Tuesday, April 17, 2018

High Fees Is An Extinction Event

Make no mistake. The rats are scrambling off this BTC sinking ship. High Fees is an extinction event. Like all extinction events there is always a group of loutish and very vocal band of hard core deniers. Their arguments are hypocritical, and their reasoning always seem incomplete.

BTC dominance below 40%

Today BTC dominance dropped to 38.4%. Total Market Cap is still 600 billion. This means that value have flowed to other currencies this time to Ripple. Value flows to crypto through BTC because it is the main bridge with all fiat currencies.

This happened before when value flowed to Ethereum. That was stopped in its' track because Ethereum encountered several major problems. ( DAO, more hacks and scaling issues )

Will Ripple become the new No 1 crypto coin?

Possible but it will be temporary, until BCH takes over. This upsurge is a pump and FOMO event, timely as many investors are looking to exit BTC. The fact that bankers like it strengthens their believe that this could be a major crypto coin. Again do not be fooled. Ripple is nothing but a token. Issued by a central authority. 38 billion are in circulation and 62 billion is in reserve.

It is not a mineable coin ( POW or POS) It is just issued (printed) out of thin air. Its value is in saving banks and financial institutions billions in interbank transfer fees. For this system to work it needs a large market cap. It certainly has that now. Banking transfer systems like SWIFT will not be silent in the face of this development eating into their business model.

It will be an intermediary token for financial institutions to move value among themselves. In short Ripple is not an everyday currency to be used by common folks. I don't think there is even a wallet for it. I suspect that most are held on exchanges and by the banks.

High fees is an extinction event.

Anybody who has a sizeable BTC holding is certainly now worried that their "store of value" may be in jeopardy. As we can see most of this value is moving to Ripple. When they realise that Ripple cannot be a store of value, much of that value will look for a new home - Bitcoin Cash.

Bitcoin Cash is the real bitcoin. It always was. The fork was BTC which added Segwit. Bitcoin Cash is still the same Bitcoin that I knew and loved in 2013. More and more people are beginning to realise this, as they find that they can no longer use their bitcoin to transact. All businesses that use to accept bitcoin have stopped accepting it.

The only argument left is for it to be a "store of value" and that is gone too, now that value have moved to Ripple! of all things. I guess people still want to trust banks. But they have to realise that banks do not own Ripple, and Ripple does not represent shares in the banking system.

Bitcoin will still achieve valuation of 100,000 and even 1 million a coin.

However that is in reference to Bitcoin Cash. This will happen when BTC is booted off the bitcoin mining algorithm. For me this can't happen soon enough. Bring on the Chain Death Spiral.

What are miners are waiting for? They are in control of BTC's fate.

What do you know. BTC's hashrate just plummeted 6EH from 18 to 12 and still dropping. Maybe this is the flippening happening now. Watch BCH price action to confirm.

Ripple May Be Number 1 In Market Cap Soon

Why Ripple will be Number 1 in Market Cap soon.

Ripple is now worth $3.68 with a market Cap of $142 billion. Many of us are surprise by this development including myself. Seems that the rumour of Coinbase listing ripple is what driving Ripple's price. I think that this is unlikely for the fact that Ripple is a centralised token. When Ripple gets to $5.00 it will become the number 1 in Market Cap. Should we be alarm that the bankers are taking over? 

If we look at the trading in the last 24 hours for Bitcoin and Ripple. More than $5 billion in fiat moved into the crypto space through Ripple, while only $1 billion of fiat move in through BTC. This is a huge change. BTC has always been the gateway for fiat to on ramp into the crypto space. At this rate Ripple will get to Number 1 by next week.

Note: There was a video of a Coinbase pages presumbly showing Ripple integration. If this was manufactured then there are parties going to great lengths to pump up Ripple's prices. The biggest push to Ripples's price is really the XRP/KRW  XRP/JPY XRP/USD pairs traded giving it a fiat on ramp to te crypto space.

Update 7.1.2018  Looks like the Ripple pump is over. Volume have shifted back to BTC.

Why Ripple ?

I think that institutional money have started moving into the crypto space. It did not come in through BTC because these investors do not want to drive up the price of BTC to astronomical valuations enriching those who got into this space early.

So I expect to see the value of BTC going to $5000 and perhaps lower in the near term. I also think that it is unlikely that value will remain in Ripple as it is a centralised token. I suspect that value will flow into the new utility blockchains like Cardano, Bitshares, Steem, EOS, Etc. as these blockchains mature.

