Crypto Currencies

#1 – If your coins are on an exchange, you need permission from the exchange to spend them. In your own custody, you can do whatever you want and pay whomever you want, whenever you want, at the fee you want.

You will understand this if you’ve ever wanted to move your bitcoin from an exchange and you were blocked because you needed to provide more identification documents or prove your source of income.

You may have been blocked because you reached a 24-hour limit of value you are permitted to withdraw. Your funds may have been unavailable due to unscheduled system maintenance. It is your bitcoin and yet you are in a powerless position.

Bitcoin doesn’t actually care who you are or how much you are transacting. You can move 100,000 bitcoin and you’ll be free to do that without any resistance any time of the day, even on Christmas Eve, if the bitcoin was in your possession.

#2 – Your coins might not really be there. What you see is a promise that if you ask for your bitcoin, they will give it to you.

But if the exchange gets hacked or if the CEO fakes his death and takes the private keys or if the government steps in, all coins could go bye-bye.

Newcomers log into their exchange and see “Balance = 1.0 bitcoin” and they think that is their bitcoin. It is not. That is a number on a screen.

The bitcoin is on the Bitcoin blockchain, the global distributed ledger. The entity that can move that bitcoin from one address to another is the entity that has the private key that generated that address. The user of an exchange does not have the private key, the exchange does! It is their bitcoin. The bitcoin belongs to whoever has the private key. 

This is crucial to understand.The exchange just has a legal agreement that the bitcoin belongs to the user and they show the user their balance. But the user just has a login name, a password, and a promise. Not a private key.

A little sinister trick that blockchain.com employs is a 24-word password to log in to the website. This LOOKS like a bitcoin private key, but it is not. It is just a website-password. Blockchain.com has the private key. This is quite misleading, and confuses beginners as to the true nature of how Bitcoin works.

Many exchanges have been hacked and coins have been stolen from those exchanges:

• Mt. Gox is the first and most famous.
• Quadriga CX, a Canadian exchange, went bust after the CEO — the only person in the company with access to the private keys (allegedly) — died (allegedly) while on a trip to India. The users lost all their bitcoin.
• Cryptopia, an exchange in New Zealand. They got hacked and users lost their funds.
• Binance. $40 million worth of bitcoin was stolen but Binance was wealthy enough to make their users whole. Embarrassingly, the CEO called for a rollback of the Bitcoin blockchain to recover lost funds but was laughed out of town.
• Most recently, the CEO of a Turkish exchange fled the country with $2 billion worth of bitcoin.
• There have been many others that I had not previously even heard about.

There is no way to tell if an exchange really got hacked or if it was an inside job from a rogue employee. The bottom line is: if they hold your bitcoin, you are trusting them to act honestly and safely.

You might not trust yourself with self-custody. That is understandable. But it is your responsibility to educate yourself on self-custody or at least only partially-custodial collaborative custody. Most early Bitcoiners are likely sitting on a lot of bitcoin.

They must step up and look after their coins. People brand new to bitcoin can store their initial small stacks on exchanges and it won’t matter too much. But you, you are early.

You must take responsibility. All the information is available online and free.

#3 – If coins are left on the exchange, they can engage in fractional reserve lending, effectively inflating the supply of bitcoin. If there is a mass withdrawal by the public, exchanges can and have gone bust if they don’t have the coins that were promised.

Coins go bye-bye.Fractional reserve is the fraudulent practice for accepting a deposit, and then lending it out, but the depositor is given the illusion that their money is still available. Somehow this is both common and legal in the fiat banking world. If one bitcoin is deposited and then is loaned out, the depositor should not have access, similar to a term deposit.

This would be full reserve or one-to-one banking.If the depositor requests their funds, then what is returned to them is another depositor’s funds instead and, in theory, no one is hurt. But if many people want their funds at once, then the obligations cannot be fulfilled.This practice not only inflates the supply of money but is a systemic risk.

By withdrawing your coins, you eliminate the risk to you of a bitcoin bank run.Trace Mayer, a once loved Bitcoiner, started Proof-of-Keys Day, on the anniversary of the first Bitcoin block, January 3.

It started a movement where Bitcoin users celebrate by withdrawing all their coins from exchanges all at the same time, putting stress on the system, to keep the exchanges honest. Any exchange that was running on partial reserves could be exposed if enough people participated.

#4 – One day governments may outlaw withdrawals to private wallets, leaving your coins stuck and vastly less valuable. The real bitcoin economy would consist of the open peer-to-peer market outside of the exchanges while the coins trapped inside exchanges would be useless.

I am fully expecting governments to make it extremely difficult or outright ban coins from leaving exchanges into private wallets. We will fight back, no doubt. But the effort by governments will be futile. Most bitcoin is not on exchanges. My estimate is that about two million coins of the 18.7 million mined are on exchanges.

Bitcoin’s future is as peer-to-peer money, with most payments made on the Lightning Network. Coins on an exchange cannot serve this function. Exchange coins will always have a middleman that you will require permission from to make payments.

Coins stuck on the exchange due to laws cannot be used as bitcoin is intended and they will be less valuable. If I offer a service and charge in bitcoin, I will only accept real bitcoin outside of exchanges. I will not take payment from trapped bitcoin to my exchange wallet. I will not be alone.

Therefore, there will emerge a price difference between real bitcoin and IOU exchange-trapped bitcoin.

#5 – Powerful people who want Bitcoin to fail MAY be naked shorting it on futures markets. If we, The Resistance, buy bitcoin and extract it from the trading pool, we will eventually enforce a decoupling of the price of paper bitcoin vs physical bitcoin.

We are fighting the people who print fiat. It’s easy for them to naked short bitcoin and suppress the price because they can print money and therefore have no real risk.

*Click here to read more about how naked shorting can affect the price of assets.

Here’s why they’ll fail: there is an army of Bitcoiners, true believers, who are regularly buying bitcoin and withdrawing coins from exchanges. Most of the coins are off exchanges already. If the naked short attack succeeds in driving down the price, Bitcoiners will eagerly scoop up the cheap sats and remove even more bitcoin from the exchanges.

Miners can somewhat replenish the supply of coins on exchanges. Currently, miners could theoretically dump 900 bitcoin per day onto exchanges. When HODLers remove 900 bitcoin a day, the price is relatively steady.

Wild fluctuations in price can happen despite this, of course, as traders buy and sell coins between each other.

But as more and more coins are removed and as mining supply diminishes (halves every 4 years), there will come a point when not enough bitcoin is available.

This will cause a decoupling of the paper price of bitcoin on the futures market and real bitcoin that is demanded by HODLers or merchants.Be a part of the army to bring this day forward and make bitcoin successful sooner.

Regularly stack bitcoin — Dollar Cost Average (DCA) — and remove the coins from the exchange.#6 Unless you take coins into your own custody, you will never fully appreciate how Bitcoin works.

If you don’t appreciate it, you won’t buy enough of it. And this you will regret.You will need to learn more about self-custody and run a node. 

This will also blow your mind and get you closer to the truth of how amazing this technology is. You might even start using the Lightning Network and be totally obsessed. In a good way.

This is a guest post by Arman the Parman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Crypto exchanges such as OKEx, Binance, Huobi, Kraken and Bitmex outline the key challenges they face in pushing to establish global operations.
Cryptocurrency exchanges have an important role in driving adoption around the world, but even the biggest operations face significant challenges when trying to expand their services.

The advent of Bitcoin (BTC) and the subsequent development and launch of numerous other cryptocurrencies have changed the way people look at transacting across the world. Dependency on traditional banking systems is no longer the only option available to people.

Blockchain networks and cryptocurrencies are able to bypass conventional financial systems and allow people to transact directly, without having to go through a centralized institution. In an ideal, cryptographically secure world, users would transact peer-to-peer, but there are some barriers to entry for the uninitiated.

Therefore, most of those new to crypto use exchanges as their entry points into the ecosystem as they convert their fiat currency into their cryptocurrency of choice. In 2020, users are spoiled by choices with the sheer number of cryptocurrency exchanges operating internationally.

Nevertheless, a handful of these exchanges are attempting to surge ahead of the pack and establish themselves as truly global enterprises. But what are the key challenges they face, and how have they gone about building their respective empires?

A juggling act

It’s clear that building a successful cryptocurrency exchange requires an enormous amount of time and resources as well as the ability to jump through a number of hurdles at any given time.

This is compounded when working across borders and continents, given that many countries have their own regulations and laws around the use of cryptocurrencies and the transfer and flow of fiat currencies.

Jay Hao, the CEO of OKEx, told Cointelegraph that there are a number of considerations that make for a complex and challenging business environment, which means that “most CEOs in this business don’t get much sleep.

” He added:

“Growing a global cryptocurrency exchange is probably one of the most difficult businesses to be in. There are many challenges from attracting and retaining the right talent to consolidating and expanding your user base, ensuring liquidity, depth of market, and an attractive product offering. You also have to make sure that the exchange is robust and secure, can handle high unexpected amounts of volume with next-to-no downtime, all the while meeting requirements from regulators. The list of challenges is actually endless.”

In a recent interview with Cointelegraph, Changpeng Zhao, the CEO of Binance who is otherwise known as “CZ,” stressed the importance of having a "global mindset" while maintaining a sustainable business model. In order to do this, CZ believes that exchanges need to understand the specific needs of users in different regions. “We have different approaches for various markets,” he further told Cointelegraph, adding:

“To run a global business, we have to make sure we are always offering a solid infrastructure for the users and enhance their experience, which is especially important for the 24/7 crypto space. Then, we have team members from different communities to provide customized products and services to a local market, and ensure our marketing strategy is aligned with local culture, custom and language.”

Huobi’s head of global business and markets, Ciara Sun, shared a similar idea, highlighting two major considerations that the exchange has focused on since its founding: localization and regulatory compliance. Sun told Cointelegraph that having a sound grasp of the wants and needs of users is a driving factor in launching exchange support in new regions:

“Localization doesn’t just mean offering the exchange in a new language. Users in different markets and regions each have different preferences, habits, and requirements, so we need to adapt to each audience and provide local users with highly tailored experiences.” 

As Sun explains, understanding why users in specific countries or regions are looking to use cryptocurrencies also provides some insights into what sort of offerings will work in different places:

“We spend a lot of time learning the intricacies of a new market before we enter it.”Cointelegraph also spoke to BitMEX to gauge its views on the most challenging aspects of running a cross-continent operation. A spokesperson for the company highlighted customer support as a considerable undertaking and one that requires the highest amount of its resources:

“As a 24/7 cryptocurrency derivatives trading platform serving users from around the world, our ability to provide seamless support, regardless of time zone, is an important part of our service. Our Customer Support team is now one of the largest teams within our organisation and offers support in multiple languages.”

A spokesperson for the exchange Kraken told Cointelegraph that regulatory considerations in different jurisdictions are some of the toughest challenges in terms of trying to set up new bases of operation:

“Clear regulatory guidance is important because it helps determine what products we can offer and who we can target with our businesses. If done properly, it can also ensure a level playing field for all competitors. Additionally, education continues to be a focus of ours as well, as there are both awareness and knowledge gaps when it comes to crypto and its benefits.”

Navigating the global waters

So, becoming a global cryptocurrency exchange is not a clear-cut endeavor either, as there is no single regulatory body that exists for the industry. Given that cryptocurrencies have been in existence for just over a decade, regulation is very much down to individual countries and their laws.

Given that most financial institutions around the world face strict control measures from regulatory bodies, cryptocurrency exchanges have had to adopt similar practices.

Many of these operations have to abide by Know Your Customer and Anti-Money Laundering guidelines in order to operate.

As OKEx’s Hao explained, the company takes direction from the guidelines of the Financial Action Task Force, or FATF, when looking to branch out to new regions.

Nevertheless, Hao believes that a global body overseeing cryptocurrency regulation is an unlikely scenario, forcing the exchange to have a large legal team on board in order to ensure compliance in each jurisdiction where the exchange operates:

“I think that it will be very hard to establish a global regulatory authority for this space as all jurisdictions have their own laws and requirements. They are also constantly changing as the industry evolves.”

Huobi’s Sun hammered home the importance placed on regulatory compliance by its exchange as a fundamental part of its business model. “It's crucial that a crypto exchange meets all local regulatory requirements with the proper licenses to operate,” Sun said, adding: “This requires an enormous amount of time and effort and most ‘global’ exchanges don’t actually bother with this but we believe it’s critical.

”A major takeaway from most of the exchanges is the challenging task of navigating a global landscape that has vastly different regulatory and legal parameters. Sun admitted that it is a difficult undertaking, but said that the first port of call is a country or region’s securities and exchange commissions and its financial regulators, adding:

“As of yet, there isn’t a global consensus for classifying and regulating digital assets, so each market is unique with its own complexities.”Binance’s CZ told Cointelegraph that the lack of a global body that governs all markets is down to the fact that the crypto industry is still in its infancy, meaning exchanges have to work closely with regulators in every single country:

“To take the US for example, it has well-established legal and compliance systems, where a crypto exchange has to apply for various licenses from different states in order to serve citizens of those states. [...] For Binance, we always work closely with local governments and regulatory agencies and operate compliantly in all the jurisdictions we serve.”

Kraken’s spokesperson highlighted how operating in different continents requires specific compliance with various regulatory bodies and watchdogs and the rules that they set out.

These considerations go deeper than just adhering to KYC, AML and FATF regulations; they also include following United States sanctions, meaning that Kraken is prohibited from operating in some countries. The spokesperson added:

“We are also increasingly cognizant of maintaining compliance with global data protection regulations, such as the General Data Protection Regulation (GDPR) in Europe.”BitMEX’s spokesperson said that a key driver of success would come down to an exchange’s ability to adapt to regulatory parameters as it continues to develop. Additionally, the exchange sees that regulators all over the world are upping their interest in crypto, adding:

“We welcome their efforts, as they will help to establish greater standards for the cryptocurrency market that will underpin the advancement of this rapidly growing asset class. We believe that the successful platforms of the future will be those that can quickly embrace and maintain these standards.”

Plugging into legacy systems

The proliferation of cryptocurrencies has been slow and steady over the past decade, but the industry has already made the traditional financial landscape aware of itself.

Nevertheless, “the new” still has to plug in and be compatible with “the old.” In order to create accessibility for new users, cryptocurrency exchanges have to create fiat gateways to their platforms, which requires building relationships and compatibility with the traditional financial system.

Kraken offered its take on the intersection of cryptocurrency and traditional banking, conceding that the relationship between the two is important to drive adoption of the former. Nevertheless, the apathy of some banking institutions and the difficulty of interfacing and working with such organizations is still a challenge, as it’s “time-consuming to come to terms with these partners,” the company stated, adding:

“Despite the presence of many forward-looking banks, many others are extremely (and unnecessarily) risk-averse when it comes to crypto. This is unfortunate because they are depriving their clients of opportunities to engage with and benefit from this new and exciting opportunity.”

Further challenges are created by countries that try to apply existing laws to govern the use of cryptocurrencies. As Hao explained, “It’s a help and a hindrance” for the growth of cryptocurrency use, as some countries have developed crypto regulations upon realizing that the current framework cannot be adapted, while other jurisdictions are still lagging behind.

