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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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Market Overview

U.S. Stocks Rise on Solid Bank Earnings; Cryptocurrencies Look for a Catalyst

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U.S. stocks continued higher on Wednesday, with the Dow rising triple digits after a blowout earnings report from Goldman Sachs. Cryptocurrencies were mostly directionless after Ethereum delayed its planned Constantinople upgrade due to security risks.

Stocks Rise

All of Wall Street’s major indexes finished in positive territory. The Dow Jones Industrial Average climbed 141.57 points, or 0.6%, to 24,207.16. The broad S&P 500 Index advanced 0.2% to 2,616.10, with financials leading the way higher. The Nasdaq Composite Index recorded a gain of 0.2% to finish at 7,043.70.

Goldman Sachs Group Inc. (GS) was the Dow’s best performer after reporting much better than expected earnings and revenue for the fourth quarter. The investment bank reported per-share earnings of $6.05 on revenue of $8.08 billion. Analysts had called for an EPS of $4.45 on $7.55 billion in sales.

Bank of America Corp (BAC) also rose after reporting a better than expected quarter. The bank beat expectations on the top and bottom lines and tripled its profit to $7.3 billion.

Brexit Uncertainty

Global financial markets were surprisingly calm in the wake of a devastating Brexit vote for British Prime Minister Theresa May, who failed to pass her proposed legislation on Tuesday. Lawmakers voted overwhelmingly against the proposed Brexit deal, setting the stage for a new round of negotiations with Brussels.

However, some members of British Parliament want Prime Minister May to step down or call a general election. The opposition Labour party pushed for a vote of no-confidence on Wednesday, which if passed, would have set the stage for a general election. The motion was rejected late Wednesday.

Under May’s proposed deal, the United Kingdom would embark on a soft Brexit in roughly two months’ time. It’s not entirely clear whether that timetable is still feasible given the latest setback in parliament.

Day 26 of the Government Shutdown

The longest government shutdown in U.S. history entered its 26th day on Wednesday, fueling uncertainty about the direction of the economy. With roughly 800,000 federal workers affected by the impasse, some analysts are beginning to worry about the potential impact on economic growth.

The latest Quinnipiac poll shows the majority of Republicans still support the shutdown because of its implications on border wall funding. President Donald Trump has been adamant that he will not cave unless Democrats make appropriations for a steel barrier on the U.S.-Mexico border. The president has warned that the shutdown could go on for “months or even years” if Democrats don’t agree to fund the wall.

With no solution in sight, attention has turned to Senate Republicans, some of which have grown frustrated with the shutdown. If enough of them defect, it could force a vote on a new measure to re-open the government.

Ethereum Hard Fork Postponed

The planned implementation of the Constantinople hard fork was delayed on Wednesday after developers identified a major vulnerability in one of the Ethereum Improvement Proposals (IEPs).

Smart contract auditor ChainSecurity on Tuesday uncovered a major issue with EIP 1283, which proposes net gas metering changes for the SSTORE opcode and new uses for contract storage. According to ChainSecurity, implementing the EIP 1283 would give attackers a loophole to steal funds.

The delayed launch of Constantinople was made official on Ethereum’s official Twitter: “Constantinople upgrade is temporarily postponed out of caution following a consensus decision by #Ethereum developers, security professionals and other community members. More information and instructions are below.”

At the time of writing, no alternative timetable has been provided. More on Constantinople: ETH/USD Price Analysis: Ethereum’s “Thirdening” Approaches.

Crypto Markets Gyrate

The cryptocurrency market saw little movement on Wednesday, as bitcoin held within a narrow range and most of the major altcoins exhibited lower volatility. The value of all coins in circulation dipped slightly to $121.6 billion despite the presence of stable volumes.

Bitcoin edged down 0.1% on the day, reaching $3,642.89. The largest cryptocurrency by market cap experienced a large bounce at the beginning of the week but has faced strong resistance near $3,700.

Learn why we believe 2019 could be the year of accumulation for bitcoin.

Ethereum had posted the biggest percentage drop in the top 20 before paring losses later in the session. EH was last down 0.6% at $122.86.

On the opposite side of the spectrum, Cardano gained 4.2% to $0.0445. Binance Coin rose 3% to $6.10. EOS added 1% to $2.43.

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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4.7 stars on average, based on 738 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Altcoins

STEEM Coin on the Move While Steemit Loses 20 Million Visitors in Six Months

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One of the three currencies which fuel the Steemit blockchain-based social media site, Steem (STEEM) gained 22% in the previous two days. Despite the increased price movement in January, monthly visitors and unique account creations continue to plumb new yearly lows on the Steemit social media website.

