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Are we waiting for Wave 5?

The bitcoin bottom is far from conclusive. Are we in for another leg down?

 

The Elliott Wave principle is widely used for trading on traditional markets and crypto, though it has its fair share of critics. Here, we give a brief overview of EW trading, and what it might mean for bitcoin.

 

Markets have a pattern to them. While it’s practically impossible to predict what’s going to happen on a short-term timescale, the longer the timeframe, the easier it is to see what’s going on. The macro trend is pretty obvious: we’ve been in a bear market since the start of 2018.

 

Within that macro trend, there tend to be different stages, which reflect overall market psychology. Ralph Nelson Elliott was an accountant who developed his theory about market movements in the 1930s. His ideas are still widely used today.

 

Each overall market ‘impulse’ is divided into five waves: three movements in the dominant direction, and two corrections in between these. Each wave has its own characteristics, and there are mini-waves within waves. While you can find out plenty more about Elliott Wave analysis online, here is one interpretation of what has happened with bitcoin since the start of last year:

  • Wave 1: From the top at $20k to the February ‘capitulation’ at $6k. Much of the news was still bullish at this point, and many analysts said the bear market was over.
  • Wave 2: The bounce from $6k to almost $12k – a significant correction from the fall from ATH.
  • Wave 3: Typically the most prolonged and significant wave. This one took bitcoin from $12k right down to $3,100, eight months later.
  • Wave 4: The reaction rally we’ve just seen, from $3,100 back to $4,200.
  • Wave 5? The final move down, from $4,200 to a bottom that would be at least as low as $3,100, and likely lower.

 

Either way, a corrective wave after the fifth wave and the end of the overall impulse is likely to see bitcoin trading back at the bottom of wave 3. This would align with many analysts’ predictions of stability in the $3k range.

 

The markets have a way of making fools of as many people as possible. Many traders ignore or dismiss Elliott Wave principles. There are no guarantees in trading, but don’t discount it out of hand.

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Fed to model bitcoin crash?

Routine stress tests for the economy could soon include a crypto component.

 

The US government may include the impact of a crypto crash in its economic stress testing models. While these kinds of stress tests are the norm, they typical include only ‘conventional’ risks, such as the collapse of the stock markets or housing markets.

 

The Federal Register states:

 

Several commenters strongly supported the inclusion of salient market risks in the scenarios in general to make the supervisory stress test sufficiently dynamic… The commenter recommended that the Board consider extraordinary shocks, such as a war with North Korea, the collapse of the Bitcoin market, or major losses caused by trader misconduct, in its scenarios.

 

Currently little more than a note in the Fed’s daily publication, the comment hints at a future where bitcoin ownership is more widespread, and the potential harm that could be done if the asset class crashes – presumably much like the impact of the sub-prime crisis, where investors were left with bad debts on their books after the value of the properties backing them plummeted.

 

The Federal Reserve has previously been highly skeptical of crypto. Former Chairman Ben Bernanke has stated his belief that governments will take steps to prevent bitcoin becoming a widespread alternative currency, and that its adoption so far has been a ‘mostly speculative venture’.

 

However, the suggestion that bitcoin might be included indicates something of the direction of travel expected for this new asset class by the Fed – even if it’s not one they want to see.

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Cash vs Core: the empty bus

Roger Ver, everyone’s favourite ex-Bitcoiner, recently stated that ‘Anything Bitcoin can do, Bitcoin Cash can do better.’ Talk is cheap, and Roger Ver is a bit greasy, so we decided to take a look at the cold, hard stats and find out who the Roger Verified winner really is.

 

First, let’s take a quick look at BCash. At the time of writing:

  • BCash posts 16,911 transactions in the last 24 hours, or 705 per hour.
  • A total of 1,284,280 BCH were sent in the last 24 hours, or $168.6 million.
  • There have been 142 blocks in the last 24 hours.
  • Block rewards are 12.5 BCH or $1,641 per block.

 

All of which means that:

  • The average BCash tx is just shy of $10k
  • BCash handles around $1.19 million per block
  • It costs $1 in miners’ rewards to move every $723 in value on the BCash chain

 

What about Bitcoin Core?

