Your Guide to Cashing Out Bitcoin! - Something Awful
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Cryptocurrencies and the circle of competence
A quick note to investors that believe the intrinsic value of bitcoin is 0 because they can't do a DCF on it: this isn't the place to argue with me about it. I suggest you read a bit more about what it actually is (hint: not a currency). I've defended its value in plenty of other posts on this sub. It's a $40+ billion market, so at least a few people agree with me. I welcome you to short the crypto of your choice if you think it's worth nothing. This is a post for folks that believe that cryptocurrencies have at least some discernible value and are considering investing in them.
If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. – Warren Buffett
Given the tripling of the cryptocurrency market cap in the last few months and the 3- to 10-fold increases in virtually every major altcoin, cryptocurrencies like Ethereum and of course Bitcoin have been getting a stunning amount of attention in the press and on this subreddit recently. If you follow the cryptocurrency world closely, you know that there have been a huge amount of dubious ICOs (initial coin offerings) on the market recently. It's an explosive time in crypto. It's also a frustrating time for many long term bitcoiners and crypto fans, because we're faced with a barrage of questions from outsiders who see the returns and want to buy in to the "next big thing" and make a quick buck. This is a warning to those people. Everyone is a genius is a rising market. It's hard to go wrong these days in crypto. Even coins of dubious merit like Ripple, Dogecoin, Stellar, NEM were pumped 5 times without any fundamental change. Speculators/investors have thrown money at crypto indiscriminately and efficient markets have 100% broken down. The altcoin pump right now is roughly comparable to the Dot Com crisis of the early 2000s.
New tech promises to change the world
Investors jump in on hype and promises
A surge of IPOs (ICOs) occurs to capitalize on this
"Greater fool" traders pile in, thinking they can make money even if the underlying is unsound
Analysts claim "this time is different" while seasoned old hands refuse to participate
Tech is proven not to be as developed as everyone thinks, market tanks
Select few decent companies survive, all the trash is destroyed
Tech eventually fulfills expectations, 10 years later, but none of the investors from the early days make money on it
However, canny (and skeptical) investors can still make money on crypto, as cryptocurrencies are inevitable, and will continue to expand and proliferate, even when the altcoin crash comes. Something to realize first of all is that the crypto market is heterogeneous. It has straightforward cryptocurrencies (bitcoin, litecoin, dash, monero), smart-contract cryptos (ethereum, ethereum classic) and a whole bunch of crypto tokens that follow dedicated platforms (golem, augur, steem). Not mentioned are ripple and stellar because they aren't really cryptocurrencies at all. The investing theses for all of these categories is radically different. The measure of success for a currency or store of value is adoption, merchant use, low volatility, a large network, and real world acceptance as something worth owning. Bitcoin has this right now, which is why it's more than 50% of the ecosystem, and none of its competitors are even close. Monero, Zcash, and Dash are a special case in that they try and make transactions anonymous and privacy, allowing for use cases on the darknet markets, for instance. The tech underlying bitcoin is essentially sound, although it is having a scalability crisis, which you should read about. It can't right now serve as a currency which will buy you a cup of coffee - the transaction fees are too high. However if you want to send $200,000 from Mexico to Indonesia or China to the Philippines, you can do it within 20 minutes, and with fees of a few dollars. And if you want to store your wealth in a vault that is totally secure, and cannot be debased by a central bank, bitcoin is a good bet. This is highly relevant to folks in India that just had cash abolished, to Venezuelans, to Argentines, to Cypriots, to Nigerians, anywhere local currencies are weak and volatile. The potential value of a competing cryptocurrency lies in whether it can improve materially on bitcoin, whether it means incorporating off-chain scaling (segwit with litecoin), making it more private and fungible (monero), automating governance (decred), and so on. Then there are cryptoassets that incorporate smart contracts. These – ethereum and its derivatives – exploded when the SEC denied the Bitcoin ETF back in march and bitcoiners got worried and started diversifying. This is the market segment that is highly risky, even by crypto standards, in my opinion. Ethereum is a protocol that allows contracts to self-enforce. Programming power to run the contracts is paid for with ethereum. Two parties agree to a contract, and it then self-executes. It's secured by a decentralized computing network of ethereum miners, so the contracts cannot be shut down by a government or corporation. It's pretty clever. Last year, a $150+ million contract was drawn up with ethereum, which would act like a venture capital fund, picking good investments just based on the votes of the token holders. This was called a Decentralized Autonomous Organization, and it was hacked before it could do anything. Well, it was exploited based on the code and so the exploit was totally "fair" given that the contract was meant to be inevitable, once agreed to. However, the creators of Ethereum didn't like the idea of losing $50 million, so they decided to collectively agree to amend the rules of the protocol itself (violating "Code is Law"), and jump onto a new one, which they would also call Ethereum, although it was really Ethereum 2.0. Some people got upset by this, because they thought that immutability and not arbitrarily rolling back the code was more important than some investors losing money because of poorly written code. They created Ethereum Classic, which is the original Ethereum chain. This wasn't what the Ethereum 2.0 folks thought would happen, but it did happen, so there are two competing Ethereum chains now. Eventually, lots of decentralized apps were funded, via tokensales. A development team would say: "we're going to use ethereum to create a decentralized cloud computing/AI/prediction/gambling/timestamping/social media network." And then investors would buy the tokens, expecting that eventually the dev team would deliver, and the tokens would be in demand, since they would be required to use the network. It's a bit like buying in-game-currency when the game is announced, anticipating that the game would be wildly popular and you'd be able to sell it on later at a profit or acquire it cheaply to buy in-game items later on. However, many of us think that the promises are a bit extravagant, and that investors in these ICOs are probably going to lose money. The incentives aren't well aligned. Founders can just not deliver and run off with the money, and there's no regulatory body to enforce that. And for Ethereum more broadly, many people are worried that the turing-completeness of the language will mean it will face serious threats and unforeseeable hacks, like with the DAO. Finally, Ethereum has increased from around $20 to $90 in a matter of months, which raises the question of whether a) the market realized its true value or b) it was pumped on speculation. There's a huge set of unknowns with a smart contract currency, and virtually none of the promised dapps are up and running right now, and the ones that are haven't really attracted large userbases or delivered. This is because the tech is in its infancy, and the developers are still learning how to use it properly. So we won't know if these sorts of decentralized networks are even possible to create on the timelines that investors are expecting. Therefore, ethereum investors buying it on the promise of the realization of this tech in the near future are almost guaranteed to be disappointed. Additionally, ethereum is making the switch to the largely untested Proof of Stake algorithm, which will change incentives that secure the network. This brings me to my key point: Stay within your circle of competence. You can grow your circle – slowly. Cryptoassets are almost impossibly complex to grasp with just a cursory look. Investing in them requires weeks of reading and a very skeptical view. The above was an introduction to cryptocurrencies, the different ones on offer, and why investing in ethereum is not the slam dunk everyone thinks it is. This portion of the post will tell you about the kind of due diligence you need to do if you want to invest, rather than speculate, in crypto. The first thing to mention is that passive investing in crypto has historically been a terrible strategy. Just buying bitcoin almost always outperformed. This was due to the poor set of altcoins, and the size of bitcoin's almost insurmountable network effect. This sort of changed in March and April when bitcoin's dominance went from 80% to ~50%, and it remains to be seen if this will persist or not. But the point is, buying the index is usually an awful strategy in crypto, particularly because there are so many truly awful projects out there. So what does it take to invest responsibly in cryptocurrencies? It requires at least a basic understanding of three disciplines: public-private key cryptography; programming, and how open-source projects function; and economics, particularly game theory and the quantity theory of money. This is why is is so difficult to apprehend easily: because very few people actually boast a sincere understanding of these three topics. I certainly don't. You need to be able to determine whether the tech is actually going anywhere, and whether the task the developers have set themselves is possible or realistic. You need to know how open source networks are governed, and which models strike the best balance between efficiency of decision-making and fair consensus. You need to be able to measure the inflation schedule of the cryptocurrency, and see whether your coins are going to inflated away. You need to be able to make plausible guesses about the potential market for the crypto and estimate future values. Note that the payoff structure is not equity-like. It's more like early stage venture capital, or buying loss-making biotech companies. Here's my checklist of questions to answer, ordered by importance:
Does the project offer a significant improvement over its nearest competitor, or a reasonable chance of success in its stated aim? Is there a demand for this project? Does it have a concise and reasonable goal? (Narrower goal: higher likelihood of success).
