SEC to Begin Reviewing 9 Rejected Bitcoin ETFs Late October

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The Securities and Exchange Commission (SEC) has set a late October deadline to begin reviewing proposed rule changes that would allow several regulated exchange operators to list bitcoin ETF products on their trading platforms.

In a series of documents published yesterday, on Oct. 4, the SEC revealed that it is set to begin reviewing bitcoin ETF applications from ProShares, Direxion, and GraniteShares, who had sought to list their funds on either NYSE Arca or CBOE BZX.

As part of that process, the SEC has amended NYSE Arca and CBOE’s applications to include clarifying information about the funds subsequently submitted to the agency by the exchange operators.

Accordingly, the SEC has set a new deadline, Oct. 26, for the public to file statements in support of, or in opposition to, the amended applications, after which it will begin the formal review process. In the interim, the current SEC orders denying the applications will remain in force.

The SEC denied these applications in August, slashing hope among many retail cryptocurrency investors that one of these funds would soon be listed on a regulated securities exchange.

Just one day later, though, the SEC announced that its commissioners would review those rulings, which had been made by agency employees. One commissioner, Hester Peirce, has been a vocal supporter of exchange-listed cryptocurrency products and has criticized the SEC for exceeding its mandate by making qualitative judgments about whether specific investments are appropriate for retail investors rather than determining whether the products in which they are wrapped meet SEC guidelines.

Subsequently, the SEC punted on another bitcoin ETF application — a physically-backed fund proposed by VanEck and SolidX — delaying ruling on that fund until at least December. However, analysts say that it is likely the SEC will not issue a formal ruling on that fund until early next year.

The first Bitcoin exchange-traded fund (ETF) is expected to be approved by February of 2019. But, some experts have stated that ETFs may increase the volatility of the market.

How the ETF Will Impact the Market

Over the past few months, analysts have been divided on the effect of the ruling of the US Securities and Exchange Commission (SEC) regarding Bitcoin ETFs on the crypto market.

Brian Kelly, a contributor to CNBC’s Fast Money and the CEO at BKCM, previously explained that the rise in the price of Bitcoin from the lower end of $7,000 to $8,000 in early August could be attributed to the increasing hype around Bitcoin ETFs.

Last week, as the price of BTC dropped substantially against the US dollar, Kelly emphasized that the SEC’s rejection of the Winklevoss Bitcoin ETF likely had an impact on the market and that investors have overreacted to the news.

bitcoin price
Bitcoin Price | Bitfinex

Recently, in a Q&A session, well respected cryptocurrency researcher and security expert Andreas Antonopoulos disclosed his stance on Bitcoin ETFs, firmly stating that he is against the introduction of ETFs in regulated markets.

Antonopoulos said that while ETFs have the ability to open the Bitcoin market to a group of institutional investors and retail traders that have not been able to trade the dominant cryptocurrencies due to issues pertaining to regulation, they also provide a platform for large investors to manipulate the price of BTC.

He explained:

“Everybody is so excited about ETFs. What we have seen in other markets is that when an ETF becomes available, the price really increases dramatically, as suddenly that commodity becomes available to a lot more investors and these investors pile on. But, the other side of it, is that there are always these claims that the commodities markets are heavily manipulated and opening up these ETFs only increase the ability of institutional investors to manipulate the prices of commodities.”

It is possible, given that the ETF of the Chicago Board Options Exchange (CBOE) and VanEck-SolidX may lead to billions of dollars in new capital into the Bitcoin market, that the price of BTC sways by large margins on both the upside and downside during the operating hours of the US stock market, if an ETF is launched.

Unlike futures contracts, in the ETF market, investors do not necessarily have the motivation or the incentive to intentionally bring down the price of Bitcoin by manipulating its price trend. But, for instance, if a group of investors decide to utilize the ETF market to manipulate the price of BTC to record gains in the futures market, the Bitcoin market could become significantly more volatile.

ETF, Futures, and Long-Term Growth

In the long run, as more publicly tradable investment vehicles are introduced by regulated financial institutions and the liquidity of Bitcoin drastically improves, it will become difficult to manipulate the price trend of the crypto market.

However, in a period of instability, high volatility, and fast growth, publicly tradable investment vehicles could provide enough leverage to large investors that are capable of reversing market trends.

The U.S. Securities and Exchange Commission (SEC) has postponed its decision on the listing and trading of a Bitcoin exchange-traded fund (ETF) until September 30, according to an official document released by the SEC August 7.

