Institutional Investor Hall of Famer Richard Bernstein is sounding the alarm on bitcoin.

He warns it's a bubble and crypto fever is pushing investors away from market groups positioned to grab the biggest gains, particularly oil.

"It's pretty wild," the CEO and CIO of Richard Bernstein Advisors told CNBC's "Trading Nation" on Monday."Bitcoin has been in a bear market, and everybody loves the asset. And, oil has been in a bull market, and it's basically, you never hear anything about it. People don't care."

Bernstein, who has spent decades on Wall Street, calls oil the most ignored bull market.

"We've got this major bull market going on in commodities, and all people are saying is that it doesn't matter," he said.

WTI crude oil is trading around its highest levels since October 2018. It settled at $70.88 on Monday and is up 96% over the past year.

Bitcoin may be up 13% over the past week, but it's still down 35% over the past two months.

Even though bitcoin saw a meteoric rise last year, Bernstein suggests a run back to those levels would be unsustainable. He believes the rush to own bitcoin and other cryptocurrencies has become dangerously parabolic.

"Bubbles differ from speculation in that bubbles pervade society. They go outside the financial markets," he said. "Certainly with cryptocurrencies now, and most likely with most technology stocks, you're starting to see that happen where people are talking about them at cocktail parties."

Right now, Bernstein is most bullish on companies that aren't built to innovate or disrupt the economy. He went bearish on technology stocks in 2019.

"If you're on the wrong side of the see-saw over the next year or two years, maybe five years, your portfolio could suffer a lot," said Bernstein. "The side of that see-saw you want to be on is the kind of pro-inflation side which most people are not investing in."

Bernstein predicts inflation will catch many investors by surprise, but at some point he expects the tide to turn.

"In six months or 12 months or 18 months, growth investors are going to be buying energy and materials and industrials because that's where the growth is going to be," Bernstein said.

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All-star investor Rich Bernstein warns bitcoin is a bubble, sees oil as the most ignored bull market - CNBC

The price of the world's largest cryptocurrency, Bitcoin (CRYPTO:BTC), has dropped 37% from its all-time high. As of this writing, it's trading hands at around $41,000 per token. By contrast, the stock market averages aren't down anywhere near that much. The Nasdaq Composite Index is down roughly 4%, and the S&P 500 is down less than 2%. Nevertheless, even though I own Bitcoin personally, in this article I'm going to argue that stocks are the better buy right now.

There are three reasons stocks are a better buy, in my opinion. And some of it has to do with the fundamental differences between stocks and cryptocurrencies.

Image source: Getty Images.

Think about the economic development following innovations like the assembly line, the space program, and the smartphone. Consider that right now, there are smart people planning a colony on Mars, developing quantum computers, and building the world's largest nuclear-fusion plant with the ITER project. And there's a host of other things in development that sound like science fiction today. If I'm making a bet, I'm betting on technological advances like these that take our global economy to heights never seen before.

The global economy doesn't always expand; there are recessions. But I'm optimistic about the long-term future. And stocks represent ownership stakes in real-world businesses. As the economy grows, many companies will capture this upside, growing their revenue streams and rewarding their stakeholders with the profits.

This is how stocks work, and it's why I'm generally picking stocks over cryptocurrencies when presented with a binary choice. I'm confident there will always be good businesses around. Therefore, I enjoy finding them, buying their stocks, and holding them for as long as they're still good businesses.

Image source: Getty Images.

On a small Micronesian island, there's a giant round stone standing 12 feet tall and weighing over 8,000 pounds. To an outsider, it's just a rock. To the island's original people, it's a rai stone -- a locally agreed-upon store of value. The particular rock I'm referencing is just the largest of many used by the inhabitants of the Yap Islands of Micronesia. Some stones are too big to move, but that's OK. For generations, they've kept mental track of financial transactions by exchanging partial or complete rai stones.

From this illustration, we see that currencies have value when we agree they have value. For millennia, humans have agreed gold has value. But if you want to store value in a rai stone, that's also acceptable in parts of Micronesia. In the same way, if you want to use Bitcoin as a store of value, that's becoming an increasingly accepted practice worldwide.

According to a recent study by New York Digital Investment Group, 46 million people in the U.S. now own some Bitcoin.And companies are starting to own some as well, with Tesla being a high-profile example. In short, there's growing consensus that Bitcoin is an acceptable store of value.

