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Gaining currency?
Wit Olszewski

Gavin Brown, Senior Lecturer, Finance, Manchester Metropolitan University, and Richard Whittle, Research Fellow in Economics, Manchester Metropolitan University


Many cryptocurrencies have been launched in the past few years, often to great fanfare and celebration, only to fade and fail as the public and investors shun them. According to Coinopsy, which tracks such failures, there are some 1,085 dead coins at the time of writing. That’s a substantial number, even next to the approximately 3,000 still in existence, and senior industry figures expect many of those to fail, too.

Why do so many of these projects unravel? You expect many initiatives to come and go in a fledgling market, of course – the 1990s dotcom bubble is the perfect example. But at the same time, cryptocurrency developers have traditionally spent too little time designing the business-use case for their coins and tokens, then only realising after the launch that their idea is yesterday’s news.

Time and again, we see launches that copy a previously successful coin – “coin x is the new Bitcoin”, for example. Yet the market already has Bitcoin, and it continues to be in demand – as evidenced by the 18 millionth Bitcoin being mined only last month. We tend to overlook this problem with developers, even while we rightly criticize regulators for not being able to keep up with the fast evolution of the crypto market – despite efforts such as Howey Coin by US regulator the SEC, which was a fake new coin offering designed to teach investors about the risks of putting money into crypto.

No doubt these kinds of developer errors will continue. Here are several other themes that we think will have a bearing on future crypto failures:

1. Big Finance has arrived

Eleven years ago, the pseudonymous Satoshi Nakamoto quietly revolutionized money with the release of his or her now famous white paper that outlined Bitcoin. In the early years after this vision took off, many of those who launched altcoins and tokens were small teams of developers and leftfield entrepreneurs. They had a clear mission to bring the world of traditional finance and central banks to its knees with decentralized units of exchange that were beyond anyone’s control.

A few years on, these bank killers have largely been assimilated by the big financial institutions they once sought to challenge. Wall Street is steadily taking charge of the crypto action, professionalizing trading with the likes of derivatives and futures products.

More Than 1,000 Cryptos Have Already Failed - What's Next? 101
‘Did someone say money?’

We may now be entering a phase where only large institutions will be able to generate profit from cryptocurrency design. It seems increasingly likely that the next revolutionary white paper will be generated by a global multi-billion-dollar firm – an ironic full turn of events, to say the least.

Many other cryptocurrencies from more humble beginnings will fail in future, simply because they don’t have the resources to compete with these huge institutions. They will be driven by sunk costs and the crypto dream to dominate the future of money, but in many cases it won’t be enough.

2. The future is stable

For a cryptocurrency to be successful, two things need to happen: there has to be a reason why people want to use it, and they have to trust it. People will generally trust a coin or token thanks to the underpinning blockchain technology, the decentralized cryptographic ledger systems on which this industry is built.

This means that the basis upon which the market judges if a new launch will stand or fall is mainly its use case. There are now altcoins in existence offering everything from new ways to fund web advertising to units of exchange in the gaming world. But more generally, in a world in which it is no longer enough to simply claim to have launched a better Bitcoin, the market’s attention has pivoted towards stablecoins.

Stablecoins are cryptocurrencies that are designed to avoid the wild volatility of cousins like Bitcoin by being pegged or backed by assets like traditional currencies or precious metals. They are designed to encourage people to use cryptocurrency for everyday buying and selling, while also offering a stable store of value for traders on the many crypto exchanges that don’t deal in traditional currencies.

Examples include USD Coin and Tether, both of which are equivalent to US$1. The fact that it takes considerable financial resources and infrastructure to make such coins operational is again likely to favour large institutions – witness Facebook’s attempt to launch the Libra stablecoin, for instance.

3. Losses more foul than fair

Many investors have lost money through scams in the crypto world. One recent notorious example is the alleged OneCoin ponzi scam, in which investors were promised guaranteed 300% returns for investing Bitcoin or US dollars with a Nevada-based outfit.

The money was supposed to be ploughed into foreign exchange options and altcoins, but was allegedly instead used to pay off other investors in the scheme. Fortune magazine recently speculated that OneCoin may have generated losses in excess of the US$19.4 billion (£15 billion) racked up by Bernie Maddoff’s ponzi victims in 2008.

