Category Archives: Bitcoin

This has been a history-making week, and I'm not just talking about the rollout of coronavirus vaccines. On Wednesday, Dec. 16, we witnessed the largest cryptocurrency in the world by market cap, bitcoin, blow past its previous high and eclipse $20,000 per token. In fact, bitcoin went on to also blow by $21,000 and $22,000 within a matter of hours.

For as volatile as the stock market has been in 2020, you wouldn't know it by looking at bitcoin, which is up by 201% on a year-to-date basis through the late evening of Dec. 16. This jaw-dropping rally is rebuilding the euphoria that overtook the crypto community back in 2017, and probably has folks believing cryptocurrency is a good investment.

But I am not part of that community, nor can I say I ever will be. The higher bitcoin goes, the more convinced I am that it's one of the most dangerous investments. Each of the major buy theses surrounding bitcoin can be easily debunked -- as follows.

Image source: Getty Images.

One predominant catalyst for bitcoin is the perception of scarcity. It currently has 18.57 million tokens in circulation and a cap of 21 million. Over time, the remaining 2.43 million tokens will be mined via transaction proofing and block rewards. With only so many tokens to go around (fractions of a token can be bought and sold), the buy thesis suggests that this scarcity makes bitcoin an excellent investment.

The problem is that bitcoin lacks genuine scarcity. Its perceived cap of 21 million tokens exists because of computer code. Last I checked, code can always be erased and rewritten. While it's unlikely that a community consensus would be reached to increase the circulating supply of bitcoin, the possibility of this happening isn't zero.

By comparison, a precious metal like gold has a hard supply limit. We can't use alchemy to make more gold. The only gold that's available is what's been mined or is still underground. When the only parameter of scarcity is written computer code, that's not true scarcity.

Image source: Getty Images.

Another buy thesis of bulls is that bitcoin's utility is growing by the day. More businesses are accepting digital tokens for payment, and a broader swath of people are buying bitcoin tokens for the first time. According to financial services company Fundera, around 2,300 U.S. businesses and 15,174 global businesses were accepting bitcoin at the end of 2019. More than a dozen multinational companies also accept bitcoin.

Slam-dunk proof of increasing utility, right? Not so fast.

Even following its monumental rally, bitcoin has a total market value of $400 billion. That compares to approximately $142 trillion in global gross domestic product (GDP) in 2019. While it's true that not all GDP is consumption based, this $400 billion accounts for less than 0.3% of global GDP.

Furthermore, approximately 40% of bitcoin tokens are being held by long-term investors with no desire to put those tokens into circulation. Rather than having $400 billion in buying power, there's more like $240 billion in purchasing power available, accounting for 0.17% of global GDP in 2019. There are not nearly enough tokens in existence to drive widespread adoption, based on these figures.

As one additional note, there are about 32.5 million businesses in the U.S., including sole proprietorships. Removing these nonemployer businesses leaves 7.7 million companies with at least one paid employee, per the U.S. Census Bureau in 2016. According to Fundera, just 2,300 of these businesses are accepting bitcoin.

Face the facts: There's no widespread utility.

Image source: Getty Images.

Bitcoin bulls are also pretty convinced that the most popular digital currency is now a bona fide store of value: i.e., an asset, commodity, or currency that maintains its value.

Every month, the Federal Reserve is buying roughly $120 billion in government-backed debt. When coupled with the central banks' pledge to keep its federal funds rate at or near record lows, it's pretty evident that the U.S. dollar will be under pressure. Crypto investors believe that a ballooning money supply is a green flag for bitcoin to head significantly higher.

The issues I have with the store-of-value thesis are twofold. First, bitcoin isn't backed by any other asset or government. Therefore, it has no tie-ins or official relationship to the movements of the U.S. dollar. Implying that a ballooning money supply should push bitcoin higher is nothing more than a dart throw.

Second, store-of-value assets are designed to maintain their value over time and protect investors from volatility. Yet in March, bitcoin nearly lost half of its value in a 24-hour period. In 2018, the largest cryptocurrency by market cap shed over 80% of its value. In 2013, bitcoin lost about half its value in about six hours. This isn't how a store-of-value asset behaves.

The truth is, buying bitcoin is pure speculation.

Image source: Getty Images.

Bitcoin optimists will also crow about bitcoin leading the digital payments revolution. Going cashless could resolve the issues created by certain regions of the world being underbanked. Additionally, the blockchain technology that underlies bitcoin could revolutionize the payment processing and settlement time frame, especially in cross-border transactions.

While I don't disagree that a digital payments revolution is underway, or that blockchain could offer global financial and supply chain solutions, bitcoin isn't the vessel that's going to make this vision a reality.

