Bitcoin/Cryptocurrencies – Digital Gold or Tulip Bulb?


(Alok Bhola) #43

The 15 Cryptocurrency Exchanges In India


(Alok Bhola) #44

How Bitcoins Are Spawning Black Money In India

The interest of Indian investors has spiked up in Bitcoins post demonetisation. The popularity of Bitcoins partially stems from anonymity associated with transactions which helps holders to get away with their black wealth. It’s estimated that, those who hoarded cash before demonetisation to growth their black wealth now deal in Bitcoins.

Property deals too involve cryptocurrencies. A real estate broker with the direct knowledge of such instances told media on the condition of anonymity that, “Instead of the cash part, many sellers are now opting for crypto coins for property deals and this is especially true of NRIs, who can, with a few keystrokes, move this money abroad.”

While hearing a plea against the unregulated nature of Bitcoins, the honourable Supreme Court bench of CJI (Chief Justice of India) Dipak Misra, Justice AM khanwilkar and Justice DY Chandrachud on emerging trend of crypto money noted that, “if unchecked and unregulated, is a threat to exchequer’s money and financial sovereignty of the country.”


(Alok Bhola) #45

How bitcoin is saving lives in Venezuela & Zimbabwe

In 2007, the inflation rate in Zimbabwe was running at 24,411% per year. Experts say the annual inflation rate hit 231 million percent in July 2008. Inflation in Zimbabwe is still sky-high.

So, the people of Zimbabwe are turning to bitcoin… And they’re paying a steep premium for it. According to Bloomberg, one bitcoin in Zimbabwe will now set you back $13,000. That’s almost double the international price.

Cash is still hard to come by in Zimbabwe. Some banks can’t even give their depositors $20 per day. Plus, many people in Zimbabwe don’t have bank accounts. But a growing number own smartphones. And that’s all you need to buy bitcoin.

People in Venezuela are loading up on bitcoin, too… That’s because their economy is also in shambles. The International Monetary Fund (IMF) estimates that inflation could top 2,800% next year.

Others are also “mining” bitcoin. Mining bitcoin is normally expensive. That’s because it requires a lot of energy. But energy is basically free in Venezuela. That’s why an estimated 100,000 Venezuelans are now mining it. Their costs are next to nothing.


(Yusuf khan) #46

Quite interesting topic.
Even though I was quite skeptic initially, now have started to see if there is juice left.
Possibly trying to see if it is easy to enter in to etherium


(Alok Bhola) #47

Cryptos just had their ‘K-Tel’ moment

In 1998, K-Tel was on the ropes. Its sales were declining. The company was losing money. It barely made enough to pay the interest charges on its growing mountain of debt. Its stock price was languishing.

So, K-Tel’s management did the only thing it could think of to turn its fortune around… It changed its name to K-Tel.com. The mere announcement that K-Tel was expanding its business to the internet sent the stock screaming higher. K-Tel rallied from $9 per share to $21 in just one day. It hit $34 per share one week later.

Less than one year later, K-Tel shares were trading for pennies.

Now, consider the current story of Bioptix Inc. – which used to be a biopharmaceutical/medical device company.

The stock hadn’t done anything all year. It started 2017 at about $3 per share – which gave it a total market capitalization of about $18 million. And it stayed at about $3 per share up until October. That’s when Bioptix changed its name to Riot Blockchain (RIOT). And just look at what happened to the stock…RIOT hit a high of $24 per share last Friday. That’s an eightfold increase in the market value of the company based solely on the name change.

The term “blockchain” describes the technology behind transactions in the cryptocurrency market. Companies involved in that space have been HOT. So, by merely changing its name to something that included the term “blockchain,” Bioptix manufactured over $110 million in market cap.


(SkyWalker) #48

If bitcoins only follow demand and supply law without any value, then what will happen when demand dries out?


(Anupam) #49

Dear VP members !

I don’t understand bitcoin. It’s complicated and purely speculative. Also current price is 7 lacs per bit coin.

Is it advisable to put say 5 lacs now in bit coin and hold for 3 years and pray that it gives 3 to 5 times increase.

