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Going Green: An Investor’s Guide to Cannabis Stocks

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The war on marijuana is slowly coming to an end, and don’t investors know it. Very few industries have captured the imagination of Wall Street and Main Street quite like cannabis. With legalization sweeping the continent, many investors believe they are on the cusp of a generational opportunity that cuts across the medical, consumer goods and lifestyle industries.

The past 18 months have featured several watershed moments for the cannabis industry. The most profound moment came on election day, when seven U.S. states legalized recreational marijuana. North of the border, the Canadian government recently announced it will fully legalize recreational weed on July 1, 2018, some 17 years after it sanctioned medical marijuana.

These seismic shifts in public policy have left marijuana stocks seeing green, leading to an outpour of support in the mainstream investment community. But before investors get high off marijuana stocks, it’s critical to get educated about the industry. This will help separate fact from fiction in a sector brimming with more confidence than its fundamentals say it should support at the moment.

Legalization: Where We Stand

Seven states legalized marijuana in some form during the November 8 election. California, Maine, Massachusetts and Nevada voted in favor of recreational weed, while Arkansas, Florida and North Dakota backed legalizing medical marijuana.

From an investment perspective, much of the excitement emanates from the four states that legalized recreational cannabis. California is widely regarded as the proxy for the marijuana industry. If cannabis can succeed here, it can succeed anywhere. 

Colorado has also given investors a good indication of how cannabis reform can generate growth. The sale of recreational marijuana topped $1.6 billion in 2016. That translates into $200 million in tax revenue for the state.[1] 

Though legalization has been a resounding success in Colorado, the outcome is only a fraction of what California can achieve. For starters, California is eight times bigger, and if it were its own country, it would be the world’s sixth largest economy. California’s path from legalization to business generation will have a direct impact on the pot debate across the country.

The state has already vowed to fight a recent federal crackdown on recreational use, with an unusual alliance of government officials and the cannabis industry quickly taking shape. That’s because state lawmakers realize that marijuana is big business and a potential boon to the local economy. The November referendum also convinced state lawmakers that a huge swathe of the population was in full support of legalization.

Other States to Watch

Investors concerned about the federal ban on cannabis should take solace in the fact that the legalization debate is heating up across the country. In addition to the eight states that have fully legalized recreational cannabis, seven others are debating its future. The legalization debate is germinating in Delaware, Rhode Island, New Jersey, Vermont, Missouri, New Mexico, Kentucky and Texas, a sign they could be next headed to the polls.

Legalization was barely struck down in Arizona last November, with 51.3% of state residents voting against Proposition 205, a statute that would have permitted recreational use.

Source: Business Insider. States Where Marijuana Is Legalized.

Canada

There’s just as much excitement about marijuana in Canada, which is expected to fully legalize recreational use of the plant in the not-too-distant future. In early April, the federal government filed an Act to Amend the Controlled Drugs and Substances Act with the legislation officially introduced two days later. Justin Trudeau’s government is expected to implement the legislation by July 2018.[2]

Although Canada became one of the first countries to legalize medicinal marijuana back in 2001, the nation’s marijuana industry is only worth about $100 million (keep in mind, Canada is one-tenth the size of the U.S. in terms of population and GDP).

Industry players are now awaiting provincial legislation on who will be allowed to sell recreational cannabis. To date, 40 marijuana licenses to grow the plan have been granted by Health Canada. Most of these companies are already sanctioned to sell marijuana to patients via mail-order system.  

Marijuana Industry Growth and Future Potential

Perhaps no other industry has languished from pent-up demand more than marijuana. In the United States, the plant has been outlawed at the federal level since 1937. That’s 80 years of pent-up demand being met by the black market. During this period, there were few investment opportunities up until the recent growth of medical marijuana companies.

In just one year, marijuana has gone from an obscure and esoteric industry to a multi-billion-dollar enterprise that has resulted in the very first exchange-traded fund (ETF) being issued. The Horizons Medical Marijuana Life Sciences ETF (HMMJ) began trading on the Toronto Stock Exchange in April, ushering a new era for marijuana investments.

