Category Archives: Bitcoin
Has bitcoin bottomed out, or is a drop to $12,000 on the cards? – MoneyWeek
Today, by popular demand, we consider the recent price action in bitcoin.
We have been warning for some time that bitcoin is in a bear market.
Bear markets are not good environments in which to be long, bitcoin bear markets especially so.
But bear markets do also end, and if you can nail the low, you can make out like a bandit.
I can see one scenario in which yesterday was the low. I can also see one in which we head lower.
Let me outline them both to you and you can decide, along with the rest of the market, which is the most probable.
Well start with the price action itself. $64,000 was the high for bitcoin; we hit that back in April. Then bitcoin fell over 50% in just a few weeks, hitting a low of $30,000 in mid-May. Since then bitcoin has had a couple of rather anaemic rallies that have petered out around $40,000, and the price has returned to $30,000 again.
First comment: bitcoin is extraordinarily volatile. If you cant stomach the volatility, then take smaller positions. or take a long-term view I think bitcoin will be much higher in 2025 than it is now and ignore the short-term volatility. Go to the beach and stop looking at your phone.
Bitcoin is less volatile than it used to be, and it will get less volatile over time as the new technology goes mainstream, but it is still extraordinarily volatile. Either find a way of coping with the volatility, or accept that bitcoin isnt for you.
So heres the positive scenario: from false moves come fast moves in the opposite direction is a phrase you have heard me utter or rather read me utter on these pages many times.
Many traders call these situations a head fake, and they tend to occur around obvious points of support or resistance such as bitcoin at $30,000 now. They often occur at the start of major trends.
For example, a security has been knocking on the door of $100 for yonks. Finally it breaks above. Everyone thinks the security has broken out. It then collapses. It happens all the time at the beginning of bull and bear markets.
$30,000 was an obvious area of support for bitcoin. It tested that level three times over the last month. Yesterday it broke down below to $28,950.
Cue peak hysteria in the nocoiner press (which is most of the press), peak noise from the bears, and peak pain for the bulls. Its the headline story in the Financial Times, which is top of the publication pile when it comes to getting bitcoin wrong and bitcoin then rallies $5,000. Its as textbook a head fake as you will ever see and from false moves come fast moves in the opposite direction.
Im not a great fan of Elliott wave theory, which looks for recurring wave patterns in charts, but there are many who swear by it. No matter. If you are an Elliot waver, you will look at bitcoins price action over the few months and see as textbook a five-wave down as you will ever see. Its another bullish indicator.
Finally, I remind you that 30%, 40% and even 50% corrections are normal in bitcoin bull markets. They come with the territory. In 2013 bitcoin went to $200, collapsed to $70 in April, and by November it was nearly 20 times higher.
So thats the bullish scenario. Now for the bearish scenario.
Its a pretty simple scenario, really. Its a bear market. Crypto winters tend to go on for more than a year. There was way too much bullish sentiment at the top in April and that needs one of bitcoins 80%+ corrections to purge.
Theres another saying in technical analysis that you will have heard (read) me say the more time a level is retested, the less likely it is to hold. $30,000 looks like its about to give way. If $30,000 goes, then $20,000 comes into play, and after that, $12,000. To go back there would be typical bitcoin price action.
Moreover, the last halvening (when the mining rewards and the inflation rate both shrink) was in May 2020. Post-halvening bull markets tend to peter out after 12 months. This is the right time for it to have ended.
The trend is down. Its going lower.
So which of those two scenarios looks more likely to you?
As you can see, its quite easy to make a technical argument for both. I can just as easily make fundamental arguments. The technical genius of bitcoin, the spread into the mainstream, the scalability of tech are all arguments for higher prices. Government clampdowns, green energy, and the rising US dollar are all arguments for lower prices.
So forget about the waffle. What am I actually doing with my money? Actions speak louder than words and all that.
