RickTheMac

It certainly has been one to watch this year and to buy in for the brave of heart and deep of pocket.

We’ve seen Bitcoin break through and above the $12,500 resistance level, starting out at $7,200 on 1st January and closing at $18,353 on 23rd November (see today’s price towards the end of this comment!), driven mainly by the restored confidence of existing investors/traders as well as ‘smart money’ from hedge funds and corporations.

Following record post-war money printing by governments, ‘smart money’ is using Bitcoin as protection from the devaluation of fiat. In fact, in the local currency of major economies such as Brazil and Turkey, Bitcoin is now at new all-time highs.

As mentioned in the article above, one notable recent example of accelerating global adoption is that PayPal (NASDAQ: PYPL) has announced that in 2021 it will launch a new service that will allow their 346 million global users to buy, hold and sell/trade digital assets.

This news builds on the positive sentiment created by MicroStrategy (NASDAQ: MSTR) when they recently declaring Bitcoin as its primary reserve asset, after investing $425 million of its cash reserves (average price ~$11,100) and Mode (LSE: MODE) announcing the allocation of at least 10% of its cash reserves to buy Bitcoin.

I observed Grayscale’s Bitcoin Investment Trust (GBTC), established in 2013 by Digital Currency Group and now a trusted authority on digital currency investing, seeing inflows of €300 million in a single day following the PayPal news - now that is quite a draw.

Given the current world economic climate I think it is unlikely that MicroStrategy and Mode will be alone in seeking safety in hard assets such as Gold and Bitcoin. I believe that further institutions, corporations and even banks are currently evaluating increasing exposure to digital assets.

Many institutions and high net worth individuals (HNWI) are noted to be adding to their gold and crypto holdings. Whilst crypto currencies can be volatile and there is always the rider that you have be in a financial position to take the losses with the gains, my current advice is as follows:

• put down a marker investment of 0.5-1% of assets, in case Bitcoin decides to take off in short order. You can then average in at opportune moments or when critical levels are breached (e.g. when it broke above $14,000 that was a clear signal that a new all-time high was in play).

So why is Bitcoin performing so successfully of late?

• It is currently the largest digital currency and the world’s first cryptocurrency It was designed to remove the friction
• From online transactions (credit card fees, chargebacks, bank transfer delays, it resists inflation and exist independently)
• From the legacy financial system Total Bitcoin supply will be limited to 21 million coins however there are currently just
• 18.57 million in circulation It will take many decades for the full number of coins to be available as the difficulty of discovering new Bitcoins continues to increase and the payments to miners reduce

Clearly digital currencies have the potential to transform the financial world - so is it more a case of when than if?

On analysis we can see that Bitcoin and other cryptocurrencies have the potential to disrupt a number of established financial services. It therefore seems highly probable that in the very near future cryptocurrencies will grab market share in the following sectors:

1. Store of Wealth – more than 9 trillion is held in Gold, which can be difficult to transfer and expensive to store securely. Between 10 30 trillion is estimated to be held in offshore deposit accounts.

2. Global Currency – Total eCommerce in 2016 = $1.9 Trillion (est.) All eCommerce is currently subject to fees from VISA, Mastercard , Amex, Paypal , with all non-physical sales online being currently subject to chargebacks

3. Global Transaction Network - Global remittances in 2014 = $583 Billion. Total funds transferred by Bank of America in 2012 = $240 Trillion

4. Financial Services - The financial services industry is now actively investing in both Bitcoin and ‘blockchain’ start-ups

5. Utility Tokens -Tokens created on new platforms have the ability to disrupt incumbent sectors

Other key points to note are that:

• with the BTC rate of production halving every 4 years the next halving event is expected to be in approximately May 2024
• it will take >100 years for all Bitcoin to be in circulation
• there have been 250 Million Bitcoin Transactions since 2009 with a 99.99% reliability since launch
• there are now over 120,000 online vendors accepting Bitcoin via BitPay Coinbase, such as Microsoft, Dell, Expedia, Overstock, Subway, Whole Foods and Wordpress
• Paypal, Stripe, Intuit and Square now incorporate Bitcoin

The first time Bitcoin ‘hit the market’ with a tangible value was back on 12th October 2009 when Martti Malmi, a Finnish developer that helped Satoshi work on Bitcoin, sold 5,050 Bitcoins for $5.02 giving each individual Bitcoin the value of $0.0009.

With a market value of $23,104.00 today, it seems that everybody wants to get in on the act especially as according to a Crypto Research Report of June this year they calculated that the cryptocurrency could go over $397,000 by 2030!

