Connect with us

Opinions

Bitcoin Has No Intrinsic Value? Neither Does the Dollar, According to St. Louis Fed

Published

on

Bitcoin has seen its fair share of criticism from central bankers, but for two analysts at the St. Louis Fed, cryptoassets could be the wave of the future.

// -- Discuss and ask questions in our community on Workplace.

In a recently published paper, Aleksander Berentsen and Fabian Schar of the St. Louis Federal Reserve argue that cryptocurrencies are “well suited to become an important asset class.”  As one might expect, this way of thinking is not common within institutional circles or even government.

The paper is intended as a primer on cryptocurrencies, delving into the technical details of transactions and mining. In the Outlook section, the authors maintain that bitcoin’s most apparent application is holding value as an asset. In time, bitcoin can emerge as its own asset class, giving investors broad diversification benefits.

Interestingly, Berentsen and Schar argue that bitcoin itself “could over time assume a similar role as gold.” This argument has been posed before by those who view bitcoin as a long-term store of value. Investment adviser Ark Invest has explained that bitcoin could store $25 billion worth of value if it usurped only 1% of gold’s role as a private investment.

// -- Become a yearly Platinum Member and save 69 USD. Click here to change your current membership -- //

Bitcoin and gold have diverged sharply in recent weeks, as the cryptocurrency’s nouveau riche sought refuge in bullion following an unprecedented decline in the crypto market. Gold prices clocked in at four-month highs recently, while bitcoin plunged 50% from last month’s record levels.

Bitcoin Has No Intrinsic Value? Neither Does the Dollar

One of the chief criticisms levied at bitcoin and other cryptocurrencies is their lack of intrinsic value. According to the authors, the same criticism can also be directed at fiat money like the dollar.

“… Bitcoin is not the only currency that has no intrinsic value,” they argue. “State monopoly  currencies, such as the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either. They are fiat currencies created by government decree. The history of state monopoly currencies is a history of wild price swings and failures. This is why decentralized cryptocurrencies are a welcome addition to the existing currency system.”

It goes virtually without saying that the views expressed by Berensten and Schar are rarely uttered in the world of central banking. After all, these are the very institutions in charge of monetary policy (a fancy word for the size and growth rate of the money supply).

The Federal Reserve has expressed keen interest in bitcoin, and has confirmed that it too is thinking about creating its own digital currency. Like other central banks, the Fed is also interested in distributed ledger technology to facilitate payments, clearing and settlement.

It has been tough to ignore bitcoin’s growing sphere of influence. The cryptocurrency, which started off as an obscure and esoteric entity, has spawned a multi-billion-dollar economy that connects startups, investors and consumers. At its height, the cryptocurrency market reached $830 billion. That was a mere 12 days ago. Even after the latest drop, the market cap for all 1,400+ coins is in excees of $564 billion, according to CoinMarketCap.

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.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
4 votes, average: 4.25 out of 54 votes, average: 4.25 out of 54 votes, average: 4.25 out of 54 votes, average: 4.25 out of 54 votes, average: 4.25 out of 5 (4 votes, average: 4.25 out of 5)
You need to be a registered member to rate this.
Loading...

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.




Feedback or Requests?

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Opinions

Extensive and Unenforceable SEC Regulations Should Be Challenged

Published

on

For those who don’t know or aren’t located in the USA: the U.S. Securities and Exchange Commission (or ‘SEC’) is an independent federal agency which was founded in 1934, by then-President Franklin D. Roosevelt.

// -- Discuss and ask questions in our community on Workplace.

Conceptually, it is an impartial entity for the enforcement and implementation of federal legislature and regulations pertaining to securities and tradable assets; as well as national stock and options exchanges.

The SEC have recently been in the crypto-financial headlines because of their decision to define cryptocurrencies as securities. As a result of this, all relevant laws that pertain to securities are now applicable to cryptocurrencies as well, and this is a statement that the SEC have been all too keen to broadcast.

As such, the company have opened investigations and delivered subpoenas to 80 cryptocurrency companies.

// -- Become a yearly Platinum Member and save 69 USD. Click here to change your current membership -- //

These actions have far reaching implications for the crypto industry both in the USA and abroad, as the decisions made by American lawmakers often have a rippling effect on other Western nations.

The Speculative Feedback Loop

For investors and active traders, the decisions made by the SEC have had a negative impact on the overall value trends across the crypto-markets.

