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Discussing Personal and Financial Sovereignty
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Laurence Newman is the cofounder of Coinmama, a bitcoin exchange.
Since this time last year, the number of wallets holding bitcoin has grown by a whopping 8 million, with this growth accounting for over 20% of all 38 million bitcoin wallets in existence. This adoption trend shows no signs of slowing down, as our news feeds continue to fill up with stories about institutional investors and Fortune 500 CEOs diving into Bitcoin. Both the statistics and the stories suggest that Bitcoin is crossing the threshold from the early adopter stage to mass use. Yet, despite the record-high prices and elevated sentiment, many people are still unaware of the true privilege of holding bitcoin and how to do so properly.
Getting into Bitcoin is one thing, but staying around long-term is a whole other ball game. Going back to basics to understand the true nature of bitcoin and how to keep it safe could be the difference maker between financial freedom and failure—not only for newcomers but for everyone.
To grasp how much of a privilege it is to hold bitcoin, we first need to understand the other options available to citizens looking to store their wealth or move money around.
For millennia, gold was humanity’s first-choice asset. Not only was the illustrious metal a symbol of wealth and status, it also served as the basis for entire monetary systems. Even the end of the gold standard couldn’t stop gold from growing. Gold has historically done a great job of preserving wealth through time, although its price has dropped slightly throughout this year. However, when it comes to transmitting money through space, gold fails miserably. It is physically heavy, making it a substantial task to carry around for use as currency.
Fiat currencies occupy the other side of the spectrum from gold. Thanks to emergent fintech and digital banking solutions, fiat currencies are well-equipped to transfer value quickly across space. Although the fiat-based economy tends to be constrained by physical borders and a complex web of intermediaries, it is still a functional option for sending and receiving money.
However, preserving wealth in fiat currency is a different story. Because they are no longer pegged to gold, fiat currencies are now solely controlled by the central banks that print them. Printing money has become the proverbial axe that central banks wield anytime crisis strikes. Since the COVID-19 pandemic began, for example, the Federal Reserve has printed over $3 trillion, almost doubling the supply of dollars in a single year. With an unlimited money supply chasing a limited pool of goods and services, the result is almost always inflation. Fiat currency loses purchasing power by the minute, and the cash held in a checking or savings account cannot accrue interest at pace with today’s inflation rates.
Moreover, fiat currency lacks the qualities of a true bearer asset. Fiat assets are subject to seizure by governments, and transfers are limited to recipients who are recognized by the bank. Just ask the customers of Laiki Bank, the second-largest bank in Cyprus at the time, who saw their account balances slashed during the 2013 Eurozone crisis. Over €3.4 billion was drained from customer accounts, even from some customers who had purchased insurance.
Where fiat and gold fail, bitcoin succeeds. Not only was bitcoin the best-performing asset of the past decade, demonstrating an unmatched ability to preserve wealth through time, but it is also gaining traction as a payment system. Unburdened by borders of any kind, bitcoin is comfortably growing into its role as a fast, global option for transferring money across space.
The rise of Bitcoin has fuelled a boom in assets that are deceptively similar to the real thing but fall short in granting the financial freedom inherent in Bitcoin. For example, PayPal’s decision to enable bitcoin purchases, while exciting, came with a notable caveat: users who buy bitcoin through PayPal are unable to withdraw it into self-custody. This inability to control your bitcoin flies in the face of the values of financial self-sovereignty that Bitcoin was designed to enable.
Some fintech platforms have strayed even further from actual bitcoin. A growing surge of retail investors may stumble upon platforms that claim to allow them to buy bitcoin when that isn’t strictly the case. Instead, such platforms facilitate trading in CFDs (contracts for difference), which are synthetic assets that mirror the price of bitcoin. Although CFDs might be suitable for short-term traders, those who wish to accumulate and hold bitcoin will be left disappointed to discover that they don’t own any real bitcoin.
Aside from the fact that it exists outside of government-controlled monetary systems, one of the biggest differences between bitcoin and everything else in the world of money is that it is both an asset and a monetary transaction log. Just as bitcoin meets the basic definition of money, it also meets the definition of a payment processor. As a monetary network, Bitcoin handles transactions between parties by relaying value from one to others, recording all transactions in a distributed, public ledger.
