“In an age of unlimited fiat currency printing, all value flows to scarce assets – and Bitcoin is the scarcest liquid asset in history.”
- Bitcoin’s price crossed USD 13,000 on July 10th, and trading volume is up 20% compared to the monthly average year-to-date. All signs indicate that we are firmly back in bullish territory.
- Trump finally put in his two cents about Bitcoin on Twitter. He is not a fan of it. After all, Bitcoin and Libra challenge the US dollar’s status as a global reserve currency. Interestingly, the chairman of the Federal Reserve System took a slightly more neutral view and described Bitcoin as being used as a “speculative store of value” similar to gold.
- The NYSE’s sister-company Bakkt finally launched the beta of their Bitcoin-settled futures. This is expected to put further buying pressure on the Bitcoin market. Public launch is expected later.
Is Crypto Spring finally here? Bitcoin prices have experienced a remarkable recovery since April. Many new projects are springing up, existing ones are bearing new fruit. And then there’s Mark Zuckerberg and his plan for a Facebook coin.
The NYT Indicator
Sometimes it’s uncanny how closely markets and the media are connected. We’ve seen this time and again in asset classes like gold. When the shiny metal lands on the cover of the local tabloid, it’s time to sell. There’s something even better in the crypto sector. Perhaps the best-known newspaper in the world provides the most reliable indicator for Bitcoin prices: The New York Times.
On January 13th, 2018, the Times marked the final end of the last bull market with the wonderful headline: “Everyone Is Getting Hilariously Rich and You’re Not.” The first picture shows two crypto fans in Bitcoin and Ethereum pullovers. The price of Bitcoin was still USD 14,600. In the three weeks following the article, the price plummeted by almost 60 % and briefly even dropped below USD 6,000.
A little over a year later, the New York Times strikes again. This time it goes in the other direction. The newspaper reported, “Smart Money knows that crypto is not yet ready,” on April 2nd, 2019. The pessimistic article came just one day after the Bitcoin price jumped more than 20 % in a matter of hours. One may forgive the editors of the Times for not simply withdrawing the article that had been researched over the long term. On April 2nd, there was also general confusion as to what had actually happened in the markets the day before.
After all, the sudden jump from around USD 4,000 to more than 5,000 came at a time when most analysts were predicting a continuation of the bear market and new lows. The mainstream media, which had already mostly forgotten about Bitcoin, even attributed the price jump to an April fool’s joke. In fact, on April 1st there was a rumor making the rounds on social media that the US Securities and Exchange Commission had approved two Bitcoin ETFs – in an alleged “emergency session” nonetheless.
But this obvious fake was by no means the reason for the sudden rise in the Bitcoin price. In fact, it was probably a single mysterious buyer who had invested the sum of USD 100 million in the cryptocurrency on several exchanges within a few hours. Specifically, the exchanges Coinbase, Kraken and Bitstamp were used, as Reuters reported. Whether an individual investor or an institution stood behind the order, we still do not know. But we do know the consequences.
A Strong Sign of Life
After more than a year in a depressing crypto winter, especially Bitcoin but also some altcoins have awoken. In the months that followed, prices went steeply uphill. Even the USD 6,000 mark, where the price remained on its way down for a long time, did not prove to be major resistance. As we write these words, the price hovers just above USD 10,000. The chart technicians are now arguing whether we are already in a new bull market or just seeing a sharp bear market rally. With the price having reached the price of over USD 13,000 on July 10th, things seem to become ever more obvious that cryptoassets are back on bullish territory. But should we really be in a bull trap, new lows would be possible despite the returning euphoria. Some, like Tyler Jenks of Lucid Investments, still think it’s likely that the Bitcoin price could fall to USD 1,000.
His colleague Leah Wald brought the example of historical sugar prices into play to support this theory. In the mid-1970s they had risen dramatically. Then the bubble burst, just like Bitcoin’s. A few years later there was a sudden rise, all indicators were bullish, and the price almost reached its all-time-high, just to collapse a second time and mark a new low.
