2017: A Defining Year for Cryptocurrency Regulation

2017:

A Defining Year for Cryptocurrency Regulation

In a year of soaring cryptocurrency prices and countless initial coin offerings,

it's perhaps unsurprising that, over the course of 2017, regulators worldwide stepped in to define how they would oversee what had been to date a legally murky environment. From China's crackdown on exchanges to the SEC's report on The DAO, 2017 was perhaps one of the most significant years to date on the regulatory front. Indeed, the year saw regulators from many of the world's leading economies issue investor alerts and cautionary statements about financial use cases for the tech. The past two months especially have seen growing activity on the ICO funding model, as seen by bans in major Asian countries to enforcement actions in North America. In this article, we look at some of the big policy shifts from the past 12 months – many of which may have set the stage for further industry-defining developments in the year ahead.

The People's Bank vs bitcoin

It was the first week of 2017 and China's "Big Three" bitcoin exchanges – OKCoin, Huobi and BTCC – were being warned by the country's central bank. That warning about staying compliant with "relevant laws and regulations" was followed in February by a freeze on withdrawals and the creation of new trading fees – both of which were measures imposed by the People's Bank of China in a stated effort to curb the risk of money laundering. And after months of waiting, exchanges ultimately returned access to funds to users in late May.

Officials in the world's most populous nation ultimately ordered those cryptocurrency exchanges to cease trading and shut down in mid-September, which combined with BTCC's closure effectively ended the "Big Three" ecosystem and pushed trading activities within China to over-the-counter markets. News of the pending shutdowns came just days after the country stopped ICOs within its borders, saying the campaigns operated by "illegally selling and distributing tokens." Where 2018 will head remains to be seen, though commentators on state-owned television in China have said in recent months that OTC cryptocurrency trading may be deemed against the law as well.

The DAO report

Rumors had circulated for months that the SEC would move to define how it would regulate ICOs. Yet the agency played its cards close until late July, when it declared that U.S. securities laws could be applied to some token sales depending on the nature of the token itself and the manner in which it was offered.

The funding model, through which the sale and distribution of cryptographic tokens would be used to kickstart work on a new blockchain network, was at the heart of The DAO, the now-defunct funding vehicle that raised millions of dollars in ethers in 2016 through the sale of DAO tokens. It collapsed later that summer following a debilitating exploit, sparking months of infighting, recovery efforts and, ultimately, a split in the ethereum blockchain. According to a report published by the SEC in July, the DAO tokens were securities under U.S. law, though the agency said that it had declined to pursue any enforcement action related to the sale.

The SEC wrote at the time:

"…the Commission deems it appropriate and in the public interest to issue this Report in order to stress that the U.S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale."

The agency's statements are significant because they sparked a host of similar warnings and publications from other regulators around the world. The SEC itself would go on to warn about celebrity endorsed ICOs and public-stock scams that use the funding model as a way to entice investors. The agency has also pursued civil lawsuits against ICO organizers since July through a newly-created unit focused on digital investigations.

Putin's edicts

CoinDesk readers are likely familiar with the long-running saga of cryptocurrency regulation in Russia.

And while recent statements from senior lawmakers suggest that Russia's State Duma may finally approve rules governing the trade and issuance of cryptocurrencies, statements from earlier this year from president Vladimir Putin are arguably more impactful for the tech's future in the country. In late October, the Kremlin published five orders from Putin focused on various uses for the tech. He ordered new registration requirements for cryptocurrency miners, the application of securities laws to the initial coin offering (ICO) funding model and research into how the tech could be used as part of a digital payments ecosystem in the Eurasian Economic Union.

Echoing moves by other countries in the past year, Putin also ordered the creation of a regulatory "sandbox" for companies that use technologies like blockchain to develop new products and services. While the orders undoubtedly nudged forward the work on legislation around cryptocurrencies, Putin's edicts have arguably advanced efforts to integrate the tech into the Russian state government infrastructure. They also came months after the Russian leader briefly met with ethereum creator Vitalik Buterin. Other leaders in Russia have pushed the idea of using blockchain for public-sector purposes as well. Prime minister Dmitry Medvedev, for example, ordered government officials to begin researching uses of blockchain last spring.

