Before You Buy Bitcoin, Read This PLS!?

Before You Buy Bitcoin, Read This ...

The Cryptocurrency Boom is a Once-in-a-lifetime Opportunity.

Bitcoins dwarfs all other major bubbles....

Bitcoins is the hottest currency going, but no one is using it...

SUMMARY

Below $1,000 at start of year, 1 bitcoin blows past $19,000 + to date, bitcoin is eyeing $20,000 ....

Business Insider executive editor Sara Silverstein discusses a recent research, (see 1st video above () note from Fundstrat's Tom Lee says bitcoin could be a true substitute for gold and cannibalize some of the $7.5 trillion market. Lee estimates the cryptocurrency could be worth $20,300 by 2022. This estimate is based largely on the assumption that bitcoin can increase its share of the "alternative currency" market, which is mostly gold, from 0.7% to 5%. http://www.bizinsider.com/bitcoin-price-soar-20000-tom-lee-fundstart-gold-2017-7

The price of bitcoin swung wildly last Thursday, rising to more than $19,000 only to fall sharply within minutes, as the frenzy surrounding the virtual currency escalated just days before it starts trading on a major U.S. exchange.

The frenzy even has parts of Wall Street concerned. A group of banks came out and complained that federal regulators approved bitcoin futures, which begin trading on Sunday, too quickly and without properly considering the inherent risks in the virtual currency.

At 1:05 p.m. EST, Bitcoin was valued at $16,825, according to Coinbase, after briefly surging above $19,000 Thursday morning. At the start of the year, one bitcoin was worth less than $1,000. Coinbase, the largest bitcoin exchange, at one point tweeted that record-high traffic had caused interruptions to its service.

The swings in price occurred just as the trading community prepares for bitcoin to start trading on two established U.S. exchanges. Futures for bitcoin will start trading on the Chicago Board Options Exchange on Sunday evening and on the Chicago Mercantile Exchange a week later.

The Futures Industry Association, which represents Wall Street's biggest banks and clearing houses, sent a letter to the Commodities Futures Trading Commission, saying that as the guarantors of customers trades, they should have been consulted before trading in bitcoin futures was approved. They expressed concern that the extreme volatility tied into bitcoin could leave banks exposed when the futures move too violently.

Bitcoin is the world's most popular virtual currency. Such currencies are not tied to a bank or government and allow users to spend money anonymously. They are basically lines of computer code that are digitally signed each time they are traded.

A debate is raging on the merits of such currencies. Some say they serve merely to facilitate money laundering and illicit, anonymous payments. Others say they can be helpful methods of payment, such as in crisis situations where national currencies have collapsed. Miners of bitcoins and other virtual currencies help keep the systems honest by having their computers keep a global running tally of transactions. That prevents cheaters from spending the same digital coin twice.

Online security is a vital concern for such dealings. Hackers steal $70 million worth of bitcoin as price marches upward...

In Japan, following the failure of a bitcoin exchange called Mt. Gox, new laws were enacted to regulate bitcoin and other virtual currencies. Mt. Gox shut down in February 2014, saying it lost about 850,000 bitcoins, possibly to hackers.

Bitcoin transactions allow anonymity, making it popular with people who want to keep their activity private. We will discuss herein the state of affairs currently, with cryptocurrencies. Let's recap this tumultuous year in Bitcoin history.

The price of bitcoin surged through $10,000 on Wednesday, adding to its tenfold jump in value this year and fueling a debate as to whether the virtual currency is gaining mainstream acceptance or is merely a bubble waiting to burst.

The cost of buying one bitcoin as measured by the website CoinDesk rocketed 10 percent through $10,000 early Wednesday and hit a high of $11, 377 — having started the year below $1,000. The surge in the price of bitcoin and other virtual currencies has divided the financial community on their merits and whether — or when — the value might come crashing down. The CEO of JPMorgan Chase has called bitcoin a “fraud,” as it is not based on anything other than software code and is not backed by any monetary authority.

Other executives, including International Monetary Fund chief Christine Lagarde, say virtual currencies should not be dismissed and could have useful applications, such as a means of payment in countries with unstable currencies.

In a move that gave further credibility to the virtual currency, U.S. exchange operator CME Group said last month that it plans to open a futures market for the currency before the end of the year, if it can get approval from regulators.

Bitcoin transactions allow anonymity, which has made it popular with people who want to keep their activity and identities private. The digital coins are created by so-called “miners,” who operate computer farms that verify other users’ transactions by solving complex mathematical puzzles. These miners receive bitcoin in exchange. Bitcoin can be converted to cash when deposited into accounts at prices set in online trading.

Daniele Bianchi, an assistant professor at the Warwick Business School in England, says the price increases are due to rising demand but also to that the supply of bitcoins is fixed, currently at 21 million. Bianchi also noted that trading in bitcoin is becoming more professional and open to the general public.

Others are skeptical. Neil Wilson, a senior market analyst at ETX Capital in London, says bitcoin is “following the playbook for a speculative bubble to the letter.”

Below you'll find a discussion, of the roller-coaster ride we call bitcoin for the last month or two. It's not for the faint of heart. Fasten your seatbelts it's going to be a bumpy ride. With great risks taken comes great dividends, or rewards but also great losses, when the Bitcoin Bubble Bursts.

Record Highs in Sight? Bitcoin Price Moves Back Above $7,500

The above chart shows:

-- The rally to record highs is backed by a rise in trading volumes. A high volume rally is a sign that the trend has legs
---However, the money flow index (MFI), which uses both price and volume to measure buying/selling pressure, doesn't reflect the "V" shaped recovery and remains flat. A bearish price-MFI divergence would be confirmed if bitcoin closes today on a weak note.
---The relative strength index (RSI) is well short of the overbought territory, thus there is scope for a further rally in bitcoin. However, again, a bearish divergence would be confirmed if bitcoin ends today with losses.

There are no signs of stress on the above chart, except for the overbought nature of the MFI and RSI.

