Daily Archives: August 4, 2021

Bitcoin SV, a controversial fork of bitcoin created in the aftermath of the 2017 blocksize wars, has suffered a "massive" attack that may have been an attempt to destroy the cryptocurrency.

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Bitcoin SV split from an earlier fork of bitcoin as developers warred over how to scale and grow the ... [+] cryptocurrency.

The bitcoin SV price, which hasn't climbed along with bitcoin and other major cryptocurrencies this past year, has lost around 5% since the so-called 51% attack.

Such attacks are attempts by miners that secure cryptocurrency blockchains in return for tokens to overwhelm the network and reorganize the record of transactions, potentially resulting in coins being double-spent and destroying their value. All cryptocurrencies that use distributed ledger blockchains are vulnerable to 51% attacks, with bitcoin itself suffering one in 2014.

"BSV is going through a massive 51% attack," Lucas Nuzzi, a network data product manager at Coin Metrics, said via Twitter. "After an attempted attack yesterday, some serious hashing power was unleashed today at 11:46AM and attackers are succeeding."

The attack resulted in three versions of the bitcoin SV blockchain being mined simultaneously.

"There was plenty of confusion across mining pools after the attack, but only one (successful) 14-block [reorganization] since the attack began," Nuzzi added.

"In response to the ongoing reorganization attack on the BSV network, Bitcoin Association recommends that node operators mark the fraudulent chain as invalid," the Bitcoin Association, which manages the bitcoin SV blockchain, said via Twitter. "This will immediately return your node to the chain supported by honest miners and lock the attackers chain out."

Bitcoin SV, itself a version of an earlier bitcoin fork called bitcoin cash, was created in November 2018 after developers disagreed over how to grow bitcoin cash.

"BSV is a threat to other so-called cryptocurrencies because it is doing what bitcoin was always meant to do," a spokesperson for the Bitcoin Association said via email in response to why someone might be trying to "destroy" the bitcoin fork.

While bitcoin, the largest cryptocurrency by value with a market capitalization of around $700 billion, has become known as a store of value, bitcoin cash and bitcoin SV are aiming to become global payment networks.

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The bitcoin SV price has dropped since the 51% attack, with investors losing confidence in the ... [+] network.

However, both bitcoin cash and bitcoin SV have suffered accusations of centralization, leaving them vulnerable to attacks and manipulation.

Bitcoin SV is supported by Craig Wright, the Australian entrepreneur and founder of blockchain developer nChain who claims to be bitcoin's mysterious creator Satoshi Nakamoto. Wright has alienated much of the bitcoin and cryptocurrency community with heavy-handed attempts to be recognized as Nakamoto and lay claim to billions of dollars worth of bitcoin.

"This latest attack did, as reported, create three malicious forks containing substantial double-spend attempts, the first two have been successfully repelled by honest miners choosing to reject fraudulent double spends in accordance with the bitcoin whitepaper," Steve Shadders, nChain chief technology officer, said in emailed comments.

"The third chain is much smaller, just 13 blocks, which miners are in the process reversing as it is much more recent. While the motive isnt entirely clear at present it seems likely it is little more than theft and profiteering and the fact that we can now repel such actions is very encouraging, it has kept the exchanges, who were targets of these fraud attempts, safe and is completely in line with the white paper."

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Bitcoin Fork Suffers Massive 51% Attack In Attempt To Destroy The Cryptocurrency, Sending Its Price Sharply Lower - Forbes

Aug 2nd 2021

THE RECENT expansion of the crypto-universe is a thing of wonder. Only a year ago there were about 6,000 currencies listed on CoinMarketCap, a website. Today there are 11,145. Their combined market capitalisation has exploded from $330bn to $1.6trn todayroughly equivalent to the nominal GDP of Canada. More than 100m unique digital wallets hold them, about three times the number in 2018.

Holders have become more sophisticated and deep-pocketed, too. Institutions account for 63% of trading by value, up from 10% in 2017 (see chart 1). Skybridge, a hedge fund run by Anthony Scaramucci, provides an illustrative example. Its diversified $3.5bn fund began investing in crypto in November; in January it launched a $500m bitcoin fund. The exposure of its 26,000 clients, which range from rich individuals to sovereign funds, is rising. Bitcoin accounts for 9% of the value of its main vehicle, up from 5% originally, and the dedicated fund is now worth around $700m.

This maturation, however, has failed to tame the wild gyrations that characterise crypto markets. Bitcoin sank from $64,000 in April to $30,000 in May. Today it hovers around $40,000, having dipped to $29,000 as recently as July 29th. Every downwards lurch raises the question of how bad the fallout might be. Too much seems at stake for the cryptocurrency to collapseand not just for the die-hards who see bitcoin as the future of finance. Algorithmic traders now conduct a hefty share of transactions and have automatic buy orders when bitcoin falls below certain thresholds. Still, in order to grasp the growing links between the crypto-sphere and mainstream markets, imagine that the price of bitcoin crashes all the way to zero.

