Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Friday, May 9, 2014
Bitcoin news - May 9 , 2014 -- World’s Largest Bank ICBC is Latest to Block Bitcoin in China ........ Mt. Gox Revival Plan Granted Preliminary Nod of Approval ........ US Federal Election Commission Votes Unanimously To Allow Bitcoin Donations For Political Action Committees ....... Bitcoin Transaction Volume has Dropped to its Lowest Since 2011 – And it is a Positive Sign
Saxo CEO: Bitcoin’s Liquidity Problems Are Driving Banks Away
Saxo Bank co-founder and CEO Lars Seier Christensen says that bitcoin’s liquidity problems are keeping banks out of the market for now. However, he said that banks are looking into bitcoin and could become involved in the future.
In an interview with FXWeek, Christensen commented that banks are unwilling to get involved in bitcoin markets because the current digital currency exchange infrastructure lacks the necessary liquidity to make larger-scale purchases practical.
He told the media outlet:
“I’m not really sure that an exchange is, at this point, the most efficient way to get a market in here. The key question is the liquidity aspect – who is buying and selling these currencies.
The exchange initiatives are very thin in liquidity.”
Barriers to bitcoin growth
As a result of bitcoin’s liquidity problems, it is difficult for large financial institutions like banks buy large quantities on an exchange, Christensen reasons. Were a bank to decide to invest in the bitcoin market, it would likely run into issues actually finding enough BTC to buy on a given day.
Additionally, this makes it harder for large transactions to be orchestrated, which may pose as much a problem of institutional investors as it does for banks.
“You almost have to do it bilaterally and find a big seller or big buyer outside of an exchange, unless you have a really market-moving event, which obviously is not going to be very attractive if you are trying get meaningful volume done.”
Christensen also suggested that bitcoin’s inability to conduct more complex financial transactions is a problem for banks. He hinted at projects like Ethereum, saying that he has “seen several attempts to come up with solutions, some of them potentially viable”.
Future bank involvement possible
Christensen didn’t say whether Saxo Bank would get involved in the bitcoin market. However, he is personally invested in the digital currency, and is scheduled to speak at this months’s Bitcoin 2014 conference in Amsterdam.
Currently, Saxo Bank is investigating bitcoin and determining whether the market is a right fit for the bank. Christensited said that, like most other banks, it remains a wait-and-see situation.
However, he remarked that Saxo Bank is considering a formal investment, saying:
“We are not about to launch anything in that space, but we are looking at it and are interested in how it is developing.”
He added that he believes there’s a greater risk in not becoming involved with bitcoin.
“I feel over time it is likely that you will have to engage or you will lose out.”
HashFast also announced that it has brought in new management. The company named Monica Hushen, a prior HP and ECS Refining executive, as the team’s new CFO. It further confirmed to CoinDesk that 15 employees had been let go as part of the transition.
The company framed the lay-offs as a tough but necessary move to help it “refocus” its business, stating:
“In order to improve our cash flow, as well as focus on ASICs, we made the difficult decision to reduce our workforce by eliminating marketing and customer service roles, as well as some engineering functions.
This was a fiscally responsible way for us to slow our burn rate, get customers hashing, and continue developing amazing technology.”
The pivot, however, may do little to assuage the company’s disappointed customers, some of whom have started a website to detail setbacks in production at the California company.
The announcement notably follows the decision by a Texas court to freeze bitcoin wallets associated with the business this March. HashFash responded at the time by saying that the plaintiff behind the lawsuit had never purchased products from the company.
The staff cuts follow recent notable assertions made by San Rafael-based attorney Ray Gallo, who is representing clients in three of the arbitration cases, to ArsTechnica.
In an interview, Gallo suggested that the company may be facing financial troubles.
“My concern is that HashFast is or shortly will be insolvent.”
ArsTechnica visited the company’s headquarters as part of the report, though it was not able to talk to any company representatives in an official capacity, it noted that operations appeared to functioning normally.
HashFast has since stated that it has contacted ArsTechnica and that it is working to clarify its concerns for a follow-up report.
Speaking to CoinDesk, representative Joe Russell indicated that as part of the changes, HashFast is also looking to become more effective at communicating to the public and its customer base.
Russell framed the company’s outreach to ArsTechnica and other media outlets as part of its renewed commitment to transparency, stating:
“Our intention is to give insight into us as an organization, what we’re looking at as far as the future of HashFast and the challenges we’ve went through.”
