In this week’s edition, we celebrate BTC finally reaching the awaited $5,000 milestone, look at some of the reasons contributing to this momentous event, explain why the crypto bubble has as much of a chance inflating as it does deflating during the remainder of the year, and touch upon a few non-financial areas where blockchain technology is beginning to be employed.

btc 4960 high

BTC Rallies Yet Again, Stopped At $5k

Although reports of bitcoin’s upward price trajectory may be blasé by this point in 2017, this week was a special occasion for crypto enthusiasts and financial numerologists alike, as the price of BTC managed to briefly touch upon the $5000 mark, before settling back down to the $4500-$4600 range (as of the writing of this article). The affair lasted only for about 10 minutes but was still a momentous and long anticipated event by analysts who had made bold predictions that the $5000+ breach would happen this year.

A disturbing increase in transaction fees of over three-fold alone last month did not seem to deter investors who were eager to jump on the bitcoin bandwagon, giving the premier cryptocurrency a 60% jump in price over the same time period. Even though long-standing, major financial news outlets like Forbes and The Motley Fool continue their largely unreasonable tactics of fearmongering in an attempt to dissuade their traditional readership from investing in cryptocurrencies, it is clear that their warnings remain unheeded by those actively pouring their money into all marketed aspects of the technology.

Wall Street still

Hedge Funds, Wall Street and Irrational Markets

One compelling rationale behind the continued upwards trajectory of all things cryptocurrency is the fact that as many as 70 Wall Street hedge funds are now starting to include coin and blockchain startup investments in their portfolios. Last week, we looked at the 1confirmation Fund, headed by an ex-Coinbase employee and backed by effervescent billionaire Mark Cuban. These funds, being the first wave of their kind to publicly invest in the blockchain space, are under tremendous pressure to produce profits for their investors. Undoubtedly their executives will put their mastery of human psychology and markets to use to squeeze as much potential returns on their investments as possible.

As most cryptocurrencies remain highly unregulated and relatively puny compared to the average S&P 500 corporation, they are much more easily manipulatable, especially given the vast financial resources at the disposal of Wall Street hedge funds. This means that the prices of the top 10 cryptocurrencies will likely continue to climb, even in the face of ever-rising transaction fees which put the use of bitcoin as a method of money transfer out of reach for most people. The idea that markets will behave rationally has been proven to not last indefinitely in any “boom-and-bust” cycle, lending further credence to the idea that cryptocurrency prices are currently in the midst of a giant bubble.

hedge funds vs. SP 500

The moral of the story: Just because there is no sound, fundamental reasoning why the price of a given commodity (in this case, bitcoin) should continue a frenzied rise into the stratosphere, it doesn’t mean that it won’t happen. In weeks past we discussed one of the first recorded commodity bubbles, the Dutch “Tulip Mania” of the 1600s, which saw the price of tulip bulbs rise over the course of a couple years to become more expensive than some houses. Incredibly, bitcoin’s rise had already dwarfed Tulip Mania in size and scope by mid-July – it is mind-boggling to think of how much larger it is after August’s tremendous gains.

btc vs tulipmania

While blockchain technology is undoubtedly the wave of the future, it is important to remember the age-old adage of “what goes up, must come down.” Those who got in on the ground floor will undoubtedly start cashing in their profits at a certain point, which is likely to trigger a snowball effect, leading to a sharp decline in BTC price and leaving most small investors stinging from sudden, unexpected losses. Only those wise enough to have learned from history’s mistakes will emerge unscathed. Though nobody can predict when the collapse will happen, it would be prudent for the average investor to recognize when a collapse is happening, so they may pull out and remain on the sidelines until the turmoil has settled.

New Firsts in Blockchain Adoption

The financial sector isn’t the only beneficiary of the rise of the blockchain: world humanitarian bodies are also beginning to find ways to coordinate the distribution of relief funds and supplies through employment of blockchain-based monitoring systems. Just last week, the U.N. started a pilot program named “Building Blocks” that uses blockchain technology to distribute aid to Syrian refugees. The U.N. had already announced plans to put the technology to use in combatting climate change issues in May of this year. By facilitating the carbon credit and clean energy trade, businesses can reap the rewards of running environment-friendly operations on a global scale, no longer having to be bound by the costly and time-consuming red tape that frequently comes with large scale international coordination of this type.

disaster relief

The blockchain is also being hailed as a solution to traditional disaster insurance limitations. Europe’s biggest insurer, Allianz, has long expressed interest in employing blockchain technology to transfer catastrophic insurance (think flood, earthquake and other natural disaster) risk from insurers to investors. Such “catastrophe bonds” usually come with a hefty price tag or are not available at all for many situations, but through coordination with a blockchain-backed, global network of people willing to bet on such risks, they may soon become cheaper and more widely available for those who need them.

Also in the News

  • A new Ethereum-based dApp named Dharma will allow anyone to apply for small cryptocurrency loans (though currently available only in the form of ETH). Their plans to create widely accessible microloans are thought to be a solution to providing impoverished parts of the world with the startup capital necessary to create lifechanging businesses and investments which might not otherwise come to fruition with traditional loan options.
  • A China-based ICO, LakeBanker, is threatening to disrupt banking operations within the country by offering peer-to-peer based banking, with their slogan being “Free Banking for the World.” By using a “crowd-banking” model, LakeBanker aims to reduce the cost of withdrawals in over 40 different currencies to almost zero by interconnecting an artificial intelligence-driven network of “individuals, merchants and other institutions.”