-- Bitcoin looks set to rise above $8,000 and test $$8,187 (161.8 percent Fibonacci extension level of the move from the Jul. low – Aug. high – Sep. low).
-- Only a break below $6,457 (61.8 percent Fibonacci retracement level) would signal a short-term bearish trend reversal.
-- Bearish Scenario: A pullback to $7,200-$7,000 cannot be ruled out if prices fail again to rise above the $8,000 mark. Watch out for bearish RSI and bearish MFI divergence.

Quick, search through your coat pockets… behind the sofa cushions… the glove compartment of your car.

Because all it takes is some spare change to capitalize on the stock opportunity of a lifetime: cryptocurrencies. If you make the right moves, you could find yourself jumping for joy on top of an enormous pile of cash. Ready or not, a growing number of economies, banks, and billionaires are backing these new forms of tender.

And once you understand how easy it is to profit from cryptocurrencies, it’s easy to see why… The cryptocurrency market is preparing to take off. And the only time to buy is now.

Just one tiny investment – even one under $100 – could soon put you in a new class of “cryptocurrency millionaires.”...

Many investors are asking: Should I buy Bitcoins or other cryptocurrencies? And if not, why? The question is: Bitcoin: Boom or Bust?

.. First let's talk about why this is the most unique investing opportunity I've ever seen in my 35-year career. The current cryptocurrency boom is so extreme, it's taken the entire S&P 500 more than four decades to return what Ethereum, the second largest cryptocurrency by market cap, has returned to investors just this year alone..

...Bitcoin has risen more 2,500%...

The asset called bitcoin has no intrinsic value but it has a market price that fluctuates wildly.

...Readers who took action earlier this year had a chance at seeing 569% gains in less than 6 weeks... Or, 1,663% in 10 weeks.

Boom or Bust for Bitcoin?

Know the Risks of Investing in Cryptocurrencies

Some investors have made a lot of money, but losses can be painfully real.

An Interview with MITs Christian Catalini, a professor at MIT’s Sloan School of Management and a partner in MIT’s Digital Currency Initiative.

KIPLINGER: What are cryptocurrencies, and why should investors care about them?

CATALINI: Cryptocurrencies are virtual coins that behave very much like a digital form of gold. Both are scarce and can be transferred between people without going through traditional financial intermediaries. Transactions are verified not by banks but by computers that have access to a universal ledger. But unlike gold, which is used for jewelry and has industrial uses, cryptocurrencies have no intrinsic value. They derive and retain their worth from investor demand alone. That demand has grown steadily in the past couple of years, and early investors in some of the most popular cryptocurrencies, such as Bitcoin and Ethereum, have made a lot of money.

What risks come with investing in cryptocurrencies? Cryptocurrencies are highly volatile and speculative assets. As with gambling, investors wanting to buy them should invest only what they can afford to lose. There are currently hundreds of different cryptocurrencies. In 10 years, many of them probably won’t be around anymore. It’s hard to predict which have long-term, mainstream potential.

What can investors do to minimize the risk? I think many people are rushing to invest in cryptocurrencies without appreciating their complexity. It’s important to research the technical abilities of any currency’s founders, much as venture capitalists do before investing in start-ups. Investors should also realize that if they don’t use robust passwords and other security measures to protect the online accounts they use to buy cryptocurrencies, those accounts may get hacked and their funds may be stolen.

Do you think cryptocurrencies that stand the test of time will become more widely embraced? I think we’ll see more of a coexistence between regular currencies and cryptocurrencies, which I do think come with some ad­vantages. For example, with digital money, if you want to wire money abroad, you’d likely be able to do so at a lower cost. I think countries or financial institutions will eventually adopt the underlying digital-ledger technology that powers cryptocurrencies, called blockchain, to speed up or lower the cost of transactions.

In a moment, I’ll gaze into the crystal ball and foretell the future of the world’s most famous cryptocurrency, bitcoin.

I should first or rather secondly, explain what’s happening now. It was developed in 2008 by an unknown programmer or programmers. Confusingly, bitcoin is both a payment technology and a financial asset. The asset called bitcoin has no intrinsic value but it has a market price that fluctuates wildly. Like digital gold, it appeals to libertarians on the basis that governments cannot arbitrarily make more of it.

The payment technology called bitcoin is what you might get if you ran the Visa network over a peer-to-peer network of computers. In case that description doesn’t help, it’s a way of sending money anywhere in the world but instead of relying on the authority of a financial intermediary such as Visa or Western Union, it uses a decentralized network to verify that the transaction has occurred. The record of all previous transactions is called the blockchain; it, too, is stored on a decentralized network.

The entire process relies on cryptographic techniques to prevent fraud, which is why bitcoin and other currencies like it are called cryptocurrencies. This may all seem very esoteric but the internet was esoteric once and it turns out to have become important. So what lies ahead for bitcoin? Here’s one scenario.

Bitcoin has enjoyed many booms and busts in value, and later in 2015, the price surges again. This will be the biggest yet, drawing more and more people into the market. As the dotcom bubble and railway mania proved, even revolutionary technologies can be overvalued; with Bitcoins selling for $2,000, $5,000 and eventually $10,000 each, nemesis is around the corner. The first sign of trouble will be the scams.

A recent research paper by computer scientists Marie Vasek and Tyler Moore identified almost 200 bitcoin scams, in which about 13,000 victims lost $11m. Such scams will only become more common as the stakes become higher and the pool of naive investors deeper. Soon they will be the stuff of mainstream consumer rights phone-ins.

Arguably, scams are a sign that Bitcoin has matured — after all, nobody proposes abandoning the dollar because con artists like to be paid in dollars. But they are just a foretaste of what is to come — Bitcoin will be gutted by predatory monopolists. The Bitcoin system has always relied on a crowd of people putting their computers to work verifying transactions and writing them into the blockchain, a task which costs money and energy. In a rather confusing analogy with gold, these people are called “miners” and they are compensated in Bitcoins, of course. Yet there is a basic inconsistency at the heart of this system, as the economist Kevin Dowd has observed: Bitcoin mining needs to be done by a decentralized crowd but is more efficiently done by large arrays of computers owned by a few players. Or possibly just a single one.