The interesting thing about blockchain is that it can be tethered to multiple types of digital currency, be used in conjunction with fiat currency, or can operate independent of a tethered token. There's absolutely zero evidence that bitcoin is necessary to support a blockchain revolution.

To add, buying bitcoin tokens does not give an investor any ownership in the underlying blockchain. With no ownership in the solution that has the potential to actually drive this digital revolution, bitcoin investors are pinning their hopes on other investors being willing to pay more for a currency that exists only in computer code than they did.

So, why is bitcoin rallying? I'd surmise it's a combination of short-term emotions, technical analysis (i.e., pretty charts), and a grossly inefficient crypto market that overwhelmingly favors the buy side. After all, it's nowhere near as easy to bet against bitcoin as it is to bet against a publicly traded stock.

History has proved that sentiment can shift at the drop of a pin in the cryptocurrency space. I'd suggest investors keep their distance from bitcoin.

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Here's Why I Won't Buy Bitcoin, and You Shouldn't, Either - Motley Fool

Stanley Druckenmiller (L) and Paul Tudor Jones

CNBC

A herd of new, big investors are scooping up bitcoin this year as the price more than doubles.

Investors who bought at least 1,000 bitcoins worth roughly $23 million at Friday's price and have had an account open for less than a year, drove significant demand since September, according to data firm Chainalysis. The new cohort together bought half a million bitcoins, or $11.5 billion worth, in the past three months.

In the time these new investors accelerated their buying spree, bitcoin's price more than doubled from $10,000 level. The new demand has helped fuel the cryptocurrency's rally to an all-time high, according to Philip Gradwell, chief economist at Chainalysis.

"The role of institutional investors is becoming ever clearer in the data," Gradwell said in a note to clients Friday. "Demand is being driven by North American investors on fiat exchanges, with greater demand from institutional buyers."

The surge in demand from wealthy Wall Street investors marks a sharp turn-around from bitcoin's first run-up three years ago. The 2017 rally was driven by retail investors, many of whom who bet on bitcoin and other smaller cryptocurrencies out of speculation. Bitcoin became a household name when it first neared $20,000 that year. It crashed soon after, losing 80% of its value in the following months.

Source: Chainalysis

Bitcoin crossed $23,000 for the first time ever this week, bringing its year to date gains to more than 200%. The cryptocurrency has recovered roughly a quarter of its value since Friday, and is on pace for its best week since May 2019.

The price resurgence in 2020 in part has been fueled by well-known Wall Street billionaires publicly backing bitcoin. Analysts say that gave confidence to otherwise skeptical, mainstream investors.

Stanley Druckenmiller and Paul Tudor Jones have both invested in the cryptocurrency and highlighted its potential as a hedge against inflation. Meanwhile,Square, MicroStrategyand Mass Mutual have used their own balance sheets to buy cryptocurrency. PayPal also added the ability for clients to buy bitcoin, which has opened up the market to millions of new buyers.

"We are seeing institutional capital flowing in at the fastest pace in the history of our business, and it is being deployed by some of the world's largest institutions and some of the most famous investors," Michael Sonnenshein, managing director at Grayscale Investments, told CNBC in a phone interview Friday. Flows into Grayscale's publicly traded Bitcoin Trust have increased roughly 6x from a year ago, he said.

Chainalysis also pointed to less liquidity in the market, with fewer sellers than there were there years ago.

Last week, there were 801,000 fewer bitcoin sent compared to 2017. To be sure, not all bitcoin being "sent" is being sold. But Chainalysis' Gradwell said it's a "good proxy" since there are limited use cases otherwise, especially when prices are spiking. Less bitcoin availability "would explain the rapid price increase this week," he said.

As bitcoin neared its high this week, rapper "Megan Thee Stallion" tweeted a bitcoin giveaway with Square Cash App, which was retweeted by Square and Twitter CEO Jack Dorsey. The endorsement coincided with the peak of bitcoin's price Thursday.

"Celebrity endorsements have typically been a bellwether for the top of the market, so maybe this omen will overcome the fundamentals I have shown in the data," Gradwell said.

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Big investors new to cryptocurrencies appear to be behind bitcoin's rally to a record - CNBC

Bitcoin's record rally could hit a wall in 2021.

Signs in the cryptocurrency's technical chart point to a 25%-30% sell-off that's likely to hit early in the new year, Miller Tabak chief market strategist Matt Maley told CNBC's "Trading Nation" on Thursday.

Bitcoin broke above the $23,000 level for the first time on Thursday, building on a massive, 215% year-to-date rally.

"There's no question it's been a melt-up, and it could last a little bit longer," Maley said. "I think on a short-term basis it could continue a little bit longer, and I'm very bullish on it on a very long-term basis. But intermediate term, I'm a lot more concerned than I think a lot of other people."

