Bitcoin (BTC) violently shed over 19% on the BLX earlier this week after crossing the five digit barrier, US$10,000. The current market cap stands at US$167.6 billion. Bitcoin is up 11,000,000% over the past five years. Six years ago BTC was worth a mere $2 per coin.
BTC trading volume alone surpassed US$11.5 billion in a 24 hour period this week. The trading volume exceeded the market capitalization of nearly any other coin, with the exception of Ethereum (ETH), Ripple (XRP), and Bitcoin Cash (BCH).
Despite the record volume, users began reporting problems with exchanges on Wednesday around New York Open at 9:30 AM EST. Bittrex, Bitfinex, Bitmex, Bitstamp, Coinbase, Gemini, GDAX were affected. Kraken was unaffected per user reports.
The downtime may be related to a combination of denial of service attacks and record user activity. Bitfinex and Bittrex reported DDoS attacks over the past week. CNBC’s Brian Kelly failed in his attempted to trade live on air using Coinbase. Several users also told Brave New Coin that their bids on Bitfinex and GDAX were not filling properly during the most volatile price action on Wednesday.
Decentralized exchanges currently exist but often lack the liquidity of centralized exchanges and have wide spreads with thin order books. Even if decentralized exchanges are not the utopia they are thought to be, a fully liquid decentralized exchange has yet to emerge to test that theory.
The Chicago Mercantile Exchange Bitcoin futures product, slated for launch before the end of the year, uses an index comprised of Bitstamp, GDAX, Kraken, and ItBit, so the product will be affected by an industry-wide exchange outage and downtime.
The future will have a two-minute pause in trading after price-fluctuations 7% and 13% during regular trading hours. Trading will not be permitted 20% above or below the prior day’s settlement price. These breakers would have been triggered multiple times if the product had been live this week.
Nasdaq reportedly announced its own futures product, slated for launch in 2018, although details are few and far between. One institutional investor who would like to remain anonymous told Brave New Coin, “they're building a whole new exchange for the thing - they will be late to the game, but that might be ok.”
As institutional providers race to bring derivatives products to market, exposure, understanding, and acceptance for Bitcoin and other cryptocurrencies will continue to grow. The global head of commodities research at Goldman Sachs firmly believes Bitcoin is a commodity. while the company's CEO Lloyd Blankfein still remains undecided.
Main street investors will also continue to gain exposure to crypto investing as Circle announced on Wednesday it will be introducing an investment app in 2018. The app will hold private keys and act as a custodian for the user. The app will include buy and sell support for a variety of coins, not just Bitcoin. Further details have not yet been released.
The SquareCash app is also in the early stages of cryptocurrency investing, which first rolled out to select iOS users a few weeks ago, and will have Bitcoin buy and sell support. Other payment processors like PayPal and Venmo are likely to follow suit should this prove successful for Square.
Coinbase, the increasingly popular Bitcoin on-ramp for main street and retail investors, recently received an order relating to the IRS request for its records of all users from 2013-2015. Only 807 individuals reported a bitcoin-related transaction in 2013, 893 in 2014, and 802 in 2015. The IRS did not release formal guidelines regarding Bitcoin until 2014.
Coinbase had challenged the request over a year ago due to the burdensome amount of data requested. Although losing a bid to block the entire request, Coinbase called this a “partial victory” and estimates 14,355 user accounts meet the government’s mandatory reporting requirements. According to Coinbase, this represents less than 1% of their customer base. The recent order has excluded the request for account opening documents, drivers licenses, and public keys of these accounts.
Brave New Coin spoke to Stephen Palley, a lawyer at Anderson Kill LLP in Washington, D.C., and Andrew Hinkes, Partner at Berger Singerman LLP in Miami, Florida regarding the ruling, both of whom agreed that the order potentially represented a negotiated resolution. “I’d be surprised if they didn’t appeal to the 9th Circuit,” said Palley, “but I’m not sure Coinbase has a great shot. By limiting the time and amount, it's arguably more reasonable and harder to challenge.”
Palley adds that the situation will likely be used as precedent against other exchanges, and that if this was indeed a negotiated resolution there is unlikely to be an appeal. His opinion seems to have been confirmed in a tweet from Coinbase CEO Brian Armstrong.
The ruling raises additional concerns regarding fungibility and blacklisting addresses or coins. Coins able to perform confidential transactions (CTs) like Monero, Zcash, and DASH may become increasingly important. Bitcoin will then need to follow suit and adopt some of these privacy features. Due to legal concerns and an inability to perform chain analysis on such coins, Coinbase is not likely to list existing privacy coins and may be at odds with Bitcoin’s ability to perform CTs in the future.