In this edition we review (yet again – we have to – its our job) some of the potential forces keeping the price of bitcoin aloft, discuss the minimal effect that government regulation has seem to have of cryptocurrency, and how economically-divided Venezuela has invented one of their own cryptocurrencies that is pegged to a basket of the country’s national resources.
Bitcoin Almost Hits $12k, Governments Begin to Worry
Bitcoin’s seemingly unstoppable rise continued this week, with some prices reporting the price as much as $11,800 per coin on some markets. Negative statements by federal banks are growing in number, and materials which suggest cryptocurrency could one day lead to mass panic, “fatwas” or widespread social disorder are being published for public circulation by the French government. The different stance on cryptocurrency by each federal government varies widely, with Japan, Great Britain, and the Netherlands paving the way for its grounds as legal tender. Countries with more repressive governments like China, Venezuela and those of many Islamic countries have banned the use of bitcoin outright, while most countries, like the United States, are somewhere in the middle, not having made many concrete laws surrounding its standards and conduct of treatment.
These laws, once finally put into place, would principally be for taxation purposes, and fraud or terrorism monitoring as a distant second or third place. The IRS, which has not updated its official mandate on bitcoin since 2014, has declared bitcoin to be property, meaning it is to be held to the same standards of taxation that apply to that of property, as far as W2 forms are concerned. Indeed, while we are still learning about bitcoin, like it was an alien that first crash landed on earth over 8 years ago, but we are only just now beginning to learn about it and talk about it. And its no boring alien either. It happens to be an alien far more erratic, controversial, moving, and suspenseful than any of Hollywood’s finest producers could come up with.
Bubble Talk Still Abounds
One of bitcoin’s biggest mysteries is how it has managed to climb so much and so quickly, far surpassing the vast majority of all documented commodity bubbles. The “true value” of something like bitcoin is certainly hard to predict, and the fact that it is governed by a series of mathematical formulas renders it immune from certain types of manipulation. Because it does not face the same rules, regulations and trading requirements as Wall Street, it is immune from a lot of classic technical analysis as well, the psychological art of price forecasting, which itself is sometimes criticized as being the equivalent of card reading.
Nevertheless, bitcoin’s volatility is a crushing factor when it comes to its use as a day-to-day currency. For it to pick up any sort of competition with the dollar, critics argue cryptocurrency’s price fluctuation needs to be minimized, perhaps pegged to another asset or real-world currency. If the majority of buying and selling is based on speculation, eventually the available supply will surpass the total need, and there will be no one left to give it to. Bitcoin’s adoption has been so slow that a year like 2017 is probably long overdue, but that doesn’t mean there aren’t a lot of professional money makers that will sell when the going’s good – unlike the less professional, more emotionally-driven HODL model.
Venezuela Announces Plans to Skirt Sanctions with National Resource-Backed Petro Coin
Regardless whether it is just rhetoric coming from a politician attempting to appeal to the younger generations, or whether Venezuela is legitimately trying to raise money to those wishing to buy “shares” of its resources, announced plans to release a petro/gold-based, nationally-sponsored cryptocurrency; a commodity-backed blockchain bas on a hybrid of state-owned national resources. It will also be used to record government-related beauracratic data and perform some state-level processes. A positive side effect will be the creation of a job market for blockchain developers in Venezuela and a value for demand of such knowledge.
Though officially illegal, bitcoin and bitcoin mining operations are already quite popular, and a chance to have an alternative cryptocurrency to invest in that is legal may sound appealing to those looking to save their money as opposed to holding their ever-falling national currency, the bolivar. The middle and wealthier classes are the prime targets of the presidential sales pitch, but for now, many critics accuse president Nicolas Madura’s plans as all talk or unlikely to ever see the light of day.
Venezuela, in addition to being known as an oil-rich country, also has large reserves of gold and diamonds; all commodities will be used to “back” the state-controlled cryptocurrency, in a stated effort to counter set the negative financial outcomes induced by U.S. sanctions on his country. Tensions between the two countries remain high as the successor of the highly-critical Hugo Chavez has taken on a largely similar, U.S.-unfriendly attitude in matters of economics and politics. Since his initial announcement, he has repeatedly stated that this decision was directly related to economic damage incurred by U.S.-led sanctions on the country, which continues to spiral into financial decline.
Also in the News
- After his highly-publicized ICO Unikorn Gold investment tanked nearly 50% in its opening month, Cuban softened his enthusiasm for cryptocurrency, taking back some of his statements about the bright future of bitcoin, now referring to it as a “collectible” rather than a money-making machine.
- Bitcoin’s most famous twin celebrities, the Winklevoss Twins became the first bitcoin billionaires last week as their combined stashes reached a value of over one billion dollars. The figure is based on bitcoin’s current range of $1100 to $1150. Bitcoin bubble or not, champagne will likely be popped at the celebration.