According to Arcview Market Research, revenues from legal marijuana sales reached $6.7 billion in 2016, an increase of 30% from 2015. Sales should rise at a CAGR of 25% through 2021 to reach $20.2 billion.[3] All this, and only around half of U.S. states have legalized marijuana to some degree. Analysts say that only broadband internet and cable television had a bigger growth trajectory than cannabis. 

In Canada, legalized recreational weed could ignite a nearly $9 billion industry, eclipsing the combined sale of beer, wine and spirits, according to Deloitte. An estimated 600,000 kilograms (more than 1.3 million pounds) of weed will need to be produced to meet the expected demand. That’s far more than the country’s existing licensed producers are capable of growing for medicinal uses.

Clearly, there’s plenty of reason to be bullish on marijuana. The industry is already drawing parallels to the dot-com era, which provided value investors with a rare opportunity to generate enormous wealth in an extremely short period.

How to Invest in Marijuana

In terms of growth, very few industries can compare to cannabis. Like other industries, the leading marijuana companies can be bought and sold as stocks on the open market. In North America, these stocks can be found on the Nasdaq, Toronto Stock Exchange, TSX Venture Exchange and U.S. Over-the-Counter (OTC) market. Marijuana stocks traded Over-The-Counter contain the following symbol: OTCMKTS.

OTC is a decentralized market where investors can trade with one another through email, telephone and other electronic means. In an OTC environment, the dealer acts as the market maker by quoting prices at which they are willing to buy or sell a particular stock. An OTC trade can be carried out without others being aware of the price at which the transaction was made.[4]

Investors who wish to access OTC securities must open an account with a broker that allows Over-The-Counter trading. Since OTC securities are unlisted, there is no central exchange governing the market. This essentially means that all OTC trades must be placed through market makers, a type of broker-dealer firm that competes for customer orders. Typically, OTC securities can be traded on either a discount brokerage or full-service brokerage, including online trading accounts.

Just about any type of pharmaceutical or marijuana stock can trade on the OTC market. OTC provides access to companies ranging from large-cap conglomerates to small and micro-cap growth companies. Since most marijuana stocks are still in the early-stage or developmental phase, they typically do not qualify for the OTCQX Venture Market, which is the home of OTC stocks that are generally considered to be higher quality investments.

Companies listed in the OTCQB exchange are current in their reporting to a major regulator and have greater information availability to investors. Companies that are listed under the Venture Exchange have a green checkmark on the official OTC website indicating their information is verified. “Verified” securities are those whose profile has been confirmed by a representative of the OTCQB within the last six months. A growing number of marijuana companies have already made their way to the OTCQB.

It should also be noted that although investing in OTC stocks is more accessible than ever before, this avenue is considered riskier than conventional exchanges. That’s because many of the companies on the unlisted exchanges are very small, making them prone to wild fluctuations and added volatility. These characteristics define most marijuana stocks regardless of the exchange in which they are listed.

Investors trading marijuana stocks Over-The-Counter or through a conventional exchange should generally avoid companies with very little information. These companies may be extremely illiquid, thereby adding unnecessary risk to your portfolio.[5]

The Marijuana Index

The Marijuana Index is one of the easiest ways for investors to keep track of North America’s most prominent cannabis companies. The index and its subcomponents track the leading stocks operating in the legal cannabis industry in the United States and Canada. Naturally, the index is divided into two country sub-indexes: the U.S. Marijuana Index and the Canadian Marijuana Index. Each company tracked is assigned to either index, depending on the location of their primary business operations.

All three indexes began trading January 2, 2015, and were given an inception value of 100.00 points. The Marijuana Index is equal-weighted, which means each stock is granted the same importance as others in the basket. This is also the case for the U.S. and Canadian sub-indexes. The indexes are rebalanced on a quarterly basis on the last day of March, June, September and December.

As of Oct. 25, 2017, there were 311 companies listed in the Marijuana Stock Universe.