Will Bitcoin be similar? Or do we actually already see the return of the bull market for the crypto space? The fact that the whales, the really big players on the Bitcoin market, bought almost half a million Bitcoin in the nine months before the price increase, is a hint but no proof yet. From their point of view, they obviously took advantage of favorable prices, but they can sell again just as well if the rally loses momentum.
In the long run, we are still in the accumulation phase, say Tuur Demeester and Michiel Lescrauwaet of Adamant Capital. In a paper they took a very close look at the market and found some reasons for cautious optimism.
“We believe Bitcoin is in the last stage of this bear market: the accumulation phase. The current sentiment has recovered from capitulation and the blockchain shows us that Bitcoin HODLers are committing for the long term again. This is confirmed by our drawdown and volatility analyses.”
“While lower prices are still possible, Bitcoin’s fundamentals are gaining momentum. Embraced by Millennials, its ecosystem is developing at rapid clip, both as a decentralized bottom-up disruptive technology, and as an uncorrelated, highly liquid financial asset for institutional portfolios around the world.”
As always with these things, we’ll only be smarter after the fact. Demeester and Lescrauwaet published their analysis in mid-April, assuming a medium-term trading range of USD 3,000 to 6,500. Values that we have already left behind since then. The two experts expect Bitcoin to experience its “Windows moment” in the next five years, i. e. to establish itself globally as a financial asset and as a payment network. The enthusiasm of millennials for new technologies and the growing skepticism towards traditional banks are the decisive drivers.
The Facebook Moment
But they’re not alone. A certain Mark Zuckerberg also wants to enter the crypto business. Maybe we won’t experience a “Windows moment” this time but a “Facebook moment”? Hardly any other large company seems to have such ambitious crypto plans as Facebook does. When details became known at the beginning of May, the Bitcoin price rallied immediately. The market seems to regard the push as positive.
So, what’s it about? For one year now, Facebook has been working on the Internet giant’s entry into the area of payments and money. Zuckerberg wants to enter payments, e-commerce, and even banking. In India, pilot projects are already underway in which WhatsApp users can use the app for payment transactions. That makes sense. Particularly in emerging markets, the introduction of new money technologies is often easier than in developed industrial countries. You can also bring customers into the financial system who don’t even have a bank account yet. But that’s just the first step.
According to media reports, Zuckerberg wants to build a whole digital economy around his social media services. Libra is supposed to act as a bridge and payment channel. Billions of users will be able to buy directly from influencers via Instagram, and dealers will be able to advertise products directly on WhatsApp.
In mid-June, the Wall Street Journal reported that Facebook had meanwhile brought 27 renowned partners on board for the project. Visa, Mastercard, PayPal and Uber among others will each provide at least USD 10 million as members of a consortium. Ultimately, however, Zuckerberg wants to have 100 companies in the consortium and collect a billion US dollars, which will serve as a reserve for Libra. Apparently, the currency is not going to be tied to the US dollar, but to a basket of currencies and low volatility government securities. That would give the coin its own price while staying relatively stable. The payment platform Stripe, the travel website Booking.com, and the South American trading platform MercadoLibre will also cooperate with Facebook on Libra.
What is clear is that Facebook will have no direct control over the coin. They want to cooperate with other consortium members on a Blockchain, whose rules are fixed. This could lead to broader acceptance and trust in the long term. It looks as if Facebook wants to use the blockchain technology to provide its users with a cheap and fast way of payment that they can trust. As Zuckerberg said, “Sending money must be as easy as sending a photo.”
A stablecoin makes sense, of course, because the wild volatility of cryptocurrencies like Bitcoin is a deterrent for the average person. The fact that Libra is tied to a basket of currencies and not to the US dollar also reflects the global orientation of Facebook, which is growing fastest outside the western industrialized countries.
Whether this push is positive for Bitcoin, as some analysts and investors expect, remains to be seen. Many Bitcoin fans have pointed out that if you look at Facebook’s plans, you can’t speak of a cryptocurrency at all. Others argue that the global acceptance of new currency forms should be strengthened by the project in any case. Be that as it may, the Zuckerberg project meets the demands of many young people for new, affordable alternatives to the traditional monetary and financial system. In a later chapter in this report, we will analyze the Libra project a little more in detail.
