Bitcoin is expected to gain traction and hit the $5,000 mark this year,
according to a number of market participants. Is this really possible? This weekend we saw Bitcoin reach $4,000. Hysteria is gripping crypto investors as institutional investors have started to move in and invest in cryptocurrency – grabbing a piece of the action. Today the cryptocurrency is at around $4,460, per Coindesk. Aaron Lasher, co-founder and CMO of Breadwallet, believes it is certainly possible the currency will reach $5,000 but warns Bitcoin is in bubble territory. He explains the real way to win the Bitcoin game is to look three or four bubbles ahead.
"Make no mistake, Bitcoin is in a bubble, but it's not necessarily a bad thing," Lasher said. "It's not the first time this has happened nor will it be the last. When you take a long term view, such as 15 or 20 years, the analysis you should entertain is determining from what financial instruments that bitcoin can "steal" market share, and then back into a number that represents that value."
John McAfee, CEO of New York-based MGT Capital Investments and the founder of a antivirus software company, also made a public forecast on Twitter that Bitcoin will jump to $5,000. Bitcoin is becoming more and more mainstream especially in the U.S. – Goldco recently introduced "Coin IRA" which allows investors to roll over an existing IRA or 401(k) into a Bitcoin IRA. Investors can now opt to save for retirement by investing in digital currencies and cryptocurrencies.
"On Sunday Bitcoin broke through $4,000, doubling in value since last month," said Trevor Gerszt, CEO of Goldco. "It's already worth four times more that its value at the start of the year. With so much growth in digital currencies this year, this new sector offers incredible potential for return on investment."
"Let's imagine that as an investment vehicle, Bitcoin replaces 5% of the global demand for stocks ($69 trillion), bonds ($82 trillion), and real estate ($217 trillion)," Lasher continued. "That would put Bitcoin at around $18.4 trillion total valuation. Divide that by the number of bitcoins there will be in 20 years (~20.5 million) and you get approximately $900,000 per coin. Is that a realistic goal? Nobody really knows. But is it possible? Yes, it's definitely possible."
Investors should also keep an eye on Asia.
"With respect to the Bitcoin market through the end of the year, I expect to continue to see growing inflows into the market via Asian economies where crypto-asset awareness has begun to hit a tipping point," said Laurent Kssis, Managing Director at XBT Provider. "Specifically, over the last three months, the most visible inflows into market have been via South Korea & Japan; a trend which I do not expect to slow down anytime soon."
"Through the rest of the year, I would not be surprised to see the price break through the $5,000 per coin threshold," said Ryan Radloff, head of investor relations at XBT Provider. "I also think we will see the adoption of a smaller unit of Bitcoin, and an increase of 'delta-1 securities' emerge on top of the Bitcoin ecosystem. I believe the more products that emerge like futures, options, swaps and ETFs, the more stable it will make bitcoin, but don't expect high degrees of volatility to go away until we are close to a $350,000 to $450,000 per coin in the future."
TheStreet's Stocks Under $10 has identified a handful of stocks with serious upside potential. Krzysztof Kolaczynski, the founder of STABLE, warns cryptocurrencies are only risky, if you devote them all or a substantial part of your portfolio. "But, if you simply lower the exposure to just 10%, or 15% of your entire portfolio, such an approach will suddenly start to make sense," he said. "The simplest strategy of reducing volatility (therefore also allocation) is called volatility targeting/scaling on constant basis, so each time you are adjusting allocation in Bitcoin in order to keep such a portfolio volatility at the level equal to the S&P500 index volatility."
"Such a strategy means that instead of investing 100% of your portfolio into Bitcoin one investor could lower exposure into cryptocurrency to the level of volatility of the popular equity indices such as S&P 500, Nikkei 225 or Eurostoxx 50," he said. "If equity index volatility is at level of 15% and Bitcoin volatility is at level of 110% it means that instead of investing 100% of capital into Bitcoin based on rules of volatility target strategy, the allocation into the Bitcoin should be about 13% – the remaining part of portfolio Investor could put on deposit or money market fund."
Blockchain May Give Rise To Even Smarter B2B Marketplaces
Does blockchain mean boom or bust for existing B2B networks? On one hand, blockchain — a series of open and global distributed ledgers — promises to smooth and validate the interactions that take place between organizations and their customers, partners and suppliers. On the other, blockchain's value proposition is that it takes out the middlemen in transactions, enabling more autonomous type of engagements.
As the dot-com boom crested a couple of decades back, we saw a plethora of online B2B exchanges emerge across key industries, promising electronically delivered communications and trading between hubs, suppliers, customers and other involved parties. Some of these key exchanges have become prominent players within their industries. Now, blockchain is entering the enterprise mainstream. Recently, some major tech players including Microsoft and Intel have come together to form what they call the "Coco Framework," which offers enterprises the performance, confidentiality, governance, and required processing power they would seek before trusting their assets and data to an unseen, commonly shared platform.
