Bitcoin – Futures Goes Live

Bitcoin – Futures Goes Live

Bitcoin futures went live on Sunday and it certainly didn’t go unnoticed, with the opening of two futures exchanges this week having garnered a significant amount of news coverage in recent weeks.

The Cboe futures market was the first to launch, with the CME Group scheduled to launch its Bitcoin futures contracts on 18th December.

We’ve heard plenty of speculation on the possible effects of the availability of Bitcoin futures on Bitcoin itself and the cryptocurrency world in general. The ability to short as well as go long on Bitcoin futures prices prior to contract expiration expected to lead to increased volatility in Bitcoin.

The vast amount of trades to-date have been long positions, with those looking to take short positions challenged by the inherent difficulties that have persisted in going against the grain. In hindsight, the difficulties will have been a blessing in disguise, but that doesn’t mean that the Bitcoin bears will shy away for ever.

Futures markets not only offers the option to go short, but also provides a leverage platform and this may draw in investors looking to boost earnings, though caution will is needed with Bitcoin’s volatility having shown its teeth in recent days.

Bitcoin futures this morning surged to just shy of $18,000 before easing back with more than 2,000 contracts reportedly changing hands, which is a relatively small number of contracts when compared to other asset classes, but still higher than had been anticipated.

The jump in January’s futures price provided strong support for Bitcoin in the early part of the day today, with Bitcoin gaining 12.01% to $16454.87 at the time of writing in what looks to be another move towards record levels from a weekend that saw Bitcoin fall to sub-$13,000 levels.

-FX EMPIRE-

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What is the future of Bitcoin.

