Category Archives: News
Fear, Uncertainty and Doubt Causes Confusion in Bitcoin Markets
If you were to check the average heart rate on a reader of the Bitcoin Markets forum last night, it might just be higher than that of Felix Baumgartner when he jumped out of a balloon 24.2 miles above the surface of the earth and became the first sky diver to break the sound barrier.
The price swiftly dropped nearly $200 last night on heavy trading volume.
Here’s why.
Mt.Gox is Failing
Mt.Gox in January 2013 was the darling of Bitcoin. It was the exchange of choice.
In April 2013, Mt.Gox was hit with denial of service attacks. “It’s been an epic few days on Bitcoin,” said Mt.Gox, “with prices going up as high as $142 per BTC. We all hope that this is just the beginning!”
$142? Everyone wishes they could buy Bitcoin at $142 today, as the price has been sitting over $800 for the last few weeks.
Just two months later, Mt.Gox halted USD withdrawals, causing a new panic. The exchange reported, “Over the past weeks Mt. Gox has experienced rising volumes of deposits and withdrawals from established and upcoming markets interested in Bitcoin. This increased volume has made it difficult for our bank to process the transactions smoothly and within a timely manner, which has created unnecessary delays for our global customers.”
After these missteps, Bitcoin investors moved on to new exchanges. First Bitstamp and BTC-e, and later Chinese investors came in droves to BTC China. But BTC China’s glory was short lived when its payment processors were shut down by the People’s Bank of China.
So, for the last few months, the metric of choice has been the spread between Mt.Gox and Bitstamp. Historically, in peaceful times, the spread has been as high as $200. Tonight, suddenly, the spread dropped to $30.
With this sudden spread contraction, the price of Bitcoin dropped quickly down to $625.
Why? Because Mt.Gox is failing. The spread is a leading indicator that the exchange’s days of glory are numbered. And sure enough, Mt.Gox announced tonight that it is pausing Bitcoin withdrawals, effectively eliminating liquidity.
Apple Revolt
The other factor hitting the Bitcoin markets is a collective reaction to popular mobile Bitcoin wallet Blockchain.info being pulled from iOS by Apple.
Blockchain.info didn’t take this lying down. Instead, the company published a blog post called Blockchain’s Response to Apple.
“On Wednesday February 5th, Apple attempted to strike a devastating blow to the bitcoin ecosystem on iOS by removing “Blockchain”, the last remaining bitcoin wallet app, from the App Store,” wrote Blockchain.info.
Blockchain continued to criticize Apple for being anti-competitive and practicing censorship.
“By removing the blockchain app, the only bitcoin wallet application on the App store, Apple has eliminated competition using their monopolistic position in the market in a heavy handed manner,” wrote Blockchain.info. The company created an online petition that has gathered nearly 5,000 signatures.
There were dozens of articles that piled on this news, positioning this issue as a Bitcoin v. Apple deathmatch. One Bitcoiner even shot his iPhone with a rifle out of protest.
Unfortunately, this broad overreaction by Bitcoin enthusiasts is not likely to produce results. Apple, simply put, has terms of service against other forms of transactions occurring in-app, Bitcoin included. Bitcoin company Coinbase launched an iPhone app which was subsequently pulled from the App Store for the same reasons.
Bitcoin Bounces Back
Despite this overnight panic, the price of Bitcoin has recovered about half of its losses, as it always does. It was inevitable that Mt.Gox’s leadership position would be taken over by new exchanges. And it was inevitable that Blockchain.info’s iPhone app would be removed due to policy violations.
Why are we surprised?
Bitcoin Week: Are We Past a Bitcoin Tipping Point?
Bitcoin Week
Here is a roundup of the top Bitcoin news from last week.
Our contributor @BitcoinLeah published two extensive pieces of analysis. The first was a recap of the hearings that took place last week in New York. Executives from Coinbase, Circle and Overstock provided testimony in hopes to educate and enlighten regulators about the opportunities for Bitcoin.
A second article by Bitcoin Leah took a look at the Bitcoin regulatory landscape across 5 of the most influential countries: the United States and the BRICs (Brazil, Russia, India, and China).
In other regulatory analysis, we looked at a recent publication by Adam Ettinger, a veteran lawyer and managing partner at SF-based Strategic Counsel Corp. Ettinger discussed four indicators that suggest we are past the tipping point with Bitcoin. The key question is whether regulators will be Bitcoin-friendly. Ettinger said it’s a land grab for the first state to open its arms to Bitcoin entrepreneurs.
Popular financial dashboard Mint added Coinbase integration, allowing its customers to watch their Coinbase balance next to their credit card statements and car loans. Mint is not the first company to provide this monitoring capability. Venture-backed Bitcoin services company BitGo allows users to monitor all of their Bitcoin balances in one dashboard by entering public Bitcoin addresses.
