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Op-Ed

SEC Meeting and Aftermath: My Thoughts

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On Feb. 6, the U.S. Senate Banking Committee met with the SEC and CFTC on how to regulate cryptocurrency. The meeting was surprisingly better than expected from where I am sitting. They are going to be letting the free markets dictate a significant amount of the outcomes of these coins, but regulate in the places where they think they can help investors not get screwed over. The two initiatives that they seemed to be interested in were primary offerings and secondary market monitoring.

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Primary Offerings

If you were thinking of offering a coin any time soon, things got a lot trickier. The key point in the meeting was that any token/coin that comes out should be classified as a security. Don’t be fooled by vague language on utility tokens vs. security tokens. You can still raise the GDP of small countries with these instruments, which means they want you to classify them based on what they are capable of doing. This is a big issue.

When you classify something as a security, you have to go through an advanced offering just like any other non-blockchain company. You need buyer personal information, tax information, and you need to begin reporting your inflows/outflows to the government so they can tax you properly. The way you offer the coins will be through something called a “Regulation D” offering, which gives you the ability to solicit accredited (another word for somewhat-wealthy) investors. In other words, the government has put a “you must be this tall to ride this ride” sign up for all offerings. This limits the amount of buying parties in an offering, and will most likely affect the scale of fundraising compared to what we have seen in the past.

The days of someone opening up a website and asking for ether in exchange for ICO tokens is all but gone. I am very nervous about security ICOs for one verifiable reason. In order to get on an exchange, you need to have legal proof you are not a security. Ask CZ at Binance if you don’t believe me. So, if you’re an ICO investor, you have to perform extreme due diligence on how the coin is being offered, and where it is being offered from.

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If the coin is being offered from the Caymen Islands and you don’t need to do any paperwork to get in, you probably should go ahead and skip it right now. The SEC has already started calling out companies that are doing this, and there is no reason to give away precious ether for such a large risk of intervention.

Buying a coin as a security is not much better. A Regulation D offering is to ensure that anyone who bought the coin understands the risks. But how does the investor sell when no exchange in town is willing to touch them with a 10 foot pole? Perhaps we may see a Robinhood or Coinbase offering security tokens/coins on their exchange. No one knows just yet, and I am not betting on the outcome.

Secondary Market Monitoring

Regulators’ mention of secondary market monitoring was something I viewed as positive. There is wide scale market manipulation by people who have large amounts of bitcoin, and wield it like a sword whenever there is volatility in an exchange. There is also a significant amount of hacking, as we saw with NEM getting taken for more than $400 million. The sooner we can get identify bad actors and get them out, the sooner we can get mom and pop to invest portions of their IRAs in cryptocurrency ETFs. It will not happen until the playing field has been leveled, and the government feels that they have made a good marketplace for all investors, not just accredited ones.

What was purposely left vague in this meeting is how the coins that are already out going to be classified. These Asian marketplaces would be all but shuttered if the U.S. government holistically reclassified all coins as securities. Their businesses would be instantly in violation of the law for running unlicensed securities marketplaces, which means your money is now in jeopardy. This is where my strong suggestion will come in handy.

My To-do List for All Investors

I have mentioned on Twitter many, many times the importance of cold storage. There is absolutely no reason to have any money on an exchange right now. We just saw Binance shut down for “technical reasons” and I can assure you that this will not be the last time it happens. If you buy a Ledger Nano S/Trezor (Ledgers were sold out last time I checked their website… a good sign), you can store your coins via USB and never worry about anything having to do with hacks, exchange technical difficulties, and of course, it helps you hodl that much better when the opportunity arises.

Get out of short term plays. If you are trying to make a quick buck on the new privacy coin either in an ICO or secondary market trade, it just is too risky right now. We have bitcoin still under $10,000 with fantastic news, so why not just let the storm die down a little bit? We can wait for bitcoin to dust itself off, and then take a look at what deals we can get on certain coins.

Set alerts on Ethereum. The only thing I would ever buy right now is Ethereum at a good price. That price for me is $500 (okay maybe $550). If I see a price in that range, I will be buying. The Ethereum blockchain has so many people/companies working on it, that I think it’s place in blockchain is probably the least vulnerable right now. About 70-80% of all market cap in tokens is Ethereum-based tokens. Solidity, the coding language of Ethereum, seems to be very popular on job boards. People are looking for people to help them with Ethereum projects. To me, this means great things, and I will buy at good prices. No need to buy at $900. If it goes to $1,500 in a couple days, I will not feel bad. The risk will not match the reward.

 

None of what I am saying is financial advice. I am giving you life advice in saying that a cold storage wallet is vital. We may see some shady characters trying to make money from shutting down their exchanges and taking money with them. I think the next time I need to sell my coins will be when I can go to a regulated trading desk and ask them to slowly sell my holdings, and do carry forward losses so I am not destroyed with a 40% tax bill at the end of the year. It’s time to start thinking strategically, not financially.