Adoption, Adoption, Adoption
Back to the “Windows moment.” The old lady Microsoft always has been very open to real cryptocurrencies like Bitcoin. Already in 2014, it was possible to use the digital coin in the X-Box-shop. The option was abolished around the bubble at the end of 2017, because Bitcoin as a payment system suffered under the burden of its own popularity. It was simply too slow and the price too volatile. But Microsoft has not lost sight of the issue.
In mid-May, the company presented a project designed to give users control over their own login data and thus their identity on the Internet. A closed blockchain or a solution based on Ethereum is not used. No, Microsoft relies on the oldest and most secure blockchain of all: Bitcoin.
And another household name from the US now accepts payments via Bitcoin: the telecom giant AT&T. However, AT&T was not the only telecommunications company to announce that they will be working Bitcoin. The Taiwanese electronics company HTC announced that the next model of their Exodus 1s phone will contain an entire Bitcoin full node.
This does not mean, however, that Ethereum is being left behind. The opposite is true. The second largest cryptocurrency has always been popular with companies due to its flexibility. But, so far, hardly any application based on Ethereum has achieved broad use – unless you count the ICO boom, which would never have been possible without Ethereum.
On the Forbes list of the 50 largest companies that do something with blockchain, more than half work with Ethereum. These include names such as Anheuser-Busch, British Petroleum, Comcast, Amazon, Foxconn, Google, HTC, Intel, Samsung – and a long list of banks, from Citigroup to BNP Paribas.
The consulting giant EY unveiled its “Nightfall” project in mid-April. This software is designed to help EY’s corporate customers use the Ethereum blockchain. 200 developers have been working on the product for over a year. EY thinks of areas of application such as supply chains and transactions.
EY doesn’t want to make any money directly with “Nightfall” either. The platform is provided free of charge, a license is not necessary. EY’s blockchain chief Paul Brody explains:
“We want to maximize adoption and community involvement, we want people to adopt it, and adapt it, and improve it. If we retain ownership, people may not invest that much time and energy in something they might not control. The cleanest way to make everybody use it is just to give it away with no strings attached. A year of coding work. This is a million dollar’s worth of stuff we’re giving away.”
“Nightfall” will run on Microsoft’s Azure Cloud and integrate with SAP’s enterprise software. EY is particularly keen on getting as many industries as possible to use open blockchains in order to take full advantage of the technology. A series of private blockchains of individual companies would only create silos and stand in the way of growth. Also, the treatment of tokens has been considered a lot, says Brody:
“We have made a big investment in the token technology. We built a special kind of token, which is ERC 721-compatible, to separate a physical asset from the legal ownership of that asset.”
S&P 500 on the Blockchain
Another extremely exciting project based on Ethereum aims to link the old and the new financial markets. The platform UMA (Universal Market Access) has created USStocks, an ERC20 token that reflects the American stock market. More precisely, it reflects the 500 largest companies by market capitalization. In other words: “USStocks” is an index fund tracking the S&P500 equity index. Until a few weeks ago, it was tradable on the decentralized DDEX platform ‒ with the stablecoin DAI. In the meantime, however, the experiment was terminated. They just wanted to show what was possible and draw conclusions from it, according to UMA in a blog post. The smart contract had been well received. But early crypto entrants are often uninterested in “traditional” markets for ethnical or financial reasons. The UMA experiment was somewhat short at eight weeks.
A central problem, however, is that people who do not have access to the US stock market today usually do not have access to the crypto markets either. So, it will probably take some time before the cost advantages of the blockchain world can be transferred to the “normal” financial market. However, we will monitor developments very closely here, because it is precisely these cost advantages that could ultimately give many people access to financial markets that have hitherto been excluded.
We also expect the traditional market to move faster and faster towards Bitcoin and cryptoassets. Fidelity Investments aims to provide access to its institutional clients as soon as possible. The demand is certainly there. According to a survey by Fidelity, 22 % of institutional investors already hold cryptocurrencies. And almost half (47 %) believe that digital assets have a place in their portfolio. Among the investors surveyed were foundations, pension funds, and family offices, according to Fidelity.