How 5 Influential Countries Are Regulating Bitcoin
“As the world becomes more digital, paying physically with bills, gold or credit cards will seem archaic. Everyone will have bitcoins.” – BTC China CEO Bobby Lee.
Last week, viewers from 117 countries, commonwealths and territories watched as the New York State Department of Financial Services held hearings on the future of Bitcoin.
This viewership was indicative of a global excitement about the potential of Bitcoin, and a keen interest in how US regulators are thinking about the digital currency.
Jeremy Allaire, Founder, Chairman & CEO of Circle, a financial services company developing products that make it easy for consumers and businesses to exchange, store, send and receive digital currencies, said that digital currency is one of the first major Internet-driven technology issues that will require collaboration on a world wide basis in order to take hold.
The decision of lawmakers on how to regulate digital currency is the main obstacle between Bitcoin and its preordained future as a global transaction network, offering advantages of lower transaction fees, faster international transfers, as well as a number of security advantages.
To help paint the landscape today, we took a look at how 5 influential countries are regulating Bitcoin. The United States, of course, and the BRICs (Brazil, Russia, India, China) which represent the top 4 emerging national economies.
United States
Back in November 2013, a Senate committee heard testimony from Bitcoin executives and law enforcement officials. There was a resounding message that Bitcoin, in and of itself is not illegal, and the Senate committee expressed positive sentiment.
Last week, The New York State Department of Financial Services conducted two days of hearings on virtual currencies.
Coinbase, a Bitcoin wallet and platform where merchants and consumers can transact with the new digital currency bitcoin, said that a scaling of requirements of state legislation is important in digital currency adoption.
Circle’s Allaire said that states are using outdated rules on transactions that do not account for the Internet. There was a call from the panelists for a common licensing model and examination to be established throughout the states. Allaire encouraged legislatures to have a “forward leaning posture.”
Brazil
With inflation at 6% as well as the highest tax rate of any of the emerging economies, Bitcoin is an appealing alternative for Brazilians who are mainly interested in it as an investment vehicle. Batista, a former program developer for Morgan Stanley (MS) in Brazil, believes that the volume on Mercado Bitcoin, Brazil’s largest platform for buying and selling Bitcoin, will grow to 160 million reais a month in 2014.
Presently, Brazil’s central bank isn’t regulating Bitcoin because, for now, the crypto currency isn’t significant enough to be of “systemic importance.”
Russia
“The Bank of Russia has warned that Russian legal entities providing services for the exchange of “virtual currency” in rubles and foreign currency, as well as for goods (works, services) will be considered as a potential involvement in the implementation of suspicious transactions in accordance with the legislation on counteraction to legalization (laundering) proceeds of crime and financing of terrorism.” - Statement issued on January 27th by the Central Bank of the Russian Federation
The Bank of Russia has warned citizens of Bitcoin’s possible ties to gangs into money laundering and the financing of terrorist organizations, and has strongly discouraged its use.
Meanwhile, German Gref, head of Sberbank, Russia’s largest bank, has been a vocal Bitcoin advocate, calling Bitcoin, “a very interesting global experiment that breaks the paradigm of currency issuance.”
While issuing strong statements against Bitcoin, Russia has yet to issue any sort of ban on digital currencies.
India
Due to fear of arrests and raids by tax officials, many Indian Bitcoin businesses have (at least temporarily) shutdown. After the Reserve Bank of India issued a warning on the risks of digital currencies, the Bitcoin community of India is seeking legal help in order to clarify the legal landscape of doing business in the country. In the third week of February, The Bitcoin Alliance of India will be meeting with the Reserve Bank of India to discuss the future of digital currencies in India. There has been increased lobbying in India for a “clear regulatory framework on digital currencies.”
China
“Today we received notice from our 3rd party payment processor and they essentially have cut us off from allowing customer deposits into BTC China’s Bitcoin exchange,” said Bobby Lee, CEO of BTC China, the world’s largest Bitcoin exchange in December 2013.
In mid-December, The People’s Bank of China ruled that merchants were not allowed to accept Bitcoin and banks and payment processors were forbidden from coverting Bitcoin in yuan. Deposits into Chinese Bitcoin exchanges were banned, and the price of Bitcoin tumbled nearly 50% overnight.
However, there is still hope as Bitcoin wasn’t all out banned, just harder to purchase.
BTC China has since found a loophole to continue business whereby “customers can now buy bitcoins from the exchange by depositing their funds directly into the company’s account.”
