Category Archives: Bitcoin

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Former MtGox Bitcoin exchange boss pleads not guilty BBC News The former head of MtGox, once the world's biggest Bitcoin exchange, has pleaded not guilty in a Tokyo court to charges of embezzlement and data manipulation. Mark Karpeles was chief executive of MtGox when it collapsed in 2014, following the loss of ... Chief of bitcoin exchange Mt. Gox denies embezzlement as trial opensCNBC Mt Gox CEO denies embezzling millions of dollars of bitcoinsABC News Head of Mt Gox bitcoin exchange on trial for embezzlement and loss of millionsThe Guardian TNW -TheStreet.com all 96 news articles »

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Former MtGox Bitcoin exchange boss pleads not guilty - BBC News

Bubbles? Those arent bubbles.

Charles Schwab SCHW, -1.21% global strategist Jeff Kleintop says there are plenty of red-hot investments out there that might look like bubbles, but, in reality, they just dont fit the classic profile.

Bubbles typically bring risks for all investors, even those that dont own the inflating asset, he explained, because they represent a broader market and economy that has become out of balance and dependent upon a flawed outlook.

Previously, these bubbles of the past have inflated 1,000% over 10 years before bursting, cutting prices by more than half in the following two years, Kleintop explained. By the time they eventually popped, these investments had become fixtures across investors portfolio. Hence, the sweeping impact of their implosion.

As you can see from this chart, he pointed to the Nasdaq COMP, +0.27% crude oil CLQ7, +1.51% precious metals and home-builder stocks as obvious examples:

But what about those deemed bubbly in todays climate? Kleintop says the four most popular candidates are cryptocurrencies, low volatility, internet retailers and central bank assets. He applied his 1,000%/10-year filter to these investments

Remarkably, none of these seem to fit the classic profile of a potentially damaging bubble, he said. But that doesnt mean they dont carry risks for investors.

First, while bitcoin BTCUSD, -2.91% for example, has topped the 1,000%-return mark, it accomplished that feat much faster than the 10-year period.

Also read: Bitcoin rival, ethereum, has lost $17.5 billion in market value in 4 weeks

See also: Stay away from bitcoin and ethereum they are complete garbage

The shorter amount of time that it took may mean that if bitcoin is a bubble and were to burst it probably wont have as broad of a ripple effect on the economy as the technology or housing bubbles did, Kleintop said, pointing to this chart

Next, low volatility, specifically the VIX VIX, -1.98% is another area of concern. From one perspective, its 800% surge over the past 10 years pretty much matches the classic profile, but Kleintop says thats misleading.

While the pattern seems to line up fairly well with prior bubbles, he said, it would look different with a much larger rise and have more time to go until it reaches the 10 year time frame if I shifted the start date to the end of the bear market in March 2009, when volatility last peaked.

Then there are the internet retailers, like Amazon AMZN, -0.23% Clearly, these stocks have been on fire, but Kleintop says the relatively small size of the group keeps it from being a typical bubble and may limit the amount of damage a bubble pop would have on the broader market.

Unlike typical bubbles which tend to foster a purely optimistic outlook, these companies have already had a negative impact on the stocks of their traditional retail peers, leaving the overall retailing industry (composed of 10 sub-industries including internet retailers) up a smaller 500% over the same period, he wrote.

Finally, central bank assets, while clearly bloated by years of quantitative easing, dont exactly fit the mold, either. The balance sheets of the worlds central banks have grown about 300% over the past decade, coming up well shy of the 1000% level of the typical bubble.

The global buildup of debt most likely represents a long-term liability that threatens to exacerbate downturns, rather than a bubble about to burst, he noted.

Bottom line, Kleintop says that there doesnt seem to be any classic bubbles forming among the ones most commonly referred to as potential candidates. But remember that bubbles are sometimes only seen in hindsight, he said, which is why we always counsel diversification.

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Bitcoin and three other investments that look like classic bubbles but actually aren't - MarketWatch

Ether, the worlds second-most valuable cryptocurrency, has been tanking since hitting a peak in mid June, highlighting an extended selloff in buzzy, digital currencies that had been on a tear only a few short weeks ago.

Check out: How cryptocurrency ethereum looks set to overtake bitcoinin one chart

A single ether token on Tuesday briefly slipped to a six-week low, dropping under $200 and marking a 48% decline, giving up about $17.5 billion since reaching its best-ever market capitalization of $36.7 billion on June 14, according to data from Coinmarketcap.com. Most recently, one ether was trading at 202.37, down 4.3% on Tuesday, according to data from popular digital-currency data-provider Coindesk.

