Showing posts with label bitcoin. Show all posts
Showing posts with label bitcoin. Show all posts
Sunday, 28 November 2021
Thursday, 7 January 2021
Bitcoin's Bull Should Fear Its Other Scarcity Problem
As the value of this asset class rises, generating price spikes becomes increasingly difficult.
The Theory behind Bitcoins
The supply of Bitcoins was set from the start at 21 million.
That means, in the words of its pseudonymous founder Satoshi Nakamoto, it should ultimately be "completely inflation free" - making it a far better store of wealth than assets whose real value declines over time.
That's in theory, at least.
Digital currencies are still a tiny share of the world's investments
With the price of Bitcoin climbing as high as $34,792 Sunday (3.1.2021) and putting the value of all coins in circulation at around $647 billion, there is a different scarcity problem looming larger.
It is easier to think about this in terms of asset allocation.
World equity and bond markets = $217 trillion
World equity markets = $103 trillion
World bond markets = $114 trillion
Bitcoins = 18.6 million coins = $647 billion.
Cryptocurrencies = $884 billion
Investment Gold = $3 trillion
If investors in aggregate decide to put just 0.1% of their stock and bond portfolios into Bitcoin right now, that represents an additional $200 billion or so, chasing the same pile of 18.6 million coins that have been mined to date - enough to push the price well over $40,000.
In that sense, the roller--coaster ride that Bitcoin has ridden in recent years looks almost sedate.
At current prices, all the digital Bitcoins in circulation are equivalent to about 0.6% of the $103 trillion market capitalization of the world's equity markets.
That is higher than the 0.4% allocation when the crypto price last peaked on Dec. 18, 2017 and much higher than levels shy of 0.1% that have prevailed at times since then - but it looks a whole lot less dramatic than the 79% run-up in coin prices from their last peak.
The success of cryptocurrencies tends to eat itself
The problem for digital bulls is that the success of cryptocurrencies tends to eat itself.
As the value of the asset class rises, the shifts away from more conventional investments needed to provoke price spikes get larger and larger.
Bitcoin versus Gold
Bitcoin on its own is worth about 6 times the 56 million ounces of metal represented by all the contracts outstanding on the Comex 100-ounce gold contract.
The world's biggest gold ETF, SPDR Gold Shares, holds about $72 billion of the yellow metal.
Add in other forms of private investment gold and you've got about $2.87 trillion worth of metal - but much of that is in the form of bars and coins that aren't easily liquidated when investors want to tweak their portfolios.
Turnover of digital coin derivatives
Turnover of digital coin derivatives in the September quarter came to $2.7 trillion, according to Tokeninsight, a research company.
That is not all that far behind the run rate of the world's biggest equity markets.
The value of all shares traded in Japan in 2019 came to just $5.09 trillion, according to the World Federation of Exchanges, enough to make it the third-largest equity market on that basis.
Hedge Maze
Far from looking like a hedge against equity markets, the correlation between Bitcoin and the S&P is stronger than for many stock indexes.
Why would you choose to allocate a slice of your stock and bond holdings into a digital currency, instead of more conventional assets?
Once momentum stops driving the price higher, as it inevitably will, the best argument is still the hope that it might balance out the swings in your broader portfolio. The prospect of Bitcoin becoming that sort of negative beta asset is the most promising way for it to become something more useful than a dice game for investors.
Unfortunately there is still little sign of that happening. These days it looks not so much like a hedge against the gyrations of the equity market as a leveraged bet on the same movements.
- The correlation between Bitcoin and the S&P 500 index was 0.767 over the past year - somewhat closer than the link between the S&P and the FTSE 100 index, and substantially tighter than that between U.S. and Hong Kong stocks.
- Gold's correlation with the S&P 500 was a far lower 0.299, while the Bloomberg Barclays U.S. Treasury index of total sovereign bond returns posted a prized negative beta of minus 0.036.
