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The 2 Cryptocurrencies With the Best Chance to Succeed, According to a Crypto Skeptic

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For more than a century, the stock market has proven time and again that it is one of the greatest wealth creators on the planet. If you buy holdings in large companies and let your investment thesis play out over time, history has a very good chance of building wealth.

But in recent years, investors have chosen to be mesmerized by the jaw-dropping returns from cryptocurrencies instead. For example, a little over a decade ago, a single Bitcoin (CRYPTO: BTC) could have been bought for around 1 €. Later that year, the same token cost nearly $ 65,000.

While it’s not uncommon for retail investors to chase momentum games, I believe they are wrong about it – especially when it comes to cryptocurrencies. That’s because I’m a card-carrying crypto skeptic.

Image source: Getty Images.

The cryptocurrency space looks like a gigantic bubble

Why not love digital currencies? One of the bigger problems is their lack of acceptance and usefulness in the real world. Bitcoin, the largest digital currency in the world, has only been able to process around 300,000 transactions a day for years. In comparison, the national currency is Dogecoin (CRYPTO: DOGE), processes only 50,000 transactions a day on its blockchain. To put this in a certain context, the giants of payment processing Visa and MasterCard processed a total of 700 million daily transactions in 2018. Over the counter, cryptocurrency (pardon the pun) is practically useless.

The blockchain technology on which crypto is based poses another problem. Although the blockchain offers new ways to immutably and transparently store and access data, it has come across a damn Catch-22. No company is going to move from a proven infrastructure to something that has not been field tested on a large scale … and no large company wants to be that guinea pig to demonstrate that it works.

And don’t overlook the fact that some governments disagree with crypto competing with their central bank-backed currencies. A handful of countries have banned digital currencies entirely, with China recently banning banks and online payment companies from providing services to the crypto industry. China is the epicenter for bitcoin mining.

And of course, misinformation and manipulation are rampant throughout the crypto space. Tesla CEO Elon Musk has been whipping both Bitcoin and Dogecoin with a mix of tweets and memes for the past few months. Trust me, this is a sentence I never thought I’d write with a straight face. Tesla initially bought $ 1.5 billion worth of Bitcoin, with Musk enabling consumers to purchase electric vehicles using Bitcoin. But not long after that, Musk ended the program claiming that bitcoin mining was not environmentally friendly. Since then, he has changed his perceived loyalty to Dogecoin, which is possibly the largest pump-and-dump scheme in the crypto space.

And if that’s still not enough, keep in mind that every parabolic movement in history has at some point burst and returned to Earth.

Suffice it to say that there are many reasons that I would strongly recommend avoiding cryptocurrencies.

These digital currencies could be long-term winners

Even so, there are a very small number of cryptocurrencies that I believe could succeed over time. Please note that “might be successful” is not my recommendation to buy. I still firmly believe that crypto should be avoided. However, the following two digital currencies are notable for having the tools and differentiation to survive in the long run.

Image source: Getty Images.

Stellar

I see two main focuses in the crypto space: the goal of improving financial payments and the desire to tackle anything in the non-financial area. When it comes to financial payments, the blockchain, which I, as a crypto skeptic, think is the most promising, is Stellar (CRYPTO: XLM).

Call me old-fashioned, but I believe if a blockchain network is to supplant the existing financial payments infrastructure, it should be far more efficient. As of today, payments from one country to another can take up to a full week to be validated and processed. On Stellar’s blockchain, the same payments can be validated and processed across borders in a matter of seconds, at a transaction fee that significantly undercuts many of its competitors. The more than 4 million Stellar account holders must hold a small amount of Lumens (the Stellar Coin) at all times to cover these nominal transaction fees. Overall, Stellar can do the round-trip cross-border conversion of 180+ fiat currencies to lumens and back to fiat faster than any other cryptocurrency.

Additionally, Stellar has claimed that it can process up to 3,000 transactions per second. Even if this turns out to be sky high and only a fraction of that efficiency, it would still blow Bitcoin’s transactions per second out of the water.