So what happens to Bitcoin ?

In this new phase with the market cap of crypto exceeding 1 trillion dollars, BTC dominance will dip below 15%. The tussle between BTC and BCH for dominance will be irrelevant. With so much fresh money coming into this space, all cryptos including scams will rise with the tide. However in the long run every blockchain including BTC will need to carve out a real use case to be relevant.

Monday, April 16, 2018

So we are at 11K for BTC today and we nearly went below 10K.

If we were launching 2 versions of Bitcoin today, one with slow transactions and high fees and the other with fast transactions and low fees, there is no doubt which one will gain adoption and command a higher price. Yet the reality is that Bitcoin Core (BTC), the one with slow transactions and high fees is valued 10 times more that of Bitcoin Cash (BCH). Why is that?

So we are at 11K for BTC today and we nearly went below 10K.

Update 12/1/2017 Largest mining farm in the world goes online next week. Means huge increase in hashrate for BCH. Calvin Ayrn is connected with Craig Wright. This is a very big nail in BTC's coffin. ( There is a correlation between price and hash rate. hey say hashrate follows price, but what if hashrate is deliberate ? I presume then price would follow. BCH could double to $5000 next week. )

Update 14/1/2017 BTC dominance is now 32.5% The smart money is leaving and it is moving to Ethereum. The strategy of suppressing BCH price by selling into any bull run is ended because they have run out of BCH. Scenario : If you are holding BTC, you need to exit or watch your asset value drop day by day. You can't move into BCH as that will drive down BTC's price faster. New money is no longer coming in faster than you can divest. Best option is to move into Ethereum. Tide is turning now and when the people finally grasp that BCH can do everything that Ethereum can because it is turing complete and you don't need to spend gas to run your smart contracts, BCH will be number1 and start gaining market dominance accomplishing what BTC could never achieve under Core.

Incumbency and the Bitcoin brand.

BTC has incumbency, and the Bitcoin Brand, which was the intangible idea for which we all worked so hard to promote and develop until it achieve value. Its' value is derived from the accumulated mindshare of all the people who believed in that idea. Unfortunately the brand was taken over by a new group of developers from Gavin Andresen.

Wow. Were we not told that nobody controls Bitcoin? So how can anyone "take over" Bitcoin? Well, Bitcoin is a software like Windows. Even though it is open sourced, someone or a group is in charged of what, how and when changes are made to the software. They do this by controlling the access keys to the Github repository where the software is kept.

From mid 2010, Satoshi handed these keys to Gavin Andresen who nurtured the project and brought it to life. Besides maintaining the software, he also set up Bitcoin faucets and gave away thousands of Bitcoins to anyone and everyone who wanted them. Later he invited other software developers like Wladimir Van De Laan to help him. ( Much of the details in the link are not factually correct eg Satoshi Nakamoto. Note Core supporters penchant for telling lies and half truths ).

To cut a long story short, Gavin was unceremoniously elbowed out and his Github access was revoked in April 2014. This act in itself should speak volumes about the people who have taken over the project. Excuses that he was no longer contributing or that his account access was compromised does not wash. He was a proponent for bigger blocks and they were against it. They also accuse him of being duped by Craig Wright thus casting doubts on his security and judgement.

Incumbency is a very strong factor to overcome and as of today the Bitcoin brand is worth at least $15,000 per coin.

Mass Campaign of untruth and half-truth against Bitcoin Cash

If anything should raise a red flag, it is censorship. Granted that some level of moderation is required to keep discussions amicable but it should be done within reason and a with a light touch. If you need proof on censorship, just post anything about Bitcoin Cash, high fees or slow transactions on r/bitcoin.

Another is the need to resort to slander, ridicule and name calling. Calling Bitcoin Cash - Bcash, Btrash, Shitcoin, is an indication that you are unable to win a proper argument on merit. For the more intelligent supporters condoning this behavior on the basis that "they may be bastards but they are our bastards" is inexcusable.