Conclusion
In conclusion, regulators are still contemplating how to support the innovation that comes from digital currency while also preventing the side effects of Silk Road and Sheep Marketplace. The United States and the BRICs are all paying close attention to Bitcoin and everyone is watching the next moves carefully.
Tipping Point: How the Regulatory Ecosystem Can Be Bitcoin-Friendly
Strategy Counsel Corp managing partner Adam Ettinger says Bitcoin is like the early Internet, and past the tipping point
Every day it feels like Bitcoin has reached a tipping point, between news of major retailers like Overstock.com accepting the digital currency to venture capitalists increasing their investments.
One of the important chips still waiting to fall in the Bitcoin ecosystem is clarity on regulation. With the hearings in New York last week, regulators heard from executives at Coinbase, Circle and Overstock, as well as investors like the Winklevoss twins and Fred Wilson. The message was consistent: regulators need to create an environment for Bitcoin to thrive.
Following on this theme, San Francisco-based attorney Adam Ettinger told Bloomberg, “If a state becomes Bitcoin-friendly, it will see a huge increase in companies. That will mean the brightest minds working on some of the most innovative payment technology we’ve seen in awhile.”
As managing partner of Strategic Counsel Corp, Ettinger has spent his career helping entrepreneurs build their companies and has extensive experience in disruptive technologies, from web publishing to user generated content to peer-to-peer networks that traverse national boundaries ad hoc and beyond.
And now Ettinger is applying his experience to Bitcoin. He penned his latest thoughts on his firm’s website in a post entitled Tipping Points: When Law, Sensationalism, and Ecosystem Converge.
In looking for an analog to Bitcoin so as to pattern match strategic decisions companies must make, “the only thing to which I can compare Bitcoin and digital currencies with any justice is the commercialization of the internet itself in 1994-1996,” writes Ettinger.
Ettinger expands on this by proposing four indicators that suggest we are past the tipping point with Bitcoin. Read Ettinger’s full post for his comparisons to the early days of the Internet.
- Does the technology not merely improve the way we have done something, but change who can do it and how they can make money from it?
- Do regulators and courts find it hard to apply highly developed statutory regimes to the new commercial and interpersonal activities enabled? If they adapt the laws, will that enable people and business to massively increase their interactivity and commerce?
- Is the investment community funding not only one aspect of the ecosystem but the entire ecosystem?
- Does it capture the public mind even before they know how to use it? Is it fascinating to thought-leaders?
Ettinger closes with a retort to critics that may say the Bitcoin ecosystem is not mature enough: what’s not there yet will be built by entrepreneurs if the ecosystem lets them.
“Just like eBay built a solution for reducing fraud between purchasers who don’t know each other and live far from each other, the virtual currency ecosystem will build solutions to the concerns voiced now by regulators,” he explains.
Ettinger cites BitGo an one example. He writes, “BitGo has a wallet that utilizes multiparty signatures in a way that makes someone stealing your Bitcoin or you accidentally losing your Bitcoin nearly impossible. These issues were seen as the most serious consumer protection concerns only a few months ago. If we let the ecosystem thrive, it will fix what isn’t working.”
CC image by Yevy Photography
Coinbase, Circle and Overstock Testify on Bitcoin in New York to Persuade Regulators
“In a rapidly evolving landscape, the goal of digital currency regulation is to make sure this technology, like the Internet in the 90s, is allowed to flourish and bring all of it’s great efficiencies to the world in a safe manner.” — Fred Ehrsam, co-founder of Coinbase
The New York State Department of Financial Services conducted two days of hearings (January 28th and 29th) on virtual currencies.
The first day featured investors in Bitcoin companies and the second day heard testimony from entrepreneurs and legal experts. Video of the testimony recorded is available online for free viewing.
In this article, we recap a panel on the second day called Virtual Currency Commerce and Consumer Protections, Bitcoin’s interests were represented by entrepreneurs and industry leaders:
- Fred Ehrsam, co-founder of Coinbase, a bitcoin wallet and platform where merchants and consumers can transact with the new digital currency bitcoin;
- Jeremy Allaire, Founder, Chairman & CEO of Circle, a financial services company developing products that make it easy for consumers and businesses to exchange, store, send and receive digital currencies; and
- John Johnson of Overstock.com, a discount online shopping retailer based in Salt Lake City, Utah that sells a broad range of products including furniture, rugs, bedding, electronics, clothing, jewelry and cars.
In the opening statements, Ehrsam stated that in a “rapidly evolving landscape” the goal of digital currency regulation “is to make sure this technology, like the internet in the 90s, is allowed to flourish and bring all of it’s great efficiencies to the world in a safe manner.” He referred to Bitcoin as an “extremely powerful technology” and stated that Coinbase’s goal is “to bring the efficiencies created by the Bitcoin network to the masses.” Ehrsam lauded Bitcoin’s ability to transfer and prove ownership without a third party.
