Global adoption of cryptocurrency has taken off in the last year, up 881%, with Vietnam, India and Pakistan firmly in the lead, according to new data from Chainalysis.

It is the second year the blockchain data firm has released its Global Crypto Adoption Index, which ranks 154 countries according to metrics such as peer-to-peer exchange trading volume, rather than gross transaction volume, which typically favors developed nations with high levels of professional and institutional crypto buy-in.

Chainalysis said the purpose of the index is to capture crypto adoption by "ordinary people" and to "focus on use cases related to transactions and individual saving, rather than trading and speculation." The metrics are weighted to incorporate the wealth of the average person and the value of money generally within particular countries.

Most of the top 20 countries are emerging economies, including Togo, Colombia and Afghanistan.

Meanwhile, the United States slipped from sixth to eighth place, and China, which cracked down on crypto this spring, dropped from fourth to 13th.

Chainalysis ascribes the rising adoption levels in emerging markets to a few key factors.

For one, countries such as Kenya, Nigeria, Vietnam and Venezuela have huge transaction volumes on peer-to-peer, or P2P, platforms when adjusted for purchasing power parity per capita and the internet-using population.

Chainalysis reports that many residents use P2P cryptocurrency exchanges as their primary on-ramp into cryptocurrency, often because they don't have access to centralized exchanges.

The report also says many residents of these countries turn to cryptocurrency to preserve their savings in the face of currency devaluation, as well as to send and receive remittances and carry out business transactions.

Matt Ahlborg, a peer-to-peer data analyst, told CNBC that Vietnam is one of the top markets for Bitrefill, a company that helps customers live on cryptocurrency by buying gift cards using bitcoin.

"Vietnam stood out to me because it dominated the index," said Chainalysis' director of research, Kim Grauer, who compiled the report.

"We heard from experts that people in Vietnam have a history of gambling, and the young, tech-savvy people don't have much to do with their funds in terms of investing in a traditional ETF, both of which drive crypto adoption," Grauer said.

Nigeria is a different story, Grauer said. "It has a huge commercial market for crypto. More and more commerce is done on the rails of cryptocurrency, including international trade with counter parties in China."

These top-ranking nations have another thing in common, according to Boaz Sobrado, a London-based fintech data analyst. "Many have capital controls or a strong emigrant and immigrant population," he said.

Take Afghanistan, a country currently in turmoil due to the Taliban's recent overthrow of the government.

"Afghanistan on top makes sense from a capital controls point of view, given it's hard to move money in and out," Sobrado said.

The correction for purchasing power parity and gross domestic product may also have boosted its placement, given that Afghanistan is one of the world's poorest countries.

Analysts note that measuring cryptocurrency adoption at the grassroots level isn't easy.

"The methodology has a huge blindspot," Sobrado said. "Unlike many other countries, sanctioned nations don't have good and clear data on P2P markets."

Because of that, he said, he believes sanctioned nations such as Cuba will be underestimated, simply because it is harder to track those transactions.

Ahlborg said there is no perfect way to measure per capita global crypto adoption but that this index is "one of the best we have."

--CNBC's Nate Rattner contributed reporting to this piece.

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This map shows where cryptocurrency is taking off around the world - CNBC

When people first get into bitcoin as a savings device, or when traditional finance-type people look at it as a potential investment, theyre quickly faced with the sizing problem. What proportion of my assets should I put in this new and promising asset class?

For most maxis, this question is on the ridiculous side: naturally, as much as humanly (or prudently) possible. Die-hard maxis borrow fiat to acquire more sats the Pierre Rochard speculative attack. If you hold any other asset than BTC, you're effectively shorting bitcoin; you dont want to short bitcoin.

If we step back for a moment into the shoes of the risk/diversification strategies of less-convinced and more risk-averse fund managers or regular people, bitcoin is only a question of prudent sizing. If you cant stand 100%, and 0% is too low whats a reasonable proportion?

Earlier this summer, Paul Tudor Jones described what he wanted with bitcoin as a portfolio diversifier The only thing I know for certain, I want 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities."

Between 1% and 5% is a common allocation suggestion, even among crypto-curious people mostly, I suspect, because 5% is a nice, easy number (e.g. few people will target a 7.648% allocation). Other recommendations have ranged from low single-digit percentages to upwards of 10%. Single-digit allocations are far from uncommon: even some high-profile university endowments seem to have something like that.