Even today, Bitcoin mining is a game for the big boys. As the Bitcoin mining industry becomes a tight, self-serving oligopoly, the stage is set for Bitcoin counterfeiting on a massive scale. In 2018, 10 years after the invention of Bitcoin, the system collapses under the weight of its own contradictions.

It’s an intriguing story — but of course, it is just a story. We could give it a name: “BitCon”. If you don’t believe that, I have another story for you. The title is “Daisy Chains”.

Throughout 2015, 2016, and on through the 2017s... the price of Bitcoins continues to collapse and recover somewhat, 25% here ...over 25% there...... Speculators, get frustrated and lose interest and some of the big miners sell off their computers at a heavy loss. The spotlight moves elsewhere but the true believers in the power of decentralized blockchain processing continue to develop the system.

Bitcoins aren’t the only things that can be transferred using a peer-verified network, after all — you could transfer the digital lock to a smart car; or a financial contract, with pay-offs and penalties automatically adjudicated and paid for by the blockchain. The question is whether the effort of doing all this is more efficient than the current centralized systems using interbank payments.

The answer is yes but only in certain circumstances. A blockchain is a ledger of every digital transaction ever made on the system. This proves far too unwieldy for a universal means of payment. Yet specialized niche systems evolve: by 2018, block-chain processing is common for remittances; by 2019, block-chain processing pays for and controls self-driving taxis. You can even download an out-of-the-box blockchain app for your local babysitting circle — or your prostitution ring.

Blockchain approaches don’t replace Western Union and Visa everywhere but they squeeze margins and make inroads for certain applications. The only disappointment for the true Bitcoin enthusiasts is that Bitcoin itself, the currency that started it all, fails to catch on. Most people prefer a trusted brand. When a standard of value is used on these disparate blockchain processes, the most popular by far is “FedCoin” — more commonly known by its correct name, the US dollar. Two stories about the future, and most likely neither one will come true. These are interesting times for cryptocurrencies.

Bitcoin, the leading digital money, has risen 700% this year to as high as $7,146, and is up 3,500% since a low in January 2015. Nearly every day Bitcoin and other cryptos are making headlines. Some experts call them the new gold.

But are Bitcoin, Ethereum and other digital currencies real investments or a speculator's game? And what about initial coin offerings, a hybrid of initial public offering and crowdfunding that has spawned Etherum and other projects? Even Wall Street is divided, so many experts warn Main Street investors to stay away or proceed with great caution. No less than Goldman Sachs (GS) is said to be considering a cryptocurrency trading operation, according to the Wall Street Journal. Yet JPMorgan Chase (JPM) CEO Jamie Dimon recently called Bitcoin "a fraud" and said it would likely stay on the black market.

Far from being safe for widows and orphans, like utilities, the Bitcoin market — which hit $150 billion in August — looks more like the 1840s gold rush. Many rushed in, but few got rich. On Saturday, Bitcoin fell to around $5,500, wiping out a rally on news that a plan to split the crypto currency was called off. It's bounced back since and was trading above $6,400 midday Monday. One risk is that governments likely will limit the currencies' use, such as barring them for tax payments, which would keep them out of the mainstream, according to UBS. China recently banned initial coin offerings and trading in cryptocurrencies, and it may not be the last government to act on concerns about giving up control over the flow of funds, the ability to monitor taxable gains or appearing vigilant in protecting investors.

But many retailers are accepting Bitcoins as payment, including Microsoft, Target, Home Depot and Subway. And more uses are in the works.

Cryptocurrency Investment Vehicles

Only a handful of ETFs and other exchange traded products have significant exposure to Bitcoin or other cryptos. One is Grayscale's Bitcoin Investment Trust (GBTC). It's attracted $1.2 billion in assets and is up more than 630% this year. More vehicles could emerge soon if plans to offer futures contracts proceed at CME and CBOE. ETF provider VanEck's recent SEC filing to create a Bitcoin ETF was withdrawn because of a lack of futures. The surge in Bitcoin's value is a boon for Coinbase, an exchange where crytpocoins can be bought, sold and stored in wallets. Coinbase added more than 100,000 users Nov. 2 in a 24-hour period after CME Group announced its plans to introduce Bitcoin futures by the year's end, Bloomberg reported.

In a picks-and-shovels move vs. actually holding Bitcoins, ETF provider Reality Shares has filed to offer Reality Shares Nasdaq Blockchain Economy ETF, which would invest in companies that commit significant resources to blockchain technology, the Street.com reported. Blockchain is the technology behind Bitcoin and other cryptos.

What Is Bitcoin?

Bitcoin arrived on the scene in 2009. The digital currency is created and held electronically. Its value stems partly from the fact that it's decentralized; no single institution or government controls the network. It was developed based on a proposal from a software developer called Satoshi Nakamoto, according to CoinDesk, which tracks cryptocurrency prices and reports on events in the crypto space. Low transaction costs are another feature along with instantaneous transfers.

Perhaps its biggest attraction is that its supply can't be increased or decreased at the whim of a controlling entity. Similar to gold and other precious metals, Bitcoins can be "mined," but it's done by using computing power in a distributed network. And like gold, Bitcoin supply is limited. And it's headed toward terminal creation. Bitcoin rules state that only 21 million Bitcoins can ever be created, though the coins can be split into smaller parts. That could make Bitcoin, like gold, an attractive inflation hedge, backers say. There are 16.67 million Bitcoin in circulation now.

On the other hand, the potential creation of new digital currencies creates "the possibility of limitless supply of different cryptocurrencies," undermining the value of existing ones, UBS warned recently.

