Wednesday, 27 May 2020

Why Bitcoin and Ethereum are marching forward

Bitcoin is climbing steadily towards $10,000, reaching a high on Friday midday London-time of $9,763, up 5% in the past week for a two-month high.
Significantly, the highly volatile virtual currency is in its narrowest intra-day trading range since autumn last year, currently at around $100 compared to highs in December of as much as $4,700.

Meanwhile, the premier decentralised application platform Ethereum is rocketing higher, up 10% on Friday and 20% over the past seven days on news of definite steps forward to solve its scaling problems and a number of bullish price targets.

Ethereum has touched $800, its highest price point since early March. The climb higher is despite a report in the Wall Street Journal stating that the platform is being examined by US regulators to established whether it may be in breach of securities law. Ethereum is the default route to market for blockchain project token crowdsales, otherwise known as initial coin offerings (ICOs).

Vitalik Buterin, the inventor of Ethereum, uploaded a proof of concept of sharding technology to Ethereum's github software repository this week in which he proclaimed "Sharding is coming". Sharding is a way of splitting up the verification work on a blockchain to make it more efficient, thereby increasing transaction throughput (see more on sharding below).

A co-founder of Reddit has put a price target of $15,000 on Ethereum and $20,000 for bitcoin by year's end. Alexis Ohanian, now of venture capital (VC) firm Initialized Capital, told Fortune: "At the end of the year, Bitcoin will be at $20,000. And Ethereum will be at $15,000. Great, now people can call me out if I'm wrong."

Other bullish news for Ethereum came from Nigel Green, chief executive of global financial consultancy company deVere, who sees growing adoption of the platform propelling the price to $2,500 by the end of 2018. deVere recently launched a crypto wallet app, putting it in the crypto vanguard among its consultancy peers. deVere has a large client base among British expats.

In the US, payments startup Square, run by chief executive Jack Dorsey, also of Twitter, announced financial results on Wednesday in which it revealed that it had sold $34.1 million worth of bitcoin in the first quarter. That was greeted as yet more positive news for the sector, although the company bought $33.9 in bitcoin, so its profit on the trades was only $200,000.

Goldman Sachs trading desk confirmed

Also, helping to drive bitcoin higher was a report this week in the New York Times confirming previous reports, notably by Bloomberg in December, that Goldman Sachs is building a crypto trading desk.

A bank executive with joint responsibility for the development of the new business line, Rana Yared, explained the move: "It resonates with us when a client says, 'I want to hold Bitcoin or Bitcoin futures because I think it is an alternate store of value' ".

It should be noted, however, that the investment bank will not be buying bitcoin. Instead Goldman Sachs will be accessing the futures market on the Chicago Board Options Exchange and the much larger Chicago Mercantile Exchange, where it will trade as a market maker.

Wall Street banks are held back from directly trading bitcoin and other crypto because it would require putting in place hacker-proof custody arrangements in addition to securing permission from regulators.

Yared said although the Goldman Sachs did not view bitcoin and other crypto as currency.

"It is not a new risk that we don't understand. It is just a heightened risk that we need to be extra aware of here," she noted.

The move by Goldman Sachs is seen as encouraging of the view that institutional investors are increasingly at least considering whether to enter the market.

The bank hired its first crypto trader last week, Justin Schmidt. Appointed head of digital asset markets, Schmidt previously worked at Seven Eight Capital and was a portfolio manager at LMR Partners. Schmidt will be sitting on the currency desk, for now.

The abundance of caution being shown by investment banks towards crypto is underlined by Barclays chief executive Jes Stately in response to shareholder questions at the bank's annual general meeting, although he did say the company was exploring the opportunities offered by blockchain-related startups.

Ethereum securities decision on 7 May

Back with Ethereum, the WSJ reported that there are those in the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) who believe the launch of the Ethereum network in 2014 was "probably an illegal securities sale".

Regulators have been assessing the crypto sector and Ethereum in particular because of its pivotal role in the ICO space.

Andreessen Horowitz, Union Square Ventures and other VC firms submitted a proposal to US regulators in March seeking to exempt ether (the native token of the Ethereum network) from securities regulations because "it has become so decentralized it should not be deemed a security".

Much of the regulators' work concerns the application of the Howey Test that emerged from a case at the US Supreme Court (SEC v Howey) in 1946, which led to the definition that if "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party" it is a security.

The test consists of four parts: is an investment of money; with an expectation of profit; in a common enterprise; with profits coming from the efforts of a third party.

Gary Gensler CFTC chairman from 2009 to 2014 said recently: "There is a strong case that one or both of ETH and XRP are noncompliant securities."

What is Zilliqa and why is it on the rise?

Altcoins are advancing across the board. One notable mover over the past few days and weeks is Zilliqa (ZIL) with its bull run continuing apace.

ZIL was listed on Binance in March, one of the largest exchanges and accounting for about half of ZIL trading volume.

The coin, launched in January, is an example of a network that has successfully implemented sharding technology.

Sharding is a promising scaling solution and will also feature in the Telegram blockchain, assuming Russia hasn't succeeded in killing off the messaging app before its chain goes live.

