Bitcoin Well Above Its 'Intrinsic Value' -- Market Talk
0850 GMT – Bitcoin has surged beyond its so-called intrinsic value, says JPMorgan strategist Nikolaos Panigirtzoglou while calling it a potential warning sign following 2Q’s doubling to $8,000 that is reminiscent of its boom-and-bust cycle of the past 2 years. Analysts and investors have long debated over whether bitcoin, like gold, has any intrinsic value. In a note to clients, Panigirtzoglou treats bitcoin as a commodity and calculates its marginal cost of production using inputs such as computational power, electricity costs and hardware energy efficiency. “Over the past few days, the actual price has moved sharply over marginal cost. This divergence between actual and intrinsic values carries some echoes of the spike higher in late 2017.” Bitcoin is still down by roughly 60% from its all-time high.
Crypto Venue Loses $40 Million to Hack
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 9, 2019).
Binance, one of the world’s largest cryptocurrency exchanges, said hackers stole more than $40 million worth of bitcoin from its platform in what it called a “large scale security breach.”
The theft offers another example of the vulnerability facing cryptocurrencies and the venues where investors trade them. Yet the price of bitcoin and other digital currencies barely budged after the robbery was disclosed Wednesday morning in Asia.
Binance said it discovered Tuesday that 7,000 bitcoins were stolen from a single wallet, amounting to roughly 2% of the company’s total bitcoin holdings.
Hackers used phishing, viruses and other techniques, the company said. Binance said they had obtained information about multiple users, including two-factor authentication codes. Industry participants said they believed it was the rst major breach at Binance.
Binance, which was founded in China but now operates outside the country, said it was suspending deposits and withdrawals for one week while it conducts a security review, although users will still be able to trade existing funds. Stolen funds would be refunded through its emergency insurance account, the company said.
“The hackers had the patience to wait, and execute well-orchestrated actions through multiple seemingly independent accounts at the most opportune time,” Binance said. “The transaction is structured in a way that [it] passed our existing security checks. It was unfortunate that we were not able to block this withdrawal before it was executed.”
In a video posted on Twitter following the disclosed hack, Changpeng Zhao, chief executive at Binance, described the incident as “a very advanced, persistent hacking effort.” He said trading might need to be halted “for a couple of hours here and there” due to system upgrades.
He said Binance has the funds to back the stolen amount. “It does hurt very much but we are able to cover that,” he said in the video. “We are not short on funds right now,” he added.
Hacks were a primary reason for bitcoin’s steep fall last year following its manic rally in 2017. While bitcoin, the largest cryptocurrency by market value, is up more than 50% so far this year, it remains down by about 70% from its record high in December 2017.
“People are quite used to exchange hacks,” said John Patrick Mullin, a cryptocurrency investor and blockchain consultant in Hong Kong. “Markets didn’t move nearly as much as they would’ve one year ago if the same thing happened.” Bitcoin recently traded around $5,800, according to CoinDesk.
Cryptocurrency exchanges and investors are often targeted by hackers. More than $1.7 billion has been publicly reported stolen over the years, mostly from exchanges in Asia, including Japanese platforms Mt. Gox and Coincheck. Last month, the New York attorney general’s office said an exchange called Bitnex had covered up a loss of $850 million of corporate and customer funds by using the reserves of the digital currency it controls, tether.
Bitcoin and other cryptocurrencies exist on independent networks and operate on the blockchain, a public record of transactions. In an effort to replicate the anonymity of physical cash, those transactions aren’t connected to an identity. The anonymity is appealing to bitcoin proponents but is also attractive to hackers and makes it tough to catch thieves.
“Hacking risks are part of the business reality for crypto exchanges,” said Henri Arslanian, global crypto leader at PwC. “While crypto exchanges are becoming increasingly better prepared, hackers are becoming increasingly sophisticated as well.”
MW Bitcoin tumbles after New York accuses Bitnex of using Tether reserves to cover up missing $850 million
The filings ‘were written in bad faith and are riddled with false assertions,’ Bitnex claims
Bitcoin remained under pressure Friday, a day after New York’s attorney general’s office said it had obtained a court order against iFinex Inc., the operator of the Bitnex cryptocurrency exchange, in relation to an alleged $850 million coverup.