Stellar has support from IBM (NYSE: IBM), also. Although IBM’s craze for blockchain development has waned in recent years, IBM partnered with Stellar back in 2017 to create an international payments hub that would connect banks through Stellar’s blockchain.

Stellar is mostly off the radar right now, but I see it as the most long-term intrigue of the payments-driven network.

A person holding up a gold colored Ethereum coin with the logo printed on it.

Image source: Getty Images.

ether

On the other hand, the ultra-popular cryptocurrency ether (CRYPTO: ETH) offers the greatest potential outside of traditional finance applications, even if it is fascinating in the finance sector too. Let me remind you once again that this is not a recommendation to buy Ethereum here. I think the whole group is in a massive bubble that has already started to burst. But viewed as a whole, Ethereum has a history and technology that long-term investors can potentially outperform.

One of the biggest lures for Ethereum is the use of smart contracts. These are protocols that help review, facilitate, and enforce the negotiation of a contract. For example, a smart contract could help enforce a will. If a deceased wanted to mandate their grandchildren to receive a certain amount of money when they reach a certain age, a smart contract could take over the execution of these protocols. The best part is that smart contracts are transparent, immutable, and legally binding.

Another win for Ethereum is the buzz it is generating in the business community. The Enterprise Ethereum Alliance (EEA) has more than 200 members, some of which are branded companies. The goal of these companies is to promote the use of Ethereum’s blockchain. The EEA is essentially the best choice in the crypto space to break through blockchain technology’s catch-22.

Ethereum is also getting a lot of press for its role in decentralized finance, or DeFi. Without getting too technical, DeFi is a financially focused blockchain that uses smart contracts to bypass financial intermediaries who might otherwise refuse or slow down a transaction. While I am not denying that Ethereum will play a role in finance in the future, the differentiation of Ethereum is most evident in the non-financial arena.

If the dust clears after an expected implosion in crypto valuations, I believe Ethereum and Stellar will offer two of the most compelling property cases out there.

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

Cryptocurrency

Combining Cryptocurrency and Social Responsibility

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Much of the cryptocurrency discourse has focused on utility, functionality, capitalization, and technology. But basically, this perspective misses one of the essential elements for the success of any network: the people.

Blockchain projects strive to decentralize and democratize services. Although this ambition indirectly promotes social well-being, despite the industry’s stance on improving inclusivity, it was never the focus.

This reality is slowly changing as more and more projects take a bird’s eye view of the industry and its environmental or social footprint. GoodDollar is one of those organizations that take social responsibility by bringing cryptocurrencies to the conversation in a sustainable format.

As a Universal Basic Income Project (UBI), GoodDollar has two goals: to provide educational opportunities for users to learn about crypto, and to empower individuals through its crypto-based income distribution framework. By making it easier to interact with cryptocurrency at an elementary level, GoodDollar hopes to improve financial literacy and teach people how to use cryptocurrency. UBI means giving a fixed amount of money to every adult on a regular basis.

Conceived by eToro CEO Yoni Assia as part of the organization’s Corporate Social Responsibility (CSR) goals, GoodDollar has readily demonstrated the power of blockchain to drive meaningful change in a nonprofit format. With its proven model, the attractiveness of GoodDollar grows. It now offers support from crypto enthusiasts and entrepreneurs as well as corporate partners who also accept GoodDollar as a form of payment. (See Bitcoin Stock Comparison on TipRanks)

Corporate support for UBI Climbs

The latest brand to join the G $ initiative is Shopping.io. This e-commerce bridge helps consumers spend cryptocurrencies in key global online retail hubs, including Amazon, eBay, and Walmart. Shopping.io donated $ 50,000 to GoodDollar, all of which will be minted in G $, to support GoodDollar’s UBI recipients.

The story goes on

In exchange, G $ can be spent at Shopping.io to purchase basic household items and emergency supplies from the e-commerce sites mentioned above. This helps forge a synergistic relationship between the two organizations, especially as Shopping.io becomes well known in the eToro and GoodDollar communities while improving the fungibility of G $.

