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Is Bitcoin Dead?

Bitcoin has died 259 times…and counting.

That’s according to 99Bitcoins, a website that tracks how many times the media has pronounced bitcoin’s death.

Recent headlines include:

  • ‘Is bitcoin heading to zero?’ (Forbes)
  • ‘5 reasons bitcoin won’t survive’ (investing.com)
  • ‘Why bitcoin is the largest Ponzi scheme in human history’ (LinkedIn)

By far 2017 has the most obituaries, at 111. Two months into 2018, we already have 29 death notices.

The truth is that bitcoin divides the financial community.

Are you pro bitcoin?

Or are you part of the ‘bitcoin is a massive bubble and fraud’ camp?

Whatever side you are on, no one can deny that bitcoin has had crazy gains since last year.

Even with the recent crash, bitcoin is up 720% since this time last year.

Wall Street has taken notice, and they want some skin in the game.

Just last December, the Chicago Board of Options Exchange and its rival Chicago Mercantile Exchange Group launched bitcoin futures.

Even Goldman Sachs is jumping in.

Goldman-backed start-up Circle just announced that they will be acquiring cryptocurrency exchange Poloniex for US$400 million. Poloniex is one of the largest crypto exchanges.

Circle has developed Circle Pay, an app that allows you to send money online through the blockchain. If you are not familiar with the blockchain, it is a digital public ledger that eliminates the need for third parties like banks. Bitcoin is the first application of blockchain.

Blockchain is gaining acceptance

According to Investopedia, there are already four blockchain ETFs trading in the US. They all came to market this year and have about US$287 million in combined assets under management.

Circle also has Circle Trade, one of the largest liquidity providers for initial coin offerings (ICOs). ICOs are a way for companies to raise money through issuing tokens.

There is plenty of debate surrounding ICOs at the moment.

China recently banned ICOs.

The US Securities and Exchange Commission (SEC) recently said that ICOs should be considered securities.

And, as reported by the Wall Street Journal, the SEC is now going after the ICO market.

The Journal recently said that the SEC issued ‘scores of subpoenas and information requests’ to people with ties to ICO projects to obtain information. It looks like they want to look at how ICOs are structured.

The ICO market is growing. Just take a look at the following graph:

ICO Market Growth 02-03-2018

Source: Bloomberg
[Click to enlarge]

A bit more regulation may not be a bad thing as some of these ICOs can be quite risky — some are even scams.

So bitcoin and cryptos may have to fight a few legal battles before they become widely accepted.

But, with so much money going into the crypto space, the government is also taking notice…and they want a piece of it.

Crypto exchange Coinbase recently announced that it will be handing over information on their users to the IRS.

If there is a crackdown, some of the new crypto billionaires may have to pay a lot of taxes.

Or we may discover that there are not as many crypto billionaires as we initially thought…

Rapper 50 Cent recently bragged that he had forgotten he had some bitcoin from music sales back in 2014. The recent surge in bitcoin netted him about US$8.5 million.

But now he is backtracking, filing for bankruptcy. He now says he never owned any bitcoin.

Apart from regulations, there are a few issues preventing cryptos from gaining mass acceptance. 

Security still an issue with cryptos

Bitcoin — and cryptocurrencies — can be hard to store safely.

You need to have some tech knowledge.

In fact, Steve Wozniak, co-founder of Apple, just admitted he had seven bitcoins stolen from him.

As he told an audience during the Global Business Summit:

I had seven bitcoins stolen from me through fraud. Somebody bought them from me online through a credit card and they cancelled the credit card payment. It was that easy. And it was from a stolen credit card number so you can never get it back.

Another thing is that cryptos are still a small market.

The fact that it’s small makes it very volatile, as every dollar affects it. The derivatives will allow bitcoin to become larger and will give institutional investors a way to hedge against bitcoin’s volatility.

To show you how volatile they are, take the example of Wozniak’s seven stolen bitcoins.

He initially bought them as an experiment when they were US$700. At that time, the stolen amount was worth US$4,900.

At today’s price, those seven bitcoins would be around US$76,800.

Plus there is the fact that transactions are slow. As bitcoin’s price soared last year, transaction times slowed and fees soared.

So is bitcoin dead?

We don’t think so.

The SEC may be cracking down on ICOs, but the crypto space doesn’t care.

Bitcoin has moved higher today.

And so have small-, mid- and large-sized tokens, according to MVIS Investable Indices, as you can see in the chart below.

MVIS Investable Indices Tokens Chart 02-03-2018

Source: MVIS
[Click to enlarge]

The fact that institutions like Goldman Sachs are investing in the crypto space and blockchain could mean that they are here to stay.

Especially as data and artificial intelligence take centre stage.

Blockchain technology can eliminate the need for intermediaries in finance, as shown by bitcoin. But the uses of blockchain with big data are endless — from notaries, to voting, publishing, and cybersecurity… In fact, its potential use covers literally everything.

All told, there is a lot of money flocking into the ICO space. Yet investing in ICOs can be like the Wild West. Some ICOs could be scams, and many of them will end up failing…

Picking the winners can be tough. That’s why our in-house crypto expert, Sam Volkering, has developed a blueprint to help you learn everything you need to know about ICOs.

To find out more, click here.

View More Articles By The Daily Reckoning

The Daily Reckoning's mission is to look at the investment world and the financial world in a sceptical and contrarian way. To do that day in and day out and tell you honestly what we see, even if it isn't always popular. If you'd like to subscribe to an alternative look at the mainstream interpretation of events, join for free here.



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