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Bitcoin Looking Over Its Shoulder as Cryptocurrency Competition Heats Up

Bitcoin Looking Over Its Shoulder as Cryptocurrency Competition Heats Up

What Could Go Wrong for Bitcoin in 2018?

A host of cryptocurrencies are vying with the more-established Bitcoin for the interest of investors looking for risk and the potential make a quick buck.While Bitcoin has a cryptocurrency market share of more than 50%, competition is hotting up as investors are looking at smaller, cheaper cryptocurrencies for which there is more scope to rise in value.Bitcoin, the most established cryptocurrency, was worth $13,300 and had a market capitalization of $224 billion on Sunday, according to Coinmarketcap.The next largest cryptocurrency by market cap is Ripple, which was worth $91.7 billion on Sunday, followed by Ethereum, worth $70.9 billion. However, one Ripple is currently priced between $2 and $3, extremely cheap when compared to competitors such as Litecoin ($220) or Ethereum ($732).

According to ValueWalk.com, a site for investors, smaller cryptocurrencies could be a worth a punt as the price of Bitcoin remains high."Go a few rungs lower and market cap plummets; by the 200th rung you get Faircoin, at a mere $57 million market cap and $1.09 apiece earlier today. Move on down to #1,065 and you get Nodecoin, with a total market cap of less than $8,000, a price of less than a nickel per coin—and a 19% gain in just the past hour!" ValueWalk advised on Saturday. The cryptocurrency with the fourth largest market cap is Bitcoin Cash, which was created as a result of a so-called "fork" in August when some Bitcoin developers branched off to create a new, allegedly superior payment network — with the same transaction history. 

Bitcoin

The fork resulted in Bitcoin owners owning an equivalent amount of Bitcoin cash. However, things are less straightforward for traders or investors with Bitcoin held by third parties such as Coindesk. While Coindesk decided to include Bitcoin Cash in its list of assets which can be traded on the platform, others are less accommodating of the newcomer. On Thursday, BitMEX, a Seychelles Islands-based cryptocurrency trading platform, announced it had sold all of the Bitcoin Cash cryptocurrency held by its users, and credited them with an equivalent value of Bitcoin instead.

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Bitcoin Boasting Strong Recovery After Post-Dip Volatility

Bitcoin Boasting Strong Recovery After Post-Dip Volatility

This morning Bitcoin (BTC) surged to a peak of $16,930

and the total cryptocurrency market cap hit a high of 603 bln, after a steady past couple of days of growth. The market recovery comes in the wake of a major dip at the end of last week that was followed by several days of volatility. Just last Friday Dec. 22, in the midst of pre-holiday bustle, the cryptocurrency market was awash in red. Altcoins lost up to 40 percent, and Bitcoin was close behind, suffering a 30 percent drop and reaching as low as $11,833 a coin. In a single day, the total cryptocurrency market cap decreased by more than $200 bln.

Just days before on Dec. 17, Bitcoin reached a record high of $20,078 and leading up to the crash Bitcoin price had been hovering between $16-17,000. What followed was several days of volatility. Just 24 hours after the frightening dip, the market saw a notable bounce back. The recovery, however, was not stable and was quickly followed by another dip leading into Christmas day.  Since then, however, Bitcoin has been gaining steadily and has fully recovered its pre-dip heights, trading at an average of just over $16,000 at press time.

Total market cap, which also spiked and then dipped again over the weekend, has been steadily growing since Monday. At press time total market cap also showed an almost full recovery, at $603 bln. Many Bitcoin investors saw Friday’s dip as the perfect chance to buy up more of the leading cryptocurrency at a “discounted” price. Others pointed out that the overall market correction around the New Year is nothing new, and noted that corrections like the one on Friday are actually just what the market need

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Hard Fork, Take Two: SegWit2x Will Return Dec. 28, Says Founder

Hard Fork, Take Two:
SegWit2x Will Return Dec. 28, Says Founder

The controversial SegWit2x Bitcoin (BTC) hard fork

go ahead on Dec. 28, according to the project’s official website.The SegWit2x project, which caused months of debate and infighting among the Bitcoin community prior to its last-minute cancellation in November, now says it will fork off at block 501451, due in around two days’ time. The project’s Founder and Lead Developer, Jaap Terlouw, stated on their site that the fork aims to address issues of “commission and transaction speed within the Bitcoin network,” adding that currently, Bitcoin is “almost impossible to use as a means of payment.” Confirmation that the hard fork will, in fact, take place is indicated both in the roadmap on the project’s site, as well as in a direct quote from

Terlouw:

“Our team will carry out the Bitcoin hard fork, which was planned for mid-November.”