A rout could be triggered either by shocks from within the system, say through a technical failure, or a big hack of a leading exchange. Or they could come from outside it: a clampdown by regulators, for instance, or an abrupt end to the everything rally in markets, say in response to central banks raising interest rates.

There are three types of crypto investors, says Mohamed El-Erian of Allianz, an insurer and asset manager: fundamentalists, who believe bitcoin will replace government-issued currencies one day; tacticians, who reckon its value will rise as more people invest in it; and speculators, who want to gamble. Though a crash would come as a monumental upset to the first group, it is least likely to sell out; the third, meanwhile, will flee at the first sign of trouble. To avoid a terminal stampede, the second group must be persuaded to stay. It is unlikely to do so if the price falls to zero.

A crash would puncture the crypto economy. Bitcoin minerswho validate transactions in exchange for a chance to earn new coinswould have less incentive to carry on, bringing the verification process, and the supply of bitcoin, to a halt. Investors would probably also dump other cryptocurrencies. Recent tantrums have shown that where bitcoin goes, other digital monies follow, says Philip Gradwell of Chainalysis, a data firm.

The result would be the destruction of a significant amount of wealth. Investors who have held bitcoin for longer than a year, having bought it at low prices, would have less to lose, despite large unrealised gains (see chart 2). The biggest losses would fall on those who bought less than a year ago, at an average price of $37,000. That would include most institutions exposed to crypto, including hedge funds, university endowments, mutual funds and some companies.

The total value erased would go beyond the market capitalisation of digital assets. A crash would also wipe out private investments in crypto firms such as exchanges ($37bn since 2010, reckons PitchBook, a data firm) as well as the value of listed crypto firms (worth about $90bn). Payments firms like PayPal, Revolut and Visa would lose a chunk of growing, juicy business, which would dent their valuations. Companies that have ridden the crypto boom, such as Nvidia, a microchip-maker, would also take a hit. All in all, perhaps $2trn might be lost from this first shockwave, a little more than the market capitalisation of Amazon.

Contagion could spread through several channels to other assets, both crypto and mainstream. One channel is leverage. Fully 90% of the money invested in bitcoin is spent on derivatives like perpetual swapsbets on future price fluctuations that never expire (see chart 3). Most of these are traded on unregulated exchanges, such as FTX and Binance, from which customers borrow to make bets even bigger. Modest price swings can trigger big margin calls; when they are not met, the exchanges are quick to liquidate their customers holdings, turbocharging falls in crypto prices. Exchanges would have to swallow big losses on defaulted debt.

The rush to meet margin calls in cryptocurrencythe collateral of choice for leveraged derivativescould force punters to dump conventional assets to free up cash. Granted, they might give up trying to meet those calls, since their crypto holdings would no longer be worth much, which could contain the sell-off. But other types of leverage exist, where regulated exchanges or even banks have lent dollars to investors who then bought bitcoin. Some have lent dollars against crypto collateral. In both cases borrowers nearing default might seek to liquidate other assets.

The extent of leverage in the system is hard to gauge; the dozen exchanges that list perpetual swaps are all unregulated. But open interest, the total amount in derivatives contracts outstanding at any one time, provides an idea of the direction of travel, says Kyle Soska of Carnegie Mellon University. This has grown from $1.6bn in March 2020 to $24bn today. It is not a perfect proxy for total leverage, as it is not clear how much collateral stands behind the various contracts. But forced liquidations of leveraged positions in past downturns give a sense of how much is at risk. On May 18th alone, as bitcoin lost nearly a third of its value, they came to $9bn.

A second channel of transmission comes from the stablecoins that oil the wheels of crypto trading. Because changing dollars for bitcoin is slow and costly, traders wanting to realise gains and reinvest proceeds often transact in stablecoins, which are pegged to the dollar or the euro. Such coins, the largest of which are Tether and USD coin, are now collectively worth $100bn. On some crypto platforms, they are the main means of exchange.

Issuers back their stablecoins with piles of assets, rather like money-market funds. But these are not solely, or even mainly, held in cash. Tether, for instance, says 50% of its assets were held in commercial paper, 12% in secured loans and 10% in corporate bonds, funds and precious metals at the end of March. A cryptocrash could lead to a run on stablecoins, forcing issuers to dump their assets to make redemptions. In July Fitch, a rating agency, warned that a sudden mass redemption of tethers could affect the stability of short-term credit markets. Eric Rosengren, the head of the Boston Federal Reserve, has noted that regulated investors with liabilities similar to Tethers are not allowed to invest in many assets, because it would represent a stability concern.

A cryptocalypse could affect broader sentiment even beyond firesales. The extent of this is unclear: more entities are now exposed to cryptocurrencies, but few have staked big shares of their wealth on them, so losses would be widespread but shallow. Crucially, banks are immune; and most will not rush to hold bitcoin on their balance-sheets any time soon. The Basel club of supervisors recently proposed making banks set aside an onerous $100 for every $100 in bitcoin they acquire.

But a worse case is not hard to imagine. Low interest rates have led investors to take more risk. A crypto collapse could cause them to cool on other exotic assets. In recent months the correlation between bitcoin prices and meme stocks, and even stocks at large, has risen. That is partly because punters reinvest gains made on faddish stocks into crypto, and vice versa.

