Blockchain is disruptive, but it doesn’t change human nature. In fact, Plato and Aristotle considered technology — which has roots in the ancient Greek word “techne,” or craftsmanship — an extension of nature. Today, many innovators' techniques are flawed. 

Exciting solutions are unnecessarily complex, hard to understand and impractical. Regular folks don’t meddle with applications like crytpocurrencies, therefore tokens are derided with nicknames like "shitcoin." It's an innovation that elides potential target customers like small-business owners who are too busy to read a technical manual.

Simple vs. Complicated Currency

Human nature should encourage technologists to create a streamlined user journey. In the office, people want ergonomic furniture so that work is pleasant and effortless. And when it comes to the wallet, people want currencies that are simple and don’t fluctuate in value.

Aristotle’s commodity theory of money declares that money is a commodity with three functions: medium of exchange, a unit of account and store of value.

But to function in daily life, money should be convenient to handle, store and transport. It should be easy to measure and divide. And money should be difficult to destroy so that it lasts many generations.

Fiat works well, but its major weakness is the destruction of purchasing power by a quantitative easing of central banks around the world. Since the Federal Reserve issued the current version of U.S. dollar in 1913, the greenback has lost almost 97% of its value. 

Related: What's Next for PayPal After Integrating Cryptocurrencies?

That’s unacceptable. And so it creates an opening for Bitcoin and non-sovereign, decentralized coins to become newly accepted denominations of money.

Unfortunately, cryptos fail to fulfill the aforementioned essential functions. (Yes, Bitcoin is sustainable, but many wannabe currencies have precipitated the loss of hard-earned wages and savings, resulting in the loss of trust in unbacked mediums of exchange.)

Regulators’ Sanctioning of Digital Coins

Governments and central banks are cautiously exploring, experimenting with and regulating digital currencies, and that's because history is on the side of digital, not paper. Moreover, officials are recognizing that fiat users want borderless and frictionless transactions.

If they don’t give what the customer wants, then part of the population may leave for the crypto Wild West for good due to lack of alternatives.In September, the Office of the Comptroller of the Currency issued a letter that allows regulated banks and thrifts to hold deposits as reserves for stablecoins that represent the U.S. dollar.

Stablecoins aren’t the same thing as Bitcoin or other non-sovereign coins, but they at least provide tokenized, borderless and frictionless settlements.

“Companies that issue stablecoins often desire to place the funds backing the stablecoin, or reserve funds, with a U.S. bank," the letter states. 

"Public independent auditors’ statements of several stablecoin issuers indicate reserve funds are placed as deposits with U.S. banks. Several of these issuers promote these reserves — and the fact that they are held by banks — to support the trustworthiness of their stablecoin.

 In light of the public interest in these reserve accounts, this letter addresses the legal authority of national banks to hold stablecoin reserves on behalf of customers.

"Aside from 1:1 pegged stablecoins, state regulators are making fiat and cryptocurrencies interoperable for daily use. Last month, the Wyoming Banking Board approved Kraken’s application for a Special Purpose Depositary Institution (SPDI) banking charter. 

The San Francisco-based crypto exchange “will be the first regulated, U.S. bank to provide comprehensive deposit-taking, custody and fiduciary services for digital assets,” according to a Sept. 16 company announcement.

“From paying bills and receiving salaries in cryptocurrency to incorporating digital assets into investment and trading portfolios, Kraken Financial will enable Kraken clients in the U.S. to bank seamlessly between digital assets and national currencies.”

Creating a Streamlined User Journey

Blockchain innovators are realizing the critical need to make the customer journey painless and effortless. In September, crypto exchange BitMax.io announced support of deposits and withdrawals with FIO Addresses.

These are human-readable addresses (like [email protected]) as part of FIO Protocol’s initiative to make crypto products usable by anyone. Cryptocurrency addresses can have dozens of characters that make irreversible errors common, and simple addresses are considered by some observers as a step in gaining more mainstream adoption.

Moreover, FIO Requests let users respond to requests for funds knowing the exact amount and proper token chain. As more tokens like USDT operate on multiple chains, it’s becoming important that users only send tokens from the expected chain.

The blockchain industry is heading down the path of cross chain communication. Such details can be hidden from the end user with FIO.HARD Protocol is another example of how cryptocurrency can become more integrated and user-friendly.

Tapping into the appetite for decentralized finance, HARD Protocol allows users to lend, borrow and earn with their digital assets. However, whereas DeFi has evolved to be hard-wired to Ethereum — and as such, clunky and difficult to use — HARD Protocol is transcending global investments through crypto technology.

 It’s based on the Kava DeFi hub, providing an intuitive user interface along with cross-chain capabilities, supporting multiple assets, including BTC, XRP and BNB. Cross-chain interoperability is proving to be a big hit among holders of non-Ethereum assets who were previously locked out of the so-called “open finance” ecosystem.

HARD Protocol only launched in mid-October; however, it already shows close to $19 million in value locked at the time of this writing. Further, HARD Protocol and Kava are also the only DeFi protocols supporting multi-chain assets. 

Related: Cutting-Edge Online Financial Strategies for the General Population

Money should be easy to use, convenient and difficult to destroy. Innovators can and do more to make the user experience simple and pleasant.

• Ethereum and Ripple are soaring, echoing the powerful rally in Bitcoin, as mass interest in cryptocurrencies picks up steam.
• Ethereum has jumped almost four-fold this year to just below $600, although this is still short of its record $1,500 in January 2018.
• The price of smaller crypto rival Ripple has hit its highest since mid-2019, having doubled in value in this month alone.
• This growing interest raises red flags, because many people are pouring in money into cryptocurrencies without really understanding how they work, which could lead to several mistakes and lost money, a researcher said.
• 
  

Bitcoin's growing reputation as an inflation hedge is boosting the price of other cryptocurrencies. Ethereum, the second-largest cryptocurrency platform in the world, rose by more than 6% to $597 on Monday, its highest since mid 2018. Ethereum is still well below its all-time high of about $1,500 recorded in January 2018, but its price has increased four-fold since March 2020, when the pandemic brought global money markets to a grinding halt.