“Our investigation has determined that the operators of the ‘Bitnex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a coverup to hide the apparent loss of $850 million of co-mingled client and corporate funds,” said New York Attorney General Letitia James, in a news release.
The ling claims Bitnex and Tether (https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet? documentId=vIexA1b0spKOnK_PLUS_ZUGTJ3A==&system=prod) engaged in “undisclosed, conicted transactions to cover Bitnex’s losses by transferring money out of tether reserve funds” to make up for an apparent $851 million loss. The court ordered Bitnex to refrain from transferring Tether funds to Bitnex accounts, halt dividend payments or any other distributions to executives. The attorney general’s office said Bitnex had already taken at least $700 million from Tether’s reserves to mask losses.
Bitnex didn’t respond to a MarketWatch request for comment but in a statement on its website (https://www.bitnex.com/posts/356) said that the filings “were written in bad faith and are riddled with false assertions.”
Tether has long argued it’s stablecoin — a cryptocurrency that is pegged 1-to-1 with another asset — is fully backed by U.S. dollars, but has yet to provide a public audit to conrm it has the reserves.
In June 2018, law firm Freeh, Sporkin & Sullivan confirmed that at the close of business on June 1, 2018, the company did have sufficient dollars to back its Tether in circulation. But questions were raised after the law firm did not draw any conclusions for activity before the close of business on June 1, despite having access to the accounts for four months prior.
Read: How Bitnex, Tether are raising eyebrows in the cryptocurrency market (http://www.marketwatch.com/story/why-bitnex-tether-are-raising-nagging-questions-in-the- cryptocurrency-market-2018-01-30)
Read: Law firm conrms Tether was — as of June 1 — 100% backed by U.S. dollars, but questions remain (http://www.marketwatch.com/story/law-rm-conrms-tether-was-as-of-june-1-100-backed-by-us-dollars-but- questions-remain-2018-06-20)
The price of a single bitcoin fell from above $5,500 to an intraday low at $5,103.01 Thursday on the Kraken crypto exchange, a loss of 7.2%. In most recent trade, a single bitcoin fetched a little over $5,200.
Read: Tether reverses claim of 100% dollar backing, sparking criticism (http://www.marketwatch.com/story/tether-reverses-claim-of-100-dollar-backing-sparking-criticism-2019-03- 14)
Bitnex, the Hong Kong-based cryptocurrency exchange and Tether share common investors and management.
“Investing in the petro should be seen as investing in the dictatorship, ” a senior U.S. official said after President Donald Trump signed an executive order banning the currency. “The petro is a desperate attempt by a corrupt regime to defraud international investors.”
The U.S. Treasury also unveiled sanctions on four Venezuelan officials accused of corruption, adding to the more than 50 officials from the country that have been blacklisted by Washington in recent years on a host of charges including graft and humanrights violations.
The White House said it was evaluating stricter measures, including a ban on Venezuelan oil. Such an action could be devastating for a country that relies on crude exports for nearly all of its dollar income. U.S. officials didn’t say if or when they would reach a decision on the matter.
There was no immediate response from Venezuela’s government, which routinely dismisses sanctions as part of a U.S. led effort to destabilize the ruling Socialist Party.
Earlier this month, Mr. Maduro said his government had received $5 billion in committed investments during a presale of the petro, without offering evidence. Deeming the launch of the petro backed in principle by Venezuela’s vast oil reserves a success, the president has since said he plans to create another goldbacked version of the cryptocurrency in an effort to attract funds that the country badly needs to overcome food shortages and plummeting oil production.
U.S. officials say any other cryptocurrencies created by Venezuela’s government in the future will also be subject to the ban, which took effect immediately. Echoing the U.S. action, Venezuelan lawmakers opposed to Mr. Maduro say the petro is illegal because it was created without parliamentary approval, raising questions about the asset’s validity if there were a change of power.
Mr. Maduro plans to hold a May 20 presidential election that the U.S. and other countries have said would be fraudulent. The Venezuelan leader has banned top opposition leaders from participating and failed to guarantee the vote would be free and fair. Staging the election could open the door to tougher sanctions.
Sen. Bill Nelson (D., Fla.), who has urged the U.S. to act against the petro, applauded the White House’s move, citing the deprivation in the country and the Venezuelan government’s undermining of democracy. “[We] must do more to hold the regime accountable for these atrocious crimes,” he said.