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Happy birthday Bitcoin!

The Bitcoin protocol was launched ten years ago today, making the first and #1 digital currency a decade old!


Ten years ago today, Satoshi Nakamoto mined the Genesis Block of the Bitcoin blockchain – setting in motion a decade of digital money.


Bitcoin’s origins as a form of peer-to-peer money that stands outside of the conventional financial system are embedded in the Genesis block, which incorporates the message:


The Times 03/Jan/2009 Chancellor on brink of second bailout for banks


Remember that, 10 years ago, the global banking system was facing meltdown as a result of the Global Financial Crisis that was sparked by banks mis-selling mortgages, introducing risk that spread like a cancer through the system. Today, as conventional finance slowly integrates with crypto, it is once again facing a crash. Crypto, meanwhile, is only gaining momentum.


Since its beginnings as an experiment in computer science and economics, through its years as the money of libertarians and an alternative for gold bugs, the currency of the darkweb and a plaything for speculators, Bitcoin has continued to go from strength to strength. Despite its wild price swings, the core protocol is secure: Bitcoin has never been hacked. The fundamentals of hashrate and the cryptography that underpin it are rock solid. And so are the adoption statistics.


Interest continues to grow. Active addresses are on the rise. Hashrate is ticking up. SegWit and Lightning Network are seeing increased use. The network supported $410 billion of transactions in 2018. The number of bitcoin ATMs has doubled in the past year. Failing states and those experiencing a currency crisis are turning to bitcoin to store and move value.


In short, behind the price slump, Bitcoin the protocol and bitcoin the asset are strong. Price does not equal value and the two rarely coincide. As we go into 2019 and bitcoin’s second decade, we need to keep that in mind. At Inferno, we plan to be on the right side of history with this one.

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Gold, bitcoin, silver: our stores of value are changing

Venture capitalist Lou Kerner recently said that bitcoin will replace gold as a store of value – noting that it had already surpassed silver.


Bitcoin is often described as ‘digital gold’: a store of value and so-called safe haven asset. Over the course of 2018 we saw that narrative eroded as BTC’s price fell from $20k to just north of $3k.


Despite that, Venture capitalist Lou Kerner, founding partner of New York firm CryptoOracle, has reiterated his confidence that bitcoin will one day overtake gold as a store of value. Kerner notes that silver has a market cap of $50 billion. Bitcoin, at $60 billion, is already in second place. Despite its 80% drop in value, BTC is still worth more than all the silver in existence.


And, for this point in its lifetime, that’s probably a good comparison. Silver is known to be far more volatile than gold, with dramatic swings in value. (Gold itself, despite its reputation as a safe haven, isn’t exactly stable in price.) Bitcoin acts more like silver than gold – for now.


With an $8 trillion market cap, gold is still a long way ahead of bitcoin and will likely stay there for a while. It would take a 100x move to the upside before BTC threatens gold as the world’s #1 store of value. But that’s far from unlikely given the way that bitcoin has bubbled and bust so many times before, with each cycle ending higher than the last. Kerner is looking 20 years ahead, comparing bitcoin with the internet and other emerging tech. ‘There’s something called Amara’s Law, which is that the impact of all great technological changes is overestimated in the short run, but underestimated in the long run,’ he says.


Kerner also notes how gold has been used as the dominant store of value for 5,000 years but almost every other currency has gone to zero. Inflation erodes their value by design. The dollar has lost 96% of its value since the Federal Reserve took over the US banking system in 1913. Thus a significant proportion of bitcoin’s rise in value over the coming years will actually be driven by the falling real-terms value of the dollar.


Chances are that after the next market cycle, no one will doubt bitcoin’s place in history as a store of value. We just hope you’ll hold some for the long term. Your children and grandchildren will thank you.

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This year in crypto: 2018

It’s the last day of 2018. And what a year it’s been for crypto. As we look ahead to 2019, here are some of the highlights and lowlights of the last 12 months.


