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Why David Stockman Thinks Cryptocurrency Investors Are “Stupid Speculators”

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In a statement made earlier this month, former Director of the Office of Management David Stockman stated his distrust for investors of the cryptocurrency market. In his view, the cryptocurrency market is filled with “stupid speculators” and that a “spectacular crash” is imminent.

Let’s take a look at the whole statement from Mr. David Stockman himself:

“It’s basically a class of really stupid speculators who have convinced themselves that trees grow to the sky. It will burn out in a spectacular crash. All of these latter-day speculators will have their hands burned to a crisp, and they will learn the proper lesson.”

Now let’s break down the statement and explain what he actually meant by “stupid speculators” and “spectacular crash”.

Analyzing Cryptocurrency Mass Adoption

The trend of investing huge financial resources into the cryptocurrency market was triggered by the recent surge in bitcoin, the original blockchain that has revolutionized our concept of value. This has attracted several investors towards blockchain-based digital currencies, which have sprung up almost like mushrooms in recent years. Of course, bitcoin is not the only game in town. It isn’t even the best, according to many industry insiders. Coins like Ethereum, Ripple, Dash, Litecoin, Monero, bitcoin cash and others also offer compelling value propositions and use cases.

Analysts have cited bitcoin’s fluctuating and highly unstable price as the reason for Stockman’s comments. According to some views, bitcoin’s volatile price swings over a short period makes it practically useless from the standpoint of credible currency alternative. As seen recently, the “bears” have been influenced by the launch of bitcoin futures contracts on mainstream regulated exchanges like CBOE and CME. Backers of bitcoin futures hope that, with more institutional money flowing into cryptocurrency, the market will eventually stabilize. At the very least, it will be less prone to wild fluctuations. In this vein, exchanges and fund providers are scrambling to list the first bitcoin ETF, something that will take a lot of convincing at the Securities and Exchange Commission (SEC).

However, it is worth bearing in mind that bitcoin alone does not dictate the whole of the cryptocurrency market. In fact, altcoins currently account for roughly two-thirds of the total market.

Figure 1: Stockman Bitcoin- Bubble Comparison

Stockman’s Opposing Views

There’s no denying that bitcoin surged to meteoric levels throughout 2017, reaching a high near $20,000 in the final month of the year. However, in Stockman’s view, price is hardly an apt indication of value. Value is what one gets, whereas price is what they pay. According to him, derivatives such as the bitcoin ETFs do not legitimize the market but have quite an opposite effect. The introduction of bitcoin derivatives would only embolden predator firms on Wall Street, which can take advantage of an ordinary investor’s fascination with bitcoin’s rapid appreciation. In short, he believes that every cryptocurrency on the market will fall in value in the near future.

Figure 2 The “Bubble” Cycle for Cryptocurrencies

Arguments against Stockman

Even though elitist economists and professionals like David Stockman express a bearish stance on the global stock market, there are various loopholes in this argument. Firstly such economists fail to provide any substantial argument against cryptocurrency adoption being favorable.

Bitcoin is a “bubble” according to them, with price not reflecting the actual value of the instrument. This would make them unfit for widespread adoption. However, even though the statement is partially true, the lack of intrinsic value is true for any currency, including fiat currencies. In faulty economies, especially in nations having significant political instability, fiat currencies are not stable in value, even though they are controlled by their respective governments. This is because their valuation depends on the market and demand from investors, which ultimately revolves around the use of the U.S. dollar. Hence, if businesses, investors and individuals, shy away from utilizing the U.S. dollar, the values of all other related financial instruments will also fall.

If we take the example of bitcoin, the value revolves around the people’s acceptance of it as a means of exchange. The value of bitcoin and indeed several other cryptocurrencies are backed by the value of electricity, as well as the infrastructure and equipment required to mine it. This draws the comparison to the value of Gold, which is also based on the average difficulty of extracting it from the ground. It should be noted that not all cryptocurrencies should be bundled up into one category and considered at par. The market also experiences frequent movements in small periods of time.

Closing Thoughts

Even though the cryptocurrency market is still prone to experience short-term bubbles, the term cryptocurrency is not synonymous to the term “bubbles”.  It is one of the most liquid markets in the world, with bitcoin still leading the way in terms of market capitalization. It is already proven to be more liquid than the stocks of Apple itself.

That Stockman’s claims have hinted that cryptocurrencies are not actually “real money” is also flawed and up for debate. In fact, barring bitcoin, transactions on leading public blockchain systems like Ethereum, Litecoin, Dash, Ripple, etc. use a stable network with a well-thought-out fees structure and consensus protocol algorithm.

While bitcoin is certainly unpredictable, the core concepts of decentralized ledger, blockchain technology, and the larger scope of censorship resistance or “decentralization” are certainly worth looking into. Technology companies and MNCs alike have started investing in their own prototypes of cryptocurrency systems. All said and done, the emerging cryptocurrency craze revolving up and coming coins have driven the investing community towards widespread awareness and adoption. All the signs point towards this digital revolution gathering speed in the coming years, especially in 2018.

