In the previous weeks, macroeconomic uncertainty has spurred investment interest in bitcoin, but is this likely to continue?

As we covered last week in our H1 2016's market analysis, prices have pushed up 50% from 1st January, and two key drivers were, at least according to market observers, uncertainty in China (where the yuan has been devalued) and Europe (where the UK voted to leave the EU in an event known as the 'Brexit').

Looking ahead to the second half of the year, it remains unclear, however, if these events will continue to be factors impacting digital currency price movements.

But, economists are now suggesting that should China's economy falter in the wake of the 'Brexit', heightened risk aversion may cause investors to look again at risk-off assets including bitcoin.

Three economists spoke with CoinDesk about this situation, shedding some light on the complex nature of China’s economy and how the global superpower could be adversely affected by the Brexit.

Risk to trade

Since China does substantial business with both the UK and the broader European Union (EU), economic difficulty in either entity could undermine business conditions in China.

Sam Rines, senior economist and portfolio strategist for Avalon Advisors LLC, told CoinDesk that a slowdown in EU demand for Chinese goods would present "a tremendous risk to the Chinese economy".

The "single market for Chinese goods" could also suffer if the Brexit triggers a "domino effect" of other nations leaving the EU, said Usha Haley, professor of international business at West Virginia University.

In addition to potentially suffering undermined trade, China’s foreign direct investment could take a hit, Haley, who has researched and advised companies on Chinese investment and trade for more than a decade, told CoinDesk.

"In broader economic terms, with Brexit, China has lost a strong supporter for its free-market status within the EU," she stated, adding:

"Chinese investments in the UK made to access the single European market look less attractive and some foreign investment will be put on hold."

Debt concerns

Market observers have repeatedly warned about China’s growing debt, and both Rines and Haley spoke to the risk exposures this development has generated for the nation as a whole.

"Eight years of expansionary fiscal policy have left China with a staggering debt-to-GDP ratio of 225%," said Haley. "China has about $2.4tn of corporate debt at risk of default, leading to a very worrisome global financial future."

Rines added that if Brexit slows the EU economy substantially, EU trade with China will slow, and more debt will become unserviceable.

"This would be a negative shock, not only to China, but the world," she said, adding that the coordinated actions of central banks have helped stem any immediate damage.

Chen Zhao, co-director of global macro research at Brandywine Global, agrees policy responses have been "quick and decisive".

While a number of analysts have warned about China’s growing debt burden, Zhao asserted that the "concerns over China’s debt and its associated risks are grossly exaggerated".

He emphasized that in developing nations, "debt occurs primarily because savings needs to be converted into investment". Since China has such a high savings rate, its "high leverage is inevitable".

Rines also weighed in, stating that "there is certainly too much debt, but China has a significant capacity to paper over the issue in the near-term".

Regardless of how capable the nation is of addressing its highly leveraged nature in the short-term, Chen emphasized the problematic nature of China’s state-owned sector. This industry "consumes too much credit — it uses 80% of total bank credit to produce only 20% of GDP".

He added that "this issue must be addressed before the economy can regain efficiency".

Potential shift

While legitimate efforts to resolve this situation may represent a sea change in policy, Zhao emphasized that the Brexit could potentially represent a broad shift away from the globalization that has "dominated the world economy for the last 30 years".

Should this change take place, it could have a particularly large impact on China, which has benefited substantially from globalization.

By providing additional additional headwinds to this major economy – and also fueling greater uncertainty – a shift away from globalization could potentially provide bitcoin prices with additional tailwinds.

Charles L. Bovaird II is a financial writer and consultant with strong knowledge of securities markets and investing concepts.

Follow Charles Bovaird on Twitter here.

UK and China image via Shutterstock

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Ether, the native digital currency of ethereum, saw sharp gains while bitcoin experienced comparatively mild price fluctuations following last week's halving.

The price of ether pushed higher during the seven days through 14th July as the broader ethereum community came closer to implementing a hard fork that would offer a solution to funds compromised during the demise of the distributed autonomous organization, The DAO.