A sell-off would begin with the most leveraged punterstypically individuals and hedge fundsin high-risk areas: meme stocks, junk bonds, special-purpose acquisition vehicles. Investors exposed to these, facing questions from their investment committees, would follow in turn, making risky assets less liquid, and perhaps provoking a general slump. If that sounds improbable, remember that the S&P 500, Americas main stock index, fell by 2.5% in a day after retail punters infatuation with GameStop, a video-game retailer, wrong-footed a few hedge funds.

For general market turmoil to ensue, then, you would need a lot of things to go wrong, including the price of bitcoin to fall all the way to zero. But our extreme scenario suggests that leverage, stablecoins, and sentiment are the main channels through which any crypto-downturn, big or small, will transmit more widely. And crypto is only becoming more entwined with conventional finance. Goldman Sachs plans to launch a crypto exchange-traded fund; Visa has launched a debit card that pays customer rewards in bitcoin. As the crypto-sphere expands, so too will its potential to cause wider market disruption.

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What if bitcoin went to zero? - The Economist

This story appears in the August/September 2021 issue of Forbes Magazine. Subscribe

(IMAGE ABOVE) Bill Spence and Greg Beard on a Russellton, Pennsylvania, coal waste pile left by a mine that powered 20th-century Pittsburgh steelmakers. Theyre burning this polluting gob to mine bitcoin.

Growing up in rural western Pennsylvania in the early 1970s, Bill Spence played with his pals on piles of coal waste, oblivious to the toxic heavy metals right under his feet. After working as an oil industry engineer out west, he returned home in the 1990s and found the pilesknown as gob, for garbage of bituminousstill pockmarking the landscape. The present worry is that these unlined pits are leaching deadly carcinogens into the groundwateror, worse, that they will catch fire and start polluting the air, too. (Of the 772 gob piles in Pennsylvania, 38 are smoldering.)

So Spence, now 63, set out on a mission to whittle down the piles, restore the landand make money doing it. In 2017, he bought control of the Scrubgrass Generating power plant in Venango County, north of Pittsburgh, which was specially designed to combust gob. But gob isnt a very good fuel, and the plant was barely viable. Later that year, after being diagnosed with pancreatic failure and kidney cancer (which he speculates may have been linked to his early gob exposure), he stepped back from the business. Bored, he started dabbling in cryptocurrencies and soon had a eureka moment: He could make the Scrubgrass numbers work by turning gob into bitcoin.

After surgery and being taken off a feeding tube, Spence is now back at it, converting the detritus of 20th-century heavy industry into 21st-century digital gold. About 80% of Scrubgrass 85,000-kilowatt output is now used to run powerful, energy-hungry computers that validate bitcoin transactions and compete with computers worldwide to solve computational challenges and earn new bitcoinsa process known as mining. Depending on the price of bitcoin, which has recently been gyrating around $35,000, Scrubgrass realizes an estimated 20 cents or more per kilowatt hour (kwh) from mining, against just 3 cents selling to the power grid. Plus, because the plant is safely disposing of gob, it collects Pennsylvania renewable-energy tax credits now worth about 2 cents per kwh, the same as those available for hydropower.

Spence is one of an emerging cohort of American bitcoin miners who are turning one of the cryptocurrencys biggest liabilitiesits insatiable thirst for energyinto an asset. Whether theyre getting rid of waste fuels like gob, helping balance the electric grid in Texas or tapping into the flares at oil-and-gas fields, these cryptopower entrepreneurs are profiting by turning digital lemons into green lemonade. And with countries such as China, Indonesia and Iran moving either to severely restrict bitcoin mining or ban it altogether, the opportunity for domestic producers has never been greater. From just a 4% share two years ago, the U.S. has grown into the worlds second-largest miner, now accounting for 17% of all new bitcoins, according to the University of Cambridge Center for Alternative Finance.

The Belly of the Beast: At Riot Blockchains bitcoin mining facility in Rockdale, Texas, exhaust from some of the stacks of 120,000 energy-sucking computers pushes the temperature up to 130 degrees.

For all bitcoins purported benefits, its also clear that the currency is an environmental disaster. Depending on bitcoins cost (a higher price attracts more miners), its global network sucks up between 8 and 15 gigawatts of continuous power, according to Cambridge. New York City runs on just 6 gigawatts, the nation of Belgium on 10. Exactly how much carbon is released into the atmosphere by bitcoin mining depends entirely on what energy source is used. But the pollution is not negligible. To unlock a single bitcoin, miners must feed their machines about 150,000 kwh, enough juice to power 170 average U.S. homes for a month.