Is the development team competent? Are they committed to the coin? What's their track record? Is is an active dev team? Do they have a roadmap for the future? Are they transparent about goals?
How is the development team funded? Is the currency corporate-backed? Is the funding transparent? Was the coin significantly premined? (Usually bad) Are developers paid via iterative community project crowdfunding? (Usually good).
What is the governance structure of the currency? Who holds ultimate control over decisionmaking? How are decisions made? Are they transparent? Are mining/developer incentives aligned?
Does the asset have acceptance and use today? Does it have a functioning use case? If it doesn't, does it have a decent chance of being accepted?
Has the asset's "market cap" tripled or quintupled in the last few months? Was this based on any fundamental changes (new software releases, etc) or just speculation?
What are the transaction volumes like? (Hint: divide market cap by monthly averaged daily on-chain tx volume to find a consistent ratio) What's the ratio of on-chain transaction versus exchange speculation? Has price gone up independent of transaction volumes?
How long has the asset been around? Think of the Lindy effect. Older is usually better.
What's the community like? Is there censorship? Does it have an active subreddit? Do the developers answer questions? Are they accessible? How big is the github community? (Hint: you can divide market cap by github commits to find a comparable ratio).
Are you psychologically able to hold this coin in a 90% downturn? Is this a high conviction thesis or are you betting on being able to sell it to a greater fool?
How long did it take you to learn about investing in equities? Reading balance sheets, running DCF and DRI models, figuring out how to value a stock based on comparables? Years? How many mistakes did you make before you figured out how to be responsible? Cryptos are an asset class that is both radically different from anything that has existed before. They are also incredibly heterogeneous, as I argued above. It also leads to cultism – so bitcoiners generally take a dim view of ethereum, and vice versa. Monero fans generally don't like dash, and so on. You have to keep your mind open to understand new opportunities as they arise, and to stop yourself becoming too mentally invested in your project of choice. The vast majority of projects will fail within 5 years, so becoming overly certain of the success of one will probably devastate you. If you can stay balanced, stay honest about your crypto's chances of success and adoption, not get tunnel vision, and not take overly risky positions, you have a good chance of not losing everything. Remember the payoff structure. Heavily rightward skewed. A ton of cryptos earn no return and a select few earn an absurd (1,000-10,000x) return. None of this is necessary if you just want to invest randomly in one of the top ten cryptos. That's the strategy of 95% of investors today. Pick a coin and go. If it's not bitcoin, I can pretty much guarantee you'll lose money. The newer, the worse. I've not made an effort to convince you that cryptos have intrinsic value. If you've made it this far, you probably think they're worth something at least. However, they're probably not worth as much as the market is pricing them at right now. Especially not those in the ethereum family. I'm not going to tell you what to invest in, because that would defeat the purpose of this post. I'm telling you to do your due diligence before blindly buying a crypto. And that due diligence on ethereum is as complex and difficult as Tesla or Amazon DD. And that your skills in equity valuation are pretty much useless in this asset class. My circle of competence doesn't extend to options or lean pork futures, so I don't touch those. I suggest that until you really feel comfortable in crypto, you don't buy randomly. Summative thoughts:
Investing in crypto is hard
90% of people that invest at market peaks will lose money
You have to extremely skeptical and invest in high-conviction positions
Cryptos are exhibiting bubbly behavior right now, it's a pretty bad time to pick one out
Cryptos are nothing like equities but they do have real value
Cryptos are the future, but almost none of these coins will survive 10 years
The older the better
Governance is key
These are speculative positions, only invest what you can tolerate losing
You can make money investing in cryptos
Passively investing in cryptos doesn't work
It's a winner takes most market, there won't be 1 crypto that wins. There will be different cryptos for different use cases.
edit: deleted chart with probabilities of success because of subjectivity and oversimplification. edit2: I've been overwhelmed with PMs so bear with me. also, please forgive any spelling errors on this post. I wrote it in one frenzied sitting. edit3: I knew I would get a fair amount of resistance from ethereum investors (even though I attempted to keep my post as balanced as possible) but I was unprepared from the breathtaking volume of spam and diversity of attacks. One particular user has made 30 comments in this thread. I don't have a stake in ETC, period. The post is 3000 words long and most of it is about how to properly do your due diligence in a crypto. if ethereum fares poorly by standard due diligence metrics, then perhaps your issue is deeper than one post on /investing. final edit: there have been some broken-hearted ethereum fans very busy organizing brigades against this post, and attacking me personally, and so on. It's all very incovenient. I can tell that I struck a nerve. This post isn't really about ethereum - it's about how to do research in crypto, and why you can't expect to profit handsomely without that due diligence. I mentioned ethereum because there are 3 or 4 breathless posts on here a day about its stunning gains and whether it's worth investing in. My answer: read about it first, from a diverse set of sources. A final note: I do not own any ethereum classic, I have never owned ethereum classic. I brought it up because it is part of the ethereum story, and an example of what happens when you have a contested hard fork. I do hope that ethereum succeeds, I am just cautioning against over exuberance.
