What the Heck’s Going on With Cryptocurrencies?

[Y_Participant 4591]

What the Heck’s Going on With Cryptocurrencies?
by Wolf Richter • 15th May 2017
http://wolfstreet.com/2017/05/15/cryptocurrency-bubble-bitcoin-etherium-ripple-sec/

One word, a question: Ethereum,” said the guy at my swim club on Sunday. “What do you think? It’s a ten-bagger since January.” Meaning that the value of the cryptocurrency has multiplied by ten in the four months since January 16.

It’s actually more than a “ten-bagger.” At the end of 2015, it was worth $0.90. As I’m writing this, it’s worth $91.30. Those who bought it at the end of 2015 had a ten-bagger on their hands by January 16, 2017. Those who bought at that time also have ten bagger on their hands. Those that rode it all the way up over the 16 months have a 100-bagger. For percentage fans, that’s a gain of 10,000%.

Here is the chart of this financial miracle (via WorldCoinIndex):

What miracle “asset” did they get when they bought it? Don’t even ask. Just believe in it. It certainly isn’t a usable currency for legit purposes, obviously, given this kind of insane instability. But it really doesn’t matter what it is as long as it is going up.

By “market capitalization,” ethereum is now the second largest cryptocurrency at $8.4 billion.

The largest one is Bitcoin with a “market cap” of nearly $30 billion. It’s the granddaddy of the cryptocurrencies. The value of a single bitcoin, at $1,789 on Sunday, is 46% higher than the value of one troy ounce of gold. In mid-May 2015, bitcoin was at $240. Over the two years since, it has soared 645% (via WorldCoinIndex):

Number three in line, in terms of “market cap,” is Ripple, which now trades for $0.215. There are a lot of them, and all of them combined are valued at $7.3 billion. It’s up from $0.006 at the end of February 2017. So in the 11 weeks since, it has soared by 3,542%. Or to use my friend’s term, it’s a 35-bagger in 11 weeks. This is its ludicrous chart (via WorldCoinIndex [2]):

It’s not some kind of bad joke. This is being played with real money. That it will inflict maximum pain on the latecomers – whenever this happens – is now perfectly clear.

There are over 830 “alt-coins,” as the alternatives to bitcoin are called, out there, with new ones being added constantly. The “market cap” of all these cryptocurrencies combined, according to the Financial Times, has pierced the $50 billion mark. So this starting to involve serious money.

But there are a couple of issues with this miraculous scenario, according to the FT:

An increase in initial coin offerings (ICOs) – unregulated issuances of crypto coins where investors can raise money in bitcoin or other crypto currencies – is fuelling the market and drawing attention from lawyers and financial professionals.

Many fear ICOs, which are trying to market themselves as an alternative to venture capitalists as a way of raising cash for businesses, breach existing securities law.

“An ICO issues crypto tokens rather than stocks and bonds, but that’s irrelevant to the substance of the activity, which is raising capital from the general public,” said Ajit Tripathi, a director in fintech at PwC. “Capital raising activities need to be regulated to protect investors . . . The question is how sophisticated are these investors?”

Many of these investors may not be “sophisticated.” But others appear to be highly sophisticated, now that the sums involved have gotten big enough for them. The FT:

Observers say many individuals are trading alt-coins from corporate IT departments, concentrated in the financial sector and falling under the radar of senior executives. Many are sitting on virtual fortunes, but are unable to liquidate their cash as banks clamp down on measures to avoid money laundering.

“Systems are being used here by employees to increase their own individual wealth. In the process, corporate systems are coming into contact with the fringes of the criminal world,” Brian Lord, former deputy director for intelligence and cyber operations at the UK’s electronic espionage agency GCHQ and now head of cyber practice at security group PGI, told the FT.

Big sophisticated traders – including hedge funds and others – are in this trade, not because it might make some real economic sense, but because, as the charts above show, these things can be pushed up quickly with enough money involved. And if enough new people can be drawn in due to the ballooning hype, then the big boys can get out, once they figure out how to deal with the banks’ concerns about money laundering.

For now, the SEC and other regulatory agencies have turned mostly a blind eye, as they usually do. Later, when it’s too late, after considerable wealth has been transferred from those getting in late to those getting out in time, the SEC might get interested in it. And that act alone could reverse some of those charts above.