The digital currency's price continues to experience volatility "as the fork debate settles down", but it seems to be receiving tailwinds stemming from the 14th July commit of the nearly completed hard fork code, algorithmic trader Jacob Eliosoff told CoinDesk.

Eliosoff added:

"A further rise is likely once the hard fork wins out, which now seems inevitable barring discovery of a serious flaw in that code."

At press time, the price of ether was just over $11 on Poloniex. Trading earlier today saw the price rise as high as $12.40, trade data shows.

The ethereum community has spent several weeks determining how to respond to an incident where 3.6m ETH was moved into a child DAO.

While many have referred to this event as "The DAO hack" or theft, the ether was transferred in accordance with the rules of the contract, when someone executed the code of The DAO as written.

In the aftermath, developers had attempted to agree upon a viable soft fork, but these attempts have failed. As a result, the ethereum community has been working on a hard fork which, if executed, would move funds from The DAO to a new smart contract that would allow stakeholders to exchange DAO tokens for ethers.

During the last week, ether prices reached as high as $11.71, 15.5% higher than their opening price of $10.14 on 8th July, Poloniex figures reveal.

The digital currency retreated slightly before the week was over, closing at $11.50, up 13.4% for the seven-day period.

Stock market image via Shutterstock

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The success of bitcoin has prompted technology companies from around the world to look into ways its underlying code can be adapted to new commercial use cases.

SAP, a major German software company founded in the 1970s by a group of IBM engineers, is no exception. For much of the past year, the Weinheim-based firm has been exploring a range of applications for the emerging technology in the areas of finance, payments, supply chain management and more.

But like other companies doing this kind of exploration, SAP isn’t certain that a future for blockchains is in the cards. Rather, interviews with representatives from the firm suggest that it’s simply responding to both a rising tide of client interest as well as broader enthusiasm from market incumbents and startups.

In a new interview with CoinDesk, Gross struck an optimistic tone, explaining how SAP is approaching its early-stage testing from the perspective of client engagement and overall impact on how the global company operates.

At the same time, the company is seeking to plot its own course, according to Gross, who said that a driving factor behind SAP’s process is the ability for the company to "do it ourselves".

He told CoinDesk:

"You can only understand these types of applications when you start doing things yourself."

It’s an ongoing experiment that the company says has begun to bear fruit.

A previously reported partnership between distributed ledger tech startup Ripple and Alberta-based ATB Financial saw the completion of a cross-border payment trial for which Ripple worked with SAP to build a proof-of-concept.

Using that application, CA$1,000 was transferred from ATB to ReiseBank, headquartered in Frankfurt.

Use cases across sectors

Gross, who has worked for SAP since the early 2000s, cited supply chain management, trade finance and payments as major areas of interest for SAP, though he went on to point to energy distribution and even entertainment as areas in which the company sees promise.

"I see things coming from pharmaceuticals, life science as well,” he told CoinDesk. "What I have not seen a lot of is the pure manufacturing type of industries. Probably those are dealing with IoT, which will probably lead to blockchain down the road."

Still, it's supply chain management that could prove particularly attractive for SAP. Research published last year by Gartner indicated that SAP had roughly a quarter of the world’s market share for supply chain management software.

Gross noted SAP is looking at applications beyond the world of finance, an area that has arguably received the most attention from market incumbents and startup entrepreneurs, though he said the company's financial services arm is exploring the technology closely.

Discussing the company’s early interest, he contends it was sparked, in part, during examination of machine learning and artificial intelligence, saying that blockchain has "been on our radar for some time now".

“So we thought, well, there’s something going on there,” he explained. “Let’s better understand it, let’s dive into it and look at it from the perspective of what is interesting or relevant beyond financial services.”

Following demand

But Gross isn't the only person at SAP looking at the issue.

John Bertrand, an industry value engineer with a specific focus on banking, said he’s seen a lot of activity on the development front as well as a high level of curiosity among the company’s global clientele.

