Bitcoin and other Cryptocurrencies

Increased Adoption and an Expanding Marketplace

At the start of 2012, one bitcoin was worth exactly $4.72. One year later a piece of the new currency could buy you a book on amazon ($13.51). On January 1st 2014, buying a single bitcoin would set you back $806.
With the 2008 financial crisis still fresh in people’s minds, most wrote off Bitcoin’s rising price as just another ‘’bubble’’. But what a lot of people failed to grasp is why the price is going up. While speculation and betting on higher prices certainly played their part in the process, a major reason behind the gains is very simple, increased adoption of the cryptocurrency.
According to BitPay, a Bitcoin Payment Service Provider, as of November 2013 there are over 14,000 merchants currently accepting bitcoins. Two years ago this number stood at few hundred. The number of transactions facilitated by Bitpay increased tenfold in 2014 and crossed the 50,000 mark in November. The payment processor said that 6,296 bitcoin transactions occurred on Black Friday last year, up from only 99 transactions the year prior.
Some of the notable adopters as of late include Richard Branson’s Virgin Galactic. You can now buy a private flight into space with your bitcoins. Zynga, the facebook games platform, offered the bitcoin payment option to players in “FarmVille 2”, “CastleVille” and other games. Major adult websites are also starting to accept the new currency as a means for payment.
All of these developments point to one thing. The Bitcoin marketplace is expanding at an astounding rate of growth. The businesses and individuals that embrace this new phenomenon will have a leg up over their competition going forward.

Usage in outlawed activities

The third biggest fundamental driver of bitcoin prices is the increased (or decreased) usage in activities outlawed by governments. Bitcoin’s pseudo anonymity has facilitated dealings in anything from the purchase of contraband like illegal drugs or weapons to bypassing capital and investment restrictions and tax avoidance. Government crackdown on these activities tends to suppress the price of bitcoin.

A notable example of this was FBI’s shutdown of the ‘’Silk Road’’ marketplace. The website had over 10,000 products for sale, 70% of which were drugs that are illegal in most countries. Around 340 different varieties of drugs were offered on the site. The site functioned as an ‘’Ebay for drugs’’, connecting buyers with sellers and not doing any dealing themselves.

The FBI shut down Silk Road on 2 October 2013. The alleged chief operator of the site, Ross William Ulbricht (also known as Dread Pirate Roberts) was charged with alleged murder for hire and narcotics trafficking violation. The agency confiscated over 26,000 bitcoins from different accounts on Silk Road, worth approximately 3.6 million US Dollars back then. Twenty days later, the FBI reported that they had seized 144,000 BTC thought to belong to Ulbricht.




The chart above shows the bitcoin market’s reaction to the website’s shutdown and the subsequent btc confiscation. Bitcoin prices plummeted from 123.95 to a low of 75.20 on the news. The market didn’t take long to recover however as most took the plunge as an opportunity to buy some cheap bitcoins. Prices were back to 118 two days later.

The second yellow rectangle on the charts marks the FBI’s announcement of the large btc confiscation. The prospect of an US law enforcement agency holding a large chunk of bitcoins spooked markets. The BTC/USD took a dive from 195.20 to a low of 152.49 on the news. But as can be seen on the chart, the spike lower was again used by investors to gabble up coins at a bargain.

It is interesting to note that a major bitcoin rally started right after the Silk Road shutdown, somewhat dispelling critics arguments that the virtual currency was mainly used as a tool for facilitating drug trafficking. In the months following the site’s closure, several major online and offline businesses started accepting bitcoins. These include major US retailers like Overstock.com and Tiger Direct. The CEO of Overstock.com reported that the company logged more than 800 purchases using Bitcoin on the first day they started offering the new payment solution, totalling $130,000. The company estimates that Bitcoin buyers have made $500,000 in purchases in the first 14 days since the new payment option was offered.

But what about the supply side?