Part of the problem is the market's excess liquidity, Maley said. Over the summer, that sideline money fueled the mega-cap tech rally; now that those stocks have stabilized, it's driving bitcoin, he said.

"The problem is it's now taken the weekly [relative strength] chart on bitcoin to a very, very high level," he said.

"It's above 88 [as of Thursday]. That's not quite up to the 90 level that it reached twice in 2017, but those were followed by declines of 36% and 64%," he said. "We're not quite there yet, ... but as the pandemic starts to fade a little bit [and] maybe that liquidity becomes a little less plentiful, this stock could get clobbered like it has many other times in the past."

He noted that just since 2016, bitcoin has seen 10 declines of 20% or more, seven declines of 30% or more and four declines of 48% or more, adding that investors shouldn't underestimate its pattern of volatility.

"People need to be careful as we move into the new year," he said. "I love it long term, but I think it's going to be a much deeper sell-off than the 10%-15% ones we've seen more recently. I think you're going to see 25%-30% easily. Again, I don't think that really starts until early in the new year, but I do think it's coming soon ... based on this overbought condition and the froth that we've seen in this asset class in the last week or two."

Michael Bapis, managing director of Vios Advisors at Rockefeller Capital Management, said he would suggest holding on for the long term, volatility and all.

"It took me a little while to get on this train, but I think it really is the new currency," he said in the same "Trading Nation" interview. "If you have that long-term perspective, three-, five-, seven-year perspective, you just hold onto it."

Bitcoin has become a global currency, a hedge against inflation and something of a "new commodity" in this market environment, Bapis said, comparing its triple-digit rise this year with gold's 24% gain.

"Lastly, it's become a part of a balance sheet reserve for some of these big companies," he said. "PayPal is now accepting bitcoin as a global currency ... starting in 2021. Square has made a massive investment into bitcoin, and it's also using bitcoin for its reserve on the corporate balance sheet. ... Blockchain, we all know that that's the real technology and it's here to stay, and I do believe bitcoin is a leader in the global currency, cryptocurrency side of this for as far as we can see."

"Ijust think you own it and put it away for a long-term investment and watch how it maybe transforms the currency and the world we live in today," Bapis said.

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Bitcoin could see a 25%-30% sell-off in the new year, but it's still a long-term buy, trader says - CNBC

CHARLOTTE, N.C. (AP) The price of bitcoin rose above $20,000 for the first time Wednesday, as the speculative digital currency topped its previous peak reached shortly after it became tradable on Wall Street three years ago this month.

Like other instruments used to store value in times of uncertainty, bitcoin has benefited from the pandemic that has pushed other commodities like gold, silver, platinum to multiyear highs. Because of bitcoins structure, few coins are being created anymore and there is relative scarcity.

Heres a brief look at bitcoin:

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HOW BITCOINS WORK

Bitcoin is a digital currency that is not tied to a bank or government and allows users to spend money anonymously. The coins are created by users who mine them by lending computing power to verify other users transactions. They receive bitcoins in exchange. The coins also can be bought and sold on exchanges with U.S. dollars and other currencies. Some businesses also accept bitcoin, but its popularity has stalled out in recent years.

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WHAT HAPPENED?

Bitcoins got their big Wall Street debut in December 2017, when bitcoin futures became tradable on the Chicago Mercantile Exchange and the Chicago Board of Trade. The fervor and interest in bitcoin heading into its trading debut pushed the digital currency to record highs. The currency, which was worth less than $1,000 at the beginning of 2017, climbed up to $19,783 by the end of the year.

But once the trading began, bitcoin futures fell sharply over the course of several months. A year later, the currency was worth less than $4,000. Investors and bitcoin enthusiasts at the time said the 2017 jump was largely caused by speculative interest and media attention.

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HOW MUCH IS IT NOW WORTH?

One bitcoin is worth roughly $20,700, according to Coinbase, a major digital currency exchange that also trades other tokens and currencies.

But the value of bitcoin is volatile and moves hundreds or even thousands of dollars in the course of a week. A month ago, it was worth less than $17,000 and a year ago it was worth less than $7,000.

Bitcoin is a highly speculative investment and has not performed as well as more traditional forms of investing, like stocks or bonds, unless a buyer was in the currency years before it caught on. For example, three years ago The Associated Press bought $100 worth of bitcoin to keep track of the currency and to possibly build stories about how businesses were accepting it. That portfolio only broke even this month.

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WHY BITCOINS ARE POPULAR

Bitcoins are basically lines of computer code that are digitally signed each time they travel from one owner to the next. Transactions can be made anonymously, making the currency popular with libertarians as well as tech enthusiasts, speculators and criminals.

