Every few months or so, when Bitcoin inevitably swoons, theres another bumper crop of doomsday stories about whether the cryptocurrency is going straight to zero. This autumn, that question was entertained by The Economist, Bloomberg, and, JPMorgan Chase & Co. CEO Jamie Dimon, who called it worthless, again.
It is unclear what is gained from the near-obsessive warnings about Bitcoin. But this has not stopped Dimon, billionaire Warren Buffett, and others of their ilk from taking swipes whenever they get in front of a microphone. After deriding the cryptocurrency last month, Dimon hastened to add, I dont want to be a spokesperson; I dont care. It makes no difference to me.
But if it makes no difference, why keep banging on about it? Somewhere beneath all the crypto-pageantry and peculiar moralizing about what makes other investments legitimate while Bitcoin, according to economist Nouriel Roubini, remains merely a pseudo-asset seems to be a deep-seated and very real fear that, one day, the world will wake up and Bitcoin, along with the entire $2.6 trillion cryptoverse, will have vaporized.
Although Dimon himself appears to think that is unlikely, worries about Bitcoins long-term future are not just idle catastrophizing. Many traders, hedge fund managers, and institutional investors across Wall Street are genuinely struggling to size up cryptos systemic risks and finding that its no simple network-mapping exercise. Its the question on everybodys lips, says a director at Coinbase, a cryptocurrency platform with partners in more than 100 countries. Could this all go horribly wrong?
With institutional acceptance on the rise and ever larger amounts of capital at stake, there is indeed a hunt for cryptos Damoclean sword. Specifically, market participants dont want to finally invest in Bitcoin only to witness the long-feared cryptocalypse (as The Economist delicately puts it). For naysayers, theres clearly something about crypto that gives them an unshakable sense of impending doom. Perhaps it is the vestigial effects of the global financial crisis. They lived through it and remember it well. Why shouldnt they ask if Bitcoin is another house of cards?
In the eyes of Bitcoin evangelists, however, theres no greater risk than not hoovering up the cryptocurrency whenever the price dips. Over the past month, Bitcoin struck a fresh record high above $67,000, climbing nearly 20-fold from the pandemics lows. So much for heading to zero. This time, the cryptocurrencys rally followed the late-October launch of the first Bitcoin exchange-traded fund on the New York Stock Exchange.
The fact is, Bitcoins been one of the greatest investments that human beings have ever been able to get their hands on, says Daniel Masters, chairman of CoinShares, a digital asset investment firm based in New York, London, and the Channel Islands. Not just at the institutional level, but at the retail and disenfranchised level. If you have an internet connection, you can participate in crypto. Its made a lot of people a lot of money.
Its those foamy gains that have lured slews of institutional investors into the crypto space this year. According to a recent study by Fidelity Digital Assets, seven in ten institutional investors globally plan to diversify into digital assets in the near future, with current adoption rates among institutions in Asia at 71 percent, Europe at 56 percent, and the U.S. at 33 percent. Though those rates are expected to continue to accelerate over the next several years, this years influx of capital has led to renewed calls for an in-depth examination of the potential market risks that could deliver a crippling, if not fatal, blow to crypto.
The hand-wringing has been at its fiercest over Bitcoins possible exposure to systemic risk, both existential and otherwise. Chief among those concerns is whether a crypto crash, taking place in what is effectively a parallel, decentralized financial universe, might spill over into the traditional financial system. The fact that so many exchanges and crypto intermediaries remain offshore and unregulated continues to fan fears.
Lack of regulation also makes it nearly impossible to accurately measure the crypto markets overall leverage. In the meantime, surveys of who owns the largest Bitcoin fortunes often are reduced to guesswork. As a result, cryptos economic linkages and possible path to contagion have been hotly debated. But new research released in October by the National Bureau of Economic Research, a nonprofit, nonpartisan organization in Cambridge, Massachusetts, may shed some light.
Plumbing Bitcoin addresses with the highest-value holdings, better known as the Rich List one of the most widely followed databases in all of crypto the group found that despite the significant attention that Bitcoin has received over the last few years, the Bitcoin ecosystem is still dominated by large and concentrated players, be it large miners, Bitcoin holders or exchanges. According to the organizations findings, exchanges do play a central role in the cryptoverse, generating roughly 75 percent of real Bitcoin volume, whereas other types of activities, such as illegal transactions and mining rewards, account for a small part of the total volume. A deeper dive into Bitcoin holdings, however, showed that, collectively, it is individuals who boast the largest stockpiles.
