Fidelity, TD Ameritrade Bring Household Name Support to Crypto Trading Platform

It was an awful week for bitcoin bulls. Bitcoin fell to $3,629 as of 5 p.m. UTC on December 6th, with technical signs pointing to further trouble ahead. But some big pockets have been moving in – not going long on bitcoin itself, specifically, but signaling support for the crypto economy infrastructure writ large.

Crypto trading platform

Fidelity Investments, the Boston-based mutual fund hegemon, just inked a deal, contributing its capital along with Bitmain, ConsenSys, Nasdaq Ventures and Monex Group to provide $27.5 million in B series funding to Eris Exchange (Eris X), which is building a new platform for the trading of digital assets, cryptocurrencies, tokens and derivatives.

TD Ameritrade, CTC Group Investments, Digital Currency Group, DRW Venture Capital, Pantera Capital and Valor Equity Partners have also contributed funding in this round as well as in earlier rounds. But the attraction of a fairly conservative investment giant in Fidelity is certainly a feather in their cap.

ErisX has announced that the current round of funding will go towards trading platform development and making some key hires. Once the rollout is complete, ErisX will operate an intermediary-friendly, CFTC-regulated futures exchange (registered) and clearing organization (registration pending), as well as a spot market for digital assets. The plan is to combine both spot trading and futures trading of digital assets on the same platform – providing crypto asset enthusiasts with an easy, seamless and intuitive way to combine both direct long and short trading and hedging techniques.

“With increasing financial support from leading edge firms, ErisX stands to provide the most robust, secure and regulated digital asset offering available to both institutional and individual participants,” said Eris X CEO Thomas Chippas in a statement.

“Many of our customers have been seeking various hedging solutions and would be happy to see US regulatory compliant exchanges like ErisX provide spot and futures’ contracts in one platform,” said Jihan Wu, co-founder of Bitmain.

Initially, ErisX will be handling trading in Bitcoin, Bitcoin Cash, Litecoin and Ethereum, as well as futures contracts. The assets will be physically distributed.

Fidelity’s moved comes on the heels of a major strategic decision announced last October to create a new, separate corporation called Fidelity Digital Assets, which will take on the role of custodian for digital assets such as cryptocurrencies. The new Fidelity property will execute trades on a variety of crypto exchanges for institutional investors, family wealth management offices and the like.

With the announcement, Fidelity becomes the first marquee “Wall Street” – level name to formally provide custodial services for crypto assets.

Currently, Fidelity has more than $7 trillion under management, and provides clearing and investment services for more than 13,000 different advisory firms and institutions worldwide, as well as 27 million retail customers.

Fidelity seems to be taking on the role of early adopter of crypto-services among the Wall Street giants (yes, Fidelity is technically headquartered in Boston, not on Wall Street. But you get the idea.)

But Fidelity presumably wouldn’t be taking this step – and putting millions on the line – if it wasn’t responding to existing demand from its client base of old-line institutional investors, brokerages and family offices. Research from Greenwich Associates indicates that the vast majority of institutional financial executives – 72 percent – say that cryptocurrencies are here to stay.

Only 10 percent expect crypto assets to remain as a fringe asset class, according to Greenwich Associates’ study, and just 10 percent believe that regulators will move to eliminate the crypto market altogether.

“This is a recognition that there is institutional demand for these assets as a class,” said Tom Jessop, tagged to lead the new venture, Fidelity Digital Assets. “Family offices, hedge funds, other sophisticated investors, are starting to think seriously about this space.”

In short, Fidelity has recognized crypto as a full-fledged, legitimate asset class – and they want to be in the middle of it.

Fidelity Digital Assets will serve only institutional clients – at least initially. But Fidelity’s decision to back ErisX signals their willingness to at least be involved in crypto activity for the retail investor very soon. Fidelity brings a massive investment capability and pool of millions of potential retail investors to the table, many of which use Fidelity’s popular brokerage platform. TD Ameritrade also brings a smaller retail client base, but one even more focused on aggressive trading strategies.

There are several niche brokers involved in the Series A and B funding drives, of course – but the mass market potential of Fidelity Investments and TD Ameritrade have the potential to provide much improved liquidity to crypto markets. This may have the most beneficial effect on second- and third-tier digital assets that don’t currently enjoy much liquidity.

Financial theory suggests that as more buyers enter the system, prices should rise as asset owners have less of a liquidity premium hurdle to clear.

 

The Hash Wars Begin – Bitcoin Cash Variants Clash in Digital Civil War

It’s like the Confederate attack on Fort Sumpter, but for geeks.

At 18:00 UTC on November 15th, the newly upgraded Bitcoin Cash network mined two new blocks. But some bitcoin cash miners’ servers marked these blocks as invalid – throwing two warring Bitcoin Cash camps – Bitcoin Cash ABC and Bitcoin Cash SV – into a battle for survival. It may well be only one can survive. The other could be totally annihilated.