Since this new subreddit has had pretty much zero trading discussion, let's kick it off. I've brought up USDT a good amount lately in talking about my trades, my positions, etc. Almost unilaterally, I've gotten a "Hur dur, have u heard about the scandal?" kind of response. Like nah, I don't know the biggest news in crypto? USDT might be a scam. I'm not gonna pretend to know. But there is something I know: scams don't get exposed this quickly and turn to shit over a 3 hour period of the subpoena becoming public knowledge. And subpoenas take more than one month to do, process, reach conclusions, and make information publicly available. USDT is not tanking tomorrow or the day after. Additionally, nobody knows how USDT scandal would play out. USDT's price can't crash because it's equal to the USD. The only way the scandal plays out that makes USDT worthless is if people stop trading it. And TBH, I see no reason for people to stop trading it. As long as people are willing to pretend 1 USDT = 1 USD, it is. After all, we're sitting here playing with imaginary coins in the first place, giving them imaginary values. So even if USDT thing turns out to be awful and BTC tanks by 50% or some shit, some people will still be trading USDT. My point is that you aren't going to have immediate liquidity issues no matter what the situation were like. This isn't a guarantee, more of a statement of uncertainty; we just do not know what will happen with USDT if the entire scandal is true. So all of that said, for the love of god, stop pretending USDT isn't there. Two days ago I told people that I planned to start using USDT while I slept. When I made that post, XRB was ~168k satoshis, while BTC was 11.4k USDT. Since then, BTC has dropped to ~8.6k USD. This is a 20%+ gain even if I never moved back into XRB (I have - but I often go into USDT whenever I'm not in XRB!). In this post, two days ago, I said that USDT was a wise investment and people thought I was joking. In another post yesterday, I got downvoted for saying to trade in USDT because BTC's price was going down, while some dipshit asks me if I'm "aware of the news" and people laugh like I'm making a joke. 2 days ago, I called that BTC was down 10% and due for another 10% drop. Today, there was a point when XRB was 179k and BTC was 9.4k. I sold my XRB at roughly 17 USDT per. All I needed was either XRB to drop from 179k or BTC to drop below 9k -- two fairly likely things -- to have my buy order @ 15.5 USDT filled. This managed my risk well and netted me about 10% of my stack. You can actually see in the charts how my USDT buy wall was during 3 separate 15 minute chunks, all while I was on my way home from work and not even at my computer. The USDT scandal is pretty serious. Serious enough that I plan to pull some money out of crypto after Binance JIC bitcoin crashes as a result of USDT (and hold it on the sidelines til the dust settles!). I'm not going to pretend it isn't serious. But USDT isn't disappearing overnight just because it scares you. It's a tool. For the last 3 days, BTC has been on a downtrend. Analysts have said that 8k is a key support line for BTC, and I am inclined to agree. I don't expect BTC to go down forever, either. But when you're trying, don't just blindly throw shit into BTC. Check the prices of BTC-USD and ETH-BTC first. If you think that BTC's USD price will increase, then you should probably throw it into BTC. If you think that the BTC price is going to tank, then you should probably go USDT. Finally, if we're in a relatively neutral position, then you should put it into ETH since that's just been steadily outpacing BTC recently (in both good and bad situations). I also post this because it'd be nice if we had some more volume over on XRB-USDT. Sometimes there are 1-2% overcharges or discounts compared to XRB-BTC!
Hello! My name is Dmitrii Skripkin, I am the head of traffic department at Platinum, the company that can attract crypto community to your project, provides best ICO and STO marketing services and can be really helpful in teaching about crypto-economics. Learn more: Platinum.fund As for the teaching… Welcome to the UBAI! Here we gathered all our knowledge to share it with people who just step on the road of crypto success. If you want to understand the overall influence hype can have on a team and anyone involved with an ICO project, take a look at the summary of our lesson What is Hype in Cryptocurrency The English Dictionary defines ‘hype’ as extravagant or intensive publicity or promotion. Therefore it is only right that we define cryptocurrency hype as extravagant or intense publicity and promotion for any kind of cryptocurrency. Recent research suggests there is a 60% chance that people around you have encountered the word ‘bitcoin’, or ‘cryptocurrency’ from one source or another. This widespread publicity was also catalyzed by the stunning and sudden rise of the price of bitcoin in 2017 (and other times as well), which led to a frenzy in FOMO, fear of missing out, which drove otherwise skeptical people to eventually believe in cryptocurrencies. From that point, many people started to believe in the idea and potential of cryptocurrencies. This led to even further growth in optimism among members of the cryptocurrency community, which, in turn, drove demand and hype to absolutely atmospheric levels. There is an ongoing argument among financial experts about the nature and destiny of cryptocurrencies. One school of thought is that crypto is, in fact, the next evolution of money. Other people think crypto is nothing but a bubble or fraud and will eventually fade into oblivion. Roles of Hype It is a fact there is hype in the cryptocurrency industry. It is also a fact that investors often trade and hold positions based on that hype. But before speaking about the role and purpose of cryptocurrency hype, let’s take a look at the major causes behind it. Ever increasing media coverage has brought the entire crypto sphere into the limelight. Just the media calling bitcoin “Digital Gold” has coaxed people into buying and hoarding bitcoins for themselves. Increasing groups of cryptocurrency believers have spread the idea that cryptocurrencies are a unique store of value, uncorrelated to other more traditional asset classes. There is also a significant number of individuals who purchased bitcoins before the sudden rise in value and are now hoarding their currency like gold, seemingly unwilling to sell at any price. The money to be made in crypto has attracted a great number of miners. We have previously discussed the key role and value of coin miners to the integrity of the blockchain. These miners help support not only the price and the maturity of bitcoin, but also the blockchain technology on which bitcoin depends. Common ICO Narratives in a nutshell An ICO is a funding mechanism that a company uses primarily to raise early stage capital. So far it has largely been blockchain-based technology solutions which employ “Tokens” (cryptocurrencies or digital assets) that are functionally used in the company’s solution, so as to give them a relative value. These days, there are a large number of companies constantly ‘pre’, ‘on’ or ‘post’ ICO. But the first ever recorded ICO was by Mastercoin in 2013. Their campaign lasted for almost a month, with Mastercoin raising up to 5,000 BTC, then valued at $500,000 USD. A year later, Ethereum was launched. And in 2015, the Frontier, an experimental release of Ethereum platform was released. A month later, Augur Token was launched. Since then, many other ICOs have followed. In 2016 alone, ICO sales raised up to $103 million with ICONOMI and SingularDTV leading the sale with $10 million and $7.5 million. In many ways, ICOs were made possible by the ease with which companies were able to create their ICO tokens on the Ethereum Blockchain technology. With the success of bitcoin and the explosive growth of ICOs for various purposes, the market has shifted solely from the topics of blockchain tech and cryptocurrency solutions, to more specific and practical applications of these solutions to actual real world problems. But at the same time, there has also been a large number of scams as a result of the lack of regulation and insufficient oversight. This is something to always keep in mind when you are considering ICO investments. The Power of Perception People’s perception of an ICO depends upon several key factors. Due to the incredibly large amount of paper wealth generated by investing in cryptocurrency, people are inclined to invest with less stringent diligence, even regarding their own money. That is, for better or worse, generally more true for crypto as opposed to traditional investors. Intelligent investors pay particular attention to the following details when evaluating an ICO: -The quality and marketable potential of the idea. -The necessity of a blockchain solution to solve this particular problem. -The quality and commitment of the team to the company. -The tokenmetrics and tokenomics. -The ability to actually bring the solution to market as a viable business. Signs of Market Hype & Anticipation A solid understanding of the signs of market hype and any resulting hyper-anticipation requires a multifaceted approach to evaluating an ICO. All the circumstances, situations, prevailing market conditions, and other factors contribute in various ways and to various degrees, to each ICO. It is important to also understand why different investors are investing. Some are committing capital because they truly believe in the idea as a viable business and are planning to hold on for a