  • 325,278 tx/day, or 13,553 per hour – 19 times more than BCash
  • 1,334,443 BTC have been sent in the last 24 hours, or about $5.1 billion – 30x more than BCash
  • There have been 134 blocks in the last 24 hours
  • Block rewards are 12.5 BTC or $48,618 per block

 

Which means that:

  • The average Bitcoin Core tx is $15,679
  • Bitcoin Core handles around $38 million per block (32x more than BCash)
  • It costs $1 in miners’ rewards to move every $781 in value on the Bitcoin Core blockchain

 

Conclusions:

Cash and Core are about as cost-effective in terms of miners’ fees per dollar moved. Average transaction size on the two chains is not so very different, either – only about 50% more for BTC, which is impressive given that the network moves over 30 times as much value in a day that BCash. But Bitcoin Core is just so much more popular, with almost 20 times as much activity on the blockchain and 30 times more value moved. Blocks on the Cash network are practically empty by comparison.

 

TL;DR Roger Ver is right. Bitcoin Cash can in theory do what Bitcoin Core does. It just doesn’t. Bitcoin Cash is like driving yourself to work on a bus that has the capacity for 40 passengers, but with just one other person.

 

Which is a neat metaphor for what Roger and Jihan are doing with BCash.

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Whales back the truck up on corn

Blockchain analysis shows the top 100 wallets have swelled by 150,000 BTC in the past two months.

 

While everyday traders have been panic selling, the big players have been snaffling coins left, right and centre.

 

Discounting exchange addresses – the five largest of which each hold over 100,000 BTC – the next fattest 100 Bitcoin addresses each have somewhere between 10,000 and 100,000 BTC.

 

And, since December 2018, they’ve been getting fatter. Another two have joined the 10k club, and in total these wallets have stockpiled 150,000 BTC – an average of 1,500 each, more than most of us will see in an entire lifetime.

 

Is this significant? Kind of. Firstly, it just underlines the principle that the rich get richer, in bitcoin or any other currency. The wealthy are able to ride out the ups and downs of the market, accumulating more coins as poorer individuals have to sell theirs to pay bills. At a time of opportunity, with lower prices, it’s the rich who get to take advantage of it the most. When the market turns around, they’ll be selling high once again, distributing coins on the way up in preparation for picking them up again on the next downturn.

 

Secondly, the pace of accumulation tells us something about the state of the market. The faster this process happens, the closer to the bottom we are. And, when it stops and those larger wallets are static – or even begin to fall in value – then it’s a good indication that Big Money thinks the bottom is in.

 

This does not constitute financial advice

What can we do about this? Well, to whatever extent possible, emulate Big Money. The market could fall a lot further – we’re still half-expecting that sub–$3k move – but in the grand scheme of things it’s low enough to be worth picking up more BTC. It’s what the whales are doing, and they’re wealthy for a reason. We know the turnaround is coming. We don’t know when. But we do know that when it does come, there will be plenty of people who missed out on these prices.

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Musk, Draper: Paper money’s days are numbered

Elon Musk recently added his sentiment to Tim Draper’s, making him the second billionaire this month to forecast the end of physical cash.

 

Despite its crash yesterday, bitcoin has staged an impressive rally over the last month. There are several reasons for this, not least because sellers were – temporarily – exhausted and a relief rally was overdue. But we have also seen major names in the tech space putting on record their views that bitcoin is a superior form of money.

 

The first, of course, was billionaire Tim Draper, who famously bought tens of thousands of bitcoins in the Silk Road auction, and has predicted prices of $250,000. The second is Elon Musk, the Tesla and SpaceX entrepreneur, who stated in a recent podcast that bitcoin is a ‘far better way to transfer value than pieces of paper’. Musk said how brilliant he considered bitcoin’s structure, though he also mentioned that he only holds a tiny amount of bitcoin and Tesla wouldn’t be getting into the space any time soon. Musk’s comments are interesting not only because he is a huge influencer in the tech world, but because some in the crypto space have suggested he may even have been Bitcoin’s creator.

 

As the bear market grinds on into its 14th month, there are signs that the end might be on the way, if it hasn’t already come. Aside from the technicals, we are repeatedly seeing some of the biggest names in tech putting their weight behind bitcoin. Aside from Musk, Jack Dorsey recently came out as a Bitcoin Maximalist and fan of the Lightning Network.