The founder also promised that in addition to the common practice of crediting BTC holders with equivalent balances of the new coin (B2X), they would also receive “a proportional number of Satoshi Nakamoto’s Bitcoins as a reward for their commitment to progress.” In total, eight exchanges are listed as official supporters of the fork. The project’s roadmap includes features such as Lightning Network support, smart contracts and, ultimately, anonymous transactions.

Forking season

In the past six weeks, Bitcoin Cash, another Bitcoin hard fork formed in August, has become the central talking point of the industry, as it sees remarkable growth and sparks shifts in mining and investment behavior, affecting Bitcoin’s price.The latest incarnation of SegWit2x has so far received comparatively little publicity. However, the website copy conspicuously name-dropped one particular exchange, HitBTC. Speaking about existing SegWit2x futures, Terlouw is quoted on the site as

saying:

“At the same time, trading of its [SegWit2x] futures has been carried out on some exchanges for a long time. HitBTC is among them.”

When the project first saw hints of a comeback on Dec. 19, futures prices of B2X coins saw an uptick from under $200 to almost $600, a trend which has remained steady prior to the launch. Meanwhile, on Christmas Day, a Blockchain Angel Investor debuted his own ‘version’ of Bitcoin, Bitcoin God (GOD), while several other forks are due to join the ecosystem in the coming weeks. For BTC investors, a key appeal of new Bitcoin ‘versions’ or hard forks  is the duplication of their BTC holdings in the new coin at the time of each snapshot, which essentially provides them with a supply of “free money.”

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What is bitcoin, what is blockchain?

What is bitcoin, what is blockchain?

The final months of 2017 brought all-out bitcoin mania.

The value of the digital asset soared near $20,000, then settled back down below $15,000, and is up nearly 1,500% this year; Coinbase, the bitcoin brokerage, surpassed 13 million users and briefly became the No. 1 smartphone app on the iOS App Store; and mainstream financial exchanges like CME, Cboe, and Nasdaq are all rushing into bitcoin futures trading. So you might be feeling left behind if you’re still wondering: What exactly is bitcoin? But you’re hardly alone: even amidst the frenzy, cryptocurrencies are in their infancy, and many, many people hearing about bitcoin still don’t fully understand what it is, what it’s used for, whether they should buy it, and how to buy it.

Here are some answers.

What is bitcoin?

Put in the simplest terms: bitcoin is a digital asset that runs on a public ledger. Bitcoins can be bought, sold, or traded, like a commodity, or used as payment for hard goods, like a currency. Put in the proper technical terms: Bitcoin is open-source software for a decentralized, peer-to-peer payment system. Most people call bitcoin a digital currency or cryptocurrency, but these days, at the end of 2017, no one is really using bitcoin to buy things. Instead, people are rushing into bitcoin to buy and hold it as a speculative investment. For that reason, a more apt term for bitcoin right now is “digital asset” or “digital token.” (See the above video.) If you want to buy bitcoins, you can use an exchange like Coinbase, Kraken, Bitfinex, or Bitstamp, to name just a few. Bitcoin was created in 2009 by someone (or someones) using the pseudonym Satoshi Nakamoto. It still isn’t known who that was, or how many bitcoins that person or group still holds.

What is blockchain?

Bitcoin, the token, runs on the bitcoin blockchain, an immutable digital ledger. Every single transaction done in bitcoin is recorded, permanently, on the bitcoin blockchain. Think of the bitcoin blockchain as akin to the borrowing card inserted in the front of a library book, with all the borrowers listed. The transaction data is recorded on the blockchain in bundles, called “blocks,” by “miners” who use expensive machines to mine, or upload, the blocks. The machines mine by solving complicated computations in real time (and they generate a lot of heat in the process). Miners are rewarded with a tiny amount of bitcoin every time they do so. That’s how new bitcoin gets created—the bitcoin supply is capped at 21 million coins, and 16.7 million coin have been mined so far. Blockchain technology originated with bitcoin, so if you hear people talk about “the blockchain,” they likely mean the first one, the bitcoin blockchain.

