Corporate giants join bitcoin merry-go-round
The digital currency's swings are now being driven by companies as much as individuals, and its volatility is confirming the I-told-you-so mentality of sceptics.
Michael Cogley and Matthew Field
Jan 6, 2021 – 12.01am
To most people it remains an enigma, a highly volatile investment class that is still difficult to understand, even for hard-nosed investors 12 years after its creation.
A few early buyers of bitcoin have become multimillionaires, of course, but many others have been left scratching their heads over what all the fuss is about.
Bitcoin's soaring values have intrigued many currency market observers. Bloomberg
Either way, as bitcoin powered to a record of more than $US34,000 last weekend, enthusiasts claimed it offered evidence of cryptocurrencies going mainstream.
The rally, they said, was being driven increasingly by purchases made by corporates and investment managers, as well as daredevil private investors with a strong stomach.
That glee was short-lived, however. On Monday bitcoin plunged 17 per cent, wiping almost $US100 billion ($130 billion) from its total market value, prompting a flurry of fresh warnings about the risks and fears of an impending regulatory crackdown.
"Almost nobody will be able to cash out without massive losses," according to cryptocurrency sceptic David Gerard, author of Attack of the 50 Foot Blockchain, calling the run "a completely fake bitcoin bubble".
He adds: "This is a pool full of sharks. You can totally make money in crypto, but beware."
Admittedly, the latest losses have done little to dent bitcoin's broader rally over the past 12 months, with the coin rising around 280 per cent in 2020. Cryptocurrencies are digital coins that are traded and recorded using blockchain technology, a digital ledger of all past transactions.
Despite its origins at the fringes of computer science and finance, many believe bitcoin represents a credible alternative to gold to hedge against currencies, including the dollar.
Taking out any substantial quantity of coins can cause a flash crash. The bitcoin market is very thin and manipulated.
— James Dice, data analyst, Crypto Parrot
The latest run on bitcoin, the largest cryptocurrency with a market cap of around $US550 billion, has echoes of the infamous 2017 rally when the value of a coin jumped from $US900 to just under $US20,000 within a year.
After reaching $US19,783 – fed by thousands of speculators and interest from celebrities and influencers – the bubble burst and bitcoin collapsed to a low of $US3212 a year later. This time around, however, the profile of the average bitcoin investor has changed. Increasingly, it is companies more than individuals that are fuelling the rally.
One example is US software company Microstrategy. Run by entrepreneur Michael Saylor, Microstrategy says it has acquired as much as $US2.5 billion worth of bitcoin during the latest run on the currency, with many of its purchases around the $US20,000 mark.
Square, the payments company founded by Jack Dorsey, bought $US50 million of bitcoin late last year, while insurance company Mass Mutual invested $US100 million in the cryptocurrency in December. Ruffer, a UK fund, also acquired £550 million ($972 million) in bitcoin shortly before the new year.
"The corporate inflows have been very significant," says Jason Deane, of Quantum Economics.
"We are seeing a spiral of ever-increasing demand on an asset that has an ever dwindling supply – a sort of institutional fear of missing out."
Not everyone is convinced, however, that buying cryptocurrency assets is any safer or more sensible than it was a few years ago. Analysts at Citi issued a sell rating on Microstrategy shares after its bitcoin buying spree. There have also been high-profile corporate misses when it comes to bitcoin.
Masayoshi Son, the chief executive of Japan's SoftBank, previously made a $US130 million bitcoin investment when the digital coin was near its 2017 peak. When the coin crumbled, the investment was almost totally written off.
Cryptocurrencies remain largely unregulated, and a handful of anonymous trades can cause the market to sink or soar.
One sale of 150 bitcoin late on Saturday night, worth around $US4.5 million, caused a market wobble and wiped $US3000 off its value. Around the world, regulators are sharpening their pencils amid fears that the industry could pose a growing risk to financial stability.
The UK's Financial Conduct Authority warns "cryptoassets are considered very high-risk, speculative investments" and that buyers should be "prepared to lose all your money".
However, new rules are being introduced to combat money-laundering and illegal financing.
Firms that trade in the UK could be forced to stop as soon as January 10 if they fail to comply with the new rules, according to the FCA.
Meanwhile, from this week, companies trading cryptocurrency derivatives, such as options or futures, will be banned from selling to non-professional investors, saving them around £53 million a year, according to the regulator.
