The Great Cryptocurrency Scam (2017-2018)
JDA An entire industry exists to take advantage of cryptocurrencies. From the creators of individual cryptocurrencies, to folks who sell software apps such as wallets, to companies that are attracting venture capital for vaguely-described synergies involving the retail use of cryptocurrency, to hedge funds that invest directly in cryptocurrency to those who put on conferences on how to get rich on cryptocurrency, literally billions of dollars worldwide have poured into crypto.
Yet, cryptocurrency is failing, badly. The vast majority of cryptocurrency have already ended up listed at http://www.deadcoins.com and even the flagship best-of-class Bitcoin as of this writing has lost 80% of its value in the last year. Despite the continuing hype for crypto, seemingly every day makes it look worse as both an idea and an investment.
To understand why crypto is failing, it is necessary to understand what crypto isn't and is.
Cryptocurrency Is Not A Revenue-Producing Asset. Unlike a stock whose value can be determined by earnings, cryptocurrency provides no income stream to its owner. While some owners like to think of themselves as "owning the technology", nothing could be further from the truth since they earn no royalties if somebody else is using that technology. Because crypto has no earnings, that means it has no P/E ratio by which a rational price can be established. Crypto isn't even as good as a zero-coupon bond, however, since it has no maturity date when principal will be returned.
Cryptocurrency Is Not A Commodity. A commodity is usually something that is consumed, leading to demand for more. Oil and wheat are examples; once a stock of those is consumed, another must be supplied. Cryptocurrency is not a commodity. There is no demand for cryptocurrency in the consumption sense, and an individual unit of cryptocurrency is not destroyed by a transaction but can be reused over and over such that most demand can be met by existing stocks.
Cryptocurrency Is Not A Store Of Value. Some pundits have claimed that crypto is a "store of value", meaning that if you put $1,000 of value into crypto today, then in the future you will be able to get your $1,000 of value back by selling the crypto. That's not the way it works in reality, however, because cryptocurrency is so volatile. As mentioned, the flagship Bitcoin has lost 80% of its value in a year, which in retrospect doesn't seem like a particularly good way to store value.
Cryptocurrency Is A Currency . . . Crypto is currency, meaning a mechanism of exchange. In the past, humankind has used everything from pretty seashells to beaver pelts to rare metal coins to (now) little pieces of paper with uninteresting pictures on them as units of exchange. At the end of the day, this is all that crypto is -- a unit of exchange that does not exist in the material world but instead exists only in binary code on computer ledgers somewhere. If this sounds high-tech and really innovative, then you'd better consider that we've had such payment systems for years in the form of debit and credit cards, wire-transfers, and services such as PayPal.
The difference is that those older systems dealt in the local governmental currency, such that a Nebraskan buying beer with a credit card did it with dollars, or if there was an international wire-transfer from Moscow there was a conversion from rubles to dollars, etc. With cryptocurrency, the currency itself is predominantly used so long as the user can find a seller who takes that cryptocurrency, although it should be noted that Bitcoin ATMs dispense cash in the local currency. The point being that cryptocurrency, as its name suggests, is in fact currency and not something else.
. . . But An Unprotected Currency. There is a reason that some nations have relatively stable currencies such as those found in the industrialized nations: The governments of those nations have strong central banks (in the U.S., the Federal Reserve Bank for example) which keep those currencies stable by variously expanding or contracting the money supply, guiding government economic policy decisions, and using a variety of methods -- including criminal prosecution -- to prevent currency manipulation.
By contrast, nations such as Venezuela, the Sudan, etc., have no meaningful central banks and thus their currencies are extremely volatile, sometimes changing their value relative to the stable currencies by the hour. These nations are subject to what amounts to "currency anarchy" and have no effective weapons in their financial arsenals to combat price manipulation.
Cryptocurrency falls into this later category. With cryptocurrency, there is no governing body to expand or limit the money supply to meet changing events, and utterly no mechanism to prevent widespread price manipulation. This is the primary reason why cryptocurrencies are so volatile -- like a nuclear reactor without control rods, once a cryptocurrency is launched there is no way to control it until it finally burns itself out.