Up till 1 August the two coins were the same. Then to solve a 3 year scaling debate BCH enabled blocks bigger than 1 MB, while BTC opted to discard Address signatures from the data set (Segwit). You would think then that both system should work but that is not so. BTC is still slow with expensive fees while BCH worked exactly as promised right out of the box. So now we have the BTC spin doctors in full retard spewing falsehood and half truths.

a) Half truth :- BCH does not have many transactions.  In reality BCH can eliminate all the backlog in BTC and then some. BCH has to rebuild a user base. Users and transactions will increase. This will erode the value of BTC's incumbency soon enough.

b) Half truth :- Roger Ver and Jihan Wu controls Bitcoin Cash.  Spouting accusation without fact checking and proof only works if you can control the narrative, misrepresent, and censor speech. If there people choose to put their money behind a project it is their right.

c) Half truth :- Miners controls Bitcoin Cash. Antpool and ViaBtc are also large miners of BTC. Is that also not worth mentioning in the same sentence?

d) Half truth :- With large blocks, the blockchain will bloat and soon few people can store a full copy of the blockchain. Not mentioning the impact of technology is like speaking only through one side of their mouths. Downright deceitful.

e) Half truth :- Bitcoin is open source, anyone can contribute. When there is only one client, there is no competition, and no need to respond to changes that they do not agree with. If you put up proposals and they are always rejected, you tend to get the message and give up.

f) Half truth :- Running full nodes on computers as small as Raspberry PI decentralises the system. Truth is that only mining nodes add blocks and transactions to the blockchain. The rest can only verify and most people have no need nor the desire to personally verify their own transactions. Dictum : Good enough decentralisation is all that is needed. If the need arises the community will rise up to the challenge.

g) Half truth :- Bitcoin is a store of value. If they are talking about the same Bitcoin then it is suppose to be a "Peer-to-peer electronic cash system". That was Satoshi's vision. If you don't have that, then what have you got? Are you in it just for the money? Yes many of us are in it for the money, but we should never lose sight of the vision. To claim that it is now a "store of value" is to defend the indefensible. Examples :-

"If you just hodl you don't need to transact" or is it that you have to hodl because you can't transact.

"Wait for lightning it will make transaction cheap and fast" why bother if it is meant to be a store of value.

"It is useful because it is a digital currency" But they just claimed that it is not a currency. As we all know, if something is not useful, it is not worth anything.

h) Half truth :- Core developers are the smartest developers. That is an opinion not a fact. If they don't hold the keys to the Github repository, I am sure we will all have a different opinion on that.

i) Half truth :- Coinbase is guilty of insider trading BCH tokens. The proper meaning of insider trading, is the trading of one's own company shares, which is illegal. Trading commodities based on prerogative information is not insider trading. The purpose here is to link Coinbase and BCH to an undesirable activity and therefore "Bad". Guilty by association.

j) Half truth :- Segwit and Lightning will reduce fees. Six months of Segwit, and adoption is 10%. "It will reduce fees if everyone uses Segwit". Fact is that not everyone will use Segwit. In fact 90% don't. In this scenario you would think the problem must be with Segwit and not the users! To then propose a campaign of boycott ( Coinbase, Bitpay, Blockchain.info ) is infantile. Nobody did. (boycott) Which should tell them that their followers and their influence is not as large as they think it is. Incumbency is still on their side, but for how much longer.

l) Half truth :- Roger Ver is a scammer supports Mt Gox. Context. He is a Bitcoin evangelist, and we all know about bank's attitude to Bitcoin businesses in those days. Would you not say the same things if you were shown those same evidence? He is not an auditor and did not speak as one. He did not have any equity interest in Mt Gox. He had no knowledge on the operational activities of Mt Gox. On hindsight it was unwise. An innocent mistake by one who wants the best for Bitcoin and wanted to help anyway he could, legally. Bitfinnex had the same problems but they learned and took a different approach. As a result they recovered and are still in business.

The problem is inertia. Few people will change their habits is they don't have to. Giving them an option by soft forking means they don't have to. So why are they surprise? Now they have made the system unuseable and have driven away existing and potential users. Lightning will face the same problem. If Lightning works, and that is still an if, there may not be many users left to use it.

e) Untrue :- Bitcoin Cash development is centralised. If anything Bitcoin Core development is centralised with only one client. Bitcoin Cash has several client implementation including Bitcoin ABC, Bitcoin XT and Bitcoin Unlimited.

 f) Untrue :- Bitcoin Cash wants to steal the Bitcoin brand. Bitcoin Cash is Satoshi's vision of Bitcoin. It is still the essentially the same Bitcoin from 9 January 2009, except for changes to the Blocksize, which was capped at 1Mb in 2010 and increased to 8MB on 1 August 2017. Bitcoin Cash is the real Bitcoin. Gavin Andresen did not envisage a situation where another group would take control of the software. It was "stolen" from Gavin.

