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1. Lesson: The Global Game

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To be able to get ahead of the curve and take smarter financial choices, it’s necessary to understand how our current financial system works. The fractional reserve system (see Fractional-reserve banking) that was established by the Swedish central bank in the late 1600s is a system that lets banks create money “out of thin air.” The golden rule is the 9 to 1 ratio: banks only need to hold 1 part of the money while they can supply 9 parts (~11% is held as a reserve).

As an example:

If you deposit 100 USD in a bank account, that bank can lend out 90 USD. If the borrower deposit the same amount in another bank account, the bank can lend out 81 USD on top of the 90 USD it has already lent. This process will continue until the bank has lent out 900 USD based on the original deposit of 100 USD. The bank only holds 100 USD but has created 800 USD out of thin air.

Why is this important to know?

The system is built as an “air castle.” It can create money out of “nothing” and add an interest rate on top of it. If you do not have the right knowledge about how the system works, it will be hard to maneuver in the economic landscape. You have to understand that banks are not playing by the same rules that ordinary businesses and people do. We have to pay back our loans unless we want to file for bankruptcy. The fractional reserve system is a good system to speed up the economic process, but it is not durable.

The interest rate

When I want to enlighten my peers on how interest rates work, I always use the same thought experiment:

Think of a world that only had one bank which created all the money in the world. Their first customer would like to lend an amount, let’s say $1000. The bank lends out the money with an interest rate of 10% per year. Within one year, the customer has to pay back $1100.

Do you see the problem here?

There are not enough money to pay back the loan with interest as there is no more money in circulation. So what does the customer do? He has to borrow more money to be able to pay back the loan, but by doing so he increases his overall loan. The interest rate makes the loan “unpayable.” In a financial system where the interest rate is fundamental, there will never be enough money to pay back the loans. There will always be defaults and bankruptcies.

In the bigger picture: Look at the US National Debt. The US might be able to pay back their national debt, but they will have to cut expenditure from other posts which in turn will significantly hurt the world economy. This can be even worse than to let the debt increase and raise the invisible “debt ceiling.”

The world economy is “tricked” into a global game of debt. The world’s debt can never be paid back entirely, and there will always come financial meltdowns followed by mass bankruptcies.

The ones that benefit from this system is banks, lenders (the rich guys), and businesses that are able to operate in such a system.

What does this mean for me?

The essential knowledge you can take from this is to “join the global game.” If you do not have money to lend out with an interest that is higher than the inflation rate, or money to invest in different index funds (never invest in a single stock unless there is a 100% guarantee of growth) you will end up losing money, year by year.

The system is bad, I know, but we cannot fight the powers in place that profits from the system (unless something amazing happens and a new system replaces the old).

OK: So you got a good job and receive salary month by month. “I do make money!” Yes, you do, but you are still losing money, money that could have been used to grow your economic backbone. And what happens when you are fired or the company you work for files for bankruptcy? You are left with nothing and your assets will soon be gone.

My first advice is this:

If you do have a job where you receive a monthly salary, put 10% of your salary in a robust index fund and leave them there. Set this up automatically on a monthly basis and “forget them.” Then you will at least be joining the global game and take low risk. You can also choose to invest those 10% in different assets, like bitcoin, but then you would take a significantly higher risk and stand a chance to lose it all.

The most important thing to remember: NEVER LOSE MONEY.

Continue reading: 2. Lesson: Never Lose Money

Please make a comment if you have any inputs.

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 3 rated postsMultiple journalists and analysts are behind the name Edward Talliot.




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8 Comments

8 Comments

  1. rbrito

    June 6, 2017 at 4:16 pm

    If i has the opportunity to read a least this article about 1 months ago i wouldn’t loss 12 btc. Learn how important is to be financial educated and not to to business base on emotions.

    • 4feichu

      June 23, 2017 at 11:52 pm

      just curious so I can learn from your mistake, how’d you lose the BTC?

