The One Reason Why the Crypto Crash Is Temporary

Cryptocurrency prices are tumbling once again overnight with Ripple getting smashed...

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Bitcoin is back below $12,000 and Ethereum testing down towards $1000...

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There are no clear catalysts but @IamJosephYoung notes that the South Korean government previously announced that under-aged investors and foreigners will be prohibited from trading cryptocurrency. Korbit is the first one to comply with that policy. Bithumb and Coinone yet to comment on it. Date expected to be February 1, not confirmed yet. Kookmin Bank and some other banks will not provide support for exchanges. But, Shinhan Bank will. Soon, they'll regret giving the entire market to their competitor.

And perhaps the pre-emptive impact of that speculative capital leaving the market is triggering these drops.

Additionally, headlines in the SCMP suggest further pressures from China...

The People’s Bank of China has ordered financial institutions to stop providing banking or funding to any activity related to cryptocurrencies, further tightening the noose since its shutdown of crypto exchanges last September sent digital currency enthusiasts fleeing overseas.

“Every bank and branch must carry out self-inspection and rectification, starting from today,” according to a document issued by the central bank on Wednesday. “Service for cryptocurrency trading is strictly prohibited. Effective measures should be adopted to prevent payment channels from being used for cryptocurrency settlement.”

The Chinese-language document, as seen by the South China Morning Post, was distributed as an internal document among banks, and not published on the central bank’s official website.

However, Government crackdowns, often meant to protect against excessive speculation, also end up dousing the fire of technological innovation, said Kay Van-Petersen, an analyst at Saxo Bank.

Decentralised systems like capital cannot be killed because “it will flow to where it is appreciated globally,” he said. “So you can choose to be part of that technological innovation or on the other side of the table.”

“Most of the trading is taking place via US dollar now, as some big accounts active in digital currency trading are already on China’s official watch list and payment channel already blocked,” said Zhao Dong, an individual bitcoin investor who spends most of his time in Japan now.

“This move by the PBOC is further pushing capital and innovation out of China.”

However, as Bonner & Partner's Bill Bonner notes, there's one simple reason why this latest crypto crash is temporary...

3.5 million…

That’s the estimate for how many “ghost accounts” were created by banking giant Wells Fargo.

That’s about 1% of the total U.S. population. It’s also roughly the population of the state of Connecticut.

You’ve likely heard the story already, so I won’t go into all the details. But here’s the gist…

Wells Fargo created millions of fake accounts for its customers… to charge them fees for services that they never requested.

It was later discovered that Wells Fargo was signing customers up for unwanted insurance policies as well – again, to charge customers for services that they never requested. This was outright fraud.

It’s for reasons like this that a new type of technology has burst onto the scene. It enables secure, reliable, and transparent transactions… without the potential for manipulation by big financial institutions.

As an investor, this technology needs to be on your radar.

Here’s why…

You Can’t Trust the “Trusted” Intermediaries

Recently, I wrote to you to give you an “inside look” at the world of cryptocurrencies. I told you that the crypto market would experience some pullbacks and high volatility. We’re seeing that today. Bitcoin, the world’s first cryptocurrency, dropped about 30% this week.

But despite these pullbacks, I’ve also told you that these new crypto assets still have a long way to run in the years ahead. And the reason why can be summed up in one word: blockchain.

You’ve likely heard the term “blockchain” associated with the popular cryptocurrency bitcoin. You may even know it as the decentralized ledger technology underpinning cryptocurrencies.

But that’s only part of the story…

Blockchain technology is also known as distributed ledger technology. We can think of a distributed ledger in its simplest form as a distributed database – distributed in the sense that there are complete copies of this database (or ledger) scattered around the world.

Historically, companies, governments, and individuals all keep their records in one centralized database. Imagine a room with racks of computers that store information.

But centralized databases can be manipulated… Records can be changed, hard drives can fail, data can be lost, and the records represent only one party’s view of any given transaction.

In the world of blockchains and distributed ledger technology, the exact opposite is true. The transactions recorded on the ledger represent a transaction that takes place between the parties involved and is confirmed by the blockchain network via a consensus.

Once a transaction is written to the ledger, it is immutable. It cannot be changed.

The image below gives you an idea of the difference between these two network types.

Chart

The value and utility that a well-designed blockchain provides is remarkable. Immutability, secure transactions, privacy, transparency, the reduction or elimination of fraud…

That last part is key.

That’s because in a centralized system, we depend on “trusted” intermediaries (banks and other financial institutions) to conduct transactions.

But as we’ve learned time and time again, these “trusted” intermediaries are not at all trustworthy.

It wasn’t long ago when the LIBOR scandal uncovered that many of the most “trusted” financial institutions in the world were manipulating interest rates for their own benefit, and of course at the expense of others.

Banks like Barclays, Deutsche Bank, JPMorgan Chase, UBS, Citigroup, Bank of America, and the Royal Bank of Scotland were found to be right in the middle of these manipulations. And we’ve already discussed Wells Fargo…

The corruption is seemingly endless.