ETFs are securities that track a basket of assets proportionately represented in the fund’s shares. They are seen by some as a potential step forward for the mass adoption of cryptocurrencies as a regulated and passive investment instrument.

The fund under consideration is powered by investment firm VanEck and financial services company SolidX, and is expected to list on the Chicago Board of Exchange (CBOE) BZX Equities Exchange. The SEC now has almost two more months to consider a proposed rule change by CBOE Global Markets Inc. that would allow the fund to list.  

Today’s notice states that the SEC has received more than 1,300 comments on the proposed rule change to list and trade shares of SolidX BTC shares issued by the VanEck SolidX Bitcoin Trust. Per the document, within 45 days of a filing of a proposed rule change, or within 90 days should the Commission deem necessary, the Commission will approve, disapprove, or extend the period of consideration. The document says:

“Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,6 designates September 30, 2018, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change (File No. SRCboeBZX-2018-040).”

VanEck and SolidX first announced the physically-backed Bitcoin ETF on June 6. As per the SEC filing, the price of each share of the VanEck SolidX Bitcoin Trust is set to $200,000. SolidX CEO Daniel H. Gallancy told CNBC, that the high price reflects the fund’s intention to focus on institutional, rather than retail investors.

Last month, the SEC delayed its decision on investment firm Direxion’s application for a Bitcoin ETF until Sep. 21. The regulator also rejected an appeal by Bats BZX Exchange, Inc. (BZX) to list and trade shares of the Winklevoss Bitcoin Trust, originally filed in 2016.

The agency cited the largely unregulated nature of Bitcoin markets as the principal reason for refusing the application, stating, “When the spot market is unregulated — there must be significant, regulated derivatives markets related to the underlying asset with which the Exchange can enter into a surveillance-sharing agreement.”

The U.S. Securities and Exchange Commission (SEC) has rejected the application for a Bitcoin exchange-traded fund by brothers Tyler and Cameron Winklevoss. The news was broken by CNBCThursday, July 26.

The WInklevoss twins’ first application for a Bitcoin ETF was rejected by the SEC in February 2017. The stated reason, back then, was the largely unregulated nature of Bitcoin (BTC) markets. The agency said back then:

”When the spot market is unregulated–there must be significant, regulated derivatives markets related to the underlying asset with which the Exchange can enter into a surveillance-sharing agreement.”

CNBC reports that the SEC published a new “release” Thursday, July 26, saying that it does not support the Winklevoss’ claim that crypto markets are “uniquely resistant to manipulation,” rejecting the twins’ second application made in June.

Despite receiving requests for a Bitcoin ETF approval from a number of applicants, the SEC has still not accepted any of them as of press time.

Cryptocurrency analyst Ran Neuner — host of the CNBC show Crypto Trader — believes BTC prices are “about to explode,” citing bullish market buzz about the near-term possibility of an SEC-approved bitcoin ETF.

“I just bought bitcoin for my parents. It’s too obvious that it’s about to explode,” Neuner tweeted on October 7.

Neuner said the mounting expectation that the Securities and Exchange Commission could soon approve a bitcoin ETF could send prices through the roof.

Countdown To SEC Deadline

Neuner, the CEO of crypto investment firm Onchain Capital, noted that around this time last year, BTC surged on reports that a cash-settled futures contract would launch.

Neuner reasoned that SEC approval of a bitcoin ETF would be much bigger news than a futures contract, and would have a more dramatic impact on the market.

CNBC crypto trader ran neuner
Ran Neuner is bullish about bitcoin. Credit: CNBC

“Last year, around this time, BTC went from $6,691 (Nov. 11) to $20,000 (Dec. 17) in 5 weeks,” Neuner tweeted. “This on the back of the expectation and launch of a cash settlement BTC futures contract.”

He continued: “An ETF is a way bigger deal and requires actual purchase of BTC. 2 looming SEC decision deadlines ahead.”

That said, predictions by any crypto expert should be viewed cautiously. Because the industry is still young and unregulated, there are a lot of unforeseen factors that could affect prices.

Keep in mind that in February 2018, Ran Neuner predicted that BTC would top $50,000 by the end of the year. So far, it does not appear that this forecast is realistic given current market conditions.

Meanwhile, the SEC has set a November 5 deadline to review nine bitcoin ETF applications. Some market experts predict that a bitcoin ETF is likely to be approved in early-2019.