I have a long-term position in bitcoin. I think its going much higher, eventually, and Im ignoring the short-term volatility. I havent added to my position, but nor have I taken away. I was tempted to add at $30,000, but not tempted enough.
If it goes to $20,000 or $12,000, I may add. Ill deal with that if and when.
I am what they call a HODLER.
See you on the beach.
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Has bitcoin bottomed out, or is a drop to $12,000 on the cards? - MoneyWeek
There’s a push to bring bitcoin to 401(k) plans. Why it could take awhile before you see these investments in yours – CNBC
Attendees at the Bitcoin 2021 Convention, a cryptocurrency conference held a June 4, 2021 in Miami.
Joe Raedle | Getty Images
A recent bitcoin conference in Miami drew a mix of professionals who have wholeheartedly embraced the cryptocurrency.
Yet David Ramirez, chief investment officer at ForUsAll, said he was still able to surprise attendees with a new way to think about their holdings.
"I met with a lot of people who had been investing in this space for quite a while, who were staring down massive capital gains exposure," Ramirez said. "In the 401(k), that can largely be eliminated."
ForUsAll announced this month it had teamed up with Coinbase, a cryptocurrency exchange platform, to allow employees to put up to 5% of their 401(k) investments in bitcoin and other cryptocurrencies. The feature is offered through employers who sign up for a so-called self-directed cryptocurrency window.
More from Personal Finance:Here's why cryptocurrency crashes on weekends Advisors feel pull of cryptocurrency wave as clients express interestDivorcing spouses are using cryptocurrency to hide money
ForUsAll is not the first company to offer bitcoin and other cryptocurrencies in 401(k) plans. Companies such as BitWage and Digital Asset Investment Management are also working to bring these investments to traditional retirement plans offered by employers.
Investors can already tap into cryptocurrency through their individual retirement accounts. And some professionals say they see a growing appetite to expand that to 401(k) plans, too.
Yet many traditional players in the industry are skeptical that employers offering retirement plans, known as plan sponsors, will clamor to offer these investments.
"Plan sponsors in general are still very unlikely to want to adopt any type of cryptocurrency into their investment line-up," said Aaron Pottichen, senior vice president at Alliant Retirement Consulting.
At the heart of the debate is whether these kinds of investments in a 401(k) will ultimately help or hurt investors.
Art at the cryptocurrency conference Bitcoin 2021 Convention at the Mana Convention Center in Miami on June 4, 2021.
Marco Bello | AFP | Getty Images
Because 401(k) plans are the primary savings choice for many Americans, not being able to access cryptocurrency in those accounts puts investors at a "structural disadvantage," Ramirez said.
Taxes are one big reason.
Roth 401(k) accounts, where post-tax dollars are invested, can offer an advantage to bitcoin investors, Ramirez said.
"If you invest in cryptocurrency in your 401(k) with Roth dollars, you get to keep 100% of the gains, essentially making it tax-free for you forever," Ramirez said.
Investing through a 401(k) can also help people avoid one tax pitfall many cryptocurrency investors face: tax trading risk, Ramirez said.
Take someone who buys bitcoin early in the year, then sells after a run-up in price and buys the cryptocurrency ether. If the overall market then tanks, they may ultimately end up owing more in taxes on the first trade than they have invested in ether.
It's just unlocking it in an easy fashion for the sponsors of the 401(k) that's going to enable the market to explode.
Jonathan Chester
CEO of Bitwage
"Sadly, I met a lot of people that learned it the hard way, and had to liquidate positions to cover taxes or worse," Ramirez said.
If instead the investment was made through a tax-deferred account, either with pre-tax or post-tax dollars, levies are not generated every time you trade, he said.
There's also another reason why 401(k) plans are preferable compared to IRAs: higher contribution limits.
This year, savers can put up to $19,500 in their 401(k), or $26,000 for those who are age 50 and over. In contrast, you can only put up to $6,000 in an IRA, or $7,000 for those 50 and up.
