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‘Banks should be scared’ of cryptocurrency-based DeFi

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Billionaire investor Mark Cuban is very optimistic about the future of DeFi or decentralized finance and DAOs or decentralized autonomous organizations.

“There are many financial institutions that should be concerned,” Cuban wrote in a blog post on Sunday. For one thing, “banks should be afraid,” he wrote.

DeFi applications aim to emulate traditional financial systems with cryptocurrency, while DAOs can control and monitor DeFi applications and other projects.

DAOs are similar to traditional companies or organizations, instead control is democratized within DAOs. Instead of having a centralized leader, DAOs have members who vote on decisions and rules, which are then coded into smart contracts on the blockchain.

For example, DeFi loans allow users to lend cryptocurrencies like a traditional bank does with fiat currency and earn interest as a lender. DeFi loan applications like Aave, Compound and Maker are regulated by DAOs.

The structure of these decentralized protocols is one of the things that piqued Kuban’s interest and made him think that DeFi could be a serious competitor to traditional banks.

He uses Aave as an example to explain why. (A Shark Tank star and owner of the NBA’s Dallas Mavericks, Cuba invested in Aave, which he announced during a Reddit “Ask Me Anything” in February.)

“Aave looks like a bank like its competitor Compound. But it’s not. Nowhere around,” said Cuban. “Aave is a fully automated, permissionless platform with no bankers, no buildings, no toasters, no safes, no cash, no money custody, no forms to fill out, no credit ratings.”

“Everything is controlled by smart contracts. It’s fully automated. You don’t have to get approval from anyone and it takes minutes to get a loan.”

This, of course, is part of what makes DeFi so risky. Unlike a traditional bank, there is no regulation or insurance for your money when you use DeFi. Although DeFi loans are collateralized with other crypto assets, borrowers who use DeFi protocols cannot otherwise be held responsible if they cannot effectively repay a loan.

“The old crypto adage ‘don’t put in more than you can afford to lose’ applies twice to DeFi,” reported CoinDesk. “This stuff is overly complex and a lot can go wrong.”

DeFi-related hacks stole $ 156 million between January and April, according to CipherTrace.

Another feature that draws Cubans to DeFi exchanges is the fact that they don’t necessarily have to raise a lot of capital to scale, he says. “Rather than the company’s owners, investors and their creditors raising capital for all transactions that take place, the liquidity providers (LPs) do it for them,” he wrote.

Liquidity providers are users who fund pools that enable DeFi loans or loans, among other things.

For Cuban, this makes automated financial markets like DeFi “so much more capital and operational than comparable traditional companies”.

Cuban acknowledges the risks and admits that with all of this technology there are technical details to be clarified, but still says that “this approach is the future of private banking”.

And despite the risks, DeFi has been particularly buoyant lately. DeFi Pulse currently has more than $ 60 billion locked in DeFi logs, according to DeFi Pulse.

Cuban is a liquidity provider for a decentralized exchange, he wrote in his blog post. He is also invested in a number of companies in the crypto space, including DeFi companies, and has a portfolio of multiple cryptocurrencies, including Bitcoin and Ethereum.

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Cryptocurrency

What does it mean for the future of cryptocurrencies?

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The Reserve Bank of India (RBI) recently said it is working towards a phased implementation strategy for the central bank digital currency (CBDC). While the move was welcomed by industry stakeholders, some statements from RBI have raised concerns about the future of virtual currencies (VCs) like Bitcoin, Ether and Dogecoin.

CDBCs are digital currencies issued by a central bank and generally take a digital form of the country’s existing fiat currency such as the rupee.

In a webinar organized by the Vidhi Center for Legal Policy, T. Rabi Sankar, deputy governor of RBI said Thursday, “CBDCs are not only desirable because of the benefits they create in payment systems, but they may also be necessary to keep the public in an environment of volatile private VCs. “

Another statement read: “Another driver is making virtual currencies available to the public that offer the legitimate benefits of private virtual currencies while avoiding the harmful social and economic consequences of private currencies.”

In the past, RBI Governor Shaktikanta Das had also voiced concerns about cryptocurrencies.

According to Ajeet Khurana, founder of Genezis Network, a think tank for crypto startup investing, adopting CBDCs from a point of view of preventing people from participating in VCs will not help anyone, including RBI.

“CBDC is a phenomenal technological advancement for the Indian rupee, but it should be seen in response to the need for higher technology, greater functionality and peer-to-peer interaction, rather than something that VCs take a property and then call it is superior, “added Khurana.

Meanwhile, industry executives believe that crypto assets can coexist with sovereign digital currencies.

