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Cryptoverse: Bitcoin investors take control

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Jan 24 (Reuters) – Paranoid? The domino downfall of FTX and other crypto custodians is enough to make the most trusting investor grab their bitcoin and shove it under the mattress.

Indeed, holders big and small are taking “self-custody” of their funds, moving them from crypto exchanges and trading platforms to personal digital wallets.

In a sign of this shift among retail investors, the number of bitcoin held in smaller wallets – those with under 10 bitcoin – rose to 3.35 million as of Jan. 11, up 23% from the 2.72 million held a year ago, according to data from CoinMetrics.

As a percentage of total bitcoin supply, wallet addresses holding under 10 bitcoin now own 17.4%, up from 14.4% a year ago.

“A lot of this really depends on how frequently you’re trading,” said Joshua Peck, founder of hedge fund TrueCode Capital. “If you’re just going buy and hold for the next 10 years, then it’s probably worth making the investment and learning how to custody your assets really, really well.”

The stampede has been turbocharged by the FTX scandal and other crypto collapses, with large investors leading the way.

The 7-day average of daily movement of funds from centralized exchanges to personal wallets jumped to a six-month high of $1.3 billion in mid-November, at the time of FTX collapse, according to data from Chainalysis.

Big investors with transfers of above $100,000 were responsible for those flows, the data showed.

Reuters Graphics

WHERE ARE MY KEYS?

Not your keys, not your coins.

This mantra among early crypto enthusiasts, cautioning that access to your funds is paramount, regularly trended online last year as finance platforms dropped like flies.

Self-custody’s no walk in the park, though.

Wallets can range from “hot” ones connected to the internet or “cold” ones in offline hardware devices, although the latter typically don’t appeal to first-time investors, who often buy crypto on big exchanges.

The multi-level security can often be cumbersome and expensive process for a small-time investor, and there’s always the challenge of guarding keeping your encryption key – a string of data similar to a password – without losing or forgetting it.

Meanwhile, hardware wallets can fail, or be stolen.

“It’s very challenging, because you have to keep track of your keys, you have to back those keys up,” said Peck at TrueCode Capital, adding: “I’ll tell you it’s a very challenging prospect of doing self custody for a multi-million-dollar portfolio of crypto.”

Institutional investors are also turning to regulated custodians – specialized companies that can hold funds in cold storage – as many traditional finance firms would not legally be able to “self-custody” investors’ assets.

One such firm, BitGo, which provides custodian services custody for institutional investors and traders, said it saw a 25% increase in onboarding inquiries in December versus the month before from those looking to move their funds from exchanges, plus a 20% jump in assets under custody.

David Wells, CEO of Enclave Markets, said trading platforms were extremely cautious of the risks of storing the investors’ assets with a third party.

“A comment that stuck with me was ‘investors will forgive us for losing some of their money through our trading strategies, because that’s what they sign up for, what they’re not going to forgive us is for being poor custodians’.”

Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Pravin Char

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Business

Wall Street surges, powered by tech rebound

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  • Baker Hughes falls on missing Q4 profit estimates
  • Activist investor Elliott Management takes stake in Salesforce
  • Chips on track for biggest daily gain since Nov
  • Indexes up: Dow 0.98%, S&P 1.41%, Nasdaq 2.09%,

NEW YORK, Jan 23 (Reuters) – Wall Street surged on Monday, led higher by technology stocks as investors embarked on an earnings-heavy week with a renewed enthusiasm for market leading momentum stocks that were battered last year.

All three major stock indexes extended Friday’s rally, gaining momentum as the day progressed. The tech-heavy Nasdaq was out front, boosted by a 4.9% jump in semiconductor shares (.SOX).

“This is a remarkable rally in many of the names that did badly last year,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. “No one wants to be watching from the sideline with a bunch a cash as the market gets away from them.”

The session marks a calm before the storm in a week jam-packed with high profile earnings reports and back-end loaded with crucial economic data.

Investors are all but certain the Federal Reserve implement a bite-sized interest rate hike next week even as the U.S. central bank remains committed to taming the hottest inflationary cycle in decades.

Financial markets have priced in a 99.8% likelihood of a 25 basis point hike to the Fed funds target rate at the conclusion of its two-day monetary policy meeting next Wednesday, according to CME’s FedWatch tool.

The Dow Jones Industrial Average (.DJI) rose 328.17 points, or 0.98%, to 33,703.66, the S&P 500 (.SPX) gained 55.93 points, or 1.41%, to 4,028.54 and the Nasdaq Composite (.IXIC) added 232.84 points, or 2.09%, to 11,373.28.