But will there still be consensus that Bitcoin is an acceptable store of value in five to ten years? I'm less confident about that than I am about the future of the economy. I own Bitcoin because, in my opinion, its fame gives it the highest chance of achieving widespread acceptance among the cryptocurrencies that exist. But I wouldn't stake my entire financial future on that belief.

Tesla CEO Elon Musk recently called the environmental sustainability of Bitcoin into question. Whether you agree with Musk or not isn't the point. The point is that factors like environmental impact, speed of transactions, or network security could cause people to eventually agree upon a different cryptocurrency as a better store of value. I can't predict how Bitcoin will be perceived in the future.

Image source: Getty Images.

In the intro, we noted that Bitcoin is down more than the stock market averages, which is true. However, some top stocks are down as much as or even more than Bitcoin, making these good buying opportunities. For example, three of my favorite stocks right now are Airbnb, Peloton Interactive, and Pinterest, down 38%, 40%, and 31%, respectively, from previous highs. In fact, considering how much it's growing internationally, I would put Pinterest very high on a list of stocks to buy on the dip.

But the reality is the choice is not binary -- you can buy both stocks and cryptocurrencies like Bitcoin on the dip. For me, I choose to put the majority of my investing dollars in stocks because I see what these companies are accomplishing in the real world. But I also believe adoption for Bitcoin is still growing, making it worthy of a small, long-term position as well.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Bitcoin or Stocks: Better Buy on the Dip - The Motley Fool

Bitcoin and other cryptocurrencies saw extreme volatility on Wednesday. Bitcoin, for instance, started trading at $42,945. It reached a high of $43,546 during the day, dropped to a low of $30,681, and finally closed the day at $37,002.

Personal finance and investing mean different things to different people, but a few broad principles make sense for all of us to follow. And some investors learnt these old lessons of investing for the first time on Wednesday. Lets take a look at this pointwise.

1) Bitcoin and cryptocurrencies are known to be highly volatile. They go up too fast, and they fall quickly as well. On 14 April, bitcoin touched an all-time high of $64,863. From that high, it fell by 52% to the recent low of $30,681.

A 50% fall wipes out a 100% gain. Hence, investors, and there must have been many who bought bitcoin at all-time high levels, need to wait for the cryptocurrency to rally by 100% or more to recoup their losses.

2) One reason that gets offered for investing in bitcoin is that every time the price has fallen, it has gone on to newer highs in the time to come. The trouble with this argument is that just because something has happened in the past doesnt mean it will continue to occur in the future as well. As an investor, one needs to prepare for the possibility that bitcoin prices may not repeat the same behaviour.

Nassim Nicholas Taleb calls this the turkey problem. As he writes in Anti Fragile: A turkey is fed for a thousand days by a butcher; every day confirms to its staff of analysts that butchers love turkeys with increased statistical confidence." The butcher will keep feeding the turkey until a few days before thanksgiving. Then comes that day when it is really not a very good idea to be a turkey. So, with the butcher surprising it, the turkey will have a revision of beliefright when its confidence in the statement that the butcher loves turkeys is maximal."

This is a point that needs to be kept in mind while investing.

3) The price of bitcoin closed at $30,433 on 27 January. On 13 March, it closed at $61,243, a return of a little over 100% in just one and a half months. Anyone who had invested on 27 January would have been sitting on a high profit on 13 March. But what about investors who invested on 13 March? Theyd currently be sitting on huge losses.

The moral of the story being that high risk doesnt always mean high return. It can also mean huge losses. This is another factor that needs to be kept in mind while investing.

4) Of course, believers can argue that one needs to ignore this volatility. But that is only possible if an investor has followed the oldest clich in investing, which is, dont put all your eggs in one basket or what experts like to call diversification. Dont invest all your money in a single asset class. Spread it out between different asset classes and even within an asset class.

As of yesterday, many people in their 20s and 30s, learnt this investment lesson, like every generation of investors. The last generation learnt it by betting big on real estate in the noughties and then spent the teens realizing that all their money was stuck in an asset class that was not easy to sell in case of an emergency.

Investors who had bet their life on bitcoin when it was around its all-time high levels, and god forbid they are facing a money emergency now, must be in a spot of bother.