In addition to the social good that the e-commerce onboarding and fulfillment brand is promoting through their contribution, it is expanding the appeal of crypto by applying its use case to millions of consumers around the world. Arbel Arif, CEO and Founder of Shopping.io, sums it up: “We loved the performance of GoodDollar and wanted to help in every possible way.”

As blockchain adds value across industries, sustainability and social well-being are two areas where the impact of technology is really being felt by billions of people around the world who can benefit most from a more balanced economic environment.

Disclosure: Reuben Jackson did not have a position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be construed as an invitation to buy or sell any security.

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crypto investment: Cryptocurrency investing is risky but can reward: Risks to know, how to make the most of the opportunity

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Until about two months ago, Noida-based Gaurav Tyagi thought Elon Musk was a visionary who would lead the world into a technology-based and financially secure future. But not anymore. After Musk announced that his company would no longer accept bitcoins for buying Tesla cars and expressed concern about the environmental impact of bitcoin mining, the crypto market collapsed in mid-May.

It was a midsummer nightmare for investors like Tyagi. Within a week of May 13, the value of its crypto holdings plummeted more than 60% from around 55,000 rupees to less than 20,000 rupees as panicked investors quickly sold their coins. “Elon Musk acted irresponsibly without caring about the millions of investors who would be affected by such decisions,” he says sullenly.

Did you know already?

  • $ 1,635 billion is the estimated market capitalization of all cryptocurrencies. Bitcoin’s market capitalization of $ 674 billion (50.57.561 billion rupees) is more than three times that of India’s most valuable company, Reliance Industries (market capitalization 11.14.500 billion rupees).
  • Rs 1,000-1,500 crore is the combined daily turnover of crypto trading in India. This is less than 1% of the daily trading volume of Rs 2,00,000 crore on stock exchanges in India.
  • 10-12 million is the estimated number of active investors and traders of cryptos in India. That is 16-20% of the 60 million active stock investors and traders in the country.
  • The 24×7 trading takes place on the cryptocurrency market. The market is also open on Sundays and Holidays, unlike the stock and bond markets in India, which open at 9 a.m. and close at 3:30 p.m. and close on weekends.
  • 40-50% was the drop in crypto prices after Elon Musk tweeted that Tesla won’t accept payments in bitcoins and expressed concern about the environmental impact of crypto mining.

Tesla’s U-turn on cryptos wasn’t the only trigger. Around the same time, the Chinese government took action against institutions dealing with cryptocurrencies. These two developments sparked panic selling in cryptos. “Aside from panic selling, many investors decided at this point to post profits, which led to a more pronounced decline in crypto prices,” said Nischal Shetty, CEO and founder of WazirX, a crypto exchange founded in 2018.

Also read:
Why this crypto market correction is healthy

Crypto prices have risen over the past 12 months and have brought investors incredible returns. Even after the recent drop, the price of a Bitcoin is close to 400% last year. Some smaller coins like the Dogecoin are trading 140 times their June 2020 level, while Matic Network is up over 7000%.

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Data from June 8th, 2021 | Sources: Investing.com, Binance

Lured by high returns
These enormous returns have drawn investors to what crypto evangelists are calling an emerging asset class. There are nearly 12-15 crypto exchanges in India and daily trading volume estimates range from Rs 500 crore to Rs 1,500 crore. As big as it sounds, this is less than 1% of the daily turnover of Rs 2,00,000 crore on the stock exchanges in India.

Shetty admits that daily sales are small, but points out that the number of investors is far larger. He estimates that there are more than 10-12 million active investors trading cryptocurrencies on the dozen crypto exchanges in India, accounting for about 16-20% of the estimated 60 million active stock investors.

These numbers suggest that the average crypto investor isn’t very deep in their pockets. Still, he can trade as cryptos can be bought and sold in fractions. A Bitcoin costs close to Rs 27 lakh and Ethereums cost Rs 2 lakh. But you can buy a fraction of these coins at Rs 50-100.