Russell also spoke about the business shift, and further commented on suggestions that the company may be preparing a bankruptcy filing, adding:
“A lot of those accusations are either goal-fueled or competitor-fueled.”
The company did not comment further on the status of any of its ongoing legal cases.
The company also suggested that product shipments are on the way.
HashFast noted that it has been converting its existing system and board orders to ASICs orders, even for those who are currently seeking legal action.
Wrote the company:
“We have a large chip inventory that is immediately available for shipping.”
HashFast said that the conversion of its products will result in customers receiving “significantly more hashing power than ordered”.
Legal disputes continue
Launched in the summer of 2013, HashFast reached the final production stages of its 28nm mining ASIC in September, though skepticism about the company’s announcements was already prevalent in the community at the time.
The root of the current legal issues stems from a company announcement in which it resolved to ship its first batch of Baby Jet mining rigs in October, and guaranteed that the units would be delivered by 31st December or customers would receive a full refund.
One key issue in the lawsuit is that HashFast promised reimbursement in BTC, though questions have been raised about whether the company would violate any laws by not returning customer money in bitcoins.
Chinese media outlets have been issued censorship instructions by government authorities, mandating that no coverage be provided for the upcoming Global Bitcoin Summit, a Beijing-based digital currency conference to be held this weekend, 10th-11th May.
Perhaps most notably, however, the released statement suggests new guidelines for domestic reporting on bitcoin in the future have also been issued.
Read the statement:
“All websites are asked not to participate in or report on the summit. Do not hype bitcoins. All reporting on bitcoins must henceforth accord with the specifications of financial regulatory agencies. Please carry out the above immediately.”
China Digital Times says it collects directives from a variety of sources and checks the results against media reports. However, since media outlets often receive the reports orally, it stresses that the exact wording of the published version is not always accurate.
Further, since the date on the publication corresponds to the date the information is released, it is not known when the order was issued by Chinese authorities.
The announcement is the latest setback for Global Bitcoin Summit, which released its original lineup in March but has seen key speakers drop out due to government influence.
On 6th May, the CEOs of five major China-based digital currency exchanges – OKCoin, BTC China, BtcTrade, CHBTC and Huobi – announced they would not attend the conference, and that they would be taking a joint pledge to comply with state policies and regulations.
The move was reportedly made by the businesses due to recent adverse actions from the People’s Bank of China, which has moved to more strictly enforce December rulings meant to more firmly separate its traditional financial services sector from the emerging domestic bitcoin economy.
The leak comes amid an uncertain time for China’s bitcoin ecosystem, which has recently seen a number of major banks distance themselves publicly from the market.
This week, ICBC, the world’s largest bank by total assets and market capitalization, indicated that its accounts could no longer be used in connection with bitcoin or litecoin trading.
The news followed similar statements from CMB (China Merchants Bank), CCB (China Construction Bank), CGB, CEB (China Everbright Bank), Pingan Bank, Huaxia Bank, ABC (Agricultural Bank of China), BOC (Bank of China), SPD Bank and Industrial Bank.
CoinDesk will be attending Global Bitcoin Summit this weekend.
More Chinese banks are announcing they will close accounts related to bitcoin business, in advance of the still-not-publicly-announced prohibition by the People’s Bank of China (PBOC).
The latest to make a statement is a significant one – the Industrial and Commercial Bank of China (ICBC) is not just the biggest in China, but the largest bank in the world by total assets and market capitalization.
In a statement, the ICBC said:
“From this date, any institution or individual must not use accounts set up with our bank for the deposit and withdrawal [...] and transfer of funds for Bitcoin and Litecoin trading,”
Again, news reports gave the reasons for the decision as: “[to] protect the property rights and interests of the public, prevent money laundering risks, as well as to safeguard the status of the renminbi as the legal currency.”
The ICBC ban comes within a day or two of 10 other Chinese banks issuing similar announcements. Those banks are the CMB (China Merchants Bank), CCB (China Construction Bank), BOC (Bank of China), CEB (China Everbright Bank), Pingan Bank, Huaxia Bank, ABC (Agricultural Bank of China), CGB, SPD Bank, and Industrial Bank.
The announcements have come as a shock to no one, given that the 10th May PBOC deadline has been widely publicized.
