When it comes to cryptocurrencies, we usually stick with the majors and avoid the smaller alt coins and the, what we consider to be riskier, ICO market (Initial Coin Offering).  That was until we discovered Steemit.  This alt coin aims to combine the cryptocurrency with blogging and social media.

We usually stick to the cryptos which can be traded on plus500, as we enjoy the leveraged trading and the fact that we can use just a small fiat deposit to trade.  We haven't found a way to trade Steemit like this, but we found the concept interesting.  It's so interesting, that we decided to write a streetonomic full review of Steemit.  

What Is Steemit

We decided that the only way to learn more about Steemit and how it works, would be to sign up and give it a try.  So we created an account and started using Steemit as a new member.

Steemit is a blockchain database that combines features of blogging and social media with cryptocurrency.  It offers earning potential to content creators and curators alike.  Think of something like Reddit or Tumblr, except the rewards are shared with the users.  You can earn 'Steem' by writing content, through comments or though voting on existing content.

The amount of Steem you can earn is based on the Steemit algorithm.   We read the Steemit Whitepaper and the Steemit Bluepaper, and still feel like we only have a vague understanding of how it works.   For a start the wallet is broken into subsections you'd expect it all to be Steem, but it isn't.  You can earn:

Steem

Steem is the coin traded on exchanges.  All values of Steemit coin are derived in someway from the value of Steem.  The price of Steem over the past year is shown in the chart below:

SteemPower

This is a vested interest in the Steem network.  The more Steem Power you hold, the more influence you will have in the network.  One interesting thing about Steem Power is that you can't trade it.  If you want to sell it, you need to first convert it to regular Steem tokens.  According to the whitepaper converting from Steem Power to Steem will take 13 weeks.

The main advantage of holding Steem Power, is that it gives you greater influence.  When you comment or vote on content, your influence will be proportional to how much Steem Power you are holding.  In other words some votes are more equal than others.  We can't confirm this but holding more steem power might also improve the odds that blogs you publish will earn some Steem.

Another advantage of holding Steem Power, is that you can earn interest and grow your balance.  When new Steem is issued, 15% of it is allocated proportionally to those holding Steem Power.  In this regard, holding Steem Power is similar to owning hashrate on a mining based coin.  The more Steem Power you hold, the greater your allocation of newly issued Steem.

We like that holding Steem Power gives you more influence and greater potential to earn newly minted coin.  We don't like the 13 week time lapsed withdrawal this is something which would put a lot of people off altogether!  The incentives alone should be enough to keep people invested in Steem Power.  The drip feed withdrawal process might prevent people from investing in the first place.

Steem Dollars

Steemit considers Steem Dollars (SBD) as their version of debt, or convertible notes.  Steem Power on the other hand would be their version of equity, or partial ownership of the network.  Steem Dollars (SBD) are designed to give the cryptocurrency stability.  The goal is to keep the value of one Steem Dollar at close to the US Dollar as possible. 

Steemit will allocate Steem Dollars and pay interest on them in a way that influences the exchange rate to stay within the acceptable range of $0.95 to $1.05 US.  We have chosen to overlook the irony of a cryptocurrency pegging to a fiat to add value.

In order to stymie corruption, Steemit bases the exchange rate of SBD to Steem on a 3.5 day moving average price.  This mechanism is designed to prevent people from intentionally gaming the market and profiteering off short term price manipulations.

When you earn Steem from blogging, commenting or voting, you will be paid partially in Steem Power, and partially in SBD.  The ratio should be close to 50/50, but the algorithm will adjust this in order to keep the SBD exchange as close as possible to US $1. 

If you want to convert your SBD to Steem, there will be delays.  We had a small balance of SBD, which we wanted to move to Steem Power (hey might as well build the influential power with small balances).   It was a little annoying that the process will take 3 days, as shown below:

The whitepaper explains that the delay in converting SBD to Steem, is to prevent market manipulation.   However we once again worry that by reducing liquidity, Steem is making themselves less attractive to new investors.

Can You Make Money With Steemit

 As a brand new user with only the initial allocation of Steem Power, we decided to test Steemit the only way we knew how.   We wrote a blog post, shown below:

Our blog post (about the Playstation 4 with VR), earned $6.19 from 45 upvotes in the first 7 hours.  That was around 8 days ago.  The current earnings are shown below:

As we can see, after the first 7 hours, the page did not get any more upvotes.  This is probably normal as most content will only get attention while it is new.  After that it is quite likely that it will become a needle in the haystack of similar content.  What is interesting here, is that the total earnings have gone up by $0.90 even though there have been no new likes.   

This is most likely because of the change in the price of Steem from when we posted the blog until we got paid.  Once you have earned Steem, you will have to wait 7 days until it is shown in your wallet.  During the 7 days between us writing the above post and getting paid to our Steem wallet, the price of Steem moved from around US $0.90 to over US $1.20.  

This delay is probably designed to encourage people to become long term Steem investors.  However we believe that it will do more harm than good by discouraging writers who aren't happy with the 7 day payout lag, as well as the withdrawal lags that will follow.

You might notice that as the Author, we received $5.34, with the remaining $1.75 being paid to curators.  One thing we do find interesting, is that there were 45 upvotes, but it's only showing 20 pageviews.   This is probably due to people who upvote the post based on what they see in the feed, but don't actually click to view the full content.

We were a little disappointed that pageviews appear to have not value with Steemit.  If we look at the very first post we wrote (about trading Bitcoin), we see the results below:

As we see here, the post with 80 views has earned $1.90, where as the one with only 20 views, earned $7.09.   The reason is because one had 45 upvotes while the other had only 6.  So the key to earning with Steemit, is writing content which people will upvote (but not necessarily read in full).   With this in mind, we attempted a third post with Steemit, the results are shown below:

This post about our experiences with USI-Tech had 54 upvotes (only 6 pageviews), and has only earned US $0.05.   Despite having more upvotes than all other Steemit posts we've written, it has the lowest earnings.   This could be because it didn't get the right kind of likes.  As we saw it's possible to earn $1.90 from just 6 upvotes.  The difference is that at least one of those 6 upvotes came from someone who is holding a lot of Steem Power.

So making money with Steemit is possible.  However you have to create the type of content which appeals to people with Steem Power.  You need lots of upvotes from people who are holding influential Steem Power.  I guess it's not that different to the real world.  You can make a lot more money if you create something that appeals to rich people.

What We Like About Steemit

We like the idea of Steemit.   A social media / blogging platform which rewards the users who add value to it.  It is possible to make money with Steemit, but don't expect fast returns.  It's more likely that you'll have to put in some time and effort creating content and writing lots of comments.

If you want to generate an income with Steemit, then we recommend that you first spend time building Steem Power.  You could buy Steem and convert it to Steem Power instantly, but you can also earn it but creating quality content and curation.  Steemit is an opportunity to turn ideas and opinions into profit.

One thing you might have to do is take some time learning to write with the correct Steemit markdown. This is the code you will need to use to tell the system how you want your final post to look.   There is a preview panel below where you type, so you can check how it looks as you go, but you need to know the code if you want to put text in the center or if you want to make something bold etc.

Another thing you will need to know in advance is that because Steemit uses the blockchain, once you've published a post, you can't change it.   You can't edit your posts to take out typos, or to make updates or changes.  If you accidentally post a blog more than once (which we did), then you can't simply delete the unwanted copy.

The permanency of posts is good if you want to be sure that your posts remain in tact and free of third party censorship.  However as the author, it would be nice to have the ability to edit our own work.  It's not a huge deal, it just means that with Steemit you need to be very careful to make sure that everything is right before you publish. 

What We Don't Like About Steemit

You could probably guess that we don't like the lags.  Steemit has built several delays into their system as a way to reward longer term Steem holders.  Unfortunately these strategies could dissuade new members from joining.  People might become long term investors because of the influence rewards of Steem Power, or the potential to earn interest from SBD.  They should not be forced into it by simple processes which take several days, when other coins can complete them within hours.