Blockchain promises to eliminate the middlemen in transactions, thanks to its transparent and immutable “smart contracts” embedded within its worldwide code. I recently had the opportunity to sit down with Marco De Vries, senior director of product marketing for the OpenText Business Network, which now oversees such longstanding industry B2B networks as Covisint and ANX. For his part, De Vries does not see blockchain as a threat to existing B2B networks, just as previous technology revolutions such as XML have often resulted in more complexity, not less. “We’ve seen the stories of the end of EDI and B2B for a long time,” he points out. “Even if blockchain takes off, for certain industries, it probably isn’t right for every part of the supply chain,” De Vries. “Many predicted AS2 standards would replace B2B networks. What we found with AS2 standards is that organizations actually faced more and more complexity. It’s difficult to keep up with all the changes. There are 50 different XML standards, and if I’m in a lot of different industries, how am I going to keep track? I can’t foresee the world managing their own blockchains.”
Blockchains can’t exist entirely in some virtual space, De Vries says. “Even with blockchain, we need to understand where systems of record reside,” he says. “It still has to be hosted somewhere. If you want to send an order, if you want to kick off an alert, how is that done? I can’t honestly see the world with its own blocks — there will be millions, billions of them. And securing them is another matter.”
At the same time, blockchain offers potential for easing and speeding up transactions between trading partners. “It certainly enhances the traceability of high-value items or highly regulated items such as meat, poultry and pharmaceuticals.” While the first application of blockchain has been digital money, “the physical supply chain takes it to a different level,” he continues. “If I’m in retail and I order high-value china — easily breakable stuff – with the Internet of Things, it becomes more relevant, with demand signals along the supply chain, with impact sensors, for example, in different providers, trucks, trains boats. Or, in another example if a certain item has to be kept at a certain temperature, it’s about monitoring the conditions of goods as they move through the supply chain." In current chains of custody for spoiled goods, "you really don’t have insight to what happened along the way,” he adds.
A report from IBM, issued earlier this year, agrees that there is an upside for digital marketplaces. “A blockchain-enabled digital marketplace is the one area where organizations anticipate significant disruption,” the report's authors observe. Two-thirds of executives in digitally advanced companies expect new blockchain-enabled marketplaces to spark significant disruption. "As more organizations anticipate a higher percentage of their revenues shifting into services, digital marketplaces that support blockchain-based peer-to-peer messaging and transactions could be more widely used. Smart contracts could automatically track consumption."
Corporate supply chain executives are seeing the possibilities in blockchain. A recent survey of 42 supply chain managers from Chain Business Insights finds that 43% intend to introduce blockchain into their supply chains over the coming year, and another 20% within the next two years. Advantages seen include improving supply chain visibility and transparency (cited by 46%), while 24% see potential to reduce transaction costs. 80% of respondents indicate that blockchain will play a role in tracking products moving through the supply chain. Another 60% see it as a way to share information with suppliers. A similar number see it as a way to share payment information such as purchase orders.
Adoption hurdles include lack of awareness and understanding, cited by 28%, along with lack of standards an interoperability concerns, also cited by 28%. “There is still a long way to go before the technology gains widespread acceptance,” said Sherree DeCovny, co-founder and principal of Chain Business Insights. “Still, key capabilities such as product tracing and verifying product chain of custody will likely drive to higher levels of awareness in the near to medium term.”
Bitcoin has so much flavor of the month
Earlier this year the U.S. Securities and Exchange Commission rejected
a bid by Tyler and Cameron Winklevoss, the twins infamous for claiming that Mark Zuckerberg stole the idea of Facebook from them while they were undergrads at Harvard, to launch a bitcoin-based ETF (exchange-traded fund). The decision from the SEC came nearly four years after they filed for regulatory approval. In the immediate aftermath of this news, the price of bitcoins, which had nearly tripled over the last year, significantly dropped to less than $1,000. Although other bitcoin-based ETFs are awaiting approval, and this decision did not directly affect their status, the wording of the SEC ruling did not initially appear to bode well for the prospects of bitcoin-based exchanges anytime soon.
The SEC determined that the proposed bitcoin ETF failed to meet these standards because the markets for bitcoins were unregulated. Of course, the primary problem for future bitcoin-based ETFs is that by their very nature, bitcoins will always trade on an unregulated market. It was surprising then, when just a couple of months later on April 24th, the SEC agreed to review its decision on the creation of a bitcoin ETF. In the four months since the SEC's decision to review its earlier rejection, bitcoin prices have rallied an amazing 163%.
