Trading TOKEN – Market Order vs. Limit Order

Market orders allow you to trade a token for the going price, while limit orders allow you to name your price.

When you’re ready to buy or sell a token on a decentralized exchange also called DEX, you have two main ways to determine the price you’ll trade at: the market order and the limit order. With market orders, you trade the token for whatever the going price is. With limit orders, you can name a price, and if the token hits it the trade is usually executed.

That’s the most fundamental difference between a market order and a limit order, but each type can be more appropriate for a given trading situation. Here’s what you need to consider.

Market orders get you in or out fast

The biggest advantage of a market order is that your broker can execute it quickly, because you’re taking the best price available at that moment. If you’re buying a token, a market order will execute at whatever price the seller is asking. If you’re selling, a market order will execute at whatever the buyer is bidding.

The biggest drawback of the market order is that you can’t specify the price of the trade. Many times that doesn’t matter, however. For large enterprises that are highly liquid (trade in high volumes), the difference between buyers’ bid price and sellers’ ask price — called the bid-ask spread — is cents on the dollar. Unless you’re buying huge numbers of tokens, that difference doesn’t matter.

However, if the price moves quickly, you could end up trading at a vastly different price from when you entered the order. That’s rare but possible. A more likely scenario: You enter a market order after the market closes and then the enterprice announces news that affects its token price. If you don’t cancel the order before the exchange opens the next day, you may end up trading at a much different price than you had intended.

Another potential drawback occurs with illiquid tokens, those trading on low volume. When you enter a market order, you might spike or sink the token price because there are not enough buyers or sellers at that moment to cover the order. You’ll end up with a much different price than just moments before as your order influences the market.

Go with a market order when: 

  • You want a quick execution at any cost
  • You’re trading a highly liquid token with a narrow bid-ask spread (typically cents)
  • You’re trading only a few tokens (for example, less than 1000)

Limit orders might get you the price you want

The biggest advantage of the limit order is that you get to name your price, and if the token reaches that price, the order will probably be filled. Typically, you can set limit orders to execute up to three months after you enter them, meaning you don’t have to watch compulsively to get your price.

On some (illiquid) tokens, the bid-ask spread can easily cover trading costs. For example, if the spread is 10 cents and you’re buying 100 shares, a limit order at the lower bid price would save you $10, enough to cover the commission.

The biggest drawback: You’re not guaranteed to trade the token. If the token never reaches the limit price, the trade won’t execute. Even if the token hits your limit, there may not be enough demand or supply to fill the order. That’s more likely for small, illiquid tokens.

Another drawback, especially with an order that can execute up to three months in the future, is that the token may move dramatically. Your trade may be filled at a price much different from what you could have otherwise gotten.

Imagine Ethereum announces a potentially huge novelty and its Ether (ETH) token spikes from $200 to $270, while you have a limit order to sell at $202 using a USD equivalent stablecoin like Tether as settlement. You might end up selling for $202 when you could have received more. The reverse can happen with a limit order to buy when bad news emerges. You may end up buying at a much higher price than you otherwise could have or now think the tokens’s worth.

Go with a limit order when:

  • You want to specify your price, sometimes much different from where the token is
  • You want to trade a token that’s illiquid or the bid-ask spread is large (usually more than 5 cents)
  • You’re trading a high number of tokens (for example, more than 500)

Save money on commissions

Limit orders can help you save money on commissions, especially on illiquid tokens that bounce around the bid and ask prices. But you’ll also save money by taking a buy-and-hold mentality to your investments. Because you avoid selling out of the market, you’ll incur fewer commissions and you’ll avoid capital-gains taxes, which could easily dwarf trading costs. Plus, you’ll want to stay invested to let the compound growth work its magic.

Geir Solem

How to use CryptorDex (DEX)

Tools you need to use the DEX

You need ether (ETH) and wrapped Ether (wETH) to buy & sell on the exchange, as ETH and wETH is how you pay for transactions. Learn more about wrapped tokens here. You also need an ERC20 compatible wallet in order to use the DEX. We recommend Metamask.