For investors who are allocating up to 10% of their retirement savings to cryptocurrencies, a 401(k) will give them the opportunity to have more invested, said Adam Pokornicky, chief operating officer at Digital Asset Investment Management, which is building model portfolios that plan participants can opt into.
While some may argue that bitcoin is too volatile for a 401(k), Pokornicky argues that actually works in investors' favor. "Volatility is a good thing to the upside," he said.
Another company named Bitwage launched its 401(k) offering over a year ago alongside its existing bitcoin payroll services.
There's demand to dollar-cost average investments into bitcoin, and retirement accounts are the "best version of this," said Jonathan Chester, CEO of Bitwage.
The company is seeing a lot of demand from participants who want to access to bitcoin and other cryptocurrencies in their 401(k)s. "It's very hot," Chester said.
The biggest hurdle is getting companies to migrate to systems that enable bitcoin investments.
"It's just unlocking it in an easy fashion for the sponsors of the 401(k) that's going to enable the market to explode," Chester said.
All three companies say they are already seeing demand from employers looking to to add their offerings.
Yet traditional players currently still see more obstacles than opportunities with regard to letting people invest in bitcoin in their 401(k).
With 401(k) lawsuits generally increasing, these kinds of investments could be vulnerable because they are so new, Pottichen said. Ultimately, the Department of Labor may provide more guidance on how cryptocurrency investments should be handled in retirement plans.
"At this time, none of our clients are looking at cryptocurrency and thinking this is an asset class we need to have as part of our investment universe that we give our employees access to," Pottichen said of Alliant's clients, which range from start-ups to companies with thousands of employees.
Neal Nolan, director of business retirement services at Parsec Financial in Asheville, North Carolina, said he recently had a client who wanted to add bitcoin to their 401(k) through a self-directed brokerage account.
Though it was the first time Nolan had received such a request, he wasn't surprised. "I figured it would happen eventually," he said.
After the firm's investment committee met, the plan's trustees ruled against it.
One reason for keeping it out of the plan is that if one participant has a self-directed account, it has to be offered to everyone. That could be burdensome for plan sponsors, which would have the responsibility of monitoring those investments.
Moreover, an investment like bitcoin would have to be deemed reasonable for everyone in the plan, which is a high bar.
Ultimately, it's better to risk being late to the party than for retirement plans to sacrifice their role as good stewards of the funds, Nolan said.
"If you don't understand something, prudence would suggest you find out more information or wait," Nolan said. "Never invest in something that you can't understand or explain."
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There's a push to bring bitcoin to 401(k) plans. Why it could take awhile before you see these investments in yours - CNBC
Bitcoin Depot Reports 155% Growth in the Last Year for Cryptocurrency ATM Industry – PRNewswire
ATLANTA, June 23, 2021 /PRNewswire/ --Over the last several years, Bitcoin and other cryptocurrencies have shown massive growth. In the last year alone, Bitcoin prices have jumped from around $10,000 to an all-time high of $64,000 in recent weeks. Meanwhile, Ethereum's market cap has grown to hundreds of billions of dollars as platforms built on its network become more mainstream. In lockstep with this growth, Bitcoin Depot, the largest and fastest growing crypto ATM network, has seen a similar trend in the fintech industry.
In the eight years since the first crypto ATM was deployed, the industry has grown to more than 19,000 such machines across the world from nearly 600 operators. In the last 12 months, the number of global ATMs has increased by 155%, according to Coin ATM Radar. In fact, Bitcoin Depot is projectedto have 6,000 ATMs installed by the end of this year.
"The business case is there, proving the potential of this industry," said Bitcoin Depot President and CEO, Brandon Mintz. "Bitcoin is an inflation hedge due to its finite availability. We've seen this as its value increased exponentially over the last year. CryptoATMs are only going to increase in demand as consumers from all walks of life look to invest and use crypto in their daily lives to make payments, send remittances, etc. I expect our ATMs to be as prevalent as regular ATMs within a few years."