The long-awaited Bitcoin futures from the crypto project of the ICE exchange, which is also behind the New York Stock Exchange, are also due to start soon. On July 22nd, the test operation starts. In a statement, Adam White, the COO of Bakkt:
“This is no small step. This launch will usher in a new standard for accessing crypto markets. Compared to other markets, institutional participation in crypto remains constrained due to limitations like market infrastructure and regulatory certainty. This results in lower trading volumes, liquidity, and price transparency than more established markets like ICE’s Brent Crude futures contract, which has earned global trust in setting the world’s price of crude oil.”
Bakkt also wants to become an important custodian for digital assets, and they took out an insurance policy of USD 100 million to calm investors’ fears of losing their assets, for example, through hacks. These are certainly ambitious plans. If the start of the Bakkt futures goes well, we believe that Bitcoin will be able to further establish itself as an asset class ‒ and will rise in standing for traditional investors.
Closer to home, the parent company of one of our premium partners of the Crypto Research Report, GenTwo in Switzerland, launched an actively managed investment certificate (AMC) platform with CAT Financial Products. The platform allows Swiss asset managers to launch regulated certificates that can invest in all financial asset classes including cryptocurrencies. Information about the platform can be accessed on GenTwo’s Blog, where Demelza Hays also regularly contributes articles. Her latest article, “The Pursuit of Optimal Money,” explains why neither Bitcoin nor gold make good monies. Instead of being digital cash as the original whitepaper wrote, she argues Bitcoin is digital gold. To subscribe to GenTwo’s blog in order to receive exclusive new articles by Demelza and other authors, signup at g2fp.com/blog.
The Central Banks are Haphazard
All the positive news about price and adoption should not obscure the fact that there are also shadows where there is light. The controversies around Bitfinex and Tether do not come to an end. The New York State Attorney General accuses iFinex, the parent company of Bitfinex and Tether, of misusing USD 850 million from the reserve of the stablecoin Tether, which is tied to the US dollar. iFinex denies all allegations as unfounded., 
Binance, the world’s largest crypto exchange, also has problems with the authorities in the US and, therefore, now wants to set up a regulated, US-centric exchange. In addition, there was a hack, and the perpetrators were able to steal USD 40 million worth of crypto. But neither the controversy surrounding iFinex nor the problems at Binance have had any effect on the price rally since April.
This also applies to the many attempts to damage Bitcoin and the crypto space from the outside. Veterans like economist Joseph Stiglitz continue to argue that states and central banks will one day intervene to avoid jeopardizing their currency monopoly. Stiglitz is particularly aggressive. “I think we should ban crypto currencies,” he said in early May. And then:
“I’ve been a great advocate of moving to an electronic payments mechanism. There are a lot of efficiencies. I think we can actually have a better regulated economy if we had all the data in real time, knowing what people are spending.”
So, it is not the technology that bothers him but the fact that it is not controlled by the state. This is, of course, the core of the idea behind Bitcoin: a currency and monetary policy that cannot be influenced by individual states or central banks.
Many Bitcoin supporters also argue that it is not possible to simply ban Bitcoin. Such attempts have always failed in the past. But some are still trying. China wants to ban mining again. And in India, even a prison sentence of up to ten (!) years is being considered for the owners of cryptocurrencies. This, of course, is in stark contrast to the plans of Silicon Valley and Wall Street, which still have a lot to do with Bitcoin and Blockchain.
Another attack against Bitcoin was leveled by the US president himself, Donald Trump. On Twitter he openly declared:
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity…
Alongside his knock against decentralized cryptoassets, he also commented on Facebook’s “virtual currency” Libra. In his statement, he made it crystal clear that if Facebook wanted to become a bank, they would have to seek a new banking charter and become subject to all banking regulations – no different from all the other banks. At the end of his little Twitter thread, he then portrayed the US dollar as the only real currency, which would be dependable and reliable, making it stronger than ever before. So, with all of his very provocative Twitter comments, he really managed to trigger the Bitcoin Twitter community, while he might have also caused some really cognitive dissonance within liberal and green left-wingers: Should they now be of the same opinion as their arch-enemy or rather side with a new digital currency that is oftentimes pictured as one great pollutive counter force in the struggle for a better climate?