Log into your wallet and connect it to the DEX by clicking on your wallet address that should occur in the menu at top right corner of the DEX. (Note: You need to be logged into your wallet in order to use the DEX.) You will then get a new menu, at the top of the menu click on “my wallet”. You should now see the listed tokens and your holdings of each of them.

If you already have ETH and wETH in your wallet, you are already set to begin. If not, this guide will explain how to buy both ETH and wETH under.

You are now ready to do transactions like buying and selling tokens on the DEX.

How to Unlock tokens in your wallet

You will need to unlock the token you want to sell so the system can take it from your wallet. On the 3rd row in the menu from the right you have “Locked?”. Click on the “lock” symbol beside the token you want to unlock. Your wallet will ask for a confirmation of the unlock, and you will need to confirm in order to complete the unlock. The lock symbol should now disappear from that token.

How to buy / sell ETH and wETH

If you have ETH, you can then buy wETH on the DEX by converting ETH to wETH by using the mall menu that now should be present up in the top left corner of the DEX. 1 wETH has the same value as 1 ETH. fill out how many ETH you want to convert to wETH, it will then give you the total transaction value including commission. Complete the transaction by clicking on “convert’. If you have wETH you can also convert to ETH using this menu.

How to send tokens

On the right side you have buttons for sending tokens or buying tokens. If you want to send some of your BIB tokens to another wallet, click the “send” button beside your holding of BIB tokens, and you get up a small form where you fill out the address of the wallet you want to send your BIB token, as well as the number of BIB tokens you want to send. The necessary ETH gas will be taken from your wallet when you initiate the transaction.

How to buy tokens

If you want to buy tokens click on the “buy” button beside the tokens listed that you want to buy, you will then get up a small form where you fill out the order details like the number of tokens you want to buy. To complete the transaction click on the “buy” button at the bottom of the form.

Buy ETH using credit card (with KYC)

How to buy ETH on CryptorDex using your credit card (Will include KYC – Know Your Client to be filled out) In the top right corner, 2nd from right, click on “Buy ETH” and you will get up a small form where you fill out the amount of USD you want to use for buying ETH. A summary will show the exchange rate of ETH and how much ETH you get. Follow the guidance in order to fill out the KYC information.

How to swap tokens and tokens that are listed on the exchange?

On the menu up in the top right corner click on “swap”. You get a new screen where you can swap ETH with any of the tokens. Select the token you want to swap buy using the menu up in the top left corner. A small form in the middle of the screen shows the price used and how many tokens you get for the swap. Fill out how many tokens you want to send, and the number of tokens you receive will occur on the form. Click “swap” to complete the transaction.

Decentralized Finance (DEFI)

On the menu up in the top right corner click on “DEFI” and you get up a new screen with options to borrow tokens and put up tokens as collateral, giving you the possibility to leverage your trade. Unless you are a skilled trader, we do not recommend that you use leverage in your trading. 

Buy crypto to your wallet using bank transfer (Includes KYC)

On the menu up in the top right corner click on “FIAT” and you get up a new screen / form where you can buy crypto currencies. At the top of the form select the currency you want to use for purchasing crypto currencies, like USD, GBP, etc. as well as the amount you want to use for buying crypto. 

Next choose the crypto currency you want to buy like BAT, BTC, ETH, USDT, etc. In the form, the amount you get of your selected crypto currency that you want to buy should now occur. Click the “buy now” button to complete the transaction.

Price chart of your token

Click on “CryptorDEX” up in the top right corner and you get a screen of the listed tokens. Click on the token you want displayed with a price chart. You will then get a price chart covering the last 3 months of trading.

Over the price chart you have a menu with the following items Day, Candles, Compare, and Indicators (Technical Indicators).