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 27 rated postsMythological God of Lightning. Cryptocurrency/Blockchain writer, evangelist, and friend. May the odds be ever in our favor.




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Op-Ed

Is Manipulation Behind Bitcoin Cash’s Absurd Rally?

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Although you wouldn’t know it by today’s prices, bitcoin cash (BCH) has topped the crypto market leader board this month. The digital currency more than doubled over the span of 18 days, and in doing so far outpaced the broader market. But a closer examination of the value drivers suggest manipulation could be partly responsible for the rally.

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As a reminder, the author has no vested interest in smearing BCH as I believe it to be one of the more advantageous coins on the market today. That said, the circumstances surrounding the most recent rally are peculiar to say the least.

What’s Up with Bitcoin.com?

A Hacked user informed me earlier this week that Bitcoin.com has been using the “BCH” ticker next to the word “bitcoin”. Normally, the ticker “BTC” is reserved for bitcoin, which is the original blockchain we all know about. Instead, the website quotes “BTC” next to the term “bitcoin core”.

In other words, BCH is quoted next to bitcoin and BTC is referred to as bitcoin core. See here for yourself:

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For most readers of Hacked, the distinction is easily discernible, but for new traders the difference isn’t easily gauged.

The first question I have is, how many people bought bitcoin (BCH) thinking they were receiving actual bitcoin (BTC)?

Bitcoin.com describes itself as the “premier source for everything bitcoin.” Although the website doesn’t appear to offer a full-fledged trading platform, users can purchase bitcoin and bitcoin cash using the following link.

It is unclear how long the website has been referring to BCH as bitcoin. For those of us who’ve been following the market for some time, the way BTC and BCH are quoted is certainly strange.

Antpool

A large cryptocurrency mining group by the name of Antpool has also been accused of pumping BCH in recent weeks. The pool announced about six days ago that it is responsible for confirming more than 8% of all bitcoin cash transactions. In addition to confirming those, Antpool is also said to be burning BCH on a daily basis in order to reduce supply and boost prices.

Of course, crypto pumps do not require such elaborate setups to achieve their goals. Pump-and-dumps can be orchestrated rather easily through a chat group on social media. But Antpool does have a large and privileged position in the BCH ecosystem, which has raised suspicion over its recent actions.

Bitcoin Cash is Overbought, According to Tom Lee

Fundstrat’s Tom Lee recently weighed in on the bitcoin cash phenomenon, concluding that the cryptocurrency was overbought. In his view, investors should stick with bitcoin if they had a choice between Core and Cash.

In a segment on CNBC’s Fast Money, Lee said:

“I prefer not to pick winners and losers when we’re looking at cryptocurrencies like bitcoin/bitcoin Cash… Both have merits but if I was putting new money to work today… I would be a lot more interested in buying a lagger that could attract inflows rather than something that’s potentially overbought.”

Bitcoin cash added around $1,000 to its value between Apr. 6 and 23, with prices peaking near $1,600. The cryptocurrency corrected sharply lower on Wednesday and was still declining as of Thursday’s early-morning session. At the time of writing, BCH/USD was down 4.6% at $1,268.

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 404 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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Decentralization

JP Morgan’s Surprise Cryptocurrency Fees are a Reminder of Why Decentralization Is Sorely Needed

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JP Morgan Chase & Co has been hit with a class-action lawsuit by cryptocurrency traders over allegations of unannounced fees and higher interest rates on purchases of digital currencies. Though the allegations have not been proven, extra fees are a tactic routinely employed by traditional banking institutions. In the case of JP Morgan, this has karma written all over it given the way its chief executive has ridiculed digital assets by associating them with fraud.

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Class Action Lawsuit

Traders from across the United States are seeking statutory damages of $1 million for unannounced interest charges and fees on cryptocurrency transactions between January and February of this year. The named plaintiff in the lawsuit is Brady Tucker, an Idaho resident who paid a total of $163.91 in fees and surprise interest charges over a six-day stretch.

According to information obtained by Reuters, the lawsuit accuses the bank of violating the U.S. Truth in Lending Act, a piece of legislation that requires credit card issuers to inform customers in writing of any notable change in fees.

The lawsuit asserts that Tucker tried to resolve the dispute by calling Chase’s customer support service directly. His request was turned down, prompting him to seek legal help. According to Bloomberg, the case in question is Tucker v. Chase Bank USA NA, 18-cv-3155, U.S. District Court, Southern District of New York (Manhattan).

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The Growing Case for Decentralization

Depending on who you ask, the allegations against JP Morgan are akin to cryptocurrency fraud not unlike the kind Jamie Dimon talked about while ridiculing bitcoin. But the irony in Dimon’s comments extend far beyond Chase’s latest dealings.