But banking giants and other financial institutions have become interested in blockchain technology, without bitcoin or any cryptocurrency. JPMorgan Chase CEO Jamie Dimon, to name just one example of many, has called bitcoin a “fraud worse than tulip bulbs,” but has praised the potential of blockchain. The “blockchain without bitcoin” rallying cry was hot on Wall Street in 2016 and for much of 2017, but near the end of the year, bitcoin and other digital tokens like ether, litecoin, and bitcoin cash started flying as investment poured in, and the excitement shifted back toward bitcoin itself, rather than blockchain.

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Bitcoin or Blockchain? Bet That Both Will Thrive

Bitcoin or Blockchain?
Bet That Both Will Thrive

Bitcoin and blockchain are often pitted against each other,

but I come from both worlds and believe that both are game-changers in their own right. I first learned about bitcoin in 2012 through liberty-oriented channels, which I’d discovered during a search for answers about the financial crisis in 2008. But I also took a deep dive into enterprise blockchain in 2014 while at Morgan Stanley, as a side interest to my day job of running its pension solutions business. In August 2016, I joined Symbiont full-time.

When I look ahead, I see 2018 as a year of maturity for both the bitcoin and enterprise blockchain parts of the space. Bitcoin will yet again prove its anti-fragility, more corporates will embrace it for payments, and the community will successfully resist its financialization. Enterprise blockchain will gain wider acceptance in production applications.

Bitcoin goes corporate

Bitcoin will increasingly be used for B2B foreign-exchange payments

by multinational companies in 2018, as bid-offer spreads continue to tighten, daily liquidity consistently exceeds $5 billion and corporate new entrants gain comfort with liquidity providers (which enable corporates to use bitcoin for “cross-currency” transactions without touching the bitcoin itself–in other words, as an intermediary currency for foreign exchange in illiquid currencies). Corporate bitcoin use will remain predominantly for payments in markets where banking systems are not well-developed. A tell-tale sign that corporate demand is sustainable would be this: when foreign exchange (FX) trading desks start making markets in bitcoin non-deliverable forwards (NDFs).

When that starts – possibly within the next 2 years – Jamie Dimon will admit his mistake and encourage corporate clients to route payments through JPMorgan’s foreign exchange desk, which will become one of the most active market-makers for cross-currency FX involving bitcoin.

Cryptocurrencies will continue to attract users as more folks learn about distortions

in mainstream financial markets that just don’t make sense, such as this:  household net worth in the U.S. was $96.9 trillion, up $7.2 trillion in the year ending September 30, 2017 (according to the Fed’s latest Z.1 report). This means the U.S. economy supposedly generated wealth at a rate equal to roughly 40% of its annual income (GDP), despite Americans consuming virtually all of their income and saving very little. Wow, that’s a miracle!

Remember this: all prices are fractions. Prices can go up either because numerators go up or because denominators go down (such as when central banks dilute fiat currencies). So…are financial markets climbing because we're truly getting richer, or because of central bank-induced asset price inflation? Are quantity-constrained cryptocurrencies a safe-haven alternative? Time will tell, but I predict cryptocurrencies will broadly benefit as more folks come to understand what’s driving distortions in financial markets.

One of the "big 3" cross-currency central banks will announce in 2018

that it is preparing to issue its currency on a blockchain. The “big 3” are the “super-regional” central banks through which most “cross-currency” foreign exchange transactions settle, including the Fed, the Bank of England and the Bank of Japan. The Fed is behind the curve, but in 2018 either the BoE or the BoJ will step forward to allow tokenization of its currency to be executed by institutions in regulatory sandboxes. Corporate treasurers around the world will cheer at the prospect of same-day FX settlement through one (or two) of these “big-3” currencies because it will free up hundreds of billions of capital currently trapped on corporate balance sheets, due to payment system latency.