BCH cemented its' claim to being the real Bitcoin by staying on the same hashing algorithm as BTC. No other forked Bitcoin clone ( Bitcoin Gold, Bitcoin God, Bitcoin Platinum, etc) can achieve this. In doing so it now threatens BTC's ability to remain on the same hashing algorithm.

g) Untrue :- Bitcoin Cash want to remain a Model T Ford. In actual fact all the big blockers wanted was an immediate alleviation of the transaction and fee situation by a simple blocksize increase. They were not totally oppose to Segwit or the Lightning network. Since then they have hard forked twice proving that hard fork are not dangerous, and have committed to 6 monthly scheduled improvements. Bitcoin Cash will have the more interesting and exciting developments.

When the earliest adopters are speaking out, Listen.

Many of the earliest adopters have given up on Core and the path they have taken Bitcoin. These were the first people to see the potential in Bitcoin and promoted it before it had any value. Question the motives of people who taunt, slander, dismiss and belittle their contributions.

Gavin Andresen : First developer after Satoshi. Still contributing but to Bitcoin Cash.
Roger Ver : Bitcoin Jesus. First promoter and investor in Bitcoin start-ups.
Rick Falkvinge : Thought leader. BTC has failed.
Jeff Berwick : Anarchist. Dollar Vigilante.

The flippening.

I started this series of articles back in August predicting the flippening ( BCH replacing BTC ) and it seems like this is never going to happen. But like climate change, it is real and I based it on one premise. In the long run, BTC cannot survive on the same mining algorithm as BCH if it does not code in the EDA. (Chain Death Spiral). The power of incumbency is very strong but one by one these struts holding up the value of BTc are being removed .

The main strut are the exchanges. Every crypto exchange in the world trade BTC/fiat and BTC/crypto pairs.  Some have now introduced BCH/fiat pairs and CoinEx will use BCH as the base trading unit. Coinbase adding BCH was a big step.

A coin needs to be useful. We should be able to buy something or do something with it. Not just hold it. The reason for holding is so that you can do something with it in the future. You can see now how the "store of value" argument is "arse about face". With high fees BTC is not useful and for most people with small balances unuseable. This has resulted in all major business enterprise moving away from BTC for payment. Steam (online games), Microsoft, Bitpay, More here )

Lastly I would like to draw your attention to future developments. The one killer feature that will enable the move into mass adoption is a wallet that is totally secure that even your grandma can't lose her coins using it. nChain promises to come up with this. I understand this is a patented technology that nChain will provide free for Bitcoin Cash developers to use. Meaning that BTC cannot use this technology. Is it bad? nChain is a for profit company and they argue that it is their property and therefore they have a right to choose how and who uses it.

Bitcoin brought about a boom for developers all over the world to start making and building all sorts of applications on Bitcoin. Unfortunately high fees killed all that and most projects were abandoned, shelved, or migrated to other platforms. These projects now find a second life and there is a resurgence of enthusiasm and activity because of Bitcoin Cash.

The only thing I know of happening on BTC is Lightning. Until that comes nothing can really move forward with BTC on the development front as they have killed every other use case except for being a store of value. Yes maybe Lightning will get here soon, and yes maybe it will be bug free and yes maybe there will still be people around to use it, but that is alot of ifs. I see BTC as moving into the sunset and BCH as the morning sunrise. The Flippening.


Note about fees :- If you are confused about the different fees from $20 to $300 being quoted for sending BTC, it is because they are both right. The fee you pay to move a certain value depends on its' makeup. The balance in your account is the total of all the unspent inputs. If you have to add all these to send one larger value output then you will use more data space and so pay more fees. Sending a smaller output from a large input incurs the lowest fees.

Note : On the subject of Satoshi

Satoshi is a threat to Core if his identity is confirmed, because he would command respect and authority among the community. They will do everything in their power, much like the campaign against BCH, to discredit him if it came to that. Even if he did successfully sign the message it only proves having access to the keys. Not that he is Satoshi. It is up to you to decide based on the evidence.

That aside, if you were not Satoshi,  why would you want to go through the process of proving that you were?