The U.S. Marijuana Index is an equal-weighted benchmark of the country’s top-20 cannabis companies. These companies, and their associated symbol, are presented below:

Name Symbol Market Cap
Terra Tech Corp TRTC 120.96m
Surna Inc SRNA 19.53m
Solis Tek Inc SLTK 42.03m
MariMed Inc MRMD 60.43m
Marapharm Ventures Inc MDM:CNX 85.39m
MCIG Inc MCIG 55.76m
Kush Bottles Inc KSHB 108.87m
Innovative Industrial Properties Inc. IIPR 68.40m
GW Pharmaceuticals Plc GWPH 2.62b
GrowGeneration Corp GRWG 25.83m
Golden Leaf Holdings Ltd GLH:CNX 62.82m
CV Sciences Inc. CVSI 19.31m
CannaRoyalty Corp CRZ:CNX 123.75m
Cannabics Pharmaceuticals Inc CNBX 79.01m
Cannabis Sativa Inc CBDS 55.60m
The Canadian Bioceutical Corporation BCC:CNX 111.98m
Axim Biotechnologies Inc AXIM 323.83m

The Canadian Marijuana Index is a gauge of ten of the top-twelve marijuana stocks traded in Canada. This list includes:

Name Symbol Market Cap
Canopy Growth Corporation WEED:CA 2.23b
CannTrust Holdings Inc. TRST:CNX 393.49m
The Hydropothecary Corporation THCX:CA 158.72m
Tetra Bio-Pharma Inc. TBP:CA 77.01m
OrganiGram Holdings Inc OGI:CA 306.57m
Namaste Technologies Inc N:CNX 40.65m
Cronos Group Inc. MJN:CA 445.70m
Maricann Group Inc. MARI:CNX 101.31m
MedReleaf Corp. LEAF:CA 1.04b
Newstrike Resources Ltd. HIP:CA 128.55m
Supreme Pharmaceuticals Inc. FIRE:CA 271.94m
Emerald Health Therapeutics Inc. EMH:CA 137.03m
Emblem Corp EMC:CA 118.86m
CanniMed Therapeutics Inc. CMED:CA 262.08m
Cannabis Wheaton Income Corp. CBW:CA 205.06m
Aphria Inc. APH:CA 958.33m
Aurora Cannabis Inc. ACB:CA 1.09b
Abcann Global Corporation ABCN:CA 110.59m

An Introduction to Marijuana Industries

The marijuana industry is more diverse than it appears at the surface. Although weed growers continue to receive most of the headlines, the industry features a large cross-section of businesses that span nearly a dozen sectors. In the following, we introduce investors to 11 industries operating within the broader marijuana sector (source: The Marijuana Index).

Agricultural Technology: The Agricultural Technology industry includes companies that contribute to the production and cultivation of marijuana by providing technologies, equipment and supplies to grower operations. Companies: Scotts Miracle-Gro Company (SMG), Zerez Holdings (ZRZH), Solis Tek Inc. (SLTK)

Pharmaceutical/Biotechnology: The Pharmaceutical/Biotechnology industry accounts for businesses focused on the research and development of pharmaceutical drugs and products involving cannabinoids. This industry represents the largest share of the U.S. marijuana market. Companies: GW Pharmaceuticals Plc (GHPH), Insys Therapeutics Inc. (INSY), Axim Biotechnologies Inc. (AXIM).

Consumption Devices: The Consumption Devices industry includes companies involved in developing and selling personal consumption devices, such as inhalers, for consumers of cannabis. Companies: Namaste Technologies Inc. (N:CNX), Wildflower Marijuana Inc. (SUN:CNX), Wildflower Marijuana Inc. (WLDFF).

Cultivation and Retail: Cultivation and Retail includes companies that grow and sell marijuana plants and related products. In Canada, this industry is dominated by licensed producers. Companies: Canopy Growth Corporation (WEED:CA), Aurora Cannabis Inc. (ACB:CA), Cronos Group Inc. (APHQF).

Hemp Products: The Hemp Products industry is primarily concerned with the production and sale of hemp and related products. Hemp is a member of the same plant species as cannabis, but has a lower concentration of THG and a higher concentration of non-psychoactive compounds. This makes it suitable for various products, such as paper, textiles and clothing. Companies: Medical Marijuana Inc. (MJNA), Earth Sciences Tech Inc. (ETST), Lexaria Bioscience Corp (LXX:CNX).

Investing and Finance: Companies involved in the investment and finance of cannabis, such as holding companies and asset managers, are also part of the dynamic marijuana sector. Companies: CannaRoyalty Corp (CRZ:CNX), First Harvest Corp (HVST), Amfil Technologies Inc. (AMFE).

