The Case For Cryptocurrency: Why Even The Most Cynical Bitcoin Bear Should Consider Investing And How To Get Started
Cryptocurrencies saw one of their most volatile months in March only to reverse course in April. Federal governments around the world are responding to the Coronavirus outbreak with unprecedented stimulus efforts with no end in sight. This unprecedented response is just one more reason we feel digital assets should make up part of an asset allocation.
As an example, the Bloomberg Commodity Index, which is often used as an investable allocation to commodities for inflation hedging purposes, was down almost 25% primarily due to crude oil trading down almost 43%. Meanwhile, Gold and Bitcoin are up 11% and 22% respectively.
I believe there are a number of narratives justifying a bullish move higher for digital assets. The two primary long-term justifications are:
The third and slightly more obtuse reason to appreciate cryptocurrencies is the volatility they offer to speculators. With volatility comes the speculators who bring liquidity, and price discovery, this inflow of capital and speculators then tempers volatility for the next wave of “investors”, point one above, and “users”, point two above.
The store of value concept is prone to criticism at times due to the short-term volatile nature of bitcoin and other digital assets, however, for those looking to hedge potential inflation risk with a supply-constrained asset that can easily be traded for fiat currencies, the thinking behind bitcoin as a “digital gold” is very relevant. In fact, it is not difficult to make the case that bitcoin could be considered far more valuable than gold because of its enhanced utility. Bitcoin has the added benefit of being easier to acquire, transfer, and store than gold. Imagine how much more practical it would be for someone looking to carry all of their worldly possessions from one geography to another. They would be far better off using bitcoin than they would if they were to convert their wealth to gold or some other unwieldy metal. Taking that argument to the next logical step, the added utility should ultimately factor into the overall economic value. To put a finer point on this, as of March 2020, the total estimated market capitalization of gold was about $9 trillion USD. By contrast, the bitcoin market capitalization is around $170 billion. For those without enough room on their calculator, a $9 trillion dollar market cap would value a single bitcoin at well over $400,000 USD.
Gold vs Bitcoin
Let me say that again, $9 trillion vs. $0.170 trillion. If you are anti-bitcoin I appreciate your point of view, heck, I felt the same way when I first tumbled down the proverbial rabbit hole. You may very well be right, but isn’t it also conceivable that you might be wrong?
It is important to point out how rare it is to find an investment “hedge” with such an attractive asymmetry of payoffs. Put simply, a hedge is something you don’t think will likely payoff, but just in case the “ship hits the sand” it will be there for you protecting at some of the losses in the rest of your portfolio. Hedges, if done properly should have nominal “cost” and big payoffs if in the unfortunate event that they work out. Similar to Pascal’s ultimate conclusion, the risks of not believing in God were far greater than the “costs” of believing in God. Or, for the glass half full perspective. The potential rewards are significantly greater than the costs.
Considering an investment in digital assets should be quite similar. Significant potential payoff vs. relatively little cost, even a small allocation of 2%-5% can have a meaningful impact on performance. The upside could be life-changing, if sized appropriately, the downside could be the equivalent to a bad day in the markets. Couple that with the fact that this “hedge” is both uncorrelated to nearly everything else, and at the same time it lacks the term risk of most hedges, bitcoin doesn’t decay like options, or credit derivatives, etc.. Given this, even the “bitcoin bears”, owe it to themselves to slow down and consider investing a small amount in this asset class regardless of their point of view. If they are right and bitcoin goes to zero, they invested little and the loss is negligible. If they are wrong, the potential payoff could be many multiples of what they invested.
The second most common narrative is, digital assets as a form of currency or medium of exchange. Equally as important as the store of value narrative, though possibly a bit harder to imagine for those of us with access to the traditional banking system. We tend to take for granted the utility that cryptocurrencies provide. I realize, it is difficult to think of digital assets as currency, but just remember, it is big world, not everyone has the access to banking products that we take for granted.
