Saturday, October 22, 2016

CoinDesk The Bitfinex Hack is Still Scaring Away Bitcoin Traders ... - CoinDesk


Bitfinex's hack continues to cast a shadow.

While the price of bitcoin had a relatively quiet month in September (one characterized by low volatility and lackluster trading), the Bitfinex hack continued to serve as a drag on the world's largest digital currency market.

Arthur Hayes, CEO and co-founder of bitcoin trading platform BitMEX, noted that the sideways price movements that took place during the month were most likely a direct consequence of the Bitfinex hack. He argued that with 120,000 BTC removed from the market, the event continues to "suffocate bitcoin interest and sentiment".

But even though trading volume was tepid during September, speculation was high, and these market conditions combined to fuel some rapid and aggressive long and short squeezes.

Overall, bitcoin prices rose 6.3% during September, which represented the smallest monthly change observed since March, CoinDesk USD Bitcoin Price Index (BPI) data reveals.

While this figure was slightly smaller than July's 6.93% drop and August's 8.56% decline, it was sharply lower than the fluctuations experienced in May and June, when bitcoin prices surged 21.70% and 26.46%, respectively.

Sideways movements


Indeed, after experiencing some major fluctuations early in the month, bitcoin prices moved little for the duration of September.

The digital currency's modest price movements resulted in low volatility, and data supplied by leveraged bitcoin exchange BitMEX supported this market calm.

The BitMEX 30-day Historical Volatility Index (also known as the .BVOL Index), averaged 24.7% in September, less than half of August's figure of 49.97%.

Volatility started out very high in September, surging to 48.84% on 1st September and averaging 29.9% during the first four days of the month, additional BitMEX figures reveal.

However, these numbers then proceeded to push gradually lower.

But bitcoin prices experienced some notable fluctuations early in the month, developments analysts asserted were likely caused by single traders making large transactions.

Single traders were able to trigger these major price fluctuations as the "disappearance of a large amount of bitcoins" created "reduced liquidity on the exchanges," said Whaleclub's Petar Zivkovski. "The order books were 40-60% thinner than they were historically, on average, resulting in price spikes or crashes even on relatively low volume."

This thin liquidity combined with high speculation, as Whaleclub data reveals market sentiment was overwhelmingly bullish during the month. Long interest – as measured by the total position size – averaged 81% in September.

Still, many traders prefer to sit on the sidelines in anticipation of a "big move" and higher liquidity, Zivkovski noted.

Bitfinex recovers

While Bitfinex has been cited as having a depressing impact on the bitcoin market, the exchange made several announcements during the month that helped restore market confidence in its future.

The exchange announced redemptions of its Bitfinex tokens (issued to investors as IOUs for the loss) on 1st September and 30th September. Then on 16th September, Bitfinex offered further detail on opportunities for exchanging BFX tokens, announcing a special purpose vehicle for converting BFX tokens into beneficial interests in iFinex, its parent company.

While some market observers were critical of the exchange's response to the hack, Kong Gao, overseas marketing manager for bitcoin trader Richfund, offered a different point of view, stating that Bitfinex made "all the right moves to recover from their loss".

Elsewhere, digital hedge fund operator Jacob Eliosoff described September as a "dull month."

Trading was lackluster, volatility was for the most part low and notable price movements were few in number, he said.

However, as Bitfinex continues to make efforts to regain the confidence of traders and the memory of its issues fades, the market could be poised for recovery as we head into 2017.

Haunted house image via Shutterstock


In this article, Woo presents his simulations of cryptocurrency index funds, which suggest that bitcoin is hard to beat. - CoinDesk

Willy Woo is a New Zealander with 15 years experience founding multiple startups. He's also an angel investor, traded derivatives during the 2008 world financial crisis and, since 2013, has been fascinated and excited about cryptocurrency.

In this article, Woo presents his simulations of cryptocurrency index funds, which suggest that bitcoin is hard to beat.


This year, the idea of managed portfolios and index fund portfolios has been on the rise, you can bet on many hitting the market in 2017. It's a popular idea borrowed from Wall Street. For stocks 99% of index funds (namely funds that buy the entire market passively), outperform actively managed funds.

Sounds like a great idea for crypto-land right?

I've been running simulations in the alt-coin markets to see if this is true. If so it would be prudent to diversify across many altcoins as a higher performance investment over bitcoin.

The results are surprising.

This simulation spans 16th October 2013 through to today – exactly three years. Earlier than this, and you'll find the altcoin market was very undeveloped.

My three-year span happens to nicely capture the last bubble of 2013, the long bear market of 2014/15 and its subsequent recovery until today. This is great, as it allows us to observe how indexes and bitcoin perform relative to each other in each scenario.

