Why are the cryptocurrencies crashing?

Within the past weekend, Bitcoin has fallen drastically to $7,335.57, at its lowest on Sunday. Fortunately, as CoinDesk conveys, the value of the cryptocurrency gradually recuperated. By Monday afternoon, the value of Bitcoin picked up again returned to an average of $8,585.

Although we can never know for certain the reason underlying such change, many have pointed to the advertising ban of bitcoin throughout the weekend. Sky News has reported the advertising ban for initial coin offerings, token sales and cryptocurrency wallets all across the world that Twitter has supposedly imposed and will be implemented within a fortnight.

Another one of those attempts to reprimand cryptocurrency scams, this move is not unheard of. Several tech giants have already imposed strict rules and regulations on these advertisements early on. In the start of the year, Facebook, runner-up to the world’s biggest online advertisement platform, has announced its plan to impose bans on all cryptocurrencies-related advertisements. Its reason for taking such drastic measures is to avoid circulation of “financial products and services frequently associated with misleading or deceptive promotional practices”. Moreover, just last week, Google has announced its plans to reinforce the financial services policy. Hence, advertisements circling cryptocurrencies, and such will be curbed within three months.

“Facebook was previous, but now Twitter is also rumored. Much of crypto(currency) demand is retail, so this may negatively impact demand,” suggests Joe DiPasquale, the Chief Executive Officer of BitBull Capital.

The former statement remains to be unsubstantiated as Twitter has not disclosed anything.

There was considerable news pointing to the high price of mining as the underlying cause of the fall in bitcoin’s value since last week. That was reiterated by DiPasquale, “Now that it’s dropped below that, there’s less incentive for miners to continue to keep machines on unless they are in a lower-cost energy area or have a way of producing at less than cost”.

The mining of bitcoin includes the utilization of certain software and expensive hardware to solve mathematics equations in order to earn bitcoins. With the current rate, they are now looking at a mere $8,000 for one bitcoin. This, in addition to regulatory issues, have largely impacted the value of bitcoin within the past few weeks.

Initially valued at a fine five figures of $11,000 just a couple of weeks ago, a statement issued by the Securities and Exchange Commission (SEC) expressing its concerns over cryptocurrency exchanges as well as the lack of security and privacy on Binance, a Hong Kong-based cryptocurrency exchange momentarily brought down the value of bitcoin.

According to the grapevine, finance ministers of G-20, as well as governors of central banks, have agreed to consolidate in Buenos Aires, Argentina. A G-20 representative has informed CNBC that these discussions will take place in a private and confidential setting before making its way to the press conference.

The Financial Stability Board (FSB) serves as a regulator for G-20 economies all across the world. They have begun to take actions after receiving a number of calls from various countries regarding the security of cryptocurrencies.

“The FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time,” proclaims Mark Carney, Chair of the Financial Stability Board as well as Governor of the Bank of England.

“Even at their recent peak, their combined global market value was less than 1 percent of global GDP,” Carney continues in an effort to juxtapose the size of cryptocurrency investments with the rest of the global financial system.

“The more speculative coins are being hit particularly hard. Liquidity is among their primary features and many of the holders lack long-term conviction, therefore they’re rotating into larger coins with stronger long-term prospects,” asserted by Spencer Bogart, one of the partners of Blockchain Capital.

He underlines the “potential for a liquidity crunch” as phrased by CNBC. He believes that to be the decisive factor for investors to let go of alternative coins and focus on more prominent cryptocurrencies like bitcoin.

Bitcoin was not the only cryptocurrency that had experienced a fall over the weekend. Ethereum went down by an alarming seventeen percent, reaching a nadir of $460.09, as reported by CoinDesk. That, however, is nothing in comparison to Ripple, which has suffered a decreased of fourteen percent to a meek $0.55. Similarly, the value of bitcoin cash and Litecoin have both deteriorated significantly at about ten percent.

While it may seem like bitcoin may be making a comeback, as people lose confidence in these currencies, the value subsequently decreases, too. Should investors pull out now or continue to await more positive results?

Featured image via flickr/ Zach Copley

Be Careful with the Cryptocurrency You Invest in

Cryptocurrency has turned a lot of heads in recent years. Despite its original intent to be the future of currency, it has become a promising source of investment for many out there. Cryptocurrency investors are ranging from business professionals to amateurs – thanks to its accessibility. It has become a prospective alternative to other commodities such as stocks, bonds and so forth. What’s more, is that these cryptocurrencies have successfully attained over billions of dollars from investors in these few years. As a result, it has captured worldwide attention from major organizations and media.