Predictably, the trend has propagated by opportunistic publications (whose revenues are driven by sponsorships and advertising) – which creates a feedback loop of negative speculation / reaction, and the spread of FUD.

It appears that the highly publicized legal actions taken by the SEC as mentioned above are (in this writer’s opinion, at least) meant to make examples of the parties involved, whilst sending a message to companies within the industry that they are not willing to compromise on enforcing their legislative decisions.

Whether the government can universally enforce these rules across an industry which is largely built upon the ideological and technical principles of decentralization, however, is highly questionable.

A Law for the Abiding

I believe that there are a few potential outcomes of such mis-informed law-making, which are likely to take place because of the SEC’s mis-informed decision-making.

  • They will create the laws / rules first and create an enforcement strategy second – indicating a fatal lack of insight into the very-real complexities of the ever changing crypto-sphere.
  • Due to their lack of technological expertise, they will likely contract an external organization or form a new government department to complete investigations & enforcement at the taxpayers’ expense.
  • Because of the difficulty of enforcing these rules (which they are seemingly unaware of) the lawmakers may opt for extreme penalties as a deterrent to those who risk disobeying.

Whether the government can enforce their regulations effectively on cryptos or not; what is likely is that the rules won’t be governed absolutely (it’s almost impossible to achieve 100% enforcement of crime).

As a result, legitimate businesses are likely to suffer because of this ignorance whilst the real bad actors are unaffected and apathetic to the new implementations.

Bear in the China Shop

The situation in China, for example, is indicative of another potential unforeseen result of increasing regulations. The country recently and infamously imposed a comprehensive ban, blocking all cryptocurrency trading and ICO websites from inside the country and abroad.

Serious entrepreneurs and business-owners with a thorough dedication towards their craft have subsequently migrated to independent coastal municipalities, such as the special administrative region of Hong Kong, to overcome these obstacles. Presumably if the ban were to somehow be introduced into such cities also, then the cryptocurrency organizations in China (or at least, the legitimate ones) would go one step further and move to another country with less restrictive laws on cryptos.

This would be a slap in the face to the government themselves in the long-term, as they would be missing out on the financial incentives offered by effective, fair taxation & regulation of the sector; rather than outright blacklisting.

Similarly, other federal departments in the USA have made their own mistakes regarding cryptocurrency. Citizens and organizations are required to pay tax on all cryptocurrency earnings and transactions, as they would with any other currency. The government have again subjected a misunderstood market to the regulations expected of a highly controlled, centralized form of tender (fiat) – and there have not been any reported instances of conviction in this regard due to the difficulty of identifying of decentralized data as an unauthorized third party.

I have nothing against regulation, considering the potential of cryptocurrency to be a volatile ‘wild west’ of finance; but it needs to be approached in a completely different way.

Manipulators of Ignorance

A quick diagnosis of the problem leads to the conclusion that the key malefactors contributing to these controversial laws being implemented are political influencers who possess a disproportionate level of technical knowledge in comparison to their peers.

Look at FCC Chairman Ajit Pai, for example. Despite your opinion on the net neutrality bill, its repeal was heavily influenced by the man’s disproportionate industrial expertise on the subject; which was accumulated through a career of working for the very organizations who stand to benefit most from the decision.

Furthermore, the controversial repeal was influenced heavily by corporate lobbying groups. It should be considered that finance-based legislature is similarly likely to be influenced by powerful influencers whose vested interests lie in centralized industry.

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.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
7 votes, average: 3.86 out of 57 votes, average: 3.86 out of 57 votes, average: 3.86 out of 57 votes, average: 3.86 out of 57 votes, average: 3.86 out of 5 (7 votes, average: 3.86 out of 5)
You need to be a registered member to rate this.
Loading...

4.1 stars on average, based on 5 rated posts




Feedback or Requests?

Continue Reading

NEO

The Lamen’s Story behind QTUM

Published

on

By

Market Update: Th crypto market cap has climbed back above $500 billion. Well done folks! I am liking the slower gains, as I think this could be new entrants. We have a ton of people way behind in cost basis on every coin, so I am just not convinced that those people sold at the bottom and then are re-entering. We waited this out, and the chatter throughout the media is getting to be too much for the later adopters to bare without getting involved. I have begun my history lesson to figure out where the true technical evolution is occurring in blockchain, and what will have the application to render an immediate investment. QTUM combines UTXO ledgers and smart contracts in one platform, and I need to understand their business reasoning behind why that is important. That starts with bitcoin.

// -- Discuss and ask questions in our community on Workplace.