The point is that if you are investing in a cryptocurrency, given its volatility, it shouldnt be your principal investment. It should be limited to 5-10% of your portfolio so that it provides the icing on the cake if prices go up and one is not ruined if prices crash.

5) While cryptocurrency believers might believe that prices will continue going up and reach astronomical levels, there are solid reasons that this may not continue forever. Also, remember that random comments from influencers--those who invested in it and even those who havent--can affect the price of this asset class.

The investing principle here is that it is important not to get emotionally attached to any investment like many investors do, which leads to an escalation of commitment. The idea behind all investing should be not just return on capital" but also return of capital".

6) Finally, if you invest in cryptocurrencies and dont believe in spreading your investments, ensure that you have a strong heart.

Whether you believe in cryptocurrencies or not, following these principles will ensure that your investments move in the right direction in the long term, simply because investment fads are exciting but temporary; the principles are boring but timeless.

Vivek Kaul is the author of Bad Money.

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Some old investing lessons from the Bitcoin crash - Mint

The bitcoin flash crash has exposed how systemic issues under the surface of the cryptocurrency market, combined with leverage offered by many leading exchanges, exacerbate episodes of volatility.

Bitcoin prices plunged $10,000 in less than an hour on Wednesday from $40,000 in one of the most severe drops since the worlds most actively traded digital coin began its meteoric ascent to record peaks last autumn. It rebounded almost as spectacularly as it fell later in the day, and continued its rebound on Thursday, climbing above $42,300.

The scale of the losses and recovery in such a short time, coupled with the frenetic nature of the trading, illustrate how even as the digital asset industry has grown rapidly, many systems underlying the market remain fragile and stutter during unusually busy periods.

Coinbase and Binance, two of the highest-profile digital currency exchanges, were among the venues that suffered technical issues during the shake-up on Wednesday.

At the same time, analysts said some retail and institutional traders use of leverage borrowing to amplify potential returns also heightened the velocity and magnitude of the fall in prices as bets rapidly unwound.

When the price is crashing, everyone that leveraged and [bet on rising prices] sees their leverage ratio blow up, said David Fauchier, a fund manager at crypto specialist Nickel Digital, noting that the market went through two so-called liquidity cascades in less than an hour when bitcoin crashed.

In established asset markets, traders use cash as collateral to finance leveraged bets. In cryptocurrencies, however, they often use bitcoin. That meant that when bitcoin fell heavily, leveraged bets were quick to fold.

This created a self-reinforcing cycle, which prompted widespread selling and highlighted a number of systemic issues, according to Michael Bucella, a partner at crypto hedge fund BlockTower Capital.

Sentiment in the market had been fragile for several weeks, but the trigger for the collapse was a warning from Chinese authorities not to accept cryptocurrency as payment, or to sell services on it.

There were probably about $20bn of [bets that bitcoin will rise] liquidated yesterday, which was a large part of the price drop. It was an initial unrelated spark which grew because of the leverage, said Sam Bankman-Fried, chief executive of FTX, the Hong Kong exchange.

The turmoil left retail and professional traders counting their losses, especially those who borrowed to maximise their potential gains.

One 21-year-old, who asked not to be named, said that looking at his trading screen flashing red brought back unwanted memories. Its like looking at my [school exam results], he wrote in a message.

Continue reading here:
Bitcoin flash crash amplified by leverage and systemic issues - Financial Times

What does a weekend meltdown in bitcoin prices portend for U.S. stocks?

Bitcoin BTCUSD, -3.51% is supposed to be an asset uncorrelated with equity markets, or any other traditional asset for the matter, but some analysts have said the cryptocurrency has traded in closer step with parts of the market amid the recent turbulence in equities as investors attempt to assess the most effective strategies for playing an economy recovering from the worst pandemic in more than a century.

In a blog post on Sunday, Mott CapitalsMichael Kramer said bitcoins recent breakdown could signal risk appetite on Wall Street is in transition presumably in a bearish direction.

Bitcoin is telling us the risk sentiment of the market overall is shifting, and we care about bitcoin because we care about risk sentiment, Kramer wrote.