Updates about cryptocurrency have surfaced as a consequence of the steep decline and frequent fluctuations in its value. Several media organizations including CNBC have informed the public about the action taken by the SEC towards some of the major firms in the cryptocurrency industry. Since then, SEC have reached out to educate investors about these firms.

SEC have come up with several guidelines for investors to take into consideration. They are urging investors to do some research prior to the transaction. Investors should ask for clarification regarding their criterions in the process of choosing the quality assets. In addition, they should find out the status of the market under the National Securities Exchange. More facts and figures should be acquired from the Financial Industry Regulatory Authority concerning the people behind the market if possible.

“Amid signals that the SEC would check online platforms for violations of registration or exchange rules… some of the markets have requested or received approvals as alternative trading systems,” proclaimed Nick Morgan, one of the partners at Paul Hastings LLP. Morgan was previously part of the SEC senior trial counsel.

“Likewise, the SEC does not review the trading protocols used by these platforms, which determine how orders interact and execute, and access to a platform’s trading services may not be the same for all user,” as disclosed in a statement by the SEC Enforcement and Trading and Markets divisions.

SEC have stepped out to remind investors about the truth behind these platforms. The digital commodities offered by these servers are not endorsed by the SEC, and the list of criterions they follow are not associated to SEC.

“The so-called standards shouldn’t be equated to the listing standards of national securities exchanges,” the regulator reminds investors.

SEC continues to clarify and distance themselves from these servers.

The values of cryptocurrencies have suffered a decline in value, once again, on Wednesday.  Bitcoin value decreased to 7.1%, an improvement from the initial 9%, to $10,030 with Ethereum and Litecoin following behind, as announced by CoinMarketCap. This happened following a warning by the Securities and Exchange Commission concerning potentially unlawful trading websites that does not have regulatory oversight. The chief federal regulator of the United States financial markets has informed the public of the fact that these trading websites are not SEC-registered and regulated.

Bitcoin remains to be the most noteworthy cryptocurrency at this moment.

Cryptocurrency is a highly demanded choice of investment because of its convenience and availability. It allows beginners and youths to invest without feeling restricted by the amount. However, it also belongs to the “high risk high reward” classification. With this new piece of information from SEC, nonetheless, the risk that it entails have become more apparent and severe. Public confidence in cryptocurrency is already quickly slipping away with its severe decline. Will this statement from SEC further affect the demand for cryptocurrency?

There is no such thing as a meaningful Bitcoin price prediction. It just isn’t possible with the current structure. Bitcoin was never really intended to be a store of value. You have separate classes of investors, each with different goals for what Bitcoin should be. Miners and holders want it high, and the currency crowd wants it low. Those forces will pull at each other in unpredictable ways. Besides, the major exchanges and trading platform are all amateur hour, and most have perverse incentives to front run, which can tilt prices even more dramatically. Market manipulation is rampant and structurally impossible to solve short of mass action or outside regulation.

Featured Image via Flickr/Steve Garfield

Chinese authorities crackdown on cryptocurrency ICOs

Monday, the Chinese government banned the practice of creating and selling new cryptocurrencies, Reuters reports

With the rise of Blockchain technology, initial coin offerings (ICOs)—which give investors the opportunity to buy newly-created cryptocurrencies—have gained popularity. In total, Reuters says, ICOs have raised $2.32 billion since the inception of the cryptocurrency market; $2.16 billion of that amount has come in 2017.

In China this year, 65 ICOs have raised a combined 2.62 billion yuan ($394.6-million) and attracted 105,000 investors, according to Reuters.

The value of Ethereum, the cryptocurrency in which most ICOs are transacted, has plummeted on the news. On Sunday, one Ethereum token was worth $349.93. Late Monday, that figure had fallen 14.3 percent to $299.72. As of 1:33 p.m. Eastern Tuesday, Ethereum has recovered slightly; the USD-Ethereum exchange rate sits at 307.56 to one.

The Bitcoin-USD exchange rate has dropped 5.9 percent since midnight Monday morning on China’s news. Late Sunday night, one bitcoin was worth $4,632.46. As of 1:39 Eastern Tuesday, the value of a single bitcoin token is $4,359.07.