The New Internet

By design, blockchain technology removes the potential for manipulation to take place.

You can think of this as a “new” internet. Today’s internet is how we send pictures, stream videos and music, and send emails.

But blockchain networks are different. They are all about transferring value.

The internet of value will allow you to send money, fulfill smart contracts, confirm your identity without sending sensitive information, and so much more.

The way that value is transferred is typically through a blockchain’s own cryptocurrency. Each blockchain usually has a controlled, finite supply of it by design.

For example, in the case of the bitcoin blockchain, bitcoin is its cryptocurrency… its means of transferring value and incentivizing network participants.

And the bitcoin supply is finite – only 21 million will ever be produced.

Think about that… a blockchain has its own monetary policy written into its software.

It’s Not Too Late

That’s why I’m so excited about this technology.

It has the potential to rewrite our entire society the way the internet did more than 20 years ago. And the assets associated with this technology – cryptocurrency and digital tokens – will continue to soar in value.

You may think that the cryptocurrency boom has already peaked. You may think you’re too late. But consider this…

I recently came back from a blockchain conference in New York. One of the most remarkable comments made was that the “big money” (hedge funds and large money managers) isn’t really in the cryptocurrency market yet.

The total cryptocurrency market sits at around $500 billion. But the institutional funds need the market to hit $1 trillion before they can start investing heavily. And when that happens… most likely sometime this year… the crypto market will really take off.

And the institutional money will first put their dollars to work in the cryptocurrencies that have the largest market capitalizations. That means investors should be looking closely at bitcoin, Ethereum, Ethereum Classic, and Bitcoin Cash, to start.

There will certainly be some pullbacks and high volatility along the way, like we’re seeing today. But I’m here to tell you… now’s the time to get in.

Comments

TradingTroll Klassenfeind Sun, 01/21/2018 - 14:02 Permalink

They’re crashing because most exchanges that take fiat deposits, and even some that don’t, have either stopped taking new deposits, or you have to wait up to several weeks to get approved, or there is new account minimum. Bitfinex is now $10k to open an account. Bitstamp doesn’t take credit cards anymore and the AML paperwork takes a couple of weeks. Gemini is taking a month. Bittrex stopped new account openings.

 

If you cut off new funds, the market crashes. Bitcoin was requiring something like $7m per day to maintain its upward trajectory. Well, Bitfinex, the largest exchange, stopped opening new accounts completely for the first 12 days of 2018. No wonder Bitfinex 30-day trading volume dropped from $100bn to $60bn

 

 

In reply to by Klassenfeind

joey stalin RAT005 Sun, 01/21/2018 - 18:13 Permalink

Liberalshits drone on and on about 'Global Warming', but they have no problem buying and shilling for bitcoin and its ilk, which require massive amounts of electricity and produce humongous quantities of greenhouse gasses.  Never let environmental destruction get in the way of either hypocrisy or naked greed.

In reply to by RAT005

JimmyJones Mementoil Sun, 01/21/2018 - 12:24 Permalink

Qanon might as well be a chetto powdered covered kid in a basement. Qanon is a distraction to make masses believe something is being done about the Clinton's corruption. Keep hammering Sessions to do something about Uranium One, Clinton's private email server because qanon is BS and just a distraction.

In reply to by Mementoil

Mementoil Raffie Sun, 01/21/2018 - 12:49 Permalink

Bitcoin may come back, I'll give you that.
It has certainly done so in the past.
But one day it will run out of greater fools, and it will crash and burn and find itself in the dustbin of history.
And then you will learn the lesson that older men than you have already learned: that nothing can rise exponentially for a prolonged period of time. It is inherently unsustainable.

In reply to by Raffie

AGuy JimmyJones Sun, 01/21/2018 - 13:08 Permalink

"once p2p smart contract based sports betting comes on the scene it's on."

I don't that enough to sustain it. FWIW: I suspect that a lot of people are going to get burned. If they traded Cryptos in 2017, they are liable for capital gains tax, but for 2018 its looking like those profits have vanished, but not the capital gains taxes for 2017. BTC can never be used for transactions because it can take over an hour to several days to complete a transaction. The Blockchain system transaction times will become longer and longer to complete as the blockchain for each coin become longer.

"No middle man, impossible to stop."

The US gov't tracks. In fact the IRS is going to sending out a lot of notices about pending capital gains taxes due. I recall reading an recent article that hackers are now beginning to avoid using BTC because its too trackable (Sorry I can't find a link).

During the Tulip mania, Tulips bulbs were used a currency, until it collapsed.

In reply to by JimmyJones

Hoffman Lenz AGuy Sun, 01/21/2018 - 16:59 Permalink

I had a good read one time. It was the specification for Monero and what was entailed. Just to see if I could speed up the process (CryptoNight) with hardware (and I don't mean GPGPU's). I'm obviously at the feet of the master with you, so please explain to me where I'm going wrong.

