Recently, in personal communications and small Telegram groups, I’ve noticed signs of quiet desperation growing as dreams of a quick reversal to new all-time-highs fade.
Meanwhile, Twitter is noisy with technicians, and egos attached to price predictions. Predictions are made with seeming conviction, because if right, egos will claim clairvoyance.
Here’s the truth: no one knows how far we’ll fall.
Certainly, we can make educated guesses based on technical indicators, and even predict points of support based on our early explorations of crypto fundamentals, but these are all educated guesses. Our techniques will mature over time, but reflecting on my career in the equity markets, everything will remain an educated guess. We’re predicting the behavior of humans, after all.
Some concrete numbers. If 2018 truly echoes 2014, then we could very well be in for another ~50% drop from here.
Upset that I said that? Already typing FUD!!!! in the comments? Wait until the end; discussing that reaction is the entire point of this post.
Hearings on Bitcoin and its derivatives are being held in the USA on a regular basis, and invariably the expert witnesses fail to properly describe the actual processes going on.
If they used the correct language and excluded all analogies, the only possible conclusion would be that America cannot regulate Bitcoin under its current legal system. The Constitution guarantees the inalienable rights of American citizens, and therefore Bitcoin is a protected form of publishing. The only way Bitcoin can be made regulable is if the Constitution is changed; and that does not mean adding a new Amendment, it means removing the First Amendment entirely. Inevitably the anti-Bitcoin protagonists will face a robust and ultimately successful legal challenge that will remove the possibility of any sort of “BitLicense” or interference from the CTFC, FinCEN or any other agency. It will also remove any possibility of interference at the State level. The consequence of adhering to the basic law of the United States will cause America to become the centre of all Bitcoin business for the entire world.
Let me explain why this is the case.
Some say that Bitcoin is money. Others say that it is not money. It doesn’t matter. What does matter are three things; that Bitcoin is, that the Bitcoin network does what it is meant to do completely reliably, and what the true nature of the Bitcoin network and the messages in it are.
Bitcoin is a distributed ledger system, maintained by a network of peers that monitors and regulates which entries are allocated to what Bitcoin addresses. This is done entirely by transmitting messages that are text, between the computers in the network (known as “nodes”), where cryptographic procedures are executed on these messages in text to verify their authenticity and the identity of the sender and recipient of the message and their position in the public ledger. The messages sent between nodes in the Bitcoin network are human readable, and printable. There is no point in any Bitcoin transaction that Bitcoin ceases to be text. It is all text, all the time.
Bitcoin can be printed out onto sheets of paper. This output can take different forms, like machine readable QR Codes, or it can be printed out in the letters A to Z, a to z and 0 to 9. This means they can be read by a human being, just like “Huckleberry Finn”.
At the time of the creation of the United States of America, the Founding Fathers of that new country in their deep wisdom and distaste for tyranny, haunted by the memory of the absence of a free press in the countries from which they escaped, wrote into the basic law of that then young federation of free states, an explicit and unambiguous freedom, the “Freedom of the Press”. This amendment was first because of its central importance to a free society. The First Amendment guarantees that all Americans have the power to exercise their right to publish and distribute anything they like, without restriction or prior restraint.
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
This single line, forever precludes any law that restricts Bitcoin in any way.
With the price of a bitcoin surging to new highs in 2017, the bullish case for investors might seem so obvious it does not need stating. Alternatively it may seem foolish to invest in a digital asset that isn’t backed by any commodity or government and whose price rise has prompted some to compare it to the tulip mania or the dot-com bubble. Neither is true; the bullish case for Bitcoin is compelling but far from obvious. There are significant risks to investing in Bitcoin, but, as I will argue, there is still an immense opportunity.
Never in the history of the world had it been possible to transfer value between distant peoples without relying on a trusted intermediary, such as a bank or government. In 2008 Satoshi Nakamoto, whose identity is still unknown, published a 9 page solution to a long-standing problem of computer science known as the Byzantine General’s Problem. Nakamoto’s solution and the system he built from it — Bitcoin — allowed, for the first time ever, value to be quickly transferred, at great distance, in a completely trustless way. The ramifications of the creation of Bitcoin are so profound for both economics and computer science that Nakamoto should rightly be the first person to qualify for both a Nobel prize in Economics and the Turing award.
For an investor the salient fact of the invention of Bitcoin is the creation of a new scarce digital good — bitcoins. Bitcoins are transferable digital tokens that are created on the Bitcoin network in a process known as “mining”. Bitcoin mining is roughly analogous to gold mining except that production follows a designed, predictable schedule. By design, only 21 million bitcoins will ever be mined and most of these already have been — approximately 16.8 million bitcoins have been mined at the time of writing. Every four years the number of bitcoins produced by mining halves and the production of new bitcoins will end completely by the year 2140.
This is not an easy letter for me to write. I have been a customer of yours for over 20 years. You were there with a loan for me when I bought my first car; you helped arrange the mortgage when I bought my first house, and you even helped me launch my first business. We have been through so much together.
And I’ll let you into a little secret?
You were my first! Don’t worry, I know I wasn’t yours. I think this is why this relationship means so much more to me than you.
You may not have noticed that our relationship has changed, you have been so busy since that big financial crisis that we are doing less together. I got my last loan from my supermarket as they had a better rate and my last mortgage from another bank. These days I am only using you to hold money for me and pay my bills.