The downdraft for ether, which powers the ethereum blockchain and is the main rival to more prominent bitcoin, is occurring amid a broad slump in the cryptocurrency universe, which had racked up dazzling, quadruple-digit gains within a short period. Ethereums ether, for example, had surged by more than 4,000% -- from $8 in January to its June peak of around $400 -- before mounting its recent pullback.

Read: Wall Street laughed at a call for bitcoin at $25,000but after a 400% surge, the laughter is fading

Attention from large corporations, including Fidelity Investments, and flirtations with the possible inclusion in popular trading products, like exchange-traded funds, also have helped to stimulate interest in bitcoin and other cryptocurrencies.

However, worries about the speed of the advance for digital currencies, light regulation and a lack of broad usage has given many skeptics reason to call for caution in investing in bitcoin and ether, which some analysts say displays similar attributes to gold GCQ7, +0.33% viewed as a haven asset.

More broadly, the combined market value of an array of digital currencies, including ether, bitcoin, and others like ripple and litecoin, are down by about 28% to $82 billion currently from $114 billion last month. Bitcoin BTCUSD, -2.91% maintains a dominant position among so-called digital currencies, but has led the way lower, off 20% since surpassing $3,000 a coin mid-June.

By comparison, the Dow Jones Industrial Average DJIA, +0.00% has tacked on 0.7%, the S&P 500 index SPX, -0.08% has slipped 0.2%, while the Nasdaq Composite Index COMP, +0.27% has advanced 0.3% over the past month, despite a choppy trading environment marked by concerns about earnings growth and President Donald Trumps Wall Street-friendly agenda.

All that said, cryptocurrencies are still holding on to sizable returns, even factoring in the recent downdraft. The question is: are they facing a brief pause in their rise, or suffering through what will become an extended period of pain?

Wall Street analysts are split on the future for cryptocurrencies. Morgan Stanley analysts predict that they wont rally further unless they get governmental acceptance, including more regulation.

Meanwhile, Fundstrats Tom Lee, a Wall Street equity strategist, says bitcoin may trade at $55,000 a coin by 2022.

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Bitcoin rival, ethereum, has lost $17.5 billion in market value in 4 weeks - MarketWatch

Its time for bitcoin traders to batten down the hatches.

The notoriously volatile cryptocurrency, whose 160 percent surge this year has captivated everyone from Wall Street bankers to Chinese grandmothers, could be headed for one of its most turbulent stretches yet.

Blame the bitcoin civil war. After two years of largely behind-the-scenes bickering,rival factions of computer whizzeswho play key roles in bitcoins upkeep are poised to adopt two competing software updates at the end of the month. That has raised the possibility that bitcoin will split in two, an unprecedented event that would send shockwaves through the $41 billion market.

While both sides have big incentives to reach a consensus, bitcoins lack of a central authority has made compromise difficult. Even professional traders whove followed the disputes twists and turns arent sure how it will all pan out. Their advice: brace for volatility and be ready to act fast once a clear outcome emerges.

Its a high-stakes game of chicken, said Arthur Hayes,a former market maker at Citigroup Inc. who now runs BitMEX, a bitcoin derivatives venue in Hong Kong. If youre a trader, theres a lot of uncertainty as to what happens. Once theres a definitive signal about what will be done, the price could move very quickly.

(Detailed summary of key dates and potential outcomes at bottom.)

Behind the conflict is anideological split about bitcoins rightful identity. The community has bitterly argued whether the cryptocurrency should evolve to appeal to mainstream corporations and become more attractive to traditional capital, or fortify its position as a libertarian beacon; whether it should act more as an asset like gold, or as a payment system.

The seeds of the debate were planted years ago: To protect from cyber attacks, bitcoin by design caps the amount of information on its network, called the blockchain. That puts a ceiling on how many transactions it can process -- the so-called block size limit -- just as the currencys growing popularity is boosting activity. As a result, transaction times and processing fees have soared to record levels this year, curtailing bitcoins ability to process payments with the same efficiency as services like Visa Inc.

To address this problem, two main schools of thought emerged. On one side are miners, who deploy costly computers to verify transactions and act as the backboneof the blockchain. Theyre proposing a straightforward increase to the block size limit.

On the other is Core, a group of developers instrumental in upholding bitcoins bug-proof software. They insist that to ease blockchains traffic jam, some of its data must be managed outside the main network. They claim that not only would it reduce congestion, but also allow other projects including smart contracts to be built on top of bitcoin.

But moving data off the blockchain effectively diminishes the influence of miners, the majority of whom are based in China and who have invested millions on giant server farms. Not surprisingly, Cores proposal, called SegWit, has garnered resistance from miners, the most vocal being Wu Jihan, co-founder of the worlds largest mining organization Antpool.