The Usage of Bitcoin Bitcoin has been around for almost a decade now, introduced back in 2008, the principal of Bitcoin being to remove intermediaries. The U.S Treasury has identified bitcoin as a virtual currency, while it’s more commonly described as the first cryptocurrency and the largest of its kind by total market value, currently being $19.2bn. The general consensus was that Bitcoin would take the world by storm, but we have yet to see the storm, which was also seen to uproot commercial banking as we know it today, a material decline in sticky bank depositors a negative for bank top line revenue. As things stand, well-known companies that accept Bitcoin for payment include Amazon, Apple Expedia, Overstock, Subway, Reddit, Microsoft, Dell, Tesla, Bloomberg.com, Kmart, Sears, Gap, Victoria Secret. Figures on Bitcoins are few and far between, but with over 100,000 merchants and vendors accepting bitcoin as payment, the numbers suggest that progress is finally being made, the number of merchants accepting Bitcoins having increased by 4 fold between 2014 and 2015 alone. Research produced by Cambridge University concluded this year that there are between 2.9m and 5.8m unique users actively using a crypocurrency wallet, most of them using Bitcoin, which is far greater than the estimated 0.3m to 1.3m unique users back in 2013. The upside for the consumer is the reduced fees for transactions, where merchants and vendors accept Bitcoins with fees of between 0% to less than 2%, certainly more competitive than credit card fees, the downside obviously being the lack of protection to the consumer or the merchant for that matter, bitcoin users unprotected by refund rights and chargebacks, though this is changing… The latest news is the legalization of the use of bitcoin in Russia, with Japan’s passing a law accepting bitcoin as legal tender perhaps even more compelling when considering how far behind legislation is in other G7 countries, let alone the G20, despite the wide acceptance. The value of bitcoin has certainly been held back by the lack of recognition and regulation in key economies, suggesting that Japan’s move could begin a domino effect, which would be quite a boon for the bitcoin bulls, when considering the fact that the value of bitcoin increased by 8%, equivalent to $1bn, to take the market cap to $19.5bn. In the end, Japan’s move makes sense and Russia is looking to follow suit, the lack of regulation allowing Bitcoin to be used as a means to wash dirty laundry. Russia is looking to legislate to recognize Bitcoin as a financial instrument by next year for just that reason and we can expect other countries struggling with money laundering to follow suit. Bitcoin’s Future Conflict There’s a long way to go before Bitcoin becomes a globally accepted form of currency, virtual or not, with some counties having outright banned the use of Bitcoin, though the number of countries are diminishing, with the wider issue being the lack of regulation on Bitcoin itself coupled with concerns over technology limitations. Technological development over the short to medium-term will certainly influence the value of the markets and, as a global regulatory landscape develops, we would expect the usage and demand to increase, driving the value, the types of returns that are not apparent with cash, still currently maintaining its ’Cash is King’ status. Whether investors consider Bitcoin as an alternative hedge or an investment remains to be seen. Either way, when considering the year-on-year surge in the value of Bitcoin, just shy of 200%, the only way is up should regulatory walls continue to fall and transaction volumes continue to rise, with Bitcoin having hit an all-time high $1,400 last week. Bottlenecks will undoubtedly limit transaction volumes over the near-term, leaving the door open for more traditional payment methods to compete, but it is only going to be a matter of time before payment systems are upgraded and Bitcoin has the opportunity to become a primary payment mechanism. In the end, the success and evolution of Bitcoin across mainstream economies and beyond will likely boil down to the attitudes of Central Banks. The PBoC earlier in the year had announced that it would be making a greater effort to regulate the Bitcoin market, including establishing a taskforce to inspect and ensure Bitcoin exchanges had the appropriate anti-money laundering systems, warning exchanges that they would be closed down if in violation. The actions of the PBoC led to certain exchanges suspending activity, resulting in Bitcoin losses at the time. Ultimately the fact that the PBoC is looking to clean up and increase oversight is a long-term positive and suggests that the use of Bitcoin will surge in the years ahead, despite the fall over the near-term attributed to the increased oversight. The intentions of Satoshi Nakamoto was ultimately to knock central banks off their perch, the inventor of Bitcoin publicly discussing a distrust towards central banks. The evolution of Bitcoin has certainly opened the eyes of many, bringing into question the need for central banks should Bitcoin become the method of choice, as there would be no requirement for the issuance and settlement. The use of Bitcoin may remove certain roles of central bankers, but in the end Bitcoin will never be responsible for or even be in a position to influence monetary policies. Central banks will continue to ultimately to hold the fate of Bitcoin in their hands, regulation and acceptance at government level vital to its success and continued evolution cross border. For now, central banks appear to be diligently looking into the technology that Bitcoin has introduced, looking to use the decentralized method of record keeping, more commonly known as the blockchain or distributed ledger, the incentive being to complete and log transactions in a real economy more effectively. The BoE and the PBoC are certainly advocates of the decentralized method that would allow the respective central banks to track their respective currency through the financial system in real time. The BoE has estimated that the use of a digital currency on a distributed ledger could add as much as 3% to a country’s economic output through efficiency gains alone. FOMC members and the FED Chair have also talked positively on distributed ledgers, with voting-member Brainard having spoken on the benefits of the use of such innovative technology just last week. Interestingly, the fact that Central banks are beginning to embrace the technology, which had been developed to dethrone them could ultimately cement the position and power of central banks, though it would be difficult for them to then attempt to unravel the very same technology in a bid to undermine Bitcoin down the road. Bitcoin may have a mixed following at present, but there are a number of countries that are ultimately considered the Bitcoin friendly, with the list likely to continue growing as more governments acknowledge and legitimise the use of Bitcoin. Countries with particular fondness towards Bitcoin The U.S: Has the highest number of cryptocurrency users, the highest number of Bitcoin ATMs and also the highest bitcoin trading volumes globally. The U.S is the home to Silicon Valley after all and it will certainly bode well for Bitcoin’s future, with many countries looking towards the U.S for guidance and best practice. Denmark: The government is looking to completely transition to digital currency, though it remains unclear whether Bitcoin will prevail, the Danish Central Bank having previously declared that Bitcoin is not a currency and that it would not regulate its use. Sweden: Also looking to shift to digital currency, the Central Bank’s decision to cut interest rates into negative territory has led to an increase in demand, supporting appetite for Bitcoins and alternatives to protect capital. Unlike Denmark, the Swedish regulator has publicly declared Bitcoin as a legal currency. South Korea: There are currently no laws in South Korea regulating the use of Bitcoin, where people are able to buy Bitcoin in 7-Elevens. The Netherlands: While extremely popular, Bitcoin is not regulated in the Netherlands, though this doesn’t seem to deter, with Bitcoin ATMs, start-ups and a Bitcoin Embassy in existence. Finland: Bitcoin has been classified as a financial service by regulators, exempting it and Bitcoin purchases from VAT. Bitcoin ATMs have been on the rise and Finland is also home to one of the leading global peer to peer Bitcoin exchanges, Local Bitcoins. Canada: Bitcoin is regulated under counter-terrorist financing and anti-money laundering laws, with Toronto and Vancouver considered to be Bitcoin centers, as Canada looks to follow the U.S in the use of cryptocurrencies. The UK: The BoE continues to monitor Bitcoin technology, while it continues to be classified as private money, with VAT applied and also subject to capital gains tax, where there P&Ls are involved. Australia: Previously imposed double taxation on Bitcoin has been removed, though continues to remain unregulated by the RBA, which acknowledged that there are no laws against the use of Bitcoins and the usage is more of an arbitrary one. Japan: The Japanese government moved to legalize Bitcoin as a currency effective by law at the start of April in a move that saw Bitcoin’s value rise above the $1bn mark, with some of Japan’s largest retailers accepting Bitcoin payment as a result of legislation. It is in fact said that Bitcoin trading in the Yen is the one of the most liquid markets globally. We expect to see Russia join the list of advocates in the near future, following comments from the Russian Deputy Finance Minister that regulators will be looking to recognize Bitcoin and other cryptocurrencies legally next year, the government eager to tackle money laundering, which certainly incentives greater oversight and regulation, ultimately leading to its legitimacy. There’s a long road ahead and technology will need to improve and limitations will need to fall away, but with governments and regulators the world over beginning to take a more pragmatic view and understand the need to legitimize in the interest of anti-money laundering and other preventative policies, Bitcoin could well benefit from central banks’ advancement and development of distributed ledgers.