Bitcoin Vs. Gold

SPDR Gold Shares (GLD), an ETF that tracks the price of gold bullion, is up about 11% this year. That might look meager next to Bitcoin's surge. Hence, internet news searches for Bitcoin now outnumber those for gold.

But cryptocurrencies have been volatile. On the way to its all-time high this year, Bitcoin plunged 28% from $2,682.59 on June 12 to $1,938.94. And it plummeted 35% from $4,950.72 on Sept. 1 to $3,336.41 on Sept. 14.

Critics warn of a bubble.

"The relatively high volume of cryptocurrency turnover, against limited real-world use, suggests that many buyers are seeking speculative gain, never intending to use cryptocurrencies to make a real-world transaction," UBS analysts said in report quoted by CNBC.

The blockchain software behind Bitcoin makes the digital currency a method of transferring value, but unlike at, say, a bank or real estate company. With blockchain, those expensive middlemen are no longer needed to ensure a transaction takes place as intended, a protection supplied by the blockchain software itself. The result: faster and cheaper transactions.

And since blockchain and cryptocurrencies offer various layers of anonymity, they are seen as attractive to those living in countries where transfer of wealth is restricted. Detractors say cryptos also draw drug dealers, money launderers and tax dodgers along with legitimate investors.

Coinbase is involved in a lawsuit in which it's trying to fend off IRS attempts to scan customer accounts for unreported taxable gains, Bloomberg reported.

How People Invest In Digital Currencies

Those who want to own cryptocurrencies directly can go to exchanges to buy and trade them. Some of the largest are U.S.-based Coinsetter, Coinbase, Cryptsy, London-based Bitsamp and Bulgaria-based BTC-e.

They'll need what the industry calls a wallet to store the private keys that give access to cryptos. Major exchanges offer soft, or hot, wallets for customers. Such wallets are available for desktop computers and mobile devices and include Bitcoin wallet, Mycelium, Xapo and Blockchain, according to Coindesk.

Hard wallets in the form of flash-drive like devices bring an extra layer of security, by limiting exposure to the internet. They have to be plugged into a computer or phone before they can be spent. Three popular ones, according to Buybitcoinworldwide.com, are Ledger Nano S, KeepKey and Trezor. Just remember, don't lose it, forget your password or fail to back it up, or you might lose your cryptocurrency forever.

While proponents extol the fraud-proof safety of blockchain technology, wallets have proved vulnerable. In the latest mishap, an estimated $280 million of Ethereum ether coins were locked up after a user accidentally deleted the code needed to access digital wallets hosted by Parity Technologies. The freeze affects all multisignature wallets created on Parity after July 20. Ethereum has jumped 3,810% this year from $8.03 on Dec. 31 to $313.98 on Nov. 13. It's 20% off its Sept. 1 high of $390.34.

Meanwhile, the financial industry is moving ahead.

In other moves by financial companies to bring Bitcoin to investors, on Sept. 6, CoinIRA, Goldco's digital currency unit, launched its new Digital IRA Bundles. The bundles, available in amounts of $25,000, $50,000 and $100,000, come prepackaged with digital currencies. Investors can choose from three portfolios based on their risk appetite: conservative, moderate or aggressive. The conservative bundle is made up of 50% Bitcoin, 41% Ethereum and 3% each in Ether classic, Litecoin and Ripple.

Could exchange traded funds make digital cash more widely accessible?

Cryptocurrency Investing Like Juggling Chain Saws?

"A diversified ETF that has some exposure to cryptocurrencies will likely be somewhat less risky than direct investment," Ben Johnson, director of global ETF research at Morningstar, told IBD. "But that's a bit like comparing the risks associated with juggling knives to those you'd face juggling chain saws."

Thus far no exchange traded funds trade on a major exchange like SPDR Gold Shares or iShares Gold Trust (IAU). Grayscale Investments' Bitcoin Investment Trust, which launched May 4, 2015, trades over the counter. Grayscale had filed for SEC approval to trade GBTC on NYSE Arca, but on Sept. 27 withdrew the application, remaining as a less-regulated investment trust. Morningstar Direct lists GBTC with its ETFs, but there doesn't appear to be an efficient arbitrage mechanism that keeps the price and NAV in balance. GBTC recently traded at a 44% premium to its holdings.

GBTC shares fell as much as 54% from an Aug. 31 high but are still up more than 600% this year. They started tumbling 20% Sept. 1 after short-seller Citron Research called GBTC the "most dangerous way to own Bitcoin" and said it should trade no higher than $550 a share.

"Right now, many investors are using the Bitcoin Investment Trust, which is arguably even riskier than Bitcoin because it trades at high premiums, which means you could lose money even if Bitcoin doesn't go down," Eric Balchunas, ETF Analyst with Bloomberg Intelligence, told IBD. "In contrast, the ETF structure and its creation/redemption process would give investors the best possible chance to get A fair deal on investing in Bitcoin. ETFs have proved themselves in terms of being able to handle all kinds of non-equity holdings, such as bonds, physical gold and derivatives."

Proposed ETFs in the SEC review process

Potential ETFs under review by the Securities and Exchange Commission include Winklevoss bitcoin Trust, which the SEC rejected in March amid concerns including lack of liquidity and regulation. Officials are again reviewing the ETF candidate, a seemingly recurring process over the past three years. ETF provider ProShares on Sept. 27 filed with the Securities and Exchange Commission for a ProShares bitcoin ETF and ProShares Short bitcoin ETF. Instead of owning the currency, both ETFs plan to track bitcoin futures contracts, which are not yet available.

CME Group and Cboe Global Markets have said they plan to offer bitcoin futures as early as this year, pending regulatory review.

But the same day, VanEck withdrew its Aug. 11 application for VanEck Vectors bitcoin Strategy ETF, which would have also invested in bitcoin futures. According to VanEck's application withdrawal letter, the SEC's policy is to not review a registration statement until the underlying instruments (bitcoin futures contracts) become available. Even Fidelity Investments is dipping its toes in the cryptocurrency field by teaming up with Coinbase. Fidelity's innovation unit on Aug. 9 said it will allow Fidelity customers to view their bitcoin, Ethereum and Litecoin balances in their Coinbase wallet accounts.