Bitcoins have to be stored in a digital wallet, either online through an exchange like Coinbase, or offline on a hard drive using specialized software. While the bitcoin community knows how many bitcoins exist, where they all are is anyones guess.

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WHOS USING BITCOIN?

Some businesses have jumped on the bitcoin bandwagon. Overstock.com accepts payments in bitcoin, for example.

The currency has become popular enough that more than 300,000 transactions typically occur in an average day, according to bitcoin wallet site blockchain.info. Still, its popularity is low compared with cash and credit cards, and most individuals and businesses wont accept bitcoins for payments.

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HOW BITCOINS ARE KEPT SECURE

The bitcoin network works by harnessing individuals greed for the collective good. A network of tech-savvy users called miners keep the system honest by pouring their computing power into a blockchain, a global running tally of every bitcoin transaction. The blockchain prevents rogues from spending the same bitcoin twice, and the miners are rewarded for their efforts by being gifted with the occasional bitcoin. As long as miners keep the blockchain secure, counterfeiting shouldnt be an issue.

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HOW BITCOIN CAME TO BE

Its a mystery. Bitcoin was launched in 2009 by a person or group of people operating under the name Satoshi Nakamoto. Bitcoin was then adopted by a small clutch of enthusiasts. Nakamoto dropped off the map as bitcoin began to attract widespread attention. But proponents say that doesnt matter: The currency obeys its own internal logic.

In 2016, An Australian entrepreneur stepped forward and claimed to be the founder of bitcoin, only to say days later that he did not have the courage to publish proof that he is. No one has claimed credit for the currency since.

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Bitcoin surges past $20,000, erasing 3 years of deep losses - The Associated Press

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Ritholtz and Brown are impresarios of the Twitterverse and the presiding geniuses behind the fast-growing Ritholtz Wealth Management. In a recent talk with Barrons, they talked about their market views and the charms of direct indexing. Here, in an edited outtake from the interview, the two discuss the allure of Tesla, Bitcoin, and special purpose acquisition companies (SPACs).

Barrons: In a wild year, some wild investments captured investors imagination. Tesla (TSLA) has shot up 731% so far this year; Bitcoin reached an all-time high of more than $23,000, and SPACsshell companies created to go public in order to acquire a private company, became the hottest mechanism in M&A. Whats going on?

Brown:Jack Bogle [founder of Vanguard and inventor of the index fund] has done more for the profession of asset management and individual investors than Warren Buffett, but one of the things that bothered me about his acolytes and the puritanical movement around indexing in general, its how it doesnt allow for the idea that sometimes people just feel like speculating, because they want to. Its their money. Its their life. We of course want to play around with Tesla. So I think that stuff has a place in portfolios.

Lets start with your thoughts on Bitcoin.

Brown: Whether or not Bitcoin increases in prominence among institutional investors and then trickles down into individuals wealth management accounts, remains to be seen. I can completely picture it. Bitcoin could be the next generation version of gold, but that part of the story is not as interesting, and were not building positions in Bitcoin [based on] that. Right now financial advisors are terrified to add cryptocurrencies, because nobody wants to be the first one to get sued for blowing up a clients account with Bitcoin.

And SPACs? These shell companies reemerged as a way to take private companies public without going through the traditional vetting an initial public offering requires. SPACs dont have a great track recordare they as risky as they used to be?

Brown: Theyre actually extremely conservative. Theyre basically piles of cash. So hedge funds can buy them and [say] theyre invested. But theyre not invested. They own cash with an option to become invested. They can flip it the day of an announced deal, or even vote against the deal. So its a clever way for managers who are expected to put money to work, but dont have ideas or dont want to take that much risk. SPACs are speculative if you hold them past the point that they make their acquisition, because then you are investing in a business that was vetted essentially by one investor, rather than a traditional IPO roadshow. Had Nikola (NKLA) tried to go public as a traditional IPO, it never would have made it.

Ritholtz: Why should SPACs follow any different type of performance distribution than mutual funds or ETFs or hedge funds? Ninety percent of everything is junk.

Brown: Their historical performance is atrocious. Its because the type of company that historically did the SPAC wasnt good enough to warrant their own traditional idea. Now, I am somewhat sympathetic to the idea that a SPAC is professionalizing. But not all of them.

Ritholtz: Theyre competing with each other for the same handful of things.

What are your thoughts on Tesla, which just entered the S&P 500?

Ritholtz: Everybody looks at Tesla wrong. Teslas already shifted the paradigm. Theyve already won. Whatever happens with the stock price of Tesla is almost irrelevant. I did an analysis recently that looked at the 10 most valuable car manufacturers. About half their value comes from the electric car side. Traditional automakers are thinking were not going to let Elon Musk do to us what Jeff Bezos has done to booksellers and retailers.

