I didn’t quite finish my post on ChangeTip and its $3.5 million fundraise (woot woot), so instead, I’m going to spoil you with a post I had planned to save for Friday. Today seems like as good a day as any to revisit my 2014 predictions from January.
Many of you will recall that last year’s ridiculous November price rally started right before Thanksgiving, and even after the bubble deflated following the Chinese trading slowdown, bitcoin was still trading over $800 as of January 1st. Over half of those polled by CoinDesk believed that bitcoin would cross the $10,000 mark at some point during the year, and even credible entrepreneurs and investors were talking about 3-5x price appreciation as a near-given.
With that backdrop, I set out to make 10 non-sensationalist predictions for the year. Let’s grade my performance so far…
What I said:
”Regulatory Victories: Major nations in Europe and North America (including the U.S.) regulate Bitcoin as a commodity or security. Few if any treat Bitcoin as a true currency. That means that Bitcoin gains and losses will be taxable at long- and short-term rates, and wallet services will need to work quickly to provide accurate trading forms (with offsetting lots) for customers. Day-traders (including hobbyists) will likely need to register with the appropriate regulatory bodies to get preferential tax treatment. Silicon Valley tax lawyers rejoice when they see an influx of new business from Bitcoin’s paper millionaires who are now panicked about paying taxes on the toys they purchased with appreciated bitcoin, cars, apartments, etc. By the end of 2014, China decides to get back into the game so they don’t miss out on the next major tech boom.”
Although I might have been a bit aggressive with the assumption that the bitcoin trading industry would be evolved enough to warrant separate registration with the proper regulators, I think I hit everything else on the head. Bitcoin’s treatment as property created massive tax liabilities for many early holders, including those who bought goods with their appreciated bitcoin. Proper tax accounting from the major wallets was hard to come by until LibraTax stepped up with its reporting software right before the extended filing deadline in October. China is indeed officially back in the lead when it comes to Bitcoin trading, and the vast majority of mining hardware manufacturing seems to be taking place in the country.
What I said:
”Pot & Porn: Marijuana and pornography are massive industries which straddle the line between legal and illegal. Don’t expect BitPay or Coinbase to service these markets any time soon. Do expect one or more Bitcoin startups to focus nearly exclusively on these gray markets. Some will call them Silk Road Lites, I’ll call them major money makers.”
I think I’m directionally correct here, but frankly I’m surprised that no clear winner has emerged for these gray markets. The closest company we’ve seen to a gray market pure play is GoCoin, which has partnered with gaming companies (via Ilixium) and porn companies (Hustler). But even they haven’t fully owned this brand. Nobody in bitcoin wants to admit it, but undesirable markets are where most of the recurring volume will likely remain in the medium-term, especially in developed economies. Frankly, I’m surprised that we haven’t seen a merchant processor roll up their sleeves and embrace the marijuana industry in particular. More than 20 states have legalized marijuana to some extent and many others have decriminalized its use. It’s illegal federal status probably holds back even those who would otherwise step up to the plate.
What I said:
”Academic Interest: More academic study will lead to greater insights into the Bitcoin blockchain, price movements, and intrinsic value. I am personally interested, among other things, in using some of the blockchain’s information to come up with a “fully-diluted” fair price for bitcoin.”
At first glance, it would appear that I crushed this one, but in reality, I missed the larger story. Yes, there is an abundance of research beginning to flow from academic circles related to Bitcoin, but much of it has been propelled by students rather than faculty research centers. The College Cryptocurrency Network was born in February and now counts over 100 student bitcoin club chapters globally. The student-led MIT Bitcoin Project launched this fall in coordination with the MIT Media Lab, Kerberos & Internet Trust Consortium, EECS, and Bit Data Initiative, and laid the groundwork for the first at-scale analysis of how bitcoin might take off in an environment where its adoption was widespread. The student groundswell has been the story, not the groundbreaking academic research itself.
What I said:
”Wall Street Interest: 2014 will be the year that Bitcoin went Wall Street, if not mainstream. The Winklevii are still working on getting their ETF listed on major exchanges. SecondMarket’s Bitcoin Investment Trust is a hot investment vehicle and now it seems that Fortress Investment Group and Pantera Capital have raised nearly $150mm for a new Bitcoin-related fund. Expect this to be the tip of the iceberg. I think we could see a major bank’s trading desk integrate Bitcoin, and wouldn’t be surprised to see a tiny startup like Coinsetter get swooped up for an eye-popping amount as a strategic acquisition / acquihire.”
In hindsight this sounded a bit ambitious, however, I would argue that this prediction hit its mark in spirit. Bitcoin’s small market cap continues to preclude major Wall Street firms from dedicating real resources towards bitcoin trading and blockchain technology, but nearly all of the major banks have internal groups who are looking at the blockchain opportunities (source: personal experience). The potential of the blockchain is more or less universally accepted now (“I love the blockchain, but hate bitcoin”), and Bitcoin has been the toast of the town at suit-and-tie conferences like Money 20/20 and Sibos. Bloomberg just hosted a Bitcoin event that included a panel of former or acting commissioners of the SEC, CFTC, and FinCEN. Only the BitLicense and the lack of a large-scale, fully-regulated NYC-based exchange has slowed progress. Never put your money on Winkcoin.