Bitcoin is a digital payment system with no intermediaries or banks; it was invented by a person or group using the alias Satoshi Nakamoto, and released as open-source software in 2009. The U.S. Treasury has categorized it as a decentralized virtual currency though some believe it is best described as a "cryptocurrency." OxfordDictionaries.com helpfully defines cryptocurrency as "a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank." Bitcoin uses blockchain technology to record its transactions. Essentially, the blockchain is a publicly distributed ledger for certain financial transactions. It is currently mostly used for bitcoin, but many believe it could be used in a wide variety of financial applications in the future.
As used in bitcoin, blockchain is a public ledger of all bitcoin transactions that have ever been made. When a transaction is completed, it is recorded on a new "block." When the block is full of such transactions, it is added to the end of the "chain" in sequential order, and a new block is created. Full blocks are a part of the blockchain's permanent database. Each node — a computer connected to the bitcoin network for the purpose of verifying transactions — automatically gets a downloaded copy of the blockchain upon joining the network. The blockchain records information like the time and amount of each transaction, but it does not store any personal information on the parties involved.
Even industry experts who believe that bitcoin is not a sustainable monetary unit think blockchain technology could radically change the way financial transactions are facilitated in the future. The benefits of this system are that it is transparent, secure, and streamlined, so that there are less parties involved in facilitating each and every transaction.Even as the existing payments system in developed countries becomes ever more convenient and secure, the space is still littered with middle parties taking a small amount from each transaction. These players include payment processors, payment networks, issuing banks, and acquiring banks. The dream of bitcoin and other monetary systems based on blockchain technology is for payers to be free of these inherent costs of exchanging currency for goods.For a much more detailed explanation of what bitcoin is, where bitcoins come from, and how they work, please check out fellow Fool Matthew Frankel's article on this subject from earlier this year, "What Is Bitcoin?"
There are a few primary concerns surrounding bitcoin that potential investors should be aware of. First, it is not backed or regulated by the good faith of a government or other entity. This stands in stark contrast to the dollar, yuan, pound, and other forms of currency used around the globe. So, many people view bitcoin as something akin to Monopoly money, because it is neither a fiat currency nor is it based on something of tangible value like gold. In other words, a bitcoin is worth exactly what people perceive its worth to be. While, in a sense, this is true of any currency, the value of a bitcoin is much more fickle than other forms of currency because of its unregulated nature.
Second, bitcoins are not traded on Wall Street. They cannot be bought or sold through a brokerage. Instead, one must set up a bitcoin "wallet," which can probably best be thought of as a bank account exclusively for bitcoins. Once this account is set up, its holder can link to a traditional banking account and use those funds in local currency to buy and sell bitcoins. If this process sounds a bit cumbersome, it is. This means bitcoin is much less liquid than traditional equities, creating more volatility and wild swings. For instance, in the past month alone, the value of one bitcoin fell from prices over $2,500 to under $2,000 before regaining all-time highs over $3,400. Those are incredibly volatile swings within one month — something virtually unheard of with any other type of currency!
Finally, the unique way of buying and selling bitcoins not only contributes to its illiquid nature, but has also contributed to higher rates of fraud and theft through uninsured bitcoin exchanges. While these problems were far more prevalent in years past, it should still be mentioned that none of the bitcoin exchanges have yet established a long business track record. This brings us back to the SEC's review of the Winklevoss twins' proposal to launch a bitcoin-based ETF. Such an ETF would have solved at least some of these problems. It would have made trading bitcoin much more liquid, and assuaged many investors' fears of potential theft. Viewed in this light, bitcoin's massive sell-off on the initial news of the rejection and subsequent rise on the appeal of the decision makes a lot of sense.
Where do the price and value of bitcoin go from here? Unfortunately, my crystal ball is broken. I personally believe that within a few years, bitcoin could fall anywhere — from being known as a worthless experiment, to being the greatest disruptive force the financial industry has ever seen. If I knew investors who wanted to purchase a small, speculative position in bitcoin, I wouldn't try to talk them out of it. However — and I cannot stress this enough — nothing should be invested in bitcoin currency that an investor isn't comfortable losing.
Investors intrigued by the concepts of bitcoin and blockchain technology, but unwilling to take the plunge on such a speculative investment, may want to consider investing in one of the many financial and technology companies actively working to find other applications for blockchain. For example, the Hyperledger project is one such global collaboration; its participants include Cisco Systems, IBM, Intel, JPMorgan Chase, and Wells Fargo. The project is exploring uses for an open-source blockchain platform in supply chains, legal agreements, and commercial business transactions.