Yes, in the short run, arguing that digital assets are currencies and a medium of exchange opens the door to critics like Peter Schiff, and Roubini ranting about transaction fees, transaction confirmation times, etc. etc. however, once again, this “noise” obscures the point that bitcoin and other cryptocurrencies have the potential to offer even more utility as a form of money than traditional central bank currencies. Even Facebook recognized the fact that the antiquated bureaucratic, banking system is ripe for disruption, but even they were shut down by the incumbents who fear the loss of control rather than embracing the unlocked potential that free and open capital markets can offer.
The subtle but diminishing utility of the US Dollar
Like the boiling frog analogy, the United States Dollar has historically held a position as the world reserve currency because it offered a number of strong competitive advantages over the alternatives. It was easy to use and backed by a stable government committed to maintaining stability for the currency. Almost anyone around the globe could use and trust in this instrument of trade and commerce. However, over time, fiscal deficits, loose monetary policies and the onerous banking regulations have each steadily chipped away at the US Dollar’s stronghold as the world reserve currency. With the Bank Secrecy Act, the Patriot Act and many other banking regulations, it is becoming far more difficult for people and institutions to do business with the correspondent banking system. Anti Money Laundering (AML) and Know Your Customer (KYC) requirements steadily become more and more oppressive for even the most reputable people and institutions, this added difficulty encourages participants to seek alternatives. Cryptocurrencies offer an easier-to-use alternate form of payment for goods and services particularly when it comes to cross-border payments.
As an example, a merchant in Nigeria looking to buy construction equipment from a company in Venezuela, historically, would have found it easier to convert to US dollars and send funds via the Swift network. However now, neither company can open accounts with a bank connected to Swift because AML/KYC requirements automatically flag the clients as high-risk accounts creating extra work and risk for the bank to justify doing business with these clients. For the bank, there is no incentive to work with such accounts, only disincentives. These fear-based, “guilty until proven innocent” attitudes force merchants and individuals to seek more “useful” alternative monetary options like bitcoin and other cryptocurrencies. Relative to banks, Bitcoin offers an uncensorable, immutable monetary system which can process transactions on a peer to peer system without any intermediary deciding who may or may not participate.
Speculators are vital
Another very valuable and often maligned use case for cryptocurrency is the power of speculation. The speculative nature of bitcoin and other cryptocurrencies is an asset, not a weakness. Like all markets, speculators bring liquidity, adding even more utility to the “users” of a digital asset. Just like in the futures market for commodities, speculators and hedgers exist in a symbiotic relationship each bringing value to one another.
Until very recently, volatility for all asset classes was hovering at historic lows. Loose monetary policy from major central banks left capital markets desks flush with capital forcing them to compete to squeeze out arbitrage spreads from almost every nook and cranny of the markets. More adventuresome trading desks, in search of volatility, started trading cryptocurrencies over the past few years. The beneficial side effect of this was significantly more liquidity, tighter spreads, and more price discovery. As this first wave of institutions entered the market seeking the instability of wider bid-ask spreads and higher volatility, they ended up paving the way for the next wave of investors seeking more stability and confidence. The speculators pave the way for the investors (store of value camp) and the users (currency or medium of exchange camp) All three groups work together stabilizing and leaning on one another for added utility. Metcalf’s law is alive and well in the digital asset realm. The more users who find value in a network, the more valuable the network becomes, enticing more users and so on.
Cryptocurrencies are no different in this regard, though many would argue that cryptocurrencies are only good for speculation, let them rant. They do not understand the other subtle societal benefits cryptocurrencies offer, and to be frank, they don’t need to. As of May 4th, the market capitalization of cryptocurrencies was just over $240 billion USD. That is more than a mere experiment. Something very real is happening here, and those who ignore it are likely to face some significant regrets in the future.
The Time is NOW
If any of the points laid out above resonate with you, stop trying to pick your entry point, you never will. Prices will always seem too high and valuations will always be impossible to justify. One thing is certain, there will be moments of regret. The key to this asset class is that it will always deliver unrelenting punishing volatility. The intense feelings of FOMO (fear of missing out) and buyers remorse are almost too much to bear for any sane investor, so follow some simple strategies to make the journey easier.
Given those thoughts, if you are still wondering how much or when to invest, consider the Rule of Three.
So come on in, the water is warm, dip a toe in the shallow end. If you have any questions or would like to learn more about my team and I at Blockforce Capital navigate the volatility, please reach out for more information.
