Bitcoin Forecasts Are Still Bollocks

In May 2018, I posted an article critical of Cryptocurrency forecasters, pointing out that most people voicing an optimistic view of future price moves had a conflict of interest. After nearly a year of hitting new lows each week, Bitcoin, and Cryptocurrencies at large, have rallied for a week running. As has been a trend in this industry, the optimists are out in force again.

However, Bitcoin forecasts are still Bollocks. As far as technology and use cases are concerned, the Blockchain sector has gone way beyond Bitcoin, but for some reason, this failed “digital currency” is still, rather absurdly, seen as the bellwether of the sector. The Bitcoin Foundation is yet to do anything substantial to take the token close to being what Satoshi Nakamoto envisioned it to be. Transaction times are still high and network fees are volatile. In fact, other tokens such as Ether, EOS, and Steem now have better fundamentals. Data from www.stateofthedapps.com suggests that EOS has surpassed Ether as a decentralized platform, with EOS dapps having more users than those deployed on Ethereum. Even steem, a cryptocurrency that incentivizes social media addiction seems to be more actively used than Ethereum. Obviously, the popularity of Bitcoin and Ether still stem from all the publicity they gained during the dazzling price rise in late 2017.

Not that there haven’t been any moves on fundamentals. Upbit, a South Korean cryptocurrency exchange has obtained approvals to offer trading services in South Korea and Singapore, and will soon have the infrastructure for traders to capitalize their trading accounts from real-world banks. Similar approvals in Europe are likely in early 2019. In the United states, the Securities and Exchange Commission is warming to the idea of cryptocurrencies, with Commissioner Hester Pierce being quite vocal of her views supporting the asset class. Though these will provide the necessary tailwinds for Cryptocurrencies as speculative assets, they completely exclude the use cases that crypto-entrepreneurs are working on. The marketplace for speculation is expanding rapidly, with a new decentralised exchange opening every week, but liquidity is thin as in most jurisdictions, you can’t fund your trading account from a bank.

So the next time someone buttonholes you to rave about how the crypto market has “bottomed” and is now heading “to the moon”, smile thoughtfully and nod, perhaps make acknowledging grunts to be polite knowing full well that it’s all a load of bollocks.

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Bitcoin: Tread Carefully

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Everybody wants Bitcoin Bragging Rights today. It appears that with the Currency passing USD 10,000 and the media being inundated with tales of people who have made fortunes because they bought bitcoins a few years ago, imaginations have been fired up. Be warned – much of the good news today is being put out by people who have a conflict of interest because they themselves own Bitcoin and other cryptocurrencies.

Make no mistake – the risks are very high. Bitcoin in itself suffers from a number of structural problems that do not make it an ideal asset. Though it is the cardinal cryptocurrency today and forms the basis of most trading in the asset class, these problems will hamper the market in the days to come.

First – Settlement times. It’s easy to be optimistic in light of the recent news of CBOE and CME offering Bitcoin Futures – but settlement times running into minutes or hours based on network traffic make this a cumbersome asset for the pricing algorithms that banks and hedge funds use. Unless the Bitcoin Foundation pushes through a MAJOR update to fix this, the currency is unlikely to gain much traction in the highly fluid and algo-driven futures market.

Second – Market cap. Even though much is being said about Bitcoin’s market cap exceeding well-known listed companies (USD 207 billion as of writing), it is still minuscule by standards of a ‘global’ currency. A leveraged options trader with a USD 1 billion book can easily trigger a major swing one way or the other. If banks and hedge funds take up the CBOE/CME gauntlet and allocate risk to this asset class, crypto traders will have to redefine ‘whale’.

So what is one to do?

Forget easy money. Do not tank your retirement fund and invest in bitcoin. If you do not have the stomach to see your portfolio down by 20 per cent when you return from a toilet break, Bitcoin – as it is today is NOT for you.

Once you get through the hype, there are other opportunities in the crypto space that will yield profits over the medium and long term. Initial Coin Offerings (ICOs) are issues of cryptocurrencies by businesses looking to raise funding from the market. Most of these today occur via Ether, and yield tokens compatible with the ERC20 standard. This makes these tokens easier to trade via smart contracts-based exchanges such as EtherDelta and HitBTC.

Another way to profit from the asset class as a whole, is to invest in Crypto-funds. The past few months have seen the launch of a variety of such funds that are both actively managed (TaaS and Smart IFT) and passively managed (Crypto20). For those looking for long-term exposure to the asset class, this is a great way to get some risk on.

For everybody out there who is mesmerised by the price graphs on TV and is looking to dive in, I would remind you of the old Wall Street adage:

“Bulls make money, Bears make money, Hogs get slaughtered.”

Disclosure: I have exposure to Bitcoin, Ether, Smart IFT and Crypto20.

Cryptocurrency Classism is Here

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Cryptocurrency is becoming classist.

This is particularly dismaying, because if anything, cryptocurrency networks have the potential to drive financial inclusion on an unprecedented scale. Ethereum-based ICOs can bring early-stage investing to ordinary individuals, giving them the opportunity to add some risk to their portfolios at a reasonable price. However, cabals of insiders are forming.

In June 2017, cofound.it, billed as a Blockchain venture capital fund, had its ICO. This ICO was purchased entirely by a group of insiders who had the cofound.it “Priority Pass”. To get on this priority list, you need to have a minimum of 5000 CFI tokens in your wallet. This token is currently priced at USD 0.25, meaning that you need a deposit of about USD 1,250 with cofound.it to participate. Cofound.it’s first partner ICO – Santiment – is allotting a portion of its tokens exclusively to CFI Priority Pass holders. Looking at Santiment’s white paper, this is particularly worrying, as Santiment aims to be the leading provider of Cryptocurrency market information. If this “vision” materializes, the Cryptocurrency market will mimic the uneven playing field that the global capital markets have become. It is highly possible that these Santiment “insiders” will have preferential access to both information and platforms and will possibly drive the agenda of what Santiment pushes to the public.

So where are we headed with this? This trend is not going to slow. These cabals of insiders will continue to grow stronger, and will extend their influence in the cryptocurrency sphere. Services like Santiment will have the power to make or break any upcoming ICO. In addition, as algorithmic trading systems become increasingly active on cryptocurrency markets, data cues will drive broad-based market movements. In the worst-case scenario, the entire cryptocurrency industry will become a casino, where optimistic lay investors will hope to make a fortune, while a bunch of insiders will laugh all the way to the bank. In the end, we will be left with the cesspool of collusion, corruption, and deceit that today’s capital markets have become.