Smaller rival Ripple's price has doubled in the month of November alone. The sudden price surge could be explained in large part because of Bitcoin's massive rally this year. The digital token is up 160% on the year and was trading around $18,632 on Monday, near three-year highs.




Markets Insider

While both crypto assets have risen massively in price, their market capitalization is still dwarfed by Bitcoin. Ethereum represents about $40.6 billion in market cap, Ripple stands at about $48.5 billion, while Bitcoin touched an all-time high of $336 billion last week.Michael Sonnenshein, managing director of the world's biggest crypto fund Grayscale Investments, told Business Insider last week that he believes Bitcoin is the next step in the evolution of money.

As the pandemic continues to quarantine huge swathes of the global population, people are spending more time online, and they're probably getting more interested in cryptocurrencies like Ethereum, Bernard Meyer, senior researcher at CyberNews.com, said.

Read More: A Wall Street strategist breaks down why bitcoin's latest surge past $18,000 is sniffing out a major downward spiral in the stock market's hottest trade"But because it's all so technical, they're probably investing in these cryptocurrencies without really being certain of what they're doing – which can lead to a lot of mistakes and money lost," he said.

In the past, a number of high-profile hacking and security breaches resulted in millions of dollars' worth of bitcoin and other cryptocurrencies being stolen on various platforms.

While security across the major trading platforms has tightened up, would-be Ethereum buyers need to make sure they are familiar with their token's smart contract - a form of account on the Ethereum blockchain that can send transactions across the network.

"If they're on Ethereum, they'll be using what's known as a smart contract to sort of automate the process of sending and receiving payments for users. But these smart contracts can have some big security holes in them," Meyer said.

Investors need to check the type of smart contract they're using and whether it has been audited and verified, to limit the chances of something going wrong. 

What a year – a global pandemic, a wavering stock market, rising numbers of unemployed people and continued uncertainty in global markets. Yet, we saw the bitcoin price recover from $5,300 in March to almost $18,000 at time of writing.

That’s almost a 240% return within nine months.For regular investors, the burning question is whether bitcoin is becoming overpriced. Is it too late to buy bitcoin?

Hong Fang is the CEO at OKCoin, a U.S. licensed, fiat-focused cryptocurrency exchange headquartered in San Francisco. Hong spent eight years at Goldman Sachs, leaving as VP of Investment Banking. She is a graduate of Peking University in Beijing, China, and has an MBA from the University of Chicago’s Booth School of Business.

If we put aside short-term volatility and take a long-term perspective, there is a reasonable path for the price of bitcoin to reach over $500,000 in the next decade. To go even further, I think BTC is likely to hit $100,000 in the next 12 months. Significant upside has yet to play out for bitcoin.

Bitcoin is a 'store of value'

When we talk about the valuation of an asset, the first step is to understand the fundamental economics. Equities, bonds and real estate, for example, often derive their value from generating cash flows; therefore, valuation of these assets involves projecting future cash flows. Commodities, on the other hand, are more utility based and therefore their prices are anchored by industrial supply and demand.

Before taking any action on bitcoin, I suggest asking yourself, “What is bitcoin for?” Use this as a baseline to form your own view of the value of bitcoin and its fair price range in a given time horizon.

Here’s my take as a HODLer:

• Bitcoin is sound money and the first native internet money in human society.
• It is scarce (21 million fixed supply), durable (digital), accessible (blockchain is 24/7), divisible (1 bitcoin = 100 million satoshis), verifiable (open-source Bitcoin Core) and most importantly, censorship resistant (encrypted).  With these superior monetary qualities in one asset, bitcoin is a great store of value. Once it reaches a critical mass of adoption as a store of value, bitcoin has huge potential to grow into a global reserve currency (and universal unit of account, too) over time.
• The history of money shows us that natural forms of money generally go through three phases of evolution: first as collectible (speculation on scarcity), second as investment (store of value), third as money (unit of account) and payment (medium of exchange). As bitcoin goes through different phases, its valuation scheme varies, too. In my view, bitcoin is currently in the early stage of phase II. Below is a short summary of the two phases bitcoin has been through and respective value implications.

Bitcoin as collectible

Between its inception in 2009 and 2018, bitcoin was in its “collectible” phase. Only a small cluster of cypherpunks believed in bitcoin as “future sound money.” It was hard to come up with a valuation scheme for bitcoin that matched its fundamentals. It was also too early to tell whether bitcoin could succeed in building consensus around its “store of value” superiority. 

Bitcoin is built as a basic utility and doesn’t generate cash flow, so there is no way to forecast its price based on cash flows. Its circulating supply was easy to calculate, but it was really hard to estimate demand given the fickle nature of speculative trading.

When speculative demand surged and drained out of the system, particularly around the initial coin offering (ICO) boom in 2017, we saw bitcoin’s price explode from $900 in early 2017 to $19,000 by the end of 2017, and then down to $3,700 by the end of 2018.

Bitcoin’s opponents usually attack bitcoin’s price volatility as a bug, but I believe that bitcoin’s price volatility is a unique and smart self-marketing feature. It was key to its survival in the early days.

Bitcoin operates as a decentralized global network. There is no coordinated marketing team out there promoting bitcoin’s utility to the world. It is the dramatic price volatility that has continued to attract attention from non-followers, some of whom were later converted into believers, thus driving the continued momentum of bitcoin adoption. 

Bitcoin as investment

Bitcoin went through an identity crisis as “sound money” before it graduated into the second stage as an investment vehicle. Starting with the scalability debate in 2017, when the network became congested with historical high volume and transaction costs surged, its community had serious controversies (some called it “civil war”) involving the future path of bitcoin. 

See also: Bitcoin 101

As a result, on Aug. 1, 2017, the bitcoin blockchain was hard forked to create the Bitcoin Cash (BCH) chain to allow larger blocks as BTC stuck to a block size limit with SegWit adoption to enable a second-layer solution. On November 15, 2018, the BCH network forked again into Bitcoin Cash and Bitcoin Satoshi’s Vision (BSV).

Fortunately, bitcoin (BTC in this case) survived its growing pains (and the industry-wide bear market) and thrived thereafter. It is also through such public disputes (and price performance after hard forks) that BTC support and dominance has been further solidified, with an increasing number of addresses holding BTC and decreasing volatility. 

Then came 2020.