This is also why cryptocurrency adoption by merchants has dramatically lagged predictions: What merchant wants to accept much of a currency that is like a Venezuelan bolivar that can go down in minutes? Oh sure, a few merchants have thought that it is neat to hang a sign on their window that says "We accept Bitcoin!" because that sounds kind of hip, and, who knows, maybe somebody will make a large purchase someday with crypto. But taking in a bunch of it everyday and risk losing a bunch of money on wild price swings? No way.
Cryptocurrency As A Speculative Investment
By far the most purchases of cryptocurrency have been raw speculation; investors buying particular cryptos in the hope that they would dramatically appreciate in value. This phenomena was illustrated in the Great Crypto Boom of December, 2017, when Bitcoin shot up in value from $1,000 per Bitcoin on January 1, 2017 to $19,783.06 in mid-December of that year.
During the 2017 bubble, many ordinary folks who were smart enough to sell became instant multi-millionaires and, just like the gold-rush days of old, many other ordinary folks started taking second mortgages on their houses and cashing out their credit cards and IRAs to spin the Wheel of Crypto Fortune and buy in, which further accelerated the price until that bubble finally burst and those belated investors were wiped out.
The point being that few, if any, of those investors bought into Bitcoin because they had faith that it would be the "currency of tomorrow", but rather they just wanted to get rich, and quick. But even as the Bitcoin bubble was building, other promoters of their own cryptocurrencies were out pitching their deal as the next big thing. It is these other currencies -- nearly all of which eventually failed entirely -- ended up on deadcoins.com where you can read their obituaries. The other cyptos (called "altcoins") often lacked any usage whatsoever and had no merchants that would accept them in payment. But folks bought in because they were speculating on their values rapidly appreciating just as Bitcoin had done. But this is not to overlook that Bitcoin itself has value only because of the promise of future appreciation, i.e., the price of Bitcoin is driven primarily by speculation.
The Cryptocurrency Paradox
All this now brings us to The Cryptocurrency Paradox:
Crypto has value based on its usage to buy things; because of that value, most owners of crypto do not want to use it to buy things; therefore, crypto is not widely used to buy things and thus has no value other than related to relatively minimal usage.
In other words, the sine qua non of a particular cryptocurrency is based on the mutual concepts of "acceptance" (how many merchants will take the crypto in exchange for goods or services) and "usage" (how many owners are spending their crypto in exchange for goods or services).
Whatever the rates of acceptance, the problem is that because crypto owners expect their crypto to appreciate in value, they are holding it as an investment and not using it. This is supported, among other things, by a study reported in Reuters that usage of Bitcoin had gone down approximately 80% in January to September, 2018.
Thus, the paradox: Crypto investors buy and hold crypto because they want their crypto to appreciate in value, but unless they use their crypto the value will not go up. To the contrary, unless the crypto is used, the value of the crypto will keep falling, and investors will start unloading their investment to avoid further losses. Repeating this cycle leads to the inevitable "death cycle" that is so common to finance, and ends badly for the crypto and any remaining investors. This seems to be what is happening to Bitcoin now.
Because of this paradox, no cryptocurrency is likely to be successful until investors can be persuaded to actively use their crypto, and not simply hold on to it and speculate that it goes up in value.
But, again, there are significant barriers to increasing usage not the least of which is crypto's high volatility, and the possibility (if not likelihood) of widespread price manipulation. Here, acceptance plays a role: What large company wants to hold on its books an asset that can fluctuate by 10% in an hour, or which can be pumped-and-dumped by bad actors? But even beyond this, the fundamental problem is that there is no means available (such as taxes) to incentivize investors to quit holding for speculation and actually use large amounts of crypto for mercantile activities.
It is largely because of this paradox that leading economists such as Nouriel Roubini and many others have predicted that Bitcoin and other cryptocurrencies will sooner or later return to a value near zero. With Bitcoin in a long slide, and the handful of remaining altcoins having one foot already in the grave, it is probably more likely than not that such will be end result for all cryptocurrencies unless some really bright person can figure out how to solve this paradox.
