Every year has a handful of days that youll never forget. Sometimes for great reasons, sometimes for awful ones, and sometimes because a level of noise and action coalesces into an awareness that something big has shifted.

Wednesday was one of those days, with the staccato of compromised Twitter accounts (including ours) escalating to reach prominent public figures including current and former heads of state. The scale of the hack was spectacular.

Youre readingCrypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesks head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week with insights and analysis from a professional investors point of view.You can subscribe here.

The mainstream press called this a bitcoin scam, and to some extent it was the hacker set up the typical ploy of promising to send back double whatever amount of bitcoin anyone sent to a certain wallet. Its amazing that people fall for this.

But some people do a total of $123,000 worth of BTC was sent in approximately 400 transactions in total (some may have been the hacker recycling coins to inflate the activity). 17 transactions sent more than $1,000. Glossing over the fact that this is an astonishingly small amount for the scale of the hack, some skeptics took the opportunity to remind everyone how bitcoin was a scammers paradise.

Close the door

Some commentators went as far as to call for the banning of bitcoin. If bitcoin wereillegal, goes the reasoning, this wouldnt happen. Of course, this brought out the defenders by the droves, who pointed out among other compelling arguments that making something illegal doesnt stop it from happening; it often just makes it harder to monitor. And banning bitcoin would not stop its use nor eliminate its value.

But it did highlight a pervasive concern among many mainstream investors: a lack of regulatory clarity. Could the U.S. decide to outlaw bitcoin transactions within its jurisdiction? The very possibility is understandably enough to keep cautious investors away.

Technically, the U.S. could not ban bitcoin on a global scale bitcoin lives on a distributed network that would continue to exist even if U.S.-based nodes shut off and U.S.-based users dropped out. One of the strengths of bitcoin is that it is out of the range of state actors.

But, realistically, making the holding or transacting of bitcoin illegal for U.S.-based entities and individuals would be a big shock to the price as its store of value narrative would take a significant hit.

Whats more, the U.S. has considerable influence over the FATF, which sets anti-money laundering and anti-terrorist financing systems for the worlds banks and payments companies. The organization could be pressured to penalize governments that allow cryptocurrency services within their jurisdiction.Yet all of these concerns seem unfounded.Last week, the FATF announced its intention to step up crypto asset supervision with a view to building a global framework, which implies an interest in monitoring rather than stopping.

And in the wake of the Twitter hack, the talk coming out of Washington is not about bitcoin. The concern is the centralization of platforms. Twitter is under scrutiny much more than bitcoin.

If regulators were going to jump on the ban-bitcoin bandwagon, given the media frenzy, now would be the time. That they have notdone so is a strong sign of acceptance. True, there may yet be hiccups ahead in the road to systemic support but so far, the concern is more about the vulnerabilities in centralized services.

Furthermore, the amount of bitcoin involved in the scam is minusculecompared to what the take couldhave been, given the scale of the operation. Maybe the public is becoming more scam-savvy? And we should all be grateful that the hackers only wanted bitcoin, when you consider that they had control of the Twitter accounts of the likes of Elon Musk, Joe Biden, Benjamin Netanyahu, Barack Obama, Apple

The lack of focus on bitcoin in Washington this weekis a step forward,especially in the eyes of professional investors eager for greater regulatory clarity. If indeed bitcoin does weather this without louder calls for a clampdown, that is a strong sign that regulators acknowledge that bitcoin is here to stay.

I see you

Another way in which the Twitter hack was positive for bitcoin is the spotlight shone on the forensic transparency of the network.

Within hours of the hack, blockchain analysts were already constructing profiles of the hackers history and tracking the movements of the ill-gotten funds.

The wallets in question may not have a name and address associated with them, but they are indelibly there for anyone to monitor, and transactions into and out of these wallets cannot be hidden nor undone. Digital fiat money transfers may have associated names and addresses, but movements are easier to obscure. And names and addresses can be faked.

Whats more, the fact that anyone can access this data spreads the potential for useful information coming to light. While there may initially be different interpretations of the addresses and transfers, a consensus interpretation tends to emerge, which is likely to be a help to law enforcement. And forensic techniques are advancing, as is the diversity of approaches to blockchain data analysis. This should reassure regulators that bitcoin-related crime is not the threat to society some skeptics claim.

The bigger question

It is true that having bitcoin in mainstream headlines is good for its brand recognition but, in this case, the association with scams is not in its favor. Yet while politicians do pay attention to what the media is saying, by next week the bitcoin scam headlines will have faded into the pixels of time, giventhe frenetic news cycle we live in.

And the market itself does not seem worried the bitcoin price barely budged in the aftermath of the news.