Tesla and Bitoin represented totally different things. Tesla is basically a recognition that no matter what the president says, the world is shifting towards renewable and green energy. Look at the price of coal under an anti-green president. Look at the price of oil. The market has already decided this new technology is the future. Ultimately its going to be Mercedes (DAI.Germany), BMW (BMW.Germany), Honda (HMC), Volkswagen (VOW.Germany), and Toyota (TM) are going to be worlds leading electric car producers.

Brown: I find it funny that a huge swath of the industry thinks its more conservative to have held ExxonMobil (XOM) over the last 10 years, [which is essentially] deliberate climate science denialand that actively trying to address climate science [via Tesla], thats the speculative play. As weve learned, Exxon is now a shell of its former self. The idea that it could hang onto oil forever was more speculative than the idea we could build batteries.

Thank you, gentlemen.

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Ritholz And Brown Riff On Tesla, Bitcoin, And SPACs - Barron's

Bitcoin broke through record highs, clearing a major milestone above $20,000 to trade above $22,000 on Thursday.

That's just the latest move after a massive year for bitcoin it has risen 190% as institutional investors warm up to the cryptocurrency trade.

JC O'Hara, chief market technician at MKM Partners, called the record rally at the beginning of November. Now, he sees a breakout that's only in the early innings.

"Two months ago, we saw the initial stages of uptrends forming within bitcoin, and I do believe that we're still in the infancy stages of these new trends developing, so yes, we're at all-time highs for bitcoin, passing $20,000 today, but I think there's plenty of room to run," O'Hara told CNBC's "Trading Nation" on Wednesday.

O'Hara said the technical setup is similar to the beginning of the last multiyear rally in bitcoin, a promising pattern that points to more upside this time, too.

"If you look back at the last time we started new stages of uptrends forming, it was back in 2015. Bitcoin was $200 a coin back then, and it appreciated over 8,000%, got up to the high $19,000s. So we believe that these trends will persist into the future. Now, I think conservatively, we see ... upside to $25,000. I think that's a good aiming point especially based off of what it has done and what it potentially could do here," said O'Hara.

Steve Chiavarone, portfolio manager at Federated Hermes, said bitcoin's success has a far-reaching impact beyond the underlying asset.

"From our perspective, it's really, really exciting. It's not necessarily bitcoin itself, but the blockchain technology that sits underneath. We think that this is going to emerge as a driver of the digital revolution alongside AI and robotics and 5G and advanced biotech, and we think it's going to enable a whole range of transactions, financial and nonfinancial, to be done in a more efficient way, cheaper and more secure," Chiavarone said during the same "Trading Nation" segment.

He envisions applications in industries ranging from "banks to health care to shipping."

"Bitcoin is exciting and being over $20,000, I get that, but the underlying blockchain technology we think is going to have the bigger impact across the investment spectrum over time," said Chiavarone.

Bitcoin has rallied more than 400% since its March lows.

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Bitcoins next stop will take it above $25,000 as it extends record rally, MKM Partners analyst says - CNBC

Hermione Granger | Moment | Getty Images

Bitcoin has done it again the cryptocurrency topped $20,000 Wednesday to reach its second record in three weeks and its highest level since 2017.

The digital currency has been on a tear this year and is now up more than 180%, driven in part by new institutional support and low interest rates stemming from Covid-19.

Bitcoin believers see it surging even further. Galaxy Digital CEO Michael Novogratz, a longtime cryptocurrency bull, sees bitcoin skyrocketing to as much as $55,000 or $60,000 by the end of next year in a continuation of its epic rally.

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Tyler and Cameron Winklevoss, also early bitcoin investors and co-founders of Gemini, a crypto-exchange, think the currency could someday hit $500,000 as more people use it as a hedge for inflation instead of gold.

But for a majority of investors, financial planners are hesitant to advise putting a large chunk of a portfolio into bitcoin.

"It's critically important to understand the risks associated with it," said certified financial planner Douglas Boneparth, founder and president ofBone Fide Wealth in New York, adding that bitcoin is a highly speculative asset despite encouraging headlines.

"You don't need to look too far back in time to see how volatile it can be," said Boneparth, who is also a member of the CNBC Advisor Council.

Many financial advisors get questions about bitcoin from investors that don't know a lot about the cryptocurrency and have just heard about it in the news.

It can be easy to have FOMO, or fear of missing out, on the latest hot investing trend, according to Roger Ma, CFP and founder of New York-based financial planning firmlifelaidout.