Banner year

This year has been an extraordinary year in many aspects, but it is truly a milestone year for bitcoin. The coronavirus pandemic has brought emotional and economic stress to many people on a global basis.

On top of that, 12 years after the 2008 financial crisis and the publication of the Bitcoin white paper, we are reminded how easily our economy could be flooded with new money printed out of thin air; $3 trillion in new money was created in just three months in the United States, about 14% of U.S. GDP in 2019. The U.S. was not alone.

In 2020, it has been extremely hard for responsible savers to find reliable, real yields to preserve their hard-earned wealth.

American middle-class families have had to either accept zero to negative interest rates at banks and debasement risk or bet in the all-time-high equity market when the real economy struggles, not knowing when the music will stop. In other countries, people must fight an uphill battle everyday to simply preserve the earning power of their salaries.

These macro themes are too strong for anyone to ignore. In contrast, the Bitcoin network had its successful third halving on May 11, 2020, highlighting the beauty of having monetary discipline pre-written into code and executed by the global network smoothly ever since.

As a result, more investors in traditional finance (Wall Street institutions included) have started to realize that bitcoin has a unique hedging capability against long-term inflation risk, with a risk-reward profile better than its closest monetary cousin, gold.

Different from its 2017 ride, bitcoin’s current run-up is characterized by more vocal institutional endorsement: Square and MicroStrategy allocate treasury cash into bitcoin; the Office of the Comptroller of the Currency (OCC) allow U.S. banks to offer crypto asset custody; PayPal enabling crypto buying and selling; Fidelity making a case for 5% asset allocation and doubling down on crypto engineer recruiting; well-established traditional asset managers including Paul Tudor Jones and Stanley Druckenmilller announcing public support for bitcoin.

The mainstream momentum is building up.

For the first time since its historic inception, bitcoin officially entered mainstream media as “digital gold,” a legit and credible (and liquid) alternative asset to consider for both individuals and institutions. The earlier comparison to “Dutch tulip mania” starts to fade.

As more people educate themselves about what bitcoin is and start to embrace it not as a speculative trading asset but as a long-term asset allocation option, we can now look at its fundamentals and anchor price ranges with a simple supply-and-demand math.


Below are three scenarios used to triangulate bitcoin’s potential one-year trajectory.

Scenario 1: 1-2% US household wealth allocation?

• According to the Federal Reserve, U.S. household wealth reached $112 trillion by June 2020 (top 10% owns two-thirds of the wealth).
• 1%-2% of $112 trillion = $1.1 trillion to $2.2 trillion potential demand (Fidelity’s most recent report actually recommends 5% target allocation).
• Current total circulating BTC is about 18.5 million. To keep it simple, let’s assume 21 million max supply are all up for sale.
• Divide the potential demand by max supply, we get a price range of $56,000-$112,000. This scenario does not account for the rest of the world ($400 trillion global family wealth, according to Credit Suisse Wealth Report 2020). If we assume 1%-2% allocation of global family wealth, we will be looking at a $228,000-$456,000 price range. Would this happen in the next 12 months? Likely not. Can this happen within the next decade? I think that’s very possible. 

Scenario 2: 2%-3% of global high-net-worth individual allocation?

• According to Capgemini World Wealth Report 2020, global HNWI wealth stood at $74 trillion by end of 2019 (~13% alternative, 14.6% real estate, 17% fixed income, 25% cash and cash equivalent, 30% equity).
• 2%-3% of $74 trillion = $1.48 trillion-$2.22 trillion potential demand.
• Divide the potential demand by max supply, we get a price range of $70,000-$105,000.
• This scenario does look at global data, but only accounts for high-net-worth individual (HNWI) allocation, assuming that this segment has more assets to invest and investment decisions are more driven by institutional asset managers and advisers. I am also assuming a higher range of allocation here because HNWI are generally better positioned to take on more risks in search of higher risk-adjusted return.

Scenario 3: Catching up with gold?

• There has been a long-standing argument that bitcoin would catch up to gold in market cap once it is widely accepted as a “digital and superior version of gold.”
• Current gold market cap is $9 trillion. This is about 2% of total global wealth and 12% of global HNWI wealth.
• 100% gold market cap means $428,000 price point for bitcoin. Can we get there in 12 months? Probably too aggressive an assumption. Can bitcoin rise to 20%-25% of gold in 12 months (aka 2.4%-3% global HNWI wealth allocation)? Possible. That would give us a price range of $80,000-$110,000.

There are additional factors that could add more upside to bitcoin. Given that we are still in the early stage of mainstream adoption, I don’t want to over-emphasize them, but I want to lay them out just to keep the perspective.

• Potential allocation from corporate treasury management. We are already seeing early signs of that with Square and MicroStrategy. Square recently allocated about 1.8% of its cash balance to buy $50 million in bitcoin. Sizing up corporate demand for bitcoin is tricky, though. Each company has its own cash flow and growth profile, which will affect its risk appetite in asset allocation.
• Potential allocation from foreign exchange reserves of all sovereign states. According to the International Monetary Fund, the global foreign exchange (forex) reserve was $12 trillion by June 2020, with the top three reserve currencies in U.S. dollars $7 trillion (58.3%), euros $2 trillion (16.7%), and yen $650 billion (5.4%). Is it possible to see sovereign countries allocate some of their forex reserves into bitcoin? I believe that trend will emerge over time when bitcoin’s superiority in “store of value” further plays out in the next five to 10 years. Assuming 25% allocation ($3 trillion, a little more than euro allocation), that is another $140,000 upside. Bitcoin catching up on the U.S. dollar as a dominant global currency reserve could take a long time to materialize, if at all but it is not impossible to see bitcoin among the top 3 list. 
• Not 100% of bitcoin’s max supply would be available for trade. There is about 18.5 million in circulation. About 10% of that has been dormant for over 10 years. It’s tricky to estimate how much of the total bitcoin in circulation will actually be up for sale at different price points.
• None of the above account for the dollar's inflation rate in the years to come, which is about 2%-3% annually as a baseline. Neither do these scenarios account for the network effect of bitcoin, the possibility of bitcoin becoming more ubiquitous and reliable as a unit of account.

What could go wrong?