In the meantime, there will certainly be peaks and valleys in the price of Bitcoin, and the volatility is likely to get even worse which will drive down usage as a currency even further. But something quite spectacular will have to occur to break the paradox and stop Bitcoin and the remaining altcoins from entering the death cycle. One this is absolutely certain, however, which is that for the next few months investing in cryptocurrency should be strictly limited to those willing and able to lose the totality of their investment because that is exactly what will be at risk.
As things go now, it is looking more and more like the final procession of crypto funerals will occur in 2019. In that case, the epitaph written on the tombstone of Bitcoin and the altcoins might well be that phrase by which Jefferson Davis in his later years characterized the failure of the Confederacy: "Died of a Theory."
This article athttps://goo.gl/TK8q1X
FAQs
Cross-border payment method
In the absence of a bank or other financial institution, the capacity to transfer cash from one location to another is revolutionary. Traditional cross-border payment providers might charge a large number of fees for sending money abroad, and this is where cryptocurrency comes in.
What is the main problem of Cryptocurrency? ›
Most troublingly for investors with ESG goals, however, are the governance issues with cryptocurrencies whose decentralized frameworks and anonymity make them especially attractive for illicit activity, money laundering and sanction evasion.
What is the argument against Crypto? ›
Because crypto relies on technology not trust there is no backstop to rely on if something goes wrong. Unsurprisingly crypto has become a paradise for hackers scammers and thieves. People often end up relying on third parties like crypto exchanges in any case.
What are the most popular mistakes in crypto trading? ›
12 beginner crypto mistakes to avoid
- Trading based on FOMO.
- Not doing your own research.
- Not knowing when to exit and take profits.
- Constantly searching for the next Bitcoin or Ethereum.
- Panic buying/selling.
- Thinking only in terms of price.
- Forgetting about cybersecurity.
- Putting in too much money too soon.
Cryptocurrencies are useful beyond their application as a medium of exchange. By eliminating the need to rely on a third party for the issuance and transfer of value, cryptocurrencies empower users to take control of their finances.
Is there any real value in cryptocurrency? ›
Similar to Fiat currency, Bitcoin (or most of the cryptocurrencies) is also not backed by any gold or silver hence does not have any intrinsic value.
Why are Cryptos hardly used currencies? ›
The higher volatility in prices compared to a traditional currency makes it less likely to be used as a “store of value”. "Bitcoin is 10X more volatile compared to major currencies and hence it is becoming a speculative asset class with increasing interest from people," according to HDFC.
What is the biggest problem with Bitcoin? ›
Biggest flaws of Cryptocurrency
Cryptocurrencies are easily hackable, they're vulnerable to theft, and they're not backed by anything. Furthermore, cryptocurrencies are not regulated or endorsed by any government or financial institution, making them risky investments.
What is a cryptocurrency in simple words? ›
A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system.
Is investing in crypto a gamble? ›
Davis, a member of the 2014 Financial System Inquiry panel, says in his submission that buying a cryptocurrency such as Bitcoin is “primarily (if not exclusively) a form of gambling/speculation”.
Share this:
| Pros of Bitcoin | Cons of Bitcoin |
|---|
| Accessibility and liquidity | Volatility |
| User anonymity and transparency | No government regulations |
| Independence from a central authority | Irreversible |
| High return potential | Limited use |
30 Jun 2022
Lack of Basic Crypto Knowledge
Investing in an asset you don't understand, or trying to trade crypto without understanding the basics of how cryptocurrency works, is a recipe for disaster. Taking time to educate yourself on different crypto projects and the goals of each crypto company will make you a better investor.
How do you get rich on crypto? ›
Based on these three mechanisms, here are the six strategies for making money with cryptocurrency:
- Investing.
- Trading.
- Staking and Lending.
- Crypto Social Media.
- Mining.
- Airdrops and Forks.
A beginner's guide to currency trading
- Do your research. The crypto market is a vast market with different protocols of trade. ...
- Practice different trading strategies. The crypto market is volatile, and it changes daily. ...
- Pick a cryptocurrency and start trading. ...
- Diversify your investments.
Stocks provide stability. They've been the go-to investment to build wealth for individuals and organizations for most of the 20th century and into the 21st century. Cryptocurrency is the riskier investment. It offers the chance for big rewards, but at higher risk.
