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Why I’ve Changed My Mind on Bitcoin

Ritholtz Wealth Management’s COO Nick Maggiulli on why he reversed positions on bitcoin.

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There comes a point in every investor’s journey when he must admit he is wrong about something. In my case, I was wrong about bitcoin and whether it would ever be considered a legitimate asset class. This realization dawned on me in the last month when the price of bitcoin passed its December 2017 highs of $20,000.  My prior belief was that bitcoin wouldn’t surpass these highs for many years, if at all. I didn’t think that bitcoin was “going to zero,” but I also didn’t think it would eclipse its December 2017 peak anytime soon.

Nick Maggiulli is chief operating officer at Ritholtz Wealth Management and author of the “Of Dollars and Data” financial blog, where a version of this article first appeared.

Now that it has surpassed that peak by over 50%, I have come to realize that bitcoin isn’t the one-trick pony I thought it was. As Paulo Coelho wrote in “The Alchemist“:

Everything that happens once can never happen again. But everything that happens twice will surely happen a third time.

Well, here we are again. Bitcoin is on another spectacular bull run and investors are taking notice. Now that bitcoin has survived (and thrived) beyond its 2017 peak, many investors who used to see it as a joke are now realizing it isn’t one. I am one of them. 

I have changed my tune on bitcoin, but not because of many of the arguments put forth by bitcoin bulls. For example, bitcoin bulls have claimed that bitcoin would be used as a currency, that the U.S. dollar would plummet in value and that the halving in May 2020 would increase bitcoin’s price. They were wrong on all counts, yet bitcoin’s price has still gone up.  

What the bitcoin bulls were right about was increased adoption and the ability of many bitcoin owners to hold (“HODL”) even as prices rose dramatically. These two effects (more demand from buyers and reduced supply from sellers) have helped to boost bitcoin’s price and cement it as a legitimate asset class within the investment community. As a result, bitcoin has become a form of digital gold. You may not agree with this assessment, but if you still think bitcoin is “going to zero” you should reconsider your assumptions.

Why bitcoin is here to stay

The problem with arguing that bitcoin is “going to zero” is there are too many investors who are willing to buy it at a price far above $0. I remember speaking to many non-crypto investors before the recent run-up in price who said they wouldn’t buy bitcoin at $10,000, but if it dropped to $1,000-$2,000 they would surely jump in. 

Well, guess what? Now that the current price is above $30,000, some of those investors have likely increased the limit at which they would consider buying bitcoin. Instead of buying at $1,000 these same investors may be happy to jump in closer to $10,000. And every time the price goes up in the future, these “mental buy limits” go up as well, increasing the likelihood of bitcoin’s future survival.

“But Nick, bitcoin doesn’t have any intrinsic value!” Well, guess what? Neither does gold, which has a $10 trillion market capitalization! So if you want to argue against bitcoin on intrinsic value terms, then you have to argue against gold, too. Because both the price of gold and the price of bitcoin are based around one thing and one thing alone – belief, the belief that these assets will have value in the future.  

See also: Pondering Durian – Why >15% of My Net Worth Is in Bitcoin

And right now the collective belief in bitcoin is increasing. The cult is becoming a religion. Don’t just take my word for it though. There are plenty of articles (see herehere and here) that discuss this increased adoption within the investment community. And if this trend continues (as it probably will), then we are even less likely to see a future without bitcoin. 

How will bitcoin behave?

Now that bitcoin is here to stay, you might be wondering how it will behave in the future. Will increased adoption lead to higher prices? I have no idea! What I do know is bitcoin is a speculative asset class. Therefore, we should look at other speculative asset classes as a guide for how bitcoin might behave. And I believe there is no better speculative asset to use for this comparison than the early years of gold as an investment.  

While gold has been around for millennia as a form of money, it wasn’t until August 1974 in the U.S. that it was an investable asset class. And in the six years following its reintroduction to the investment community (1974-1980), gold tripled in value in real terms (i.e., the yellow line below): 

Source: FRED, Stockcharts

But since that tripling, it hasn’t performed all that well. Though bitcoin is unlikely to follow a similar path to gold, it is likely to exhibit similar behavior. This means bitcoin will continue to have huge run-ups in price followed by violent crashes that may last years (and possibly decades) in the future. We have already seen this kind of behavior from bitcoin before and I am quite confident we will see it again. 

