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Cryptocurrency Crash: Is It Time to Buy the Dip?

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It’s been a stressful month for cryptocurrency investors. After that, big sales began Tesla CEO Elon Musk stated that the company would no longer accept Bitcoin (CRYPTO: BTC) as payment for its vehicles, citing environmental concerns about the energy needed to extract tokens. News that China would take steps to halt mining and prevent companies in the country from adopting cryptocurrencies sparked additional sell-offs across the space.

With crypto prices seeing a significant drop recently, we put together a group of three Motley Fool contributors and asked each member if this was the right time to buy. Read on to see if the recent crypto crash is a big buying opportunity.

Image source: Getty Images.

What is causing the big crypto swings again?

Keith Noonan: Elon Musk is clearly an influential figure and has had some incredible achievements. Its involvement in the cryptocurrency space may provide indicators of long-term adoption trends. However, in my opinion, the market-moving force of Musk’s tweets reflects a lack of solidity with crypto as an asset class.

While most cryptocurrencies are decentralized in terms of how they control each coin, Musk’s comments seem to have been enough to cause big swings for Bitcoin and the overall crypto market. Many coins are also “more central” than some investors think. As Musk himself noted, flooding in China’s Xinjiang region resulted in a dramatic reduction in the Bitcoin hash rate. As another example, about 100 accounts control the vast majority of Dogecoin‘s (CRYPTO: DOGE) Total coin supply.

There are thousands of cryptocurrencies out there and new ones are being added all the time. Many of these tokens are essentially indistinguishable in terms of utility, and there’s not much to prevent even the more specialized cryptocurrencies from being disrupted by new entrants.

Here’s another problem: while the recent sell-offs have been substantial and certainly painful to some investors, they’re not that big in the scheme of things either. ether‘s (CRYPTO: ETH) The price has soared 1,150% over the past year, while Dogecoin has skyrocketed 13,310% on the same route. Bitcoin is still up around 300% in the last year and is considered the best performing asset of the past decade.

At the most basic level, value is subjective. If enough people believe in something and keep adding new followers to their way of thinking, it can add value to almost anything. However, when identifying potential investment candidates, I usually try to look for more objective metrics and trend indicators that paint a picture of why people are likely to attribute increasing value to an asset or stock. I am struggling to find these traits in most cryptocurrencies, and the dramatic volatility in space due to what appears to be minor catalysts worries me that the asset class as a whole is still facing a much larger decline.

Currencies cannot be traded like growth investments forever

James Brumley:: I understand the logic. Cryptocurrencies like Bitcoin and Dogecoin have made incredible profits. Just when it looked like they couldn’t go any higher, they went higher. Your recent sell-offs seem unusual.

The problem is, no one can explain why these sell-offs took shape. They just happened with no explanation, much like how cryptos climbed for so long without explanation.

This unexplained volatility underscores the gaping, philosophical flaw of cryptos. That is, while touted as an alternative to government-issued fiat currency, they are treated and traded like growth investments. It’s a recipe for the market turning into a proverbial Wild West that it has.

Sure, non-fiat currencies are attractive in an environment where governments seem to be losing control of their part of the global economy. I also recognize that physical money is the past while secure, digital money is the future. But at least the world’s central banks are able to maintain some semblance of price stability for their respective currencies. Nobody is trying to keep crypto prices stable; nobody is able to do this. Therefore, they are not a reliable store of value, which is why it is important to hold a certain currency.

So buy from this bath if you have to; I would certainly never say that you can’t make money with them. Just realize that you are only speculating about how other people will arbitrarily think about cryptocurrencies at some point in the future. It’s little more than a coin toss.

No security in these numbers

Eric Volkman:: I don’t think cryptocurrencies are attractive at current rates no matter how many bargain hunters claim they are oversold (the crypto of all cryptos – Bitcoin – is down 34% from its mid-May high and others are also down).

One very good reason to keep staying away from it is an issue that cryptocurrencies continue to haunt: security and protection. Take good old fashioned hoes. While it is nearly impossible for a team of cyber pirates to hack the ever-expanding distributed blockchain that underlies every serious cryptocurrency, other facets of the system are vulnerable to attack.