A one-sided investment case is never a good one. It is prudent to play devil’s advocate and assess downside risks. What are the major risks that may derail a bitcoin bull run?

Protocol risk

The biggest risk always comes from inside. Bitcoin has inherent value only because it has the unique characteristics of “sound money” (scarce, durable, accessible, divisible, verifiable and censorship resistant). If any of those qualities are compromised, the foundation to its investment case will be eroded or gone.

Such protocol risks were high in its first few years, but after two major controversial hard forks and three successful halvings, it seems that protocol-level risks are somewhat contained. The Bitcoin ecosystem has been consistent in independent developer support.

According to Electric Capital’s developer report, the Bitcoin developer ecosystem has maintained 100+ independent developers every month since 2014. Additionally, we’ve also seen an increase in commits to the Bitcoin Core codebase in 2020, reaching a peak in May (around the time when the third halving happened).

It’s also encouraging to see major development milestones emerging on the Bitcoin Core network, including the merge of Signet, Schnorr/Taproot and increased focus on fuzz testing, to name a few. These protocol-level developments continue to enhance the privacy and scalability of the network, boosting bitcoin’s technical stability as a currency.

To ensure a healthy and safe future for bitcoin, it is critical to ensure the Bitcoin Core developer community remains independent and decentralized and continues to make steady improvements in critical areas like security and privacy.

This is also why we have been passionate about providing no-strings sponsorship to Bitcoin Core developers and projects at OKCoin. Investing in bitcoin development helps reduce the protocol risk.

Concentration risk

This, to me, is the second0biggest risk to bitcoin. Bitcoin’s ethos is to empower individuals through decentralization, but the risk of concentration always exists.Within the network, the risk lies in the concentration of mining power. It is not an industry secret that 65% of the world’s hash power is in China.

If mining power is coalesced, a mining pool or group of miners can manipulate network transactions, creating fake coins through double-spending, in turn impacting the market price.

However, there is also the argument that such concentration risk is inevitable but to some extent harmless, too, given how the network incentive has been designed for bitcoin.

In other words, the incentives in the form of new bitcoins and transaction fees should work to keep the majority of the nodes honest because it is economically costly to cheat (not because it is hard or impossible to cheat). The assumption is that the mining participants are all rational and make economic decisions.

Externally, similar risk lies in ownership concentration. Investors, or “whales,” holding significant amounts of bitcoin can influence and even manipulate the market by triggering a change in price based on their buy/sell timing. Given that an individual (or an entity) can own more than one bitcoin address, it’s hard to paint an accurate picture of bitcoin ownership.

So this risk does exist. This is also why I feel very passionate about promoting financial literacy and crypto knowledge. I believe that we can build a healthier and more sustainable future if more individuals come to understand what bitcoin is about and start to embrace it.

The first institutional wave is exciting to see, but if bitcoin ownership tilts too much toward the institutional end, we would be defeated in our mission of building a more inclusive and individually empowering network.

Political risk

Another major risk comes from sovereign governments. Given that bitcoin is positioned as future money, it is possible that sovereign governments ban it for fear of threatening fiat currencies. Again, such risks are highest in earlier years before bitcoin builds meaningful adoption momentum. Actually, such bans have already happened in several countries (India in 2018, for example, which was revoked in 2020).

Central bank digital currency (CBDC) experiments around the world could also have an impact on how bitcoin’s future plays out.

This year has seen the first wave of institutional endorsement for bitcoin, and therefore 2020 will be recognized as a milestone year in alleviating this political risk. When publicly listed companies, asset managers and well-known individuals start to own bitcoin and speak in favor of bitcoin, such a ban is going to become very unpopular and hence harder to implement in countries where popular votes do matter. I hope the momentum will continue to build, making a risk of total bitcoin ban increasingly remote as time passes.

IN A WORLD OF UNCERTAINTY, BITCOIN GIVES HODLERS LIKE ME CONFIDENCE. IT HAS A HUGE NETWORK EFFECT THAT CAN ULTIMATELY EMPOWER EVERY INDIVIDUAL WHO BELIEVES IN IT AND USES IT. 

A successful and complete ban on bitcoin will also need to take coordinated efforts of all sovereign governments, which is very unlikely. As long as there are countries that let bitcoin legally flow, bitcoin will have a chance to win – a decentralized global network cannot be shut down by any single party.

That being said, bitcoin price volatility could be amplified from time to time by domestic and geopolitical changes. In my view, political risks remain the second-largest risk to bitcoin until it becomes too big to be tampered with. We are obviously far away from that point.

There can also be a wider payment ban on bitcoin while it is being recognized as legal financial assets. Such a risk is not totally out of the picture yet.

The good thing is, we are not banking on bitcoin becoming the unit of account and medium of payment in our $100,000-$500,000 scenario. When bitcoin does progress to phase III, we will not be talking about bitcoin price anymore, but instead talk about everything else’s price in bitcoin.

Adoption risk

This is a timing risk. It is quite possible that it may take much longer than expected for bitcoin to go mainstream.

The only way to manage this risk is to make sure your bitcoin portfolio is properly sized.

If you invest in bitcoin (or anything else) and worry about where its price would be in the next 12 months, your portfolio of bitcoin is probably too big for you. Size it based on your own risk tolerance and conviction level in bitcoin. Don’t do more than what you can afford (or believe in).

I also believe the unique quality of bitcoin will speak for itself over time. Bitcoin’s price chart between 2017 and 2018 very much looked like a bubble.

However, if we look at bitcoin’s full trading history, there is a clear upward trend together with growing asset-holding addresses, growing active addresses and growing network computing power.

The increasing mean hashrate of the Bitcoin network represents the security level that one would want to see in a network where people’s wealth is stored.I may be on the bullish side for bitcoin’s 12-month price trajectory but I truly believe that with bitcoin, time will be our best friend.

Looking ahead

Bitcoin is unlike any other asset we have encountered before. This is a truly sound and global wealth network that will continue to grow as the world recognizes the significance of its properties. To put things in perspective, here is a recent tweet from Michael Saylor, CEO of MicroStrategy, that summarizes the relevance of bitcoin as a utility and store of value.