Regulators in the US also now have a keen eye on digital coin schemes. In December, the Securities and Exchange Commission declared it would sue Ripple, the company that created XRP, the world's third-largest cryptocurrency. The SEC lawsuit alleges Ripple had sold more than 14.6 billion XRP as unregistered securities over the past seven years, accruing $US1.38 billion in exchange.
In an interview with CNBC, chief executive Brad Garlinghouse said the SEC's claims were incorrect and that XRP should be viewed as a currency instead of a security.
Despite the proposed crackdowns, there remain considerable differences over how cryptocurrencies are treated across jurisdictions.
Nonetheless, digital coin trading has become increasingly popular as new consumers are introduced to the coins, especially as consumer-facing apps such as Revolut and PayPal offer the option to buy bitcoin.
Downloads have also soared at pure-play cryptocurrency apps. Coinbase was downloaded 875,000 times in November, up 61 per cent, according to figures from SensorTower.
Over the past 30 days, bitcoin's average trading volume stood at $US39.1 billion, more than the volumes at Apple, Microsoft, Amazon, Facebook and Alphabet combined, which recorded $US37.7 billion, according to figures from trading simulator Crypto Parrot.
"Bitcoin's trading volume has taken off," says James Dice, a data analyst at Crypto Parrot.
Mr Grider acknowledges there are downside risks. "Prices have had a significant run and profit taking may slow or reverse the rally."
Bitcoin to reach $US40,000: Fundstrat's new target
Bitcoin has surged past $US30,000 as more mainstream investors consider digital currencies.
How central banks boosted bitcoin
Though many believe there is money to be made at a retail level, some warn buyers to beware of being bitten.
"Taking out any substantial quantity of coins can cause a flash crash, as we saw on Saturday and the price crash on Monday from $US34,000 to $US27,600," says Gerard. "The bitcoin market is very thin and manipulated."
The Telegraph London
35 k looking for a short entry??37k ish??
Bitcoin investing makes sense as part of an investment portfolio in this current economic environment with a weak dollar, former U.S. Federal Reserve governor Kevin Warsh said during a Squawk CNBC interview.
Warsh said that part of the current large inflow of funds into bitcoin (BTC, +6.74%) has come from gold. "I guess if you are under 40 bitcoin is your new gold," the former Fed governor said.
“I think that bitcoin does make sense as part of a portfolio in this environment where you have the most fundamental shift in monetary policy since Paul Volcker ... I’m not surprised bitcoin is doing what it is doing,” said Warsh.
Intrinsic value based on belief.....its a hollow world we live in.
If it ends for what ever reason, ugly it will be.
38500 was 19k at xmas and 600 in 2016
he number of addresses holding over 1,000 bitcoin (worth of approximately $37.5 million at the current price) is now at 2,334, a new all-time high, after the number dropped at the end of December by 3.7% to 2,221. This is an indication “whales” (large bitcoin holders) have been bullishly accumulating more bitcoin and driving the price higher.
The 2,334 addresses each holding more than 1,000 bitcoin represents a gain of more than 30% compared with the end of 2017, the height of the previous crypto bull market, according to on-chain data site Glassnode. The metric has been on the rise since mid-October 2020, but suffered a temporary 4% drop between Dec. 18 and Dec. 26.
The number of addresses holding more than 1,000 bitcoin.
“The dip and renewed increase at the end of December shows relatively little interest in profit taking on the part of these large holders, even though almost all holdings are currently in profit,” according to CoinDesk Research’s quarterly review report published on Jan. 7.
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Data from BitInfoCharts also shows there are 6,633 addresses holding bitcoin worth more than $10,000,000 and, according to crypto exchange Kraken’s market recap and outlook report for December 2020, bitcoin addresses with more than 100 bitcoin accumulated an additional 47,500 bitcoin (currently worth $1.8 billion) throughout December because of the price rally.
The so-called “Bitcoin Rich List” reflects rising institutional involvement in the bitcoin market since the beginning of 2020. Another sign of that is the fast-growing volumes and open interest on the Chicago Mercantile Exchange (CME), an institution-focused derivatives exchange.
At the press time, bitcoin’s price was trading at $38,290, down only moments after breaking the $40,000 landmark for the first time ever. Only the day before, it crossed the $36,000 mark for the first time. The total value of the whole crypto market also surpassed the $1 trillion landmark on Wednesday.