Can a cryptocurrency disappear? ›
As we've learned in the article above, there seems to be a consensus that cryptocurrencies are here to stay – that said, their total market capitalisation could diminish. And, of course, individual coins crash and burn at any time.
What are the 4 types of cryptocurrency? ›
Q #1) What are the four types of cryptocurrency? Answer: The four major types include utility, payment, security, and stablecoins. There also are DeFi tokens, NFTs, and asset-backed tokens. Of all cryptocurrencies, the most common are utility and payment tokens.
Who owns the most Bitcoin? ›
US-based software company MicroStrategy (MSTR) is the world's biggest publicly traded corporate owner of bitcoin with holdings of about 129,218 BTC, according to its Q1 2022 earnings report. MicroStrategy's BTC holdings were worth over $3bn, as of 22 July 2022. Tesla (TSLA) is also known to be a holder of bitcoin.
Who controls the value of cryptocurrency? ›
Cryptocurrencies are a tradable asset, much like stocks, commodities, securities and so on. Their price is determined by how much interest there is on the market in buying them – that's called demand – and how much is available to buy – that's supply. The relationship between the two determines the price.
How long does it take to mine 1 Bitcoin? ›
So the network raises the difficulty of slowing down block production. With today's difficulty rate but much more advanced systems, it may take a solo miner about 10 minutes to mine one bitcoin. The average rate for most miners, however, stands at 30 days.
When you buy crypto, you own nothing. Except your right to sell your share of nothing to another willing buyer. The value of your crypto is entirely determined by what others will pay for it on a given day. It has no independent value or inherent utility.
Can crypto become a global currency? ›
Only a handful of nations, like El Salvador, accept Bitcoin as a legal tender or currency. In some countries, this virtual currency is illegal. Thus, Bitcoin has to prove its usability as a currency and the ability to retain value for it to become a global currency.
Is crypto a currency or an asset? ›
Cryptocurrency is a type of digital asset that is an intangible, digital currency that uses a highly sophisticated type of encryption called cryptography to secure and verify transactions as well as to control the creation of new units of currency.
Why do people think crypto is worth anything? ›
Cryptocurrency is considered valuable in that demand exceeds supply. Many investors believe crypto has the potential to be more useful than fiat currencies because it's decentralized and wouldn't be subject to inflation and other government or political pressures.
Can Bitcoin reach zero? ›
While such a scenario is highly unlikely, Bitcoin could still technically crash to zero. In 2018, Yale University economists estimated that the probability of the largest cryptocurrency collapsing to zero within a single day due to some extreme black swan event was 0.4%.
What backs up Bitcoin? ›
Bitcoin is not backed by any asset. This should be intuitive because Bitcoin is not controlled by any person or organization. Therefore, nobody is in a position to make this promise, and they would not gain anything by taking on the massive liability associated with ensuring the backing.
How exactly does cryptocurrency work? ›
Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders. Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that generate coins.
Is crypto legal? ›
The sale of cryptocurrency is generally only regulated if the sale (i) constitutes the sale of a security under state or Federal law, or (ii) is considered money transmission under state law or conduct otherwise making the person a money services business (“MSB”) under Federal law.
Why is it called cryptocurrency? ›
Why is it called cryptocurrency? The name cryptocurrency is a portmanteau of cryptography and currency. This is due to the fact that crypto is made viable by its secure consensus mechanism called the blockchain, a sort of digital ledger that records transactions and is designed in such a way that it cannot be changed.
Is cryptocurrency better than real money? ›
Cryptocurrencies can offer lower associated fees and more cost-efficient transactions. Cryptocurrencies may be valuable tools for implementing the shift to a global, trustless and open new digital economy.
Analysts estimate that the global cryptocurrency market will more than triple by 2030, hitting a valuation of nearly $5 billion. Whether they want to buy into it or not, investors, businesses, and brands can't ignore the rising tide of crypto for long. But crypto can't seem to escape paradoxes anywhere.