Of course, since things move fast in this space, if youre targeting a proportion, you also need a rule for when to rebalance your portfolio, and by how much. If you constantly rebalance your bitcoin holdings into other assets if and when bitcoin increases in value, you're missing out on a lot of that potential upside and might lose an unacceptable amount in tax liabilities and trading fees. That's usually fine if all youre after is a little extra return on top of an otherwise traditional investment thesis, but quite disastrous if bitcoin indeed repeats its tendencies for mulitplying by 10 times its value. In those cases, your meagre extra return is going to look like the people who bought cars or yachts for bitcoin in 2013: terribly expensive.

Economists Yukun Liu and Aleh Tsyvinski of Yale and Rochester universities respectively, concluded in a three-year-old paper that an exposure to bitcoin of between 1% and 6% was the optimal size, depending on how high you projected its future annual excess returns (30, 50, 100, or 200% respectively). These figures are old by now and weve had large-scale retail and institutional adoption since, which seems to have increased the correlation with the overall market. Presumably, too, as I have argued elsewhere, the return profile also has to come down. In the view of Liu and Tsyvinski, both those factors ought to reduce the optimal bitcoin allocation to a portfolio. William Baldwin at Forbes writes, correctly in my opinion, that

...bitcoins history is short. It is one thing to look back on a century of history for stocks and bonds and draw conclusions about how much return and how much volatility you can expect from them. It is quite another to extrapolate anything from the freakish first decade of a virtual object.

Joe Weisenthal at Bloomberg frequently points out that bitcoin has become eerily correlated with other risk-on assets:

One of Bitcoins big selling points is its diversification benefits, but these days it's almost tick-by-tick just your standard risky asset. It could be a cloud stock or Tesla. Or heck, even gold.

And Amy Arnott for Morningstar, showing that BTCs relation to other assets is changing:

As mainstream investors increasingly embrace bitcoin, its value as a diversification tool is diminishing; as a result, theres no guarantee that adding bitcoin will improve a portfolios risk-adjusted returns, especially to the same extent it did in the past.

Now, bitcoin isnt actually trading on forward-looking inflation expectations, but is far more susceptible to real interest rates of which inflation is only a part over and above to specific events like China miner scares or Elon Musk tweets, anyway. This is how it shares a relation with gold, whose main drawback as a financial asset is its opportunity cost in a high-interest environment. If you dont think that is coming back, stacking sats is a pretty opportunity-cost free investment choice.

The sound investment advice of not putting all your eggs in one basket has its academic-finance version in diversification. That doesnt just mean to hold stocks in a few different companies, if all those companies are exposed to the same risks or more or less trade identically to one another and with central banks running their money printers hot, everything is slowly becoming the same trade. The theoretical point of whats known as modern portfolio theory is that different segments of your portfolio compensate for other segments such that random shocks, good or bad, results in having most of your nest egg intact regardless of what happens. You want uncorrelated (or negatively-correlated) assets such that in case of emergencies or one-off events, you preserve your savings.

For a long-term investor, managing his or her own funds (or maybe that of a household) and planning over decades, that might not be such a crucial thing. The advice for regular people to dollar-cost average into passive mutual funds or such is precisely this: you are not using the funds in the next 5, 10 or 20 years, and so the worth to you of having a smoother portfolio trajectory makes less sense. What you want is returns over decades in practice meaning until you retire. Even accounting for financial medias incessant complaints about price volatility seems to make very few dents in the financial case for this asset. Bitcoins Sharpe ratio, i.e., its returns in relation to its volatility, routinely outperforms most other assets:

Riskadjusted returns is calculated using Sharpe ratio over a 4-year HODL period, courtesy of Willy Woo

That is to say, even ignoring its obscure early days, a few years HODLing of bitcoin more than enough paid for its short-term price risks.

It's important to remember that all of these rules are generic and not catered to your financial situation. In fairness, responsible asset advisors couldnt publicly give much more specific guidance in interviews that are read by millions, i.e., speak to the financial conditions of whom they know very little. To give blanket statements of 2% or 5% or 10% of your savings is completely detached from three crucial elements of your life:

These criteria will look different for all of us, and knowledge and understanding of how bitcoin works as well as how the incumbent monetary and financial system surrounds all of these criteria. In general, the deeper you go down the rabbit hole, the more convicted you become of bitcoins long-term price potential, and therefore the more comfortable you become with a higher allocation share of assets.

The allocation issue is a lot more complicated than a single number. In the limit, you might not even consider BTC part of the rest of your investment portfolio, but a free-floating independent asset to which you have full uninterruptible ownership.

This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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How Much Of My Portfolio Should Be Allocated To Bitcoin? - Bitcoin Magazine

The year 2009 was marked by both the genesis of Bitcoin and the United States stock market starting an unprecedented bull market one thats continued almost uninterrupted since. However, murmurings of a crash are always present, and the noise has recently been getting louder.