Read More: Bitcoin Tops $40K for First Time, Has Doubled in Less Than a Month
“While the 2017 bitcoin rally was largely driven by retail frenzy, the 2020 rally was driven mainly by institutions,” according to CoinDesk Research’s report . “The accelerating rhythm of large institutional investors publicly talking about an investing in bitcoin as a portfolio asset has not only lent validation of bitcoin’s role in portfolios; it has also attracted the attention of other investors. This self-reinforcing loop is likely to continue into 2021, especially given the mounting uncertainty around currencies and inflation.”
A chart from Arcane Research summarizes the institution's money bitcoin rush in the last three months of 2020.(Arcane Research)
Bitcoin’s market capitalization currently stands at ninth on asset tracking website Assetdash’s asset list, only lower than that of electric vehicle maker Tesla. That company’s CEO, Elon Musk, replaced Amazon’s Jeff Bezos earlier Thursday as the richest person in the world after Tesla’s share price soared.
European users of eToro are claiming they were given the bum’s rush regarding leveraged crypto positions, which have been abruptly closed in the face of what the trading platform called “extreme market volatility.”
Retail investors in the U.K. and U.S. are barred from buying into crypto derivatives, including financial contracts that allow margin trading where investors need only put up a small amount of the contract’s notional payoff.
Customers of eToro in European countries that allow such trading in contracts for differences (CFDs), were told via email on the evening of Friday, Jan. 8: “If you do not increase the margin to 100%, then the position will be closed at 21:00 GMT today.”
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This came with an explainer, saying clients with available balance could keep the positions open by adding funds, while those that don’t have available balance had the option to close other positions in order to free up funds.
However, disgruntled traders have taken to Twitter stating that four hours later eToro closed all leveraged positions on cryptocurrencies, including those that users had attempted to keep open.
“eToro violated the contracts it had agreed with its clients,” said Slavko Vesenjak, an attorney in Slovenia who represents several eToro clients from across Europe. “A four-hour notice before closing all leveraged crypto positions made people wake up in their different time zones, seeing their positions closed.”
Amy Butler, global head of PR for eToro, said the vast majority of eToro’s customers were unaffected by the changes.
“We understand that there are several dozen frustrated clients and we are working hard to resolve their frustrations,” Butler said.
Also last week, eToro, which is said to be planning a $5 billion public listing, raised its required deposit level from $200 to $1,000 in order to better manage overwhelming demand from hopeful crypto traders attracted by rocketing prices.
See also: Deluge of Would-Be Bitcoin Traders Prompts eToro to Put Out the Unwelcome Mat
The temporary decision to increase deposit minimums is to manage the surge in demand, said Butler. As far as the removal of leveraged crypto in Europe, this decision was taken “from an internal risk management perspective,” said Butler, adding that it was not related to any potential IPO plans.
“The eToro clients will get their funds. If eToro does not refund them, the Cyprus state will,” said Jurij Toplak, a law professor at Alma Mater Europaea in Slovenia and an adjunct at New York’s Fordham Law.
Toplak said aggrieved eToro customers he’s representing will be approaching the Cyprus Securities and Exchange Commission in a bid to have eToro’s license revoked.
“I guess cryptocurrencies were just going up and eToro discovered they were not able to pay out that much amount of money to the customers,” Toplak said in an interview. “And then they just canceled the contracts.”
The price could explode’: bitcoin stirs institutional interest
Tom RichardsonMarkets reporter and commentator
Jan 29, 2021 – 12.01am
Bitcoin's surging valuation has carried Australian capital markets veteran Richard Galvin's Digital Asset Capital Management to a 2020 return of 428 per cent, making the dealmaker turned fund manager the face of a movement that's staking a claim as a future reserve currency.
Soaring interest from professional investors means bitcoin could turn a breakthrough 2020 into a sustainable future and extreme monetary policy is helping legitimise the once renegade cause.
Vimal Gor, who oversees $22 billion in assets, says investors have an opportunity to buy bitcoin before a wall of institutional money hits. Louie Douvis
Much of the institutional support for bitcoin is gravitating around the thesis that it should be owned and valued like gold as a digital hedge against inflation and uncertainty as the financial alchemy of central banks’ money printing threatens to unravel in catastrophe.
The momentum behind bitcoin as a store of value has led to it nearly tripling in value since the start of 2020. It was trading about $US31,050 ($40,844) on Thursday.
“I’ve been doing this for 27 years and I’ve never seen an asset class have this much asymmetry to it ever,” said Vimal Gor, head of bonds, income and defensive strategies at Pendal Group. “The risk-reward is immensely attractive, I’m not saying it will, but it could go to $100,000, $200,000, or $1 million.”