What I said:
”Volatility is Addressed: Bitcoin is still missing mainstream consumers. Without consumers, there will be limited demand for merchants to accept bitcoin. Without a vibrant transaction system, there will be limited value in bitcoin to investors. Without consumers, merchants and investors, bitcoins become worthless and the Bitcoin technology loses steam. Expect some new ventures to successfully tackle this volatility problem, including my company Inscrypto. Bitcoin doesn’t need to be a currency, it simply needs to look and feel and act like one for non-investors.”
Volatility has been subdued for most of the post Mt. Gox year. With a daily high of $680 and daily low of $324 (excludes temporary intraday pops and drops), that’s a pretty tight range for bitcoin standards, and is steadily closing in on the volatility of the gold market and S&P. Coinapult Locks launched over the summer (a product similar to Inscrypto’s concept), and BitReserve recently launched with something similar (though less intuitive). Finally, the CFTC looks like it may be embracing the non-deliverable forwards contracts at TeraExchange and options contracts at LedgerX in the not-too-distant future. Slowly, but surely, bitcoin volatility is being hedged out by third parties.
What I said:
”Financial Cowboys Get Rich: Holy crap, I wish that I were a tech-savvy Wall Street guy because Bitcoin is a FinTech expert’s wet dream. Institutions might have to wait until the regulatory bodies green light their activity in Bitcoin, but individual day traders have no such restrictions. There are massive arbitrage opportunities between exchanges. Chartists can actually make money by exploiting trends that make the illiquid market inefficient for the time being. Trading algorithms may be written that improve system-wide liquidity and enrich their authors. Wild.”
By definition, this was probably impossible to track and pinpoint specific success stories. But I’ve met enough traders and solo artists to appreciate that there was money to be made in 2014 trading bitcoin and making illiquid markets. Logically, it would appear that there is an inverse correlation between trading success and marketing.
What I said:
”Entrepreneurs Solve Problems: Some of the biggest critiques will yield tremendous innovations in 2014. All an entrepreneur with a bitcoin obsession needs to do is spend a day on /r/bitcoin and he’ll come up with a dozen startup ideas. As one MIT Sloan student asked me: “Can’t you just take anything in financial services and make a bitcoin version?” Pretty much, yeah. That’s why so many people are salivating.”
This was relatively easy to predict, but nevertheless the pace of innovation has been impressive. Over $300 million of venture capital has been invested in the last twelve months with no signs of abating. And we’ve answered three very tough questions. ”Aside from Silk Road, can you actually spend bitcoin anywhere?” PayPal, Shopify, Intuit, Square, Overstock, Dell, Dish, TigerDirect, Newegg, Expedia, Google, Rakuten, United Way now accept bitcoin. Next. ”Isn’t bitcoin still too dangerous given the custodian losses and lack of deposit insurance?” Gavin declares 2014 the year of multi-sig, the major wallets and vaults get fully-insured, and Gox dies a deserved death with its volume migrating to superior exchanges. Next. ”Isn’t bitcoin unusable because of its volatility?” (See above.)
What I said:
”Bitcoin Remains the Dominant Crypto: Bitcoin’s healthy alt-currency ecosystem is good for Bitcoin the technology platform because it provides a back-up plan to any existential threat to bitcoin the currency. That said, the majority of developer talent is building on top of the Bitcoin protocol first, and the new layers and applications that are created this year will continue to strengthen the overall Bitcoin ecosystem. Expect Bitcoin to remain the gold standard of crypto-currencies, and Litecoin and others to maintain their silver, bronze and honorable mention status.”
Not even close. Bitcoin survived the Gox melt-down (which even surprised me), regularly dodged bullets related to mining pool consolidation (e.g. GHash), and then positioned itself to bring in more of the R&D currently happening in alt-coins back into the Bitcoin family (via Blockstream and sidechains). I’m excited about Ripple, and I’m excited about Ethereum, but no other cryptos even comes close in terms of developer interest, banking interest, legitimacy and market cap. (Sorry, Charlie. :) )
What I said:
”Bitcoin as Legal Tender: No, it’s not going to happen in the U.S. any time soon. But I’d expect some countries to start storing bitcoin in their central banks in the new year. It’s got similar properties to gold as a long-term store of value and the potential for exponential growth. In addition, I’d expect at least some government to accept bitcoin for taxes. Could be a national government or a struggling domestic municipality, maybe Vicco, Kentucky.”
To my knowledge, this hasn’t happened anywhere yet, even in the most bitcoin friendly jurisdictions. Correct me if I’m wrong about being wrong here.
