March 21 Bitcoin News Letter: Crypto gets crazier by the day. Long email ahead. Sorry

The below is an email I send out, just bcc for now, to a small group of readers. Then post here a few days later. If you’d like to be on the list, tweet or email me and I’ll add you. At some point I’ll migrate to MailChimp. Also I didn’t link to the sources below because I was too lazy.

Crypto gets crazier by the day. I thought this email would just be a brief summary of the ETF rejection but nope. Crypto has a mind of its own and the mind is accelerating…

The SEC rejects the Winklevoss Brothers’ COIN ETF application. The top reasons given:
#1 the major bitcoin markets are largely unregulated
#2 the exchange COIN will use for ETF basket creation and redemption (Gemini Auction) is too thinly traded

While the door remains open for future approval, we won’t see a bitcoin ETF in 2017. Here’s the full SEC report. Bitmex CEO Arthur Hayes had a great write-up on the ETF’s denial. Subscribe to his newsletter here.

But people almost immediately stopped obsessing about the ETF and began obsessing about a potential hard fork where Bitcoin splits into two competing versions:
#1 Bitcoin Core (Bitcoin as we know it today), and
#2 Bitcoin Unlimited, a version that allows the blocksize limit to increase by miner consensus

If a hard fork happens, you would effectively double the number of coins you own. But each version would trade at a different price and have different features. Most people think its bad for Bitcoin given brand confusion and reduced network effects and security risk.

Roughly speaking a hard fork is like a stock split, if the newly created share were to represent a second company, and the companies are now battling each other for marketshare and mindshare. Yup…pretty weird.

Very roughly speaking, developers and exchanges support #1 Bitcoin Core and large miners and an outspoken group of users support #2 Bitcoin Unlimited. But this is a hornet’s nest and the above sentence is like snapping a photo of the nest using my iPhone from 50 meters away.

Bitfinex allows you to split your Bitcoin into tokens representing the two competing implementations and trade them. Currently Bitcoin Core is trading at 4x the price of Bitcoin Unlimited [source].

A nice visual summary of the different constituents with influence over the hard fork. From my perspective the groups with the most power seem to be, in falling order: Developers. Miners. Exchanges. Large investors. [source]

In other Bitcoin news…

The idea that Bitcoin is stale and that Ethereum will come to the rescue without stumbling on all the same milestones of growth that Bitcoin has overcome is a fiction. – Andreas Antonopoulos [source]

Bitcoin transaction fees are growing and companies are starting to pass those fees onto users. Coinbase will no longer pay off-site transaction fees for its users [source] and Bitpay raised its minimum invoice to $1 USD [source].

As an asset, Bitcoin’s price correlation with other store of value assets such as Gold, US sovereign debt, and safe haven fiat currencies is surprisingly low [source]. Continues the “Bitcoin as uncorrelated asset” storyline which started with ARK’s seminal paper [source]

Former Legg Mason investment chief Bill Miller’s evaluates bitcoin by imagining 2 long-term outcomes and assigning a probabilistic weight to each of them: Bitcoin as the new Gold, and Bitcoin as a leading payment processor [source]. Interesting to understand how an investing legend approaches a new asset like Bitcoin

Bubble expert says Bitcoin not a bubble for following reasons [source]:
#1 Not a lot of leveraged trading (eg, on margin, using derivatives)
#2 Governments not propping up prices
#3 The market of new users and potential investors is nowhere near saturated

People keep arguing Bitcoin mining wastes energy [source]. But they seem to overlook the fact that up to 99% of Bitcoin transactions already happen off-chain, both within companies and between them. For example crypto gambling sites are known to process millions of daily transactions off-chain [source]

Chris Burniske: Below $875 per coin, it doesn’t make sense for miners to deploy new machines. Below $337 per coin, miners are actively losing money [source].

China continues to slowly increase regulation and oversight of local Bitcoin exchanges, the latest salvo being the potential requirement of in-person registration for new users [source and source]. @cnLedger is a must-follow for China crypto news

In Ethereum news…

The Ethereum ecosystem continues to grow and this is starting to reflect in the price. This is even with minimal participation from China and Japan which together represent <2% of ETH trading volume [source].

Darknet market AlphaBay will accept Ethereum for payment starting in May [source], further validating ETH as a payment currency.

Ethereum is the only blockchain with a common continuum between public and private implementation environments. – William Mougayar [source]

Ethereum also went through a hard fork for entirely different reasons back in October of last year. Grayscale published an investment thesis to explain why they support the minority chain Ethereum Classic (ETC) over Ethereum (ETH). Main reasons seem to be [source]:
#1 ETC maintained its trustless nature by refusing to hard fork and return DAO investor funds
#2 ETC won’t switch to Proof of Stake until ETH can prove it works and is stable
#3 There’s a hard cap on ETC supply unlike ETH which is still unspecified

In altcoin news…

A Dash investor analyzes its decentralized funding process and finds: 90% of funds go to core team for salary and marketing. And while a vote to increase Dash’s blocksize limit was quickly passed, transaction volumes are so low that it won’t be needed for some time [source].

Early Coinbase employee Nick Tomaino thinks Monero is leading the race to be the top privacy-centric altcoin [source]. (this was written two months ago so his opinions may have changed, but it’s still interesting to read his thought process)

ICOs remain hot. From Coindesk [source]:
Perhaps most notably, almost a third (29%) of entrepreneurs without ICO fundraising experience had seriously considered raising with a token sale, and nearly all (91%) of investors who had participated in an ICO said they would consider participating in future blockchain token launches

Thoughtful analysis of the WeTrust ICO [source]. The strengths and weaknesses he identifies in WeTrust are proxies for ICOs in general. Strengths such as access to new customer segments and investor groups, and increased transparency in a company’s operations and product development. Weaknesses include regulatory uncertainty, the influx of fast / speculative money over long term investment, lack of proven go-to-market and distribution strategies.

That’s it, thanks for reading! If you actively trade crypto and need a good tool to track your performance and portfolio, try Impressed with its ease of use and exchange integration. I have no financial relationship with them.

I send a “news letter” every other week and a portfolio letter sometimes. Some of the content is also published here. Love to hear from you and talk crypto here or on Twitter.

Find me on Twitter and signup on the right to receive an update when I publish a new essay.