Assuming still this is relatively less popular and larger mass, retail investor is still unaware and thus rally would continue till an Aam Aadmi talks about bit coin in India.


(timedimpulse) #50

There is no one who could advise whether it is the right time to buy a speculative or griffen good (as Professor Aswath Damodaran categorizes Bitcoin). Bitcoin is still in the process of price discovery. I think it will help to identify the dynamics behind such price moves and take a call. I am personally bullish due to below reasons:

  1. CME futures that list this December lay groundwork for institutional money to enter in a big way
  2. We are still in early adoption stage, something you can guage by the outright dismissal of Bitcoin as an investment idea by a large majority of people including value investors (I am not debating the merits of their investment thesis only how it affects the price)
  3. US debt is 20 trillion, Bitcoin is less than 2 trillion in market cap. In my personal investment thesis I see Bitcoin as a macro hedge to global corporate and sovereign debt and ZIRP induced asset bubbles in other debt , stock and property markets. It is like buying NIFTY puts except that the inverse correlation has not been tested.
  4. Bitcoin price has seen spikes during North Korea trouble, hyperinflation fears in Zimbabwe and Venezuela characteristic of gold like safe-haven qualities. Again, cannot establish causality here.
  5. Buyer psychology: millenials are not interested in the stock market or precious metals. A non-state backed purely virtual currency is not so far fetched if you look around and see people glued to their phones and mobile devices. Bitcoin meets all criteria of a currency (fungible, transferrable, cannot be counterfeited) except backing by legal tender. Besides it is good to own a global asset. Why put all eggs in Indian stock market?
  6. Bitcoin suffers from deflationary price spiral upwards - being a capped asset. Only 1800 are mined each day but the demand is growing by leaps and bound.

I think the primary paradox for me is if its a safe-haven asset like gold or a purely speculative one like a lottery shot. It has been showing signs of being both.


(john_galt) #51

Blockchain is the technology. Bitcoin and Ethereum are implementations of the same technology in different configurations.

As a technology it has some advantages and some drawbacks. Especially as compared to regular currencies and even compared to universally accepted tender like gold or diamonds.

It does not have sovereign backing of any country and the main reason it was born was to make possible the illegal transactions akin to hawala, buying and selling of illegal stuff beyond imagination in underground markets in the dark web etc.

Now comes the interesting part - the technology is good - SO governments are thinking of adopting it. RBI has a team working on it. But these technologies are not equal or equivalent because RBI’s solution will come with sovereign backing but bitcoin exists as a high priced commodity only because a large number of people think that it has some value. The value exists today because one has assurance that one can exchange bitcoins for real money at some point, or at least use it for barter or it has some value that is not going to diminish over time because of continued demand. If this assurance is taken out of the equation, the demand would disappear.

The day a sovereign backed currency provides a large chunk of population with the same advantages as bitcoin but with assurance of sovereign backing - well the tulip bulb will find its true home.

It is my personal opinion that if you are invested heavily - quit now. Leave only that amount of your portfolio in bitcoin that you are willing to gamble. the key word here being GAMBLE.


(Susindar) #52

Yes, the only advantage I see with Bitcoin and Etherium is the first mover advantage and low supply due to mining concept. I read today that infosys is assisting banks with block chain solutions. If it is adopted everywhere, then there will be a massive increase in supply which will bring down the price.

Where will you rather get your crypto currency from? Likes of SBI, HDFC or some underground deep net?


(timedimpulse) #53

It does not have sovereign backing of any country and the main reason it was born was to make possible the illegal transactions akin to hawala, buying and selling of illegal stuff beyond imagination in underground markets in the dark web etc.

The main reason it was born was a peer to peer deflationary currency which would be the opposite of inflationary fiat money (whose buying power depreciates with time).

https://en.bitcoin.it/wiki/Genesis_block
The coinbase parameter (seen above in hex) contains, along with the normal data, the following text:[2]
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
This was probably intended as proof that the block was created on or after January 3, 2009, as well as a comment on the instability caused by fractional-reserve banking.