The Timeline in Blockchain

The beginning was bitcoin. This framework was created by the infamous Satoshi Nakamoto, who wanted to encrypt the way that money could be transacted. The transaction model he chose for his ledger based blockchain was inputs and outputs. Each bitcoin is an output from an input, and outputs are used to send money, not accounts.

UTXO “Unspent Transaction Outputs” is what your bitcoin account consists of. Don’t expect Windows 95 to be the most sophisticated! So, when someone sends you bitcoin, it goes “UTXO”. It is added up with all of the other times you received but didn’t send…and there is your bitcoin balance. Here’s where it gets tricky. Say you have UTXO balances of BTC 5, 3, 2. That means someone sent those coins to you in 3 different transactions. Now you want to send 1 BTC. UTXO will choose the most prudent one, 2 in this case, and then create an input for 2. But I wanted to only send 1! Don’t worry, there will be two outputs, 1 BTC for your recipient, and 1 BTC back to UTXO. You cannot take portion of a UTXO, it will all go into the input, and out the output.

Ethereum was the evolution. Instead of this UTXO model where there is no real single account- just lists of inputs and outputs, there was a place where people could have an account that is much similar to a bank account. You send, you receive, and everything is recorded. There is no choosing which UTXO fits which transaction, each transaction can be unique, and only the amount needed will be input. Debits and Credits, just like a bank account.

// -- Become a yearly Platinum Member and save 69 USD. Click here to change your current membership -- //

Ethereum smart contracts are pillars of the account model. These contracts have unlimited capability to set rules (e.g., 100 voters, duration: six hours, choices: Candidate A, Candidate B, etc.), quantify inputs, determine precise results safely and securely, and dispense the ether of course! This new function in the blockchain required code of higher quality (I am not going to go GitHub level here) for the smart contract to work with, rather than a smart contract having to deal with a bunch of random UTXO’s. The account system worked for this just fine…or so we thought.

The DAO, founded by a consortium of Ethereum founders and followers, was a fund (a smart contract “account”) created in 2016 to be the first organization to promote the migration of business and commerce into the blockchain, and automate things for absolute and unbiased results. If you wanted to make a project that would benefit commerce on the blockchain, the smart contract would determine a consensus-based allotment.

Ironically, the DAO smart contract “account” was spoofed into funding a “Child DAO”, an exact replica of the DAO that convinced the smart contract to fund it multiple times over. Ethereum went from $20 to $13, as $70m was drained into the Child DAO. The Child DAO issue eventually led to an Ethereum hard fork, the result of voting to not let the attacker (who said he had legal right to his property through a lawyer) have his prize for his creation, and emptying the piggy bank to all those who lost ETH and laid claim to it.

QTUM

I want you all to know that all of that information was needed for me to explain QTUM.

This all started when I wanted to do some research for my own benefit. QTUM’s “About Us” was claiming their new benefits were that they designed a UTXO blockchain that has accounts with a smart contract account layer. So my thought was, why does QTUM want a UTXO blockchain? They believe UTXO has much more in scalability terms for business functions by having limiting information and “Proof of Consensus” model, and they wanted to build something that could act as the ether for those who were hard at work mining in the bitcoin UTXO community.

Eighty percent of all the QTUM tokens will be distributed for an array of purposes, but a major one is to bring the real world application into blockchain. Much like the older brother before it, QTUM is providing a DAO-like Account that can incentivize technical projects that can stay on their UTXO chain, but come out of the shadows to work within the community. Those who are used to coding in the Bitcoin blockchain will be happy to see that they now have Ethereum’s paint brushes in their own technical backyard. QTUM also can migrate Ethereum’s contracts into this new smart contract environment.

The platform has partnered with two companies in China (cybersecurity & media) to date, both of which are working along the lines of bringing business into the blockchain through smart contracts. China has been very cold on blockchain as of late. This may be a good project, but they are fighting against my favored incumbent NEO, and there is nothing I would say that truly separates them as unique for large migration. There will only be a handful of platforms. One for each country depending on laws/regulations. NEO is my choice.

Conclusion

I am a fan of the concept of taking a big community of people and trying to give them incentives through smart contracts to work harder for business purposes. I am not sure how big the bitcoin UTXO community is. Like you have seen, this is very deep technical information and the differences between UTXO and the Account method are murky at best for a lamen.

I have a small holding of QTUM, and it will remain small. UTXO seems like a bridge to bitcoin’s old tech that they are reviving. Ethereum already has had the first wave of business migration, and it seems that Solidity, the coding language of Ethereum smart contracts, is on every developers to-do list.