Bitcoin prices are down 28% from a peak at $64,829.14 in mid-April, and Sundays trade was choppy for the worlds most prominent crypto after a tweet from digital-asset bull and Tesla Inc. TSLA, -1.01% CEO Elon Musk was interpreted as a threat to unload the $1.5 billion investment in bitcoin that the electric-vehicle company announced back in February. Musk attempted to clarify the exchange later, saying Tesla still retains its bitcoin cache.

Check out: Rather than Will cryptos drop to zero? investors should be asking this question instead, says strategist

Bullish sentiment has been a recent feature of markets even amid last weeks bout of volatility andcould be downshifting, said Kramer. The analyst says small-capitalization stocks, like those in the Russell 2000 index RUT, +0.34%, may be one aspect of the market moving the most closely in line with bitcoin.

The Russell 2000 closed Friday notching its largest weekly percentage decline since March 26, off 2.1%. It was a bruising week for stocks, generally, even if equities enjoyed a solid rally to end the five-day trading period that had been marked by unease about inflation in the middle of the week. The Dow Jones Industrial Average DJIA, +0.36%, S&P 500 SPX, -0.08% and the technology-laden Nasdaq Composite Index COMP, -0.48% all logged their steepest weekly losses since Feb. 26 and the Nasdaq also booked its lengthiest weekly losing streak, four straight, since Aug. 23, 2019.

Read: Jammed and distorted: investors are wrestling with inflation that may test the Feds framework

Kramer said bitcoin is melting, and added that it is possible that the asset may have further room to fall.

A few technical analysts see bitcoin potentially hitting $42,000. Katie Stockton, market technician and founder of Fairlead Strategies, said support sits below the weekends nadir just above $43,800.

So what does that all mean for stocks? Its hard to say.

Futures for the Dow YM00, +0.16%, S&P 500 index ES00, +0.14% and the Nasdaq-100 NQ00, +0.07% were all trading modestly lower Sunday night.

Some analysts see stocks headed higher to end 2021, bitcoin moves notwithstanding.

Tom Lee, founder of Fundstrat Global Advisors, is forecasting the S&P 500 to rise another 7% to 8% from current levels and he is maintaining his target for the broad-market benchmark at 4,400.

Lee said markets attempt to crash last week failed, and he saw parallels between last years slump and this current period, which he blamed, at least partly, on readjustments tied to taxes, the deadlines for which were extended to May 17.

In other words, the market could not muster enough panic to push further downside, wrote Lee.

Instead, we saw a strong rally in the second half of the week. We believe this rally will carry over into this week. In fact, we think that stocks are still on track to make new highs before June 30th, he forecast.

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'Bitcoin is melting.' Here's what a 30% drop from highs in the crypto may say about stock-market risk sentiment - MarketWatch

Traders who have been coordinating on social media to promote stratospheric prices in meme stocks, such as GameStop GME, +3.70%, and cryptocurrencies such as bitcoin BTCUSD, -3.51% and dogecoin DOGEUSD, -2.18% what exactly are they doing?

They are not day trading, but holding on for dear life, (HODL) as the group describes it. They are not indexing, because they view the entire stock market as corrupt. They are certainly not quality investors, as their process defies financial analysis.

While indexers, day traders, and stock pickers each have a distinctive approach, all are conscious and diligent participants in a traditional market. The same is even true of shareholder activists, who may demand changes, from board composition to dividend policy, but accept the corporate setting and related measures of returns. Others use their position as shareholders to advocate social causes, from consumer protection to workforce diversity, but purpose is clearly stated and proposals formally made, often in a target companys proxy statement.

Most of todays devotees of meme stocks and crypto operate outside any such familiar forms of market behavior or investing theory. Rather, they protest against Wall Street capitalism, revel in disruptive poisoningof markets, or rejoice at creating the fantasy of an alternate reality.

The behavior of most of these participants can best be explained by a nascent branch of economics called identity economics. Pioneered in a 2010 book of the same name by George Akerlof and Rachel Kranton, the books focus is on behaviors at odds with traditional economic models of rationality, such as why people vote against their economic interests or why they stay in jobs making less than they could elsewhere.

Identity economics attributes such choices to our conception of who we are and other social considerations. People value working with certain colleagues in a particular organization when they share distinctive norms and goals. When employees feel they have a shared mission, their sense of culture compensates for a lighter paycheck. Thats one reason HR departments invest in artifacts of corporate culture, from mission statements to mantras.