SegWit is itself a great technology, but the reason it hasnt taken off is because its interest doesnt align with miners, Wu said.

Still, after previous counter-proposalschampioned by Wu fell through, miners last month agreed to compromise and support SegWit, in exchange for increasing the block size. Wu says the plan will alleviate short-to-medium term congestion and give Core enough time to flesh out a long-term solution. That proposal is what is known as SegWit2x, which implements SegWit and doubles the block size limit.

You can think of the SegWit2x proposal as an olive branch, said Wu.

Support for SegWit2x has reached levels unseen for previous solutions. About 85 percent of miners have signaled they are willing to run the software once its released on July 21, and some of bitcoins largest companies have also jumped on board.

The unprecedented level of endorsement is partly prompted by anxiety of bitcoin losing its dominant status to ethereum, a newer cryptocurrency whose popularity has soared thanks to its ability to run smart contracts and its more corporate-friendly approach.

Still, hardliners say that after more than two years of bitter arguments, a split would let people part ways to explore different visions, even if prices crash.

Some of Core supporters are pushing a separate agenda called UASF (user activated soft fork). Starting from Aug. 1, it will reject transactions not compliant with SegWit. If a majority of miners do not adopt SegWit by then, two versions of bitcoin would come into existence, triggering a currency split.

Its moderates versus extremists, saidAtlanta-based Stephen Pair, chief executive officer of BitPay, one of the worlds largest bitcoin wallets. It depends on how much a person values the majority of people staying on one chain at least for a little while longer, versus splitting and allowing each pursuing their own vision for scaling.

Many Core developers continue to reject SegWit2x because they see its development and implementation as being too rushed, which they say could undermine the software underpinning bitcoin.

To suggest a hard fork happen significantly faster than even the most minor of changes in recent history is irresponsible and dangerous, said Matt Corallo, a Core contributor and former co-founder of Blockstream, which stands to benefit from SegWit.

Below is an outline of the main events that could unify or divide bitcoin:

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Will Bitcoin Tear Itself Apart? - Bloomberg

Ah, those were the days, when you could steal a bit of a companys server power and mine some valuable bitcoin all for yourself.

During a presentation at a conference last week, British cybersecurity experts had some tales to tell of surreptitious and sometimes illegal bitcoin mining in the time before huge computing power was required to turn a profit at the activity. In January 2015 the British cybersecurity firm Darktrace was called to investigate a possible intrusion in the systems of an Italian bank. Darktrace uses artificial intelligence techniques to detect aberrations in computer systems.

The firm discovered streams of data were being transmitted from one of the banks servers to a European crime syndicate, Dave Palmer, director of technology at Darktrace, told the Research and Applied AI Summit in London July 30. It was a fairly well known European criminal botnet, said Palmer, director of technology at Darktrace. The data was not customer data; it turned out to be a fairly buggy implementation of bitcoin mining software.

The hijacked Italian bank server was discovered rapidly, Palmer told Quartz, and it was disabled within less than an hour of it beginning to mine bitcoin. I dont think they made very much money out of it, he says.

2014 was the heyday of criminal bitcoin mining activity. It was super fashionable to have coin mining going on alongside sending spam from botnets, he says. The case of the banking server was rare because it was usually laptops or desktop computers that were hit by this type of malware, Palmer said.

Darktrace didnt have data for the number of bitcoin mining malware cases from that period, but Palmer says it felt like it was a daily occurrence. By contrast, the firm has only detected 24 such cases in the last six months, across the 24,000 sites it monitors. It has really dropped off, he says.

While sophisticated cyber criminals did steal computing power for bitcoin mining in those days, it was far less common than employees casually mining from their standard-issue corporate laptops. Weve seen normal employees running these services on their workstations overnight, Palmer says. No surprise; people do all sorts of things like peer-to-peer file sharing and hosting Tor nodes [infrastructure for the anonymized network thats part of the dark web], so I bet there are a load of coin mining stories all over the place.

But some employees took their cryptocurrency enthusiasm a step too far. Darktrace has found servers concealed by staff in corporate data centers mining bitcoin non-stop. The servers benefit from the special cooling systems and reliable power supply at the data centers. We found employees had procured some servers, [and] had hidden them under the data center false flooring, Palmer says. They were off-the-record servers that no one recognized, mining coins 24/7.