Against the backdrop of COVID-19 refusing to go away, stocks keep pushing higher, backed by an unprecedented amount of government support. But now that quantitative easing policies are no longer being implemented, is the talk of a stock market crash justified?

If so, this could bring unfortunate news for Bitcoin (BTC): It could be argued that there are signs of a strong correlation between Bitcoin and stocks. So, what may happen to crypto if the bottom falls out of U.S. equities?

Taking crypto out of the picture, the increasing speculation that a crash is imminent does hold some merit. In June, the inflation rate in the U.S. was significantly higher than expected. In the meantime, the government continued to issue bonds and accrue more debt to the point that theres now talk of raising the debt ceiling.

The justification for this is, of course, the ongoing pandemic relief effort. But the government is pumping money into the economy when other signs, such as U.S. stock prices, indicate that the relief isnt needed. U.S. real estate markets are also surging, while the Federal Reserve has already expressed concerns that investors are becoming increasingly reckless, referencing the appetite for meme stocks and cryptocurrencies as cases in point.

All this money pumping into the economy has to dry up at some point, leading to justifiable speculation that a crash could be the inevitable consequence. Michel van de Poppe, Cointelegraph columnist and full-time trader, believes that the expectations of a heavy correction are justified, adding:

Toya Zhang, marketing manager at AAX exchange, agrees that a crash is coming but urges caution on attempting to predict the timing. Given how common stock market declines are, and the fact that the market is somewhat overvalued, I think theres a reasonably high probability of a stock market downturn, Zhang said. Nobody can say exactly when that will happen, though.

One question is: How linked were the recent market recoveries in both crypto and the stock market back in March 2020? Most stock market analysts were surprised by how fast and furious the recovery was. Although, the fact that the S&P 500 skews heavily to tech companies explains a lot given how quickly the world turned to digital.

But in the crypto space, the narrative was somewhat different. In the absence of any other explanation for the crypto market crash, most people were surprised that Bitcoin had behaved in a way that appeared to mirror stocks. After all, the assumption had always been that BTC was uncorrelated and would act as a hedge against more traditional asset types such as stocks and precious metals.

Based on the most recent experience, history would suggest that if the stock markets were to crash in 2021, the crypto markets would follow. An alternative scenario would be that the stock market crashes and investors immediately move funds into crypto. Even without the benefit of March 2020 hindsight, this seems unlikely. Crypto still has a reputation as a notoriously volatile asset, one thats untested as a safe haven in a financial crisis.

However, what happens post-crash could make for a more interesting discussion about market correlations. What if, this time around, the stock markets dont go into automatic recovery mode? This scenario is a reasonable assumption, given that the pandemic effect is now priced into the markets, and theres a lot less uncertainty than there was in March of last year.

What would BTC do in the event of a prolonged flat or even bearish period in U.S. stocks? The most powerful premise for the Bitcoin is uncorrelated to stocks argument is that Bitcoin has its own market cycles linked to halving that dictate its price movements in a far more compelling way than any external economic forces. Examining it through this lens, one could speculate that regardless of whether the stock markets had recovered post-March 2020, BTC would have gone on to achieve new all-time highs anyway.

But even against the ever-reliable stock-to-flow BTC price model developed by PlanB, prices have been struggling to stay within the boundary of late. Nevertheless, the recent rally means that the model has held, and prices are currently showing significant promise of a sustainable recovery. So even if tumult in the stock markets were to cause chaos in crypto, there is data that predicts that the BTC market cycles could ultimately resume their apparently iron-clad control of prices.

If there is a short-term crash, there is no evidence thus far to suggest that the Bitcoin price will fail to follow. Assuming this occurs in 2021, what will happen afterward could become a struggle between Bitcoins market cycles and the effects of a prolonged economic downturn.

However, assuming the effect of the former can outweigh the latter by even an increment, it would make Bitcoin attractive as a safe haven asset (in the absence of many other alternatives). If everything else is going down, BTC only needs to maintain its value to tempt investors. But suppose Bitcoins halving cycle proves able to negate the effect of a prolonged market downturn altogether. In that case, BTC could become one of the only assets to offer the opportunity for significant returns during a downturn.