Crypto ATMs offer consumers the opportunity to exchange cash for cryptocurrency, allowing for quick and simple transactions that give users immediate access to this new ecosystem.Meanwhile, the ATMs provide retailers and other partners with a profitable alternative to traditional ATMs. As a result, Bitcoin Depot has been working with some of the largest convenience and grocery store chains around the world.
Click hereto find a crypto ATM nearby.
Watch our latest videoto learn more!
About Bitcoin DepotBitcoin Depotis the world's largest cryptocurrency ATM network based inAtlanta,Georgia. The company'smission is to provide the most simple, convenient, and quickest cryptocurrency transactions, ultimately Bringing Crypto to the Masses. The 3,000-plus network of crypto ATMs enables users to buy over 30 different cryptocurrenciesinstantly. Learn more atwww.bitcoindepot.com, as well as on Facebook, Twitterand Instagram.
Contact: Lindsey Harrison6307301808[emailprotected]
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Bitcoin Depot Reports 155% Growth in the Last Year for Cryptocurrency ATM Industry - PRNewswire
Bitcoin on the verge of a purge toward December low – Economic Times
Bitcoin's chart outlook darkened on Tuesday after it broke below the neckline of a massive head-and-shoulders top formation at 30,393, bringing closer a test of key chart support that could potentially wipe roughly 40% off its current value.
The neckline break suggests a test of the 61.8% Fibonacci retracement -- at 27,169 -- of its astounding 3,850-64,895 pandemic trading range could be next on the agenda.
If it falls through that support, near the approaching top of the weekly ichimoku cloud, and closes below there, charts suggest it could tumble to the 18,000 vicinity. That's where December 2020's low, the 76.4% Fibonacci and 161.8% Fibonacci-projected low off this April's trend high range at 17,570/700/8,056 converge.
To be sure, there are uncertainties in interpreting chart signals. Though bitcoin fell to a 5-1/2-month low of 28,600 on Tuesday, the slide stopped before breaching the 55-week moving average, support which has proved pivotal since last March, and then doggedly erased its losses.
Also, though weekly and monthly RSIs have yet to become oversold, dailies have, so a weekly close below 61.8% Fibonacci support at 27,170 could be important in confirming a broader breakdown.
If the breakdown occurs, the weekly cloud base at 22,925 into August is potential interim support.
Thus, prices would have to rally roughly 30% to clear last week's 41,341 high by the broken 38.2% Fibo at 41,576 and to negate this week's breakdown. For more click on
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Bitcoin on the verge of a purge toward December low - Economic Times
Watch these key levels in bitcoin over the next few months, Oppenheimer analyst says – CNBC
Bitcoin took another leg lower Monday after China ramped up its crackdown on crypto mining. Bitcoin mines in Sichuan shut down over the weekend with authorities worried about the environmental impact of cryptocurrency.
Bitcoin tumbled 8%, trading at roughly $32,490. At the day's worst, it fell to a two-week low, under $32,000.
Ari Wald, head of technical analysis at Oppenheimer, says its downswing has caused damage to the charts. He pinpoints a drop below its 200-day moving average as particularly damaging to the technical setup.
"We've seen this before," Wald told CNBC's "Trading Nation" on Monday. "The similarities we see specifically for bitcoin are how it traded in 2018 and 2019, where it was really range-bound for a number of months in both those periods. A final leg lower, a final washout, was needed."
Wald says Monday's sell-off was not that washout he predicts it will likely come later this year.
"We think that might not be for another four or six months down the line," he said. "As it stands now, we just think it's going to be a trading range environment with support at $31,000 and resistance at $41,000 given how bitcoin has been trading in recent months."
John Petrides, portfolio manager at Tocqueville Asset Management, is a bigger believer in the infrastructure around cryptocurrency.
"There's two issues with crypto: One is the currency and the other is the blockchain, and you have to distinguish the two. I think the currency is really hard, if not impossible, to value," Petrides said during the same segment.