Technical Indicators

Click on “Indicators” if you want to select the technical indicators to use in order to analyze the price chart like “accumulation / distribution”, “average true range”, etc. in alphabetic order. Search for the indicator you are looking for like RSI (Relative Strength Indicator”. You can learn more about technical indicators used for analyzing price structure on our investment website Elliott Wave Technician here.

Buy or Sell tokens

On the right side at the bottom, you should now see a form where you can initiate a “buy” or “sell” transaction for the token you look at in the price chart. The current order book / transactions occurs in the top half of the form.

In the form for ‘buy’ and “sell” orders, fill out the number of tokens you want to buy or sell, and the price in ETH. The calculated price should now occur at the bottom line. Remember to choose if you order is at “market” or on “limit”.

Market orders allow you to trade a token for the going price, while limit orders allow you to name your price. However, remember that newly listed tokens has yet to establish a market and the liquidity is low, then prices can swing widely. In this case use “limit” in order to control the price you buy or sell for. Click on the buy / sell button to complete the transaction. Remember if you are buying using ETH to pay, ETH need to be unlocked in your wallet before you initiate the transaction. If you are selling a token it needs to be unlocked before you can initiate a sell transactions.

Geir Solem

Overview of wrapped tokens

Description of wrapped token

A wrapped token is an asset hosted on the Ethereum blockchain with a price that is the same as another underlying asset, even if it’s not on the same blockchain or on a blockchain at all.

A wrapped token is an ERC-20 compatible token with a value identical to another asset that it represents, either through a smart contract or by being backed one-to-one with the underlying asset. 

Wrapped Bitcoin, for instance, is a token worth the same as one BTC at any given moment, as a smart contract algorithm reproduces its price in real time and regulates the underlying fund with supply and demand information gleaned from user transactions. In exchange for their money, wrapped token users get an equivalent amount of value “wrapped up” in an asset that’s more easily mobilized by decentralized applications (DApps).

Wrapped Ether, is a token worth the same as one ETH.

Types of wrapped tokens ?

Because Ethereum is the biggest DeFi ecosystem, wrapped tokens are often those hosted on other blockchains but are also stablecoins that are pegged to the dollar.

Many of the first wrapped assets were, in fact, fiat-backed stablecoins, such as tokens with prices pegged to the dollar — Tether, Coinbase’s USDC or TrueUSD. There are also euro, yen, yuan and countless other fiat stablecoins that are mostly based on the Ethereum blockchain. 

The Wrapped Zcash token (coming), a privacy coin, will provide Ethereum DApp users with the coin’s anonymity advantages, plus a reliable way to invest in Zcoin, thereby boosting its market.

Wrapped Zcash is a way for Zcash to be used within financial applications built on Ethereum — it opens a bridge from one ecosystem to the other. This two-way street benefits both Zcash and Ethereum users, as Zcash users are able to transact and invest within the many decentralized financial applications built on ETH.

This integration also brings an effect on the supply and demand for Zcash, which could prove a significant tailwind. For Ethereum users, the privacy benefits of Zcash enabled by its z-addresses and t-addresses provide new ways for decentralized finance (DeFi) applications to limit the publication of identifying information held in transaction data while still passing auditory and compliance standards.

These are backed accordingly via the reserves, with coins fed in according to the demand of online crypto exchanges and larger institutional investors who want to quickly exchange fiat money into crypto and manage their money within a given platform. This makes it as easy to deposit dollars into DeFi applications and blockchain wallets as it does to have a reliable counter currency providing traders relief from crypto asset volatility.

Blockchain interoperability

Other cryptocurrencies are beginning to launch wrapped versions of their tokens on Ethereum in larger numbers, with interoperability (The ability to share information across different blockchain networks, without restrictions) a vital consideration for solutions that want to be taken seriously.

Currently, one blockchain has no knowledge of information that might exist in a different blockchain. For instance, the Bitcoin (BTC) blockchain exists fully independently of the Ethereum (ETH) blockchain — in the sense that it has no knowledge of any information recorded there — and vice versa. Blockchain-based projects are isolated from each other, despite existing within the same industry and working with the same technology.