  • After coming off its all-time high of $19,666 in December 2017, bitcoin opened 2018 at $13,880. That week saw a high of $17,235 – the peak for bitcoin in 2018. After that, it was all downhill.
  • Bitcoin quickly crashed to $6,000 by February and spent most of this year making lower highs, until that $6k support was finally breached. The low for the year has been $3,122 on 15 December, almost exactly a year since the all-time high.
  • Despite the fall in price, hashrate – a key indicator of network health – continued to increase all year, peaking above 60 million TH/s. It fell by almost half in the following weeks, before starting to climb again. It’s now well over the 40 million TH/s mark. November and December saw particularly sharp declines in Difficulty, with consecutive falls of 7.39%, 15.13% and 9.56%.
  • Thanks to SegWit and transaction batching, network congestion has practically disappeared, Mempool is almost empty and fees are extremely low. In that sense, bitcoin is cheaper to use than ever before.
  • After peaking at around a million active addresses at the end of last year, bitcoin apparently lost around half its userbase by this metric. However, active addresses have been stable and even climbing slightly in recent months, currently around 500,000.
  • Regulators have cracked down on ICOs, demanding customer refunds and pursuing action against issuers in the courts in a number of cases. However, bitcoin itself has been designated a commodity by US regulators, not a security, and therefore falls under the purview of the CFTC – opening the way for easier adoption.
  • The long-awaited ETF has failed to materialise, as the SEC delays repeatedly.
  • Institutional finance will have a new on-ramp with Bakkt early in 2019, which will offer physically-settled bitcoin futures.
  • And finally… Bitcoin Cash continued its important task of consuming itself from within, as Craig Wright and his Bitcoin Cash Satoshi Vision split off from Roger Ver and Jihan Wu’s Bitcoin Cash ABC. While the acrimonious parting was a catalyst for bitcoin to crash from $6k to $3k, neither protocol has seen significant adoption, blocks are almost empty, and both are rapidly becoming footnotes in the history of digital money.


That’s all from us! Have a great new year, and we’ll be back tomorrow with our first market report of 2019!

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Bakkt update

Institutional finance needs on-ramps, and this one is on the way soon – but not quite yet.


2018 has seen intense speculation about a bitcoin ETF, with numerous applications by different providers denied and a decision on the most promising, the SolidX-VanEck proposal, repeatedly postponed. For a long time the SolidX ETF was the best hope for a means for Big Money – pension funds, family offices, hedge funds and other institutional investors – to access bitcoin trading. These organisations have been prevented from buying BTC in the past due to the requirement of storing the crypto, and the risks that come with that.


While the conversation around the ETF has gone cold, Bakkt appeared out of nowhere towards the end of the year and has garnered plenty of interest. It was due to launch a fortnight ago, but that date had to be pushed – for good reasons, was the implication from Bakkt’s Twitter account on 20 November. ‘Given the volume of interest in Bakkt and work required to get all of the pieces in place, we will now be targeting January 24, 2019 for our launch to ensure that our participants are ready to trade on Day 1’.


And in this update from 27 November, Bakkt confirms: ‘We expect the contract to launch on January 24, 2019, subject to regulatory approval. We’ll continue to update you on our progress and milestones.’


The distinctive feature of Bakkt, for those who are still uncertain, is that their futures are ‘physically settled’, meaning that the orders are passed through to the underlying market. Buying a 1 BTC futures contract with Bakkt means 1 BTC of real demand, whereas other futures products are just ‘paper’ contracts that do not intrinsically impact the market in the same way.


However, Bakkt’s expected launch date of 24 January might need to be delayed. The government shutdown in the US may impact it, and according to the latest reports, Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, has not yet received approval from the U.S. Commodity Futures Trading Commission (CFTC). This delay, along with the shutdown, means that Bakkt may well miss its 24 January date.