Marijuana Products: The Marijuana Products industry is comprised of companies that are involved in the development and sale of marijuana-infused products, such as drinks, oils and lotions. Companies: Cannabis Sativa Inc. (CBDS), Radient Technologies Inc. (RTI:CA), Lifestyle Delivery Systems Inc. (LDS:CNX).

Other Ancillary: This industry consists of companies that contribute to the broader cannabis industry and that do not fit any of the other categories. Examples include companies that produce breathalyzers and testing kits, cannabis clinics and marijuana vending machine developers. Companies: Canada House Wellness Group Inc. (CHV:CNX), Cannabix Technologies Inc. (BLO:CNX), Lifeloc Technologies Inc. (LCTC).

Real Estate: Companies that develop, own or lease commercial property for the purpose of cannabis business are part of the marijuana Real Estate industry. Companies: Praetorian Property Inc. (PRRE), Innovative Industrial Properties Inc. (IIPR), Grow Condos Inc. (GRWC).

Secondary Services: The Secondary Services industry consists of businesses that provide general consulting and business services to marijuana growers and retailers. Consulting services include market research, business development, branding and logistics. Companies: Cannagrow Holdings Inc. (CGRW), Novus Acquisition and Development Corp (NDEV), Americann Inc. (ACAN).

Technology and Media: The Technology and Media industry includes companies that provide software and media solutions to cannabis businesses and consumers. These services include enterprise software, e-commerce services and trading platforms for cannabis companies. Companies: Helix TCS Inc. (HLIX), Eco Science Solutions Inc. (ESSI), Bang Holdings Corp (BXNG).

Despite all the promise of recreational weed, most viable marijuana investments are concentrated in the medical biotechnology/pharmaceutical industry – at least for now. Investors looking for an immediate impact on their portfolio are more likely to succeed with a medical grower.

However, recreational weed is expected to be a huge money maker in the not-too-distant future. Favorable government policies, steadily growing public support and a burgeoning grower industry make recreational marijuana a promising enterprise across North America.

How to Build a Green Portfolio

Many of the same strategies involved in building a traditional stock portfolio also apply to the marijuana sector. Things like asset allocation, long-term strategy and deep fundamental analysis are critical for long-term success. At the same time, however, the marijuana industry has several unique features that investors need to grasp.

For starters, the marijuana industry is inundated with speculative investments and overhyped stocks that don’t actually have a viable business model. This isn’t always apparent when one looks at the relative success of marijuana stocks. This means many marijuana investments are overvalued.

Marijuana stocks are also highly volatile. After surging to record highs following legalization, many leading stocks found themselves in the doldrums in the first quarter as political uncertainty undermined confidence in the industry.

Against this backdrop, the following strategy is likely to yield the best outcome for investing in this rapidly growing sector.

1. Diversification is key

Diversification is the cornerstone of investing. For a sector like marijuana, where picking winners and losers isn’t easy, diversification carries even greater significance. Right now, there are over 250 stocks in the marijuana sector. Among them are future billion-dollar companies as well as duds that will eventually file for bankruptcy. A diversified portfolio of marijuana securities is therefore necessary to survive what could be a volatile few years for the sector.

2. Gain indirect exposure

There are both direct and indirect ways to gain exposure to a sector. Although most marijuana enthusiasts are rushing to growers and retailers, they should also consider other companies in the value chain that make the business possible in the first place. These companies are certainly benefiting from marijuana, but are not tied to it and thus won’t go bust if the sector hits a snag.

A company like Scotts Miracle-Gro (SMG) provides the type of indirect exposure our portfolio needs to survive volatile turns in the market cycle. SMG is not a marijuana stock, but provides specialty fertilizer and supplies to the pot industry. In other words, it is benefiting from the sector’s growth without being completely tied to it.

3. Conduct fundamental analysis

There are a lot of cool sounding marijuana stocks at play right now, but that shouldn’t be your criteria for investing. Nor should you rely on a hunch for picking a winner in a sector prone to wild price fluctuations. Remember: you are not picking from the S&P 500, but from a batch of companies that have an extremely limited track record in the market.