Blockchain is the online ledger that records transactions. It is both decentralized and unable to be altered.
"The blockchain I think has value to it because we've seen the emergence of non-fungible tokens, NFTs, and the more NFTs that come to the market, the more they move to the blockchain. Ethereum is the largest open-source blockchain, so I do think that there's value to be had in ethereum, rather than bitcoin itself," he said.
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Watch these key levels in bitcoin over the next few months, Oppenheimer analyst says - CNBC
Explainer: ‘Death cross’ chart formation adds another worry to bitcoin outlook – Reuters
A representation of the virtual cryptocurrency Bitcoin is seen in this picture illustration taken June 14, 2021. REUTERS/Edgar Su/Illustration/File Photo
June 21 (Reuters) - For technical analysts watching bitcoin, an important and potentially bearish chart formation just happened in the cryptocurrency: A death cross.
The formation could signal further losses ahead. Here are some details about what this is:
What is a death cross?
Technical analysts use the term "death cross" to describe when a short-term average trendline crosses below a long-term average trendline -- signalling a change in price momentum. The 50-and 200-day combination often attracts the most attention.
Over the weekend, bitcoin's 50-day moving average fell below its 200-day moving average.
What has happened to bitcoin?
Bitcoin, the world's biggest cryptocurrency, has long experienced volatility. It has lost over 20% in the last six days and is down by half from its April peak of almost $65,000. Market players are citing jitters over China's expanding crackdown on bitcoin mining in thin liquidity for the losses. read more
What should investors be watching?
Crucial for bitcoin will be its ability to hold above its May 19 low of $30,066, which is an initial target for bears. Breaking below that level would reinforce the negative signal of the death cross.
Is the death cross infallible?
No technical analysis indicator is perfect, including the death cross, in isolation. Most chartists use a combination of studies to derive directional signals.
For example, the last death cross on the bitcoin chart occurred in March 2020 after the cryptocurrency had plunged nearly 60% over a six-day period and just before it started a historic rally of more than 1,000% over the next year.
Peter Stoneham is a Reuters market analyst. The views expressed are his own. Editing by Cynthia Osterman
Our Standards: The Thomson Reuters Trust Principles.
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Explainer: 'Death cross' chart formation adds another worry to bitcoin outlook - Reuters
What is the Lightning Network and how can it help Bitcoin scale? – Santa Clarita Valley Signal
Lots of you have been wondering how bitcoins network has been able to scale and gain so much value in such a short period. Well, lets introduce you to Lighting Network. Lighting Network is the protocol that enables the bitcoin network to increase scalability. Lets go into the full discussion below.
What is Lighting Network?
Lighting Network is a peer-to-peer network that secures its transactions with Bitcoin. The protocol is a second layer payment model that works on the bitcoin blockchain network. You can conduct a cheap and fast transaction on this network and can be used on other blockchain networks.
However, when you use it on bitcoin, it will broadcast all transactions to every node on your network. The broadcasted transactions must be put on a record thats settled and mined on blockchain.
How does Lighting Network operate?
Every transaction is written on a payment channel called a mini-ledger. All parties included in the transaction can write their balance on the ledger. Then one party can now write their transaction to the ledger for the payment they will receive by creating an invoice set up a string of digits.
When the transfer is completed on the lighting network, the network will scan the invoice through their wallet and confirm theyve received a request to make payment from within. Once the transaction completes, the ledger updates automatically to the new balance. This is how it will continue to update until the channel is published on a blockchain network. You can get more information on the Bitcoin Formula Website.
How does Lighting Network Help Bitcoin Scale?
Using Lighting Network to complete a transaction will record the transaction away from the main chain. That means people can hide some transaction from the blockchain. By not recording transaction on a network, the networks transaction speed will increase.
Lighting Network completes its transaction using bidirectional payment channels. This allows both parties to create ledger entries of transactions but dont announce them immediately on the blockchain network. The payments go through payment channels which each party holds a certain amount of funds. They now receive payment by routing it to each other using the nodes in an onion router.