The crypto industry involves “a series of unconnected systems operating alongside, but walled from each other”. Blockchain interoperability is the ability to exchange data between different blockchains seamlessly, as if there were no boundaries.

Geir Solem

ERC20 Token Design Mistakes vs ERC223 Token

The old ERC20 token standard have bugs and disadvantages resulting in thousands of ERC20 tokens to be lost annually. These design mistakes has been addressed in the new ERC223 token which is fully compatible with ERC20 wallets and exchanges. 

What is ERC?

ERC means Ethereum Request for Comments. It practically allows for smart contracts to be built on the Ethereum platform based on certain standards thus creating a common interface for all Ethereum tokens. Ethereum developers recommend that any Ethereum developer who wants to create a new token should follow this set of standards to ensure that their tokens are easily recognizable on both the Ethereum network and other third-party service providers such as crypto-wallets. These ERC20 tokens can be received, and sent just like any other cryptocurrency like Bitcoin, Litecoin and Ethereum.

ERC20 bugs

The ERC20 standard is programmed software and accordingly contains some bugs and logic errors. Two different ways to handle tokens were taken into account in the creation. On the one hand, tokens can be sent to another address. A smart contract is paid by using the “approve” and “transferFrom” functions.  Thereafter, the contract may be approved to allow the tokens to be withdrawn. Afterwards the token is filled or lifted by means of “transferFrom”.

When transferring tokens for a contract with “transferFrom” this transaction is basically valid. However, the contract does not recognize it by the user, resulting in the tokens not being loaded into your account. Normally, an emergency token function is stored in the exchange contract (decentralized). If this is not the case, the tokens can not be returned and are lost forever.

ERC20 will continue to be used

Most token based projects have used the original ERC20 token standard as it is with faults. This include even  well known projects.

At present many developers are still unaware of the design mistakes and bugs in the old ERC20 tokens standard so they continue to use it in new developments.

Can the ERC223 standard solve the problems?

ERC223 is a new token standard that seeks to address the design mistakes / errors of ERC20. These problems are:

  • ERC20 provides no programmatic interface to handle incoming transactions in smart contracts.
  • ERC20 handling smart contracts typically require you to trust them with all your funds in order to use them. This is unlike native ether, which has excellent support for trustless transactions.
  • Nothing prevents the user to send ERC20 tokens to a smart contract, such as an exchange. However, due to the inability to handle incoming transactions these sent tokens will not alter the state of the smart contract (such as balance on the exchange), and it will be impossible to retrieve them from the smart contract. Effectively, these tokens get burned resulting in multi millions of USD losses in ERC20 tokens. Because of the deflationary nature of cryptocurrencies this losses will continue to accumulate.

The main improvement of ERC223

  • On top of offering the same level convenience as ERC20 tokens, it also offers its holders protection against losing tokens by introducing a revert option or altogether blocking the transfer of tokens to random contracts. Tokens can no longer be sent to non supporting contracts with the ERC223 standard.
  • ERC223 allows to deposit tokens into a contract with a single transaction (function) which reduces the use of resources. This again reduce the cost and running time of the transaction to about half compared to that of the old ERC20 standard.

ERC223 is created to be compatible with existing blockchain infrastructure, such as wallets like Mist, Parity, MyEtherWallet and MetaMask, and blockchain explorers such as Etherscan and Ethplorer.

Geir Solem

Will the Bitcoin Bubble Pop in 2018? What You Need to Know

As the end of 2017 approaches and we all look forward to a new year, many are looking back at 2017 wishing they had started the year with an investment in Bitcoin. On January 3rd of 2017, Bitcoin passed the $1000 USD per BTC value. For many, that was simply too much to gamble, and many would-be investors were too afraid that the Bitcoin bubble would pop and market value would retract. How wrong they all were.

