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Jumat, 29 Januari 2016

Bitcoin right on schedule for 2016 Halving Pump. Oh... and #altsareback

Bitcoin 2016 Outlook

Since my last post, $BTC surged to $500, then had a dramatic dump to $300 before climbing back up to $400. In terms of the bigger picture, Bitcoin has broken the 18-month downtrend in October 2015 by surging above multi-month resistance at $300.

I hope you're familiar with the crash cycle market structure by now, which I introduced in my 2014 post about market cycle, structure, and manipulation. Based on my interpretation of the crash cycle in Bitcoin, it would seem like we are nearing the end of the cycle, or beginning the new pump cycle. According to Jack, the price action we've seen in BTC over the past year or so places us somewhere at the 'disbelief' stage.

Crash Cycle Comparison

If you've been following my blog and twitter account, you'll understand very well that market crash cycles can be found in every corner of the market. With the only similarity between all markets being the human beings behind the money (price), it would be sensible to think that the psychology & emotions behind these humans play a pivotal role in understanding markets and trading.

If we can break this market structure down into 4 easy-to-understand parts, we would come up with something like this:

  1. Accumulation 
  2. Launchpad 
  3. Pump 
  4. Dump 

Relating this to Bitcoin , it seems like the year long accumulation period is over, as $BTCUSD broke above major resistance $300 in October 2015. Based on this, I believe we have now moved into the launchpad phase with our current price action raging between $294 and $502.

Tradingview: Bitcoin Market Crash Cycle Comparison - Launchpad

If Bitcoin continues to be the leading blockchain network, it should become widely regarded and generally accepted as the base currency of other cryptocurrencies. My personal view is that Bitcoin and the blockchain are not going anywhere anytime soon.

In the shorter term, the bitcoin halving happening in Q3 2016 will set the stage for a pump, and for that to happen, MMs must maintain the uptrend structure formed since October 2015. Any breaks below structure will either delay the pump, or lead to another downtrend. Upside targets are $710, $995, and $1163. Downside is $341, $280, $220, $160.

Click here to get a closer look at the crash cycle comparison.

After the dump from $500, the shockwave and general sideways in the 3-500 range gave time for traders to consolidate their crypto holdings and we have since seen funds flow into altcoins.

Alternative Cryptocurrencies - Are altcoins back?
Notice that the altcoin charts in accumulation all look like Bitcoin from 2015 Jan to 2015 Oct. Now that's what I call a bullish chart! Coincidentally, notice that Bitcoin's pump above $300 in Oct'15 was the same time when many altcoins had their final dump and formed a low, before slowly moving up to break out in December/January and later.


Here's a look at some charts of the alternative cryptocurrencies that are the leading the charge in this pump. I would consider these to be Tier-1 altcoins. Presenting: Dash, Factom, and king Ethereum.


And you should have noticed about 3 days ago that MMs decided to pump just about every coin out there:
So here's a few other coins I thought are a good pick for the upcoming altcoin pump. I would consider these to be Tier-2 altcoins, based on technical factors such as trading volume and other fundamental factors like technology, innovation, developer, and community. These include: Monero (XMR), MaidSafe (MAID), VanillaCoin (VNL), and our old buddy DogeCoin (DOGE).


Other Tier-3 alternatives would include, DigiByte (DGB), BlackCoin (BLK), VeriCoin (VRC), as well as other "Crypto 2.0" alternatives such as New Economy Movement (XEM), NXT, Lumens (STR), Ripple (XRP), Counterparty (XCP), Bitshares (BTS).

With this, it seems like we're still on schedule for the pump leading up to the 2016 Halving in Q3, and it is likely we will see profits from the BTC pump flow into the altcoins. Did you notice that Altcoin volume has surged since October 2015, in the same way that Bitcoin volume has dramatically increased since August 2015? I'm picturing MMs and bulls beefing up their stacks, getting ready to slaughter the bears once and for all.

The altcoin market is very much different than how it was two years ago. There are now so many choices in the market, with all kinds of different innovations, it's hard to keep track anymore. There's hardly 10 coins that look like they can last another 5 years, while the rest are mostly junk clones with various marketing gimmicks, and I believe many of them will die out; those with little innovation will eventually be weeded out by the stronger coins such as Ethereum, and the market should normalize towards having only 1% of the altcoins dominating 99% of the market. And who knows what's to come in the coming years?

In line with the BTC halving in 2016 Q3, ZCash is launching and they're currently the strongest contender for leading the pump for the altcoin markets then, with many big names backing it. So stay tuned and keep a close eye on this one.
My advice is to be versatile and stick to coins with good liquidity, and don't get yourself emotionally attached with any particular coins. Remember that at the end of the day, your goal is to grow your number of Bitcoins, or to increase the FIAT value of your portfolio. Markets, they go up, they go down, so always take profits and forget about the "what ifs". Good luck and may the force be with us.

P.S. Don't forget to sell at the end of the pump. Dump it. All of it.