Author: Eric Ervin
A chainlink node provider has moved its data to a new "unstoppable" domain on the Ethereum blockchain.
A chainlink (link) node provider launches an "unstoppable" domain with oracle cryptocurrency feeds.
Vulcan Link puts Chainlink's crypto course feeds on a ".crypto" domain. The domains are sold by unstoppable domains and are on the Ethereum blockchain, which should make them resistant to censorship.
Chainlink’s course feeds are decentralized, but companies like Vulcan Link still rely on centralized domain registrars, such as GoDaddy, and centralized hosting services, such as Google or Amazon Web Services, for their own websites. In theory, your website could be taken down at any time.
Unlike a ".com" domain, users can purchase a ".crypto" domain directly. As long as the Ethereum blockchain is running, the domain should work. ".crypto" domains are not yet supported by all common browsers. Opera Browser announced at the end of March that it would support them.
In a Cointelegraph interview, co-founder of Unstoppable Domains Brad Kam said it was ironic that decentralized apps (DApps) still had a single sore point:
"And that's basically a problem that DApps generally have. Their added value is supposed to be that they are censorship resistant. But then they have this problem that the domain name can be taken away or a website can be taken down. And then it is difficult for other people to build an infrastructure on if they have this very simple single point of failure that can be attacked at any time. "
However, Kam admits that the upcoming migration to Ethereum 2.0 could pose a challenge for DApps.
The Chainlink oracles were recently integrated natively into the Tezos (XTX) ecosystem. This makes the local DeFi ecosystem more robust. This is another step to make the crypto space independent and invulnerable.
Despite Bitcoin’s 170% Rally, Analyst Expects XRP to “Pull Back”
Although Bitcoin has erupted over the past 24 hours, XRP has remained muted. The top altcoin is up 1% in the past 24 hours while BTC has surged 8% higher, failing to react to Bitcoin breaking past $10,000.
This price action has convinced analysts that XRP is poised to retrace, in spite of the influx of capital rushing into the cryptocurrency market.
Somehow, XRP is actually trading a handful of percentage points lower than it did at the end of April, despite Bitcoin gaining 10% since then.
This underperformance has a top crypto trader fearing XRP has a high chance of pulling back. The trader illustrated this in the chart below, which shows that XRP is trading in a textbook descending triangle.
Descending triangles are marked by a series of lower highs a series of equal lows, then often, a strong break to the downside. In this case, should XRP’s descending triangle fail, the trader is charting a 15% drop to $0.177.
Chart from @im_calmly (Twitter)
The bearish sentiment on XRP has been shared by other traders.
On XRP’s performance against Bitcoin, Peter Brandt, commodities and asset trader since 1980 and a technical analysis author, commented:
“This chart tells me the bag holders (who need to dump > 40 Bil XRPs) are supporting XRP/BTC at .000023 to .000024 as a desperate last stand. Sellers more aggressive since Oct ’19 If the bag holders back away, look for decline to .000011,” Brandt wrote, referencing the near loss of support in the chart depicted below.
Chart from Peter Brandt
This sentiment was echoed by Josh Olszewicz, a crypto analyst at Brave New Coin, who shared that XRP’s on-chain outlook is far from positive.
Both average transaction volumes and the number of active addresses on the XRP ledger have decreased since 2018’s highs. Simultaneously, XRP’s NVT, a ratio used to determine the economic activity of a network, has trended lower.
Although XRP retracing as Bitcoin rockets higher may hurt the altcoin’s holders, it may be a good thing for the broader crypto market.
As an analyst pointed out, during BTC’s rally to and past the key $9,000 resistance level, there was a “marked decoupling between Bitcoin and altcoins in the last week as we move into the halving.”
This was accentuated in the chart below, which shows that BTC (highlighted in BTC) easily outperformed large-cap altcoins since the end of April. This bifurcation has caused BTC dominance to snap back to 66 percent.
Seeing a marked decoupling between Bitcoin and alts in the last week as we move into the halving.