What happens to money used to buy cryptocurrency? ›
A buyer and seller agree on a price and a trade is executed over an exchange. So our $50k investor buys that amount of bitcoins and the seller receives the $50k in the form of a cash deposit. That seller may now keep it in the bank, buy other cryptos or withdraw it and spend it in any way they choose.
Why is crypto not an investment? ›
1. Cryptocurrencies do not Generate Cash Flow. Traditional investors consider a cash outflow to be an investment if it generated future cash inflows without the need to sell the asset. For instance, if a person buys a home, they can generate cash flow in the form of rent without having to sell the underlying asset.
Why is crypto so addicting? ›
As with a drug or alcohol addiction, the individual seeks out more and more of this dopamine rush as the brain becomes less able to receive it from other life pleasures. The sense of euphoria triggered by cryptocurrency wins are what makes crypto trading and investing so addictive.
Is crypto a good long term investment? ›
Investing in crypto assets is risky, but can be a good investment if you do it properly and as part of a diversified portfolio. Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency.
What are 3 benefits of cryptocurrency? ›
Advantages of Cryptocurrency :
- Protection from inflation – Inflation has caused many currencies to get their value declined with time. ...
- Self-governed and managed – ...
- Secure and private – ...
- Currency exchanges can be done easily – ...
- Decentralized – ...
- Cost-effective mode of transaction – ...
- A fast way to transfer funds –
Some of the benefits of cryptocurrency extend to people who don't have access to, or perhaps don't trust, the traditional financial system. Due to its decentralized and permission-less nature, one of the benefits of cryptocurrency is that anyone can participate outside of that system.
Should you invest in crypto now? ›
Crypto can be a fantastic long-term investment, but it's not right for everyone. Whether it belongs in your portfolio will depend largely on your financial situation and tolerance for risk. Before you invest, double-check that your finances are stable and you have a healthy emergency fund.
Where do people buy new crypto? ›
The Ascent's best places to buy Bitcoin:
- Investing simplicity and and high interest rates: Gemini Exchange.
- Diversified investing needs: Robinhood.
- Trading platform and crypto selection: Coinbase.
- Membership ecosystem: SoFi Active Investing.
- User-friendly trading platform: Cash App Investing.
- Low fees: Binance.US.
Most Active Cryptocurrency - Volume
- Tether. ₹ 82.69. 0.22%
- Bitcoin. ₹ 17,02,739. 0.97%
- Ethereum. ₹ 1,32,261. 1.97%
- Binance USD. ₹ 82.67. 0.09%
- Dogecoin. ₹ 12.64. 28.87%
- USD Coin. ₹ 82.56. -0.13%
- BNB. ₹ 27,074. 5.33%
Here's all you need to learn regarding generating income from day trading if you're only commencing out with cryptocurrency. By investing roughly $1000 while monitoring a 10% increase solely on a single combination, it is possible to earn $100 every day in bitcoin.
How many crypto millionaires exist? ›
There may be over 100,000 crypto millionaires – or at least, wallet addresses connected to crypto millionaires.
Which crypto will make you rich in 2025? ›
Bitcoin (BTC-USD)
Bitcoin (CCC:BTC-USD) Bitcoin is the gold standard of the crypto market, and though its market cap has plummeted over the crypto winter, its value as quasi-money continues to attract investors. Its position as the top cryptocurrency is unlikely to change anytime soon.
How can I master crypto? ›
5 Tips to Master Cryptocurrency Trading in 2022
- 5 Tips to master cryptocurrency. ...
- Focus on Liquid Currencies. ...
- Trade, Do Not Gamble. ...
- Buy the Strength, Sell the Weakness. ...
- Ensure Due Diligence for Lower-Priced Cryptos. ...
- Keep Emotions in Check.
How to become a Crypto Specialist (4-step guide)
- Bitcoin Certified Courses.
- Certified Cryptocurrency Expert (CCE)
- Professional Certificate Program in Blockchain.
- Certified Polkadot Expert.
- Certified Bitcoin Expert.
- Certificate course in Solidity.
Cryptocurrencies are most commonly traded between 8am to 4pm in local time. While the crypto market is 24/7, your trades are more likely to be executed when there is the highest level of activity. Outside of these hours, when trading is lighter, it can be more difficult to open and close trades.
