priced coin. And as Lewitinn comments, “For investors who are dipping their toes in the water with a relatively small amount of money, a low-priced coin can make one feel a little richer. For example, as of this writing, $620 buys 0.01 BTC. On the other hand, it buys about 10 million SHIB.”

Led by retail buyers

Although some who might be called ‘the smart money’ are buying dogecoin and shiba inu, they are still more interested in buying Bitcoin and Ethereum. For example, on Coinbase, the average Bitcoin trade size is hovering at around $2,000, while ETH trades average $1,600. On the other hand, the exchange sees average trades for dogecoin and shiba inu at around roughly $800.

Clara Medalie, strategic initiatives and research lead at digital asset data provider Kaiko, says, “This suggests price action is mostly retail-driven,” adding, “While average trade size isn’t a perfect gauge for institutional investment – most large traders break apart their orders into smaller sizes – we can still observe clear trends that correspond with waves of interest.”

But these meme coins also serve another purpose: they allow retail traders to test out the experience of buying, holding and selling a small amount of cryptocurrency on new platforms by placing different types of orders and seeing how they get filled – or not. They do this even though buying Bitcoin is much easier. No doubt they are encouraged by the recent story that has been widely circulated in the mainstream media about the mystery trader who bought $3,400 of SHIB last August, the month the meme coin launched, and is now a billionaire.

As with Dogecoin, tweets from Elon Musk have helped Shiba Inu’s spectacular rise, and its listing on Coinbase in June this year has also helped it.

Before anyone rushes to put all their life savings into SHIB, we have to ask ourselves if it will continue to rise in value at the same rate as it has over the last twelve months. Some analysts say it’s highly unlikely it will ever reach the $1 mark, as it can’t compete with rival Dogecoin. But if you’re a dog lover, it’s probably worth buying some, if only for the fun.