E The Crypto Weekly – Thawing?

The compare and contrast of Bitcoin (BTC, BITCOMP) to the NASDAQ and USD has brought an early Winter thaw to the bear market of crypto currencies.  Whether this lasts will rest on many factors.  The backdrop of the worst week since 2011 for US shares and another US government partial shutdown all set the stage for alternative investments.  Whether BTC and other coins can prove to be such requires better news for the digital assets space. There are two stories – 1) Facebook developing its own crypto currency for WhatsApp transfers and 2) Swiss Federal Council opts for minimal regulation. Both of these stories suggest ongoing growth for the crypto currency world into 2019.  The rally from near $3000 lows ($3158) in BTC back over $4000 builds hope for a 2018 top and bottom that leads to a less volatile and more constructive price action for the new year. 

To understand the latest thaw in crypto currencies you need to note three drivers – 1) the correlation to technology shares broke down – as the NASDAQ is now in a bear market while BTC and others rallied 20% from their lows; 2) the fears of more bad news driving down prices didn’t materialize – as the recent headlines weren’t great but the prices stabilized – (see the list of what happened further in this report); 3) as the doubts about Tether were reversed with a Bloomberg article and as Bitfinex indtroduces margin trading for USDT/USD.  While the first 2 factors maybe sufficient to support the market – the need for clarity on the third point remains essential for a crypto Spring.  Tether (USDT) is the 6th largest crypto currency with $1.9bn market cap and it accounts for 30% of all BTC transactions on platforms – according to Blockspur data. 

In order to understand what this Bloomberg report does for the crypto markets you need to have a grasp of the history behind the fears about un-Tethering. Below is a short history of Bitfinex, Noble Bank and Tether– (sourced from Bloomberg, Reuters, BBC, NY Times).  The trading platform of Bitfinex formed in December 2012 as a peer-to-peer exchange for Bitcoin with margin lending for BTC. The sourcecode came out of Bitconica, a previously hacked platform. Tether is a stablecoin pegged to the USD which shares management with Bitfinex as both have the same CEO JL van der Velde and CFO Giancarlo Devasini. Tether was launched in November 2014 originally as Realcoin, with Brock Pierce, Craig Sellars and Reeve Collins using the OmniLayer platform built on Bitcoin protocol. The Bitfinex platform integrated Tether into its operations in January 2015. Bitfinex is registered in the British Virgin Islands under the name iFinex Inc, with subsidiaries Bitfinex in Hong Kong and BFXNA in the US.  

In May 2015, the platform was hacked and 1500 bitcoins stolen. In August 2016 Bitfinex was hacked again losing 119,756 bitcoins.  The problems with the platforms software earned it the nickname “bugfinex” given numerous shutdowns and a flash crash. The hacks of Bitfinex place it on the list of the top 5 hacks in the short history of Bitcoin. Bitfinex’s bank troubles began in March 2017 when Wells Fargo told the four Taiwan-based banks Bitfinex and Tether were using that it would no longer process their wire transfers coming into the US. That cut off the companies’ access to USD. Bitfinex CEO van der Velde said Wells Fargo’s decision threatened the entire business.

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