You should therefore come to terms with the stock’s intrinsic value (i.e., what it’s really worth). This means reviewing its business model, profitability, revenue, return on equity and overall growth strategy. In other words, read the stock’s financial statement carefully.  

4. Don’t wait for a pullback to enter the market

Cannabis stocks may be volatile, but that doesn’t mean you should wait for a pullback before you invest. Although this is a common strategy investors employ, it rarely pays off. It may be painful to buy a share at 52-week highs, but it’s even worse to watch that company defy your expectations of a pullback.[6] The good news is marijuana investments are still new, so the good ones still have a long way to go before they reach their ceiling.  

5. Develop a long-term plan

It’s perfectly acceptable to allocate a certain portion of your portfolio to speculation (i.e., choosing stocks you believe can be bought now and sold at a substantial gain later on). However, your overall portfolio strategy should be based on long-term objectives. This is the only true way to maximize investment success.

As a nascent industry, marijuana offers plenty of long-term growth. There’s lots of reasons to be bullish over its long-term prospects. This alone should deter investors from being too short-sighted with their cannabis portfolio strategy.

6. Know that you’re investing in an industry with top notch growth

The reason many people enter the cannabis market is the realization they may be investing in a once-in-a-lifetime opportunity. Legalization is long overdue, and pent-up demand is not like anything we’ve ever seen. This has been clearly reflected in the industry’s rapid acceleration in such a short period. The growth and widespread adoption of legal cannabis in all its forms should serve as a motivator for investors looking to tap into this sector.

Legalization and the Future of Marijuana Investments  

Marijuana legalization across much of North America is a paradigm shift both in terms of public consciousness and public policy. Although the path forward will be riddled with uncertainty, the general trend is leaning toward looser regulation of recreational cannabis and increased support for medical research.

The marijuana sector is booming right now, but is trading at only a fraction of its full potential. The huge sales numbers we saw in 2016 are likely a sign of things to come, as the sector benefits from surging demand and growing mainstream acceptance of cannabis use. These factors could drive the next bull market in the marijuana industry – one that could rival the the dot-com boom.

From an investment perspective, cannabis stocks can still be had for relatively cheap. Like any breakout industry, there are a lot of duds out there trying to capitalize on the momentum. But there’s plenty of solid picks with fantastic growth prospects for investors with a little courage and a lot of patience.

Sources

[1] Trey Williams (February 12, 2017). “Marijuana tax revenue hits $200 million in Colorado as sales pass $1 billion.” MarketWatch.

[2] Debra Borchardt (April 13, 2017). “Canada Take Big Steps Towards Creating $8 Billion Legal Marijuana Industry.” Forbes.

[3] Debra Borchardt (January 3, 2017). “Marijuana Sales Totaled $6.7 Billion In 2016.” Forbes.

[4] Investopedia. Over-The-Counter Market.

[5] Kesavan Balasubramaniam. “How do I buy an over-the-counter stock?” Investopedia.

[6] Jeremy Lutz (March 2, 2017). “7 Essential Tips To Succeed With Cannabis Stocks.” Ino.com.

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 603 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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Grayscale’s $6 Million Dollar Bet

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Grayscale Investments, the company behind the Bitcoin Investment Trust, has announced plans to back a little-known privacy coin by the name of Zen. The news came mere months after Grayscale put Zen on its “conviction list” of potentially high-impact cryptocurrencies.

Zen Investment Trust

On Thursday, Grayscale announced the creation of the Zen Investment Trust, which gives accredited investors direct access to the cryptocurrency. It is the eighth such fund mandated to hold just one currency, joining a list of products that include bitcoin, Ethereum, XRP and Ethereum Classic.

Although the announcement came as a surprise to some crypto observers, Grayscale said the decision was based on intensive research and due diligence.

“Grayscale conducts unparalleled research and due diligence on their investment products, striving to offer regulated and professionally managed exposure to the digital currency market for institutional and accredited investors worldwide,” said Rob Viglione, Grayscale’s founder and president.

According to Fortune, Grayscale has already purchased $6.3 million worth of Zen tokens and plans to increase its holdings in the future.

Grayscale appears to be increasing its exposure to privacy-focused coins, having recently added Zcash to its list of single-currency investment funds. These assets align with Viglione’s vision of financial privacy, which he believes will be a dominant theme in the future.