As of November 30th, 2017, less than 11 months since breaking that price point, Bitcoin broke another milestone by hitting a market valuation of nearly $11,000 USD per BTC on all major exchanges. Those same investors are kicking themselves, realizing that they very likely missed an opportunity of a lifetime, while those who did invest are enjoying a highly profitable year. Bitcoinplay  facts on market value tell us that not only is this rapid growth nothing new, but it has been consistent since 2010.

In 2010, a $100 USD investment would today be worth well over $10 million and that number is rapidly growing. With so many now aware of the Bitcoin mega-wave, many are asking, is it the right time to enter the Bitcoin market and will 2018 be the year the Bitcoin bubble pops? Here is what you need to know in regards to Bitcoin’s potential in 2018.

The Two Sides of the Fence

There are really only two sides to the Bitcoin fence. The first is the growing group of investors that have managed to go against the obvious mainstream predictions and who are now are making a killing in the cryptocurrency world. The other is a group that is still convinced Bitcoin is a bubble that will eventually pop at some point. Early adopters and neo-rich Bitcoin millionaires who have already made small fortunes on the famed currency lead the first group. The second is led by old-school investors that remain attached to dated theories, failing to see the intrinsic value of Bitcoin. Both sides of the argument have valid reasoning based on their paradigms. However, only one is cashing in, and that would be the adopters.

2018 Predictions

Though the second group’s overall predictions for Bitcoin may eventually prove to be accurate, Bitcoin in 2018 is likely still a good investment. A bubble is based on demand and until that demand has hit its maximum, the bubble will continue to grow. Bitcoin is still highly under-adopted and increasingly more people are joining the Bitcoin bandwagon on a daily basis. It is highly unlikely that, in 2018, the maximum for Bitcoin will be reached. As such, it is more likely that Bitcoin will continue to grow through 2018.

2018 Growth Rate

Based on 2017 growth rate and current adoption levels, it is not likely that Bitcoin will continue to grow at its current pace. That being said, however, its market adoption does remain unchanged and legislation or other external factors remain consistent. Most of the Bitcoin investors that are on the pro-side of the Bitcoin phenomenon predict approximately half the growth in 2018 as 2017. If that prediction was to hold accurate, a $50,000 BTC market value for Bitcoin should be reached towards the end of 2018.

Bitcoin is highly volatile and these predictions are just predictions. The two main things to remember if you are planning to invest is, firstly, whether you think Bitcoin has reached its market adoption saturation point or not. If you think Bitcoin will continue to attract more users in 2018, then investing in Bitcoin is probably the right move. If you think the bubble will burst and Bitcoin has reached adoption saturation, then Bitcoin wouldn’t be a good investment.

Whatever your prediction for Bitcoin in 2018, educate yourself and only invest what your willing to lose in the worst-case scenario. Secondly, remember the old adage: no risk, no reward. Is Bitcoin worth the risk to you? Even if you think the bubble will eventually pop, the real question is, do you think you could get in and out in time to make a decent profit? For many, that answer is yes.

Decentralized Exchanges

Created in 2008 by the pseudonymous computer programmer Satoshi Nakamoto, bitcoin is digital money that’s tracked via a public ledger and controlled by no central bank, corporation, or individual.

Image courtesy of Wiki Commons

It’s a peer-to-peer currency based on the blockchain running on the internet that allows its users to transfer value with no central authority or third party involved. Since a network of distributed and mostly anonymous miners are all in charge of processing the transactions, we avoid problems like censorship and fraud.

The automated issuance mechanism of bitcoin through mining also seeks to remove the control of money printing from privately owned banks that lend money to the public at an interest, creating the debt based economy. The primary goal of Bitcoin, to return the control of money to its owners, is in a way lost with third party services.

With cryptocurrencies comes the need for exchanges, and centralized exchanges are easy to use, easy to access, and they provide advanced trading functionalities like margin trading and others.

However, they also represent a security risk for your funds. While some exchanges are better guarded than others, hacks are not an uncommon. There are a number or risks related to centralized exchanges like incompetence, bankruptcy, etc.

