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Op-Ed

Asset Allocation in a Hornet’s Nest

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The cryptocurrency markets have provided one of the only ways for people like you and I around the world to achieve financial freedom. Through ICOs, strategic investing, or dumb luck; for better or for worse there are opportunities every single day for you to drastically increase your net worth with a minimum upfront investment.

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Now that we’ve gotten that out of the way, let’s talk about investing like adults in a market that was designed for children.

First, let’s discuss the industry. The blockchain industry has designed various superhighways on the internet that allow rapid transfer of almost any form of data. Currently, the industry is fixated on money transfer and settlement, with scaled data/content sharing slowly becoming a reality. The cars that travel on these super highways are cryptocurrencies. Each car is designed to travel the highway in a certain way that will benefit it’s user. Anonymity, speed, transparency; no matter what the driver is trying to do, there is a strong possibility there is a car designed for that person. For example, there is (somehow) a successful coin that focuses on dentist transaction processing in a minimal geography.

Next, the coins. There are currently thousands of investable coins across various marketplaces worldwide. Most of the coins that you see today, including those in the top 10 in market cap, are projects. Not businesses. They are in the infancy of their business, and have crowdfunded on a scale and format never seen before. This is where things get tricky. No matter who you talk to, no one will be able to tell if a non-functioning business will ever function. Each investment in a project is completely speculative based on analyzing their road map, white paper, and team background. The price of each coin fluctuates in a way that is incomprehensible. A very common story is a coin could just launch an amazing partnership with a business to use their blockchain road, and still be down 20-30% on the day. The key word here is: irrational.

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So, finally, how to be rational in an irrational market. The answer to this question is why you watch YouTube videos like smoking crack, download telegram where for every price target you get 15 spam ads, and read wonderful pieces like this one. I will not disappoint, I will provide my opinion of how to navigate this market the same way all year. 2 rules. 1. Invest in businesses, not projects 2. Circulating Supply is more important than Twitter.

1. Invest in Businesses, not Projects

I will get heat for this one. The majority of money lost in cryptocurrency is money bet on projects that do not have a product or customers. The ICO market is a complete bloodbath. An example is Porn Coin – During the ICO, the CEO vanished with all of the encrypted currency he just received – whoduhthunkit! 2018 is the perfect storm year. You don’t need to be wasting time with porn coins when there are coins that already have working businesses that are trading on the same exchange.

What are the businesses to look for? Logical ones! If it doesn’t make sense to you, then why would it make sense to the hedge fund or institution that’s going to be looking at it 2 months from now. The only investments that I have are the ones that are A. Making money B. Targets for indexing or investment by American financial companies and institutions. Those two filters alone will get you down to a maximum of 10 coins. Of those 10 coins, probably 3 will be around in 3-5 years. Never, ever, invest in one or two things. If you just want one investment, buy Ethereum. Creating an index of different functioning businesses will limit the losses you can incur in a single day. The risk over weeks, months, and years cannot be mitigated. Cryptocurrency is new.

2. Circulating Supply is more important than Twitter

The cryptocurrency market is unregulated. That is probably the first thing I tell people when they ask me about blockchain. Anything can happen here, and everything does happen. You name the scam, it’s probably happened thousands, if not millions of times. Twitter, Telegram, and YouTube have caused more losses than gains. If you listened to the first rule, you know you have very few companies to invest in. Circulating Supply is what I look at after the business. I want the price to be VERY sensitive to new entrants, in which I am incurring the risk of the price being VERY sensitive when someone exits. If I am investing in a functioning business with very little quantity, I now have a coin that is used in a functioning blockchain that not many people have. Think of all the coins you know about, and the people who you know who have invested them. Are they using them? No! of course not! These are like “GoFundMe” tokens that have purely intrinsic value. So people HOLD them. If something has 4,000,000 supply, and there are early adopters holding large percentages, then the market is now limited in supply. My bet is that prices will have to go up in order to entice people like me to take their coins out of cold storage. This is a bet. Not a fact.