For potential investors, the large takeaway should probably be that blockchain technology will probably exist in one form or another for years to come. The fate of bitcoin, however, is far more uncertain. Matthew Cochrane owns shares of Cisco Systems. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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Ronnie Moas says bitcoin’s ‘Netscape’ moment is coming
With $3,000 merely a blip in the rearview mirror, and $4,000 now vanquished, some of the bullish predictions out there for bitcoin may no longer be such a far-fetched fantasy. The cryptocurrency BTCUSD, +3.69% was trading at about $4,217.80 on Monday, after shooting past the $4K mark a day earlier. Some said the move was due to Asian buyers bulking up on alternative investments amid some jitters over North Korea. Meanwhile, others attributed gains to hopes that transaction volumes for bitcoin will increase. In any case, bitcoin seemed to be following in the same vein as last week’s sprint to a record.
Independent analyst Ronnie Moas, who previously set his 2018 bitcoin price target at $5,000, said Monday he’s upgrading that to $7,500. His 2027 price target of $50,000 remains unchanged, but said there could likely go up in the next two years and even get pushed forward to 2024-2026. A Netscape moment for bitcoin: Moas said that in order for bitcoin to go from $4,177 (a level he was citing earlier on Monday) to $50,000 in 10 years would require 28% annual compounded growth. “I have gotten three times that in just the last six weeks with the 84% gain,” wrote Moas.
“It looks to me as though we are at the same point in the adoption curve as we were in 1995 when we went from one million internet users to 10 million. The following year the Netscape browser came online and we went from 10 million users to hundreds of millions of users overnight,” said Moas. Moas, and others who are buying cryptocurrencies, are counting on growing acceptance. For example, in two years time, he expects there will be between 50 million and 100 million cryptocurrency users, versus around 10 million currently. “We only have 0.15% market penetration right now — if that goes to 2% or 3% we will get to the $50,000 price target that I set at the beginning of July,” he said.
Moas wrote a 122-page report on cryptocurrency last month, in which he laid out that initial $5,000 price target for bitcoin, and predicted those digital currencies would steal market share from gold, metals, bonds and other currencies. As for Monday’s gains, at CoinDesk there was talk of pent-up demand coming through from investors who had been waiting to see how the so-called fork earlier this month panned out. Bitcoin Cash was the result of that fork, and a demand by bitcoin developers for a version of the crypotcurrency that lets miners process transactions faster.
Bitcoin’s skyrocketing price is showing no signs of slowing.
It’s currently trading for over $4,100 a coin, having broken the $4,000 mark in the early hours of Aug. 13. It has traded for as high as $4,225, according to the CoinDesk Bitcoin Price Index. A prediction of $5,000 per bitcoin by years’ end, issued by Standpoint Research’s Ronnie Moas in July, now doesn’t seem so outlandish. The co-author of a forthcoming book on valuing bitcoin and other cryptocurrencies, Chris Burniske, has pointed out that there’s a strong correlation between bitcoin’s price and the performance of the search term “bitcoin” on Google, as calculated by Google Trends. It’s not a perfect indicator: Google Trends sometimes lags and sometimes leads bitcoin’ price.
There are a few theories as to why bitcoin’s price is so buoyant:
Bitcoin analyst Burniske has a word of warning for people piling into bitcoin: The correction could be severe.
The financial world, ecommerce, and other industries that witness millions of transactions each day, should prepare for fast-moving changes in order to stay ahead of competition and facilitate the rise of new solutions as well as accommodate the growing needs of businesses and consumers alike.
Today, ecommerce and the financial sector are being thoroughly shaken up by blockchain – a distributed ledger technology built to power bitcoin. It’s changing the financial services sector with banks scrambling to claim their piece of the pie. The technology itself has introduced new payment methods, smart contracts, and even new ways to verify digital identity. I spoke with Da Hongfei, co-founder of blockchain group NEO – formerly AntShares – who views blockchain as the key to a new “smart economy” where a comprehensive blockchain ecosystem could create better ways of managing financial transactions. The emergence of these new technologies is set to change every industry.
New blockchain platforms are now able to handle smart contracts. Smart contracts are software that can track and automate the fulfillment of agreements over the blockchain. Certain actions can be triggered if a term in the contract is met. This allows developers to create a variety of blockchain-powered services. NEO is one of the platforms that offers smart contracts. It dubs its smart contracts “Smart Contracts 2.0.” These smart contracts can be built using a variety of programming languages in order to lower
the barriers to developer adoption.
“NEO developers can write smart contract code in .NET and Java/Kotlinm, and we are currently testing integration with Go, JS, and Python for a rollout in the future. This will allow a great number of developers globally to build smart contracts on NEO,” Da mentions.