But as ever caution and due diligence are the watch words as a few analysts out there argue that the Bitcoin price could witness a decline of between 25% and 30% in early 2021 but, nonetheless, still rate it as a good asset for the long term - so hang on in there and a very Merry Christmas and best wishes for a prosperous New Year to all!

TopTrader

December rounded off a very good year for my clients with BTC investments. The question “would BTC break through its 2017 all-time high of $19,900?” was emphatically answered in December.

Interestingly I observed more margin trading in the middle of the month, to break through the long standing 2017 high, than I did in the subsequent run up to the year end $30k level. A lot of the buying was physical rather than on margin as institutional investors entered the market in size. This bodes well from both a risk management and long term perspective.

January has started well too; a USD supply vs borrowing demand imbalance over the long Xmas and New Year bank holiday period caused rates to briefly spike over 100% pa gross. Shrewd investors were able to take advantage of these rates (hopefully) I was amongst that number!.

MyLegacy

On a personal level, I have never invested hugely in Crypto - not as much as I could have - but do have a couple of grand invested. I’ve done well out of doing so this year. I realise that buying crypto is speculative and I really have no idea what makes one go up and not the others at any one time. The only pattern I can discern is that when BTC goes up, the alt coins do too (well, some do).

But I manage my investments very closely and sell when I make enough profits over a specific percentage even if the currency continues to rise. I never buy and hold these assets like I do with other asset classes I invest/trade in. There’s no point. As soon as a correction comes, it is pretty steep and you can lose all you’ve gained, which could take some time to recover too if there is no positive macro-economic news happening to get people buying again to boost the profits or recover losses. To me, the opportunity cost of investing in one asset, as opposed to another, is just as important for wealth generation as price action is. So sitting on a rising and falling asset you’e bought and held is pointless if it takes too long and the overall gains are too minimal and too incremental over a long period of time. For that you’d have to invest silly amounts of money and take a much larger risk. Instead, you could have invested that capital into another asset that does better quicker.

I probably don’t make as much as I would do if I did buy and hold but I am wary of the risks involved. All the same, due to rises in December, I’ve made a huge gain and cashed in most of profitable positions for cash for reinvesting elsewhere or in the same coins when the price corrects. It’s a strategy that is working or me, even if it does amount to little more than intelligent gambling to plug a gap in my income currently. It’s all I expect and want from it.

No way would I invest a significant amount of income in them though, for the reasons stated. BTC is the safest bet but even that could be controlled by Government’s further down the line and if you don’t keep your coins safe in a cold, hard wallet you keep in your drawer, they could be stolen too. Yes you could grow rich by investing heaps in BTC, and some clearly have done well, but you could also lose your shirt if the tide suddenly turns and never recovers for ages. I would suggest that Crypto is not a good investment for anyone who is risk averse, no matter how well it has done overall.

Trudy

We all know that Bitcoin (BTC) has a reputation for volatility but when you consider the origin, or creation if you like, of this cryptocurrency and some of the associated stories involving BTC over the last ten plus years that’s hardly a surprising attribute.

We all know the beginning - but, just to recap, way back in 2008, ‘someone’ allegedly with the name Satoshi Nakamoto created a whitepaper that was entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” and then uploaded it to a cryptology mailing list. The whitepaper laid out the concept of the BTC crypto-currency, which was outside the ‘policed’ regulations of the authorities and the central bank system yet it still enabled financial transactions between two individuals who could remain free of oversight and stay anonymous forever more. That was the raison d’être, the essence or the birth of Bitcoin.

The remaining mystery here is to this day that nobody knows exactly who this ‘Satoshi’ actually is. Once Bitcoin was established there was limited further communications from him/her up until mid-2010 when they ceased altogether. Meanwhile, the value of Bitcoins has steadily soared, leading to speculation that if this nebulous figure really exists today then he/she is very rich.

So fast forward to today and the latest news where we can read seemingly sensational headlines quoting one popular investment analyst loudly proclaiming that it is not out of the question for Bitcoin to reach as high as $300,000/£224,128 per coin per coin by the end of this year.

So what is causing the current phenomenal rise? Obviously, as mentioned above, there has been a surge in purchase caused directly by the big name announcements and ‘buy-ins’ during the last quarter of 2020. A sentiment echoed by the investment banking giant JPMorgan Chase & Co and repeated in Bloomberg was that from a long-term investment perspective the fact that BTC was now being seen in the market place as vying with gold as the alternate currency could only be interpreted as a positive for BTC. With this cryptocurrency currently trading at about £25,000, an increase from March 2020 of more than 500%, at which time it was dealing below £3,600, projections from analysts within JPMorgan indicate that it could rise an additional 4.6 times to above £100,000!