Meme-crypto trading culture is like that. Just as employees who think of themselves as insiders work for less, members of this cohort stake their capital on the riskiest possible bets with scant regard for corresponding returns. Participants share a code and language: they HODL or are going to reach the moon.

Devotees of dogecoin call themselvessubshibers, referring to the breed of their Shiba Inu mascot. And just as corporate culture and employee identification can be decisive to a businesss success, that sense of in-group identity is essential to dogecoins sustenance.

The cyrpto cult is a new force all investors must consider. For indexers, their presence injects volatility into the ever-fluctuating market, a jolt greater than ordinary company risks that indexing diversifies away. Short-sellers, focused on shorter-term market pricing, face significant additional risks, as the GameStop price spike earlier this year revealed.

Even quality investors, who care more about business value than market price, face headwinds from the persistent mispricing of risk. After all, identity economics can influence pricing and investment returns anywhere, without regard to underlying business features or competitive advantages. The strongest business moats brand strength, economies of scale, network effects may ward off rivals, upstarts, and disruptions. But not identity economics.

Traditional investors of every stripe will benefit from learning about this cohort to assess risk. Such cults throughout history eventually unravel, as some members defect, others follow, and the culture collapses on itself. Using markets to protest markets may prove to be fiendishly dangerous.

Lawrence A.Cunninghamis a professor at George Washington University, founder of theQuality Shareholders Group, and publisher, since 1997, ofThe Essays of Warren Buffett: Lessons for Corporate America. To get updates on research about quality shareholders,sign up here.

Read: No one will save you from a bear market, so youll have to do it yourself

More: Bitcoins 40% crash does feel like capitulation, says crypto specialist, but heres where the next crucial support level stands

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Why bitcoin's bust and the 'crypto cult' threaten all investors - MarketWatch

To work out the fate of crypto-investing, watch what the banks do next

May 20th 2021

CRYPTO BUFFS have had a punishing week. On May 13th Tether, which issues a stablecoin widely used to facilitate bitcoin trading, said that just 2.9% of its $58bn-worth of coins is backed by cash reserves, feeding doubts about its dollar peg. Elon Musk, Teslas boss, tweeted that the electric-car maker would not after all accept payments in bitcoin. Then on May 18th China warned financial firms against servicing cryptocurrencies. The price of bitcoin tumbled to $30,000, less than half its record high in April, before stabilising at around $39,000.

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As it cratered, bitcoin dragged most other cryptocurrencies with it. Several big crypto exchanges, including Coinbase, experienced lengthy outages. Investors unable to liquidate positions felt trapped; those willing to buy the dip felt cheated. The latest swing might raise doubts about whether crypto markets are liquid or even reliable enough to welcome institutional investors en masse. That is why it is worth looking to Wall Street.

Americas big banks have been venturing into cryptoland. In March Morgan Stanley became the first to offer wealthy customers access to bitcoin funds. This month Goldman Sachs revived the crypto desk it had mothballed in 2017; Citigroup said it may offer crypto services. BNY Mellon and State Street are vying to administer bitcoin exchange-traded funds, currently under regulatory review in America. JPMorgan Chase, once adamant that it would steer clear unless cryptocurrencies began to be regulated, has hinted that it might start trading operations if the market expands.

Why are highly regulated banks wandering into the unregulated wilderness of crypto? It helps that watchdogs in America have been setting out what services banks can provide. Last year the Office of the Comptroller of the Currency said they could offer custodial services for crypto assets. The Commodity Futures Trading Commission regards bitcoin and other digital currencies as commodities, enabling banks to trade derivatives linked to them.

The main reason for banks enthusiasm, though, is obsessive interest from some customers. A year ago Itay Tuchman, Citigroups foreign-exchange chief, hardly ever fielded calls on crypto from institutional clients. Now he receives them several times a week, he says. Roman Regelman of BNY Mellon deems the craze an opportunity, but also an imperative. Wealthy clients are pulling money out of private banks, and retail punters out of current accounts, to bet on digital currencies through fintech firms and startups. Many would rather do everything with their banks, which, in turn, hope to reap the rewards in customer fees and data.