Zen Token: An Introduction

Horizen, the company behind Zen token, launched in May 2017 as ZenCash before rebranding this past summer. The company has designed a platform that provides users with complete control of their digital footprint, including private chat and development features. Once scaled to full capacity, Horizen’s side-chain technology will allow anyone to develop privacy-focused applications and generate income from them. Sidechains ensure that Horizon has the bandwidth to process large volumes of transactions without running into scalability issues plaguing other cryptocurrencies.

For users, Horizen’s platform is intended to provide end-to-end encryption of their online activity. The company employs zk-SNARKs, a protocol that can prove possession of certain information without revealing that information and without any interaction between the prover and verifier. This protocol is also employed by zCash.

Valued at $82 million, Zen is currently ranked no. 72 by market capitalization, according to latest available data. Zen was down only 1% on Thursday compared with double-digit losses for the broader market. At press time, Zen was valued at $17.16, according to CoinMarketCap. Trade volumes amounted to $1.8 million, with Binance accounting for more than half the daily turnover.

There are currently less than 4.7 million ZEN tokens in circulation out of a total supply of 21 million.

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 603 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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The Anarchist Case For Bitcoin

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Previously, we have discussed how Bitcoin receives a ton of support from libertarians because of how it works in line with many of their core principles regarding market freedoms. But there are other groups who also share principles with Bitcoin, one of them being anarchists.

Anarchists are known to generally believe in the abolition of all government with force and compulsion being ruled out of the means by which organizations are managed. By extension, crypto-anarchists use software related to Bitcoin to exchange information without affecting their privacy or political freedom.

What Bitcoin Can Do for Anarchism

Bitcoin is essentially the perfect tool to use against corruption, whether in big business or in the government. You have something that is untraceable, impossible to censor or block, and just so happens to cut out a lot of the middlemen. It is basically every beaurocrat’s nightmare.

Many people describe Bitcoin’s protocol as “trustless”, because of how it used an intelligent design to make it technically impossible to rip people off or cheat the system. This takes away the possibility of corruption and creates a world where a certain level of governance is not needed.

Cryptocurrencies are especially attractive to those who have built up a strong disdain for big banks and governments who are mostly net takers. Banks are no longer getting paid, and then there is inability of governments to figure out how to tax these assets. It isn’t easy to track the flow of funds, and sometimes money is put in the system that is never going to come out.

The Politics of Bitcoin

It is important to remember exactly why Bitcoin was invented in the first place. Although we can’t be sure of Satoshi Nakamoto political stances, the fact that he made the string for the first block of Bitcoin contain “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” is telling. It alludes to the fact that the existing institutions weren’t doing an adequate job of managing the economy.

This brings us to the second point about Bitcoin. No single institution can prop it up, and equally, no single institution can bring it down. It is an inherently populist movement that depends upon grassroots support for its survival. Of course, there are big companies like Coinbase and massive investors involved in the industry, but they don’t directly affect the longevity and function of Bitcoin.

As a standalone protocol, Bitcoin is powerless, but with the backing of a growing number of “evangelical” supporters, it has real potential to change the way business is done. By extension, the political world is going to change as a reaction to the funding and support they receive. It has been said that you can vote at the ballots, or you can vote with your money, and Bitcoin may just be the perfect means by which to put your money behind an ideal.

Granted, this is yet another reason why the price action of Bitcoin is so volatile. It is a “currency” founded on ideals and technology rather than any single economy, and as a result it is only natural that extreme booms and busts occur.

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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Trans-Fee Mining: Investigating FCOIN and The Future

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Trans-fee mining’ is a concept utilised by a growing number of projects and exchanges which has not received much in the way of critical attention recently from either mainstream financial or specialist cryptocurrency publications.

The Fall of F-Coin?

Thanks to a company called FCOIN, most of the news which has appeared has been negative. Statistical information regarding the exchange can be found at popular aggregate ranking website CoinMarketCap.

Despite positive coverage earlier this year from the likes of Forbes’ Andrew Rossow, David Hundeyin of our sister site CCN.com wrote more recently that the exchange had been “Accused of Crippling Ethereum Network for Cheap Publicity” with a supposed aim of gaining publicity.