In July 2018, the SEC rejected the Winklevoss twins’ second attempt to launch an exchange-traded fund that tracks the price of bitcoin. The agency had rejected Cameron and Tyler Winklevoss’ first such application in March 2017.

While the virtual currency market slumped over the summer, several key developments could be setting the stage for a near-term rally and a longer-term market run-up.

Yale Invests In Two Crypto Funds

Yale University — whose endowment tops $29 billion — recently invested in two crypto-focused venture funds.

In doing so, Yale became the first university endowment to invest in cryptocurrencies, in a sign that institutional investors are starting to embrace digital currencies as investment vehicles.

While Yale’s allocation in crypto is reportedly small, even a 1 percent allocation would approach a staggering $290 million.

Analysts say Yale’s foray into virtual currencies will undoubtedly trigger a chain reaction that could open the floodgates for other institutional investors to start pouring money into crypto funds.

Top universities typically copy what their peers do, so if one massive endowment signals that crypto is worthwhile, others will parrot their moves.

CIO: Investment ‘Herd Mentality’ Will Take Over

In April 2018, Ari Paul — the chief investment officer of crypto investment firm BlockTower Capital — said it was “inevitable” that several super-rich universities would start investing in cryptocurrencies this year.

“I do think it’s inevitable from a few angles,” Paul said. “Even if they never believe in it as an asset class, they’re smart enough to recognize the alpha opportunity.”

Ari Paul, the former portfolio manager for the University of Chicago, said several pension funds and university endowments began researching crypto-investments as early as 2015.

“Endowments could pull the trigger at any moment,” Paul said. “They’re on the fence.”

A wealthy Bitcoin wallet which had remained inactive for the last 5 years made a surprising hefty deposit of 66, 233 BTC  ($256 million) two days ago. Now, Bitcoin whales (people who hold large amounts of Bitcoin) do exist; basically 1,600 BTC wallets hold about 28% of the coin’s existence. The Financial Times reported that each of these wallets hold up to 1000 coins. Bitcoin whales usually trade on large and liquid bitcoin exchanges. With the evolving market, whales have adopted ways to trade on large sums and stay anonymous while at it.

Last year, the market value of BTC was $20,000 which has fallen to lows of up to the $3,500 mark as of late-November, proving that the market is highly risky (without looking at the potential of price manipulation) even for the early investors. This is not the first time such a deposit has been made by a Bitcoin whale. On 12th November 2017, $159 million worth of Bitcoins were moved to an online exchange. In early 2018, a Bitcoin whale purchased $400 million worth of coins in a single transaction.

The trouble with these moves is that they make the market unpredictable since it may cause huge dumps of coins and panic sales. Selling even a portion of their shares in Bitcoin can cause the prices to plummet. Whales are a huge problem to investors because of this risk, especially now that the market has suffered immense value losses.

This market manipulation stand can be well coordinated among whales and can prop up or drop the market in total. In April this year, Bitcoin whales dumped about $100 million causing a $6,500 drop-in BTC value. Which means the small-time players are always at a disadvantage. Now, with the delay in cryptocurrency regulation, whales and bulls move in the market were still very much open ground and for the most part, legal. It also does not help that the crypto market is still relatively new, still undergoing technological revolution and adoption.

At the time of post, the whale is still unknown. For one to execute such a transaction, they must be a high ranking BTC investor. According to Fortune, there are 32 big players in the BTC whale pool who control 4.5% to 6% of the market. For example, the Winklevoss Brothers own over $1 million in BTC coins, and Satoshi Nakamoto remains to be the one superior whale.

The condition of the crypto market now can be blamed on a steering position by market whales. Other reasons include regulation issues and taxation and legislation regarding fraudulent activities in the crypto world. Although the market might recover, maybe through the introduction of a Bitcoin ETF, it still remains unknown how the future of cryptocurrency will be.

The recent activity remains a mystery since it is not clear what the intention of the coin movement is. If it is a selloff, then the impact on BTC price will surely be devastating and cause prices to stumble further down. It remains to be seen in the run-up to 2019 if the market will recover and by how much of a margin.

 

 

 

 

 

Bitcoin has been unusually stable in recent weeks, and the decrease in volatility has now reached historic levels in the futures markets.

Bitcoin Volatility Hits Record Level in Futures Markets

That’s according to Kevin Davitt, senior instructor for The Options Institute at CBOE Global Markets, who said that Chicago-based derivatives exchange saws record low volatility in its bitcoin futures market during the month of October.