Bitcoin’s finite supply of 21 million coins and limited supply growth is an article of faith for its institutional evangelists, who rely on favourable supply and demand dynamics to support the price as more investors hoard it as a store of value.
Over the same month that legendary $US9.9 billion hedge fund manager Paul Tudor Jones trumpeted his bitcoin investment, the reward for mining bitcoin was halved under the terms of the programmatic open-source internet code that underpins mining and transactions.
“There’s a bitcoin block around every 10 minutes and the miner who validates that block gets paid in new bitcoin minted,” said Mr Galvin. “The four years before last May, every block was paying the winner 12.5 bitcoin.
“In May, that number halved, so now each miner who mines a block gets paid 6.25 bitcoin. It halves the rate of supply growth and those focused on the market have thought about how bitcoin responded to the previous two halvings because it started at 50.”
The catalysts in 2020
The slowing supply and rising demand because of the increased hoarding of bitcoin as a store of value are reflected by how the blockchain had its highest level of bitcoin owned for more than a year as of December 2020, according to data from institutional investor Grayscale. It also said professional investors could use a stock-to-flow methodology to value bitcoin in dividing existing supply by annual production growth.
The digital gold thesis for bitcoin was popularised by Mr Tudor Jones last May, and has since been widely adopted by institutional investors looking to justify it at investment committee meetings.
Mr Tudor Jones said investors seeking to profit from central bank money creation should let asset price action guide their decisions over which assets would perform best given the uncertain outcomes around money printing, which already totalled 6.6 per cent of global gross domestic product at $US3.9 trillion by last May.
The fund manager cited bitcoin’s price action as evidence that it may perform best in response to money printing, and went on to compare it as a store of value to gold, cash, and other financial assets (stocks and bonds outstanding) in terms of relative purchasing power, trust, liquidity and portability.
As a store of value and hedge against inflation, bitcoin scored far better in terms of portability and liquidity, with moderate relative purchasing power, and low levels of trust versus asset peers, according to Mr Tudor Jones.
Hedge fund manager Paul Tudor Jones. Bloomberg
In conclusion, he said bitcoin was extremely undervalued by market cap outstanding versus every other asset class as a hedge against inflation, at the same time as price action guided investors into buying.
“Tudor Jones’ case for buying bitcoin was widely circulated and very solid,” said Mr Galvin. “That’s the first time we saw an investor of his profile actively promote bitcoin.
“He made it easier for other institutions, when you’ve got someone of his profile who’s made the decision and got through the regulatory and compliance regime, it’s a benchmark people can use to justify making an investment themselves.”
‘The price could explode’
For Mr Gor, who is responsible for the oversight of $22 billion across multiple asset classes, bitcoin’s adoption among powerful institutional investors is imminent and will accelerate. This means today’s price is an opportunity to get ahead of the curve.
“I think bitcoin is building a very, very strong case to be an essential part of portfolios going forward and as that case builds you’ll see more and more allocations into what is a finite universe and the price could explode,” he said.
“ETFs are going to come, superfunds and pension funds are going to come, endowments in the US are going to come, you know there’s a massive wall of money to come, it’s just a question of when.”
According to an institutional investor survey conducted by JPMorgan between December 7 and December 31, 2020, across 174 asset managers, owners, and hedge funds responsible for more than $US15 trillion in assets, 29 per cent said they were positive on digital assets in that they may replace fiat money in the future; 44 per cent were neutral as they were unsure if digital assets were here to stay; 14 per cent were negative and viewed them as highly speculative; and 11 per cent offered no view.
Richard Galvin says most institutions are gravitating to the digital gold thesis for bitcoin as a store of value. Janie Barrett
In total, 30 per cent planned to invest in digital assets in the year ahead, and 27 per cent believed the most compelling reason to invest was increased market depth as more peers joined in the rush. This is ahead of the 26 per cent who said fears regarding fiat currency debasement and quantitative easing were the most compelling reason to invest.
“When the portfolio flows start up in earnest in a diversified portfolio, you arguably have to own it, because the problem is when you look at the asset management industry, it’s largely built on a peer relative basis,” said Mr Gor. “If everyone else owns it and you don’t and it goes up 10 times, well you’re not looking good on your peer relatives. So I’m not saying you buy it because everyone does, but you kind of have to.”
According to Mr Galvin, a Goldman Sachs and JP Morgan capital markets veteran, the back-office infrastructure for institutional bitcoin investment is also developing.