These pundits are joined by community members such as Reddit poster u/ltcisking (along with a large amount of other concurring, Google-topping results), who recently wrote a post aimed at proving such allegations, entitled ‘One of the biggest scams to ever hit Crypto’.

Twitter has also seen its fair share of investor complaints as well, including the following…

As well as the replies to this post,

What is Trans-Fee Mining?

Due to the unusual circumstances in which the ‘trans-fee mining’ sits (being supported by a number of independent projects despite the reputation of FCOIN): it is a difficult methodology to describe.

It builds upon the concept of the ‘exchange token’: which is most often associated with coins such as BNB (Binance Coin), which can be used for staking towards a particular crypto in the exchanges ‘community coin of the month’ program.

The original FCOIN implementation appeared to build upon this vision at first. The token’s value is derived from the fact that it has a stable value, and that it can be used on-platform (like BNB) as a means of purchasing other tokens whilst offering regular returns on investment for long-term holders of the token.

What is FCOIN Doing Now?

FCOIN has issued various statements which appear to support the sentiment behind the claims which they have faced. These include a recent August 14th post, with the telling title ‘FCoin community referendum end and recent plan publicity’.

Highlights of the piece include new objectives such as

“1.Complete and publicize the destruction of the remaining unissued FT.
“2. Complete the delivery of all FT warrants and withdraw the FT warrants from the market…
“4. As of the end of the referendum, the previous trans-fee refund will remain unchanged (based on the price of the FT related trading pairs before the suspension), and then, all the trans-fee refund will be stopped (including all return plans based on FT issuance).
“5. We plan to establish an FCoin mechanism and an announcement cleanup team. The team untied and improved the current FCoin mechanisms and standardized the release of various mechanisms in the future, and made a unified interpretation.”

At best, this may be an admission of fault, and at worst: an ambiguous and uninformative piece of messaging which fails to outline the situation with a strong brand or executive voice.

This comes in addition to a couple of announcements regarding ‘compensation planning’ with regards to investors who had “participated” in the fundraising of the ‘GU’ and ‘QOS’ tokens through their service.

The latter included the assurance that this process “compensation plan is an initiative taken by the platform to protect the interests of community user” concluded with the damning statement that:

“The FCoin platform has informed the QOS project parties and urged them to conduct self-examination of market price fluctuations and recent media reports as soon as possible. It is not excluded to take delisting and other related measures. The specific plan will be subject to the subsequent announcement. During this period, QOS will be temporarily suspended.”

Torch-bearers of Trans-Fee Mining?

Various claims of discrepancy against FCOIN’s actions as a company however, have not discouraged many projects which are attempting to build their own version of trans-fee mining. Whether or not they have been inspired by the short-lived success of FCOIN’s implementation is yet to be confirmed!

One of the most recent organisations which has decided to foray into this difficult and all-but-controversial territory is BitMart, an exchange founded by current CEO Sheldon Xia. Their approach is branded ‘Mission X’, and utilises their proprietary ‘BMX’ token.

“All transaction fees from the BMX market will go directly to the users who supported the project. In addition, successful projects will enter BitMart’s main trading markets.

“This program gives users the ability to decide which projects they want to be listed on the exchange, creating a self-regulated market.”

The platform piqued this writer’s attention upon noticing a disparity between public consensus and professional news coverage. Whilst the latter has published next to nothing with regards to the platform, a quick search of social media and communities such as forums seem to illustrate a positive and transparent image.

CoinEx was recently reported to have achieved unprecedented growth following the release of their token – however, like FCOIN have been called out for discrepancies. This time regarding the faking of volume metrics.

Final Thoughts

It appears that trans-fee mining as a concept is a long-way from earning this writer’s confidence, however it must be noted that there are many promising aspects. Time will tell whether talent will shine through or if trans-fee mining will fade out at the hands of opportunists.

What is important to note is that it is not the technology or idea, but the hands that are operating the machine incorporating it.

This writer cannot directly recommend the concept in its current state, but believes that the original idea is solid and if implemented in a viable way: would thoroughly warrant the full attention of any potential investor.

Until then, watch the community and keep an eye on the media – as well as word-of-mouth as this flawed-yet-promising idea is if nothing else, highly interesting!

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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