Yet for all bitcoin’s strengths, I believe advances in the enterprise blockchain will outpace those of bitcoin in 2018. Let’s face it – enterprises are slower to move than the cryptoasset sector, which moves-fast-and-sometimes-breaks-things. I believe 2018 will be the year in which a watershed event happens: an enterprise blockchain platform passes a CISO (chief information security officer) audit and is deployed inside the firewall of major financial institutions.

Enterprise goes live

Consensus 2018 will be "back to the suits.

" Let’s face it: attire at industry’s biggest conference has been a pretty good barometer of what's hot in the space. At the inaugural Consensus conference in 2015, bitcoin t-shirts dominated the audience. In 2016, business suits dominated as bankers discovered the space. In 2017, the dominant attire swung back to t-shirts, but this time for ethereum and ICOs. In 2018, I predict it will be "back to the suits" as enterprise blockchain accomplishments will again dominate the sector’s headlines, late-followers will scramble to catch up, and corporate treasurers will attend en masse.

The first institutional bond offering will be issued on a blockchain in the U.S. in 2018.

Bond markets, not stock markets, will see the first U.S. institutional-level securities issued on a blockchain. Because the regulatory requirement to issue securities in “depository-eligible” (indirect) form does not apply to bond markets, the first institutional securities issued on a blockchain will be bonds – something I’ve predicted for years. In 2018, I believe it will finally happen. Yet, the coming clash between the federal securities laws that govern equities (which contemplate indirect ownership via the DTCC’s Cede & Co.) and state corporate laws (which contemplate that shares are owned directly by shareholders) will not happen yet in 2018.

No new blockchain consortiums will be formed in 2018.

If 2017 were the year of forming new consortiums, 2018 will be the year of bilateral projects. Blockchains are networks and therefore suffer from the proverbial chicken and egg problem – consortium first and then project, or project first and then consortium? Consortiums now exist across a wide variety of industries, but – at least for now – more action is happening outside of consortiums than inside them.

Enterprise blockchain adoption will advance beyond incremental-type uses in production,

such as sharing of data, to include transformational uses, such as custody of institutional financial assets that only ever exist on a blockchain. This will shine light on quality differences between platforms — and separate those that are decentralized and offer transformational benefits from those that don’t quite. A big gap will open in 2018 between the "haves" and "have-nots" in enterprise blockchain. 2018 will be a consolidation year as the sector matures. The sector came of age in 2017, as adoption broadened in both bitcoin and blockchain. In 2018, both will strengthen and deepen further. And property owners the world round will rejoice.

Chuck Reynolds

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Four Tips for Cryptocurrency Users in the New Year

Four Tips for Cryptocurrency
Users in the New Year

While 2017 may have been the year that cryptocurrencies

really started to get on people’s radar, I’m predicting that 2018 will be the year we see them become more widely adopted. Whether you’re just getting into cryptocurrencies now or are already a veteran, here are some tips for the upcoming year. Note: this is not financial or investing advice. Always do your own research and make your own choices.

Do your own research, and be thorough!

One of the most common questions I get asked when at events or by friends and family is, “What is the next big coin I should invest in?” Frankly, I hate this question, because everyone should really be doing their own research into what projects and cryptocurrencies they wish to spend their money on. Not only is that the adult thing to do, but it also saves everyone from the embarrassing situation of blaming someone else for financial folly. Most projects nowadays have a lot of supporting documents and channels through which to get in touch with the team directly. There is no excuse for not being thorough and autonomous in your research in 2018.

Don’t get too attached to any one cryptocurrency

Maximalism in cryptocurrency has never made sense to me. The beauty of crypto’s open-source nature is that if someone disagrees with how a project is going, they can fork away from it, or choose to buy different cryptos. Only believing in one and attacking all others results in a toxic zoo, where all crypto-curious individuals are scared away and all crypto-skeptics feel validated. So don’t get too attached, and definitely be civil in all of your interactions.

Educate as many people about cryptocurrency as you can

I think that the community is what will make 2018 be the year of wider-spread cryptocurrency adoption. So go out there and tell people about it, or maybe even prepare some paper wallets of a cheap altcoin to pass out and let people try it out for themselves. With all the FUD from mainstream media and incessant attacks from skeptics, it is on the community to show off cryptocurrency’s true value.