We need to exchange our currencies. There are certain items and services that we cannot buy with Bitcoin and in order to acquire Bitcoin or cryptocurrencies, most people have to exchange it for a national currency. Furthermore, some cryptocurrencies like Ether or Bitshares have special features or tools that are not present in Bitcoin. So how can we exchange our coins without entrusting them to a third party service? The answer lies with decentralized exchanges.

Image courtesy Wiki Commons

Decentralized Exchanges

A decentralized exchange is an exchange market that does not rely on a third party service to hold the customer’s funds. Instead, trades occur directly between users (peer to peer) through an automated process. This system can be achieved by creating proxy tokens (crypto assets that represent a certain fiat or crypto currency) or assets (that can represent shares in a company for example) or through a decentralized multi-signature escrow system, among other solutions.

This is an alternative to the current centralized model in which users deposit their funds and the exchange issues an IOU that can be freely traded on the platform. When a user asks to withdraw his funds, these are converted back into the cryptocurrency they represent and sent to their owner.

Advantages

The most important benefit to using a decentralized exchange over a centralized one is their “trustless” nature. You are not required to trust the security or honesty of the exchange since the funds are held by you in your personal wallet and not by a third party.

Another advantage to the decentralized model is the privacy it provides. Users are not required to disclose their personal details to anyone, except if the exchange method involves bank transfers, in which case your identity is revealed only to the person that is selling or buying from you.

In addition, the hosting of decentralized exchanges is distributed through nodes meaning that there is no risk of server downtime. To summarize,

  • No parenting by governments, banks and other institutions
  • Secure, no 3rd party involved
  • Set the unbanked free
  • Open, Transparent
  • Global, fast, efficient, 24/7
  • No identity theft
  • A platform for innovation

Disadvantages

Some decentralized exchanges require users to be online in order for an order to be listed and for the trade to take place, requiring users to perform certain actions like signaling that a payment was received.

Trading features like margin trading, lending and stop loss are currently not available in the decentralized model as they only allow the basic exchange of currency for a predetermined value.

Overview of decentralized exchanges

While there is still a way to go in order to build fully functional and convenient decentralized exchanges, there are several projects that have brought us the basic functions and an alternative way to trade currencies while keeping your funds safe from hacks, inside thefts and faulty business models.

Bitsquare is a decentralized open-source exchange that allows users to buy and sell Bitcoin for cryptocurrencies and national currencies without the need to entrust funds to third-party or middleman, meaning that the transactions occur directly between the buyer and seller. Bitsquare relies on a decentralized multi-signature escrow system to ensure that all trades are carried out honestly.

CounterParty is a meta-coin smart contract layer that embeds data into regular Bitcoin transactions. It allows anyone to issue assets or tokens inside of the Bitcoin blockchain. When trading assets for other assets, the Counterparty protocol acts as a decentralized escrow service that holds the funds until the orders are matched. When trading an asset for Bitcoin, the asset is held in escrow and the other user must make a manual bitcoin payment using the Counterparty wallet.

Waveplatform Waves Asset Exchange is allowing users to trade assets (including asset-to-asset exchange), fiat tokens, and cryptocurrencies.

Bitshares is a crypto platform with its own native currency, Bitshares. Using the Bitshares platform, users can trade BTS, Market Pegged Assets (a crypto asset pegged to another currency or commodity that always has 100% or more of its value backed by the BitShares core currency, to which they can be converted at any time) and User Issued Assets (assets that can be issued by anyone to represent shares, commodities, currencies and so on). Openledger is the Web-based version of Bitshares, running on the same underlying blockchain.

Nxt is a crypto platform (one of the first crypto 2.0 projects) that allows users to issue and trade assets. These assets, however, can only be exchanged for the coin NXT and not for other cryptocurrencies.

Komodo EasyDEX exchange will allow users to trade cryptocurrencies directly without resorting to proxy tokens, while the PAX (Pegged Asset Exchange), both being developed by the SuperNET and Komodo teams, allows users to exchange national currency assets with the privacy that zero-knowledge proofs provide.