In a world of uncertainty, bitcoin gives HODLers like me confidence. It has a huge network effect that can ultimately empower every individual who believes in it and uses it. I look forward to the continued evolution of the bitcoin ecosystem and feel excited about being part of it.

Decentralized Finance or ‘DeFi’ as it is commonly called, refers to financial services that utilize technologies such as blockchain.  The recent boom behind DeFi is largely based on the same promises being made by blockchain for years now – transparency, open source, borderless, permissionless.

Some of the implementations of technology currently capturing the attention of the market include,

• Lending Platforms
• Prediction Platforms
• Decentralized Exchanges

Unfortunately, any time there is a large amount of hype around a new technology or service, there will be well-intentioned, but ill-informed market participants.  As a result of this, companies offering said services often become the victim of hacks, and thereby market participants that entrusted them with their funds.

The following are only a few of the various examples in recent months where this has occurred.

Hacks

Origin Protocol

This young company is actively building its suite of services which allow for the creation of decentralized e-commerce stores, underpinned through its stablecoin OUSD.Origin Protocol has just announced on November 17th, that it has become the latest DeFi project to be the victim of a hack – which has resulted in the loss of at least $7 million USD.“OUSD has been hacked, and there has been a loss of user funds. We are actively investigating the issue.

We are committed to making things right.”

Akropolis

Lending/borrowing, savings accounts, and customizable decentralized autonomous organizations (DAO) – each of these are financial services offered by a company known as Akropolis.On November 12th, Akropolis suffered a theft amounting to roughly $2 million USD.

“At ~14:36 GMT we noticed a discrepancy in the APYs of our stablecoin pools and identified that ~2.0mn DAI had been drained out of the yCurve and sUSD pools…These pools had been audited by two independent firms, however, the attack vectors used in the exploit were not identified in either audit.

The essence of the exploit in question is a combination of a re-entrancy attack with dYdX flash loan origination.”

Value Protocol

While its services are various, Value Protocol is most known for its ‘Value Vaults’, which act as a yield-farming aggregator.On Nov. 14th, Value Protocol was the victim of yet another attack, resulting in the loss of user funds.

“On Nov 14th 2020 at 03:36:30 PM UTC, a hacker performed a flash-loan exploit on the MultiStables vault of ValueDeFi protocol, which resulted in a net loss of roughly 6mil$.”

Method of Attack

Interestingly, in each of the cases above, a similar method of attack was used.  Known as a ‘flash-loan’, hackers would take out significant loans in a particular asset, large enough to swing its market price.  The attacker would then use the funds from the loan to re-purchase the asset at devalued prices.  Upon doing so, the attacker will pay back the original loan, netting a significant profit.

Mixed Reception

Due to the issues surrounding DeFi, figure heads within the industry appear split on whether the potential of DeFi is real, and/or enough to overcome the potential bubble which has formed.Binance CEO, Changpeng Zhao, maintains a positive attitude, stating,“I think some of the pro-innovations will remain.

The liquidity providers, “profitable farming,” now provide a high annual percentage of income. It may not last very long…Companies create new tokens, issue them as a reward. This is not a long-running story. But I think DeFi is here to stay.

Even now, with Bitcoin’s popularity rising again, DeFi is still popular. We think there is a lot of growth potential in DeFi.”Economist, Nouriel Roubini, who is notoriously ‘anti-blockchain’, has taken a differing stance, likening DeFi to vapourware.“DeFi was vaporware from its onset.  Now totally faltering as blockchain was always the most over-hyped technology in human history.”

A Dangerous Place to Be

If the message from the aforementioned examples isn’t clear yet, it is this – DeFi is a dangerous place to be right now.  The amount of hype surrounding what often amounts to simply a ‘buzzword’, has resulted in a growing amount of hacks.

Combined with the rapid growth of DeFi and these hacks, the sector is unsettlingly reminiscent of the 2017 ICO boom, in which markets were flooded with similar issues. 

While DeFi may hold limitless potential for the way we view finance, be careful when jumping into the fray.If the money lost through hacks isn’t scary enough, maybe the growing number of scams will be to ward of uneducated investors.

For a more detailed look at what DeFi is, and what it has to offer, make sure to peruse our ‘DeFi 101’ article HERE.

Institutional adoption of bitcoin is here, you just have to know where to look. While cryptocurrency advocates have long worked to build an ecosystem deemed credible enough for more than just mom and pop investors, nearly 20 institutions already filed paperwork with the U.S.

Securities and Exchange Commission last quarter, showing they invested in the Grayscale Bitcoin Trust (GBTC), a product of Barry Silbert’s New York-based Grayscale Investments, LLC.

While many of the names are well-known mutual funds like Ark Invest with $4.5 billion in assets under management and Horizon Kinetic, managing $5.3 billion, according to their investor disclosure forms, the latest filings are also rife with relative newbies to the space including Rothschild Investment Corporation, Addison Capital and Corriente Advisor.

“It's very difficult to have a clean one-to-one signal on who's entering and exiting the space,” says Ark Invest crypto analyst Yassine Elmandjra. “But there are some very interesting proxies that can gauge institutional interest.”

The problem is, the vast majority of the institutional investors who filed the paperwork, called a 13F filing, will no longer need to do so if the SEC gets its way and raises the threshold to report from $100 million to $3.5 billion.

Though bitcoin represents only a tiny fraction of the total assets that will no longer have to be disclosed if the change is implemented, the nascent industry stands to be disproportionately impacted.Of the 27 GBTC disclosures Forbes found only nine were more than the new $3.5 billion projection.

Only three companies managed those nine funds, meaning much of the diversity of the space, the smaller institutional investors who are just starting to experiment with the new asset, would disappear.

The changes are bad timing for the nascent bitcoin industry, which is just now starting to see broad institutional interest in the asset that many see as a hedge against more traditional investments, and a possible safe haven for investors as central banks around the world seem to be printing endless amounts of money.

But as often happens in crypto, every one step back the industry takes, there’s two steps forward. In January, the same Grayscale Bitcoin Trust whose clients had already been filing 13Fs became an SEC reporting company, making it the first bitcoin firm to file quarterly 10-Qs and annual 10-Ks with the regulator, shedding new light on the internal structure of institutional bitcoin adoption.