Sean Rach, co-founder of not-for-profit blockchain services firm hi, believes that crypto will ultimately become an attractive asset for alpha seekers. The growing dissatisfaction with the financial system, as well as the history of all fiat currencies, means the search for alternatives remains a positive factor for the growth of the crypto markets, said Rach. Meanwhile, Mati Greenspan, founder and CEO at advisory firm Quantum Economics, told Cointelegraph:

Ultimately, its worth remembering that crashes are short-term events. They may be painful, but the longer-term outlook is where things get more interesting. Suppose stocks end up in a sustained bear market while the macroeconomy recovers. In that case, it could easily turn into an opportunity for investors to scoop up a bargain once crypto bottoms out. As such, while a short-term correlation could be hard to avoid, theres every chance that crypto could buck the markets in the long term.

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Cause and effect: Will the Bitcoin price drop if the stock market crashes? - Cointelegraph

Bitcoin has clawed back lost ground from Thursdays 2.4% sell that saw the crypto reach a low of around $43,800.

The worlds largest cryptocurrency by market value was up 1.5% over a 24-hour period by press time and is currently changing hands for around $46,100.

Bitcoin is beginning to edge closer toward analysts projected $50,000 price tag, as CoinDesk reported Thursday.

Related: Cardano Announces Alonzo’ Upgrade Launch Date; Price Jumps 16%

We were seeing many investors taking advantage of recent market movements by taking profits, said Asher Tan, CEO of cryptocurrency exchange CoinJar. Theres a trend of conservatism among users who jumped into crypto around similar price levels earlier in the year, with users slightly trimming their holdings.

Indeed, bitcoins total daily volume across major exchanges, including Bitstamp, remains flat when compared to previous months, particularly towards the end of May.

While the recent price movements have seen an increased amount of activity in the markets, trading volumes globally are nowhere near where they were the last time the price was at $45,000 theyre much lower, said Janine Grainger, co-founder of Australia-based exchange Easy Crypto.

The co-founder points toward new investors remaining cautious ever since they had a taste of the crypto markets volatility when the sell-off in May saw bitcoin prices drop 50% from $56,700 to around $30,000 in a little over a week.

Related: Israeli Financial Authorities Double Down on Bitcoin-Linked Investments: Report

Yet seasoned investors, Grainger argues, are increasingly active with data hinting at a strong uptake in altcoins, beginning Aug. 9. In particular, ether has picked up significantly against bitcoin and that is starting to trend again as of today, she said.

Some folks are worried were about to repeat history with this years $60,000-$30,000-$45,000, but this time it really is different, BCB Group CEOOliver von Landsberg-Sadie told CoinDesk via Telegram on Friday. There is a ton of institutional money in the system, which behaves very differently from retail money; the ecosystem has evolved significantly with hundreds of thousands of man hours of innovation; and regulation has gained much greater definition.

Story continues

Ether isnt the only crypto trending higher on the day with cardano, stellar and solana posting the highest gains. Zooming out to a seven-day period, most altcoins in the top 20 by market cap are outperforming bitcoin while most decentralized finance (DeFi) cryptos are trending higher in the green, up between 6%-90% over the same period.

In terms of altcoins, many cryptocurrencies, especially DeFi coins, have been lagging in comparison to bitcoin and ether, said Tan. However, were starting to see a trend of users swapping bitcoin for DeFi coins, which has been a catalyst for the recent appreciation in their price.

Read more:
Bitcoin Back Above $46K on Low Daily Volume as Altcoins Outperform - Yahoo Finance

The day that bitcoin becomes less volatile is the day that mass adoption will begin. Or is it that mass adoption will minimize volatility on bitcoin?

This is one of the most popular debates in our space as market participants try to speculate when the volatile price action of bitcoin will get smoother. Those who know me are familiar with my stance on the subject: Mass adoption should eventually smooth the volatility curve and price swings on bitcoin, but this adoption could increase volatility significantly in the near term, as the expanding ecosystem continues to adjust to the inflow of new market participants.

As the Bitcoin ecosystem grows and evolves, new players continue to enter with different characteristics from one another, something that can bring disruption or even stress in an ecosystem that has been used to a different reality for such a long time.

Some of the lowest levels of volatility, in fact, occurred during the early adoption stage (2013 to 2017) of bitcoin, when the market cap was below $20 billion and the network was dominated by early believers in a buyers-only market. Then suddenly, volatility struck with a massive sell off that shook the world in 2018 and took many people out of the market.

But what happened prior to the sell off that triggered that event? Many things have been said about this, but few approaches have acknowledged a key event that took place a little earlier, in December 2017: the introduction of the first bitcoin futures product, which started trading on the Chicago Mercantile Exchange.

This was an event that for the first time created a new reality. The ability to short-sell bitcoin on a large scale. In other words, the ability to sell bitcoin that you had never previously owned (even if that bitcoin was never real, but rather just a price tracker).