Money Markets

I know the cryptocurrency markets have been going crazy the last couple of weeks/months, but let's not lose track of the money markets that are driving our current economic system. I'll just briefly touch on three major markets: Crude Oil, Gold, and the S&P 500 Index.

Oil has tumbled to a 12-year low of $28 a barrel on the 20th January 2016, amid tensions in the Middle East, and news of excessive supply. Someone said that this is good for the people because we'll have cheaper gas prices, but heck although oil prices have dropped almost 4-fold, my petrol prices here in Singapore are the still the same!


Gold rebounded strongly off $1050/oz, barely keeping structure above the critical psychological $1000 level.


Since I last mentioned that $SPX was ready for a short back in early November 2015, it topped out at $2109.79 before sliding back down and breaking below the August 25th 2015 low of $1867.61 to form a new low at $1859.33 on January 20th 2016. Doesn't look too good on the $SPX, and this could spell the beginning of yet another major economic crisis.

To end off, let me just leave you with this classic scenario:

Related Post: Uptrend Established Bullish Horizon for #Bitcoin: 2016 The "Pre-Halving" Pump (and Dump). $BTCUSD 

Related Post: $400 Bitcoin - Strong Bull Rally Final Target 600s. May the #crystalball be with us. 

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Senin, 25 Januari 2016

Cryptocurrencies as protection from the government

Recently, International Monetary Fund released a report on Virtual Currencies. Overall, it's not a bad report - it discusses whether virtual currencies such as Bitcoin should be considered money, what the regulatory approach should be and what are some of the challenges related to dealing with cryptocurrencies. It has its share of misconceptions (for example: "VC schemes are difficult to monitor. Their opaque nature makes it difficult to gather information, including statistical data, or to monitor their operation." - yeah, no, that's the current banking system you are describing there), and overall it paints a cautionary picture of virtual currencies. However, I think the report is missing one important feature of cryptocurrencies that a lot of people might find interesting - they are a protection from the government. Let me explain what I mean...

Government power over money


When you stop and think about it, a lot of governments have nearly orwellian power over money. The monetary policy is not something that is often discussed by a lot of people, and often we are not equipped with the vocabulary to talk about it (like trying to form complex thoughts in newspeak). They get to decide whether savers or borrowers have it easier by controlling the rate of inflation. They get to determine how much your labour is worth by engaging in currency wars and a "beggar thy neighbour" race to devalue its currency the most. Then we have the incompetent governments that let their currency devalue in hyperinflation like Venezuela (reaching about 100+% in 2015). The fiscal and monetary policies are thrust upon us.

In short, the governments can effect our savings, future income, as well as many other factors just by controlling how money is created and spent.

Lack of trust in the government


For those and other reasons, some people resort to moving away from the government-issued currencies and adopt new forms of payments. Whether they take the form of local currencies, gold or something else, they can be an expression of lack of trust in the government.

However, there are limitations to a lot of those currencies in the modern world. Local currencies are often low-tech and they are not usable globally. Physical currencies can be seized by force (like in 1933 in USA, by the Executive Order 6102).

At the moment it would appear that only native cryptocurrencies such as Bitcoin can be a viable protection from the government in the modern world.

Protection from the government


While some people would jump to thinking that "protection from the government" necessarily means breaking the rule of law and engaging in illegal activities, that's not what I'm talking about here. What I'm discussing is withdrawing at least partially from the fiat-fuelled economy and moving into the cryptocurrency economy. One can and should still pay taxes, obey the law and so on, but that doesn't mean one has to keep one's wealth in the potential house of cards that various banks and government currencies are (look no further than the 2013 Cyprus crisis and the related bank bail-ins).

I am a saver, not a borrower. I wish for my money to at least keep its value, or be worth more. I want my wage to be stable no matter which government I work under. I don't want the currency I use to be created as debt by the banks, or even let the banks take any part in the money creation process. As such, I know of no fiat currency in the world today that satisfies my preferences, hence why I choose Bitcoin over fiat.

Conclusions


Native cryptocurrencies like Bitcoin offer a way for people to de-leverage the power governments hold over the currency and shape a new economy for themselves.

The IMF and similar organizations need to understand that asking "should the government regulate cryptocurrencies?" might be less important than "if cryptos will succeed, why would anyone continue to use fiat?". Probably for the first time ever, fiat currencies have a worthy competitor in the global Internet economy. They can either focus on becoming the best currencies they can be to compete (akin to Steam trumping free torrents), or go the way of the Kodak.

Related topics:

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Kamis, 14 Mei 2015

Non-fungible currencies - gold bars and art

Fungibility is one of the desired properties of money. You want every unit of money to be worth exactly its face value and be interchangeable for any other unit of money you have. Even if one coin is shiny and new, while another coin is old and worn down, you don't want people to be valuing them at different rates - currency as a physical representation of money should not have value in itself, it should represent value.

However, what do you do if you want to use something non-fungible as a basis of your currency? Whether it's weak non-fungibility like serialized gold bars (you want to identify each bar uniquely, but the properties of the actual bars are pretty similar), or very strong non-fungibility like unique art? In other words, is there some sane way to transact in a Mona Lisa "coin"? Lets explore that today!