Featured image courtesy of Getty Images. 

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 9 rated postsHira Saeed is a tech geek girl with a passion to write on latest technology trends. She is the Founder of Tech Geeks community in Pakistan and also runs her copywriting and social media agency, Digital Doers. Follow her on @heerasaeed.




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2 Comments

  1. Chris G

    January 20, 2018 at 11:24 pm

    nailed it!

  2. mvppvm_07

    January 21, 2018 at 10:02 pm

    In his interview, Stockman has a point. In this article, Saeed has a point. Both are intelligent; neither is stupid. Neither, though, hits the nail on the head. Stockman’s arrogant statement about stupid speculators creates headlines (it’s why I read this article and why I listened to the Stockman interview). Saeed’s rebuttal has its valid points but argues bits and pieces and seems to miss several of Stockman’s other points. Wall Street greed, the marginal value of a futures market, the concept of supply and demand, of the Fed’s “money printing” model for liquidity (equal to Saeed’s commentary about liquidity of the total market), even this: “bitcoin may go up two or three times its current price [in 2018]”. Why is that not a headline? “Stupidity and Crash” make headlines but the context of the interview offers some real chance to dig into monetary policy, into the globalization of markets, into the differentiation of fiat to assets and into the nature of regulatory involvement in the crypto space. We miss when we respond to emotion, which is what Stockman tends to do in his proclamations toward monetary markets.
    Saeed, thank you for writing the article but the meat is in the context of what Stockman says and seems to imply, not in the “headliner” we instinctively respond to when we’re called “stupid”. We know we’re smarter than that. You prove it with your article but I think we have better ways to attack, if we want to. Actually, not responding to these sorts of attacks seems better to me. Invest, speculate and earn well. This will earn the trust of the skeptics who will fight hard to prove themselves right.

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Cryptocurrencies

Vanuatu Joins List of Countries Issuing Crypto Licenses

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The country of Vanuatu approved and delivered a ‘stock exchange license’ to a cryptocurrency exchange for the first time ever, according to reports coming from the platform in question.

DSTOQ (which launched yesterday, along with a ‘tester’ MVP) announced the public reveal of their project along with the claim of being “the first fully licensed stock exchange for trading security tokens and investing in real-world assets using cryptocurrencies.”

Due to being a member of the Commonwealth of Nations, the license as obtained by DSTOQ will only be viable at present in European territories primarily, rather than the USA.

Vanatu: What, Where and Why?

The Republic of Vanuatu is a nation of islands located in the South Pacific ocean, and one that made crypto headlines earlier this year, when it was mistakenly reported that the modest population’s government would be patriating new citizens in exchange for a “$200,000” Bitcoin payment. Claims which the country’s citizenship office vehemently denied.

This wouldn’t be the first time the Vanuatu had caught the eyes of the financial press, as the country was listed by Forbes as being amongst “The tax havens hidden in plain sight” where the writer noted that banking organisations as large as “ANZ and Westpac have offices” in the country.

Countries for Crypto

Other countries that have been considered ‘tax havens’ by Western pundits (and members of their own national press outlets), such as Taiwan and Singapore have been noted for their particular leniency towards if not acceptance and support of cryptocurrencies.

The recent news coming out of Vanuatu suggests that they may be the latest to join a growing number of nations which could alternately be referred to as ‘Crypto Havens’, with regards to regulation and enforcement.

These nations skirt the traditional barriers to entry which face many potential investors as well as companies. A strong example of this can be seen with Hong Kong, which has relatively lax laws covering the mining and trade of cryptocurrencies in comparison to neighboring China – which has implemented almost-blanket bans.

In European mainland, Estonia has also proven itself to be a clear proponent for licensing with regards to cryptocurrency – with the country’s government going as far as to issue wallet and exchange licenses to organisations which it deems fit.

What Does This Mean?

It’s promising to see a diverse range and geographical dispersion of countries officially on-boarding cryptocurrency into their nations’ governmental economic and cultural strategies for the future, however it is also telling that all of the most enthusiastic proponents of the technology are isolated entities. Singapore, Taiwan, and Hong Kong for example, are nation-states – despite many of them having close cultural and ethnic ties with their neighbouring nations; Vanuatu is a multitude of islands separated from the world by sea; and even Estonia is mostly surrounded by water, with its vast collection of peninsulas.

This physical distance from other countries is somewhat representative, however, of their political distance from the rest of the world – as well as that of their influence. Until the trend starts spreading further, to countries with greater sway and presence on the global stage.

In this light, it’s worth taking a look at how the Financial Conduct Authority in the United Kingdom is approaching cryptocurrency, a country with a long and seminal role in both historical and modern financial markets. The agency has called for a world-wide “effort to speed up fin-tech growth” and utilised its relations with other countries in an attempt to establish a global regulatory “sandbox” with the aspiration of speeding up or mitigating the formal approval processes.

