Weekly Roundup: Bulls for The Win — BlackRock, JP Morgan Boarding Crypto Train
Welcome to the Coin Clarity Weekly Roundup, where we take you through some of the week’s most interesting cryptocurrency news stories, reviewing what’s up (or down) with the price of bitcoin and highlighting developments that any investor or crypto enthusiast needs to be aware of. This week we reflect on the impact of a major asset manager’s decision to explore investments in cryptocurrencies, review JP Morgan’s curious about-face on their stance toward cryptocurrencies and discuss why “cloud mining” isn’t all its cracked up to be.
BTC Up 20% for July, BlackRock Announcement Fuels Speculation
In a rare display of encouragement for 2018, the price of bitcoin fared remarkably well last week, up over 16% in the last 7 days, largely thanks to a $500 spike on Monday. The good news has reinvigorated the mouthpieces of bitcoin bulls who are again proclaiming that all-time highs may now be possible before the end of 2018. Even though trading volume remains lackluster compared to what it was one year ago, the news is welcome among long-term HODLers who got swept up in the crypto craze any time after November 2017.
To thank for BTC’s recent run up was a report released on Monday that claimed the world’s largest asset managers, BlackRock Inc., were setting up a working group looking into the possibility of making investments in cryptocurrencies and blockchain technology. In an interview with Reuters, CEO Larry Fink begrudgingly confirmed the report, adding “We are a big student of blockchain,” and that he does not see “huge demand for cryptocurrencies.” Regardless, Fink’s words were regarded as the reasoning behind the spike, even though he had previously described the price of bitcoin as “an index for money laundering.”
“As the largest asset manager in the world, (BlackRock’s) interest in crypto assets could be a catalyst for upward price movement and encourage other asset managers, even with more conservative strategies, to seriously explore investing in the crypto space.” – Chris Yoo, portfolio manager at Black Square Capital Management LLC
Bitcoin Price Market Cap Dominance Inverse Correlation Unties
Interestingly, bitcoin’s percentage of dominance in the total coin market cap has been increasing while its price has been rising, meaning investor money is currently skipping the altcoins in favor of bitcoin. Traditionally, when the price of bitcoin goes up, it brings the price of other coins along for the ride, especially as investor appetite for risk becomes whetted. Money flooding into altcoins has the effect of decreasing bitcoin’s share of the total coin market cap. Conversely, when risk is turned off and fear creeps in, usually bitcoin’s dominance of the market cap space increases, even while the price of bitcoin is also falling. Regardless, bitcoin’s ability to break the $7500 level, considered to be a strong point of resistance, is good news for the future outlook of crypto markets in general.
Have We Reached a Bottom Yet? Maybe Not
Not everyone is under the impression that bitcoin is out of the woods yet. In addition to long-time bitcoin perma bears like economist Nouriel Roubini, who said last week that BTC’s recent rise was due to “Tether manipulation,” are a few bitcoin bulls who think that BTC has yet to find a bottom in 2018. BitMex co-founder Arthur Hayes made the news again when he proclaimed on CNBC that he thought bitcoin could continue its sink and reach the $5,000 level, before rising to meteoric highs by the end of the year. Hayes’ bold prediction of a $50,000 bitcoin by the end of 2018 has turned many heads and is fueled by hopes that a SEC approval of a bitcoin ETF (Exchange Traded Fund) could see a massive influx of institutional investor money that would dwarf 2017’s massive bull run of up to almost $20k.
Another unflattering take on bitcoin’s recent gains is the possibility that short sellers (those who bet against bitcoin in the hopes that it goes down in price) were caught in a squeeze, meaning their short positions had to be liquidated in order to cover losses due to leveraged investments. This would mean that bitcoin’s recent rise is simply due to technical reasons and that it may be short lived. Nevertheless, a quick gain of $20 billion to the BTC market cap is always encouraging news to those who are invested in the future success of blockchain technology.
JP Morgan Bullish on Top Coins
Though CEO Jamie Dimon – the highest paid banker of 2017 – is notoriously no fan of cryptocurrency, an internal report released by his firm, JP Morgan, named 7 top cryptocurrencies they think are “here to stay.” The coins mentioned are bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC), Cardano (ADA), and Dash (DASH). Without giving much explanation behind their rationale, the report seems to have a positive outlook on the potential of the blockchain to influence finance in the near future. Dimon, who famously called bitcoin a “fraud” in 2016, has plans to step down by the end of the year, potentially so his firm can continue in a direction that he personally has no appetite in pursuing.