Its especially frustrating that high-energy inputs arent a bitcoin bug but rather a feature. Sure, some portion of the electricity is used to validate transactions, but much is seemingly wasted solving flat-out useless mathematical problems. This proof of work is simply a way to create artificial scarcity, making it far too expensive for any one group to corner or manipulate the market. In a 2010 message board comment, Satoshi Nakamoto, the pseudonymous creator of bitcoin, made no apologies: Its the same situation as gold and gold mining. The marginal cost of gold mining tends to stay near the price of gold. Gold mining is a waste, but that waste is far less than the utility of having gold available as a medium of exchange. I think the case will be the same for bitcoin. The utility of the exchanges made possible by bitcoin will far exceed the cost of electricity used.

Of course, the system could have been designed differently. There are serious cryptocurrencies, including ethereum, cardano, stellar, Ripples XRP and algorand, which use vastly less energy than bitcoin or are being modified to do so. Ethereum, for instance, is transitioning next year from proof of work to a system called proof of stake, which cuts energy use by 99.95%. Theres even a new currency, candela, whose protocol requires solar-powered mining.

But bitcoin isnt going anywhere. Its first-mover advantage has translated into a recent market cap of $700 billion, more than the five next most valuable cryptocurrencies combined. (Ether, the second most popular, has a market cap of $250 billion.) And bitcoin mining is unlikely to get much less energy-intensive. Its algorithm forces miners to compete to unlock each new coin, and that competition will continue until the last bitcoin is mined, sometime around 2140. Registering a transaction on the bitcoin blockchain takes a million times more energy than processing one on Visas bank network. (Backers say a new Lightning transaction network designed to operate atop bitcoin could make it even more efficient than Visa.)

If you think its fake money, then any amount of energy use will be too much, observes Ted Rogers, vice chairman of Greenidge Generation Holdings, which operates a power plant and bitcoin mining facility on Lake Seneca in upstate New York. But bitcoin is not going away, and it is going to be the global reserve currency and the center of the future financial world.

If you think bitcoin is fake money, then any amount of energy use will be too much.

To see how green bitcoin can be, look no further than the Lone Star State, whose independent power grid famously failed during last winters deep freeze. Dozens of power plants were knocked offline, causing billions of dollars in property damage, and some retail customers were presented with monthly bills as high as $17,000. While the directors of the comically named Electric Reliability Council of Texas (ERCOT) have since resigned, the states politiciansbeyond mandating that plants prepare better for winter weatherhavent done much to reform the system.

Fortunately, the free market seems to be coming to the rescue, with 16 gigawatts of new wind and solar projects set for construction in West Texas over just the next year. During normal conditions this will be far more electricity than is needed to fill the Texas demand gap. But it will also ensure that theres enough power for extreme events like ice storms and summer heat waves. Bitcoin miners are acting as a kind of shock absorber for this new green power. They buy up excess energy when its not needed, then shut down their mining rigs when demand surges, releasing power back onto the grid.

West Texas is going to dominate; it will all come here, predicts Jesse Peltan, 24, CTO of Dallas-based Autonomous (and a member of the 2021 Forbes 30 Under 30). Last year Peltan helped launch a 150-megawatt crypto mining data center near Midland called HODL Ranch, named for crypto hoarders who buy and then (typo intended) hodl on for dear life. Its the first large-scale operation to be powered by the regions massive solar and wind farms. Some nights the gusts are so ferocious that grid operators give away power just to keep the system from overloading.

Heres the key: These miners have entered into so-called demand response contracts with the Texas grid, whereby they agree, in exchange for rebates, to shut down their computers at a moments notice during times of peak power demand. This brings average power costs at HODL Ranch down below 2 cents per kwh, for a mining cost close to $2,000 per bitcoin.

In Texas, bitcoin miners act as a shock absorber for new green power, buying energy when its not needed and shutting their rigs when demand surges.

The largest bitcoin mining operation in America is also in Texas, operated by publicly traded Riot Blockchain ($3 billion market cap) in Rockdale, northeast of Austin, near a giant interconnection that moves 5,000 MW of grid power through a maze of transformers and high-voltage lines. Riot taps directly into this interconnection to draw 300 MW of that juice, which powers 120,000 high-speed mining computers stacked in racks 30 feet high in three narrow buildings, each longer than two football fields. Construction is under way to expand to 750 MW, with 130,000 more machines to be installed by the end of 2022.

Riot has a ten-year contract to buy all the power it needs in Rockdale at a bargain 2.5 cents per kwh, counting a 0.5-cent-per-kwh discount it gets for participating in demand response. It also has the option to resell all its power to the grid. During the Texas freeze, the Rockdale facility voluntarily shut down all mining for two days. Assuming it earned the peak price of $9 per kwh, thats a $90 million windfall. At this scale of energy procurement, we are not just mining bitcoin, says CEO Jason Les. Instead, Riot is acting as a virtual power plant.

Les, 35, studied computer science at UC Irvine but first learned about bitcoin while playing professional poker in the mid-2010sand seeing other players use it to hold and move their winnings without banks. Hes not bothered by bitcoins volatility, because hes all in: When massive price swings come, they dont affect me whatsoever. In poker, if youre good, youre still losing 45% of the time. Im very comfortable with losing.