STEEM Price

STEEM’s recovery has been slow in coming – the coin gained 43% from December into January, however most of that came in the last forty-eight hours. Compare that to major and mid-cap altcoins such as Tron (TRX), Zilliqa (ZIL) and Augur (REP) which gained over 100% in that time, and you see a major discrepancy.

From Monday through to Wednesday STEEM went on a 22% run which carried the coin price from $0.249836 up to $0.306033. Trades against Korean won on the Upbit exchange accounted for more than 40% of the day’s trades, or around $1.2 million of the $2.7 million daily total.

Steemit Cools Down

After suffering the indignity of laying off a majority of its staff back in November, Steemit continues to hold on despite plummeting numbers.

Remarkably, the Steemit social media site lost almost 20 million monthly visitors in the last six months – a 61% drop off from the 30.8 million visitors in July, to the current 11.9 monthly visitors according to SimilarWeb. New account creations are also down 83% in the last six days alone, however statistics show that new users tend to flood in whenever the coin price pumps – even if just for a brief time.

CCN reported back in May of 2018 that Steemit had surpassed one million accounts created on the blockchain. This was a startling figure at the time, and grabbed a lot of headlines. However, Steemit statistics from the time suggest the number of unique users was actually much less – closer to 150,000 according to this chart from Steemit’s @arcange.

Follow the Money

The same chart shows that January of 2018 remains Steemit’s most successful month. The site gained close to 120,000 new users in the sixty days leading up to January’s all-time high, when the coin price climbed as high as $8.57.

As the coin fell to a twenty-month low in December, unique accounts on the blockchain also fell to eighteen-month lows in the process. A major increase to new account creations was seen on January 9th, as STEEM went on a similar 23% price spike, and 4,108 new users flocked to Steemit in one day.

Stats courtesy of Steemit’s @penguinpablo

By six days later, new registrations had fallen back to 695 per day, as STEEM’s gains from the previous few days were wiped out.

Steemit launched back in early 2016, and has divided opinion since its inception. Check out this recent primer for an up to date summary of Steemit and its features.

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 123 rated postsGreg Thomson is a full-time crypto writer and digital nomad. He eats ICOs for breakfast and bleeds altcoins. Wherever he lays his public key is his home.




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Binance Coin Price Analysis: Binance Completes 6th Token Burn; BNB/USDT Struggling to Move Back Above Breached Channel

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  • Binace has completed their sixth round of BNB token burning, a total of around 1.6 million.
  • BNB/USDT bulls are retesting a breached ascending channel formation.

BNB/USDT is holding steady for now, with a gains of 4% on Wednesday. Caution can be observed following a breakout to the downside from a rising channel formation. The price had been moving within this structure from around 15th December, when the bulls commenced the most recent upside trend. BNB/USDT had gained as much as 51%, while within the confinements of this. However, all good bull runs must come to an end, and on 10th January the lower supporting trend line gave way to the market bears.

BNB/USDT daily chart.

In terms of price behavior since the break, as detailed earlier, there is a lack of commitment seen. The bulls have stringently retested and been moving underneath the channel but have not got the momentum to break back above at this time.

Binance Complete 6th BNB Token Burn

The world’s largest cryptocurrency exchange by traded volume, Binance, announced they have completed their sixth token burn. Binance burnt a reported total of 1,623,818 BNB tokens. This detailed burn was for the period between October 1 and December 31, 2018. For comparative purposes, the number is similar to the 1,643,986 BNB amount that they previously burned in their fifth round.

Despite the similar number of BNB being burnt, it is worth considering that the final quarter of 2018 had “brought significant changes in the cryptocurrency landscape”. In monetary terms, the dollar value during the sixth BNB burn was around $9.4 million, versus the $17 million during the previous period.

CZ, founder and CEO of Binance, said, “I’m excited about is Binance Chain and Binance DEX, which will launch soon. From a tech standpoint, it is a major development for the Binance ecosystem. From an earnings standpoint, Binance DEX will not directly increase profitability for Binance, but it will certainly increase the utility of BNB in a big way. That should be good for BNB holders. Binance is also a larger holder of BNB, so we benefit the same way as all BNB holders. The more people using Binance Chain, the more value is created, or the more successful we all become.”

Technical Review – BNB/USDT

BNB/USDT must break back above the $6.40 area to attract another wave of buying. This is where the lower supporting trend line of the breached channel in tracking. Separately, a supply zone is seen in proximity, tracking from $6.20-$6.90. The price has not been above this region since 19th November. Should the bulls gather enough momentum to break above this supply, then a fast move could be seen back to $10.00. BNB/USDT had been consolidating here prior to the steep fall in November.

Looking to the downside, there isn’t much in the way of major support seen until the $4.00 price region. This is where the December low can be seen, $4.12, with a demand zone observed running from $4.55-$4.12.

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 107 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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