This isn’t a disaster, though, and the delay may only be a few days. Crypto bulls should also factor in the way the launch of Bakkt is likely to impact the market. The narrative has been, among the perma-bulls at least, that Bakkt will almost immediately bring a flood of institutional money and BTC will duly skyrocket. But this isn’t how markets tend to work. We’re in the midst of either a bear market or the earliest stages of a fragile recovery, depending on how you read it, and the truth will only be known for sure in hindsight. We need time for the market to make a decision, either to bottom properly or consolidate and show strength from here. Then confidence will return and larger investors are more likely to be willing to dip their toe in the water.


Ironically, delaying Bakkt into February might possibly give the market time to play out this stage.

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Margin trading the dollar-dollar pair. Really.

We know it’s silly season, but seriously?! Bitfinex recently added USDT/USD margin trading.


It’s a well-known fact in the crypto world that the ‘pegged’ dollar crypto Tether (USDT) sometimes comes untethered. Sometimes badly. Back in October, for example, when the markets briefly went wild, you could pick up Tethers for less than $0.90, profiting when they gravitated back to their long-term price, which is more like $0.99. (The friction of using a dollar-pegged crypto is such that they’re not actually worth a dollar at the best of times.)


The risk, of course, is that such weird behaviour is the early signs of something more terminal: Tether imploding because it doesn’t have the cash reserves to cover all its issued USDT. You pays your money, you takes your choice.


But in this blog post, Bitfinex have not only openly admitted the utter failure of their pegged dollar crypto against the actual dollar, but they encourage their customers to trade the difference. The exchange – which is also effectively the issuer of Tethers – has launched USDT/USD margin trading. Really.


At Bitfinex we work tirelessly to ensure our platform reflects the needs of professional traders, offering market differentiating order types for unique trading strategies. Today, adding margin trading on USDT/USD pair will not only allow for more efficient price discovery, but in an important move for risk management, unlock the ability to hedge the exposure taken on stablecoins. Along with a dedicated lending market, USDT will be available as collateral for margin positions.


Erm, ‘hedge the exposure taken on stablecoins’?! The whole point is that stablecoins are a hedge. Not like crypto, so volatile that they need hedging themselves. Guys. SERIOUSLY?


If this was 1 April, we would dismiss this as a self-deprecating April Fool’s joke. But it’s not. They’re actually doing this. Which. Is. Nuts.


We at Inferno have never liked Tether much, thanks to the fact they’re about as clean and transparent as a sewer. But with this move, they take their tacit disdain of their customers and raise it to an art form.


What they’re doing here is asking their customers to gamble on the likelihood of the failure of their own product and exchange. The fact that USDT is sometimes worth more or less than a dollar should be an utter embarrassment to Bitfinex. Instead, they’re making it a feature.


We’d facepalm, but the sheer magnitude of the gesture necessary to convey our feelings on this would probably induce brain damage.

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How to spot reversal

Happy Christmas, Infernites! With the Christmas turmoil on the markets, we want to make sure that – whether you’re a bull or a bear – you’re not going to be a turkey fattened for slaughter.


It’s Christmas day, so we won’t give you our regular market update today – hopefully you’re too busy spending time with family and eating turkey to be paying attention to the markets.


Ok, who are we kidding? You’re probably just as crypto-addicted as we are. But our present to you today is a piece of information you’ll need to make the most of the next cycle. It’s always tough picking a good entry point, and with the recent volatility and bounce from $3,100 you may be wondering where to pick up BTC for maximum gain.


This Medium post is a great guide to how markets work after capitulation, and the safest entry point for the next bullrun. Note that it’s the safest point, not the most lucrative. Risk and return are correlated: the traders who bought at the $155 capitulation in 2015 were taking a big risk, since they had no guarantees it wouldn’t fall a lot further, though in the even they were rewarded handsomely. What we want is to minimise risk while preserving maximum upside potential.


After bottoming out (and we don’t yet know that’s happened), the markets will be volatile. We’re looking for this sequence:

  • Higher low
  • Higher high
  • Backtest of support
  • And off we go for the next uptrend


Markets are unpredictable, so this isn’t a cast-iron guarantee, but it does minimise your risk of calling it wrong.