Traders with experience in other commodity markets are probably asking themselves why the supply topic is placed last in an article that goes over the drivers of bitcoin prices. The reason is because when it comes to bitcoin, the supply doesn’t have much of an impact on the price. This is because the supply is constant and known beforehand and SHOULD therefore be already priced in. Situations like finding a huge oil field that significantly depresses oil prices is not possible with bitcoin. Let me explain.

The supply of bitcoins grows by the process called “mining” bitcoins. The supply is expected to increase by 10% in 2014 after going up 11.11% last year. The rate of block creation is 6 per hour with each block worth 25 bitcoins (around 25k USD). If more mining power goes online and the block generation increases to 7 blocks per hour for example, the so called “mining difficulty” will go up until the 6 blocks per hour average is reaffirmed. On the other hand if miners generate less coins then the difficulty will go down making it easier to generate new coins. You can read more about the supply of bitcoins here.

Wall Street Bitcoin Forecasts

With the mark of drug trafficking of the record, the new cryptocurrency was also starting to attract the attention of Wall Street. Wedbush Securities, a little known analyst firm put a forecast of around $98,500 on the price of one bitcoin. The analysts expect bitcoin to rise by 10 to 100 times its current value as the new technology partly replaces traditional payment processors and money transmitters. Bank of America Merrill Lynch wasn’t as optimistic in its forecasts. The Bank’s analysts predict a maximum ‘’fair’’ estimate of bitcoin of $1,300.

The Winklevoss twins told CNBC that a $400 Billion market cap for BTC would be a “small bull case scenario’’. With around 12 Million bitcoins currently in circulation, to reach that market cap one bitcoin has to be worth a fantastic $40,000. The brothers are major investors in bitcoin after getting rich from an early investment in Facebook.

The largest potential for ‘’disruption’’ to the current status quo lies in taking a chunk out of the payment processors market. Visa and MasterCard are estimated to take a 2 to 3 percent cut of every card transaction. By using bitcoin instead, merchants stand to improve their bottom line by at least 2 percent. In addition, because bitcoin transactions are irreversible, there is no possibility for chargebacks and fraud. This reduces the costs of operation by another several percentage points.

Another area ‘’ripe’’ for disruption is the money transfer market. The market is currently dominated by large players like Western Union and MoneyGram, WU for example can earn upwards of 10 percent per transaction on international remittances. By comparison, a bitcoin transaction shouldn’t cost more than 5 percent even after accounting for all exchange and bank wire fees for both the buyer and the seller on each side of the remittance. If no fiat currency is involved, sending and receiving bitcoins is almost free and costs 0.0001 btc regardless of the amount. This is around 9 cents at current btc prices.

Additional Bitcoin Resources

There are plenty of resources online where you can learn more about bitcoin and its unique properties. Here are some of the major websites that can help you speed up the learning process.

Weusecoins.com Provides simple instructions for setting up your first bitcoin wallet and purchasing bitcoins.

The Bitcoin Wiki. Plenty of articles on any bitcoin related topic that range from securing your wallet, dealing with scams, mining bitcoins, to a list of online and offline businesses that accept the new currency.

Bitcointalk.org The main bitcoin forum. Use it only after you’ve got the basics down by following the previous two links. Use this resource to ask questions about more advanced topics.

Bitcoincharts is the most popular website for following the current bitcoin price. The site provides a rundown of all major btc exchanges by volume. You can also arrange the markets to only display the Euro or the Japanese Yen versus bitcoin on the different exchanges. Like the name says, the website also offers charts with several popular technical indicators. The choice of timeframes ranges from 1 minute all the way to the Weekly TF. Plus, you get to see the current market depth at the different exchanges.

Bitcoinity.org Another popular charting resource, very similar to Bitcoincharts. Recently switched to mBTC pricing, 1 mBTC = 0.001 BTC. They still offer the option to display prices in BTC instead.

CoinDesk.com Coindesk provides daily news on bitcoin and other cryptocurrencies.

DC Magnates focuses on news about different digital currencies including bitcoin. It was launched by the same team from Forex Magnates, a popular forex industry news website that many of our forex readers are probably familiar with.