Using algorithms developed to analyze Bitcoin addresses and wallets, NBER was able to separate addresses belonging to individuals from those linked to exchanges, investor pools, and other intermediaries. What it found was that Bitcoin balances held by intermediaries grew steadily from 2014, reaching about 5.5 million bitcoins by the end of 2020. Thats approximately one-third of the Bitcoin in circulation. Yet it was the individual Bitcoin holdings that were the most highly concentrated, tallying at about 8.5 million bitcoins by the end of 2020.
The top 1,000 investors control about 3 million bitcoins and the top 10,000 investors own around 5 million bitcoins, NBER wrote in its report last month, noting, This inherent concentration makes Bitcoin susceptible to systemic risk and also implies that the majority of the gains from further adoption are likely to fall disproportionately to a small set of participants.
These findings suggest that though newcomers to crypto would be subject to all the usual risks, they would not benefit from the same outsize gains as first movers, whose smaller, earlier initial investments likely at lower Bitcoin prices would have already had the chance to reap massive gains. Indeed, according to Chainanalysis, institutional investors who first entered the market less than a year ago, at an average price of $37,000 per Bitcoin, would bear the brunt of any heavy losses.
With more than $2 trillion at stake, a crypto cataclysm would certainly obliterate many fortunes, but it likely wouldnt raze key pillars of the financial system. I dont think theres a chance in hell that crypto is the source of any systemic financial collapse, says CoinShares Masters. Basically, all of crypto amounts to the price of Apple stock. Would the world open tomorrow if Apple was erased from the planet? Of course it would.
That doesnt mean contagion isnt possible in the future, but at the moment, the intrigue surrounding Bitcoin with its larger-than-life profile makes it seem bigger than it actually is, Masters reckons, adding, Its always punched above its weight.
Other factors dogging crypto have been, not surprisingly, worries about both over-regulation and under-regulation, each of which poses its own set of unique hazards. The same murky governance that makes it so hard to measure leverage in the crypto ecosystem has made it possible for major offshore players to sow the seeds of not just existential, but very concrete systemic risk. For much of this year, those perils coalesced around so-called stablecoins.
Investors inhabiting the worlds of crypto and traditional finance trading in both the dollar and Bitcoin, for example often rely on stablecoins, a cryptocurrency that lives on the blockchain, can be exchanged for a range of crypto assets, and is pegged to the dollar or the euro. Stablecoins are the lifeblood of crypto trading, because they grease billions of dollars of transactions that would be slower and more costly if subjected to the laborious process of converting dollars to Bitcoin. This is why concerns spread rapidly when troubles arose in the dominant stablecoin, Tether. The company had claimed its tens of billions of dollars in digital coins were fully backed by U.S. dollars but they werent.
In October, the U.S. futures market watchdog, the Commodity Futures Trading Commission, ordered Tether to cough up $41 million for making untrue or misleading statements and omissions of material fact about its U.S. dollar Tether token, which, the agency said, it had misrepresented as a stablecoin that was 100 percent backed by corresponding fiat assets. In truth, Tether had failed to disclose that reserves backing its stablecoins included unsecured receivables and non-fiat assets. The British Virgin Islandsbased company had also falsely represented that it was undertaking routine, professional audits to demonstrate it held sufficient fiat reserves at all times but it wasnt.
The CFTC simultaneously filed and settled the charges, following a closed-door meeting over stablecoins held by U.S. Treasury Secretary Janet Yellen this summer. The action against Tether marked the first time the CFTC had applied its rules to a stablecoin as a commodity, but it seems the U.S. Securities and Exchange Commission, as well as Congress, may soon move to regulate stablecoins much like U.S. bank deposits. At any rate, Tether is a cautionary tale of how easily cryptos internal plumbing can be potentially destabilized from offshore.
Just as under-regulation is seen as a risk, too much regulation or even bans on all crypto transactions and mining, as seen in China this autumn could prove calamitous. But given the decentralized, mobile, and global characteristics of crypto, any crackdown usually leads to Bitcoin activities simply shifting to a different jurisdiction. Regulation that is obstructionist or damaging, particularly in the U.S., could be stifling, says crypto enthusiast and hedge fund manager Roy Niederhoffer, founder of R.G. Niederhoffer Capital Management in New York. Or a major, concerted, global central bank effort to ban it. But ultimately, that would probably make cryptocurrencies like Bitcoin more valuable. This would especially hold true, he says, if restrictions on crypto took place alongside fears of hyperinflation.