Crypto will only grow up if and when it finds a different driving force to the animal spirits that govern equity markets. If it really wants to be an alternative asset to stocks and bonds, it needs to start behaving like one.
January 4, 2021 by David Fickling
Bitcoin Price Surge Creates a Different Scarcity Problem - Bloomberg
Bitcoin’s Bulls Should Fear Its Other Scarcity Problem
As the value of this asset class rises, generating price spikes becomes increasingly difficult.
Saturday, 5 December 2020
Bitcoins and Cryptocurrencies
Are cryptocurrencies real money?
Blockchain technology and Bitcoin
With modern computers, the twenty-first century solution to securing private information is to encrypt it in a chain of code that can never be altered without permission from all the users. This blockchain encryption technology works because the entire user world will be alerted if anyone tries to change the information.
The first use of blockchain was to encrypt and secure holdings of a currency called bitcoin, the world's first decentralized digital currency that didn't need a central bank or central monetary authority to control its use. Bitcoin was invented by an anonymous computer pioneer with the name of Satoshi Nakamoto in 2009.
The open-source software was structured to allow anyone, at any time, to see who owns what in the bitcoin world. The system allows for anonymity because the owners of bitcoin can use pseudonyms, keeping their real identities secure in encrypted form.
Purpose of bitcoin and other cryptocurrencies
The purpose of bitcoin and other cryptocurrencies was to have a user-to-user payment system that avoided the cost and control of a central authority.
When the owner of a bitcoin decides to purchase something, the system is updated to reflect the transfer from buyer to seller. The transaction takes place via the buyer's and seller's bitcoin wallets, but the ownership change is embedded in the blockchain for everyone to see and verify. Once the transaction is verified, it cannot be retracted.
Like transactions in cash and gold, one of the major appeals of cryptocurrency payments is that they can be made in total anonymity, without any central bank or monetary authority getting involved. This is why many countries have moved to ban cryptocurrencies, fearing that they can easily be used to pay for illegal goods, such as drugs or stolen guns.
A possible solution would be to create a cryptocurrency that requires users to be transparent about their identity. This could be an ideal defense against money laundering, tax evasion and other illicit activities because every transactions would be seen and verified by users.
Many people have been reluctant to start using cryptocurrencies, saying that they would never hold a currency that has no intrinsic value. Their values are now nothing more than what people are willing to pay for them.
How are cryptocurrencies created?
Bitcoins, like may other cryptocurrencies, are put into the circulation by miners, who are required to undertake complex computer calculations in order to receive the new bitcoins. The costs of maintaining the bitcoin protocol system would become increasingly large as bitcoin becomes more and more accepted as a means of payment. It was therefore, decided to give the new bitcoins to those willing to do the work necessary to keep the system up and running.
Anyone can become a bitcoin miner. The first bitcoins were mined mainly by individuals, but by the late 2010s, the amount of computing power required to perform the calculations had become so large that only big consortiums and companies were mining new bitcoins. The energy used by the massive server farms completing the calculations has been estimated to be equivalent to the entire energy consumption of Ireland. And as the computers doing the mining become more efficient, the calculations are purposefully being made more complicated to control the supply of new bitcoins.
Major security risks
There are major security risks inherent in holding a large amount of wealth in cryptocurrencies that can be transferred in a moment to an anonymous user.
- Several cryptocurrency millionaires were kidnapped in the late 20010s with the express purpose of getting the victim to transfer large amounts of their assets. These crimes ended with millions of dollars' worth of ransom being paid directly into the kidnappers' encrypted accounts, never to be traced.
- In 2019, $40 million of cryptocurrency was stolen from a trading platform called Binance when several of the platform's users' "keys" were hacked, similar to the way credit card users' date is hacked from retail stores' databases.
Transactions becoming expensive and taking too long to be processed
Another hurdle to wide acceptance of bitcoin is that transactions are becoming more and more expensive and taking a longer time to be processed. With average costs for small transfers approaching the 2-3 percent sellers have to pay for most credit card transactions, bitcoin is becoming less of a viable alternative.
