Showing posts with label fiat currency. Show all posts
Showing posts with label fiat currency. Show all posts

December 14, 2017

The Bitcoin bubble – how we know it will burst

December 07, 2017 (theconversation.com)

Ready to pop? Adam Dachis/flickr, CC BY

In the last year, the price of Bitcoin has increased from less than US$800 to more than US$12,000. This huge spike in value has many asking if it is a bubble or if the high price today is here to stay.

Finance defines a bubble as a situation where the price of an asset diverges systematically from its fundamentals. Investment mogul Jack Bogle says there is nothing to support Bitcoin, and the head of JP MorganChase, Jamie Dimon has called it a fraud “worse than tulip bulbs”.

Like any asset, Bitcoin has some fundamental value, even if only a hope value, or a value arising from scarcity. So there are reasons to hold it. But our research does show that it is experiencing a bubble right now.

Together with Shaen Corbet at Dublin City University, we took as the fundamentals of Bitcoin elements of the technology that underpins it (and other cryptocurrencies). We looked at measures, which represent the key theoretical and computational components of how cyrptocurrencies are priced.

New Bitcoin is created by a process of mining units called blocks. Bitcoin is built on blockchain technology – a digital ledger of transactions – which enables the currency to be traded independently from any central banking system, without risk of fake or duplicate Bitcoins being used. Instead of having a bank verify pending transactions (a “block”), miners check them and, if approved, the block is cryptographically added to the ever-expanding ledger.

So the first measure we examined relates to mining difficulty. It calculates how difficult it is to find a new block relative to the past. As per the Bitcoin Protocol, the number of Bitcoin is capped at 21m (there are currently 16.7m in circulation). This means that as more people mine for Bitcoin and more blocks are created, each block is, all things being equal, worth less than the previous block.

Bitcoin mining affects the cryptocurrency’s values. shutterstock.com

The second measure we looked at relates to the “hash rate”. This is the speed at which a computer operates when mining. To successfully mine Bitcoin, you must come up with a 64-digit hexadecimal number (called a “hash”), which is less than or equal to the target hash. The faster you can do this, the better chance you have of finding the next block and receiving payment.

The third measurement was “block size”. This relates to how large the chain is at any given time, with larger chains taking longer to mine than shorter ones.

And lastly we looked at the volume of transactions conducted. Any asset, in particular any currency, which is more widely used will be more valuable than one which is used less frequently.

In our study, we examined data from Bitcoin’s early days – from July 2010 to November 2017. The price of one Bitcoin did not rise above US$1 until April 16, 2011, then to US$10 on June 3, 2011 and US$100 on April 2, 2013. Since then the price rise has clearly been exceptional.

Price of Bitcoin

Source: Data: investing.com






We then applied an accepted method that is used to detect and date stamp bubbles after they burst. In essence, this involves identifying the existence of an explosive component in a series. As the series, here the price of bitcoin, “explodes”, it runs the risk, like any explosion, of flying apart.

A possibly counter-intuitive result of this approach is that if a fundamental driver and the price of an asset both show an explosive component, we might not conclude a bubble is present. A bubble is when something deviates from its fundamental value. If the fundamental value is itself growing explosively then the price would also.

Think of dividends on a stock. If, somehow, these were to grow at an explosive rate we might expect to see the price do the same. While unsustainable, this is not technically a bubble. To overcome this, we then date stamp a bubble as being present when the price shows an explosive component and the underlying fundamentals do not.

Here are the results of the analysis:

The Bitcoin Bubbles. Authors own calculations


The orange lines denote when the price is showing explosive behaviour. We also see a period where the hash rate was growing explosively – the blue columns in late 2013 and early 2014. This is also an indication of a price bubble, which went on to burst.

So there are clear points where bubbles are visible – including now. The price of Bitcoin at present shows explosive behaviour in the absence of anything similar in its fundamentals. We see the price moving upwards in a manner that is not related to the technical underpinnings. It is a clear bubble.

A weakness of these tests and indeed all bubble identification tests is that they take place after the bubble has burst. Even this test, which can be redone as swiftly as new data arrives, is such. Bubbles by their nature grow in a compound manner – so even a day or two delay in addressing the situation can make a bubble significantly worse.

What is not yet available is an accurate advanced warning bubble indicator. In its absence, this approach may be the best. Unfortunately, we cannot use this approach to determine the extent of the bubble. There is no well-accepted model that suggests a “fair” value for Bitcoin. But whatever that level is, it is almost certain that, at present, it is well below where we are now.