longer term. Some people are pure speculators hoping to multiply their money and take a profit as fast as they can. There is nothing inherently wrong with either one of those approaches or reasons to invest! The point is, you just need to know with whom you are investing so you can make the most advantageous decisions about your own funds. The following are signs of ICO market hype: The Social Media Factor When an ICO is looking to build momentum among potential investors, social media is at the top of the list of ways to do it. Social media allows projects to market their product directly to investors without relying upon middlemen, and in many cases, basically, for free. Professional marketers have also appeared recently to help projects focus on developing their project-specific technology, or business connections; while the regular marketing team is able to continue building the necessary awareness and hype. Many ICO projects seek to build large Telegram communities, and of course, schedule their ICO at the most opportune time. If you are wondering how a project is being perceived by the market and general community, reading their Telegram and social media posts will give you useful information. You will see how they think, and a get a good look at actual market opinion. Hype’s Affect Upon an ICO Over the years, too many crypto lovers invested in hyped and overrated digital assets that promised a 10x ROI (return on investment). This incredibly large rate of return attracted many eager (sometimes a little too gullible) investors. They eventually learned that while the price of ICO tokens may in fact increase 3x or 10x; they can also fall just as much, and just as easily. Many tokens offered as a part of the early ICOs either never went to market, or failed miserably when they did. Of course there are no guarantees in traditional investing either, but crypto is still at a particularly volatile and treacherous stage of growth. Basically, an ICO token price should primarily be driven by business fundamentals, such as cash flow and profitability. But the wild swings in value, and the low barriers to launch an ICO, have grossly amplified the influence hype has upon an ICO token price. Naturally, investors are focused on their own return on investment more than anything else. So, that is where we will focus our attention now too. This return ultimately rests with the token price, and the ability of the investors to buy low and sell high. There are four key attributes or characteristics of hype which directly lead to stronger demand for a token, and thus, a higher price. If the ICO is backed by influential and well-known crypto investors/Venture Capitalists, the team is very likely to have a large investor base to which they can pitch the coin. This is also true for successful entrepreneurs with a good reputation and track record. Hype’s Effect on the Team Behind ICO The team structure behind an ICO plays an important role in the hype process. If an ICO is successful, the developers are likely to draw more attention to themselves, thereby becoming key figures in that success. In that way, an ICO allows a project to both fund an early stage idea, as well as to create a reputation among investors for the individuals involved. After having achieved success on previous ventures, as we have mentioned before, investors will be keen to invest based on an established track record. These factors encourage entrepreneurs to try new ideas as a benefit of having a greater funding profile and a tangible resume to use in all aspects of their business, not just fundraising. A strong resume like that encourages confidence that would allow an individual associated with a successful project to partner with larger, traditional firms. Such an individual would also be more valuable on other projects by both providing insight and access to more investment capital. If you stay tuned, you must have learned a lot about the hype going around crypto, but what are its cons or even Dangers? Bitcoin alone has about a $284 billion USD market capitalization with about 16.4 million bitcoin in circulation. Hype brings out the latent greed in every investor. On any given day, media people may be discussing the endless potential of cryptocurrencies, or the unbelievable returns from crypto investments. While cryptocurrencies have a solid future ahead of them, with strong underlying technological principles, greed and fear will always induce people to create a world of hyperbole. Most investors do not really look as deeply as they should. They do insufficient research, or all too often, almost no research at all, before investing. This is human nature. Most people do not want to feel like they need to do homework again. People also become mesmerized by the success stories, and they just want to get a piece of the pie at whatever cost. It is always important to stay calm and rational. Stay diligent. Keep your mind focused on the long term too, not just the present moment. If you become too enamored with a project, or try to convince yourself nothing matters because “it will all just rise in value anyway” then you have lost your rational decision making ability. You should take a step back and ensure you aren’t being caught up in the hype. Dangers of Hype Part 2 Hype and speculation give value to a newly launched coin. At that point you will own an intangible functional token in a very early stage company. The value of what you actually have is only what an exchange or someone else is willing to give you for that token on the open market. The price might move in your favor and earn you a fantastic return. But it can just as easily fall to zero. And in fact, this is exactly what has often happened. When you purchase a token without an underlying cash flow positive business, your entire investment is at the mercy of market expectations and the level of hype in a project. Future cash flows and success will either make or break your investment. The dangers of hype in cryptocurrency can never be overemphasized, and never be overlooked. After all is said and done, it is the average individual investor who will suffer most. Possible Downside from Exposure and Attention Speculative Investments Most newly launched ICOs depend upon the frenzy created by the primary cryptocurrencies (particularly BTC and ETH) hype for success. Most consumers/investors these days buy or invest in an ICO based upon speculative ideas about extraordinary returns. The hype can grow so much it does not leave adequate room for actual facts. The most unfortunate result of all this can be seeing your entire investment wiped out by unscrupulous characters selling you fraudulent coin offerings (ICOs) and scams. Hype can dazzle investors into making investment decisions they later regret. But there is no reason for you to ever make such an avoidable mistake in your own crypto career. Possible Downside from Exposure and Attention §2 Speculative Investments Continued For example, in January 2017, the Securities and Exchange Commission (SEC) shut down an allegedly fraudulent initial coin offering (ICO) from a company called ‘AriseBank’. The SEC alleged that the ICO was an “outright scam” which falsely advertised and promised FDIC-insured bank accounts to investors through nonexistent banks. The value of the tokens fell to zero. The incredible hype and seemingly limitless potential of cryptocurrencies at the time, as well as this particular idea, led a large number of investors to commit capital to what was determined to be a scam. It is not only that they made grossly fraudulent claims, but there was simply no protection for investors at all. The investors were left with nothing. Some investors were surely all-in on this one project. Some investors had surely leveraged themselves to the max, borrowed too much, and had to stomach an extremely unpalatable loss. These are incredibly important things to keep in mind. Speculative investments will allow you to make a tremendous sum of money, but they can, and all too often will, take away those funds just as easily. Hype can create Problems Real World Examples Only a small fraction of the total ICOs being promoted have a working and viable prototype. Yet, every ICO is looking to sell investors on the likelihood of future success on that project. The Bancor ICO is a real-life example from June 2017. It raised up to $153 million in a matter of hours, but since the sale its value has plunged 38%. Some experts have since found big loopholes in their stated plans and intentions. The demise of many ICO projects is caused by such common issues as no viable product, not adhering to timeline, or a team that is distracted and/or not productive. Other coin scams have also successfully skimmed money from investors as a result of cryptocurrency frenzy. Projects like Benebit which scammed investors of up to $4.5 million by claiming to unify customer loyalty programs via blockchain technology. Benebit proved to be an exit scam, despite all of the major review sites rating the ICO positively. It was widely followed across social media, including 9000 people in its Telegram channel. Many people are still in the project’s Telegram attempting to understand what went wrong, and why. In our previous posts we’ve talked a lot about the cons of the Hype, but have you ever thought if you can take it into your own hands? Managing Hype for ICOs You understand what hype is and what it does. You also need to know, what to do about it, how to manage it, either as a seller or investor aiming to be on the right side of price movements. Crypto is a recognized