The technology offers interesting opportunities for business-to-business (B2B) enterprises. B2B agreements can be made and fulfilled over the blockchain. For example, businesses could leverage smart contracts for use with suppliers and distributors in automating supply chain. This even promises consumers the possibility of making big-ticket purchases such as real estate and automobiles over the blockchain.
Blockchain has brought us cryptocurrencies. Bitcoin, the most popular cryptocurrency, is now worth almost three times the price of gold. It’s also gaining acceptance in more markets as countries have started to put up regulations for its use. Japan, in a bold move, declared bitcoin a legal payment method which compelled retailers to adopt solutions to be able to accept bitcoin even for brick-and-mortar establishments. As for ecommerce, accepting cryptocurrencies such as bitcoin is relatively simpler. Bitcoin wallet services such as BitPay allow users to accept bitcoin through buttons and, for more advanced users, APIs. For instance, bitcoin services now provide merchant services to enable ecommerce companies to accept bitcoin. Through such a service, merchants would also be able to exchange it for fiat currency and vice versa giving them flexibility in which currency to use.
New blockchain platforms have also allowed the creation of more cryptocurrencies. Ether (from the Ethereum blockchain) and bitcoin cash (the new fork of the bitcoin blockchain) are the next two top cryptocurrencies priced at $300 and $320 as of writing. NEO’s own token is now among the top 10 cryptocurrencies with a market cap of more than $1.4 billion thanks to the company introducing new products, as well as its rebranding efforts.This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. I have no positions in any of the securities mentioned above.
Blockchain and cryptocurrencies are now widely used in payments and remittance. Since transactions occur in the blockchain, cross-border payments still have cheaper rates than other solutions. In contrast, traditional payments and remittances often have to be routed through several institutions and can undergo several clearing processes for transactions to complete. Newer blockchain platforms can offer quicker confirmations of transactions. Payments and remittances done even when done cross-border over blockchain can be completed in real-time. Because of this, cryptocurrencies are finding increased use for remittances in developing countries. If cryptocurrencies become preferred modes of payment in these markets then ecommerce companies would have little choice but to provide support for such payment methods much like how cash on delivery became an in-demand service for emergent markets.
Fraud continues to be a major concern for businesses. US retailers lost $32 billion from fraud in 2014. Because of this, fraud prevention has become a segment on its own with payment gateways and card processors offering transaction filters and identity verification services to merchants. Blockchain actually has applications in security and fraud prevention as well. For example, blockchain startup Civic combines blockchain and cryptographic hashing to create an encrypted digital fingerprint for users while leveraging decentralization and avoiding storing personal information anywhere.
In a similar effort, NEO is also incorporating digital identity in its platform.
“We believe blockchain usage will eventually integrate real world applications, such as digital assets based on digital identity. This would allow for better anti-money laundering and know your customer capabilities in blockchain, of which there is a paucity in the modern blockchain ecosystem,” Da said.
Such mechanisms offer the potential for more accurate means to prove identity in ecommerce transactions. For merchants, this means less instances of chargebacks or rejected transactions since users are properly verified.
Ecommerce in a “smart economy”
Much like how mobile changed the way people behave, blockchain has the potential to redefine how commerce is done. For ecommerce, the potential effects of these new developments are multifaceted. The increasing acceptance of cryptocurrencies may give rise to new preferred payment methods. Developments in smart contracts would also allow businesses to automate fulfillment of agreements thus speeding up transactions. Enhanced security would also inspire increased confidence among businesses and consumers.
For businesses, it helps keep a watchful eye to these developments in blockchain. As behaviors shift, ecommerce must be ready to adapt and offer better experiences that create a faster, more secure, and convenient ways to do business. It pays to be ready to participate as the world moves towards a smart economy.This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. I have no positions in any of the securities mentioned above.
While the first stocks originated in the early 1600s,
speculation goes back to biblical times. The current mania in this price and time window is not a stock, however. It's the currency, well cryptocurrency, known as bitcoin. Not since the Great Tulip Mania in Holland, which ended in 1637, crashed 99% has there been such a blood bath. The stock market crash of 1929-1932 in the U.S. took 90% off the Dow Jones, a worthy rival of manic proportions. More recently, the Nikkei's crash from 1989 to 2008 took 82%, but over nearly two decades. And no slouches, the various domestic indices that got their clocks cleaned from 2000 to 2002 maxed out around the Nasdaq's 82%. Yet, the greatest mania of not only our lifetime, but also perhaps of all time is that of bitcoin. Since being born in 2009, for around $0.005 (or a half of a cent), bitcoin has gained massive popularity in the last three years, and manic popularity in the last three months, after its price exploded through the late 2013 price peak. That "surprise peak" and near-90%, year-long crash was linked to the collapse of the Mt. Gox exchange.