Another thing we didn't like about the Steemit model, is that we didn't really see anything that was designed to help bring money into the system.  Apart from people buying more Steem on the open market, we don't see any other sources of cash inflows.  The whitepaper says that they want to share the value of their network with the members.  Our problem is that they aren't capitalizing on the value of the network.

How Can Steemit Bring Money Into the Network

 One option, which we think may be quite unpopular is advertising.  We know that the type of people who are into cryptocurrency usually aren't the type who like having ads on their screens, but it might just be necessary.  The whitepaper uses Reddit as an example of a platform Steemit wants to emulate.  If they want to share the value generated by having all these members and pageviews,  they have to first cash in on it.  How does Reddit, do this?  Well here's a screenshot from Reddit:

If Steemit did have advertising, it wouldn't be difficult to share a portion of the earnings with members.  If they use something like Google Adsense, they could even monitor precisely how much advertising revenue each post generates, and share a fixed portion with the creators and moderators.

Steemit already has space for adverts, so we wouldn't be surprised if we start seeing them in the right hand panel in the near future.  The right hand side of a Steemit screen is shown below:

Steemit already has a nice chunk of blank screen in a spot which commonly has advertising on other websites.  We believe that advertising would lead to money flowing into the Steemit network and if done correctly (in a way that avoids corruption), it could make more money for all Steemit members.

Our Final Say

Steemit is free join, so we think it's worth signing up.   However given the delays in accessing your Steem, and the fact that you need a lot of Steem Power to gain influence, we don't think you should sign up with the intention of turning a profit.  There are lots of ways to write blogs and earn a bit of cash, we use advertising to keep our content free to users.

Steemit is a fun concept and if you like sites like Reddit, then you'll probably enjoy this too.  Even though the earnings start off pretty small, it's still fun to see some returns on contributions we have made so far.  Given that Steemit is still in the Beta phases there could be changes ahead (hopefully improvements).  We believe that the Steemit community has the potential to grow and if they find a way to bring money in, it can become a very popular platform for content creators from all over the internet.

We'd love to hear what you think about Steemit in the comments section below, especially if you can share your own experiences with Steem.

As we write this post (10/26/17), the price of Bitcoin is sitting at US $5,506.  It is down 8.54% from the high of US $6,020 reached on 10/21/17.  Having said that it is still up 3.40% over the 2 weeks from 12/10/17, at which time the price hit a new all time high of US $5,325.

What we are trying to highlight, is that the price of Bitcoin is extremely volatile.  This post will show you how to invest in Bitcoin, but before we do that, we want to make sure that you are aware that the value of your Bitcoin (measured in cash), can experience dramatic rises and falls in a relatively short time, as shown in the graph below (and the price has moved up a little since we started)

What we want you to see is, that, like all investments, Bitcoin carries financial risk.  It is important to understand that your funds are at risk, and you should never invest more than you can afford to lose.  Having said that, we have invested in Bitcoin, mostly through USI-Tech Bitcoin packages, and will continue to invest in Bitcoin (with amounts we are happy to put at risk).

How Do I Buy Bitcoin

Step 1 - A Bitcoin Wallet

If, like us, you are fairly new to investing in Bitcoin, then getting started can be a daunting task.  No matter how you buy your Bitcoin, you will need a trusted wallet to store your Bitcoin.  

After some web surfing, we decided to create a blockchain wallet. The Blockchain website is well established and has a good reputation.  We felt confident trusting them as a wallet provider.   One thing we found is that the default security settings are for fairly easy access.  If you want extra security (such as mobile phone SMS verification and other additional security), you need to manually activate these features.

Once you have set up your free Blockchain wallet, you can find your wallet address by pressing the 'request' button.  From here, you can see that Blockchain has automatically given you both a QR code and an alphanumeric Bitcoin wallet address as shown below:

Once you have set up a Bitcoin wallet, you are ready to receive Bitcoin.  It's important to remember that a Bitcoin wallet, it is yours forever.  While we are not actively using the above wallet, any funds sent to that QR code or wallet address would still be ours.  For this reason it is important to make sure that you keep track of any Bitcoin wallets you set up and make sure you know how to access them.  

Step 2 - Buy Some Bitcoin

After setting up our wallet, our next challenge was in buying some Bitcoin.  For this we managed to buy Bitcoin with a credit card through CEX.  CEX is purely an exchange so they do not offer a wallet service. You should set up a wallet before buying Bitcoin, then once the buy has been confirmed, you can transfer your Bitcoin from CEX to your external wallet.

CEX has 2 factor authentication to login.  For us we can only access our account after we have verified our login from an SMS sent to our mobile phone number.  This added level of security is reassuring as hackers would need access to our personal phone in order to access our account

A note of Caution:
CEX, like many other Bitcoin service providers, will only show balances of confirmed transactions.  The first time we sent a small amount of Bitcoin to CEX, it took over 6 hours for the Blockchain to confirm the transaction.   During this time, the balance in our Blockchain wallet had decreased, but there was no sign of our funds in CEX... this was to say the least a bit stressful.

The reason we share this is because it might happen to you, and believe it or not, it's nothing to stress about.  The delay in our transaction was partially our fault, for not opting to pay a higher fee for faster transactions.  Transaction lags are part of how Bitcoin works.  The important thing to remember is that if you have sent the correct amount to the correct wallet, then you have nothing to worry about.  The worst thing that can happen is that the transaction is cancelled and your Bitcoin is sent back to your original wallet.

A More Convenient Way To Buy Bitcoin

If you are looking for a simple one stop shop to buy and hold your Bitcoin, then Bitpanda is for you.  Bitpanda automatically sets you up with wallets for Bitcoin and a selection of other cryptocurrencies known as 'alt coins'.  Bitpanda also offers 2 factor authentication via sms to a phone.  Once again we like this added level of security which prevents hackers accessing our funds.

Bitpanda offers a very user friendly website which makes it easy to manage your Bitcoin and Alt Coin holdings.  Our Bipanda Bitcoin wallet is shown below:

Bitpanda also makes buying Bitcoin simple offering a variety of ways for you to buy your cryptocurrency, as shown below:

We have tested Bitpanda for both buying (with a credit/debit card) and selling (through Skrill).  We can confirm that everything went as expected.  One advantage we noticed is that Bitpanda balances updated very quickly and we were able to sell our Bitcoin for Fiat currency extremely fast.  Unlike others, Bitpanda didn't make us wait several hours while the blockchain caught up with our transactions.

Bitpanda is an excellent option for buying and holding Bitcoin.  They make buying and transferring Bitcoin as simple as copying and pasting.  Once you know the wallet address and amount of Bitcoin you need to send, all you need to do is fill in the boxes.  Bitpanda provides a simple way to buy hold and transact with Bitcoin and other alt coins.

Another one stop site we found was Coinbase, who are another company who let you buy and sell Bitcoin with a Credit/Debit card.  We discovered that in Australia they do not allow you to sell to a credit/debit card, but you can still buy Bitcoin through them.

Like Bitpanda, Coinbase has a very user friendly website for managing your Bitcoin.  (and other cryptos).  One thing we liked is that they let you set up multiple wallets - this would be useful if you want to track payments from a specific source, you could set up a wallet specifically for them.  Our first Coinbase wallet is shown below:

While the fees on Coinbase are slightly higher than those on Bitpanda, they are currently running a promotion where if a new customer buys US $100 or more worth of Bitcoin, then they will give you an additional US $10 (in Bitcoin) as an opening deposit bonus.  It costs you nothing to open and keep the wallet so you could get US $10 just for signing up with Coinbase and making a deposit of $100.