The current state - cash, Bitcoin and 2.0s


In our current world, pretty much every currency is fungible. One dollar bill is pretty much the same as another dollar bill. However, if one really wanted to, you could try tracking each individual bill with its serial number. It might not be very practical in the real world, but if we're talking about "digital cash", some people had a similar idea.

We discussed the issues relating to "Bitcoin redlists" awhile back. To sum everything up quickly, Bitcoin is like cash - you should accept it at face value and treat it as a fungible currency, but every Bitcoin transaction inherits the history of its predecessors. In this sense, it's similar to tracking banknote serial numbers - if someone claims a certain note was stolen and it turns out in your pocket at some time in the future, there may be some legal precedents to be set there as to whether you should forfeit those bitcoins or not. So while bitcoins are fairly fungible, the radical transparency of the system may make it less fungible, for better or for worse.

When we go ahead and consider the Crypto 2.0s out there, we generally see two approaches. One is "the blockchain approach" - to act like Bitcoin with each transaction spending the outputs of a previous transaction (like Colored Coins). The second one is "the ledger approach" - to track individual balances and changes in those balances, rather than individual inputs and outputs of a transaction (like Ripple). The latter approach appears to be more fungible - you're not spending any specific outputs, but at the same time any tainted transaction could be a proverbial polish "łyżka dziegciu w beczce miodu" (or english equivalent - "a fly in the ointment") - one bad transaction could make the whole account balance tainted in some way.

Weak non-fungibility - digital gold bars


When we're talking about gold-backed currencies, we're generally talking about fungible currencies like the ones from Ripple Singapore or BitGold. This is perhaps the easiest approach - gold is stored in a number of vaults and is audited on regular basis. Those audits work as a proof of reserves that are used to back the currency. There might be some difference between gold held at various locations, and one could account for that by issuing different currencies for different locations with some fixed or free market between them. These can be aggregated into national or global currencies as needed:

Hierarchical gold currency

This local / national / global currency IOUs can be easily mapped in the existing Crypto 2.0 systems such as Ripple. The individual gold bars in each reserve form a currency basket that is used to back the IOUs. National and Global IOUs are backed by the individual IOUs. 

Now, what happens when we want to be able to identify each gold bar individually and transact in a currency based on that, rather than a basket of gold bars? The best approach available with the current 2.0 systems is to create an individual currency for each individual bar and set some redemption rules (for example - anyone holding 60% of the IOUs can pay the remaining holders the market value of the remaining IOUs and redeem the bar in its entirety). The system is fairly straightforward when we're dealing in whole bars rather than letting people split them up, but both options have their advantages.

That being said, this solution isn't elegant. The problem calls for a new type of approach based on storing arbitrary data, rather than trust-debt relationship.

What matters to a physical gold bar to be used as a currency? Transparency, its current location, as well as who owns it at this moment. This could be encapsulated in a straightforward JSON:

{
    BarID: "12345",
    Location: "Vancouver",
    Owner: "Alice"
}

If rules on how this information is updated are encoded in a smart contract and all transactions go through a distributed blockchain system for transparency and verifiable history, you achieve a much more elegant solution. While I don't know of any publicly released Crypto 2.0 system that can achieve that natively without relying on any "hacks", it does appear that the upcoming Ethereum platform might be an ideal candidate to achieve this goal.

Strong non-fungibility - art


Some pieces of art are valuable. Some in fact, are very valuable. The most expensive painting ever sold (at ~$300M) eclipses the market cap of any cryptocurrency asides Bitcoin (at the moment of writing - Bitcoin has the market cap of $3.3B, Ripple - $211M, Litecoin - $56M). Criminals already use pieces of art as a form of currency, since anything that can be used as a currency will be used as a currency if the need arises.

Now, what would happen if someone decided to create a currency backed by an expensive piece of art in a legitimate fashion? In other words, could we have some form of "Mona Lisa Coin"?


The issuance of the coin is probably the easiest part of this process. The real challenge comes in determining what rules the coin itself should follow, especially when it comes to redeeming the piece of art. Similar to the gold example, the rules could be that the piece of art remains in a museum until such time that someone purchases a majority / super majority of the tokens and decides to buy back the remaining tokens at the current market value to obtain the physical piece of art.

You could also govern the piece of art through a Decentralized Autonomous Organization - everyone holding the art token could vote on renting the piece out to other museums for a fee shared with the DAO, as well as other matters of importance.

If an individual painting is not significant enough, perhaps a collection of pieces of art could be bundled together in an "art basket" and tokens could be issued for the entire collection. In this example the role of DAO could be to govern the rules of acquiring and selling individual pieces of art from the collection - perhaps X amount of tokens would need to be burned in order to buy one art piece from the collection, and new tokens could be created to pay a new shareholder depositing their piece of art into the basket.

Conclusions


Using various approaches and appropriate Crypto 2.0 systems, it is possible to create fungible currencies out of non-fungible commodities. 
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