part of our financial landscape already. ICOs and the Blockchain are here to stay. The point of concern is, the course it will chart from here. It is rapidly becoming the new normal for entrepreneurs to get funding from communities of people or investors sharing an important unifying characteristic or value system. This has, as we have discussed previously, completely revolutionized “business” and the approach to starting, funding and growing a company. In 2017 alone, more than $5.6 billion was invested via ICOs. That huge sum brings real opportunity for growth, and equally real possibility for despair. You can learn from examples, how to manage hype for your own benefit and protection. In the whitepaper, the purpose of the ICO should be clearly stated and sufficient information should be given to investors explaining what the project is and why it deserves to be funded. This helps remove or discourage unnecessary speculation. A good and informative whitepaper helps encourage investors to make decisions based on reasonable conclusions as opposed to dreams and desires. Always Have a Road Map Many ICOs we see on the internet for example, do not really have any long term plan for their product. ICO whitepapers should produce sufficient information on the timeline of the product and the sequence of necessary steps to get there. Questions such as: “When will a marketable product be available to be sold?” “What are the key risks to achieving any goal or aspect of the timeline?” These questions should be explained in the whitepaper, and supplemented with possible plans and alternate avenues to take if certain major issues arise. 6.3e)Managing Hype for ICOs §4 Many whitepapers might tend to overuse technical terms that sound like gibberish to ordinary intelligent people or investors. If you are trying to sell an idea to a broad spectrum of investors, it is important to explain key terms and themes so people are actually able to understand you. If a whitepaper is overly technical, yet seems to appeal to a broad base of investors anyway, it could be a red flag that the investors are confused, and that was perhaps the purpose of the whitepaper. Alternatively, maybe the team just isn’t particularly experienced at marketing their idea. That could also could present either an opportunity or a problem. One way or another, communication with the market will greatly influence the future price of the token. Scam Projects Real World Examples Multinational accounting firm Ernst and Young found that $400 million of the $3.7 billion USD raised from ICOs (as of January 22, 2018) had been stolen. That is, up to 10% of all ICO funding is virtually being stolen from investors. Though ICO scams are the most common method of theft in the crypto world, some projects will actually operate for a period of time before disappearing with the money. Like in a Ponzi scheme, an exit scam may be planned for later, sometime after a manipulated pump; or some other time the team believes is most opportune to take the money and run. Giza: Giza marketed itself as a platform within which different cryptocurrencies could be stored securely. But after raising $2.4 million in one month, the team deleted the website and stopped replying to emails. Investors were duped by a very convincing whitepaper, and actors had been hired to appear in photographs promoting the project. No investor funds have ever been recovered. Centra: The SEC put an end to fundraising for the Centra ICO and charged the founders Robert Farkas and Sohrab Sharma with orchestrating a fraudulent ICO after they raised $32 million USD. They were promoting the ability to develop financial products backed by VISA and Mastercard, though it was later found that neither partnership was real. One of the major red flags in the Centra project was the use of celebrity endorsements for publicity, reportedly paying champion boxer Floyd Mayweather a significant sum to promote their project. Who wants to leave their Blockchain investment decisions up to Floyd Mayweather, regardless of his unbelievable skill as a boxer and regardless of his own financial success? He should still not influence where you invest your money! Ponzi Schemes: Bitconnect: This is the most infamous Ponzi scheme in the history of cryptocurrency, and certainly the most damaging. Bitconnect was a Bitcoin-based project that rose to an all-time high of $463 per token on the back of a fictitious trading bot. The Bitconnect scam operated by paying dividends to users, proportional to the number of tokens they held and the number of referrals they made. The BCC tokens were exchanged for the users’ Bitcoin, and the highly sophisticated and wildly successful trading bot would trade BTC for them and distribute profits as dividends. The value of the dividends offered was approximately 1% of the initial investment per day. In other words, that is approximately 3,780% per year in cumulative gain! The referral system was capitalized upon most heavily by many of the biggest crypto YouTube channels, including CryptoNick and Trevon James, both of whom are now under investigation by the Federal Bureau of Investigation. Shortly after the Bitconnect Token reached its all-time high, they received cease and desist orders from the security regulators of Texas and North Carolina, which caused the owners of the Bitconnect exchange to shut down operations, and the price to plummet. Davorcoin: Davorcoin was a lending platform very similar to Bitconnect. And Davorcoin was farcically promoted by the same Trevon James crypto Youtuber who promoted Bitconnect, and is currently under investigation by the FBI for promoting Ponzi schemes. The Texas State Securities Board, in likening Davor to Bitconnect, stated that “DavorCoin is telling investors they can earn lucrative profits by investing in a lending program based on a new cryptocurrency known as davorcoin. Investors allegedly purchase davorcoin and then lend it to DavorCoin”. Davorcoin promptly plunged from an all-time high of $180 to very close to zero after a cease and desist order was made against them on the 2nd of February 2018. Useless Ethereum Token: Despite brazenly stating in the name of the project that the token has no use, the UET managed to raise $340,000 in its crowdsale, and saw a significant pump of over 300% on the HitBTC exchange in February of 2018. The scam was an obvious case of pump and dump, with the total trading volume for UET crashing back down to as low as $3 per day, after reaching as high as $350,000 per day during the pump. Indications of Scam Projects It is currently an unfortunate consequence of the decentralized nature of cryptocurrency, but there is a distinct lack of recourse for scammed investors. It is wise to become as well-acquainted with the various indicators of good and bad ICOs as you possibly can. In weighing the factors that will allow you to avoid expensive mistakes, ask yourself in whose favor are the terms of the ICO slanted, yours or the teams? To what extent are you actually likely to profit from this investment? Cryptocurrency is inherently a grey area, whether you are investing in it or not. Investing is another inherently grey area, no matter what the area or object of investing might be. Laws and regulations are not always able to keep up. Trying to define and prove what was or was not a scam is not likely to be as simple as the scammed investor would want it to be. A project can be set up in certain ways to avoid being technically classified or provable as a scam, but the unprepared investor can still be burnt or scammed just as badly. Now we look at more individual indicators that can help you form a valid impression whether or not an ICO or even a fully-fledged exchange-listed coin is a scam or a bona fide investment opportunity. Common Signposts Contrasting Scam & Legitimate Projects Presale Bonus/Token Release If the ICO allots massive bonuses to team members, you may leave yourself open to getting dumped on by presale investors if you buy when the project tokens are listed on an exchange. Likewise, if the project has a short lock-up period for developers and founders, you run the risk of them selling as soon as the token is listed on a major exchange. The token release schedule for the founders of a worthwhile project should show long-term team commitment to that project. The Jibrel Network team tokens will be locked up for 5 years before release, and they had no early investor bonus in the main sale. Both of these factors instilled confidence in the JNT ICO investors, and the tokens were sold out weeks before the ICO was due to end. No Presale lock up If Presale investor tokens are not locked up at all for any period after listing, that could easily be a set up for an exit scam after the initial listing. No presale lockup for early investor tokens is a crystal clear warning, the project may be fatally rigged toward those in the inner circle, with little commitment to the long term health or success of that project. Unsolicited Offers or Unasked for Additions to Groups Characters running scam projects will often add you to Telegram groups out of the blue or send you unsolicited emails with information about their project. Telegram is the most widely used messaging app in the cryptocurrency community and you should familiarize yourself with it to keep yourself in the loop for specific projects in which you invest as well as all kinds of other relevant crypto info. You can adjust the settings on the Telegram app to disallow anonymous additions to cryptocurrency projects if you find yourself bombarded with offers by scammers. Reputable