Once you have a wallet and a way to buy and sell Bitcoin, then we hope that investing in Bitcoin will be a lot easier.  We have only shared our experiences with services we have tried ourselves, we'd love to hear from you in the comments section below.

The price of Bitcoin will surely continue to fall on the news that all Chinese Bitcoin exchanges will close by the end of September 2017.  Here at The Finance Guy, we wanted to share an opportunity to trade on the price of Bitcoin falling.

We found a CFD provider called plus500, who offer contracts on Bitcoin and a collection of other cryptocurrencies.  We opened an account, from Australia, and  added $150 to try our luck at short selling Bitcoin.

Yesterday, we decided to trade the falling price of Bitcoin.  We opened a short position, which means we sold Bitcoin.  The price kept falling, and our trade turned from red (loss), to green (profit).   Because of the  leveraged exposure, our return on deposit was magnified.

As the price of Bitcoin kept falling, the profit on our short trade grew.  Plus500 allows us to trade on our unsettled balances.  This means that as our trade became more profitable, we had more and more funds available to trade again.

We decided to open another short trade on Bitcoin.  As the price kept falling we kept opening new contracts. Below is a phone screenshot from the plus500 mobile app showing the progressive trades

A couple of hours after this the price did start to recover so the trades all closed  Unfortunately they weren't quite as profitable as in the screen shot, but still made just under $75 using only $150 of our own funds on deposit.

Today we continued to short Bitcoin as shown from the below screenshot from the plus500 web app.

As you can see, we have also opened a long trade on the Euro.  You are able to trade a large range of forex, stocks, commodities and cryptocurrencies.  Plus500 does not give any advice, they are purely a trading platform.  They make it easy for you to trade on your own investment opinions

If you are interested in learning to trade Bitcoin or one of many other instruments including foreign exchange, stocks and commodities, then it's worth having a look at the plus500 free demo account.  This way you can practice without risking real money

Is Plus500 a Scam

Plus500 has set up several offices around the world, and holds official licenses to provide derivative investment securities in:
Plus500AU Pty Ltd (ACN 153301681), licensed by: ASIC in Australia, AFSL #417727, FMA in New Zealand, FSP #486026; Authorised Financial Services Provider in South Africa, FSP #47546. You do not own or have any rights to the underlying assets. Please refer to the Disclosure documents available on the website. 
Plus500UK Ltd authorized & regulated by the FCA (#509909).
Plus500CY Ltd authorized & regulated by CySEC (#250/14).
Plus500SG Pte Ltd, licensed by the MAS (#CMS100648-1) and IE Singapore (#PLUS/CBL/2018).

Plus500 is a publicly listed company traded on  the AIM section of the  London Stock Exchange, and the Stuttgart Stock Exchange.  This means that they are legally required to provide fully audited financials. This gives us the impression that Plus500 is a trustworthy company

You Can Manage Your Losses With Plus500

At the peak of our Bitcoin Cash trading, we had turned our $100 into over $500.  Unfortunately we did not close our trades at the peak.  The price of Bitcoin cash turned and the upward market turned volatile.

Our trades closed leaving us with  $447.35 on deposit.  That's still 347.35% return for one day of trading.  When these trades closed, we made a withdrawal of $150.  We now have almost $300 on deposit, and a 50% gain in our bank account

Our trades automatically closed because we had placed trailing stop orders on them.  A trailing stop order allows you to automatically close your trades if the market moves against you by a certain amount.  Plus500 suggests the size of your trailing stops, but you can adjust them yourself.

Plus500 also allows you to place stop loss orders.  These will automatically close your trade if the market moves backward to a certain price.  They will suggest a price, but you can adjust it yourself.  You can use a combination of stop losses and trailing stop orders to manage your losses.  An example is shown below:

Webtrader screenshot open trade Bitcoin CFD with Stops

In the trade shown above, we have decided to sell Bitcoin and go short on a CFD.  We put up $43.29 of our own funds for this trade.  As the price of Bitcoin did in fact drop, the trade went into profit of $24.18 at the time of the screenshot (21/8/17 5:26pm AEDT)  That's a gain of 55.86% on our deposit

As we can't predict the future, we don't know if the price will keep falling or if it will turn around.  So we have placed a stop order at a price of US$4,080.  The buy price for Bitcoin at this time is $4048.63.  This means the market will need to go up by $33.37 for our trade to close

We are hoping the price of Bitcoin will drop further and give us more gains, but if we are wrong and the price goes back up to $4,080, then our trade will close at a profit of $13.11.  We will make a profit of 30.28% if the market moves against us.

As well as the stop loss, which sets the worst case outcome, we have also set a trailing stop of 7,500 points or $75.  Our trade is for 0.25 Bitcoin, so this represents a change of $23.67 on our deposit.  At this time the original stop loss will close our trade before the trailing stop.

If luck is on our side, and the price continues to fall, then the trailing stop will follow it down.  The $75 stop is set by the lowest price Bitcoin reaches while the trade is active.  The automatic closing price will drop if the price of Bitcoin keeps falling.

Using stops means that we do not need to spend all our time watching trading screens.  This trade might close at a profit of 30.28%, or it might follow the market for even better returns.  From this point we don't have to do anything.

People all over the world are talking about cryptocurrencies such as Bitcoin and the ever growing list of 'altcoins'.   Like many people we have read about huge amounts of money that have been made (and lost) in this exciting new market.

A few months ago we decided that we've spent enough time on the sidelines and wanted to have a go at trading Bitcoin.   Unlike foreign exchange, which is traded on one market (through several brokers), Bitcoin is traded on several separate exchanges.  To trade Bitcoin (or an altocoin) you need to deposit your cryptocurrency with an exchange.  You will then be able to trade with other members of that exchange for either cryptocurrency or normal 'fiat' money.

Because each exchange operates independently, there can be slight differences in the price of each coin on different exchanges.  We recently wrote about a company which helps investors profit from differences in the price of Bitcoin.  But arbitrage isn't the only way to make money from cryptocurrencies.  We were looking for ways to actively trade Bitcoin and cryptocurrency

The exchange you choose will influence the prices you can trade at, and will also determine which coins you can trade.   Most importantly the exchange will influence how secure your investment is.  Over the past couple of years we have read several stories of Bitcoin being stolen from exchanges.  Cryptocurrencies are not covered by the same laws or insurances as other markets.  This means that if your Bitcoin is stolen from the exchange, then it's lost forever.

Before we get into trading Bitcoin, we'll go over some of the basics.  we want to make sure that cover the cryptocurrency basics before we start placing buy and sell orders on any exchange.

What is Bitcoin

Bitcoin was first launched in 2009, by someone using the online name 'Satoshi Nakamoto'.  At that time the world was still suffering from the effects of the Global Financial Crisis (GFC).  Like many, Satoshi had lost faith in the financial system, governments and central banks which set interest rates and control the money supply.

His solution, was a peer to peer digital currency outlined in his original Bitcoin document.  Satoshi describes Bitcoin as 'electronic cash'.  It was designed so that people all over the world could pay each other without using financial institutions.  Just like cash, transfers are completely anonymous and like cash, it can be lost forever.

To prevent double spending, Satoshi envisioned that all transactions would be approved and recorded on a public ledger which is visible to the entire network.  This proof of work is a record of every Bitcoin transaction that has ever occured.  It is known as the blockchain.  

Bitcoin and the blockchain are an 'open source' software.  This means that the system isn't owned by anyone in particular.  Instead it is run and maintained through consensus by 'miners'.  In return for dedicating their computing power to keeping the network up and running, miners are rewarded with the chance to receive new Bitcoin as it is issued.

Your privacy is protected through an online security technology known as cryptography.  People trade bitcoin through virtual wallets.  These wallets are like numbered accounts, so even though transactions are recorded, nobody knows who owns each wallet.