December 04, 2017

$300 Bln is a drop in the ocean, Bitcoin is still a baby and can’t be a bubble

By Darryn Pollock - November 27, 2017 (cointelegraph.com)


Looking at the total market cap of the cryptocurrency market, which recently crossed over the $300 bln mark, it is both exhilarating and terrifying at the same time. This digital currency world that came into being less than 10 years ago has grown astronomically in such a short space of time.

Indeed, 2017 alone has seen just Bitcoin go from $800 to nearly $10,000, and there is still a month to go. The records have crumbled for the Big digital currencies, as well as the new ones as the boom in ICO’s have also help set unprecedented growth.

Thus, as the most impressive performing asset class ever seen, surely Bitcoin is on the verge of taking over the world? Even that has two ways of being viewed - in relation, or in fear - but, no, Bitcoin is a small fish.

Bitcoin vs Gold


Looking at the actual commodity markets out there, and weighing up Bitcoin’s $300 bln, it quickly becomes apparent that the digital currency is still splashing in the shallow end.

Gold, which Bitcoin is supposed to be challenging, has a market cap of $6 tln. On top of that, only about a fifth of all the mined gold is held for private investment purposes, the rest is either in jewelery - the large majority - or the official sector, or still underground.

Thus, seeing as the value of all gold mined comes in just over $7 tln, about $1.6 tln of it is being used for private investment purposes.

Look deeper at the markets. Equities, another investible asset, has a market cap of $55 tln; then there is $94 tln in securitized debt and $162 tln in residential real estate, according to a 2016 report.

Not even close to being overvalued


So, what does it mean if Bitcoin is a record breaker for speed, but not for size? It breaks down a lot of the bubble talk that is floating around there. For a market that only makes up 0.3 percent, when put next to residential estate value, securitized debt, equities, commercial real estate, farmland and gold, -- it can hardly be called a massive bubble.


When it comes to bubbles, and overvaluing, stock picker and Bitcoin Bull Ronnie Moas breaks down the numbers a little more.

“We currently have $200 tln in the world tied up in cash, stocks, bonds and gold alone and all four of those, in my opinion, are overvalued. If 1/2 of one percent of that 200 tln dollars ends up in Bitcoin, you are looking at a one tln dollar valuation that would be above where Apple Computers, the most valuable company in the World, is today.”

December 02, 2017

Meme Chart Mania - Is this the tip of the iceberg or have we already hit peak Bitcoin?

By Kai Sedgwick - December 02, 2017 (news.bitcoin.com)


The White House discussing bitcoin. The Big Bang Theory discussing bitcoin. Katy Perry and Warren Buffet discussing bitcoin. Bitcoin web searches exceeding those for Donald Trump. There’s no such thing as a quiet week in bitcoin, but even by its usual agitated standards, this one’s been noisy. Celebrity hangers-on come and go and generic sitcoms move on, but bitcoin refuses to let up. By all reckoning, this is just the tip of the iceberg. But what if we’re all wrong? What if it turns out that this is as good as it gets?

Just the Tip


Everyone’s got a favorite bitcoin chart. It doesn’t matter what data it displays – trading volume; dollar price; transactions; wallet addresses – because the key takeaway is always the same: this is only the beginning. This is just a fraction of the growth we’ll see once the normies pile in. This is just the tip. Just hold, we’re told, and by this time next year we’ll be sitting pretty. Five years from now and we’ll all be driving whichever meme car happens to be de rigueur among crypto’s nouveau rich.

Bitcoin is just beginning.
In the interests of playing devil’s advocate, however, let’s consider the alternative. There’s a case for saying that 2017 will go down as the year we hit Peak Bitcoin, followed by a gradual decline as the world lost interest, the proles returning to their mind-numbing TV shows, the White House focusing on its latest bête noire and investors fixating on the latest asset class to promise sick profits. We’ll inspect that side of the coin in a moment, but first, let’s hear the case for bitcoin.

The Age of Bitcoin is Just Beginning


Since everyone’s got a favorite chart, let’s scrutinize a selection that shows bitcoin’s incredible growth and huge potential. Highly respected crypto assets author Chris Burniske produced the following chart which suggests we’re at the frenzy phase of cryptocurrency. If you thought the last few weeks were wild, you ain’t seen nothing.


Then there’s the following effort from Blockchair which shows the number of bitcoin addresses that are loaded with satoshis. Like most bitcoin-related charts from 2017, this one is exponential.