 

It feels as if the big, young names in tech – the new guard, who are pioneering social media and the technologies of the future – are aligning behind crypto, even as the Old Guard predicts its death.

 

Pretty soon, we’ll see who was right.

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43% of millennial crypto traders trust bitcoin exchanges over stock exchanges

Research by trading platform eToro shows a clear generational divide.

 

In a survey of 1,000 US crypto traders, eToro found that 43% of millennials trusted crypto exchanges more than US stock exchanges, while 77% of GenXers – over three quarters – thought the conventional markets were safer.

 

Guy Hirsch, managing director for eToro US, commented, ‘We’re seeing the beginning of a generational shift in trust from traditional stock exchanges to crypto exchanges. Younger investors’ experience with the stock market has seen a great deal of loss of trust, with the fall of Lehman Brothers because of irresponsible practices followed by the worst recession since the Great Depression. Immutability is native to blockchain, and that makes real-time audit sensible and cost-effective. And that is why Millennials and Gen X perceive crypto exchanges as less likely to be subject to manipulation and less likely to be a place where bad actors get rewarded with taxpayer money.’

 

It’s not a clear-cut distinction, since a large proportion of millennial crypto traders (93%) say they would invest more if crypto was offered by established mainstream financial organisations. But it’s clear there is a change in perceptions. And, since millennials – roughly those born in the 1980s and first half of the 1990s – have now all come of age and comprise around half of the US workforce, the older generation isn’t going to have much choice in the direction things move. In 10 years, millennials will account for 75% of the workforce, and the old guard will be moving on, making way for newer minds who are prepared to do things differently.

 

Beat ‘em or join ‘em, GenX. Either way, your time is limited.

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Draper: in five years, only criminals will use fiat

TL;DR wait, you stole my line.

 

Tim Draper, the legendary billionaire tech investor who bought millions of dollars of BTC from the FBI at $700, during the downward slide after the last bubble burst in November 2013, has re-stated his confidence in digital cash. ‘I think we’re probably two years away before everyone’s buying coffee,’ he told Fox Business.

 

Draper purchased a batch of 30,000 BTC that the US government had recovered from the Silk Road raid in 2013 that saw Ross Ulbricht – believed to be the organisation’s head, ‘Dread Pirate Roberts’ – imprisoned for life without parole. Just those coins alone are now worth over $117 million.

 

Draper sees the Lightning Network as the factor that will power small transactions, and believes that in less than five years, retailers will ‘laugh’ at people who try to use physical cash. The only people who still use coins and notes, he says, will be criminals – bitcoin is just too easy to track. This turns on its head the popular narrative that the only use case for crypto is criminal activity.

 

The timeline of just two years before people are using bitcoin to buy everyday items like coffee is aggressive, and seems out of reach at a time when BTC is trading below $4,000 after 14 months of bear market. However, there are signs that sentiment is turning, and we know from experience that when things start to move with bitcoin, they really move. In this instance, we are looking forward to all the innovation of the last year-plus being deployed to consumers.

 

Draper has a lot of reasons to want this outcome. The billionaire is a sworn HODLer, who has predicted prices of $250,000 in the coming years.

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An ETH holder just had a very bad day

TL;DR when you’re making a large transaction, do NOT mix up the amount and the transaction fee.

 

An ETH whale just had a very, very bad day. Take a look at this transaction and see if you can figure out what’s wrong with it: https://etherscan.io/tx/0x1f73b43dc9c48cc131a931fac7095de9e5eba0c5184ec0c5c5f1f32efa2a6bab

 

That’s right. The whale transferred 0.1 ETH, and paid a transaction fee of 2,100 ETH.

 

Cryptocurrency can be an extremely efficient way of moving value around the world. For example, last year a Bitcoin user moved $194 million of value – 29,999 BTC – with a transaction fee of just $0.10. That episode showcased the true potential of crypto to many people. Even the most efficient services in the traditional financial industry would have cost $7,500 to move $1 million.

 

But this fat-fingered or distracted Ether user neatly demonstrated what happens when it goes wrong. He paid approximately $309,000 to move $15.

 

Oops.

 

And it wasn’t the only one, either. This was actually one of several transactions with insanely high fees That makes it look more like deliberate malice, or a malfunctioning dApp – or a piece of software designed to move funds around, but that mixes up two variables. The fact that different pools mined the txs suggests it wasn’t an elaborate form of money laundering, as one reddit user claims.