He said SAP is working with startups like MarkIt as well as Ripple to develop prototypes, a process that dates back about 18 months.

Yet in interview, he repeatedly invoked the idea that despite the investment in an exploration of blockchain, SAP will ultimately move in whichever direction the most demand can be seen.

"The big thing is, it's always great to have something that's wanted by the marketplace versus, 'Hey, here's this shiny toy," he said, going on to add:

"We will respond very quickly to the marketplace, but the marketplace has to say, ‘This is what we’re looking for’."

Bertrand, who joined SAP in 2014, said that international payments is an area in which blockchain makes sense – a topic he invoked in a recent blog post published on Finextra. While proponents say the technology could make the process more efficient, Bertrand said that the banks themselves are making money out of these very inefficiencies.

He explained:

“Banks do make a lot of money out of efficiency. Because they take the money and leave it in your bank account, and they’ll pay it anywhere from two to twelve days later. Two to 12 days, or 20 days, or 30 days. That’s free money for the bank. Right now interest rates are very low, so it’s making banks right now quite cash rich, this float. But it doesn’t help the economy because everything is slow. So blockchain helps that.

Both Bertrand and Gross said that one of SAP’s priorities is to cut through the hype, so to speak, weighing applications and seeing which areas make most sense for the company to continue exploring.

"I certainly don’t need to tell you that the technology and scenarios are in early stages," said Gross. "So, we are very busy figuring out what is hype and marketing and what is reality."

As well, Bertrand and Gross indicated that, ultimately, SAP is going to move on products and services their clients want to buy.

Bertrand concluded:

"If our customers say they definitely want it, they’ve got it."

Image Credit: 360b / Shutterstock.com

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An event anticipated in the bitcoin community for years came and went last week with little fanfare and, a week later, little impact.

At approximately 12:48 EST, the 420,000th block on the bitcoin blockchain was mined and sealed by F2Pool, one of the largest bitcoin pools, earning its members 12.5 BTC. This marked the second halving, and the first time a miner would receive the reduced subsidy.

Programmed into bitcoin's code, a halving event is when the subsidy for miners securing the network is cut in half. When bitcoin creator Satoshi Nakamoto first released bitcoin, miners earned 50 BTC per sealed block. Three-and-a-half years later, or 210,000 sealed blocks, that reward was automatically cut in half.

This cut in the subsidy is bitcoin's way of controlling the total supply of currency that will ever be released. When the last bitcoin is released in 2140, there will be a total of 21m total bitcoin in the market, though many will not be in circulation due to loss.

Heading into the event, there were predictions on what would happen, with some speculating that the price would drop immediately after to others suggesting worst-case scenarios.

But what has become clear, at least in the first week after halving, is that halving was just another day for bitcoin.

Price unaffected

One of the primary expectations leading up to halving was that the price would drop due to an expected rumor-and-event cycle, whereby traders would accumulate the asset, riding the excitement up until the actual halving took place, at which point they would exit positions.

Petar Zivkovski, the director of operations at WhaleClub, for example, predicted that the smart money – institutions, professional traders, and other knowledgeable bitcoin traders – would sell their bitcoin holdings at the event.

The day before halving, the price of bitcoin dropped by close to 10%, from $674 to $618, according to CoinDesk’s USD Bitcoin Price Index (BPI). While slightly premature to the actual event, this could have been a sign of that event-based selling.

Yet, since the halving, the price has been in a tight trading pattern between $637 and $673 per bitcoin, or 5% fluctuations.

One possible explanation is that the smart money believes the price of bitcoin is going to go even higher, and that the new supply to the market is being bought, offsetting any sales by the smart money.

Terrence Thurber, founder of Oregon Mines, originally told CoinDesk that he believed the price could reach as high as $900, double the $445 bitcoin had been hovering around prior to the massive run-up in June.

He said:

“The price of bitcoin after the halving would normally be expected to rise as decreasing supply meets increasing demand.”