For all of my indexed portfolio simulations below, I have rebalance them every 30 days to account for newcomers into the list and old dropouts leaving.

Bitcoin vs the top-10 ranked altcoins proportioned by marketcap btc-vs-index10 (2)Bitcoin 4.6x vs Index 1.2x

Bitcoin outperformed the altcoin portfolio by 3.8x. Surprisingly during the 2013 bubble, alts performed even higher, but lost more ground in the bear market thereafter.

This pattern of alts having an edge in bull markets happened twice. I make out the bottom of the market was mid-May 2015. Since that time, alts recovered with a 3.8x rally (from 0.308x to 1.17x), while bitcoin recovered with a 2.7x rally (from 1.68x to 4.56x).

For those interested, here are the coins held each 30-day cycle denoting the top 10 altcoins over the three years.


Bitcoin vs the top-20 ranked altcoins by proportioned marketcap

For those who want to see more coins in the portfolio, here's the same simulation run across the top 20 altcoins. The results are almost identical. (At this point I've had people say to me the numbers are wrong. Trust me, these numbers are correct).

btc-vs-index10 (1)Bitcoin 4.6x vs Index 1.2x Bitcoin vs the 11th-20th ranked altcoins by proportioned marketcap

To shake things up, here's a portfolio with 10 'small cap' alts ranked 11th through to 20th making up the index. The idea behind this one is to capture the coins that have more potential for growth and exiting once they graduate to the big leagues (or fade into oblivion).

These results were one of the more promising index allocations, the portfolio dropped less during the bear market and had impressive gains during bull markets, however bitcoin still won out with a 4.6x return vs 3.6x for the index, which also exhibited more volatility.

btc-vs-index11to20Bitcoin 4.6x vs Index 3.6x Bitcoin vs the top-20 ranked altcoins by capped marketcap proportion

Off the back of Iconomi's ICO raising $10.6m USD, I wanted to simulate an index similar to their CTF offering. Iconomi use a 25% cap and a further mechanism of categories to distribute the allocations.

Here's an index with a maximum allocation of 25% for any altcoin in the basket. It will differ slightly from Iconomi's fund, but likely their results will be a halfway point between these results and the last index simulation which uses equal allocation.

Ahem. Our first loss maker of 0.82x vs bitcoin's 4.6x.

I may run their exact allocation through a simulation if I get enough requests (try me on Twitter).

Part of my beef with their investor whitepaper is they picked a bull market (since Jan 2016) to demonstrate their glam results, but here's a simulation run through a bear market. It seriously underperforms against the vanilla standard indexes above, and significantly underperforms against bitcoin. Nevertheless, clients will unlikely notice this until our next bear market, which is a while away.

btc-vs-index20-by-capped-marketcapBitcoin 4.6x vs Index 0.82x Bitcoin vs the top-20 ranked altcoins allocated by equal proportion

Going with the theme of more distributed allocation, this index proportions holdings equally at the start of each 30-day cycle. This one was a disaster with an abysmal 0.64x return (a significant loss).

btc-vs-index20-equalBitcoin 4.6x vs Index 0.64x Conclusions

Bitcoin is really hard to beat with index funds, maybe unbeatable with the present state of altcoins we have. Not only do they underperform bitcoin by a significant amount, but as a combined basket their day-to-day volatility is higher.

I ask myself why we don't parallel the stock market world, where indexes are very successful and my conclusion is that we are in a world of unvetted shitcoins.

When a company goes IPO, it needs to mature for many years and must qualify under stringent Securities and Exchange Commssion (SEC) criteria. Not so in altcoin land. They are like early stage startups that IPO immediately, but any angel investor will tell you they see a 99% failure rate of early stage startups.

There will be a bunch of altcoin funds hitting the crypto investment world in this coming year. Having seen the data, I would take the index-based approaches to fund investment with a decent pinch of salt.

Trading chart image via Shutterstock

This article was previously published on the author's blog and has received minor edits. The article should not be taken as investment advice.

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

bitcoinCryptocurrencyIndex FundsInvestment

Could Bitcoin Triumph in a Mr. Robot-like World? - Investopedia

The second season the acclaimed television series, Mr. Robot, which airs on the USA Network, imagines a world where the money and banking systems of the world have been brought down by a group of hackers. In this world, ATMs don't work, credit cards are useless, and loans & debts have been erased. The series references the use of the digital currency, Bitcoin, a number of times. Could Bitcoin triumph is such a post-banking dystopia as imagined by Mr. Robot's writers? (Note: 'Bitcoin' with a capital 'B' is used to denote the network, system, monetary system etc. while 'bitcoin' with a small 'b' denotes the individual units of currency.)

