Big sellers hit bitcoin

The move down for bitcoin expected when futures started trading has finally come to pass. Bitcoin retreated 15% from its all-time high following the start of futures trading on the CME, an exchange roughly 50 times the size of rival derivatives exchange the CBOE, whose product debuted a week earlier.

After tumbling below $16,800, bitcoin is currently valued at $17,410 on Bitstamp and $17,330 on the CoinDesk bitcoin price index, which takes its data from a number of exchanges. Depending on how the latest fall is interpreted, this is the beginning of a downward trend for bitcoin or a welcome buying opportunity.

Two days ago, Emil Oldenburg, co-founder of bitcoin.com, perhaps the largest cryptocurrency-focused website in the world and which also has a mining operation, announced that he had sold out of all his bitcoin and bought Bitcoin Cash (BCH).

It looks like Oldenburg may have called the near-term top for “legacy” bitcoin, as the BCH supporters describe the top cryptocurrency. Also, the hacking, for the second time, of the Youbit exchange, owned by South Korean company Yapian, hurt bitcoin sentiment in Asia.

“An investment in Bitcoin right now I would say is the most risky investment one can make. It is extremely high-risk. I’ve actually sold all of my Bitcoins recently and switched to Bitcoin Cash,” said Swedish entrepreneur Oldenburg.

While bitcoin has fallen, Bitcoin Cash has been rising, although that pattern may not hold for much longer. Bitcoin Cash is 42% higher over the past 24 hours, according to coinmarketcap.com, while has bounced back a little from its low at $16,400.

Bitcoin transaction fees and waiting times for confirmations have been climbing as the system becomes more congested, with hundreds of thousands of new buyers entering the market.

Oldenburg has had enough and he and his site are now backing BCH as the way forward. The most recent attempt to tweak bitcoin’s software to improve transaction processing failed with the aborted SegWit2x proposal. There are no other plans on the horizon that look likely to bridge the divide in the fractious develop/industry community.

“We’ve actually stopped developing new services for the old bitcoin network now and are focusing mostly on [developing for] Bitcoin Cash. Where it costs only 10 öre [$0.12] to send [BCH] and there’s no waiting. The only downside is that it requires larger hard drives, but that’s not a problem for most people,” Oldenburg added.

Blockchain wallet and the Coinbase and GDax exchanges have both just added support for Bitcoin Cash, which has likely improved its profile among new investors.

Coinbase customers who held bitcoin on the exchange on or after 1 August will receive an amount of BCH in proportion to their bitcoin holding. Users of the exchange will see the sum in their new Bitcoin Cash wallet but cannot buy or sell the forked bitcoin variant until Coinbase has enough liquidity from its sister website GDax.

Leading altcoins have been holding up well for now, only marginally off record highs, with Internet of Things token IOTA 34% the better over the past 24 hours, as it recovers from the news that its partnership with Microsoft (MSFT) was in fact not a partnership, although the IT giant is “participating” in IOTA’s network trials.

Smaller bitcoin variant Bitcoin Gold, which has been plagued by security issues, is nevertheless 21% higher and Ripple has held on to its astronomic advance as banks show solid interest in its technology for cross-border payments.

Returning to the ructions in South Korea, the Youbit exchange lost 17% of its total assets in the security breach. Yapian has filed for bankruptcy in a move that will only heighten disquiet in government circles about the risk retail investors re exposing themselves too. Just last week the South Korean government held an emergency meeting about enforcing tougher regulation of the cryptocurrency industry.

Yapian was previously hacked in April and claimed to have improved its security since then.

A statement on its website dated 19 December said the company lost control of its hot wallet at 4:35 am, presumably the previous day because customers were allowed to withdraw 75% of the value of their holdings at 4:00am on 19 December. The remainder of investor funds are subject to arrangements that emerge from the bankruptcy proceedings.

Exchanges use hot wallets to guarantee sufficient liquidity for trading, but should ideally keep most of the cryptocurrencies in cold storage in offline wallets.

The Yapian hack again draws attention to the security issues involved in storing bitcoin and other cryptocurrencies. In 2014 the biggest bitcoin exchange in the world at the time, at one point accounting for 80% of trading, “lost” 850,000 bitcoins. Chief executive of Mt.Gox Mark Karpelès is standing trial in Japan accused of embezzling investor funds and creating unauthorised records.

Regulator concerns were highlighted at the end of last week when the UK’s Financial Conduct Authority (FCA) said it would “conduct a deeper examination of the fast-paced developments” in the initial coin offering space and may take “further regulatory action”, although it hasn’t in fact taken any action as yet against ICO promoters, unlike its US counterpart the Securities and Exchange Commission (SEC).

Last week the SEC shutdown the ICO from restaurant review app Munchee.

Speaking on BBC TV last week, head of the FCA, Andrew Bailey, warned that those attracted to investing in bitcoin “could lose all their money”.

Meanwhile, a survey of economists, in which 50 replied, found that the overwhelming majority did not view bitcoin as a threat to the financial system. This is not too surprising given the tiny size of bitcoin compared to the value of shares, bonds and other instruments traded in the world financial system.

A better question may have been: “Do you think bitcoin could become a threat to the financial system in the future and at what capitalization would you expect it to start mattering as a possible systemic threat.”

Professor Michael Mahon from Oxford University, said: “Cryptocurrencies are still too small and lacking in widespread ownership, especially among large investment groups, to be a serious risk to the overall financial system.”

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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