Cloud Mining Service Hashflare Abruptly Shuts Down
Though the idea of “cloud mining” services has been around for a few years now, no such service has ever been proven to be very profitable – if even not some sort of scam. Cloud mining sounds good in theory: instead of buying your own expensive mining equipment and joining a mining pool, you can simply invest in a mining operation that is already up and running to do your mining for you. In return, you (supposedly) receive a cut of the profits generated from mining revenue. Likewise, the more money you put in, the bigger share of the cut you receive.
The only problem is, revenue generated from other people’s mining is never a sure thing. A large-scale mining operation could mine for days and never find a block, and maintenance costs imposed by the cloud mining service could potentially outweigh its revenue. Another problem to consider is the possibility that the service might not be mining bitcoin at all, simply operating a sophisticated Ponzi scheme by using funds from incoming customers to pay pre-existing customers, all the while pretending the “profits” going to older customers are generated thanks to the service’s (non-existent) mining operation.
Ever-increasing maintenance costs is the reason given by the popular cloud mining service Hashflare as to why they had to shut down services on July 20th, who said they were already in the process of dismantling their mining operation, despite accepting new contracts as recently as June 6th. Hashflare, having been in operation since 2015, was considered to be one of the world’s best and most reliable cloud mining services, however their recent actions are being branded an “exit scam,” theorized as in the works as early as June 17th.
In a notice posted on its Facebook page on June 11th, Hashflare released the following statement:
“Today some Hashflare users might have noticed that the payout was lower than the maintenance fee, which resulted in the balance not increasing and remaining the same.
Taking the current market situation into account, with the latest spike of mining difficulty exceeding 14% (https://bitcoinwisdom.com/bitcoin/difficulty), while the price of Bitcoin continues to decline, the possibility of this situation repeating in the nearest future is highly likely.
Rest assured, we are considering all possible options, while taking into account the available resources, to optimize the mining process where it is possible.
We will keep you informed about any changes. Stay tuned for updates.”
Indeed, the hash rate for bitcoin is currently at all-time highs, which tends to increase along with mining difficulty. Combined with a falling price of BTC, these factors make a case for Hashflare not being a scam, as bitcoin is considerably less profitable than it was just 6 months ago. On the other hand, Hashflare’s curiously high withdrawal minimum of 0.03 BTC, along with many users claiming their contracts had been cancelled without prior warning or sign of a refund, have the community scratching their heads over exactly what had happened. For now, things look grim for users with money or bitcoin trapped in the system, but chances for reimbursement by the company short of a class action lawsuit can’t be ruled out just yet.
Also in the News
- “Crypto Insurance,” as boring as it may sound to most, is a big new thing, being hailed as “the hot new play in the bitcoin wild west.” Undoubtedly, companies and individuals with huge coin positions might sleep a little more soundly if they knew their crypto assets were reimbursable in case an exchange or third-party wallet provider went belly up or got hacked overnight. Another possible candidate for their use includes above-board ICOs looking to protect crowdsourced funds, and the newfound industry is already raking in big bucks, according to Business Standard
- Worry warts in the European Union predict that central banks & permissioned blockchains could eventually “price out” bitcoin, according to a recent study. Titled “Competition issues in the Area of Financial Technology” and commissioned by the European Parliament Committee on Economic and Monetary Affairs (responsible for oversight on decisions made by the EU’s central bank), the study concluded that if banks and central banks were to issue their own cryptocurrencies it could mean bad news for decentralized cryptocurrencies like bitcoin. Perhaps what they forgot to realize was that cryptocurrencies were developed specifically to avoid the pitfalls of central banks and state bankers, and the only example of a state-run cryptocurrency thus far is Venezuela’s failed petro coin, which the government claims is a massive success (despite its non-release).
- A sunken Russian warship thought to be containing roughly $130 billion in gold was recently located off the coast of Korea and is already the subject of an ICO. Although no gold has actually yet been recovered from the vessel, which was scuttled during the Russian-Sino War of 1905 and not to be properly excavated until October, presale activity for the ICO has already commenced, leaving many to wonder if this is simply another scam attempting to cash in on the ICO craze.