Balchunas puts the odds at about 50/50 of a new ETF option in the next two years.

"There have been two key developments since the SEC rejected it in March," he told IBD. "One is the likelihood of a regulated bitcoin futures and options markets, and the second is that the SEC's changing with the new administration, and its brand-new head of the division of investment management was a lawyer at the same firm that represented the Winklevoss twins' bitcoin filing." Still, caution is warranted.

Other ETF choices

"In an ETF wrapper, volatility of bitcoin could prove higher than alternative currency-based products and investors will need to be prepared," Todd Rosenbluth, CFRA's Director of ETF & Mutual Fund Research, told IBD. "Interestingly, ARK Innovation (ARKK) and ARK Web X.0 (ARKW) provide exposure to bitcoin, but have diversification to more traditional equity investments such as Amazon.com, Tesla and Twitter, dampening the risk."

ARK Investment Management, which runs six ETFs, offers exposure to bitcoin and was the first ETF to own GTBC shares, which has helped boost the funds' performance. ARKK and ARKW were the top two sector ETFs based on their year-to-date returns through Nov. 10, according to Morningstar Direct, with respective gains of 73percent and 71percent. ARKK has attracted $209 million in assets since its October 2014 launch; ARKW has gathered $136 million since September 2014. Both funds bear a 0.75percent expense ratio.

Kinetics Internet (WWWFX) and Kinetics Small Cap Opportunities (KSCOX) are among several Kinetics Mutual Funds that also own GBTC. Even as more options unfold for investors seeking exposure to bitcoin and other virtual currencies, investors should keep in mind potential risks. "If market prices retain any useful informational content, which theory suggests they do, then the 10x run-up in the crypto market capitalization over the last year signals there is something important taking place," ZenCash co-founder Rob Viglione said. "Whether that something ends up being radically transformational, or simply a speculative delusion is yet to be seen."

Bitcoin: Boom or Bust?

Are blockchain-enabled currencies like bitcoin the future of finance or a disaster waiting to happen?

The rapidly rising price of bitcoin is leading many to question if the digital currency’s boom is about to bust. Strategist Peter Schiff, for instance, recently warned “today’s bitcoin could be tomorrow’s beanie babies.” As of this writing, bitcoin is up almost 30 percent in the past month and over 100 percent in the past year. It has been hitting new highs on an almost daily basis and recently crossed the $1,200 mark. So is there a bitcoin bubble about to burst?

To try to answer this question, let’s apply the framework for spotting bubbles that I articulated in my 2011 book Boombustology: Spotting Financial Bubbles Before They Burst. The approach is based on the application of five lenses and generates a probabilistic assessment of a forthcoming bust.

Most mainstream economic theories utilize a supply and demand driven price determination model that generally results in prices tending towards equilibrium. I say tending because most serious scholars admit that behavioral and informational issues can distort the price at any one point in time, but there exists an overarching belief that such distortions are rapidly ironed out. Markets are, according to this view, basically efficient. Higher prices dampen demand, and lower prices dis-incentivize supply.

But what if that’s not true? What if higher prices increase demand? Such a dynamic might arise for many reasons, but one eloquent explanation is the Theory of Reflexivity, as proposed by George Soros. Although it has many subtleties beyond the “self-fulfilling” logic that many ascribe to it, the underlying implication is that prices can and do tend away from equilibrium. The result: booms and busts.

Prices can and do tend away from equilibrium.

So has the higher bitcoin price been accompanied by higher demand? It’s unclear. The evidence is mixed. On the one hand, it sure seems that as news about and interest in bitcoin rises, so does its price. It’s seen a safe-haven asset during times of elevated geopolitical, financial or regulatory risk and may even attract price-insensitive buyers at those times. But on the other hand, the volume of trading has not gone up as prices have. And while volume is at best a crude proxy for demand, it tells us about the general activity level. Lens 1: half-check.

Another telltale sign of a bubble is the presence of significant leverage supporting lofty prices. And while it’s unclear if bitcoin prices are bubbly or not, I don’t see any evidence that leverage is fueling the potentially elevated prices. There are no futures contracts that enable large exposures with minimal collateral. There are no options that provide de facto leverage. Sure, some investors may be utilizing other collateral to secure credit that is in turn used to buy bitcoin, but this is impossible to track.

Another telltale sign of a bubble is the presence of significant leverage supporting lofty prices.

But more importantly, perhaps, we can look at the amount of debt (it’s not a small number!) that has been holding up many of the countries that back traditional fiat currencies. In addition, the fact that printing presses around the world continue to print more and more money implies that traditional currencies are being debased at an alarming rate. With a fixed algorithmic release of additional bitcoins into the market and a cap on the total number that will ultimately be issued, the crypto-currency represents a non-printable currency (similar in this respect to gold). Lens 2: blank.

Overconfidence and new era thinking are the hallmarks of my third lens, psychology. Whenever individuals develop a devout belief that “it’s different this time,” buyers beware. It is rarely different and asset prices have never risen indefinitely. Rather, they generally go up and down, and in this regard, bitcoin prices are no different.

It’s also clear that there is increasing agreement that cryptocurrencies are the “new new thing” and offer the promise of freedom from authoritarian manipulation of monetary instruments. Even investor Peter Thiel noted the promise of bitcoin by highlighting his own failure: “Paypal had these goals of starting a new currency. We failed at that, and we just created a new payment system. I think bitcoin has succeeded on level of new currency.”

And like gold bugs, bitcoin believers tend to exhibit religious conviction in the cryptocurrency’s ability to store value. They often go further, suggesting the amazing upside potential they exhibit. Internet analyst Henry Blodget has even suggested bitcoins could be worth $1 million per coin. In fact, CNBC’s Brian Kelly described bitcoin as “not just digital gold…it is a once-in-a-generation investment opportunity, similar to the internet, growing just as fast, if not faster…it’s the internet of money.” Lens 3: check.