“The assessment of the introduction of CBDC by the RBI is definitely a positive sign. Such a move can very well bring the Indian rupee into the league of global digital currencies. Even private currencies and CBDCs can coexist at a very early stage, as if we were to identify them as an asset class, “said Ashish Singhal, CEO and co-founder of CoinSwitch Kuber.

One argument for the need for coexistence is that crypto assets like Bitcoin and Ethereum are different types of assets with use cases other than digital currencies. For example, Bitcoin can exist in the economy as a store of value for a lot of gold, and it is the regulation of other crypto assets that will benefit investors, businesses, and the future Indian economy.

“We believe that India, as a democracy, will have open discussions to dispel concerns of the central bank or any other entity. Crypto and blockchain are powerful futuristic tools and we are optimistic that the government will develop guidelines that will enable all Indians to participate in this technological revolution, ”said Avinash Shekhar, Co-CEO of ZebPay.

According to experts, the introduction of CBDC by RBI is a significant step, and the positive impact is that it will help demonstrate the true value of cryptocurrencies or blockchain. However, VCs can still play a role.

“Cryptocurrency or a blue public blockchain like Bitcoin and Ethereum are not yet regulated by any regulatory authority. Hence, a central bank digital currency may not be accessible, while in the case of Bitcoin it can be accessed by anyone from anywhere in the world, “said Gaurav Dahake, Founder and CEO of Bitbns.

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How to invest bitcoin in IRAs for retirement

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Nicolas Economou / NurPhoto via Getty Images

To Matthew Roed, social security looks a lot less promising than the money he hid in his BitcoinIRA.

Roed is a registered nurse who lives in Golden Valley, Minnesota, and says he spent 16,000 hours researching everything related to Bitcoin. His conclusion? Investing in the cryptocurrency is key to a good retirement, and the best way to do it is with a tax-free, self-managed individual retirement account, or IRA.

“With Bitcoin legally classified as owned by the US government and my crypto being inside an IRA, I knew I would greatly reduce my taxable expenses due to the exponential growth,” said Roed.

At today’s prices, the risk has so far been worth it.

The MBA graduate, father and husband initially invested $ 30,000 in his BitcoinIRA. Right now he says his retirement portfolio is up to $ 250,000,

Even though it fell below its high of $ 500,000, Roed still feels vindicated in his belief that Bitcoin is the future.

“Nobody wanted to listen to me back then, not even my own family,” he said. “I got withdrawn and used my frustration to push more and more to get involved in this market.”

RN Matthew Roed of the Courage Kenny Rehabilitation Institute in Golden Valley, Minnesota.

Matthew Roed

BitcoinIRA

BitcoinIRA was launched in May 2016 and offers investors the tax benefits of an IRA as well as the returns of a risky and rewarding alternative asset class. It is similar in nature to other IRAs, except that it is funded not by gold, cash, and bonds, but rather by Bitcoin.

The company has more than 100,000 individual account holders, including customers who are only 18 years old. But Chief Operating Officer Chris Kline tells CNBC that 75% of account holders are 45 and older. “It’s not a game for young children anymore,” he said.

BitcoinIRA doesn’t just trade in Bitcoin. It now has a long list of cryptocurrencies, including Ethereum and Litecoin.

Campbell Harvey at Duke University believes diversification is the right decision.

“Having a portfolio that is exposed to a single crypto like Bitcoin doesn’t make sense because while Bitcoin is currently the most important, its share of the total capitalization of cryptos has decreased over time. There are so many other tokens out there, “Harvey said.

When CNBC first profile BitcoinIRA in 2017, it was serving $ 6 million in transactions for 700 account holders. This month it exceeded $ 1.5 billion in all-time transactions.

There were also far fewer crypto-retired players. The market is now inundated with options.

A recent survey of financial advisors shows a clear shift towards cryptocurrencies. Of the 500+ financial advisors included in the report, 14% said they use or recommend cryptocurrencies to their clients now, up from less than 1% in 2019 and 2020.

The IRA custodian Kingdom Trust offers users the ability to diversify into 20 different cryptocurrencies. CEO Ryan Radloff tells CNBC that $ 2 billion of the $ 17 billion it holds for customers is now in cryptocurrency. That’s $ 350 million a year ago.

“The number of people interested in adding Bitcoin to their retirement plans is growing exponentially,” said Radloff. “People don’t want zombie retirement accounts that only allow you to invest in three target funds. They want more choice in what to do with their hard-earned money, and they want access to hard assets that will increase “in value over the long term.”

IRA vs. Roth IRA vs. 401 (k)

Crypto-backed retirement portfolios may grow in popularity quickly, but there are still some major limitations.

