Tag: crypto

The bitcoin rally: fact or fantasy?

On By mehranmuslimiblogIn Bitcoin, cryptoLeave a comment

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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!

 

 

 

 

 

 

 

 

 

Will IEOs become the next big trend?

On By mehranmuslimiblogIn Blockchain, crypto, ICOLeave a comment

While it is true that ICOs are not quite yet dead, they enjoy far less hype than they did in 2017. And as interest in initial coin offerings wanes, a new player has arrived on the scene in the form of the Initial Exchange Offering (IEO). What is this beast, you may ask, and how does it work?

The Fetch.AI project is an IEO that has received a lot of media attention, not least because it raised $6 million in 22 seconds. The fundraiser was held on the Binance exchange. BitTorrent also raised $7.2 million in 18 minutes via an IEO. These heady figures are bound to draw the attention of those who feel the air has almost completely leaked out of the ICO balloon.

An alternative to the ICO

However, the need to raise money for blockchain-related projects remains. Which is where the IEO comes in — as an alternative to both the ICO and private placement. With the latter, the project raises funds via a private investor, rather than going to the public with tokens. The downside of choosing private placement is that there needs to be a very high level of interest in the project by investors with very deep pockets, such as those who funded Telegram to the tune of $850 million.

How does an IEO work?

An IEO is “an agreement with an exchange on an initial placement via the exchange,” writes Maria Stankovich on Medium. It is possible to simplify this explanation even further and say it is a token sale held on an exchange, which acts as an intermediary. And that is one key difference between the IEO and the ICO.

The exchange, it could be Binance or one of the others, assesses the project from a technical perspective to ensure it is legitimate, and they look at how attractive they believe the project will be to the exchange’s clients and a wider audience as well. If they are satisfied with the quality of the project, they make an announcement about the token sale on the exchange.

The upside for token buyers is that unlike with an ICO, they don’t need to send funds to purchase tokens via a smart contract; they can buy them directly from their personal account on the exchange.

The benefits of an IEO

There is a big benefit here for the project needing to raise funds, in that an exchange has a ready-made base of potential investors. It also means that the token is listed on an exchange — something that many ICOs have struggled with, despite promises to their followers. And the investors feel a higher level of trust, because the sale is taking place via the exchange that they already have confidence in. They also don’t need to go through more KYC, exchange fiat for crypto etc etc. It’s easier for everyone.

And of course the exchange benefits, or they wouldn’t do it. They potentially get a whole bunch of new customers who want to buy tokens. And these token buyers may stay to become long-term users of the exchange.

At the moment, only a handful of exchanges are offering IEOs. These include Binance, EXMO, GBE, Bittrex and Huobi. The Gibraltar Blockchain Exchangeis another leader in IEOs, and has conducted seven of them so far, using its GBX Grid — Token Launch Centre tool.

It is early days for IEOs, but the way forward seems promising: after all, unlike with an ICO, any proposed project will go through a more rigorous analysis before the sale begins, and that should boost investor confidence in the mechanism and the project.

Could Silicon Valley be the Encryption Killer?

On By mehranmuslimiblogIn cryptoLeave a comment

If you value your privacy online then you logically must also be a supporter of encryption. It frightens governments, because encryption prevents them from undertaking mass surveillance on all of our communications. For the longest time, Silicon Valley has been the defender of encryption, but Kalev Leetaruwriting for Forbes, believes that the one-time protector of our privacy may be taking another road and rolling back the protections that encryptions provides us with.

The reason behind this change of heart is not to help out governments: it is. Leetaru suggests, “for their own profit-minded needs to continue mining, monetising and manipulating their users.”

Encryption puts a dent in profits

Encryption is a way of securing Internet communications and keeping them away from the prying eyes of the ‘Deep State’ as well as cybercriminals. In the early days of Silicon Valley, encryption was “a value-add that had no impact on their own use of their users’ data.” Then came Edward Snowden and the Valley firms portrayed themselves as standing up against governments on behalf of their users. However, what was also happening was that they were “encouraging their users to share ever more intimate information to be mined.”

As Leetaru points out, “The movement from HTTP to HTTPS was an easy sell for the major internet companies,” simply because the cost of migrating from SSL certificates and all the other changes required, were all borne by the websites; not Silicon Valley. The only thing they had to pay for “was the added cryptographic computational cost, necessitating some additional hardware investment.”

And here is something important to consider in this debate: SSL only protected user communications in transit. The major Internet companies could still access user data in unencrypted form and use it to monetise their users.

What will Facebook do?

However, end-to-end encryption is a threat to these Silicon Valley companies and the cash they can make from our personal data. Look at Facebook and Whatsapp, which uses end-to-end encryption. Leetaru remarks that Facebook’s “entire existence is prefaced on the ability to mine its users’ most personal and private communications.” And you can bet that Facebook is looking at ways of working around the protections of the Whatsapp encryption in order to continue mining its users’ private communications.

Unfortunately, “the rise of end-to-end encryption is finally aligning the interests of both governments and Silicon Valley,” and while we see governments as the enemy of privacy; it is Silicon Valley that poses a threat in the name of profit.

Hype: a manipulator of the Bitcoin market

On By mehranmuslimiblogIn Bitcoin, BlockchainLeave a comment

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.