Bitcoin PHOTO

Market Watch: Bitcoin has fallen to its lowest point since November

On Friday the price of Bitcoin fell to $5,791, the lowest since last November, and while it recovered in Tokyo, the fall has led to a flurry of speculation that it will be wiped out. We cannot know, but since it is the largest of the cryptocurrencies, and other smaller examples are apparently now worthless, the possibility is clearly there. But of course, that may prove wrong – there may be some value after all.

What can we sensibly say?

First some thoughts about money in general; next some about this particular so-called “currency”; and then some about the consequences of a total collapse, or a recovery.

Cryptocurrencies are quite new but the history of money is very old. People have used something as money for at least 20,000 years. Paper money is only a few hundred years old in Europe but was used a couple of thousand years ago by the Chinese. The classic functions of money are threefold: they are a medium of exchange, a unit of account and a store of value. The second is simply something we can price things in, thereby measuring comparative values, and the first and third are obvious.

On this tally, none of the cyber currencies stack up. They have a marginal use as a medium of exchange because some people will accept them in exchange for goods and services, but they are too volatile to be useful as a unit of account or store of value. Indeed in most transactions, they don’t really serve as mediums of exchange because they have to be switched into real money first. They are, however, an asset class like gold, fine wines or classic cars.

That leads to the next question, and maybe soon very relevant question: what happens now to their value?

With regular currencies there is an issuing body that will in extremis stand behind them: usually a national government. Ultimately the backing is the taxing power of the state. Sometimes that taxing power is inadequate to support the currency, or the central bank issues too much of it. The most recent example of this is Venezuela right now. The Bolivar has lost 99 per cent of its value against the dollar this year (Bitcoin has lost 58 per cent), and if I have got my decimal point in the right place the current rate is more than 100,000 Bolivars to the dollar. So it is in effect worthless. The poor country (which given its oil revenues should be the richest in Latin America) is running on barter and dollars. Currency reform is promised for August, and we’ll see.

So what is behind Bitcoin? Well, it is not clear that there is anything there at all. It may be that the holders of Bitcoin will collectively support it, in that they will accept it in return for goods and services. That would allow it to continue. But if they collectively try to bunk out, there would be a Bolivar situation.

Might there be collective support? The trouble is that we don’t know who owns the Bitcoin. A huge amount of energy has gone into uncovering ownership but apart from a few high-profile holders such as the Winklevoss twins in America, the names remain concealed. By looking at IP addresses, it is clear that ownership is very concentrated. According to BitInfoChart, 87 per cent of all coins issues are held by 0.5 per cent of holders. But the big holders don’t seem very active, for many of them don’t seem to have sold any at all.

Anecdotal evidence suggests that the larger holders in the developed world fall into five groups. There are some tech-savvy people who got in very early and saw cryptocurrencies almost as a game. They are probably still holding onto all or most of their stock. Second, there are people around the world who have suddenly come into money – oil workers in Kazakhstan – and want to pop it into a variety of different investments. Third, there are computer students, who literally bought the hype and put cash into a few Bitcoin while there were still affordable. Four, there are general investors, many of whom who got suckered in last autumn and are sitting on big losses. And finally there are the illegal or tax-avoiding holders who want an asset that is under the radar.

The intriguing question is this: who, among these groups, really needs to sell? We have seen a collapse of the currency, but from a very high level. Many holders, probably most, will be still on a profit. So the question will be whether enough of them decide that they do want the deposit for a house or whatever else.

But this is in the West. Most of the trading in Bitcoin is now in Asia, with much of that in China. It may be that this is more trading than holding, or it may be that investors in the developed world have indeed been gradually unloading their stock and this is being picked up by Chinese investors. It may be that as and when the final collapse comes, the run will start in Asia. We simply don’t know.

What we do know is that cybercurrencies are much frowned upon by the financial establishment in the West. There are a few supporters but not many. On Friday Mohamed El-Erian, chief economic advisor at Allianz, said Bitcoin would be a buy if the price falls below $5,000. The most scathing and detailed commentary came last week from the Bank for International Settlements (BIS). It said there were three problems: scalability, stability and trust.

On scalability it pointed out that these currencies were now using enough electric power to run Switzerland. It follows that if they were to grow further there would not be enough power in the world to drive them. Stability, well – we have seen what has happened. And trust? The BIS thinks that the decentralised nature of cryptocurrencies is a weakness rather than a strength.

We will know the answer pretty soon. My instinct is that these cryptocurrencies will disappear in a puff of smoke. I just hope too many people are not too damaged when it happens.

Bitcoin India PHOTO

Crypto BANNED? Is cryptocurrency legal in India?

Bitcoin and other cryptocurrencies are facing a crackdown from governments around the world, including India and China, in a bid to tighten up regulations and protect consumers. But are cryptocurrencies legal in India?

Since the start of 2018, Bitcoin has suffered a massive price crash after its stratospheric growth last year sparked concern among central bankers.

International Monetary Fund (IMF) chief Christine Lagarde is the latest economic chief to wade into the argument, saying cryptocurrency regulation is “inevitable”.

And bitcoin’s price fall – slumping more than 55 percent since its December high of $19,982 – has been partly blamed on countries that are beginning to introduce cryptocurrency regulations.

Some of the most outspoken countries are India, South Korea and China.

Is the cryptocurrency legal in India?

Bitcoin and other cryptocurrencies have a complicated relationship in India because although they are not technically banned, they are not considered to be legal tender by financial institutions.

This was outlined by Finance Minister Arun Jaitley during a budget speech on February 1.

Mr Jaitley said: “The government does not consider cryptocurrencies as legal tender or coin and will take all measures to eliminate the use of these crypto assets in financing illegitimate activities.”