In reply to by AGuy

asierguti Hoffman Lenz Mon, 01/22/2018 - 05:00 Permalink

A blockchain is a very specialized version of a distributed database.

 

So, what does distributed mean? To distribute the data and computing associated with that data. This is nothing new, it has been around for decades. The problem is, if you distribute and you only keep a copy, you introduce single points of failure, which make your system extremely unreliable. The solution is easy, introduce redundancy, but I guess you can understand where I am going. Redundancy increases complexity, since you need to multiply the amount of moving parts.

 

Blockchain is a distributed ledger, which means that you can't just remove a transaction. This makes a lot of sense, but as the amount the transactions grows exponentially, so does the size of the blockchain, which means additional synchronization among nodes, growing net traffic, etc.

 

Ethereum is trying to address some of these issues through tiers and sharding. The first one, tiers, means creating a hot version of the blockchain, where transactions are committed, and a second tier with cold data that is very rarely access. This would mean less synching and less bandwith. The second approach, sharding, is a common technique used by databases, and it means dividing the blockchain, so that a transaction involves only a part of the blockchain, but not the entire blockchain.

 

If you think that the only thing growing is the amount of calculation needed to compute a block in the blockchain, you should review how bitcoin and ethereum really work. But well, who cares about the architecture if it keeps going up, right? Ignore the fundamentals and base your judgment on the price move, which will keep move up indefinitely. What could go wrong?

In reply to by Hoffman Lenz

asierguti JimmyJones Sun, 01/21/2018 - 15:05 Permalink

Ether, which it's an excellent choice for a cryptocurrency name, and blockchain are 2 different things. Ether is absolutely useless, unles you have a bunch of greater fools. Ethereum or hyperledger have very interesting use cases. Do you want to invest in the technology? Buying BTC or ETH is certainly not the best way to do it.

 

Do people who buy cryptocurrencies know what they are buying, or they just buy and hope it will keep going up? The various blockchain technologies are really complex, and I doubt that most of the people really understand them, other than the usual propaganda.

 

And yes, you are right, it's not a good comparison. At least tulips are something real and beautiful, while cyptocurrencies are just bits in a computer.

In reply to by JimmyJones

manofthenorth gatorengineer Sun, 01/21/2018 - 12:10 Permalink

The "because blockchain" guy apparently.

"You can't trust the trusted intermediaries"

Like Mt.Gox or Bittwhatever ????

What is amazing is how many people got fucked by Wells Fargo and STILL bank with them,

Equally amazing that regulators would not shut down an institution after such a heinous case of MASS fraud.

In reply to by gatorengineer

dasein211 Mr.Sono Sun, 01/21/2018 - 12:19 Permalink

Really? Sell signal because it’s on the cover of Time magazine or Barron’s right? No wonder most of the zerohedge fucks are broke and miss out on big moves. We won’t need banks. IMAGINE HOW MUCH ACTUAL GOLD WILL BE WORTH IF THE CONTRACTS ARE SETTLED ON BLOCKCHAIN RATHER THAN THROUGH BANKS AND CLEARINGHOUSES!!! You guys are seriously fucking stupid and must absolutely love how much the government fucks you each and every time!!!

In reply to by Mr.Sono

AGuy dasein211 Sun, 01/21/2018 - 13:15 Permalink

" IMAGINE HOW MUCH ACTUAL GOLD WILL BE WORTH IF THE CONTRACTS ARE SETTLED ON BLOCKCHAIN RATHER THAN THROUGH BANKS AND CLEARINGHOUSES!!!"

1. PMs prices are controlled by paper/fictious gold via rehypothecation. Same thing is happening with BTC. I am sure there are a lot of people that used a dealer to buy & hold their BTC that is rehypothecated. Fraud is still present because people look for the easiest way to make investments, instead of holding their assets (physical PMs or BTC on a physical digital storage devices). Nothing has changed, you just fooling yourself into believing that there is no fraud with Crypto currencies.

In reply to by dasein211

DC Beastie Boy gatorengineer Sun, 01/21/2018 - 12:32 Permalink

They’re crashing because 95% of them are for speculation, nobody uses them because they don’t have a product, so everyone just pumps and dumps.  The ICOs just take the raised money and pump their asset on the exchange (between two of their accounts, so they only pay a very small tax fee) and everyone becomes a bag holder.

The only cryptos that will survive are the ones that have a desirable usable product, that’s it.  All else will die like the hundreds of thousands that have come and gone since 2009.

99% of them become worthless in less than two years.

In reply to by gatorengineer

chubbyjjfong DC Beastie Boy Sun, 01/21/2018 - 12:49 Permalink

Just like e-stocks in the dot com era. The fact that 99% of e-stocks went tits up didn't mean that a shit tonne of money wasn't made by those who saw the underlying technology of the internet. The same applies with blockchain. Yes most will be non existent, however there will be a massive amount of profit made by those who saw the value in the underlying technology. I don't get your point, sorry.

In reply to by DC Beastie Boy