The identity of who owns each wallet  is completely anonymous. Bitcoin wallets can only be accessed with the right combination passwords.  If you lose your wallet login details, you will lose any Bitcoin that was in that wallet.  There is no other way to access the cryptocurrency held in a digital wallet.

Bitcoin is a decentralized currency with a finite supply of 21 million. Once all 21 million Bitcoins have been 'mined', then the supply will stop growing.  It is thought that a finite supply would help avoid such scenarios as seen in the GFC when central banks were trying to stimulate their economies by printing more money.  

How is Bitcoin Valued

Like foreign exchange, cryptocurrencies have exchange rates.  The price of each cryptocurrency is determined by buyers and sellers on the exchanges.  This makes it a system of supply and demand similar to most conventional markets.

Between 2009 and 2013, Bitcoin was relatively unknown, and this was reflected in the price, which spent most of that time below US $1, and briefly went over $20.  You could have bought Bitcoin in January 2013 for US $13, and sold it in November of the same year for over US $1,000.  Since then we have seen a highly volatile Bitcoin price.  

How do you Invest in Bitcoin

If you sign up for a free bitcoin wallet, you can buy Bitcoin from one of the many exchanges and hold it in your wallet.  As long as you don't lose your access key, then it's like keeping the cryptocurrency in a safety deposit box.   It won't earn interest, but nobody can ever take it from you.  If the value of Bitcoin continues to fluctuate, then the value of the cryptocurrency held in your wallet will move with it.  It's important to understand that when you invest in cryptocurrency, the value of your holdings will change with exchange rates.

You can also invest in cryptocurrency through mining.  Bitcoin is now mined by very powerful computers designed to handle the 'increased difficulty' of a large cryptocurrency network.  While it is possible to dedicate your home computer to mining Bitcoin, it's best to invest through a mining pool.  

As the name suggests, these companies allow you to invest in a share of a 'pool' of hardware which is used to mine Bitcoin.  Any rewards are then divided among the investors.  Like exchanges, you need to be careful how much cryptocurrency you invest because there have been cases of fraudulent theft from mining pools.

We have invested a small amount of Bitcoin through a company called USI-Tech.  They actively trade Bitcoin and mine alt coins.  To manage the risk of losses, we regularly withdraw our Bitcoin earnings to an external wallet.  This way we control the amount that is at risk at any time. In some ways USI-Tech is similar to a mutual fund in that they invest on behalf of the account holders

How Do You Trade Bitcoin

We have been trading Bitcoin using contracts for difference, which can also be used to trade a collection of other cryptocurrencies.  We have done this  through a company called plus500. CFDs enable individuals to gain leveraged exposure, to investments including stocks, commodities, forex and cryptocurrencies.  The use of leverage creates a substantial increase in financial risk,  and for this reason, CFDs are only suitable for sophisticated investors with very high risk tolerance levels.

Why We Like Plus500

Trade Long or Short

Trading is a little different from investing.  Our goal is not to buy and hold an asset.  We are looking to make profits from a short term change in the price.   If we believe that the price will go up, then we will buy the coin and 'go long' with CFDs.   If we believe that the price will fall, we will sell the coin and 'go short' with CFDs.  You can profit if the price goes up or down.

Leveraged Trading

The leverage ratio offered on each CFD multiplies the returns on your trade.  For example, the Bitcoin CFD offers leverage of 1:30.  This means that for every $1 you have on deposit with plus500, you can trade $30 worth of Bitcoin.  Leverage magnifies your ability to trade the underlying asset, and will also magnify your returns.  

It is important to understand that leverage increases your financial risk.  Even a small change in the price of the underlying asset can have a substantial impact on your deposit.  This is shown in the table below:

In the above table, we 'went long' on a Bitcoin CFD, which means we bought $3,000 worth of Bitcoin.  If the price of Bitcoin moves by 3.33%, this will generate a return of 100% on our deposit.  If the price goes up (as we expected on a long trade), we can double our funds.  If the price moves against our trade, we can lose our entire deposit.

Plus500 Is Trustworthy

Plus500 is a publicly listed company traded on the AIM section of the London Stock Exchange.  This means that they are regulated as a listed company and must provide full disclosure as per the rules of the stock exchange.

Plus500 has set up several offices around the world, and holds the following licenses:
Plus500AU Pty Ltd (ACN 153301681), licensed by: ASIC in Australia, AFSL #417727, FMA in New Zealand, FSP #486026; Authorised Financial Services Provider in South Africa, FSP #47546. You do not own or have any rights to the underlying assets. Please refer to the Disclosure documents available on the website. 
Plus500UK Ltd authorized & regulated by the FCA (#509909).
Plus500CY Ltd authorized & regulated by CySEC (#250/14).
Plus500SG Pte Ltd, licensed by the MAS (#CMS100648-1) and IE Singapore (#PLUS/CBL/2018).

The anonymity of Bitcoin is an important part of the ideology of cryptocurrency.  People don't want a governing body watching over their or controlling their transactions.  Unfortunately this feature has also attracted people with dishonest intentions.  

In the past we have seen many cases of 'bitcoin heists'.  This occurs when hackers successfully attack exchanges or mining pools. They transfer Bitcoin owned by customers to external wallets.  Once the Bitcoin is in an external wallet, only the people with the correct codes can access that Bitcoin.  In other words the thieves now own the your Bitcoin

As Bitcoin is not backed a government, and at this time is not regulated, clients who have their Bitcoin stolen, have very little they can do legally.  This is not the case with plus500. As a fully regulated broker, your trading funds with Plus500 are protected by the same laws and insurances that cover all investments in stocks, bonds, currencies and derivatives

Can You Make Money Trading Cryptocurrencies with Plus500

Like any leveraged investment, you can lose or make money fast with plus500 cryptocurrency CFDs. On August 18th 2017, with $100 on deposit, we decided to open a long trade on Bitcoin Cash.  We saw that the price had just broken a record so we decided to bet that it would keep going up.

Luck was on our side, and the price of Bitcoin Cash did indeed continue to go up.  As the price went up, we opened additional long trades.  We were able to do this because your available funds with Plus500 are based on the money you have deposited and the current gain/loss of all open trades.  We were extremely lucky and made over $300 on the day from our $100 deposit.  A screenshot of our trades is shown below:

As the price of Bitcoin Cash went up, we 'followed the market', and opened additional trades as our available funds grew.  As you can see, we managed to open several trades, and at one time had profits of over $400.  That's a gain of over 400% on our deposit in just one day.

You Can Manage Your Losses with Plus500

At the peak of our Bitcoin Cash trading, we had turned our $100 into over $500.  Unfortunately we did not close our trades at the peak.  The price of Bitcoin cash turned and the upward market turned volatile.

Our trades closed leaving us with  $447.35 on deposit.  That's still 347.35% return for one day of trading.  When these trades closed, we made a withdrawal of $150.  We now have almost $300 on deposit, and a 50% gain in our bank account

Our trades automatically closed because we had placed trailing stop orders on them.  A trailing stop order allows you to automatically close your trades if the market moves against you by a certain amount.  Plus500 suggests the size of your trailing stops, but you can adjust them yourself.

Plus500 also allows you to place stop loss orders.  These will automatically close your trade if the market moves backward to a certain price.  They will suggest a price, but you can adjust it yourself.  You can use a combination of stop losses and trailing stop orders to manage your losses.  An example is shown below:

In the trade shown above, we have decided to sell Bitcoin and go short on a CFD.  We put up $43.29 of our own funds for this trade.  As the price of Bitcoin did in fact drop, the trade went into profit of $24.18 at the time of the screenshot (21/8/17 5:26pm AEDT)  That's a gain of 55.86% on our deposit

As we can't predict the future, we don't know if the price will keep falling or if it will turn around.  So we have placed a stop order at a price of US$4,080.  The buy price for Bitcoin at this time is $4048.63.  This means the market will need to go up by $33.37 for our trade to close

We are hoping the price of Bitcoin will drop further and give us more gains, but if we are wrong and the price goes back up to $4,080, then our trade will close at a profit of $13.11.  We will make a profit of 30.28% if the market moves against us.