Places to spend your bitcoins

The following three sites provide an interactive map of bitcoin merchants near your area.

• http://bitcoin.travel/
• BitcoinMaps · World Map of Bitcoin Economy
• CoinMap

https://en.bitcoin.it/wiki/Trade Provides a long list of bitcoin merchants. The wiki page showcases different categories of businesses. You can find anything from major retailers like Overstock and Target to forex brokers accepting bitcoin deposits and bitcoin specific stock and options markets.

https://en.bitcoin.it/wiki/Category:Games Bitcoin’s pseudo anonymity helped trigger a revival in the games of chance industry. This wiki page provides a selection of places where you can gamble away your bitcoins. Includes card games, dice rolls, poker sites and online casinos.

Bitcoinstore.com One of the first websites to offer bitcoin purchases.

Gyft.com By using bitcoins to buy gift cards from Gyft.com you can get 3% back. The selection of gift cards incudes major retailers like Amazon, GameStop, Target, Wholefoods and a lot more.

Another Litecoin-Based National Cryptocurrency Hits the Market; Schedules an Airdrop

By Forexminute - Yashu Gola | Cryptocurrency News, Litecoin | Mar 26, 2014 12:48PM GMT






Cryptocurrencies meets patriotism again! After the much hyped Auroracoin raising the siren against Iceland government, for their impotency in handling the nation’s economy, there is now another currency which is born out of the iniquitousness of its country’s lawmakers. Meet Aphroditecoins, a new and conceptually-outdated digital currency of Cyprus.

Though, one can easily figure out that how Aphroditecoins is heavily inspired from Spain’s digital currency Spaincoin, which is further heavily inspired from Iceland’s Auroracoin – the originator of financial patriotism. Likewise Auroracoin creator, who had announced to distribute the 31.8 coins to each Icelander (and is currently distributing too), Aphroditecoin creators have also made a similar announcement to distribute 25.4 coins to each Cyprus citizen from April 21st 2014.

But country-based cryptocurrency has its story behind inception, quite like Bruce Wayne, whose reason to create Batman was to clean Gotham from the wrath of criminals. The superhero cum digital currency Aphroditecoin is also formed to break the shackles of a fiat currency, a “legalized criminalization” if one tries to quote it. The creator of the currency recites their version of Cyprus government’s unethicalness, by referring the latter’s decision of taking 10% savings of every Cypriot to solve the nation’s bankruptcy problem. Excerpt:

“Cypriot economy is slowly bleeding. The people of Cyprus are being sacrificed at the altar of a flawed financial system, controlled by an elite that made astronomical bets supported by the government on behalf of the people and ultimately at the expense of the people.”

Furthermore, the Aphroditecoin creators quotes many examples that justifies the nation’s need of having a democratic and unregulated cryptocurrency. It then raises the question of an individual’s liberty and free will.
“The power must be taken away from the politicians and given back to the people. Cryptocurrencies are a very important milestone in this fight for liberty. They bring the hope of a new era of free currencies, immune to the meddling of politicians and their cronies,” says an excerpt from Aphroditecoin.org.

Aphroditecoin: Nationalism or Gimmick?

It would be tough to predict the Aphroditecoin’s real intentions behind the airdrop, that whether it is to free people from outdated financial bonds, or just to create enough marketing hype to set a benchmark. We will keep you updated with the every latest information our network detects. Meanwhile, let us just welcome the new cryptocurrency to the highly populated digital currency sector.

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Bitcoin Falls $70 as Chinese Banks Ordered to Stop BTC Deposits

Bitcoin prices tumbled by more than $70 today as the PBOC ordered Chinese banks to halt deposits to 15 bitcoin exchanges based in the country. The new rules are adding to previous restrictions imposed by the Central Bank. Previously, Chinese exchanges were getting around the PBOC deposit ban by using the personal account of their CEO. In addition, most Chinese exchanges implemented a roundabout voucher system. The new order aims to put an end to the loopholes.

