Monday, January 8, 2018

The $2B Joke

Source
Everything you need to know about cryptocurrency is in Timothy B. Lee's
Remember Dogecoin? The joke currency soared to $2 billion this weekend:
"Nobody was supposed to take Dogecoin seriously. Back in 2013, a couple of guys created a new cryptocurrency inspired by the "doge" meme, which features a Shiba Inu dog making excited but ungrammatical declarations. ... At the start of 2017, the value of all Dogecoins in circulation was around $20 million. ... Then on Saturday the value hit $2 billion. ... "It says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn't released a software update in over 2 years has a $1B+ market cap," [cofounder] Palmer told Coindesk last week.
So blockchain, such bubble. Up 100x in a year. Are you HODL-ing or getting your money out?

29 comments:

David. said...

Today's headlines.

Uproar over crackdown on cryptocurrencies divides South Korea:

"On Thursday the justice minister, Park Sang-ki, sent global bitcoin prices temporarily plummeting and virtual coin markets into turmoil when he said regulators were preparing legislation to halt cryptocurrency trading."

A Wall Street consultancy eviscerated crypto in a massive report — and it should strike fear into the heart of every bitcoin bull:

"Quinlan & Associates put out a report Thursday titled "Fool's Gold: Unearthing The World of Cryptocurrency" in which they outline a case for bitcoin dropping to $1,800 by December 2018."

Bitcoin Rebounds, Still Heads for Weekly Slump as Scrutiny Rises:

"bitcoin mining -- the process needed to facilitate transactions -- is set to become more expensive as China’s government cracks down on the industry, in part out of concerns about power use."

David. said...

"One of the biggest cryptocurrency exchanges was down more than 40 hours this week, causing clients to freak out. It was still down as of 4 p.m. Friday.

San Francisco’s Kraken went offline at 9 p.m. on Wednesday for maintenance that was initially scheduled to last two hours, plus an additional two to three hours for withdrawals, according to an announcement on the company’s website." writes Camila Russo at the San Francisco Chronicle.

David. said...

Tyler Durden reports that New Survey Reveals Staggering Number Of People Are Buying BitCoin On Their Credit Cards">:

"nearly a quarter of the folks who bought BitCoin using their attractive 25% loans admitted that they're now stuck rolling their new debt month-to-month..."

This isn't a joke.

David. said...

Hackers Hijack DNS Server of BlackWallet to Steal $400,000 is today's heist report from Catalin Cimpanu. $400K seems hardly worth the effort in comparison to recent heists. But I guess it is enough for a Lamborghini or two.

David. said...

"Based on rigorous analysis with extensive robustness checks, the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months" John Biggs at TechCrunch quotes from the abstract of Price Manipulation in the Bitcoin Ecosystem by Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman. Note that the paper is behind Elsevier's paywall.

David. said...

"Cryptocurrency investors in South Korea will be fined for refusing to convert their virtual accounts into real-name ones, financial authorities said Sunday. ... According to the authorities, cryptocurrency traders will be allowed to convert their virtual accounts into real-name ones within this month, but those who refuse to accede to real-name identification will face fines." according to a report from South Korea's Yonhap News Agency.

Hat tip to an anonymous /.-er.

David. said...

David Gerard's commentary on the price manipulations surrounding today's Bitcoin crash is worth a read.

David. said...

It looks like what stopped today's collapse was $100M-worth of Tethers created out of thin air, making $350M printed this month. David Gerard explains Tethers:

"Tether runs a dollar-substitute blockchain token, the USDT, which is theoretically pegged to the US dollar. The problem is, Tether lost its banking relationships in March 2017 at the same time as Bitfinex — and, in fact, was a co-plaintiff when the Bitfinex companies attempted to sue Wells Fargo in April 2017 for cutting them off — and, since then, has had no visible method of getting US dollars into its claimed reserves backing the USDT."

See also here.

So, apparently, despite no banking relationship, someone dumped 350M actual USD into Tether's kitty this month. Or not, as the case may be.

David. said...