As the actions of Chase bank and other financial institutions have clearly demonstrated over the years, those who control the size and growth rate of fiat money cannot be trusted to do the right thing. As Nassim Taleb argues in The Black Swan, banks have a tendency of losing as much money as they make in the long run due to shady business practices and high-risk ventures. Decisions like these are easy when you are Too Big to Fail.

Decentralization, like the kind advocated by blockchain startups and cryptocurrencies, allows users to trade directly with each other without having to go through a (predatory) middleman. Decentralized systems not only help participants avoid unnecessary fees, red tape and other forms of unwanted intervention, they are virtually impossible to shut down. In this vein, decentralized currencies give people a fighting chance in their battle against never-ending inflation. As we’ve argued before, this is not only a prudent fight, but a noble one as well.

Cryptocurrencies that rely on decentralization offer society a unique value proposition unlike anything we’ve seen in recent history. What’s more, their adoption is not contingent upon us leaving the realm of traditional finance – at least, not yet. That’s because cryptocurrency started off as an obscure and esoteric asset class but has since become a value store for investors. Tomorrow, it will become a viable medium of exchange accepted worldwide.

That said, we are still in the very early days of the crypto revolution and it may be a while still before we can conclusively prove people like Dimon wrong. But crypto backers and investors should take comfort in knowing that big banks rarely lead in disruption these days. They have the resources to play catch-up, which they are clearly doing with blockchain.

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 404 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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Altcoins

Will Dash Be the Bitcoin Killer?

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Well, it has finally happened.  We’ve gone a full week with crypto prices showing positive returns.  OMG, what a big surprise; ether is leading the pack, advancing nearly 15% at the time of this writing.  This is encouraging because it shows that perhaps finally value investors are stepping in and helping set a pricing bottom.  

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It hasn’t hurt a bit that stock and bond market investors have become seasick from all the volatility.  Suddenly, a tiny little weekly Litecoin move of +0.46% or even a 2.47% bitcoin cash gain, looks like pure serenity.  

 

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For a while now our focus has been on relative value and there is very little argument that, after the first quarter price collapse, a whole lot of risk has been taken out of bitcoin, ether, Ripple and thousands of others.

The question is where to go and what to go with from here.  The big crypto names are the safe way to go in the short run, but each has become mired in network limitations on scaling and the concomitant cost issues.  

Yes, transaction fees have dropped like a stone from their prohibitively high levels of December but then transaction volumes have fallen by half and more.  That is not the stuff an investor wants to see.

Both bitcoin and Ethereum hope to solve scaling issues with the Lightning Network and Raiden. But for now, if transaction volume were to suddenly rise, the same network limitations would be there.  So even though the big crypto names offer the safest short term options, does that mean we shouldn’t look further out to find value?

Will Dash Solve Bitcoin’s Problem?

Dash emerged last year as one of the most popular and most valuable altcoins. At the time it was considered a real competitor to bitcoin and the leading cryptocurrency of the future. The price of Dash increased from $11 to over $1,430. Dash had a capitalization of over $11 billion at its December peak. Since then it has tumbled more than 80%.  Is now the time to move into Dash? The timing could be very good but before making that decision, we should consider a few things.

Judgement Time

If a jury of its peers were to grade Dash on its performance in 2017, the majority would say it lived up to its billing.  Using Dash, users could send money instantly using the InstaSend feature that allowed for complete anonymity. At the peak, transaction costs were around $0.60, which were dwarfed by bitcoin’s high of $30. 

Since then, Dash fees have fallen to about $0.20, making them attractive for small sized transactions. All alone this represents a compelling feature of Dash.  Add to that the immediacy of InstaSend and you have the makings of a genuine challenge to Bitcoin.

Caveat Emptor

In appraising Dash’s performance it is useful to look at Metcalfe’s Law, which values social media assets based on a formula of network size.  For Dash, it’s network is processing a tiny fraction of bitcoin’s. The limitations of its network have very likely not yet been tested, so proclaiming Dash the speed king is a bit early. There is still a larger issue to consider.

In the case of Metcalfe’s Law we need to include merchants and other service providers that accept Dash as payment.  That is the big hump for them to overcome before overturning bitcoin. So far, after all, bitcoin is accepted by only about 10,000 or so merchants.  

Further progress by bitcoin is stymied by transaction costs that remain far too high.  Even so look at how many years it has taken bitcoin to attract merchants. Dash faces the same hurdles.

In other words, the trick for Dash is the find a way to gain mass acceptance quickly. That is when the huge $11 billion valuation of last December will begin to be justified. Look over your shoulder bitcoin – faster, lower cost competition is looking to eat your lunch. Dash could be one of those.

 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 75 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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