If the last couple of graphs weren’t exponential enough for you, try this one for size. The Wall Street Journal compared bitcoin’s stellar ascent to every other modern asset class and came up wanting. Nothing like this has ever been seen before, and may never be seen again in our lifetime. Bitcoin in 2017 is so steep it’s almost vertical.


Bitcoin is literally off the charts. This raw data is bolstered by the quotes of investors, analysts, and experts who all see bitcoin going parabolic. “Over the next 10 years the cryptocurrency market will explode… I actually believe that nations will begin issuing digital currencies,” said Chris Concannon on Wednesday.

Between January and November, trading volume at Bitstamp increased by 1,384%. Everyone and their grandmother is now buying bitcoin according to the WSJ.

The Counter-Argument: Peak Bitcoin is Already Here


Two rich white people discussing 
cryptocurrency.
But enough of the bitcoin back-slapping – it’s time to play devil’s advocate. Imagine, for a moment, that 2018 were to unfold as follows:

January: Futures trading rolls out, but proving the maxim “buy on the rumor, sell on the news”, an overbought bitcoin market slumps to $8,000 and a bear phase sets in.

February: Following months of speculation over its balance sheet, Bitfinex/Tether collapses, taking over a billion dollars in customer funds with it.

March: A successful terror attack on American soil, funded from the Middle East using bitcoin, prompts President Trump to issue a crackdown on cryptocurrencies.

There’s more, but you get the gist. Okay, so even the most bullish of bitcoiners isn’t pretending there won’t be obstacles in the road or temporary setbacks. But here’s the thing: none of those nightmarish scenarios could play out and bitcoin could still slump. The wall-to-wall media coverage can’t last forever. The exponential growth can’t last forever. And the sitcom appearances and celebrity endorsements certainly can’t last forever. What happens when the hype fades and the circus packs up and leaves town?

There’s just one chart that needs produced to argue the bear case for bitcoin:


Yep, it’s that one again. What if, rather than the “media attention” phase, we’re actually at the “new paradigm” stage? If so, 2018 promises to be no less enthralling, even if it’s for all the wrong reasons.

Focusing on the price of bitcoin, while headline-grabbing, misses the bigger picture. To the virtual currency’s true believers, it doesn’t matter whether bitcoin goes up, down, or sideways next year. What matters is that the cat is out of the bag.

Cryptocurrency, as a store of value, a means of purchase, a form of remittance, and anything else one may care to use it for, has been normalized. Whether we’re driving Lambos or Ladas 12 months from now doesn’t matter. The days of government-issued fiat currency – or “snail paper” as Erik Vorhees recently called it – are numbered. Bear or bull, bottom or top of the curve, bitcoin is here to stay.

Images courtesy of Shutterstock, Wall Street Journal, Blockchair, and Chris Burnsiske.


Kai Sedgwick

Kai's been assembling words for a living since 2009 and bought his first bitcoin at $19. It's long gone. He's previously written white papers for blockchain startups and is especially interested in P2P exchanges and DNMs.

December 01, 2017

Bitcoin: The End of Money As We Know It (Trailer)

By Torsten Hoffmann - April 30, 2015 (www.youtube.com)

Bitcoin: The End Of Money As We Know It traces the history of money from the ancient world to the trading floors of Wall St. The documentary exposes the practices of central banks and the dubious financial actors who brought the world to its knees in the last crisis. 

It highlights the Government influence on the money creation process and how it causes inflation. Moreover, this film explains how most money we use today is created out of thin air by banks when they create debt. 

Epic in scope, this film examines the patterns of technological innovation and questions everything you thought you knew about money. 

Is Bitcoin an alternative to national currencies backed by debt? 

Will Bitcoin and cryptocurrency spark a revolution in how we use money peer to peer?  

Is it a gift to criminals? 

Or is it the next bubble waiting to burst?

If you trust in your money just as it is... this film has news for you.

https://www.youtube.com/watch?v=lUF6klWuB38

November 29, 2017

Investors ‘risk’ buying Bitcoin at high prices: ECB Vice President

By Rebecca Campbell - November 29, 2017 (www.cryptocoinsnews.com)


The vice president of the European Central Bank (ECB) has said that investors are taking a ‘risk’ by buying bitcoin at its high price.

Speaking to CNBC on Wednesday, Vitor Constancio, said:

"It’s a very particular asset, it’s a speculative asset by definition looking to the developments in its price. Investors are taking that risk of buying at such high prices".

