The Advanced Cryptocurrency Guide

Welcome to a new world of lower fees and faster transactions built on networks of shared, distributed trust

"Welcome to Blockchain which battles corruption and provides transparency on an eternal, immutable, digital ledger"

Bitcoin could reach $55,000 by the end of 2018

But, it is a fledgling industry and not without its teething problems, including ownership security, scams, hacking, DNS spoofing, liquidity and congestion in the systems. Withdrawing coins may face delays and exchanges aren’t as secure or as liquid as the New York Stock Exchange or Nasdaq…. yet.

But, all that will change soon.

PLEASE NOTE, YOU SHOULD ALWAYS

  • Do your own research
  • Make your own decisions
  • Be comfortable with your risk level: cryptocurrencies can be 10 times as volatiles as stocks. The swings up and down in prices may be magnified as much as ten times or more
  • Never invest more than you are willing to lose: for most that is 5% of your liquid investments, such as spare cash
  • Investing in cryptocurrencies can become addictive akin to gambling

Before explaining Bitcoin and Blockchain in more detail, I think it is important to address the bigger picture.

THE GLOBAL ECONOMY IN 2018

The US Government is Trillions in Debt – How Can They Ever Repay it?

This is often asked by the public, but government finances are not managed like household finances. Their credit card is eternal.  This video explains it pretty well.

Government debt is not the problem, it is private debt: corporate debt, bank debt and household debt.

Consumption drives the economy. If consumers do not have enough liquid cash or credit, they cannot buy the goods & services that drive the economy. Right now consumers are nearly maxed out on debt with little tax decreases on the horizon. A “tax holiday” is needed. Please note that Trump did introduce some tax cuts, but it mainly benefited the rich.

"Money printing" , which is a poor choice of word or QE (Quantitative Easing) is actually debt cancellation. The government can do as much or as little QE as it likes. Right now, we are moving away from QE towards QT (Quantitative Tightening) as interest rates rise and government treasury purchases tail off. This will restrict credit going forward.

10 out of the last 13 tightening cycles have led to a recession. This tightening cycle is about to ramp up with liquidity being drawn each and every month and by another higher increment after three month intervals until at some point $50 billion per month of liquidity will suddenly disappear. If stocks start to fall, the crypto markets may be a very dangerous place to be, so don't overstretch as I believe people will cash in cryptocurrencies before real world cash and assets which could mean a sharp correction literally overnight with exchanges freezing up wiping off the value perhaps before you even get a chance to sell them. The government is not a household, so it doesn't ever have to pay off its debt. You can see a succinct explanation here.

This means, that if you want a safe place to put money, you need to looks at ETF strategies with treasury or gold hedges and the ability to sit in cash for safety.

You can invested automated ETF strategies at low fees at The Money Pouch.

The majority of your savings should be invested in real assets such as stocks, ETFs, bonds & property.

Only a small amount of your liquid assets should be invested in digital assets such as Bitcoin.

What is Bitcoin?

  • The currency of the internet” - the TCP/IP of Money 
  • “Digital gold”
  • "A permissionless, borderless, decentralized digital coin built on the blockchain"

What is a Blockchain?

The blockchain is a distributed database: a trustless, borderless, digital ledger. 

Here is a really great 2 min video explaining the Blockchain.

What is the Block Chain?

Blockchain Explained

Blockchain Explained

Cryptocurrencies are normally decentralized. I say usually, as Ripple, for one, is built on a centralised blockchain.

In the case of blockchain technology, private key cryptography provides a powerful ownership tool for authentication. It also spares a person from having to share more personal information than they would need to for an exchange, protection their information from hackers.

Blockchain provides both Authentication and Authorisation: broadcasting transactions (known as Tx) on the blockchain needs a distributed, peer-to-peer network. A decentralised, distributed network reduces the risk of centralized corruption or failure.

This distributed network must also be committed to the transaction network’s record keeping and security. Authorizing transactions is a result of the entire network applying the rules upon which it was coded. This is the blockchain’s protocol.

How Does the Blockchain Function?

It is best to describe the process with a series of diagrams. Here is a great article which explains how the blockchain operates.

Fiat Money Vs Bitcoin

Fiat money, such as US Dollars, EUR, GBP, YEN, CNY are a tax credit. In return for holding Dollars, you receive the protection of the armed forces, police, fire services, healthcare, education, roads, infrastructure and scientific research which is all paid for.