Such rules have made crypto trading easy and spawned a new generation of traders with traits that traditional investors would disapprove of. These investors are young, easily influenced by social media and ready to take high risks. Your impatience to get rich has shortened your investment horizon. “I want to invest for the long term,” says a seemingly astute 26-year-old Vikram Chaddha. Then he adds, “I can last 2-3 months.”

The trading hours of the crypto market add to the craziness. The exchanges are open 24 hours a day, seven days a week. No holidays, no weekends. You can act day and night. As one stock trader joked: “Now we can lose money on the weekend too.”

Meet Rajesh Rupala, a 31-year-old investor based in Bhavnagar, Gujarat who left a bank job last October to transform himself into a full-time stock trader. He was introduced to cryptos four months ago and was instantly hooked. Rupala has invested almost Rs 12 lakh (25% of its total investment portfolio) in this very risky but also rewarding option.

Facing multiple risks
Investors like Rupala don’t mind that cryptocurrencies are exposed to multiple risks. On the one hand, there is the systemic risk. Cryptos are very volatile instruments and can move very quickly and without warning.

“A second level of risk arises from regulatory ambiguity, cybersecurity threats, and uncertainty about their acceptance in mainstream finance,” said Pableen Bajpai, founder of FinFix Research and Analytics. Three years ago, RBI practically banned cryptos when it asked banks and fintech companies to discontinue their services for companies that trade virtual currencies. But last year the Supreme Court lifted the RBI’s ban, saying that cryptos are unregulated but not illegal.

That hardly calms you down. If a stock investor has a complaint against a company or an intermediary, he can contact the Sebi and the complaint will be dealt with in accordance with the codified rules. But since there are no regulations governing cryptos, the investor will likely have to go to the cybercrime cell or move a court. “That’s why regulation is important. There is self-regulation going on at the industry level right now, but we want the government to set the rules and appoint a regulator, ”Shetty says.

Crypto investors are also at risk from unscrupulous promoters and shady outfits. It’s a landscape full of stories of scams and scams. “Given the lack of credible information and reliance on social media, there is a very high risk of price manipulation,” said Gaurav Garg, research director at CapitalVia Global Research.

Tampering is also possible as many cryptos are not very common. “There is a concentration risk when a few investors hold very large amounts of a particular coin,” says Vineet Nanda, co-founder of Globalize. As the May crash demonstrated, there is a high risk of price manipulation if a tweet can lower the price by 40-50%.

Too big to switch off
Many investors find solace in the numbers. The crypto industry has gotten gigantic in recent years. Bitcoin’s market capitalization alone exceeds Rs 50 lakh crore, which is higher than the combined market capitalization of the six largest stocks in India, including Reliance Industries, TCS, HDFC Bank, Infosys Technologies, Hindustan Unilever and HDFC. Ethereum’s market capitalization is equal to the next six stocks. So the two largest cryptos are bigger than the 12 largest stocks in India. “How can a government shut down something that has attracted so much investment,” asks Arun Shivshankar, a 22-year-old medical student from Vellore. Shivshaker tries out cryptos after graduating from college.

The actors of the crypto ecosystem are also confident that the government will not ban virtual currencies. In fact, the government plans to create its own sovereign digital currency. “Nobody thinks of banning them because it is practically impossible. The other reason is that the technique is actually good. It’s so beautiful that in the future it will find a way to grow. And if that happens and a nation doesn’t belong, it will simply lose, ”says Vikram Subburaj, CEO & Co-Founder of Giottus Cryptocurrency Exchange.

Cryptocurrencies are risky, but if you are careful and understand the market they can be very rewarding too.

Also read:
Seven Rules of Cryptocurrency Trading for New Investors

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Crypto Long & Short: The Market Gets Smarter

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I find it useful to think about risk in cryptocurrencies in three dimensions: market, technology and regulation. Like dimensions in space and time, they do not exist independently; they overlap.

  • The market risk dimension is the acceptance risk that any new technology is faced with. It’s less represented by cryptocurrency critics than by people who just don’t care.
  • The technology risk dimension is the risk that the underlying technology will break. This is perhaps the most often overlooked. How many can say they understand why Bitcoin’s SHA-256 hash function is unbreakable?
  • The regulatory risk dimension receives the most attention, but its nuances are often poorly understood. Those nuances – and the slow progress of the market in capturing them – could be seen in this week’s news cycles.