What significant problem did the first Cryptocurrency solve? ›
Nakamoto was not the first to hit on the concept of cryptocurrency but was the one to solve a fundamental problem that prevented its adoption: Unlike paper currency, cryptocurrency could be duplicated. This was known as "double-spending," and Nakamoto solved it by creating the blockchain system of verification.
What problems can blockchain solve? ›
One thing is certain now: blockchain has the potential to solve the acute issues of data storage and security, transactions processing and intermediaries, supply chains, intellectual property, government operations, charity, voting, and crowdfunding.
Why is crypto good for the world? ›
Act as a Stable Alternative to Unstable Currencies
The currencies of some countries are unstable, suffering from inflation and other issues. Cryptocurrencies, which are decentralized and accessible across most of the world, could serve as a safer alternative in those cases.
What problems does ethereum solve? ›
Ethereum enables the smart contracts and applications built on its blockchain to run smoothly without fraud, downtime, control, or any third-party interference. Ethereum is also a programming language that helps developers to create distributed applications.
How does cryptocurrency gain value? Like any currency, cryptocurrencies gain their value based on the scale of community involvement. Cryptocurrency gains value if the demand for it is higher than the supply. When a cryptocurrency is useful, people want to own more of it, driving up the demand.
What is crypto backed by? ›
Backing a currency is done by the currency's issuer to ensure its value. Bitcoin and fiat currencies are not backed by any other asset.
Who owns the most bitcoin? ›
US-based software company MicroStrategy (MSTR) is the world's biggest publicly traded corporate owner of bitcoin with holdings of about 129,218 BTC, according to its Q1 2022 earnings report. MicroStrategy's BTC holdings were worth over $3bn, as of 22 July 2022. Tesla (TSLA) is also known to be a holder of bitcoin.
What real world problem does blockchain solve? ›
Blockchain can allow organizations to have a completely decentralized network, without the need for any central authority. This will increase transparency. This technology offers immutability, which means that nobody can alter data on the Blockchain.
What is blockchain in simple words? ›
Blockchain defined: Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding).
Is blockchain really the future? ›
Blockchain is an emerging technology with a lot of things that can be improved in the near future. With innovations such as graph-based distributed ledger technology, it is important to understand that there are a lot of things to come for blockchain or DLT, in general.
Is crypto better than money? ›
Bitcoin is digital and decentralized – With Bitcoin people get the liberty to exchange value without intermediaries which translate to greater control of funds and lower fees. It's faster, cheaper, more secure and immutable. Cash is controlled by banks while bitcoin has owners.
Can a cryptocurrency disappear? ›
As we've learned in the article above, there seems to be a consensus that cryptocurrencies are here to stay – that said, their total market capitalisation could diminish. And, of course, individual coins crash and burn at any time.
What are disadvantages of cryptocurrency? ›
If companies or consumers move to a new cryptocurrency from you or stop using digital currencies entirely, it could lose value and become worthless. Cryptocurrency exchanges are vulnerable to cyber attacks, which could lead to an irreparable loss of your investment. Cryptocurrency can be vulnerable to scams.
Can Ethereum overtake bitcoin? ›
CRYPTO: ETH
Right now, Ethereum is about half as big as Bitcoin based on market cap and Solana's is equal to just 3%. So a lot would have to change for either of them to overtake Bitcoin.
Top 10 Best Cryptocurrencies To Invest In For 2023
- Top 10 Best Cryptocurrencies to Invest In 2023. ...
- Ethereum (ETH) ...
- Bitcoin (BTC) ...
- ApeCoin (APE) ...
- Solana (SOL) ...
- Shiba Inu (SHIB) ...
- Uniswap (UNI) – Best Decentralized Cryptocurrency to Invest in Long Term. ...
- Decentraland (MANA)
Ethereum 2.0 will involve sharding to drastically increase network bandwidth and reduce gas costs, making it cheaper to send Ethereum, tokens, and interact with smart contracts. There will be fundamental economic changes too, Ethereum 2.0 will allow supports to staking nodes and earn Ethereum as passive income.
