Bitcoin Stock Divide

You can’t go an hour on cryptocurrency forums, subreddits, or Twitter chats without hearing the advice to hodl. For the uninitiated, “hodl” has become the rallying cry for the cryptocurrency community. It sums up the advice to hold your assets, even in the face of market volatility. Hodlers take the view that blockchain will win out in the long term, so an investment in Bitcoin, Ethereum, and other projects should be long-term plays. With this talk of holding long-term, the Bitcoin stock divide grows. Investors want to know where to put their assets to maximize growth while avoiding risk.

Long-term investing in cryptocurrency is at a turning point. Now, institutional investors and private equity are starting to take notice of the gains to be had from cryptocurrency. Legitimate investing tools like mutual funds and portfolio balancers are gaining traction. The New York Stock Exchange even lists a Bitcoin index (NYXBT). Crypto is no longer a fringe subculture. It’s rapidly gaining recognition and legitimacy.

Crypto’s climb as a legitimate investment vehicle has left many investors curious. Could I invest in crypto on the order of decades? Is putting my retirement savings in cryptocurrency a good idea?

While I’m sure some crypto diehards out there would enthusiastically say yes, this article takes a more measured and nuanced approach. If you’re talking about true long-term investing, on the order of decades, adding diversified crypto as part of a complete portfolio does have some advantages. There are also serious drawbacks that mean you should keep investing in the regular stock market as well. However, the Bitcoin stock divide doesn’t have to be a divide at all if you adopt the right strategy.

Growth Potential

There’s no question that investing in Bitcoin and other cryptocurrencies has massive growth potential. Between Jan 1, 2017 and Jan 1, 2018, the S&P 500 grew 22%. That’s an enormous year for the stock market. Over the same time period, Bitcoin grew 1300%. It’s incredible the return on investment a cryptocurrency trader can see.

Admittedly, 2017 was a massive year for Bitcoin and all cryptocurrencies. The Bitcoin stock comparison isn’t exactly fair for 2017. The truth is we don’t yet have enough historical data on Bitcoin to predict average annual returns. 2017 was such an enormous anomaly of a year that we’d be making a mistake to assume all years will be similar.

For the foreseeable future, there’s a good chance many cryptocurrencies will continue to appreciate in value. Blockchain adoption is only accelerating and many projects will become more valuable as it does. The overall growth potential for a long-term investment in crypto far outweighs the potential for stock market investment.

InvestmentVolatility

The massive upside and crushing downside are two sides of the same coin when it comes to crypto. In a bear market, any investments you made at the peak quickly deteriorate. It can be difficult to stomach the losses when you’re hodling long-term. More difficult, however, are the losses that never recover.

While blockchain and distributed ledgers are likely to win out in the end, there’s no guarantees that any of the current blockchain projects on the market will end up being successful. Projects that seem like a good idea today could tank next year. This is the reality of long term investing in the crypto space. The challenge is picking winners and staying on top of your investments when things look like they might start to go awry.

That’s a lot of work and risk for a retirement account or college savings plan for your kid. Cryptocurrency investing is still so speculative that it feels incongruous to think about it in the context of retirement or college savings.

Volatility and speculation is a major reason why the traditional stock market still makes sense as an investment vehicle for long-term, predictable returns. Of course, there’s no guarantees there either. If you were planning on retiring in 2009, you probably had to work another 5 years before your portfolio stabilized. On the whole, however, we can predict the stock market much more easily than we can crypto, and it’s rare that a public company’s stock goes to zero.

Diversification

One way to mitigate volatility in long-term investing is diversification. Instead of betting it all on one or a handful of projects, consider buying a small stake in a lot of projects. All it takes is one look at coinmarketcap on an ordinary day to see why this makes sense. At any given time, some projects are gaining while others are losing. Diversification helps you average out the gains and the losses. Sure, it mitigates the massive growth potential, but it also tempers the losses.

Diversifying makes crypto a more attractive investment that still has big upside with less volatility. However, determining which projects to invest in and at what allocation can still be time consuming. Additionally, you’ll need to rebalance your portfolio regularly so it doesn’t become too heavy on one project. Rebalancing requires going through an exchange with many orders, and that can quickly get expensive. You’ll also need to review your list of projects in your allocation frequently and stay on top of the news about these projects.