He added: “This can be to the detriment of cryptocurrency as it all depends on how crypto is defined in the first place.


”For Binance’s CZ, regulation is not necessarily in opposition to cryptocurrencies. CZ believes that supporting regulation can drive innovation and help shape the crypto and blockchain space, much like the evolution of foreign exchange trading:


“Given that the forex industry and the crypto industry, both driven by high technologies, share some similarities, forex regulation could serve as a good reference for regulators to formulate more supportive regulatory frameworks for the crypto industry.


”Huobi’s Sun believes that there is a changing attitude toward cryptocurrencies from regulators and the traditional financial system as they slowly gain an understanding of crypto and blockchain systems: “It’s only natural that forex regulation and banking systems have not yet fully caught up,” Sun said, adding that “current regulation continues to evolve as regulators adapt to the changing financial landscape.


”Sun told Cointelegraph that as a result, more and more traditional banking and financial institutions are onboarding the technology and opening up support to cryptocurrencies and exchanges:

“We’re also seeing less resistance from legacy financial institutions and banks. [...] We’ve also partnered with banks to enable fiat gateways for local users in several markets, so while there’s still progress to be made, I believe the legacy banking system is moving quicker than anticipated.”

Ever-changing world

As the various representatives of these cryptocurrency exchanges have highlighted, the global cryptocurrency environment is a complex one. Building and launching a cryptocurrency exchange is a technical and challenging endeavor in and of itself.

Taking that exchange and launching support in different jurisdictions adds multiple layers of complexity that require an inordinate amount of resources and energy.

Given the effort required, exchanges that are slowly building a global footprint are surely at the forefront of the industry and are pushing the adoption and acceptance of cryptocurrencies around the world.

The last few months’ frenzy of institutional money flowing into Bitcoin (BTC) has seen crypto hitting the headlines — at the least as a novelty asset, at the most as a must-have.

There is undoubtedly a trend in the market toward greater awareness and acceptance of digital assets as a new investable asset class.

A June 2020 report by Fidelity Digital Assets found that 80% of institutions in the United States and Europe have at least an interest in investing in crypto, while more than a third have already invested in some form of digital asset, with Bitcoin being the most popular choice of investment.

A good starting point for institutional investors would be to differentiate between crypto (Bitcoin, in particular) and decentralized finance products. To date, most institutional interest has involved simply holding Bitcoin (or Bitcoin futures), with few players dipping into more exotic DeFi products.

There are a plethora of reasons for the recent Bitcoin rage.

Some would cite the relative maturity of the market and increased liquidity, which means sizable trades can now take place without resulting in excessive market movement.

Others would cite the unusual high volatility, high return and positive excess kurtosis (meaning a greater probability of extreme values compared with the stock market) of the asset class.

Bitcoin’s backstory and its limited supply that makes it akin to digital gold have also been highlighted, making it more and more attractive in a world of inflated asset prices and unruly monetary and fiscal policies.

However, the main reason for the recent institutional interest in crypto is much less philosophical, much more practical and has to do with regulations and legacy infrastructure.

Financial institutions are old behemoths, managing billions of dollars’ worth of other people’s money, and are therefore required by law to fulfill an overabundance of rules regarding the type of assets they are holding, where they are holding them and how they are holding them.

On the one hand, in the past two years, the blockchain and crypto industry has made leaps forward in terms of regulatory clarity, at least in most developed markets.

On the other hand, the development of the high-standard infrastructure that provides institutional actors with an operating model similar to that offered in the traditional world of securities now allows them to invest directly in digital assets by taking custody or indirectly through derivatives and funds. Each of these represents the real drivers in giving institutional investors enough confidence to finally dip their toes into crypto.

Keeping institutional interest alive: What about other DeFi products?

With U.S. 10-year Treasurys yielding a little higher than 1%, the next big thing would be for institutions to look at investing in decentralized yield products.

It might seem like a no-brainer when rates are in the doldrums and DeFi protocols on U.S. dollar stablecoins are yielding between 2% and 12% per annum — not to mention more exotic protocols yielding north of 250% per annum.

However, DeFi is in its infancy, and liquidity is still too thin in comparison with more established asset classes for institutions to bother upgrading their knowledge, let alone their IT systems to deploy capital into it. Additionally, there are real, serious operational and regulatory risks when it comes to the transparency, rules and governance of these products.

There are many things that need to be developed — most of which are already underway — to ensure institutional interest in DeFi products, whether on the settlement layer, asset layer, application layer or aggregation layer.

Institutions’ primary concern is to ensure the legitimacy and compliance of their DeFi counterparts at both the protocol level and the sale execution level.

One solution is a protocol that recognizes the status of a wallet owner or of another protocol and advises the counterparty as to whether or not it fits its requirements in terms of compliance, governance, accountability and also code auditing, as the potential for malicious actors to exploit the system has been proved over and over.

This solution will need to go hand in hand with an insurance process to transfer the risk of an error, for example, in validation to a third party.

We are starting to see the emergence of a few insurance protocols and mutualized insurance products, and adoption and liquidity in DeFi need to be large enough to caution the investments in time, money and expertise to fully develop viable institutional insurance products.

Another venue to be enhanced is the quality and integrity of data through trustful oracles and the need to increase the confidence in oracles to achieve compliant levels of reporting.

This goes hand in hand with the need for sophisticated analytics to monitor investments and on-chain activity. And it goes without saying that more clarity on accounting and taxes is needed from certain regulators who haven’t emitted an opinion yet.

Another obvious issue concerns network fees and throughput, with requests taking from a few seconds to double-digit minutes depending on network congestion, and fees twirling between a few cents and 20 bucks.

This is, however, being resolved with plans for the development of Ethereum 2.0 in the next two years and also the emergence of blockchains more adapted to faster transactions and more stable fees.

A final, somewhat funny point would be the need for improvement in user experience/user interfaces in order to turn complex protocols and code into a more user-friendly, familiar interface.

Regulation matters

People like to compare the blockchain revolution to the internet revolution. What they fail to remember is that the internet disrupted the flow of information and data, both of which were not regulated and had no existing infrastructure, and it is only in the last few years that such regulations were adopted.

The financial industry, however, is heavily regulated — even more so since 2008. In the United States, finance is three times more regulated than the healthcare industry.

Finance has a legacy operational system and infrastructure that makes it extremely hard to disrupt and tedious to transform.It’s likely that in the next 10 years, we will see a fork between instruments and protocols that are fully decentralized, fully open source and fully anonymous and instruments that will need to fit in the tight framework of the heavy regulation and archaic infrastructure of financial markets, resulting in a loss of some of the above characteristics along the way.

This will by no means slow down the fantastic rate of creativity and the relentless, fast-paced innovation in the sector, as a large number of new products in the DeFi space — products we haven’t even predicted — are anticipated.

And within a quarter of a century, once DeFi will have first adapted to and then absorbed capital markets, its full potential will be unleashed, leading to a frictionless, decentralized, self-governing system.The revolution is here, and it is here to stay.

New technologies have undeniably shifted the financial industry from a sociotechnical system — controlled through social relations — to a technosocial system — controlled through autonomous technical mechanisms.

There is a fine equilibrium to be reached between tech-based, fast-paced crypto and antiquated, regulated fiat systems. Building a bridge between the two will only benefit the system as a whole.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Amber Ghaddar is one of three founders of AllianceBlock, a globally compliant decentralized capital market.

With a vast amount of experience across the capital markets industry over the last decade, Amber began her career at investment banking giant Goldman Sachs, before moving to JPMorgan Chase where she held a number of different roles in structured solutions, macro systematic trading strategies and fixed income trading.

Amber obtained a B.Sc. in science and technology before graduating with three master’s degrees (neurosciences, microelectronics and nanotechnologies, and international risk management) and a Ph.D. She’s a graduate of McGill University and HEC Paris.

Cardano, now the third-biggest cryptocurrency after bitcoin and ethereum, has soared in recent weeks—outpacing even bitcoin's massive rally.The cardano price has surged a blistering 2,000% over the last 12 months, adding 300% in the last month alone.

Now, as the cardano network bobs around a total value of $40 billion, developers are gearing up for the launch of a major update on Monday—designed to make it into a multi-asset network similar to ethereum.

MORE FROM FORBES

Bitcoin Price Prediction: How Far Could The Bitcoin Bull Run Go?By Billy Bambrough



The cardano price has soared in recent weeks, with cardano breaking into the cryptocurrency top ... [+] LIGHTROCKET VIA GETTY IMAGES

"We can today confirm that the ‘Mary’ cardano protocol update is now fully confirmed for March 1," the Cardano core development team, Input Output HK (IOKH), said via Twitter this week.

"Another key milestone in the Goguen rollout, the update introduces native tokens and multi-asset support, bringing exciting new use cases for cardano.

"The update will allow cardano to support traditional-currency-pegged stablecoins and let users create non-fungible tokens (NFTs)—a way to prove ownership and authentication of everything from social media posts to digital art using public blockchains—which have exploded in popularity in recent weeks.

Cardano's upgrade comes as the ethereum price has rocketed over the last year, smashing through its early 2018 highs.

As well as the growing NFT market, ethereum has benefitted from the rise of decentralized finance (DeFi)—using cryptocurrency technology to recreate traditional financial instruments such as interest, known as "yield," and insurance.

Many of the biggest DeFi projects are built on top of ethereum's blockchain, pushing the ethereum price higher as users flood the network.Cardano and other potential rivals to ethereum, including the sixth-largest cryptocurrency by value, polkadot, are currently jostling for DeFi, NFT and stablecoin market share as ethereum struggles with slow transaction times and sky-high fees.

MORE FROM FORBESBill Gates Issues Serious Bitcoin Warning As Tesla Billionaire Elon Musk Stokes Crypto Price 'Mania'By Billy Bambrough





The cardano price has soared in recent weeks, taking cardano to a total value of over $40 billion ... [+] COINBASE

Cardano's price surge has catapulted it to prominence in the cryptocurrency community over recent weeks.

"Cardano is a rising star in the booming crypto sector," Nigel Green, the chief executive of financial advisory group deVere, said earlier this month alongside an announcement the deVere cryptocurrency exchange had added cardano to its supported digital assets.

"It has had a highly impressive run in recent weeks and there’s no reason why this will not continue. Cardano could, quite realistically, become an increasingly dominant rival to bitcoin, ethereum and tether."

• Meltem Demirors of CoinShares told CNBC on Monday that the “best time to invest in bitcoin was yesterday.”
• Her comments came as bitcoin’s market value recently topped the $1 trillion mark, according to Coindesk.
• Meanwhile, NYU’s Aswath Damodaran argues that bitcoin is “an incredible show to watch” but not an investment.

The reflection of bitcoins in a computer hard drive.Thomas Trutschel | Photothek via Getty Images


As bitcoin continues on its upward trek in 2021, one analyst says the regulatory concerns surrounding the cryptocurrency won’t likely derail its momentum.“The regulatory issues have been around for a long time, we’ve been dispelling them for a long time. At this point, our belief is: Bitcoin is not a question of if, but when,” Meltem Demirors, chief strategy officer at digital asset investment firm CoinShares, said Monday.

“We certainly believe, you know, the best time to invest in bitcoin was yesterday — the second best time to allocate is today,” she told CNBC’s 

Her comments came after bitcoin recently toppled another milestone, pushing past $1 trillion in market value last week, according to Coindesk.Bitcoin has been on a tear since the start of 2021, and has risen more than 90% so far this year, according to data from Coin Metrics. Those strong gains have been attributed in part to increased adoption of bitcoin by major investors and companies, including Elon Musk’s Tesla and the Bank of New York Mellon.

If it’s a currency, it’s a ... horrifically bad currency ... bitcoin seems to be primarily a speculative game.Aswath DamodaranPROFESSOR, STERN SCHOOL OF BUSINESS AT NEW YORK UNIVERSITY

“It’s becoming increasingly difficult for the bitcoin naysayers to continue with their decade-old narrative that bitcoin will never be utilized by traditional … financial institutions,” Dave Chapman, executive director at BC Group, told CNBC’s “Capital Connection” on Monday. “Frankly, I’m not sure how much more evidence one needs to conclude that bitcoin isn’t going away.”Bitcoin last sat at $55,867.95 per coin as of 3:45 a.m. ET Monday.


Allocate 4% to bitcoin in a traditional 60-40 portfolio, says strategistStill, Demirors warned that investors should not be allocating “significant portions of their balance sheet” to bitcoin.“Our research has found that in a traditional 60-40 portfolio, a 4% allocation to bitcoin balances the reward as well as the risk of drawdowns,” she said. The 60% stock and 40% bond portfolio is traditionally a popular allocation strategy designed to generate steady income while guarding against volatility.

Bitcoin a ‘failed currency’?

Aswath Damodaran from New York University was far more skeptical about investing in bitcoin.“This is an ... incredible show to watch. But it’s definitely not an investment,” Damodaran, a professor of finance at NYU’s Stern School of Business, told CNBC’s “Street Signs Asia” on Friday.


Bitcoin is mainly a ‘speculative game,’ NYU professor says“If it’s a currency, it’s a ... horrifically bad currency,” he said, adding that bitcoin “seems to be primarily a speculative game” that has “behaved like a very risky stock.

”“It’s not an asset class. It’s a failed currency, at least into this moment,” Damodaran said.

 “Let’s see whether they can fix it because ... I don’t think that they have an incentive to do so.”— CNBC’s Jesse Pound, Lizzy Gurdus and Sumathi Bala contributed to this report.

Sean Williams

(TMFUltraLong)
Author Bio
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley!

Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Earlier this week, Bitcoin (CRYPTO:BTC), the largest cryptocurrency in the world by market cap, hit a milestone. It handily topped the psychological $50,000 level. As I write this on Feb. 17, it's closing in on a market value of $1 trillion (about $25 billion away).

Bitcoin has gotten an extra bump in recent weeks from a handful of brand-name companies adding it to their balance sheets or accepting it as a form of payment. 

Tesla (NASDAQ:TSLA) purchased $1.5 billion worth of Bitcoin to add to its balance sheet, with enterprise software company MicroStrategy buying in excess of $1.1 billion worth of tokens in December.

Even The Motley Fool has decided to purchase $5 million worth of Bitcoin to add to its balance sheet.

But at The Motley Fool, we strongly believe in understanding both sides to every investment. Personally, I don't think highly of Bitcoin. I have 10 reasons why I'll never buy it for my portfolio.




IMAGE SOURCE: GETTY IMAGES.

1. Its scarcity is a myth
Bitcoin optimists often cite its 21 million token limit. With 18.6 million Bitcoin already in circulation, it'll take close to 120 more years before the remaining 2.4 million are mined and put into circulation. The argument is that Bitcoin's fixed token count will help fight against the ongoing devaluation of the U.S. dollar as the money supply expands.

The flaw in this thesis is that Bitcoin's scarcity is nothing more than an illusion. While unlikely, community consensus could decide, at some point in the future, to increase Bitcoin's token count. Without any physical scarcity to speak of, a promise is all that keeps its token count from rising.