All 11 major sectors in the S&P 500 were higher, with tech (.SPLRCT) up the most, jumping 2.8%.

Fourth-quarter reporting season has shifted into overdrive, with 57 of the companies in the S&P 500 having posted results. Of those, 63% have delivered better than expected earnings, according to Refinitiv.

Analysts now see S&P 500 fourth quarter earnings, on aggregate, dropping 3% year-on-year, nearly twice as steep as the 1.6% annual drop seen at the beginning of the year, per Refinitiv.

This week, Microsoft Corp (MSFT.O) and Tesla Inc , along with a spate of heavy-hitting industrials including Boeing CO (BA.N), 3M Co (MMM.N), Union Pacific Corp (UNP.N) Dow Inc (DOW.N), Northrop Grumman Corp (NOC.N), are expected to post quarterly results.

Tesla Inc (TSLA.O) surged 7.8% as Chief Executive Elon Musk took the stand in his fraud trial related to a tweet saying he had backing to take the electric automaker private.

Baker Hughes Co (BKR.O) missed quarterly profit estimates due to inflation pressures and ongoing disruptions due to Russia’s war on Ukraine. The oilfield services company’s shares were off 0.9%.

Cloud-based software firm Salesforce Inc (CRM.N) jumped 3.1% following news that activist investor Elliot Management Corp has taken a multi-billion dollar stake in the company.

Spotify Technology SA (SPOT.N) joined the growing list of tech-related companies to announce impending job cuts, shedding 6% of its workforce as rising interest rates and the looming possibility of recession continue to pressure growth stocks. The music streaming company’s shares rose 2.1%.

On the economic front, the Commerce Department is expected to unveil its initial “advance” take on fourth-quarter GDP in Thursday, which analysts expect to land at 2.5%.

On Friday, the wide-ranging personal consumption expenditures (PCE) report is due to shed light on consumer spending, income growth, and crucially, inflation.

Advancing issues outnumbered declining ones on the NYSE by a 3.53-to-1 ratio; on Nasdaq, a 1.95-to-1 ratio favored advancers.

The S&P 500 posted 11 new 52-week highs and no new lows; the Nasdaq Composite recorded 66 new highs and 14 new lows.

Reporting by Stephen Culp; Additional reporting by Shreyashi Sanyal and Johann M Cherian in Bengaluru
Editing by Marguerita Choy

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Cryptoverse: Bitcoin is back with a bonk

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Jan 17 (Reuters) – Bitcoin is on the charge in 2023, dragging the crypto market off the floor and electrifying bonk, a new meme coin.

The No.1 cryptocurrency has clocked a 26% gain in January, leaping 22% in the past week alone, breaking back above the $20,000 level and putting in on course for its best month since October 2021 – just before the Big Crypto Crash.

Ether has also risen, by 29% this year, helping drive the value of the overall global cryptocurrency market above $1 trillion, according to CoinGecko.

“After a rough year last year for cryptos, we are seeing a form of mean reversion,” said Jake Gordon, analyst at Bespoke Investment Group, referring to the theory of asset prices returning to long-term averages.

Researchers said investor bets on a rosier macroeconomic picture were driving a jump in riskier assets across the board.

Few crypto tokens have benefited more than bonk, which was launched at the end of December on the Solana blockchain and had rocketed 5,000% by early January. It has since fallen back, though remains up 910% since the start of the year.

It is the latest entrant to the hyper-volatile world of meme coins, cryptocurrencies inspired by online memes and jokes, and is modeled after the same grinning Shiba Inu dog as dogecoin – which itself was catapulted to fame by Elon Musk tweets.

Bonk’s a puppy, though.

Even at its peak it was worth just $0.000004873759 with a market capitalization of about $205 million.

Other meme tokens are also up, with dogecoin and Shiba Inu up 19% and 27% respectively in 2023.

But buyers beware.

“Investors need to be especially cautious when it comes to coins like doge, Shiba Inu and bonk,” said Les Borsai, co-founder of digital assets services firm Wave Financial.

“They fall just as hard as they surge.”

Nonetheless, some market players pointed to the relative cheapness of these tokens – doge is worth about eight cents – as a reason why speculators were willing to place bets on them.

“Meme coins belong to crypto, it’s part of the culture,” said Martin Leinweber, digital assets product specialist at MarketVector Indexes. “It just takes a few lines of codes to create a meme token and if you have a community for it, people love that.”

RUMORS OF SOL’S DEATH EXAGGERATED

Bonk is a meme coin with a mission. It was created, in part, to support the Solana blockchain, which has seen an exodus of funds and users since crypto exchange FTX filed for bankruptcy in November, and its native Solana token drop over 37%.