The days of such secret bitcoin mining are now over. Too much computing power is required to profitably mine bitcoins; the scene is now dominated by professional outfits with thousands of servers stored in giant, purpose-built warehouses. Processing power devoted to bitcoin mining has risen by 770-fold since 2014, leaving little chance of profit for servers hidden in data centers or laptops churning away after work. I think we have seen the last of successful coin mining, Palmer says.

Correction: An earlier version of this post mistakenly said Darktrace investigated the Italian banks server in 2014.

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An Italian bank's server was hijacked to mine bitcoin - Quartz

Wall Street Journal (subscription)

Why Bitcoin Is Booming Wall Street Journal (subscription) Who says only the government can make money? This year the value of the private currency bitcoin has climbed to unprecedented levels, while at the same time becoming far less volatile than in previous periods of rapidly increasing demand. Bitcoin has ... and more »

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Why Bitcoin Is Booming - Wall Street Journal (subscription)

Thorsten Polleit; image taken from authors website

While many mainstream media personalities and analysts remain skeptical about bitcoin (and often rehash misinformation), others are beginning to give cryptocurrency an honest appraisal.

The latest comes from leading German business magazine Wirtschafts Woche, which recentlypublished an article praising bitcoin.The Revolution of Cryptocurrency, written by economist Thorsten Polleit, argues that the advent of cryptocurrency set off a monetary revolution that could eventually supplant fiat national currencies.

Public fiat money, he explains, possesses four inherent flaws:

Polleit states that cryptocurrencies avoid these and other flaws due to market competition. As long as no currency has a state-mandated economic monopoly, consumer demand should favor better coins.

However, it should be noted that not all cryptocurrencies resist the flaws Polleit finds in fiat money. Many cryptocurrencies are inflationary, although their rate of inflation is generally fixed rather than variable. Cryptocurrency distribution models can also exhibit inequality, and there is much debate about what constitutes a fair coin/token dissemination method. That said, by divorcing monetary policy from the national government, one will avoid the final two flaws of public money.

Polleit believes consumer demand for bitcoin will likely increase as fiat money loses purchasing power and national governments reduce or even eliminate cash transactions. He foresees the potential for blockchain-based currencies to makeFiat money worthless.

Despite this bullish tone, Polleit urges investors to approach cryptocurrency speculation with caution. As he states (translated into English):

Whoever obtains [cryptocurrency] should know that he does not invest, but speculates. Unlike in the case of shares or bonds, they do not have a recognized and tested valuation formula the same also applies to raw materials or art objects. You can not even estimate whether the price you pay is justified with regard to the intrinsic value of the [coins].

For this reason, he seems to favor colored coins tied to physical assets, such as gold.

Diverging from other pro-bitcoin analysts, Polleit encourages investors to avoid currency speculation. The sensible investor, he says, should instead continue to invest in great companies and take a long-term approach to the markets. The monetary revolution may cause economic upheaval, but he explains that solid companies will continue to bring positive returns no matter what currencyor cryptocurrencythey use to transact business.

Featured image from Shutterstock.

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Bitcoin is Permanently Superior to Paper Money in Ways: German Business Magazine - CryptoCoinsNews

Fundstrat's Tom Lee on Friday became the first major Wall Street strategist to formally lay out his views on bitcoin.

The digital currency could be worth as much as $55,000 by 2022, Lee said in a report titled "A framework for valuing bitcoin as a substitute for gold."

"We believe one of the drivers [of bitcoin] is crypto-currencies are cannibalizing demand for gold," Lee said in the report. "Based on this premise, we take a stab at establishing valuation framework for bitcoin. Based on our model, we estimate that bitcoin's value per unit could be $20,000 to $55,000 by 2022."

Bitcoin traded near $2,540 on Friday. The digital currency has more than doubled in value for the year, and high interest prompted a Goldman Sachs technical analyst, a team of Morgan Stanley analysts and Citi researchers to issue reports on bitcoin or the blockchain technology behind it in the last few months.

However, Lee is the first widely followed market strategist to issue a report dedicated to predicting bitcoin's price. Lee also happens to be the most bearish strategist on U.S. stocks currently. He was JPMorgan Chase's chief equity strategist from 2007 to 2014 before co-founding Fundstrat Global Advisors, where he is managing partner and head of research.

The strategist's case for bitcoin is a basic supply-and-demand story, similar to the argument other proponents of bitcoin use when playing up its future as "digital gold."

Gold's market value of $7.5 trillion is exponentially greater than bitcoin's $41 billion. But Lee pointed out the precious metal's supply "is surging as mining soars to all-time highs," while the number of available bitcoins is rapidly approaching its inherent 21 million-coin limit.

"A simulation shows that this will slow even further to less than 1.5% growth by ~2020, meaning bitcoin supply will grow even slower than gold," Lee said.