2. Its real-world utility is minimal
Though companies like Tesla are adding fuel to the Bitcoin craze, the reality is that it's not exactly a preferred form of payment. An analysis from business funding company Fundera found that approximately 2,300 U.S. businesses accept Bitcoin.

There are more than 30 million businesses in the U.S., including sole-proprietorships, and about 7.7 million that employ at least one other person. After a decade, Bitcoin has hardly made a dent on the utility front. 

Also, don't forget that a vast majority of tokens aren't actually in circulation. Investors are holding on to them, which further limits Bitcoin's ability to be a medium of exchange.




IMAGE SOURCE: GETTY IMAGES.

3. The barrier to entry is almost nonexistent
Want to start your own digital token? If you've got money and time on your hands, you can create your own digital currency with tethered blockchain. The barrier to entry in the crypto space is exceptionally low, meaning there could be dozens of superior alternatives to Bitcoin or its blockchain in development or available for use. Having virtually no barrier to entry suggests that Bitcoin's first-mover advantage isn't a selling point.

4. It's difficult to short-sell, which leads to inefficient markets
In recent weeks, retail investors (who also happen to be the core fans of Bitcoin) have been in an all-out war with short-sellers -- i.e., investors who profit when the price of a security falls. Some even view short-sellers as evil. But short-selling is a natural part of the investing cycle that helps lead to price discovery.

Bitcoin is really difficult to short-sell on most platforms, which means we're not getting anywhere near a true price discovery. This market inefficiency is one of the reasons Bitcoin is so exceptionally volatile.




IMAGE SOURCE: GETTY IMAGES.

5. It isn't even the best option among financial networks
Bitcoin's network has been touted as a game changer for financial payments. Rather than using traditional banking networks and waiting up to one week for payment to be validated and settled, Bitcoin can do so in an average of 10 minutes. 

However, Bitcoin's usage is strictly limited to the payments side of the equation, and it's not even the best network at what it does in the financial space. 

Stellar (CRYPTO:XLM) can settle validate and settle financial transactions in mere seconds with its Lumens coin.

 Meanwhile, Ethereum (CRYPTO:ETH) provides nonfinancial blockchain applications with the addition of smart contracts -- commands that are executable once all predetermined conditions are met. Once again, Bitcoin may have first-mover advantage, but it's not the most innovative or functional kid on the block by a long shot.

6. Blockchain has been an enterprise bust thus far
Don't overlook that the Bitcoin story is really about advancing its underlying digital ledger, known as blockchain. With blockchain, transactions can be validated and stored forever in a transparent and immutable way.

While there are plenty of applications for blockchain on paper, we haven't seen these ideas translate into real-world functionality.

Businesses have been unwilling to replace their proven network infrastructure with untested blockchain technology, creating something of a Catch-22.

 CoinDesk reported that tech stalwart IBM (NYSE:IBM) practically dismantled its blockchain division, according to four people familiar with the matter. In short, enterprise blockchain has been a gigantic flop thus far.




IMAGE SOURCE: GETTY IMAGES.

7. Storage and security issues are worrisome
This is a bit more personal, but I have no desire to deal with the complexities of storing and protecting Bitcoin from hackers. Bitcoin must be stored in a digital wallet kept on a hardware-based platform or on the web. Either way, it can be far less secure than most folks realize.

An estimated $1.36 billion worth of crypto tokens, including at least 46,000 Bitcoins, were stolen in the first five months of 2020, according to CipherTrace. You'll get absolutely no protection from the Federal Deposit Insurance Corporation, either. 

8. The tax situation can be burdensome
If you think you hate doing your taxes now, try getting involved with Bitcoin. Since the Internal Revenue Service views cryptocurrency as property, all dispositions must be accounted for via capital gains and losses. You'll have to report more than just buying and selling Bitcoin.

If you purchase Bitcoin and sell it to buy another cryptocurrency or a good/service, you'll have to report your cost basis and disposition price. It sounds burdensome, especially if you're using Bitcoin to buy goods and services.



IMAGE SOURCE: GETTY IMAGES.

9. It's driven purely by emotions and technical analysis
There are only two true drivers to Bitcoin's value: investor emotions and technical analysis (i.e., pretty charts). Neither of these is a particularly intriguing reason to buy in, especially since neither will help over the long run.Fear of missing out (FOMO) and cheerleading from the likes of Tesla CEO Elon Musk have fueled this record run higher in Bitcoin.

As noted earlier, utility remains poor, scarcity is a myth, and the barrier to entry is virtually nonexistent. What we're seeing is day traders having a field day, and that's not something I want my money in.

10. History is undefeated
Finally, history is undefeated when it comes to next-big-thing investment bubbles bursting. You can look back more than a quarter of a century to the birth of the internet, business-to-business commerce, genomics, 3-D printing, marijuana, and even blockchain.

No matter what the next great advancement was, the bubble eventually burst. These trends did eventually produce winners, but history suggests that parabolic moves in assets tied to next-big-thing trends aren't sustainable.For these 10 reasons, I don't plan to invest in Bitcoin.

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With a charity and some slapdash art theory as a cover, a copycat makes off with 512 ETH in NFT sales.
As the Crypto Twitter community debates the fair value of Cryptopunks and other NFTs rising to sky-high valuations, there’s at least one clear sign of the digital collectibles market growing irrational:

An individual posing as Banksy, perhaps the most famous living artist, has netted over $1 million in Ether (ETH) in NFT sales. Starting on Sunday, Feb. 14, frequent browsers of the NFT marketplaces Opensea and Rarible noticed an account named “Pest Supply” with branding and nonfungible tokens made in Banksy’s signature graffiti-stencil style.

Many were quick to jump in, given the “real” Banksy’s habit for pop-up installations:

Wallet profiler Nansen shows that the individual’s listed address first became active on Feb. 13 and was most active yesterday, Feb. 19.

 Before Opensea wiped much of the account history and disabled further sales, the account’s records showed hundreds of sales to buyers ranging from 0.116 ETH to over 60 ETH for a piece titled “NFT morons.” Noted whale wallet 0xb1 also made a few purchases, including one transaction worth 34 ETH, or $68,000.

In an email obtained by Cointelegraph, Banksy’s “legal guardian,” Pest Control, has denied any association with the NFTs.

Likewise, the individual has indicated that they are selling knock-offs, comparing themselves to artist Elaine Sturtevant, who was known for inexact replicas of more popular artists’ work, on their Rarible bio.

The account has taken in 512 ETH total, per Nansen, with nearly 430 ETH sent to a secondary address. The individual’s Rarible page includes a set of screenshots and Etherscan transactions ostensibly proving 23.5 ETH in donations to Save The Children, a humanitarian organization — less than 5% of the individual’s total haul.

Duped collectors are now left wondering, however: Were we tricked?

Could it be a double-bluff and a genuine Banksy installation? Do the NFTs have value either way?

Real or fake? Who cares?

Max Osiris, a prominent crypto artist, tipped off the community that Banksy’s “legal guardian,” Pest Control, had denied any association with the NFTs in an email: 

The email exchange, which Osiris forwarded to Cointelegraph, shows Osiris asking if the NFTs are Banksy works listed “legit undercover,” and Pest Control responding by saying “there isn’t an affiliation in any way, shape or form.” Cointelegraph has reached out to Pest Control and received no response. 

This alone doesn’t prove that the NFTs are faked Banksy work, however, as Pest Control is known for denying association with ongoing installations. Instead, the individual’s Rarible page is now the clearest indication that they are not associated with Banksy.

“Locked by decentralized OpenSea as they have no idea who Elaine Sturtevant is and know nothing about art history. This is art history in making,” reads the individual’s bio.

Sturtevant is known for recreating the works of more famous artists from memory, a method that some believe raises philosophical questions regarding the nature of authenticity and originality. 

The art blog NFT Art Review supports the view that the fake Banksy is working in this mode, writing that the individual performed “phenomenal appropriation art that dissects the perception from the collecting circle and how value can be created from satire.

” The individual may have updated their Rarible bio on Friday night in direct response to the the blog, which was published on Friday morning. Osiris believes it’s ultimately up to the collector to make these value judgements, and it’s also up to them to protect themselves from fakes — whatever that means.

“Yes, I think art has value even if it’s a fake because it’s up to the collector to figure out what they’re getting. In a sense this is a pretty successful art project, especially if the money goes to where they claim it will go,” he said, referencing the individual’s charity efforts.

Two of the currently listed works done in Banksy’s style are priced at over 100 ETH, or $200,000 each. The individual claims to have donated roughly $47,000 to charity.

Signs of froth

Noted NFT collector-whale Pranksy marked perhaps the clearest sign of an overheated market with his own NFT run, a true hat-on-a-hat named “Pest Demand.

”While he says he made the run in an effort to “mock” the fake Banksy, he instead made 12 ETH, or $24,000, in sales.

“People bought it because they are all euphoric,” Pranksy said.Artist “Twerky Pepe” highlighted the absurdity of the situation with a tweet, in which they promoted their Pranksy purchase as either a good investment or a fun, ironic buy (the Cointelegraph weekend editorial team was unable to divine which):

Osiris agrees that the collectors and speculators are overeager at this stage in the market and says that the artist, in fact, exploited those very sentiments. 

“It’s a clever slight-of-hand move by someone who timed the excitement of ‘celebrities’ coming into the space, the mystery of Banksy’s modus operandi, and Rarible’s verification system,” he said.

The individual was able to gain a Rarible “yellow checkmark” because they were not, in technicality, posing as Banksy, just using Banksy’s style and legal likeness.It’s mania that may only get worse, he said.

“The frenzy around NFT’s has created a sort of monster where people are trying to rush in and be the first to get something that becomes valuable and fail to look deeper or do more research.”

Sales for the individual’s fake Banksies continue apace, with at least a dozen NFTs purchased in the last twelve hours. 

With much of the world focused on bitcoin and ether as prices breach new all-time high after all-time high, the “Money Reimagined” crew embarks on a more nuanced journey, one that eschews world-changing networks for an art-changing renaissance that’s been long in the making.

We’re talking, of course, about the nonfungible token (NFT) movement that has engulfed the world of crypto collectibles. With big brands like Christie’s auction house and the National Basketball Association getting involved and some tokens already selling for six-figure sums, the question isn’t if NFTs will force a very old industry to adopt some very new practices, it’s when.

On today’s episode of CoinDesk’s “Money Reimagined,” Michael Casey and Sheila Warren are joined by Nanne Dekking, CEO of Artory and formerly the top salesman at Sotheby’s.

Founded in 2016, Artory is creating the first standardized data collection solution by the art world, for the art world. In his former position at Sotheby’s New York, Dekking was vice chairman and the worldwide head of Private Sales. His close relationships with collectors and museums were integral to the continued growth of private sales at Sotheby’s.

Prior to joining Sotheby’s, Nanne was vice president of Wildenstein & Co. He advised individuals, museums and foundations on the formation and development of their collections. From 1996-2001 Nanne was the founder and principal of Nanne Dekking Fine Arts, an art consultancy firm and gallery in New York.

“Which scholar do I trust? Who in the art market do I trust?” Dekking said. “They don’t want to trust anyone.”

In this wide-ranging introduction to NFTs, collectibles and the traditional art market, the discussion ranges from Sheila Warren’s Cryptokitty genealogy to the challenges of selling paintings by the old masters in litigious modern markets, plus a whole lot more.

See also: Government Reimagined, With Jeff Saviano and Glen Weyl

“There are so many charitable things you can do with all this technology but ultimately you want the market to understand the commercial benefits of it. Then it goes fast.

The moment you’re in the realm of charity, it’s like ‘this is such a nice idea’ but in a way you’re dead in the water already if the market just thinks this is only nice for a charitable reason,” said Nanne Dekking, CEO of Artory and formerly the top salesman at Sotheby’s.

“As long as the market believes opaqueness will help [its] business model, which it doesn’t any more, it’s a very old-fashioned idea… The moment Art-Net came up, the moment Google existed … it’s all about this crazy idea that you as a human being are so important in the sales process to an artwork. I mean, you’re not.”

SINGAPORE (Reuters) - Bitcoin stalled just short of the $50,000 mark on Monday and other cryptocurrencies slipped, as investors took profit from a record-breaking rally that is being driven by a worldwide shift in investor and public attitudes towards digital assets.

Bitcoin fell as much as 5.6% to $45,914 in Asian trading hours, after having posting a record high of $49,714.66 on Sunday. Rival crypto ethereum slid more than 8%, though both later pared some of those losses.

The dip, for now, taps the brakes on a surge that has vaulted the cryptocurrency from the fringes of finance to Wall Street, as big investors and large companies have begun to take the digital asset seriously and started to buy a lot of it.

Bitcoin is up about 20% in the week since electric carmaker Tesla Inc announced it had $1.5 billion in bitcoin and would accept the currency as payment. It has gained more than 60% for the year to date and more than 1,100% since last March.

"There's this unadulterated wave of big players (buying) that has continued to push the price higher," said Chris Weston, head of research at Melbourne brokerage Pepperstone. "We might be seeing one or two big funds just cashing out," he said.

"The big question is: OK, you want to buy the pullback, but how big is the pullback that we are talking about?

"Lunar New Year holidays in Hong Kong and China also kept a lid on moves in Asia, while a tweet from Tesla boss and crypto advocate Elon Musk appeared to weigh on the price of dogecoin, which he had previously promoted."If major dogecoin holders sell most of their coins, it will get my full support," he tweeted.

Dogecoin, a dog-themed currency created as a joke has been volatile in recent weeks owing to a number of Musk tweets referring to it.It has dropped 18.3% to $0.0536 in the past 24 hours according to CoinDesk.

Ethereum last sat at $1,740, about 7% below last week's record high of $1,879.GO WESTBitcoin's rise has a cryptocurrency that is still hardly used for transactions on the verge of $50,000 - a far cry from software developer Laszlo Hanyecz's 2010 purchase of two pizzas for 10,000 bitcoins.

But in contrast to previous speculative bitcoin rallies, driven by traders mostly in Asia, gains in the past few months have been driven by a seismic shift in U.S. investors' attitude.

Tesla's investment followed multimillion-dollar bitcoin purchases by business software firm MicroStrategy and a number of Wall Street fund managers, such as billionaire Stanley Druckenmiller, sounding positive on the asset.Bloomberg reported on Saturday that Morgan Stanley's investment arm is also weighing a bet on bitcoin.

Meanwhile, bitcoin has made strides toward being a medium of exchange, with PayPal allowing customers to use bitcoin at its merchants and Mastercard preparing to permit cryptocurrency use across its vast network.

Bank of NY Mellon last week said it formed a new unit to help clients own and trade digital assets and Japanese financial conglomerate SBI Holdings is in talks with foreign firms for its own crypto joint venture.

"In the crypto space, these institutions coming to the party are seen as steps towards acceptable and possible usage," said Michael McCarthy, chief strategist at CMC Markets in Sydney.