projects at the ICO stage will spread by word of mouth, or by eloquent and meaningful articles posted on their Medium page. A project with serious potential does not need to actively seek participants for their ICO like that. They will often be able to fill their ICO hard cap in a matter of hours, or even just minutes! Anonymous Team Alarm bells, again, immediately, if the project has minimal online presence. The individual team members could be mere fabrications. The entire project could be a farce by utterly inexperienced characters. What if the project leaders are simply unaware of the importance of a strong social media profile? That in itself would be too strange to ignore. Top-level projects will have team members with experience in crypto and the LinkedIn accounts for those members will be easily accessible right there on the project website. You should be able to easily see and evaluate each individual’s experience in their field and ascertain what they bring to the project team. Bitconnect’s anonymous team should have been the only deterrent prospective investors needed to discourage them from putting money into that doomed project. Ethhorse, a current project with anonymous founders and operators should be steered clear of at all costs for the same reasons. Community Atmosphere The subreddits or Telegram groups of scam projects will often feature moderators that do not allow any kind of criticism in the group chat. If, in the process of your due diligence, you encounter didactic admins that only wish to silence your questioning of certain aspects of the whitepaper or mechanism of the tokenomics, you should be concerned. Similarly if you see a coherent critical reply attacked by many different users who refuse to engage the substance of the point being made, that may be a subreddit infested with bots. Projects that have nothing to hide will allow free debate in the chat. Ideally, they hope to develop a positive community that is itself an asset to the long-term success and overall strength of the project. Good projects do not need to automatically brand all criticism as Fear Uncertainty and Doubt (FUD). Whitepaper One common tactic of scammers is to produce a whitepaper that uses too many buzzwords, and deliberately obfuscates and overcomplicates the explanation of the problem and/or its solution. A good whitepaper clearly and concisely lays out the problem and answer, as well as provides compelling arguments why a Blockchain solution is preferable to the current solution. Another point of concern is a whitepaper that gives unrealistic time frames and goals. Bitconnect’s almost comically optimistic profit projections are a prime example of this, as are the 1,354% yearly gains promised by Plexcoin. Respectable projects will set out development timescales in terms of quarters or years, rather than offering immediate profit projections, which are simply a red flag. Advisors/Connections in the Cryptoworld The most prestigious projects will already have partnerships made before the ICO stage, and the worst ones, i.e. the scams, will not mention any such partnerships. Icon (ICX) for example was spawned from a South Korean project named The Loop, a collaboration between 3 Korean universities and the DAYLI Financial Group. They boasted an advisory panel consisting of the legendary investor Don Tapscott, Jehan Chu and crowdfunding expert Jason Best. On top of a solid team of advisors, good projects will also be visible at major Blockchain events such as the Consensus, and the World Blockchain Forum, etc. Scam projects will be unable to inspire this same level in confidence. As an investor, you should sense a certain presence and expect a certain feeling of trust that should guide you in your investments. After all, it is actually a people-to-people thing you are doing. Key Stress points upon the Timeline to Identify Scam Projects Post Whitepaper Release The period in the immediate aftermath of the release of the whitepaper can also be decisive in establishing the validity of a project. How a team copes with the roadmap that they have laid out for themselves is key. Valuable insight into the operational efficiency and commitment to the project can be gleaned from the quality of and amount of code committed to GitHub. If you have any experience in computer programming you can see how clean and orderly the code is, which gives insight into the skill of the developers, and in turn the quality of project leaders’ decision-making in hiring team members. Scam projects will have little or no code committed to GitHub, or at best it will be copied and pasted from other projects just to cover their tracks. Start of ICO Sometimes, a scam project, or other project in which you would be better off not investing, will change the terms of the ICO just before the ICO starts. The Key (TKY) ICO doubled the price of tokens on the day before the ICO was due to take place, because the price of NEO had risen so drastically. Currently, the TKY token price is still only half of its ICO price. Initial investors are faced with the prospect of a 50% loss on their investment. Key Stress points upon the Timeline to Identify Scam Projects Exchange Listing Some particularly greedy scammers will create a scam project with the intent of selling tokens in the ICO for BTC and ETH, and then pumping and dumping their share of the tokens immediately after listing. The team of fraudsters behind Monero Gold used this method after the crowdfunding of their useless ERC-20 token. After listing on CoinExchange.io, the team dumped their tokens until the exchange finally ceased trading. Although it is not uncommon for ICO tokens to sold after listing (just like can happen with shares of stock after an IPO), if the price does not stabilize and massive sell walls are continually placed, a scam is likely taking place and the token is being dumped. Real World Example of Scam Customers Fake Ethereum Twitter giveaway You may have noticed Ethereum creator Vitalik Buterin’s twitter handle has been changed to Vitalik “Not giving away Eth” Buterin in recent months. This is because a group of devious scammers had created fake accounts with almost exact replicas of his profile (deviating by only one character). The fake accounts promised to deposit 1 whole ETH for every 0.1 ETH the potential sucker deposited into the wallet address provided by the scammer. These fake account “Ether giveaway” scam tweets were set up to be sent in just a matter of seconds after the real person tweeted, and usually always appear immediately after the tweet of the real public figure. Fake bot profiles then came into play, thanking the fake Vitalik, or fake Elon Musk, for holding up their end of the bargain and depositing the ETH as promised. One scammer, or group of scammers, managed to fill a wallet up with almost $20 thousand worth of ETH, which they transferred out, never to be seen or heard from again. Effect of Scam Customers, Upon the Affected Parties Of course, this is no fun for the targeted public figure either. They need to take steps to avoid being targeted again. This will mean changing their handle, their username, or making their accounts private. However, the injured party with whom we are most concerned is the unfortunate scammed social media user, who has no chance whatsoever of getting his or her funds back, ever. It is a harsh lesson to learn. But it is a fact of crypto reality. Nearly every one that trades crypto will at least be exposed to frauds or scams in one way or another. In this case, we think it is better to learn about scams by studying them, rather than learn from your own unfortunate and expensive experience. In the case of Mr. Buterin, these incidents were awful public relations for the Ethereum project. It had only been a few years since cryptocurrency as a whole was primarily associated with criminality and seedy transactions on the Darkweb. Any connection with unscrupulous behavior is best avoided at all costs. Negative associations could have been particularly damaging for Ethereum’s brand because the vast majority of ICO fraud is committed using the ERC-20 token as the template for the scam tokens. Effect of Scam Customers on the Market Any and all the scamming or fraudulent behavior in the cryptocurrency ecosystem is bound to have a negative impact on the speed at which mainstream uptake finally takes place. Cryptocurrencies, as an emerging asset class, will be painted in the worst possible light. Crypto is aiming to, and is in fact in the process of, causing great disruption in traditional centralized finance and business. Mainstream media organizations are also part of that traditional centralized economy. Press coverage will be damning. Something is happening here, but Mr. Jones doesn’t know what it is. Legal Recourse for Scams We clearly understand, there is a possibility of being scammed. We know the scams are happening. The SEC has made some arrests and actually charged people for operating fraudulent ICOs. But it is a struggle to deal with the flood of ICOs coming from anywhere at any time. The SEC filed charges against two founders of a purported financial services startup for orchestrating a fraudulent ICO that raised more than $32million from thousands of investors. As you know from the ICOs we have covered so far, the lack of regulation allows for direct contact and dealing between the entrepreneurs, business owners and potential investors. While we believe this is a blessing according to the founding principles of Bitcoin and other alternate Cryptocurrencies, because it frees us from traditional roadblocks, middle-men, and all kinds of time-consuming procedures; it also leaves investors in a place where there is often little to no hope of ever recovering funds lost in fraudulent schemes. Facebook