You will need to demonstrate you have the knowledge and ability to invent Bitcoin.
On a personal level you need to know every detail, every event and every personalities that Satoshi should have known.
You would also have to pass the "Gavin's Test", meaning demonstrating an intimate knowledge of a shared event or memory you had with him. Would you put yourself through all that if you cannot guarantee the outcome? All it would take was for Gavin to say "no he is not who I believe was the person who communicated with me as Satoshi." and that would be the end of it.
And for what? A Nobel prize?

But look at the consequences. You have just confirmed to the world that you are in ownership of 1 million Bitcoins. You and the people around you will never be able to live a normal life.

Something not mentioned much was that the first version of the Bitcoin software was written by someone "quite archaic" in software programming meaning that it is not done in the modern disciplined manner in writing software today. It reeks of "old fashion", possibility written by someone who does not write software for a living.

Is The Sky Falling ? No It Is The CBOE/CME Futures But The Flippening Is Still On.

So we are at 11K for BTC today and we nearly went below 10K. What caused this crash? Remember back in December when some of us had doubts about the futures being bullish for Bitcoin, Well we were right. The short sellers are in to make a fortune.

Is The Sky Falling ? No It Is The CBOE/CME Futures But The Flippening Is Still On.

To make money you will always need to bet against the trend ant at that time the trend was bullish. All the pundits were predicting 25K 30K Bitcoin. If you were a whale or belong to that group and had the resources to sell the index then taking up a short position on the futures would be the surest and most profitable bet of all. Each CME contract was for 5 BTC which at 18K would mean a profit of around 40K a contract. The beauty is that this is an unregulated market and even if they manipulated the index there is no authority that can hold them accountable for market manipulation.

The first CBOE futures expires 17/1/2018 and the first CCME futures expires a week later. We can expect to see bearish prices for the next week or two. By then when the sentiment is really bearish and pundits predicting 5K BTC then the smart money futures bet will be the other way. So we will see a huge recovery come March/April 2018.

Update : Calvin Ayrn was bringing in significant hashpower to BCH this week. Instead we we the hashrate increasing in BTC. It could be difficulty pump for BTC, before pulling the plug. Looks like it is Coingeek.com and they have started mining BCH. First block today. This is the beginning of the end for BTC. Good riddance.

The flippening is still on.

I do not trade futures. I buy on fundamentals. For this period the only fundamental that we need to be concern with is that both BTC and BCH cannot co-exist on the same mining algorithm. BTC will have to fork away once it is caught in the Chain Death Spiral. High transaction fees is an extinction event, and BTC is only holding the higher price ahead of BCH because it has incumbency.

A price drop of this magnitude without the price of BCH following suite would have triggered the Chain Death Spiral for BTC. However all cryptos including BCH experience the same sell off which means that weak hands who were only in it for speculation and a quick profit have sold their positions.

What we need to realise is that there were many BTC investors who bought into BTC at up to 19K and have moved the BTC to their personal wallet, found to their detriment that their transfer to the exchange for a quick sell was stuck and in just over 24 hours saw their investment drop an additional 3K per BTC and it is possibly still stuck in the BTC unconfirmed mempool. This will be a bitter pill to swallow. Another angry BTC investor.

Everyday the odds are being stacked against BTC. More people are leaving. More businesses announcing that they no longer accept BTC and they are switching their business model to BCH. More mainstream adoption for BCH.  More features being added to the BCH platform and more project shelved because of the unuseability of BTC are now being revived on the BCH chain.

The greatest threat to BTC now is not a drop in the price of BTC but a quick rise in the price of BCH. Keep an eye on that metric. It was .18 when the market collapsed and went as low as .15 but have now recovered to .16

Yes. The flippening is still on.

Lightning Destroys Bitcoin Security Model.

Bitcoin stands on three pillars, the users, the miners and the developers. The weakest link here was the developers but fortunately Bitcoin has self correcting features which resulted in the forking off to a new development team (Bitcoin Cash).

Lightning Destroys Bitcoin Security Model.

Lightning destroys Bitcoin's security model.

One of the most fascinating attribute of bitcoin was that the system pays for its' own security. It may seem trivial now but ask yourself back then, how do you pay someone to secure your protocol with coins that are worth nothing? This was the chicken and egg problem. All prior solutions, including governments,  have all relied on trusted entities to perform that function.

Miner's reward = Block Reward + Transaction Fees  =  12.5  + E[xT]

The principle idea is that as the Block rewards decreases every four years the block reward will be replaced by transaction fees.