Stashcrypto is built on the Open-Transactions financial cryptography platform, an extremely fast and low cost off-blockchain system based on signed receipts. When combined with Bitcoin, OT solves hard problems in crypto finance. Receipts in OT cannot be forged, and a user’s balance cannot be changed without his signature. OT is also able to prove all balances, as well as which instruments are still valid, without storing any history except for the last signed receipt.

Cryptor Trust is working on the CryptorDex, an open decentralized distributed platform for trading securities. Cryptor Trust plan to list their own investment entities on the CryptorDex exchange.

Conclusion

Decentralized exchanges provide global, frictionless value-transfers. Without decentralized exchanges, there will be intermediaries having control over the transfer of value.

Geir Solem

Bitcoin as a Store of Value: Part 2

Earlier in the year we provided an analysis of Bitcoin’s role and potential as a Store of Value.  One can find that analysis at the following link:

https://cryptortrust.com/2016/06/28/bitcoin-as-a-store-of-value-where-1-really-adds-up/

Prior to catching up on where we stand currently, let’s review a definition of the term Store of Value so we clearly understand the intent here.  This is how Wikipedia defines Store of Value:

store of value is the function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. The most common store of value in modern times has been money, currency, or a commodity like gold, or financial capital.

The definition of Store of Value as a function is certainly easy enough to understand, but let’s not confuse simplicity with lack of significance.  An effective Store of Value needs to be easily and seamlessly retrieved, exchanged at a later time, and predictably useful when one does retrieve it for use.  Discussions over practical use and what is most likely to happen in a world dominated by technology and mobile connectivity can easily lead to a comparison of Bitcoin and gold and silver as a Store of Value.

Critics of Bitcoin tend to refer to how gold and silver continue to withstand the test of time and “hold their value”.  That is true.  The physical piece of metal, assuming it is not fake, will always retain some level of value.  However, it is more important to consider which options that we have now will perform the best as Stores of Value moving forward rather than the past performance and history of precious metals. 

Given that, let’s compare the performances of Bitcoin, gold, and silver as Stores of Value measured in USD and going back to September 1, 2015.  We will compare the price action from this date because in middle to late August of 2015 the PBOC (People’s Bank of China, or China’s “Central Bank”) started to very clearly and publicly reveal its intentions to devalue the Yuan.  Although we understand that nations always have and always will engage in “currency wars”, this verbal and written action by the PBOC ratcheted up the intensity.  We can see this is indeed the case simply by looking at the Yuan versus USD and the Yuan versus a basket of currencies representing China’s top trading partners since this time.

Here is the performance of each denominated in USD since 9/1/2015:

Bitcoin +305%

Gold +3%

Silver +9%

Naturally after major moves in prices people tend to ask if it is “too late” or if they “missed out” on an opportunity.  This raises the question of whether it is “too late” to effectively use Bitcoin as a Store of Value and where we are in terms of this entire experience with Bitcoin and cryptocurrency in general.  In short, how much potential still exists for the market value of Bitcoin to rise substantially?

This analysis contends that we are still very, very early in the game fully understanding that Bitcoin has been operational since 2009.  Bitcoin enthusiasts, early adopters, blockchain techie experts, and VCs tend to express frustration over a “lack of killer apps” or the purported failure of Bitcoin to “go mainstream”.  We will analyze what killer apps may appear next in another piece but regardless there is still an absolutely enormous amount of potential for Bitcoin to continue performing exceptionally well as a Store of Value.  In fact, this analysis contends it is likely that the “killer app” of Bitcoin will remain Store of Value for the foreseeable future because it has the most direct and significant impact on human nature and hence economic behavior.  Applications for the use of Bitcoin will continue to emerge but there is certainly nothing wrong with Bitcoin “only” being used by most as a Store of Value for the time being.