Constancio’s comments come at a time when the digital currency is experiencing a surge in value. Earlier today, it was reported that bitcoin had risen to over $11,000 along with a rise in various alt-coin prices. To date, the cryptocurrency has increased by over 1,000 percent, a colossal undertaking considering it was trading at $1,000 at the beginning of the year, and has overcome numerous obstacles.

Some, though, are still expecting great things from bitcoin. Mike Novogratz, a billionaire investor and hedge fund manager, believes that it could ‘easily’ rise to $40,000 by the end of 2018. However, at a recent conference in New York, he stated that it wouldn’t be easy getting there, adding:

"There will be wild crashes in it because you’re going to get to levels so far ahead of where the technology’s at".

Central banks, though, have continually been reluctant to embrace the market. The ECB vice president said earlier this month that digital currencies will never replace the fiat system, adding that they were a ‘misnomer‘ merely used as a speculative asset.

At the time, he stated:

"The so-called private ‘cryptocurrencies’ can never prevail as general money substitutes".

Mario Draghi, the ECB President, has also spoken about the digital currency market, claiming that they aren’t ‘mature‘ enough for the central bank to consider regulating them. More recently, Draghi stated that they pose little threat to the central bank-dependent financial system, despite the rise in the cryptocurrency market.

Not only that, but Constancio believes that central banks don’t need to take the digital currency market seriously. During the interview, he said:

"… in the sense that we don’t have responsibility or even instruments that point to particular prices of particular assets, that is certainly not the role of central banks".

Yet, regardless of the fact that the crypto market, in particular bitcoin, have been criticised by various financial CEOs, it looks as though it has its foot firmly in the door and isn’t going away anytime soon. Not only that, but we may soon be reading headlines that the combined crypto market has become more valuable than JPMorgans.

Featured image from Shutterstock.

November 28, 2017

Bitcoin is a perfect currency, Beyond the reach of any nation-state or cooperative effort to defeat it - Max Keiser

By Ashour Iesho - November 27, 2017 (bitcoinist.com)


Although many experts still believe that Bitcoin, and the cryptocurrency market as a whole, may be in a bubble state, Max Keiser believes that Bitcoin still has room to grow. 

CAN BITCOIN REACH $25,000?


Bitcoin is making headlines – again – as it continues to shatter milestone after milestone. Most recently, the popular digital currency passed the $9000 mark and is quickly edging toward $10,000. According to a recent article by RT, well-known American TV broadcaster Max Keiser believes that Bitcoin still has the potential to climb as high as $25,000 before having a correction.

Keiser stated:

"Up until that price is achieved it looks like we’ll see a pretty strong upward move".

He also believes that the huge inflation rate of major fiat currencies like the US dollar is causing Bitcoin to rapidly rise.

"I think we are seeing fiat currencies in a hyperinflationary collapse against bitcoin".

Keiser posits that one of the reasons behind Bitcoin’s price surge is because it is the perfect alternative to traditional financial systems that are used by banks and other financial institutions:

"Bitcoin is a perfect currency, something that is utterly changing the global finance and market and is putting banksters and the central banks out of business".

Many banks have expressed their desire to work with blockchain technology, but most of them are not yet open to Bitcoin and other cryptocurrencies. The reason behind their reluctance is the fact that banks cannot regulate – and therefore cannot control – the popular decentralized cryptocurrency.

GOVERNMENTS CAN’T STOP IT


Another interesting use case for Bitcoin is bypassing government controls and sanctions. Since many countries around the world are currently under financial sanctions, Bitcoin is an easy and efficient way for them to surpass these restrictions. Max Keiser thinks that the fact that governments can’t stop Bitcoin, is giving it immensely value and trust.

"That’s something that no central bank or country will be able to stop, and it’s becoming a real scenario, a real threat".

An interesting remark that Keiser made in the article, is that Bitcoin might become a “financial black hole” where people are rushing to sell stocks and bonds and transfer that money into the decentralized cryptocurrency. If that happens, there is the very real possibility of a stock market or bond market crash, perhaps even both.


November 14, 2017

Can Cryptocurrencies drive out Money?

By Farzana Begum - November 14, 2017 (btcmanager.com)


According to Reuters, Victor Constancio, the Vice President of the European Central Bank, said on November 9 cryptocurrencies will not serve to be an alternative substitute for money, and central banks are unlikely to create digital currencies independently without placing limitations.