Masters says another concern is how global banks might react to decentralized finance as its hegemony grows. The banking lobby is very strong, he notes. There is a chance crypto could be regulated out of existence. But the U.S. just approved the first crypto ETF; the U.S. is not anti-crypto. If it was, this would not be happening.
Another danger, which has lingered since the inception of Bitcoin, would be a mutiny by crypto miners. Because Bitcoins blockchain requires that decentralized miners be honest brokers for the system to function, if a single miner or a set of colluding miners gained control of 51 percent or more of the mining power in the network, it could upend Bitcoins ledger of transactions, allowing miners to alter the previously verified records. The possibility of such attacks creates systemic risks for financial stability and potentially even for national security, if a large fraction of citizens uses Bitcoin as a store of value, says NBER. It is, therefore, important to understand how concentrated the mining capacity is.
According to NBER data, the top 10 percent of miners control 90 percent of mining capacity, with just 0.1 percent, or about 50 miners, controlling close to 50 percent. It should also be noted that the network is most susceptible to a 51 percent attack when Bitcoin prices drop, as miners are then less incentivized to participate. For the past five years, NBER reports, Bitcoins mining capacity has been highly concentrated, with 60 to 80 percent of it based in China. This finding confirms anecdotal evidence.
Not all threats to Bitcoin need be dramatic or complex, though. Sometimes it just comes down to sentiment. In March 2020, when Bitcoin fell below $6,000 as the Covid-19 pandemic hammered the U.S., fomenting fears of an economic collapse and compelling many to convert their investments to cash, the cryptocurrency remained under $10,000 for months. That may be the greatest risk of all, asserts Niederhoffer. A long and growing loss of enthusiasm for crypto. People were just giving up on it.
Of course, he says, these kinds of pullbacks were also seen nearly a century ago, during the Great Depression. My grandfather was wiped out in the stock market crash of 1929, he recalls. Emotionally, he could never bring himself to buy a stock again. When the market falls apart like that, it can take a long time to recover.
Crypto has so far evaded such prolonged doldrums. Even with the pandemic, there are now more than 11,000 cryptocurrencies in existence, up from about 6,000 in 2020, according to the website CoinMarketCap. Nothing is too big to fail, says Niederhoffer, a former neuroscientist, but I suspect Bitcoins biggest critics have never used it to perform a transaction. Having that experience makes a huge difference in your comfort level and understanding Bitcoins importance.
See the original post here:
Is Bitcoin Too Big to Fail? - Institutional Investor
- How to Cash Out Bitcoin: Complete Guide - January 14th, 2022
- Bitcoin (BTC) live coin price, charts, markets & liquidity - January 14th, 2022
- Bitcoin (Cryptocurrency) TradingView - January 14th, 2022
- Bitcoin Up Official Website - January 14th, 2022
- Bitcoin Era | The Official Bitcoin Era App - January 14th, 2022
- Arkansas is offering remote tech workers $10,000 in bitcoin to move to there - CNBC - January 14th, 2022
- Kazakhstan bitcoin miner: US will make up 60% of the worlds computing power in 2 years - Yahoo Finance - January 14th, 2022
- Congress Introduces A Game-Changing Crypto Bill As The Price Of Bitcoin, Ethereum, BNB, Solana, Cardano, XRP Sinks - Forbes - January 14th, 2022
- The US Government and Bitcoin Auctions: Here's What Investors Need to Know - Motley Fool - January 14th, 2022
- Bitcoin Is A Better Store Of Value Than Real Estate - Bitcoin Magazine - January 14th, 2022
- Bitcoin could rise to $75,000 this year to top record high, bank CEO predicts - CNBC - January 14th, 2022
- Bitcoin Miners Bit Digital, Canaan, and SOS Are Flying High This Week - The Motley Fool - January 14th, 2022