It's best to keep your goals in mind before putting money into a fad investment, which could be something like bitcoin, a commodity like gold or the latest hot stock that's taking off.

That includes understanding your net worth, living expenses and credit score, said Ma. From there, he recommends assessing where you are with other prerequisites to investing do you have an emergency fund, are you paying down debt, contributing to retirement and on track for other financial goals?

Bitcoin produces no earnings, it pays no dividends, it pays no interest, so it's not really an investment in the traditional sense.

David Oransky

founder of Laminar Wealth

"What does your portfolio need to do to be able achieve your short- and long-term goals and for you to be able to lead your rich life?" said Ma. "If your plan relies on your portfolio returning 50% to 100% a year, it might make sense to rejigger your plan to make it a little more feasible."

Also keep in mind that once something is making headlines or breaking records, it could be at the end of its run and be relatively expensive meaning it's not a good time to buy in.

"The problem is that everyone wants to buy when things are at all-time highs," said Anjali Jariwala, a CFP and CPA and founder of Fit Advisors in Torrance, California. "We should have investment decisions driven by things that we can control versus having it driven by emotion or feeling towards certain investments."

To be sure, some people will still want to invest in bitcoin.

Before putting money into bitcoin, it's important to do your research and understand as much as you can about the asset class.

"Bitcoin produces no earnings, it pays no dividends, it pays no interest, so it's not really an investment in the traditional sense," said David Oransky, CFP and founder of Laminar Wealth in St. Louis. "Its value is purely dependent on what someone else is going to pay for it in the future.

We should have investment decisions driven by things that we can control versus having it driven by emotion or feeling towards certain investments

Anjali Jariwala

founder, Fit Advisors

"It's very different than investing in stocks, where you're investing in the future earnings of the company that produces goods and services."

In addition, investors should research how to actually buy into bitcoin and withdraw money, as it's not something they can get through a traditional brokerage account.

"It's still kind of the 'Wild, Wild West' out there and that should scare people that don't know a lot about it," said Oransky.

Once you've done your research and know you want to invest, financial advisors say that bitcoin shouldn't be a major part of your portfolio. Instead, it should be a less than 5% position that's thought of more as play money to be allocated toward fun investing and not tied to a goal such as retirement.

"It helps a person get their fix without disrupting their financial plan and achieving their financial goals," said Ma.

If you do want to have a bit of play money in your investment account, make sure it's an amount you're comfortable with going to zero, said Oransky.

"If you want to buy a lottery ticket and this is the ticket you want to buy, that's fine," he said.

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Bitcoin just hit $20,000 for the first time ever. Should you invest? - CNBC

Bitcoin has broken fresh ground this week, climbing above $20,000 per bitcoin for the first time ever and grabbing global attention again three years after bitcoin's 2017 boom and subsequent bust.

The bitcoin price is up around 30% over the last month, adding to gains of more than 200% since Januaryand pushing up other top five cryptocurrencies by value ethereum, Ripple's XRP, and litecoin.

Ethereum, Ripple's XRP, and litecoin, some times known as alt coins, have all soared by more than 30% over the last 30-day period, with the likes of smaller cryptocurrencies cardano, NEM and stellar making even bigger gains.

The bitcoin price has shot above $20,000 this week, climbing as high as $23,780 on the ... [+] Luxembourg-based Bitstamp exchange before falling back slightly.

"While bitcoin has largely dominated the narrative, I believe investors should look to alt coins who have tremendous amounts of development in both the core technology and usership, yet are still a fair way off their all-time highs," Nicholas Pelecanos, head of trading at NEM, which developed NEM's XEM digital token, said in emailed comments.

"Does this leave these alt coins undervalued against bitcoin? I believe it does and am expecting to see the price of these alt coins, such as ethereum and XEM, rally hard when the bitcoin price inevitably slows down."

Many smaller cryptocurrencies are closely tied to the bitcoin price, with moves higher and lower triggered by bitcoin developments and sentiment. However, alt coins often swing by much bigger percentages, often losing or gaining double and even triple digit percentages in mere days.

Cardano, a top ten cryptocurrency, has added around 70% over the last month. Two top 20 cryptocurrencies, NEM and stellar, have more than doubled in price over the last 30 days, as bitcoin puts cryptocurrencies back in focus.

Bitcoin's reputation as digital gold has grown this year, gaining as investors fret over the possibility of increased inflation and helped on by a number of big-name investors who have publicly named bitcoin as an emerging inflation hedge.

Bitcoin's jump higher this week came after news fund manager Ruffer Investment Management moved around $750 million of its clients' money into bitcoina move designed to "primarily a protective move for portfolios" to "act as a hedge" against "some of the risks that we see in a fragile monetary system and distorted financial markets," a Ruffer spokesperson told bitcoin and crypto news website Coindesk.