As well as the stop loss, which sets the worst case outcome, we have also set a trailing stop of 7,500 points or $75.  Our trade is for 0.25 Bitcoin, so this represents a change of $23.67 on our deposit.  At this time the original stop loss will close our trade before the trailing stop.

If luck is on our side, and the price continues to fall, then the trailing stop will follow it down.  The $75 stop is set by the lowest price Bitcoin reaches while the trade is active.  The automatic closing price will drop if the price of Bitcoin keeps falling.

Using stops means that we do not need to spend all our time watching trading screens.  This trade might close at a profit of 30.28%, or it might follow the market for even better returns.  From this point we don't have to do anything.

Our Final Say

Trading of any kind is risky.  Trading with leverage is especially risky.  If you decide to trade cryptocurrencies, or any other CFD with Plus500, then you should not deposit more funds than you are willing to lose.

The returns we experienced while researching this article were very good, but we were extremely lucky.  There is no guarantee that our luck will continue.... It is possible that on future trades we will make losses which may amount to our entire deposit.

Our experience should not be taken as a reflection of what you will achieve.  Your results will be based on the market conditions and directions of your own trades.  We are not endorsing Plus500 as a way to make money.  We are endorsing them as a way to trade.  The trading results are up to you

As always, we'd love to hear from your in the comments section below.  Please let us know what you think, especially if you can share your experiences trading cryptocurrencies or CFD's.

On August 15th, Bitcoin XT was released, creating what is known as a 'fork' in the blockchain.   On one side of the fork is the original code known as 'Bitcoin Core' and on the other, the newly released 'Bitcoin XT'.  The fork has been the topic of heated debate within the Bitcoin community, with some referring to it as Bitcoin's 'Civil War'.  Bitcoin XT has been developed by Bitcoin Veterans Gavin Andresen and Mike Hearn.

The main subject of the internecine, is whether or not to increase the block size.  In 2010, an upper limit of one megabyte was placed on the block size.  Hearn and Andresen want to increase the block size to eight megabytes.  A block size 1MB limits Bitcoin to 7 transactions per second (10,080 per day).  It is estimated that the current system will exceed this volume by 2017.  Bitcoin XT, aims to increase the block size in order to avoid running out of capacity.

Bitcoin XT and Bitcoin Core, are almost identical and are running on the same blockchain. XT will not increase the block size until January 11 2016, and will only do so if 75% of the Bitcoin Community is using the XT version of the system.  This gives people time to decide which system they want to support before the final consensus.

What's the Forkin Problem?

From the outside, we would not expect Bitcoin XT to cause this much controversy.  After all, Bitcoin, and the blockchain are run on an open source system.  This means that developers are free to make alterations as they see fit.  It is up to the community to decide whether or not to adopt these changes.  This is precisely what Bitcoin XT appears to be doing.  They have proposed a change, and have established an avenue for the community to place their votes.

The issue is about more than just the block size, it's also philosophical.  Some believe that increasing the block size would deviate from the intended design of Bitcoin as set out by Satoshi Nakamoto (who set the block size limit in 2010).  Others believe that the 1MB limit was only intended as a temporary solution, and that Satoshi acknowledged that at some point the block size would need to increase to cope with the growing network.

Another objection is on the mining side.  Increasing the block size, means that it would take more computing power per block to mine Bitcoin.  This would discourage individuals from mining Bitcoin, and cause mining to become more concentrated within the large scale mining operations.  It is our opinion that Bitcoin mining is already becoming centralized.  Bitcoin mining has become less profitable thanks to increasing difficulty and the falling value of Bitcoin.  This problem will only become worse when the mining reward is halved (which is expected to happen between 2016 and 2017).  Larger blocks gives the system more processing power, but also makes mining less attractive. 

How Will the Forkin War End?

If Bitcoin XT successfully gains 75% consensus, then their code will become the new standard.  If they do not, then Bitcoin Core will remain the standard.  It would appear that some of the larger players in the Bitcoin world are supporting Bitcoin XT, as stated in a communal letter signed by representatives of 9 companies. We can't predict who will win the consensus, but as with so many civil wars, we expect this one to end in a split.  

Essentially Bitcoin will split, and an alt coin will be formed.  Those who won the consensus will retain the name Bitcoin.  The other group will have to operate a new cryptocurrency under a new name.   No matter which side wins, this forkin war is bad for Bitcoin.  It gives an image of a system with uncertain direction, and no clear leadership.  At a time when Bitcoin is striving for increased adoption, negative publicity can be costly.  

What are your thoughts?  Would you support a larger block size?  Should XT form their own alt coin, or is their version within the spirit of Bitcoin?  We'd love to hear from you in the comments section below.

In early June, Bitcoin traded as low as USD$223, then it started pushing its way upward.  By mid July, the price hit USD$309, a rise of over 38% in around 6 weeks.  During this time, we wrote a post explaining why we believed  There was a Storm Brewing for Bitcoin.  It was our opinion that the Bitcoin market was about to make a large price movement.  The question was would it go up or down?

Shortly after peaking at USD$309, Bitcoin dropped back to USD$275, and has been hovering around this level ever since.   The price has gone up but it's hardly the big price movement we were expecting 6 weeks ago.  While there is potential for a large price movement, the market continues to drift sideways.  The Bitcoin market, has not gained any momentum because it  has no direction.   The USD/BTC price movement over the last month is shown below:

What Will Get Bitcoin Moving Again?

Bitcoin has spent most of 2015 between USD$225 and USD$300.  This is quite a contrast to the volatile price moves bitcoin traders experienced through 2014.  In our previous post, we noted that volume and volatility were both below average for Bitcoin.  We thought it was a sign that the market was ready to move.  Perhaps we should have said 'the market was waiting to move' The Bitcoin market is still waiting to move.

A significant event will trigger a sudden change in the market.  Only problem is, we can't predict the future, so we don't know if it will send Bitcoin up beyond $1,200 or down into oblivion.  Alternately we could be wrong, and the market could continue to drift and deflate like a balloon.

What Are Your Thoughts?

Tell us what you think, we'd love to hear from you in the comments section.  Is Bitcoin about to take off?  What do you think will bring traders back into the market?  Will they be buying or short selling?

Bitcoin can not prevent future economic crises such as the one we are seeing in Greece today. This is our streetonomic opinion, which expect the Bitcoin community will disagree with vehemently.  Most of the content on the internet will tell you the exact opposite.  In this matter, The Finance Guy is a true contrarian.

Everyone else says Bitcoin can prevent a future Greek style disaster, yet we are stating the exact opposite.  We are looking at the same information,  but we are drawing an opposing conclusion.  It's only natural to assume that we have made huge errors in our forecasting.  After all, it sounds like we are calling the earth flat, or saying that 2 + 2 will actually give you 79.5!  It sounds like we've gone mad

Luckily this is perfectly natural in the world of economics.  Despite looking at identical information, economists frequently make forecasts which contradict each other, and sometimes even themselves!  This is reassuring to us as it means we have not lost our sanity :) 

We Are Focusing on the Economics of Bitcoin Instead of Technology

Most of  the posts we have read on this topic are focusing on the transactional qualities of Bitcoin.  If our Greek friends had Bitcoin, there would be no way for their accounts to be frozen.  Believe it or not, we agree with this.  The Greek Government and banks would not have the power to put limitations on how much Bitcoin their people can access or send out of the country.  