The Solana token has now indeed jumped as bonk has gained traction: it’s up 131% in 2023, the biggest gainer among major cryptocurrencies.

“Rumors of Solana’s death seem to have been greatly exaggerated,” said Tom Dunleavy, senior research analyst at data firm Messari. “Despite the recent price appreciation seemingly being driven by speculation, the underlying ecosystem remains quite strong.”

Reuters Graphics

TOO EARLY TO CALL A CRYPTO REVERSAL

Some researchers chalked the crypto gains up to optimism that inflation had peaked, reducing the need for tighter central bank policy.

“Bitcoin and crypto tend to front-run everything, which is why we’ve seen notable relative strength in this asset class of late,” said Wave Financial’s Borsai.

There’s certainly been an increase in activity.

The dollar value of bitcoin trading volumes on major exchanges over a 7-day period jumped to $151 million, the highest in nearly two months, according to data from Blockchain.com.

Total bitcoin flows – representing all uses including trading and payments – have increased by 13,130 bitcoin on average in the last 7 days, the largest rise in 64 days, Chainalysis data showed.

However, market watchers warned against celebrating too soon, noting trading volumes remained low and the macroeconomic environment uncertain.

“It’s too early to declare a definitive reversal for the crypto market despite the recent strength we’ve seen of late,” said Aaron Kaplan, co-founder of Prometheum, a digital asset securities trading platform.

“If interest rate increases are below what the market expects, then risk assets will benefit and crypto prices will likely continue the uptrend, but there’s just too much uncertainty right now.”

Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Pravin Char

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Business

Cryptoverse: Jump or slump? $30k or $5k? Play the bitcoin roulette

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Dec 13 (Reuters) – Plucky bitcoin’s been holding steady since seeing off the chaos of the FTX collapse, gathering its strength to rally towards the dizzy heights of $30,000 in 2023.

Battered bitcoin’s been unresponsive since being clobbered by the FTX collapse, taking in a deep ragged breath before plunging towards the depths of $5,000.

Place your bets, spin the wheel.

The world’s dominant cryptocurrency has certainly been uncharacteristically muted over the past two weeks, treading water between about $15,770 and $17,350 in the eerie wake of the FTX-induced market mini-crash in November.

What happens next is anyone’s guess.

“The question we need to be asking ourselves now is: Are there any sellers left in this market? To my mind, no, there aren’t that many left,” said Jacob Sansbury, co-founder of retail investor services firm Pluto.

Sansbury believes most over-leveraged miners, who tend to be large holders of bitcoin, have exited positions to pay off debts taken out in traditional money to fund their equipment and operations.

Indeed bitcoin’s recent calmness could be down to the fact that there are fewer coins to sell: the amount held on exchanges for trading stands at 1.97 million, Coinglass data shows, down steeply from 2.33 million at the start of the year.

Major offloading has already taken place; November saw a 7-day realized loss of $10.16 billion in bitcoin investments as investors were forced to exit long-term positions, the fourth-largest loss on record by this measure, according to Glassnode data.

The cryptocurrency has already dropped more than 60% in 2022 and set to see its first annual loss since 2018.

Many remaining investors are placing their bitcoin into offline “cold storage” according to on-chain data, which should strengthen a floor price around $16,000, said Bob Ras, co-founder of Sologenic, an exchange and digital asset firm.

“Barring any more surprises in the market, it’s hard to imagine BTC going significantly lower,” he added.

Ras believes that if it wasn’t for the high-profile collapse of crypto players FTX, Celsius and Terra this year, the price of bitcoin would be close to $25,000 now.

But this is crypto, and more surprises could well be in store, with a number of potential selling triggers on the horizon.

THE BEAR’S TALE

First potential peril is the risk of more bitcoin miners being forced to sell their holdings to stay afloat, as mining becomes increasingly expensive.

“Miners as a group start to become unprofitable under $20,000, so we’re below (that) point,” noted Ben McMillan, chief investment officer at IDX Digital Assets.

CrytpoQuant’s miner reserve indicator, which tracks the amount of bitcoin held in miners’ wallets, has dropped by about 7,722 bitcoin since November.

Market players also pointed to concerns about the Grayscale Bitcoin Trust, (GBTC.PK) the world’s largest bitcoin fund with $10.9 billion in assets. Parent company Digital Currency Group, which owns Genesis Trading, owes $575 million to Genesis’ crypto lending arm, DCG’s CEO told shareholders on Nov. 22.

