Last Week Today – Bitcoin and Cryptocurrency Weekly Digest Sept 22-29

  • Bitcoin comes down with post-Bakkt depression syndrome
  • NVIDIA in controversy over Ethereum’s ProgPoW upgrade
  • Venezuela’s central bank wants to hold Bitcoin reserves
  • France and Germany driving Bitcoin adoption in Europe

Bakkt launch triggers avalanche. But are other factors in play?

It wasn’t quite the “most bullish event in Bitcoin history” that many had anticipated but don’t say you weren’t warned. A few weeks ago, after a concrete launch date was announced, the digest spoke as to why the joy could easily turn to ashes in our mouth.

Bakkt has been grossly misrepresented as exposure to “big money”. That’s not the whole truth. A regulated institutional spot market would be exposure to big money. Bakkt is an avenue for big money to put their money where their mouth is and finally short Bitcoin. (Yes, it’s mouth idioms week!)

So that’s what happened then? Did big money sink Bitcoin? Not quite. Big money is still sitting on the sidelines. Bakkt attracted precious little volume in the first few days of trading. This is very much par for the course for derivatives markets.

Bakkt contracts will take time to attract any significant interest, partly because most brokerages aren’t ready for physically delivered bitcoins yet. Besides, it’s reasonable to assume that institutional traders don’t particularly care for whether the contracts are physically settled and may continue trading cash-settled contracts at CME.

Speaking of CME, another frequent correlation which has been talked about for a long time but only attracted significant mainstream coverage this week is that the price of Bitcoin often, too often to be dismissed as merely a coincidence, tanks ahead of CME monthly contract expiries. CME’s September contract expired on Friday. There’s a theory that institutional players are manipulating the price ahead of contract settlement.

CME expiry effect. Significant price dips seen before five out of last six monthly contract expiries including September

Three weeks ago, 94k bitcoins (worth a billion dollars at the time) moved in a single transaction. Last week, the day after Bakkt launched, exchange transaction volume spiked by a roughly a billion dollars at 1400 hours GMT. Five hours later, the price broke down below a key support level, which likely caused a panic in retail, triggering a sell-off.

One billion exchange volume spike five hours ahead of major sell-off which broke key support level

A couple of other factors weren’t reported in crypto circles – a relenting of Chinese animosity towards the US and the global climate strikes. The latter might not have had too much bearing on this week’s trading but it’s a long-term sticking point for Bitcoin, unless all mining facility operators shift to renewable energy sources.

Chinese foreign minister, Wang Yi’s keynote speech at the UN General Assembly, gamesmanship or not, was rather a turn up for the books, where Yi suggested that China had no intention of pursuing a trade war with the US and conceded that the US would remain the strongest economy in the world for the foreseeable future. He then urged the Trump administration to “remove all unreasonable restrictions.”

“China has no intention to play the game of thrones on the world stage. For now and for the foreseeable future, the United States is and will still be the strongest country in the world. China-U.S. relations today have once again come to a cross roads. While China opens wider to the U.S. and the rest of the world, we expect the U.S. to do the same to China and remove all unreasonable restrictions.”

Of course, if Trump were to be removed from office, that would certainly lead to an easing up of trade tensions between the two countries. With an impeachment inquiry now hanging over his head like the proverbial Sword of Damocles, this trade war could come to a swift, rather anticlimactic end.

The perceived lacklustre launch may have cooled off some retail interest, but it’s still way too early to quantify the influence of Bakkt on Bitcoin. We’re barely a week in and there’s not a lot of data to go by. Early next year, leading up to the mining reward halving in May, would be a good time to assess Bakkt’s impact.

NVIDIA accused of collusion to monopolize Ethereum network

Proponents of Ethereum often brag about being among the most active repos on Github. What they never tell you is how active the bickering and mud-slinging are and how quickly and frequently disputes devolve into unmitigated chaos.

The network is set to test the first of a two-part upgrade next week. The second part of the upgrade, expected to go live early next year, will change the mining algorithm to ASIC-resistant ProgPoW (Programmatic Proof-of-Work) in an effort to combat mining centralization.

That’s all fine and dandy. But critics of ProgPoW stoked fears this week that the update is a far worse scenario than ASIC centralization, claiming that it’s a devious plot by GPU manufacturer NVIDIA to monopolize Ethereum mining and that the algorithm is custom-built for NVIDIA GPUs. After early testnet benchmarks seemed to corroborate these accusations, the anti-ProgPoW movement is gaining support in the Ethereum community.

Further worrying details came to light when Core Scientific, AI and blockchain infrastructure provider the author of ProgPow, Kristy-Leigh Minehan works for, was revealed to have ties with NVIDIA and Bitcoin SV’s Calvin Ayre. Core Scientific denied these claims but tellingly, Minehan immediately stepped down from her role at the company.

The allegations aren’t without merit. In January 2019, Core Scientific was among the companies which signed up to NVIDIA’s DGX-Ready Data Center program to provide AI GPU-powered colocation services for its customers. It is alleged that these AI data centers would be devoted to mining Ethereum under the ProgPoW algorithm custom-built for NVIDIA devices.

Buterin was unperturbed by the ruckus over ProgPoW, as he quipped that there won’t be such a thing as Ethereum mining for much longer, “I think the main harm of ProgPoW is that it just wastes people’s mental energy on something that ultimately is not a big deal because we are switching to Proof of Stake.”