The lasting effect will be a deeper understanding for those willing to ask the right questions, not just about bitcoins seizure resistance but also about how one weak access point left so much power in a bad actors hands.

That is a third beneficial outcome that should strengthen interest in blockchain applications beyond crypto assets. Growing concern over centralized vulnerabilities in communication platforms is just the beginning. From there to worrying about vulnerabilities in the centralized financial systems on which our society runs is not that big a step.

Anyone know what's going on yet?

This week exemplified the seesaw of good news swiftly followed by dampeners. Better-than-expectedearnings were offset by forecast downgrades, which seem to be spooking investors. Vaccine optimism, buoyed by positive results from a few laboratories, yet again got tempered by vaccine realism, as even really good candidates could take years before they become widely available. And when it comes to the evolution of the number of COVID-19 cases, positive news in some areas was offset by devastating news in others.

The S&P 500 is very close to having clawed back its losses for the year-to-date, and by the time you read this, might well have done so. It is 7% higher than this time last year. Ive given up wondering what economic outlook it is discounting.

Bitcoin has had a lackluster performance so far this month, yet it continues to outperform other major indices and assets on a year-to-date basis. Its lack of volatility has traders champing at the bit, however, and the emotional tension of waiting for a breakout, any breakout, could soon start to impact trading patterns.

CHAIN LINKS

Crypto asset fund manager Grayscale Investments* released its Q2 report, which revealed new investment of over $900 million over the quarter, its largest quarterly inflow to date, and 80% more than the previous quarterly high in Q1. TAKEAWAY: While the BTC price has been stagnant of late, it appreciated over 40% in Q2, largely as part of a broader market recovery from post-crash lows, but also perhaps partially because of growing institutional support. We dont know, however, how much of the inflow is new investment and how much is recycled as qualified investors sell their holding in the market at a premium and buy back in at par. (*Grayscale is owned by DCG, also the parent of CoinDesk.)

Lex Sokolin, the CMO and Global Fintech Co-Head at Ethereum laboratory ConsenSys, published an analysis of the rumored upcoming listing of crypto exchange Coinbase. TAKEAWAY: The lack of available data at the current time is one major obstacle for analysts trying to get a feel for what a listing valuation could be, but Lex does an admirable job of scraping information from public sources. Yet even if/when listing documents are filed and more numbers become available, analysts will still have a hard time figuring this one out: what exactly isCoinbase? Is it an exchange? A bank? A custodian?

Crypto data provider Coin Metrics has published areport on stablecoins that looks into their explosive growth: It took supply five years to reach $6 billion in March 2012, and only four months since then to double that. TAKEAWAY: The report takes a close look at pegs not everyone realizes that dollar stablecoins are not always worth $1, and that the difference can exert a material influence on supply as issuers arbitrage profit opportunities.

Crypto fund manager Arca reviewed its 2020 predictions from January, and updated them for the rest of the year. TAKEAWAY: The ones I found particularly interesting included the growth in non-crypto companies issuing crypto tokens, the rise of non-fungible tokens as an asset group and the growing influence of younger generations (I wrote more about this here).

Bitcoin miners sent less bitcoin to exchanges during the second quarter of 2020 than at any time over the past 12 months. TAKEAWAY: This can be taken as bullish (miners are choosing to hold onto their mined bitcoin because they believe the price will go up) or bearish (they would rather not sell into what they think will be a weak market). Either way, we should remember that newly mined bitcoins now account for a very small fraction of trading volume, so the influence of miners decisions is mitigated. Their actions are worth watching, however, as most have close relationships with OTC desks that move high volumes and have their ear to the ground.

The number of addresses holding a large number of bitcoins, known as whale addresses, has declined to a 14-month low. TAKEAWAY: As with the miner flows metric above, this can also be either bearish or bullish. Its not positive news for the asset price outlook to see large holders reduce their stakes; but a broader distribution of ownership is better for price resilience.

U.S.-based digital asset firm BitOoda published a report, together with the Fidelity Center for Applied Technology, that shows 50% of bitcoin mining is in China, and 14% in the U.S. TAKEAWAY: Earlier estimates had put Chinas market share at 65%, so if these figures are accurate, the bitcoin mining industry is becoming more decentralized and less dependent on China.

Crypto financial app Abra has settled charges from the SEC and the CFTC relating to its offering of synthetic swaps to retail investors without registering or selling them on a recognized national exchange. Abra and its Philippines-based partner company Plutus will pay $300,000 in fines and do not have to acknowledge the accusations. TAKEAWAY: This is the long arm of the law in action. Abra limited its offering to non-U.S. investors, and moved most of its operations overseas. But the regulators determined that having an office in San Francisco from which the contracts were marketed and hedged, serving a handful of U.S. retail investors that got through the geofencing, and having marketed to retail investors in the early days of the contract, put Abra in violation of securities laws. In other words, it doesnt matter where your main base is if your activity touches U.S. citizens and/or U.S. soil, you fall under U.S. jurisdiction.