Grayscale Bitcoin Trust’s discount to its net asset value, is at an all-time low of 48% and shares have not traded at a premium since March 2021, Coinglass data showed.

DCG last month said troubles at Genesis’ lending business had no impact on DCG and its subsidiaries, while Grayscale maintained it was business as usual and its underlying assets were unaffected.

“This could be the other shoe to drop,” said McMillan, referring to the possibility of Grayscale running into financial trouble. “That said, if bitcoin can hold the $15,000 line through the DCG workout, that would be a strong indicator going into 2023.

A more hawkish than expected Federal Reserve at its final meeting of the year on Wednesday could further erode risk appetite and bitcoin’s prospects, crypto watchers said.

Bitcoin has fallen 75% after hitting a record high of $69,000 in November 2021

GETTING TECHNICAL

The scenarios of bitcoin leaping to $30,000 or tumbling to $5,000 in 2023 were long-shot possibilities flagged by VanEck and Standard Chartered, respectively.

When it comes to the technicals, several analysts pointed to indicators showing bitcoin may have found support between $16,000 and $16,800.

The cryptocurrency could also run into resistance around the $17,490 level, said Eddie Tofpik, head of technical analysis at ADM Investor Services, cautioning that any long-term rally was likely to be challenging.

“Anytime we see a rally, it’s one step up and then two or three steps down,” he said.

Vetle Lunde, analyst at Arcane Research, said long-term bets could be appealing in the wake of the November turmoil.

Nonetheless, uncertainty reigns.

“Bear in mind that massive drawdowns tend to be followed by a long-lasting directionless market filled with apathy and unfathomable second-guessing,” Lunde added.

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Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Pravin Char

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Cryptoverse: Bitcoin miners get stuck in a bear pit

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A bitcoin representation is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, June 23, 2017. REUTERS/Benoit Tessier

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Sept 27 (Reuters) – Spare a thought for the beleaguered bitcoin miner.

In late 2021, miners were the toast of the town with a surefire path to profit: hook powerful computers up to cheap power, crack fiendishly complex maths puzzles and then sell newly minted coins on the booming market.

A year’s a long time in crypto.

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Global revenue from bitcoin mining has dropped to $17.2 million a day amid a crypto winter and global energy crisis, down about 72% from last November when miners were racking up $62 million a day, according to data from Blockchain.com.

“Bitcoin miners have continued to watch margins compress – the price of bitcoin has fallen, mining difficulty has risen and energy prices have soared,” said Joe Burnett, head analyst at Blockware Solutions.

That’s put serious pressure on some players who bought expensive mining machines, or rigs, banking on rising bitcoin prices to recoup their investment.

Bitcoin is trading at around $19,000 and has failed to break above $25,000 since August, let alone regain November’s all-time high of $69,000.

At the same time, the process of solving puzzles to mine tokens has become more difficult as more miners have come online. This means they must devour more computing power, further upping operating costs, especially for those without long-term power pricing agreements.

Bitcoin miners’ profit for one terahash per second of computing power has fluctuated between $0.119 and $0.070 a day since July, down from $0.45 in November last year and around its lowest levels for two years.

The grim state of affairs could be here to stay, too: Luxor’s Hashrate Index, which measures mining revenue potential, has fallen almost 70% so far this year.

Reuters Graphics

2140: THE LAST BITCOIN

It’s been painful for miners.

Shares of Marathon Digital (MARA.O), Riot Blockchain (RIOT.O) and Valkyrie Bitcoin Miners ETF (WGMI.O) have sunk more than 60% this year, for example, while crypto-mining data center operator Compute North filed for bankruptcy last week.

Yet mining is ultimately a long-term proposition – the last bitcoin is expected be mined in 2140, more than a century away – and some spy opportunity in the gloom.

“The best time to get in is when market’s low, the same mining rigs that went for $10,000 earlier this year you can get that for 50% to 75% off right now,” said William Szamosszegi, CEO of Sazmining Inc which is planning to open a renewable-energy powered bitcoin mining operation.

Indeed, many miners are cutting back on buying rigs, forcing makers to cut prices.

For instance, the popular S19J Pro rig sold for $10,100 in January on average, but now sells for $3,200, analysts at Luxor said, also noting prices for bulk orders of some mining machines had fallen by 10% in just the past week.

Chris Kline, co-founder of crypto investment platform Bitcoin IRA, said miners would have to be “hyper-focused” on energy efficiency, both to bring costs down and to avoid any repercussions from climate change-related regulations.

“From managing their balance sheet, processing units and energy costs, miners will look to stay afloat regardless of current market conditions,” he added.