My fourth lens is politics, broadly defined to include both regulations and moral hazards. As with any asset, regulations can distort prices by either artificially increasing or dampening supply or demand.

Just think of what happened when political motivations to increase home ownership in the United States nudged more and more people into houses. Without the political incentives, prices may not have risen as handsomely as they did during the housing bubble. Further, the moral hazard endemic in the use of government sponsored mortgage finance enabled lenders to play a game of “heads I win; tails you lose.” If loans worked out, the lender profited. If it didn’t, Fannie Mae or Freddie Mac bore the losses.

When it comes to bitcoin, are there any artificial government interventions that are supporting bitcoin prices? No. On the contrary, regulators are trying to discourage interest in bitcoin. Just look to China, where its major bitcoin exchanges were effectively shut down last month by government officials. But as noted by Elaine Ou in Bloomberg View, “even China can’t kill bitcoin.” Bitcoin prices briefly fell upon the news, but quickly recovered and marched higher. They’re up more than 25 percent in the three weeks since China tried to control trading.

And when it comes to moral hazard, there are no signs of it in bitcoin land. No one bailed out those who lost millions when bitcoin exchange Mt. Gox filed for bankruptcy. No regulator prevented or intervened to manage the governance disputes that arose on the bitcoin algorithm. Many bitcoin market participants are transacting with open eyes, fully aware of the risks of doing so. There is no FDIC protection, no Federal Reserve put. Lens 4: blank.

An application of epidemic logic to the study of financial bubbles can help gauge the relative maturity of manias. If we analogize an investment hysteria to a fever or flu spreading through a population, the variables of concern to us would include the infection rate, the removal rate and perhaps most importantly, the percentage of the population not (yet) affected. The last metric can be thought of as the fuel available to keep the fire burning. Once we run out of people to infect, so to say, the party’s over. New demand will disappear. Prices will fall.

When it comes to bitcoin, the number of potential buyers (i.e. those still vulnerable to infection) is very large indeed. To begin, it’s not particularly easy to buy Bitcoin, and that’s deterred institutional investors. Specialized exchanges, online wallets and the need to protect private keys create huge friction in transactions, keeping many potential bitcoin buyers away. There isn’t an ETF, at least not yet. Stay tuned, however, as an ETF is in the works. And if approved (we’ll know more later this month), the Wall Street Journal notes it might generate a buying frenzy with up to $300 million of inflows during the first week alone, a volume that dwarfs the currently traded daily value of any bitcoin exchange.

Specialized exchanges, online wallets and the need to protect private keys create huge friction in transactions, keeping many potential bitcoin buyers away.

And with a current market capitalization of around $20 billion, the bitcoin market is miniscule relative to its potential. Consider that the value of privately held gold is in the trillion of dollars. Or that the global remittances (a potential use for cryptocurrencies like bitcoin) currently tally into the hundreds of billions of dollars. The bottom line is that bitcoin just isn’t as widely held or used as it could be. There is still a enormous population of potential buyers waiting on the sidelines. And in a recent twitter poll conducted by investor Mark Hart, only 22 percent of respondents indicated that they were “Max Long” bitcoin, with 49 percent “Planning to buy/add” or “Curious.” Lens 5: blank.

So on my five point scale, with five being a “virtually certain bubble likely to burst imminently,” bitcoin only registers one and half points. On the margin, this means that the stage may be set for it to become a bubble, but it doesn’t appear to be one yet. It may one day become a full-blown bubble with high bursting risk, but the evidence doesn’t suggest we’re there yet. Recall that government attempts to contain bitcoin have failed, anointing the cryptocurrency with a “forbidden fruit” status and driving new demand. Or that the possibility of an ETF or other investment instrument may emerge to ease the frictions of purchasing bitcoin.

And the promise of smart contracts inspires visions of unprecedented demand for digital currencies. In fact, just yesterday, a collection of large companies including Microsoft and JP Morgan announced they would be forming the Enterprise Ethereum Alliance. Ethereum is a distributed computing platform based on blockchain technologies that features the ability to design smart contracts. The cryptocurrency native to Ethereum is ether, and it’s been called “the hottest new thing in digital currency.” As the standard-bearer for cryptocurrencies, bitcoin will benefits from any attention ether generates.

Although short-term price corrections are always possible, there are compelling reasons to believe the long-term outlook for blockchain-enabled currencies like bitcoin is bright. If you’re looking for beanie babies, you best look elsewhere. It's a bumpy ride folks... fasten your seat belts....

Bitcoin Plunges More Than 25% in Four Days

Fall follows record high as concerns weigh on the cryptocurrency

The booming bull market for bitcoin has hit another speed bump.

Bitcoin slumped more than 25% in recent days, falling below $6,000 after touching a record high just shy of $7,900 last week. A canceled software upgrade, concerns about the ...

Investment manias throughout the centuries have ranged from tulips to tech stocks to housing; is bitcoin different? Image/Video: Daniel Epstein

Bitcoin slumped more than 25% in recent days, falling below $6,000 after touching a record high just shy of $7,900 last week. A canceled software upgrade, concerns about the coming futures hit cryptocurrency …

The booming bull market for bitcoin has hit another speed bump.

Bitcoin slumped more than 25% in recent days, falling below $6,000 after touching a record just shy of $7,900 last week. A canceled software update/upgrade, concerns about coming launch of bitcoin futures and fears of an asset bubble weighed on the cryptocurrency, which is known for sharp swings. On Monday, bitcoin prices regained some of their losses in volatile trading. It traded as high as $6,770+ according to Coindesk, up about 16% for the day, then slid back to about $6,500. Even with the decline, bitcoin is still up more than 50% this year and has a market capitalization of about 100BB. The latest drop marked the fifth time this year that bitcoin traded at about $6,500 late Monday.