Circle Internet Financial CEO Jeremy Allaire’s opening statement listed the many benefits of digital currency: a significantly lower cost than credit card companies, a powerful open platform, global in scope, and nearly instant, verifiable transactions.
Allaire acknowledged that there are currently many risks associated with bitcoin, such as price volatility as well as a lack of consumer protections and safe guards around the theft of digital assets.
Executive Vice Chairman of Overstock.com Jonathan Johnson recounted that in early January, Overstock.com became the first major online retailer to accept bitcoin as payment for merchandise. On the first day, Overstock.com transacted 700 sales ($130,000) in bitcoin, and as of January 29th had recorded $600,000 of sales with 3000 customers, many of whom were new to Overstock.com.
What Does the Future Hold for Bitcoin?
Panelists were asked where they envision Bitcoin in a year. Eshram called Overstock.com “a great beacon” for the future adoption of Bitcoin, and he cited a demographic shift in Coinbase.com’s user base away from an early tech adopter crowd to one more representative of the mainstream.
Pictured above: executives from Coinbase, Circle and Overstock.com testify in New York
Allaire stated that Bitcoin is entering a phase of being a commercially viable option. He anticipates that as the utility value of bitcoin increases then people who have bought bitcoin, and are holding bitcoin, will stop holding and begin to spend more freely. Allaire stated that lack of clarity around regulation as potentially limiting to Bitcoin’s adoption. He listed potential pitfalls for Bitcoin: IRS tax issues, money laundering and anonymity issues.
Overstock.com stated that in a year, they hope that some suppliers are accepting bitcoin so as to be able to hold and spend bitcoin instead of immediately converting the crypto-currency to USD. Johnson said that, “as adoption increases, at some point we’ll reach a tipping point.
Is Bitcoin Really Anonymous?
The question of anonymity was addressed with all panelists saying that overall anonymity is not an issue. Allaire stated that Circle is heavily invested in compliance networks but emphasized the importance of a level of anonymity in order to prevent spying. Allaire explained that, without appropriate safeguards, the use of personal identifiable information could be used in ways that consumers may not want.
On the question of market volatility, all panelists envisioned that, with a shift away from speculation and towards commercial transactions, crypto-currency price stability would occur over time.
Allaire stated that for price stability, the “single most important thing we can do is get some serious exchanges established here in New York that are focused on being mature trading platforms that are able to be used both by retail investors but also by large institutional participants.” When this occurs, “We will see greater volume, greater liquidity, more sophisticated pricing tools, derivatives, hedging, etc which will allow price volatility to subsist a great deal.”
The NYDFS said that viewers from 108 different countries had watched the panel discussions on Bitcoin, and asked the panelists about the specific challenges businesses face due to the nature of a global market. The panelists said that regulation between states and countries is presently limiting the adoption of Bitcoin. Allaire said that digital currency is one of the first major Internet driven technology issues that will require collaboration on a world wide basis. Digital currency will require a degree of coordination in order to take hold. Overstock.com said they currently only accept bitcoin within the United States.
Coinbase said that a scaling of requirements of state legislation is important in digital currency adoption. Allaire said that states are using outdated rules on transactions that do not account for the Internet. There was a call from the panelists for a common licensing model and examination to be established throughout the states. Allaire encouraged legislatures to have a “forward leaning posture.”
Overstock.com said that the greatest risk in using virtual currency is presently liquidity. Johnson said that the question is “Will bitcoin be immediately exchangeable for dollars?” Right now through a partnership with Coinbase, Johnson said, the answer is yes.
Can a bank or corporation go and create their own version of Bitcoin? The panel said this is highly unlikely. Bitcoin is an open protocol, which has allowed it to be peer reviewed for years. In a way the world has never seen before, no one owns Bitcoin, and, no one controls it. An institute trying to replicate it wouldn’t have the same impact as Bitcoin.
The panel stated that they would like banks and insurance companies to become involved in Bitcoin. However, Allaire said that established banks have very little interest in Bitcoin adoption due to its murky Silk Road history, but he did not feel it was an issue of risk. The panelists predicted that it will take awhile for the risk industry to be willing to get on board.
All panelists compared Bitcoin’s potential to that of the Internet in the 90s and expressed a hope that, with a growing global awareness, regulation doesn’t inhibit the “enormous potential” of the Bitcoin network but will instead put the necessary foundations in place to prevent crime, protect consumers and allow Bitcoin to thrive. The decisions made by the New York State Department of Financial Services will influence and set precedent for the way the rest of the United States deals with regulating digital currencies.
CC image by aa7ae.