Remember Mt Gox? That was the bitcoin exchange that hackers broke into in 2014 and that stole 850,000 bitcoins. If the raid happened today, that pile would be worth a staggering $ 33.5 billion. And at the time, Mt. Gox was the king of the global bitcoin exchanges, but this hack made it a future trivia question. Less than four years after starting Gox was a goner.

While security has advanced since then, the crypto exchanges remain vulnerable. Last August, researchers at the Black Hat Security Conference found not one, not two, but three methods that hackers could use to launch effective attacks against such platforms. This is despite the billions of dollars and the immense intelligence and resources that have gone into securing these locations.

Another classic means of segregating assets from their owners, phishing, has been responsible for stealing around $ 200 million worth of crypto assets from various exchanges. This scam had been running for two years when it hit the headlines in mid-2020.

While any financial asset is susceptible to a phishing attempt, the volatility and sky-high dollar prices for certain cryptos make their holders particularly juicy targets these days.

(Phishing, to a stranger, is the method by which a scammer impersonates someone authorized to solicit sensitive information from a victim. Once that information is available, it is used to access valuable property for theft.)

Another security risk is the decentralization of cryptocurrencies. This is a major selling point for such assets as governments, central banks, and other key policy makers cannot tinker with them for political or economic advancement.

But the downside is that they are worryingly little regulated. The US banking system, for example, has a multitude of regulatory agencies that monitor and protect it from the federal level. Traditional bank accounts held by an individual are automatically insured by the Federal Insurance Deposit Corporation (FDIC) for up to $ 250,000.

There is no US agency that insures Bitcoin worth $ 250,000.

So no, I don’t think cryptos are a buy for the weak at the moment. In fact, I am not convinced that it is a purchase.

This article reflects the opinion of the author who may disagree with the “official” referral position of a Motley Fool Premium Consulting Service. We are colorful! Questioning an investment thesis – including one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.

Cryptocurrency

Crypto retreats as bitcoin and ethereum lead mild sell-off

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Bitcon and Ethereum prices fell 4% on Friday. Photo: Yuriko Nakao / Getty Images

The cryptocurrency market saw a small sell-off on Friday morning, with Bitcoin (BTC-USD) and Ethereum (ETH-USD), the world’s first and second largest coins, down around 4%.

Bitcoin, currently trading at $ 37,866 (£ 27,259), hit levels of $ 41,330 on June 15, a key resistance area of ​​$ 41,250, but has continued to decline since then.

This week it was rocked by an announcement by the US Federal Reserve that it could hike rates through the end of 2023. Assets deemed risky, such as certain stocks and crypto, have also been weighed down by ongoing fears that the Fed may unwind its bond purchase program earlier than expected.

Bitcoin has been in decline for the past few days.  Chart: Yahoo Finance

Bitcoin has been in decline for the past few days. Chart: Yahoo Finance

On Thursday, the World Bank also rejected a request from El Salvador to help introduce Bitcoin as legal tender.

The bank said it could not support El Salvador’s plans due to the environmental impact of Bitcoin mining and the transparency drawbacks.

It came when the UK’s Financial Conduct Authority (FCA) reiterated its warning that people “should be ready to lose all their money” when investing in cryptocurrencies.

The regulator estimates that 2.3 million adults in the UK now own crypto assets, up from 1.9 million last year, with more and more people viewing them as either a complement or an alternative to mainstream investments.

Enthusiasm for crypto assets is also growing. More than half of crypto users said they have had positive experiences so far and are likely to buy more, from 41% to 53%, according to the FCA. Fewer people also regret buying cryptocurrencies, from 15% to 11%.

Sheldon Mills, FCA’s Executive Director, Consumer and Competition, said, “The market has continued to grow and some investors have benefited from rising prices.

Watch: What is Bitcoin?

“However, it is important that customers understand that if something goes wrong, they will likely not have access to the FSCS or the Financial Ombudsman Service as these products are largely unregulated.

The story goes on

Cryptos have recently been empowered with institutional support. Several organizations, including MicroStrategy (MSTR), have invested billions of dollars in cryptocurrencies, and traditional financial firms like PayPal (PYPL) and Goldman Sachs (GS) have started managing the asset on behalf of customers.