For one, while there are several ways to invest your savings for retirement – be it an employer-sponsored 401 (k) or a Roth IRA – very few of these vehicles actually allow for an alternative asset like gold or crypto.

Because of this, self-directed IRAs are the primary retirement tool for holding crypto, explains Shehan Chandrasekera, CPA and head of tax strategy at crypto tax software company CoinTracker.io.

As the name suggests, you open an account with a custodian, make all investment decisions and your income is tax-exempt until you retire. Kingdom Trust and BitcoinIRA both follow this model.

“When it comes to retirement accounts, it is currently Bitcoin IRAs, IRAs, IRAs,” said Tyrone Ross, CEO of Onramp Invest. Onramp sells software that helps financial advisors track clients’ cryptocurrency investments.

“Because it’s considered property by the IRS … that’s why you see the IRA self-directed space explode,” Ross continued. “There are a lot of regulations that have to be met before you get into the 401 (k) room.”

There are exceptions. A small 401 (k) provider called ForUsAll announced last month that it is now allowing attendees to split up to 5% of their retirement savings into 50 different crypto assets, including Bitcoin, that will be held and managed by Coinbase.

Companies like BitWage and Digital Asset Investment Management are also trying to incorporate crypto into traditional employer retirement plans.

But Chandrasekera says that “in general, 99% of the 401 (k) plans don’t offer bitcoin services,” so there is still a way to go before bitcoin hits mainstream retiree platforms.

For example, Fidelity tells its clients that retail brokers cannot buy or sell cryptocurrencies on Fidelity, although theoretically they can get into Bitcoin trading through crypto-related companies that trade in the public markets. The same goes for Charles Schwab.

Read more about cryptocurrencies from CNBC Pro

Volatility risk versus tax savings

Roed spoke to CNBC after completing a 14-hour night shift. In those hours after work, the rehabilitation staff nurse spends most of her time researching ways to invest in cryptocurrencies.

One reason he chose BitcoinIRA had to do with the company’s staking program. Roed lends his bitcoins to third parties in exchange for an annual percentage rate of return (APR) for the risk. “That’s about 2% a year,” he said.

This helps offset the $ 240 annual account fee plus the average transaction fees of 1% to sell and 5.5% to buy.

Kline says customers can see up to 6% annual percentage return on cash and cryptocurrencies, which helps offset fees.

Another important consideration? Bitcoin’s volatility.

The world’s most popular cryptocurrency trades at around half its value in April.

“We don’t see this volatility in the stock market, for example,” said Harvey.

“It is naive to believe that Bitcoin will just keep rising. There will be a limit and people need to think about that carefully, ”he said.

In addition to the risks of volatility, the Securities and Exchange Commission has also warned of the risk of fraud in participating in self-directed IRAs that trade in cryptos.

But Kline remains optimistic. He led CNBC through a case study of a customer who bought about $ 1.5 million worth of bitcoin in April 2020 when the token was trading at about $ 7,335. At today’s value, his investment is worth well over $ 6 million.

BitcoinIRA case study

date quantity Unit price Total bought Current unit value Current total value
April 9, 2020 193,295 BTC $ 7,335 $ 1,417,859 32,416 6,265,850

But ultimately, Kline says it’s the tax break that makes BitcoinIRA a slam dunk for those looking to trade cryptos.

If an average income taxpayer were to sell his Bitcoin today, he would not pay any taxes on the crypto held in his BitcoinIRA. If it were in a Coinbase account, the same person would pay a short-term capital gains tax of 22% or a long-term stake of 15%.

“Pretty straightforward quantitative reasoning for placing an asset like Bitcoin in an IRA environment,” said Kline.

FIX: This article has been updated to show that nurse Matthew Roed spent 16,000 hours researching cryptocurrencies, not 160,000 hours. It also clarifies that 75% of BitcoinIRA account holders are 45 years or older.

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Cryptocurrency

Ethereum, Litecoin, and Ripple’s XRP – Daily Tech Analysis – July 24th, 2021

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ether

Ethereum gained 4.99% on Friday. After gaining 1.43% on Thursday, Ethereum ended the day at $ 2,125.81.

A bullish start to the day saw Ethereum climb to a mid-morning high of $ 2,094.46 before turning back into reverse.

Ethereum broke the first major resistance level at $ 2,065 before falling to an intraday low of $ 1,948.68 in the late afternoon.

The reversal caused Ethereum to break the first major support level at $ 1,967.

However, when Ethereum found late support, it rebounded to a late intraday high of $ 2,131.51.

Ethereum broke the first major resistance level and the second major resistance level at $ 2,105, ending the day at $ 2,120.

