Category Archives: Bitcoin News

April Bitcoin News Letter: The hard fork plot thickens. Bitfinex recovers fully from its $71M hack.

Published / by breakingbitcoin

The newsletter continues to evolve. I try to highlight the items you can’t miss, and provide links for you to dig deeper. If you have any questions, email me or find me on Twitter.

William Mougayar and Nick Tomaino (two analysts I regularly read) are organizing a Token Summit on May 25th in New York. If I weren’t a 16 hour flight away, I’d be there. What a lineup.

Right now to be on the newsletter you need to contact me. At some point I’ll migrate to MailChimp. Also I didn’t link to the sources below because I was too lazy.

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What you must know in Bitcoin land

For anyone who’s closely following the hard fork debate, this Reddit discussion and its linked source are must reads [Reddit discussion, Greg’s email]. If the implications are true, then it means that the magnitude and duration of the hard fork debate are mostly motivated by Bitmain’s desire to maximize its short-term profits, and not by differing views of Bitcoin’s scaling roadmap.

Bitfinex was hacked for $71M USD worth of Bitcoin in September of last year. They socialized the loss to all Bitfinex account holders and issued a custom token to represent the loss. This token represented an IOU from Bitfinex which you could hold or trade. Several days ago Bitfinex fully redeemed 100% of those tokens [source]. Which means that in the span of 8 months, Bitfinex has fully recovered from a $71M hack and paid back everyone who lost money. What a story, and a fascinating precedent for future hacks.

Meanwhile Bitcoin continues to grow. The number of active Bitcoin users doubles every 12 months [source]. And while the blocksize is reaching its limit, but not yet turning away significant transaction volume [source]. Although fees are increasing as you can see in Woobull’s chart below:

Why do the vast majority of Bitcoin investors and pundits think a hard fork is bad? Vinny Lingham explains: #1 Reduced network effects. #2 Whales dumping coins on both chains. #3 Brand confusion. #4 User and merchant confusion [source]

If you want to educate yourself on the basics of a hard fork, and what it means for investors and users, here’s a good FAQ [source]. The current implementation of Bitcoin is referred to as simply Bitcoin or Bitcoin Core. The competing / new implementation is called Bitcoin Unlimited (BU), and here’s a solid 3-part series on how BU works [source] (with a pro-Bitcoin Core bias).

Finally, a long and excellent article on Bitcoin’s evolution [source].

In investor news…

  • Another Bitcoin ETF application was denied, but Bitcoin investors have moved onto the hard fork debate [source]
  • Roughly speaking, the market thinks Bitcoin Core (the current Bitcoin implementation) is worth 90% of
  • Bitcoin’s price, and Bitcoin Unlimited (the competing version) is worth 10% [source]
  • Pantera believes bitcoin and digital assets now overbought, see below chart [source]

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What you must know in crypto land

Zcash (ZEC) appoints AngelList founder Naval Ravikant and Matthew Green to its Board of Directors. Outside of Bitcoin, Zcash may have the most impressive collection of cryptography and software engineering talent. [source]

ICOs and appcoins and decentralized app tokens are now worth $260M [source]. To understand the general investment thesis, read these 2 essays from USV [one, two]. As an individual investor I’ve stayed away from ICOs and I recommend you to do the same. Too many scams, too much insider trading, too little verifiable transparency.

A great round-up of concerns about the altcoin Dash, the two big ones: #1 Potentially rigged mining during its launch. #2 Big holders (Masternodes) who have a lot of influence over economics and governance [source]. I more than halved my holdings after its recent price surge but 7% of my portfolio is still in Dash (see my portfolio breakdown here).

Venture money is slowing but continues to come into Bitcoin / blockchain, especially for proven products. Ledger raises $7M for its security and storage solutions [source]. Shapeshift raises $10M for its cryptocurrency exchange service [source]. I love Shapeshift.

It is very possible that services that deal solely in crypto could end up being to financial regulation what torrent sites are to anti-piracy laws… a huge pain in the ass. Like torrent sites that don’t distribute actual copyrighted content, cryptocurrency services using LN channels won’t actually control or transmit other users’ bitcoins. Many services may find themselves back in a new and undefined legal grey area. [source]

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That’s it. Next week comes the Portfolio Letter where I share my holdings, recent trades, and brief analysis of interesting assets. Here’s the last one.

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

Published / by breakingbitcoin

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 CoinTracking.info. 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.