Perhaps the easiest service to offer is derivatives trading, as Goldman now does, providing clients with exposure to the assets without having to buy them. Then comes custody: the storage, and related book-keeping, of assets on behalf of big investors. This requires investing in technology; the few banks already selling custody subcontract tasks to specialist firms.

But it is the next level of services, where banks hold digital assets on their balance-sheets, either as collateral or by trading in spot markets, that is currently beyond reach. After a day like May 19th, when bitcoin lost nearly a third of its value in a few hours, regulators may ensure it stays that way. Even if banks do not trade directly, says Chris Zuehlke of Cumberland, a Chicago-based firm that helped Goldman execute its first big block trade of crypto futures on May 6th, they could still connect clients to large spot traders, acting as the shopfront but relying on the infrastructure, and balance-sheets, of others.

Banks insist that most clients expect a rollercoaster ride. But a prolonged rout could still scare off prospective converts and trigger a regulatory crackdown. Wall Street has an unrivalled ability to bring liquidity and distribution muscle to new assets. Anyone wanting to work out the fate of crypto-investing might do well to see what the banks do next.

A version of this article was published online on May 19th, 2021

This article appeared in the Finance & economics section of the print edition under the headline "Bit by bit"

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As bitcoin lurches, Wall Street plots its way into cryptoland - The Economist

Anyone who still thinks Bitcoin is a viable form of money should have learned otherwise this week. The cryptocurrencys wild fluctuationssayit isnt. For those just looking to get rich quick, the message is even simpler: Buyer beware.

At one point on Wednesday, the price of a Bitcoin had dropped more than 40% over the course of a week disconcerting for the throngs of retail investors who, egged on by Elon Musk and other celebrities, had helped drive it up more than 230% over the previous six months. In a matter of days, hundreds of billions in virtual wealth disappeared.

Thats right: Bitcoin is volatile. In other words, it isnt on track to displace traditionalgovernment-issued currencies. If a Bitcoin buys one Tesla today and only half a Tesla tomorrow, its useless as a means of payment and store of value (unless youre a criminal with limited options). And this is before you consider the inefficiencies and environmental impact of a system that requires power-hungry computers around the world to vouch for each transaction.

Cryptos lack of actual utility wont stop many from profiting handsomely. Its novelty and detachment from any sense of fundamental value make it appealing to the very intermediaries it was designed to disrupt. Traders and hedge-fund managers thrive on the volatility; banks can offer custody services; creators of exchange-traded funds are eager to offer Bitcoin versions. Investors briefly valued crypto exchange Coinbase at more than $100 billion, thanks to the fees it charges customers wanting a piece of the action.

Cryptocurrencies gyrations will most likely create and destroy many more fortunes yet. Authorities should pursue the criminals, caution the unsophisticated, and ensure that speculative fervor doesnt threaten the broader financial system. Beyond that, look out. Your crypto is worth only what the next buyer will pay and that could be an awful lot less than you hope.

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Whatever bitcoin is, it isnt acting like money - Mint

Bitcoin may be struggling to break back above $60,000, but Morgan Creek Capital Management's Mark Yusko is aiming even higher.

The investment management firm's founder and chief investment officer predicts the cryptocurrency could reach $250,000 within five years. He says the key is it's so much more than just a token of value something he believes many investors overlook and underestimate.

"It's just about network adoption and increased usage," Yusko told CNBC's "Trading Nation" on Friday. "This is a network and networks grow in an exponential way. This is the fastest network in history to a trillion dollars of value, right on the heels of the FAANGS that took, you know, 15 to 20 years depending on which one you look at."

Yusko bases his $250k target on a gold equivalence. If gold's monetary value is $4 trillion, then digital gold should move up to that total a sum that puts the price at a quarter of a $1 million per coin.

"What people miss is this is a technological evolution of computing power that isn't going away," he said. "It is a powerful computing network that is going to become the base layer protocol for the Internet of value."

It's not just bitcoin that has rallied this year. Litecoin and Ethereum are both up triple digits, while 'meme' crypto Dogecoin has gained more than 13,000%.

Bitcoin is still the gold standard in the crypto world, though, says Yusko. He likens it to the way in which the internet functions. Bitcoin is the base layer protocol like TCP/IP, the foundation that allows computers to connect and communicate, while a crypto like Ethereum is akin to 'www dot', the "toolkit" to build upon that foundation.