For now, cryptocurrencies remain relatively small compared to derivatives. Oh, and the unintended consequences of trying to regulate that monster.

<<Y

As I noted and referenced in another post the use of Bitcoin as the ransom currency of choice may force the SEC to criminalise its use.

https://dailyreckoning.com/ray-blanco-angry-right-money/
https://dailyreckoning.com/the-death-of-bitcoin/

So caveat emptor – let the buyer beware.

Y>>

Citations
[1] https://srsroccoreport.com/what-the-hecks-going-on-with-cryptocurrencies/
[2] https://www.worldcoinindex.com/

[Faust For ScienceParticipant 22521]

Yumbo. I have read that cryptocurrencies are rigged. Also, you open yourself up to tax implications. And it is rumored on various news forums that one of the ways those massive computer virus infections are coming from such systems.

[Y_Participant 4591]

Faust For Science wrote:

Yumbo. I have read that cryptocurrencies are rigged. Also, you open yourself up to tax implications. And it is rumored on various news forums that one of the ways those massive computer virus infections are coming from such systems.

Thank you – yes what you say is very true. I would expect those who go into this appreciating how risky it can be for many reasons – this market is not for amateurs.

The main issue from cryptocurrency is that it is totally unregulated. This can be good or bad. There is a large amount supporting terrorist activities and the dark web. See the number of ransoms we know of asking for payment in Bitcoin? Sooner than later I expect there will be a reckoning.

[MarketWatcherParticipant]

Great post.

Y_ wrote:

That it will inflict maximum pain on the latecomers

That is the goal. It is not big enough to extract vast sums from yet, but when it is look out.

[Y_Participant 4591]

MarketWatcher wrote:

Great post.
Yumbo wrote:
That it will inflict maximum pain on the latecomers
That is the goal. It is not big enough to extract vast sums from yet, but when it is look out.

What do you think ? This does not appear normal to me. I have not seen this kind of spike since China tightened its capital flows earlier this year. Something is up somewhere.

I believe it may be the Chinese again panicking – their bond market got suspended and the PBoC had to inject billions into the banking system last week. They are the only group with large enough investments at present in cryptocurrencies who can do this.

[Jan SobieskiParticipant 28791]

I don’t trust them because as Old Bill pointed out, the don’t have an Army to protect or enforce them.

Love is just alimony waiting to happen. Visit mgtow.com.

[Y_Participant 4591]

Jan Sobieski wrote:

I don’t trust them because as Old Bill pointed out, the don’t have an Army to protect or enforce them.

Yes – when anyone trades or invests in crypto it’s an all or nothing game. Its outside the law for now. Something about a fool and his money comes to mind.

[MarketWatcherParticipant]

Y_ wrote:

They are the only group with large enough investments at present in cryptocurrencies who can do this.

Bingo! That is why there is no point in mining Bitcoin. The Chinese are doing it basically at a loss.

Y_ wrote:

Something about a fool and his money comes to mind

My thoughts as well. I invest in things I understand that pay me and that have liquidity.

[PistolPeteParticipant 27143]

I must confess that I don’t understand this at all. Only a sovereign county/state can print or create currency for exchange. So how does this work without a state?

[BeerParticipant 11832]

PistolPete wrote:

I must confess that I don’t understand this at all. Only a sovereign county/state can print or create currency for exchange. So how does this work without a state?

To me its just like farming items in an MMO. People will pay for pixels that are basically useless and worthless, but sooner or later when that game(or cryptocurrency) is no longer popular the value of all the pixels goes straight to 0.

Really the main use for cryptocurrency that isn’t something you couldn’t have already done for years with a credit card is its easier to maintain anonymity if you are doing something illegal…but if you aren’t doing illegal s~~~ who cares? Now considering its main use is illegal stuff…its only a matter of time before governments start to crack down on it…I’m not sure what they dislike more the illegal activity or the competition.

[PistolPeteParticipant 27143]

Thanks Beer! And NOW I think I get where Yumbo was coming from. And as usually he is banging the pots and pans of warning and only a fool wouldn’t pay attention!