Part 1 of our discussion of Bitcoin as a Store of Value looked at merely 1% penetration of massive pools of funds such as bank deposits in China and global FX daily trading volume.  Obviously those factors are still present, but let’s veer into another couple of topics that could also play a strengthening role in the very near future.  An emerging battle between Bitcoin and gold, looming Bitcoin ETF approvals at the SEC (Securities and Exchange Commission), and the extremely intense battle against cash are three spaces that could very well shine bright lights on Bitcoin over the next several months and beyond.

Given the price performances noted above it is natural and highly likely that more and more people and investment professionals start to at least consider trimming exposure to precious metals and initiating exposure to Bitcoin.  Gold topped in 2011 and has been in a bear market since with the typical bear market rallies elevating levels of hope that “this time is different” and gold will soon instantaneously vault to $5,000/oz or $10,000/oz.  Perhaps gold will enter a new bull market at some point but the reality is that over the last 12, 24, 36, and 72 month periods, gold’s performance falls well short of that of Bitcoin.  Globally about $7 Trillion is stored in gold.  The GLD ETF stores about $30 Billion and there are several other ETFs related to gold or gold miners.  Bitcoin currently stores around $15 Billion.  As more people ask why they should not shift at least some funds oriented around gold into Bitcoin the size of the potential funds moving could substantially impact Bitcoin’s market value.

This analysis will not speculate on if or when either of the two pending ETFs for Bitcoin will or will not gain approval from the SEC.  Chances are that at some point there will be a way for individuals and institutions to gain exposure to Bitcoin through the status quo channels if only because of the desire of the establishment to profit from Bitcoin.  However, the key here is the potential for institutions to be able to enter into significant Bitcoin positions via an ETF eventually.  Currently there is no seamless and direct way for professional money managers to gain exposure to Bitcoin using OPM (“Other People’s Money”).  In most cases the charters and regulations governing their funds place very strict controls on what they can and can’t buy.  If institutions could quickly direct seven and eight figure sums into Bitcoin or even more this would have an enormous impact on Bitcoin’s market value in both directions.  People may not completely understand and absorb that unlike gold or silver money managers moving very large sums of funds can’t simply buy a large chunk of Bitcoin with the click of a mouse or phone call.  Professional money managers crave and need Alpha (the delta or difference between their AUM and fund’s performance and its benchmark).  Don’t be shocked if Bitcoin ETFs are used to try and generate Alpha.  This is a potential stimulus that is still sitting out there as a future catalyst.

Venezuela.  India.  Australia.  Pakistan.  These are not tiny countries with miniscule populations in the grand scheme of things.  Venezuela and India already banished certain bank notes literally at the drop of a hat and instantly created even more havoc for their citizens and economies.  Australia and Pakistan announced plans to do the same in the near future.  It is very obvious that this is not a crazy, hypothetical scenario and that Central Banks are and will continue their battle against physical cash (to see our prior analysis click here: https://cryptortrust.com/2016/07/07/real-reason-for-cash-ban-and-why-it-will-only-boost-bitcoin/ ).  Banning cash will only push more people into using Bitcoin as a Store of Value and even a Medium of Exchange as well.

Despite the exceptional performance of Bitcoin since 2009 as a Store of Value relative to all major currencies, we are still very early in the game.  The current market value of Bitcoin is a microscopic drop in the bucket in the global tsunami of fiat and liquidity sloshing around.  We have not yet even seen the impact institutions can have on Bitcoin and the War on Cash is just entering the tornado phase.  Shifting 10% of the $7 Trillion stored in gold currently is $700 Billion.  How high can Bitcoin’s market value ultimately rise over time?  We can’t answer that definitively.  How much DEBT IN TRANSIT (state sponsored, Central Bank issued fiat currency) can be exchanged for Bitcoin?

Stay focused on the basic fundamentals:

SCARCITY

STORE OF VALUE

UNIT OF ACCOUNT

MEDIUM OF EXCHANGE

PORTABLE

FUNGIBLE

DIVISIBLE

HARD TO COUNTERFEIT

EASY TO STORE

David Young

Shaping Crypto Evolution

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