What I said:
”Price Appreciation: I’m not going to venture a guess into the future value of Bitcoin, but suffice it to say, I believe strongly that the currency will continue to appreciate significantly. Regulatory clarity, greater consumer/business exposure, insane levels of developer interest, eye-popping investor interest from Wall Street and the VC community, and layers of innovations on top of the underlying Bitcoin protocol will outweigh any negatives. Moreover, the early adopters in Bitcoin aren’t selling any time soon. Over half of Bitcoiners polled by Coindesk believe that Bitcoin will go above $10k USD in 2014. Absurd, but shows that this community isn’t simply waiting to cash out when the Greater Fools make their buys.”
It looks like I’m going to be wrong about the price, but I’m still giving myself a B. As far as bitcoin bulls go, I was *by far* one of the most conservative pundits. Like the people that win the Price is Right by bidding $1 when everyone else overbid, I outperformed the herd with sheer restraint. Vinny Lingham of Gyft is the only person I know who vocally anticipated sustained downward pricing pressure on bitcoin, but even he didn’t make that call until the aftermath of Mt. Gox.
How would you measure my performance? Idiotic? Downright sage? Maybe good enough to be an also-ran behind Josh Garza for Coindesk's “most influential person in Bitcoin” accolade for 2014? (Seriously, look at this thread.)
Time to get to work on my 2015 predictions.
Certified Bitcoin Professionals
The Digital Currency Council is seeking feedback from members of the Bitcoin community on its certification exams for lawyers, accountants, and financial professionals. Share comments, edit sample questions, and propose new core competency areas that would help professional advisors master Bitcoin.
Jobs, Jobs, Jobs
BitGo, Palo Alto (VC-backed)
-The leading Bitcoin multi-sig security company
-Open positions: Back-end / Front-End / iOS / Security Engineers, UX Designer
-Check out BitGo (www.bitgoinc.com/jobs) and email firstname.lastname@example.org
Bolt, San Francisco (VC-backed)
-Stealth startup focused on consumer applications of Bitcoin.
-Open positions: Security Engineer, Ruby Engineer, UI/UX Designer, Executive Assistant.
-Check out Bolt (bolt.com) and email email@example.com.
Elliptic, London (VC-backed)
-Vault and enterprise digital currency services.
-Open positions: Software engineers and business development gurus.
-Learn more and apply at elliptic.workable.com
Today’s Tid Bits
MasterCard Rails Against Bitcoin’s Anonymity
In the form of a submission to an Australian Senate inquiry, MasterCard has argued for Australian regulators to move against bitcoin stating, “any regulation adopted in Australia should address the anonymity that digital currency provides to each party in a transaction.” MasterCard argues that digital currencies enabled the purchase of illegal goods or services, and could even finance terrorism. The credit card giant even referenced the collapse of Mt Gox to support its point.
How Mt. Gox Debacle Won Over a Bitcoin Convert
After seeing bitcoin withstand the failure of Mt. Gox, Tim Draper, Silicon Valley veteran decided to bid for 30,000 bitcoins that were auctioned by the US government in June, which he won. Mr. Draper will try to increase his bitcoin holdings in another government auction of 50,000 bitcoins scheduled for Thursday. Mr. Draper compares the current state of bitcoin to that of the early days of the Internet, as he shrugs off the recent price drop, and predicts that the price will rise to $10,000 in three years. Mr. Draper has also put in $6.6 million to support his son’s bitcoin startup incubator, Boost.
Coinbase Enables Instant Bitcoin Trades with New USD Wallets
Coinbase has enabled USD wallets in 16 jurisdictions, allowing users to store dollar balances and make instant bitcoin purchases without waiting for bank transfers. Coinbase will not charge fees for deposits and withdrawals made via ACH (automated clearing house) bank transfers. Coinbase worked closely with its legal representatives and state regulators to assess whether its USD wallet is a regulated activity.
Under Fire, GAW Miners’ CEO Garza Takes on His Critics
Depending on who you talk to, GAW Miner’s CEO, Josh Garza is launching a cryptocurrency revolution through his new project, Paycoin, or he is architecting an elaborate con job. Garza has also faced criticism that his mining contracts through GAW Miners are Ponzi schemes, he replied by pointing out the legitimacy of his partners and the company’s past success. Garza also mentioned that GAW follows meticulous compliance and record keeping ensuring it can’t be charged by the SEC with selling unregistered securities.
BTC China’s New Pool Mines 3.325 BTC in Five Weeks
Five weeks ago, BTC China launched a new mining pool, which has already generated $1.2m in bitcoin, the pool has mined 3.325 BTC. Making BTC China’s mining pool the 7th largest overall, contributing 5% of the world’s bitcoin hashing power. The rapid growth could be attributed to BTC China’s 0% fees on its pay-per-share (PPS) mining model. The mining pool is only available to Chinese users at the moment.
CoinJar Relocates to London, Says Goodbye to Australia’s Taxes
An Australia-based bitcoin seller and wallet provider, CoinJar has relocated its physical headquarters from Melbounr to London, saving CoinJar customers 10% by no longer having to pay the Australian “Goods and Services Tax.” Australia declared they have the right to 10% of all bitcoins traded on the continent.
Have a tip or feedback? Email me! (firstname.lastname@example.org)