High volatility of cryptocurrencies.
The final issue is the high volatility of cryptocurrencies. Unless a cryptocurrency holder is a risk-friendly investor, it may be better - for the moment at least - to stick to traditional investments like stocks, bonds and real estate. During some periods of the 2010s, bitcoin had price swings several times greater than those of gold, the S&P 500 or the U.S. dollar. One of the biggest hurdles to wide acceptance of many cryptocurrencies has been their high volatility.
Saturday, 4 August 2018
A massive losing bet on bitcoin futures has investors buzzing
CRYPTOCURRENCY
Friday, 3 Aug 2018
HONG KONG: A huge wrong-way bet on Bitcoin has left an unidentified futures trader unable to cover their losses, putting counterparties at risk and threatening to dent confidence in one of the world’s largest cryptocurrency venues.
The more than US$400mil long position in Bitcoin futures was amassed on OKEx, a Hong Kong-based exchange that’s ranked No. 4 on Coinmarketcap.com’s list of the biggest crypto platforms, according to a person familiar with the matter, who asked not to be named because he isn’t authorized to speak about the issue with the media.
While OKEx has moved to liquidate the position, it has so far been unable to cover the trader’s shortfall amid a down market for Bitcoin this week, the person said.
If the shortfall still exists at the 4 pm settlement time in Hong Kong on Friday and exceeds the size of the exchange’s insurance fund, futures traders who have unrealized profits on OKEx may be forced to absorb the losses, in line with a “clawback” policy detailed on OKEx’s website, the person said. OKEx doesn’t expect the issue to affect the exchange’s ability to function, he said.
“Everyone is talking about it,” said Jake Smith, a Tokyo-based adviser to Bitcoin.com, in reference to the OKEx trade. Smith said the systemic risks were likely contained, but that the episode could have some ripple effects on the market. “The main question is how will OKEx handle this,” he said.
Lennix Lai, a director at OKEx, said via email that the exchange may issue a statement on Friday. Lai didn’t answer an emailed list of questions from Bloomberg News.
In a statement on its website last month, OKEx outlined planned changes to its margin rules and liquidation procedures that it said would “vastly minimize the size of bankruptcy positions” and make clawbacks less frequent. The exchange, which allows clients to leverage their positions by as much as 20 times, said it would start rolling out the changes in September. Before clients can begin trading futures, they’re required to pass a quiz on OKEx’s rules.
Clawbacks are unique to crypto markets and expose the exchanges who use them to reputational risks when clients are forced to absorb losses, said Tiantian Kullander, a former Morgan Stanley trader who co-founded crypto trading firm Amber AI Group. “It’s a weird mechanism,” Kullander said.
Bitcoin, the biggest cryptocurrency by market value, dropped 3.2% to US$7,309 at 3:20 pm Hong Kong time on Friday, extending its decline this week to 11%. It has slumped 49% this year. - Bloomberg
Read more at https://www.thestar.com.my/business/business-news/2018/08/03/a-massive-losing-bet-on-bitcoin-futures-has-investors-buzzing/#Uu1VCrlVplSB1SwH.99
Tuesday, 28 November 2017
Friday, 11 August 2017
Bitcoin and other cryptocurrencies - how may these impact the individuals, the businesses and the financial sectors (fintech) ?
The value of bitcoin depends on:
1. The number of transactions using bitcoin.
2. Currency crisis or stability.
3. Its storage of value as digital gold.
---------------
What is bitcoin?
The idea for bitcoin was first aired around 2009 in a white paper detailing the proof of concept written under the pseudonym Satoshi Nakamoto, whose real identity or identities have never been revealed.
The protocol and software underlying bitcoin are published openly, allowing any developer to review the code.
Just as no one owns the technology behind email, the bitcoin network has no owner or overall controller.
