Category: Bitcoin

The Case for Crypto Optimism

On By mehranmuslimiblogIn Bitcoin, Blockchain, cryptoLeave a comment

As the crypto markets experience a sharp sell-off, it is pleasing to note that not everyone is suffering from extreme pessimism. In an opinion piece for Coindesk, Michael J. Casey, a respected commentator on the market, argues that this is nothing like the events of 2018, despite the slump.

Certainly, 2021 was a boom year that “generated overblown prices” for tokens, whether fungible or non-fungible. However, Casey points out something very important: “In many ways the building and problem solving that followed the 2018 meltdown has served us well. It meant the speculation behind the most recent boom was built on a more established foundation than in 2017.” And while crypto is not yet anywhere near being mainstream, it’s an awful lot closer to that goal than it was in 2017-18. There is a feeling that it is here to stay, and “that’s why this crypto winter feels less brutal” Casey says.

He suggests there are six reasons to say, “this time is different,” which may also give cause for cautious optimism.

  1. Layer 2 scaling is a reality

From the Lightning Network to DeFi apps, cryptographic advances have over the past three years gone from concept to deployment. This means we’re closer than ever to seeing the scalability that will bring mainstream adoption.

  • The success of permissionless projects

Recent crypto success stories are concentrated among permissionless projects open to any participants. DeFi, non-fungible tokens (NFTs) and decentralized autonomous organizations (DAOs) are where money is being made. As Casey says, “Users are finding value in blockchain technology’s most disruptive, paradigm-changing promises rather than in incremental adjustments to existing business models.”

  • Institutions and corporates are in

Thousands of mainstream firms are experimenting with NFTs and social tokens, especially those in entertainment, fashion, media and gaming. Plus, the engagement in crypto among hedge funds, family offices and even pension funds has surged last year, and even if they have sold off some of their crypto holdings recently, “those investments now stand as a base of established infrastructure for handling future transactions.” In other words, institutions etc are not leaving crypto.

  • Regulations equal normalisation

Whilst regulations may hamper innovation, they are also a framework for normalizing the industry and for making the general public feel more comfortable with it.

  • Don’t blame crypto

In 2017, ICOs fuelled investor mania. This year it is quite different. Indeed, it is the extra fiat money available that prompted the 2021 boom. That surfeit of dollars, euros and yen flowed into risk assets: stocks, commodities, real estate, fine art and, significantly, cryptocurrencies. As Casey says, “Now we’re all paying the price for that as an inevitable inflation problem is prompting the U.S. Federal Reserve to remove the punch bowl.”

  • Let it settle

The market will eventually settle. Anyone who has been in crypto for a few years knows this will happen. Casey says, “I think the excessive part of the crypto price rally – the part that took Bitcoin from $30,000 to $65,000 but not that which drove it from $10,000 to $30,000 – was perhaps due to external factors. Once we get to the other side, we will be able to see if future price advances are driven by legitimate crypto-only factors rather than “the risk-on/risk-off whims of a global financial system addicted to central bank largesse.”

How to Survive a Bear Market

On By mehranmuslimiblogIn Altcoins, Bitcoin, crypto, Economy, Stablecoins, TipsLeave a comment

The year has not started well for crypto investors. Many of you will be trapped in the falling market and unable to cash out without incurring heavy losses. According to data from Intotheblock, 28% of Bitcoin investors and over 31% of Ethereum investors are in a situation where the assets are worth less than they paid for them.

The question most would like an answer to, is how can I survive this? Here are a few suggestions.

  1. Use dollar-cost averaging

If  you have stablecoins or fiat, you can buy the dip. But when you do, the most recommended strategy is to implement something called “dollar-cost averaging (DCA).” For example, let’s say you have $1,000 in reserve funds. A good DCA strategy would be to break up the amount into five tranches of $200 or even 10 tranches of $100 and place trades using those smaller amounts. So, instead of spending all your money in one go, it usually works out better to buy a small amount and wait to see if the asset falls in price further. If it does, buy a little more, and so on.

  • Diversify your investments

One way to hedge your bets is to use DCA for a range of different crypto assets. To choose your assets, look at the following: 1. Previous all-time-high; 2. Past performance and 3. Future roadmap announcements.

You should also look at whether an asset is considered to be ‘overbought’ or ‘oversold’. If an asset is deemed to be ‘overbought’, it means that its price is considered to be too high and that it will fall soon. If it is oversold, its price is considered to be undervalued, and that is usually a sign that prices will rise soon.

  • Don’t panic

In a bear market, you really need to manage your emotions as much as your money. Fear and greed can lead to investors making foolish, snap decisions that result in losses. Greed, for example, often leads to investors staying in a a trade beyond your take profit level in the hope the asset will rise even higher in price. What you need to do is set a stop for losses. Basically, take profits when you can and don’t panic when the bears arrive!

