In this week’s edition, we mourn over a fresh round of losses for BTC and pretty much the entirety of the crypto market, maintain a bit of confidence as one of the world’s biggest stock exchanges signals its confidence in the future of crypto, and explain why the widely-circulating idea of a “Bitcoin Death Spiral” is unlikely to ever become a reality. We also tell you about one coin that is managing to defy all expectations and continue to climb in the face of double-digit losses for most others.

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BTC Sinks to $3210, Investors Panic, Shorts Rejoice

In yet another heart-wrenching week of doom-and-gloom, the price of bitcoin again plunged to new lows, this time to that of $3210, before slightly picking up momentum early Monday morning. Bitcoin was down 14% for the week, and at its lowest almost 50% in the last 30 days, dashing hopes of a merry Christmas for BTC HODLers. Ripple (XRP), Ethereum (ETH), Stellar (XLM), Bitcoin Cash (BCH), EOS (EOS), and Litecoin (LTC) all suffered double-digit losses as the markets turned a sea of deep red, with 97% of altcoins now down some 90% since the beginning of the year.

Not helping things was the SEC’s announcement that they were postponing the delay of their ruling of the Van Eck Bitcoin ETF yet again, this time until the absolute deadline as allowed by law until late February. Both long- and short-time crypto enthusiasts were nearing the point of capitulation (giving up on the prospects of their investments altogether) due to the lack of confidence in how things would proceed going forward, compounded by a shaking breach of confidence in the wake of the Bitcoin Cash hard fork, in which there apparently seemed to be no real winner.

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The Coinbase Bundle investment package. Source: coinbase.com

Using a feature on the Coinbase exchange website called Coinbase Bundle, it is easy to visualize just how far cryptocurrencies have declined over the last 1 year period. For $100, Coinbase users can buy a mix of 5 top coins supported by the exchange which are then deposited in varying amounts to the user’s account. If the bundle was available 1 year ago (which it was not, as Coinbase only hosted BTC, ETH and LTC at the time), the total value of those coins today would only be $22.91… Perhaps not the best way to showcase a potential investment opportunity. Coins comprising the Coinbase Bundle include BTC (81.58%), ETH (13.28%), BCH (2.53%), LTC (2.05%)  and Ethereum Classic (0.57%).

Nasdaq Still Rolling Out Bitcoin Futures Market, Betting Big on Crypto

American tech exchange giant Nasdaq, the world’s second largest stock market, remains defiantly bullish on the future of crypto, with its VP of Communications confirming it will be rolling out its own Bitcoin Futures trading market in early 2019. Only 2 days earlier, on December 4th, Nasdaq announced that, along with  another finance industry captain, Fidelity Investments, had invested in an up-and-coming cryptocurrency exchange named ErisX. The exchange startup secured $27.5 million in funding, led by Nasdaq Ventures and Fidelity Investments less than two months after it raised funding from TD Ameritrade, the online brokerage company valued at $30 billion.

ErisX has plans to offer investors the ability to trade BTC, ETH and LTC on both spot and futures markets starting next year, though it is subject to regulatory approval. With a motto of “improving the digital asset trading experience for institutions and individuals alike,” ErisX hopes to help usher in Wall Street-size investments into the crypto space, and along with the stock exchange-connected Bakkt will serve as a bridge for institutions who so far have largely been unable to enter the cryptocurrency markets. With any luck, the successful launch of both of these firms will serve as a much-needed catalyst to help cryptocurrency regain its moonward trajectory.

Bitcoin Hash Rate Continues Decline

The Bitcoin Network hash rate, which is the sum of all mining power currently at work trying to find the next bitcoin block and add it to the blockchain, has been on the decline since early November, after steadily increasing all year and reaching record highs in late August. Reasons behind the decrease are thought to primarily rest on three factors:

  • China is shutting down mining operations due to government inspection for tax purposes,
  • hash power is being redirected away from bitcoin to mine one of the two Bitcoin Cash forks,
  • a sustained lack of mining profitability is causing many miners to cease their operations and shut down entirely.

In previous editions of the Weekly Roundup, we discussed the first two culprits at length and their likely role in the drop-off, which has seen the hash rate decline some 30-40% in the last two months. However, the third culprit has been one of particular interest as of late, spurring concerns that bitcoin may be entering a “death spiral.” What does a death spiral for bitcoin entail? It’s a pretty grim scenario where the Bitcoin Network’s difficulty level cannot re-adjust in time to compensate for a sudden decrease in hash power, which in theory would make the addition of a new block to the blockchain impossible – or at least substantially delayed.

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Bitcoin Network hash rate. Source: blockchain.org

If this sounds a bit complicated, that’s because it is, so we’ll unpack a bit of the information behind the terminology now. The difficulty level is set by the Bitcoin Core client software and re-adjusted every 2016 blocks, or roughly 2 weeks. The network’s initial difficulty, upon its launch in 2009, was 7 Mhash (or 7 mega hashes), which could pretty much be met by any competent CPU, meaning it was possible to “solo mine” bitcoins using one’s own PC at the time. By 2013, the difficulty had reached 3 million, meaning it was simply impractical to attempt to mine bitcoin using a PC, as using multiple GPUs with much higher processing power had become the norm, soon followed by ASIC-fueled mining pools.

As hash power directed at the network increases, so does the difficulty – every 2016 blocks – to make sure that blocks aren’t mined too quickly and remain on average 10 minutes apart. Though it has rarely happened in the history of bitcoin, sometimes the hash power of the Bitcoin Network decreases, which means that the difficulty level would correspondingly decrease in a percentage parallel to the drop in hash power since the last 2 week calculation. If the hash power drops, the difficulty readjusts in the opposite direction during the next calculation. This rather ingenious mechanism of self-regulation has kept bitcoin block times more or less equally spaced at 10 minutes apart since 2009.

