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Why Government Regulation Will Fail

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The crypto markets have been buzzing lately with as much price volatility as ever.  The attention, as usual, often appears to be on how many dollars have been lost or what ginormous percentage loss has taken place.  There is all this talk about broken support levels and the urgent need of a price reversal.  

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Not to dismiss the importance of keeping everyone informed on the latest action, what about the underlying cause of investors running for the sidelines.  On the technical side one thing is certain.  The still pathetically slow transaction speeds of both bitcoin and ether magnify price spikes and corrections.  

That is what happens in illiquid markets.  Over time this will change but in the short run it is something that is part of daily life.  This alone is what makes it so difficult to apply classical Dow Theory based technical analysis to crypto.

Let’s Dig Into The Causes

When we look at cryptocurrencies in general, starting with bitcoin, one of the big questions is the future role of government will play.  It is not so much a big question as hundreds of little questions.

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The most relevant question in the past few months is the role of government in controlling cryptocurrency exchanges.  Back in September it was the Chinese closing local exchanges. Now it is the South Korean proposal to enact legislation that could have a similar effect.

From December peak levels, bitcoin has fallen more the 40%. At its low ether was down as much as 38%.  Neither price movement can be attributed to technicalities like profit taking.  It was the perception the governments in two of the big crypto trading countries hold some sort of absolute power.  In reality, this is a false perception and here are some of examples of their powerlessness.  

BTCC Shows Crypto Power

BTCC is China and the world’s first Bitcoin exchange going back to its founding in 2011. At one point last year China was the biggest source of demand for Bitcoin by some measures accounting for 40% of the global action.  Then China slammed down the hammer by closing local exchanges threatening BTCC very existence.

Survival – Revival

The story of BTCC is like a slap in the face to the Chinese government and a good example of their lack of power.  Just the other day, BTCC announced they had been acquired by a Singapore investment fund.  Very few terms were announced so there is more to be revealed but some things are obvious.

I am guessing that if a sophisticated Singapore investor is putting real money into BTCC they see a bright future. BTCC has since relocated to Hong Kong and re-registered in the UK.

BTCC already has the tools to become a global exchange.  For example its Mobi Bitcoin wallet supports over 15 languages and more than 100 cryptocurrencies.  Now with enhanced financial support, they are able outflank the powerful Chinese government.

The Korean Contradiction

Investors reading the news this month from South Korea learned about a legislative proposal to restrict exchanges domiciled in the country.  Judging from the negative price action, it would have been easy to suspect the government was banning ownership of cryptocurrencies.  That was never the case.  

In reality, South Korean exchanges were setting prices that any reasonable observer would consider egregious.  Regulating South Korean exchanges could help level the playing field for small investors and open up the crypto market to new investors. But, judging from the price action this month, you would have to expect government restrictions on ownership. That is not going to happen and here is why.

Korean Pension Funds Invested in Crypto Exchanges

Local news in Seoul are talking about the giant South Korean National Pension Fund holding investments in as many as four local cryptocurrency exchanges.  At just a few million dollars, it amounts to less than 1% of total SKNPF assets.  

Nevertheless, this amounts to a political embarrassment to any effort that would potentially diminish the value of the four exchanges in the SKNPF portfolio.  The South Korean Pension Fund is no slouch ranking as one of the largest in the world.  So their decisions could also serve as an example elsewhere in the world.

Lots of Sound And Fury, Signifying Nothing

Emerging markets like cryptocurrencies are inherently volatile and subject to a heavy dose of emotion.  The past two months have been good examples of how investors can read the headlines and react.  It is important to keep the true cost of trading on trading on headlines can be.  Under the new tax law long term investment is rewarded.  Short term profits can no longer be deferred by a swap into similar assets.  Five years from now will anyone remember the fears from Chinese or South Korea?

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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4.3 stars on average, based on 22 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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Venezuela’s President Claims “Petro” Cryptocurrency Raised $735 Million in One Day

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Venezuela’s controversial leader Nicolas Maduro has claimed that his administration’s Petro cryptocurrency raised $735 million on day one of its pre-sale, a figure that many in the digital currency market are still struggling to verify.

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Venezuela’s State-Backed Cryptocurrency Is Here

In a Twitter post that appeared Tuesday, Maduro said the token raised more than 4.777 billion Chinese yuan, which is equivalent to $735 million. The leader said the new state-backed cryptocurrency “reaffirms our economic sovereignty.”At the time of writing, the tweet received more than 2,500 likes and over 4,100 comments.

Veneuzela’s state-backed digital currency is pegged to the petro, which is itself derived from the price of one barrel of local oil. Caracas says it hopes to draw investment from oil-rich Middle Eastern countries, Turkey and Western nations, such as the United States.

The launch of Petro has made Venezuela the first government to launch a state-run cryptocurrency. Other nations that have expressed interest in running a similar campaign include Russia, Estonia and Kazakhstan.

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The price of one unit of Petro starts at $60. To date, about 824 million tokens have been made available.

Skeptics have not only questioned Maduro’s claim, but the very motivation behind issuing a cryptocurrency in the first place. Several analysts have opined that Petro is merely an opportunity for President Maduro’s administration to cover its debts.

