Week of 12.15.19 - Issue #7
Welcome to the seventh edition of the ₿it Economy! Each week, I break down the top stories in Bitcoin in a simple in clear format. Enjoy! Happy Holidays to those celebrating Christmas, Hanukkah, Festivus and more!
Topics: Delisting, Investing & Privacy
S1: Coinfloor to Delist ETH to Focus Solely on BTC
What is it? - Coinfloor, a London-based exchange plans to delist Ethereum and Bitcoin Cash to focus on mostly on Bitcoin services starting from January 3, 2020. The U.K.'s longest exchange cited that an unclear future of hard forks and the need for onerous technical support. According to Founder and CEO, Obi Nwosu, "Since I first came across Bitcoin in 2011, I have seen it grow to become a mature, proven currency. No other currency comes close to Bitcoin's track record, industry support, or brand recognition, so focusing on Bitcoin made perfect sense." The exchange plans to use this move to promote itself as the number one Bitcoin exchange as well as expand its product offering in the Bitcoin ecosystem.
Why it Matters? - In advance of the 11th anniversary of Bitcoin, the U.K. exchange believes that the digital asset is the cryptocurrency that is proven so far. Since this is a Bitcoin focused newsletter, I won’t waste the time to explain what Ethereum is since I am not too if even the current developers have a clue beyond a smart contract platform. For those who want to learn more here is a link to their foundation providing details on the project.
Back to the story at hand, Coinfloor going all in on Bitcoin. Unlike many of its competitors, it is relatively inexpensive to run a full-node due to its network stability and infrequent hard-fork nature. A hard-fork is a radical change to a network’s protocol that makes previously invalid blocks and transactions valid, or vice-versa. It requires all nodes or users to upgrade to the latest version of the protocol software as well as need each supporting exchange to prepare for the migration. This creates added costs and fees that can add up if a coin has a frequent forking schedule like ETH.
If an exchange were to not upgrade, then there is no way it could verify user transactions resulting in miscommunication and bad actors across the chain. Bitcoin due to its simplicity in nature allows for low maintenance costs thus less complex in nature. The complexity of the system upgrades determines the costs to maintain a coin and a certain point, it may simply be uneconomical to continue its support. For Coinfloor, they as an exchange have conclude that Bitcoin is the currency that has proven itself so far in the 11 years of this asset class. Expect more exchanges to follow suit as users seek liquid assets across multiple exchanges.
Final Take - Many exchanges will continue to list shitcoins for the quick payday but ultimately user demand will drive liquidity.
S2: Bitcoin was the Best Investment of the Decade
What is it? - According to CNN and Bank of America, Bitcoin was the best investment of the decade. Those who bought into the digital asset when it cost a fraction of a penny at the start of the decade will have seen their investment skyrocket. Thus, if you invested $1 at the beginning of the decade, it would be worth more than $90,000. Even with Bitcoin's latest price implosion, it has still created an astonishing $9,150,088% return since its creation. In comparison to the top companies by market cap the asset blows the competition out of the water.
Why It Matters? - With the decade winding down, analysis from howmuch.net compared investing $1 into Bitcoin to that of the top largest firms in terms of market capitalization. The results can be seen in the chart below.
It is important to know that though Bitcoin beat the rest of the field by a long shot, it remains more volatile than the stocks of other companies. Bitcoin's price saw a significant pullback from its highs of $19,000 in late 2017 to $3,500 in less than a year. Unlike digital assets, the predictive nature of publicly listed firms all for relatively stable prices. When people talk about Bitcoin, the issue of volatility always comes up. What most people do not know is that volatility is not so bad. Volatility is the rate at which an investment increases or decreases. Simply put, it is how drastic a price change is. The more drastic the price change, the higher the volatility. As a relatively new asset, volatility is inevitable. Bitcoin's volatility is a feature, not a bug for it is a side effect that comes with growth of an asset.
Moreover, on a long enough time frame, valuing bitcoin is straightforward. The market will find a price based on the available supply and demand. When more people want to buy bitcoin than sell it, the price goes up. The past decade saw investors flock for more alternative assets that were not correlated with traditional markets as political tensions, trade wars, and Central Bank's quantitative easing increased across the globe. Bitcoin has fixed limits of supply, which means only a certain number of bitcoin will ever be available. There is no single central authority like the Federal Reserve to regulate the money supply by printing more bank notes or taking them out of the system. Rather, the supply is limited by technical issues and the original design. All the reasons are why this asset has outperformed every other in the past 10 years and will be a sought-after investment for the next 10.