    • CryptoMob

      December 20, 2017 at 5:02 pm

      jeah i can just agree

  2. NoHomeJerome

    August 15, 2017 at 11:20 am

    Thank you, Edward.

    Do you suggest investing in an index fund in addition to any cryptocurrency investments? Or do you suggest we pick either one, depending on personal preferences and risk-aversion levels?

  3. ndoudaffy

    November 29, 2017 at 2:34 pm

    I am filling very greatefull because of your suppor.I trust and believe in you.

    • Jonas Borchgrevink

      November 29, 2017 at 11:24 pm

      Thank you very much!

  4. kendrickmane

    December 28, 2017 at 5:12 am

    Bro this exemplifies what a website is supposed to be there wasn’t one sentence in that article that wasn’t potent

  5. terryx

    January 25, 2018 at 4:30 am

    I lost a bitcoin down the back of my couch once

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Analysis

Crypto Capitulation Is Upon Us

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Capitulation: kuh-pich-uh-LEY-shuhn (noun) the action of surrendering or ceasing to resist.

From their December peak, cryptocurrency assets have given back over $400 billion. This amounts to more than the GDP of many countries.  If this were values lost in the stock market whose worth is in the trillions, it would be called a minor correction. In crypto terms there is only one word to describe the carnage: capitulation.

As painful as it is, the point to be made here is the capitulation is a good thing.  Read on and I will share some thoughts for you to consider.

Mass Media Mania

First let’s take a look at some of the news that is causing such despair. Most recently the selling mania has been in response first to Facebook and more recently to Google.  Both of these mass social media giants have ban cryptocurrency advertising. Read closely and you won’t be shocked to realize that the target of their ire are the many ICOs.

The problem is not that Facebook and Google are the only advertising platforms.  The problem is that they are considered mainstream media and without these two, the trend of cryptocurrencies gaining legitimacy is delayed.  That is right, I said delayed not blocked or prevented.

The World Has Changed

Five years ago, when bitcoin was unknown to most people, this might have been a fatal move. Today is a different story. I recently traveled to a remote mountain town in the interior of Mexico.  Everyone I met had heard about Bitcoin and eyes lit up with excitement when I ask if I could pay for lunch with bitcoin.  

Today are dozens of websites dedicated to cryptocurrencies, either holding them, exchanging them or just writing about them.  Probably the most effective advertising remains on Google, it is called Google Search and it is free.

If someone wants to learn about owning bitcoin or any other currency, there is a ton of educational information.

Of course it would be far better all around if Mark Zuckerberg and Eric Schmidt had taken a different approach such as banning only advertisements for ICOs, but that didn’t happen so supporters of crypto aren’t comforted in their beliefs that bitcoin is going mainstream in 2018.

The Flipside Is Being Ignored

Every argument has a flip side.  If the removal of ads contributes to cleaning up ICO scams, that is a good thing.  We can all agree on that point. And let’s be honest there is more than one problem the crypto community needs to clean up.

This adds to the ongoing regulatory news including March 7th ruling in US Federal District Court that cryptocurrencies are commodities.  As such they can be regulated by the Commodity Futures Trading Commission (CTFC).

On the same day the Securities & Exchange Commission issued the following order:

“If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration,” the commission said in its “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.”

Not All Regulation Is Inherently Bad

The mere hint of added government regulation typically sends stock market investors heading for the exits and the same holds for investors in crypto.  But this raises the question, is some regulation of crypto a good thing?

If we examine the full spectrum of regulation to this point on a global scale there is one common target most everywhere.  That is the practice of exchanges. So far there has been little or not regulation, threatened or enacted, to protect investors from loss of funds due to security breaches.  

The question that needs to be ask is this.  Will SEC regulation result in better pricing and lower trading costs; if So, then this would provide a desirable outcome.  It is understandable if you laugh at the prospect of any government regulation having a beneficial outcome, but if you look at past SEC practices, you would come away with different conclusion.