The market capitalization of the cryptocurrency industry as a whole dropped 11.66 percent Monday, from $165.095 billion to $145.833 billion. Since midnight Tuesday morning, though, the industry’s market cap has gained 1.7 percent. As of 1:55 p.m. Eastern, the industry is worth $148.358 billion.

“The large price falls can be attributed to panic amongst traders and profit-taking,” said Cryptocompare founder Charles Hayter, per Reuters.

Indeed, China’s announcement had many investors across the internet predicting doom and gloom. A participant in one chatroom set up for an upcoming ICO said “the music has stopped” for the cryptocurrency boom, Reuters reports.

“Sell all your bitcoins now,” another advised, again per Reuters.

The organizer of the ICO to which the chatroom was dedicated, which was meant to launch a new cryptocurrency called SelfSell, has suspended the project.

Regulators around the world are struggling to understand cryptocurrency investment and the risks associated with it, said Zennon Kapron, director of the Shanghai-based financial technology consultancy Kapronasia, per Reuters.

Prior to China’s announcement, the U.S. Securities and Exchange Commission, as well as similar agencies in Singapore and Canada, warned that regulations would likely be needed to control the cryptocurrency market.

The lack of regulation governing cryptocurrency and investment in it is unprecedented. Blockchain, the backbone of cryptocurrency transactions, functions without a centralized overseer.

The nature of investment in cryptocurrency is also unconventional. When one contributes to a fundraiser for a traditional company, one generally receives a share in the company and/or a security. ICO investors, Reuters notes, receive neither.

Therefore, Reuters points out, an investment in a cryptocurrency is little more than a bet that demand for that currency will exceed supply, driving up value. It is a risky bet, considering the volatility of cryptocurrencies.

With risks to investors so high, government regulators are purportedly taking strides to protect their citizens. Cryptocurrency expert and Blockchain proponent Oliver Bussman said, per Reuters, that the lack of private financial advice firms in China obligates the government to be especially vigilant in protecting the finances of its constituents.

Of course, many would argue that it is an investor’s own responsibility to protect him/herself.

Despite some predictions that China’s move spells the beginning of the end of the cryptocurrency boom, many experts believe the regulatory shutdown is but a temporary measure designed to give the country’s government time to develop a strategy by which to handle cryptocurrencies.

“China, in many ways, is no different than the U.S. or Singapore in saying, ok, we need to push back on these for now until we figure out how to deal with them,” Kapron said, per Reuters, adding that he expected regulators in China to eventually ease the ICO ban.

Bussman says, per Reuters, that cryptocurrency technology is too revolutionary, too integral to the future of global economics, to be shutdown. Cryptocurrency, he says, has already worked itself into the fabric of modern investment.

“The initial coin offering is a new business model leveraging blockchain technology and it will remain. This is not the end of the ICO – absolutely not,” he said.

Featured Image via Flickr/BTC Keychain

IRS Investigates Tax Evasion by Coinbase Users

Coinbase must release the identity of select customers who transferred currency during the years of 2013-2015. Judge Jacqueline Corley granted the IRS a John Doe summons to collect the information from Coinbase.

Coinbase is a company that handles transactions of Bitcoin, Ethereum, and other digital currency. The IRS made a request for the John Doe summons once it suspected Coinbase customers were committing tax evasion. In her ruling, Judge Corley stated that “There is a reasonable basis for believing that such groups or class of persons has failed or may have failed to comply with any provision of any internal revenue laws.”

A John Doe summons is only obtainable for the IRS per federal court rule. The summons doesn’t name a specific person for liability but an unnamed person, persons, or group. The IRS doesn’t hesitate to use this method when it comes to tax shelters or investors.

This ruling in favor of the IRS was a reminder to U.S. taxpayers. Head of the Justice Department’s Tax Division made a comment on the ruling saying:

“Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.”

Anyone who made use of Coinbase services between December 31, 2014 and 2015 are the focus of the summons. The IRS is looking for users with a U.S. address, phone number, and even email address. The type of information that will be subject to investigation are, but not necessarily limited to, user profile, security history, and transaction dates and amounts.

Coinbase addressed the ruling by saying:

“We are aware of, and expected, the Court’s ex parte order today. We look forward to opposing the DOJ’s request in court after Coinbase is served with a subpoena. As we previously stated, we remain concerned with our U.S. customers’ legitimate privacy rights in the face of the government’s sweeping request.”