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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.

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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.

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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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President Trump Will Unveil $1.5 Trillion Infrastructure Plan on Monday

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U.S. President Donald Trump will unveil his administration’s long-awaited infrastructure plan on Monday, fulfilling a core campaign pledge. Although the Trump White House is riding a wave of momentum following successful tax reform, the proposed infrastructure blueprint already faces major hurdles in Congress.

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Trump Infrastructure Plan

President Trump’s infrastructure plan is said to be worth $1.5 trillion and will rely heavily on state and local spending. The proposal includes $200 billion in federal funding to leverage local and state buy-in to fix roads, highways and airports.

Infrastructure was an important theme in last month’s State of the Union address, Trump’s first since taking office.

“Every federal dollar should be leveraged by partnering with state and local governments and — where appropriate — tapping into private sector investment to permanently fix the infrastructure deficit,” Trump said at the Jan. 30 address.

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The plan also seeks to unwind bureaucratic entanglements and speed up the federal permitting process to reduce the amount of time it takes for projects to get approved. Included in the proposal is $50 for rural projects, $20 billion toward public-private partnerships greater support for a financing program known as TIFIA.

Infrastructure spending under the new bill will be carried out over a ten-year period and is part of a broader plan to grow the U.S. economy by at least 3% annually. The Federal Reserve recently upped its forecast for GDP growth on anticipated tax reform; increased infrastructure spending could add to the Fed’s cautiously optimistic outlook.

Polarizing Congress

The Trump administration has faced stiff opposition in implementing its pro-growth agenda. That is unlikely to change on infrastructure given tax cuts, trade imbalances and the recent $300 billion funding deal fueling the nation’s deficit.

Democrats have already signaled their opposition to the bill on grounds that it shifts much of the burden to state and local governments. This sentiment is also shared by the Chamber of Commerce, which would like to see more federal dollars devoted to the plan by way of tax increases.

Democrats are also calling for new revenue measures to be implemented in support of the bill, including raiding the federal gas tax for the first time since 1993. Last week, Congressional Democrats called for $1 trillion in federal spending.

Investors will be watching the infrastructure debate intently over the next few weeks to determine whether pro-growth optimism can sustain the next leg of the bull market after last week’s epic collapse. Stocks shed more than 5% over the previous five days, capping off one of Wall Street’s worst weeks since the financial crisis.

In addition to rolling out the infrastructure blueprint this week, Trump is also scheduled to discuss the proposal with  both Democratic and Republican leaders on Wednesday.

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 165 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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Thailand Seizes 100,000 Bitcoins in Arrest of Infraud Kingpin Sergey Medvedev

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Authorities in Thailand have reportedly seized 100,000 bitcoins following the arrest arrest of cyber crime kingpin Sergey Medvedev.

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Bitcoin Seized

The coins were seized by law enforcement agencies in the wake of a Feb. 2 arrest of Medvedev, the co-founder of an online criminal network called Infraud. The platform served as a marketplace for buyers and sellers of stolen credit card information, weapons, narcotics, government documents and other illegal items commonly traded on the darknet.

Using today’s prices, the coins confiscated by Thai authorities are worth roughly $822 million. About six weeks ago, the bitcoins would have been worth nearly $2 billion.

Medvedev, a Russian national, was arrested in Bangkok on Feb. 2 at the request of U.S. law enforcement agencies. His apartment was raided by 30 officers from Thailand’s Crime Suppression Division (CSD), which confiscated the coins, a notebook computer and several documents.

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The Infraud group operated under the motto, “In Fraud We Trust.” It was widely regarded as one of the biggest online criminal networks in existence. The Bangkok Post reports that the group was formed in Ukraine in 2010 with Medvedev and Svyatoslav Bondarenko.

The organization operated vending websites that made it easy for criminals to purchase stolen card and identity data. The platform had 10,901 members approved to buy and sell illicit items, according to various reports.

According to  U.S. Deputy Assistant Attorney GeneralDavid Rybicki, Infraud was “the premier one-stop shop for cyber criminals worldwide.”

The Link Between Cryptocurrencies and Crime Networks

For all its apparent benefits, bitcoin has been considered a key enabler of global crime networks. In the early days of digital currency, many of its opponents conflated it with the dark web, and used criminal networks like Infraud to de-legitimize bitcoin.

Advances in digital currency mean bitcoin isn’t the only platform capable of masking international crime networks. In fact, it isn’t even the best at doing so.

For the past two years, cyber criminals have been disavowing bitcoin in favor of “privacy coins” that offer greater anonymity. That was the key takeaway of a recent report released by Recorded Future, an intelligent firm that analyzes criminal marketplaces.

According to the report, bitcoin’s stock among cyber criminals has been declining for the better part of two years, with a greater percentage of dark web users preferring Litecoin and even Dash.

“Bitcoin remains the gold standard in the dark web, with all vendors accepting it as a payment, and Litecoin emerged as the second most popular currency, with 30 percent of all vendors who implemented alternative payment methods willing to accept it,” the report read.

Litecoin generally isn’t part of the same “privacy coin” grouping as Dash, Monero and Zcash. However, it is still considered one of the more privacy-oriented altcoins after its developers added confidential transactions (CTs) to the protocol. The addition was made last September, and was considered a significant competitive advantage in Litecoin’s quest to overtake bitcoin.

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 165 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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Japanese Cryptocurrency Traders Will See Profits Taxed 15% to 55% This Year

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Last summer, Japan became one of the first countries to formally recognize cryptocurrencies as legal tender. Now, it has announced new tax measures to govern the trade, sale and exchange of digital assets.

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“Miscellaneous Income”

In Japan, capital gains on cryptocurrency transactions are deemed “miscellaneous income,” according to a Dec. 1 ruling by the National Tax Agency. As such, cryptocurrency investors will be taxed 15% to 55% on their profits this year.

The top bracket is much higher than winnings on stocks and forex, which are taxed around 20%.  The top amount applies to tax payers with annual income of 40 million yen, which is equivalent to about $365,000 U.S.

Under the tax law, “miscellaneous income” doesn’t just apply to cryptocurrency trading on exchanges, but also on gains collected from sales, purchases, mining and associated network fees.

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It is estimated that 40% of bitcoin transactions are funded in Japanese yen, a testament to the nation’s wide scale adoption of cryptocurrency. However, as Bloomberg reports, cryptocurrency-rich investors are  feeling skittish about the new tax laws, with a handful of big name players already leaving the country. Some of them could be headed to jurisdictions like Singapore, which offer zero capital gains tax on long-term cryptocurrency investments.

Local experts have described the new tax process as unclear, leaving investors guessing on how to meet their obligations. In Japan, annual filings are due Feb. 16-Mar. 15.

Evolving Tax Laws

Although Japan is much further ahead when it comes to regulating cryptocurrency, it is not the first nation to impose tax levies on the digital asset class. South Korea – another hotbed for everything crypto – has decided to tax digital currency exchanges at a rate of 24.2%. That is the same tax bracket applied to most local companies.

Meanwhile, the United States has classified cryptocurrencies as regular securities, which means they are taxed accordingly.

In the European Union, cryptocurrencies are defined as actual currencies instead of property, which means they are subject to capital gains and income taxes. In places like Germany, a “wealth” tax is also involved.

Tax legislation will likely evolve further in the coming years as regulators play the game of perpetual catch up with the market. As U.S. lawmakers recently demonstrated, the regulatory landscape could evolve more favorably than some traders initially suspected.

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 165 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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