This week it was all about regulatory and technological risks. It was amusing to see commentators switching from centralizing bitcoin mining in China to wrestling over the Chinese government crackdown on bitcoin mining.

This column originally appeared in Crypto Long & Short, CoinDesk Research’s weekly newsletter for professional investors.

Both risks are overemphasized. In addition to validation, mining is Bitcoin’s system of governance. And Bitcoin turns governance into a commodity: it takes the corrupting power of governance and turns it into a “toothless commodity” that anyone with an internet connection can deliver. The only advantages in this race are cheaper power and faster processors. North American miners have shown that they can compete on both fronts.

Right now, any Chinese crackdown on cryptocurrency mining is the digital golden opportunity for North American miners. And if Senator Elizabeth Warren’s comments reflect Washington’s intentions regarding North American mining, this will be someone else’s opportunity. (A Paraguayan lawmaker made friendly regulatory proposals this week. Paraguay controls 45% of the capacity of the world’s second largest hydropower plant and uses very little of it.)

This week, the cryptocurrency markets showed a more sophisticated understanding of regulatory and technological risk: They shook off the mine thunder from Washington and Beijing and marveled at the news that the U.S. Federal Police had found a way to seize Bitcoin from Darkside, the criminal collective that held the systems of Colonial Pipeline for ransom.

It was the largest such seizure to date by a single (presumably) highly developed organization. Had the FBI cracked Bitcoin’s cryptography? The market reacted as if it had. A three-letter agency that finds a way to solve tough problems in cryptography would actually shut down Bitcoin and all cryptocurrencies (among others). But that didn’t happen.

Hours after it became known that Bitcoin had been salvaged from the Colonial Pipeline attackers, the FBI was named in a press release from Europol describing a multinational operation in which law enforcement agencies set up an encrypted messaging service and used it as a Trojan horse to criminals marketed. Inexplicably, these masters of deception seem to have entrusted their private Bitcoin keys to this stool pigeon.

The increasingly crypto-curious world needs to learn a thing or two about how this works. The New York Times and Wall Street Journal ran reports this week stating that Bitcoin was “indeed traceable” and cited “cryptocurrency’s reputation as difficult to track.” Law enforcement agencies have long understood that crypto is not only traceable, it is permanently traceable. Some quirky federal agencies have called Bitcoin “prosecution futures,” noted journalist Nathaniel Popper in his 2016 book, Digital Gold.

The difference between the US government cracking SHA-256 (which created it) and setting up a sting through an off-chain service provider perfectly shows where the regulatory risk really is with cryptocurrencies. The market’s reaction to the seizure news – and its non-reaction to a midweek drop in Bitcoin hashrate or the (sometimes false) news about Bitcoin bans in two Chinese provinces (Qinghai and Yunnan) – shows a better understanding of this distinction.

Washington and Beijing would find it difficult to stop Bitcoin mining, at least to enact it directly. As long as “Bitcoin is running” on at least one computer, Bitcoin will run. As the price of Bitcoin rises, more miners will step in, motivated by rewards and providing security commensurate with the value of the network. Clogs the entrance to their den and the honey badger is spotted in another part of the forest.

A greater regulatory risk lies in the government’s power to control crypto exchanges and other off-chain service providers. Crypto’s strange, fragmented liquidity performed admirably on May 19th. That may not be the case on the next drawdown, depending on how the exchanges are regulated. There is also a risk of slow advances in crypto-friendly regulation, such as banking supervision and Bitcoin ETF approval.

It’s not that mining is sacrosanct. Regulatory risks at the entrances and exits can have a negative impact on mining by depressing the price. It is important to distinguish between this and a regulatory risk that affects the security of Bitcoin itself.

The market seems to understand this distinction – between technology risk and regulatory risk in cryptocurrencies – better. At least for the time being, this is a sign of increased efficiency. In alternating between retail and institutional market cycles, this dynamic could change quickly.

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