Dark Web was one initial use case because of the features of cryptocurrency. The use case as now evolved that travel websites like Expedia and 2,60,000+ stores in Japan accept Bitcoin payments.

The day a sovereign backed currency provides a large chunk of population with the same advantages as bitcoin but with assurance of sovereign backing - well the tulip bulb will find its true home.

A sovereign backed currency will be pegged to fiat currency (like the dollar or rupee), so it will not provide deflationary benefits of Bitcoin nor have any speculative value.
Assurance of sovereign backing - Gold is also not backed by governments. Its a global asset without an issuing body. Bitcoin similarly is a global asset backed by consensus rules and de-centralization is its USP (as it cannot be printed or manipulated by a central bank or body). After incidents like demonetization, hyperinflation and QE/ZIRP there is a genuine demand for deflationary stores of value that are pseudo-anonymous and cannot be controlled by rogue banks and states.


(Shaswat) #54

Bitcoin price plummets 18% after crossing $11k price. There was heavy selling.

https://www.cnbc.com/2017/11/29/bitcoin-plunges-18-percent-after-topping-11000-in-extremely-volatile-trading.html


#56

Fear of missing out is working at its high.

99% of the people investing in bitcoin are following crowd mentality. More or less gambling.

After the recent price hike of bitcoin, I curated my pessimistic thoughts on Bitcoin.

BitCoin – The Most Disastrous Asset Class of 21st Century

I hope, you might like this article. Your opinions are warmly welcomed.


(Vidur Chhabra) #57

I am astounded by the kind of misinformation that exists about crypto currencies, especially in India. There are sweeping statements that it is a den for black money holders, drug dealers, terrorists and basically the dishonest of the society. It is important to step back and think through things logically, then parrot the scaremongering by the media and others, who are fed by people who feel threatened by the decentralization of money that crypto currencies like Bitcoin promise.

Of course, a small minority of the deplorable of our society will use this, but these deplorables of the society existed even before bitcoin ever came into existence. It is not the fault of this technology, just as it not the fault of the USD and INR and gold, such people existed since the birth of humanity.

Bitcoin is at its infancy, people compare it to when Internet came into being in the early 90’s. The young internet was deemed to be a failure or of just limited use by many experts. It was also then just a den of porn and drug dealers, but we know better now. The internet made many many industries like travel, publishing etc. redundant.
However, this is bigger because we are talking about a fundamental change in how we deal with money and that will lead to a cascading change to things like governance. We have a long way to go.

I think it is more important to understand the concept of bitcoin, either you get it or don’t. Don’t get bogged down by the technical aspects of it, after all we all use the internet and use all the top level applications and we really don’t need to know how TCP/IP is supposed to work.

Bitcoin is a trustless decentralized system, and that means it is beyond the control of a single authority. It is not only India, most governments and central banks globally, don’t understand it and thus dont know how to deal with it. If they could have they would have controlled the network by now.

If banks and governments feel threatened, can they shut the system? It is next to impossible, because unlike centralized systems which we are used to, there is no single point of failure, there are hundreds and thousands of nodes globally and in space, which will be relevant even if a single node fails. If the Internet collapses then there is adequate redundancy in space, block chains can even be broadcast through radio waves.

It is also robust because it has existed in the dirt of the Internet for eight years, it has been hacked and hacked but no one could break the block chain and its security has just grown stronger. Yes exchanges have been hacked and will be hacked, just like in the real world credit card data are regularly stolen, but that is nothing to do with the underlying technology.

This brings us to the crux, this is a decentralized system and thus we are in complete control of our own funds but we are responsible for are own funds. We do not outsource that responsibility to a bank or a government. It is just on us, to must make sure that we keep our coins secure in wallets that are not hackable. We should only share our public keys not our private keys, and there are many trusted solutions in the market now, which do that for us. For now, if we loose our coins it is nearly impossible to recover it, unlike in traditional systems.

Valuations? Bubble? I don’t understand that, PE Ratio? P/B? You first need to understand that none of the valuation metrics matters here. This is very different from a stock market crash or bubble and traditional valuation metrics. We are talking about a fundamental change in how we deal with money in the future, and this happens once every century or many centuries.