“At the large institutional level, the ability to store [custody] an asset and have insurance over it is pretty critical and to be honest the offering hardly existed until 18 months or thereabouts ago,” he said.
“So with people like Fidelity and Gemini Trust offering that service, you’ve seen a proliferation of options I guess for significant size investors to store their bitcoin way more securely in an ecosystem they’re more used to.”
In his former professional life, Mr Galvin was one of the JPMorgan bankers granted immunity as part of the cartel case brought by the ACCC against ANZ, Deutsche and Citi.
Between July and October 2020, three payments giants – Visa, Square and PayPal – announced that they intended to develop or offer bitcoin transaction services.
American investor and hedge fund manager Stanley Druckenmiller joined prior hedge fund convertees Mr Tudor Jones and Ark Invest in declaring bitcoin investments in 2020.
But the real transmutation came from the world’s biggest asset manager, BlackRock. This month, it revealed that it had applied to the US Securities and Exchange Commission to authorise trading in bitcoin products for two of its funds – just three years after chief executive Larry Fink said bitcoin “shows you how much demand for money laundering there is in the world”.
Sceptics and serious risks remain for bitcoin around money laundering, criminality and the anonymity of its white paper author and founder Satoshi Nakamoto.
The gyrating price also churns stomachs at institutional investment committee meetings where conservative and career instincts under the weight of fiduciary responsibility still dominate.
Whether the coronavirus and the emergency economic response will tip bitcoin into the mainstream is yet to be seen, but Mr Gor says that those who don’t like the risk around a leap of faith should not buy it.
Digital assets fundie Richard Galvin says Bitcoin can now claim to be digital gold.
Bitcoin ready to bust retail taboo
“Bitcoin’s value is its social construct,” he said. “It has value because people believe it has value; it’s very rare for an asset to gain that standing.
“If you want an asset which is a transactional asset, well there’ll be a thousand coins you can pick in the future and they’ll all be referenced off something else. But bitcoin is there as a store of value, not a transactional asset, so people will pull it off the exchange to hold as a store of value not to be traded.”
Tom Richardson reports and comments on investment markets. Connect with Tom on Twitter. Email Tom at firstname.lastname@example.org
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The U.S. Securities and Exchange Commission (SEC) is ignoring that the XRP cryptocurrency has utility, fintech startup Ripple alleged in its response to a securities complaint filed by the regulatory agency.
In a Friday filing, Ripple Labs pushed back against the SEC’s allegations, which claim the San Francisco-based firm violated U.S. securities laws for over seven years by selling $1.3 billion worth of XRP (+37.87%) tokens.
“The functionality and liquidity of XRP are wholly incompatible with securities regulation. To require XRP’s registration as a security is to impair its main utility,” the response said.
In a 93-page filing, Ripple responded to each of the SEC’s paragraphs. In its affirmative defenses, Ripple stated that XRP is not a security or investment contract, and the firm’s sales or distributions of XRP are likewise not investment contracts.
The SEC sued Ripple in December 2020, alleging the company, CEO Brad Garlinghouse and Chairman Chris Larsen sold over $1 billion in XRP, promoted the token and paid third parties to support the cryptocurrency.
Parts of Ripple’s response seem to focus on what XRP actually does, in the company’s view, saying the SEC complaint ignored that XRP is open source and claiming that its price has correlated with the price of bitcoin (BTC, -1.17%) and ether (ETH, -0.25%).
“The Complaint mischaracterizes advice that Ripple received in 2012, from which a reasonable reader actually would have concluded that Ripple Credits (a past name for XRP) were not a security,” the filing adds a few paragraphs down.
Ripple is also claiming that the SEC did not provide fair notice that its sales of XRP might be violating the law.
It pointed to its settlement with the U.S. Department of Justice and the Financial Crimes Enforcement Network in 2015, which registered XRP as a convertible virtual currency and allowed for sales and secondary market transactions.
“Upon information and belief, Plaintiff knew of that 2015 settlement and yet, for years after, Plaintiff provided Defendants with no clear notice that, in Plaintiff’s view, Defendants’ prospective XRP sales as permitted by the agreement would nevertheless constitute a violation of another federal law,” the response said.
In addition to filing its response, Ripple filed a Freedom of Information Act request for documents from the SEC on how it determined that bitcoin and ether, the top two cryptocurrencies by market capitalization, are not securities.