Our disagreement is based on how we are looking at the Greek crisis, more specifically, the macroeconomics involved.  When we read posts which explain why Bitcoin could've saved the Greeks, we see why it couldn't have. For example we read an article called 'Bitcoin Could Solve Future Currency Crises, Experts Claim', which was published a on July 14th in the Australian Business Review.  The same article was also published by The Wall Street Journal

Our colleagues over at CCN read the same article and wrote a post called How Bitcoin Could Prevent a Future Greece.  CCN obviously agree with the original article and reiterate some of the key points with a nice mix of quotes and paraphrases. Their post is meant to illustrate how Bitcoin could protect us from such things happening in the future. Yet we read it and see weaknesses in the macroeconomic utility of Bitcoin

The article was in the Wall Street Journal and the Australian Business Review, and possibly many more reputable financial publications, yet a Blogger called The Finance Guy, is disagreeing with it.  This makes us look extremely arrogant or extremely stupid, or both.  

We found the article on finance related publications.  Having said that it was written by Christopher Mims, a technology columnist.  Mims has a degree in neuroscience and an impressive journalistic resume in the field of technology.  He is undoubtedly an exceptionally intelligent individual.  We are comfortable disagreeing with him, because we are talking about economics not brains and not technology.

Let's Look at the Macroeconomics

What the Article Says:
Greece's fundamental problem is that it cannot work its way out of its financial hole the way just about every other country outside the eurozone would: by printing money, and in the process making its goods and labour cheaper.

We 100% agree with this quote.  The Greek Crisis would not be as severe if Greece wasn't a member of the Eurozone subgroup of the European Union (EU).  The currency used by the Eurozone, and in Greece, is the Euro.  Members don't have to worry about setting interest rates or issuing money, because this is all done by the European Central Bank (ECB). This is a macroeconomic function called monetary policy.  The Eurozone member states have a communal monetary policy.

Why Doesn't the ECB Use Monetary Policy to Help Greece?
The ECB sets one monetary policy for all 24 Eurozone member states.  Any adjustments the ECB makes, will impact all 24 members.  Unfortunately for Greece, this means the ECB can't help them out by dropping interest rates or printing more EUR, because this would help Greece, but would simultaneously hurt other members.  The ECB acts on the aggregated best interest of all members

The core problem which Greece is facing, is that they have no control over their money.  They can't issue more currency, and they don't have their own central bank so they can't adjust interest rates. This proves why Bitcoin could not prevent a future Greek disaster

Why do Bitcoinners love Bitcoin?  It has a fixed supply, there will never be more than 21 million and nobody can print more to devalue it.  Bitcoin is decentralized there are no governments and no central banks.  The problem that Greece is facing is that the government needs to devalue their currency but they can't because they have no central bank

Essentially the article is telling us that a currency with no government, no central bank, and no devaluation, can help a government replace a central bank and achieve devaluation. Can anyone else see something wrong with this logic?  The features we love about Bitcoin, are the reason why Bitcoin can not help Greece.

Bitcoin is More Than a Currency, it's a Technology

We are aware of the Blockchain and how awesome it is.  It's the foundation of Bitcoin, the source code upon which Bitcoin was built.  Best of all it's open source, so nobody owns it and it's free to everyone.  Anybody can access the Blockchain at no cost and use it to develop something new and amazing.  

Another Quote from the Article
But bitcoin is at an inflection point, and it's evolving much more quickly than all but its most dedicated observers realise. Whatever happens to bitcoin itself, the technology underlying it opens up previously unimagined possibilities for the future of just about anything humans exchange

Once again we agree 100% with the article on this matter.  The technology is great and the future is full of possibilities.  The issue here, is that they are talking about the blockchain, not Bitcoin. We agree that many great things will come from the blockchain, however none of them will be of any benefit to Bitcoin.

Bitcoin and the blockchain are not the same thing.  The fact that the blockchain has potential to change the world, does not mean that Bitcoin has the same potential.  The article acknowledges this point, saying 'whatever happens to bitcoin itself'.  So they are telling us that it's the technology that 'opens up previously unimagined possibilities' and bitcoin itself is inconsequential.   Yet at the same time they are trying to convince us that Bitcoin could solve future crises?

This is a recurring theme the article purports that Bitcoin could save the future then goes on to mention hypothetical uses of the blockchain to create new solutions.  It does not once suggest the use of existing bitcoin as a solution.  

This is a point CCN will disagree with us on.  Their post about 'How Bitcoin Could Prevent a Future Greece' focused on two big points:
 - 'The blockchain's unimaginable possiblities'
 - 'Cryptocurrencies could represent assets'

Both these points go on to tell us that Bitcoin will save the day because people could use the operating system of the blockchain to develop something new which is not bitcoin.  Again let us point out the blockchain is open source.  Bitcoin will receive no benefit from any new projects which are created from the blockchain.

We are not denying that Satoshi Nakamoto created the blockchain and bitcoin at the same time.  The fact that they were created together does not make them the same.  If you are collecting bitcoin because you think you are investing in the blockchain, you are wrong.

What did the Experts Really say?

The article is not just a technology guy writing for the WSJ, it is full of references to all sorts of experts.  The Former Greek Finance Minister, UBS, Deloitte, even the Bank of England!  Are we saying all those experts are wrong?

We agree wholeheartedly with every one of the experts quoted in the article.  And if you ask them, you'd probably find they agree with our point of view too.  Let's have a look at what the experts really said, and why we agree with each other :)

We are not having a go at Christopher Mims,  what we are about to do though is look at the expert quotes he uses, and explain why, they in our view, they suggest the future of bitcoin is bleak. This is because we believe that the blockchain and Bitcoin are not one and the same, where as Mims would disagree.

Mims says that UBS Cheif Investment Officer Oliver Bussman, expressed an interest in Bitcoin. We had a look at what the UBS CIO really said. He referred to the blockchain as having potential to revolutioize or 'disrupt' the financial system and simplify banking.  He mentions that the blockchain is 'associated with Bitcoin', but that is actually a negative aspect of the blockchain in his opinion.  At no time does Bussman mention Bitcoin as playing a role in the future he foresees.  If Bitcoin ceased to exist, the blockchain could still revolutionize financial services

Mims says the Bank of England declared Bitcion will 'someday have "far-reaching implications". We read the Bank of England Bulletin 'Innovations in payment technologies and the emergence of digital currencies'.  The full quote from this expert is 'The application of decentralised technology to this platform of digital information could have far-reaching implications'.  Again we see reference to the blockchain but Bitcoin is not mentioned.

The bank of England absolutely agrees with us!  In the paragraph found at the bottom right of page 3 of this expert opinion, it reads 'Although Bitcoin introduced a new currency and a new payment technology together, the distributed ledger technology could, in theory, be used without the creation of a new currency'

Deloitte is also in agreement with us! First of all Deloitte issued a report on state sponsored cryptocurrency.  Bitcoin is not an never will be state sponsored... how is this even relevant to Bitcoin as an economic savior?  I don't think Mims even read this report, right there in the first paragraph, it says 'Bitcoin suffers from some significant and legitimate drawbacks that may permanently limit its adoption in the mainstream economy'  

Nasdaq is testing the blockchain technology.  Nasdaq is not testing Bitcoin. Mims and most of the Bitcoin community think that this is good for Bitcoin.  It isn't.  If Nasdaq develops a new trading system from the blockchain, Bitcoin will not be a beneficiary of its success. It seems that the Bitcoin community has a propensity to over-react to and misinterpret news.  One expert who agrees with us on this point is Martin Tillier, who is a 'writer on markets and investments' for none other than NASDAQ :)  See what Tillier had to say about the Bitcoin Community's Overeactions

The last expert is former Greek finance minister Yanis Varoufakis.  This expert agrees with us even more than any of the former experts quoted by Mims.  Mims either mis-read or intentionally misquoted him.  In his article, he alleges that Varoufakis posted on his blog about the potential for Greece 'to use the technology of bitcoin to create a currency that he called "future taxes"'

The real Varoufakis Quote
 They can create their own payment system backed by future taxes and denominated in euros. Moreover, they could use a Bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free. Let’s call this system FT-coin; with FT standing for… Future Taxes

Not only is this not a use of Bitcoin, but it is going an extra step and suggesting that the blockchain can be used to develop a system which is linked to and priced in Euros.  The same fiat currency Bitcoin wants to 'disrupt' is at the core of what Varoufakis is suggesting.