What can governments do, by this disruption it faces? Those countries who embrace it early on will lead the next few centuries, those who resist will lag behind. I think for now most governments should do not much till the technology matures. There should be some clarity on how profits in Crypto currencies should be treated. Also majority of the initial coin offerings (ICO) which are coming are mostly scams and probably should come under the preview of SEBI, to protect investors. Think of ICO’s as a new way for companies to raise capital, and their valuations (price of coins), left to the market to be determined. We are talking here of a real disruption to Stock Exchanges and Custodians itself.
What is disappointing is that India is again lagging behind, we could easily be taking a global lead here because of our software assets. But there is tremendous scepticism and disinterest all around. It is again the western world and the Chinese, Koreans and Japanese who are at the forefront of everything. I do hope the popular media as a whole can report about this more holistically.

A bit about Bitcoin itself.
Though Blockchain might be the buzzword right now, it is important to remember that Bitcoin is the original Blockchain and thus also the most evolved and tested and robust.
Also there will ever only be 21 million coins, that makes it anti inflationary a bit like Gold, unlike normal Fiat currencies which can be printed endlessly. Thus supply is limited and demand could be unlimited. This is along with increasing global acceptability is what gives it its perceived value.
There are terminal Bitcoin price valuations on both sides of the spectrum based on money supply, from Zero, to a Million USD or even 10 million USD. However, till the Bitcoin price discovery carries on, it will remain extremely volatile and its not for the faint hearted. This volatility for a new type of asset is not new, Oil in the 18th century too was extremely volatile.
I can only imagine that there be one or two dominant global crypto currencies like a gold or silver of today followed by a long tail of other crypto assets. Either countries will follow this new global currency or come with their own crypto currency that will be valued based on the dominant global crypto currency
Fears about misuse of bitcoins is also unfounded, a Blockchain is an open ledger and each transaction is recorded for posterity, and thus it is possible to trace any transaction if required.

Finally, as an investor you would also be more comfortable in this space if you don’t just enter it for price appreciation which is a given, but if you could look beyond biased news and terms, and start believing in the fact that these technologies will change the entire financial networks and the way we function as a society as a whole quite significantly in the medium to long run.


(scr) #58

FYI, bitcoin is not fungible, like say some coins which are tainted by being part a transaction of a busted drug deal. Does it matter ? In the sense that will it effect your ability to transact those coins, I am not so sure.


(timedimpulse) #59

Fair point. But by that standard even Gold that is smuggled or used for illegal purposes is tainted.

Question is how do you track these Bitcoins? Do you track the Bitcoin wallet addresses?

The Bitcoins that were used in Silk Road bust were recently auctioned by the US government. Lets see who buys them.

Is Bitcoin really an ideal vehicle for money laundering and criminal activities if it can be tracked? There are softwares like Chainanalysis that are used to analyze Bitcoins (the IRS uses Chainalaysis to catch tax offenders). All of your activities are available on an irreversible public ledger of the blockchain – so doing illegal activities is easy to record for criminal prosecution. Win win for law enforcement, if you think about it – if they can get around the encryption and pseudo-anonymity.

But you raised a question in my mind that Cash is the most fungible of all assets, and also the fuel of the black economy, much more enduring than Bitcoin can be.


(csteja) #60

Any one in US know what is the best exchange to trade, transfer bitcoins at lowest charges?
Coinbase charges more. Also it takes a week to get bitcoins into our account. Any better website?


(Alok Bhola) #61

Should Cryptocurrencies be included in the Portfolio of International Reserves held by the Central Bank of Barbados?

Counterfactual simulations done over the period 2009 to present suggests that adding Bitcoin to the reserve portfolio of the central bank would not significantly increase volatility but could provide opportunities to offset exchange rate depreciations against major currencies such as the Pound and the Euro.

In addition to the counterfactual simulations, the paper also forecasts the likely future path of reserves over the next 10 years. This assessment is meant to illustrate the potential implications of incorporating Bitcoin into the portfolio of reserves up to 2025.

The results suggest that over the various forecasts horizons considered, the risk of portfolio losses exceeding the initial investment is very low.