Index Investing

A new development in cryptocurrency investment is index funds. These funds track the top cryptocurrencies and automatically rebalance based on market cap. Instead of buying the cryptocurrencies directly, you buy a share in the index fund. This automates much of the process of research and diversification. Instead, you’re now just tracking the overall movement of the cryptocurrency market.

For example, an index fund might own a proportional share of the top 50 cryptocurrencies. If a project begins to slip and falls out of the top 50, the fund automatically sells those coins for whatever new project has entered the top 50. As a result, your assets get spread across 50 different coins and you get exposure to the entire market.

Index investing is popular in the traditional stock market, too. Warren Buffett has praised index investing as the best way for individual investors to take advantage of the total stock market. He has even instructed his own estate to stay 90% invested in an S&P 500 index after he dies. Over the years, the compounding interest of investing in an index for decades will pay massive dividends.

Taxes…

For long term investors, one serious consideration is reducing your tax liability. In the United States, there’s no tax sheltering for cryptocurrency investments. Every time you sell, you’ll need to pay capital gains taxes on your crypto. Those taxes can seriously eat into your earnings.

On the other hand, the U.S. government (and most governments in the world) offer tax advantaged accounts for retirement, college savings, and other forms of long term investing in the stock market. Most people fail to appreciate the level to which taxes should influence your Bitcoin stock market decision.

Each individual’s situation will vary, but take taxes into account when considering the long-term benefits of a given investment strategy.

A Mixed Bag

For most investors interested in long-term cryptocurrency investing, it make sense to hold a diversified crypto portfolio alongside a diversified stock portfolio. Bitcoin and crypto should be a part of your overall investing strategy. However, don’t neglect the stability and tax advantages of the stock market, and don’t invest more in crypto than you can afford to lose.

This article by Bennett Garner was previously published on Coincentral.com

About The Author:

Bennett Garner is an editor at Coin Central and technology writer specializing in blockchain, software development, and AI writing. Visit Bennett’s personal website to learn more about him and read more of his writing.

JP Morgan Looks to Crypto’s Future with Optimism

In a recent report entitled “Unlocking Economic Advantage with Blockchain: A guide for asset managers,” JP Morgan makes the case for blockchain’s use in legacy business and asset management, which includes the bank’s take on blockchain’s adoption timeline.

“There is a growing realization that distributed ledger technology — popularly known as blockchain — will bring a radical shift in the way we think about financial assets and the way the financial industry will operate in the future,” the report begins. Co-authored by management consultant Oliver Wyman, the writeup “[argues] that asset managers need to get off the sidelines and take the initiative to understand and embrace blockchain.”

As such, JP Morgan presents “a guide to how the technology may evolve, the impact it may have on asset managers and the action they can take.” The first section of this guide details “Four Anticipated waves of blockchain deployments,” which are:

Information Sharing (2016-2019): In this stage, blockchain technology is used to store and share data, either within a single organization or between multiple organizations. Blockchain will be tested in current working environments for proof of concept and feasibility of use cases.

Data Solutions (2017-2025): At this second phase, JP Morgan sees blockchain being integrated into business solutions to foster an environment for storing and managing data. This integration will allow entities to reduce operational friction and improve existing infrastructure. When user interest and confidence is high enough, blockchain platforms will move from working alongside existing infrastructure to replacing it entirely.

Critical Infrastructure (2020-2030): Now, blockchain adoption is at full throttle. At this point, it will be “adopted by market participants as [the] main infrastructure for critical functions.” This could include replacing the outdated asset, payment, and/or transaction infrastructure and setting a new business standard for efficient data management. Certain iterations of the technology will still be centralized at this point, though, for the convenience of access rights, deployment, standards, etc.

Full Decentralized (no date forecasted): The era of a truly decentralized economy. Blockchain would replace certain centralized models, infrastructure, and systems with a decentralized solution. This means completely peer-to-peer digital asset exchange and a legal framework for overseeing asset ownership and transfer using blockchain technology. In essence, blockchain and cryptocurrencies become so ingrained in daily life that they become as normal as the internet or smartphones today.

The report continues to discuss the benefits blockchain offers to asset managers, including frictionless data management and solutions. JP Morgan sees cost advantages, as well, wherein cutting out unnecessary processes and more efficient data aggregations mean lower costs for managers. In the near future, the firm sees operations, IT, portfolio management, and finance sectors reaping the rewards of blockchain the most.