Today, Grayscale took it up a notch, starting the same process with the SEC for its second crypto fund, the Grayscale Ethereum Trust (ETHE), and revealing exclusively to Forbes its plans to turn each of its 10 products—also including XRP, stellar lumens, ethereum classic, litecoin, zcash, bitcoin cash, zen, and a fund for large cap cryptocurrencies—into SEC reporting companies.

“The model we have is working,” says Grayscale managing director Michael Sonnenshein, 34. “It also continues to hold our team to an even higher standard in how we operate our business and how we diligence our partners and can really serve as a model for other asset managers.

” There’ll be a 60-day comment period starting today, before, the trust could also start filing its 10-Ks. If all goes as planned, Grayscale will next work to convert all ten of its cryptocurrency investment vehicles into publicly traded assets, then turn each of those into SEC reporting companies. 

The price of bitcoin has increased by 56% since January, according to cryptocurrency data site Messari, reaching its high for the year, $11,809, earlier this month before dropping slightly to $11,657 at the time of publication.

The most recent Grayscale quarterly report saw the trust growing at a rate of $57.8 million a week, reaching a record $751.1 million in the quarter. As of yesterday, assets in GBTC totaled $4.5 billion and Grayscale’s total assets under management have increased 37.5% since the June report to $5.5 billion today.

Due to the dearth of publicly traded investment opportunities for bitcoin, investments in GBTC can serve as a useful proxy for institutional interest in crypto-assets. But it is far from a perfect metric.

The highly private New York private equity giant Fortress Investment Group has $41 billion in assets under management for 1,700 institutional investors, and earlier this year offered to buy out the creditor claims in the now defunct MtGox bitcoin exchange. $30 billion pension and endowment advisor Cambridge Associates, has been advocating for its clients to invest in bitcoin since at least 2019. 

Famed Hedge Funders Mark Yusko and Mike Novogratz serve institutional bitcoin investors at their firms, Morgan Creek and Galaxy Digital, respectively, and Forbes 30 Under 30 member Hunter Horsley founded Bitwise Asset Management to serve institutional investors.

In May Canadian firm 3iQ started trading a bitcoin fund on the Toronto Stock Exchange, joining London-based Coinshares and Switzerland-based Amun, which offer exchange-traded notes similar to Grayscale’s products in other jurisdictions.

The massive inflow of funds to Grayscale sister company Genesis Capital, which added over $2.2B in new loan originations in Q2, is also evidence of institutional interest. But for the most part, the clients of these firms remain incredibly private, making the soon-to-be changed 13F reports on GBTC investment activity a crucial source of investor data.

Earlier this year U.S. attorney general William Barr announced that President Trump intended to nominate SEC Chairman Jay Clayton as the next U.S. attorney for the influential southern district of New York. One of the last things Clayton did as he prepared to step down as the nation’s top regulator was publish a plan that would raise the minimum assets.

 “You lose a lot of transparency in the market,” says Daniel Collins, founder of WhaleWisdom, a data provider that specializes in analyzing 13F forms. “That's why people look to the U.S. market, to establish confidence in the market for potential investors, foreign investors. And all of a sudden you're hiding all these assets every quarter that used to be disclosed.

”The SEC adopted the 13F form in 1978 as a way to track the investment behaviors of America’s largest investors. At the time, the value of U.S. public corporate equities was $1.1 trillion, according to an SEC statement, and the minimum size of a company deemed influential enough to track was $100 million.

 Between then and the announcement of the proposed changes earlier this year, the total number of those equities grew to about $35 trillion. The proposed $3.5 billion minimum is designed to be proportionately the same to the total public corporate equities as when the form was first adopted.

Clayton was nominated by Trump to be chairman of the SEC in January 2017 and is known in the cryptocurrency community for cracking down on several initial coin offerings (ICOs) where tokens issued on a blockchain were sold in a manner similar to traditional securities.

Given Trump’s cozy relationships with private companies, it’s perhaps no surprise that the presumptive nominee to be U.S. attorney for the Southern District of New York would seek to make such a business-friendly change to regulation on his way out.

However, retail investors stand to lose a lot of valuable data as 5,200 13F filers last quarter are reduced to an estimated 500 if the regulatory change goes into effect, according to Collins.

“You're looking at $2.3 trillion in assets, no longer being disclosed,” he says.

• Mike Novogratz on Monday said he expected the price of bitcoin to hit $65,000 and told the "Game of Thrones" star Maisie Williams to buy the digital token.
• Williams conducted a Twitter poll on Monday about whether she should buy bitcoin. It caught the attention of several prominent names, including Novogratz, Elon Musk, and the major cryptocurrency investor Barry Silbert.
• Bitcoin climbed on Wednesday by as much as 4.8%, to $18,480 and a three-year high, before tumbling by $1,000 during Asian trading.
• Bitcoin's market capitalization recently hit a high of $337 billion, surpassing a record of $328 billion set in December 2017.
• Visit Business Insider's homepage for more stories.

The billionaire investor Mike Novogratz predicted that the price of bitcoin would hit $65,000 while offering advice to the "Game of Thrones" star Maisie Williams on Twitter on Monday.The actor took a poll on Twitter on whether she should buy bitcoin, the world's most popular cryptocurrency.


Novogratz responded by saying he expected the price to hit $20,000 before getting to $65,000 because of a "network effect" in which there are a ton of new buyers and low supply."So YES, buy it," he said.




Maisie Williams' Twitter [email protected]_Williams/Twitter


Bitcoin surged on Wednesday by as much as 4.8%, to $18,480 and a three-year high, before tumbling by $1,000 in midafternoon Asian trading. Bitcoin began to surge in October at about the time PayPal announced it would allow its users to buy, sell, and hold the cryptocurrency on its network.

The price has gained 70% since the start of last month.

Read more: MORGAN STANLEY: Buy these 21 stocks set to soar at least 50% as their earnings rebound from a COVID-induced rout

Novogratz has long advocated bitcoin and said he expected its price to keep increasing as more people warm up to the idea of adding it to their portfolio.

Even though Novogratz advised Williams to buy, more people who responded to her poll disagreed. Of the almost 900,000 respondents as of 3:30 a.m. ET on Wednesday, about 53% said no to investing in bitcoin.