Last August he told the Indian Parliament that the government had no authority to regulate cryptocurrencies.

Bitcoin trading is hugely popular among Indians and has surged in recent months across the country.

According to one estimate by bitcoin platform Unocoin, its website saw a steep rise in users towards the end of last year.

Company founder Sathvik Vishwanth told the Financial Times in January: “Early last year we were gaining about 10,000 new users each month.

“In December it was about 7,000 to 8,000 each day.”

Is cryptocurrency legislation on its way in India?

While India is not outlawing cryptocurrency just yet, it does seem to be making things very difficult for investors.

In recent days, India’s Income Tax Department announced it had issued notices to 100,000 cryptocurrency investors suspected of concealing profits.

Sushil Chandra, chairman of the Central Board of Direct Taxes, said: “We found out that there is no clarity on investments made by many people, which means that they have not declared it properly,”

“People who have made investments in cryptocurrency and have not paid tax on the profit earned by investing, we are sending them notices as we feel that it is all taxable.”

On Saturday, the Securities and Exchange Board of India chairman Ajay Tyagi said regulations on cryptocurrencies was being finalised, along with the individual roles of regulators, according to the New Indian Express newspaper.

No further information was given but investors will now be nervously waiting to hear what happens in the coming days and weeks ahead.

Bitcoin hits new record high, falling just short of $8,000

Cryptocurrency has gained 17 per cent this week, touching a high of $7,997.17

Bitcoin has picked up right where it left off, capping a resurgent week by climbing within a few dollars short of a record $8,000 just days after a plunge of as much as 29 percent from the previous high tested the confidence of advocates of the cryptocurrency.

Bitcoin has gained 17 per cent this week, touching a high of $7,997.17 during Asia hours before moving lower in late trading. The rally came after bitcoin wiped out as much as $38bn in market capitalisation following the cancellation of a technology upgrade known as SegWit2x on 8 November.

While multiple reasons have been cited for the price volatility, one of the more viable is that some investors were switching to alternative coins. Bitcoin cash, an offshoot of bitcoin that includes many of the technical upgrades being debated by developers, had more than doubled in the same period.

“My sense is that today’s rally is driven by a resurgence in interest and viability for the SegWit2x hard fork,” Spencer Bogart, head of research at Blockchain Capital, said in an email. “Despite the fact that it was called off, there is still some group of people that will follow through with the intended fork. As a result, I believe some capital is rotating out of other crypto-assets and into bitcoin to make sure they receive coins on both sides of the fork.”

The main difference between bitcoin and bitcoin cash is the block size — the fundamental units that make up the blockchain at the heart of the cryptocurrency. Bitcoin cash offers a larger block that holds more data, meaning faster and cheaper transactions according to supporters of the new rival.

Those supporters view the size increase as the update bitcoin needed to become a better means of exchange to compete with payment services such as Visa or Master Card. Bitcoin handles about seven transactions a second, compared with around 2,000 for Visa.

“I look at it as similar to software where there can be multiple versions,” said Mike Kayamori, chief executive of Quoine, in an interview with Bloomberg TV. “That said, having too many will confuse the general public so it’s not a good thing if there’s too many.”

Kayamori said he could see a time when legacy bitcoin is treated more as a pure currency while bitcoin cash, with its higher block size, could be more useful for commercial operations.

This year’s surge comes as the digital currency starts to gain mainstream acceptance as a financial instrument after CME, the world’s biggest exchange, said it would start bitcoin futures next month. Swiss structured products houses Vontobel and Leonteq Securities AGwill said Thursday they’ll offer separate products that will allow investors to profit if the price of bitcoin tumbles.

Bitcoin PHOTO

Bitcoin price hits another record high above $5,800, now up 480% this year

Bitcoin hit another record high on Friday, continuing the rally seen in the previous day amid renewed bullish sentiment from investors.

The price of the cryptocurrency hit an all-time high of $5,856.10 in the early hours of Friday morning, according to data from industry website CoinDesk. But profit taking from investors saw the bitcoin price fall as low as $5,396 in the following hours.

Its market capitalization — the total value of all bitcoin in circulation — hit $97 billion. Bitcoin is up over 480 percent year-to-date.

The catalyst for the rally, which began on Thursday, was speculation that China could reverse a recent ban it put on exchanges. Last month, regulators banned cryptocurrency exchanges with some of the largest in the country shutting down operations. Reversing this would bring the world’s second-largest economy back online.

Experts also said that a major upcoming change could also be getting investors excited. Earlier this year, bitcoin split, and a new cryptocurrency called bitcoin cash was created. Another so-called “fork” is on the way, and this will create “bitcoin gold”. Holders of bitcoin will automatically receive bitcoin gold, which is essentially “free money.”

Longer term trends have also helped bitcoin’s price. Favorable regulation from the likes of Japan, which has allowed retailers to accept bitcoin for payment if they want, has supported bitcoin. Also, Goldman Sachs is considering the launch of a new trading operation focused on digital currencies. Some investors feel this is a sign that larger players could enter the market.

Top figures in the business world are also beginning to discuss cryptocurrencies. IMF (International Monetary Fund) Managing Director Christine Lagarde told CNBC on Thursday, that there could be “massive disruptions” from digital currencies.

But bitcoin is still facing strong criticism from countries and business leaders.

Russian President Vladimir Putin said on Tuesday that “buyers of cryptocurrencies could be involved in unlawful activities,” according to a Reuters report. Russia’s central bank also said it would block websites of exchanges that are offering cryptocurrencies.

JPMorgan Chase CEO Jamie Dimon recently called bitcoin a “fraud” but has since vowed to stop talking about it due to the negative reactions he received.