An even bigger technological green gamble is being taken by Crusoe Energy Systems, which has raised $250 million, mostly to mine bitcoin in the middle of remote oil-and-gas fields in six states, including New Mexico, Texas and North Dakota. Investors include Bain Capital, Valor Equity Partners, Tesla cofounder J.B. Straubel and the twin-brother crypto billionaires Cameron and Tyler Winklevoss. Crusoe has deployed 45 shipping containers stuffed with bitcoin mining computers, which are powered using natural gas that otherwise would have been burned off or flared. (When drillers complete new oil wells but dont yet have pipelines hooked up to gather the natural gas, they set it on fire, since allowing it to simply waft into the atmosphere would be even worse for global warming.)

We underestimated the operational complexities in the business, admits Crusoe cofounder Chase Lochmiller, a 35-year-old veteran of crypto investment firm Polychain Capital. The startup has found it a challenge to maintain containers spread out across the vast landscape, particularly during the heat of the summer. While Crusoe is unlikely ever to scale up to Riots size and profitability, it is already diverting 10 million cubic feet per day of gas that would otherwise be flared. We think the best way to improve the carbon economics of an oilfield is to add a few bitcoin rigs, Lochmiller says.

Reclaiming history: Spence and Beard of Stronghold walk the Russellton site, which produced metallurgical coal for Pittsburgh steelworks a century ago.

What really counts as green energy? Wind and solar power, for sure. Other sources can be a tougher call.

On the banks of New Yorks Lake Seneca, the Greenidge Generation plant produces 80 MW of power, using about half to mine crypto. Private equity firm Atlas Holdings, based in Greenwich, Connecticut, bought the mothballed plant in 2014 and invested tens of millions to upgrade it to run on natural gas. That means it emits just a quarter of the carbon dioxide it did during the previous six decades, when it ran on coal, and none of the sulfur compounds or particulate matter.

So far, so green. Yet, as it did when it was powered by coal, the plant sucks in up to 100 million gallons of water daily for cooling, returning it to Lake Seneca about seven degrees warmer. Local environmentalists call it a giant fish blender and blame the heated water for lowering oxygen levels and contributing to algae blooms. A bill that would have banned crypto mining in New York for three years died in a state assembly committee in June. Greenidge has been further greenwashing its bitcoin by acquiring CO2 allowances and forestry offsets. CEO Jeff Kirt notes the plants discharge water is well within regulatory limits and says it has been adding more screening systems to protect Senecas trout. The company plans to go public later this year.

Back in Pennsylvania, environmentalists arent entirely thrilled that Spences Scrubgrass plant gets the same subsidy as hydropower. But the state has decided its better to have carbon dioxide emitted by a gob-burning power plant than to leave the stuff in polluting pits.

The problem is real, Spence insists. The only way to fix it is these plants. The technology at Scrubgrass wasnt widely used until the 1990s and is expensive. A special reactor burns the gob, rocks and all, producing a high-pH ash that is applied to the remaining piles to neutralize their acidity. The economics make sense only with the addition of bitcoin mining. Spence has a new, well-connected partner in Greg Beard, who until 2019 headed natural-resources investing at private equity giant Apollo Global Management. The two cofounded Stronghold Digital Mining, which now owns Scrubgrass. With Beard, 49, as CEO, Stronghold raised $105 million in June from private investorsenough to buy more bitcoin mining equipment and acquire a second and possibly third gob-burning plantand has filed preliminary papers to go public. Beard says he never saw anything like this during his two decades in private equity. This is the most important growth play in a generation.

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'Green Bitcoin Mining': The Big Profits In Clean Crypto - Forbes

Technical analysts weighed in after bitcoin's latest price movements. (Photo illustration by ... [+] Chesnot/Getty Images)

Bitcoin prices have been trading primarily between $30,000 and $42,000 since late May, but recently, they have repeatedly attempted to mount convincing breakouts.

In the last week, the cryptocurrency surpassed the upper limit of the aforementioned range multiple times, CoinDesk figures show.

It reached $42,351.93, $42,369.39 and $42,435.07 on July 30, July 31, and August 1, respectively, additional CoinDesk data reveals.

More recently, the digital asset has fallen back somewhat, declining to as little as $38,978.57 this morning, down roughly 8.1% from yesterdays recent high.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Key Technical Levels

Keeping these latest developments in mind, several technical analysts weighed in, shedding some light on bitcoins crucial levels of support and resistance.

Katie Stockton, the founder and managing partner ofFairlead Strategies, LLC, offered some perspective:

Bitcoin has broken through the resistance I have been highlighting defined by the cloud model, which lowers over time, she stated.

It previously was near $42K, but has since lowered to below $38K, such that a breakout has already been confirmed above cloud-based resistance.

A Fibonacci retracement level near $42.6K remains intact as resistance, however, so I would imagine some are focused on that, Stockton added.

Once that level is surmounted, the targeted level becomes $51.1K based on the Fibonacci levels, she concluded.

William Noble, the chief technical analyst of research platform Token Metrics, also chimed in.

Bitcoin is facing substantial resistance near $43k, he stated, adding that this resistance is clear on charts.

Potential Opportunity

Noble spoke to the recent pullback, describing bitcoins recent drop to roughly $39,000 as an opportunity to get involved if you missed the rally.