Krugman and Bitcoin and Me: Radical Thoughts on Fixed Supply Currency
My dad asked me how I reconciled Bitcoin's fixed supply with the Keynesian model of supply. I understand that most people around here don't hold much stock in what Paul Krugman has to say. But much of the real world actually does, what with his Nobel prize and all. So I put some serious consideration into what he had to say about deflation, how it relates to Bitcoin, and other vague currency questions. What follows is my email back to my pa. Many of these ideas have come from my time spent in this forum, so feel free to chop it up, edit, and distribute away if you find any of it worthwhile. Thoughts from a liberal after reading Paul Krugman's 2010 NYT piece: Why is Deflation Bad? Krugman and Bitcoin and Me Krugman's argument against deflation is built with a dependency: that there is a central authority which controls the money supply. So in a sense he has two core points. (1) Krugman prefers that a centralized authority control the currency supply in order to manipulate the economy. I'll allow that this tool can be a good, stabilizing force. But if that's the case, I want to be able to vet that institution from the bottom up before handing them the keys to the kingdom. And I want that institution to unequivocally work for society, not for Goldman Sachs. If I thought the current system worked well, I wouldn't be exploring other options in the first place. (2) Krugman prefers that that centralized authority manipulate the economy such that it encourages spending and lending. In other words, manipulate toward small inflation. This could be a good thing. And maybe the economy it creates is more fluid than a deflationary one. But when you bake into the system incentives to spend now and borrow from the future now, you get exactly the problems that you'd expect: over-consumption and a society largely ridden in debt. Control of the supply of the currency carries tremendous power. It can be used to smooth natural economic cycles and encourage specific consumer and producer behavior. This supply-manipulative ability is not in and of itself a bad thing. The question is whether it is necessary- because with Bitcoin (as it stands) it is impossible. Within the theoretical bounds of crypto-currency, the abilities for algorithmic, "smart" money-supply, one that rests on mathematics rather than the banking elite, are endless. There are truly exciting developments to come in this space. A First Consideration on Currency Think, for a moment, of the unit of currency as sort of a creditor's note. It is an IOU from society; a placeholder for some unit of production. It says, "I produced something valuable (for someone else who takes part in this system). In return I got this note. I have reasonable assurance that one day I can cash this IOU in for something that I'll need in the future." The unit of currency acts as a placeholder for its owner. Under this system, people trade their current productivity for the placeholder, and later (given the system still has integrity) they can trade that placeholder for something that raises their standard of living. It allows us to "time-shift" our production with respect to our consumption. But don't forget!: A unit of currency as "just a thing". It only carries value if it is actually valued by somebody else you want to do business with. The dollar, the gold bar, the Bitcoin. the Euro, all work the same way: they are nothing but numbers or paper or metal. They are just atoms arranged in a way that make them valuable to a group of people only because they trust in the future of their common system. Currencies are a subset of commodities. Commodities are things (oil, clothing, food, televisions) that are valuable to humans because they have useful properties. Like we said above, a currency's use is to "time-shift" production and consumption. The properties of the object that afford this advantage are usually a combination of irreproducibility, fungibility, scarcity, ease of transport, and securability. Why is Deflation Bad? In his 2010 NYT piece, Krugman argues that deflation hurts the economy due to three factors: (1) People become less willing to spend, because sitting on money becomes an investment. Your dollar tomorrow will buy you more than what it can today, so why spend today? Therefore, spending goes down. (2) Those in debt get into serious trouble awfully quickly, because the nominal amount-owed appreciates in value. As a result, they spend significantly less. At the same time, creditors have been shown to not spend enough such that it make up for this difference. Therefore, borrowing (and spending) goes down. (3) Psychologically, people hate nominal wage decreases. With a fixed supply currency, year over year, wages will have to decrease in name. Even if the value of your wage rises, the amount written on the paycheck is lower. Therefore, people freak out. These are troubling scenarios, though I think the first two are more substantial than the third. I don't mean to underestimate the psychological factor- in economics psychology is everything- but we'll talk about this later. Krugman presents the first two points as bugs in a deflationary system. I see them as features. "Your dollar will buy you more tomorrow than what it can today." I think this is natural. We are a rapidly advancing species; through technology we are becoming more efficient, automating crappy tasks, raising the standard of living for less work, of course a dollar (that placeholder for your unit of production) is going to go further tomorrow than it does today. Personally, I find this appealing. It provides every incentive to work now and spend later. That falls very much in line with good ol' American hard-working values and non-consumptive ethics. Krugman finds this worrying though. If people have less incentive to spend, their is a crisis in demand. Hello liberals?! When was the last time we complained about lower consumption? In a country wracked with hyper-consumption that has put an unprecedented load on Earth's environment and ignited a climate crisis, I see a drop in demand as a breath of fresh air! Furthermore, you don't have to worry about people never spending. People will always spend now- but only on the want/need products, rather than the maybe-want-need-this-now-really-might-as-well-because-my-currency-is-losing-value-and-all-these-things-meet-my-zillion-useless-ephemeral-wants products. I do believe there are much higher economic principles at work here. The United States is the world's default consumer. The global economy needs us to consume as much as it needs the million child laborers to produce. The economy would come crashing down if we stopped consuming immediately. But if we're trying to aim for a more sustainable economy, one that is compatible with the Earth's environment, let's move slowly and use a deflating currency as an incentive! "Deflation rewards creditors and hurts debtors. Debtors spend less and creditors don't spend more enough to offset." The impassive Krugman is beating around the bush. There is a problem when debtors suffer at the expense of creditors, and it's more than just a net loss in consumer spending. If you're concerned about a reduction in spending, see my previous point. But the remaining ethical problem is glaring- a power imbalance already exists in a creditor-debtor relationship, and it seems that deflation only widens this gap, crucifying the debt class on a cross of deflationary coin. There's no doubt that this is a problem. And wealth redistribution may ultimately be easier with an inflationary currency- again, a word on that later. But there is also an incentive here: borrow less. Credit card debt is at an all-time high, up 1200% in the US since 1980, all while student loans have ballooned out of control. But neither of these problems even compares to the $7.8 trillion of mortgage debt our country has dug itself into. Now debt is not a bad thing. The right combination of debt and saving, that is- using both capital previously earned with capital borrowed from future earnings- indicates a healthy economy. I don't want to have to work my entire life only to afford a house at the very end. I want to be able to borrow from my future economic output, buy the house now, and live in it while I work to pay it off. The same goes for student debt, corporate debt-financing, etc. Access to credit is crucial to a healthy middle class. But ever-increasing debt is not sustainable. Nobody lives- and produces- forever, so you cannot always borrow from your future economic output. In the end, regardless of the money tricks you play, you have to produce enough value to cover your consumption. The world recently found out, in a mild manor, what happens when a currency's incentive and a nation's culture favors borrowing. When given the opportunity to build houses they never could have dreamed of paying off in their lifetime, millions of people took the offer and the biggest lenders took the risk. The echoes of their mass default still burden the global economy 6+ years later. The point is, if Krugman says "inflation promotes borrowing", I say, "is this debt-ridden wreck what we really want our economy to look like?" "People would freak out when their paycheck goes down." I say get over it. Other possible proclamations in a deflationary world:
"Today, this meal costs the most it ever will!"