Ahead of bitcoin's surge over $20,000, many smaller cryptocurrencies, such as ethereum and XRP, were already soaring as investors eyed technical developments and token giveaways.

XRP, a digital token developed by Ripple, made huge gains through November ahead of a hotly-anticipated giveaway of a new cryptocurrency, known as an airdrop. Ripple controls around 60 billion of the 100 billion XRP tokens that will ever be created.

The XRP price has fallen back slightly since it peaked late last month but its currently up by around 90%.

The bitcoin price has surged to fresh all-time highs this week, climbing well above $20,000 per ... [+] bitcoin after brushing the psychological barrier three years ago.

Meanwhile, ethereum, the second-largest cryptocurrency after bitcoin, is up by 32% over the last 30 days. Investors began piling into ethereum over the summer amid a surge of interest in decentralized finance (DeFi)using crypto technology to recreate traditional financial instruments such as loans and insurance.

Ethereum's blockchain is used as rails by many DeFi projects and some investors think the ethereum price will benefit as DeFi's popularity rises. Ethereum was given a further boost by the closely-watched launch of ethereum 2.0 last month.

Litecoin, some times known as the silver to bitcoin's gold, has this week climbed to its highest price since for 16 months, up around 40% on its price 30 days ago. However, litecoin is still far from its all-time highs set in late 2017, down some 75%.

The bitcoin and cryptocurrency community has been quick to talk up bitcoin's 2021 prospects despite its recent sky-high gains, with many pointing to PayPal's PYPL recent support of bitcoin and a handful of other cryptocurrencies and similar digital infrastructure development as potentially supporting the bitcoin price going forward.

"We are only in phase one of the bull-run," Pascal Gauthier, the chief executive of France-based bitcoin and cryptocurrency physical wallet maker Ledger, said via email. "Many big players are investing time and resources to build or buy digital asset infrastructures needed to support the swell of institutional and retail adoption."

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Massive Bitcoin Gains Are Being Dwarfed By Ripples XRP, Litecoin, Ethereum And These Minor Cryptocurrencies - Forbes

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Bitcoins price is more than 50% higher than its fair value of about $12,000.

Thats one of the implications I draw from a new analysis of the various valuation frameworks for determining the cryptocurrencys fair price. Entitled Bitcoin Is Exactly Like Gold Except When It Isnt, the analysis was conducted by Claude Erb, a former commodities portfolio manager at TCW Group.

I first wrote about Erbs analysis of precious metals in a February 2013 column for Barrons. His conclusion at the time, reached jointly with Campbell Harvey, a finance professor at Duke University, was that golds fair value was less than half its then-current price.

Gold fell by $600 an ounce over the subsequent 2 years. That alone inclines me to pay close attention to what he is now saying about Bitcoin.

This cryptocurrency has been on a tear of late, with a year-to-date gain of 170%. In recent days, in fact, Bitcoin has risen to new all-time highs, eclipsing its prior high set in late 2017.

The valuation framework that concludes Bitcoins fair price is about $12,000 is based on the thesis that its value derives from whats known as a network effect. That is, a networks value grows faster than the number of connected users. (This framework is related to whats known as Metcalfes Law, which holds that a networks value grows according to the square of the number of users.)

To test the explanatory power of this network-effect framework, Erb made the simplifying assumption that each Bitcoin that has been mined represents one user in a Bitcoin network. He then calculated the way that the price of Bitcoin has traded relative to the number of Bitcoins that have been mined up to that point. As you can see from the accompanying chart, his model does a good job of capturing Bitcoins price rise over the past decade.

According to this model, Erb said in an interview, Bitcoins fair price as of Dec. 14 is $12,315. Bitcoins actual Dec. 14 price of $19,201 is 56% higher.

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Of course, a social-network framework is not the only way in which analysts have proposed calculating Bitcoins fair price. Erb nevertheless suggests we give it serious consideration because no other relative valuation approach is empirically more plausibleand the predictions of the social-network framework are impressively correlated with the trajectory of Bitcoins price history.

Using the social-network framework to value Bitcoin also allows us to forecast how much it will rise in the future. Thats because its underlying code stipulates both the maximum number of Bitcoins that will ever exist (21 million) as well as how quickly they can be mined (this limit isnt likely to be reached until 2140). According to Erbs econometric model, a 21-million-user network translates to a Bitcoin price of $74,000. Relative to its current price, that represents a 1.2% annualized return over the next 120 years.

Some other approaches for valuing Bitcoin contend that its a good inflation hedge. But Erb says those approaches are less empirically plausible than the network effect framework.

