I hear the voice of rage and ruin

I see a bad moon a-rising
I see trouble on the way
I see earthquakes and lightnin’
I see bad times today

Don’t go ’round tonight
It’s bound to take your life
There’s a bad moon on the rise

I hear hurricanes a-blowing
I know the end is coming soon
I fear rivers over flowing
I hear the voice of rage and ruin

Don’t go ’round tonight
It’s bound to take your life
There’s a bad moon on the rise

I hope you got your things together
I hope you are quite prepared to die
Look’s like we’re in for nasty weather
One eye is taken for an eye

Oh don’t go ’round tonight
It’s bound to take your life
There’s a bad moon on the rise
There’s a bad moon on the rise

What more apt accompaniment could we have for the crypto bloodbath we’re seeing right now than Creedence Clearwater Revival’s Bad Moon Rising?

Why is a bad moon rising? Well, just take a look at crypto prices over the last week. Many commentators really are saying the end is coming soon.

Afterall, at time of writing, here are the drops we’ve seen in some of the biggest cryptos out there over the last seven days:

Bitcoin: down 28%

Ethereum: down 35%

Litecoin: down 34%

Ripple: down 24%

EOS: down 38%

I guess it’s easy to forget that year to date those same cryptos are still up by the following amounts year to date (YTD):

Bitcoin: up 151%

Ethereum: up 50%

Litecoin: up 157%

Ripple: still down 15%

EOS: up 42%

But I don’t really want to play that card. It’s easy to just say “zoom out” when it comes to crypto prices.

Zoom out far enough and a £1,000 investment in most of the major coins could have made you a millionaire. But the fact is, it didn’t. So there’s no point dwelling on it.

Looks like we’re in for nasty weather

So, what’s caused these bad times today?

As usual in crypto – or most things in life – there are numerous factors, and assigning the cause to just one of them would be foolish – although it would make it much easier to get our brains around.

The traders are blaming traders – and Tether, always Tether

Tether has been at it again. This time a “fat-fingered” tether employee managed to make bitcoin’s price drop 12% in minutes.

From Zero Hedge:

In what could be described as a milestone for the still-maturing cryptocurrency market, an embarrassing ‘fat finger’ mistake sowed chaos in the crypto market over the weekend. After the company that manages the stablecoin Tether accidentally doubled the number of tokens in circulation while processing a routine transfer, the price of bitcoin dropped 12% in mere minutes as the snafu spooked the market, according to WSJ.

Here’s an explanation of how the mix-up unfolded, courtesy of CoinTelegraph.

Whale Alert – a Twitter account dedicated to reporting large cryptocurrency transactions – noted that 50 million USDT tokens were transferred from cryptocurrency exchange Poloniex to the Tether Treasury via the Omni protocol on the Bitcoin (BTC) blockchain.

The account subsequently reported that Tether Treasury minted 5 billion USDT tokens on the Tron blockchain, after which it burned them.

Then, Tether minted another 50 million USDT on the same chain, burned another 4.5 billion USDT, and finally transferred 50 million Tron-based USDT tokens to a wallet presumably belonging to Poloniex.

In a nutshell, what happened was Tether (the company that manages the stable coin) was helping crypto exchange Poloniex conduct what’s called a “chain swap” – moving tether tokens from one crypto token’s blockchain to another. At some point during this process, an employee at tether accidentally created $5 billion of the tokens (which are supposed to be 1:1 exchange value to the dollar) instead of $50 million. After realizing their mistake, they went back and ‘burned’ (read: deleted) the extra tokens.

Because of the error, the number of tether tokens in circulation doubled very suddenly, from $3.9 billion to $8.9 billion. When the tokens were deleted by the Tether Treasury, bitcoin tumbled.

The media is blaming the US government

Sticking with today’s Bad Moon Rising theme, you can’t really get a better personification of “the voice of rage and ruin” than Donald Trump.

And that it’s that voice that lashed out against crypto last Friday.

From Coindesk:

Media outlets have associated the recent drop with the growing calls for regulation of Facebook’s Libra project and cryptocurrencies in general.

For instance, Facebook’s plan came under attack at a U.S. hearing on Tuesday, with senators calling the company delusional and untrustworthy and questioning the social media giant on how it was planning to prevent money laundering. And, a week ago, President Donald Trump called for banking regulation on bitcoin and Facebook’s Libra.

Now many in the investor community are beginning to worry that Facebook’s Libra project will end up fast-tracking regulations for the crypto market.

The shift in sentiment will likely have a bearing on bitcoin’s price. After all, the crypto market leader rallied from $9,000 to $13,880 in the eight days following Facebook’s unveiling of Libra’s white paper on June 18.

With the odds now stacked in favor of bitcoin’s bears, the cryptocurrency could suffer a deeper drop in the short-run.