Speaking on the subject during CBOE’s latest weekly bitcoin futures roundup, he said:

“Last week, which ended on October 26, saw the least volatility yet with a 3 percent weekly high-to-low range,” he said, “if we look at the weekly range over the course of October, it’s a mere 6.6 percent, which is far and away the lowest monthly average.”

CBOE’s XBT futures product had seen an average weekly volatility of 15.65 percent since their launch in Dec. 2017, more than double what the market saw in October. Remarkably, even bitcoin’s most volatile week during October saw a lead-month range of just 8 percent.

bitcoin futures price chart cboe

“The high settle was 6630, and the low settle was 6105. That move occurred in the second week of the month of October, between the 8th highs and the lows on October 11,” he said. “That works out to a lead-month range for the calendar month of less than 8 percent.”

Previously, Davitt had noted in his regular futures analysis that bitcoin’s 20-day historical volatility (HV) had become comparable to some of Wall Street’s most liquid stocks. At the time, bitcoin’s 20-day HV was below those of Amazon, Netflix, and Nvidia, and it was quickly approaching the HV of Apple, the world’s most valuable company.

Reflecting on this phenomenon, Davitt said, “Anyway you carve it, bitcoin volatility is relatively low and has been declining.”

Crypto Prices are Stable, But is That a Good Thing?

bitcoin futures volatility CBOE
Source: CBOE

However, analysts disagree about whether the crypto market’s newfound stability is a positive sign. Tom Lee, one of Wall Street’s earliest and most well-known crypto advocates, said that he has been “pleasantly surprised” by how stable bitcoin has proven to be relative to the choppy equities markets.

BitMEX CEO Arthur Hayes, on the other hand, argued in recent market commentary that bitcoin would never see mainstream adoption unless volatility ramps back up.

“Contrary to popular belief, Bitcoin requires volatility if it is ever to gain mainstream adoption. The price of Bitcoin is the best and most transparent way to communicate the health of the ecosystem,” he wrote. “It advertises to the world that something is happening–whether that is positive or negative is irrelevant.”

The next time your no-coiner friends or relatives criticize your decision to allocate a (hopefully reasonable) percentage of your investments into bitcoin, you can tell them that you’ve chosen to put money the flagship cryptocurrency because you don’t have the stomach for more volatile asset classes — stocks, for instance.

Granted, that argument doesn’t have a strong historical track record, but, according to an educational analyst at the first U.S. derivatives exchange to list bitcoin futures, BTC has lately experienced less price volatility than some of Wall Street’s most popular stocks, including tech heavyweights like Amazon, Netflix, and chipmaking giant Nvidia.

Writing in commentary cited in MarketWatch, CBOE Options Institute senior instructor Kevin Davitt stated that bitcoin’s 20-day historical volatility (HV) — i.e., the rate of change in its daily price — has dropped to 31.5 percent.

bitcoin futures price
BTC/USD | CME

By comparison, Amazon’s 20-day HV of 35 percent, Nvidia’s stands at 40 percent, and Netflix’s is nearly twice as large at 52 percent. At its current level, bitcoin is almost as stable as Apple (AAPL), the world’s most valuable company. Per the report, AAPL — whose market cap eclipses $1 trillion — has a 20-day HV of 29.3 percent.

Moreover, Davitt noted that even at its most volatile, the bitcoin price was far more stable than the share price of cannabis producer Tilray, the face of the pot stock bubble and an investment that short seller Citron Research called “more ridiculous than bitcoin.”

Davitt speculated that it’s possible the cryptocurrency market is maturing and that the drop in HV indicates a “structural shift” in the ecosystem. However, he cautioned that it’s “far too early” to conclude that this is the “new normal.”

“Perhaps we are witnessing the maturation of a market. It’s far too early to declare this the ‘new normal’ but the persistent range over the last few weeks may be hinting at a structural shift. Time will tell,” he wrote.

A deal between a traditional ATM manufacturer and a cryptocurrency vending machine firm will make it possible to buy bitcoin at tens of thousands of locations in the United States using a debit card.

Bitcoin ATM firm LibertyX and regular ATM manufacturer Genmega have forged a partnership which will make it possible to purchase bitcoin using a debit card at up to 100,000 locations in the United States.

However, since Genmega caters largely to the independent ATM deployers, adding the bitcoin-buying feature at the ATMs will depend on the willingness of the operators to offer the service. After making an application all that will be required will be a software upgrade in order to allow users to purchase bitcoin from the vending machine and have it sent to their cryptocurrency wallet.