The decline in bitcoin from $42k to $39k is likely a pause that refreshes, he stated.

Mark Warner, head of trading at BCB Group, also offered a bullish take.

There are many sellers at $42,000, where longs have been trapped since 19 May, so we expect more resistance at this level. A confirmation of the breakout, by BTC retesting $34,500-$36,000, could provide buying opportunities for those who missed out.

Downside Risk

While the aforementioned analysts focused on bitcoins resistance and potential buying opportunities, other market observers commented on how the digital currency could suffer further losses.

Julius de Kempenaer, senior technical analyst at StockCharts.com, spoke to this.

BTC is still in its trading range and, as a matter of fact, BTC seems to be respecting the technical boundaries of that trading range ($30k-$42k) fairly well so far, he said.

Unless we see a clear break above that upper boundary, the risk now seems to be the downside again.

Jason Lau, COO of cryptocurrency exchange Okcoin, also weighed in.

Bitcoin's been stuck in this range for the past few months and resistance at the $42k level was expected, he noted.

Bitcoin last hit this range in mid June and fell 30% the following week, Lau emphasized.

Key metrics around BTC futures and premiums look similar to the last time, he said.

BTC futures open interest has rebounded in past few days, but at similar levels to mid June.

Since 7/31, BTC futures funding rates have turned positive, having been mostly negative for the past few weeks. Again, we are now at similar levels to mid June.

Looking ahead, we would need to see a clean price break above $42,000, along with a strong uptick in BTC futures funding rates, before we can confirm a breakout of the range, said Lau.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.

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Where Are Bitcoin Prices Headed After Their Latest Pullback? - Forbes

By Ahmed Shabana

Even after the major cryptocurrencies experienced an ominous collapse from their all-time highs in April, most are up by 200 percent to 300 percent or more from this point last year. Bitcoin is getting all the headlines, and there are legitimate concerns about its roller coaster nature.

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But what about Ethereum? Conceptualized in 2013, Ethereum is an open-source platform that helps to develop and implement new decentralized applications using the same core concepts such as blockchain.

The difference between Ethereum and Bitcoin has caught the attention of major market players like Goldman Sachs, which recently noted to its investors that Ethereum has a good chance of surpassing the $660 billion market capitalization of Bitcoin.

The Ethereum network shows more promise due to its real-world applications and ability to store value. Ethereum represents the future of programmable money and smart contracts in a way that legacy cryptocurrencies like Bitcoin cannot.

Because the Ethereum network supports the development of and allows for the creation of new applications on its infrastructure, its potentially a more valuable resource in the long term. Ether (ETH) is used to pay for those transactions, as was most recently seen with the booming popularity of NFTs this spring. The result is a much higher utilization rate for ether, with far more transactions than Bitcoin in the last 12 months.

Despite the recent dip in cryptocurrencies, ether rose nearly 1,000 percent over the last 12 months compared to the 300 percent increase for Bitcoin. Where a bitcoin is purely a token of value a currency backed by the perceived value of those who hold it Ethereum and the ETH blockchain fuel one another. Recent upgrades to the Ethereum network are helping it to scale much faster and reduce the cost of transactions on the network, further pushing the price of the tokens up.

Instead of having a central authority that oversees how the applications on the Ethereum network run and what transactions are processed, Ethereum-based apps are booming. The most common types of these apps are DeFi. These apps saw 2,000 percent growth in 2020, with more than $16 billion in crypto assets stored in its protocols through the end of the year.

Ether started 2020 at $125.63 and grew by nearly 500 percent by the end of the year to $729.65. In 2021, it briefly reached $4,380 but has ranged between $1,700 and $2,500 since then, sometimes jumping or dropping by as much as $1,000 in a single week.

The big question is where ETH will end 2021. Many forecasts are relatively bullish, with an average targeted price between $3,500 and $4,500 by the end of the yearand average long-term projections as high as $11,170 by 2025. However, there are some who see it growing even faster and more substantially in that time.

In a recent Forbes article, a panel of crypto experts including Sagi Bakshi and Lex Sokolin predict that ETH could rise as high as $19,842 by 2025 and that by the end of 2022 it could be the most widely transacted cryptocurrency due to its expanding utility in the marketplace.

These experts cite an array of upgrades being made to the network in 2021 that will reduce the currently high cost of transactions and drastically increase utility. One expert on the panel, Sarah Bergstrand, estimated ETH could reach $100,000 by 2025.

The biggest upgrade being eyed by investors is EIP-1559, which will overhaul the transaction fee system used by Ethereum. Instead of sending fees to miners who complete tasks on the network, users will send the fee to the network itself, which will destroy the fee, reducing overall supply and subsequently increasing the value of the currency.

Ethereum represents a sustainable, function-oriented approach to cryptocurrency that will support the future of DeFi. But many people remain on the sidelines, waiting for government regulations to be implemented.

While long-time cryptocurrency investors bemoan the thought of regulation limiting the freedom currently available in the market, big investors and companies see the inevitable implementation of such regulations as a source of stability that could lead to mass adoption.