Overall, if QTUM makes a ton of money, non-coders won’t know why. It is a platform for people in the bitcoin chain to use for business purposes, but Bitcoin was made by someone who vanished and there is no one leading the initiatives within. Does bitcoin have an initiative? This may be like a Coder’s Coin. They like it for the certain coding characteristic, but overall the difference is minimal other than the chains are different. I think paradigm platform chains will exist, and the current ones are Ethereum and NEO.

A true technical smart contract artist or developer may disagree with me, but I see no extremely valuable difference between Ethereum and QTUM. QTUM certainly isn’t a coin for business people like myself. I will stick to what I know, and that is Ethereum-based platforms and compliance.

 

None of this is a recommendation to buy or sell cryptocurrencies. I own a small holding, and as mentioned, it will remain small. Best of luck to you on the exchanges. If you would like to remain updated on my thoughts, please do follow me @raijincrypto on Twitter.

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.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
6 votes, average: 3.83 out of 56 votes, average: 3.83 out of 56 votes, average: 3.83 out of 56 votes, average: 3.83 out of 56 votes, average: 3.83 out of 5 (6 votes, average: 3.83 out of 5)
You need to be a registered member to rate this.
Loading...

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.




Feedback or Requests?

Continue Reading

News

Notable Market Prognosticator Jeremy Grantham Considers Bitcoin to Be a “Bubble”

Published

on

The investor who accurately predicted two major market crashes has described bitcoin a “bubble” that is waiting to burst. Although bitcoin enthusiasts have heard this song before, it carries a little more weight coming from from Jeremy Grantham, the co-founder of GMO.

// -- Discuss and ask questions in our community on Workplace.

Bitcoin has No Fundamental Value

Grantham, who famously called the dot-com and sub-prime mortgage crashes, said the bitcoin bubble is likely to burst within the next six months to two years.

In his regular report on market trends, he said bitcoin has “no clear fundamental value” and operates in “largely unregulated markets.” This is combined with “a storyline conducive to delusions of grandeur” that makes bitcoin the very thing that investors fear.

In his analysis, Grantham compares bitcoin’s meteoric rise to the the dot-com era around 1999 and early 2000. This is exemplified in the following graph, which charts bitcoin’s meteoric climb against several of history’s biggest bubbles.

// -- Become a yearly Platinum Member and save 69 USD. Click here to change your current membership -- //

In fact, bitcoin’s rise is so steep that it dwarfs the South Sea Company of the 1700s. In Grantham’s view, the extent of the asset’s growth means the bubble could burst long before the broader market peaks. Based on recent price trends, that peak could be a long ways out.

Bitcoin’s Bull Run

We’ve all read about bitcoin’s meteoric rise over the last 12 months, but much less has been written about its prior performance. The digital asset was actually the world’s best performing currency in six of seven years between 2010 and 2016 before being overtaken by Ripple in 2017.

Bitcoin’s epic rally helped trigger a broader cryptocurrency explosion, resulting in a market now worth more than $750 billion. The total value of all cryptocurrencies peaked around $833 billion on Sunday before correcting lower over the past 20 hours.

As Grantham’s prediction clearly demonstrates, cryptocurrencies have divided market participants and investors about the true nature of its rally. Privacy advocates, technology companies and those weary of big government have described cryptocurrency as a major evolution in how we conceive and transmit monetary value. Government agencies, institutional investors and Wall Street have been much more critical, going as far as describing bitcoin as the tool of cyber criminals.

Though disagreements over cryptocurrency will continue, all these actors more or less share one thing in common: they all support the development of blockchain technology. The immutable ledger has demonstrated utility that extends far beyond the crypto sphere, with banks and even governments experimenting with it.

Whether or not bitcoin is a bubble has less bearing on the argument that cryptocurrencies have revolutionized the financial system. There are more than 1,400 coins in circulation, and many agree that the vast majority will fail. Though a bitcoin crash would have a devastating impact on investors and the market at large, it would not negate the project of decentralized currency. Alas, the viability of bitcoin and other crypto assets does not depend on whether they are in a bubble state or not.

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.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
1 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 5 (1 votes, average: 5.00 out of 5)
You need to be a registered member to rate this.
Loading...

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.




Feedback or Requests?

Continue Reading

Recent Comments

Recent Posts

A part of CCN

Hacked.com is Neutral and Unbiased

Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

Trending