Becoming a first-class Bitcoin citizen requires running your own wallet that contains your own private keys and keeping that wallet safe. Only by buying real bitcoin, not CFDs, and storing it in a secure wallet can you record your balance on the open Bitcoin ledger.
Once you venture into the world of obtaining and holding bitcoin, you become your own banker. This may seem like a scary prospect, but the banks find this scarier than you do. In fact, the biggest banks and most prominent voices in the industry recognize that their disintermediation by the self-banked is well underway.
When you own bitcoin, you possess a store of value that can be used relatively quickly as a means of exchange, and you also have a means to exchange that value. You can’t hold your bitcoin in your hand, but since we left behind gold doubloons in the 1600s, the only thing we’ve ever been able to hold is a government-issued promissory note of value. The development of credit cards and digital payment processors like Venmo and PayPal has decoupled money even further from physical currency. Bitcoin takes us deeper into financial freedom by decoupling a store of value and its exchange from central banks and financial institutions. This opens enormous opportunities for and gives power to people worldwide who, by relinquishing their hold on cash, gain something far more valuable and powerful.
This is a guest post by Laurence Newman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
Bitcoin was lower for a second day, retreating following an eight-day streak of gains that was the longest since June 2019.
“A period of consolidation could be beneficial,” Simon Peters, an analyst for the trading platform eToro, wrote early Monday in an email, “allowing things to stabilize and cool down.”
In traditional markets, European shares fell the most since June as an apparent mutant strain of the coronavirus in the U.K. led the Netherlands, Belgium and France to impose border closures. U.S. stock futures pointed to a lower open, even after U.S. lawmakers agreed on a new $900B stimulus deal. Crude oil fell nearly 6%. Gold weakened 0.6% to $1,870.67 an ounce.
(Editor’s note: This is the sixth and final installment of First Mover’s recap of how the bitcoin market evolved over the course of 2020 and what it means for the future. Today we cover the period from October through December, when big investors and Wall Street firms suddenly started touting bitcoin as a hedge against central-bank money-printing, causing prices to double and reach a new all-time high.)
Bitcoin proponents have tried myriad strategies over the cryptocurrency’s 11-year history to pitch it to prospective buyers.
Satoshi Nakamoto, the cryptocurrency’s inventor, designed bitcoin to be a peer-to-peer electronic payments system outside the control of any person, company or government. For a while, some cryptocurrency analysts positioned bitcoin as a “safe haven” asset that would hold its value in times of deep economic dislocation and market turmoil. That proposition was dashed in March, when the initial global spread of the coronavirus sent global markets reeling, and bitcoin plunged 25% over the course of the month.
What ultimately proved to be bitcoin’s breakthrough was big investors’ adoption of the cryptocurrency’s potential use as a hedge against central-bank money printing and the debasement of the dollar. The thesis derives from the hard-coded limits on bitcoin’s supply, as programmed into the underlying blockchain network; unlike government currencies that can be issued subjectively and at will by central bankers, only 21 million bitcoins can ever be created.
As of early October, bitcoin prices were trading around $10,800, up 50% on the year. It was already an impressive gain, especially during a year when the global economy had suffered the worst contraction since the Great Depression. U.S. stocks were up 4%.
Despite the outperformance, bitcoin analysts were still bullish. The blockchain network was growing, brokers cited continuing interest from buyers, positive-looking patterns were forming in price charts, options markets were hinting at further gains, the dollar was weakening in foreign-exchange markets, and there were few signs that governments and central banks would curtail the seemingly endless flow of stimulus money anytime soon.
Yet as of early October, few traders were betting that prices would more than double over the next three months, blowing past $20,000 to a new all-time high.
And then, almost as if a gate were opened, big corporations and money managers started to pile into bitcoin, accompanied by a flurry of recommendations from once-skeptical Wall Street analysts.
MicroStrategy CEO Michael Saylor shifted at least $425 million of his company’s corporate treasury into bitcoin. Square, the payments company, said it would put some $50 million, or 1% of its assets, into the cryptocurrency. PayPal, another payments company, announced it would allow 346 million customers to hold bitcoin and other cryptocurrencies, and to use the digital assets to shop at the 26 million merchants on its network.