Furthermore, the bitcoin price in China has actually increased over the past two days, and at press time is sitting at ¥2768 ($444) on China’s now-largest exchange, OKCoin.
Bitcoin Summit begins tomorrow
The central bank’s deadline was most likely set to coincide with the two-day Global Bitcoin Summit, due to begin tomorrow morning in Beijing.
Although the bitcoin community has kept its head up and is pressing on with the conference, there have been some casualties: the CEOs of five large Chinese exchanges, some of whom were due to speak and whose companies were event sponsors, withdrew from official participation in the event.
In a statement, the CEOs said they had agreed not to participate in public bitcoin events, not engage in excessive speculation, and report all developments to the authorities.
At least one Chinese bitcoin exchange, FXBTC, has closed down as a result of the new regulatory environment.
Jay Edelson, a US lawyer representing the country’s domestic exchange users, indicated that the plan was approved in a Northern District of Illinois court, and that this move clears the way for it to be more formally vetted in Japan.
Edelson told CoinDesk:
“The court granted our motion for preliminary approval of our settlement and certified our settlement class. We will now take it to Japan and seek approval from the Japanese Administrator.”
The proposal, submitted jointly by the legal representation of the exchange’s international users, would find the class settling its claims against former Mt. Gox chief marketing officer Gonzague Gay-Bouchery and equity stakeholder Jed McCaleb.
In addition, Sunlot Holdings, the investor group that has placed a 1 BTC bid to buy the troubled exchange, would purchase the exchange and its related liabilities and provide former users with a 16.5% equity stake in the new operation.
Though this development is important to the eventual approval of the deal, the final say regarding the sale of the exchange and the settlement against the defendants still lies with the Japanese courts.
More recently, Mt. Gox’s Japanese bankruptcy trustee Nobuaki Kobayashi toldThe Wall Street Journal that he is still seeking the necessary authority to approve such a plan, and that he will need more clarity as to the state of Mt. Gox’s Chapter 15 bankruptcy filing in the US to do so.
However, the next hearing in this part of the case is not set until 17th June, meaning it could be one month before the proposal is allowed an opportunity to move forward.
5/8/14, at an open meeting, the United States Federal Election Commission (FEC) has voted 6-0 to pass theAdvisory Opinion Request 2014-02 Draft C which will expressly allow Bitcoin donations to Make Your Laws. This draft, which was today unanimously accepted by the FEC, represents the FEC’s bipartisan compromise on the issue of allowing Bitcoin donations. The FEC comes to this watershed decision thanks to an inquiry from Make Your Laws, a hybrid Super Political Action Committee (PAC) that has successfully brought about change from the US government in a timely manner. PACs may accept Bitcoin donations up to $100 worth with the use of one-time linked addresses that are provided to the potential donor after “best efforts” to verify their donor eligibility.
Previously, in 2013, the FEC reached a tie vote when previously presented with the question of whether or not donors could use Bitcoin for political contributions. The FEC was not planning to revisit the issue any time soon until Make Your Laws requested an Advisory Opinion which has now been approved by the FEC. At the April FEC open meeting on this matter, the FEC was unable to decide between two drafts of the Advisory Opinion. One, more “Republican,” draft would have expressly treated Bitcoin donations as in-kind donations which could potentially be dispersed as Bitcoin in the form of salaries, purchases, etc. The other, more “Democrat,” draft treated Bitcoin donations as donations of currency and required a strict $100 limit per election per recipient per contributor. Draft C “walks the line between them,” according to Sai, Make Your Laws’ founder. The FEC essentially treats Bitcoin donations as in-kind donations, requiring them to be reported in similar fashion.
Points The FEC Could Not Agree On
Unfortunately, the Commission was unable to agree on certain points in Make Your Laws proposal. For instance, the FEC did not reach a decision as to whether or not PACs could use donated bitcoins, as bitcoins, to purchase goods and services. Instead, PACs must sell the bitcoins and deposit them into a campaign depository within 10 days. In addition, PACs are allowed to purchase Bitcoins; however, they must also be sold and deposited in the campaign depository before they can be spent. As such, Political organizations do not yet have the OK to pay salaries in Bitcoin, even though many other entities around the world are now trying this out. It is technically possible that a one-time linked address receives over $100 in Bitcoin donations or donations from people other than the intended donor. One key and generally beneficial difference between Bitcoin transactions and credit card transactions is that the receiver does not dictate the charge. The FEC was also unable to agree to allow Make Your Laws to pass on excess donations of this nature to non profit organizations.