At the time of writing, Ethereum is down 0.34% to $ 2,118.50. After a mixed start to the day, Ethereum rose to an early morning high of $ 2,131.48 before falling to a low of $ 2,107.64.

Ethereum left key support and resistance levels untested early on.

For the coming day

Ethereum would have to avoid the $ 2,084 pivot to bring into play the first major resistance level at $ 2,173.

However, for Ethereum to break out of Friday’s high at $ 2,131.51, it would require support from the broader market.

Aside from an extended crypto rally, the first major resistance level and resistance at USD 2,200 would likely limit any uptrend.

In the event of a large-scale crypto rally, Ethereum could resist a pullback at $ 2,300. The second major resistance level is at $ 2,221.

A drop in the $ 2,084 pivot would bring the first major support level into play at $ 2,037.

However, apart from a lengthy sell-off, Ethereum should stay away from under $ 1,900. The second major support level at USD 1,948 should limit the downside.

Look at the technical indicators

First major support level: $ 2,037

Pivot level: $ 2,084

First major resistance level: $ 2,173

23.6% FIB retracement level: $ 3,369

38.2% FIB retracement level: $ 2,740

62% FIB retracement level: $ 1,725

Litecoin

Litecoin rose 2.93% on Friday. After gaining 2.44% on Thursday, Litecoin ended the day at $ 124.28.

The story goes on

After a mixed start to the day, Litecoin fell to the intraday low of $ 117.06 in the late afternoon before moving.

Litecoin found support at the first major support level at $ 117 and rose to a late intraday high of $ 125.06.

Litecoin broke the first major resistance level at $ 123 and ended the day at $ 124.

At the time of writing, Litecoin was up 0.21% to $ 124.54. A mixed start to the day resulted in Litecoin falling to an early morning low of $ 123.91 before rising to a high of $ 124.79.

Litecoin left key support and resistance levels untested early on.

For the coming day

Litecoin would have to avoid the $ 122 pivot to bring the first major resistance level into play at $ 127.

However, for Litecoin to break out of Friday’s high at $ 125.06, it would require support from the broader market.

Aside from an extended crypto rally, the first major resistance level would likely limit any uptrend.

In the event of a prolonged breakout, Litecoin could test the resistance at $ 135. The second major resistance level is at $ 130.

A fall through the $ 122 pivot would bring the first major support level into play at $ 119.

However, apart from another lengthy sell-off, Litecoin should stay away from below $ 110. The second major support level at $ 114 should limit the downside.

Look at the technical indicators

First major support level: $ 119

Pivot level: $ 122

First major resistance level: $ 127

23.6% FIB retracement level: $ 178

38.2% FIB retracement level: $ 223

62% FIB retracement level: $ 296

Ripple’s XRP

Ripple’s XRP rose 2.62% on Friday. After gaining 3.99% on Thursday, Ripple’s XRP ended the day at $ 0.60913.

A bullish start to the day caused Ripple’s XRP to soar to an early morning high of $ 0.60858 before going into reverse.

Ripple’s XRP fell below the first major resistance level of $ 0.6104 and slid to a late afternoon intraday low of $ 0.57556.

To bypass the first major support level at $ 0.5688, Ripple’s XRP rebounded to a late intraday high of $ 0.61004 before falling again.

The first major resistance level at $ 0.6104 pushed Ripple’s XRP back at the end of the day.

At the time of writing, Ripple’s XRP is down 0.21% to $ 0.60787. A mixed start to the day resulted in Ripple’s XRP rising to an early morning high of $ 0.61171 before falling to a low of $ 0.60469.

Ripple’s XRP left key support and resistance levels untested early on.

For the coming day

Ripple’s XRP needs to avoid the $ 0.5982 pivot to bring the first major resistance level into play at $ 0.6209.

However, support from the broader market would be required for Ripple’s XRP to break above this morning’s high at $ 0.61171.

Aside from an extended crypto rally, the first major resistance level would likely limit any uptrend.

In the event of another breakout, Ripple’s XRP could test resistance at $ 0.65 before pulling back. The second major resistance level is at $ 0.6327.

A fall through the $ 0.5982 pivot would bring the first major support level into play at $ 0.5864.

However, aside from another lengthy sell-off, Ripple’s XRP should stay away from levels below $ 0.55. The second major support level at $ 0.5638 should limit the downside.

Look at the technical indicators

First major support level: $ 0.5864

Pivot Level: $ 0.5982

First major resistance level: $ 0.6209

23.6% FIB Retracement Level: $ 0.8533

38.2% FIB Retracement Level: $ 1.0659

62% FIB Retracement Level: $ 1.4096

Please let us know what you think in the comments below.

Thanks, Bob

This article was originally published on FX Empire

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