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Specifics: The Bitcoin Cash network just completed a hotly-contested scheduled protocol upgrade. But unlike previous protocol upgrades where there was widespread consensus about what upgrades were needed and how to implement them, this upgrade saw widespread disagreement about how the bitcoin cash protocol should best evolve to support users and merchants that support Bitcoin Cash.

nChain responded to the planned update by developing an alternative Bitcoin Cash implementation, Bitcoin SV – a full-node implementation they claim was developed to provide better support for what they call the “Satoshi Vision.” Hence the “SV” in the name.

nChain is issuing a public appeal to miners to use their “hash power” to support the SV implementation under “Nakamoto Consensus Rules.”

In the weeks leading up to the November 15th upgrade, nChain provided miners and exchange operators with the technical details for supporting Bitcoin SV transactions, and the two camps lined up their servers in preparation to engage in what observers call the Hash War.

Meanwhile, bitcoin holders were walloped in a round of selling this week, pushing the asset down to its lowest level in more than a year. At press time, the coin is trading at $5,539.17 – off more than 60 percent off its peak. The contagion also hit Ethereum, litecoin, ripple and bitcoin cash, each down by double digits.

The Split.

November 15th saw the completion of the hard fork in the Bitcoin Cash chain, driving a wedge between Bitcoin SV and Bitcoin ABC users. The two protocols are no longer directly compatible with one another. However, Bitcoin Unlimited, another important Bitcoin Cash implementation, has announced its neutrality and its intention to remain neutral. It will be compatible with both SV and ABC until the digital cage match is resolved.

Miners are now voting for the protocol they want to go with via their hash power under Nakamoto consensus rules. The implementation with the most computing power behind it will likely win, and the losing currency will be consigned to oblivion.

Initially, Bitcoin SV was the favorite, after it seemed to have lined up about 40 percent of the current bitcoin hash total right out of the gate.

At issue: The ‘longest chain’ rule – in which the nodes running a given crypto asset that encounter two competing bitcoin simultaneously recognize by default the longer of the two blockchains – on the theory that the longer blockchain is the more complete and up-to-date blockchain. The other blockchain is eliminated from the system.

“Neither Bitcoin SV nor Bitcoin ABC have implemented transaction replay protection, as the intention is for only one chain to survive,” said nChain in a statement.

In the hours leading up to the hard fork, BCHABC had the advantage in that about 75 percent of node operators were running the ABC client software, vs. only about 8 percent of node operators running SV.

However, SV supporters, bolstered by the intervention of Craig Wright and Calvin Ayre, have declared a jihad against ABC, vowing to aggressively mine empty blocks and reorganize the block chain using their hash power until ABC succumbs. nChain claimed to have over 40 percent of the available hash power supporting SV before the hard fork happened.

But mining strength is only part of the picture: Currencies rely on network effects of merchants and vendors who can be trusted to accept the currency in the future – and this may be the decisive factor: Companies supporting bitcoin cash have generally indicated their support for the ABC variant, and will include ABC rather than SV under the Bitcoin Cash header.

nChain, the developer of SV, argues that the BCH business community should recognize the protocol with the longest and most complete blockchain with the most legitimate and sustained Proof of Work. We will shortly see whether that argument holds sway among merchants and vendors.

If SV can’t maintain at least price parity with ABC will miners continue to mine SV at a loss just to prove a point? Jonathan Bier, head of research at BitMEX, says no. On the 14th of November, Bier told Bloomberg editors that “the economics will support BCHABC and reject SV (Satoshi’s Vision). SV will have a low price and miners will leave it in a few weeks.

Trading and volatility

As is to be expected, we’ve seen major volatility on the exchanges, with SV (trading under the symbol BCH SV) falling from a peak of 243.79 on the 14th of November to just $98.05 at press time on the 15th.

But Bitcoin ABC seems to be fighting back, rising from a low of $201 on the 14th to $296.48 at press time on the 15th. This is partly due to the intervention of Roger Ver, owner of Bitcoin.com, who has routed all his significant hash power to support the BTCABC chain.

Until the outcome of the Hash War is decided, Bitcoin Cash is probably an appropriate holding only for the most speculative and risk-tolerant consumer. At this stage, it looks like ABC will prevail, judging from price signals alone. But stay tuned.

Mark Silverman is a cryptocurrency writer. Follow him on Twitter @MarkSilverman_

 

Thinking Beyond Bitcoin – Three Alternative Cryptos With Promise

Bitcoin has had a meteoric rise, peaking at over US$20,000 – and a heart-sickening though widely-predicted fall, closing at $6,487.70 as of 24 October, according to data from Coinmarketcap.com.

