Where's the fire?

Our weekly opinion piece and overview View this email in your browser January 8th, 2017 A blip and a trend TL;DR The bitcoin price has taken us on a wild ride over the past week. But rather than show vulnerability, the movements serve to highlight one of the technology's main strengths. (Read more in THE TAKEAWAY below.) Share Tweet Got this from a friend? SUBSCRIBE HERE OUR SPONSOR CoinMall is a marketplace on which you can buy or sell digital goods in exchange for bitcoin. It's globally accessible, includes an escrow service and feedback system, it's fully pseudonymous and there's no risk of fraud or chargebacks thanks to bitcoin. TOP FIVE STORIES ON COINDESK Chinese whispers. The statement by the People's Bank of China (PBoC) that it had met with leading Chinese bitcoin exchanges BTCC, OKCoin and Huobi, set off a flurry of activity in bitcoin trading, press comment and social media. Could this be the first step in a cryptocurrency crackdown? Or is it just a regular meeting with industry participants? While it is too soon to tell, the markets are spooked, given China's large share of bitcoin trading volumes. BTCC clarified in a separate statement that it regularly meets with representatives of the PBoC, and confirms that it is in compliance with current regulation. Read more. A private ethereum? According to sources, work has been progressing on a secretive project to adapt ethereum for enterprise use. Tentatively called Ethereum Enterprise, the initiative appears to be a collaboration between core developers, large corporate users and blockchain startups. While few details are forthcoming, the project could include an enterprise-grade stack, additional privacy tools, and a way to connect with the public ethereum blockchain. Read more. Hype and hubris. Professor Ferdinando Ametrano, former blockchain lead at Intesa SanPaolo, is bewildered by how most of the attention in 2016 has gone to distributed ledger technologies, with their impractical applications, rather than to the decentralization offered by bitcoin and public blockchains. In an article from our Year in Review series, he predicts that 2017 will most likely see more hype around smart contracts and blockchains-without-token, but that by 2018 enterprise attention will be back on bitcoin. Read more.  Blockchain predictions. In another article in our Year in Review series, Ajit Tripathi, director of fintech and digital at PwC, predicts that by the end of 2017 a central bank will have put cash on a blockchain, at least one supply chain blockchain will go live, and bitcoin startups will struggle to find business solutions even though the currency's value will reach $2,000. He also expects that blockchain projects will start to coalesce around a limited number of private blockchain systems, privacy will be solved before scalability, and we'll see fewer blockchain conferences. Read more.   Blockchain applications. To add to the flood of predictions that 2017 will be the year that saw blockchain projects move from proof-of-concept to production, US fund manager State Street revealed that it is testing a series of blockchain tools that it expects to incorporate into its processes before the end of the year. The applications range from securities lending to syndicated loans, and are designed to be blockchain agnostic. Read more.   See all CoinDesk stories We begin the countdown to CONSTRUCT, our invite-only summit for developers and senior engineers.   With exclusive in-depth talks from founders and/or high-level execs from Zcash, Hyperledger, MIT, the Ethereum Foundation, Blockstack, IBM and more, CONSTRUCT gives you the opportunity to hear first-hand how the sector is evolving. Join us in San Francisco, USA from January 30-31, and network with industry leaders to discuss network security, access management, and financial services.    😎 APPLY TO ATTEND 😎 QUOTE OF THE WEEK "To an insider, boring is money. When people stopped talking about e-commerce, Amazon started growing like a rocket. When people stopped talking about search, online advertising became a multi-billion industry." – Ajit Tripathi, in "A $2,000 Bitcoin (and 9 Other 2017 Blockchain Predictions)", on CoinDesk   THE TAKEAWAY  After teasing us for most late 2016, bitcoin almost reached its all-time high in the first week of 2017, before startling everyone with a sharp crash, rally and correction. The headlines were gripping, and transmitted that edge-of-seat feeling that something big was going on. But was there? I don't want to imply that price movements aren't important. A steady increase sends a message, as does a sharp plunge. But the messages sent mask the real news. Bitcoin is becoming a valid alternative to fiat currencies, not because of its price, but