Bitcoin has been the most prominent beneficiary, he said, but price moves in other cryptocurrencies - such as EOS, which has more than doubled since late December according to CoinDesk - show that the door remains open to rivals."The race is on amongst those candidates," he said.(Editing by Sam Holmes and Jacqueline Wong)

Ethereum surges near all-time highs, may rally 650% to $10,500: analysts

Zack Guzman·Senior Writer


Following bitcoin’s surge to hit a new all-time high earlier in January, ethereum, the second largest cryptocurrency by market cap, neared $1,440 on Tuesday to inch toward the same feat — but that could just be the beginning of a 650% explosion, according to one strategy firm.

Fundstrat Global Advisors’ cryptocurrency team issued an updated $10,500 price target for ether, implying a 650% upside as the ether-powered Ethereum blockchain continues to fuel more real world applications like smart contracts, stablecoins pegged to the dollar, and the burgeoning decentralized finance space.

“We continue to believe Ethereum fundamentals are incredibly strong and think [ethereum] represents the best risk/reward investment play in crypto,” Fundstrat analysts wrote in a new note published Tuesday night.

Much like fund flows from institutional investors being used as a signal to mark a rising shift from the market to finally endorse bitcoin as a so-called “digital gold,” Fundstrat points to Ethereum’s rising network fees to justify its $10,500 price target.

Ethereum, which collects network fees for powering the projects and applications that run on its blockchain, has seen an explosion in activity in 2021 as more developers tap into its existing blockchain tech.


LONDON, ENGLAND - DECEMBER 08: Founder of Ethereum Vitalik Buterin during TechCrunch Disrupt London 2015 - Day 2 at Copper Box Arena on December 8, 2015 in London, England. (Photo by John Phillips/Getty Images for TechCrunch)

As Fundstrat explains, Ethereum fees totaled $600 million in 2020. Through 17 days in 2021, fees have already topped $180 million, putting it on pace to achieve $3.9 billion this year. Comparing the growth to valuations and multiples in the cloud space that Ethereum’s blockchain technology appears poised to disrupt, Fundstrat posits the crypto deserves a multiple comparable to early cloud disrupters and uses the Bessemer Venture Partners Emerging Cloud Index as a proxy.

With fees set to grow more than 500% in 2021 if trends hold, Fundstrat argues that ether appears vastly undervalued against cloud index peers.



MORGANTOWN, WV - 31 DECEMBER 2017:

Ethereum or ether coin lying on top of similar golden coins to illustrate cybercurrencies “Trading at [a $150 billion] market cap, with $3.9 billion of estimated revenue, Ethereum offers a 39x price to sales ratio. However, Ethereum revenue trends are vastly outpacing the fast growing and high-flying conventional cloud stocks,” Fundstrat analysts write.

“This compares against 21x price to sales multiple and 38% growth for the Bessemer Venture Partners (BVP) Emerging Cloud Index.”Of course, there is no guarantee that Ethereum sees a steady rise in activity considering the boom and bust cycle the cryptocurrency sector has become notorious for.

Ethereum, after all, is a very different crypto than bitcoin, considering its founders and team are known. The technology is also undergoing an open source upgrade to increase network throughput and carries its own set of risks.

However, weighing risk and reward, coupled with the fact that CME Group is preparing to launch ether futures contracts in February, Megan Kaspar, co-founder of the digital asset investment company Magnetic, echoed Fundstrat’s bullish call in an interview with Yahoo Finance last week.

“There is a lot of value that is going to come out of this chain,” Kaspar said. “It’s definitely being overlooked and it’s misunderstood by a lot of investors that are just getting their feet wet to understand the ecosystem as a whole.

”She predicted a move beyond the $1,448 record ether hit in early 2018 could trigger a rally that could test the mid-$3,000 level.

Over the last year, ether has rallied more than 700% while bitcoin has gained more than 300%.

Zack Guzman is the co-host of the 11AM - 1PM hours on Yahoo Finance Live as well as a senior writer and on-air reporter covering entrepreneurship, cannabis, startups, and breaking news at Yahoo Finance.

Follow him on Twitter @zGuz.

Bitcoin has lost more than 10% of its value in the last 24 hours as the world’s largest crypto asset dropped below the $34,000 level on Wednesday. The recent bearish move came after high selling pressure kept BTC under $40,000 level.

The overall market cap of cryptocurrencies dipped below $1 trillion today.

According to the latest data available on coinmarketcap, Bitcoin has removed all gains of the previous week as the cryptocurrency is now down over 2% in the last 7 days.

Ethereum plunged more than 12% in the last 24 hours as the world’s second-largest cryptocurrency reached $1,250 after registering an all-time high of $1,420 earlier this week.Glassnode, a crypto analytics platform, pointed out on Wednesday that the number of Bitcoin addresses holding at least 1,000 BTC reached an all-time high of nearly 2,440.

“Bitcoin addresses holding over 1000 BTC ($35 million) hit a new all-time high. This year alone 164 addresses got added, currently worth $6 billion,” crypto research and analytics platform unfolded mentioned in a tweet.The recent price action has escalated anonymous Bitcoin transfers.

Whale Alert, a blockchain tracking company, highlighted two different transactions involving nearly 5,000 BTC. In the first transfer, an unidentified Bitcoin whale transferred 3,217 BTC from an unknown wallet to the Huobi exchange. The second transaction shows the movement of 1,529 BTC from a mysterious wallet to the Poloniex crypto exchange.

Cryptocurrency Market

The crypto market has seen substantial moves since the start of this week as altcoins posted strong gains. Bitcoin’s dominance dipped below 65% for the first time in almost 4 weeks.

Crypto assets like Polkadot, Cardano, and Chainlink posted double-digit gains this week. Bitcoin is facing a tough challenge ahead due to high selling pressure on leading crypto exchanges.

Finance Magnates earlier reported about JPMorgan’s analysis of the recent Bitcoin price action. The investment bank mentioned in a note that BTC’s failure to break above $40,000 may result in huge selling pressure by the trend-following traders.

After hitting a new all-time high, the price of Ether (ETH) could potentially head to $10,500, according to a strategist at major market research company Fundstrat Global Advisors.

Fundstrat strategist David Grider commented on ETH hitting new historical records of about $1,430 in an investor note on Tuesday, Bloomberg reported. Grider said that the second-largest cryptocurrency could climb more than sevenfold to $10,500 after setting a new record.

The strategist reportedly said that Ether is now “the best risk/reward investment play in crypto,” emphasizing that the Ethereum blockchain is the biggest foundation for decentralized finance, or DeFi, applications. “Blockchain computing may be the future of the cloud,” Grider noted.

As Ethereum has been progressing with its proof-of-stake upgrade, its network has the potential to scale significantly and process transactions at a level similar to Mastercard and Visa, the strategist added.

The latest Ether prediction comes as ETH finally broke its new historical record on Jan. 19, about 10 days after Bitcoin hit its $42,000 ATH on Jan. 8. Despite Bitcoin outpacing Ether to be the first coin to post a new ATH after the 2017 crypto rally, Bitcoin is apparently less popular in terms of daily transactions so far. According to January data from crypto analytics firm Messari, the Ethereum network now has up to 28% more transactions daily than Bitcoin.

At publishing time, ETH is trading at $1,290, down about 9% over the past 24 hours. Over the past 30 days, the altcoin has surged more than 100%, according to Cointelegraph’s ETH price index.

• Bitcoin slid on Friday as investors took profits from the volatile trading week.
• The cryptocurrency fell as much as 11%, to $34,409.04, at intraday lows.
• The slide closes out bitcoin's second most volatile week in the last three years. Choppy trading saw the token climb as high as $41,440 and fall as low as $30,324.
• The week also saw more voices dismiss the cryptocurrency as a dangerous market bubble.
• Billionaire investor Mark Cuban likened it to the internet stocksof the dot-com era, and European Central Bank president Christine Lagarde deemed it a "highly speculative asset which has conducted some funny business."
• Watch bitcoin trade live here.

Bitcoin dipped on Friday as less volatile trading pulled prices back below $35,000 after clearing $40,000 the day prior.BThe cryptocurrency fell as much as 11%, to $34,409.04, at intraday lows..

The week's choppy price action saw the cryptocurrency rise as high as $41,440 and fall as low as $30,324. The market froth made for the second most volatile week in the last three years.

After clearing its 2017 peak in December and doubling to nearly $42,000 in the new year, bitcoin has fluctuated as investors weigh securing profits against missing out on additional gains. The token currently trades roughly 25% higher year-to-date but about 11% below its early January record.

Read more: The CIO of a $500 million crypto asset manager breaks down 5 ways of valuing bitcoin and deciding whether to own it after the digital asset breached $40,000 for the first time


A growing chorus of voices deemed the crypto trade a bubble throughout the week, likening it to the dot-com boom of the 1990s. Billionaire entrepreneur Mark Cuban said the token has traded "exactly like the internet stock bubble" that surged to extreme valuations before crashing in the early 2000s.

European Central Bank president Christine Lagarde, who sees a digital euro becoming reality in the next couple of years, said this week Bitcoin is not a currency but a "highly speculative asset which has conducted some funny business.

"Strategists have also tamped down on some of the hype surrounding bitcoin's rally. 

Read more: 'I don't believe that we've really left the recession yet': Bond king Jeff Gundlach lays out the 2 risks that investors should watch nearly a year into the pandemic - and shares the 4 components of a balanced, winning portfolio

"Wall Street just drools over the word 'crypto' any time it sees it without understanding any of this at all. It's not a surprise Wall Street does so, as anything that shows an exponential price increase would get their interest," Michael Every, a global strategist at Rabobank, said.

Technical analysts have said the price is fluctuating between support levels that could pave the way for record highs or a far deeper retreat. The Relative Strength Index for bitcoin - which tracks momentum over the last 14 days - only recently fell below levels indicating the token was overbought.

"While $35,000 may provide an interesting test, the only level that really matters is $30,000. A break of this could trigger a much sharper correction," Craig Erlam, senior market analyst at Oanda Europe, said.

Last year certainly qualifies as one of the most volatile in stock market history. Investors navigated their way through the widely followed S&P 500 losing over a third of its value in about a month. They also enjoyed a bounce-back rally for the ages, with the S&P 500 hitting new highs less than five months after finding a bottom on March 23.If there's one figure that stands out above all else, it's that 10% of the roughly 3,700 stocks with a market cap of at least $300 million ended 2020 higher by at least 100%.

That's a head-scratching number considering the magnitude of the recession caused by the coronavirus disease 2019 (COVID-19) pandemic.There's no question that select equities and assets got ahead of themselves over the trailing nine months since the stock market bottomed. However, one investment looks to be the most dangerous of all.

That investment, which I strongly believe should be avoided at all costs in 2021, is cryptocurrency bitcoin.

This investment is nothing but trouble

The largest digital token in the world by market cap hit an early morning high on Jan. 3 of $34,000. For some context, bitcoin has doubled since Nov. 27, is up 200% since mid-October, and has risen 363% over the trailing-12-month period.

Bitcoin's implied market cap of $628.2 billion now accounts for nearly 73% of the $866.3 billion in value tied up in more than 8,100 digital tokens.Why is bitcoin rallying? Search any number of social media platforms and you'll get no shortage of responses from enthusiasts.

Bitcoin bulls often suggest that its competitive edge, community consensus, and game-changing potential to transform payment processing made this rally easy to predict.

Dollar-cost averaging:

A crucial investing strategy for a potentially rocky yearInvesting apps make it easy for beginners:Here's how I started.

As for me, I don't believe bitcoin is unique in any way, save for being one of the preferred investment mediums on cryptocurrency exchanges. In other words, if investors want to buy a less-popular token, they'll usually need to exchange their fiat currency to bitcoin first before making their purchase. That, my friends, is the only true utility that bitcoin serves.

The concept of scarcity has been pulled out of thin air

Bitcoin bulls often point to its so-called hard cap of 21 million tokens as proof of its scarcity. Simple economics tells us that if demand for a good exceeds supply, and supply is limited, the price of that good should rise. Case closed, right?Not exactly.



You see, we're not talking about a physical good being in limited supply. Bitcoin's token cap is nothing more than an arbitrary figure plucked from thin air. Physical gold is considered scarce because we can't make any more gold than what can be found and mined on planet Earth.

That's not the case with bitcoin. Community consensus could lead to an increase in the token limit. The chance of this happening might be small, but it's not 0%.Bitcoin offers the perception of scarcity, and this falsity has helped drive its valuation higher.

There's minimal utility

You'll also hear about bitcoin being the future of global payments. Again, this isn't entirely accurate or possible.While the number of businesses accepting bitcoin as payment is climbing, the actual percentage of businesses willing to accept bitcoin is tiny.

According to financial services company Fundera, only around 2,300 U.S. businesses accept bitcoin as payment. Yet, the U.S. Census Bureau finds there are 32.5 million businesses in the U.S., including sole proprietorships. Even if we just counted businesses that have an employee, that's 2,300 out of 7.7 million companies accepting bitcoin.



Plus, approximately 40% of bitcoin tokens are held by investors and kept out of circulation. That leaves about 11.2 million bitcoin for transactions. The value of these tokens is close to $380 billion. In 2019, global gross domestic product totaled $142 trillion.Bitcoin has no path to game-changing utility.

It's not a store of value

No matter how much bitcoin enthusiasts want to equate bitcoin to gold, it's never going to be a store of value.

Store of value assets usually have identifiable relationships to government-backed fiat currencies, and they aren't all that volatile. For instance, gold has an identifiable inverse relationship with the U.S. dollar, and it's buoyed by physical scarcity.

Bitcoin doesn't have any identifiable relationships to government-backed fiat currencies. Enthusiasts would like you to believe that an inflated U.S. money supply is good news for bitcoin, but that would only be true if it had some sort of like-for-like federal government backing and had true scarcity – neither of which is true.

Bitcoin has also lost 80% of its value multiple times over the past decade, including a handful of instances when it was halved in roughly a 24-hour period. That's not how store-of-value assets behave.

You have no ownership in the underlying blockchain

Bitcoin bulls are also quick to point out how bitcoin's blockchain is revolutionizing the payment and settlement process.

While it's true that blockchain offers plenty of intrigue, buying bitcoin doesn't give token holders any ownership in the underlying architecture that might actually be worth something.Money tips for the new year:

Here are 21 ways to reduce debt, build an emergency fund in 2021

What's more, it's foolish (small f) to assume that bitcoin's blockchain is superior. Bitcoin may have first-mover advantage, but there are hundreds of ongoing blockchain projects that offer possibilities beyond the financial space.

There's virtually no barrier to entry

It's also important to note that the cryptocurrency space has virtually no barrier to entry. All it takes is some time and money to develop blockchain with or without a tethered digital currency. There are exactly zero guarantees that blockchain will be adopted on a broad scale, or that bitcoin will be in any way necessary.

There are a number of blockchain projects in development that may work with fiat currencies, or without a digital token at all.

It's not just bitcoin that's dangerous

Keep in mind that owning bitcoin isn't the only way you can gain exposure to this dangerous investment. The Grayscale Bitcoin Trust (OTC: GBTC) owns 607,038 bitcoin and essentially acts as a basket fund that investors can buy. Of course, those investors will pay a ridiculous 2% fee annually for the right to buy the Grayscale Bitcoin Trust, and may have to buy in at a premium, as in years past. 