Somewhat different was Bitconnect, an exchange in which investors could swap Bitcoin for Bitconnect coins, which would be lent out with claimed returns of up to 120% per year. After longstanding ponzi accusations, the US authorities stepped in last year and the exchange abruptly closed. Bitconnect coins plunged 96% in value, creating huge losses, though they still exist and trade today.

An alternative problem is hackers raiding exchanges. The most infamous example is the Mt. Gox attack of 2014, in which over 850,000 bitcoins were stolen and never recovered. More recently the Binance exchange, one of the world’s largest, has been hacked.

More Than 1,000 Cryptos Have Already Failed - What's Next? 102
Binance: a hacker target.

One other alarming case was that of Gerald Cotten, the 30-year-old founder of Canadian cryptocurrency exchange Quadriga, who died a year ago. Because nobody had access to his passwords, the investments of 115,000 customers worth US$137m were unrecoverable. When a court-appointed auditor was eventually able to access his account, it turned out the assets had all been sold months before Cotten died.

We fully expect these sorts of problems to continue – and this shouldn’t be surprising. We are talking about a toxic combination of anonymous technology that is largely unregulated, poorly understood, and cheap and easy to move around the world – and many people willing to kiss frogs in their search for a lucrative prince.The Conversation


This article is republished from The Conversation under a Creative Commons license. Read the original article.

Gavin Brown , 2019-11-24 12:00:00 ,

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NewsBlock © 2019 - 2020. All rights reserved.

While Bitcoin’s price seemingly moves without rhyme or reason — collapsing by dozens of percent and embarking on face-melting rallies on a whim — the cryptocurrency market is filled to the brim with fractals.

Related Reading: Analyst: Bitcoin Price Likely to Fall to Low-$8,000s as Chart Remains Weak

A brief aside: A fractal, in the context of technical analysis and financial markets anyway, is when an asset’s price action is seen during a different time. This form of analysis isn’t that popular, but it has proven to be somewhat valuable in analyzing Bitcoin.

One recent fractal popularized by a well-known cryptocurrency trader is implying that BTC is going to return to the low-$7,000s in the coming days.

Bitcoin Fractal Implies Retracement to Low-$7,000s

A well-known crypto trader going by “Tyler Durden” on Twitter recently posted the chart below, which shows that a Bitcoin price fractal may be playing out. The fractal has four phases: horizontal consolidation marked by one fakeout, a surge above the consolidation phase, a distribution, then a strong drop to fresh lows.

If the fractal plays out in full, BTC could reach the low-$7,000s again, potentially as low as $7,100. This would represent a 20-odd percent collapse from the current price point of $8,800.

It isn’t only a fractal that is hinting Bitcoin has the potential to visit its lows. As we reported on Saturday, Bloomberg believes that if the GTI Vera Convergence Divergence Indicator flips red, a downtrend could push the cryptocurrency back to $7,300.

Related Reading: Stephen Colbert Pokes Fun at Bitcoin in Monologue: Mainstream Gone Wrong?

Can Bulls Step In?

But again, many believe it is irrational to have such bearish interpretations of the cryptocurrency’s chart at the moment. As reported by NewsBTC earlier, Popular crypto trader Mayne recently noted that the “people waiting for $6,000” are irrational. He quipped that Bitcoin retracing and consolidating after its fourth-biggest bull move in history ($7,300 to $10,500, a 42% gain) is perfectly par for the course, but noted that it’s totally possible we can go lower from $8,800.

The medium-term technicals support this.

Trader and CoinTelegraph contributor FilbFilb found that by the end of November or start of December, the 50-week and 100-week moving averages will see a “golden cross,” which he claims is far more significant” for the Bitcoin market that other technical crosses.

Also, a Bitcoin price model created using Facebook Prophet machine learning found that the leading cryptocurrency is likely to end the year at just over $12,000. What’s notable about this model is that it called the price drop to $8,000 months in advance, and forecasted a ~$7,500 price bottom for BTC.

To put a cherry on the cryptocurrency cake, Crypto Thies observed that when Bitcoin bottomed at $7,300, it bounced decisively off the 0.618 Fibonacci Retracement of the move from $3,000 to $14,000, which correlates with the two-week volume-weighted moving average. He added that summer 2019’s consolidation was marked by Bitcoin flipping major resistances into support levels, implying that a bullish reversal and subsequent continuation is likely possible in the coming weeks.

Featured Image from Shutterstock

Nick Chong , 2019-11-10 12:00:38

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