You will need Timelock Contracts to direct the transactions through the bidirectional payment channel. You will need smart contracts as they enable both parties to handle their transaction by using a secret password.
The receiver also collects the payment using a secret password which creates a hash known as hashlock.
Benefits of using Lighting Network
Low Transaction Fees
Completing a bitcoin transaction on any app would cost around $17.15 while the fee you will pay on the lighting network is a fraction of a cent. Lighting network lowers the cost of a transaction by moving transaction away from the main chain network.
Faster Transaction
You can complete a transaction on Lighting Network in a matter of seconds as compared to the blockchain network where a transaction can take ten minutes to several hours to be completed. As the transaction occurs on Lighting Network, you do not need to wait for block confirmation before you send your funds. The transaction happens instantly.
Continuous upgrades
With steady patronage of Lighting Network services, new upgrades will be made to Lighting Network to improve the deficiencies in the system structure.
Conclusion
Lighting Network could be the answer to scaling bitcoin to a height it hasnt attained before. With this secret in the open, dont be surprised when you see more crypto services implementing this action to scale their service and improve their transaction time while reducing transaction fees.
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What is the Lightning Network and how can it help Bitcoin scale? - Santa Clarita Valley Signal
Dollar catches breath ahead of Powell testimony; bitcoin attempts recovery – Reuters
Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo
SINGAPORE, June 22 (Reuters) - The dollar paused for breath on Tuesday as traders looked to testimony from Federal Reserve Chair Jerome Powell for further guidance on the central bank's recent surprise shift in its policy outlook, while support crept back for cyptocurrencies.
The greenback has gained sharply since the Fed last week flagged sooner-than-expected interest rate hikes, although it dipped on Monday to hand back a little bit of that rise.
Against the euro , the dollar nursed an overnight loss of about 0.4% to steady around $1.1909. It crept higher to 110.40 yen , and the dollar index was flat at 91.935 after a loss of about 0.5% on Monday.
The Australian and New Zealand dollars eased - after Monday's bounce from multi-month lows - with the Aussie down 0.3% to $0.7520 and the kiwi down 0.15% to $0.6978.
"We've had a meaningful shift (at the Fed) from a longtime dovish stance to now a slightly hawkish one," said Westpac currency analyst Imre Speizer.
"We've had a bit of a positioning cleanout," he added.
"The whole world was mega short the U.S. dollar, and that's in good part probably been cleaned out already, and now we take a wee breath before the next move up," he said.
In the medium term, investors will be keenly focused on the U.S. labour market as its performance is likely to have an influence on the Fed's attitude. In the nearer future, all eyes are on Powell who appears before Congress from 1800 GMT.
In prepared remarks he noted sustained labour market improvement and the recent increase in inflation. read more
On Monday hawkish Fed officials such as St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan had remarked on the risks of acting too slowly. read more
However, New York Fed President John Williams said it was too soon to shift policy, and that he expects inflation to ease from about 3% this year to close to 2% in 2022 and 2023 - leaving markets none the wiser.
"The Fed is nearly always late on such things," said RBC Capital Markets' chief economist Tom Porcelli, who thinks core inflation could be higher - just under 3% - by the end of 2022.
"That is not 2% inflation," he said in a note, adding it is going to eventually apply pressure to the Fed to move on rates.
"In the meantime, we have no doubt with that 2% forecast as cover, Powell will attempt to play down the likelihood of a rate hike next year. But just as he eventually relented on taper talk, he will relent on dismissing talk about hiking rates too. Just give it more time."
Also on Tuesday Fed members Loretta Mester are due to make speeches.
Elsewhere sterling steadied at $1.3910, holding on to its overnight bounce as investors look forward to the British economy reopening further on July 19.
