The global markets slumped on January 12, 2017 after a news conference by President-elect Donald Trump. Assets declined across the globe with European, Asian shares and S&P 500 futures all falling, while the dollar slumped against most currencies. The conference disappointed the institutional investors with reveals to very little details as to economic and trade plans. This element of uncertainty resulted in a major slump in US dollar trading after recovering from a three week low. Surprisingly even after so much market commotion, the Bitcoin price remained unaffected despite so much market activity. Let’s look into why Gold reigned while Bitcoin was left behind during the latest market collapse:
Bitcoin stagnant as uncertainty looms:
The year had a lot of surprises that came as backlash for Bitcoin’s Bull Run which neared the all-time high start of this year. Firstly when the prices approached all time high, panic associated to Chinese policies led to the first stage of the collapse. After briefly trading at $900 range for quite some time the next collapse occurred a couple of days later. This was majorly due to the news that Peoples Bank of China has acted on Bitcoin regulation in 2017. They have contacted exchanges to monitor the process in order to avoid currency getting out of the country.
Following the second crash, Bitcoin has formed some kind of support around $750 and has been trading in the area ever since. It remained unaffected during the Yuan’s fall and the global market’s pandemonium since the investors are looking at it cautiously now. After trading sufficient volume and building a strong support, it might finally take off and adhere to the conventionally observed fundamentals.
Gold returns as the only ‘Safe Haven’:
Gold spiked up to over $1,200 after Wednesday’s shift in market dynamics. The price jump for a mere market scare can be attributed to Bitcoins unavailability during this time. The fact that Bitcoin rallied upto the high but wasn’t able to breach it significantly has left an element of doubt in the minds of institutional investors. Hence the general inflow of funds has been redirected to Gold, retaining its status as reliable asset. Whether Bitcoin would be able to displace Gold again as a security asset or Gold will continue to dominate this sector, only time will tell.
Founded in 2011, ‘Stripe’ is an American technology company, operating in over 25 countries. The company allows both private individuals and businesses to accept payments over the Internet in many forms. Apart from the payment services, Stripe focuses on providing the technical, fraud prevention, and banking infrastructure required to operate online payment systems. Flooding major headlines, Stripe’s valuation has raised $150 million to fund their expansion operations taking the valuation to a total of $9.2 billion. This cements its status as a major player in the crowded digital payments space, heralding a possible initial public offering. Let’s look into the growth of Stripe and its implications on Bitcoin:
What Stripe does?
‘Stripe’ focusses on online payment channels and how various technologies can be leveraged to ease the experience for customers and retailers. Using Stripe, web developers can integrate payment processing into their websites without having to register and maintain a merchant account. For small scale retailers, this offering is a blessing in disguise. Stripe has a two-day waiting period for initial transactions, during which time it profiles the businesses involved. Later it builds a safe shield to protect against potential fraud. Stripe then transfers the funds directly into the bank account linked to the payee.
Stripe’s investors and backing:
The increase in the rate of online transactions and the higher demographic going ‘cashless’ has made this market viable. Understanding the potentiality of the market, John and Patrick Collison founded Stripe in 2010. The list of investors for Stripe includes: Y Combinator, Peter Thiel, Sequoia Capital, Andreessen Horowitz, General Catalyst, Redpoint Ventures, Chris Dixon, and Aaron Levie. Stripe’s valuation depends on the fact that more commerce will move to mobile apps even when people are in stores. Hence the company capitalizes on this open market space of mobile and electronic payments.
Stripe and Bitcoin payment processing:
In March 2014, CEO Patrick Collison announced that Stripe would support bitcoin transactions. Owing to the zero-fee structure of the Bitcoin network, the cryptocurrency immediately became an integral part of the payment app. The current round of funding is aimed at expansion of the company. Wayne Gaybrick, Stripe chief financial officer, said Stripe raised the funds to acquire companies and invest in global expansion. Stripe has acquired three firms and launched in France, Japan, France, Singapore and Spain this year. As Stripe is looking out for cross border transactions with the trail of expansions, this might be positive news for Bitcoin adoption as that would be the fastest and easiest method of payment across borders.
What is a Bitcoin Mining Pool?
A Bitcoin mining pool is a group of Bitcoin miners working together to earn Bitcoin. Bitcoin miners use computing power, which is measured in hash rate, to unlock blocks, for which they are rewarded in Bitcoin. Each time a block is unlocked, the Bitcoin system allocates Bitcoin to a miner who participated in unlocking the block. The hash rate of the participating miners determines which miner earns the Bitcoin through random distribution. As the number of miners unlocking blocks increased, miners with low levels of computing power would have to wait extended periods of time, even up to years, to earn Bitcoin rewards. In response to this problem, pools were created to group miners and distribute Bitcoin rewards on a more consistent basis. In other words, pools reduce the “granularity” of the rewards that miners earn.
What are the Largest Bitcoin Pools?
The three largest pools, measured by hash rate, are DiscusFish (also known as F2Pool), AntPool, and BW Pool. These pools comprise approximately 22%, 17%, and 15% of the total hash rate, respectively. DiscusFish is a Chinese mining pool, founded mid 2013. AntPool is owned by Chinese IC design company Bitmain Technologies Limited. BW Pool is also a China based firm.
Why does this Matter to Investors?
The successes and failures of pools could have serious implications for investors. Collectively, these pools make up more than 50% of the total hash rate. If they were to collude, they pose a security risk to the validity of the blockchain. Furthermore, hash rate is important because it indirectly reflects the projected value of Bitcoin. If confidence in the value of Bitcoin is high, people will be more inclined to mine. More mining means a higher hash rate. If these pools disband or suffer from internal error, it could send shockwaves through the Bitcoin community, reflected in its trading value. Given the geographic proximity of these pools, failure of one pool could be shared by others.
In looking at recent history, the primary sources of failure for Bitcoin have occurred during consolidation of information. Two, notable cases of consolidated information failure are the Mt. Gox and Bitfinex exchange incidents. Although pools have not had a severe adverse effect on Bitcoin value yet, investors should monitor the security and growth of pools with wariness.