An alternative strategy would be for the Central Bank of Barbados to consider mining Bitcoin but here the costs outweigh the immediate benefits.


(Krishnaraj) #62

Bitcoin as a currency

I got drawn to this thread when I read in WSJ that “The $11,000 per bitcoin it passed on Wednesday compares with a value of less than half a cent when a Florida programmer paid 10,000 bitcoins for two pizzas in May 2010—a percentage gain of more than 250 million.

I am challenged in understanding technology so hit a wall in understanding the technology behind bitcoins. With that limitation I am sharing my thoughts below.

The foremost question is, “if I am paying up for something (like a bitcoin), what is it worth?” This leads us to ask what value does a bitcoin possess and how does it acquire that value? By value we mean economic value. From a general reading I could gather (and please correct me) that these coins are created by providing some specific online payment transaction processing services also called “mining”. If so shouldn’t the real value of a bitcoin be just what someone would pay for such a processing service (or its opportunity cost)? Which, to my mind, is practically zero because processing charges per $ on average is very low.

But then the same worthless argument holds true for gold. Gold creates ornamental value but practically no economic value so gold should also be worthless, but is it so? Ofcourse not because people part with money to buy gold.

Now that’s because gold’s been useful for a loooong time as a “trusted broker” to exchange two items of unequal value. The traditional story of a shoe-maker selling shoes in exchange for bread where 1 pair of shoes is maybe valued at 10 loaves, but he doesn’t need 10 loaves. Measuring both goods against a constant unit and exchanging those units solves the problem. However if there is unequal exchange someone will be left with carrying those units in credit and would want to use those credits elsewhere at the same value. Gold solved these problems of (a) being a medium of exchange (b) being a unit of measure and ( c) being a store of value (basically you don’t want the unit credits to be volatile). Further any derivative of gold (meaning coins and paper given or issued by someone who carried the integrity of converting it into gold at a fixed rate at any time) could do the job well too. However during times of sudden political and economic upheavals gold could not do its job. Gold has over time been replaced by trust of the entity that issues such coins and papers. Thus the emergence of paper currencies that are backed by nothing but a promise by the person / entity to provide the value written on the paper.

So it bitcoin a currency?

It is not primarily because there is no price stability against currently used measures of value. If both the buyers and the sellers think that the price against which bitcoin will be exchanged with $ changes and they want to exchange items of value by paying bitcoins then each of them has to assess the future value of bitcoin. Then bitcoin no longer remains a “trusted broker” like gold.

I found this WSJ article that clarified to me in greater detail why bitcoin does not stand the test of a currency. It could be behind a paywall so I printed to pdf to share. What Is Bitcoin_ Not What You Think - WSJ.pdf (960.2 KB)

Some of the posts in this thread argue that it is safe, un-cheatable and free from central banks’ whims. The first two are not big considerations today. The last is and has always been a consideration because there is a worry that central banks have debased and can debase currency to make it lose value (the store of value role of a currency). But bitcoin is not solving that problem, and it cannot solve that problem till mankind agrees to a certain value assigned to total bitcoins in circulation. If it does then it has prospects of being a true currency. While mankind may agree to say a common understanding of physical properties like heat, force etc, and develop measures for it, it’s highly unlikely to come to a common understanding of value of a bitcoin.

P.S: There are also arguments of a bitcoin being a tech break through and others, which are not points of consideration for it to be a currency.

As for whether bitcoin is an investment (and we may be tempted to point to art, wine and such), I recall the nearly immortal definition of investing by Benjamin Graham from the Intelligent Investor, “An investment operation is one which upon thorough analysis promises safety of principle and an adequate return. Operations not meeting these requirements are speculation”


(Alok Bhola) #63

Investors are shunning new cryptocurrencies even as they pour money into bitcoin

While investors pile into bitcoin, which surged past $10,000 for the first time this week, and continue to bet on the newer currency ethereum, they’ve lost their appetite for niche tokens that hit the market through a rush of ICOs.

Just 23 percent of ICOs in November reached their fundraising target, according to TokenData. November will wind up as the slowest month for ICOs since August.