If we fall below $3,100 from here, then the pattern is invalidated: that’s a lower low, and we’ll need to wait for the next bounce before we have a clear idea of what to expect next.


If we fall but bounce from above $3,200 – ideally closer to $3,600 – then it gets interesting. We’d then look for a higher high – above $4,200 from the last bounce – and a retest of old support, possibly at $3,600 (depending on where the lower low takes place).


These figures will change as the situation evolves and we gain a clearer picture of what’s going on. For now, enjoy your Christmas and don’t get slaughtered!

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How Satoshi Grinchamoto stole Christmas

A Christmas poem by Dr Zeuss


Every trader down in Cryptoville loved Christmas, a LOT

But Satoshi, who’d built Cryptoville, did not.

Satoshi hated Christmas, the whole Christmas season.

Now please don’t why, no one quite knows the reason.


It could be he never liked hookers and blow,

Or got hit by a Lambo that slid in the snow.

But traders, he thought (and he silently cursed)

Those traders at Christmas? Well, they were the worst.


They’d wake in the morning and look at the charts,

Placing new trades as their Christmas day starts.

They’d sit down to eat with their phones in their hands,

Ignoring their families for Bollinger bands.


‘I know what I’ll do,’ the cryptographer sneered,

‘I’ll sell all my bitcoins, it’s just what they feared!’

So he fired up his laptop and sitting in bed,

He wiped out the bids and turned green candles red.


Then he placed a big bid of his own right down low,

Knowing there’s only one way it would go.

‘But wait!’ he declared when his order had filled,

‘These turkeys are fat and it’s time they were killed!’


‘They think they’re so smart but I know they’ll be wrong,

‘When they all go short – that’s when I will go long!

‘Their shorts will be squeezed and I’ll gobble them all.

‘The coins will be mine with a huge margin call!


So he made an espresso and waited a while,

For the shorts to stack up as he sat with a smile.

‘We’ll see who’s the turkey this Christmas,’ he leered.

‘But the taste I love best is a rekt trader’s tears!’


Then he let off a candle so green and so tall,

It went off the screen and left stains on the wall.

There followed a moment of silence before…

(as the crypto-Grinch stood with his ear to the door)


…And then came the sound he’d been longing to hear:

The wailing, the screaming, the hurling, the tears.

He opened the window and stuck out his head

Admiring the vista of wounded and dead.


The traders of Cryptoville howled at his feet,

Drenched in the blood that was soaking the street.

The sound was so loud that for many hours after

He lost full control of his bowels from the laughter.


And then the old Grinch closed the window and sighed,

As the last of the traders bled out and then died.

Then he sent all the coins to their nice new cold store

(If you don’t have the keys then they’re not really yours.)


And he shut down his laptop and poured out some wine

(When he’d found some clean pants, as his own weren’t so fine.)

And he sat with his turkey and grinned ear to ear,

And wondered what mischief he’d make for next year.

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Did crypto just de-correlate?

Turmoil in the wider markets has coincided with a crypto rally. What’s going on?


A few weeks back, when bitcoin plunged below its $6,000 support line, that move took place alongside heavy falls in the regular markets. The Dow Jones, S&P, Nasdaq, FTSE100 – all were hit, largely driven by tech stocks being sold off. The narrative at the time was that traders were cautious about the big picture, and were adopting a risk-off approach: more speculative plays, from overvalued stocks to bitcoin, were being ditched for safer assets. In short, having previously carved out a niche as a risk-on asset – digital gold – bitcoin was being treated just the same as any other risky asset.


But now, something interesting has happened. As the Fed hikes interest rates and the broader stock markets experience a major sell-off, crypto has recovered – with bitcoin staging a 30% rally in recent days. Stocks are at a 52-week low, but gold is at a 5-month high. And digital gold is picking up too.