"So, yes, there's room for a couple of protocols to survive, but there are 1000s of coins and Doge is in that category that really are useless, they're just utility tokens that have no underlying value or use case and they'll eventually disappear," said Yusko.

Bitcoin is up 98% in 2021. It has struggled in the past month, though, rising little more than 2%.

Originally posted here:
This bitcoin misconception could be what takes it to $250,000, according to Morgan Creeks Yusko - CNBC

Jack Taylor | Getty Images

LONDON Ether, the world's second-largest cryptocurrency, has been stealing the limelight from bitcoin lately. The digital coin hit a record high above $4,000 on Monday and is now up more than 450% since the start of 2021.

That doesn't come close to the returns on meme-inspired crypto dogecoin, which is up over 11,000% year-to-date. But many crypto investors dismiss dogecoin as little more than a joke and have compared its rise to the Reddit-fueled trading frenzy that pumped up the prices of GameStop and other stocks.

Here is a breakdown of what ether is and how it's different from bitcoin:

Ether is the native currency of Ethereum, an open-source blockchain platform. Ethereum was founded in 2013 by Russian-Canadian programmer Vitalik Buterin and several other crypto entrepreneurs. Many of the people who started Ethereum were previously involved in bitcoin.

For Buterin, bitcoin was too limited in functionality. In an interview with Business Insider, he compared it to a pocket calculator that "does one thing well," whereas he said Ethereum is more like a smartphone with multiple applications you can use.

That's the main premise of Ethereum. Like bitcoin, it's built on blockchain technology essentially a distributed computer network that records all cryptocurrency transactions. But unlike bitcoin, people can build apps on top of Ethereum.

In Buterin's own words, Ethereum is "a blockchain with a built-in programming language" and the "most logical way to actually build a platform that can be used for many more kinds of applications."

The Ethereum network hosts what's known as smart contracts collections of code that carry out a set of instructions and run on theblockchain.

These contracts are what power decentralized applications, or dapps, which are similar to smartphone apps that run on Google's Android or Apple's iOS operating systems, except they don't answer to one company or authority.

Recently, activity on ether's network has surged thanks to the rise of NFTs, or non-fungible tokens, which are digital assets designed to represent ownership of unique virtual items. That's because many NFTs from the colorful online cats of CryptoKitties to the cyberpunk-inspired avatars of CryptoPunks run on Ethereum.

Put simply, bitcoin is a payments network that can be used to transfer value between two people anywhere in the world. Today, it's mainly used for investing. Ethereum, on the other hand, is aiming to create the infrastructure for an internet that isn't maintained by any single authority.

A big trend in Ethereum right now is decentralized finance, a term that refers to traditional financial products like loans and mortgages that are built using blockchain. In this case, blockchain replaces the middlemen from banks to governments and keeps track of everything.

Ethereum is far from perfect, though. In 2017, the popularity of the game CryptoKitties caused ether's network to become heavily congested, slowing transactions significantly and leading the game's developers to raise their fees.

Scalability is one of the biggest issues with the Ethereum network today. It currently operates using a proof-of-work protocol, similar to bitcoin. This means that cryptocurrency miners with purpose-built computers have to compete to solve complex mathematical puzzles in order to validate transactions.

This has led to criticisms of both bitcoin and Ethereum from those who are worried about the massive amounts of energy consumed by their networks.

But Ethereum is undergoing an ambitious upgrade called Ethereum 2.0. This would see it move to a "proof-of-stake" model which relies on "stakers" who already hold some ether to process new transactions.

Crypto investors say the upgrade should help the Ethereum network run at scale, processing lots more transactions at a faster pace and supporting apps with millions of users.

It could also lead to short-term price appreciation. More and more ether is gettingstashed awayfor a "lockup" period by token holders seeking to become stakers and validate transactions on the new network. This could, in theory, limit the available supply of ether.

Still, some skeptics remain unconvinced by digital currencies like bitcoin and ether. The latest rally has reminded some investors of the 2017 crypto bubble, in which bitcoin ran up toward $20,000 before plummeting as low as $3,122 a year later. Bears say cryptocurrencies are in another bubble that's waiting to burst. But bulls are convinced things are different this time namely, increased interest from institutional investors.

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Ethereum: What is it and how is it different from bitcoin? - CNBC