“To date, they have offered no guidance for that determination, hindering responsible players like Ripple from being able to innovate in the U.S. to bring faster, cheaper and more transparent global payments to consumers who need them the most. As we have said for many years, we’re simply asking for the rules to be clearly stated and applied consistently,” a spokesperson said in an emailed statement.
XRP is up nearly 10% over the past 24 hours, joining a broader spike across the crypto market that saw dogecoin (DOGE, -45.93%) jump over 700% on Thursday.
Glad i held onto that debacle, looks like one of the biggest smash and grabs in history.
moved onto ether and bitcoin sec into ripple to hard..
Digital gold: What is Bitcoin and why is it going mainstream?
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By Dominic Powell
February 2, 2021 — 10.00pm
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If you were to jump in a time machine and travel back 10 years, you would be hard pressed to find a better investment than the much-questioned and often misunderstood cryptocurrency Bitcoin.
The past 12 months has brought further attention to the somewhat abstract asset, as stimulus-flush investors pushed up the price of one Bitcoin almost 200 per cent to more than $51,000 and a raft of major US asset managers began to publicise their significant crypto holdings.
Bitcoin is becoming more popular as a legitimate investment and store of value.
Bitcoin is becoming more popular as a legitimate investment and store of value.CREDIT:BITCOIN.COM
With Australians young and old increasingly looking to cryptocurrencies as a serious investment option, here is a brief summary of the what you need to know before taking the plunge.
What is Bitcoin?
Bitcoin is a virtual currency, most commonly known as a cryptocurrency. As such, despite the name, Bitcoins are not physical, existing instead on a huge publicly accessible digital ledger known as the blockchain. Every transaction made with Bitcoin is viewable and track-able on this database.
Hedge fund billionaire Ray Dalio said the US now has the worst wealth gap since the 1930s, adding that central banks will need to continue to pump money into the economy.
‘One hell of an invention’: Billionaire investor Ray Dalio eyes off Bitcoin
Unlike other currencies, Bitcoin is not issued by a central bank or government. Instead, the currency is “mined” – a bit like how someone might mine gold.
However, instead of repelling down a mineshaft, Bitcoin miners are instead running banks of massively powerful computers, tasked with solving increasingly complex maths equations. If a miner is the first to solve the equation, they are granted 6.25 Bitcoin ($270,000).
The process of mining the coins also processes and verifies transactions on the Bitcoin network.
Bitcoin is widely regarded as the first major cryptocurrency, invented in 2009 by an anonymous person under the pseudonym of “Satoshi Nakamoto”. At the time, one Bitcoin could be purchased for as little as $0.0008.
Why is it worth so much?
Here lies the million-dollar question. Unlike other assets, such as property, resources or traditional equities, Bitcoin does not have a product or commodity tied to its value. It does not generate cashflow and is primarily used as a means of storing and transferring value.
With this in mind, it is tough for finance traditionalists to wrap their heads around why someone might pay $52,000 for a seemingly worthless virtual coin. However, the idea becomes far more acceptable when comparing Bitcoin to another classic investment – physical gold.
Caroline Bowler, chief executive of major Australian cryptocurrency exchange BTCMarkets, says the two assets are remarkably similar, noting that gold was still valuable despite other metals being shinier and more functional.
“Gold has become accepted as a form of currency and a form of value that is easily transferable, and Bitcoin takes that to the next level because the transfers are quicker, it’s easier to fractionalise, there is less hassle and it is far more secure,” she says.
Bitcoin is also limited by its programming so there can only be 21 million coins in existence. This is attractive from an investment standpoint, Ms Bowler says.
“You can’t just go and devalue the currency by printing more, and that’s one of the many facets of Bitcoin that investors find reassuring,” she said.
Is it the only cryptocurrency?
No. There are hundreds of other cryptocurrency alternatives to Bitcoin, each with their own use cases and value proposition, much like how there are multiple shares on a stock exchange.
Some of the most notable are Ethereum (a platform which allows users to execute automatic contracts), Ripple (a payment service popular amongst institutions and banks) and Litecoin.
However, Bitcoin is comfortably the largest and most well-known cryptocurrency, with a market capitalisation of more than $600 billion.
How do you buy it?
Buying crypto is as easy as buying shares. Investors can use a range of online exchanges to trade Bitcoin, along with most other major cryptocurrencies.
You don’t have to splash out $52,000 for an entire Bitcoin. You can buy just a fragment of one coin.
Trading apps such as Coinbase are popular for buying smaller amounts.
All platforms require users to complete a “know your customer” process for anti-money laundering purposes, and purchases can usually be financed by bank transfer.