The poll even caught the eye of Tesla CEO Elon Musk, the podcast host Stephan Livera, and Barry Silbert, the CEO of the investment fund Digital Currency Group.

Bitcoin's market capitalization recently hit a high of $337 billion, eclipsing a record of $328 billion set in December 2017, according to data from Coin Gecko.

As for crypto skeptics, the hedge-fund manager Ray Dalio acknowledged Tuesday that he "might be missing something" about bitcoin and said he still saw reasons it wouldn't become an everyday currency.

JPMorgan Chase CEO Jamie Dimon said blockchain will have a pivotal role in the future of finance even if bitcoin, the market-leading cryptocurrency that made blockchain famous, is not his “cup of tea.”

Speaking at the New York Times’ DealBook Conference Wednesday, Dimon reiterated JPMorgan’s support for blockchain technology as a potentially transformative financial mechanism.

“The blockchain itself will be critical to letting people move money around the world cheaper,” he said. (His bank made waves recently with the launch of its “JPM Coin” for wholesale banking payments). “We will always support blockchain technology.”

Subscribe to Blockchain Bites, our daily update with the latest stories.

But Dimon refused to give ground on his opposition to bitcoin (BTC, -0.86%).He repeated his longstanding belief that governments will ultimately more heavily regulate it (something echoed recently by fellow billionaire Ray Dalio). Oversight is inevitable for something so large, he said.

Even so, Dimon acknowledged that “very smart people” are buying into the cryptocurrency in the belief that it will outperform gold, the U.S. dollar and U.S. Treasury bonds.

“Let them do that,” he said. “It’s just not my cup of tea.”


Screen Shot 2020-11-18 at 9.32.02 AM

Summary

The rise of bitcoin is textbook supply and demand. Since supply is fixed and more and more institutional investors and end-users are adopting bitcoin, the price has surged.

The positive feedback loop with bitcoin appears to be getting stronger over time as adoption increases. The theoretical justification for this is known as Metcalfe's Law.

With much of the world's population under the thumb of authoritarian governments, demand for bitcoin will only grow.With commodities like oil, when prices rise, producers can increase production and therefore increase supply. This causes their prices to revert to the mean.

This effect is absent in bitcoin.In the 1970s and early 1980s, a young entrepreneur named Robert Metcalfe (pictured below) proposed that a simple equation would be responsible for explosive growth in the value of technology.

You may not have heard of him before reading this, but he's best known for inventing the Ethernet cable. Today, he's a venture capitalist and a professor at


the University of Texas

.

Metcalfe theorized that the value of a network is roughly proportional to the square of the number of users who adopt it. To give an example, if you were the only person in the world with a smartphone, it wouldn't be super useful because you couldn't reach anyone.

However, as the adoption of smartphones grew over time, the value of the network grew proportionally. Today, the world's most valuable company, Apple (AAPL) has ridden this exact wave. Much of the explosive growth of technology companies can be attributed to so-called network effects, where every new person who joins a network makes the network more valuable.

Network effects made young geeks far richer far faster than the titans of industry before them. Network effects apply in many areas where people don't expect them.

 They apply socially, as friends introduce friends, bringing opportunities for business (and romance). This is where the term networking came from. Network effects allow places like Harvard (from where Metcalfe got his Ph.D.) to charge more than the average person makes in a year for tuition, room, and board. The English language itself benefits from a network effect.

Nowhere are network effects more apparent, however, than in cryptocurrency. With Bitcoin (BTC-USD) being the dominant cryptocurrency, it's the most likely to benefit. Research has shown that much of the increase in the value of bitcoin can be attributed to network effects.

The first commercial transaction of bitcoin apparently was by software developer Laszlo Hanyecz, who traded 10,000 BTC for a pizza. Back then, there were few takers for bitcoin, so the trade may have seemed rational at the time until you realize that he may have inadvertently tipped his pizza guy over $100 million US dollars in today's BTC.

The same could be said for the ne'er-do-wells in my high school who also were early adopters of bitcoin, who along similar lines, accidentally traded hundreds of thousands of dollars in today's bitcoin in the early 2010s for psilocybin mushrooms and pot.


Data by YCharts

Does Metcalfe's Law Apply to Bitcoin?

Bob Metcalfe has made some crazy predictions in his life, some have come true, and some haven't. He famously ate a piece of paper with his words on it after making a wrong prediction in the 1990s. Metcalfe's Law has been criticized as being too simplistic.

The most valid criticism is if the value of a network doesn't increase by the square of the number of users, but rather increases by a logarithm. This is probably true to some extent.

 If I and someone in China are part of the same network we're not super likely to transact in bitcoin, so the value increase is likely somewhat lower than if my neighbor down the street adopts bitcoin for part of his savings.

It is clear that the value of the network grows exponentially though when new users join. Researchers have made a strong case that the present value of Facebook (FB) was built this way.Bitcoin is also used as much or more as a store of value than a medium of exchange. PayPal (PYPL) is expanding its cryptocurrency offerings, which will bring far more interest in the currency, driving the value up and the volatility down over time.

Still, as institutional investors legitimize and adopt bitcoin, the demand for BTC is bound to increase over time. In short, more people are adopting bitcoin, and the supply is not increasing as fast as demand, causing the price to skyrocket.

Supply and Demand

In 2017, I thought bitcoin was severely overvalued. I was initially right, as I watched it zoom up to $20,000, then promptly deflate over 80 percent. Slowly, I changed my mind as the bubble faded and the process of price discovery continued.

What really changed my opinion was the pandemic, when governments around the world printed money like there was no tomorrow in order to keep everyone's bills paid. I wrote about this in June. It may not immediately be obvious, but printing money is a form of taxation, and owning bitcoin means that you're not subject to taxation via money printing.

Since printing money is quicker, more effective at raising revenue, and less likely to cause politicians to not be reelected, it's almost always going to be the way out for over-indebted governments.If you take the Fed at their word with their 2 percent inflation target, you can expect the value of the dollar to go down (.98^10) over the next 10 years.

That's a roughly 18.3 percent decrease in your purchasing power by 2030. That's because the Fed is always printing more money to keep the economy humming along and to force people to invest.

The supply of bitcoin, however, is relatively fixed. Moreover, adoption by institutional investors is rising, and billions of people still live under oppressive governments that confiscate wealth in far less subtle ways than running benign amounts of yearly inflation.