"Chinese authorities plan to widen their crackdown on domestic crypto-trades, by targeting methods including over-the-counter trading, offshore sites used for centralized trading, and peer-to-peer trading of large transactions, according to a report from the state-run Securities Times (link in Chinese) published yesterday (Jan. 16). ... Citing unnamed sources, Bloomberg also reported the same day that officials will block domestic access to local and offshore platforms that provide centralized trading, and target people who provide bids and offers for crypto trades in large amounts." reports Zheping Huang at Quartz.

David. said...

"Bitcoin’s price swings are so huge that even ransomware developers are dialling back their reliance on the currency, according to researchers at cybersecurity firm Proofpoint.

Over the last quarter of 2017, researchers saw a fall of 73% in payment demands denominated in bitcoin. When demanding money to unlock a victim’s data, cybercriminals are now more likely to simply ask for a figure in US dollars, or a local currency, than specify a sum of bitcoin." reports Alex Hern at The Gaurdian.

David. said...

Tony Arcieri's The Tether Conundrum: A Quick Backstory is a must-read dive into the $100M/day in fake currency propping up the Bitcoin price (my emphasis):

"That’s $450 million dollars in a little less than a week, highly correlated to a “Bitcoin bloodbath” where the cryptocurrency lost nearly 50% of its value since December. $450 million is a roughly a 40% increase in Tether’s previous $1.2 billion market cap, bringing the total to approximately $1.7 billion USD worth of “USDT”. Now let’s keep in mind that Tether insists that they have this much in equivalent USD value their “reserves”, and that they are “subject to frequent professional audits”. But is any of that actually true? I can’t tell you, but if it is I’m curious where they got nearly half a billion dollars in cash this week and would be very interested in the results of a new Tether audit."

In particular, you want to look at this graph and decide for yourself if it suggests a correlation.

David. said...

A much more rigorous statistical examination of Tether printing and the market's response concludes:

* Author’s opinion - it is highly unlikely that Tether is growing through any organic business process, rather that they are printing in response to market conditions.
* Tether printing moves the market appreciably; 48.8% of BTC’s price rise in the period studied occurred in the two-hour periods following the arrival of 91 different Tether grants to the Bitfinex wallet.
* Bitfinex withdrawal/deposit statistics are unusual and would give rise to further scrutiny in a typical accounting environment.
* If there is questionable activity, the author believes a 30-80% reduction in BTC price could be forecast.

PS - Tether printed another $100M yesterday, adding to this record:

"Tether Net Annual Issuance

2014 $100
2015 $951,550
2016 $9,000,000
2017 $1,405,047,515
2018 $750,000,000"

David. said...

Nicholas Weaver tweets:

"At current prices, net new Bitcoin requires $18M of net new $ flowing in to maintain the price. Yet there is a net $100M/day of fake $s in the form of Tethers... If that Tether printing press ever breaks, there will be a true bloodbath on the cryptocurrency prices. Good."

Nouriel Roubini responds:

"Indeed Tether/USDT used to manipulate Bitcoin prices. Without this scam Bitcoin price would collapse by 80%. Regulators asleep at the wheel while $2 billion of fake $ created via this scam, half of it since December. Not even North Korea created so many fake $ backed by nothing"

David. said...

People are figuring out that Tethers are fake money and, as David Gerard documents, the result is huge pressure to sell Tethers for "fiat currency" on Kraken, the only exchange where it is currently possible.

David. said...

"The U.S. Commodity Futures Trading Commission sent subpoenas last week to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information. The firms share the same chief executive officer." reports Matthew Leising at Bloomberg. Cryptocurrencies down around 10% on the day. Pass the popcorn!

David. said...

The NYT is a bit late to the party:

"A growing number of virtual currency investors are worried that the prices of Bitcoin and other digital tokens have been artificially propped up by a widely used exchange called Bitfinex, which has a checkered history of hacks and opaque business practices." writes Nathaniel Potter:

"In recent months, however, many investors have been raising alarm bells about Tether. Hundreds of millions of dollars worth of new Tether were created; almost always when the prices of other virtual currencies were heading down. The Tether were used on the Bitfinex exchange to make big purchases of Bitcoin and other tokens, helping push their prices back up, according to multiple analyses of data from Bitfinex."

David. said...

