Minor Bitcoin Allocations Boost Returns and Diversification, and more

12/07/2023 0 Comments

1. Minor Bitcoin Allocations Boost Returns and Diversification

Anticipation of ETFs has driven the largest surge in inflows into digital asset investment products since late 2021, reaching $1.7 billion over nine consecutive weeks.

Bitcoin attracted over $1 billion in inflows last month, totaling $1.6 billion year-to-date. Following the footsteps of the world’s largest altcoin, Ethereum, too, recorded inflows of $126 million, marking a significant turnaround in sentiment.

The commonly held belief is that while Bitcoin has delivered impressive returns, it introduces significant risk – in the form of volatility – when incorporated into a traditional stock and bond portfolio.

However, CoinSharers’ research has unveiled intriguing aspects in terms of “a balanced investment portfolio.”

CoinShares’ Portfolio Review

In the latest blog post, the asset manager’s analysis found that even minor allocations of Bitcoin exert a disproportionately positive impact on risk-adjusted returns and diversification compared to other alternative assets.

Moreover, Bitcoin’s lack of correlation with traditional assets positions it as a valuable alternative investment, offering a means to mitigate exposure to economic cycles. It also observed that implementing quarterly adjustments (rebalancing) of Bitcoin back to its original portfolio weight can effectively curtail volatility and improve overall returns.

Bullish Sentiment Across Bitcoin and Ethereum Charts

The value of Bitcoin experienced a roughly 4% decline following Binance’s $4.3 billion settlement with the US Justice Department. However, it quickly rebounded the following day and has now surged to $44,000.

According to CoinShares, this upward momentum is attributed to the “clearing of bad actors” in the industry, indications from the Federal Reserve suggesting the conclusion of interest rate hikes, and the imminent approval of a spot Bitcoin ETF as a short-term catalyst.

Meanwhile, the asset manager also pointed to the recent widening of contango in the futures market, terming it as a rare occurrence since 2018, indicating a “very bullish sentiment,” with premiums reaching well into double digits.

The consistent positive funding rates, the highest levels of trading volume and leverage since April, and a long/short ratio of 0.97 have all contributed to the optimistic outlook and price movement of Ethereum.

Additionally, the gradual rise in gas prices adds pressure to the leading altcoin’s deflationary characteristics, impacting the overall supply of Ethereum. As a result, the upward movement in price is more pronounced due to the increased impact of buying volume.

2. Jack Dorsey wants to decentralize Bitcoin mining with new investment

Twitter (now X) co-founder and Bitcoin advocate Jack Dorsey is backing a new BTC mining pool to help miners regain control of block rewards and transaction fees.

Dorsey has led a $6.2 million seed round for Mummolin, the parent company of the new decentralization Bitcoin mining pool called Ocean, according to an announcement on Nov. 29.

The seed funding will support the launch of Ocean, which is designed to decentralize and reshape the process of Bitcoin mining. The mining pool specifically aims to provide more mining process transparency and enable miners to receive block rewards directly from Bitcoin rather than from BTC mining pools.

Ian Northon, co-founder and chief legal officer at Mummolin, told Cointelegraph that the raised money will be used for general corporate purposes. “Our cap table is private, but we are proud to have several OG Bitcoiners and other Bitcoin thought leaders back the project,” Northon said, adding:

“Our payout system TIDES is an abbreviation for Transparent Index of Distinct Extended Shares, which we believe is an upgrade and improvement on PPLNS and vastly better than FPPS, especially over miner’s transaction fee revenue.”

Luke Dashjr, Mummolin co-founder and long-time Bitcoin Core developer, believes that the role of mining pools must change for Bitcoin to exist as a truly decentralized currency.

“Ocean is a new type of pool that enables miners to be truly miners again. We are launching as the most transparent pool and also the only noncustodial pool where miners are the recipients of new block rewards directly from Bitcoin,” Dashjr stated.

Mummolin co-founder and president Mark Artymko stressed that traditional BTC mining pools take exclusive custody of block rewards and transaction fees before distributing them among miners. “This gives them the ability to withhold payment from individual miners, whether by their own choice or by legal requirement,” Artymko said, adding:

“OCEAN’s non-custodial payouts directly to miners from the block reward remove this risk and the pool’s undue influence over miners.”

Committed Ocean supporter Dorsey is confident that the platform will solve the problem of further centralization of pools and mining pools that could plague Bitcoin. He noted:

“When I see a project that is good for Bitcoin broadly, and that’s also good for me and my companies personally, it becomes a simple decision for me and I’m happy to be a part of it.”

The launch of Ocean was announced at the Future of Bitcoin Mining Conference in the shadows of Barefoot Mining’s 150-year-old hydroelectric dam in rural South Carolina. Barefoot Mining, the first client of Ocean, has fully repurposed the dam, converting excess energy to Bitcoin mining at scale.

Ocean’s launch is 139 days before Bitcoin’s fourth halving event, which is expected on April 17, 2024. After the halving, the current 6.25 BTC mining reward per block will drop to 3.125 BTC, significantly decreasing incentives for Bitcoin miners.

3. Ocean mining pool refutes claims of censoring certain Bitcoin transactions

Bitcoin wallet provider Samourai Wallet has accused Bitcoin mining pool Ocean of censoring Whirlpool CoinJoin transactions and BIP47 notification transactions from Dec. 6. However, Ocean’s top executive has denied the claims while asking the Bitcoin wallet provider to fix a bug in their software.

On Dec. 7, Samourai Wallet claimed that a new policy enacted by Ocean mining pool censors certain Bitcoin transactions. In addition, the wallet provider accused X (formerly Twitter) and Block co-founder, Jack Dorsey, who is also an investor at Ocean, of a “hostile action.”

In the thread, Samourai Wallet further accused Bitcoin Core dev and Ocean founder Luke Dashjr of censoring transactions and deploying blacklists for transactions in the past and suggested his long-standing intent to do so.

The latest accusation from Samourai Wallet blames Dashjr for imposing a 46-byte limit to OP_RETURN function as opposed to 80 bytes, which came into effect in Bitcoin Core version 0.12. As a result, Samourai Wallet claims that Ocean allegedly excludes privacy-enhancing transactions and advised miners to “reconsider and point your hash power to another pool.”

In addition, he appeared unsure about the concerns raised by the wallet provider as he asked, “What is this data even for? I’ve looked at trying to work around it, but can’t find any technical details.”

Dashjr took no blame and asked Samourai Wallet to “fix it on your end.” The conversation split the crypto community into supporting the disparate schools of thought. While some supported the wallet provider with an “80 Bytes is 80 Bytes” narrative, others advised them to fix the bug. One community member, who was a former ASIC and iOS developer,  believed the new policy that enforces censorship was “unintentional”

Additionally, Brad Mills from Nostr Wallet said, “There’s no policy to censor Whirlpool or privacy-preserving transactions.”

Samourai Wallet continues to accuse Dashjr of lying and deceiving community members by shifting the blame away from itself as it asks the community, “Don’t let them get away with this.”