Right now, that strategy has yielded me a lot. In 3/6 months, I believe that strategy will reward me much more. Don’t invest in new technology. Use your computer skills to preemptively invest in things you know deep pockets will invest in. With a low supply, you only need a couple more big boys to come in for you to reap the benefits. My heart starts pumping with a supply of anything larger than 150mm. Now, you’re saying, “But what about XYZ coin! It holds the door open for you and gives you chocolate!” I am 100% sure the coins I have invested in are not the best tech in the market. In fact, I’m probably sure of it. But I am not crowdfunding a coin that gives me no equity in their business simply for the fact it can “change the world”. Don’t chase technology. Chase money.

Conclusion

Don’t make cryptocurrency complicated. This is a highly speculative investment category that is just taking shape. Using the two rules above, you can create an index of coins that will give you the highest probability of a return. One thing pundits will say is that the market cap in cryptocurrency is going to rise. That has an inherently higher possibility than any cryptocurrency price prediction. Creating an index of already profit reaping, low supply currencies will mitigate your risk, while amplifying your returns.

This is my strategy, and I encourage you to look into it. None of what I say is financial advice. My purpose of this article is to stimulate thought, and thought only.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 27 rated postsMythological God of Lightning. Cryptocurrency/Blockchain writer, evangelist, and friend. May the odds be ever in our favor.




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4 Comments

4 Comments

  1. andrewmayne1

    January 13, 2018 at 10:14 am

    Thanks for the article. Two questions –
    1) When you say business rather than project, are you saying that it has to be able to make money beyond the premine? Ie be sustainable? Or that it has a working product which allows use of the token

    2) How do you determine the circulating supply? Presumably that’s the amount of the crypto that’s on the market ie not premined to fund the the project. Bitcoin has a relatively low supply of coins, but I would I be right in assuming that you’re talking about low market cap coins?

    Thanks

    • Raiden

      January 14, 2018 at 4:49 pm

      Hi Andrew

      1) I want businesses with customers. The ICOs are crowdfunding, and somehow we have decided that the crowdfunding tokens we bought have value and should be traded. I think what you said was correct “Working product which allows use of the token” I believe it is use OF and use BEYOND the token (DAPPS/Smart Contracts are just the beginning). This all goes back to the intended target market of the token. who do they want to adopt their blockchain/currency and why would the target market do it? Are they already doing it? If they aren’t already making money from volume/customers, there are some that are. I choose to go with the safer bets in general.

      2) coinmarketcap.com total circulating supply. You are completely correct Andrew, there is absolutely no way to determine what is actually on the market at a given time. But, it is extreme peace of mind that when the total supply can reach only reach in the 10s or low hundreds of millions. some coins incentivize by deleting one coin per transaction, etc. This is a strategy some employ, obviously not for everyone.

      Not recommending XMR or any other currency. Talk soon! -R.

  2. efipm

    January 14, 2018 at 8:20 am

    Great article. It is the first one here on Hacked that “teaches fishing rather than offering a free meal”!
    What is your social media presence RAIDEN? Love to follow you everywhere.

    Give us an example of how we could guessestimate the Circulating supply.
    Maybe using an example like CIVIC coin and or IOTA (App layer and protocol layer).

    Thanks alot

  3. Raiden

    January 14, 2018 at 4:55 pm

    Gonna start up a twitter soon, will keep you posted.

    My strategy is bare bones simple. I am not trying to figure out how much is there at what time. I just see how much can be made in total. I think CVC is 1,000,000,000 if I am not mistaken. I think current circulation is 343,000,000ish. Each coin/token is different. This one has split it into thirds, each piece can be used (in their bi-laws) for a distinct purpose towards their business.

    hope this helps talk soon -R.

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Op-Ed

Is Manipulation Behind Bitcoin Cash’s Absurd Rally?

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Although you wouldn’t know it by today’s prices, bitcoin cash (BCH) has topped the crypto market leader board this month. The digital currency more than doubled over the span of 18 days, and in doing so far outpaced the broader market. But a closer examination of the value drivers suggest manipulation could be partly responsible for the rally.

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As a reminder, the author has no vested interest in smearing BCH as I believe it to be one of the more advantageous coins on the market today. That said, the circumstances surrounding the most recent rally are peculiar to say the least.

What’s Up with Bitcoin.com?

A Hacked user informed me earlier this week that Bitcoin.com has been using the “BCH” ticker next to the word “bitcoin”. Normally, the ticker “BTC” is reserved for bitcoin, which is the original blockchain we all know about. Instead, the website quotes “BTC” next to the term “bitcoin core”.