Additionally, revenue potential will increase for managers and businesses with access to improved data sources and liquidity mechanisms.

Towards the end of the report, JP Morgan implores managers “on the sidelines” to get off the bench and get into the game, claiming that those who will benefit most from this disruptive technology are those who get in early and work towards solutions.

JP Morgan - Accrual of Blockchain Benefits

Its authors also devise a “playbook” for chief officers of companies looking to work with blockchain, stressing the deliberation on the following:

  • Assessment of and education on the potential of blockchain in your organization
  • Guidelines for your organization’s vision and ambition going forward
  • Blockchain’s position on your leadership team’s list of priorities
  • An environment that fosters transformative approaches and innovative thinking within your tech teams
  • An external adoption/engagement approach

Some Takeaways

Back in February, JP Morgan said that cryptocurrencies could one day be integral to a diverse and well-balanced financial portfolio. Last week, the bank publicly announced that cryptocurrencies pose a threat to its financial model.

Now, the institution is fully vetting the potential of blockchain to asset managers and business entities alike, a sea-change of sentiment from an organization whose CEO called crypto a “fraud” last year. Recently, Jamie Diamon retracted this statement, and complementing his remorse, he endorsed blockchain technology for its wealth of potential.

This report serves physical testament to the increased interest in blockchain and cryptocurrencies we’ve seen over the past year. Coming from one of the largest and most respected financial institutions in the world, the endorsement should further legitimize crypto to its skeptics. As the arch of adoption continues forward and up, official reports like these, whether from the private or public sector, will be crucial for educating the public and dispelling misinformation and myths about blockchain and its abundant potential.

This was previously published on Coincentral.com

Author Credits:

Colin Harper

Colin is a freelance writer and crypto-enthusiast based in Nashville, TN. When he’s not speculating crypto futures, he’s probably letting his hair down and/or heading to a music festival–because stereotypes exist for a reason.You can reach him here: colin@coincentral.com

To date, there are well over 1000 cryptocurrencies in the market attempting to change every industry from bananas to finance. However, a few coins have consistently been on top in a race to be named the world’s number one crypto currency.

In this article, we’re going to analyze some of the competitors and outline why they have the potential to be number one.

Percentage of Total Market Capitalization

Bitcoin/Litecoin


Bitcoin Logo

Our first competitor is actually a pair of teammates. Bitcoin has long been the leading crypto currency, but trends have started showing that this may not be the case for long. At the time of this writing, Bitcoin dominance is at an all-time low – just 35% of the market. This is vastly lower than the 85% market dominance it had at this time last year.

Increased interest in altcoins and a split Bitcoin community are just a couple of the reasons behind a possible fall for the king crypto. Recently, high fees and slow transaction times have caused many crypto enthusiasts to look into other coins for their day-to-day use.

Litecoin with the assist. Although a fork of Bitcoin, creator Charlie Lee has stated that Litecoin works best as a transactional complement to Bitcoin’s use as a store of value. As Bitcoin implements the Lightning Network and the two coins become interchangeable through Atomic Swaps, it’s possible for Bitcoin’s scaling issues to be a thing of the past.

If the duo successfully implements these second layer solutions in a timely manner, it’ll be difficult for the other competitors to overcome the Bitcoin brand and first-mover advantage held by the current champion.

Pros

Bitcoin has a proven track record. It’s survived numerous attacks over the years and has shown to be a secure blockchain solution.
Bitcoin is the only crypto currency to a lot of people. Unless you’ve done some research, you’re probably not even aware that other options exist.

Cons

The community controversy and constant hard forks are slowly chipping away at Bitcoin’s credibility.
If the scaling solutions are ineffective or too slow to be implemented, people will continue jumping ship to other coins. More and more alternative coins are entering the limelight, and investors are realizing that there may be something better.

Bitcoin Cash


Bitcoin Cash

Bitcoin Cash is a fork of Bitcoin with a simple change – an increase in block size from 1MB to 8MB. Supporters argue that this scaling solution is closer to Satoshi Nakamoto’s true vision of Bitcoin. Larger blocks can hold more transactions which generally lead to lower fees and faster transaction times even as the network scales.