On a recent panel, Linda Lacewell, superintendent of the New York Department of Financial Services (NYDFS),said that the recent changes to the BitLicense law were being well received. TAKEAWAY: The original BitLicense, which emerged just over five years ago as a requirement for any crypto business wanting to operate in the state of New York, received significant criticism for its onerous application obligations and the high cost of compliance. Lacewell introduced some reforms to the regulation that aimed to lower the barriers and encourage more experimentation. Its not surprising they are being well received, but it is good news to get the confirmation. Many crypto businesses chose to not do business in New York as a result of the original design, and the update does not mean they will come back. But Wall Street is one of the greatest financial centers in the world, and if crypto is going to run with the big boys, a presence at the heart of finance will be a step forward in the push to position crypto assets as a respectable investment for institutional portfolios.

Bitcoin Core contributor Jeremy Rubin has revealed his work on a new smart-contract language for Bitcoin called Sapio, which he hopes will increase the financial self-sovereignty of users. TAKEAWAY: Its worth keeping an eye on technological developments even in assets that, for many, are based on the store-of-value narrative. Enhanced smart contract ability will not only potentially lend application functionalities to Bitcoin, giving it a residual value and further likening it to gold (which, as well as an investment asset, is used in jewelry, technology, dentistry, etc.); it could also make it easier and/or safer to custody and exchange.

BitGo will offer API support for the latest Travel Rule guidelines from the FATF that stipulate originators and beneficiaries of financial transactions over $1,000 be identified. TAKEAWAY: This was always going to be a difficult proposition with crypto assets, since identification of both ends of a transaction isoften not possible, and goes against the integral idea that transfers can be decentralized and independent of a third party. The FATFs reach is long, however, and non-compliance is likely to be costly for jurisdictions that cannot control crypto activity within their boundaries. Technological aids like BitGos API, provided by a firm with a long history of custodial services, are likely to calm fears of both regulators and clients. Plus, BitGos origin is as a custody technology provider in 2013, it launched the first multi-sig wallet, a staple of custody technology today.

Also, Shyft Network this week announced that it is releasingits blockchain-based solution to help crypto companies comply with the FATFrequirements. TAKEAWAY:Tools like this are trying to get ahead of what is going to be a significant problem: the security vulnerabilities inherent in the FATFs requirement to send sensitive financial information back and forth.

The crypto options marketis growing fast, both in volumes and in number of platforms. Gate.io, a relatively small offshore exchange, has launched a new options trading feature, and Singapore-based exchange Huobi, which already offers futures and perpetual swaps, plans to do so later this year. TAKEAWAY: Growth in options is a sign of a maturing market, and a necessary step for greater institutional involvement. How long this growth will continue is an open question, especially given the declining volumes in crypto spot and futures markets.

Switzerland-based crypto custodian Metaco has closed a Series A round that was reportedly oversubscribed by a factor of two. Investors include Standard Chartered, smart-card and currency note printer Giesecke+Devrient, Zrcher Kantonalbank (the fourth largest bank in Switzerland), and the countrys postal service Swiss Post. TAKEAWAY: That this was reportedly oversubscribed is a sign of growing interest in Europe in digital asset market infrastructure. Also, the mix and profile of the investors is intriguing.

Podcast episodes worth listening to:

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

See the article here:
Why the Twitter Hack Was Good for Bitcoin (and Its Not the Media Attention) - CoinDesk - CoinDesk

Since Bitcoin (BTC) price rallied above $19,000 in 2017, crypto analysts have issued an amazingly wide range of price predictions on the date and value of the next all-time high or low.

Sometimes these predictions are rooted in deep fundamental and technical analysis, whereas other times they are simply nothing more than off-the-cuff estimates issued at whim.

Options markets provide useful insights into traders' expectations, including mathematical probabilities for an asset's future prices. Using Black & Scholes model allows one to better assess the likelihood of analysts' estimates.

The Black & Scholes valuation algorithm has been the basis for the pricing of options on traditional assets since the early 1970s, and remains widely used.

Although the Black & Scholes option pricing model tends to underestimate the odds of substantial movements, it does provide precise and conservative estimates.

Similar to weather forecasting, adding more than a couple of days to an estimate reduces its precision by a logarithmic proportion. One must also consider that the model has to predict a binary outcome because a $9,500 option will be deemed worthless if the expiry price is $9,499.