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Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Tom Wilson and Pravin Char

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Cryptoverse: After Merge, ether heads for a $20 billion Shanghai splurge

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Souvenir tokens representing cryptocurrency networks Bitcoin, Ethereum, Dogecoin and Ripple plunge into water in this illustration taken May 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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Sept 20 (Reuters) – The Merge came, saw and conquered. Not that you’d guess from crypto prices.

The Ethereum blockchain’s mega-upgrade finally went live on Sept. 15, moving it to a less energy-intensive “proof of stake” (PoS) system with hardly a hiccup. read more

Even though anticipation of the event had seen ether rise about 85% from its June doldrums, it has since sunk 19%, hit along with bitcoin and other risky assets by investor angst over inflation and central-bank policy.

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Nonetheless, many market players are bullish about the long-term prospects of Ethereum and its native cryptocurrency.

“Previously, we have talked to sovereign wealth funds and central banks to help build their digital asset allocations… but direct investment has been voted down due to energy concerns,” said Markus Thielen, chief investment officer at asset manager IDEG Limited.

“With Ethereum moving to PoS, this clearly solves this last pillar of concern.”

Some crypto investors are now turning their attention to the next event that could shake up prices.

The next significant upgrade for Ethereum is the “Shanghai”, expected by market participants in around six months’ time, which is aimed at reducing its high transaction costs.

It would allow validators, who have deposited ether tokens on the blockchain in exchange for a yield, to withdraw their staked coins, to hold or sell.

There’s a lot at stake: over $20 billion of ether deposits are currently locked up, according to data provider Glassnode.

The staked ether crypto coin – viewed as a bet on Ethereum’s long-term success as it cannot be redeemed until Shanghai happens – is trading at nearly parity with ether at 0.989 ether, according to CoinMarketCap data, indicating confidence in future upgrades.

The coin had dropped as low as 0.92 in June.

PURGE AND SPLURGE

Beyond Shanghai, a slew of other upgrades are planned for Ethereum, which co-founder Vitalik Buterin has nicknamed “the surge”, “verge”, “purge” and “splurge”.

The primary focus of future upgrades is likely to be on the blockchain’s ability to process more transactions.

“Because the Merge was delayed for several years, investors, traders, and end-users have a great deal of trepidation around when Ethereum will meaningfully scale,” said Alex Thorn, head of firmwide research at blockchain-focused bank Galaxy Digital.

Paul Brody, global blockchain leader at EY, said: “Ethereum’s future needs to, and will, scale to hundreds of millions of transactions a day.”

Reuters Graphics Reuters Graphics

ETHEREUM KILLERS

The Merge’s primary goal was to reduce Ethereum’s energy usage as cryptocurrencies come under fire for their massive carbon footprint. The blockchain’s energy consumption was cut by an estimated 99.95%, the developers claim, which could tempt powerful institutional investors, formerly constrained by environmental, social and governance (ESG) concerns.

The Merge and future upgrades also dent the investment appeal of so-called “Ethereum killer” blockchains like Solana and Polkadot, said Adam Struck, CEO of venture capital firm Struck Crypto.

However, institutional investors aren’t jumping in just yet, as a fearsome macro environment chills the waters of risk appetite.

Longer-term, though, the switch to PoS is expected to decrease the rate at which ether tokens are issued – potentially by up to 90% – which should drive up prices.

Additionally, annual yields of 4.1% for staking ether tokens to validate transactions could prove tempting for investors.

However, while the proof-of-stake method allows for these lucrative yields, many crypto purists point out that it moves Ethereum away from a purely decentralized model as the biggest validators could exercise greater influence over the blockchain.

For the time being, however, the Ethereum world might be advised to enjoy the Merge moment.

“There may be volatility in the days to come,” said analysts at Kaiko Research. “But for now the community can take a well-earned victory lap.”

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Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Pravin Char

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Cryptoverse: Ether snaps at bitcoin’s heels in race for crypto crown

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Souvenir tokens representing cryptocurrency Bitcoin and the Ethereum network, with its native token ether, plunge into water in this illustration taken May 17, 2022. REUTERS/Dado Ruvic/Illustration

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Sept 13 (Reuters) – For years, ether could barely dream of challenging its big brother bitcoin. Now, its ambitions may be becoming more realistic.

The second-biggest cryptocurrency is taking market share from bitcoin ahead of an all-important “Merge” software upgrade that could sharply reduce the energy usage of its Ethereum blockchain, should the developers pull it off in coming days.

Bitcoin’s dominance, or its share of the crypto market’s market value, has slipped to 39.1% from this year’s peak of 47.5% in mid-June, according to data platform CoinMarketCap. Ether, on the other hand, has climbed to 20.5% from 16%.