At the beginning of November, we published an article titled Three market scenarios. This laid out different options for how the wider financial markets might correlate with crypto in the next year or so:


1) The Dow tanks, crypto tanks

Should confidence in the US stock markets fail soon (i.e. this year or early 2019), then traders will be taking heavy losses. Bitcoin is more correlated with stocks than it used to be, and traders won’t be feeling wealthy enough to take a punt on BTC – they’ll adopt a risk-on approach and hedge in cash or gold. This could kill or delay a nascent rally in bitcoin, as institutions wait for more favourable conditions.

2) The Dow (temporarily) rallies, crypto rallies

With the Midterms out of the way, markets have greater certainty – and, indeed, the split in Congress is broadly favourable to Wall Street, curtailing the riskiest excesses of the Trump presidency while maintaining a light touch for businesses. If the stock markets continue to rise, then it’s reasonable to expect traders to start funneling some of their gains into bitcoin – which will not only start to appear underpriced, but will have those all-important on-ramps. That could push BTC significantly higher over the course of next year – though, of course, at some point the stock market will top out and then the party would most likely end for crypto too.

3) The stars align

Should the two market cycles occur out of phase, we could be in for something more dramatic. A rally in the Dow might not coincide with a bitcoin bull market; it may still be too early for that. If there was a period of further consolidation, it’s possible that bitcoin might start its next rise when the Dow is already much higher. If, however, bitcoin was gaining momentum as the Dow topped out, we might see a huge round of profit-taking and the money being pushed into crypto in the biggest FOMO bull market yet.


It’s clear that option 2) is off the table. Interest rate rises, concerns about tech stocks and international factors like Brexit have killed the possibility of a rally. The Dow is has fallen significantly in recent weeks and is down on the year – erasing over 12 months of gains.


Right now it’s too early to say whether 1) or 3) is more likely – we don’t know whether this crypto rally is the real deal or just a brief pullback before we head lower. But what’s really interesting is that the bounce in bitcoin has coincided with a fall in the wider markets. It could be just that: coincidence. Or it could be a sign that crypto has ended its brief correlation with the stock markets, and is now coming back onto traders’ radar as an alternative or safe-haven play, like gold. If so, then it’s a variation on 3). Traders are taking profits out of stocks and funneling them into bitcoin.

Time will tell, but this could be a very interesting development for next year.

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Mark Dow just closed his bitcoin short, and the market bounced

Aka ‘Correlation does not equal causation’, people.


Back when bitcoin was flirting with the $20,000 mark, a certain former IMF economist decided there was money to be made from people who bought crypto without understanding what it was really all about.


Mark Dow, now a family office manager in California, opened his short right at the top and has now just closed it – almost exactly a year later. It sounds like he expects further losses, but told Bloomberg: ‘I’m done. I don’t want to try to ride this thing to zero. I don’t want to try to squeeze more out of the lemon. I don’t want to think about it. It seemed like the right time.’


Dow’s move coincided with a significant rally, with bitcoin blasting up from a low of just above $3,100 to $4,000 at the time of writing – a 30% pop. Crypto Twitter is ablaze with hopeful sentiment. A former IMF economist closes his short and the price goes up? There must be a link! It’s the next bullrun!!! MOOOOOOOOON!!!!!


Just hold on…

A word of caution, people. Bitcoin recently fell almost 50% in a month. A 30% bounce is nice, sure, but it’s not enough to call the next bullrun just yet. A ‘Santa Rally’ – a term from the stock markets indicating the rise that often happens around Christmas – is not the same as long-term trend change. And it often doesn’t end well. Other analysts are warning against getting ahead of ourselves.


Take Mati Greenspan, Senior Market Analyst at eToro. He puts this move down to short covering. ‘People are looking to reduce their exposure and closing out high risk sell positions before the holidays and this is creating upward pressure on market prices, which is ultimately resulting in a rally.’ Coincidentally, that’s exactly what Dow just did.


In other words, there are two narratives at work here.


  1. Dow closed his short because he thought the market was done going down. His move indicates the start of the next bullrun.
  2. Dow is doing what a lot of other traders do this time of year and closing his short ahead of Christmas. He’s still overall bearish but after an 80% fall, he doesn’t have any complaints about his profits – and now’s a good time because he doesn’t want to get hit by the regular Santa Rally.