because of its relative lack of volatility. Yes, I do mean "lack of". A 20% slump in one day is severe, certainly, and has no doubt caused short-term traders considerable stress. But, in the big picture, it's not material. We need to remember that, after the initial slump, bitcoin's price ended up where it was at the beginning of the week. While the recent statement by the People's Bank of China that it has "warned" bitcoin exchanges pushed the price even lower, no-one can deny that bitcoin has performed well. Whether the performance is due to fundamentals such as geopolitical uncertainty or monetary turbulence (neither of which are going away any time soon), or to market dynamics (which fluctuate, as always), the outlook of bitcoin is still the same as it was a week ago. The Chinese account for most of bitcoin's trading volume and so have a strong influence on price movements, and monetary manipulation will generate short-term reactions. But the underlying issues are still there. Sentiment is still bullish. Experts polled by CoinDesk at the end of last year predicted end-of-2017 prices of between $1,400 and $3,000. While the eventual performance is not that relevant for bitcoin fundamentals, it does signal enough robust support to withstand short-term fluctuations. A trend much more important than the price is bitcoin's volatility. Over the past few months it has fallen to levels generally considered "acceptable" for fiat currencies. This week's performance will no doubt push bitcoin's volatility index up a notch, but it's still less than half of what it was six months ago. Over the past three months, bitcoin's volatility (30-day vs the US$) has on occasion been lower than the South African rand, the Brazilian real and even gold. It has been close to that of the yen, the British pound and the euro. And here's the kicker: it has achieved this without central bank intervention.  This is what we should be focusing on: bitcoin's volatility, in spite of this week's movements, is approaching that of supposedly stable fiat currencies. And it's doing so on its own. No fiat currency with volatility levels this low can say that. And so, whatever the price movements, bitcoin is successfully showing the world that its value as an independent alternative is strong. As any economist will tell you, one of the basic requirements of "good money" is that its value be relatively stable. Low volatility does not produce dramatic headlines, but it is a much more important metric for investors, entrepreneurs and developers. And as new entrants join the market, volumes will continue to increase, sources will diversify, and bitcoin's volatility will continue its downward trend. (Disclosure: I hold one bitcoin from a while back, and have no plans to sell it or buy more any time soon.) MORE BACKGROUND: Bitcoin's Rollercoaster 2017: What's Happened So Far Volatility and Liquidity: How Bitcoin Compares to its Crypto Competitors What Will the Bitcoin Price Be in 2017? Share Tweet FOMO (beyond CoinDesk) OTHERS ARE TALKING ABOUT Virtually all bitcoin coverage this week was about the price movements and China. Some dusted off the irritating "safe haven" mantra (strange how that disappears the moment there's a correction), while several columnists tried to put the increase (and subsequent slump) into historical perspective. Both Barron's and Bloomberg gave a good synopsis of the Chinese monetary situation and its impact on bitcoin. Motherboard bucked the trend with an excellent piece about the lack of innovation at the US center of power, and how the blockchain can change democracy. The article doesn't mention the bitcoin price at all. And Wired helpfully pointed out that bitcoin isn't digital currency, it's digital gold. Or "programmatic finance". Or something we haven't thought of yet.   UPCOMING EVENTS Jan 17 – BIP001:Blockchain Incredible Party – Kiev, Ukraine Jan 20-26 – London Blockchain Week – London, UK Jan 23-24 – Blockchain Expo – London, UK Jan 25 – Finance Disrupted: Collaborate or Die? – London, UK SECTOR REPORTS Can blockchain be regulated? – BBVA WHAT WE'VE BEEN UP TO We're kicking off the new year with some renovations. Yes, I'm talking about a web redesign. We're super excited – it feels a bit like moving house without having to pack anything! I can't tell you when it will be ready (you know how it is), but it'll be soon.  Do you like this? Do you hate it? Drop me an email (just respond to this newsletter) and tell me what you think. We'd love to hear from you! And if you want to share it with your friends by tweeting or simply forwarding, we'd really appreciate it.  Share Tweet Would you like to advertise with us? Copyright © 2017 CoinDesk, All rights reserved. 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