If an exchange collapses and loses your coins, the government won’t step in to reimburse your lost funds.
I’ve got some, so where do I store it?
After buying Bitcoin or another cryptocurrency, the coins are stored in a “wallet” on the platform. These “wallets” can store any number of currencies and are a key part of trading crypto, much like a trading account with a broker. Only you can access the coins inside the wallet.
However, while storing small amounts of cryptocurrencies on exchanges is generally safe, if your purchases begin to stretch into the thousands, a personal wallet is highly advisable.
Ms Bowler advises taking personal custody of your Bitcoin, as regulation in the crypto space is fairly lax. If an exchange collapses and loses your coins, the government won’t step in to reimburse your lost funds.
Powerful computers are required to mine Bitcoin.
Powerful computers are required to mine Bitcoin.CREDIT:QILAI SHEN
Companies such as Ledger and Trezor offer personal cryptocurrency wallets for as little as $100. The devices look similar to USB sticks and connect via software on your computer which allows you to transfer your precious crypto across.
When setting up a personal wallet, you are presented with two crucial pieces of information. Firstly, each wallet has a public key, which is a string of numbers and letters which allows you to receive coins into your wallet, much like a BSB number and bank account.
The hidden cost of mining Bitcoins
Secondly – and far more importantly – each wallet includes a private key, which is a secret number which grants full access to your wallet. These keys often come in the form of a 12- or 24-word recovery phrase, comprising of a string of random words.
This phrase is the master key to your Bitcoin and should be protected and stored somewhere secure.
If you lose your wallet, your private key will still grant you access to your coins, but if you lose your private key and cannot gain access to your wallet, your coins will be lost forever.
It is worth noting that your Bitcoins are not actually stored in your wallet. The keys mentioned above only give you the right to access your Bitcoin, which is stored on the blockchain. Wallets only serve to store and protect your private key.
How do you sell? How are profits taxed?
Selling your Bitcoin is as simple as buying it. Just transfer your coins back to an exchange and sell it as if you would a share.
However, in Australia, cryptocurrency is treated as property and, as such, an asset for Capital Gains Tax purposes, so you will need to pay tax on any profits you make when trading crypto.
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Bitcoin soars 15% after Tesla says will accept it as payment
Bitcoin soared to a new all-time high after Tesla said it invested $1.5bn in it and will start accepting the world’s biggest cryptocurrency as a form of payment.
That Tesla, one of the world’s most influential companies, and billionaire Elon Musk have thrown their weight behind Bitcoin is a massive sign of support for the cryptocurrency [File: BRENDAN SMIALOWSKI/AFP]
Lynn Thomasson and Eric Lam
8 Feb 2021
Bitcoin surged to an all-time high after Tesla Inc. said it’s invested $1.5 billion, becoming the biggest company yet to back the controversial cryptocurrency.
Bitcoin jumped as much as 15% after Tesla made the disclosure in a regulatory filing, with prices exceeding $44,000 for the first time. Tesla also said it would begin accepting the digital token as a form of payment for its electric cars.
Bitcoin surges above $38,000 after Musk adds to Twitter profileAs Tesla joins S&P 500, analysts mull what it’s really worthTesla profit fails to electrify investors, deliveries miss targetTesla to recall nearly 135,000 vehicles over touchscreen failures
That Tesla, one of the world’s most influential companies, and billionaire Elon Musk have thrown their weight behind Bitcoin is a massive sign of support for the cryptocurrency, which has been criticized by policymakers for facilitating money laundering and fraud.
“The world’s richest man allocating $1.5 billion of his company’s treasury to Bitcoin speaks volumes about the magnitude at which crypto gains institutional adoption,” said Antoni Trenchev, managing partner and co-founder of Nexo in London. “Tesla has now paved the way.”
Trenchev said he expects that at least 10% of S&P 500 companies will be invested in Bitcoin by the end of 2022.
Other companies have made similar investments in Bitcoin. MicroStrategy Inc. has spent some $1.1 billion on the token. In October, Square Inc., headed by longtime crypto advocate Jack Dorsey, announced that it converted about $50 million of its total assets as of the second quarter of 2020 into the token. Proselytizers like Bill Miller of Miller Value Partners have said this was just the start of what was sure to be a trend across Main Street.
Bitcoin’s journey to a record has been marked with big swings that continue to stoke uncertainty about its outlook. Some see speculators at work and an inevitable bubble bursting. Others cite high-profile backers and interest from long-term investors as evidence of a more durable rally.