Our DSE (decision support engine) picked up the wild volatility that few could explain, and after a few months of analysis, formed our first public forecast in June 2015 with prices in the low $200s. The bottom line from that analysis stated in these pages:"In the meantime, breakouts above the March reversal point of $300 will hint that the lows of the contracting pattern off the parabolic highs of late 2013 are in place. Breaking above the November 2014 reversal point of $449 will increase the odds, as well. Then, only the March 2014 reversal high near $700 will stand in the way of a run on $990 and even higher prices."
As history shows, this is exactly what happened. Members of our Trading Room and DSE Alerts services (both of which you can trial for 10 days by clicking here) received real-time updates on every high-confidence buy-and-sell opportunity, in between our public analyses, the last of which was posted here in late May. Reviewing that update of the great flameout of bitcoin, the DSE identified that spike into the upper $2,000s as the likely last gasps of wave 3. The second chart in that forecast zooms in on the first one, and details how a then-hallucinated decline should next hold the $1,750 +/- $150 zone, prior to the final rise into "perhaps the mid-to high $3,000s." Please take the time to read that forecast to alleviate any doubt that the DSE's forecasting engine is just ahead of this uber-emotional market.
The chart, above is the daily bar chart of bitcoin, with the current, highest probability ranked path that price could take, allowing red wave V of 5 to terminate between $3,450 and $3,500. Notice the declining volume bars in the last $500 of the rise above $2,900 — a harbinger of exhaustion. If there is any final hours to days of speculative mood left, price could spike up into the $3,800 +/-$300 zone. However, these extremes are not required, as the labeling below now counts as potentially mature, nor will any probing of that higher price band likely last long enough for most late-joining bulls to get their money out.
This is because the now-global infatuation (another telltale characteristic of N-stage manias) has overwhelmed the blockchain implementation (bitcoin's underlying technology), causing scalability problems, timeliness of executions issues and difficulty getting bitcoin delivered out of exchanges. Those that were around in 1987 might have little hairs on their necks reminding them what happened when liquidity evaporated in an instant. The Dow crashed 23% in a day.
Some have likened the cryptocurrency market to the Internet sector in 1999. While there was little doubt then, and clear evidence since, that those companies would take over the planet, the two Nasdaq indices fell an average of 90% in the 30 months ending 2002. This time, the bitcoin mania, which has dwarfed even the Tulip Bulb lunacy, should become the posterchild graduate school case study for not only finance, but also psychology, sociology, and perhaps other disciplines. Ironically, for lacking discipline! Friends don't let friends hold bitcoin below $2,900, the line in the sand of sell-stop protection. Otherwise, in the near future, one could be wishing they'd sold this $3,500 zone, as bitcoin breaks under $35, with growing potential for $3.50.
The recent exuberant rally in the cryptocurrency market
has brought altcoins such as ether, litecoin, and ripple into the limelight. However, there are dozens of other promising digital currencies and assets that have not only gained in substantial value in the last six months but have the potential to continue to do so over the years to come. One of these digital tokens is bitshares (BTS). In this guide, you will learn what the BitShares Project is and whether its native cryptocurrency, bitshares (BTS), could potentially make a good investment or not.
BitShares leverages blockchain technology to create “free market solutions by leveraging the power of globally decentralized consensus and decision making.” According to its founder, Daniel Larimer, however, it is more than that. In a blog post, Larimer explains that BitShares is a software, a network, a ledger, a bank, an exchange, and a currency.
BitShares is a software that provides “a distributed multi-user database with update permissions managed by a predefined set of rules as well as public key cryptography.” BitShares is also a decentralized network run by users around the world, which keep their databases synchronized as per the rules defined by the BitShares software. This allows the BitShares network to run as long as there are at least two participants in the network communicating with each other over the Internet. Finally, a distributed ledger that records all transactions that take place on the BitShares blockchain, and it is the company behind the BitShares project.
Larimer also explains the analogy of a bank as it can fulfill the role of a bank by maintaining a distributed ledger that tracks debt collateralized by other assets. In the case of BitShares, dollar denominated debt is collateralized by BitShares’ cryptocurrency BTS. “This dollar denominated debt is a BitAsset known as BitUSD. BitShares supports any number of BitAssets including BitGold, BitSilver, BitOil, etc. Whereas normal banks practice the unsustainable business of fractional reserve banking, BitShares uses at least 200 percent reserve and is often over 300 percent reserve. Whereas normal banks use illiquid assets to back (collateralize) debt payable on demand, BitShares uses highly liquid BTS as collateral.”