Bitcoin, on the other hand, is a virtual convertible currency. It is a barter coin.

You can see the SEC’s description here: https://www.sec.gov/oiea/investor-alerts-bulletins/investoralertsia_bitcoin.html

Unless people are paid in Bitcoin, the government receive their taxes in Bitcoin and warehouses accept Bitcoin in payment, Bitcoin cannot be a currency.

Bitcoin's long term value is zero as it can be replaced by a better cryptography or government backed crypto. There is one way Bitcoin could have a long term value, only if a Government used it as its currency, the workers are paid in Bitcoin and they pay tax on that Bitcoin income. It will be interesting to see which governments will move to use Bitcoin as their currency or they will make their own cryptocurrencies with inflation built in.

Despite the long term value being zero, due to low liquidity, high demand and speculation, you can still make money trading Bitcoin, particularly from its volatility, but don't go changing all your money up to Bitcoin tomorrow.

If there is another Global Financial Crisis (GFC), Bitcoin is first to be sold as people won't want to sell their house and usually they can't cash in their pensions which is held in usually held in stocks, treasuries and bonds. So, they will sell off their shares & mutual funds, but my suspicion is they will sell off their cryptocurrences first.

Bitcoin could lose 90% overnight in a GFC situation and could also depreciate in large amounts following a major ICO ponzi or in the event of a major exchange or wallet hack.

You can read more about the SEC’s alert on Initial Coin Offering (ICO) ponzis here: https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings

So don't put more than 5% of your liquid wealth into Bitcoin. Also, I highly suggest investing in a managed digital asset portfolio where professionals can store your cryptocurrencies in secure bank vaults.

If you want to dig into the economics and have a few hours to spare, you can read this paper: Money and MMT or this paper on the Bank of Canada's website imagining a world based on Bitcoin rather than the previous gold standard before 1974. The long term result is deflation and the government moving off Bitcoin to control inflation.

That doesn't mean Bitcoin is killed off. Rather, it is that deflation will prevent Bitcoin from becoming a unit of account, and that, in turn, will keep it from displacing traditional currencies. But Bitcoin could survive and indeed thrive without becoming the coin of the nation and it could become the coin for owning digital assets.

It could become a coin that holds a high price for a long time, but the likelihood of it being replaced by another digital form of money, whether government backed or private backed is high.

Who is Buying Bitcoin?

According to the Coinbase Q4 2017 report,  89% of individuals are not accredited investors, 86% owned over three crypto assets and 97% were male investors.

What is an Altcoin?

Altcoins are digital coins other than Bitcoin. Also known as cryptocurrencies.

What are Cryptocurrencies?

Crypto currencies are digital, virtual coins. The most important being Bitcoin (BTC), the first cryptocurrency to be built on the Bitcoin blockchain, Ethereum (ETH) built on the Ethereum blockchain and Ripple (XRP) built on the Ripple blockchain.

The Bitcoin Community – Blockchain 1.0

Bitcoin is the Michael Jackson of the cryptos. Everybody knows Bitcoin. It is a global brand. It was the first and largest by market cap with a huge community. You can now also purchase Bitcoin futures on three exchanges.

The Ethereum Community – Blockchain 2.0

The Ethereum community could surpass the Bitcoin one. Ethereum futures are coming. You will be able to purchase options and derivatives on ETH with the dYDX protocol which is free and open source. It is built on the Ox protocol, which is a decentralised exchange for trading ERC-20 tokens.

“It’s still early days for dYdX, but we’re excited to take on the $1.2 quadrillion derivatives market.” - Antonio Juliano, Founder of dYdX

Blockchain 3.0

There are now new communities and coins springing up with more advanced cryptography such as Cardano, IOTA, Nano and Zilliqa. There are also cryptocurrencies coming which require no mining, such as Hashgraph and Chia which will be more environmentally friendly.

Who Accepts Bitcoin as Payment?

Square, eBay, Wordpress, Overstock, Microsoft, Expedia, Subway

How Do I Accept Bitcoin for My Site?

If you have an ecommerce site, you can find plugins here for WooCommerce, Opencart, Magento and many more to start accepting Bitcoin as payment.