Final Take - Bitcoin's combination of scarcity, liquidity, and security makes Bitcoin supremely valuable to those who understand the importance of a non-sovereign, censorship resistant currency in the digital age.
S3: Binance Not a Fan of Coin-Mixing
What is it? - Binance, the world's largest exchange by volume, Singaporean branch has suspended a Bitcoin withdrawal from a user utilizing the coin-mixing service Wasabi Wallet. For background on Wasabi, please refer to Week 5 of the Bit Economy.
On December 19th, the user @bittlecat received a message from Binance Singapore informing them that their Bitcoin withdrawals were suspended due to risk management. In order to fix the situation, the exchange asked the user to provide answers to the following:
What is the purpose of withdrawing the above funds to Wasabi Wallet?
Advise us the following and provide any supporting documents.
What is your current occupation?
What is your annual income range?
The user had to wait till the following day to get their account unfrozen and the funds returned. The entire incident has sparked an outrage across the internet with individuals picking sides.
Why it Matters? - "Not Your Keys, Not Your Bitcoin"
Bitcoin transactions are public therefore it is not private by default. On the other hand, with the use of CoinJoins, such as Wasabi or other privacy tools, bitcoin can be used privately. Exchanges operate within the bounds of accepting as many users as possible while balancing the respective regulations of the jurisdiction they are based. If they opt for the non-KYC approach, oftentimes they grow too large where they must implement some form of check to remain in the good-graces of the regulators. Binance is one of these exchanges that begun to implement this 'security check' across its many jurisdictions. Binance is trying to build a global business and it will not be long before comes under pressure and scrutiny to implement KYC checks and implement security measures for regulations like AMLD5.
Being an exchange, Binance is a third party that is ultimately going to do everything in its power to remain in operation. It is not uncommon for users to mix their UTXOs, especially in the case of sellers on LocalBitcoins and other P2P decentralized exchanges. Privacy is a topic that many take for granted today. The typical human tends to assume proper security controls are built into all the devices they use throughout the day. The "out of sight, out of mind" mentality is common when it comes to privacy settings across platforms and applications. Smartphones are increasingly extensions of ourselves, storing or accessing nearly everything about us. Trusted third parties are security holes and the behavior of Binance goes against what Bitcoin stands for. People all around the world rely solely on bitcoin to live and to hold funds ransom could have a serious damaging effect on their livelihoods. Exchanges will continue to bend the knee to government and regulators across the world in order to keep their profits. Seeking privacy is not only not a crime but a fundamental human right.
Final Thought - Regulation like 5AMLD will increase Lightning Network adoption at a faster pace.
Market Watch
- High: $7,292.72
- Low: $6,637.22
- ATTOW: $7,689.36
Bitcoin over the past week saw a strong recovery from lows near the key $6,500 support level to nearly $7,600 at the time of writing. On Wednesday, the asset jumped more than 10% which was the largest gain since late October. This rally has increased buy pressure that brings the key resistance of $7,800 into play. If Bitcoin were to close above this level, it would signal a bullish reversal heading towards the last week of 2019. On the other hand, a downside break below $7,100 could result in a retrace to $6,700.
Announcements
- Hodl Hodl partners with Coincards - Link
- Wasabi Wallet v.1.1.10.1 silent release - Link
- Bitcoin Optech #77 - Link
- Phoenix Lightning Wallet launches for Android - Link
- Blockstream releases c-lightning 0.8.0 - Link
Interesting Reads
- Messari CEO's Ryan Selkis' Crypto Theses for 2020 - Link
- Elusive Symmetries by Allen Farrington - Link
- What Bitcoin Means for Athletes Like Me - Link
- Token Daily's 2020 Crypto Crystal Ball - Link
- Pathways to DeFi on Bitcoin - Link
- Bitcoin’s 2019 in Tech - Link
Final Quote
“There are 3 eras of currency: Commodity based, politically based, and now, math based.”
Chris Dixon, General Partner, Andreessen Horowitz
Have a great week!