Bitcoin and other cryptocurrencies found something of a footing after slumping on Monday when a tightening crackdown on trading and mining in China, as well as technical factors, whacked the asset class. read more
On Tuesday they held above May lows, with bitcoin at $32,929, but the mood remained fragile.
"The tides of FONGO (Fear of Not Getting Out) are creeping in," said Chris Weston, head of research at broker Pepperstone.
"Bitcoin is also at a make or break point," he said, as it tests May's trough near $30,000.
"Ethereum looks plain ugly and if crypto is an emotive asset, then one would have to be the staunchest of HODLers to be holding this and not look for some sort of hedge," he added, using cryto-market slang for bullish investors.
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Currency bid prices at 455 GMT
All spots
Tokyo spots
Europe spots
Volatilities
Tokyo Forex market info from BOJ
Reporting by Tom Westbrook; editing by Richard Pullin & Shri Navaratnam
Our Standards: The Thomson Reuters Trust Principles.
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Dollar catches breath ahead of Powell testimony; bitcoin attempts recovery - Reuters
Bitcoin has 3 flaws and that could set the stage for other alternatives, says Cornell economist – CNBC
Bitcoin, the world's best known cryptocurrency, has a few flaws and that's triggered other digital currencies to come up with more viable options, according to a professor at Cornell University.
It isn't as anonymous as people think it is, and "mining" bitcoin is bad for the environment, pointed out economics professor Eswar Prasad.It also doesn't work well as a currency, he told CNBC on Thursday.
One interesting aspect is that other cryptocurrencies have come up with solutions to address some of bitcoin's flaws, said Prasad, who was formerly head of the International Monetary Fund's China division.
Bitcoin mining refers to the energy-intensive process required to produce new coins and ensure the payment network is secure and verified.
The electricity used when transactions are validated on the bitcoin blockchain, as well as the mining process, is "certainly not good for the environment," Prasad said.
Tesla CEO Elon Musk said last month that his electric car company will stop accepting bitcoin as a form of payment because of environmental concerns, causing the price of bitcoin to drop 5% in a matter of minutes.
He has since made an about-turn and said in a tweet on Sunday that Tesla will accept bitcoin in transactions if it can confirm "reasonable" and "clean energy usage by miners."
Crypto miners use purpose-built computers to solve complex mathematical equations that effectively enable a coin transaction to go through. The miners are rewarded for their efforts by being paid in the cryptocurrency.
However, the entire process used to create a bitcoin requires a lot of energy and can consume more power than entire countries such as Finland and Switzerland, according to theCambridge Bitcoin Electricity Consumption Index.
On the other hand, Ethereum the second-largest cryptocurrency sometimes viewed as an alternative to bitcoin is coming up with a different method of mining that requires less energy, Prasad pointed out.
Called "proof of stake," it is the underlying mechanism for ethereum that activates so-called "validators" on the network, if they can prove that they hold ether, or a "stake."
Ultimately, it should remove the need for vast amounts of computing power needed to validate transactions and the Ethereum Foundation claims it will use 99.95% less energy than before.
"That is going to be much less energy intensive, and it could deliver a lot of the benefits that bitcoin was supposed to deliver. It could also make transactions much cheaper and quicker," said Prasad.
However, it's not there yet, he added.
Earlier this month, U.S. law enforcement officials said they were able to recover $2.3 million in bitcoin paid to a criminal cybergroup involved in the ransomware attack on Colonial Pipeline in May.
The FBI said its agents were able to identify a virtual currency wallet that the hackers used to collect payment from Colonial Pipeline.
"The main idea of bitcoin was to provide pseudonymity," said Prasad. "But it turns out that if you use bitcoin a lot, and especially if you use Bitcoin to get any real goods and services, then it becomes possible eventually to link your address or your physical identity to your digital identity."
What's interesting, he said, is that there are other cryptocurrencies trying to fix this and offer more anonymity. He highlighted Monero and Zcash as some examples.