T is allowed to increase as fast as the technology for block space allow while keeping x as low as possible.

This requires larger block sizes. Even one that can accommodate billions of transactions (T) in say 10 years. We can be sure that technology will come to the rescue. For example, as we will move to 5G networks, developing countries will skip  1G, 2G, 3G and even 4G to move directly into 5G with the rest of us. This development will happen as sure as they skip landlines entirely to move into mobile networks.

Lightning network changes the security model to :

Miner's reward = Block Reward +  ( Transaction Fees - Lightning Fees ) =  12.5  + { E(xT) - E(yL) }

As the block rewards decreases the transaction fees must also increase. The idea here is to make on-chain transaction very expensive and move all smaller transactions to the Lightning network or side chains.

T is capped and x is allowed to increase as much as demand for settlement allows.
L is allowed to increase indefinitely and y is kept very small.

Transactions to get on and off the lightning channels are part of total T. If it is not obvious yet, as x increases it also gets more expensive to open and close a lightning channel. So how would one get on to lighting if it gets too expensive to open a channel. You will have to subscribe to a channel node directly. That is put your money into a "banking" node. These "banking" nodes will now be in a position to allow or deny services to you ie Be A bank!

At the moment we tend to assume that miner's cost are denominated in dollars or fiat. Therefore as the transaction cost grows to thousands of dollars it will keep pace with costs and miners will be happy. But will they? When we get to the situation where the unit of transaction is bitcoin and not dollars, then the block reward will tend to zero in BTC terms. The only real reward are the on chain transaction fees.

Miners are price takers. They get to determine their income by selecting from a smorgasbord of fees. "Banking" nodes become price setters. They put up that smorgasbord of fees. It will be in their interest to set Lightning fees as high as possible and Mining fees as low as possible.

Nodes were never meant to be compensated in the Bitcoin protocol. They are placed on the user side of Bitcoin's 3 legged equation. They pay for the cost of running a node because their business model requires it. It is their cost to use the system.

Lightning has not taken hold yet and we are far away from "banking" nodes. It could work if miners do not have a choice. But miners have a choice in Bitcoin Cash. Miners will not put up with a situation where they get elbowed out of the system, just as happened with the original core developers.

Bitcoin's security is one of its' greatest strength.

Bitcoin uses proof of work to secure the protocol. This is the most secure system we know. Nothing has ever worked before bitcoin. To emphasise this point, the fastest and most powerful chips are used to mine bitcoins even before they are deployed into mainstream computers. The technology to secure Bitcoin is bleeding edge and will remain so.

Any departure from this is a compromise and introduces some level of centralisation or trust. Proof of stake requires some form of centralisation, moderated in different iterations of the POS model. Without Bitcoin coming first, POS cannot take off on its' own. Bitcoin made it possible for value to flow into the POS tokens.

Trust but verify

It can be argued that not everyone can run a Bitcoin Cash node because of the cost and we have to trust a small number of these expensive nodes. However, any business or organisation that needs to verify their transactions real time will have to run a node. We could have hundreds of thousands of nodes across all sectors and industries. We don't have 100% trusted nodes but we have enough, just as we may not have 100% honest miners, but we have enough.

We cannot say the same for "banking" nodes because their profitability depends on their control of miners revenues, and thus the erosion of Bitcoin's security model. You will not be allowed to verify or audit their setups.

Will Bitcoin Segwit Recover its All Time High Or Go to Zero?

Will Bitcoin Segwit Recover its All Time High Or Go to Zero

Bitcoin Segwit proponents have spent more that the last 2 years arguing that BTC is a store of value and should not be used for everyday transactions. They have even proposed that transactions can be conducted on Ethereum and Litecoin. Now they are actively touting Lightning as the killer innovation that will make Bitcoin great again.

I find this argument hard to swallow because experience tells me that it is difficult to win customers and nearly impossible to win them back, if they left because of poor customer service. It is no different for Bitcoin. BTC is a product and transactions on the blockchain is a service. Gaining converts was hard, very hard. Now look at how easy it is to lose them.

Using the Sent From Addresses as an approximation to number of users, we see that in less than a month ( 4 January to 1 February ), the number of users fell 60% from 536K to 218K. 

Where have these "customers" gone?

