Bitcoin Blitz - the Unsuspected Downfall of Cryptocurrencies

Bitcoin Blitz - the Unsuspected Downfall of Cryptocurrencies

The Apocalypse of Altcoins

Almost all crypto currencies have lost up to 30% of their value within the last 2 weeks and most alt-coins are down at least 80-90% of their recent all-time highs, all the while Bitcoin is holding steady around $6400 mark. It’s been referred to as “Red August”. According to Ted Rogers, President of crypto wallet provider Xapo, this possible extinction level event could easily wipe out 90% of all altcoins. Only yesterday, on the first day of the “Blockshow Americas 2018” event in Las Vegas, keynote speaker, leading economist and Professor at NYU’s Stern School - Dr. Nuriel Roubini - famous for predicting the 2008 financial crash - is now predicting the coming of the “crypto-apocalypse”.

Ethereum founder Vitalik Buterin previously said sometime back in October 2017 that most of the crypto coins on ”CoinMarketCap” will go to “zero” followed by a big run up in 2018 which has not yet materialised and it’s actually going the opposite direction. Vitalik Buterin’s comments however were more in relation to the low quality and functionality of alt-coins or ‘shitcoins’ as they’re commonly known in the crypto currency trade.

Market experts are blaming both Ethereum and ICOs for the current market downfall and at the same citing that this could cause a “domino effect”, the more cryptos that are being dumped, the more crypto positions that will be liquidated, the lower the crypto currency market will drop.

Still, many market experts and vocal crypto supporters and diehards defy the “doom & gloom” predictions and are saying that now is the best time to buy Bitcoin at a discount simply because Bitcoin is functional, has a utility as a ”means of exchange” and/or “store of value” (depending on which expert is voicing their opinion on the subject matter) and in the meantime, Bitcoin has become the “legendary” first crypto currency ever established. It has a rep and track record to back up its usefulness and crypto leadership. It now has surpassed the 50% mark of all available crypto currencies (CoinMarketCap - 22/08/18) and has even recently reached almost 54% dominance of the entire crypto currency market cap.

It’s therefore almost certain that Bitcoin will not only survive but even thrive in the current crypto currency downfall.

Bitcoin and Blockchain

Bitcoin is the perfect bubble, but blockchain is a remarkable solution.

Yanis Varoufakis 

In an exclusive interview with WIRED, Yanis Varoufakis discusses Bitcoin’s bubble, the fantasy of “apolitical money” and the opportunities for the blockchain to reform Europe

Varoufakis believes bitcoin’s valuation is underpinned by the same irrational exuberance; “as Keynes argued, this is the kind of bubble that forms when average opinion is trying to guess what average opinion will be.” This self-referential game is what continues to erratically drive the price of bitcoin. 

Bitcoin may be down for now but it’s certainly not a deflating bubble and will soon rebound to newer and surprising highs. Currently, the biggest bubble to worry about is the US multi-trillion mortgage loans, credit card and student loans bubble which is about to burst and will result in a mega crisis that will make the economical and financial crisis of 2008 look like small bump in the very bumpy road of the global finance and world economy.

Recently, the U.S. Securities and Exchange Commission (SEC) has stated that it is about to take a final decision on nine proposed bitcoin exchange-traded funds (ETFs) in the next two months.

As first reported by “CoinDesk”, the U.S. Securities and Exchange Commission (SEC) delayed a decision on a proposed rule change from the Cboe BZX Exchange that, if approved, would allow for the listing of an ETF backed by blockchain startup SolidX and investment firm VanEcko.

Every time there is a setback, delay or any kind of negative news on Bitcoin or cryptos, all crypto currencies drop in value.

On the other side of the spectrum there’s Jamie Dimon - CEO of J P Morgan who first called Bitcoin a “fraud”, then afterwards reversed his views to a more softer stance, only to backtrack everything last week and resume to public Bitcoin-bashing by calling it now a “scam”. So what’s it going to be now Jamie ?

Digital money in the form of crypto on blockchain are peer-to-peer currencies exchanged on base of trust, however without the requirement of an intermediary. Decentralised, transparent and based on trust. The key characteristics of digital money or cryptos for the cryptocurrency world.

“All money is an illusion”

Quote source: Jon Matonis - founding director of the Bitcoin Foundation.