“It’s the sheer scale of PayPal’s reach that is attracting the headlines,” Jason Deane, an analyst for the foreign-exchange and cryptocurrency analysis firm Quantum Economics, wrote in a report in late October. “This could well go down in history as a watershed moment, the point at which bitcoin goes properly mainstream.”
Analysts with JPMorgan Chase, whose CEO Jamie Dimon had famously called bitcoin a “fraud” in 2017, wrote that the cryptocurrency had “considerable” price upside. “Even a modest crowding out of gold as an alternative currency over the longer term would imply doubling or tripling of the bitcoin price from here,” they wrote.
Additional endorsements would flow over the coming months from the hedge-fund legend Stanley Druckenmiller, money managers SkyBridge Capital and AllianceBernstein, brokerage firm BTIG and life-insurance company MassMutual. Wells Fargo, the big U.S. bank, published a 2021 investment outlook with a full page discussing bitcoin’s big gains, even though executives said customers weren’t allowed to buy it in their accounts due to regulatory uncertainty.
“I think cryptocurrency’s here to stay,” Rick Rieder, chief investment officer for the big mutual-fund company BlackRock, told CNBC on Nov. 20.
Joe Biden’s victory in the U.S. presidential election reinforced investors’ belief that government stimulus money would continue for the foreseeable future, since the candidate had pledged to push for at least $5 trillion of new spending initiatives from education to housing, health care and infrastructure.
In December, the Federal Reserve adopted “qualitative” guidance for its $120-billion-a-month of asset purchases – a form of monetary stimulus that relies on money printing. The move gave policy makers additional flexibility to continue the program as long as they deemed fit.
Prices for bitcoin shot past $20,000 on Dec. 16, setting a new price record, and within days had surpassed $23,000. As of late Sunday, the cryptocurrency was changing hands at $23,642.
“Bitcoin has graduated from ‘digital assets playground’ to ‘mainstream global investment,’” Jeff Dorman, chief investment officer for the cryptocurrency firm Arca Funds, wrote Saturday in a column for CoinDesk. “Investors now have the knowledge and means to buy bitcoin themselves, and we are seeing it in real-time, which happened quicker than we anticipated.”
What comes next? Analysts are still bullish.
Dan Morehead, CEO for the cryptocurrency-focused money manager Pantera, recently cited a formula that projects a price of $115,000 by next August. Scott Minerd, chief investment officer for the Wall Street firm Guggenheim, predicted bitcoin could go to $400,000.
The cryptocurrency investment firm NYDIG published an analysis arguing that the Bitcoin network’s growth could justify prices in the range of $51,611 to $118,544 in five years. Kraken Intelligence, a research unit of the digital-asset exchange Kraken, published results of a survey noting that clients expect an average bitcoin price of $36,602 in 2021.
Even the Kraken customers’ comparatively modest prediction would represent a 55% gain from current price levels. That could mean bitcoin outperforms again in 2021, with Wall Street analysts on average predicting a 9% return for U.S. stocks next year.
A once-in-a-generation calamity like the coronavirus was bound to create extreme gyrations in global markets, with some assets proving big winners and some losing big. (Remember The Big Short?)
The final few months of 2020 validated some investors’ bets that the economy wouldn’t return to its former strength anytime soon, and that trillions of dollars of fiscal and monetary stimulus, from governments and central banks around the world, would be needed on an ongoing basis to nurse any recovery.
In hindsight, bitcoin was the biggest winner from that trade.
“The current macroeconomic environment is set up perfectly for an asset that blends the benefits of technology and gold,” the U.K. money manager Ruffer Investment said in a recent portfolio update, after confirming a bitcoin purchase worth more than $745 million. “Negative interest rates, extreme monetary policy, ballooning public debt, dissatisfaction with governments – all provide powerful tailwinds.”
Bitcoin marketers couldn’t ask for a more compelling selling point. As if this year’s 225% year-to-date price gains weren’t compelling enough.
– Bradley Keoun
(Editor’s Note: CoinDesk’s Omkar Godbole, who writes Bitcoin Watch, is off this week.)
The Graph (GRT): Indexing protocol’s digital token quintuples in price following launch last week of main network, with new listings on crypto exchanges Binance, Coinbase, Kucoin, OKEx and Kraken.
Dogecoin (DOGE): Meme token spikes 20% to highest price since July after Tesla’s Elon Musk tweets about it to his 40M followers.