The recent decline came after last week’s suspension of plans that would have split the digital currency into two competing versions. A group proposing to launch a new version of the currency that would allow for faster trading put off those plans after they were bitterly opposed by a group of botcoin’s main software developers. Traders also have been jiterry about the impending introduction of bitcoin futures. Exchange operators CME Group Inc. and CBOE Global Markets Inc. have announced plans to offer such contracts, which would give Wall Street traders an avenue to bet on bitcoin prices and hedge against volatility, a critical step in bitcoin’s move into institutional and retail markets.

Those plans come with risks, associated: Over the weekend, Thomas Peterfly, one of the world’s most successful derivatives traders, said he was concerned bitcoin derivatives would introduce extraordinary volatility that would be difficult to contain.

“For the first time, I am extremely scared,” Mr. Peterfy, Founder and Chairman of Interactive Brokers Group, Inc told Barron’s, citing concerns about stability of Wall Street’s smaller clearing firms.

Investors who have stuck with bitcoin have been rewarded handsomely. Three years ago, the digital currency was at $300 and six years ago it was at $2. The sharp rise has sparked concerns that the digital currency is mired in one of the biggest financial bubbles of all time.

One alternative version of the digital currency called bitcoin Cash has quickly grown in popularity. Launched in August and created as a split from the original bitcoin, Bitcoin Cash uses a technology that can process more transactions at a given time, translating into lower fares in fees for users. At about $21BB, it is the third largest cryptocurrency by market value, according to Coinmarketcap.com.

Bitcoins backers are still fighting along lines of the initial schism: some want bitcoin to have a low cost, fast transaction rates and times. On the other hand, others want to keep the current configuration, which is driving up transaction fees and bottlenecking payments. This slower network works better if bitcoins are being used as a store of value.

Digital currencies like bitcoin are generally open-source software projects, sustained by developers who work on a volunteer basis. That also means any other group is welcome to take the software and create their own version(s) of it. Bitcoin Cash is a copy of bitcoin that is faithful to the original in all but a few aspects or respects.

There was an initial bout of relief last week, which helped propel bitcoin higher, still, after the plans for a version of bitcoin that would have somewhat increased capacity and capability were withdraw. But unwittingly, it just opened the door for Bitcoin Cash’s backers to make a push. The first important marker of this will be a measurement of activity from the “miners” businesses that process transactions on the network and get paid in newly minted or created coins. A measure of their combined computing power, called the ‘hash rate,’ has been rising for Bitcoin Cash and falling for bitcoin.

Still, the reality is that the original bitcoin has been in use for about nine years and has a community – a milieu of businesses, developers, and miners around it. Bitcoin Cash on the other hand has only existed for a few months, and despite its position for payments, has a few – if any – retail outlets that accept that, currency.

Bitcoin Prices Surge More Than 25% As Cryptocurrencies Recover

Bitcoin prices rose more than 25% today, climbing higher after suffering a sharp sell-off over the last few days.

The digital currency had surged to as much as $3,747.73 at the time of report, after plunging to $2,951.15 earlier in the day, according to the CoinDesk Bitcoin Price Index (BPI).

Because of this sharp increase, Bitcoin prices climbed roughly 27% in less than seven hours.

Before starting this recovery, the cryptocurrency shed more than 32% between September 12 and today, additional BPI figures show.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Crypto Market Sell-Off

Bitcoin fell as the broader digital currency space suffered a sell-off.

Earlier today, the total market capitalization (market cap) of these digital assets fell to $97.6 billion, the lowest since the beginning of August, CoinMarketCap figures show.

After this sharp decline, the total market cap of these cryptocurrencies was down more than 45% from its all-time high of nearly $180 billion, additional CoinMarketCap data reveals.

Bitcoin Bounces Back

As for what caused Bitcoin prices to recover following their sharp drop, the simplest explanation is that traders over reacted to the latest news out of China and oversold the currency.

After Bitcoin prices fell to their recent low below $3,000, traders simply recognized the opportunity and purchased the digital asset, causing its price to rise sharply.

Brad Chun, chief investment officer at Shuttle Fund Advisor, was in this camp, asserting that Bitcoin prices bounced back after suffering their recent decline.

'Classic' News Trading

Lucas Geiger, founder and CEO of Wireline, provided similar input, describing the situation as "the classic crypto regulatory news trading pattern."

He speculated that an influx of retail investors has amplified the situation of crypto markets being fueled by the latest news.

More experienced traders hold in response to regulatory speculation, asserted Geiger, contending that this helps give Bitcoin prices a floor during these panic-driven price declines.

'Buy The Rumor, Sell The News'

Tim Enneking, managing director of Crypto Asset Management, offered a slightly different perspective on Bitcoin's latest price movements.

He emphasized that while the saying "buy the rumor and sell the news" provides a great explanation of activity when news is good, the opposite is true in this case, as the latest news out of China is not positive.

Huobi and OKCoin recently announced that by the end of next month, they will stop offering yuan-based trading, CoinDesk reported.

Going Forward

While the narrative has at sometimes been that China dominated Bitcoin trading, that perception has shifted as the nation's authorities have begun cracking down on the jurisdiction's exchanges.

Even though the major Chinese exchanges have announced that they will soon make significant changes to their trading, cryptocurrency trading is available at exchanges across the world.

Bitcoin's Sharp Rally

Further, even though Bitcoin prices did plunge more than 30% in the space of a few days, they are still far higher year-to-date.

The digital currency's price has risen astronomically this year, climbing above $5,000 earlier this month.

Even its sharp drop, Bitcoin has climbed more than 250% YTD, outpacing many other assets.

Record Highs in Sight? Bitcoin Price Moves Back Above $7,500...

There seems to be no stopping the bitcoin freight train.

Having taken the 61.8 percent Fibonacci retracement level yesterday, the world's largest cryptocurrency by market capitalization rose to eight-day highs above $7,520 today. As of writing, the bitcoin-U.S. dollar (BTC/USD) exchange rate is at $7,459 – a 2.54 percent gain for the session, as per CoinDesk's Bitcoin Price Index

Stepping back, prices had dropped 29 percent after the developers suspended a controversial software upgrade, known as Segwit2x, on Nov. 8.