In other words, BCH is quoted next to bitcoin and BTC is referred to as bitcoin core. See here for yourself:

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For most readers of Hacked, the distinction is easily discernible, but for new traders the difference isn’t easily gauged.

The first question I have is, how many people bought bitcoin (BCH) thinking they were receiving actual bitcoin (BTC)?

Bitcoin.com describes itself as the “premier source for everything bitcoin.” Although the website doesn’t appear to offer a full-fledged trading platform, users can purchase bitcoin and bitcoin cash using the following link.

It is unclear how long the website has been referring to BCH as bitcoin. For those of us who’ve been following the market for some time, the way BTC and BCH are quoted is certainly strange.

Antpool

A large cryptocurrency mining group by the name of Antpool has also been accused of pumping BCH in recent weeks. The pool announced about six days ago that it is responsible for confirming more than 8% of all bitcoin cash transactions. In addition to confirming those, Antpool is also said to be burning BCH on a daily basis in order to reduce supply and boost prices.

Of course, crypto pumps do not require such elaborate setups to achieve their goals. Pump-and-dumps can be orchestrated rather easily through a chat group on social media. But Antpool does have a large and privileged position in the BCH ecosystem, which has raised suspicion over its recent actions.

Bitcoin Cash is Overbought, According to Tom Lee

Fundstrat’s Tom Lee recently weighed in on the bitcoin cash phenomenon, concluding that the cryptocurrency was overbought. In his view, investors should stick with bitcoin if they had a choice between Core and Cash.

In a segment on CNBC’s Fast Money, Lee said:

“I prefer not to pick winners and losers when we’re looking at cryptocurrencies like bitcoin/bitcoin Cash… Both have merits but if I was putting new money to work today… I would be a lot more interested in buying a lagger that could attract inflows rather than something that’s potentially overbought.”

Bitcoin cash added around $1,000 to its value between Apr. 6 and 23, with prices peaking near $1,600. The cryptocurrency corrected sharply lower on Wednesday and was still declining as of Thursday’s early-morning session. At the time of writing, BCH/USD was down 4.6% at $1,268.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Decentralization

JP Morgan’s Surprise Cryptocurrency Fees are a Reminder of Why Decentralization Is Sorely Needed

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JP Morgan Chase & Co has been hit with a class-action lawsuit by cryptocurrency traders over allegations of unannounced fees and higher interest rates on purchases of digital currencies. Though the allegations have not been proven, extra fees are a tactic routinely employed by traditional banking institutions. In the case of JP Morgan, this has karma written all over it given the way its chief executive has ridiculed digital assets by associating them with fraud.

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Class Action Lawsuit

Traders from across the United States are seeking statutory damages of $1 million for unannounced interest charges and fees on cryptocurrency transactions between January and February of this year. The named plaintiff in the lawsuit is Brady Tucker, an Idaho resident who paid a total of $163.91 in fees and surprise interest charges over a six-day stretch.

According to information obtained by Reuters, the lawsuit accuses the bank of violating the U.S. Truth in Lending Act, a piece of legislation that requires credit card issuers to inform customers in writing of any notable change in fees.

The lawsuit asserts that Tucker tried to resolve the dispute by calling Chase’s customer support service directly. His request was turned down, prompting him to seek legal help. According to Bloomberg, the case in question is Tucker v. Chase Bank USA NA, 18-cv-3155, U.S. District Court, Southern District of New York (Manhattan).

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The Growing Case for Decentralization

Depending on who you ask, the allegations against JP Morgan are akin to cryptocurrency fraud not unlike the kind Jamie Dimon talked about while ridiculing bitcoin. But the irony in Dimon’s comments extend far beyond Chase’s latest dealings.

As the actions of Chase bank and other financial institutions have clearly demonstrated over the years, those who control the size and growth rate of fiat money cannot be trusted to do the right thing. As Nassim Taleb argues in The Black Swan, banks have a tendency of losing as much money as they make in the long run due to shady business practices and high-risk ventures. Decisions like these are easy when you are Too Big to Fail.