Many analysts tend to exaggerate their estimates to make a bold statement and attract media attention, or their predictions are based on various types of bias.

No one expects gold bugs like Peter Schiff to draw a bullish Bitcoin estimate, and the same can be said for expecting a bearish prediction from Stock-to-Flow model author PlanB.

The question investors should be asking is exactly how far off were those estimates compared to Bitcoin options pricing? Furthermore, should one even consider these analysts and pundits opinions?

Although the Black & Scholes options pricing model can be complicated, it's usage is pretty straight forward. By informing the current BTC price, strike level, days until expiry, and annual volatility, the model will instantly provide the odds above and below a specific price.

Skipping the complex calculations, one can refer to Skew Analytics to find current probabilities for each expiry based on options pricing.

Bitcoin probability at options maturity. Source: Deribit

Most active option strikes expire on the last Friday of every month. As previously explained, those figures will seem conservative. Both August and September strikes signify a mere 50% probability that Bitcoin price will remain above $9,000.

A 50% odd should is effectively neutral, as the mathematical model states that odds above and below such target are pretty much the same.

By contrast, the probability for a $8,500 on the July expiry (just two weeks from now) sits at 76%. The model becomes more confident as we approach maturity, so one should not expect options to price 90% plus odds for contracts with more than two weeks left.

To assert whether analysts and pundits' predictions fare better than options markets pricing, one needs to stack those odds against the Black & Scholes options model, which requires four basic inputs: current price, strike (prediction), days until expiry, and implied volatility.

Bitcoin price and pundits predictions. Source: TradingView

The above chart depicts six predictions over a 100 day period, which will be individually tested against the options markets model.

Despite having said numerous times that he isn't an active trader, Binance founder Changpeng Zhao often likes to publicize his predictions. In early November, CZ declared that BTC would hit $16K 'soonish,' so one should assume four months.

CZ missed the mark by 35% as Bitcoin failed to break $10,500 level within four months. This was not a lousy call, but rather way too optimistic as indicated by the Black & Scholes model.

Analyst Willy Woo reflected on the previous year cycle low of $3,100 and estimated that Bitcoin could drop 71% from its $12,800 high, reaching $4,500 before the next halving. It seemed rather unlikely at the time, but a six-month timeframe in cryptocurrency is a very long time.

Hats off to Willy Woo on this call as the March 13 infamous crash caused a brief test of the $4,000 level. Despite being correct, buying protection for such a long time frame costs substantial money. A $6K put option would have cost Woo $540 back then.

Notorious Bitcoin basher Peter Schiff spotted a head and shoulders pattern and issued a $1,000 prediction. Although no timeframe was set, based on such a pattern, a three-month time frame seems reasonable.

One doesn't need to be a statistician to deem such predictions as unreasonable. According to the options model, a $5,000 target back would still have shown a limited 10.7% probability.

Peter could have remained bearish using a more reasonable goal, according to options markets at that time.

The 40-year market stalwart said that BTC had already hit its floor; hence investors waiting for a price dip to $6,000 have "missed" their opportunity. No timeline was mentioned, although a 3-month prediction would have pleased most investors.

Less than two months after that tweet, the sudden Bitcoin collapse on March 13 proved Peter Brandt's prediction wrong.

In an interview with Yahoo! Finance, Fundstrat senior analyst Tom Lee suggested that Bitcoin's technical achievements paved the way for 200% gains within six months, with halving acting as a catalyst.

With less than 20 days to fulfill such a prediction, it seems very unlikely to occur. At least buying a $23K call option would have cost $65, a bargain considering a $4,000 upside to Lee's target.

The creator of the stock-to-flow model revealed his belief that Bitcoin would not return below $8,200. PlanB also mentioned that he was expecting levels above $10,000 near Bitcoin halving in May.

Less than a month later, PlanB's $8,200 support level was broken, although his $10,000 prediction for halving was pretty close as it was off by only 3% to 5%.

One might say PlanB got it 50% right, although the bold $10,000 prediction could have earned him good money using a butterfly spread strategy.

Black & Scholes can be a useful tool to understand how far a prediction might be from options pricing. Whats clear is that pundits seem to exaggerate their takes, which leads to huge misses and misinformation in the form of bad analysis being spread through major media outlets.

In some cases, the wild guesses do hit the mark. For example, Willy Woo and PlanB could certainly have profited by defying options model pricing, but generally it's better to do your own research instead of following calls from leading analysts.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Read more:
Bitcoin Price Predictions by Top Analysts Are Usually Wrong Heres Why - Cointelegraph