Despite its broad definition and multi-faceted features, BitShares is most known for being a decentralized exchange for “smart assets” that are backed by BitShares’ cryptocurrency and can be pegged against traditional assets such as the USD or gold. The smart assets platform also allows for the creation of user-issued assets (UIA) so anyone can create digital assets on the BitShares blockchain. These digital assets can be specified to be used for a wide variety of things including crowdfunding with equity, for property rights, or as tickets for events.
BitShares’ native cryptocurrency is also called bitshares and carries the ticket BTS. It is currently in the top 20 largest digital assets and has a market capitalization of around $400 million. The BitShares blockchain uses a Delegated Proof-of-Stake consensus mechanism, which means that voting on consensus issues can be done democratically by stakeholders. “All network parameters, from fee schedules to block intervals and transaction sizes, can be tuned via elected delegates,” the company states on its website. There are 101 elected delegates in the BitShares network who secure the network and, therefore, receive transaction fees as rewards. DPoS allows for ten transactions per second, making the BitShares network one of the fastest in the industry.
New bitshares are created in each block, and the maximum number of new shares per block decreases over time as it is the case with Bitcoin. New shares are given to BitShares’ workers who have been elected by the shareholders to run the company. The current circulating supply of bitshares is just under 2.6 billion BTS, and there is a 1 billion BTS reserve fund held by BitShares. The BitShares reserve pool is used to pay workers and receives an income from transaction fees. The total supply of BTS will not exceed 3.6 billion. Since its launch in October 2014, bitshares’ price was trading in the range from below one cent to under 4 cents and did not bring significant gains for investors. However, when the digital assets rally of spring 2017 started, the value of bitshares increased substantially along with the rest of the altcoin market to peak at its all-time high of $0.45 on June 10. At the time of writing this article, the value of bitshares stood at $0.15 per coin.
The weekly chart for BTS-BTC on the Bittrex exchange is shown below. For the week beginning July 31, BTS-BTC hit a fresh low at 0.00003977 and a bullish Doji candlestick was formed, suggesting that the downward trend may be over. A fractal buy level will form at 0.00003977; as long as the price of BitShares remains above this level until August 21. Once confirmed, we look to buy BTS-BTC, as the base line (red) indicates equilibrium at 0.00008690. Moreover, we see that the Ichimoku cloud remains green in color and the price remains above the cloud, suggesting the long-term uptrend is intact. The green part of the cloud indicates a long-term equilibrium zone around 0.00008600-0.00009400 for early 2018, suggesting BTS-BTC will revisit this area over the long run. However, a weekly close below 0.00004530 will point to further losses and suggest that a test of the support provided by the Ichimoku cloud 0.00001300 to 0.0000700 may occur. The altcoin's volume is also an attractive factor for investors, as it enjoys high interest from crypto traders and speculators, regularly in the top ten cryptoassets according to daily volume.
According to Smith&Crown, BitShares ran two crowdsale campaigns to fund the development of its platform, one using protoshares and one using angelshares. Protoshares was a new cryptocurrency that used Proof of Work and was sold with the promise to give token holders a share of future products created by Invictus Innovation, the predecessor company of BitShares. The second fundraising took place in 2014 and was in the form of donations in bitcoin and protoshares to Invictus Innovation. During the crowdsale, the company managed to raise between $7 million to $15 million in exchange for angelshares to further its development. Protoshares (PTS) later turned into the cryptocurrency bitshares (BTS) while angelshares holders were also able to claim their bitshares. Both protoshares and angelshares now no longer exist.
Like with most cryptocurrency projects, the investment story for bitshares focuses on the success or failure of its platform. BitShares has been around since 2014 developing its platform that allows users to digitize “real world” assets and trade them on the blockchain in a decentralized manner. If the digitization of traditional assets and securities becomes industry standard in the financial industry and if BitShares manages to become the go-to platform for this, then the value of bitshares (BTS) will skyrocket.
An emerging platform of interest is the OpenLedger Decentralized Conglomerate, the world’s first blockchain powered conglomerate, which is based on BitShares technology. OpenLedger hosts several projects, such as GetGame, eDEV.one, and Apptrade; GetGame is based on game-related ideas with a focus on VR, AR and blockchain-based creations, while eDEV.one is a freelancing platform based on blockchain technology.
Having said that, the competition from established international exchanges who are working on a similar blockchain-based solution could become a threat to BitShares success story. There are also other competitors in the blockchain space who are working on similar solutions such as the Waves platform, which has gained substantial momentum in the past six to twelve months and is positioning itself as a tough competitor for BitShares. If BitShares does not manage to outcompete other market participants, then it will be unlikely for its native cryptocurrency to “go to the moon.”
