Another Crypto Hack Derails Recovery
Since our last report, hackers broke into yet another cryptocurrency exchange. This time the target was Bithumb, a Korean exchange known for high-flying prices and ultra-active traders.
While the hackers made off with approximately $31.5 million in funds, the exchange is working with relevant authorities to return the stolen tokens to their respective owners. In the event that some is still missing, the exchange will cover the losses. (Source: “Bithumb Working With Other Crypto Exchanges to Recover Hacked Funds,” Coindesk, June 21, 2018.)
What’s worrying is that this seems like a never-ending pattern: crypto prices begin to rise, only to retreat when a scary, but not entirely substantive, news story kills its ascent.
Markets had just regained confidence in cryptos. News about the U.S. Securities & Exchange Commission (SEC) rubber-stamping Ethereum (ETH) and Bitcoin (BTC) was driving a fresh rally in crypto prices. Investors were ecstatic to hear that ETH and BTC won’t be regulated as securities. But then word spread about a second hack in South Korea and investor confidence nosedived.
ETH dropped to roughly $520.00 and XRP retreated to the low $0.50s. Tokens supported by South Korean traders were hardest hit, mainly because those investors are famous for bidding prices way above their global averages.
However, I think investors should put the cyber attack in perspective.
Prices fell off a cliff when regulators got serious about cryptos. Now that Ethereum is in the clear, you would imagine those gains have returned. But they haven’t, and the hack is probably to blame. Its timing was unfortunate.
However, I find it hard to believe that $31.5 million, stolen or not, can keep a $52.0-billion market under pressure for long. It seems more likely that investors will come to their senses soon.
New Crypto Research and Tracking Tools
If you’re still worried about cryptocurrency, look at how governments and companies are treating the idea. Three years ago, they didn’t know it existed; two years ago, it was a joke; last year, it was a fad; and now it’s headlining every conference related to finance or technology.
Even Stanford University, the beating heart of Silicon Valley’s talent pool, has started a Center for Blockchain Research. They plan to “improve, apply and understand” the many layers of decentralized technology, meaning that blockchains are getting an intellectual backbone that didn’t exist in the past.
“Blockchains will become increasingly critical to doing business globally,” said Dan Boneh, the Rajeev Motwani Professor in the School of Engineering and an expert on cryptography and computer security. “This is a fascinating area of research with deep scientific questions.” (Source: “Stanford computer scientists launch the Center for Blockchain Research,” Stanford University, June 20, 2018.)
In other news, the St. Louis division of the Federal Reserve Bank added four cryptos to its massive online database known as “FRED.” This is a big deal, as getting into FRED is the closest thing the government can do to show cryptos are being taken seriously. (Source: “FRED Adds Cryptocurrency Series,” Federal Reserve Bank of St. Louis, June 19, 2018.)
The four cryptos added are Ethereum, Bitcoin, Bitcoin Cash, and Litecoin. If you’re wondering why these four were selected, let’s just say there wasn’t much of an option; Coinbase is providing the data feed, and the only four cryptos it lists are the ones identified above.
Nonetheless, it’s important to note that cryptocurrencies are continuing their long march toward respectability.
Garlinghouse Says “XRP Is Not a Security”
My last piece of news shouldn’t come as a surprise: Ripple (XRP) CEO Brad Garlinghouse wants regulators to go easy on XRP. That’s hardly a shock, considering his company owns more than 55 billion XRP tokens.
However, Garlinghouse stresses that XRP, like Ethereum, does not act like a security.
“XRP is not a security for three reasons: if Ripple, the company, shuts down tomorrow, the XRP ledger will continue to operate; it’s an open-source, decentralized technology,” he said, adding that, “if you buy XRP, [you are] not buying shares of Ripple – buying XRP doesn’t give you ownership of Ripple.” (Source: “Ripple CEO Defends XRP’s Utility at Fintech Conference,” CoinDesk, June 21, 2018.)
Will the SEC buy that reasoning? I’m not sure. Garlinghouse certainly makes an interesting point about XRP’s survival being an independent matter from Ripple.
I think that could hold some sway over the Commission, but we won’t know until the SEC decides to make a determination.
For my part, I think the fact that XRP offers a genuine value-add to business is reason enough to own it. The rest will sort out over time.
I sound like a broken record, but it must be said: don’t make your investment decisions on price alone. Prices are trailing indicators; they reflect how investors feel about what’s happened over the last week or month, not how they’ll feel about what’s taking shape on the ground right now.
This is why I look to fundamental developments that happen concurrently with price drops. They present interesting opportunities.