Digital Currency Roundup – Week Of April 24, 2017
A wrap-up of the biggest news in cryptocurrency for the week
Bitcoin Maintains Winning Streak
Bitcoin trades as high as $1,374 on some markets
Following the setback of a 35% slump after the SEC rejection of the Winklevoss Bitcoin ETF index, bitcoin’s price bounced back to fresh, all-time highs this week, keeping in place the long-term trend of upward price movement. Though the price has spiked tremendously (currently at $1375) since the writing of this article, bitcoin had briefly touched the $1350 mark on the popular exchange Bitstamp just hours earlier, before slowly descending to a range of $1300 – $1320. A small premium on Bitstamp prices is largely thought to be correlated with the recent hacking of Bitfinex, arguably Bitstamp’s #1 competitor, which has been encouraging Bitfinex customers to switch sides and become Bitstamp users since the hacking.
Rise rocketed by hopes of luring Wall Street investors
The momentum of the historic rise stems from the SEC’s recently announced plans to review their decision to deny the Winklevoss’ Bitcoin ETF from being listed as a tradable security, perhaps reversing course and allowing the ETF to proceed as planned. Having a bitcoin-backed ETF listed on a major stock exchange would be a huge game-changer for bitcoin, as Wall Street would finally have a direct conduit to investing in bitcoin.
ETFs, or Exchange Traded Funds, can be thought of as stocks whose prices rise and fall with the value of the commodity they represent. Usually the commodity is physical, such as gold, wheat or even pork bellies. Sometimes the commodity takes a non-physical form, such as electricity, currency or now (potentially) cryptocurrency. Federal law (specifically under the SEC) mandates that all ETF funds be backed by verifiable ownings/holdings of at least a certain percentage of the actual commodity being represented by the ETF, and their regulations tend to be pretty strict.
A brief explanation of how an ETF works: Let’s say one bitcoin is currently worth $1300. Hypothetically, if a bitcoin ETF was 100% backed by the demonstrable holding of 100,000 bitcoins by the ETF creators, it would have a market capitalization of approximately $130 million once it was listed on a stock exchange. If there were 10 million shares issued, each share would then have a value of $13.00. Stock traders – both small and large – could then buy and sell the ETF shares based on the art of speculation, or guessing whether the price of bitcoin is about to go up or down. For now, it would seem, the price is definitely going up.
Ether comes along for the ride
Although there has been a traditionally inverse correlation between the price of bitcoin and the price of all altcoins, Ethereum seems to be breaking away from the pattern by also establishing new highs with its parent token ether (ETH), as use cases of its advanced functionalities are also drawing the attention of some major investment firms. Scores of financially-minded software developers are using Ethereum’s open-ended API features to develop decentralized applications (dApps) to improve financial transactions and online life in general in a multiplicity of ways. A prime example of this would be the recent release of plans for the development of a search engine based on Ethereum tokens and technology, the project being led by a former engineer of Coinbase.
The commercial success (whether projected or real) of these applications has manifested itself in the form of a 24% price rise in just over a week, meaning investors aren’t keen on selling their ETH for BTC in order to cash out on BTC’s unprecedented new highs. The ability for investors to buy ETH directly from more and more major exchanges (like Coinbase) for fiat currency renders the price of ETH less bound to the price of BTC, whereas most “altcoins” are only purchasable via BTC in crypto-only exchanges like Poloniex and Bittrex, and therefore usually suffer price drops as holders cash out during BTC price rises.
World Governments further clamp down on illicit bitcoin use
Though bitcoin has long been associated with enabling fraud, the drug trade and far worse, it is now the suspected in abetting terrorism, a serious allegation that is substantiated by reports that ISIS once controlled a BTC address worth over $3 million. The EU has been attempting to enact laws to prevent terrorist-designated organizations from using bitcoin as a method of money transfer since 2015. Some of their applied methods have sparked harsh criticisms as of late, with advocates for commercial use of BTC among the eurozone countries claiming that the “misunderstanding” of the way that cryptocurrency and blockchain technology work impedes the government from enacting proper legislation.
In India, bitcoin exchange ZebPay recently had its bank accounts unfrozen by the federal government after agreeing to work with local law enforcement to track criminals who hacked a major government-operated reserve bank, then using the ill-gotten funds to purchase bitcoin. In light of these types of crimes occurring within their borders, India has also pledged to introduce the taxation of bitcoin, adding it to the growing list of countries seeking to legislate cryptocurrencies.
By this point in bitcoin’s turbulent-yet-successful history, it is rather a given that governments worldwide will seek ways to prevent the anonymity of bitcoin from allowing criminals to create chaos or otherwise harm the general welfare of the nation; especially in the areas where the collection of tax revenue is a concern. As bitcoin becomes more mainstream, with global audience media entities like Forbes providing instruction on how to legally deal with bitcoin, the need for regulation will continue to grow. Whether or not the “wild west” days of cryptocurrency will come to an end because of the successful implementation of government regulation is anybody’s guess.
There is an old adage that implies that whatever level of technology cybercriminals are currently operating at, the government is at least two years behind. Unless the implementation of the entire idea of decentralization via computer networks is made illegal, it’s doubtful that cryptocurrency’s march towards creating a fairer financial playing ground will fail. What will truly help it succeed is the enacting of corrective, stimulating legislation by world governments. Regulation of an abusive, totalitarian or otherwise opposing nature will only result in the furthered determination of those wanting to escape an unjust government or financial system.