Why bitcoin keeps falling, for now

Bitcoin’s true believers have a hard time dealing with the world as it is, and so all reports of the possible future fall in the price of the cryptocurrency are greeted with derision. Inexperienced traders and investors are fond of blaming someone else, usually the media and bearish analysts, for price drops, instead of looking to more fundamental matters.

Bitcoin is today trading at US$6,600, with the bear market showing no indication that it is done anytime soon. False hope was again in evidence earlier this week, following recovery from the weekend dip, which saw the bitcoin price fall well below $7,000.

Although trying to find a rational explanation for short-term price movements can sometimes be a fool’s errand, the early week bounce was likely the perma-bulls buying the dip or, given the relatively low volumes currently being traded in the markets, just a coincidence of trades that happened to be in the same direction pushing prices higher.

The climb back to $7,500 on Tuesday was probably helped by reports that Japanese online broker Monex was going to buy Coincheck, the beleaguered crypto exchange that was hacked at the end of January. Those reports came true today with confirmation that the acquisition has been agreed, with Monex paying 3.6 billion yen (£23 million) for the exchange.

However, that news has not been enough to arrest the downward trend for long.

In truth, no one knows for certain where the bottom for crypto might be, but it is probably a fair bet that it will be somewhere below $5,000, on the basis that it was around those levels in October that the “irrational exuberance” kicked in among retail investors. From that perspective, then, a bottom in the $2,000s feels like it would be an overshoot.

Also, as prices fall, miners and other businesses in the sector will come under pressure, forcing some out of business and perhaps triggering capitulation from the bulls that cry FUD – fear, uncertainty and doubt – at every piece of bearish news. Such events could also help signal a bottom.

Ultimately, greater clarity on the regulatory climate for crypto is likely to be the biggest contributor to stabilising prices, leading market participants to refocus on product development and adoption rather than price speculation.

Trouble in South Korea

The vote of confidence in the sector seen in the purchase of Coincheck was perhaps balanced on the negative side by decisive enforcement action by regulators in South Korea, where four executives at two crypto exchanges were detained by police yesterday.

The executives have been accused of embezzling client funds. One of the exchanges involved is fifth-placed Coinnest. The prosecutor’s office told Reuters those being held were accused of “the embezzlement of billions of won from their clients’ accounts and transferring it to their own”. Coinnest chief executive Kim Ik-hwan was named as among those arrested; the other three detainees were not identified.

The previous day South Korea’s Fair Trade Commission ordered 12 exchanges to revise their client contracts because they do not provide adequate consumer protection. The commission said that the contracts include unfair rules on deposit withdrawals and unjustifiable limitations on the services available to clients, according to South Korea’s Yonhap news agency.

Other news from South Korea saw the country’s largest bank, Kookmin, withdraw banking services from crypto exchanges.

Blockchain comes to shipping and smartphones

Regarding product development, Chinese firm Sinochem Energy Technology has successfully used blockchain technology for the first time when it shipped gasoline from Quanzhou in China to Singapore. The company hopes to reduce costs by digitising documentation and storing it on blockchain. The company says dealing with the paperwork of all the key parties involved in commodity trading adds substantial costs in terms of processing and delays and blockchain could help to simplify the complexities.

Elsewhere, China’s Foxconn has teamed up with Sirin Labs of Israel to design and manufacture the Finney blockchain-based smartphone.

The Finney phone takes the hassle out of holding crypto assets securely and will automatically convert tokens without recourse to an exchange and without charging a fee. Sirin said that 25,000 Finney phones have already been pre-ordered.

Sirin Labs raised $157 million in an initial coin offering to raise funds to support development of the device. The phone, which will run on a version of the Android operating system, can also be used to mine the SRN token. The “target price” for the smartphone is $999, which puts it in the premium category. Foxconn is the largest contract electronics manufacturer in the world and counts Apple as one of its main customers.

Electroneum and Verge under attack?

While we are on mining crypto on mobile devices, 76th-ranked coin Electroneum (ETN) has made itself a name by being among the most easily mineable crypto, and it can even be mined on an iPhone. However, there were reports this week of difficulties on its network, with some users claiming it had fallen prey to a 51% attack. Separately, the Verge network was also said to be under attack. A 51% attack is when a single entity or group acting in consort gains majority control of the mining process, which can then open up the network to the problem of double spending of tokens.

The attack on Verge, the 22nd-placed coin by market capitalisation, has reportedly resulted in the loss of 250,000 tokens.

Verge (XVG), claims to be ultra-secure and uses five different hashing algorithms in the proof of work that verifies transactions on its blockchain. However, a hacker was able to game the system and use all five algorithms simultaneously to make off with the tokens. Verge’s XVG token, after spiking two days ago to $0.074, currently is trading at $0.052.

Russia’s central bank and US health insurers look to blockchain

In other news, Russia’s central bank said it may deploy its Masterchain technology, an Ethereum-based blockchain, to send the SWIFT messages that currently dominate in bank payments. If the launch goes ahead, it would roll out to Russia first, with the intention to expand the Masterchain solution to the Eurasian Economic Area later.

Olga Skorobogatova, first deputy chairman of the central bank, told the TASS news agency: “An active discussion is underway, and we are looking into several quality technologies, including Masterchain.”

Elsewhere, blockchain adoption is being considered in the US healthcare sector by major insurers UnitedHealth Group and Humana. They are piloting blockchain to see if it can be used to more efficiently match up patients and providers on their networks.

Mike Jacobs, a senior engineer at UnitedHealth Group’s Optum division, told CNBC: “From the perspective of the provider organizations … (they) can work with up to dozens of insurance plans, and each of the plans are individually requesting or verifying the provider information,” leading to increasing costs. So great is the problem, says Jacobs, that “it’s really affecting access to care for many patients.”

The pilot programme is scheduled to launch this summer, with results expected in the Autumn. The two insurers are competitors and the fact that Medicare regulators are planning to start fining insurers $25,000 a day for having inaccurate provider lists, has likely spurred the search for a decentralised ledger solution.

Back in the trading world, the lack of regulation of crypto exchanges and worries about security is leading to booming business for the over-the-counter (OTC) desks at trading firms handling crypto. Dealers are seeing business valued at as much as $100 million a day, according to Reuters.

Genesis Global Trading chief executive Michael Moro said his firm was handling daily trading volume of $75 to $80 million. Genesis is owned by the Digital Currency Group, which is also a major shareholder in US exchange Coinbase and, along with Goldman Sachs, is also invested in Circle, another major player in the OTC space.

OTC trading has the advantage for sellers and buyers of not affecting market prices in the way that orders placed on exchanges would.

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