Likewise, business intelligence company MicroStrategy (NASDAQ: MSTR) sunk more than $1.1 billion in balance sheet cash into bitcoin. This cryptocurrency stock issued debt just to buy extra bitcoin. Meanwhile, MicroStrategy's sales through the first months of 2020 were down 1%, while its operating losses widened.Put plainly, bitcoin is dangerous.

It's driven by short-term emotions, technical analysis, and misinformation about its scarcity, utility, and long-term potential. It's the one investment you should strongly avoid in 2021.


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Sean Williams has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool recommends MicroStrategy and has no position in any cryptocurrencies mentioned.

The Motley Fool has a disclosure policy.The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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• Bitcoin (BTC) trading around $31,444 as of 21:00 UTC (4 p.m. ET). Slipping 5.7% over the previous 24 hours.
• Bitcoin’s 24-hour range: $28,154-$33,562 (CoinDesk 20)
• BTC slightly below its 10-hour and well below the 50-hour moving average on the hourly chart, a bearish-to-sideways signal for market technicians.

Bitcoin trading on Bitstamp since Jan. 1.Source: TradingView


The price of bitcoin fell Monday, met by a spate of selling pressure. Around 10:00 UTC (5 a.m. ET), spot exchanges like Coinbase saw a larger-than-normal number of traders hitting sell, with 6,000 BTC in volume on the exchange during that hour. Prices dropped as low as $28,154, according to CoinDesk 20 data. 

Read More: Bitcoin Suddenly Drops 13% as Altcoins Continue to Rise“A lot of folks are now taking a profit after rapid growth in price,” said Constatin Kogan, managing partner at crypto investment firm Wave Financial.

Indeed, bitcoin crossed $34,000 and hit an all-time record high of $34,366 on Jan. 2, according to CoinDesk 20 data. Analysts are seeing many investors realize some gains after such a rapid rise.




Historical bitcoin price the past week.Source: CoinDesk 20

“Over the weekend, as bitcoin prices hit fresh all-time highs, markets touched new levels of resistance,” said Jason Lau, chief operating officer of San Francisco-based exchange OKCoin. “Profit-taking occurred around these levels, resulting in some sideways trading and causing many to be over-leveraged long on futures.”

During the 10:00 UTC (5 a.m. ET) period of higher-than-normal selling Monday, derivatives exchange BitMEX saw $10 million in liquidations, the crypto comparable to a margin call on over-leveraged bullish bets.





Bitcoin liquidations on derivatives venue BitMEX the past 24 hours.Source: Skew

In total, $135 million in sell liquidations occurred on BitMEX over the past day, far outweighing the $34 million in buy liquidations from traders going short. This indicates some exhaustion of what has been a hyper-bullish market until Monday. 

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Nonetheless, Lau still expects buying pressure to keep bitcoin’s price up. ”These dips are being bought up pretty quickly, reinforcing the narrative that there are underlying bids by institutions keen to access bitcoin,” he told CoinDesk. 

Some profit-taking is likely going from bitcoin into ether. Since Jan. 3, ether has exploded and is now up 38.5% in 2021 while the price per 1 BTC has appreciated 7.5% thus far in 2021.



Bitcoin (gold) versus ether (blue) price performance in 2021 so far.Source: TradingView

“Traders rotated assets from BTC into alts to gain higher returns,” said Lau, who refers to ether as one of the “alts,” or alternative cryptocurrencies. “This is evident as [ether] gained over bitcoin in the last 24 hours.”

Wave Financial’s Kogan sees this rotation from bitcoin to other crypto assets as an impermanent condition. “Another interesting factor now is the alt season, so the demand slowly switches to other crypto assets. But in my opinion, this is temporary.”

Ether futures open interest crests $2.6 billion

The second-largest cryptocurrency by market capitalization, ether (ETH), was up Monday trading around $1,034 and climbing 10.4% in 24 hours as of 21:00 UTC (4:00 p.m. ET).

Read More: Ether Price Passes $1,150 to Hit Highest Since January 2018

The ether futures market set a new record high Sunday, at $2.6 billion in open interest, or OI. Leading the way in OI is Binance with $632 million, followed by OKEx with $421 million and Huobi in third with $382 million.



Open interest on various venues for ether futures the past six months.Source: Skew

Futures interest in ether is rising because savvy investors want to start hedging lofty ether price levels, according John Willock, chief executive officer of crypto asset manager Tritum.

“There is a strong natural inclination for some long-term ETH hodlers to finally sell at the numerically significant $1,000 threshold, where we have seen a lot of limit orders sitting on exchange books waiting to get filled,” Willock told CoinDesk. 

He also said institutional interest in ether is growing because CME is expected to launch ether futures next month and investors are currently looking for any way to access the ether futures market.

“Institutions are able to put short pressure on these markets as many people will expect a near-term price correction after this monumental and fast run-up in blue-chip crypto instruments,” Willock added. 

Just before we pop off for the holidays we thought we would bring you some of the highlights of the SEC’s filing against Ripple Labs. Because its 71 pages really were hugely insightful reading. Emphasis ours throughout.


 Let’s start with the assertion that the defendants were aware of their venture potentially falling under federal securities law as far back as 2013:


 Ripple engaged in this illegal securities offering from 2013 to the present, even though Ripple received legal advice as early as 2012 that under certain circumstances XRP could be considered an “investment contract” and therefore a security under the federal securities laws.

From a financial perspective, the strategy worked.

Over a years-long unregistered offering of securities (the “Offering”), Ripple was able to raise at least $1.38 billion by selling XRP without providing the type of financial and managerial information typically provided in registration statements and subsequent periodic and current filings.

Ripple used this money to fund its operations without disclosing how it was doing so, or the full extent of its payments to others to assist in its efforts to develop a “use” for XRP and maintain XRP secondary trading markets.

This, meanwhile, is the essence of how the operation worked:


 While Ripple touted the potential future use of XRP by certain specialized institutions, a potential use it would deploy investor funds to try to create, Ripple sold XRP widely into the market, specifically to individuals who had no “use” for XRP as Ripple has described such potential “uses” and for the most part when no such uses even existed

Moving on to how Ripple funded its operations with sales of XRP, its native digital currency:


 Ripple also lacked the funds to pay for these endeavors and for its general corporate business expenses, which for 2013 and 2014 already exceeded $25 million, without selling XRP.

Ripple’s objectives and its own financial reality thus compelled it to actively seek to offer and sell XRP as widely as possible, while controlling supply and demand in the resale market to manage and control liquidity for an imagined, future “use” case.


 In 2017, Defendants also began accelerating Ripple’s sales of XRP because, while Ripple’s expenses continued to increase (reaching nearly $275 million for 2018), its revenue outside of XRP sales did not.


 And some more on how its entire business model was basically focused on the selling of XRP:

For example, starting in 2016, Ripple began selling two software suites, xCurrent and xVia, from which it has earned approximately $23 million through 2019, though neither uses XRP or blockchain technology. Ripple raised about $97 million in sales of equity securities through 2018 and an additional $200 million in 2019.

In other words, the overwhelming majority of Ripple’s revenue came from its sales of XRP, and Ripple relied on those sales to fund its operations.

From 2014 through the end of 2019, to fund its operations, Ripple sold at least 3.9 billion XRP through Market Sales for approximately $763 million USD.


 From 2013 through the end of the third quarter of 2020, Ripple sold at least 4.9 billion XRP through Institutional Sales for approximately $624 million USD, also to fund Ripple’s operations, for a total of at least $1.38 billion USD in Market and Institutional Sales alone.

How the holders of XRP benefited from the controlled distribution of the digital tokens in price terms:


 The market price for XRP—and Ripple’s sales prices in the Offering—ranged from a low price of approximately $0.002 per XRP in 2014 to a high price of $3.84 per XRP in early 2018, an increase of nearly 137,000%. XRP traded at approximately $0.58 USD per XRP as of last week.


 From 2015 through at least March 2020, while Larsen was an affiliate of Ripple as its CEO and later chairman of the Board, Larsen and his wife sold over 1.7 billion XRP to public investors in the market. Larsen and his wife netted at least $450 million USD from those sales.


 From April 2017 through December 2019, while an affiliate of Ripple as CEO, Garlinghouse sold over 321 million XRP he had received from Ripple to public investors in the market, generating approximately $150 million USD from those sales.

And here’s a nice summary of all the sales:


 The unregistered third-party middlemen that Ripple organised and paid to help them manage the sales:

The entities Defendants enlisted to help carry out the Market Sales—the specialized traders or the trading platforms—were typically not registered with the SEC in any capacity.

Ripple conducted the Market Sales by paying at least four entities commissions, paid in XRP, for executing Ripple’s XRP sales to the public on digital asset trading platforms.


 How the middlemen were directed to control the price:

At Ripple’s direction, the intermediaries such as the Market Maker ensured that Market Sales were programmatically set not to exceed a certain percentage of XRP’s overall daily trading volume, and Ripple referred to the Market Sales as “programmatic sales.

”

How they incentivised institutional holders with pre-arranged discounted terms relative to public market prices (the public market that the securities were loaded off into):

Ripple made many of the XRP Institutional Sales at a discount from XRP market prices.

At least seven of the institutional investors—including some described below—bought XRP at discounts between 4% and 30% to the market price

More about how Ripple paid money-transmitting businesses with XRP to use its product:


 As described below, in late 2018 Ripple began to market a product (“On-Demand Liquidity” or “ODL,” also called “xRapid”) for money transmitting businesses to buy XRP in one jurisdiction, transfer it to a separate destination, and sell XRP for the local fiat currency, to effect cross-border payments.

 To encourage adoption of ODL, Ripple paid XRP to both the money transmitting businesses and certain market makers that supported the product for their efforts.

From approximately December 2018 through July 2020, Ripple issued at least 324 million XRP as fees, rebates, and incentives to entities associated with ODL, without restricting the ability of these entities to resell the XRP received as incentives into public markets.

This XRP was valued at approximately $67 million at the time of Ripple’s payments.

These entities typically have resold all the XRP they have received from Ripple to investors in the public markets, typically on the same day that they received the XRP from Ripple.

How Ripple managed comms to maximise XRP value:


 On November 1, 2017, Ripple Agent-3 informed Ripple Agent-2 that Ripple was looking to “accelerate/prioritize XRP-beneficial announcements,” including potentially the formation of the XRP Fund.

On November 11, 2017, a Ripple marketing executive asked Garlinghouse and Ripple Agent-3 in an email if they could use an upcoming investment conference in Manhattan to “push” the XRP Fund or the RippleWorks CEO “to close so we can announce.

” The next day, Ripple Agent-3 informed Garlinghouse that Ripple was “following up with [the RippleWorks CEO] with some provisions [for the XRP Fund] to prevent harmful XRP behaviour.

”

How Ripple emulated a central bank in how it regulated those it distributed its tokens to:


 For example, a November 1, 2018, two-year “Services and Marketing Agreement” with one entity promised “certain development services to promote technologies of interest to Ripple.

” The agreement provided that the entity would receive a bi-monthly “development service fee” of 5 million XRP and could identify additional parties that could receive XRP as incentives— provided that these additional parties agreed to abide by Ripple-mandated parameters for their XRP trading volumes.

 By August 2020, Ripple had paid the entity at least 364 million XRP, of which the entity had distributed 178 million to other parties, typically approved by Ripple.


 How the fee it paid holders of XRP emulated a type of interest rate:

In 2017 and 2018, Ripple also entered into agreements with at least ten digital asset trading platforms—none of which were registered with the SEC in any capacity, and at least two of which have principal places of business in the United States—providing for listing and trading incentives with respect to XRP.

Ripple paid these platforms a fee, typically in XRP, to permit the buying and selling of XRP on their systems and sometimes incentives for achieving volume metrics.

How Ripple incentivised trading platforms to list its tokens:


 Ripple tried repeatedly and unsuccessfully to persuade that digital asset trading firm to “list XRP on [its] exchange” by offering to “cover implementation costs, paying rebates, [and] brokering intros to large XRP holders for custody

.” Undaunted by these initial failures, Ripple Agent-3 emailed the two owners of the firm directly in July 2017, copying Garlinghouse, and asked: “Does a $1M cash payment move the needle for a Q3 listing?

”

How Ripple emulated a central bank in how it managed price and volatility in the price of XRP:

These efforts also included timing the prices and amounts of XRP sales to achieve what Ripple viewed as desirable trading volume or price levels and fluctuations with respect to XRP.

Ripple sought to maximize the amount it could earn from the XRP Market Sales while minimizing volatility and any downward pressure on XRP’s market price caused by Ripple’s constant injections of new XRP into the market to raise operating funds.


 Ripple internally described these strategies as aimed at maximizing the amount of money Ripple could raise in the Offering or at achieving “more speculative [XRP] volume.

” At times, Ripple publicly described its efforts as meant to protect the public’s investments in XRP.

Then there’s this extraordinary detail about how Ripple execs used buybacks to firm up the price of XRP:


 On April 11, 2016, Ripple also directed the Market Maker to buy XRP in the open market with the goal of “[t]arget[ing] $0.008 incrementally over the course of 2 days” while “[c]ap[ping] activity at 5% of daily trading volume[,]” among other things.

 A Ripple vice president of finance (the “VP of Finance”) then asked Garlinghouse and Ripple Agent-3 “if [they] discussed whether we should turn off the buying now with this news and the higher volume?” Ripple Agent-3 responded:

“The thesis . . . is to show a period of consistent buying from an account that is known to be a consistent seller. The intended impact of the buying is not to move the price but rather to provide confidence in the market, which in turn will move the price.”

Following this exchange, Ripple did not “turn off the buying” of XRP.


 The following month, September 2016, Ripple directed the Market Maker to place XRP buy and sell orders around the time of announcements Ripple made that month referring to Ripple’s achievements, though neither announcement concerned XRP.


 How Ripple execs analysed the market impact of XRP purchases:

On September 20, 2016, the VP of Finance emailed the Market Maker and said that, after consultation with Garlinghouse and Larsen, Ripple wanted to “better understand[ ] the impact of our purchases [of XRP] over the past week” and that Ripple’s “[c]urrent thinking [was] that we should use our full $300k [designated for XRP purchases] in the first 24 hours post announcement.

”

The next day, the Market Maker provided the VP of Finance and Ripple Agent-3 with data showing “the positive relationship between hourly price changes of XRP and the hourly Net XRP purchases,” while noting the lack of data to provide a “statistically significant result.

”

On Friday, September 23, 2016, the VP of Finance, after consulting with Garlinghouse and Larsen and obtaining Garlinghouse’s “go ahead,” directed the Market Maker to “keep the buying light [the day after the announcement] and then do the bigger slug starting Sunday.” The Market Maker agreed.


 On Monday, September 26, 2016, the Market Maker reported to Ripple that it had “spent approximately $200K of the second tranche” and recommended a strategy “to make aggressive markets” going forward, to which the VP of Finance agreed.