Interestingly, Bitcoin’s price did not suffer a significant decline after arguably the most influential person in today’s world issued a public statement slamming Bitcoin. Many Bitcoin enthusiasts take this as a sign of Bitcoin’s resilience and antifragility.
As far as the introduction of digital currencies by central banks is concerned, we are not getting anywhere fast. Central banks are notoriously slow. And their experts still seem to be uncertain whether the technology makes sense at all. The well-known Bitcoin opponent and head of the Bank of International Settlements, Agustin Carstens, recently warned against the introduction of digital central bank currencies. If citizens can store their money via blockchains operated by a central bank, they could withdraw money from the traditional banking system, which would be dangerous.
But the European Central Bank (ECB) expresses it best. According to a recent paper, a digital euro could either help or harm the economy. The consequences could simply not be assessed. In addition, much would depend on the design of the currencies. The ECB writes:
“Depending on its specific features, central bank digital currency could either allow monetary policy to reach a wider range of economic actors more directly or weaken the tools available to the issuing central bank for the conduct of its monetary policy.”
The negative opinion of states and central banks can be observed in Russia. The head of the central bank, Elvira Nabiullina, said at the end of May:
“We are generally opposed to cryptocurrencies being launched into our monetary system. We do not see the possibility that cryptocurrencies could act as monetary surrogates.”
Ironically, Nabiullina said in the same conversation that Russia would at least consider using a gold-covered cryptocurrency of another state. But so far, only a handful of central banks are seriously considering whether to introduce digital currencies. We assume that this process will continue for many years to come.
Long Live the King!
With all this negative publicity the world was taken by surprise, when the Federal Reserve Chairman Jerome Powell compared Bitcoin to gold. Testifying before the Senate Banking Committee Powell stated that Bitcoin is used more as an alternative to gold, sort of like a speculative store of value.
Another watershed moment, indicating that officials and politicians are not all hostile to and clueless about Bitcoin, was when Congressman Patrick McHenry made another remarkable statement during one of the hearings:
“The world that Satoshi Nakamoto, author of the bitcoin white paper, envisioned is an unstoppable force. We should not attempt to deter this innovation … those who have tried have already failed.”
But that was not the only praise Bitcoin got from representatives of Congress. It was Warren Davidson, who made the rather trenchant statement that “There’s Bitcoin and the there’s shitcoin“. While even among crypto-friendly bankers, out of decency, the term “shitcoin” is oftentimes avoided to actually describe just that, it’s all the more astounding that in Congress, where such a wording would be least expected, representative call a spade a spade!
While there is still a lot of negativity, there are also
some very enlightening and favorable assertions coming from public
intellectuals, which might go to show that at the margin people are waking
up to crypto and understand what Bitcoin all is about in the first place.
Projects such as the Facebook join Libra, the Bakkt futures, the Fidelity
platform for institutional investors and experiments such as the Ethereum-based
equity fund will have far more significance for the sector in the short and
medium term than the statements and experiments of the central banks. That’s
also the opinion of long-term bull Mike Novogratz. “I feel better than ever
about Bitcoin,” he recently told Bloomberg. The co-founder and CEO of
Galaxy Investment Partners has admitted to having been overly optimistic in the
past. But nevertheless: Bitcoin has proven itself in the meantime and functions
as a value store, like gold, he said. According to Novogratz, other
cryptocurrencies must find their niche and sustainably occupy it. Or to put
it another way: The king is dead, long live the king!
 See “Everyone is Getting Hilariously Rich, And You’re Not!,” Nellie Bowles, The New York Times, January 13, 2018.
 See “Amid Bitcoin Uncertainty, ‘the Smart Money Knows That Crypto Isn’t Ready,’” Nathanial Popper, The New York Times, April 2, 2019.