Ease of Use

The development will be a boon to new users especially since the purchasing process of bitcoin from the ATMs is not very different from withdrawing cash from a vending machine. According to LibertyX, making cryptocurrency vending machines user-friendly has been a top priority for the Bitcoin ATM firm since it was founded.

“We have been working tirelessly to make it easier to buy cryptocurrencies for the last five years and now are bringing simplicity, convenience and trust to the cryptocurrency purchasing experience,” said Chris Yim, the co-founder and CEO of LibertyX, in a statement.

Currently, the number of bitcoin ATMs in the United States is nearly 2330, which is the highest in the world, with major urban areas such as Los Angeles, Miami, Atlanta, Chicago, and New York leading in coverage with more than 100 vending machines in each city. The United States is also home to Genesis Coin Inc, the world’s leading bitcoin ATM manufacturer with a market share of more than 32%, according to Coin ATM Radar.

U.S. Dominance to Continue

Various factors have contributed to the United States being the leader with regards to Bitcoin ATM coverage and this includes the high level of cryptocurrency awareness and adoption. A recent market research report has indicated that this will continue to be the case in the foreseeable future.

“The US is expected to continue to dominate the crypto ATM market during the forecast period owing to the presence of a large number of crypto ATM hardware and software providers and favorable investment environment (without any legal barriers),” recently reported by a crypto ATM market research report released in August.

Though it remains to be seen what portion of the 100,000 Genmega ATMs will adopt the bitcoin-purchasing feature, even a small percentage would greatly increase the number of Bitcoin ATMs not just in the United States but globally. At the moment the number of Bitcoin ATMs in the world is a little over 3,800 with an average of 5.58 bitcoin ATMs being added daily.

If you’re wondering how you should treat Bitcoin, as an investment vehicle, allow me to share with you guys my non-expert opinion.

End of story, thanks a lot for reading.

See you next time.

–this article shouldn’t be taken as financial advisement as it represents my personal opinion and views. I have savings invested in cryptocurrency so take whatever I write with a grain of salt. Do not invest what you cannot afford to lose and always read as much as possible about a project before investing. Never forget: with great power, comes great responsibility. Being your own bank means you’re always responsible for your own money

Setting up the ambiance

Cryptocurrency investment is one of the hottest topics we can discuss today, as there are many different opinions on what the future might hold for Bitcoin.

Due to the regulatory bodies world-wide having different approaches towards the subject, while at the same time Bitcoin being decentralized and not belonging to a single entity/organization, investors usually feel uncertain towards the future use of digital cryptocurrencies.

An important point, however, is that from a money-making perspective, which is what matters at the end to any investor, Bitcoin is undoubtedly one of the strongest profit vehicles since it came to existence – probably the best asset ever created: digital gold.

The Bitcoin Timeline

First we grab a price level, like when Bitcoin was around USD 8200. Now, if you want to understand if that price level is interesting, consider the following: the likelihood of having invested in Bitcoin at any given point in time since its inception while actually profiting from it, is about 97%.

Sounds too good to be true, right?

Except, it’s not.

By doing a rough estimate, we can quickly see Bitcoin has only been above USD 8200 for about 137 days. As it is traded for about 1917 days, there’s a ~ 97% chance you bought Bitcoin when its price was lower than USD 8200.

Of course this also means you only had a 3% chance of selling at the right time.

There’s always a dark-side to everything, right?

My point still stands: if we only take into account price and time, you’re actually way more likely to have made a bet at the right time, than the opposite.

I know these statistics are fun to play with, but they hardly bring you any real value. Knowing when you could have bought and sold it’s important from a learning perspective, although real investor education happens in a most peculiar way; usually, by making wrong bets and suffering through bearish seasons, that is.

What you desire to know is not how much money you could have made. What you, and everyone else, really want to find out is how much you can still make.

And today, that is what I’ll be discussing.

With a few twists, some side-track topics and the usual delightful shenanigans.

Before we go any further, please remember the below warning:

Anyone who tells you they’re not in it for the money are either lying or don’t need to care about money because they have so much of it, diversified over so many assets, their risk is quite low.

Back to what matters.

Is The Future Bright?

Depending on where your political and economic view-point stand, Bitcoin can either be the world’s savior or its demise.

In my humble opinion, as an economist, I think most of us are dead wrong on how we think money works . I won’t go into too much detail about the subject, as I really want to write an exploratory paper on how (I believe) money should be earned and accessed. The point worth extrapolating is that, much opposed to general belief, I do think there are many different ways to redistribute wealth properly and to create incentive systems for everyone being able to earn cryptocurrency.