We are really not sure how anyone could think that Varoufakis was trying to endorse Bitcoin in any way.  He called his blog post 'Bitcoin: A flawed Currency bluerint with a potentially useful application for the Eurozone'  The former Greek finance minister also agrees with us that Bitcoin is flawed!

A Preemptive Apology

The opinions stated in this post are just opinions.  They are not concrete facts.  We have blatantly disagreed with what others have said, and we know this can be offensive.  It is not our intention to offend, we are just expressing our own point of view.   If we have upset anybody, then we apologize 

If you agree or disagree with us, please let us know in the comments.  We promise not to be offended if you tell us that we are completely wrong :)

Being a 'disruptive technology' it makes sense that , one topic that comes up often within the Bitcoin community, is The Future of Bitcoin.  We talk about how Bitcoin can help the current world, such as coming in as a big part in the future of Greece.  We talk about the technology itself, should block sizes change? And we talk about the road to mass adoption. Today Entrepreneur published a post called 'what is the future of Bitcoin'

Here at The Finance Guy, we are no different, we have talked about the future of Bitcoin in the past, and we are going to do the same thing again now.  We think that there is a storm brewing for Bitcoin.  The market has been quiet, too quiet.  It could be the prophetic 'quiet before the storm. We will look at:

• How Bitcoin Looks in 2015
• A Look at the Volatility of Bitcoin
• Why we think there is a Storm Brewing
• Where do we think Bitcoin is Heading

How Bitcoin Looks in 2015

Bitcoin appears to be finding price stability in 2015, and is moving sideways, as shown below:

As we can see, the USD price of Bitcoin is settling.  The first three months to March saw Bitcoin drop from over USD $300, to a low of USD $177 in late January. It promptly recovered and the market has been quietening down since.  Bitcoin has spent most of the last three months drifting comfortably between USD $225, and USD $250.   The past 3 months are quite a contrast to the wild moves in market price Bitcoinners have become accustomed to.

We'd expect that a more stable price would be great for Bitcoin, but at we noted in a previous post, Bitcoin volume is decreasing in 2015.  People are using Bitcoin less now than they did when the price was wildly volatile.  This does not make sense to us.  We thought a less volatile price would make Bitcoin more attractive to new adopters.   This may be true, but the adoption rate is not enough to keep up with people who are decreasing their use

A Look at the Volatility of Bitcoin

Market volatility is commonly accepted as a measure of how risky an investment is.  To find the volatility of any investment, we look at the recent price history and measure how much the price fluctuated.  The higher the volatility, the more financial risk the investment has. Bitcoin currently has an estimated volatility of 1.55%.  Back in January the volatility of Bitcoin was over 7%.  A history of the estimated volatility of Bitcoin is shown below:

As we can see, 2015 has seen a distinct drop in market volatility for Bitcoin.  This supports our observation that the price has settled into a comfortable range.   If we use volatility as an indicator as to how likely price is to fluctuate in the near future, then we'd expect that Bitcoin will continue sideways for a little while longer.   Again, this should be good for Bitcoin and help attract new merchants and adopters.

Why we think there is a Storm Brewing

 Falling volatility and stabilizing prices should be good news.  It could be argued that Bitcoin is finding fair value and 2015 is foundation for a more stable future.  We think that the market is taking a breather before getting back on the roller coaster. Our opinions are based on our belief that:

Bitcoin has volatile volatility - This is not the first time we've seen the Bitcoin market take a breather.  Our chart shows that in late 2012 and early 2013, the volatility was in a similar place to where it is now.  After which, it abruptly jumped to over 15%, we saw the price go on an insane rally from USD $200, to almost USD $1,200.  Is it possible that we are in for a repeat performance?

Falling USD Transaction Volume - If less people are trading Bitcoin, then there is less market depth. We believe this makes the price more vulnerable to fluctuations caused by unusual events or particularly large trades.  The BTC market depth on Bitstamp is shown below:

In market depth, bids represent people who want to buy Bitcoin at a particular price.  They will put in a 'limit order' to buy a set quantity at a set price.  Once their bid is on the market, they will automatically buy Bitcoin if the price drops to meet their bid. They have agreed to buy a set quantity at a set price. The ask is where people trying to sell Bitcoin do the same thing in reverse.  They agree to sell a quantity of Bitcoin if the market price increases to meet their ask. These are known as 'limit orders'

People who don't want to wait for the price to move up or down, will buy or sell their Bitcoin will place 'market orders'.  If you wanted to buy 15 Bitcoins at market, using the above market depth, then you'd get the first 12 at a price of $241.62, and the next 3 at a price of $241.64. Your average buy price would've been $241.624

If you were to sell 15 Bitcoin at market, you'd get $241.42 for the first 2, $241.40 for the next 11, and 241.38 for the last 2.  Giving you an average sale price of $241.40.   There is a difference of 22.4 cents between buying and selling the same amount of Bitcoin at market.  This difference is called the 'market spread'.  

If there were larger amounts for sale at $241.42, then the seller would have gotten an extra 2 cents per bitcoin on their trade.  It's only a difference of 30 cents, but it does show how even a trade of 15 Bitcoin can move the market.  Now imagine if someone tried to sell 100 Bitcoin in  a hurry at market.  They'd clear out all the market bids down to a price of $241.26, and sell at an average price of $241.348. Someone buying 100 Bitcoin at market  would move the ask price up to $241.66 and would buy at an average price of $241.61.  The market spread for 100 Bitcoin is 29.3 cents

 In 2014 it was not uncommon for the daily volume to be over 400,000 per day.  Now there are around 200,000 Bitcoin traded per day.  What would happen if something made the volume spike?  Imagine if all of a sudden people rushed to quickly buy or sell Bitcoin.  Given that just 100 Bitcoin can make the market move by 30 cents, what impact would a surge of 200,000 have?

Where do we think Bitcoin is heading

We believe that Bitcoin is ready to make a huge move, but we are not sure if this will be up or down.  The market is waiting for a major event to either bring people into the market, or make them run for cover.   No matter what happens, we will be watching with interest, and will hopefully have something to say about it here on TFG

What do you think the future holds for Bitcoin?  What changes in the near future will make the market come to life and move the price?  We'd love to hear your thoughts and feedback, so please feel free to share in the comments section below.

In January, our forecast was : 2015 will be tough for Bitcoin.  Around the time of our initial forecast, the USD/BTC price was on a stead downward trajectory falling all the way down to $177.  The year certainly did start off pretty tough for Bitcoin enthusiasts.  It's now June, and with the half way mark approaching, 2015 seems to be proving our forecast incorrect. The price bounced off it's January low, and has taken on a somewhat sideways movement, it even appears to be losing some volatility. This is shown below:

The USD price of Bitcoin is relatively stable compared to what we have become accustomed to.  Perhaps 2015 will be the year when Bitcoin finds price equilibrium.  Looking at the above chart, Bitcoin could settle somewhere between $225 and $250.  .  The Bitcoin Community will see price stability as a major positive.  It is something which will help with the current goal of increasing Bitcoin adoption.  We'd expect that as volatility falls, the volume of Bitcoin traded would increase, but that has not been happening. We thought we'd have another streetonomic look at the Bitcoin market

Bitcoin Volume is Falling

A look at the average trade volume for Bitcoin tells an interesting story.  During the second half of 2014, the 30 day average bounced between USD $50 Million and USD $60 Million per day.  That was at a time when the price was falling.  Currently the 30 day average is struggling to stay above USD $40 Million per day.