Since the all time high of 19.5K on 17 December, BTC price have dropped to 10K today. Some call it a correction but I will argue that the correction ended 7 January.  Since then the drop in price have tracked the decline in the number of users as shown in the graph above.

It looks like even the most ardent supporters of BTC are no longer buying into the promises of Core developers. BTC's price drop is more than just a correction and the bear market, because Ethereum's price is bucking this trend. 

Since 1 August a large number of BTC users have moved to Alt coins and many have gone all-in to Bitcoin Cash. It would now appear that, even those vehemently against Bitcoin Cash are leaving and moving to Ethereum. This can only mean that Ethereum will soon replace BTC as the top coin in terms of market share.

What about the flippening?

Bitcoin Cash is only 6 months old. The flippening will happen soon enough after BTC loses its' market dominance to Ethereum. Bitcoin Cash will have to convince the market that it is the real Bitcoin and that Bitcoin Segwit was the fork, before it can unseat Ethereum. This will happen because Ethereum was never designed to be a monetary token. For now it can be a "store of value".

Tether In A Bitcoin Bear Market, And Can Tether Be A World Currency?

What is Tether.

Tether is a token issued on the Bitcoin and Ethereum blockchain. and promises to pay out 1 USD for every Tether issued. This led to the community;s concern as to whether the $2 billion in reserve exist. Tether.io did not, could not or would not provide proof of this. News of Tether.io parting company with their auditors made the situation worse.

Tether In A Bitcoin Bear Market, And Can Tether Be A World Currency?

Lets examine the facts

1)  The price of Tether remained stable throughout this controversy, meaning that even though there was a strong and targeted campaign against it, Tether holders remained steadfast. There was no sell off and the number of Tether issued actually increased. Action speaks louder than words. Therefore we have to conclude that Tether must have an important role in the Crypto economy.

2) One year ago the daily volume of Tether traded was about a million dollars. Today it is 3.5 billion dollars. This is a phenomenal increase. Something is happening.

3) There were claims that Tether was issued to prop up the price of BTC. This can't be true because the price of BTC is down in spite of the increasing number of Tether issued.

Like it or not, Tether is now a huge part of the Crypto economy. It is already second behind BTC in trading volume. ( Adjusted : BTC 6.5 Tether 3.5 billion ) I have no doubt that Tether will surpass BTC in trading volume soon, especially with BTC losing utility and usage daily.

A "Reserve Bank" For Crypto

Does Tether.io have 2.2 billion USD deposited and/or in assets as they claimed? It is dangerous for Tether to reveal their fiat holdings as these can be subjected to confiscation. More than likely if it exists they will mostly be in accounts not directly attributable to them.

They could be held in pledges and guarantees in fiat or assets. However this is done, all that is necessary is for their holders to believe that they can have their Tokens converted to USD on demand as promised. This really makes Tether.io for all intent and purposes "A Bank". It exist because we believe it is solvent. If not there would have been a huge "run on the bank".

This means that USDT can be just printed into existence by Tether.io at whim. We have no way of knowing if they have the full reserve backing for every Tether they issue. What this means is that Tether is now basically backed by the full faith and trust of the Crypto community. This is the reality. If this is not true Tether will not exist, as they have not or cannot prove that they have full reserves. They only have their promise to convert Tether tokens on demand.

It is possible that the number of Tethers issued follows demand, so that its' value always remain at approximately 1 USD. If the units of Tether issued was fixed then demand would have push the price upwards. There must be some mechanism that is keeping the price of Tether stable. Perhaps it is the belief that there is 1 USD backing every Tether issued.

Now comes an interesting thought. What if the whole world starts pricing everything is Tether. Initially we will view Tether the same as 1 USD, but over time Tether may be deemed to be  the stable unit of monetary value and the USD gets to be priced in Tether, together with every other world fiat currency. If this happens, Tether becomes a world currency! This is not so far fetched as how we view money is a generational thing. The younger generation have more faith in the Crypto economy because they are basically excluded from the legacy economy.

Is Tether a huge risk to the Crypto economy? Will Tether crash to zero?

The whole crypto market is crashing. The only Token increasing in market capitalisation is Tether. Based on this it is unlikely that Tether will crash ahead of other tokens. More than likely it is actually underpinning the whole crypto economy.

Can a government shut Tether.io down? The Chinese government is already clamping down on anything crypto. The currency most at risk is the USD. I really have no clue. If the US government could shut down Tether's accounts, I am sure that they would. All that is needed for crypto to survive is for one country to legalise it and Japan has.