[Silver FoxParticipant 2766]

A while ago I read a thorough explanation from an anarcho-capitalist of what Bitcoin really is. It’s not money, per se, because without the ability to convert Bitcoin into dollars, it is worthless. Dollars are the real money (albeit inflated and mangled by state control), and as long as Bitcoin can be converted into dollars, Bitcoin will have value in people’s eyes.

Speculating here… if the dollar collapses, Bitcoin could possibly rise to even greater heights, assuming that other world currencies remain relatively intact (say the Chinese yuan or the Russian ruble). Bitcoin’s value then will be in its ability to convert into whatever is the most valued currency of the day.

I think Bitcoin is worth having, if you have extra cash to spend and can afford it. If you’re looking to invest and make a profit, then you should have bought a few coins years ago. That ship has kinda sailed already. But if you’re looking for ways to diversify your money, and can afford the risk, Bitcoin might be worthwhile.

Of course, if you’re a cyber-hacker or something, Bitcoin has some value for being a pseudonymous form of currency. With some effort, you can elude law enforcement’s efforts to track your money.

"Are you loosed from a wife? Do not seek a wife." --Apostle Paul

[Back in BlackParticipant 1732]

I don’t know anyone who fully understands crypocurrencies (and I surely don’t pretend to). What I do know is that there seems to be a place for digital currencies and they are becoming legitimized. Ethereum is backed by a consortium of about 50 of the worlds largest companies (including Microsoft, JP Morgan, Banco Santander etc). Bitcoin is starting to see mainstream acceptance as people are accepting payment in bitcoin.

I think anyone who believes their “dollars” are anything more than fiat are kidding themselves. Sure, mainstream currency has the backing and full faith of a government behind it. But nowadays who trusts the f~~~ing government. The debt in the US is totally unsustainable and someday the cards will fall. it may be in 1 year or 50 years but it will happen and when it does the US dollar is likely to go the way of the German Mark and many others when there was hyperinflation – zero.

Personally I put a very small amount of $ into Ethereum a couple months ago when it was about $30.00. I have since sold enough to capture my original investment and have a couple grand (that I don’t need) just sitting in an account.

The market caps on these things are tiny relative to global currencies. I believe over a period of time they have the potential to run up considerably higher from here (I remember the stock market in 1999-2000. It was crazy. I held some Qualcomm stock that went up $160 in one day! and that was not really unusual at the time).

I would recommend anyone should put some $ into cyrpotcurrencies. With one HUGE caveat: only put a very small portion of your investable money in!!! The risks are huge but so are the potential for gains.

Do your due diligence as always.

BIB

"Women are directly adapted to act as the nurses and educators of our early childhood, for the simple reason that they themselves are childish, foolish, and short-sighted—in a word, are big children all their lives, something intermediate between the child and the man, who is a man in the strict sense of the word. Consider how a young girl will toy day after day with a child, dance with it and sing to it; and then consider what a man, with the very best intentions in the world, could do in her place.” Quote from Arthur Shopenhauer, 17th century philosopher

[EvilcpuParticipant 217]

Y_ wrote:

There are over 830 “alt-coins,” as the alternatives to bitcoin are called, out there, with new ones being added constantly. The “market cap” of all these cryptocurrencies combined, according to the Financial Times, has pierced the $50 billion mark. So this starting to involve serious money.

These incredible surges are happening with many other alt-coins, too. I’m trading relatively small volumes of alt coins, because of the anonymity issue. I mean, if I could convert even 50€ in bitcoin without questions asked, it would be more than great. I think the rise in value of these cryptocurrencies can be correlated with the growing investment in fiat money. However, it’s also possible that if the governments crack down enough on them, they could drop in value.

Because of this interesting situation I’m planning to create my own alt coin, I hope soon. 🙂

Out of your prime, out of my sight.

[xlrsnbrgParticipant 1786]

Smells like Ponzi scheme to me.

A man shouldn't make his life's objective to be on the side of the majority, but to avoid finding himself in the ranks of the insane. (Marcus Aurelius)

[Y_Participant 4591]

PistolPete wrote:

Thanks Beer! And NOW I think I get where Yumbo was coming from. And as usually he is banging the pots and pans of warning and only a fool wouldn’t pay attention!

Too kind as usual PP. Peace bro.

[Y_Participant 4591]

xlrsnbrg wrote:

Smells like Ponzi scheme to me.

It is EXACTLY that.