Seems illogical that the biggest problem in cryptocurrency (adoption) could be easily fixed by creating ecosystems where users earn tokens for doing things. 

Literally anything at all.

Part 1: The Bitcoin Market

When we look at how the market has been evolving, since its birth, I would expect this “bubble” like behavior to continue, maybe indefinitely.

There are many factors which will balance into the behavior of price, especially market manipulation, regulatory actions and, of course, both institutional money and other financial investment vehicles (like Bitcoin futures or ETFs).

Historically speaking, Bitcoin has been kind to long-term investors.

Short-term investors cannot complain too much, as Bitcoin is one of the most (if not the most?) volatile assets out there.

Plus, I believe smart-money is coming full force, as it usually happens after every Bitcoin bearish season.

Remember what happened after the mini-crash in March 2017?

Want an expert opinion on the real value of Bitcoin and possible triggers for mass adoption?

Check this beautiful piece from Hacked’s one and only, Mati Greenspan.

As with everything in life, there’s the good and the bad (sometimes the ugly too) and Bitcoin is not an exception.

If there are many factors that could trigger a price increase, like mass adoption, there are others that can have quite an opposite effect.

Let’s check which triggers can potentially call for bear and bull markets.

Market price manipulation

To me this is definitely the grand-master behind the major price run we’ve seen in late December 2017 and January 2018. It did take me some time to truly understand why, but due to the amazing work of so many different people, we now have a better, clearer picture of what really happened.

Tether manipulated the markets by manipulating the price of Bitcoin. It wasn’t any technology advancement in neither Bitcoin, nor the large quantities of dumb money entering the market.

The key argument pointed out by Prof. Griffin on the research paper “Bit “, was that “When Bitcoin’s price fell, purchases with Tether tended to increase, helping to reverse the decline. But during times when Bitcoin rose, Griffin said he didn’t see the reverse occur.” Seems Tether was protecting the price of Bitcoin from crashing.

To accomplish this, large quantities of Tether were issued and used to buy Bitcoin on Bitfinex. Of course this wouldn’t be such a big deal if Bitfinex wasn’t owned by the same people who own and mint Tether. But that’s not even the worse. Consider this: wouldn’t you expect a company that claims they own reserves on a 1:1 ratio between Tether and USD, to be fully externally audited and show proof of those USD reserves?

Another huge red flag if you ask me.

To those who now claim “oh but some lawyer dudes just came out and said Tether bank accounts are fully backed so it’s all good”, please, I beg you to actually do some digging.

The only thing Freeh, Sporkin & Sullivan LLP (FSS) said about Tether was: “FSS is confident that Tether’s unencumbered assets exceed the balance of fully-backed USD Tethers in circulation as of June 1st, 2018.”

That doesn’t sound like a real assurance to me.

Especially when you consider the “official” news-source, that appeared unsigned by the FSS board on Tether’s website, also stated “procedures performed are not for the purpose of providing assurance”.

Bitcoin Futures

My view on futures is a bit blurry. I understand their purpose and I also recognize their effectiveness in taming markets, especially during the short-term. Does it work in the long-term?

In 1974 the first gold futures contract was traded on the COMEX exchange in New York. Trading started on December 31.

Fast-forward three years and gold was back rising to new highs.

That’s right. No one can tame the ambition of human beings to exponentially increase their wealth, time after time; there is no futures market that can ever stop speculation. Money talks louder and that means there will always be new smart-money coming into the actual asset, making its price go higher. What will happen is that those same people will have an extra incentive.

Smart-money

As we’ve seen in the past the usual trigger for adoption is smart-money coming into any market. Bitcoin, of course, is no different.

The logic is quite simple.

Smart-Money -> Media Hype -> Adoption

You might think this is oversimplifying how things work, but the logic is dictated by public perception of Bitcoin.

Is it a good investment vehicle? Should I store money in Bitcoin? Do other people actually accept it?

The answer to world-wide adoption is acceptance; but acceptance only comes with adoption.

It’s the chicken-egg dilemma. The most beautiful redundancy.

What this means is that both adoption and acceptance walk hand-to-had; one leads to the other and none can exist alone.

That is why market manipulation or Bitcoin’s futures, although being the bad are not that bad.Manipulation usually means high volatility, which in turns bring massive profits.

Sure, I get this isn’t helpful to the ultimate goal of cryptocurrencies – which to me is the ability to shift wealth redistribution.