These sentiments are being resonated around the economic realm as many other predictors say Bitcoin’s nine-month market swell may be just the start of a far greater price rally.

Yet, as if to counteract all this positive acclamation, earlier this month BTC took matters ‘into its own hands’ and we saw the price plummet by more than £3,600 in what is the single biggest crash in its history. All as if to remind the unwary and the short term speculators of the recent surge we saw from £730 to over £14,000 back in 2017, which was followed by a painful correction that took the valuation right back down to below £3,000. So whilst many analysts and strategists suggest the latest price surge could continue past £70,000 there is a real possibility that it will also retreat harshly shortly thereafter.

Meanwhile on the other side of the fence, depending on your point of view, we had the Financial Conduct Authority (FCA) on 11th January 2020 warning ordinary savers to be extremely wary of putting their cash into the cryptocurrency boom in a bid to chase and capture high returns and not to be lured by the headlines; as such they have disseminated their own counter-deadlines: “Bitcoin: Cryptocurrency investors should be prepared to lose all their money, warns watchdog”.

The FCA went further stating: “The FCA is aware that some firms are offering investments in crypto assets, or lending or investments linked to crypto assets, that promise high returns” the regulator added, what to many is painfully obvious: “Investing in crypto assets, or investments and lending linked to them, generally involves taking very high risks with investors’ money.”

Despite this ‘warning’ being made public three days after BTC had already started its descent - prices had now shrunk above 20% from their January 8th high by the time it was released by the FCA - that didn’t prevent a number of mainstream analysts citing the FCA as a “cause” for the cryptocurrency’s plunge. What they failed, deliberately or otherwise, to acknowledge that from the all-time high near £30,000 achieved on Friday, January 8 the subsequent move had already erased nearly £135 billion from bitcoin’s value.

So back to the beginning again - why do investors move into BTC? There are many reasons not least the sheer novelty value, but for the serious investor there is an apparent value of Bitcoins as opposed to the fiat currency. Bitcoin has assets that make it very comparable to gold in that it is not market-related and is in restricted supply. It is ruled by the developers’ resolution to limit production to a secure quantity of 21 million BTC. The unpredictability is also compelled in large part by varying views in its store of value capability. Store of value allows a future transfer of assets. Bitcoin’s store value changes re frequently established by news events, as exemplified in the above paragraphs, similar to government issued currency.

In addition to this is that a large proportion of the total currency is held by an elite few. For Bitcoin investors with current holdings above around £730,000, it is far from clear how they will liquidate it in the future and there are fears that such a move will affect the fiat market. Bitcoin has not reached the mass market adoption rates necessary to provide option value to large holders of the currency. By its very nature, Bitcoin is open-source and exposes vulnerabilities in the form of security fixes. This approach to security is paradoxical and scares investors.

Many cryptocurrencies have made the headlines for being hacked or for being stolen as has also been pretty well documented in these pages. These high profile losses made the Bitcoin market conservative and there was a scarcity, which lifted the value of the remaining Bitcoins. Though, the earlier anomalies had a constructive influence on later players in the cryptocurrency market exchanges building tougher processes into their own procedures.

States driven by debt also use Bitcoins as a conduit to secure loans, circumventing the USD-based loans that are driven by inflation. According to Her Majesty’s Revenue and Customs (HMR&C) and the Internal Revenue Service (IRS) Bitcoin is essentially measured an asset for tax determinations. The market worth of each Bitcoin has to be logged when paid; hence, this trouble is disconcerting to those wanting to make payments in this coin. Also classifying it as property has the potential of bringing it under similar regulations. This is bound to slow its wider adoption.

To end with here I’d like to add a couple of quite bizarre Bitcoin-related headlines that caught my attention of late.

Firstly, did you read about the UK man that has offered his local council over £50 million to let him search in their landfill for some lost property? Of course this is no ordinary item that he has discarded back in 2013. Allegedly it is a hard drive on which he had ‘stored’ 7,500 bitcoins - which at today’s valuation would be worth approximately £192 million. The question that must be on everyone’s lips is, why has it taken him eight years to remember this ‘mistake’?

Secondly, the story comes from much further East; from Russia to be precise. Recently reported in Tass, the Russian state-owned information bureau: “Hired assassins have begun receiving cryptocurrencies as payment for their crimes, head of the Russian Investigative Committee’s cyber and IT crimes department Konstantin Komarda said in an interview”.

One could safely guarantee that neither of these reported incidents involving Bitcoin was in the mind of ‘Satoshi’ when he started work on his whitepaper!