Bitcoin is a an entirely digital currency, and it has no central authority - no central bank, treasury, or government controls or operates it. Rather, the trust in Bitcoin and its value are derived from a vast network of distributed computers making up a decentralized network of "miners". These miners issue forth new bitcoins and at the same time validate and confirm every transaction that occurs, and adding those transactions to a shared, open ledger known as a blockchain. Moreover, this ledger and all of its transactions are secured by powerful encryption, creating a temper-proof, permanent, anonymous record of who has what. When two people come together to transact in Bitcoin (either in person or over some distance), the transaction is effected in a peer-to-peer (P2P) fashion - with no other banking or payments system in between.

Since Bitcoin relies on no government or central bank, if a country's currency fails, or the banking system that supports it collapses, Bitcoin will continue to operate. The network of miners extends around the globe, with some presence in almost every country in the world. Therefore, even if an entire country were to collapse, Bitcoin could still be used there. It is also secure from government intervention - nobody except for the owner a Bitcoin wallet (account) can manipulate the digital currency which is contained therein. (See also: The Six Biggest Misconceptions About Bitcoin)

The Case for No

Still, Bitcoin relies on access to the internet to be used. If a country goes down and along with it the electrical grid or the internet, then owning bitcoins will be effectively useless. Even if the internet persists, if a government can effectively restrict the usage of the internet or regulate which kinds of digital messages can be sent back and forth over the network (e.g. North Korea), then it may also be fruitless.

Bitcoin does not have a fractional reserve mechanism for credit formation the way our banking system does today. Therefore, loans made in bitcoin cannot have the effect of expanding the money supply, rather the lender is simply out the amount given to the borrower until they are paid back. This is not a death nail, but it would make our lending and credit relationships operate on a much different plane than what we are now accustomed. (See also: If You Had Purchased $100 of Bitcoins in 2011...)

Another, less limiting, downside is that many places don't yet accept Bitcoin for commerce. For example, you cannot go to WalMart and make purchases with it. Of course, it wouldn't take much for companies and individuals to begin using Bitcoin and start accepting it for everyday transactions.

The Bottom Line

Could Bitcoin, or something like it, emerge as the money of choice in a post-banking world, like that in Mr. Robot? If the electricity and internet are still on, and if more individuals and businesses begin accepting it, then yes it could plausibly circumvent any fallout that could render a national currency worthless. However, it would define a much different kind of economy, one not as much reliant on credit and debt for economic growth.

Friday, October 21, 2016

Nathaniel Popper: "Borders End Up Mattering A Great Deal" In Bitcoin - CryptoCoinsNews

Incredible mining facilities in China, and cinematic footage of the workers there. Breathtaking scenes from inside the contentious Russian crypto-currency community, where Ethereum developer Vitalik Buterin addresses a packed house.  

With Nathaniel Popper as narrator, these are just a few of the glimpses TechCrunch offers in a new documentary series into Bitcoin around the world. In his experience, Mr. Popper's learned that borders matter in Bitcoin.

"Bitcoin is supposed to be this global thing," Mr Popper tells CCN. "As it expands globally, it takes a different shape in each place where it takes roots. It looks different in China, than it does in Venezuela, than it does in the US."

He adds: "Although it's meant to be this borderless thing, borders end up mattering a great deal."

Borders play a big role in China, in particularly. "The national economy of China has ended up shaping how the technology has developed there," he said. Initially, the public interest in Bitcoin there was much more sort of speculative trading interest.

"In China, Bitcoin originally was about trading on the value of bitcoin," Mr Popper said. "That's going back to 2013, 2014, then moving forward to today. The local economy there is very different. This resulted in computing power being localized in China. On top of that, you have the Great Firewall, which makes it harder for computer miners within China to communicate with miners outside China. What's supposed to be a global market functions by local dynamics in a place like China." The nation of more than a billion doesn't have the same political dynamics that exist in the US, where bitcoin is a more political phenomenon.

"Getting to travel around the world brought to light for me how it's taken on this different shape and appearance in different places," Mr. Popper shared.


Vitalik Buterin in an episode of the web series.

This series delves into how Bitcoin has changed finance. Filmed on five continents, Mr. Popper tells the story of Bitcoin from its early utopian visions to its commercial adoptions by governments and big banks, and the global miners upon which the integrity of the network lies.

Episode 1 goes over the basics of blockchain technology and how it might be used. Episode 2 takes a look at miners and their role in the Bitcoin system. Episode 3 goes into Bitcoin's identity, and how it must choose how it expresses itself. Episode 4 looks at the rise of the blockchain. And Episode 5 looks at Ethereum, before the series final episode explores the difference between open and closed blockchains.

The entire series can be found here.

Image from YouTube/TechCrunch.