I also can’t make exclude the hypothesis this feature of cryptocurrency won’t be the catalyst for its destruction; however, if we apply logic and reasoning taking into account the recent Bitcoin price history, we can clearly expect volatility to bring more and more people into the market.

Price Volatility

Ups and downs are usually a nice and easy way to help bubbles growing.

And, as you might know, bubbles have a certain tendency to pop.

History has taught us it usually isn’t a question of if, but when.

When downwards price movement dominates a market the only thing you can usually do is sit and wait. Cryptocurrencies, especially bitcoin, are prone to huge downfalls, yes; but we can also expect massive rebounds at some point.

There are always some unbreakable rules successful investors follow, in order to being able to succeed.

Again, please remember this is not financial advise

To me those are:

  1. Invest only what you can afford to lose;
  2. Buy when there’s fear, sell when there’s hype;
  3. The market behaves in waves. Be patient and wait.

Because I follow those rules I’m not afraid of bear-markets. Heck, just remember 2012-2013.

Whatever goes around comes around, so being passive is sometimes a better decision that getting ahead of everyone.

Just think: what are the chances you actually figured out how to beat the entire market?

That’s why I personally do not trade – yet envy those who successfully do it.

You need cunning, agility and balls of steel; otherwise emotion will most likely triumph over reason.

Anyhow, the chances you’ll get stuck at a really bad price-level (ie, if you bought bitcoin near USD 20,00.00) during an extensive amount of time, are not that great.

Yet, as time is a relative thing, our ability to be patient is also relative. Meaning what I consider to be an acceptable amount of time, you could see it as unbearable.

  • Would you wait 1 year to increase your portfolio in 100%?
  • What if you could increase it 500% over a space of 2 years?
  • Better yet, what if it grew 5000% over the course of 3 years?

Are you thinking “I’m sure could do it”?

Alright, then do a quick exercise:

Have you ever done anything long-term, during at least the amount of time you’re considering investing, which costs you time, money and doesn’t pay-off anything?

If so, then I would argue you can definitely succeed at hodling.

If not, maybe you should consider a different approach.

Patience isn’t an easy skill to learn when we live in an inflationary world: money of tomorrow will be worth less, meaning you need to keep getting more and more present value, instead of focusing on future value.

Faster Payments, fewer fees

Since the introduction of the Blockstream Store in January, the Lightning Network has grown tremendously. Around the announcement, the Lightning Network had a total of 46 open channels and 0.682 BTC in capacity. Nowadays, there are roughly 7,800 open channels with 26 BTC of capacity. That is a 16,856% increase in channels and a 4,084% increase in channel capacity in 6 months!

As the Lightning Network grows, additional integration options will become available that could provide exchanges and users with security and ease-of-use benefits beyond the two basic integration strategies described above.

  1. Exchange-specific, Lightning-driven apps

With Lightning, it can become possible to allow exchange users to make trades from within dedicated local apps, making deposits and withdrawals transparent to users. These apps can run on desktops, smartphones, or on more secure hardware devices such as the Ledger Blue. With exchange functionality integrated with a Lightning wallet, funds can be moved into an exchange’s control for the minimum time required for a trade to execute. Immediately after an order is filled or expires, the funds would be returned to the control of the user’s wallet/exchange app via Lightning. This could potentially create a simpler experience for users as well as reduce risk for exchanges in case of security breaches, as the amount of funds stored in hot wallets could be much lower.

  1. Deposits and withdrawals via the public Lightning Network

With the two integration strategies described above, it’s assumed that users will be opening channels directly with exchanges. This will be economical for larger-scale traders who move money in and out of exchanges often. However, as the Lightning network develops, it will be possible for users to have open channels into the public Lightning network and for those users to be able to route deposits and withdrawals via intermediary nodes. It will likely take some time before there is enough connectivity within the Lightning Network for this to work, but when this becomes possible, it will allow a user’s channels to be used for a variety of different kinds of payments as well as multiple exchanges. With channel setup costs spread across multiple applications and counter-parties, Lightning transactions will become cheaper and more convenient.

There are many ways to improve scalability and off-chains are a great way to accomplish that.

Why should increasing the block-size be a better solution, if it will put more stress onto small transaction due to increasing fees?

Scalability will happen, just a bit differently than you might expect.

We already have the unique piece that allows for scalability to happen: an underlying asset people can use a store of value.

