Sunday, May 21, 2017

Bitcoin suddenly becoming the investment of the elite as price soars to over $2300 in some Asian exchanges

When Satoshi wrote his White Paper back in 2008 regarding the creation of a money form that would be secure and outside the control of sovereign entities, the underlying premise was that it would not only change the way commerce was conducted, but also provide the common person a means to store their wealth in an asset that was absent of monetary devaluation.

And while it took about five to six years for Bitcoin to move away from the fringe of society, where it was half seen as a novelty and half seen as the savior from the world's fiat monetary system, its sudden emergence into the mainstream has been incredibly robust and unlike anything ever seen in monetary history.

But as we enter into the second quarter of 2017, what was originally intended for the masses to be used as a medium of exchange has suddenly turned into a speculative investment that is being lapped up by the very institutions that would see it financialized instead of used as a real currency.  And the massive rise in value over just the past five months is threatening to categorize the cryptocurrency as a bubble, and scare away many individuals who might seek an alternative to the dollar, euro, or yen as a way to secure their wealth.

Image result for bitcoin bubble
Bitcoin price established its new all-time high at $2,087 earlier today after surging past its previous all-time high set at $2,050, with demand toward Bitcoin rising from institutional investors in the US, Japan and South Korea. 
At the time of writing, Bitcoin is being traded in Japan and South Korea, the second and third largest Bitcoin exchange markets in the world, at around $2,350, at an 11 percent premium relative to the global average Bitcoin price and the price listed by US-based Bitcoin exchanges. 
Analysts including Charles Hayter, the CEO of CryptoCompare, explained that the Japanese and South Korean Bitcoin exchange markets played a key role as the driving factor of Bitcoin’s recent price surge. In an interview with CNBC, Hayter stated
"Arbitrage between the fiat pairs drags markets up or down in line with leading markets. At present, volumes on the KRW and JPY pairs dominate trading with a combined 48 percent market share.” - Coin Telegraph
From a purely fundamental point of view, investors and owners of Bitcoin need to realize that the market is treating the cryptocurrency like a security, and at a time when nearly all other assets such as bonds, stocks, and real estate are at all time highs.  And one of the reasons that Bitcoin is skyrocketing in price and value right now is because institutional players are moving money into what they believe is one of the very few potentially undervalued assets.  But like with any security or investment that receives too much buying in a short amount of time in relation to selling, at some point it will hit terminal velocity, and the fall in price will be just as fast as the velocity in which it rose.

3 comments:

I want to tackle some issues you raised with bitcoin on your latest program with V today.

1. I believe you have a misunderstanding of the governance of bitcoin. No there is no central committee or CEO of bitcoin. Unlike Ripple, Dash, nor Ethereum there is no CEO to control. The founder of bitcoin, Satoshi Nakamoto, is unknown and even if we found out who he was it wouldn't matter. Satoshi would have no power over bitcoin at the present time. It runs on consensus with various players in the bitcoin community including the miners, exchanges, merchants and what is very crucial the users with the importance of nodes. It's true that the miners so far have obstructed the introduction of Segwit but also nothing can get passed without the users and nodes approving. There are over 100 core developers of the bitcoin software and the changes introduced are gone over with a fine tooth and comb. It's open source which means everyone who has the ability to read code can see the entire application. Everything is out in the open and nothing can get sneaked in. The reason changes take so long to get implemented on bitcoin is on account of this very broad consensus.

2. You say that bitcoin has changed from its initial function as currency of exchange to what it is now, a store of value. That's true and not true. The fact that more and more people see it as a store of value is very positive. People are seeing it more secure and safe than fiat currencies in the bank. Bitcoin, with the private keys in your possession, properly protected and not on exchanges, are very secure and cannot be confiscated unlike money in the bank. The fact that bitcoin is going up because of interest in Japan and South Korea is very very positive and should not be looked at as speculation and a bubble. So not only is China causing the price to rise like before but now two new countries are seeing the value. Who's next? Australia, Indonesia, Phillipines, etc. What we might be seeing is a new leg up in Bitcoin which may rocket it much higher. If segwit gets activated and along with Lightning Network then Bitcoin can skyrocket its use as a currency and compete with cheapness of transactions on a par with credit card transactions. But first we have to convince the miners to accept segwit.

3. It's not true that the price of bitcoin is becoming out of the reach of ordinary folks. Sure at $2000 a bitcoin it's expensive but anyone can buy any fraction of a bitcoin that they can afford. You can purchase .1 bitcoin for $200 or .001 bitcoin for $20 and watch it go up in value. This idea that you can only buy a full bitcoin is a fallacy repeated by the ex finance minister of Greece Varofaukis in an interview.

4. Bitcoin, among the major cryptocurrencies, is the only one that cannot be shut down by government. The government can arrest Vitaly Buterin of Ethereum for whatever reason and there goes Ethereum. The same for Dash, Ripple or Monero. There's no one person or committee to go after in bitcoin. They would have to basically shut down the internet to shut down Bitcoin. For this reason Bitcoin may eventually be the only one to survive.

Three more points to make.

1. Comparing Bitcoin to My Space could be right but most likely wrong. The first one out of the gate most of the time sets the standard because of the network effect. TCPIP is still the internet protocol, HTML is still the programming language of websites and smtp is still the email protocol.

2. Zen gold and other gold backed cryptocurrencies have two problems. One is that how will it be verified that there really is gold to back it up and because the currency will need to have the gold vaulted somewhere, the government will know where the gold is and can confiscate it and arrest the owners. With bitcoin there is no central storage of bitcoins, there will only be 21 million ever produced, there has never been one bitcoin double spent and there are no owners, central committee, CFO, or CEO to arrest.

3. Blockchain is only useful to a decentralized, trustless, and public ledger. It's really not as efficient as a typical ledger database that banks currently run. Since no bank is going to do what Bitcoin does and publicize all transactions on a public ledger and will keep everything private and proprietary, it's total nonsense for banks to look at blockchain technology. Banks do what they do really well but the problem is that all transactions must go through a central authority to validate and approve them. What's the point of private banks going to an inefficient blockchain. Once banks get over the blockchain hype they will just use a regular database.

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