"Basically, you can build things that are really hard to shut down. Who would want that? Not everyone. But almost certainly enough people to ensure that this phenomenon is not going away anytime soon." is the conclusion of a post by Khadim Shubber at Alphaville. It is a good point, but it doesn't justify all the hype around stuff you can do with blockchains. And when Shubber quotes Adam Ludwin at Chain writing:

"nothing can stop me from sending Bitcoin to anyone I please. Nothing can stop me from executing code on Ethereum. Nothing can stop me from storing files on Filecoin."

They are both wrong. A majority of the mining power could do each of those things. All that it takes is a majority of the mining power, which could be assembled by a conspiracy among large mining pools, or by a government deciding that it was worth spending a lot of computons to do it, or by a government twisting the arms of the large mining pools.

David. said...

Now BTC is back under $9K, everyone is piling on, including Nouriel Roubini, Joi Ito, Samuel Haig at bitcoin.com, Marvin Dumont at The Street, ...

David. said...

Crypto Inferno has an interesting alternative theory as to what is going on with Tether/Bitfinex.

David. said...

"problems could start to crop up during a downturn—in a situation where a company might start to see more people wanting to sell tokens for cash than vice versa. Such a company would have to dip into its financial reserves, and if those reserves started to run out it could create turmoil in cryptocurrency markets. People who thought they were holding dollars would suddenly discover they were wrong. It's hard to predict what would happen next, but it's safe to say it wouldn't be pretty." writes Timothy B. Lee at Ars Technica in Why experts are worried about Tether, a dollar-pegged cryptocurrency.

As I write this BTC is $7.3K.

David. said...

The crash of BTC means the market is being flooded with GPU cards that were "slightly used" to mine alt-coins.

David. said...

"It could be pure coincidence that an influx of over $87 million in potentially unbacked coins was created around the same time the value of almost every one of the top 100 coins began increasing." writes Bryan Menegus at Gizmodo.

David. said...

"Bitcoin miners who've decided to stay in the game amid plunging prices may soon find that the well has run dry.

A 70 percent price drop since the heady days of mid-December has cut profitability to the bone. With the cryptocurrency hitting $6,000 on Tuesday, only the biggest and most efficient can stay above water, but even these are balancing on a knife edge, according to a Gadfly analysis." writes Tim Culpan at Bloomberg with some interesting graphs.

David. said...

"U.S. regulators should investigate those behind Tether for possible violations of Patriot Act provisions on money laundering and other financial fraud laws. Prosecution is likely to inhibit criminal scheming and to substantially disrupt the exchanges that rely on Tether to function." writes Nicholas Weaver at Lawfare

David. said...

Predicting Random Numbers in Ethereum Smart Contracts turns out to be quite easy according to Arseny Reutov:

"The Ethereum blockchain is deterministic and as such it imposes certain difficulties for those who have chosen to write their own pseudo-random number generator (PRNG), which is an inherent part of any gambling application. We decided to research smart contracts in order to assess the security of PRNGs written in Solidity and to highlight common design antipatterns that lead to vulnerabilities allowing prediction of the future state."

David. said...

"Bitcoin-mining operations are set to overtake domestic residential energy consumption in Iceland later this year, according to a local energy company. As a result, one lawmaker is considering what could or should happen if Iceland continues to expand its role as a major bitcoin-mining hub.
...
Johann Snorri Sigurbergsson, a manager at energy firm Hitaveita Sudurnesja, told the Associated Press that he expected bitcoin mining to hit 100 megawatts this year.
...
Sigurbergsson told the BBC that he expects the bitcoin industry to exceed the roughly 700 gigawatt hours that all Icelandic homes require." Chris Farivar at Ars Technica has the details. At least it is all renewable energy.

David. said...

"A growing number of Coinbase customers are complaining that the cryptocurrency exchange withdrew unauthorized money out of their accounts. In some cases, this drained their linked bank accounts below zero, resulting in overdraft charges." reports Adrianne Jeffries at The Verge. Good thing that cryptocurrencies mean that there's no need to trust third parties.

David. said...

A Redditor has assembled a table of people whose withdrawal of fiat currency from Bitfinex has been "completed" but who don't have their money.

David. said...

David Gerard has posted an extract of his book chapter on Dogecoin. It is a fun read.