The market for bitcoin seems to have leveled off substantially, and though there’s been some interim volatility, things have been quiet since last summer, and nearly flat since early September.

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Yet more crypto assets – competing with bitcoin for limited capital allocation to crypto – seem to be coming online on a nearly daily basis. So far, there are more than 1,600 distinct cryptocurrencies in existence today.

So if you aren’t happy with bitcoin, you have a lot of other alternatives within the crypto asset universe.

Furthermore, the constant supply of new crypto assets would seem to put a damper on future bitcoin demand. Now that bitcoin’s biggest and most obnoxious bulls from the heady days of 2017 have been taken down a peg or two by the rapid selloff early in the year, the market has finally developed at least a modicum of respect for risk.

It’s an important part of growing up.

But even as the realities of the market was popping the egos of the bitcoin fanatics and driving their assets from $20,000 to $6,600 within a matter of weeks early this year, the market absolutely slaughtered a lot of lesser-known cryptocurrencies. Bitcoin was slashed. But at least 800 cryptocurrencies are now dead in the water, worth less than a penny.

Some of them were just bad ideas. A few were outright scams, designed to lure in suckers just wanting to get in on the craze, but who weren’t willing to go through any kind of due diligence process on the currency founders or backers or even the basic rationale for the currency’s existence. One scam alone – an initial coin offering (ICO) called Gizo, cost investors an estimated $2 million when the founders simply walked away with their investors’ money.

EOS

But a few have done very well for those with the foresight or luck to get involved in the early stages. EOS didn’t even exist before July of 2017, and if you got in a year ago, in late October of 2017, you would have bought EOS around US$0.50 each. Today it’s worth more than 10 times that much, currently trading at US$5.37 as of this writing.

This particular currency has promise as a basis for the implementation of smart contracts, and developers took steps to address difficulties in scalability that have been hampering older cryptocurrencies like Ethereum and Bitcoin, according to Coinswitch.  It can also reduce or eliminate transaction costs that are involved in most older crypto transactions.

Monero

Monero, launched in May, 2014, peaked with Bitcoin in January of 2018 at US$434, but has settled in for the moment at US$109, and it’s been in that neighborhood since June. For those who got involved in the spring of 2017, when Monero was trading around $20, they did very well indeed.

For both of these currencies, the key has been to get involved before the hype, and don’t succumb to the urge to buy in when the bulls are running, the amateurs are bragging, and when digital currencies are grabbing all the headlines on the investing talk shows.

In Monero’s case, the currency also had a competitive advantage and a reason for existing that set it apart from other crypto-currencies: The blockchain it was built on is designed to support anonymity. Yes, the blockchain records transactions, but effectively encrypts them to make them all but untraceable to government officials and anyone else who might want to track its users down.

The anonymity could also come in useful to corporations and investment companies who might want to commit to transactions in a way that their competitors can’t discern what they’re up to, or to anyone doing business abroad in a foreign country with reasons to fear government interference.

Monero got another boost late last year when a number of prominent recording artists, including people like Dolly Parton, Marilyn Manson, The B-52s and Motley Crüe, announced they would be accepting Monero as payment and even providing discounts on merchandise for Monero transactions.

Monero transactions are considered to be more private than Bitcoin, and transactions tend to close faster.

IOTA

Unlike many cryptos, IOTAs developers aren’t anonymous. It was created by David Sønstebø, Sergey Ivancheglo, Dominik Schiener, and Dr. Serguei Popov. It’s a young one, which started trading in June of 2017. It was developed to be a low-to-no friction currency supported by devices in the so-called “Internet of Things.” (IOT = “Internet of Things,” get it?)

Its key advantages: No transaction costs (hence the term “no-friction,” the capacity for offline transactions, and again, unlike bitcoin and Ethereum, infinite scalability.

Investors piled in after reports surfaced that IOTA’s developers had struck a partnership deal with Microsoft. But those reports were wrong, and no such partnership existed. So speculators trying to climb on the bandwagon got stung as prices corrected. And they certainly got stung if they bought in at the speculative peak of the cryptocurrency craze.

But the currency still has promise as the Internet of Things becomes more and more a daily part of our lives.

So unlike many of the 800+ currencies that essentially collapsed to the point of worthlessness over the past few years, Monero, EOS and IOTA actually had some competitive advantages and – critically for any currency – a base of people willing to accept it for goods and services.

All currencies are a matter of faith, after all.

Does this mean these three currencies will appreciate from here? Nobody knows. Those interested in speculating in any cryptocurrencies should carefully assess the unique competitive and practical advantages of any crypto asset, the background and reliability of developers and promoters, security considerations, and perhaps above all else, market sentiment, before getting in.

Mark Silverman is a cryptocurrency writer. Follow him on Twitter @MarkSilverman_