Whatever is built on top doesn’t really matter if the underlying layer, bitcoin’s blockchain, is still used as the settlement layer.

From batching and Shnorr signatures, to the Lightning Network and atomic swaps, there are as many ways to improve transaction throughput, as far as our imaginations reach out. You could potentially have digital fiat-currencies redeemable for Bitcoin. You can have other side-chains that interface with a single wallet app, meaning if it’s easy to exchange your tokens and other cryptocurrencies for Bitcoin, you will still use it as a base-layer to store your “gains”.

The point is: let’s not focus too much on something that will eventually happen. Everyone (myself included, full disclosure) has been focused on technology and price so much, we forgot to take a couple of steps back and re-visit some core debates, crucial for the overall Bitcoin acceptance.

Part 2: Tokenomics, The Key To Adoption

If you wonder how tokenomics can foster user adoption, think of the best way you know to redistribute value. In Bitcoin, that is done through mining and selling the actual currency.

Right now most projects we see, spawning here and there, which actually try to implement a successful business models based in tokens, are forgetting some key aspects of the most important metric of all: purpose.

Andreas usually says: what can your business gain from decentralization?

I say: what can your business give to decentralization?

The reason is simple, if you create a system where you need to  “subscribe” or spend money for tokens in order to participate, then the system is not inclusive.

If you build a system where participants are rewarded for participating, like Bitcoin rewards miners for securing the blokchain, then you can build any incentive system which users may see as actual value.

By combining the power of fast payments with tokenomics, I can easily see a world where value is simply traded and earned through mostly everything we do.

Decentralization doesn’t mean “screw the middleman”.

Actually, decentralization depends much on the middle-man. Except we all can become that middle-man because as we spend time in a certain network, doing certain things, we get rewarded.

Decentralization means implementing systems which properly balance reward payouts, to all participants, in as many different ways possible.

The middleman is always welcomed, I highly doubt the world would survive without platforms and distributors and companies linking networks of producers and consumers, investors and start-ups, even creditors and debtors.

And all work must be paid in kind, isn’t that right?

If cryptocurrency uses its underlying technology properly, then there is no reason atomic swaps won’t allow for the emergence of many different middle-men, charging very  low fees, competing to hold the power to convert some crypto into another.

If cryptocurrency is easy to convert into other forms of monies, why wouldn’t we solely use cryptocurrency? Trust is backed by both the number of users in a network, as well as its internal ledger security.

As currently Bitcoin seems to be the most technological secure system out there, to store money, it’s just a matter of time until it also becomes the most secure and cheap way to transfer and use money.

However, do not expect the path to the bottom of the rainbow to be clear of perils.

No technological advancement, which promoted checks and balances to avoid power and decision-making centralization, has ever been received in kind.

So why would the world be different towards cryptocurrencies?

How the financial system views cryptocurrency

When we hear countries banning cryptocurrencies, exchanges being blocked by the rule of man (like India), attacks to promote hype and fear across small-time investors, that is the time we know they are afraid.

Decentralization means breaking concepts and views of the world as we never thought possible.

Companies building crypto-payments or savings apps, crypto-messaging apps, decentralized storage and infrastructure sharing crypto-tokens, or any other crypto-enabled system, will soon realize the easiest way to bring value is by giving value.

Yes, go ahead, create your own money.

It has no value, they say?

It’s of no use, they say?

Terrific! Then nobody will mind if you just give it all away. Like bitcoin did.

The More You Give To People, The Better

If a company has a product which holds value and then decides to distribute a token with a clear purpose within that product’s or organization ecosystem, why wouldn’t people consider that token valuable?

If everything holds value just because we believe it holds value, I see no reason for Bitcoin to have a limited growth.

As long as the network of users continues to grow, price will eventually grow.

Because of its deflationary properties, if people continue to say bitcoin has value (by purchasing it), then I see no reason for a price ceiling.

*Maybe we really are going to the moon!

My opinion could be wrong, Bitcoin might disappear into oblivion someday and we keep stuck with fiduciary currency.

If that is not the case, then the likelihood of Bitcoin’s pricing skyrocketing someday should be incredibly high, simply because it has happened a gazillion times in the past – and history has a tendency to go around in cycles.

I know: past performance does not indicate future performance. However, I haven’t heard of any network which grew in numbers and not in price.

If you were to gamble on the success of cryptocurrency, would you bet in a system no single nation or group of people controls, or in a fiduciary system based on a pyramid logic?

Hope you’ve enjoyed the article!

Leave a Comment

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