We will have to watch this play out, but the bigger the market cap of Tether the harder it will be to shut it down. The value of a token is in the minds of the people using it, and Tether may actually get the full appreciation, support and protection of the whole crypto community.

Tether is not a threat to the crypto economy. It is a stable unit of measure for the crypto economy.  Even the legacy economy does not have this stable unit of measure. Hopefully a system of decentralised governance for Tether may evolve.

Tether in a bear market

Having seen so many boom and bust cycles in the Bitcoin space I have come to appreciate the value of a stable coin like Tether. A market indexed to BTC rises and crashes with the price of BTC. When the market is index to Tether, each coin will rise and fall on its' own merit.

Current demand for Tethers is fuelled by investors wanting a stable unit to hold value while the crypto market is falling. These investors have not cashed out. Perhaps they are looking to buy back in when they belief the market have bottomed out. Perhaps its' arbitrage value is significant. Maybe it will be a hedge against inflating fiat currencies. Time will tell.

Questions Questions and more Questions.

a) What happens when the market turns bullish again? Will supply and demand for Tethers still be kept in equilibrium?

b) Who is the counter party for Tether is a bear market?

c) Will unscrupulous parties print Tethers out of thin air to manipulate the market?

d) Can Tether become a world currency?

Update 10/2/2018

Another interesting observation on Tether is that its' trading volume is equal to its' market cap at the moment. Meaning that the trading volume is at least 1X the number of coins issued. All other coins trade at only a percentage to its' market cap eg Bitcoin at 0.05X. (1/20th) If this observation holds then Tether will have the highest trading volume if its' Market Cap reaches 8 Billion or with the issue of anoher 6 Billion coins.

Tether is an interesting development as it really can be the glue that connects the whole crypto market. It is an issued token so it is not subjected to mining. It is built on the Bitcoin blockchain as a second layer and is therefore secured by the Bitcoin blockchain. Compared to all the other wannabe stable coins, Tether has achieved the network effect.

It has a very interesting use case in that centralised exchanges uses it to offload most of their KYC AML requirements to Tether.io.

Its' function as in intermediary coin between those who believe that the market is rising and those that believe that the market is falling in any particular coin can only gain more usage and prominence.

Another feature is that it trades in a small price band of +/- 10%. This could be deliberate in the sense that more Tethers will be issued if the price trades above 1 USD and redeemed f it trades below. It now makes it possible for risk adverse traders to enter the market knowing that there is a floor bottom for the price of Tethers. This will bring more liquidity to the whole crypto market.

The Tether database is under reconstruction at the moment, perhaps due to the recent 30 million hack. Even with this negative news the price of Tether did not tank, and Tether continues to trade on the exchanges.

Pushing the virtues of Tether does not mean that I am pro Tether against all the other coins. In fact it means that I am pro Crypto. Tether being a stable coin allows all other coins to rise and fall on their own merits against it. This makes it somewhat like Shapeshift.

Can you see where this is leading? If Tether wallet becomes a spending wallet, it means that you can spend whatever coins you have in Tether on the fly. Merchants need only worry about one currency Tether, and for he moment it is equivalent to USD.

There is no mental gymnastics required to convert between Bitcoin or Ethereum or Litecoin or whatever coin when spending or receiving Crypto. The decision to use or hold any particular crypto or fiat comes before or after the Tether transaction by both parties if needed.

This reasoning taken to the extreme may mean that we could easily drop the USD equivalent. It could just become a stable Tether in its' own right. Can this happen/ I think yes. Will it happen? This is hard to predict.

Tether's advantage here is that it has achieve the most network effect as a stable coin. It is neutral. No one holds Tether expecting the coin to "go to the moon" so to speak. That aside, if Tether.io ever goes for an ICO, their tokens will be a very good buy.

There has been much controversy about the connection between Bitfinex and Tether. I do not know much about the politics in this relationship but I think that it has been positive for Bitfinex and probably all exchanges that uses Tether without dealing in fiat. I hear from a reliable source that Bitfinex is giving out a $1.01 dividend in its' 3rd quarter. That is 100% its' share value and comes after 2 previous dividend issue of  25 cents and 37.5 cents respectively. Without a doubt Tether provides liquidity to the Crypto market and more Tether can only mean a stronger Crypto industry.