There has been noise that the market for an initial coin offering (ICO) is at risk of becoming a bubble. Coins are being sold rapidly and at prices for which there is no fundamental financial statement support. It is believed that many buyers have a speculative interest and will seek to resell securities quickly on a coin exchange. What are the risks? Why are ICOs being dubbed the next bubble?
Trace Schmeltz, a partner in the Chicago and Washington, D.C. offices of Barnes & Thornburg LLP, warns there are a number of risks to be aware of when considering the ICO market. Schmeltz explains: "Some of the basic risks are, 'Will this investment appreciate in value?' 'Is the enterprise a new cryptocurrency, for example, really worth anything at all?' 'Is the white paper describing the enterprise and its expected value-proposition worth the electronic paper on which it is printed?' 'Can the offeror or the exchange through which the offering is made be hacked?'"
The U.S. Securities and Exchange Commission (SEC) moved in on the "Wild West" world of ICOs by making them subject to federal securities laws. Schmeltz stresses that there is a fundamental regulatory risk that the SEC will deem the ICO to be an unregistered offering of securities and shut it down altogether. So are ICOs here for the longterm? Yes, Schmeltz says.
"ICOs provide a valuable additional tool for anyone looking to raise capital," Schmeltz says. "But, as the SEC has made clear, anyone seeking to offer a profit-interest in their business through an ICO must ensure they follow rules for offering securities found in the Securities Act of 1933 and regulations relating to the 1933 Act."The possibility of a bubble may well stem from the general dearth of information investors and company founders embarking upon an ICO have about the market.
"I think the main common characteristic between ICOs and 'bubbles' is the lack of clear understanding of the concepts and models of the companies selling tokens by some of the token buyers," said Eddy Travia, CEO of Coinsilium, a firm that finances and manages the development of early-stage blockchain technology companies. "Some token buyers may be following trends and disregard doing a proper due diligence on the companies issuing tokens. The past price performance of some tokens may encourage speculative purchasing but there are also very promising technologies and applications being built through ICOs and token price may only be one measure of their utility."
Bitcoin has been hot.
That hazy understanding contributes all the more to potential frothiness in the ICO market. "Tokens are usually generated by early-stage companies so there is a high risk associated to the capacity of these companies to succeed, and that risk may be reflected in the token price," Travia added. "However, there are many cryptocurrency holders who understand the market and the technology and want to support it — they consciously wish to recycle cryptocurrency profits to help new blockchain companies to thrive. There are also several talented entrepreneurs who choose this method to fund their company as opposed to traditional VC funding which can come with strings attached." Token buyers, of course, should do their homework and run a due diligence process before making ay token purchase decision.
Jerome Rousselot, of blockchain microfinance startup Jita Ltd., believes there seems to be no end to the growth of ICO. It appears ICOs are becoming the new way to raise capital. In that sense, the accusations of a bubble market may be overblown. That's not to say there are no risks.
So what else should we be aware of?
"ICOs are a new way to raise capital for projects and a new investment vehicles for individuals and businesses," Rousselot said. "It seems ICO is, as of now, the main use case for Ethereum and many Ethereum early investors are reinvesting their wealth into ICO." Rousselot explains anyone can setup an ICO and anyone can send funds to an ICO smart contract. "Recently Bitfinex, a major crypto exchange, launched a dedicated exchange for ERC20 ICO tokens: ethfinex.com," adds Rousselot. "The ERC20 standard facilitates the development of an ICO smart contract and make it easier to trade on a market." Last year, blockchain startups raised around $200 million in ICO, which is also considered a new form of crowdfunding based on cryptocurrency.
How do ICOs differ from crowdfunding?
Schmaltz explains that crowdfunding is regulated by, and must be done according to rules promulgated by, the SEC. Accordingly, anyone attempting to conduct an ICO as "crowdfunding" must carefully follow those rules – including offering coin through an SEC registered portal, ensuring that individuals do not invest more than allowed and limiting the overall fundraising to $1,000,000 in any calendar year.
"Compared to crowdfunding, ICOs are much more liquid," Rousselot said. "This attracts a highly speculative demand. Typically, early ICO investors, founders and team get better rates. Large investors and experienced blockchain traders can also "jump the queue" by paying high fees and get tokens first. This can make ICO unfair for small investors who enter the ICO at the last stage, or buy the token only after the ICO on exchanges."
Rousselot also adds that some ICOs definitely fund great teams with good projects. Some of them are very well managed from a legal point of view. Some others are only a few web pages, a whitepaper and an ethereum address, with no real product or prototype behind, and even less product market fit. Sometimes some projects seem to raise too much money. Rousselot believes that maybe in the future we will see more capped projects, with a maximum amount to raise.