Bitcoin cash (BCH): Also-ran cryptocurrency jumps to $380, highest since February, is now up 58% year-to-date.
U.S. Treasury Department proposes long-dreaded plan to make crypto exchanges identify personal wallets (CoinDesk)
Slowing of Grayscale bitcoin fund inflows could prompt price correction, JPMorgan says (CoinDesk)
Global head of equity strategy for Wall Street brokerage firm Jefferies initiates 5% long-only asset allocation for U.S. dollar-based pension funds, while cutting gold’s share to 45% from 50% (CoinDesk)
Ruffer Investment used Coinbase to execute $745M bitcoin buy (CoinDesk)
Decentralized stock trading (in Airbnb, Tesla, Amazon, Google shares) launches on DeFi platform Injective Protocol, using Band Protocol’s oracle technology (CoinDesk)
Blockchain data suggest more institutions are buying bitcoin over-the-counter (CoinDesk)
How two of Coinbase CEO Brian Armstrong’s top lieutenants got in screaming matches and then both exited in rapid succession (Excerpt from Jeff Roberts’s “Kings of Crypto,” published on CoinDesk website)
Goldman Sachs reportedly wins mandate to lead Coinbase IPO preparations (Reuters)
“Bitcoin in portfolios represents more than a new recipe. It represents the need for a new recipe,” CoinDesk Research Director Noelle Acheson writes in weekly column (CoinDesk Opinion)
U.S. lawmakers set to vote on $900B coronavirus-stimulus bill, including $600 checks for individuals, $300-a-week supplemental jobless benefit, $284B for Paycheck Protection Program (forgivable loans for companies), $15B to reinstate payroll reimbursements for airlines and $1B for airline contractors; when coupled with $1.4T bill to fund government operations, cost of total package is $2.3T (Bloomberg)
Debate over Federal Reserve’s emergency-lending powers is unresolved, after Republican lawmaker insisted on provision barring U.S. central bank from restarting some programs set to Dec. 31, then deleted language that would have prevented “similar” programs from being launched (Bloomberg)
Manhattan’s historic Chrysler Building still eerily empty (Bloomberg Businessweek)
Federal Reserve affirms banks’ Countercyclical Capital Buffer (CCyB) should be set at zero, after November report found that “vulnerabilities” in money markets were “substantially” mitigated by the U.S. central bank’s own emergency-lending facilities (Federal Reserve)
Fed allows banks to resume share buybacks (CNBC)
Wall Street strategists see U.S. stocks gaining 9% in 2021 (CNBC)
Yellen pressed to back strong dollar in reversal of Trump-era tone (Bloomberg)
Is crypto some kind of joke to you, Elon Musk? Don’t you know that our fractious community hangs onto your every mention of Bitcoin? So why, then, do you torment us so?
Musk, CEO of Tesla, SpaceX and self-titled “Lord” Edge, today tweeted that Bitcoin is his “safe word,” which we hoped was a reference to Bitcoin’s security as a safe haven asset and a hedge against the US dollar. Nope! Musk tweeted an hour later: “Just kidding, who needs a safe word anyway?!”
Just kidding? Who’s laughing, Elon? Not Decrypt!
Musk further ground our gears into dust when he tweeted a raucous, tasteless! image of a sultry woman whose genitals he had concealed with the Bitcoin logo. Next to the temptress was a monk, to whom Musk could presumably relate, with the caption, “Me trying to live a normal productive life.”
At this juncture, Justin Sun, CEO of Tron, cut the tension when he tweeted, “Please consider taking #Bitcoin private at $100,000. Funding secured.”
Undeterred, Musk tweeted the following:
Bitcoin’s price did not crash on the news, but our jaws, hearts, and hard drives did.
Musk then dealt his final blow. “One word: Doge,” he tweeted. Following Musk’s tweet, Dogecoin rose by 17%, from $0.0039 to $0.0046.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.
(Illustration by @tomgauld) https://t.co/SooT75AwYN
The Central Board of Direct Taxes (CBDT), the authority in charge of taxation in India, is now gathering information about bitcoin (BTC) trades executed via banks in the state and it’s also monitoring the earnings of traders on KYC-compliant exchanges. Sources close to the matter have hinted that the nation may be making plans to
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