The difference between bitcoin and gold is that bitcoin is still gaining adoption among investors.

The difference between bitcoin and gold is that bitcoin is still gaining adoption among investors. Will that continue at its current pace into the future? Who knows? However, if bitcoin’s market capitalization were to match that of gold, it would be worth over $500,000 a coin. This is why some investors are so bullish on bitcoin.

However, there are still some reasons to be bearish. The main one is that bitcoin is associated with some of the most speculative investment activity out there. This is most apparent when comparing its price movement to the price movement of another speculative cryptocurrency – dogecoin. Though you may not have heard of dogecoin, it is an alternative crypto currency (altcoin) that is kind of an inside joke on the internet

And since dogecoin’s price is a clear indicator of speculative behavior, if we look at the correlation between dogecoin and bitcoin we can get a better feel for how much speculation might be occurring in bitcoin at any point in time:

Source: Of Dollars and Data

As you can see, over the last three years the correlation between dogecoin and bitcoin has been quite high, with the most recent correlation reading around 0.8.

But if we compare dogecoin to gold, we see that the correlation between their prices tends to center around 0:

Source: Of Dollars and Data

This is just more evidence that bitcoin is associated with speculative activity and will continue to behave like a speculative asset in the future.

Is there a right way to invest in bitcoin?

Though I have changed my mind on bitcoin, I haven’t necessarily changed my view on how one should invest in it.  I believe the only prudent way to invest in this asset class without any long-term negative repercussions is to hold no more than 2% of your portfolio in it. I wouldn’t recommend this approach for everyone, but it may work for some people. By limiting your exposure to 2% of your portfolio you’re unlikely to get rich, but you’re unlikely to go bankrupt either.

Why 2%? This was the allocation I got when I worked out the optimal portfolio back in October 2017. Anything more than 2% adds too much risk (per unit return) to your portfolio and anything less than 2% reduces your returns (per unit risk) too much. Of course, the optimal portfolio is the best solution for the past, not the future. Either way, I don’t see the harm in a 2% allocation, but please do your own research first.

See also: Ajit Tripathi – Why I’m Long Crypto, Short DLT

The biggest risk I see to owning bitcoin going forward isn’t a price crash (which is inevitable), but the possibility of a government ban on ownership. This might seem outlandish but in April 1933 the U.S. government banned the ownership of gold bullion/coinage for all U.S. citizens. The reasons for that ban are very different from a bitcoin ban that could happen today, but with the recent Securities and Exchange Commission complaint against Ripple I wouldn’t rule it out completely.

Lastly, I might be wrong on many of the things I have stated today or in the past. But I don’t blog so that I can be “right.” I do it so I can learn more about investing and get closer to the truth. As economist John Maynard Keynes (or Paul Samuelson) supposedly said:  

When the facts change, I change my mind. What do you do, sir?

Disclosure

Source: https://www.coindesk.com/why-ive-changed-my-mind-on-bitcoin

Blockchain

Aave and Chainlink hit new highs as Bitcoin price fights to hold $32K

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Bitcoin (BTC) price opened the weekend trapped within the $33,500 to $32,000 range but at the time of writing the digital asset is struggling to hold above $32,000. 

A few analysts have warned that the recent price loss of momentum may be a sign of ‘institutional exhaustion’ as selling pressure from Asia has increased since Jan. 19.

Despite Bitcoin’s current downtrend, some institutional investors are sticking to their prediction that BTC price will reach $100,000 before the end of 2021. This suggests that institutions are buoyed by rising investor sentiment and the new proposals for a Bitcoin ETF.

BTC/USDT 4-hour chart. Source: TradingView

While Bitcoin still faces resistance around the $33,000 level, on-chain analyst Willy Woo sees one potentially positive development for BTC. Woo said that the Bitcoin Spent Output Profit Ratio (SOPR), a metric that shows the profit ratio of BTC by dividing the price sold by the price paid, had “a touchdown”.