“While things may seem calm to the inexperienced, behind the scenes activity is still strong,” said Paolo Ardoino, CTO at Bitfinex. “Options markets are buzzing while institutions test strategies.”

He added, “Bitcoin has become an integral part of some of the most diverse portfolios around the world. Long-term private investors ride the wave. The builders of Bitcoin keep building. The first Bitcoin upgrade in four years has been approved and will take effect in November. The developers are working in anticipation of the upgrade. The community continues to improve the global financial networks. “

However, according to a survey by Bank of America, 81% of fund managers say Bitcoin is still a bubble.

View: What are the risks of investing in cryptocurrency?

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Cryptocurrency

bitcoin price: Top cryptocurrency prices today: Ethereum, Polkadot, Uniswap down up to 6%

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NEW DELHI: Major cryptocurrencies traded lower on Friday as US regulators delayed Bitcoin ETF approval. This has clouded the sentiment of crypto investors. However, digital tokens pegged to dollars have shown signs of resilience. The majority of the top 10 digital tokens traded with cuts at 9:30 a.m. IST.

The Securities and Exchange Commission (SEC) said in a regulatory filing that it will seek public comments on a proposal to list Bitcoin ETFs with Cboe Global Markets Inc. It’s not the first time this year the SEC has delayed responding to crypto advocates.

Contrary to the views of the US Securities and Exchange Commission, the UK’s Financial Conduct Authority said more people are viewing crypto assets as a mainstream investment rather than “gambling” with ownership of bitcoin and similar cryptocurrencies in the UK this year rose to 2.3 million adults.

Regulators have repeatedly warned investors about the “speculative” nature of largely unregulated crypto assets, which have fallen between 40 and 50 percent since peaking in May. However, global securities index publisher MSCI is considering the introduction of indices for cryptocurrency investments, another step towards mainstream adoption for digital currencies.

“It was an eventful week for cryptos. Both BTC and ETH have been trading almost unchanged since the beginning of the week. We might see a small sell-off as sellers become more active. Polkadot remains under tremendous selling pressure The dollar-pegged cryptocurrency Tether, which is usually very stable, has risen slightly, “said Edul Patel, CEO and co-founder of Mudrex.

Bluechip venture capital funds, known for placing risky bets, like to invest in Indian crypto and blockchain startups, but say the uncertain political environment stands in their way.

Crypto shopping cart: Quick Glance (Source: coinmarketcap.com, as of 9:30 a.m., ACTUAL on 06/18/2021)

  • Bitcoin: $ 37,963.57, down 2.32 percent
  • Ethereum: $ 2,346.29, down 3.65 percent
  • Tether: $ 1.00, up 0.06 percent
  • Binance Coin: $ 354.07, down 0.99 percent
  • Cardano: $ 1.48, down 3.62 percent
  • Dogecoin: $ 0.3052, down 2.73 percent
  • XRP: $ 0.8415, down 1.84 percent
  • USD coin: $ 1, up 0.05 percent
  • Polkadot: $ 22.31, down 5.58 percent
  • Uniswap: $ 21.73, down 4.51 percent

Note: price change in the last 24 hours

Tech View from ZebPay Trade Desk

1inch was launched in 2019 with the aim of helping users find the best asset prices on decentralized exchanges. Within 2 years, 1inch has grown into one of the most widely used decentralized exchanges with over $ 290 million in their liquidity pool.

The 1 inch network is a collection of decentralized protocols with a DeFi aggregator and an Automated Market Making Protocol or AMM. Last December, 1inch launched its 1inch (1INCH) governance token, and the 1inch network was supposed to be managed by a decentralized autonomous organization (DAO).

ETMarkets.com

Tech-wise, 1inch has hit a ‘Morning Star’ pattern (Three Candle Trend Reversal Pattern) in the daily timeframe at the support level of $ 2.4 and is up nearly 56 percent, hitting the weekly high of $ 3.945.

However, the bulls failed to get a grip on the asset and failed to break the $ 4.00 resistance. As a result, the price has declined nearly 15.5 percent from its recent highs. To continue to bounce, 1inch needs to trade above $ 4 and close. The asset is currently trading at $ 3.319.