Bitcoin Newsletter: Off-chain transactions are 99% of Bitcoin activity; Bitcoin emerging as unit of account — for all crypto

Published / by breakingbitcoin

I send this email newsletter every 2 weeks, then post it here a few days later. This is the fourth one. For now it’s just a private bcc-ed list. If you’d like to receive it, email or tweet me (@kgao).

My recent trades:

  • I bought more Dash at $17.07 USD, increasing my position to 4.3% of my total crypto portfolio. I will contribute half of my Dash to a pooled Masternode to earn a share of block rewards
  • Now my portfolio breakdown is: 85% Bitcoin (about on par with its crypto-dominance), 8% Ether, 4% Dash, 2% XMR, and 1% LTC
  • For long-term storage, I use Coinbase Vault, Xapo Vault, and Electrum
  • For trading, I use Coinbase’s buying service, Kraken, and Poloniex

COIN ETF updates their S-1 for the 9th time, a sign of optimism: Signed up 3 of the largest high frequency trading firms (KCG, Convergex, Virtu). Still no mention of the annual management fee. In the event of a Bitcoin hard fork (in my view, very likely), COIN will halt redemptions for 2-3 days and will then follow whichever fork has the most proof of work. No explanation of what happens to their coins on the minority / losing chain. [Source: reddit, S-1]

If you follow ICOs, join the Coinfund Slack. Smart discussion and real data and research. [Source: Coinfund Slack]. Coinfund does great research on ICO projects, including their recent analysis of decentralized dating platform Matchpool.

Bitcoin is the toll road for the crypto highway: Did you know 50+% of Ethereum trading is into and out of BTC? Yet another data point for my contention that Bitcoin is indeed a unit of account – for cryptocurrencies and digital assets. Remember that money has 3 functions – as a medium of exchange, as a store of value, and #as a unit of account. People discount Bitcoin’s utility as a unit of account due to its price volatility, but the majority of trading volume into and out of altcoins and digital tokens is through Bitcoin. Notice for example Coinmarketcap graphs for altcoin prices are denominated first in BTC, not USD [source: Coinmarketcap]

The regulatory landscape is brightening everywhere but in China: Poland officially recognizes bitcoin businesses and Denmark has appointed a bitcoin friendly digital ambassador. [source] Japanese legislation makes bitcoin a legal payment method (practically speaking, you’ll no longer need to pay a sales tax when buying bitcoin with yen) but like the BitLicense, it comes with expensive compliance requirements and may reduce short-term Bitcoin startup activity in that country. [source] CoinCenter is bullish that the US will simplify bitcoin regulations by moving to a federal, and not state-by-state, framework. [source] The only country with significant long-term uncertainty is China, where the PBOC has slowly and steadily been tightening the compliance noose around the exchanges and any form of bitcoin-based money transmission…

The top China exchanges have made withdrawing bitcoin much harder. You can still withdraw yuan. They just don’t want you sending yuan-denominated bitcoin out of the country. [source: reddit]. HaoBTC – a top 50 global exchange and top 10 China exchange – is shutting down its trading operations as a result of the increased scrutiny, compliance requirements, and reserve standards [source: CNLedger]. In response to Chinese tightening, Japanese exchange BitFlyer implemented no-fee trading and by some measures is now the world’s largest exchange with 21% of market share [source]

Read Woobull if you trade crypto: a great website for technical and data-driven analysis of cryptocurrency trading. Some particularly good pieces: on what an ETF will do to bitcoin’s price [source]; how much trading volume really happens in China [source]; liquidity and volatility of bitcoin compared to payment coins like Zcash and Monero [source]. I will share some notes in a future newsletter

Western Bitcoin exchanges process over $80 million in Bitcoin off-chain transactions per day; Bitcoin bank Xapo processes 500,000 off-chain Bitcoin transactions daily; Bitcoin gambling site PrimeDice processes 13 million off-chain Bitcoin bets per day. And so on. Cheap, high volume Bitcoin transactions are here already — though they require trust in a third party – Tuur Demeester [source: Medium]

If the above is true, then off-chain transactions could account for 99% of Bitcoin activity, since Bitcoin currently processes 300K on-chain transactions daily [source: Blockchain.info].