Real money - the fiat money issued by a central bank and backed by its government - is tangible, portable and subject to monetary policy that is tied to economical factors such as inflation, trade balance, GDP, Central Bank reserves and the unemployment rate. Fiat money can be devalued, re-issued in a new and more tamper proof format and if so necessary, more money (without any gold backing required as before) can be printed at will. The political correct word for printing money “a la carte” is called “QE” - quantitative easing.

The US Federal Reserve prints at will on base of the reputation of the American government with the backing of the mighty and powerful US military. To convince your ordinary consumer and global citizen holding on to US dollars, every dollar bill features the time-tested slogan “In God we Trust”.

Yet, when the subject of crypto currency comes to the forefront of financial news, most governments and Central Banks are divided on the legitimacy and usefulness of crypto currencies. Around the world however, slowly but surely more countries, governmental institutions and the corporate world are adopting or even accepting crypto currencies as payment.

Even with all the hype and gradual adoption of crypto currencies, it is still considered a bubble about to burst and therefore a big systemic risk.

In the hypothetical situation that let’s say the US would restrict or outright ban crypto currencies by making them illegal for any form of payment or store of value, Bitcoin and every other crypto currencies in the world would in all likelihood crash and investors would flee to the safe haven of gold, silver or regular fiat money. Or convert and transfer all (remaining) crypto holdings to bank and credit card accounts.

Sounds like a crazy doom scenario but it’s definitely a real possibility.

The Unsuspected and Sudden Downfall of Bitcoin and Cryptos - real or instigated ?

In 2017, Bitcoin surprised the financial world with its meteoric rise from a mere $1.000 in January to almost $20.000 by December 2018. Ever since, it has descended to a low of $ 6.000 in July 2018.

And everyone is wondering why ?

The answer is relative simple, the more Bitcoin (and other cryptocurrencies) get “institutionalised” by the “big boys” of finance, the lower the price of Bitcoin will go. Goldman Sachs already started the trend of private “stable” coins through it’s Circle subsidiary, others are sure to follow.

The objective ? Make Bitcoin and all other cryptos go down all the way to zero (or as near as possible) so that cryptocurrencies become “junk” status.

The reason ? Bitcoin, blockchain and fintech are melting away the profits of the legacy financial institutions – especially the most vocal ones like the venerable Goldman Sachs, JP Morgan and even collateral participants such as Billionaire Warren Buffett.

Will they succeed ? By all means no and never, Bitcoin has become too mainstream in the meantime to be dismissed or made to become obsolete.

And even governments around the world feel the pain as well and actually support the financial industry with “non-regulation” because big business means big money and a lot of taxes to be collected. And that’s why Bitcoin and all crypto currencies should be disclosed and taxed.

Ever since Bitcoin futures were introduced by CBOE and Nasdaq, Bitcoin has taken a nose dive whenever these future contracts reach maturity. Known other big players are also entering the cryptocurrency world with Intercontinental Exchange (NYSE-ICE) announcing the creation of “Bakkt”, a new ecosystem for digital assets with the intent to “mainstream” Bitcoin, cryptocurrencies and digital assets. The problem is that although deep-down inside, almost all big banks and financial institutions despise crypto because it erodes their profit margins but on the other hand, they want to be part of a new source of income and profit. It’s pretty much comparable to the days of prestige and profits of “British Airways”, when it ruled the skies of Britain and the British Empire. As soon as the low-cost airlines appeared on the scene, BA tried to destroy these newcomers (and succeeded with quite a few) but now, they have accepted the fact that “Easy Jet” and “Ryan Air” are here stay and they will never again see the fat profits of the past century. The same is happening right now in the financial industry through fintech disruption and low-cost competition.

As collateral to the meteoric rise of Bitcoin, it brought to the forefront another “game spoiler” called blockchain that is transparent, immutable and a fraction of the costs of traditional banking and financial transactions.

And because of that, really the last thing any investment bank or brokerage wants.

A technology so advanced and wide-spread that every one is jumping on the bandwagon of profit at the expense of the “pioneers” of custodian money and massive profits.

With the advent of FinTech and innovative blockchain projects, the money monopolies and cartels enjoyed by the big banks and brokerages in days gone by are slowly but surely dwindling, almost gone are the fat profits of money transfers, financial transactions, custodian and clearing services, foreign exchange, trading, bonds and orchestrating IPOs that pay the windfalls of massive profits in a single day.