The old hands are simply saying this is par for the curse in crypto

It’s no secret that crypto – or any market for that matter – doesn’t go up or down in straight lines.

Most of the old hands are saying “zoom out” or “look at the gains YTD” or “this is completely normal in crypto”.

The old favourites “this is good for bitcoin” and “BTFD” (buy the f-ing dip!) are also making appearances.

And it’s all true, this is completely normal in crypto.

And that’s why (sorry if you’ve heard me say this a million times already) you should never put more money in crypto than you’re happy to lose.

Stick with that rule and you can enjoy the ups and not feel too bad about the downs.

I wrote about all this in my FOMO vs FUD cycle article way back in January 2018, but at time like this I think it’s worth revisiting. You can read it here.

The question now though – as is always has been – remains, is this just a correction in the bull market, or are we heading back down into another drawn-out bear market?

One eye is taken for an eye

Personally, I would say this is par for the course, in that FUD is par for the course, and this year’s FUD centres around Libra and US government regulations.

As I have written before, when Facebook decided to create its own cryptocurrency, it got the financial elite on side, and basically thumbed its nose at the political elite.

From my article:

Libra will be pegged to a basket of currencies and assets. Which currencies it includes in this basket and in what proportions will have huge political consequences.

Think about it, right now the US dollar is essentially the world’s reserve currency. Well what if Libra really takes off, and becomes commonly used by Facebook’s 2.3 billion customers?

All of a sudden Libra is a very important currency, and what it is backed by becomes very important.

As I wrote earlier, all currencies used to be backed by gold. And this gave gold holders power. It also led to the US enacting Executive Order 6102 and taking all its citizens’ gold under pain of ten years in prison, during the great depression.

Imagine if Libra has a big proportion of the Chinese renminbi in its basket. That certainly wouldn’t make the US very happy.

As you can see, right now Facebook’s Libra poses a much bigger problem to the political elite than bitcoin ever did.

However, that’s not to say the political elite have all crypto equally. Here’s what House Minority Leader Kevin McCarthy said to CNBC on Tuesday.

From CNBC:

“I like bitcoin” and the security of the blockchain ledger technology behind cryptocurrencies, the California Republican said, as he criticized Facebook’s plans for a Libra digital coin ahead of hearings on Capitol Hill this week.

Libra will be pegged to a basket of government-backed money, compared with bitcoin, which is highly volatile in price and derives value from factors including its ability to enable instantaneous, anonymous, global payments and as an investment.

Nobody controls bitcoin.

McCarthy did, however, say that bitcoin is not where it needs to be yet, alluding to the risks of cryptocurrencies being used by criminals and money launderers.

While Libra promises more stability, McCarthy remains concerned.

“When I’m on Facebook, I’m not the customer, I’m the product,” he said. “Facebook is free because they sell your data to make money. Now they want to get into the business, and they’re not bitcoin, in this Libra. They’re not decentralized.”

In Libra hearings by the Senate Banking Committee on Tuesday and House Financial Services on Wednesday, McCarthy said he’s looking for the social media giant to address its potential anti-competitive behaviour.

“I want to see decentralization because Libra concerns me that they’re going to control the market,” McCarthy said.

And this comes after Fed Chairman Jerome Powell said bitcoin is a speculative asset, just like gold.

Although these comment were spun in a positive light, when you look at them in context, they don’t seem quite as positive as they might first appear.

From Cointelegraph:

Testifying before the Senate Banking Committee on July 11, Fed Chairman Jerome Powell gave his analysis of whether a cryptocurrency system with global prevalence could diminish — or even go so far as to remove the need for — so-called anchor currencies. 

With the U.S. dollar de facto the world’s dominant reserve currency, Powell acknowledged the possibility of a preeminent cryptocurrency redrawing the current financial landscape — yet noted that as of yet, this has stopped short of becoming a reality. The Fed chairman said: 

“I think things like that [the obsolescence of today’s reserve currencies] are possible but we really […] haven’t seen widespread adoption. Bitcoin is a good example, almost no one uses it for payments […] it’s a speculative store of value like gold.”

Powell’s comparison is noteworthy given the Federal Reserve Bank of New York’s role as a custodian for the gold held by entities such as the U.S. and foreign governments, other central banks, and official international organizations. 

Powell acknowledged that the prospect of cryptocurrencies coming to replace reserve currencies has been implied since their inception and that its realization could see the global financial system — and specifically the Federal Reserve System — profoundly transformed. He noted: 

“People have been talking about this since cryptocurrencies emerged, but we haven’t seen it. That’s not to say we won’t — and if we do, then yes, you could see a return to an era in the United States where we had many different currencies, in the so-called national banking era.”

Oh don’t go ’round tonight, it’s bound to take your life

All of this is strangely reminiscent of autumn 2017 when China famously banned crypto exchanges and bitcoin’s price tumbled.