[Anonymous 14]

xlrsnbrg wrote:

Smells like Ponzi scheme to me.

Every currency without something real backing it is a Ponzi scheme.

The question here is; Do you want other Ponzi schemes popping up that will undermine government monopolized ones?

I do.

[Mr. SmithParticipant 686]

Jan Sobieski wrote:

I don’t trust them because as Old Bill pointed out, the don’t have an Army to protect or enforce them.

Cryptocurrencies have a much stronger force to protect it: mathematics.

There is a general misconception what money is. In theory it’s a equivalent to the wealth the issuer has, usually some kind of government bank. The paper or coins are usually not worth a lot. In earlier times money was backed up by something precious, mostly gold. So you knew for every piece of paper there is actual gold somewhere and so the money had a value in itself.
Most countries today do not longer back up their currencies with anything valuable. They just promise you the money is worth something in the future. (see https://en.wikipedia.org/wiki/Fiat_money) In some cases it’s likely, in some cases it’s not. So it comes all down to trust. As long as people trust the currency, the money has worth. If people lose trust, the money loses it’s value. Trust is a funny thing, it can’t be enforced, by no army and no argument.
Today most people trust the money because they inherently trust the government issuing it. Even if they don’t like or don’t trust the political leaders of the moment, they trust in the country and the political system itself. This trust can be undermined by several internal or external incidents.
It can be a big natural disaster. The Dollar will be in free fall if the super volcano under the Yellowstone Park erupts, because it will disrupt more or less everything on the North American continent. It can also be political. Imagine a guy like Bernie Sanders becomes president, changes the USA into a socialist state. Both is not very likely, but possible.
Much more likely are smaller political things, like boycotts of certain countries, changes in circumstances nobody can really influence. For instance what do you think the Saudi Riyal will be worth after Saudi Arabia runs out of oil? Right now everybody believes the Saudi government will back up it’s currency, because they still have oil. They realized this years ago and started transforming their economy from oil-based to a more diverse, but nobody knows if it really works. Doubt and fear are the enemy of trust.
Another example is Russia. The boycotts after the Crimean incident caused the Ruble to drop sharply. Right after this development was foreseeable the Russian government restricted the exchange of Rubles into foreign currencies. China did something alike, but for different reasons. As a result many rich Russians and Chines transferred their cash to Bitcoins, because they trusted it more than the countries currency.
All a government can do against cryptocurrencies is to outlaw it. The problem with this, the cryptocurrency is still there and works everywhere else. It even works within the country, only the use of it would be outlawed. It is technological and therefor judicial impossible to seize peoples money stored in cryptocurrencies. Like in Russia and China that’s a big plus on the trust side. Other countries will follow the more the political system, economy and especially the banking system worldwide is running into problems.
The great thing about cryptocurrencies, if implemented right, they are completely independent from any central institution and immune to political influence. Nobody can increase the amount of money by printing new paper money. Nobody can decrease it’s value by exchanging it for a “reformed currency” like it happened in many countries.
As written above they have mathematics on their side to prevent things like falsification, fraud and all typed of influence. To understand how cryptocurrencies work needs a certain understanding of cryptography and mathematics. I have only looked at Bitcoin and a little at Litecoin. For Bitcoin I can say who ever designed it was a frickin genius. It has some flaws, but only very minor and most of it was corrected. In the end it comes back to trust. I don’t trust any government therefore it’s hard for me to trust in the money they issue. Math I trust. Even nobody can out rule a major flaw in Bitcoin, it has a much more solid foundation than any other currency. The question is, do people see this and gain trust or not?

"I need men, real men, men with balls, certainly not sissies. I would never ask them to take an enemy position, but I insist that they follow me to that position. If you are one of those men, raise your hand." Napoleon Bonaparte

[Y_Participant 4591]

Mr. Smith wrote:

I have only looked at Bitcoin and a little at Litecoin. For Bitcoin I can say who ever designed it was a frickin genius. It has some flaws, but only very minor and most of it was corrected. In the end it comes back to trust. I don’t trust any government therefore it’s hard for me to trust in the money they issue. Math I trust. Even nobody can out rule a major flaw in Bitcoin, it has a much more solid foundation than any other currency. The question is, do people see this and gain trust or not?

Very good post. Thank you.

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