 

Whatever, someone just lost a lot of money. Potentially a single large holder went from whale to minnow in the time it takes to confirm a few transactions. Alternatively, some crypto project has just burned a good proportion of its ICO reserves. No doubt we’ll find out more soon enough.

 

What we do know is that a bad day for him was a very, very good day for the miner who got those tx fees

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The Mayer Multiple: measuring the market’s mood

Veteran bitcoiner Trace Mayer offers new metric for gauging how under– or over-valued bitcoin is.

 

When the market’s going up, it’s bullish. When it goes up too fast, it’s a bubble. When it goes down, it’s bearish. When it goes down too hard, it’s capitulation.

 

This is ultimately what the Mayer Multiple says. Its value lies in helping show when the market is in a bubble or in panic-sell mode.

 

Trace Mayer has made a name for himself as an early bitcoin adopter, critic of the legacy financial system and commentator in the space. His ‘Mayer Multiple’ is a simple metric he uses to show whether bitcoin is unsustainably overvalued (a bubble that will burst) or undervalued (a buying opportunity).

 

The MM is the ratio of bitcoin’s price to its 200-day moving average. The 200 MA is a relatively slowly-reacting indicator, since it takes in around 7 months of data, so it smoothes out the worst of bitcoin’s bumps. Mayer implies that the price will gravitate back to the 200 MA, so an MM of 1 represents a reasonable price. He tweets:

 

‘Feb 18, 2019: The current Mayer Multiple is 0.71 with a $BTC price of $USD 3,713.79 and a 200 day moving average of $5,237.22 USD. The @TIPMayerMultple has historically been higher 87.98% of the time with an average of 1.49.’

 

The lowest the MM has fallen in this cycle is 0.51, in December 2018. Because the 200 MA slowly tracks with the price, rapid falls (or rises) make more of a difference since the MA doesn’t have time to catch up. In the last bear market, bitcoin dropped as low as 0.41, and its lowest ever MM was in the 2011 bear market, at 0.24.

 

Similarly, a high MM implies a bubble. Mayer suggests that it has in the past been best to buy BTC when the MM is below 2.4, since that value seems to mark the start of an unsustainable run-up, which always results in a crash.

 

With prices so far under the 200 MA, the Mayer Multiple is currently flashing ‘Buy’. But, of course, it’s a descriptive indicator, not a predictive one – it can’t tell you what’s going to happen in the short term, only the broad conditions of the market. Add it to your arsenal, but don’t rely on it.

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Bitcoin sent by shortwave radio

Post-apocalyptic scenario? Internet outage? Bit of a geek looking for a new challenge? You’re in luck.

 

So most of us won’t be doing it this way any time soon, but if you’re in a pinch without a web connection, you can still make bitcoin transactions with an old shortwave radio.

 

Twitter user @NVK announced:

 

BAM! #Bitcoin sent over 7.077Mhz via #JS8Call to @SamuelPatt

Sweep: https://www.blockchain.com/btc/tx/82c043a82770e9129633d2c7259818b404d467fb8cab963773c574857a96202e

Toronto,CAN => Michigan,USA  [40W:#SnowStorm]

Bcuz its a brainwallet made ahead of time, with bearer pk I don’t require internet to broadcast this transaction at the time i’m sending

 

He goes on to warn that brainwallets aren’t very safe unless you’ve set them up properly – anything you’re able to remember easily can probably be brute-forced by a determined computer. But it does the job in an emergency.

 

You’ll need your radio transmitter, plus a protocol that connects it to a computer so you can send the tx data over the airwaves (@NVK used JS8Call).

 

It looks like, in this instance, the sender actually just transmitted the brainwallet/mnemonic, enabling the recipient to access the Bitcoin address directly, rather than making a transaction. Not recommended, but it’s a great proof of concept. And, as the Lightning Network Torch game – played entirely over Twitter – demonstrates, there are more and more ways to send and receive crypto now than ever before.

As Gabor Gurbacs, digital asset strategist/director at VanEck/MVIS and perennial source of information and opinion on the bitcoin ETF, replied to Nick Szabo’s retweet of the test: ‘It doesn’t get any sexier than this. Period.’

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