Predictions for Bitcoin’s possible long-term price range from $400,000 and more to zero. The token is designed to have a fixed supply of 21 million coins, underpinned by a digital ledger distributed across computer networks.
Dwindling cash use is pushing central banks to race toward digital currencies
PUBLISHED FRI, FEB 12 20211:00 AM EST
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• Deputy Governor of the Bank of Italy, Piero Cipollone, told CNBC that the increased focus on CBDCs stems from the general move away from cash.
• Commentators have been quick to assume that the advent of CBDCs could have implications on monetary policy.
Why central banks want to launch digital currencies
LONDON — Central banks are accelerating their work on digital currencies and investors are taking note.
Earlier this year, the Bank of International Settlements published its latest survey showing that 86% of the 65 central banks it spoke to are doing some form of work on central bank digital currencies (CBDCs), be it research, proofs of concept or pilot development.
Almost 15% are moving toward actual research for pilots.
What has spurred this activity?
Deputy Governor of the Bank of Italy, Piero Cipollone, told CNBC that the increased focus on CBDCs stems from the general move away from cash, adding that “this could undermine one of the basic functions of the central bank.”
He added that “in an environment where cash is used less and less by both the customer and the merchant because the whole ecosystem is shifting towards (being) digitalized ... you want to replace the functionality of cash with something that is digital but is as conceptually as close as possible to cash.”
Benoit Coeure, former member of the European Central Bank and now head of the BIS Innovation Hub, echoes this view, telling CNBC that we should think of CBDC as a form of bank notes, adding that it was a “means of bringing money issued by central banks to new modern infrastructure.”
The dwindling usage of cash may not be the only reason, however.
Grant Wilson, the head of Asia-Pacific at strategy firm Exante Data, told CNBC that much of the research into CBDCs got fast-tracked when Facebook started to get involved in a stable coin project called Libra (now known as Diem) ”’which could have potential systemic implications for the financial system.”
He explained that “at that point central bankers started to realise they were under some threat. So the question became, if we can’t beat them then join them. It was very clearly after Libra was promulgated.”
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What are the benefits?
Central bank digital currencies would benefit from much of the same technology of private cryptocurrencies, allowing for instant payments, faster settlements and lower transaction costs, especially for cross border payments.
They could also be a means of ensuring financial inclusion, tapping into parts of the population that are unbanked. But, in contrast to private cryptocurrencies, CBDCs would be centralized and every unit of digital currency would have the same value as one unit of cash.
There is no consensus for how CBDCs will be issued. The two main forms being explored are wholesale (CBDC issued just for financial institutions and for financial architecture) or retail, which would be digital currencies available for the general public.
Much as the way central bank cash is printed and distributed through the commercial banking system, one of the popular methods of issuing CBDCs is via a “two tier” system whereby the central bank would issue a token that would be passed on to commercial banks for allocation. Every transaction would be recorded on a digital ledger held by the central bank, but the money would be stored in a commercial bank in a digital wallet unique to each user.
One of the fears is that the rise of CBDCs could inadvertently cause a bank run should users decide to leave banking deposits (which are a liability of the commercial bank) to the relative safety of a central bank issued currency.
Cipollone says that one way to avoid that happening is to make CBDCs interest bearing above a certain threshold. In theory, this also means that central banks could pass on negative interest rates more directly to the consumer, instead of having to go through commercial banks.
Commentators have been quick to assume that the advent of CBDCs could have implications on monetary policy, however Coeure cautions that “so far central banks have addressed it as part of payment discussion.”
“The monetary discussion will come at some point. We are still at an early stage of technical requirements/resilience in order for it to be operational,” he told CNBC.
China is the most advanced in CBDC development, having piloted a form of the e-yuan in 2020. The motivations there however might be different.
Wilson remarks that “the e-yuan will still be integrated with the commercial banks but it is a direct challenge to technologies (like WeChat Pay and Alipay), that they are trying to ultimately displace” also noting that there is a geopolitical dimension to their motivation.
“Perhaps this is a way for people to think of the yuan in a different way and chip away at hegemony of the dollar,” he said.
Coeure said that coordination among central banks is essential. “CBDCs are a national project, a journey with legal dimensions, and will ultimately be a national decision. But we have an international monetary system, and we don’t want CBDCs to hamper the adjustment in the system via free exchange rates or capital flows,” he said, concluding that “the IMF and BIS are working on it.”