According to Woo there was a:

“Full on-chain SOPR reset. Coins moving between investors per hour (24h MA) no longer carry profit on average. To push SOPR lower, investors would have to be willing to sell at a loss.”

Bitcoin adjusted SOPR. Source: Glassnode

Woo also suggested that investors are less likely to sell at a loss, an early signal that Bitcoin could be close to finding a bottom.

Altcoins and DeFi tokens soar

DeFi tokens and altcoins continued to forge their own path as Bitcoin searched for support. Polkadot (DOT), AAVE, Curve DAO Token (CRV) and Sushiswap (SUSHI) all rallied roughly 5% to 7%.

The surge in the price of many DeFi-related tokens has in large part been the result of an increase in DEX activity. Data from Dune Analytics shows monthly DEX volumes have increased since July 2020 and currently the total value locked in DeFi is at $23.89 billion.

Monthly DEX volume by project. Source: Dune Analytics

Chainlink (LINK) continued its strong rally, setting a new all-time high at $25.50 and surpassing Litecoin (LTC) in terms of total market cap to become the seventh-largest project listed on CoinMarketCap. Aave price also broke to a new all-time high at $229.39 and the total value locked in the platform is $3.44 billion.

The overall cryptocurrency market cap now stands at $936.8 billion and Bitcoin’s dominance rate is 63.5%.

Source: https://cointelegraph.com/news/aave-and-chainlink-hit-new-highs-as-bitcoin-price-fights-to-hold-32k

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Ultra-rare alien CryptoPunk NFT sells for 605 ETH, or $750,000

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Amid a wild market-wide bullrun for non-fungible tokens (NFTs), an ultra-rare “alien” CryptoPunk has sold today for 605 Ether, worth over $750,000 at today’s prices. 

CryptoPunks are widely considered to be the original NFT project, released even before Cryptokitties, the blockchain-based collectibles project that propelled NFTs to mainstream consciousness. CryptoPunks developers Larva Labs report that Punks have accounted for $26 million in lifetime sales on their native marketplace, and the average sale price for Punks over the past year has been $6,199.

Each Punk has unique attributes, such as background color, accessories, and even some ultra-rare features, such as an “alien” or “zombie” appearance. The Punk that sold today, #2890, is one of nine alien Punks in existence.

The bidding for the Punk was competitive throughout the last week, with DeFi megawallet-turn-Twitter personality 0x_b1 putting in a 500 ETH bid. The Punk was last sold in July of 2017 for 8 ETH, meaning the owner made a 75x return on their investment. 

The new owners are a group of investors that include FlamingoDAO, a “NFT collective that supports and collects premium NFTS,” according to a Flamingo spokesperson. The official FlamingoDAO Twitter handle confirmed the purchase with a meme:

“It’s simple: Cryptopunks is a groundbreaking project; it pre-dated the ERC 721 standard and crypto kitties,” said the spokesperson on the investment thesis. “Aliens are the rarest form of Cryptopunk and we believe that the acquired Alien will be prized by collectors over time and mature into an iconic digital art piece.”

Crypto art collector @gmoneyNFT, who himself dropped 140 ETH on a Punk earlier in the month, thinks that the alien is a fine investment despite the sky-high valuation.

“I think it was a great purchase. As the world moves more digital, the digital “flex” will be more and more important. It’s how humans operate in the physical world. It won’t change in the digital realm,” he said.

Long-derided as a secondary usecase for blockchain, sales like today’s demonstrate that NFTs are just beginning to have their day in the sun. NBA Topshot, a collectible highlight project from Dapper Labs, has proven to be tremendously popular, and Axie Infinity’s native critters have been selling for remarkable prices as of late as well.

Some critics have called into the question the sky-high prices rare NFTs have been fetching, however, arguing that simple digital scarcity is a shaky foundation on which to justify a $750,000 sale. @gmoneyNFT dismisses these criticisms, saying that there are plenty of real-world analogues that make just as much — or as little — sense.