That consisted of the first expansion of the Bitcoin ecosystem, which came to counter the prior reality of a buyers-only market.

The growing popularity of bitcoin as an asset class on its way to mass adoption triggered the creation of the futures market and the creation of a new type of market participant, the short seller, something that led to a sell off we all remember.

Source: TradingView

Moving forward, as bitcoin entered a new market cycle, the pain of 2018s sell off took most momentum players out of the system and allowed the maximalists to regain the majority composition of the network.

Something that led to the gradual rejuvenation of prices all the way through mid-2020, when bitcoin became, for the first time, the coolest kid in town and mass adoption started to seem like a potential reality.

But, before we address the present, lets take a look at how volatile bitcoin was as it headed toward the CME listing, the price ease and the return to relativity for people outside the network.

Source: Bloomberg Terminal

Bitcoin was quite volatile, some might say, as the network was preparing itself for mass adoption. But how does this compare to the price action of mid-2020 to the present, when a record inflow of market participants joined our network and mass adoption began to start getting triggered?

Source: Bloomberg Terminal

The record inflow of new market participants led to record volatility in the network, a volatility that does not seem ready to leave the system yet. Why? you might ask. Did we not always believe that mass adoption will bring balance in the system? How come bitcoin, at a $100 billion, $300 billion or even $1 trillion market cap, is more volatile than bitcoin at a $20 billion market cap?

The answer is simple: The market participants now have different utilities and purposes than they did in the early adoption stage, and the network is having a small shock as it is trying to absorb the growth, similar to acne on a teenagers face as their body grows into that of an adult.

Bitcoin with a market cap in the hundreds of billions of dollars has many new players. Players with different roles and beliefs, with the maximalists accounting now for a significantly smaller part of the pie. The ecosystem has evolved from a buyers-only market that welcomed initially long-term investors, to welcome momentum traders and speculators, proprietary desks and liquidity providers, lenders and a series of other new roles that are in fact very much needed for the long-term purpose of mass adoption, but who have brought extreme volatility in the near term as the network tries to adjust to the new, constantly-evolving reality.

All of that, as one question continues to dominate the market: How can we minimize volatility on a network that has grown from an infant into a baby, but still has a long way to go until its fully developed?

The answer is simple: risk management.

Risk management from an individual perspective is the most significant assistance that each of us can offer to bitcoin in order for it to continue to grow and accept new members under lower volatility and smoother price swings.

When it comes to risk management, the number-one rule is understanding your risks. But before we understand them, we actually need to acknowledge them.

Denial of risk refers to cognitive ways to develop adaption to risky behaviors by rejecting the possibility of suffering any loss. -Peretti-Watel

It aint what you dont know that gets you into trouble. Its what you know for sure that just aint so. -Mark Twain

What if the accumulated total of the bitcoin positions in the world were not based on random outcomes, but instead on scenarios known ahead of the position establishment?

What if the liquidation of that leveraged position could have been prevented?

What if the profit of a miner was locked one year out ,or 70% of the value of your portfolio was secured?

Then confidence would dominate the market and the next sell off would not have been as bad as the prior one.

Risk management is a vote of confidence in bitcoin.

Why? Because confidence is derived by known outcomes and known outcomes are an output of risk management.

Risk management is the answer to extreme volatile swings and lesser sell offs. The moment the downside is not detrimental to our portfolios or lives savings, is the moment that liquidations will be avoided and panicked selling will seize.

The moment everyone individually manages their risk is the moment that price normalization will be attained and confidence will be achieved in the broader market.

But how do we even approach risk management?

For starters, risk management begins with position placement and trade execution. Or by simply avoiding an overleveraged situation that you have absolutely no control over.

Risk management occurs by making sure that we do not engage in a trade that, if gone wrong, will threaten the financial wellbeing of ourselves and our families.

Risk management occurs when you put a stop loss on your leveraged position instead of doubling down or hoping that prices will return back to where they were.

Risk management occurs when you quickly realize that you are the one who is wrong, not the market, and accordingly adjust your exposure.

In a more moderate approach, risk management can be achieved through the derivatives markets, when you buy a put option in order to establish a maximum loss scenario or a minimum gain. Or simply when you sell some futures contracts for part of your physical position in order to protect your portfolio against nearby volatility and potential adverse market conditions.

Just like anything else in life, risk management should work as a damage-aversion mechanism, not as an aftermath solution. Our goal should always be to avoid our house catching on fire, not putting the fire out once its too late.

This is a guest post by Anestis Arampatzis. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Bitcoin Price Volatility And How Risk Management Is A Vote Of Confidence - Bitcoin Magazine