 On October 15, 2016, the VP of Finance informed the Market Maker that, after an upcoming announcement, Ripple “would like to go to sales at 1%” of trading volume and asked the Market Maker to “be thoughtful / opportunistic around the timing of implementing 1%” because Ripple did not “want to depress the rally but rather capitalize on the additional volume.

” He further instructed the Marker Maker “to take more money off the table,” if there was a chance to do so.

How execs made efforts to protect the XRP market, especially when it was out of sync with other crypto market moves:

Internally, Ripple executives frequently expressed concern over XRP’s price and planned proactive steps to protect the market.


 For example, in an August 12, 2017 e-mail to Ripple Agent-2 and Ripple Agent-3, Garlinghouse raised concerns about XRP being “squarely left out” of a recent market “rally” and asked whether Ripple’s recent XRP sales were “impacting the market?

” He instructed certain Ripple employees to “proactively” attempt to increase speculative trading value with positive XRP news. 188. Similarly, in September 2019, Ripple’s “Head of Global Institutional Markets” reminded certain Ripple employees that Ripple viewed itself as “Responsible Stewards of XRP.” She expressed concerns about the impact on XRP’s price from increased XRP supply and recommended “buy[ing] [XRP] back” because she was very “worried about xrp at 0.20” and was “DREAD[ING]” an upcoming report—referring to quarterly reports Ripple began publishing in January 2017 (the “Markets Reports”)—if Ripple didn’t “take swift, creative action now (!)”

Later, in approximately June 2020, Ripple employees prepared and delivered an internal presentation for Garlinghouse and Larsen in which the employees highlighted that “XRP began underperforming [Bitcoin]” since early May 2020, partly because of Ripple’s sales of XRP.

The employees proposed “supply limiting tactics,” such as Ripple’s buying back XRP.

How fretting about the price led to “supply limiting tactics”:

Later, in approximately June 2020, Ripple employees prepared and delivered an internal presentation for Garlinghouse and Larsen in which the employees highlighted that “XRP began underperforming [Bitcoin]” since early May 2020, partly because of Ripple’s sales of XRP.

The employees proposed “supply limiting tactics,” such as Ripple’s buying back XRP. 194. Garlinghouse approved the “buy back” option. 195. Following Garlinghouse’s decision, Ripple disclosed on November 5, 2020, in its Markets Report for the third quarter of 2020, that it had purchased $45 million worth of XRP in order to “support healthy markets” and that it may continue to engage in this activity in the future.


 How all of the above activity required public disclosure to be legal:

If Ripple had filed a registration statement and quarterly and annual reports—as it would have been required to do—Ripple’s sales would have been publicly disclosed. They were not.


 How Ripple execs created an Escrow fund to assuage concerns about too much selling:

To assuage investor concerns, on May 16, 2017, Ripple announced that it would place 55 billion XRP (most of its current holdings) into a cryptographically-secured escrow that would restrict Ripple to accessing only one billion XRP every month (the “XRP Escrow”).


 The Proposal to Escrow Ripple’s XRP concluded that the XRP Escrow would be successful if it resulted in “immediate increase in volume and price appreciation” for XRP as one of the “[r]ewards” to counter-balance the increased “[r]isk” of “Cash flow shortfall” for Ripple

Ripple and Garlinghouse publicly touted the formation of the XRP Escrow as proof that Ripple and XRP holders shared a common interest in the success of Ripple’s efforts as to XRP and as one of Ripple’s many efforts to manage the trading market for XRP.


 In other words, by announcing the XRP Escrow, Defendants sought to encourage investors to buy and sell XRP without fear that Ripple could cause XRP’s price to crash—as though the XRP market was a functional market subject to ordinary supply and demand independent of the issuer.

In doing so, Defendants reminded investors of a fact they already knew—that Ripple was committed to undertaking efforts to increase XRP trading volume while supporting XRP’s price.

And some thoughts about who really can exercise influence over offering proceeds:

Investors in XRP do not exercise any control or authority over how Offering proceeds have been or will be spent. Ripple possesses sole discretion to decide how to do so. 262.

Because certain Ripple executives publicize that they hold XRP, and some (including Garlinghouse) state that they hold it as an investment, it is reasonable for a holder of XRP to expect these individuals to undertake efforts to increase the value and price of XRP.

How the SEC clocked HODL:

Later, he reiterated, “I remain very, very, very long XRP, . . . I’m on the HODL side,” referring to a digital asset industry term meaning to be long on an asset for long-term gains.


 How nobody was using XRP to actually transact:

On June 21, 2018, Garlinghouse explained in a public speech that nobody was using XRP to effect cross-border transactions as of that date. Instead, he said that Ripple “expect[ed] this year for at least one bank to use XRP in their payment flows, to use xRapid [ODL].

”

Ripple did not commercially launch ODL until October 2018. 338. Since its launch, ODL has gained very little traction, in part due to certain costs of using the platform. From October 2018 through July 26, 2020, only fifteen money transmitters (none of which are banks) signed on to potentially use ODL, and ODL transactions comprised no more than 1.6% of XRP’s trading volume during any one quarter (and often substantially less).


 What onboarding there was was subsidised by Ripple:

Much of the onboarding onto ODL was not organic or market-driven. Rather, it was subsidized by Ripple. Though Ripple touts ODL as a cheaper alternative to traditional payment rails, at least one money transmitter (the “Money Transmitter”) found it to be much more expensive and therefore not a product it wished to use without significant compensation from Ripple.


 Between early 2019 and July 2020, the “Money Transmitter” conducted the overwhelming majority of XRP trading volume in connection with ODL. Ripple had to pay the Case 1:20-cv-10832 Document 4 Filed 12/22/20 Page 57 of 71 58 Money Transmitter significant financial compensation—often paid in XRP—in exchange for the Money Transmitter’s agreement to help Ripple increase volume on ODL.


 Specifically, from 2019 through June 2020, Ripple paid the Money Transmitter 200 million XRP, which the Money Transmitter immediately monetized by selling XRP into the public market, typically on the very days it received XRP from Ripple.

The Money Transmitter publicly disclosed earning over $52 million in fees and incentives from Ripple through September 2020.

The Money Transmitter became yet another conduit for Ripple’s unregistered XRP sales into the market, with Ripple receiving the added benefit that it could tout its inorganic XRP “use” and trading volume for XRP.

The Money Transmitter has served that principal purpose for Ripple in exchange for significant financial compensation.

And finally how executives kept the incentive programmes quiet from the public:

Ripple and Garlinghouse did not disclose to XRP investors or the public the full extent of incentives that Ripple provided to the Money Transmitter in return for its assistance in increasing XRP trading volume. 344.

For example, in a September 12, 2019 interview on CNN, Garlinghouse refuted speculation that Ripple was manufacturing demand for ODL and claimed: “When [the Money Transmitter] is moving money from U.S. dollar to Mexican peso, they’re buying [XRP] at market.

There’s no special sweetheart deal there.” While the Money Transmitter was buying XRP in the market at current market prices (not from Ripple), Garlinghouse did not disclose that Ripple was paying the Money Transmitter significant financial incentives to do so. 345. Even after ODL’s launch, Ripple publicly acknowledged in July 2019 that XRP has no significant use beyond investment, as alleged in paragraph 211 above.


 No mention, sadly, of the extensive social media PR war that was waged by the XRP army online to the benefit of the Ripple community. Or of Ashton Kutcher’s promotional activity on The Ellen DeGeneres Show. But we are sure it won’t have gone unnoticed.

JPMorgan strategists have said the odds of a bitcoin correction would rise if flows into the Grayscale Bitcoin Trust slow down dramatically.

• Such a drop in flows into the largest bitcoin (BTC, -4.88%) fund would increase the likelihood of a price correction similar to the one seen in the second half of 2019, according to a note from the bank's quantitative strategists led by Nikolaos Panigirtzoglou, as reported by Bloomberg Monday.
• The digital asset manager's bitcoin inflows “are too big to allow any position unwinding by momentum traders to create sustained negative price dynamics,” the strategists said.
• They stopped short of saying bitcoin is overbought after the cryptocurrency soared to consecutive record highs in recent weeks.
• The most recent data tweeted by Grayscale Investments showed the firm reached $15.5 billion in cryptocurrency assets under management on Dec. 18 – up $2 billion in less than a month. Its Bitcoin Trust is now worth over $13 billion of that total.
• Bitcoin hit a new record price of $24,273 on Sunday. At the time of publication, prices were lower at around $23,450.
• New York-based Grayscale is owned by Digital Currency Group, the parent company of CoinDesk. The firm allows institutional investors to buy shares in its crypto trusts, gaining exposure to the asset class without having to own the asset directly.

Bitcoin price surpassed $20,000 with ease on its third retest, buoyed by a surge in buy volume. Following the breakout, analysts anticipate the dominant cryptocurrency to eventually rise to the mid-$30,000s.

However, in the short term, the expectations of a pullback are growing.There are compelling arguments for both short-term bull and bear cases. Traders who are highly optimistic in the near term state that the surge past $20,000 has confirmed a new bull trend.

With no technical resistance above it, a continuation of the rally is anticipated. Because there is no historical data to rely on above $20,000, Bitcoin (BTC) has entered unprecedented territory.

Analysts who are short-term cautious expect Bitcoin to face some retracement in the foreseeable future. The $20,000 level remains an attractive support level because it is the previous all-time high reached in December 2017. A retest of the previous peak would be a textbook technical pattern, which would reset everything and make the derivatives market less crowded.

Where will Bitcoin go in 2021?

The options market is pricing a potential Bitcoin rally up to between $36,000 and $50,000 in the medium term. This shows that many options traders are expecting the Bitcoin rally to continue into 2021. A larger uptrend in early to mid-2021 would mean that BTC replicates the post-halving trend it saw in 2017.

In 2016, Bitcoin saw its second block reward halving, and 15 months after that, it peaked at around $20,000.Denis Vinokourov, head of research at Bequant, told Cointelegraph that the options market pricing Bitcoin at $36,000 during a rally does not necessarily mean traders expect it to reach $36,000.

For example, he explained that the probability of the $36,000 strike is currently at 12%, which is relatively low. Hence, while $36,000 and $52,000 could materialize, for now, the probability still remains low:

“The options market is as much about trading mis-pricing and hedging as it is about a directional play. The fact that there is a huge open interest resting at such a high strike doesn’t mean that the underlying will trade there, although it's reasonable to expect some price attraction. There is also high OI at $52,000, but the delta (probability) is slim at four percent.”

Guy Hirsch, managing director for the United States at eToro, said that options interest suggests a rally to the mid-$30,000s could occur. But Hirsch emphasized that it is too early to call a peak for Bitcoin, especially considering that it has just surpassed the all-time high. It has been less than 72 hours since BTC broke past its record high, and it has yet to establish a support level and near-term resistance levels.

Short-term bearish scenario puts Bitcoin at $20,000

Both Vinokourov and Hirsch anticipate that dips are likely to occur following the recent rally. Historically, throughout the bull cycles seen in 2017 and 2019, Bitcoin saw 20% to 40% pullbacks, which were useful to reset the derivatives market.

Pullbacks can make rallies more sustainable because they prevent uptrends from becoming overheated and overwhelmed with buyers.Hirsch told Cointelegraph that $20,000 and $15,000 are potential areas Bitcoin could correct to if confidence dwindles.

But if Bitcoin’s momentum continues to strengthen, he believes Bitcoin could simply consolidate higher. Even if pullbacks occur, Hirsch emphasized that dips would be short-lived due to the clear increase in institutional demand. He explained:

“Either we consolidate and move higher as institutions take advantage of the buying opportunity, or confidence falls and we see a drop possibly to as low as $15,000, as some including even JP Morgan have suggested.

”Generally, analysts expect large corrections, if they occur, to be bought up by institutional investors quickly. Vinokourov said that if profit-taking occurs, it would be the institutional investors rebalancing their portfolios. Hence, in this scenario, retail investors could begin buying the dip, with institutional investors accumulating later on.

Although institutions have continued to buy throughout 2020, some institutions and accredited investors have been buying since $4,000, according to Vinokourov, who added:

“The price action following the break of $20,000 has been very much one-sided but, as it stands, there is no sign of liquidity drying up or market makers getting it wrong and blowing up. Instead, the price action remains well-managed thanks to an influx of retail flow, as much as institutional. Profit taking is not something that retail looks to be contemplating just yet, so any rebalancing by the institutional side will likely be met by dip buying flow.”

The most ideal scenario for Bitcoin?

Bitcoin has continuously rallied since September, with one major dip to $16,000 in November. Other than that, BTC has not seen large pullbacks or long squeezes like in 2017. This has some analysts pondering whether the market dynamics have changed for Bitcoin and large corrections are less likely to happen.

One of the main reasons behind the lack of severe corrections is Bitcoin’s declining reliance on the futures market. Spot volumes have been growing, fueled by the rising institutional demand across venues such as Grayscale, CME and Bakkt.

Hence, long and short squeezes could have a smaller impact on the price trend of Bitcoin.

The most favorable trend for Bitcoin, according to Hirsch, would be the establishment of a clear support area and lowering volatility, at least for a while.

The volatility of Bitcoin has been increasing intensely for a prolonged period, which has rattled the markets every time a major price movement has occurred.

According to Hirsch: “It’s important to realize that, with each passing month, we have been consistently hitting higher highs and higher lows. The latter is important because it is a strong indicator of increased adoption.”

Bitcoin has had an incredible 2020, more than doubling in price since the beginning of the year—with some predicting it will continue to climb.

The bitcoin price has recently soared to its 2017 all-time high but has failed to break through the psychological $20,000 per bitcoin barrier.

Now, after bitcoin's rally has helped catapult cryptocurrencies back into the headlines, investors are eyeing the sky-high returns of smaller so-called "alt coins"—including ethereum, Ripple's XRP and chainlink.MORE FROM FORBESAnother Crypto Skeptic Suddenly Flips To Bitcoin-But Adds A Stark WarningBy Billy Bambrough



The bitcoin price has been boosted by unprecedented central bank money printing this year, putting ... [+] GETTY IMAGES

Bitcoin has found support this year from investors looking to hedge against the inflation they see on the horizon, solidifying bitcoin's reputation as digital gold.MORE FOR YOUForget Google—Could China Be About To Destroy Bitcoin?PayPal Just Gave 346 Million People A New Way To Buy Bitcoin—But There’s A Nasty CatchAnother Crypto Skeptic Suddenly Flips To Bitcoin—But Adds A Stark WarningThe bitcoin price has added 150% over the last 12 months but has been left in the dust by the price increases some other cryptocurrencies have seen, many of which have soared amid a flurry of interest in decentralized finance (DeFi)—using crypto technology to recreate traditional financial instruments such as loans and insurance.

Ethereum, the world's second-largest cryptocurrency by value on which many DeFi projects are built, has added 300% over the last 12 months (some think it's still got a long way to run).

Ripple's XRP, the third-largest cryptocurrency, has jumped 165% with most of its gains coming in just the last month.Chainlink, a cryptocurrency and blockchain network used by DeFi and broader projects to link up data sources, APIs, and payment systems, has added a staggering 500% through 2020.Among smaller tokens, cardano and stellar lumens, two top-ten cryptocurrencies, have added 300% and 200% respectively.

