A spike in the cryptocurrency markets over the last couple weeks has run into what appears to be a round of profit-taking over the last day as some investors appear ready to cash out after a run-up that saw Bitcoin go from below $8000 to over $9000 before settling back down around $8750 as of this writing. The Fowl Five Index of cryptocurrencies moved from down below 1000 to up over 1200 before receding to around 1175 right now, its big move helped by the recent surge in price of Bitcoin Cash.
The crypto market's bearish year continues. The Fowl Five index is nearing all-time lows as it currently hovers around 1022 (though to be fair "all-time" currently dates back to February) as the values of Ethereum (below $450), Litecoin (below $140) and many other prominent altcoins have fallen precipitously over the last week. The factor preventing a return to the sub-1000 reading of early March is the relative strength so far of Bitcoin, which has not fallen quite as quickly during this micro-downturn and currently sits above $7900. The flurry of news and rumors about regulation seem to have a grip on the market's attention while technical analysis seems to be creating self-fulfilling predictions about further falls.
Photo by Hugues de BUYER-MIMEURE on Unsplash
Open source Internet-connected Bitcoin wallets could be rock-solid software in many cases, but a system-level attack threatens to make their application-level precautions irrelevant. The recent Meltdown/Spectre hack targeted the chips inside PCs, highlighting the dangers that anyone using a computer connected to a network can suddenly become vulnerable to. Security of cryptographic assets is of extreme importance; thus having ways of securely archiving wallet data offline is a desirable option.
One way is a traditional paper wallet which at its simplest is a printout of the keys associated with a Bitcoin address. Of course, anyone with physical access to that printout can compromise the account.
I have developed an experimental tool, built with React and server-side-rendered with NextJS, for saving the backup data from online Bitcoin wallets such as Electrum.
Paper Umbrella is a browser-based “paper wallet” that does not need a network connection to save user data locally and can be run in an “air-gapped” context. It allows the saving of an arbitrary number of accounts, with each entry containing fields for the wallet’s name, seed data, public keys and private keys. This data is encrypted using the password provided by the user and then saved in a JSON file. When the user later selects that wallet to view it, they must enter the same password in order to get back the private keys and seed data.
The code for Paper Umbrella has been released under the free and open source ISC License and can be checked out from a GitHub repo. It is currently in pre-release and is not yet recommended for use with production cryptocurrency data.
Paper Umbrella's main component is called Tracker. It contains all the core front-end functionality that, when paired with the NodeJS server for persisting data, makes the app work. Also included is Fowlfive, a component that looks up the prices of five major cryptos and then calculates and displays the Fowl Five market aggregate index which is also featured here on the Block Fowl blog. In addition a few components sit at the bottom and provide disclaimers and links.
The readme for Paper Umbrella includes simple instructions for getting the app started using your Mac, Windows or Linux computer's command line terminal.
The Fowl Five Index of cryptocurrencies has stayed largely between 1250 and 1450 over the last few weeks as the prices of Bitcoin and other major crypto assets have shown an atypical level of price stability. While it tested levels below $9000 and briefly hit a monthly high of just above $11500, Bitcoin has mostly traded in the range between $10000 and and $11000 over this period. In contrast Bitcoin Cash has weighed on the index as it has seen a steady decline from $1500 to around $1185 recently.
After the rout of early February and the beginning of the year in general, crypto prices could be stabilizing after the excesses of late 2017 and the correction of early 2018. But why would the prices find an equilibrium here, other than a possible balance between new speculation coming in and previous speculation going out? Until valuations are better understood in terms of benchmarks and ratios, the proportions between the share of the market that is speculative and the share based on underlying network demand [as I see it, the key problem in crypto valuation] will probably remain unclear.
Berkshire Hathaway executive Charlie Munger launched a bellicose attack on Bitcoin, urging the American government to "step on it hard"--one of the latest of a parade of establishment finance figures who have attacked cryptocurrencies.
Fowl Five Index at 11:09 a.m. PST Feb. 7, 2018
I wanted to create a market aggregate index so I picked five cryptocurrencies that I thought represented a solid basket of relatively high-capitalization items.
First, Bitcoin is the largest and most prominent cryptocurrency, at least at the moment. In a way, it serves as the current market bellwether just by itself. There is no getting around its considerable effect on the Fowl Five Index, since the basket of cryptos is weighted roughly by market capitalization and Bitcoin's market cap is so large. Given its size, it serves as the benchmark against which the other four cryptos are adjusted against when calculating the index.
Ethereum is the second cryptocurrency in the index given its clear #2 position in size and prominence. It also has a somewhat different set of features from Bitcoin and will sometimes move in an uncorrelated way so it is a useful signal to include.
The third cryptocurrency is Bitcoin Cash, which has had a rough patch in the last few months in terms of price but which retains a large market cap and continues to seem to undershoot or overshoot overall market trends on many days possibly due to the back-and-forth of mining rewards levels.
The fourth cryptocurrency is Litecoin, which has become a fairly well-known cryptocurrency with a visible founder, Charlie Lee, and has seen some interesting run-ups in the last several months as Coinbase users and others have poured into it. Given its low expenses for sending money and its first party wallet apps, it may well continue to receive attention from a growing audience that has some cross-over from the Bitcoin community but also includes a different segment of users.
The fifth cryptocurrency is Dash, which is a more privacy-focused example than the others. While it is the smallest in the index, it represents a type of crypto not otherwise found in it.
When calculating the Fowl Five Index, the latest prices and market capitalizations of these cryptocurrencies are looked up from the web and then fed into the formula which rebases their prices against their weighted market capitalization and feeds those values into an aggregate total. Roughly speaking, the Fowl Five Index should show a positive correlation with the relative level of total growth in the prices of the cryptos.
Bitcoin's special place in the index is assured in the short term, but what about further out? The formula would no longer work as intended if it were no longer the highest-cap crypto in the basket. In the plausible but not-guaranteed scenario that Ethereum were to pass Bitcoin (it is now more than halfway there), I would probably swap the order in which they were fed into the function and make Ethereum the new standard.
During the crypto market panic of a few days ago the Fowl Five Index dipped below 1000, while today it is hovering around 1134.
For creating future indices, it is easy to conceive of the value of a broad-based aggregate that took in data from dozens of cryptocurrencies. For now, given the top-heavy nature of the market, the Fowl Five Index provides a good indicator of overall crypto price trends.
If you want a Fowl Five widget like the one on this blog for your app or blog sidebar, you can get the code here.