That’s the conclusion the U.S. Treasury Department drew earlier this week. In an exclusive statement to Reuters, the Treasury said: “Available information indicates that, once issued, the Petro digital currency would appear to be an extension of credit to the Venezuelan government.”

Others have argued that Petro isn’t really a cryptocurrency per se, but a way to tokenize oil. This is akin to putting a new wrapper around the black commodity.

The president also said that, following the sale of Petro, his country will issue a gold-backed cryptocurrency as early as next week.

Collapsing Economy

When oil prices bottomed in 2016, few nations were hit harder than Venezuela, an energy-dependent socialist state that failed to diversify its economy. Years later, the country is battling massive debt, hyperinflation and a contracting economy. These conditions have contributed to the country’s worsening humanitarian crisis, including massive food and medical shortages.

Last week, Brazil declared a “social emergency” after 70,000 Venezuelan migrants crossed its borders. Venezuelans have also been crossing the Colombian border to escape the crisis at home.

Venezuela represents yet another case of a centralized economy that failed to fulfill its promises of equality, leaving its population worse off than before. Rather than disavow central planning, President Maduro has put the blame (at least partly) on foreign meddling.

Maduro’s administration has taken drastic measures to save money and make up shortages in areas such as food, water and electricity. This includes changing daylight savings time, cutting working hours of public sector employees and urging residents to scale back on their use of electricity.

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 161 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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House Pushes Forward With Trump Tax Plan Amid Dissent

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The U.S. House of Representatives is pushing hard to move President Trump’s tax proposal through the legislative process, even as growing dissent rattles confidence in the landmark bill.

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Congressional Analysis

An analysis by the Joint Committee on Taxation concluded Tuesday that tax cuts for lower- and middle-income Americans would fade over the next decade at a faster rate than those for high earners. The analysis found that four out of every five tax filers earning between $50,000 and $75,000 would receive tax relief from the bill in 2019. However, by 2027, that figure would drop to 60%.

Meanwhile, those earning more than $1 million would also see their tax savings fade, albeit at a slower rate than the smaller income brackets. In 2019, about three-quarters of those earning $1 million-plus will get tax relief, a figure that drops to two-thirds in 2027.

The conclusion could spark another round of debate as the Trump administration seeks to push forward on tax reform this year. The tax plan has faced attack from both sides of the political divide, with high-tax state Republicans criticizing individual deductions for state and local taxes.

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The reform bill, which promises to reduce the number of tax brackets, cut the corporate tax rate and implement a one-time repatriation fee, has been described as the most ambitious since the Reagan administration. Through Reagan’s tax reform, the U.S. economy managed to grow by an average of 3.4% annually until the beginning of the Obama administration. And that includes three recessions between the two presidents.

To his credit, President Jimmy Carer before him implemented the biggest regulatory overhaul in postwar history.

Mid-Terms Loom

Republicans have good reason to raise questions about Trump’s tax reform, especially those in high-tax states such as California. Already faced with a difficult re-election next year, California’s GOP Representative Darrell Issa said he wouldn’t endorse changes that “may make it the tremendous burden felt by California taxpayers even worse.”

Republican Ed Gillespie of Virginia was defeated in state elections on Tuesday, a clear sign that the GOP-controlled Congress is under attack. South Carolina is seen as an important barometer of the Democrats’ chances of winning in crucial swing states ahead of next year’s midterms.

Democrat Ralph Northam will be the next governor of Virgina, various news outlets reported late Tuesday.

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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 161 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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Libertarian Speaks: Ron Paul Says U.S. Government Should Not Intervene in Cryptocurrency

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The U.S. government has no place intervening in cryptocurrency, according to former U.S. presidential candidate Ron Paul.

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In an interview with Kitco on Oct. 27, Paul said the government should “stay out” of bitcoin if people want to use it. The former Congressman acknowledged that he didn’t know much about cryptocurrency, but that he was “amazed” by the market’s growth.

“I take some very strong political positions on competing currencies,” Paul said, when asked if he was a believer of cryptocurrency. “And if you can come up with a competing currency, and there is no fraud, I think it should be.”

Although a lot has been said about bitcoin’s black market roots, Paul says government involvement shouldn’t be a given. That message has been lost on several nations, which have grown uneasy about the growth and widespread adoption of cryptocurrency. Major economies like  China, South Korea and Russia have already stepped in to halt the expansion of crypto-assets.  However, most policymakers appear to be open to regulating cryptocurrency insofar as its criminal elements can be controlled.

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Libertarians like Ron Paul are very weary of government involvement in all aspects of life. It should therefore come as no surprise that bitcoin and its altcoin competitors have received strong buy-in from the libertarian, free market community. While the United States has a strong libertarian presence across key segments of its society, this has largely failed to translate into meaningful political reform.

Bitcoin’s market capitalization climbed back above $100 billion over the weekend, with the sum of all coins valued at around $179 billion. Cryptocurrency is by far the fastest growing asset class of 2017, dwarfing stocks, crude oil and other traditional financial assets.

“I am amazed,” Paul said, ” at all the capitalization on these cryptocurrencies. It’s a huge amount of money.”

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 161 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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