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The upstart is still a long way from overtaking bitcoin as the No.1 cryptocurrency, a reversal known to aficionados as “the flippening”. It’s made up ground, though; in January 2021, bitcoin reigned supreme at 72%, while ether occupied a slender 10%.

As for price, one ether is now worth 0.082 bitcoin , near December 2021 highs and sharply above the 2022 low of 0.049 in June.

“People are now viewing Ethereum as essentially a safe asset because they’ve seen the success of the network, they think it’s not going anywhere,” said Joseph Edwards, head of financial strategy at fund management firm Solrise Finance.

“There’s a permanency to how Ethereum is perceived in the crypto ecosystem.”

Reuters Graphics

CAPRICIOUS CRYPTO

The Merge, expected to take place on Thursday after several delays, could lead to wider use of the blockchain, potentially boosting ether’s price – although nothing is certain in a capricious crypto market. read more

Ethereum forms the backbone of much of the “Web3” vision of an internet where crypto takes centre stage, powering applications involving crypto offshoots such as decentralised finance and non-fungible tokens – although this much-hyped dream is still unrealised.

Bitcoin and ether have both nearly halved this year on concerns about supersized interest rate hikes from central banks. Nonetheless, investors seem to like the look of the Merge, with ether up over 65% since the end of June. Bitcoin has barely budged in the same period.

“We’re going to see (ether’s) attractiveness to some investors who are concerned about energy consumption,” said Doug Schwenk, CEO of Digital Asset Research, although he cautioned that ether was still a long way behind bitcoin.

THE KING IS STRONG

The diminishing bitcoin dominance in crypto’s current bear market is a departure from previous market cycles when investors sold lesser tokens – “altcoins” – in favor of the more liquid and reliable bitcoin.

Dethroning the king is no easy feat, though.

Bitcoin is still by far the most well-known cryptocurrency. Mainstream investors who have dipped their toes in the crypto market since 2020 have tended to turn first to bitcoin, as the most liquid and widely-traded token.

Its market cap of $427 billion is still more than double Ether’s $210 billion, and market participants firmly believe the original digital coin remains the gold standard in crypto due to its limited supply.

Some market players say bitcoin’s grip on the crypto crown is still strong, even if it has to accept other contenders. For example, Hugo Xavier, CEO of K2 Trading Partners, said its dominance could improve to 50%-60% range if the crypto market turns bullish but it is unlikely to touch 70% again.

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Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Tom Wilson and Pravin Char

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Cryptoverse: Electric ether leaps on verge of Merge

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Representations of cryptocurrency Bitcoin, Ethereum and Dash plunge into water in this illustration taken, May 23, 2022. REUTERS/Dado Ruvic/Illustration

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Aug 16 (Reuters) – It looks like ethereum’s mega-upgrade is happening. Finally.

After years of delays, the “Merge” seems all but certain to take place in September, with the cryptography underlying the blockchain undergoing a radical shift to a system where the creation of new ether tokens becomes far less energy-intensive.

“It’s an exciting time for the ethereum ecosystem,” said Omar Syed, co-founder of smart contract platform Shardeum. “I think there will be drama surrounding the Merge, but I don’t think there will be any technical hiccups.”

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Investors seem to agree, with ether outstripping big brother bitcoin.

Ether has seen six consecutive weeks of gains, pushing it up from a 1-1/2-year low of $880 in mid-June to levels closing in on $2,000, even though it’s way off its November 2021 peak of $4,868.79.

Bitcoin has paled in comparison, rebounding 37% from its June low to $24,116.

Ether is gnawing away at behemoth bitcoin’s market share: it now accounts for nearly a fifth – 19.7% – of the total crypto market capitalization of $1.14 trillion, up from less than 14.9% two months ago, according to CoinMarketCap. Bitcoin’s share has dropped to 40.2% from 44.9% in the same period.

“Crypto is still very tightly coupled, I think when the Merge successfully completes it could drive up the price of bitcoin as well,” said Alex Miller, CEO of Hiro, which builds developer tools to create applications for bitcoin.

If ethereum’s creators succeed, as is largely expected, it could be a game-changer for the blockchain, making it cheaper to mine and easy to adopt for fintech and other crypto apps.

Of course little is assured about the elusive transition, which has been delayed several times, with developers most recently axing plans to push the button in June, unnerving investors who began to fear it might never see the light of day.

The Merge is also is fraught with risk, and the fortunes of the roughly 122 million ether in circulation, worth about $232 billion, could be at stake should it fail.