These massive rallies are dwarfed by the returns recorded by a handful of more minor cryptocurrencies. Yearn.finance, used by investors seeking interest-like yield to move funds around the DeFi ecosystem, has climbed a mind-blowing 2,600% in just the last year.


MORE FROM FORBESForget Google-Could China Be About To Destroy Bitcoin?By Billy Bambrough





The yearn.finance price has exploded this year, spiking to record highs over the summer before ... [+] COINBASENEM, a cryptocurrency that powers the New Economy Movement blockchain, has added 550%, while theta, the cryptocurrency token of a blockchain powered network purpose-built for video streaming, has soared almost 800%.

The ethereum price has been boosted by confirmation the ethereum network will this month begin a long-awaited upgrade that those in the cryptocurrency community hope will help ethereum scale.

"The recent rally in ethereum is associated with multiple factors," Kosala Hemachandra, the chief executive of MyEtherWallet, said via email, pointing to ethereum "benefiting from the overall crypto rally," and the beginning of the "first phase of Ethereum 2.0."

"These price movements aren’t necessarily due to a decrease in supply, but because of the fame and excitement that comes around the innovation in blockchain technology. This is just the initial phase (phase 0) of the ethereum 2.0 roll-out, building the foundation for ethereum 2.0’s success.

I expect that ethereum will continue to gain prominence in mainstream circles as we hit future ethereum 2.0 milestones.

"Meanwhile, other bitcoin and cryptocurrency investors are confident there has been a shift in sentiment this year.

“There are several factors that allude to a permanent shift in sentiment towards bitcoin," James Butterfill, investment strategist at CoinShares, Europe's largest digital asset manager with $1.8 billion in assets under management, said via email.

"On an anecdotal level, based on our client conversations over the course of 2020, we have seen a decisive shift from enquiries of a speculative nature to those that begin with comments such as, 'bitcoin is here to stay, please help us understand it.'"


Follow me on Twitter. 



Billy Bambrough

I am a journalist with significant experience covering technology, finance, economics, and business around the world. As the founding editor of Verdict.co.uk I reported… Read More

A new cryptocurrency token, launched by Steve Wozniak’s new green energy and blockchain project Efforce, has surged in value since last week’s listing on one of the world’s largest crypto exchanges.

Wozniak’s Efforce became fully operational last week. The project that aims to transform and disrupt the energy efficiency market and allow any investor “to help the planet,” became only the second business venture for the Silicon Valley legend almost half a century after he co-founded Apple.

“We created Efforce to be the first decentralized platform that allows everyone to participate and benefit financially from worldwide energy efficiency projects, and create meaningful environmental change,” Wozniak said in a statement. 

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Shortly after its launch, Efforce listed the token named after Wozniak under the ticker WOZX on the HBTC exchange.

The new cryptocurrency attracted $950 million in the first 13 minutes, the company said in a press release on Friday. Boosted by enormous investor interest, WOZX surged by nearly 1,400 percent since it started trading, rising from the initial price of $0.1 to $1.41 seen on Monday. 

The token is set to start trading on a smaller exchange Bithumb Global next week, Efforce announced.

Cryptocurrency is not an obvious candidate to cut greenhouse gas emissions. Just mining bitcoin, the primary blockchain-based cryptocurrency, emits about 22 megatons of carbon per year (the precise number is hard to pin down).

But Apple’s co-founder Steve Wozniak is backing a new cryptocurrency promising to do just that.

The WOZX, launched by the energy-efficiency crowdfunding company Efforce, entitles holders to a share of profits from energy efficiency projects around the world.

Wozniak says this crowdfunding approach will allow anyone to invest in the growing $250 billion energy efficiency market and lead to “meaningful environmental change,” according to a company statement on Dec. 4.

Private investors have responded positively: They’ve already invested $18 million at an $80 million valuation, according to the company, but the crypto world appears to be even more enthusiastic.

During the first days of public trading, the WOZX shot up from 22 cents per token on Dec. 2 to more than $1.50 just five days later—all before a single project has been developed.

While the new cryptocurrency may already be generating profits for its investors, it’s less clear the energy efficiency industry needs a blockchain to be successful.

How does WOZX work?

When someone buys WOZX, they’re buying a proxy for a stake in an energy efficiency project: typically upgrades to infrastructure, from LED lights and window glazing to thicker insulation and more efficient power generators.

Energy services companies register their proposed projects with Efforce, which assesses the required investment and writes a contract outlining expected returns.

These projects are then financed by investors (or “contributors”) buying the WOZX cryptocurrency, whose transactions will be tracked on a distributed, verified online ledger called a blockchain.

Once the upgrades are done, smart meters record the energy savings produced—savings that are automatically distributed to WOZX holders’ accounts as “energy credits.

” These megawatt-hour credits can then be used to offset electricity bills, or be sold back to Efforce for cash.Sound complicated? It is.

These financial gymnastics are necessary because WOZX buyers aren’t accredited investors in the eyes of regulatory bodies. That limits the ability of entities like Efforce to sell them securities.

But the WOZX token isn’t technically an equity stake: It’s a token that generates a share in project proceeds and distributes them as credits, according to Andrea Castiglione, another Efforce co-founder.

What’s the return on energy efficiency?

Right now, the utility-offset credits are only recognized by certain Italian utilities giving holders the right to offset their own bill, though Efforce says the number of utilities will expand in the future. That means for most people, the returns on WOZX will come from selling their credits, or appreciation of the token over time.

So how much money can “contributors” expect to earn? Energy savings projects typically generate returns around 20%, Castiglione claims, predicting investors may reap half of those returns. “We can say the investment returns are predictable,” he said, “but there is some risk involved,” citing project risks and the value of the token itself.

That risk will also depend on the types of projects Efforce chooses to register and assess. Castiglione says Efforce will handle the first 20 projects itself starting in the first quarter of 2021 (Efforce’s parent company is a licensed energy services company).

The first two prospective projects are a 9 megawatt industrial electricity, heating, and cooling plant in Italy, and a hotel complex on the French Rivera. Efforce will then open up the platform to 30 partners in the energy services industry.

Can crypto really help cut emissions?

If successful, Efforce says, the energy efficiency market will see a huge influx of new investment from individuals and the world will see rapid reductions in the growth of global emissions.

But Vikram Aggarwal founder of EnergySage a marketplace for residential solar power, and former vice president at a Fidelity private equity fund, says most projects should be able to secure institutional financing.

“As long as you have a methodology for how this is going to generate returns,” he says, “I don’t think there is a shortage of capital.” Generate Capital, for example, recently agreed to finance $600 million in such energy efficiency projects through the energy services company Alturus.

In other words, WOZX won’t necessarily upend the market for energy efficiency.Aggarwal argues the enormous pools of available private equity might not justify the complexity of Efforce’s cryptocurrency approach.

“Blockchain in my mind has become a four-letter word,” he says. “It looks like everyone approaching us in the last few years says, ‘I’m an expert in blockchain.

Do you have a problem I can solve using blockchain?'”Wozniak is a believer. His crypto ambitions have fueled speculation since 2018, when the software engineer announced on CNBC that he hoped bitcoin would become a single global currency—“because that is so pure thinking,” he said at the time.

He then joined a crypto venture founded by a British baroness (which later collapsed), according to the Financial Times.The Woz’s backing of WOZX is a reason this blockchain application may succeed where others have failed.

Efforce tried and failed to raise as much as $53 million in 2019 amid turmoil in the market; the company said it had been waiting to publicize Wozniak’s role as a co-founder until its technology was “on an industrial level.

” Now, Efforce claims the rising price of WOZX suggests a valuation of more than $1 billion.

LAST YEAR, WHEN Facebook officials were hauled in front of Congress to defend their plans for a cryptocurrency called Libra, they arrived with a pitch about financial inclusion.

With Libra, people anywhere in the world would have access to a common payment network, they said, whether or not they had access to a bank. All it would take was a phone and a Facebook account.

Representative Rashida Tlaib, (D–Michigan) a member of the “squad” of progressive first-term lawmakers, had heard similar pitches before.

Her Detroit district, the third-poorest in the country, is populated with the very unbanked people Facebook executives were describing. In the past, they had been promised faster tax returns, paycheck advances, or check cashing without a checking account.

But these offerings came with little regulation, and often with excessive fees or interest rates. Now, here was Libra, a cryptocurrency that also seemed poised to fall through the regulatory cracks, backed by an industry with a lot of power and data.

She wondered if this was the next iteration.“People don’t realize that this is coming. I feel like a mama bear, and I have to watch out for what is coming for my district and my neighborhood,” Tlaib says. That’s why she wants to talk with you about a thing called stablecoins.

Not familiar? Eyes glazing? It’s a bit niche, for now. Stablecoins are a form of digital currency that, as the name suggests, hold a constant value. That’s what Libra is, technically, but there are many other flavors.

Stablecoins might be backed by an actual currency or a basket of assets, or they might use algorithmic tricks to hold steady, but the point is that their price in, say, dollars, doesn’t change. It’s a promise.

Stablecoins were initially used to help with buying and selling volatile cryptocurrencies like bitcoin. But increasingly, some stablecoins, like Libra, have been proposed for more common uses, like paying for actual stuff. That’s because they can be fast, easy to use on phones, and are, well, stable.

“I feel like a mama bear, and I have to watch out for what is coming for my district and my neighborhood.

”REPRESENTATIVE RASHIDA TLAIB (D–MICHIGAN)

The problem is that stablecoins are not much more familiar to members of Congress and regulators than they are to you and me. In the Facebook hearings last year, everyone seemed to want Libra to be regulated, but the unanswered question was how.

So this week, Tlaib introduced a bill, cosponsored by representatives Stephen Lynch (D–Massachusetts) and Chuy Garcia (D–Illinois), that offers a possible solution: requiring stablecoins that promise a fixed value in US dollars to be issued by banks.

That, the legislators argue, constitutes taking a deposit, which is something only banks can do—not tech companies nor the associations they set up to issue coins on their behalf.

That logic takes aim squarely at Facebook’s stablecoin plans. This year, while we were worrying over social distancing and reproduction values, Libra went through major changes.

Instead of a global, borderless coin backed by a number of currencies and assets, it’s now proposed as a series of coins for different places: a coin for Europe denominated in euros, a coin for the United States denominated in dollars, and so on.

 That’s given some relief to central bankers who were concerned that Facebook's currency would compete with their ability to control the local money supply. Libra also abandoned a plan to eventually let anyone build services on its network, a feature that raised money laundering concerns, in favor of a closed system controlled by its official members.


Oh, and there were a few naming tweaks along the way. Facebook’s Calibra division, which is designing the company’s Libra wallet, now wants to be called Novi. And earlier this week, Libra itself—both the currency and the association that issues it—became Diem. Got that? Novi deals Diem.

Think of it as an effort to assert the project’s independence from Facebook—though, as a reminder, the company did come up with the idea, built most of the technology, set up the association with close allies, and will likely provide by far the most users for whatever coins are eventually issued.

Those changes appear to have cleared the way to get Diems into people’s Facebook accounts. The initial Libra model raised plenty of red flags for regulators, but the most obvious stumbling block was that a coin backed by a bundle of assets, including dollars, euros, yen, and bonds looked to some like a security.

Declaring it so would kick in regulations that would make it impractical as money. But the new Diem model, where one Diem dollar represents one US dollar, looks more like moving money within Venmo or Square.

So the Diem association members that plan to offer digital wallets for the coin, like Facebook’s Novi, are following a similar path of labeling themselves money transmitters, which in the US involves the burdensome but ultimately trivial process of seeking licenses from all 50 states.

A Financial Times report this week suggested Diems could be issued by the Diem Association as soon as January, pending approval from financial regulators in Switzerland, where it is based.

The WIRED Guide to Bitcoin

The cryptocurrency represents amazing technological advances. Bitcoin has a way to go before it's a a true replacement for, or even adjunct to, the global financial system.

Requiring stablecoin issuers to be banks would erect a much bigger hurdle. The idea is to establish “bright lines” between finance and tech that have been blurred by products like stablecoins, says Raul Carrillo, a research scholar at Yale University who gave input on the bill.

He says it’s important to establish clear regulations early on for new products like stablecoins. Big tech companies like Facebook are largely shut out of obtaining bank charters, because of traditional barriers between banks and retailers, as well as antitrust scrutiny that such a move would likely raise. Another option would be to ask a bank to issue Diems.

Carrillo says that even that degree of separation, along with rules placed on banks, would be a good start to Facebook and Diem’s ambitions in check.

Facebook, however, is not the only company interested in stablecoins. If the bill were enacted, a small but growing industry of stablecoin issuers would likely need to rethink their strategy.

That includes companies like Circle, which said Wednesday it had partnered with Visa to issue a credit card that would allow businesses to use its stablecoin called USDC, or US Dollar Coin. In an email, Jeremy Allaire, Circle’s CEO, called Tlaib’s bill a “huge step backward for digital currency innovation.

” A Diem spokesperson said the association does not comment on pending legislation, and a spokesperson for Novi said the company was still reviewing the bill.

Brian Brooks, the acting US comptroller of the currency who was recently nominated by President Trump for a five-year term, describes the bill as “a solution searching for a problem.”

He says some of the provisions, such as ensuring adequate reserves and the ability to redeem stablecoins for dollars, can be handled without requiring issuers to become banks, which he argues would stifle competition.

“What if email got invented and somebody said only the post office can issue email accounts?” he asks.

As acting comptroller, Brooks has advocated for more flexibility for non-banks that want to provide digital payment options, including stablecoins.In Tlaib’s view, a little more friction for private issuers wouldn’t be a bad thing.

She would prefer to see digital coins issued directly by the US government—which could be accessed by individuals through accounts at local post offices or directly through accounts at the Federal Reserve. That’s for all the same reasons Diems might appeal to people in her district, she says: ease, low costs, and simplicity.

It could be a way, for example, to get Covid-19 relief (should that ever happen again) to people sooner than mailing checks. The important thing, as she sees it, is to level the playing field at the start.

“I just know the people who are going to be impacted from not truly having oversight are people who are underbanked and unbanked,” Tlaib says.

“They’re going to talk at them, and it’s going to look very shiny and great and easy. They can label it whatever they want, rebrand it, but it’s going to be communities like mine that will be hurt by their experiments.

”Will such a bill pass in the tumultuous final weeks of the Trump administration? Not likely, says Judith Rinearson, a law partner at K&L Gates who closely follows fintech regulation. “But it’s a sign of where the winds are blowing,” she says. The legislators plan to reintroduce a version of the bill next year.





Gregory Barber is a staff writer at WIRED who writes about blockchain, AI, and tech policy. He graduated from Columbia University with a bachelor’s degree in computer science and English literature and now lives in San Francisco.

Bitcoin’s true believers are taking a victory lap after the cryptocurrency’s fresh all-time high of almost $20,000. “Onward and upward we go to the moon!” tweeted Tyler Winklevoss.

“All governments, [financial services] and corporations will soon be mining Bitcoin to guarantee their own supply,” echoed Bitcoin advocate Charlie Shrem. That appears to be true of the Venezuelan Army, at least.