Main stages

Support: 2,442, $ 2.9

Resistance: $ 4, $ 5.4

The time is in UTC and the daily time frame is 12:00 PM – 12:00 PM UTC

(The views and recommendations in this section are the analysts’ own views and recommendations and do not represent those of ETMarkets.com. Please consult your financial advisor prior to entering into any position in any of the above assets.)

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Bitcoin (BTC) flaws set stage for alternatives

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Bitcoin, the most famous cryptocurrency in the world, has some shortcomings – and that, according to a Cornell University professor, has led other digital currencies to develop more workable options.

It’s not as anonymous as people think, and “mining” bitcoin is bad for the environment, stressed economics professor Eswar Prasad. It doesn’t work well as a currency either, he told CNBC on Thursday.

One interesting aspect is that other cryptocurrencies have come up with solutions to address some of Bitcoin’s shortcomings, said Prasad, who was formerly head of the China division of the International Monetary Fund.

1. Mining is harmful to the environment

Bitcoin mining refers to the energy-intensive process required to produce new coins and ensure that the payment network is secure and verified.

The electricity used to validate transactions on the Bitcoin blockchain as well as the mining process is “certainly not good for the environment,” said Prasad.

Tesla CEO Elon Musk said last month that his electric car company is no longer accepting bitcoins as payment for environmental reasons, causing the price of bitcoin to drop 5% in minutes.

He has since made a U-turn, saying in a tweet on Sunday that Tesla will accept Bitcoin in transactions if it can confirm “reasonable” and “clean energy use by miners”.

Crypto miners use specially designed computers to solve complex mathematical equations that make a coin transaction effective. The miners are rewarded for their efforts by getting paid in the cryptocurrency.

However, the entire process of creating a bitcoin requires a lot of energy and, according to the Cambridge Bitcoin Electricity Consumption Index, can use more electricity than entire countries like Finland and Switzerland.

On the other hand, Ethereum – the second largest cryptocurrency sometimes seen as an alternative to Bitcoin – is developing a different mining method that uses less energy, as Prasad pointed out.

Read more about cryptocurrencies from CNBC Pro

It is called “Proof of Stake” and is the underlying mechanism for Ethereum, which activates so-called “validators” in the network if they can prove that they own ether or a “stake”.

Ultimately, it should eliminate the need for massive computing power to validate transactions, and the Ethereum Foundation claims it will use 99.95% less energy than before.

“This will be a lot less energy intensive and could offer many of the benefits that Bitcoin should offer. It could also make transactions a lot cheaper and faster, ”said Prasad.

It’s not there yet, however, he added.

2. Not so anonymous after all

Earlier this month, U.S. law enforcement officials announced they had recovered $ 2.3 million in Bitcoin paid to a cyber criminal group involved in the ransomware attack on the Colonial Pipeline in May.

The FBI said its agents were able to identify a virtual wallet that the hackers used to collect payments from the Colonial Pipeline.

“The main idea of ​​Bitcoin … was to provide pseudonymity,” said Prasad. “But it turns out that if you use Bitcoin a lot, and especially if you use Bitcoin to get real goods and services, it will eventually become possible to link your address or physical identity to your digital identity.”

What is interesting, he said, is that there are other cryptocurrencies trying to fix this and provide more anonymity. He named Monero and Zcash as examples.

Chris Ratcliffe / Bloomberg via Getty Images

“So Bitcoin has really started a search for a better alternative and people seem to be looking for a medium of exchange that doesn’t have to go through a trustworthy institution like the government or a commercial bank – but that’s not quite there yet “said Prasad.

3. Doesn’t work well as a currency

In theory, Bitcoin should provide an anonymous and efficient medium of exchange, but “it didn’t work in that regard,” said the economics professor.

Rather, it is “slow and awkward” to use Bitcoin to pay for goods and services, and the market is very volatile, Prasad said.

Bitcoin is prone to large fluctuations in volatility, as evidenced by the 30% decline in a single day over the past month.

“So you could take a bitcoin to a store and get a cup of coffee one day and a lavish meal with the same bitcoin the next. So that doesn’t work well for the medium of exchange, “he said.

Bitcoin has become a speculative asset for people who hope it will increase in value instead of using it as a means of payment, Prasad said.

– CNBC’s Sam Shead contributed to this report.

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