Bitcoin’s relative outperformance as fiat pours into it and participants cycle out of alts and into BTC marks this latest leg up as more credible. pic.twitter.com/VaY9MVU9rc
— light (@LightCrypto) May 4, 2020
This bifurcation indicates that cryptocurrency has seen an influx of fiat buying activity, resulting in “market participants cycling out of alts and into BTC.” This is important as the analyst concluded by writing that the influx of fiat-to-BItcoin purchases makes the ongoing move that much “more credible.”
Featured Image from Unsplash
Author: Nick Chong
Bitcoin Breaches $10K for First Time Since February
Bitcoin (BTC) rallied Thursday on high volumes, trading above $10,000 for the first time since Feb. 24 late in the day.
The bellwether cryptocurrency surged nearly 7% in 24 hours to $10,071 as of 23:47 UTC (7:47 pm EDT), with most of those gains made in the last 12 hours. The price was flitting on both sides of the $10,000 threshold as of press time.
The rally means investors who purchased bitcoin at the beginning of the year would now be up almost 40% on their investment. The rise comes after a massive crypto market selloff in March, as the economic fallout from COVID-19 battered both traditional and new, alternative financial markets. As of press time, the S&P 500 stock index is still down 10% year-to-date.
Larger-than-usual bitcoin buying volumes on spot exchanges like Coinbase rapidly pushed up the price for 1 BTC starting around 13:00 UTC (9AM EDT) Thursday.
Increased discussion around the bitcoin halving, an event expected May 11 which reduces supply generated by miners, has made the world’s oldest cryptocurrency top of mind for many investors. This includes hedge fund legend Paul Tudor Jones, who announced Thursday his $38 billion Tudor Investment Corp. is buying bitcoin futures products to gain exposure to the crypto market as a hedge against expected inflation.
Author: Bradley Keoun
This Trading Pair Paints Bearish Picture for Ripple’s XRP
Ripple’s XRP has posted significant losses over the past year and the trend may continue as prominent analysts within the industry noticed the break of a critical support level.
Ripple has done everything in its power to limit the effects of the scheduled dilution of the XRP market over the past few years.
It now appears that their efforts have been in vain as XRP continues to disappoint investors.
The cross-border remittances token has a negative year-to-date (YTD) return of over 32% against the U.S. dollar. The losses are even higher when taking into consideration the XRP/BTC trading pair.
This altcoin has a negative YTD of more than 56% against Bitcoin.
While many think that it is about time XRP reaches a market bottom, that may not yet be the case.
Peter Brandt, a 45-years trading veteran, stated that the international settlements coin has been forming a descending triangle for over the past eight months on its daily chart. Such a bearish formation represents a “planned distribution of assets by insiders or bag holders who are attempting to push the bag off on an unsuspecting public.”
Under this premise, Brandt maintains that these insiders are the ones keeping XRP from steeper declines.
Large investors appear desperate to bounce XRP off the 24,000 satoshis support level because breaking through it could lead to severe losses.
“If the bag holders back away, look for a decline to [11,000 satoshis],” said Brandt.
DonAlt, a renowned chartist within the crypto community, affirmed that support appears to be losing its strength. XRP “printed a new low” over the past few hours after consolidating for more than 250 days, according to the analyst.
As all hell breaks loose with the XRP/BTC trading pair, the cross-border remittances token seems to be “holding up alright against the USD,” suggested Dave the Wave.
Indeed, XRP has been able to recover most of the losses incurred during the March madness, surging over 95% since then. This altcoin now appears to be trading within a narrow trading range that is defined by the recent high of $0.236 and the $0.206 support level.
A daily candlestick close above or below this area will signal where the XRP/USD trading pair is headed next.
A break above this resistance could be followed by a spike in demand that sends this cryptocurrency towards the 127.2% Fibonacci retracement level. This supply barrier sits at $0.27.
Conversely, if the bag holders that Brandt mentioned let XRP drop below support, an increase in selling pressure may soon follow. Such a downward impulse could allow this altcoin to fall to the 38.2% Fibonacci retracement level that sits at nearly $0.19.
As Bitcoin’s halving approaches, excessive volatility across the whole market is expected.
Now more than ever, it is essential to employ a robust risk management strategy or stay out of the market to avoid adversity.
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