If 25 BTC is being released into the market every 10 minutes at $660 per bitcoin and the price stays constant, the demand is also 25 BTC every 10 minutes. If the price continues to stay relatively constant after halving, with the number dropped to 12.5 BTC, miners were either not selling all of their coins when they were receiving 25 BTC, or the smart money is selling, offsetting the cut in new supply.

A similar behavior occurred when bitcoin last halved on 28th November, 2012, when the price was $12.35. The price increased by approximately a $1 over the next month, a relative calm despite the predictable nature of the approaching halving. However, by January, the price was beginning to increase until it peaked at approximately $230 on 9th April.

While the price of bitcoin is always in flux, the immediate response to halving was for the price to stay relatively stagnant.

Hashrate stays contact

While price proved stable, bitcoin miners were more immediately impacted.

When Antpool sealed the 419,999th block, it received a 25 BTC subsidy, valued at approximately $16,250 at the time of the block. Only a few minutes later, when F2Pool sealed the 420,000th block, it earned 12.5 BTC, valued at approximately $8,125.

Miners effectively saw their revenue cut in half, which was to be expected. But the anticipated outcome was for the hashrate to drop significantly as well. And while it did drop, from 1,600 petahash/second to a little under 1,400 petahash/second, this is well within the fluctuation of hashing power over the past few months.

Marco Streng, CEO of Genesis Mining, told CoinDesk that efficiency is what matters for bitcoin mining.

He explained:

"For us, the halving didn't surprise us at all. We were prepared for that event to happen. The most important rule for mining is still: 'If you are the most efficient miner you will be able to continue mining while others need to step out leaving you a bigger share of the pie.'"

Further, even with a revenue drop from $16,250 to $8,125, revenues were still nowhere near as bad as they had once been when the price of bitcoin hovered in the range of $200-$300 through much of 2015.

According to data collected from Blockchain.info, revenue from mining was lower than today’s levels from January 2015 to November 2015, with some periods where it rose above today’s daily revenue of $1.07m. During that time, bitcoin's hashrate continued to increase from approximately 300 PH/s to 500 PH/s in the same time period.

But, mining has evolved considerably since that time.

At the start of 2015, miners were still deploying 28nm chips, such as what was found in Bitmain’s Antminer S3, which provided approximately 450GH/s of hashing power per device. Today, Bitmain has its S9, which provides 14TH/s of hashing power per device.

Point being, the hardware that miners use today is far more efficient than it has ever been before, making it possible for miners to earn a return on investment even when revenue gets cut in half.

Eric Mu, CMO at HaoBTC, a mining firm with 5.5% of the hashrate, explained that the vast majority of the cost for the miner was in the actual hardware. Now that they own that, so long as the electricity is cheap, profits can continue to be made.

Ultimately, any miner that was able to survive earning between $5,000 to $7,500 per sealed block (when bitcoin traded in the $200-$300 range) back in 2015, earning $8,125 is still better. For those that couldn’t stomach revenues that low, they likely dropped off back in 2015.

Bitcoin survived

Bitcoin has now experienced two halving events, which, theoretically, should have had a jolting effect on the network and price.

However, what both events showed is that, for the most part, a halving can be pretty boring. While miners are affected, at today’s prices, there doesn’t appear to be an exodus any greater than what the network shows each month.

Segregated witness, an improvement to the code that will solve transaction malleability and open the door to technology like Lightning Network, is still on its way. Companies like OpenBazaar continue to roll out what could be among the first promising consumer apps.

Further, new financial products, like the ETFs proposed by SolidX and the Winklevoss Twins continue to seek regulatory approval. And ultimately, bitcoin continues forward.

While the halving event was an especially boring day for bitcoin, it showed, again, that it continues its journey from a risky experiment to real-world tool.

Tiny trophy image via Shutterstock

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A UK House of Lords committee will meet next week to hear testimony from academics and representatives of the blockchain industry.

Parliament announced today that the Economic Affairs Committee of the House of Lords (Parliament's upper house) will meet on 19th July to discuss blockchain and potential applications for the UK government. The committee will notably feature testimony from Ben Broadbent, the deputy governor of monetary policy for the Bank of England who remarked this past March that a central bank-issued digital currency could have a major impact on banking.