If you're reading this from your home office in a comfy suburb in the United States, the dollar may serve your interests just fine. Bitcoin is a real boon for the global middle class and a problem for authoritarian third-world governments, however, when they lose the ability to keep their people down.Look at crypto adoption for selected countries.




Source: Statista


I think that it's not a stretch to assume that bitcoin adoption could at least double within the next few years. If you take Metcalfe's initial law to heart, that's about a 4x increase in the value of bitcoin or a little over $1 trillion in market cap. Gold is around $9 trillion.

If you think the network value is lower, then bitcoin could still double or triple in fundamental value.Unlike commodities like oil, where when the price rises everyone pumps like crazy to make money, bitcoin has a fairly limited supply, setting the stage for a large increase in the value of bitcoin in the 2020s.

Good things are more likely than not to happen to those who allocate a small part of their portfolio to bitcoin. Citibank just put a $300,000 price target on bitcoin. Is it a bit hyperbolic? Sure, but they based the target on how gold has performed since the US fully came off the gold standard in the 1970s.

Conclusion

Bitcoin is a wickedly volatile asset. Therefore, if you invest in it, normal guidelines for investing in volatile assets apply, such as dollar-cost averaging on entry and exit to smooth out your results. Another nice risk parity trick is weighting positions negatively proportional to their volatility, meaning that instead of budgeting a dollar amount to your positions, you budget a certain amount of risk.

There are different ways to execute this, but the simplest is to allocate a small portion of your portfolio, like 5-6 percent to bitcoin.

Alternately, the accumulation of bitcoin in small frequent quantities makes a lot of sense to me. I still like gold as well, but every time a big-name investor or company endorses bitcoin, the fundamental value increases a bit.

And if the SEC allows a bitcoin ETF, those who buy now will benefit from a persistent boost in demand. So there you have it, the bitcoin bulls have won me over. Common sense still applies to risk management and sizing positions, but I'm a believer now.

Bitcoin is on a tear this year.

The cryptocurrency just hit $17,000 — a level it hasn’t breached in nearly three years — continuing a wild run that’s reminiscent of its monster rally in 2017.

The price of bitcoin was up over 4% in the last 24 hours, trading at $17,030 and hitting its highest point since Jan. 7, 2018, according to data from industry website CoinDesk.

Industry insiders say that bitcoin’s climb this year — which has seen it rise 137% year-to-date — is down to a number of factors, including a wave of Covid-related government stimulus and interest from big-name investors like Paul Tudor Jones and Stanley Druckenmiller.

“The gap between the crypto world and traditional financial institutions has closed dramatically,” Charles Hayter, CEO of crypto market data provider CryptoCompare, told CNBC.

“The result is that incumbent players are now fine to play in the digital asset markets. The narrative that is compelling them to do so is this alignment of Covid, monetary policy and political disarray globally.

Bitcoin surges higher as brand-name investors buy the cryptocurrencyCrypto fans have described bitcoin as having similar qualities to safe-haven assets such as gold, which investors often flock to in times of economic turbulence.

They claim fiscal and monetary stimulus measures taken in response to the pandemic lessen the appeal of sovereign currencies like the U.S. dollar.

Bitcoin’s meteoric rise also comes as various major companies are making moves in the cryptocurrency space.

Fidelity Investments, for instance, set up a dedicated digital assets unit to make it easier for its clients to trade crypto, while PayPal recently started letting its users buy, hold and sell virtual currencies.

Bitcoin, the world’s best known cryptocurrency, jumped above $17,000 to a three-year high on Tuesday as a growing number of investors backed it as an alternative to other assets.

The currency climbed more than 4% to $17,492, its highest level since December 2017 and more than four times higher than the price in March when heavy selling sent its value below $4,000.

Analysts said the pandemic had encouraged investors to review the long-term outlook for bitcoin and other cryptocurrencies such as Ethereum, Litecoin and XRP, which have all increased in value in recent months.

Concerns about fraudulent trading in cryptocurrencies and a succession of hacks that prompted cryptocurrency exchanges to lose millions of dollars worth of coins, appear to have waned, giving investors a greater sense of security.




“The virus crisis is propagating the reassessment of bitcoin,” said Nikolaos Panigirtzoglou, an analyst at JPMorgan. “There is a reassessment about its value here as an alternative currency; as an alternative to gold.

”Gold set an all-time high in August of $2,072 per ounce, but has since waned to $1,885.

While some investors have sought a safe haven, others have seen bitcoin as a growth asset that can perform strongly in an era of low returns from government bonds.

Central bank stimulus measures to combat the Covid-19 pandemic have cut interest rates to below zero in many parts of the world, leaving only minimal returns on lending to governments.

Bitcoin’s supply is capped at 21m. Proponents say its scarcity provides an innate value and shields it from central bank or government policies that stoke inflation.

Some investors have become concerned that inflation will spiral next year following a rush of new Covid-19 vaccines that allow governments to boost their economies.

Also supporting prices, investors said, were expectations that bitcoin was being embraced by mainstream companies and moving towards widespread use as means of payment.

Q&AWhat is bitcoin?ShowLast month, PayPal said it would open its network to bitcoin and other cryptocurrencies. Bitcoin has risen by nearly half since PayPal’s move.

“The ultimate endorsement of crypto is whether you can buy your groceries with it and pay taxes with it,” said Russ Mould, investment director at AJ Bell. “That would be the ultimate acceptance.

”Simon Peters, an analyst at multi-asset investment platform eToro, said bitcoin’s value was likely to increase over the rest of the year.“It has broken through the critical price milestone of $17,000 and looks set to move higher.

”He added: “It is not out of the question for the crypto to hit its all-time high of $20,000 this side of Christmas.

”Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDeskThe last time bitcoin was valued at nearly $20,000 a coin was in December 2017, at the height of the currency’s last bull run.

“Three years on, the crypto industry has consolidated, matured and is seeing real traction with institutional investors. Investors are using bitcoin as an inflationary hedge to combat the prospect of continued government stimulus,” Peters said.

“Will it be a merry Christmas for bitcoin holders? We’ll have to wait and see, but the signs look promising.”