After a chaotic few months, the Biden administration is looking at how to address the markets. A congressional committee has been launched to review digital currencies, the FDIC has asked banks to provide documentation on how they are using digital assets, and Comptroller of the Currency Michael Hsu is reviewing all current and past guidance related to cryptocurrencies. The chairman of the U.S. Securities and Exchange Commission has gone as far as to warn bad actors that enforcement and regulation are coming.

As a whole, many see these changes as good. When the markets are regulated, they become safer for everyday users, and Ethereum, with the range of decentralized apps it supports and applications it enables, can become normal.

Ahmed Shabana is a venture capitalist, startup adviser, investor and entrepreneur. He serves as managing partner for Parkpine Capital, founder of Global Ventures Summit and creator of The Hungry Company.

Illustration: Li-Anne Dias

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Why Ethereum Could Surpass Bitcoin In The Near Future - Crunchbase News

FBI agents finish loading materials into a truck out of the home of United Auto Workers President Gary Jones on Wednesday, Aug. 28, 2019.

Michael Wayland / CNBC

In June, the U.S. government casually auctioned off some spare litecoin, bitcoin and bitcoin cash.

Lot 4TQSCI21402001 one of 11 on offer over the four-day auction included 150.22567153 litecoin and 0.00022893 bitcoin cash, worth more than $21,000 at today's prices. The crypto property had been confiscated as part of a tax noncompliance case.

This kind of sale is nothing new for Uncle Sam. For years, the government has been seizing, stockpiling and selling off cryptocurrencies, alongside the usual assets one would expect from high-profile criminal sting operations.

"It could be 10 boats, 12 cars, and then one of the lots is X number of bitcoin being auctioned," explained Jarod Koopman, director of the IRS' cybercrime unit.

Koopman's team of IRS agents don't fit the stereotypical mold. They are sworn law enforcement officers who carry weapons and badges and who execute search, arrest and seizure warrants. They also bring back record amounts of cryptocash.

"In fiscal year 2019, we had about $700,000 worth of crypto seizures. In 2020, it was up to $137 million. And so far in 2021, we're at $1.2 billion," Koopman told CNBC. The fiscal year ends Sept. 30.

As cybercrime picks up and the haul of digital tokens along with it government crypto coffers are expected to swell even further.

Interviews with current and former federal agents and prosecutors suggest the U.S. has no plans to step back from its side hustle as a crypto broker. The crypto seizure and sale operation is growing so fast that the government just enlisted the help of the private sector to manage the storage and sales of its hoard of crypto tokens.

The 2013 takedown of Silk Road a now-defunct online black market for everything from heroin to firearms is where federal agents really cut their teeth in crypto search and seizure.

"It was totally unprecedented," said Sharon Cohen Levin, who worked on the first Silk Road prosecution and spent 20 years as chief of the money laundering and asset forfeiture unit in the U.S. Attorney's Office for the Southern District of New York.

Silk Road, which operated on the dark web, dealt entirely in bitcoin. It was good for users, because it promised them some degree of anonymity. Despite the reputational hit, it was good for bitcoin at the time, helping to pump up its price by giving the token a use case beyond programming circles.

When the government began to dismantle Silk Road, federal agents had to figure out what to do with all the ill-gotten bitcoin.

"There was a wallet with approximately 30,000 bitcoin in it, which we were able to identify and seize. At the time, it was probably the largest bitcoin seizure ever, and it sold for around $19 million," said Levin.

"No one had ever done anything like it. In fact, there weren't really companies that you could go to in order to sell the assets. The Marshals Service stepped up and conducted their own auction of the assets where they took bids," she said.

That bitcoin batch went to billionaire venture capitalist Tim Draper. "It seemed like a large sum of money at the time, but if the government had retained those bitcoins, it would be worth way more today."

The cache of coins sold in 2014 would be worth more than $1.1 billion as of Wednesday morning. But hindsight is 20/20, and the government isn't in the business of playing the crypto markets.

What this entire exercise did accomplish, however, was to establish a workflow that remains in place today, one that uses legacy crime-fighting rails to deal with tracking and seizing cryptographically built tokens, which were inherently designed to evade law enforcement.

"I've just observed that the government is usually more than a few steps behind the criminals when it comes to innovation and technology," said Jud Welle, a former federal cybercrime prosecutor of 12.5 years.

"This is not the kind of thing that would show up in your basic training. But I predict within three to five years ... there will be manuals edited and updated with, 'This is how you approach crypto tracing,' 'This is how you approach crypto seizure,'" Welle said.

"'Follow the money' is not new. Seizure is not new. What we're just doing is trying to find a way to apply these tools and techniques to a new fact pattern, a new use case," he said.

https://www.usmarshals.gov/

There are three main junctures in the flow of bitcoin and other cryptocurrencies through the criminal justice system in the U.S.

The first phase is search and seizure. The second is the liquidation of raided crypto. And the third is deployment of the proceeds from those crypto sales.

