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Cryptos: Opportunity of a Lifetime or the Most Obvious Bubble Ever?

 4 min read / 

Cryptocurrencies are amid a speculation frenzy as every man and his dog hopes to get rich from them without any consideration of what a blockchain is. Given the very evident symptoms of a spectacular bubble, how can educated investors claim that buying cryptos is a rational decision?

What’s the Deal?

Proponents argue that one should think of them as a currency rather than an investment asset. They have a point; fiat currency is also not backed by anything and only has value because of people’s faith in it. So why can’t cryptos be the same? There are already people and businesses in existence that accept it. And in many ways cryptos are superior to fiat currency: they are decentralised, have a limited supply (typically) and are impossible to counterfeit. Whilst it would be unprecedented, there is no hard and fast reason why a private currency cannot become the mainstream means of exchange.

If cryptocurrencies’ future as currency is bright, there is arguably a strong case for investment. Demand rising faster than supply will cause them to appreciate. Consider this: the UK, US and Eurozone money supply is £28trn in total. So if people decide to hold just half of their wealth in bitcoin (for instance) as opposed to pounds, dollars and euros, the value of bitcoin in circulation will increase from its current market capitalisation of £234bn to £14trn – a rise of 5,900%!

Don’t Buy Bitcoin Just Yet

Just because cryptos may become an accepted means of exchange, does not mean that they are good investments now. One must consider whether they are currently overvalued; is one bitcoin really worth $15,000? Or is this a price valuing the hopes of future mainstream adoption? The obvious danger is that if the future outlook for cryptos becomes less optimistic, their prices will be hit accordingly.

Another concern is that investors have lost sight of cryptocurrencies’ underlying value as a means of exchange, and are fuelling prices through speculation and greed. Again, this is obvious but it seems like many need to be reminded of what a bubble is (perhaps due to them being too young to remember the dotcom bubble). Furthermore, this ever-increasing influx of speculative investors, and the increased volatility that ensues, actively undermined cryptos’ credibility as currency. Virtually no one (apart from criminals) actually uses bitcoin for purchases.

And lastly, even if cryptocurrencies prove to revolutionise payments, how does one know which will come out on top. There are already hundreds of cryptos, including 29 that have a market capitalisation of over $1bn. And with no limit on the creation of new ones, there will be stiff competition, especially from banks and other financial institutions which will likely find it easier to gain widespread acceptance. One should remember that during the dot-com boom, hundreds start-
ups appreciated rapidly. And whilst internet did end up changing the world, the vast majority of these companies ended up worthless.

Cryptocurrencies are in the dangerous state of irrational exuberance, so one must be cautious if they decide to join in. A skyrocketing price can only be justified if it is accompanied by an appropriate level of real-world use and development.

So Should One Invest?

Cryptocurrencies are in their early days, making it impossible to know what to expect. For the prudent investor, it seems wise to avoid them for now. With all the many variants and the many more that are to come, the odds of picking a winner are slim. Being patient enough to observe the evolving landscape of cryptos and the regulation surrounding them will allow individuals to make better judgements on which digital currencies will be successful and hugely limits the potential for loss.

After all, cryptocurrencies could turn out to be as worthless as tulips.

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Cryptos Rally Slightly

crypto prices

Following one of the worst crypto crashes since 2015, cryptocurrencies posted moderate recoveries.

Editor’s Remarks: Bitcoin dipped into four-figure territory at the nadir of the short-lived crash that many touted as the “end of cryptocurrencies”. However, most major currencies were up yesterday as they commenced a recovery. Ripple, which fell as low as $0.90, was up to $1.40 by midday, while NEO resumed its upward trend. Bitcoin’s recovery has been notably weaker than its smaller cousins, some of whom are up 60% in the last 24 hours against bitcoin. Ethereum gained back some of the ground it lost too and is settling in once more above the $1,000 mark.

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Crypto Carnage: Blood on the Dance Floor

 3 min read / 

crypto crash

It is said that ‘Blue Monday’, typically the third Monday of January, is the most depressing day of the year. This has, undoubtedly, been the case for cryptocurrency owners worldwide; from Monday onwards, almost all of the world’s major cryptocurrencies have seen a drastic slump in their prices.

Having reached the $14,000 mark last week, Monday onwards marked a severe fall in Bitcoin’s value. On Wednesday, the dubbed ‘king of cryptocurrencies’ dropped to below $10,000 for the first time since the end of November, before making a small recovery on Thursday. It stands at $11,500 at the time of writing, but the day is still young.

And Bitcoin has only been leading the way. At this point last week, the price of Ethereum, the second most valuable cryptocurrency, was approximately $1,200; a slump on Monday saw it fall to a low of $800 on Wednesday before pushing through the $1,000 threshold again, and reaching $1,030 a day later.

Ripple’s XRP also followed suit; the cryptocurrency has almost halved in value over the past week – from around the $2 mark to a low of $1.20 on Tuesday. Since then, it has marginally recovered in price, to $1.48 at the time of writing.

Monero, IOTA and Cardano were also impacted – since Monday, they have declined in price by 35%, 22% and 21%, respectively. Litecoin now sits at $195, down from $240 at the beginning of the week.

The crash occurred at a time of optimism and hope for cryptocurrency owners. Just earlier this week, US money transfer company MoneyGram announced a partnership with Ripple in the aim of streamlining money transfers. Yesterday also marked the expiration of the first Bitcoin futures contract that had been listed by the CBOE.

Still, China’s offensive rhetoric against Bitcoin and other cryptocurrencies in the last seven days is likely to have stoked fears amongst investors, causing a major sell-off. The country confirmed earlier this week that it was seeking to further clamp down on its restrictions against virtual currencies by eliminating cryptocurrency trading.

It has also recently announced plans to further restrict Bitcoin mining within the country. Recent statements coming from Chinese governmental circles could go as far as to suggest that China wants to eliminate cryptocurrencies outright: the People’s Bank of China (PBoC) vice governor, Pan Gongsheng, purportedly encouraged the state to introduce a total ban on cryptocurrencies.

China is by no means the only country to have espoused hostility toward cryptocurrencies. Russia also partially echoed China’s scepticism – President Vladimir Putin noted this week that “in broad terms, legislative regulation will be definitely required in future”.

South Korea’s unreceptive stance toward digital coins – it was reported earlier this week that its finance minister, Kim Dong-yeon, had stated that the government would be introducing measures to clamp down on the “irrational” cryptocurrency investment rage – may have also played a part in driving prices down.

Still, for every bear, there seems to be a bull. Time shall tell whether increasing restrictions on cryptocurrencies from different governments will further impinge on their price, or if they will find a way to adapt to the new obstacles and prove all those championing them (and making millions in the process) right.

Keep reading |  3 min read


UK Banks Shun Bitcoin

UK banks Bitcoin

No UK banks have partnered with cryptocurrency exchanges.

Editor’s Remarks: The lack of any relationships between UK banks and cryptocurrency exchanges means that UK investors currently have to move their money through a series of foreign exchange transactions and services before they can cash out their profits. As a result, they incur high fees and often the suspicion of their banks. This is contrary to many European banks, which have partnered with such exchanges. To an extent, this is because the UK retail banking sector is highly concentrated, whereas in Europe and the US the consumer has more options. The UK government is also due to release guidance on how cryptocurrency gains are to be taxed in the next few days.

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