BTC price vs difficulty

To reiterate, a theoretical “death spiral” could happen with bitcoin or any cryptocurrency network that sees a substantial drop in hash power over a short period of time, and indeed it was one of the reasons for a Bitcoin Cash hard fork early in its existence. Bitcoin itself came close to having this happen when miners rushed out en masse to mine BCH shortly after its beginnings. However, the reasons why it has yet to actually happen to the Bitcoin Network are many:

  • Bitcoin miners are in the game for the long-haul. They have an investment in their gear, in their payments for electricity, and the time and effort it took to construct their rigs. Most BTC miners are willing to take a loss for a considerable period of time based on previous, exponential rises in the price of BTC, which has always made it profitable in the long-term.
  • If a nonce cannot be found by a miner, they have the option of reorganizing transactions in the upcoming block they wish to submit to the blockchain, thus resetting their chances of finding a nonce if they do not find one within 10 minutes.
  • The cost of mining varies tremendously around the world, and while some mining operations are indeed closing up shop, they are being replaced by operations in other parts of the world where electricity and other logistics are less costly, rendering mining to still be profitable.

Long story short: fears of bitcoin death spiral are greatly exaggerated, and so long as blocks can keep being added under pressure of decreased hash power until the difficulty readjustment every 2016 blocks, it will never happen.

Coins Bucking the Trend

bucking the trend

In this ever-popular weekly segment we bring you some truly rare birds of coins that somehow managed to fare pretty well against bitcoin’s staggering 16% drop over the past seven days. Out of the top 100 coins by market cap size, only 2 managed to post gains, making last week probably the worst on record that we at Coin Clarity have ever seen, in our 2+ years of operation.

According to our original Goodness Index (GI) formula, which compares price and volume action against bitcoin to shake out the real winners, most coins performed significantly poorly compared to BTC, as the average GI score was -5 (for reference, usually this number is between -1 and 1, and the GI score for BTC is always zero). However, one of these coins had a GI score that was several standard deviations higher than the norm, making it particularly interesting and worth taking a closer look at.

mobilegoMobileGo (MGO) (GI = 41.27)

The bear market just can’t keep MobileGo down, which earned itself a spot in the top 100 coins by market cap in late October. Since then, its price in terms of BTC has grown quite a bit – about 30% – potentially suggesting there is something to this up-and-coming token that should not be ignored. MobileGo specializes in decentralized e-sports betting, chiefly allowing users to bet on themselves.

This uniquely-designed, Ethereum-based platform also has a decentralized virtual marketplace that allows gamers to buy, sell or trade in-game contents from within its GameCredits application, using MGO as the native currency for its marketplace. Gamers can also create their own tournaments and prizes – automatically distributed – as well as create their own participation models for how the tournaments are conducted.

Recently, MobileGo announced that its e-sports platform was open for beta testing, and while participation will initially be limited to HTML games, it has plans to include Android and iOS games before too long. In a time when most of the market seems to be nearing hopelessness, MobileGo is a beacon of inspiration, driven by its novel business model and excellent social media campaign, potentially rendering it one of the best success stories to come out of the great bear market of 2018.

Also in the News

  • In a breather from the negative sentiment surrounding bitcoin as of late, members of the Reddit group r/bitcoin surpassed one million subscribers. The group has been administered by the owner of the Satoshi Nakamoto-founded bitcointalk.org forum, Theymos, since its inception, and continues to grow in popularity despite the dragging bear market conditions. One of the most popular posts at the moment was a count of how many times bitcoin had been declared dead by the media thus far. The total number of bitcoin obituaries reported? A staggering-yet-hilarious 329.
  • After appearing to transition their sovereign cryptocurrency – the first of its kind – from the NEM blockchain to its own, Venezuelan president Nicolas Maduro announced that the petro would be the only form of currency accepted in exchange for purchases of the nation’s vast oil supply. While the petro was initially created as a counter-measure to U.S.-imposed sanctions, one has to wonder if, without an open-sourced code for their coin and non-government regulated means through which it can be purchased, Venezuela is accidentally creating a sanction against themselves.
  • While bitcoin scammers had targeted customers of Big Island and Maui electrical companies with outstanding bills earlier this year, they are now taking to HECO and the island of Oahu, home to the state’s only metropolis of Honolulu. The crooks, who somehow have prior knowledge of a customer’s delinquent payment status with the power company, are calling customers and demanding they head to the Bitcoin ATM in a Waikiki hotel to purchase and send varying amounts of bitcoin to pay their outstanding bills. Though some customers have already fallen prey to the scam, the whole thing makes even less sense than the IRS calling tax owers to demand their balances be paid in iTunes gift cards.
  • In another first for artificial intelligence, a machine-learning system can successfully identify pump and dump scams before they happen, by combining data from Telegram and cryptocurrency exchanges to determine when an incoming pump (and subsequent dump) is likely. The average time a pump group Telegram channel member has to profit off of the announcement of the beginning of a pump? 18 seconds. The designers of the AI-based system found that most of the time pump group members who thought they were getting in on a chance to con others were actually being used as victims of the con themselves, with half of such members only selling half of their coins/tokens during the pump and retaining the other half as they (almost always) dwindled in value, to zero.
  • PayPal is embracing blockchain in an unexpected way, by using it to host and track an internal rewards system for its employees. PayPal’s new adoption of blockchain technology is symbolic of just how far it has come from fearing a potential decrease in business due to the bitcoin revolution, going to show that even if you can beat them, you can still join them.