In addition to Broadbent, witnesses set to speak include Digital Asset Holdings CEO Blythe Masters; 11:FS co-founder and director of blockchain Simon Taylor; Imperial College Centre for Cryptocurrency Research associate director Dr Catherine Mulligan; Gresham College professor of commerce Michael Mainelli; and PwC transformation and assurance director Lord Spens.

According to Parliament’s announcement, the hearing will focus in part on public sector blockchain applications for the UK government, a topic that has seen interest from both within and outside of the government.

Specifically, the hearing will look into whether the technology could "be used to collect taxes or pay benefits", a question that comes after the UK Department of Work and Pensions began a blockchain welfare payments trial. The trial has since stoked concerns among privacy advocates, according to the Financial Times.

The hearing will also focus on regulation, central bank-issued digital currencies and the question of "what happens if the technology goes wrong?".

Testimony begins at 15:05 UTC, according to Parliament. A live broadcast of the hearing will be streamed here.

Image via Shutterstock

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CME Group's executive director and digitization lead has called the increasing number of planned bitcoin exchange-traded funds (ETFs) a sign that the market for blockchain-based digital assets is maturing.

At the Tech Talk 5.0 conference in London this week, CME's Sandra Ro spoke broadly about the progress being made by the derivatives marketplace provider in exploring the blockchain industry, reviewing the company's new bitcoin benchmark and speaking in-depth how the group looks at the future of blockchain more broadly.

In response to audience questions, Ro notably said she believes the two ETF filings currently pending in the US are a sign more filings for regulated products may be on the way. Further, she said existing products and filings prove that there is enough demand for additional regulated products in the digital assets space.

Ro told the audience:

"In fact, some of the most exciting areas to explore are at the intersection of digital assets and tokenized fiat and tokenized commodities."

Elsewhere, Ro voiced an argument as to why her firm believes the public blockchain space could be as valuable for financial institutions to understand as private alternatives, stating that CME maintains a dual focus on digital assets and blockchain and distributed ledger technology.

Even though Ro sees bitcoin as the most mature digital asset, she is quick to note that there are many others that may or may not succeed, even referencing how the social network-based digital currency Steemit has risen sharply in total market capitalization in recent days.

An audience poll at the event suggested that those in attendance are perhaps now more familiar with bitcoin, as well. When asked if attendees had ever held any bitcoin, 23% of the audience voted 'Yes', while 77% reported 'No'.

A total of 79 votes were cast.

PoC strategy

Overall, Ro discussed four primary mandates that CME has put in place for its digitization group.

Firstly, she said, the group is looking at projects as part of a long-term strategy, on a timescale of three to five years. Previous work by the group was more short-term focused, but going forward, the group is looking into ideas that take time to mature.

"We want to make smart bets on where we need to be in the next three-to-five years," Ro said.

Ro spoke to a focus on both projects and proofs-of-concept, distinguishing between the two categories in terms of time and money invested.

CME undertakes a project, she said, when the idea is more concrete and the company is willing to spend up to a few million dollars getting the concept to fruition.

On the other hand, proofs-of-concept are worked on with little funding and a lesser time commitment, while experiencing a higher failure rate, she said.

Ro stressed that the company's motto with proofs-of-concept is to experiment and fail fast.

FinTech engagement

Later, Ro discussed how CME is working with both new and established players to chart its future course for FinTech.

For example, she said CME is looking into possible changes to how intellectual property should be handled by the group so it can better work with new players.

Ro believes that the traditional approach of patenting technologies developed by CME may not work well with the evolving FinTech community.

In terms of external engagement on blockchain specifically, Ro mentioned the group’s involvement with the Linux Foundation-led Hyperledger project, and other consortiums like Post-Trade Distributed Ledger Group (PTDL).

Disclosure: CME Group is an investor in Digital Currency Group, of which CoinDesk is a subsidiary. 

CME Group image via Sid Kalla

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