However, the sell-off was cut short near $5,500 by the 50-day moving average (MA) on Nov, 12. A rally in the subsequent days all but erased the likelihood of a drop to $5,000 levels. Then, yesterday, a move above $7,000 improved the odds of a continued rally to record highs above $7,800. Currently, BTC is just $312 short of its Nov. 8 record of over $7,800.

Bitcoin Is Sticking to Its $8,000 High. And there it goes AGAIN.... Here's What's Keeping It Afloat

Bitcoin is continuing its good performance of the last few days. After its value briefly cleared the $8,000 mark on one exchange on Friday, it surpassed $8,110 on Sunday and is $8,048 at the time of writing.

This has been a highly volatile roller coaster ride this month for bitcoin—though the same can be said for most months. A couple of weeks ago, bitcoin hit a $7,888 high before falling as low as $6,800, then climbing back up again.

At the start of the year, one bitcoin was only worth around $1,000. Back in August, with the price at $3,500, analysts were being bullish by claiming bitcoin might clear $5,000 next year. Goldman Sachs analysts forecast the $8,000 barrier’s breakage earlier this month, suggesting there may be further surges in store.

The latest positivity comes as institutional investors start to push harder into the cryptocurrency world, with CME having recently announced plans to trade bitcoin futures and Coinbase offering a custodian service for hedge funds. Last week, Square also started testing bitcoin payments on its Cash app.

The “Segwit2x” fork, which would have split bitcoin into two factions, was also recently cancelled, at least formally. Some bitcoin-mining nodes still tried running the Segwit2x code, although reports emerged at the weekend suggesting that a bug in the code stopped it from working, properly. This so called bug will be fixed shotly.

Bitcoin bursts through $8,000

-- Bitcoin pushed past $8,000.
-- Prices rebounded after it fell as low as $5,600 over the weekend.
-- The surge comes amid more regulatory developments in the cryptocurrency market.

Bitcoin (BTC) demand is ramping up to end the week, with the world’s biggest cryptocurrency pushing through $8,000 on major trading exchanges.

Here are this week’s moves in BTC on the Bitfinex exchange, via Investing.com:

Prices have steadily rebounded after demand for offshoot bitcoin cash (BCH) skyrocketed over the weekend, which sent BTC falling as low as $5,600.

Since then though, the BTC juggernaut has rolled on while BCH continues to decline from recent highs.

The latest BTC surge comes amid further regulatory developments in the cryptocurrency market.

Overnight, the CEO of the Chicago Mercantile Exchange (CME) said it would introduce measures to curb volatility once bitcoin futures are up and running.

The follows the announcement earlier this month by CME — the biggest futures clearing exchange in the world — that it would launch bitcoin futures trading before the end of the year.

And the new investment space is attracting increasing attention from institutional investors, with Coinbase — a major US bitcoin exchange — announcing a new security platform in an effort to woo larger hedge funds.

THE WRAP-UP

Black Friday/ Cyber Monday: Bitcoin Races Toward $10,000

Bitcoin was trading at $9,542, up 6% vs. a day earlier, according to CoinMarketcap.com, after trading close to $9,800 earlier and surging past $9,000 over the weekend. Bitcoin Cash and Ethereum also were up.

The cryptocurrency is gaining more acceptance among financial leaders as well as more and more attention from general investors. CME (CME) will begin trading Bitcoin futures by year end, with CBOE (CBOE) also looking to do so as well. JPMorgan Chase (JPM) reportedly is mulling whether to trade Bitcoin futures on behalf of clients, weeks after JPMorgan Chase CEO Jamie Dimon called the cryptocurrency a "fraud." Cryptocurrency-related plays include Bitcoin Investment Trust (GBTC) and the recently renamed Riot Blockchain (RIOT).

Nearly four million Bitcoin out of the 21 million that will ever be "mined" are permanently lost, according to a Chainalysis study, suggesting even greater scarcity.

Bitcoin Futures Set to Start Trading as Regulator Gives Thumbs Up

The CME Group, arguably the world's most liquid futures exchange, will begin listing bitcoin futures within several weeks. Futures contracts are financial derivatives, an asset whose price is determined by an underlying asset. CME's bitcoin futures will settle in USD, thus, traditional financial institutions will be able to effectively trade bitcoin - i.e. speculate on the price movements of bitcoin.

You will note: the futures contracts settle in USD. How does this affect the price of bitcoin? The answer lies in the arbitrageurs who will straddle both the futures market and the market for the underlying bitcoin.

This is getting technical so before proceeding, I want to provide an analogy. ExxonMobil operates in both the market for physical oil and the futures market for oil. ExxonMobil is in the business of drilling for oil, and not speculating on the price of oil; thus, ExxonMobil sells (short) oil futures contracts to mitigate the price volatility of the oil they own (and are long) before they can physically sell it.

I hope this idea of hedging is clear. Now, here is why the CME bitcoin futures contracts are bullish for the price of bitcoin in the coming weeks to months. The bitcoin futures arbitrageurs will hedge in a manner similar to ExxonMobil. Arbitrageurs are not in the business of speculating on the price of bitcoin, they are in the business of lending money to people who buy futures contracts.

Buyers of futures contracts are using margin (i.e. borrowing money). The interest rate at which arbitrageurs lend is determined by the market (but my guess it will be slightly greater than LIBOR).

What happens in financial markets when you can earn interest rates higher than LIBOR effectively risk-free? Large financial players make trades worth billions of dollars.

Here is the punch-line (or the TL;DR), arbitrageurs will sell short bitcoin futures contracts and buy the underlying bitcoin. This buying of underlying bitcoin will be bullish for the price of bitcoin - billions of dollars of new money will seek to buy bitcoin.

Get the latest Bitcoin price here.>>