PayBear is a fully functional cryptocurrency payment gateway with support for 7 cryptocurrencies (BTC, ETH, ETC, LTC, BCH, DASH, BTG) and 3 out-of-the-box ecommerce integrations (Woocommerce, Prestashop, OpenCart)

Coinbase also has a solution.

Before You Invest

Bitcoin is a very VOLATILE asset. That means the price swings are huge. It is about 7 times more volatile than investing in stocks & shares.

As of October 2017, the S&P500 (top largest shares in the USA) has a volatility of around 11% per year compared to 76% for Bitcoin.

… and if you invest in ICO’s and tokens, that is like investing in Bitcoin on crack. Caveat Empor or “buyer beware” – many of these will probably end up being worthless and there are many scams, although the SEC are slowly trying to crack down on them.

Before you invest, please read this article and only invest what you are prepared to lose: http://fortune.com/2017/12/08/bitcoin-investing-mental-health/

If you want a safe way to invest your hard earned monies, the best way is to use a roboadviser which automatically trades stocks & bonds for you in fiat currencies such as USD/EUR/GBP. They usually buy & sell on your behalf automatically to reduce risk, so your money is more protected during stock market sell offs. There is no such system for cryptocurrencies yet as the market is too fast and not liquid enough… yet.

If you want to invest in a roboadviser, look at Betterment or Wealthfront if you live in the USA, Scalable Capital in the UK or The Money Pouch if you live elsewhere in the world.

Here is a look at the volatility of digital assets vs real assets.

Cryptocurrency Price Swings – What to Expect When Investing in Bitcoin

Bitcoin Crashes

Bitcoin "crashed" 30% SIX TIMES in 2017

Each "crash" has been followed by an increase of: 76%, 237%, 183%, 165% and 152%. Bitcoin takes 7 steps forward, 2 steps back, 7 steps forward, 2 steps back. Every 2 steps back is heralded as the end of Bitcoin.

I say “crash”, but really they are dips and the Crypto market is Wall Street on nitrogen. What happens over a few months on Wall Street happens in days on Crypto Street.

In December 2017, Bitcoin lost nearly 50% of its value in the matter of a week. So, you need to

  1. Understand your investment horizon – am I investing for 1 year from now, 2 years, 5 or 10 years? When will you cash out?
  2. Are you trading daily, monthly or “buy and hold”. Most investors will be investing “buy and hold” for the long run. This may be risky with cryptocurrencies as technology gets old quickly and whale traders eat up the new little fish traders. In which case, you should consider investing in a cryptofund (see below)
  3. Understand your risk tolerance – will I have a heart attack if my $10,000 has gone to $5,000 in a week? Be honest with yourself. If so, reduce your investment or invest in secure ETFs in USD, GBP or EUR instead. You can take a FREE risk tolerance test here. Just click GET STARTED.

Is Bitcoin a Ponzi?

No, Bitcoin can’t be a Ponzi by definition.

why bitcoin is not a ponzi

Is Bitcoin an Asset?

in their 2016 white paper 'Bitcoin: Ringing The Bell For A New Asset Class' ARK Invest’s Chris Burniske and Coinbase’s Adam White explored the idea of Bitcoin being the first of an entirely new ‘cryptocurrency’ asset class — which could, in principle, simultaneously function across all three of Greer’s asset superclasses. Delfin says this unique characteristic positions crypto as not only a new asset class, but in fact a new asset superclass — created by distributed ledger technology (see crypto assets table).

Bitcoin Asset Classification

Bitcoin can be seen as an asset superclass. It is the currency of the digital world. The money of the internet. That is why 1 in 5 financial institutions are looking to invest in cryptocurrency in 2018.

ARK Invest’s Chris Burniske and Coinbase’s Adam White explored the idea of Bitcoin being the first of an entirely new ‘cryptocurrency’ asset class in their whitepaper, 'Bitcoin: Ringing The Bell For A New Asset Class' .

cryptocurrency asset class

What is the Price of Bitcoin?

This is tricky, but a mathematical study is guessing that Bitcoin could read $55,000 in 2018 or more precisely,

“…an 80% confidence interval for the price of bitcoin would be between $13,200 and $271,277 [by the end of 2018].”

http://bitcoinist.com/bitcoin-price-55k-study-likely-2018/

Bitcoin doesn’t have an intrinsic value as such, other than being a gatekeeper into the cryptocurrency ecosystem, however they do have a price which is derived from its network effects.

How Do I Value Bitcoin?

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