If the upgrade doesn’t go well, it would “set the entire crypto world back five or 10 years,” Hiro’s Miller said.

‘DIFFICULTY BOMB’

The ethereum blockchain currently uses the energy-intensive proof-of work (PoW) method of validating blocks, wherein miners use massive amounts of power to quickly solve complex computational problems to win newly minted coins.

On a parallel chain, ethereum has been testing a proof-of-stake (PoS) system that only requires miners to “stake” their coins to validate transactions and create new blocks. It promises 99.95% reduction in the blockhain’s energy consumption and prepares it for faster transactions.

Not everyone’s happy about the imminent merger of the two systems – notably ether miners, whose expensive mining rigs will be rendered obsolete, and can’t be used for mining bitcoin either.

Ether mining has hitherto been more profitable than bitcoin mining. Ether miners made $18 billion in 2021 versus $17 billion for bitcoin miners, according to Arcane Research.

Some miners have decided to shift to mining the next best option, such as the tokens ethereum classic or ravencoin.

At least one miner has declared plans to resist and continue mining ethereum, raising the spectre of some people keeping the PoW chain running in its current form even after the merge, likely competing with the upgraded blockchain.

However, that option has perils.

Ethereum creators have designed a “difficulty bomb” to exponentially increase mining difficulty in order to discourage the PoW parallel chain after the Merge.

Moreover, both Tether and USDC – the largest stablecoins – have thrown their weight behind the Merge, reducing the likelihood of a wider adoption of the parallel PoW chain.

FROTHY FUTURES

“The likelihood of a long-lasting chain split of Ethereum following the Merge remains slim,” said Alex Thorn, head of firmwide research at Galaxy Digital.

Nonetheless, at least some investors are preparing for a hard fork, or a parallel PoW chain, positioning in the derivatives market indicates.

Ether futures were also trading at premium at $1,905 on the CME exchange, “reflecting expectations around a proof of work fork,” said Matthew Sigel, head of digital assets research at fund manager VanEck.

“But that gap is not so huge so as to think there is extreme froth,” he added.

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Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru
Editing by Vidya Ranganathan and Pravin Char

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Cryptoverse: Blockchain bridges fall into troubled waters

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Representations of cryptocurrency Bitcoin, Ethereum and Dash plunge into water in this illustration taken, May 23, 2022. REUTERS/Dado Ruvic/Illustration

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Aug 9 (Reuters) – Another day, another hack – and another blockchain bridge burned.

When thieves stole an estimated $190 million from U.S. crypto firm Nomad last week, it was the seventh hack of 2022 to target an increasingly important cog in the crypto machine: Blockchain “bridges” – strings of code that help move crypto coins between different applications. read more

So far this year, hackers have stolen crypto worth some $1.2 billion from bridges, data from London-based blockchain analysis firm Elliptic shows, already more than double last year’s total.

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“This is a war where the cybersecurity firm or the project can’t be a winner,” said Ronghui Hu, a professor of computer science at Columbia University in New York and co-founder of cybersecurity firm CertiK.

“We have to protect so many projects. For them (hackers) when they look at one project and there’s no bugs, they can simply move on to the next one, until they find a one weak point.”

At present, most digital tokens run on their own unique blockchain, essentially a public digital ledger that records crypto transactions. That risks projects using these coins becoming siloed, reducing their prospects for wide use.

Blockchain bridges aim to tear down these walls. Backers say they will play a fundamental role in “Web3” – the much-hyped vision of a digital future where crypto’s enmeshed in online life and commerce.

Yet bridges can be the weakest link.

The Nomad hack was the eighth-biggest crypto theft on record. Other thefts from bridges this year include a $615 million heist at Ronin, used in a popular online game, and a $320 million theft at Wormhole, used in so-called decentralised finance applications. read more

“Blockchain bridges are the most fertile ground for new vulnerabilities,” said Steve Bassi, co-founder and CEO of malware detector PolySwarm.

Reuters Graphics

ACHILLES HEEL

Nomad and others companies that make blockchain bridge software have attracted backing.

Just five days before it was hacked, San Francisco-based Nomad said it had raised $22.4 million from investors including major exchange Coinbase Global (COIN.O). Nomad CEO and co-founder Pranay Mohan called its security model the “gold standard.”

Nomad did not respond to requests for comment.

It has said it is working with law enforcement agencies and a blockchain analysis firm to track the stolen funds. Late last week, it announced a bounty of up to 10% for the return of funds hacked from the bridge. It said on Saturday it had recovered over $32 million of the hacked funds so far.