Bobby Lee, chief executive officer of BTC China, told Bloomberg: ‘’I’m aware of the rumors circulating on the topic. I haven’t heard of anything else to confirm that. We are still waiting to see what happens.’’

While the order hasn’t been made official yet, several reputable Chinese news outlets have already published a snapshot of the new rules and the future doesn’t look bright for the virtual currency in China. China’s central bank has ordered banks and payment companies to close the accounts of the btc exchanges by April 15th, China financial news site Caixin said, citing a notice sent to banks earlier this month.

Bitcoin plunged over $70 in just a few hours on the news. BTC/USD fell from $582.70 to a low of 509.90 on BTC-E. One bitcoin is currently quoted at $523.10 on the exchange, btc prices are slightly higher on BitStamp at $525.

Bitcoin Tumbles on Rumors of PBOC’s Order for Accounts Shutdown

By Forexminute - Deepak Tiwari | Bitcoin | Mar 27, 2014 10:33PM GMT




Bitcoin prices plummeted nearly 10 percent on Thursday as news filtered in that China’s central bank had issued a directive to the local banks to stop dealing with businesses that transact using the virtual currency.

The Bitcoin was trading at $535.10, a drop of 7.77 percent from the Wednesday’s closing amount, according to CoinDesk.* This was triggered by media reports that the People’s Bank of China had mailed banks directing them to shut down the accounts of 15 Bitcoin traders by April 15. The digital currency hit an intraday low of $514.24 today.

“I’m aware of the rumors circulating on the topic,” Bobby Lee, chief executive of BTC China, a leading bitcoin exchange in China, told Bloomberg. “I haven’t heard of anything else to confirm that. We are still waiting to see what happens.”

BTC China was quoting the Bitcoin at 3,053.98 yuan, down 14.1 percent, reported Wall Street Journal. Yuan is the second most traded currency against the Bitcoin in terms of volumes after the dollar.

While the PBOC circular couldn’t be confirmed independently, some reputable Chinese media such as online business news site Caixin verified the story as a fact.

When asked whether customers will no longer be able to send funds to BTC China from their bank accounts directly, Lee cautiously agreed. However, he said one option for customers would be to make direct deposits with cash.

"If the rumor turns out to be true, that's what's going to happen. At this time it's too early for me to elaborate on what steps we will take," said Mr. Lee. "We will take it one day at time."
Under PBOC rules, the directive may never be disclosed publicly, though banks will enforce it.

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Auroracoin: After Airdrop, Its Value Drops

By Forexminute - Yashu Gola | Cryptocurrency News, Litecoin | Mar 28, 2014 12:47PM GMT





The number of Icelanders claiming Auroracoin is somehow inversely proportional to the coin’s value. It has been now three days since the inception of Iceland’s first national cryptocurrency’s Airdrop, but not a single instance has shown its value’s escalation, considering its day-wise performance.

If the reports of last 24 hours are taken into consideration, Auroracoin value has dropped around 40% - currently surviving at a mere $5.03. A day before the Airdrop, the coin was valued around $13, which means it has fallen up to 65% since the event, and is showing no signs to recover.

As per now, over 6% of the total population has claimed their slack of 31.8 Auroracoins. Speculations are that citizens, owing to their lack of knowledge about cryptocurrencies, are shorting Auroracoins the moment they are receiving it. This has also affected the currency’s overall market cap, which was hanging yesterday at around $77m, but has fallen miserably within 24 hours to over $54m.

Meanwhile, Auroracoin creator Baldur Friggjar Óðinsson has shown no worries regarding the future of the currencies, saying that “fluctuation has nothing to do with the viability of Auroracoin.”
Experts however do not seem to agree with Baldur. Two days ago at CoinSummit San Francisco, popular altcoin exchange Cryptsy CEO Paul Vernon made a remark at the Icelanders’ knowledge of the use of cryptocurrencies. “It’s just market driven,” said Paul keeping Auroracoin in context. “The fact that there is a drop is because people are getting rid of the coins.” Paul’s observation was favored by Litecoin developer Charles Lee, and Dogecoin founder Jackson Palmer.


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