- Congress Announces Hearing On Bitcoins Energy Use - Bitcoin Magazine - January 14th, 2022
- US Billionaire Bill Miller Bets 50% of His Wealth in Bitcoin - TheStreet - January 14th, 2022
- Job Postings With Terms Like 'Bitcoin' and 'Cryptocurrency' Grew Almost 400% on LinkedIn Last Year - Money - January 14th, 2022
- University accepts Bitcoin donations to fund crypto-related activities - Cointelegraph - January 14th, 2022
- The rich get richer: Rethinking Bitcoins power as an inflation hedge - TechCrunch - January 14th, 2022
- Dont mention K country: Bitcoin Magazine's YouTube restored after ban - Cointelegraph - January 14th, 2022
- Bitcoin cycle is far from over and miners are in it for the long haul: Fidelity report - Cointelegraph - January 14th, 2022
- 2 Cryptocurrencies That Have Trounced Bitcoin and Shiba Inu During the Crypto Crash - Motley Fool - January 14th, 2022
- Discussing The Importance Of Bitcoin's Open-Source Ethos - Bitcoin Magazine - January 14th, 2022
- Visa: One in Four Businesses Surveyed Plan to Accept Cryptocurrency Payments This Year Featured Bitcoin News - Bitcoin News - January 14th, 2022
- Mai Capital Predicts Tough Year for Crypto Expects Bitcoin and Ethereum to Do Well Once Regulations Come Into Focus Regulation Bitcoin News -... - January 14th, 2022
- What is Bitcoin? | How Do Bitcoin and Crypto Work? | Get ... - December 22nd, 2021
- The U.S. government has a massive, secret stockpile of bitcoin Here's what happens to it - CNBC - December 22nd, 2021
- Bitcoin has its own 1% who control outsized share of wealth - CBS News - December 22nd, 2021
- Missed out on hot crypto stocks in 2021? It paid just to buy Bitcoin and Ethereum, data shows - Cointelegraph - December 22nd, 2021
- TA: Bitcoin Gains Momentum, Why Rally Isn't Over Yet - NewsBTC - December 22nd, 2021
- How Bitcoins Sound Incentives Drive A Sound World - Bitcoin Magazine - December 22nd, 2021
- Daily Crunch: Bitcoin is religion; web3 is greed - TechCrunch - December 22nd, 2021
- Bitcoin Giveaway: Actress Gwyneth Paltrow Gives Away $500K in BTC for the Holidays Featured Bitcoin News - Bitcoin News - December 22nd, 2021
- Bitcoins Proof Of Work Is Well Worth Its Fees - Bitcoin Magazine - December 22nd, 2021
- Will Revealing Satoshi Nakamoto's Identity Help Bitcoin in 2022? - Analytics Insight - December 22nd, 2021
- Donald Trump Says Crypto Is 'Very Dangerous' Warns of 'Explosion Like We've Never Seen' Featured Bitcoin News - Bitcoin News - December 22nd, 2021
- Happy bearday, Bitcoin: Its been 3 years since BTC bottomed at $3.1K - Cointelegraph - December 22nd, 2021
- Bitcoin (BTC USD) Price Chart Risks Lapsing Into Bearish Pattern - Bloomberg - December 9th, 2021
- Bitcoin could hit $100K, gold $2K in 2022 thanks to 'deflationary forces' Bloomberg analyst - Cointelegraph - December 9th, 2021
- Jack Dorseys ditched Twitter for bitcoin. Has the social media bubble burst? - The Guardian - December 9th, 2021
- Can Bitcoin's hard cap of 21 million be changed? - Cointelegraph - December 9th, 2021
- Countries Are Leaving The USD Standard, They Need A Bitcoin Strategy - Bitcoin Magazine - December 9th, 2021
- Ethereum Might Dethrone Bitcoin as Best Crypto Store of Value, Study Argues Bitcoin News - Bitcoin News - December 9th, 2021
- Ethereum it outperforming bitcoin because its a tech bet: Novogratz - Markets Insider - December 9th, 2021
- Monster-Sized Bitcoin Whale Transfers: Blockchain Parser Catches Significant Amounts of 'Cold BTC' Moved to Active Exchanges Featured Bitcoin News -... - December 3rd, 2021
- Bitcoin.com Unlocks Earn on Crypto Promoted Bitcoin News - Bitcoin News - December 3rd, 2021
- Bitcoin And Omicron: Is Another Black Swan Brewing? - NewsBTC - December 3rd, 2021
- True or false: 91% of surveys about Bitcoin and crypto are totally wrong - Cointelegraph - December 3rd, 2021
- This simple Bitcoin options strategy lets traders profit while also hedging their bets - Cointelegraph - December 3rd, 2021