“The most important thing in crypto is community, and our number one goal is restoring bridged user funds,” Mohan said. “We will treat any party who returns 90% or more of exploited funds as a white hats. We will not prosecute white hats,” he said, referring to so-called ethical hackers.

Several cyber security and blockchain experts told Reuters that the complexity of bridges meant they could represent an Achilles’ heel for projects and applications that used them.

“A reason why hackers have targeted these cross-chain bridges of late is because of the immense technical sophistication involved in creating these kinds of services,” said Ganesh Swami, CEO of blockchain data firm Covalent in Vancouver, which had some crypto stored on Nomad’s bridge when it was hacked.

For instance, some bridges create versions of crypto coins that make them compatible with different blockchains, holding the original coins in reserve. Others rely on smart contracts, complex covenants that execute deals automatically.

The code involved in all of these can contain bugs or other flaws, potentially leaving the door ajar for hackers.

BUG BOUNTIES

So how best to address the problem?

Some experts say audits of smart contracts could help to guard against cyber thefts, as well as “bug bounty” programmes that incentivise open-sourced reviews of smart contract code.

Others call for less concentration of control of the bridges by individual companies, something they say could bolster resiliency and transparency of code.

“Cross-chain bridges are an attractive target for hackers because they often leverage a centralized infrastructure, most of which lock up assets,” said Victor Young, founder and chief architect at U.S. blockchain firm Analog.

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Reporting by Tom Wilson in London and Medha Singh in Bengaluru; Editing by Pravin Char

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Cryptoverse: Bitcoin beats the heat in a jumpin’ July

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A representation of virtual currency bitcoin and a U.S. one dollar banknote are seen in front of a stock graph in this illustration taken January 8, 2021. REUTERS/Dado Ruvic

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Aug 2 (Reuters) – It’s been a good month for bitcoin – and we haven’t said that for a while.

After months of freefall, it jumped more than 17% in July, its best performance since October. Ether rose 57%, its strongest monthly gain since January 2021.

The rally was in step with gains of riskier assets such as stocks as investors bet that economic weakness could deter the Fed from aggressively tightening monetary policy.

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Bitcoin’s 40-day correlation to the tech-focused Nasdaq (.IXIC) now stands at 0.90 – up from 0.41 in January – where 1 means their prices move in perfect lockstep.

The leading cryptocurrency has been consistently positively correlated with the Nasdaq since late November, unlike in previous years where it would routinely turn negative, meaning they moved in opposite directions.

Itai Avneri, deputy CEO at cryptocurrency trading platform INX, described July’s convergence as “good news”.

“It means institutional investors are looking at bitcoin like any other asset,” he said. “When the market turns – and it will turn – these institutions will come back and invest in crypto.”

Gains were not limited to bitcoin, as the value of the global cryptocurrency market crept back above $1.15 trillion last month, adding over $255 billion since the end of June, CoinGecko data showed.

Assets under management in digital asset investment products rose 16.9% to $25.9 billion in July, reversing June’s decline of 36.8%, according to research firm CryptoCompare.

However, trading has been thin – indicating plenty of investors gauge it’s too early to turn bullish in a deeply uncertain macro backdrop with inflation rampant, and America and Europe staring down the barrel of a recession, not to mention the implosion of some big crypto players.

Average daily volumes across all digital asset investment products fell by 44.6% to $122 million, the lowest since September 2020, CryptoCompare found.

“On a medium-term horizon, we’re bearish (on crypto) despite the current bounce, this aligns with our stance on equities,” researchers at MacroHive wrote on Friday, citing inflation, recession risks and rate hikes.

A LONG WAY FROM $60,000

Bitcoin is currently trading at $23,336, consolidating around the $24,000 mark after touching that level last week.

It will likely continue to trade in a tight range of around $20,000, plus or minus 10% to 15%, until there is more clarity over the economy’s trajectory, according to Chris Terry, vice-president at lending platform SmartFi.

“We could be in this stalled market for weeks and weeks.”

On the flip side, if the United States enters a prolonged recessionary period and the Fed is forced to cut interest rates, bitcoin could benefit, said Russell Starr, CEO of Valour, which creates exchange-traded products for digital assets.

“You’re going to have to see another quarter of recession before you see a resumption back up to the lofty $60,000 levels,” he said.

For investors who dove into crypto during its surge at the height of pandemic-era easy monetary policy, the next several months could be quite bumpy, according to Adrian Kenny, senior sales trader at GlobalBlock.

“There is still an undoubtedly considerable mountain to climb in terms of ‘normality’ or the hopes of a return to the highs of 2021 anytime soon.”

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Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru; Editing by Vidya Ranganathan and Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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