The Battle of Bitcoin versus Gold

On By mehranmuslimiblogIn BitcoinLeave a comment

The argument that Bitcoin has the potential to take over from the precious metal gold as a store of value continues to rumble on. Already this year, Goldman Sachs has weighed into the debate with Zach Pandl, Goldman’s co-head of foreign exchange strategy, sending a note to clients this week, saying Bitcoin can take market share from gold over time as a “byproduct” of more adoption, along with the potential from “Bitcoin-specific scaling solutions.”

Pandl also wrote, “Hypothetically, if Bitcoin’s share of the ‘store of value’ market were to rise to 50% over the next five years (with no growth in overall demand for stores of value) its price would increase to just over $100,000, for a compound annualized return of 17-18% (accounting for growth in Bitcoin supply over time).” 

It is estimated that public ownership of gold as an investment stands at around $2.6 trillion, Bitcoin’s market capitalization is currently just under $700 billion, and Pandl said that from these figures he concluded that Bitcoin currently commands an approximate 20% share of the “store of value” (gold and Bitcoin) market.

Bitcoin options

Goldman Sachs has been making quite bullish noises about Bitcoin and cryptocurrencies. In December last year it made a statement saying that the next major development for cryptocurrencies will be more liquid options markets as more traditional financial firms pile into the rapidly growing asset class. Andrei Kazantsev, Goldman’s global head of crypto trading, said, “We are seeing a lot of demand for more derivative-type hedging. The next big step that we are envisioning is the development of options markets.”

In December, open interest in bitcoin options, or the total value of outstanding contracts, stood at about $12 billion as of the latest data from Skew, a subsidiary of Coinbase that tracks data on cryptocurrency derivatives markets. This is a considerable increase over 2020 when the market rarely exceeded $2 billion. Kazantsev says the cryptocurrency derivatives market is still in its infancy, but that Bitcoin options were growing at speed. Essentially, options are a type of financial instrument called a “derivative,” which obtains its value from the price of another asset – in this case, the underlying cryptocurrency. Increasingly investors are using cryptocurrency options to hedge out existing risk or take on additional market exposure.

Bitcoin to $100k

But back to Bitcoin versus gold. It is interesting that in April of 2021, Goldman Sachs doubted Bitcoin could become a store of value, saying it had environmental problems, competition from other cryptocurrencies and “lack of real use.” Back then its top commodities strategist Jeffrey Currie said, “Traditional long-term stores of value such as gold, art, diamonds, wine and collectibles all have value and use beyond being stores of value,” and asserted, that Bitcoin’s lack of real uses and its environmental problems make it “vulnerable to losing store-of-value demand to another, better-designed cryptocurrency.”

It seems that after reinstating its Bitcoin trading desk and reporting huge institutional demand for BTC, the Wall Street giant has changed its tune about Bitcoin’s potential as a store of value and that this could send its value to $100,000.

Money in 2022

On By mehranmuslimiblogIn Bitcoin, Blockchain, Governments, Metaverse, Regulations, Smart ContractsLeave a comment

This coming year might see many changes in the financial world, especially in money itself. It’s difficult to predict how things might play out, although there have been predictions in the MSM that Bitcoin and crypto generally will crash and burn, but that seems unlikely for those of us that are more immersed in cryptocurrencies than MSM journalists and their readers.

One scenario revolves around central bank digital currencies (CBDCs). Will they be more influential this year as governments look to control digital currencies? Or will the stablecoins, such as Tether, issued by private companies rule the roost? Then there are the decentralised currencies, such as Bitcoin. Will they become the dominant force in finance?

Various factors are driving the debate around money. For example, China is rolling out its Digital Currency Electronic Payments (DCEP) project during the Winter Olympics in February. And the USA is developing regulations targeted at private issuers of stablecoins, whilst adoption of decentralized cryptocurrencies for payments continues to grow around the world.

The Regulations debate

In 2021, the US government debated crypto tax provisions in the infrastructure bill and the approval of a futures-based Bitcoin exchange-traded fund (ETF.) This year it is likely that the U.S. Securities and Exchange Commission will find ways to clarify its position on whether tokens are unregistered securities. At the same time, DeFi tokens may find themselves being included in this debate, which would be unwelcome.

The future of Ethereum

Although Ethereum still dominates DeFi, will its high gas fees for NFTs and other transactions become too expensive? It depends on the success of Ethereum 2.0. There are many big moves to be made before the full 2.0 project can be deemed a success. It has to merge its mainnet with the Beacon chain and that could disrupt token economics for miners and validators. And there are challenging upgrades within Eth 2.0, including sharding. The future of the dominant smart contracts platform depends on these going well.

Crypto and the climate

As climate change continues, crypto needs to shift the conversation away from how bad it is for the environment and towards one about mining-integrated energy systems that create incentives not only for miners to use renewable energy.

Web 3.0

Finally, there will be many discussions about Web 3. Jack Dorsey has been leading at least one discussion about its future, in which people will have greater control over their data and content. So far Web 3 is not really well defined, but there is a need to adjust our systems for managing digital property and for establishing users’ rights in this new era. We can expect this year to bring more clarity on Web 3 might be like and to get a better idea of the projects that will form part of it.