So when the next regulation catches the headlines will it be to ban the existence of bitcoin, Ethereum, Ripple, Litecoin and others or to protect the investor from scams and excess costs?

Capitulation Is A Good Sign

Over the course of a pretty long investment experience, I have witnessed true misery on more than one occasion.  The pain is unbelievable, there is no perspective on the future and all you want is to take action to end the misery.  That is when you know the worst is happening and nothing is ever going to make it better. That is when major stock market bottoms are formed. It surely is painful these days for crypto investors. This is a good sign.

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 82 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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Altcoins

What’s Behind Cardano’s Rising Popularity in South Korea?

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Cardano, better known as ADA in South Korea, pronounced as “aeda” in the local market, is growing at an exponential rate due to UpBit.

UpBit, South Korea’s second largest cryptocurrency exchange behind Bithumb, is operated by Dunamu, a subsidiary company of Kakao, the operating company of KakaoTalk and KakaoPay. The two mobile applications, KakaoTalk and KakaoPay, have a market penetration rate of over 90 percent in their respective markets–financial technology (fintech) and messaging.

Although UpBit remains as the only cryptocurrency exchange that has integrated Cardano within the local South Korean cryptocurrency exchange market as of date, the popularity of Cardano on UpBit is increasing rapidly. According to CoinMarketCap, 75 percent of Cardano’s daily trading volume is processed in South Korea, by UpBit.

Within its debut month, more than 3 million South Korean users signed up to use KakaoPay, the country’s most widely utilized fintech app. KakaoPay operates as a mobile bank, allowing users to send and receive money, obtain loans, and conduct financial activities. KakaoPay supports UpBit because a subsidiary company of Kakao in Dunamu operates UpBit.

Given that Cardano is one of the most popular cryptocurrencies on UpBit in terms of daily trading volume, naturally, as general consumers in the traditional finance market using KakaoTalk and KakaoPay move to the cryptocurrency market, the first few cryptocurrencies they are introduced to are bitcoin, Ethereum, and Cardano.

Cardano is also receiving significantly more mainstream and local media coverage than other alternative cryptocurrencies, specifically because the South Korean media has portrayed Cardano as a direct competition to Ethereum. Because Cardano is a smart contracts protocol, it is structurally similar to Ethereum.

The two key differences between Cardano and Ethereum are that Cardano uses a proof-of-stake (PoS) consensus algorithm and it also has two layers that are used for smart contracts processing and payment settlement.

In South Korea, cryptocurrency mania has swept across most major industries. 5 out of 10 people on the streets, in subways, buses, and cafes talk about bitcoin, cryptocurrency, and blockchain technology on a regular basis. As such, the majority of investors are more technical than other regions.

Most investors of Ethereum in South Korea understand that the Ethereum Foundation and its open-source development team has been planning a PoS update via Casper. When Cardano debuted with a PoS protocol, it led South Korean investors to believe Cardano is a more innovative platform and has a technical edge over Ethereum.

January 31

For cryptocurrencies with strong followers in the South Korean market, January 31 is an important date to keep track. On January 31, local cryptocurrency exchanges are expected to open account registrations to new users and six major local banks are set to provide banking services to cryptocurrency exchanges.

Consequently, on January 31, it is likely that a massive amount of Korean won will flow into the local cryptocurrency exchange market. The recent cryptocurrency exchange ban fiasco, which turned out to be false, further increased the presence and popularity of cryptocurrencies in South Korea.

Cryptocurrencies like Cardano, EOS, Qtum, and Ethereum that have strong bases in South Korea will likely increase in value throughout late January and early February.

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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3.4 stars on average, based on 3 rated postsJoseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.




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Fidelity Investments is Mining Cryptocurrency

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Fidelity Investments is a multi-billion dollar brokerage  that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.

Profitable Experiment

CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.

Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”

The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.

The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.

Well Ahead of the Pack

The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.

Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.

Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.

Cryptocurrency Prices

The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.

Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.

Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.

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 462 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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