The emergence of bitcoin has given rise to a number of other online coins, commonly referred to as "cryptocurrencies", where encryption is used to regulate the number of units of the currency that can be created and to verify transactions.
The underlying technology supporting bitcoin, the blockchain, is also being made use of in a number of industries, from asset management to property registration.
The rise of bitcoin
Since launch in 2009, the price of a bitcoin has varied dramatically. It hit a peak of around
US$ 1,120 in 2013, before fluctuating between $230 and $500 until 2016.
But the cryptocurrency has been on a tear over the past year, reaching an all-time high.
In early June it was US$ 3,018.55.
Some may worry that this bears the warning signs of a bubble, but so long as users continue to demand bitcoins and a growing number of endorse accept them as payment, then the value found in bitcoin could be here to stay.
While gold may be one of the most familiar alternative assets to an everyday investor, bitcoin is likely to be new territory.
But those who purchase gold as a way to store value outside of a mainstream bank could also find bitcoin of interest.
For those who think that nearly US$ 3,000 for a digital currency looks expensive, it is also possible to buy portions of bitcoin.
These smaller units are dubbed "satoshis", named after bitcoin's illusive founder, and are to a bitcoin what pence is to the pound sterling.
Users can trade satoshis down to the one hundred millionth of a bitcoin.
Why buy bitcoins?
Bitcoin has positioned itself as a currency without fuss.
No banks or fees are involved and users can reside anywhere in the world.
Just like any other currency or commodity, the price of bitcoin is led by supply and demand.
But unlike government backed fiat currencies such as the dollar or sterling, there is a limit to how many bitcoins can exist.
No more than 21m coins can ever be created, but the market is not likely to hit this limit for many years to come.
Just over 16m have been mined so far, but those worrying that this looks close to the cap should remember that mining becomes progressively more difficult over time.
There will never be an option to have the cryptocurrency version of quantitative easing and simply create more bitcoins, but since they can be broken down to the one hundred millionth through satoshis, it is unlikely they should become untraceable at any point.
Bitcoin remains a relatively small market for the time being, and so it does not take much to swing the price quite drastically in either direction, making it still very volatile.
The value should stabilise in time with scale as more individuals use the cryptocurrency and more businesses accept it as payment.
The more people who adopt bitcoin and the more vendors who choose to accept it as payment, the more value will be added over time.
In order to accept bitcoin, online retailers need to join forces with a payment processor that has the means to complete the transaction.
In order to address the volatility of the price of bitcoin, users will have 10 minutes to complete the booking, after which time the price will be updated again.
Bitcoin payments are not confined only to purchases made online.
Each bitcoin wallet will generate a unique QP code that can be scanned for in-person payments or transfers.
Users can also head to one of the more than 1,200 bitcoin ATMs, which exchange bitcoins for cash or vice versa, scattered across 55 countries, most of which are in Europe or North America.
It is also possible to trade bitcoin on some well-established platforms.
Bitcoin can be used to buy goods and services, and proponents of the coin would like to see it one day pose as a serious rival to traditional currencies.
The anonymity of bitcoin has also raised questions about whether it could be a tool for criminal activity.
But unlike cash, bitcoin transactions can never be truly invisible because all trades are broadcast on the blockchain, although the identities of those involved are not known.
Developers claim that it is impossible to counterfeit, and that users are in complete control of their payments and cannot receive unapproved charges.
What about other cryptocurrencies?
With a current market cap of US$ 42.5 bn, bitcoin is by far the largest cryptocurrency on the market, but not the only one.
After bitcoin launched eight years ago a number of others sprang up to compete.
Website Coin Market Cap shows that there are 877 coins in existence with a total market cap of close to $110bn.
By market cap, bitcoin's two largest competitors are Ethereum and Ripple.
Unlike other cryptocurrencies that work to eliminate the need for a bank, Ripple is working with banks to create an easier and more efficient way to send money around the world, allowing real-time payments across networks.
