The sockpuppet accounts
There seems to be a lot of commotion over at /r/bitcoin about some 2000 new accounts who subscribed over the past two days. Some take the subscriptions as some sort of indicator of things to come, with all these subscribers being about to buy bitcoins. That's nonsense.
There is some Russian hacker somewhere with two monitors: one on reddit, and the other on BTC-e, watching the discussion and laughing at the fools who are buying into this theory. Consider that the signup form is so simple that a person could sign up for an account in less than 30 seconds. That means that if I work for just one weekend, 12 hours a day, I could register 2880 accounts without any software at all. Or, I could pay someone in China $2/hr to do it, for a total cost of $48 (which is less than the trading fees incurred in this scheme).
If these accounts aren't being used simply to influence the price, their purpose may simply be to downvote posts. I've noticed that most posts around here go down to 0 points immediately before people later upvote them. I'll leave it up to people to try to figure out why someone would waste so much time to downvote posts, as I have no idea.
More crash to come
Yesterday, I posted that I changed my flair to bearish in /r/bitcoinmarkets, and people there roundly downvoted what I had to say. Even though it turns out I was correct, I still won't be changing my flair back to bullish. As I said before the auction, if there is not a rise soon, there is much more of this crash to come. I'm not going to repeat why my short-term outlook is negative; you can review that yourself in previous posts.
One of the statistics that has jumped out at me overnight to reinforce my view is the number of open long positions at Bitfinex. There are huge numbers of people buying on margin, thinking there is going to be a big rise coming up.
People need to recognize that the "sentiment index" posted on Bitfinex should not be used as an indicator as to which way the market is going to move. The index simply compares the value of long positions to the value of short positions. In fact, if the sentiment is "bullish," it means that the market is likely to retract, because after the initial purchase, long positions are a drag on the bitcoin economy. People in long positions bleed money every day that the market doesn't go up, and are time-bombs waiting to go off. Every long has to close the position at some point, either because they lost all the entire position in interest payments, the value goes down to a margin call, or they simply decide to cut losses. Since interest payments can essentially be viewed as a slow sale, longs depress the market and present a risk for a long squeeze.
The people buying on margin face the worst possible circumstance: a drawn-out decline where they are losing both in value and in interest payments. These positions are going to be closed as the decline continues, causing a chain reaction.
Market ignores the most important news
The most sensational and important news of the past few months broke yesterday, and it seems to make little sense to me as to why it was largely ignored by buyers and sellers. People sell on ridiculous Chinese panics that have nothing to do with the actual technology, and then they ignore something that could have a profound impact on whether bitcoins will even be useful in the future. Perhaps the unbelievably low volume shows that people aren't going to do anything regardless of whether things are looking up or down.
/u/andreasma resigned from the Bitcoin Foundation yesterday afternoon, claiming that the organization "lacks transparency." Whether his accusations are true or not matters little, given that there are many people who became interested in bitcoins solely because of him. One of the news sites (Coinfire, perhaps?) offered a survey recently asking which person encouraged readers to become interested in bitcoins. Andreas Antonopoulos was the highest-ranked individual (after "family" and "other") referred to as the force that convinced people to join bitcoins. Without him, the Bitcoin Foundation now has the currency's greatest advocate as an enemy. By quitting, he probably increased his profile even more.
One important issue to note is that Antonopoulos is not one to make such decisions lightly. Unless I am completely mistaken about his character, he seems like one who would never resign unless the situation was so bad that he had to get himself disassociated from something that was happening there. That brings up more questions about what could have been so bad that he would need to leave to avoid getting attached to.
Also of note is that Brock Pierce decided to release RealCoin, which is an obscene conflict of interest with his position and which shows that the Foundation is in disarray.
Bombshell tweet
By far the greatest revelation of yesterday, other than the resignation itself, is a spat that has broken out between Antonopoulos and /u/gavinandresen. These two are arguably the two most important figures in bitcoins today. Andresen criticized Antonopoulos and disagreed with him, stating his belief that the Foundation is indeed transparent. The tone of Andresen's message left nobody in question that he did not respect Antonopoulos and his decision.
That leaves the two most important influences on future bitcoin development at odds with each other. Even if this spat is resolved quickly, energy will be diverted away from progress in technological development and redirected towards this argument over the direction of the Bitcoin Foundation. If Antonopoulos doesn't make up with the Foundation, then it is likely that he will be giving speeches criticizing Foundation members in the upcoming weeks (the first question at all his speeches is going to be why he resigned). Instead of working together, the two greatest minds in bitcoin may be working on the same things in parallel or simply wasting time arguing with each other.
The reason this is serious is that Antonopoulos, in most of these surveys, is rated as more popular than Andresen. If Antonopoulos announces his opposition to an action taken by the Foundation in the future, it's possible that people could coalesce around him, essentially resulting in two Foundations. In the absolute worst case, the opinions of the two groups diverge into a hard fork, as has happened with popular projects like MySQL. Unlike MySQL, where people can install and use either fork, bitcoin holders can't allow two forks to survive.
This is hugely bearish news for bitcoin - not because bitcoins will die, but because there could be a setback for the near term. It's a shame that Antonopoulos was unable to work with the Foundation. The Foundation is the only entity holding bitcoin development together, and yesterday it suffered a significant blow to its legitimacy. If the Foundation folds or if people start to abandon it, a situation could ensue where there are no developers working on the project .
Things like developers are fundamentals about bitcoins that have long-term repercussions. News about regulations and banks and merchant adoption does not affect the usefulness of bitcoins. Value investors need to pay more attention to what is going on behind the scenes and avoid getting distracted by the daily news cycle. By the way, don't try to discuss this issue in /r/bitcoinmarkets. Someone stated he was going to sell and let this blow over, and he received 8 downvotes. Any opinion expressing negativity there is immediately discarded by everyone.
Enormous drop in ratio
I don't want to comment much on this issue other than to draw attention to it.
Today, /r/bitcoinmarkets had the largest drop in bulls to bears ratio I've seen in the past 8-month cycle. This ratio has often been a leading indicator, especially during the recovery towards the end of December. This is also the first time that the ratio has significantly diverged in slope from the price in a long time.
Other
- Supposedly, there are rumors that Coinbase has some huge announcement tomorrow. If the rumors are even true, it's probably another merchant, which will have no effect on price.
- We will be installing the production server for the mining pool on July 17, so those who signed up to test last week will be notified to begin either Saturday the 19th or Saturday the 26th.
- Days until July 24: 14