 

-FX EMPIRE-

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Bitcoin prices back to near record highs after new mechanism to improve usage.

Bitcoin backers celebrated as the community embraced a new mechanism to improve usage and allow it to scale, boosting confidence in the virtual currency and sending prices back near record highs.

The community, which had been split on how best to make the cryptocurrency more manageable, rallied behind a code upgrade known as SegWit2x, which aims to increase the network’s transaction capacity. That fueled a rally on Thursday in bitcoin’s price against the dollar, which had plummeted from a peak in June as concerns grew about its future.

“We’re thrilled to get past this impasse,” said Andrew Lee, head of bitcoin-shopping startup purse.io, whose team celebrated with beers at their San Francisco office. The development opens “the doors to much-awaited innovations,” he said.

Bitcoin enthusiasts in New York and San Francisco, to Hong Kong and Tokyo, gathered in bars and offices to hold impromptu parties, while others took to Twitter and social media to cheer the move, as well as the price rally.

The impasse arose from a limit placed on the size of blocks underpinning the network in bitcoin’s early days, in order to prevent hacker attacks. As the virtual currency grew in popularity over the past nine years, transaction times and processing fees soared, curtailing the community’s ability to process payments with the same efficiency as services like Visa Inc. Miners and developers were locked in a heated debate for years on how best to upgrade the software, culminating in the recent clash.

More than 93 percent of miners who function as the backbone of the digital tokens network locked in support for BIP91, the first necessary step in implementing SegWit2x, according to Coin Dance, a website tracking adoption. Bitcoin’s miners are independent groups that verify and process bitcoin’s transactions by solving complex computational problems, in order to be rewarded by fees and creation of the digital currency.

SegWit2x is essentially a compromise between two main competing camps. One proposed a direct approach, seeking to increase the block size. The other, a group of developers known collectively as Core, pushed for a long-term solution by moving some data outside of the main network, a scheme called SegWit that had been resisted by miners because it also could diminish their influence. In the end, the miners agreed to adopt SegWit, but also increase the block size to 2 megabytes.

The upgrade isn’t final. The BIP91 lock-in has a grace period of about two days, during which miners will prepare to activate the software. It will then take about two weeks for SegWit to be fully adopted. Developers still warn about potential hacker attacks that could disrupt the process.

Then, three months from now, the community will face another challenge when some of the world’s biggest miners move to adopt the second phase of the proposal, the doubling of the blocksize. Still, many in the community agrees that the hard part is over, with prices seen stabilizing and strengthening.

“We do believe it will continue, now that we’ve gotten over this hump,” said Ryan Rabaglia, head trader at digital-trading company Octagon Strategy in Hong Kong.

-Business Tech-

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Bitcoin surges as miners avert split for now.

Bitcoin prices surged this week as an overwhelming majority of miners, the computer operators who maintain its network, backed a software upgrade that will boost the speed of processing transactions, likely averting a split that could have resulted in multiple versions of the digital currency.

Through an online voting mechanism, miners representing 99% of the cryptocurrency’s computing power, backed a new piece of software, known as Segregated Witness, or SegWit, that would boost bitcoin’s processing power without altering the underlying software, The Wall Street Journal reported Friday.

See: Bitcoin may have reached a tipping point, now that ‘Downtown’ Josh Brown has invested

The debate leading up to the vote marked a split that largely pitted miners and entrepreneurs, who wanted to increase block size and maximize bitcoin’s value as a payments network, versus developers who fear larger block sizes will increase operating costs for miners, driving some out and leading to more centralized control, wrote the Journal’s Paul Vigna.

Bitcoin prices dipped early this week on fears over a potential split. Bitcoin BTCUSD, +7.81% One bitcoin traded at $2,813 at midday Saturday, according to Coinbase, up nearly 40% on the week.

 

– Market Watch-

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