A brief academic study identified 16% of public Bitcoin addresses: done in December 2013, the authors were able to identify 2M Bitcoin public keys. Just a reminder that Bitcoin is pseudonymous, not anonymous. And this was a comparatively low budget, fast turnaround analysis. [source: A Fistful of Bitcoins]

Own 8 stocks to eliminate 80% of nonmarket risk:
Statistics say that owning just two stocks eliminates 46 percent of the nonmarket risk of owning just one stock. This type of risk is supposedly reduced by 72 percent with a four-stock portfolio, by 81 percent with eight stocks, 93 percent with 16 stocks, 96 percent with 32 stocks, and 99 percent with 500 stocks. – Joel Greenblatt, You Can Be A Stock Market Genius [Kindle]



The median fiat currency depreciates 4% every year: $100 in 1900 becomes $1 by 1990. [source: Meb Faber]

If you asked us two years ago which crypto-currency or technology would likely become the de facto standard, we would have told you ‘something like Bitcoin, but probably not Bitcoin’. After witnessing these network effects in action, we are now firmly in the ‘more than likely it will be Bitcoin’ camp. – Marcus Swanepoel [source: Medium]

Satoshi’s breakthrough with money was to provide social scalability via trust minimization: reducing vulnerability to counterparties and third parties alike. By substituting computationally expensive but automated security for computationally cheap but institutionally expensive traditional security, Satoshi gained a nice increase in social scalability. A set of partially trusted intermediaries replaces a single and fully trusted intermediary. – Nick Szabo [source: Nick’s blog]

Bitcoin news: GBTC becomes 3rd ETF filing at 2% annual fee; avoid ICOs unless you have an angle

Published / by breakingbitcoin

My recent trades: I sold my Zcash position. I took a position in Dash. I increased my position in Monero. Right now my portfolio is 90% bitcoin, 10% other. I’m watching ICOs, but haven’t invested any money yet (and don’t recommend you do, either, which I explain at the end of the email).

The Bitcoin Investment Trust becomes the 3rd bitcoin ETF filing (ticker: GBTC) [source]. The trust owns 170K bitcoins at a current market cap of $190M, a 10% premium over bitcoin’s spot price. The product is similar to the other 2 filings, the Winklevoss COIN and SolidX XBTC. This is the first filing with a publicly stated fee: 2% annually. It’s still a foot race to see which ETF is approved first, COIN being the first to file. ETNs already exist in Europe, eg, COINXBT and BitcoinETI. The difference? ETFs hold and allow redemption of bitcoin. ETNs track an asset price but are really just unsecured debt with more counterparty risk

Bitcoin in China looks safe for now: Less risk of an outright ban now. Still a good chance the PBOC will choose to formally regulate bitcoin – a process that could take years and involve multiple agencies and lots of painful news “leaks” – instead of its current usage of ad hoc fines and brief public statements. But I’d expect such formal regulation to happen only if another major local bitcoin investment scam succeeds or bitcoin‘s renminbi price skyrockets 5-10x. The government’s priorities are to #1 constrain capital outflows and #2 protect the middle class

China exchange volume plummets: Just what did the PBOC’s investigations and the exchanges’ subsequent removal of margin and no-fee trading do to global trading volumes? Have a look (the leading renminbi exchanges are BTCChina, Huobi, and OKCoin) [source]:

Bitcoin Unlimited nodes (22.2%) have surpassed SegWit nodes (21.6%), as of the last 1000 blocks (~1 week). Here are two sites where you can check node counts [source 1, source 2]. I believe we’ll see a hard fork with an outcome similar to Ethereum / Ethereum Classic.

How big can Bitcoin get? Here’s my favorite over-simplified chart to put into perspective its upside [source].

  • if Bitcoin = Paypal, a bitcoin = $5K USD
  • if Bitcoin = Visa, a bitcoin = $10K USD
  • if Bitcoin = the world gold supply, a bitcoin = $350K

People don’t use bitcoin for regular consumer transactions: Fiverr stopped accepting bitcoin for payment [source]. WordPress had also accepted then dropped support for Bitcoin. CEO Matt Mullenweg said at its peak bitcoin only accounted for 2 transactions per week [source]. More evidence that bitcoin isn’t used for normal merchant activity: existing payment solutions are good enough. Bitcoin is used, however, as a transactional and intermediary currency in the shadow economy. If you’re buying drugs online, you’ll use bitcoin. If you’re smart, you’ll use Monero, but the best way to get Monero is by buying and trading bitcoin.

China has no interest in ether. Amidst all the talk of China bitcoin trading volumes, we miss an incredible statistic: Renminbi trading volumes represent less than 1% of total Ether trading! [source, slide 28].

ICOs are promising but too early for your average crypto investor. As far as I can see, the smart ICO investors are getting big discounts and special deals that you’re not aware of and don’t have access to. Too much information asymmetry right now. Unless you have an angle or are connected, you’re better off observing and studying until the market grows and stabilizes.

Now, the ICOs are coming. And the ICO funds are also arriving. And a crash will be forthcoming. – William Mougayar [source]