The excitement around ZIL has been heightened by the successful launch of its Testnet, which is seeing a transaction per second (tps) rate of 1,000. On its private blockchain testing the tps hit 2,400. Zilliqa's sharding implementation divides nodes into groups of 600 and there are currently four shards up and running on the network.

Theoretically, when the nodes reach the hundreds of thousands in a sharding system broadcasting could become an issue, but it's a case of so far so good for Zilliqa to date with only a relatively small number of nodes doing the consensus work.

Just a couple of days ago the founder of Ethereum Vitalik Buterin cites sharding as the likely technology that will be harnessed to solve the dapp platfrom's scaling issues, further adding to the ZIL buzz, although there is no evidence of collaboration between the two platforms.

UK industry news

London Block Exchange (LBX) has increased its crypto asset offering to six coins with the addition of Bitcoin Cash and Ethereum Classic. LBX is the only UK crypto exchange that provides fiat(GBP)-to-crypto trading pairs.

The company has also launched a smartphone app and started onboarding pre-registered customers, with some trading already taking place. LBX began providing over-the-counter trading last year.

LBX sees its official launch of its full-blown centralised liquidity offering in late May, at which time it will reveal its UK banking partner, the exchange confirmed in comments to Interactive Investor. The exchange also has markets in Bitcoin, Ether (ETH), Litecoin (LTC) and Ripple (XRP), all of which trade against sterling.

In other UK news, the CryptoUK Group of self-regulating crypto-related companies, including Coinbase, Coinfloor and eToro, has called for regulation of the sector by UK authorities and, among other things, the introduction of a crypto licence to enforce know-your-customer and anti-money laundering compliance uniformly across the industry. The big players in the market see regulation as one more essential step in crypto's journey into the mainstream.

Iqbal V Gandham, managing director of eToro UK and the chair of CryptoUK, said: "Introducing a requirement for the FCA to regulate the ramps between crypto and fiat currencies is well within the remit of HM Treasury and it would have a huge impact in both reducing consumer risk and improving industry standards."

Elsewhere, Ripple was savaged at a parliamentary committee in a hearing on Tuesday in which Martin Walker, director of the non-profit Centre for Evidence Based Management, attacked the Ripple family of products as an inappropriate solution for cross-border trading and other financial transactions.

"You need someone to provide the liquidity to be able to change into and out of Ripple. And holding Ripple, a currency which has seen its price drop 80 percent and then back up 100 percent in the course of the last two months is just not credible. So, putting cryptocurrencies into the financial sector is a huge source of risk," Walker argued. Ripple is 5.7% higher this Friday at 0.904 and is holding its position as the third-ranked coin by market cap, according to research site

CryptoCompare is joining with financial research and news site ADVFN, which recently launched its own social media coin - the PlusOneCoin, and MJAC Disruptive Investment Conferences to put on the London Blockchain Summit in London on 13 June. The line-up for the keynotes includes arguably many of the most influential names in the UK crypto industry, with speakers from Coinfloor (Obi Nwosu), Coinbase (UK chief executive Zeeshan Feroz) and Cryptocompare (Vlad Cealicu, co-founder and chief technology officer).

China loves the blockchain

In China developments in the blockchain field are gathering pace.

The third-largest crypto exchange, Huobi, announced the creation of a $1 billion fund to set up a Blockchain Lab to develop blockchain technology and invest in startups.

Huobi is partnering with Tianya Community Network Technology, a social networking platform. Huobi's exchange is not available in China, following the clampdown by the Chinese government on crypto exchanges and the banning of ICOs in the country. However, Huobi's trading platform can be accessed from inside the country using virtual private network (VPN) technology. It now has it head office in Singapore, with branch offices in Hong Kong, the US and Japan.

In other Asia news, Japan's financial regulators are calling for exchanges to stop trading so-called privacy coins such as Monero and Zcash, that offer security and anonymity features not available with bitcoin. Regulators worry that the coins are being used by criminals and terrorist organisations.

Other altcoin news

A security audit firm, Chengu LiaAn Technology, says it has found vulnerabilities in the code of the EOS platform, which could potentially allow a hacker to fraudulently create tokens.

EOS chief technology officer Dan Larimer pushed back against the claims, saying "the problem is not a security vulnerability" and was rather "just the result of poor coding practices". Whatever the truth of the matter, it does remind market participants that the products in the sector are largely untested at scale in commercial settings, so even the most promising of networks may run into potentially catastrophic bugs.

EOS has been pushing higher of late but the security news sent the price into reverse. EOS is down 4.5% today at $17.20

University College London fell out with the IOTA Foundation over what the university said was the foundation's lack of commitment to "support for open security research".

A statement from UCL's respected Centre for Blockchain Technologies, said: "UCL Centre for Blockchain Technologies is no longer associated with the IOTA Foundation. In relation to recent news report [sic], we reaffirm our support for open security research, as a prerequisite for understanding the assurances provided by any blockchain technology. It is inappropriate for security researchers to be subject to threats of legal action for disclosing their results."

IOTA is off recent highs at $2.64 and is currently trading for $2.38, according to

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