“Why would someone pay millions of dollars for an original Andy Warhol screen print when you can buy the same one online for $20? Why would someone buy a pair of yeezy’s for $300 when you can buy a fake from the same factory, made with the same materials for much less? Humans like to feel special. The provenance has value.”

Source: https://cointelegraph.com/news/ultra-rare-alien-cryptopunk-nft-sells-for-605-eth-or-750-000

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Voyager Token (VGX) gains 926% as mergers and acquisitions bring new users

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Voyager Token (VGX), also known as BQX at some exchanges, is the native token of Voyager cryptocurrency exchange. 

The exchange separates itself from its competitors by claiming to be a commission-free crypto broker platform and its smart order router also allows clients to trade at multiple exchanges.

Since the turn of the year, VGX has gained 620% and on Jan. 15 the token reached a new all-time high at $1.48.

Voyager (BQX) token price at Binance. Source: TradingView

In addition to having a fiat gateway, the platform also offers market data, interactive charts,crypto research and up to 9% interest on stablecoins, along with staking returns for Bitcoin and other cryptocurrencies if users leave them in their exchange wallets.

Token activity sees exponential growth

On-chain data shows that activity started to pick up just a few weeks ago, with the number of daily active addresses surpassing 1,500 while transfers quickly reached $60 million.

VGX daily transfers and unique addresses. Source: etherscan.io

The Invest Voyager app allows traders to earn interest with no lock-ups and users staking a certain quantity of VGX token unlocks higher yields. Furthermore, the platform is owned by a listed company in Canada, Voyager Digital Ltd. (CSE:VYGR), a $600 million market capitalization fully-regulated entity.

The Canada TSX exchange listing deal also hides an interesting story. By acquiring a defunct shell company, Voyager was able to manage a reverse merger in Feb. 2019. More interestingly, not a single USD has been paid for the deal, which involved shares of the new company.

In Oct. 2019, Voyager announced a partnership with Celsius Network to manage a portion of its clients’ assets. Thus, the broker was able to diversify its staking offering.

Another notable milestone was Circle Invest acquisition completed in Feb. 2020, converting more than 40,000 accounts. Circle Invest was previously involved with the USD Coin (USD) stablecoin, besides Poloniex exchange, although both projects had already been divested. It is worth noting that the deal did not involve cash, being settled in Voyager Digital shares.

These developments explain the current uptick in user accounts and token activity and similar to Coinbase, Voyager’s fiat on-ramp and regulated status could make the exchange a top choice for future crypto investors located in the United States.

VGX price growth follows new acquisitions and European expansion

Currently, Voyager exchanges is available to every U.S. state except New York, as the company waits for its BitLicense approval. In October 2020, Voyager Digital acquired France-based LGO, a fully licensed European digital asset exchange focused on institutional investors.

LGO CEO Hugo Renaudin explained that the French company would discontinue its dedicated institutional exchange, while LGO would operate under the Voyager brand, although focusing mostly on retail.

The overall traded volume on Voyager’s platform reached $120 million in Nov. 2020, while its asset under management surpassed $485 million on Jan. 15. To date, more than 200,000 users have downloaded the iOS and Android applications and further expansion into Europe should increase the platform’s user base.

Voyager (VGX) Twitter user activity vs. price (USD). Source: TheTie

Data from TheTIE, an alternative social analytics platform, shows that the recent price spike was preceded by increased social network activity. Apart from a few users complaining of KYC-related withdrawal issues, the general sentiment around Voyager and VGX are positive.

Offering up to 9.5% annualized interest returns on stablecoins and being a fully-licensed broker offering altcoin trading and staking to U.S. citizens seem to be the primary drivers behind the platform’s momentum.

As for the economics behind the VGX token, the possibility of a debit card with cashback rewards, withdrawal fee discount, and interest booster on staking might be needed to drive its valuation further.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Source: https://cointelegraph.com/news/voyager-token-vgx-gains-926-as-mergers-and-acquisitions-bring-new-users

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