Decentralization, like the kind advocated by blockchain startups and cryptocurrencies, allows users to trade directly with each other without having to go through a (predatory) middleman. Decentralized systems not only help participants avoid unnecessary fees, red tape and other forms of unwanted intervention, they are virtually impossible to shut down. In this vein, decentralized currencies give people a fighting chance in their battle against never-ending inflation. As we’ve argued before, this is not only a prudent fight, but a noble one as well.

Cryptocurrencies that rely on decentralization offer society a unique value proposition unlike anything we’ve seen in recent history. What’s more, their adoption is not contingent upon us leaving the realm of traditional finance – at least, not yet. That’s because cryptocurrency started off as an obscure and esoteric asset class but has since become a value store for investors. Tomorrow, it will become a viable medium of exchange accepted worldwide.

That said, we are still in the very early days of the crypto revolution and it may be a while still before we can conclusively prove people like Dimon wrong. But crypto backers and investors should take comfort in knowing that big banks rarely lead in disruption these days. They have the resources to play catch-up, which they are clearly doing with blockchain.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Altcoins

Will Dash Be the Bitcoin Killer?

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Well, it has finally happened.  We’ve gone a full week with crypto prices showing positive returns.  OMG, what a big surprise; ether is leading the pack, advancing nearly 15% at the time of this writing.  This is encouraging because it shows that perhaps finally value investors are stepping in and helping set a pricing bottom.  

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It hasn’t hurt a bit that stock and bond market investors have become seasick from all the volatility.  Suddenly, a tiny little weekly Litecoin move of +0.46% or even a 2.47% bitcoin cash gain, looks like pure serenity.  

 

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For a while now our focus has been on relative value and there is very little argument that, after the first quarter price collapse, a whole lot of risk has been taken out of bitcoin, ether, Ripple and thousands of others.

The question is where to go and what to go with from here.  The big crypto names are the safe way to go in the short run, but each has become mired in network limitations on scaling and the concomitant cost issues.  

Yes, transaction fees have dropped like a stone from their prohibitively high levels of December but then transaction volumes have fallen by half and more.  That is not the stuff an investor wants to see.

Both bitcoin and Ethereum hope to solve scaling issues with the Lightning Network and Raiden. But for now, if transaction volume were to suddenly rise, the same network limitations would be there.  So even though the big crypto names offer the safest short term options, does that mean we shouldn’t look further out to find value?

Will Dash Solve Bitcoin’s Problem?

Dash emerged last year as one of the most popular and most valuable altcoins. At the time it was considered a real competitor to bitcoin and the leading cryptocurrency of the future. The price of Dash increased from $11 to over $1,430. Dash had a capitalization of over $11 billion at its December peak. Since then it has tumbled more than 80%.  Is now the time to move into Dash? The timing could be very good but before making that decision, we should consider a few things.

Judgement Time

If a jury of its peers were to grade Dash on its performance in 2017, the majority would say it lived up to its billing.  Using Dash, users could send money instantly using the InstaSend feature that allowed for complete anonymity. At the peak, transaction costs were around $0.60, which were dwarfed by bitcoin’s high of $30. 

Since then, Dash fees have fallen to about $0.20, making them attractive for small sized transactions. All alone this represents a compelling feature of Dash.  Add to that the immediacy of InstaSend and you have the makings of a genuine challenge to Bitcoin.

Caveat Emptor

In appraising Dash’s performance it is useful to look at Metcalfe’s Law, which values social media assets based on a formula of network size.  For Dash, it’s network is processing a tiny fraction of bitcoin’s. The limitations of its network have very likely not yet been tested, so proclaiming Dash the speed king is a bit early. There is still a larger issue to consider.

In the case of Metcalfe’s Law we need to include merchants and other service providers that accept Dash as payment.  That is the big hump for them to overcome before overturning bitcoin. So far, after all, bitcoin is accepted by only about 10,000 or so merchants.  

Further progress by bitcoin is stymied by transaction costs that remain far too high.  Even so look at how many years it has taken bitcoin to attract merchants. Dash faces the same hurdles.

In other words, the trick for Dash is the find a way to gain mass acceptance quickly. That is when the huge $11 billion valuation of last December will begin to be justified. Look over your shoulder bitcoin – faster, lower cost competition is looking to eat your lunch. Dash could be one of those.

 Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 75 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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