The entire financial industry has now banded together in an unprecedented way to fight the newcomers in the financial industry – from FinTech to challenger banks and more recently ICOs – and has created the R3 Corda blockchain DLT. In a poor attempt to keep the financial industry a closed and permissioned-only DLT, the R3 cartel has realised that it’s impossible to fight the open and permission-less blockchain world. After all, it’s easier to combat and control a few thousand but significantly more difficult an army of millions, and soon billions of crypto-banked citizens. A decentralised world without central control goes against everything global banking stands for the control of money and the selective distribution of wealth.

Bitcoin and blockchain are a force to reckoned with and the big boys of banking know that.

Reversal of Fortune and the Power of Consensus

Cryptos are peer-to-peer currencies. The more the adoption, the more widespread its usage, the less manipulation and the steadier the currency.

Blockchain is immutable and tamper-proof because there is too much computing power required to manipulate a global network of distributed ledger on blockchain protocol which makes blockchain actually manipulation-immune.

Even in the highly-unlikely event of a 51% attack that is virtually impossible to execute because every blockchain starts at the “genesis” block, and the longer the string of the blockchain, the more impossible it becomes to alter, tamper or change anything without the consensus and relevant blockchain community not noticing that a blockchain or single block has been altered or mutated.

It’s the equivalent to changing a hand written chronological ledger without no one noticing.

It’s the safety in numbers and the magic of consensus and irreversible blockchain protocol that safeguards the immutability of crypto currencies.

Yet, blockchain solutions, whether offered by large-scale corporations or startups, are facing still-unsolved issues, including a lack of common standards, as well as scalability issues.

Crypto currencies on blockchain feature all of the trust, transparency and tamper-proof characteristics, yet when it comes to making it legal tender, most politicians in the unknown and Central Banks on the other side of the divide, do not want to concede control of “their” proprietary fiat money. For this reason, crypto currencies are largely unregulated in most parts of the world and the entire global financial system and many governments are extremely slow in deciding, adopting and passing into law any crypto currency regulation.

Coincidence or conspiracy? Only time will tell.

What is certain is that the more early adopters, the wider the network and the bigger the market cap of all cryptos, the faster the regulation and taxation will come.

Strangely, when something becomes mainstream and a steady stream of tax revenue, the more widespread its usage.

And just like like fiat money, there will be different tiers of crypto currencies from the private to public, from the encrypted to the untraceable. Real money also comes in different forms, official and unofficial, taxed or untaxed, clean or laundered, black or outright criminal. With all law and regulation in the world, one cannot necessarily change honesty, integrity and moral values. Cheating, stealing and defrauding will always be an unwelcome integral part of society, real money or digital currencies are no different.

By comparison, just looking at the internet, a global network that is connecting the world at a cost per megabyte or monthly subscription which ensures that every single internet service provider pays taxes on revenues which when counted on global scale, runs into the $ billions.

If taxation - capital gains or outright taxation on holdings - is the only or fastest way forward to regulation of crypto currencies, then the global crypto currency community should accept this as a “minor concession”. In the end, what counts is the decentralised basis of cryptos and the choice of the masses to use whichever form of payment global citizens wish to use.

Benjamin Franklin once stated that there are only 2 certain things in life : death and taxes.

The rest is chance and unpredictability, Bitcoin is surely one of them.

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  • Dave Gordon

    I am so happy!! Time to buy good quality coins!

  • Jacob Bennett

    Very insightful and on the money. Good article.

  • George Scollick

    Best time to buy more crypto! Market will recover.

  • Fred Clutterbuck

    The bubble will burst but the coins that have true usage in the real world will survive and thrive.

  • Stuart Campbell

    You're right, a lot of people I've spoken to are just investing in random coins to get rich and not doing their own research on the projects. It's disturbing when people put so much money into something that they don't even understand.

  • Paul Rourke

    Thanks for the honesty.

  • Liam Skeldon

    It's sad to see a huge technological leap for humanity, with immense political consequences, being measured in terms of get rich quick schemes.

  • Diana Ward

    The early investors are the only winners and now they left.

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Eleftherios Jerry Floros

FinTech Expert

Eleftherios Jerry Floros is a FinTech Expert at Rethink Your Digital Future and founder of Elysian Impact Investing, a money super-app and impact investment platform powered by artificial intelligence, blockchain technology and data science. He is also an investor, entrepreneur, thought-leader, speaker and author with a 37 year diversified background in FinTech, finance, engineering, maritime and shipping. His main areas of interest are FinTech, impact investing, sustainable finance, entrepreneurship and digital disruption which is profoundly impacting the global economy as well as our personal lives. Mr Floros undertook studies at the University of Oxford, Wharton Business School of the University of Pennsylvania and the London Academy of Trading.

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