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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“We should prohibit U.S. persons from buying or mining cryptocurrencies,” says Rep. Brad Sherman

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A Congressional Financial Services Committee meeting today turned alarmingly hostile to cryptocurrencies and blockchain technology as a whole.

This hostility stemmed initially from Democratic Representative Brad Sherman, who stated,”We should prohibit U.S. persons from buying or mining cryptocurrencies.”

According to a senior political journalist from Politico in attendance at the meeting, Rep. Sherman believed that mining is so exceptionally energy intensive and that it’s so much much more environmentally damaging than it’s potential utility is worth and thus, that the government should ban it to eliminate the possibility of further destruction.

Importantly, but likely not coincidentally, is the fact that Rep. Sherman’s biggest campaign contributor was a credit card processing company.

The company is Ally Wallet, which describes itself as, “The preferred online merchant services company and online global payment gateway solution for businesses that need to accept online payments.”

Unfortunately, Rep. Sherman’s utterances were not the only anti-cryptocurrency statements at the hearing. Specifically, Alex Pollock, a fellow from the Pro-Free Market think R Street Institute, stated his view that, “a central bank virtual currency is one of the worst ideas in recent times.”

When this is combined with Fed Chairman Jerome Powell’s comments earlier this week that, “a Fed-backed cryptocurrency is not something we’re looking at”, it paints a picture of a government increasingly alarmed by the growing use of cryptocurrencies in general.

Chairman Powell, also raised an issue with Bitcoin’s use in money laundering and other financial fraud. He elaborated further by stating that “there are too few places taking crypto as payment and the value is too volatile to be a stable store of value. Cryptocurrencies undermine the U.S. sanctions regime against terrorists/adversaries.” Powell concluded when pressed that he saw, “more risks and concerns in cryptocurrency than in its potential use.”

Additionally, at the same meeting, Representative Ryan Peterson stated that “I’m someone who believes we should still be on the gold standard and I think we need to audit the Fed because I don’t trust them.” Rep. Peterson also allegedly stated his belief at the meeting that, “digital currencies are Ponzi schemes.”

It is somewhat alarming in the opinion of this analyst that an ignorant consensus seems to be forming in the upper echelons of government that views cryptocurrency as inherently a threat to their power, and that as a result it must be stopped.

Luckily, there was some pushback from a representative of “Bitcoin University”, albeit after the meeting. This individual confronted Rep. Andy Barr, who is a Financial Services Committee member, and exclaimed that “he needed to bring more Bitcoin experts into the next hearing.”

Whether these combined statements is ultimately reflective of a US federal policy shift remains to be seen. But for proponents of Bitcoin and cryptocurrency, they serve as a reminder that those in positions of power will not lose their status without a fight.

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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Government of Malta Passes New Cryptocurrency Legislation

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Malta’s embrace of digital currency came full circle Tuesday after lawmakers passed three separate crypto-related bills that could transform the island nation into a blockchain powerhouse.

‘First in the World’

CCN broke the news Wednesday that all three bills have gone through Malta’s legislative process, putting them on track for full implementation. The second reading of the bills was carried out Tuesday night in a plenary session that began at 6:00 p.m. local time, parliamentary records show.

The approved bills include the Virtual Financial Assets Act (VFA),  the Innovative Technology Arrangements and Services Act and  the Malta Digital Innovation Authority Act (MDIA).

VFA deals specifically with the regulation of initial coin offerings (ICOs), ordering new token projects to publish whitepapers and detailed descriptions of the entire project.

The  Innovative Technology Arrangements and Services bill governs blockchain startups and other businesses looking to leverage distributed ledger technology.

MDIA will effectively serve as an industry-specific governing body that will support the development and implementation of blockchain-based regulations.

Parliamentary Secretary Silvio Schembri said the bills were a ‘first in the world’ development and also announced the person heading the newly created MDIA:

“Today Maltese Parliament unanimously approved 3 bills on DLT/blockchain, a 1st in the World. Honored to have driven these bills. Announced that Mr Stephen McCarthy will be the CEO of the new #Malta Digital Innovation Authority.”

Blockchain Island

Malta has quickly emerged as a prominent player in the blockchain industry, having already lured major exchanges and businesses to its borders. Binance has announced plans to relocate to the tiny Mediterranean nation and earlier this month disclosed that it has opened a bank account in the country. OKEx, another prominent exchange, has also announced plans to make Malta its new home.

Binance and OKEx are the world’s largest cryptocurrency exchanges by trading volume, each processing more than $950 million in daily transactions.

Binance’s decision to relocate was largely driven by its desire to enable fiat-to-crypto deposits and withdrawals, something Malta says it will accommodate through local bank partnerships.

Changpeng Zhao, Binance’s CEO, has described Malta’s regulatory stance toward blockchain and cryptocurrency as “logical, clear and forward-thinking,” adding that “dozens” of similar exchanges are planning to relocate to the country.

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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4.6 stars on average, based on 544 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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