Lead by example: actually use some of your cryptocurrency

It can be tempting to never spend your cryptocurrencies. After all, what if they go up in price tomorrow? However, exclusively thinking this way turns the cryptocurrency community into a band of speculators, viewing their cryptocurrencies as fiat-correlated assets. That is not the original intention of cryptocurrencies. Cryptocurrency can only thrive if its use cases are apparent to users and adopters. If its main goal is to be a currency, then it needs to be a store of value but also a medium of exchange. Personally, I use a cold wallet for “savings” and a hot wallet for “spending” much like I do with my fiat assets, which seems to work pretty well. Well, dear readers, the end of 2017 is upon us and I hope you’ve had a successful and profitable year. Here’s to the next one; may it be even better.

Chuck Reynolds

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Crypto prices suffer as Korean government announces new regs, potential ban

Crypto prices suffer as Korean government announces new regs, potential ban

The South Korean government announced new legislation today

that would put increasingly tough regulations on the country’s burgeoning cryptocurrency markets. Under the legislation, Korea, which is the third largest market for cryptocurrencies in the world after the U.S. and Japan, would ban anonymous accounts and continually monitor crypto exchanges. Perhaps more ominously, the Wall Street Journal reported as well that the Ministry of Justice is considering unilaterally closing all crypto exchanges in the country, although didn’t provide any detailed guidance or timelines on when such a policy might be enacted.

The news slammed cryptocurrency prices. Bitcoin was hit about 12%, dropping from around $15,500 to eventually hitting a bottom of $13611, according to Coindesk. Ethereum was hit about 8% in the aftermath of the news.

The proposed legislation on anonymous accounts is in line with recommendations from the Korea Blockchain Industry Association earlier this month which declared that currency operations between Korean Won and cryptocurrency-denominated accounts should only be allowed in cases where the identity of the account holder has been confirmed. 14 member exchanges agreed to that proposal. The absolute frenzy of cryptocurrencies has taken the country’s leadership by surprise, and the government has raced to change laws to facilitate and regulate the industry. Earlier this month, the government also announced that it intended to tax cryptocurrency gains as capital gains in an attempt to stem the onslaught of cash coming in from Korean consumer investors.

Despite wide popularity among the Korean public, there have been increasing concerns that Korea’s exchanges are insecure. Last week, one of the most prominent Korean cryptocurrency exchanges, Youbit, collapsed following a $35 million hack earlier this month. That was after a $72 million hack on the exchange in April. As I discussed last week on TechCrunch, there is increasing evidence that North Korea has been using bitcoin trading as a key side business moneymaker for the Kim regime. Through hacks on traditional banks and its threatening nuclear weapons posture, the regime has attempted to undermine faith in traditional institutions, pushing more investors to cryptocurrencies as a safer, more stable bet. Eliminating anonymous accounts would be one step to help prevent the North from infiltrating the South’s crypto infrastructure.

Chuck Reynolds

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Is The Bitcoin Panic Over? Sure… Until The Next One Starts

Is The Bitcoin Panic Over?
Sure… Until The Next One Starts

The Bitcoin bubble  popped over the holiday weekend

Depending on who you ask, the Bitcoin bubble either popped over the holiday weekend, or there was a panic that the market has since recovered from, nothing to see here, move along. Either could be true, in the long term, but the reality of Bitcoin means that panics will simply be a way of life.

  • First, let’s talk financial panics:
  • Financial panics are simple, really. Enough people freak out over an event and withdraw their money from an asset or an institution so quickly that the situation snowballs. A good example is a bank run; if people think a bank is failing, they take their cash out. But banks make money by investing the cash you deposit with them, so they don’t have enough cash on hand to cover a huge number of deposits being yanked all at once. Thus, if enough cash leaves the bank, the bank collapses. Financial institutions usually solve this by refusing to open the doors, which is exactly what Coinbase did last Friday.
  • Your US dollars have certain protections, thanks to bank runs and other disasters:
  • Thanks to bank runs destroying banks (and leaving people without their savings), the US government instituted certain ideas like forcing banks to keep a certain percentage of their assets on hand at all times and insuring your deposits up to a certain amount. Ever wonder what the FDIC sticker is in your bank’s window? It’s the Federal Deposit Insurance Corporation; just like your car, your home, and your health, your money is insured.
  • Bitcoin, by design, does not have those protections:
  • It’s easy to forget amid the hype that Bitcoin, in particular, is an experiment by an anonymous libertarian designed to see what happens when you create a currency untethered from any centralized authority (including law enforcement) and instead basically crowdsource everything. So, right from the start, Bitcoin has been heist-prone and absurdly volatile.
  • Remember, Bitcoin is backed by nothing but the faith of investors in Bitcoin:
  • Again, this is by design. Bitcoin is tied entirely to the free market, and the free market is inherently absurd and volatile. The free market does weird, irrational things all the time, so basically, Bitcoin is a fiscal roller coaster and nobody’s got a handle on the brakes. When you invest in Bitcoin, or any cryptocurrency that isn’t backed by something, that’s what you’re signing up for.