Bitcoin is also theoretically a better way to store value, proponents contend, since governments can easily decrease a currency's worth by printing more of it.

The constraints on bitcoin's supply and the potential worth of the digital currency mean there will be high demand for a limited product, driving up the price. Bitcoin has already surged from below $1,000 on Dec. 31 to briefly top $3,000 in June.

Lee also expects investors could look at bitcoin as a substitute for gold, and his model shows the digital currency could be valued at $20,300 by 2022. Adding more variables to the model puts the value of bitcoin in five years in a potential range of $12,000 to $55,000.

"In other words, substantial upside exists in owning cryptocurrencies here," Lee said.

He also expects central banks will consider buying the digital currencies if the total market value tops $500 billion. Including bitcoin and its rival ethereum, the value of all cryptocurrencies hovers around $100 billion, according to CoinMarketCap.

"In our view, this is a game changer, enhancing the legitimacy of the currency and likely accelerating the substitution for gold (by investors)," he said.

Lee noted a Bloomberg news report that central banks have looked into the possibility of owning digital currencies.

In March, Federal Reserve Governor Jerome Powell cautioned in a speech about the potential challenges for a central bank to issue a digital currency, including privacy.

To be sure, digital currencies such as bitcoin often swing wildly and operate in unregulated markets. While the lack of regulation is what has attracted many buyers, many consider bitcoin the "Wild West." Three years ago, Mt.Gox, the largest bitcoin exchange then, filed for bankruptcy and said it lost 750,000 of its users bitcoins and 100,000 of the exchange's own.

The future of bitcoin is also in question. This summer, the digital currency could split if developers don't agree on the same system to upgrade bitcoin.

Lee acknowledged bitcoin's volatility in his report, noting that annualized bitcoin volatility is 75 percent, "substantially higher than gold's 10%. But as noted, gold's volatility approached 90% from 1971 to 1980 as the U.S. abandoned the gold standard hence, we expect this to improve over time."

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Top Wall Street strategist sees bitcoin 'cannibalizing' gold, worth as much as $55000 - CNBC

"Bitcoin does not have the fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms...But I do not deny that virtual currencies have technical value and are a type of asset," he said.

His comments come after the Chinese central bank increased scrutiny of the country's bitcoin exchanges earlier this year, a move that prompted the companies to stop margin lending, introduced trading fees and issue rules to rein in users.

Many governments around the world are still mulling how to regulate and classify bitcoin, whose value surged in June to hit a record just shy of $3,000. China has classified it as a "virtual good".

Squaring in on bitcoin, Sheng said expectations that bitcoin supply would be capped in the year 2140 would make it difficult for it to become a medium of exchange that could meet modern economic development needs as money supply should be related to economic needs.

He also said that Chinese monetary authorities should study issuing a central bank virtual currency that it could regulate and run properly.

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Bitcoin can be an asset but not a currency, says China central bank adviser - CNBC

China's central bank adviser considers Bitcoin to be a financial asset and not money, calls for the government to create its own digital currency. Read more...

The widespread adoption of Bitcoin among the masses has made it part of the global economic system. While the number of Bitcoin users continue to grow, there is still a lack of clarity about the cryptocurrencys status in the financial system. Countries like Japan have already assigned a legal position to Bitcoin as a currency, and there are others that are mulling regulations to bring the digital currency within the purview of the countrys legal structure.

By design Bitcoin shares similarities with different financial instruments. The cryptocurrency can be classified as both money and asset. However, many governments fear that by calling the virtual currency money, they will be undermining the countrys monetary system. At the same time, they cant simply ignore Bitcoin either, thereby forcing them to call it an asset instead of money.

A recent comment by one of the advisers at the Peoples Bank of China perfectly matches the observation. In an interview Sheng Songcheng mentioned,

Bitcoin does not have the strong fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms But I do not deny that virtual currencies have technical value and are a type of asset.

Sheng went on to further explain the reason behind it by stating that the finite supply of Bitcoin, set to be fulfilled by the year 2140 will create a mismatch between the economic needs of the future and the actual capabilities of the cryptocurrency.

However, Sheng accepts the superiority of the cryptocurrencies over traditional currencies, thanks to their qualities. He believes that a cryptocurrency with more government control over it might be the next step towards creating the future monetary system that is more consistent with the evolving needs.

Currently, Bitcoin holds the status of a virtual good, similar to game tokens, downloadable content, etc. However, new regulations in the near future might soon change it.

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Bitcoin Can't Be Considered as Money, Says PBOC Adviser - newsBTC