Currently sitting at #4 by market cap, there have been a couple times since the fork that it looked like Bitcoin Cash may overtake Bitcoin. The closest “flippening” attempt occurred in November 2017. At that time, Bitcoin Cash reached ~35% of the Bitcoin price on a few pieces of news:

    • – Cancelling the SegWit 2x fork
    • – Mining power shifting from Bitcoin to Bitcoin Cash
    • – More companies adding Bitcoin Cash support
    • If Bitcoin still has scaling issues even after the implementation of the Lightning Network, it could be likely that people switch over to next big coin with the Bitcoin name. By switching over, they get the battle-tested security of the Bitcoin network as well as the potentially low fees and fast transactions needed for everyday transactions.

Pros

  • A lot of the technology that makes Bitcoin so great and secure is the same in Bitcoin Cash.
  • Miner support is critical in maintaining network security. If Bitcoin Cash becomes substantially more profitable to mine, a shift in mining hashing power away from Bitcoin could be a major catalyst in the two currencies switching places.

Cons

  • Larger block sizes tend to lead to more centralization around the large-scale mining farms that run the network.
  • Some people view larger block sizes as a linear solution to an exponential problem. Bitcoin Cash may have to continuously increase the block size as the network grows.

Ethereum


Ethereum

Many people argue that Ethereum has the best shot at overtaking Bitcoin as the top market cap coin. Instead of daily transactions, Ethereum’s primary value is as a payment method to use the Ethereum network for functions such as smart contracts. Both Ethereum and Bitcoin can easily live in harmony.

Ethereum is currently the second largest coin comprising about 18% of the market. Several popular coins, called ERC20 tokens, are built using its network. Examples of these include OmiseGo, Augur, and FunFair.

There’s strong evidence to support an Ethereum market takeover. Currently, over 1 million transactions are taking place on the Ethereum network each day. That’s over 4 times the amount of Bitcoin transactions.

Also, Ethereum appears to have a much more unified community with a clear strategy to address scaling issues. Vitalik Buterin, the coin’s creator, has begun implementing solutions such as sharding and a shift to a Proof-of-Stake consensus algorithm to continue and improve Ethereum’s architecture.

Pros

Ethereum has a community with strong leadership and an aligned vision. On top of that, the Ethereum Enterprise Alliance includes some heavy hitters with a vested interest in seeing the coin succeed.
The network is already processing more transactions than Bitcoin, a lot more.

Cons

Ethereum’s scaling solutions are still unproven for the most part. A surge in network traffic, as seen with CryptoKitties, still causes significant congestion.
Smart contracts are tough to write securely. The DAO hack and Parity wallet bug prove that even if the Ethereum network is secure, the DApps built on top of it may not be.

Ripple


Ripple

Ripple may be the most controversial coin in the crypto community. This coin is a favorite of banks and other financial institutions, but opponents argue that its centralized nature is the complete opposite of what cryptocurrency stands for. Whichever side you’re on, it’s clear that Ripple is still a solid contender in this race.

Early this January, Ripple rose astronomically in price to an all-time high of over $3.20 to briefly overtake Ethereum as the second largest coin. Continued announcements of partnerships with banks and companies like MoneyGram lead many to believe that Ripple could eventually end up on top.

 

Pros

Ripple has the support of several major banks and is the preferred choice for the financial industry.
Ripple transaction fees and times are substantially better than Bitcoin.

Cons

Companies aren’t required to use the Ripple token (XRP) when using Ripple payment technology. The technology could grow in popularity without the token following suit.
The Ripple company holds the majority of the XRP tokens. This puts an unproportionate amount of control into the hands of just a few people.
Conclusion
With Bitcoin dominance slipping, it’s entirely possible that by this time next year we may see a new face at the top of the market. The coins mentioned here are just a few of the currencies that could establish market dominance, though.

Because the crypto currency market is still relatively young, an unknown coin today could easily be the next big thing tomorrow. With the pace the market is moving, it wouldn’t be a surprise to see a long-term champion that hasn’t even been created yet.

About the Author:

Steven Buchko

Steven is a managing editor at Coin Central and a blockchain investor. He’s also the co-founder of Coin Clear, a mobile app that automatically turns your daily spending habits into crypto currency investments.

This article was originally published on coincentral.com