Here’s a Business Insider article reporting on the China ban in September 2017:

Bitcoin drops $500 after more reports China will ban cryptocurrency exchanges

Bitcoin has plummeted further after China launched a crackdown on cryptocurrencies.

The currency went into free fall on Friday after reports that China was about to ban cryptocurrency exchanges.

It has continued to decline in value, now standing at $4,161.62, or £3,155, down more than $500 from a high of $4698.72 on Thursday.

The Chinese outlet Caixin first reported the ban on Friday. On Monday, Bloomberg followed up with a report that China would ban the trading of virtual currencies on domestic exchanges but permit over-the-counter transactions.

I remember this happening at the time. I had been in Greece a few days earlier when bitcoin first hit $5,000.

That was the first time I got friends and family members calling me up and asking how to get into bitcoin. That was the first real “mania” I’d seen.

A few days later and the China news hit and bitcoin crashed from $5,000 to $3,000 in around two weeks.

Well, the China ban never got resolved. But a couple of months later, when bitcoin was on its way to $19,000+, no one was talking about the China ban any more.

It will be interesting to see if the next few months follow a similar pattern.

There’s a bad moon on the rise

When bitcoin recovered from the China FUD and shot up to nearly $20,000, there was no catalyst, it just did it.

And I might add the no technical analysis experts or talking heads saw the move coming either.

This time, we may get our catalyst. Whether this catalyst will be good or bad for prices though, time will tell.

And that catalyst is the long-awaited launch of Bakkt.

Bakkt, as you probably already know is ICE’s (the company that owns the New York Stock Exchange, among others) crypto project.

Here’s a short summary of Bakkt’s significance I wrote for an article back in 2018:

Bakkt is a new trading platform created by ICE, who owns the New York Stock Exchange and many other major exchanges around the world.

It is basically the biggest recognition the traditional world can ever give to crypto. It will be a huge platform that will enable traditional institutions and their clients to start trading and investing in crypto.

And it will start trading bitcoin futures on 12 December.

Here’s a notice from ICE on the opening. And here’s the most important part:

ICE Futures U.S., Inc. will list the new Bakkt Bitcoin (USD) Daily Futures Contract for trading on Wednesday, December 12, 2018.

The Bakkt Bitcoin (USD) Daily Futures Contract is a physically-settled daily futures contract for bitcoin held in Bakkt LLC, ICE’s Digital Asset Warehouse, and will be cleared by ICE Clear US, Inc.

Each futures contract calls for delivery of one bitcoin held in the Bakkt Digital Asset Warehouse, and will trade in U.S. dollar terms. One daily contract will be listed for trading each Exchange Business Day.

As I have said before, the important thing here is that these futures contracts will be physically settled.

Here’s an explanation on physically-settled futures from Investopedia (emphasis mine):

With a physical delivery, the underlying asset of the option or derivatives contract is physically delivered on a predetermined delivery date. Let’s look at an example of physical delivery. Assume two parties enter into a one-year (March 2019) Crude Oil futures contract at a futures price of $58.40. Regardless of the commodity’s spot price on the settlement date, the buyer is obligated to purchase 1,000 barrels of crude oil (unit for 1 crude oil futures contract) from the seller. If the spot price on the agreed settlement day sometime in March is below $58.40, the long contract holder loses and the short position gains. If the spot price is above the futures price of $58.40, the long position profits, and the seller records a loss.

So, as you can see, unlike cash-settled futures, like we saw open around this time last year, physically-settled ones will mean people actually have to buy bitcoin.

This is why Bakkt’s futures could have a massive impact on bitcoin’s price.

But futures are just one small part of what Bakkt will be doing. I’ll update you on more of that, and how it could affect the crypto markets, as its services launch.

Since then it has been delayed again and again and again. But it is set to launch this month, on 22 July… just four days from now.

From Cointelegraph in June:

“On July 22, two days after Apollo 11’s 50th anniversary, Bakkt will initiate user acceptance testing for its bitcoin futures listed and traded at ICE Futures U.S. and cleared at ICE Clear US,” chief operating officer Adam White wrote in the blog post, adding:

“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.”

And let’s not forget that more than a few weeks ago Fidelity announced it would launch its digital assets arm “within weeks”.

Once either of these platforms goes live, there’s no telling what could happen to crypto prices.

But if you’d like to get clued up before that happens, you need to grab a copy of Sam Volkering’s book: Crypto Revolution.

Inside you’ll discover a step-by-step guide to understanding cryptos, as well as everything you need to potentially profit from this latest tech boom. Including…

  • How to set up your own crypto wallet (this is how you securely store your crypto)…
  • How to buy, sell and secure your cryptocurrency…
  • The new “crypto king” Sam’s backing to unseat bitcoin as the world’s number one crypto (and in the long term, potentially hand you $68,492 for every $200 you lay down today)…

Get your copy here.
Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Cryptocurrency

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