"My phone bill will never be this high again!"
"Filling my car up costs less every day!"
"Taxes go down every year so I love my life!"
Better yet, this reflects reality! Technology makes everything cheaper every day. You should be paying lower phone bills tomorrow. Has the infrastructure gotten less efficient? Here it feels like Krugman's grasping for straws. He pounces on people's reaction to their one source of income rather than their many expenses. This point also invokes that ugly liberal side: "The people don't know what's best for them." The Central Authority as a Tool for Wealth Redistribution Now we're talking. As a Liberal, I consider this to be a most important necessary evil. But let's call it what it is: stealing from the rich to give to the poor. (Unless we reject the modern notion of property- stay tuned...) In an inflationary economy, value is constantly leaching out of everyone's savings. Those who control the monetary supply have a means of reaching into every dollar, and skimming off a little bit of value. We can choose to do a lot of good with this. Right now the skimmed dollars are "lent" to banks- the theory is that they then have more to lend to the general public and everyone benefits. Lending is good right? It introduces liquidity. But continue this cycle ad infinitum and all the spending in the economy starts in the form of bank debt! It is no coincidence that Americans households are more in debt than ever before. If wealth redistribution is the only benefit of a central supply authority (which can fall out of trust at any time), this is a weak foundation. We already have a mechanism for wealth redistribution: taxation. Let's be proud of it, call a duck a duck, raise taxes on the wealthy, and introduce that liquidity with massive infrastructural programs, education spending, science spending, etc, rather than in the form of bank loans. One last point- inflation appears to be a flat tax. That's already bad. It affects every dollar proportionally, rich or poor. Worse, the middle class and poor have a higher percentage of their net worth in USD- so inflation then becomes a regressive tax... given to banks... to be lent out to again to the middle class. All in the name of wealth redistribution?! In the name of kick-starting the economy?! Something's fishy here, and "you wouldn't understand, it's more complicated" doesn't cut it as an answer for these practices. Bitcoin So. What are we even doing here? In 2009 a great mind developed a tool, the first in the history of human civilization, for "minting" a currency according to a fixed and open sourced algorithm. Without the involvement of any third party, you can now send an irreproducible digital object of fixed supply to anyone with an internet connection. The implications are mind-boggling. But the first such currency, Bitcoin, happened to be fixed-supply and ultimately deflationary, which has re-sparked the deflation vs. inflation debate. This is happenstance. The protocol that gives rise to these digital currencies- the bitcoin protocol (small b)- could easily implement a different supply model. Paul Krugman can start a currency, KrugCoin, with any supply model that he likes! Which begs one last question. Let's say I'm presented with an option: I may collect my paycheck in a currency that deflates- that is, my paycheck will gain value over time. Or I may collect my paycheck in a currency that inflates- it loses value over time. Why would anyone choose the latter? Must a population be forced into using an inflationary currency? Are we?
So you've been following this "Bitcoin" craze (otherwise known as cryptozoology), and you've watched the price of your precious Bitcoins rise from $28 to its current price of over $270 trillion. Now you're ready to cash out and live the good life, because as Notch has shown us all, money can easily buy happiness. Also fatness. As economists attempt to make sense of Bitcoin, the cryptocurrency rocketed above $17,000 for the first time moments ago, adding about $4,000 to its price in fewer than 24 hours. Security reporter Brian Krebs tweeted on Thursday, "Closing in on $17k per bitcoin now (mind you, it was almost at $16k l... Bitcoin tumbled 18% on Tuesday to a four-week trough close to $11,000, after reports that a ban on trading of cryptocurrencies in South Korea was still an option drove fears grew of a wider regulatory crackdown. Bitcoin's slide triggered a massive selloff across the broader cryptocurrency market, with biggest rival… The arrows that are drawn on the chart signify the times when the zone proved extremely vital. ... The blow on June 3 caused by the abrupt crash had a lasting effect. Treading with caution is actually a blessing in disguise when it comes to investing in Bitcoin. Bloomberg pointed out that unless something awful happens, Bitcoin will appreciate over the long term. Therefore, investors should ... What the market is telling us via the chart is that this post-crash market series is coming to an end pretty soon. You might say, who can say that bitcoin will not simply bob along, but that is the least likely outcome. $6,000 has been a very solid bottom for bitcoin and shows a resilience I believe bitcoin will not lose. The biggest risk for ...
MONUMENTAL BITCOIN CHART NOBODY IS WATCHING RIGHT NOW (btc crypto live market news analysis today ta
🌟 BITCOIN CHAT LIVE 🌟bitcoin bottom price prediction, crash, analysis, news, trading Crypto Savy. Loading... Unsubscribe from Crypto Savy? Cancel Unsubscribe. Working... Subscribe Subscribed ... #bitcoin #cryptocurrency #news #btc #ethereum #eth #cryptocurrency #litecoin #altcoin #altcoins #eos #forex #money #best #trading #bitcoinmining #invest #trader #cryptocurrencies #top #investing # ... #Bitcoin #Analysis #Crypto Those who are trading Bitcoin and making a profit understand a little something called "technical analysis". The Bitcoin market has taken on a life of it's own and if ... Bitcoin has had a very volatile week and some are saying the top is in. Is Bitcoin about to begin a longer correction and if so, how do you survive it? Here are my tips for handling the volatility ... In this video we discuss the Bitcoin shorts chart, and the implications it is having on Bitcoin price action. We also do some short term Bitcoin technical an...