He points out that a key precondition for something being a good inflation hedge is that its real, or inflation-adjusted, price is relatively stable. But Bitcoin doesnt satisfy this precondition, at least if we use the consumer-price index as a proxy for inflation. Over the past decade, the ratio of Bitcoin to the CPI has ranged from a low of near zero to a high of over 73.

Bitcoin is even less of a good inflation hedge than gold. Thats relevant because many of Bitcoins supporters argue that it is Gold 2.0. The gold/CPI ratio over the past decade has ranged between a low of around 3 to a high of around 8, and while thats wider than what it should be if gold were a good inflation hedge, its far narrower than the comparable ratio for Bitcoin.

The bottom line? Erbs analysis offers something useful for Bitcoins devotees: a valuation model that can be used to estimate the cryptocurrencys fair value. Its entirely possible that there is another model that does an even better job than his of explaining Bitcoins price history. Meanwhile, Erbs social-network framework introduces a quantitative discipline into an arena that heretofore has been characterized largely by marketing slogans.

Mark Hulbert is a regular contributor to Barrons. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

Comments? E-mail us at editors@barrons.com

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Why Bitcoin Is Overpriced by More Than 50% - Barron's

Many cryptocurrencies have been developed after the invention of bitcoin, but it is one of the most demanded and appreciated crypto assets. Crypto enthusiasts appreciate both bitcoin and blockchain, and this has inspired a lot of developers to invest time and efforts in developing a cryptocurrency like bitcoin. The bitcoin market is unstable and highly unpredictable, but the rise in bitcoins value has pleased investors and attracted them towards the mining process. To understand more about this digital currency, search bitcoin circuit, and learn about it for trading.

The increasing popularity and value of bitcoin have attracted investors and traders, and undoubtedly businesses and agencies have started accepting bitcoin as a medium of exchange. Still, there are some of the challenges that the bitcoin community needs to overcome, which are as follows:

List of Challenges that must be overcome includes:

Less supportive mobile platform

Undoubtedly many businesses and agencies have started supporting bitcoins, but it is quite shocking to see that the tech-giants companies still do not support bitcoin on mobile platforms. In fact, tech giants like Google and Apply are deciding to ban a bitcoin wallets applications on their App Store. Even after knowing that tech-giants are not supporting bitcoins, some developers are still creating bitcoin wallet applications and harming the economic ecosystem.

The popular and well-renowned companies are not participating in deals of bitcoin. They are a helping hand for the government as they are using their powers in not regulating bitcoin by not providing them a platform. This is quite a challenge for bitcoin users because bitcoin is an outstanding payment method that allows fast and easy transactions. It allows users to easily send and receive bitcoin using mobile wallets instead of going to bank accounts to carry out the transactions.

Dawdling Transactions

The biggest challenge that the bitcoin network is facing is the long time that is taken by the system to process the bitcoin transactions. This prevents businesses from accepting crypto tokens. The challenge of dawdling transaction occurs when the transaction is processed on the blockchain. The average time that a bitcoin transaction takes to get verified is around 43 minutes. The main reason behind the dawdling transactions is the transaction cost fee that is for people who want to get their transactions to verify first.

Users who dont pay the transaction fee need to wait for hours to complete their transactions. For instance, when you go to a retail store to buy something, you pay for that item with bitcoin. The transaction is required to be verified first on the blockchain, and miners do this task. The miners are the specialized computers that use specialized computing power to solve the complicated mathematical algorithms to verify the transactions and mine new coins.

Costly Transactions

The bitcoin transactions are subject to the transaction cost fee, which creates a pending line of transactions. The transactions are implemented according to the transaction fee that is paid to verify the transaction fast. Users who want to complete their transaction need first to pay an extra transaction fee to get it completed. This will, in turn, make the transaction expensive gratuitously. Businesses hesitate to accept bitcoin as a payment method because of the slow and costly transactions it offers. Due to this issue, people are switching to other methods or currencies to complete transactions quickly and easily.

Less privacy

Another major challenge that bitcoin users face is the lack of privacy. Each transaction is recorded on a distributed public ledger, i.e., on the blockchain, making users switch from bitcoin to other cryptocurrencies. People trust bitcoin because they have heard of a misconception that says bitcoin is a private system. But the reality is completely different, and users must understand that the bitcoin network is anonymous but not completely private.

In reality, bitcoin transactions are hashed and not encrypted, and this makes all the transactions available for analysis and public scrutiny. People consider it a privacy concern that must be linked to bitcoin transactions. Many wallets and other projects have reported less privacy, and therefore, it is important to know the wallets and choose the one carefully.

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What are the challenges faced by Bitcoin and its users and need to be overcome? - Blog - The Island Now