We are like passing ships in the night and I am worried that if we don’t talk we might have to separate.
Recently I made this new friend called Bitcoin; a form of Cryptocurrency, I call her Crypto, you have probably heard of her. She is fresh and exciting, and I want you to get to know her too. I want you to make her part of our relationship.
I know I am neither a bank manager nor an economist and you have all these arguments for why Crypto will fail, but I am someone using Crypto in my daily life and I know that this is going to be an ever-increasing need for me, and I want us to share this experience.
I know you are scared, or maybe you just don’t understand it. Maybe you think Bitcoin is a Ponzi scheme and everyone buying it is only doing so to make a quick buck. Sure, some of us are, like some of us who bought shares during the Dot Com boom and lost money when it crashed. But look what happened after that, we got some of the most significant companies in the world: Amazon, Google and Facebook.
As Bitcoin and cryptocurrencies gain more and more media coverage, investors who have never been involved in crypto are increasingly asking the question of whether cryptocurrencies could provide meaningful portfolio diversification to the traditional portfolio asset allocation.
In order to answer this question one must look both backwards and forwards: backward looking to determine past correlations and risk-reward profile; and forward looking to understand the real risk of central bank policy mistakes and government debasement of fiat currencies.
Diversification of portfolio focuses on how the volatility of an underlying security plus their correlation with core market assets impacts a portfolio’s risk-return characteristics over the long-term or during periods of extreme macroeconomic or market stress.
The main reasons why Bitcoin provides portfolio diversification are: investability, politico- economic features, correlation of returns, and risk-reward profile.
This evening I attended an interesting lecture on Blockchain at the University of Northampton, presented by Drs Ali Al-Sherbaz and Scott Turner. It covered the basics of blockchain, include hashing, mining, signing, creating blocks, and so on.
It then covered particular examples of blockchain projects within the University, including one on social interactions and one on network activity logging. Apparently Blockchain is one of the key topics the University will be addressing in its future development strategy.
What wasn’t covered, however, was Bitcoin and in general most comments were dismissive of cryptocurrency. I think that will prove to be shortsighted. Most of the criticisms and limitations levelled at Bitcoin and other cryptocurrencies during the event were demonstrably false or at least incomplete and a more detailed discussion would have demonstrated that.
Personally I think cryptocurrencies are here to stay, with Bitcoin taking the role of the reserve cryptocurrency, and their positions will get stronger and stronger over time. Whether they will eventually replace fiat currencies is less clear, but I certainly wouldn’t dismiss the possibility.
The Australian Federal Police (AFP) are investigating two employees at the Bureau of Meteorology for allegedly using the bureau’s computers to mine cryptocurrencies, the Australian Broadcasting Corporation (ABC) reports today, March 8.
The AFP appeared at the Bureau of Meteorology last week, Feb. 28, with a search warrant and questioned two IT employees, one of whom has since gone on leave. ABC reports that no charges have yet been filed, and both the AFP and the Bureau of Meteorology have declined to comment pending the ongoing investigation.
I was right about the Bitcoin Dip – and have made a tidy profit. I bought half a Bitcoin at £5500.
Of course, it should have cost me £2750 but I bought it through Coinbase with my debit card which is a pricey, though convenient, way to do it. Coinbase charged me 4%, so about £110, making the total £2850.
Bitcoin was been rising in value since as I predicted, though in its usual erratic way. I had intended to take my money out when it passed £8000 and, as I watched it last night, it did just that.
I was hesitant to sell it directly through Coinbase again because of its fees. However, I had come across some advice about selling through Coinbase’s exchange, GDAX, instead at lower fees. Here’s an example video from the excellent Coin Mastery:
I followed the advice and it worked like a charm.
This is the process if you want to save a stack on Coinbase fees:
Create a GDAX account if you don’t already have one (I already did).
Transfer the Bitcoin to GDAX – on GDAX click the DEPOSIT button, then in the form choose your Coinbase Account -> BTC Wallet and set the amount. Click Deposit Funds. It will appear almost immediately on GDAX and there is no charge.
Select LIMIT then SELL, then set the amount. Here you need to be a bit careful and set the correct price you are prepared to sell at (double check it, because if you set it low it will sell low). At the time Bitcoin was selling for about £8010. I wanted to make sure that, if there were fees, I would clear £4000 on my 0.5 BTC so I set the value to £8050.
Since the price is volatile your price will likely be hit very quickly so long as you didn’t set it too high (mine too less than a minute).
The BTC sells, the money appears in your GDAX wallet – and there’s no fee!
Transfer the money back to Coinbase using the WITHDRAW button, set the amount and the destination (e.g. GBP Wallet) and click WITHDRAW FUNDS. It goes back to Coinbase – no charge.
So I have proved to my own satisfaction you can sell BTC, i.e. convert it to pounds sterling, for no charge this way – and at a price slightly higher than the current market rate
Note that selling Bitcoin is called a ‘Maker’ transaction since you are putting Bitcoin into the market. Note that moving in the opposite direction has a ‘Taker’ fee of 0.25%, still not a bad deal.
I sold my 0.5BTC at £8050 so I received £4025, and that’s all now sitting in my Coinbase account.
Since I only paid £2870 for the Bitcoin less than a month ago (a profit of about £1100), I’m rather pleased with that.
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