Central banks worldwide have been forced to monitor the price of bitcoin which has soared, with some predicting a crash. Thus precautions are necessary to avoid the likely potential threat to stability.

Constanico said in Rome:

“Their designation is a misnomer as they are not a currency but just a commodity used as a speculative asset and as a restricted medium of exchange in very special circumstances, comprising criminal activities or failed states with collapsed institutions.”

The ECB does not view cryptocurrencies as a monetary threat since there are consumer protection concerns and the scalability and adoption digital currencies are rather small at present.

Constancio expressed his concerns about the disorder that supporting cryptocurrencies may create for the banking industry as a whole, which drives the argument for why cryptocurrencies are very unlikely to become mainstream.

“The use of the blockchain by central banks to create digital currency open to all citizens without limits would be really disruptive,” he said. “This would be a radical political choice that could end banking as we know it and is therefore unlikely to happen.”

Since the idea behind the blockchain is a decentralized platform to create independence without the need for intermediaries such as banks, they would be driven out of the market if such technological advances were to lead to widespread adoption.

According to the Bank of England’s Quarterly bulletin from 2014, the widespread usage and adoption of Bitcoin involves potential risks to monetary instability and the world’s oldest central bank recognizes that they can potentially become obsolete.
The central bank recognizes their lack of control over the current users of cryptocurrencies and their ability to influence the interest rate and the money supply of the ‘crypto economy,’ therefore, weakening the monetary transmission mechanism. The central bank has no power and is unable impact demand for this particular group of people, and is more exaggerated the bigger this group becomes. For example, since the Bank of England or any other central bank cannot control the supply or interest rate of cryptocurrencies, they have no tools to influence demand traditionally to stabilize short-term economic fluctuations:

“Potential risks to monetary stability would only be likely to emerge once digital currencies had achieved substantial usage across the economy. If a subset of people transacted exclusively in a digital currency, then the Bank’s ability to influence demand for this group may potentially be impaired.”

It could also be possible that widespread adoption of bitcoin would prompt the central banks to engage in open market purchases, similar to how they influence the prices of stocks and other financial assets, in an attempt to affect demand via the wealth effect.

November 09, 2017

Fiat Currency will be laughable in five years - Says billionaire Tim Draper

By Darryn Pollock - November 09, 2017 (cointelegraph.com)


Tim Draper has every reason to be bullish on Bitcoin as he has seen his $20 mln investment in the digital currency grow by over 1,000 percent in just three years. Draper is now predicting that in five years fiat will be so obsolete, it will be laughable.

The tech investor has made a fortune backing companies like Skype, Tesla and Twitter. He first got involved in Bitcoin after he bought 30,000 of them in 2014 in a government auction of assets seized from Silk Road.

Don’t be a laughing stock


While Draper may be on the defensive after his ICO baby Tezos became embroiled in scandal, leading to a class action lawsuit, he is still highly bullish about the future of the grand-daddy of digital currencies. Draper told Forbes:

"In five years, if you try to use fiat currency, they will laugh at you. Bitcoin and other cryptocurrencies will be so relevant ... there will be no reason to have the fiat currencies."

Bitcoin, and the rest of the cryptocurrency market, recently made it over $200 bln in a rally that saw Wall Street again add fuel to the fire by announcing trading in Bitcoin futures. This pales in comparison to the trillions of dollars in global fiat currency supply. Nonetheless, the fact that Bitcoin has appreciated over 600 percent this year is reason enough to believe it is on a rocketing trajectory, aiming at the fiat market.

Fiat bound


Draper goes on to explain how fiat has its limitations, the same limitations that are really starting to bug a progressive and forward thinking global population.

Crossing the border for any currency is never a pleasing or easy exercise. The Nigerian Naira drops 30% when you cross the border. Outside Argentina, the country's peso is currency nearly worthless, and there are other countries where this is true as well.

In Zimbabwe and Venezuela, their currencies have either disappeared totally, or are on the brink of total collapse, and already Bitcoin is doing its bit to pick up the pieces.

Seeing a future for ICOs


Draper may have been stung by Tezos, however, he still sees a future for altcoins and ICOs. The billionaire sees a future with hundreds, if not thousands, of different digital coins. Draper added:

“They’re all going to interrelate … and there will be exchange rates for all of them. My guess is that it will centralize around a wallet that you have, and when you pay for that Starbucks, your wallet will optimize to whichever currency has most value."