 See “Bitcoin mysteriously rocketed above $5,000 – and one theory pins the rally on an April fool’s gag,” Trista Kelley, Business Insider, April 2, 2019.
 See “Bitcoin jumps 20 percent, mystery order seen as catalyst,” Tom Wilson and Tommy Wilkes, Reuters, April 2, 2019.
 “Is it still possible for BTC to hit the phase 1 line? Even though indicators are now bullish, there is historical precedence. Yes, one example is sugar.” [Tweet ], Leah Wald, Twitter, May 21, 2019.
See “Bitcoin in Heavy Accumulation,” Adamant Capital, April 18, 2019.
 See “Facebook is reportedly looking for allies to support its planned cryptocurrency payment service,” Salvador Rodriguez, CNBC, May 2, 2019.
 See “Facebook in Talks to Build Ecosystem for Planned Stablecoin: WSJ,” Yogita Khatri, CoinDesk, May 3, 2019.
See “Facebook’s New Cryptocurrency, Libra, Gets Big Backers,” Anna Maria Andriotis, Peter Rudegeair and Liz Hoffman, The Wall Street Journal, June 13, 2019.
See “WhatsApp at Facebook F8: ‘Sending Money Should Be As Easy As Sending Photos’ – Mark Zuckerberg,” Trisha Jalan, Medianama, May 2, 2019.
 See “You Can Now Buy Xbox Games With Bitcoin,” Dan Kedmey, Time, December 11, 2014.
 See “Microsoft Wants To Protect Your Identity With Bitcoin,” Gregory Barber, Wired, May 14, 2019.
 See “Auditor EY Unveils Nightfall, An Ambitious Bid to Bring Business to Ethereum,” Anna Baydakova, CoinDesk, April 16, 2019.
 See “Announcing US Stock Index Token, Powered by UMA and Dai,” Hart Lambur, Medium, March 27, 2019.
 See “USStocks: Learnings and Next Steps,” Allison Lu, Medium, May 15, 2019.
 See “Fidelity is reportedly about to offer cryptocurrency trading for pros within a few weeks,” Maggie Fitzgerald, CNBC, May 6, 2019.
 See “Putting Bakkt’s Bitcoin Futures to the Test,” Adam White, Medium, June 13, 2019.
See “Bitfinex Used Tether Reserves to Mask Missing $850 Million, Probe Says,” Paul Vigna, The Wall Street Journal, April 25, 2019.
 See “Bitfinex and Tether respond to NYAG in court saying that there is no ongoing fraud, and no victims,” Larry Cermak, The Block, May 6, 2019.
See “Binance Says It’s Launching a US Exchange With FinCEN-Registered Partner,” Nikhilesh De, CoinDesk, June 13, 2019.
 See “Binance Suffers $40 Mln Hack, Crypto Community Outraged After CZ Suggested Bitcoin Rollback to recover Funds,” Alex Dovbnya, U.Today, May 8, 2019.
 See “Joseph Stiglitz: ‘We should shut down the cryptocurrencies,’” Andrew Davies, CNBC, May 6, 2019.
 See “China Plans to Ban Cryptocurrency Mining in Renewed Clampdown,” Edwin Chan, Bloomberg, April 9, 2019.
 See “Exclusive: India Proposes 10-Year Jail For Cryptocurrency Use, May Introduce Its Own Digital Currency,” Nikunj Ohri, Bloomberg, June 7, 2019.
 [Tweet], Donald Trump, Twitter, July 11, 2019.
 See “Bitcoin Critic Warns Against Central Banks Issuing Own Tokens,” Catherine Bosley, Bloomberg, March 22, 2019.
 See “Digital Euro Could Either Help or Harm Economy, ECB Paper Says,” Carolynn Look, Bloomberg, May 17, 2019.
 See “Bank of Russia may consider gold-backed cryptocurrency,” Russian News Agency, May 23, 2019.
 See “’There’s Bitcoin and Then There’s Shitcoin (Libra).’ Congress Finally Gets It,” Ben Brown, CNN, July 18, 2019.