Chris Ratcliffe/Bloomberg via Getty Images
"So bitcoin really has set off something of a search for a better alternative and people seem to be on the lookout for a medium of exchange that does not require them to go through a trusted institution like the government or a commercial bank but it's not quite there yet," Prasad said.
In theory, bitcoin was supposed to provide an anonymous and efficient medium of exchange but "it hasn't worked in that respect," said the economics professor.
Rather, it's "slow and cumbersome" to use bitcoin to pay for goods and services, and the market is very volatile, Prasad said.
Bitcoin is prone to wide swings in volatility, as seen by its 30% plunge in a single day last month.
"So you could take a bitcoin to a store and one day, get a cup of coffee and another day, with the same bitcoin, be able to treat yourself to a lavish meal. So that doesn't work well for the medium of exchange," he said.
Bitcoin has become a speculative asset for people who hope it will appreciate in value, rather than because they want to use it as a payment mode, Prasad said.
CNBC's Sam Shead contributed to this report.
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Bitcoin has 3 flaws and that could set the stage for other alternatives, says Cornell economist - CNBC
Why this crypto CEO uses a simple and traditional investment strategy to build his bitcoin holdings – CNBC
Bitcoin has had a whirlwind few months, surpassing the $60,000 mark for the first time ever in March before promptly tumbling down near $30,000 in less than three months.
The volatility, stemming from a wide range of factors including Elon Musk's tweets and a FBI raid on Russian hackers, has pummeled the value of the digital token, which was drawing in waves of newcomers with its lightning-fast growth.
But despite the volatility of the coin, some investors have continued to steadily build their holdings. That includes Adam Traidman, CEO and co-founder of BRD, a popular crypto wallet with more than 7 million users. Traidman is a veteran of bitcoin's massive price swings, which is why he doesn't try to time the market.
Rather, Traidman uses a more conventional investment strategy: dollar-cost averaging.
To take advantage of dollar-cost averaging, you invest a fixed amount on a regular basis instead of buying a lump sum of stock all at once. This allows investors to avoid trying to time the market and takes the emotion out of investing.
For Traidman, that means buying a little bit of bitcoin every few days, no matter the price at the time. This, he says, helps him avoid the psychological stress of buying at, say, $60,000 only to see his investment lose 20% of its value in a day.
BRD Wallet CEO Adam Traidman
BRD
"Casual investors have a tendency to buy into the hype cycle and sell when the losses become a reality," Traidman tells CNBC Make It. "It's crazy, illogical thinking, but it happens all the time. Why would people buy high and sell low? Well, they don't want to, but they sell out of fear."
Although dollar-cost averaging is typically used for more traditional investments, like stocks and index funds, it makes sense to apply it to crypto too. Throughout its more than 10-year lifespan, bitcoin has seen several massive price rallies followed by steep drops. Each drop, however, has left bitcoin's floor price higher than it was before the rally.
"Before this run up, we were looking at bitcoin prices that were at $8,000, $9,000, $10,000," Traidman says. "Now we're upset when it's three times higher than that."
Before this run up, we were looking at bitcoin prices that were at $8,000, $9,000, $10,000. Now we're upset when it's three times higher than that.
Adam Traidman
CEO, BRD Wallet
Still, Traidman is quick to note that putting your money in alternative investments like bitcoin is akin to "professional gambling" and advises people to only invest money that they are willing to lose entirely.
He looks at bitcoin as a long-term investment, rather than a way to get rich quick. "I'm not letting [the price drop] bother me, because I'm confident that the price performance charts have shown that it's going to return in the long term."
Traidman has a portion of every paycheck converted to bitcoin, regardless of the price, and doesn't worry about whether he's buying at the top or bottom on a given day.
"Dollar-cost averaging ends up making sense in the long term," he says. "If you contribute a little bit every time, in the long term you end up with a pretty darn good return if you an weather all the ups and downs."
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Excerpt from:
Why this crypto CEO uses a simple and traditional investment strategy to build his bitcoin holdings - CNBC