Banks can save back-office costs by using Ripple to process and settle international payments.
The blockchain in action
While blockchain has proved itself for bitcoin, it is still in the relatively early stages for most other anticipated applications.
Blockchain has started to make headway in finance as a way to cut costs and reduce transaction times (fintech revolution).
In its 2016-17 business plan, the Financial Conduct Authority (FCA) acknowledged the potential uses of blockchain in financial services, calling it an "alternative approach to safe storage of information", such as custody, execution, and clearing and settlement, that can provide secure, transparent and immediate confirmation of information and can be distributed without the need for a central record-keeping authority.
While the regulator did note that this alternative approach could have its upsides, it added that challenges related to data privacy, defect corrections and trust could arise.
Those companies currently testing applications will have to demonstrate to their peers that blockchain is a workable and worthwhile solution before there is industry-wide adoption.
The widespread adoption could be one of the biggest challenges facing industry-wide acceptance.
One of the benefits of blockchain is that is is distributed, so the more members you have the more secure it becomes.
If done properly, blockchain has the potential to speed up transactions, allow for international transfers, cut costs, ease regulatory burdens, mediate disputes and improve transparency across a number of industries.
Additional article:
Conclusion
1. The number of transactions using bitcoin.
2. Currency crisis or stability.
3. Its storage of value as digital gold.
---------------
What is bitcoin?
The idea for bitcoin was first aired around 2009 in a white paper detailing the proof of concept written under the pseudonym Satoshi Nakamoto, whose real identity or identities have never been revealed.
The protocol and software underlying bitcoin are published openly, allowing any developer to review the code.
Just as no one owns the technology behind email, the bitcoin network has no owner or overall controller.
The emergence of bitcoin has given rise to a number of other online coins, commonly referred to as "cryptocurrencies", where encryption is used to regulate the number of units of the currency that can be created and to verify transactions.
The underlying technology supporting bitcoin, the blockchain, is also being made use of in a number of industries, from asset management to property registration.
The rise of bitcoin
Since launch in 2009, the price of a bitcoin has varied dramatically. It hit a peak of around
US$ 1,120 in 2013, before fluctuating between $230 and $500 until 2016.
But the cryptocurrency has been on a tear over the past year, reaching an all-time high.
In early June it was US$ 3,018.55.
Some may worry that this bears the warning signs of a bubble, but so long as users continue to demand bitcoins and a growing number of endorse accept them as payment, then the value found in bitcoin could be here to stay.
While gold may be one of the most familiar alternative assets to an everyday investor, bitcoin is likely to be new territory.
But those who purchase gold as a way to store value outside of a mainstream bank could also find bitcoin of interest.
For those who think that nearly US$ 3,000 for a digital currency looks expensive, it is also possible to buy portions of bitcoin.
These smaller units are dubbed "satoshis", named after bitcoin's illusive founder, and are to a bitcoin what pence is to the pound sterling.
Users can trade satoshis down to the one hundred millionth of a bitcoin.
Why buy bitcoins?
Bitcoin has positioned itself as a currency without fuss.
No banks or fees are involved and users can reside anywhere in the world.
Just like any other currency or commodity, the price of bitcoin is led by supply and demand.
But unlike government backed fiat currencies such as the dollar or sterling, there is a limit to how many bitcoins can exist.
No more than 21m coins can ever be created, but the market is not likely to hit this limit for many years to come.
Just over 16m have been mined so far, but those worrying that this looks close to the cap should remember that mining becomes progressively more difficult over time.
There will never be an option to have the cryptocurrency version of quantitative easing and simply create more bitcoins, but since they can be broken down to the one hundred millionth through satoshis, it is unlikely they should become untraceable at any point.
Bitcoin remains a relatively small market for the time being, and so it does not take much to swing the price quite drastically in either direction, making it still very volatile.