In practice, that first stage of the process is a group effort, according to Koopman. He said his team often works on joint investigations alongside other government agencies think government arms such as the Federal Bureau of Investigation, Homeland Security, the Secret Service, the Drug Enforcement Agency, and the Bureau of Alcohol, Tobacco, Firearms and Explosives.

"A lot of cases, especially in the cyber arena, become ... joint investigations, because no one agency can do it all," said Koopman, who worked on the two Silk Road cases and the 2017 AlphaBay investigation, which culminated in the closure of another popular and massive dark web marketplace.

Koopman explained that his division at the IRS typically handles crypto tracing and open source intelligence, which includes investigating tax evasion, false tax returns, and money laundering. Other agencies that have more money and resources focus on the technical components.

"Then we all come together when it's time to execute any type of enforcement action, whether that's an arrest, a seizure or a search warrant. And that could be nationally or globally," he said.

During the seizure itself, multiple agents are involved to ensure proper oversight. That includes managers who establish the necessary hardware wallets to secure the seized crypto. "We maintain private keys only in headquarters so that it can't be tampered with," Koopman said.

Once a case is closed, the U.S. Marshals Service is the main agency responsible for auctioning off the government's crypto holdings. To date, it has seized and auctioned more than 185,000 bitcoins. That cache of coins is currently worth nearly $7 billion, though many were sold in batches well below today's price.

It's a big responsibility for one government entity to take on, which is part of why the Marshals Service no longer shoulders the task alone.

The U.S. General Services Administration, an agency that typically auctions surplus federal assets such as tractors, added confiscated cryptocurrencies to the auction block earlier this year.

And just last week, following a more than yearlong search, the Department of Justice hired San Francisco-based Anchorage Digital to be its custodian for the cryptocurrency seized or forfeited in criminal cases. Anchorage, the first federally chartered bank for crypto, will help the government store and liquidate this digital property. The contract was previously awarded to BitGo.

"The fact that the Marshals Service is getting professionals to help them is a good sign that this is here to stay," said Levin.

The process of auctioning off crypto, in blocks, at fair market value, likely won't change, according to Koopman. "You basically get in line to auction it off. We don't ever want to flood the market with a tremendous amount, which then could have an effect on the pricing component," he said.

But other than spacing out sales, Koopman said, trying to "time" the market to sell at peak crypto prices isn't a thing. "We don't try to play the market," he said.

In November, the government seized $1 billion worth of bitcoin linked to Silk Road. Because the case is still pending, those bitcoins are sitting idle in a crypto wallet. Had the government sold its bitcoin stake when the price of the token peaked above $63,000 in April, coffers would have been a whole lot bigger than if they liquidated at today's price.

Once a case is closed and the crypto has been exchanged for fiat currency, the feds then divvy the spoils. The proceeds of the sale are typically deposited into one of two funds: The Treasury Forfeiture Fund or the Department of Justice Assets Forfeiture Fund.

"The underlying investigative agency determines which fund the money goes to," Levin said.

Koopman said the crypto traced and seized by his team accounts for roughly 60% to 70% of the Treasury Forfeiture Fund, making it the largest individual contributor.

Once placed into one of these two funds, the liquidated crypto can then be put toward a variety of line items. Congress, for example, can rescind the money and put that cash toward funding projects.

"Agencies can put in requests to gain access to some of that money for funding of operations," said Koopman. "We're able to put in a request and say, 'We're looking for additional licenses or additional gear,' and then that's reviewed by the Executive Office of Treasury."

Some years, Koopman's team receives varying amounts based on the initiatives proposed. Other years, they get nothing because Congress will choose to rescind all the money out of the account.

Tracking where all the money goes isn't a totally straightforward process, according to Alex Lakatos, a partner with DC law firm Mayer Brown, who advises clients on forfeiture.

The Justice Department hosts Forfeiture.gov, which offers some optics on current seizure operations. This document, for example, outlines a case from May where 1.04430259 bitcoin was taken from a hardware wallet belonging to an individual in Kansas. Another 10 were taken from a Texas resident in April. But it is unclear whether it is a comprehensive list of all active cases.

"I don't believe there's any one place that has all the crypto that the U.S. Marshals are holding, let alone the different states that may have forfeited crypto. It's very much a hodgepodge," said Lakatos. "I don't even know if someone in the government wanted to get their arms around it, how they would go about doing it."

CNBC reached out to the U.S. Marshals to ask whether they have a central database that outlines all active and past crypto seizure cases. We also asked whether there is a centralized forum to track where the proceeds of crypto auctions end up. We did not immediately hear back.

But what does appear clear is that more of these crypto seizure cases are being trumpeted to the public, like in the case of the FBI's breach of a bitcoin wallet held by the Colonial Pipeline hackers earlier this spring.

"In my experience, folks that are in these positions in high levels of government, they may be there for a short period of time, and they want to get some wins under their belt," said Welle.

"This is the kind of thing that definitely captures the attention of journalists, cybersecurity experts, right, a lot of chatter around it."

Originally posted here:
The IRS has seized $1.2 billion worth of cryptocurrency this fiscal year here's what happens to it - CNBC