Nothing new for Ethereum then. ProgPoW will just be another bootless errand of no consequence.

With restricted access to dollar, Venezuela mulls over Bitcoin stash

Following a request made by the country’s state-owned oil company, Petroleos de Venezuela S.A. (PDVSA), to send payments in Bitcoin and Ether, Venezuela’s central bank, Banco Central de Venezuela (BCV) is now reported to be deliberating holding the cryptocurrencies in its reserves.

The central bank’s international reserves are worth $8.8 billion as of last month, a fraction of the country’s $140 billion foreign debt. By having BCV hold cryptocurrencies in its reserves, PDVSA would be able to offer its energy resources abroad for cryptocurrency payments and find access to markets otherwise restricted due to US sanctions.

Last year, the Maduro government tried to establish the Petro, a state-issued cryptocurrency backed by the country’s oil and mineral reserves, as a sovereign digital currency to replace the functionally defunct bolivar.

However, the government itself does not accept local payments or taxes in Petro, but only in Bitcoin and other major cryptocurrencies. All cryptocurrency trading and mining activities within the country are closely monitored by government agency Sunacrip, with unauthorized mining activities considered illegal.

Recently, Venezuela’s ability to export gold has been faced with a stumbling block after the central bank of Turkey, a country where the gold was being sent for certification, refused to work with the BCV, fearing implications of new US sanctions passed in August.

The biggest contributors to Venezuela’s foreign reserves have been Russia and China. It has been rumoured that both countries also hold Bitcoin reserves. Now with significant macroeconomic motivation to support their ailing South American ally, we could see a trend of international payments in Bitcoin between central banks.

After rejecting Libra, France and Germany embrace Bitcoin

Only a couple of weeks ago, the Finance ministers of France and Germany firmly denounced Libra and rejected the possibility of the digital currency ever seeing the light of day in Europe. With European countries constantly pushing for tight cryptocurrency regulation, you could be forgiven for thinking Bitcoin would be unpopular among regulators in the EU. A couple of major developments put paid to that notion.

Last week, the country’s second largest stock exchange, Boerse Stuttgart opened a platform for trading of digital assets, which was developed in partnership with fitech firm solarisBank. The Boerse Stuttgart Digital Exchange (BSDEX) began offering Bitcoin spot trading at its venue and is open for both retailers and institutional clients in Germany. The exchange plans to add ether, litecoin and ripple by the end of this year and also expand its operations to other parts of the EU.

Germany has always maintained a fairly progressive view on Bitcoin, so much so that it’s considered somewhat of a tax haven in Europe. Bitcoin is classified as private money in Germany and is fully exempt from taxation if it’s held for more than a year.

With Bitcoin being exempt from taxation and now being offered in a regulated spot market, there’s no reason for German retailers and institutional investors not to start stockpiling some bitcoins at least as a hedge against fiat-correlated asset exposure.

France, which hasn’t always been so progressive, is also coming around to the idea it would seem. During the Paris retail week last Tuesday, it was announced that 30 major French retailers would start accepting Bitcoin payments at 25,000 points of sale by early 2020.

The initiative is a joint effort by point-of-sale service provider Global POS, in partnership with cryptocurrency wallet app, EasyWallet and digital payments platform, Easy2Play. This integration of Bitcoin as a means of payment at retail venues will be within the regulatory framework defined by the France Financial Markets Authority’s PACTE law, which was adopted in April.

Payments made by consumers using cryptocurrencies will be immediately converted to Euros by two other partners in the project, crypto-fiat ramps, Deskoin and Savitar, who’re both awaiting license to provide the service under PACTE law.

A study carried out by EasyWallet estimated that over four million French citizens hold cryptocurrencies and the incorporation of Bitcoin retail payments is aimed to enable mass adoption of the currency in France.

Trading Insights

BTC/USD closed out the week Sunday just above the 8k at 8047 in what represented the biggest weekly loss since the last trading week of January 2018, after breaking down from a 3-month descending triangle pattern.

Now that’s pretty bearish, I hear you thinking. But as we discussed at the top of the piece, there were some pretty big fundamental factors, along with the technical factors, taking a hand in this week’s price action.

The violent sell-off slipped through a lot of key support areas, including the 0.5 Fibonacci retracement level. For the first time since early in April, the price is below 200 DMA, which is always a pretty good indicator of mid to long-term trend.

But we’re back within the lower BB band and the 4-hour chart is starting to paint a less depressing picture. An ascending triangle pattern is beginning to form, and although 4-hour RSI is not as reliable an indicator as daily/weekly RSI, there’s a clear bullish divergence taking shape, with ADX on the decline while +DI and -DI converge bullishly.

These are fairly positive short-term indicators, suggesting that we might be looking to test the 200 DMA and 0.5 Fibonacci level at 8509 for resistance first rather than descend further to test 7463 for support.

ETH/BTC is looking increasingly bullish this week, looking to complete an inverted head and shoulders pattern on the daily. A decisive breakout above 0.022 BTC could see the pair trend higher towards 0.027.

Other major altcoins largely erased their gains against BTC from the week prior as Bitcoin retained its 68% market dominance despite suffering a week in the slaughterhouse.

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Lamps Toujours
Lamps is a British economist and Bitcoin evangelist with an elusive ken for all things blockchain. A writer by avocation, Lamps' suasive opinions and analyses evince a quenchless passion to promote the integration of blockchain as the new economic and commercial infrastructure on a global scale.

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