The value should stabilise in time with scale as more individuals use the cryptocurrency and more businesses accept it as payment.
The more people who adopt bitcoin and the more vendors who choose to accept it as payment, the more value will be added over time.
In order to accept bitcoin, online retailers need to join forces with a payment processor that has the means to complete the transaction.
In order to address the volatility of the price of bitcoin, users will have 10 minutes to complete the booking, after which time the price will be updated again.
Bitcoin payments are not confined only to purchases made online.
Each bitcoin wallet will generate a unique QP code that can be scanned for in-person payments or transfers.
Users can also head to one of the more than 1,200 bitcoin ATMs, which exchange bitcoins for cash or vice versa, scattered across 55 countries, most of which are in Europe or North America.
It is also possible to trade bitcoin on some well-established platforms.
Bitcoin can be used to buy goods and services, and proponents of the coin would like to see it one day pose as a serious rival to traditional currencies.
The anonymity of bitcoin has also raised questions about whether it could be a tool for criminal activity.
But unlike cash, bitcoin transactions can never be truly invisible because all trades are broadcast on the blockchain, although the identities of those involved are not known.
Developers claim that it is impossible to counterfeit, and that users are in complete control of their payments and cannot receive unapproved charges.
What about other cryptocurrencies?
With a current market cap of US$ 42.5 bn, bitcoin is by far the largest cryptocurrency on the market, but not the only one.
After bitcoin launched eight years ago a number of others sprang up to compete.
Website Coin Market Cap shows that there are 877 coins in existence with a total market cap of close to $110bn.
By market cap, bitcoin's two largest competitors are Ethereum and Ripple.
Unlike other cryptocurrencies that work to eliminate the need for a bank, Ripple is working with banks to create an easier and more efficient way to send money around the world, allowing real-time payments across networks.
Banks can save back-office costs by using Ripple to process and settle international payments.
The blockchain in action
While blockchain has proved itself for bitcoin, it is still in the relatively early stages for most other anticipated applications.
Blockchain has started to make headway in finance as a way to cut costs and reduce transaction times (fintech revolution).
In its 2016-17 business plan, the Financial Conduct Authority (FCA) acknowledged the potential uses of blockchain in financial services, calling it an "alternative approach to safe storage of information", such as custody, execution, and clearing and settlement, that can provide secure, transparent and immediate confirmation of information and can be distributed without the need for a central record-keeping authority.
While the regulator did note that this alternative approach could have its upsides, it added that challenges related to data privacy, defect corrections and trust could arise.
Those companies currently testing applications will have to demonstrate to their peers that blockchain is a workable and worthwhile solution before there is industry-wide adoption.
The widespread adoption could be one of the biggest challenges facing industry-wide acceptance.
One of the benefits of blockchain is that is is distributed, so the more members you have the more secure it becomes.
If done properly, blockchain has the potential to speed up transactions, allow for international transfers, cut costs, ease regulatory burdens, mediate disputes and improve transparency across a number of industries.
Additional article:
Tuesday, August 1, 2017
If you believe that bitcoin will eventually get wide acceptance as a digital currency, you may be able to justify that price, especially because there is a hard cap on bitcoin, but if you don't believe that bitcoin will ever acquire wide acceptance in transactions, it is time that you were honest with yourself and recognized that is just a lucrative, but dangerous, pricing game with no good ending.
Crypto currencies, with bitcoin and ether leading the pack, have succeeded in financial markets by attracting investors, and in the public discourse by garnering attention, but they have not succeeded (yet) as currencies. I believe that there will be one or more digital currencies competing with fiat currencies for transactions, sooner rather than later, but I am hard pressed to find a winner on the current list, right now, but that could change if the proponents and designers of one of the currencies starts thinking less about it as a speculative asset and more as a transaction medium, and acting accordingly. If that does not happen, we will have to wait for a fresh entrant and the most enduring part of this phase in markets may be the block chain and not the currencies themselves.
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