TL;DR You’d better watch out, you’d better not cry, you’d better not pout, we’re telling you why.

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Inferno picks: ETC update

A couple of weeks ago we wrote about what was going on with ETC, warning that the situation is rarely as straightforward as it first seems. Now we have some updates…


Two weeks ago we posted an Inferno article about Ethereum Classic. ETC has always been an interesting project, as the ‘original’ Ethereum whose community chose to maintain the integrity of their ledger in the wake of The DAO exploit. They chose to uphold the principles of blockchain over short-term financial gain.


The immediate cause for concern in this episode was ETCDEV, a major developer for the platform, running out of funds and closing operations. But – as ever – there was more to it than it first seemed. In our last article we wrote:


1) The counter narrative. The community does have dev funds; those who hold them have suggested they were willing to help, but that a formal request was never received. There is an implication of a fallout, and ETCDEV unnecessarily shutting up shop.


And indeed, it transpires that the move was part of a power play to seize control of ETC development. The situation evolved, in true crypto style, into a battle of information conducted over public forums. (In fairness, the nature of crypto means this is often the best way to address matters and inform the community; the other side of the coin of engaging the grassroots is a lowest-common-denominator approach to conflict resolution.) But under the ‘he-said, she-said’ nature of it all, there’s a clear take-home message.


In short, the group representing the broader ETC community states that Digital Finance Group – a blockchain business group and hedge fund, managed to gain control of the code repo.


DFG replied with this post, claiming that their intentions were not malicious, but that the lack of coherent development and infighting in ETC had prompted decisive action.


A representative from ETC quickly fisked the reply, stating that – amongst other things – DFG had never been a part of or consulted the ETC community, and had not communicated adequately (if at all) with other developers.


At this point, the situation starts to appear somewhat clearer. A finance group saw an opportunity to grow an investment by taking a closer interest in a project, and made a move. That, at least is the simplest explanation given the posts above. Whether or not it took place with intentional malice is unclear. We should bear in mind Occam and Hanlon’s razors, which are, respectively:

  1. The simplest explanation is usually the best
  2. Never attribute to malice that which is equally well-explained by ignorance or ineptitude


Together, they can be summarised as Inferno’s Razor: Never attribute to competence that which can adequately be explained by incompetence.


In other words, casual greed, thoughtlessness, standard-issue human selfishness and short-sightedness are usually better explanations than careful, premeditated malice. Most people can screw things up pretty well just on the fly; they don’t need to think too carefully to manage that. Obviously, we can’t rule out malicious conspiracy, it’s just that it’s not necessary most of the time.


To finish, let’s take a brief excerpt from ETC’s Declaration of Independence from Ethereum when it first formed.


We will continue the vision of decentralized governance for the Ethereum Classic blockchain and maintain our opposition to any centralized leadership takeover, especially by the Ethereum Foundation as well as the developers who have repeatedly stated that they would no longer develop the Ethereum Classic chain.


We likewise will openly resist the “tyranny of the majority,” and will not allow the values of the system to be compromised. As a united community, we will continue to organize for the defense and advancement, as required, for the continuation and assurance of this grand experiment. The Ethereum Classic platform, its code and technology, are now open to the world as Open Source software.9 It is now freely available for all who wish to improve and build upon it: a truly free and trustless world computer that we together as a community have proven and will continue to prove is anti-fragile.


There aren’t many cryptos that have a properly decentralised network or governance process. Bitcoin’s development is slow, inefficient, arduous and messy because it is one of the few that do. It’s also the biggest and most robust store of value by an order of magnitude. It’s anti-fragile. Ethereum has proved it’s not. Ethereum Classic made a commitment to maintain that ideal.


In the light of that declaration, any attempt of any kind to gain control of the platform (at least, by any means other than hashrate), for any reason, whether that reason seems good or bad, is






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