- Can Bitcoin rally in December? | Tune in now to The Market Report w/ Gareth Soloway - Cointelegraph - December 3rd, 2021
- The Invisible Incentives Of Bitcoin - Bitcoin Magazine - December 3rd, 2021
- The future is Bitcoin according to South Park creators - Cointelegraph - November 25th, 2021
- Pokmon GO Creator's AR Platform Is Now Being Used To Hunt Bitcoin, Not Pocket Monsters - Nintendo Life - November 25th, 2021
- Stripe says it's open to accepting crypto for payments, three years after ending bitcoin support - CNBC - November 25th, 2021
- Bitcoin Thanksgiving Gift, Why BTC Heads For Fresh Rally - NewsBTC - November 25th, 2021
- JPMorgan Lists Ethereum As A Better Investment Than Bitcoin - NewsBTC - November 25th, 2021
- Buy the Dip: Bitcoin Whales Accumulated Over $2.36 Billion in $BTC After Price Drop - CryptoGlobe - November 25th, 2021
- How The Latest Macroeconomic News Is Impacting Bitcoin - Bitcoin Magazine - November 25th, 2021
- Macro Guru Raoul Pal Says Millennials Migrating to Bitcoin From Gold and Traditional Finance Heres Why - The Daily Hodl - November 25th, 2021
- NFL Star Wide Receiver Odell Beckham Jr. to Be Paid in Bitcoin This Season - Motley Fool - November 25th, 2021
- Hartford Police seized $20,000 from a Bitcoin ATM after it was linked to a fraud - WFSB - November 25th, 2021
- Transacting on Solana less energy-intensive than on Bitcoin, Ethereum, report reveals - AMBCrypto News - November 25th, 2021
- Why Bitcoin Is The Best Weapon Society Has Against Inflation And Wealth Inequality - Forbes - November 22nd, 2021
- Seeing red? FUD that! Here's what you should have bought instead of Bitcoin last week - Cointelegraph - November 22nd, 2021
- Bitcoin was looking good as an inflation hedge then it plunged nearly 20% - Markets Insider - November 22nd, 2021
- IRS Expects to Seize Billions of Dollars in Cryptocurrency Next Year More Than $3.5 Billion in Crypto Seized This Year Regulation Bitcoin News -... - November 22nd, 2021
- Bitcoin Helps Poverty Rather Than Hides It - Bitcoin Magazine - November 22nd, 2021
- 69-Year Old Israeli Lady Turned a $3K Bitcoin Investment to $320K: Now the Bank Refuses to Deposit - CryptoPotato - November 22nd, 2021
- Socialite and Model Alexis Ren Doesn't Trust the Dollar Economy, Says Crypto Is a Viable Alternative Featured Bitcoin News - Bitcoin News - November 22nd, 2021
- Strong Institutional Holders Moving Into Bitcoin, According to Cathie Wood of ARK Invest - The Daily Hodl - November 22nd, 2021
- Bitcoin, Ethereum and Four Altcoins Witnessing Mass Adoption As Crypto Market Targets $200,000,000,000,000 ... - The Daily Hodl - November 22nd, 2021
- Avalanche Value Surges Reaching an All-Time High, AVAX Joins the Top Ten Crypto Markets Markets and Prices Bitcoin News - Bitcoin News - November 22nd, 2021
- Quentin Tarantino Sued for an Upcoming Auction of Pulp Fiction NFTs Bitcoin News - Bitcoin News - November 22nd, 2021
- Karnataka home minister is a mad man: Congress state chief ... - November 20th, 2021
- Tesla And Elon Musk Devotee Cathie Wood Issued A Serious Bitcoin And Ethereum Fed WarningBut Held Her Huge $500,000 Price Prediction - Forbes - November 20th, 2021
- While Speculators Believe Bitcoin's Third-Largest Wallet Is a Mystery Whale, Onchain Data Suggests It's an Exchange Featured Bitcoin News - Bitcoin... - November 20th, 2021
- Bitcoin Price Falls Almost 20% Since Biggest Cryptocurrency's Historic Record - Bloomberg - November 20th, 2021
- If bitcoin is 'digital gold,' it should be taxed like gold | TheHill - The Hill - November 20th, 2021
- Bitcoin ETFs and Corporate Adoption Are 2 Key Crypto Catalysts to Watch - Motley Fool - November 20th, 2021
- Dont think anybody can say Bitcoin is a joke now: Morgan Housel - Economic Times - November 20th, 2021
- Does the Bitcoin, Ethereum, Solana, and Cardano Price Crash Signal Another Crypto Winter? - Motley Fool - November 20th, 2021
- Shakeout Or Top? Here's What Bitcoin SOPR Says About It - NewsBTC - November 20th, 2021