In other words, whenever a panic ends, a new panic is coming. Eventually, Bitcoin will stabilize, if more and more people use it (a broader base of people treating a currency like… currency is a naturally stabilizing force). For now, expect swings. Advocates will, and fairly, point to the overall trend which, for the moment, is going up. But the same was true of the housing market, the dot-com boom, and a host of other financial bubbles. Investing is always going to have at least a little anxiety attached, but for Bitcoin, it’s worth remembering that anxiety is built into its very code.

Chuck Reynolds

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Bitcoin will trade between $6,500 and $22,000 in 2018, according to the first analyst to cover it

Bitcoin will trade
between $6,500 and $22,000 in 2018,
according to the first analyst to cover it

  • Bitcoin could trade in a range of $6,500 to $22,000 in 2018, according to Nick Colas at DataTrek Research, an analyst who's been covering the cryptocurrency for at least four years.
  • Along with the wild price fluctuations will come four market "crashes" with price drops of at least 40 percent, he said.
  • Ultimately, he said a price of $14,035 would be a reasonable midpoint, representing a drop of about 11 percent from Wednesday's level.

Bitcoin is in for a potentially wild ride in 2018

that will end with a modest drop from the current price, the first Wall Street analyst to write about the crypotcurrency said Wednesday. Nick Colas, co-founder of DataTrek Research, has been following the bitcoin phenomenon for at least four years. Looking ahead to 2018, he sees more volatility for an asset that has soared nearly 1,600 percent over the past year. In fact, he figures bitcoin could slosh in a range between $6,500 and $22,000; it was around $15,750 in Wednesday morning trade. "Bottom line: bitcoin can rally to $22,000 and still be reasonably priced, or plummet to $6,500 and also be correctly valued," Colas said in his daily note. "We expect to see bitcoin trade for both prices in 2018."

Ultimately, he said a midpoint range of $14,035 would be a reasonable price point. Along with the wild price swings, Colas sees bitcoin losing more market share to competitors, and "at least four crashes" of 40 percent or more. "Bitcoin and cryptocurrency are hard to value and their economic utility relies on use cases that are not yet built. Of course the volatility we've seen will continue," he said.

It's been an amazing year for crypotcurrencies, which serve as a digital method of payments and, in some views, as an alternative to gold and other safe haven assets. While bitcoin has garnered the lion's share of the headlines, there are now 36 cryptos that have market caps greater than $1 billion, according to CoinMarketCap. Colas arrived at this price range by comparing the amount of bitcoins to the amount of $100 bills in circulation.

"Bitcoin's primary 'real' use case right now is personal asset protection," he wrote. "Yes, that includes money laundering and tax evasion. But it also incorporates the legitimate desire of honest people living in countries with less-than-exemplary rules of law to shield some of their assets. "At the moment, the primary instrument used globally for these purposes is the $100 bill." If bitcoin's value came to 10 percent of the total $100 bills in circulation — $110 billion divided by 17 million bitcoins — that would approximately produce the $6,500 bottom end of the range. Using 33 percent would get the $22,000 upper range.

"At the average of the high and low, we get to $14,035. That's not far off the current trading price, which gives us comfort we're on the right track with our valuation," Colas wrote. [It actually would represent about an 11 percent drop from Wednesday's price.] "The only way it goes substantially higher is if/when someone comes up with a large-scale business that uses bitcoin. That may come in 2018. But for now that scalable use case is asset protection, so that's how we value bitcoin today," he added.

Chuck Reynolds

Marketing Dept
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