Though the advisory opinion is specifically written for Bitcoin donations given to Make Your Laws, a PAC. It is easily arguable that any political organization regulated by the FEC can follow these guidelines to accept Bitcoin donations. The FEC included this warning/caveat at the end of their approved Advisory Opinion; of course, the FEC also voted to allow small technical or conforming changes to the Advisory Opinion after this date.
This response constitutes an advisory opinion concerning the application of the Act and Commission regulations to the specific transaction or activity set forth in your request. See 2 U.S.C. § 437f. If there is a change in any of the facts or assumptions presented, and such facts or assumptions are material to a conclusion presented in this advisory opinion, then the requestor may not rely on that conclusion as support for its proposed activity. Any person involved in any specific transaction or activity which is indistinguishable in all its material aspects from the transaction or activity with respect to which this advisory opinion is rendered may rely on this advisory opinion. See 2 U.S.C.§ 437f(c)(1)(B). The analysis or conclusions in this advisory opinion may be affected by subsequent developments in the law including, but not limited to, statutes, regulations, advisory opinions, and case law. All advisory opinions cited herein are available on the Commission’s website.
Wisconsin Government Accountability Board To Change Their Stance?
Earlier this week, I reported on the Wisconsin Government Accountability Board forcing State Assemblyman-hopeful Mark Clear to return a non-anonymous Bitcoin donation of $100 USD worth. The GAB previously came to the decision to not allow Bitcoin donations within their state in March, before the recent FEC meetings. Additionally, the GAB has expressed interest in revisiting the issue after the FEC clarified their guidelines on the topic. Well: Today is that day. Hopefully, the Wisconsin GAB will soon reverse their decision and allow Bitcoin donations to flow the right way, once again.
Bitcoin transaction volume is dropping. Yesterday the transaction volume dropped to the lowest since 2011. Only 69,152BTC were traded. What does it mean? Looking at the data, taken from Blockchain, we can see a clear decline in Bitcoin volume since November/December of 2013, when the Bitcoin volume was at 345,628 BTC with a peak in the middle of March with 441,337 BTC.
Looking at the same volume chart, but this time showing volume in USD, the transaction volume yesterday was at just over $30 Million. We must be aware of the drop in Bitcoin price and how this affects the transaction chart, but that being said; both charts exhibit the same trend – Bitcoin volume is now in decline.
Graph of the Bitcoin Transaction Volume for the last two years from blockchain.info
Looking at Google trend for Bitcoin, we see a similar picture of the search volume for Bitcoin. The one-year transaction volume chart in USD merely acts to confirm the Google trend. What causes this? Let me try to interpret the trend.
Bitcoin value has fallen since the last quarter of 2013 and showed a dramatic increase up to this point. There are still traders, active in the market, holding bitcoins. More bitcoins are also entering the market from mining. Holding bitcoins over a longer term will decrease trade volumes and act to drive down the price as an effect of inter-exchange arbitrage, commissions and apparent lack of interest. This in turn may well force some traders, currently committed to Bitcoin, to withdraw from the market. This will certainly push an already depressed price further down.
Bitcoin Supply Contraction
There is also the strong possibility, probability even, nay certainty, that there will be a supply contraction shortly. This means that people will look at their holdings and will decide to hold. Nobody chooses to sell at the bottom, and therefore, investors traditionally decide to hold and await the turn or upside. The fact that the Bitcoin price has stabilized around the $440 to $450 mark could be an indication that this is already taking place.
There is another factor. In January, had someone tried to sell a Bitcoin at a price of $500, that would have been a bargain. When the price of a Bitcoin was, in fact, $500, then people would rush in to buy only at a price of $400. Maybe there is evidence that investors are standing back and waiting to see what the price will do. Nobody wants to buy a stock until they can see either a bottom or a rise. Perhaps the fact that the Bitcoin market cap is four times higher than it was in November is an indication that people are still choosing to use bitcoins as a source of investment than as a currency.
Perhaps, Bitcoin advocates are viewing the current situation as an opportunity to hold and await a future opportunity to acquire. The holding of Bitcoins could actually be a sign of confidence. There have been 12.7 Million bitcoins mined, contrasting this to the transaction volume it shows that the vast majority are choosing to hold their bitcoins.