But is this new record going to convert an often-skeptical financial sector, at least beyond hedge funds and strategists who see Bitcoin as a COVID-19 safe haven? Not everyone is convinced.

Last month, as the cryptocurrency hit $18,000 for the first time since 2018, Jamie Dimon at JPMorgan Chase & Co. said he hadn’t changed his mind since he called Bitcoin a fraud during its 2017 bubble.

“We’re a believer in cryptocurrency, properly regulated and properly backed,” he said, adding, “Bitcoin’s kind of different, and that’s not my cup of tea.

”Dimon’s stance ultimately reflects the mood inside bulge-bracket banks that have been dipping their toes in crypto waters. Forged during the 2008 financial crisis as an artificially scarce, cryptographically secure way to bypass traditional finance, Bitcoin won’t be viewed as an existential threat to the banking system just because its price is soaring. But it won’t be ignored either. Rather it will be seen as a spur toward a more digital, regulator-friendly post-COVID payments future.

We’ve seen big banks seek to make money from Bitcoin without handling it directly, reflecting fairly limited client demand and a lack of regulatory clarity. That’s still the preferred option. Morgan Stanley began clearing cash-settled Bitcoin futures in 2018, while JPMorgan this year adopted crypto exchanges Coinbase Inc. and the Winklevoss twins’ Gemini Trust Co. as corporate-banking clients.

Bolder proposals such as Goldman Sachs Group Inc.’s bid to open a crypto trading desk never really got anywhere.

The long list of risks highlighted by the Bank for International Settlements, from money laundering and terrorist finance to reputation, might have something to do with it. A survey of financial assets between 2010 and 2019 on the Bank of England’s staff blog found that Bitcoin’s market downside risk was 44%, steeper than stocks or gold.

None of this would normally be insurmountable for bankers when there’s real money to be made. But even with serious sums changing hands on crypto exchanges, and funds such as Guggenheim Partners LLC eyeing Bitcoin, the proverbial phone still isn’t ringing off the hook.Even parts of the banking sector willing to go further know they need regulators on board.

Singapore’s DBS Group Holdings Ltd. is planning to run its own digital currency exchange for qualified investors, but only once it receives regulatory approval.

There’s certainly more oversight in 2020 than there was in 2017: European Union anti-money laundering rules now extend to crypto exchanges, and U.S. regulators allow banks to offer cryptocurrency custodian services. Still, European Central Bank boss Christine Lagarde this week reiterated Bitcoin and its ilk were “highly volatile, illiquid and speculative.

”The bigger question for Wall Street banks therefore isn’t Bitcoin itself but what comes next, especially since its clunky flaws as a method of payment are well-known. Central banks and private companies alike are scrambling to hit upon a mass-market alternative that might fix them.

That might involve central bank-issued tokens like a digital euro, which is at least five years away, or a privately issued coin like Libra, which may be just one month away. Banks’ business models might be vulnerable.

For JPMorgan, it makes sense to pursue blockchain ideas like JPM Coin that could save money for banks in payments. The advantage isn’t just potential cost savings, but also attracting smart tech talent, as seen by LVMH executive Ian Rogers’s move to crypto hardware startup Ledger.

Lenders have no choice if they want to compete with digital rivals out to eat their lunch. Paypal Holdings Inc.’s recent foray into Bitcoin is part of a broader fintech push with apps like Venmo.

The firm is also speaking to regulators about digital wallets. In a post-pandemic world of low rates and rising defaults, banks are worried about the tech crowd. After all, in the euro zone nonbanks overtook traditional banks’ market share of deposit-taking and lending in 2018, according to the Centre for Economic Policy Research.

Crypto may be making a comeback after a long winter, but when it comes to Bitcoin, bankers can afford to hibernate a little longer. Staying one step removed, by offering banking services to money-spinning exchanges or facilitating futures trades, is the equivalent of selling pickaxes and shovels during the gold rush.

Dimon’s right to hold back.Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.

Bitcoin has come a long way since bottoming out below $4,000 in March. The cryptocurrency clocked a record high above $19,900 early Tuesday and is up nearly 170% this year.

While institutional participation has increased, a large part of the retail crowd may have stayed away from the market. For that group, the fear of missing out (FOMO) on the opportunity to make triple-digit gains may have set in over the past few weeks.

Yet, investing now while the cryptocurrency is trading near lifetime highs may seem risky because there is always a possibility of significant price pullback. Bitcoin has seen several pullbacks of over 20% during the previous bull markets. 


As such, investors looking to buy bitcoin (BTC, +0.77%) now should consider implementing a dollar-cost averaging (DCA) strategy, according to leading traders in the cryptocurrency space. 

“It is a good way to build exposure to both bitcoin as well as other asset classes such as global equity indices, as both look set to perform well against a backdrop of negative real rates for the next few years,” Scott Weatherill, chief dealer at the over-the-counter liquidity provider B2C2 Japan, told CoinDesk.

How dollar-cost averaging saves money

DCA, also known as the constant dollar plan, involves buying smaller amounts of an asset at regular intervals, regardless of price gyrations, instead of investing the entire amount at one time.

The strategy helps investors take the emotion out of their trades and can result in a lower average purchase cost because markets seldom move higher without pullbacks. 

Read more: 5 Reasons Why Bitcoin Just Hit an All-Time High Price“Dollar-cost averaging in bitcoin has historically been a very profitable strategy that lowers drawdown risk,” Weatherill said. 

To illustrate, let’s say an investor has been accumulating $100 worth of bitcoin at the highest price observed on the 17th of every month, starting from Dec. 17, 2017, when bitcoin peaked at $19,783.

As of press time, that investor would own roughly 0.48 BTC at an average cost of around $8,660. It also means the investor would be making a nearly 120% gain at the current market price of $18,850.




Bitcoin prices, Nov. 30, 2017, to Dec. 1, 2020. Buying at the top would have meant missing cheaper entry points in subsequent months.

However, if the investor made a lump-sum investment at the record price of $19,783 on Dec. 17, 2017, the investment would currently suffer a loss of 4.7%. Over a long period, that loss could be more significant when adjusted for inflation.



Dollar-cost averaging in actionSource: Omkar Godbole

In the former case, the investor spread out $3,600 over 36 months, buying fewer bitcoin when prices were high and more when prices were low. That helped pull down the average cost and bring in a substantial gain.

The strategy has delivered similar results during the previous bull-bear cycles. “Ideally, one must invest with a hope of selling at higher prices in the long run,” Chris Thomas, head of products at Swissquote Bank, said. “The best way, in my opinion, is to buy each month and build up a position over the longer term.”

The risk of certain option strategies for retail traders

Some investors may think of implementing synthetic strategies through the options market, such as buying a put option against a long position in the spot market. The put would gain value in the event of a sell-off, mitigating the loss (on paper) in the long spot market position. 

Yet, such strategies are more suitable for speculators who intend to profit from short-term price volatility and go against the idea of pulling down the average purchase cost via DCA. “I wouldn’t recommend buying puts if you are ‘DCAing,’ as it would crimp returns,” Weatherill said. 

A put option is a derivative contract that gives the purchaser the right but not the obligation to sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy. 

An option buyer needs to pay a premium upfront while taking a long call/put position. A long put position makes money only if the asset settles below the put’s strike price on the day of expiry. Otherwise, the option expires worthless, causing a loss – in this case, the premium paid – for the buyer. 

Read more: Bitcoin Price Sets New Record High of $19,850

What’s more, those trying to combine DCA with an options hedge may end up hurting their portfolios. For example, if an investor buys puts while DCAing and the market goes up, the options bought to hedge against a potential downturn would bleed money, crimping overall returns from dollar-cost averaging. 

“Retail investors should stay away from options trading,” warned Thomas. He added that one particular strategy, selling out-of-the-money calls, is extremely dangerous. 

Savvy traders often generate additional income by selling call options well above bitcoin’s current spot price and collecting premiums on hopes the market wouldn’t rally above the level at which the bullish bet is sold. However, with short call positions, holders can theoretically suffer unlimited loss because the sky’s the limit for any asset. 

In the case of bitcoin, that’s particularly risky as sentiment remains bullish, with analysts expecting a continued bull run on increased institutional demand. As such, selling call option(s) while DCAing could prove costly. 

“While there may be a temptation to optimize through various trading strategies, the new money should stick to sure strategies: 1) stay long, and 2) buy dips,” said Jehan Chu, co-founder and managing partner at Hong Kong-based blockchain investment and trading firm Kenetic Capital. 

• Ether, the world’s second-largest virtual currency by market value, is up about 350% since the start of the year.
• Investors are keeping an eye on a long-delayed upgrade to its underlying network known as Ethereum 2.0.
• Proponents say that the planned upgrade could allow thousands more transactions to take place every second.

Ether, the digital token of the Ethereum blockchain, is the second-largest cryptocurrency in the world by market value.

Jaap Arriens | NurPhoto via Getty Images

While you’ve been watching the price of bitcoin soar to an all-time high, another cryptocurrency has been quietly staging a comeback of its own.

Ether, the world’s second-largest virtual currency by market value, is up about 350% since the start of the year. Last week, it briefly passed $600 for the first time since June 2018 before slumping sharply, and touched that level again this week.

Now, ether investors are keeping an eye on a long-delayed upgrade to its underlying network known as Ethereum 2.0, which they say will make it faster and more secure.

A key problem with the Ethereum blockchain today is scalability. In 2017, for example, the popularity of an Ethereum-based game called CryptoKitties caused the network to become heavily congested, significantly slowing trade.

But proponents of Ethereum 2.0 say that the planned upgrade could allow thousands more transactions to take place every second. Meanwhile, investors believe it could also lead to further adoption of ether as well as price appreciation.

‘Proof of stake’

To understand the transition taking place on Ethereum, it’s important to first know a little about blockchain technology. Blockchain is the digital ledger originally used to record bitcoin transactions and provides the foundation for most major cryptocurrencies.

Like bitcoin, Ethereum’s blockchain currently operates on a “proof of work” model. So-called “miners” with purpose-built computers compete to solve complex mathematical puzzles to validate transactions. Whoever wins that race is then awarded in bitcoin.

On Tuesday, the Ethereum blockchain is set to begin a transition to a “proof of stake” model. Instead of miners, the network will rely on “stakers” who already hold some ether to process new transactions.In order to validate a transaction on the new network, a staker must deposit 32 ether tokens, worth about $19,600 at current prices, into a crypto wallet using what’s known as a smart contract.

These are contracts on the Ethereum blockchain that are automatically executed using code.

The stakers are then awarded ether for validating transactions, like crypto miners. This process of “staking” effectively gives crypto investors the ability to earn interest on their holdings after a certain period of time. 

A big theme in Ethereum right now is decentralized finance, or DeFi, which aims to replicate traditional financial products such as loans without middlemen like the banks. Some crypto evangelists say Ethereum’s ability to support apps mean it could become a structure for a decentralized, next-generation internet.

“In essence, the Ethereum ecosystem has made the decision to grow up a little more and become a little more secure so that people, institutions and developers can continue to build more apps and financial products on top of it,” Konstantin Richter, CEO of blockchain software firm Blockdaemon, told CNBC.

What does it mean for investors?

For now, what’s happening is the introduction of a parallel Ethereum blockchain known as Beacon. This will be used to test the new proof of stake system ahead of a full migration to Ethereum 2.0.“It’s a little bit like the launch,” Richter said. “The rocket is now taking off.

We’ve committed to the journey. We’re still on the launchpad but all will be achieved when we land on the moon. At this point, we’re launching the official end to the old Ethereum.”In the meantime, more and more ether is getting stashed away for a restrictive multi-year “lockup” period by token holders seeking to become validators of transactions on the new network.

That could throttle the supply of ether, potentially increasing the value of the asset if demand starts to outpace supply. Richter also sees it leading to innovation in the DeFi space as investors look to get some liquidity by borrowing against their locked up ether holdings.

Another big development the upgrade will introduce is something called “sharding.” This effectively splits the network into lots of parallel chains that can handle transactions to speed up the network.

“A sharded blockchain can be pictured as a round hair brush where each row of bristles are a shard behaving as a blockchain on its own and where the Beacon-chain links them all together as the hair brush handle does for the bristles,” Jerome de Tychey, co-founder and president of Ethereum France, told CNBC.

“The shards communicate with each other via the Beacon-chain, which also regularly finalizes the state of the shards. As time goes the hair brush lengthens as shards produce blocks and so does the Beacon-chain which keeps track of what happens in the whole network.

”Further down the road, crypto experts say Ethereum 2.0 should help the Ethereum network run at scale, processing lots more transactions at a faster pace and supporting apps with millions of users.

“Within five to 10 years, these decentralized platforms will be on par with centralized platforms,” Richter predicts. “Then it’s gameover for the centralized platforms.”

In a fragmented global market, price quotes are all over the place. That’s why CoinDesk created the Bitcoin Price Index (BPI).

The current debate over what exactly is the all-time-high price of the leading cryptocurrency shows how a sector that is all about decentralization has difficulty coming up with a common pricing system on which everyone can agree.

Depending on whom one asks, the price of bitcoin at any given time can be quoted within a range of hundreds of dollars. For that reason, some outlets are claiming bitcoin has already eclipsed its all-time high set three years ago, while others, including CoinDesk, are saying we’re still a ways from the mark.

That’s because much like the foreign exchange market, the cryptocurrency market isn’t centralized the way, say, the New York Stock Exchange is.

While individual crypto exchanges are called “centralized,” they are to the extent that trades take place within their platforms. In fact, they are trading the same digital assets found on other exchanges.

One could send bitcoin bought on one exchange to another and then sell it on that second exchange. That opens up arbitrage potential that helps keep prices relatively close together, though with sizable discrepancies.

Slippage, differences in liquidity and other costs help explain why prices may be so different across the board.



A portion of CryptoCompare's Bitcoin Arbitrage Table.

Source: CryptoCompare

Likewise, the historic all-time high for bitcoin is also different, depending on the source. CoinDesk’s Bitcoin Price Index uses a weighted average of prices to get a reasonable sense of where bitcoin is or was trading at any particular moment.

The average is taken from 10 leading cryptocurrency exchanges including Bitflyer, Bitstamp, Coinbase and Kraken. Were one to get a quote on bitcoin from a major exchange at any time of day, it may not be exactly at the BPI’s number but it is quite likely to be very close. Nonetheless, volatile markets can produce the occasional outliers.



BTC-USD Daily Highs on Bitstamp, Coinbase, and Kraken (Dec. 1 - Dec. 31, 2017)

Source: Nomics

For decades, if not centuries, good old-fashioned fiat currencies have been mostly traded over the counter, first in physical marketplaces, then using telephones and computer terminals.

As in crypto, the exact price of a floating-rate fiat currency is a function of supply and demand.

Thus when futures exchanges use a reference rate to use for their forex contracts, they first decide on what sources will be used, then plug them into a formula of some kind.

In many respects, one can think of CoinDesk’s BPI as a sort of reference rate for the price of bitcoin. And for the record, CoinDesk views the all-time high of bitcoin as $19,783. We’ll let you know if and when it gets there.

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.

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.