What's the Big Deal? - If price volatility was a major hurdle toward mass adoption, then we'd expect to see an increase in Bitcoin adoption and usage as the price has become more stable.  Instead, we've seen the opposite.  The average transaction volume per day is down more than 20% for 2015.  We see this as a strong indicator that there has been no significant increase in adoption.  In fact, we'll go as far as saying that the adoption rate for 2015 appears to be negative.  The number of people quitting Bitcoin outnumbers the number who are joining. 

It could be that a drop in volatility has caused a matching drop in speculative trading.  The previous volatility in the Bitcoin price, made it a popular instrument for day traders who looked for opportunities to either go long or short on Bitcoin, in an effort to profit on the rapid changes in the price.

Indifference is the real hurdle

We previously touched on the point that there is no incentive to use Bitcoin.  Here's a quote from that post:

I understand that it is possible to use Bitcoin to pay for things from Microsoft, Dell, and a whole bunch of other places.  The question is, 'If I already have cash, why would I want to use Bitcoin?'  There is no added benefit for me to use Bitcoin rather than pay with a credit card or with an online cash payment.  Cash is convenient and fast.  Cash is federally insured, why would I want to fix a system that isn't broken?

Let's look at some of features of Bitcoin one by one and see if any of them appeal.

• There are less fees - It may be possible to transfer Bitcoin without paying fees, but right now I have cash.  In order to use Bitcoin I'd first need to buy some.  That's easy enough, I can do that online, but wait, the act of buying bitcoin would trigger the same fees I would incur if I just made the purchase online with cash.

• Bitcoin offers anonymity - this would be a great feature, if I had something to hide.  Do I really care if my bank records show that I paid for a copy of Microsoft Office? No, it doesn't bother me at all.  If I really wanted to spend money off the record, I'd use actual cash, or the visa debit gift card my mother gave me for Christmas

• Transactions are irreversible - So if I pay for something, there is no way that the money can be sent back to me?  Wait how is this a benefit?  If a merchant is worried that customers are going to reverse their purchases, then maybe they should focus on the quality of what they are selling, rather than try to find a way to prevent this.

It seems we are not the only ones who can't be bothered using Bitcoin.  ACTION Buses in Canberra recently removed Bitcoin payments from their MY Bus 2.0 APP. Stating a lack of interest as the reason.  In 9 months, the company received a grand total of 23 Bitcoin purchases.  This represented 0.7% of all transactions for that time. A spokesman for the company said:

"We realised it wasn't going to work. People were more confused about it and one of the biggest questions was, 'What is bitcoin?'

Our new years forecast has thus far been inaccurate.  2015 is not looking like it will be a tough year for the price of Bitcoin.  It is instead turning out to be a quiet year for Bitcoin.  We think a little too quiet.  Unless the Bitcoin community can find a way to 'turn up the volume', we expect that Bitcoin will slowly deflate like a balloon.

What would make you try Bitcoin?  Unless somebody finds an answer to this question, the only disruption Bitcoin will cause, is financial losses to those who hold it.  This is just our opinion and we'd love you hear yours.  Please feel free to comment below

It's no secret that we have a negative opinion about Bitcoin.  In the previous posts we've even called it Enroncoin.  This was based on our belief that Bitcoin resembled an investment bubble. As with previous bubbles, we expected the Bitcoin bubble to burst in spectacular fashion, but that has not happened.  Rather than bursting like a bubble, Bitcoin is deflating like a balloon.  In the time that we have been watching Bitcoin, the BTC/USD price has bounced around the average like a grasshopper on steroids, while the average price has fallen from $650 to $250, a fall of over 60%.

Usually an investment bubble bursts with the release of bad news.  The news creates a significant change in how people see the investment, and people start running for the exits.  Bitcoin is no stranger to bad news, yet through it all, it has maintained a loyal base of supporters who refuse to abandon the cryptocurrency.

Bitcoin seems to have a knack for surviving bad news. It's been associated with criminals.  We have seen numerous exchange hacks.  This week Coinapult is back online after upgrading security because of a hack in which $42,000 worth of Bitcoin was stolen.  Yet through it all, the Bitcoin community has remained faithful that this 'disruptive technology' will someday achieve mass adoption.

For mass adoption to occur, there needs to be some sort of incentive to use Bitcoin rather than cash.  We are aware that 21 Inc recently raised $116 Million to raise awareness about Bitcoin.    We do not believe that telling people about Bitcoin will be enough to make them want to use.   People who are perfectly happy with their existing money, aren't going to change to a new system unless there is a clear benefit in making the change.

What we are seeing, is a mass dismissal of Bitcoin.  People have heard of it, but don't really care.  In their most recent meeting, the Reserve Bank of Australia stated that they will not regulate Bitcoin because it 'has no discernible impact' on the economy.  They are aware that Bitcoin exists, but are happy to just shrug it off as too small to care about.  They are not the only ones with limited interest.  Tomorrow we will see the Buttercoin Exchange shut down, due to lack of funding, after only 4 months in business.  They raised $1.3 million  from initial investors, but this was not enough to keep them afloat.

As the price of Bitcoin continues to drift downward, we expect the air will continue to flow out of this investment balloon.   If the supporters remain as loyal as they have in the past, then Bitcoin will survive... until the supporters run out of money to buy Bitcoin.  No matter how much they love Bitcoin, there is no denying that money is flowing out of Bitcoin, as shown in the table below:

As you can see market capitalization of Bitcoin has fallen a little over 59%.  This is the total value of all Bitcoin, and includes all new Bitcoin mined since July 2014.

The road ahead for Bitcoin does not look much better.   There are now rumors that the Bitcoin Foundation is near Bankruptcy.   The main reasons for their financial problems are the falling price of Bitcoin, and declining memberships.  If this turns out to be true, it will be interesting to see how the market reacts.  It may not shake the faithful, but it will be yet another hurdle in the road to mass adoption.

The most common questions we hear about Bitcoin, is 'What is Bitcoin?', and 'Why Should I use it?'.  A consortium of Bitcoin insiders is attempting to answer these questions.  The group, which includes BitFury, Bitgo and ChangeTip, has recently hired social media marketing secialists  theAudience for a global campaign to educate the masses about Bitcoin.

It is hoped that the power of social media will help generate a large scale adoption of Bitcoin. Educating about the blockchain and all things Bitcoin, is an essential part of growing the cryptocurrency.  Increased awareness and understanding can only lead to good things, but is it enough to generate large scale use of Bitcoin?

Along with the consortium, a brand new start up calling itself 21 Inc, has just announced that they have raised $116 Million  in venture capital. It is the largest venture capital raising to date for investment in digital currency. There are no specifics about what 21 Inc intends to do with the money, but they say it will be used to develop both software and hardware which they feel will  help Bitcoin gain main stream adoption.

Like many people, I first heard the word Bitcoin on social media. In late 2013, every time I discussed currencies, I would see very enthusiastic posts about Bitcoin.  People were very excited about this new virtual money that they believed would 'disrupt' existing fiat currencies into obsolescence.    I was skeptical, but at the same time interested enough to want to know more details.

Social media got me started on a year of learning about Bitcoin and cryptocurrency.   Learning about Bitcoin has not made me an adopter.  I understand how it works, and the internet is full of people telling me how great it is, but I have no reason to use it.  For me, Bitcoin offers  no benefit over normal fiat money.  I'd like to  share my streetonomic  view on what Bitcoin is, and reasons I have not used it

What is Bitcoin

A simple definition of  Bitcoin, is that it is a form of electronic money.  It uses the internet to enable people who use it, to send amounts of Bitcoin around the world at high speeds with minimal costs.  It bypasses middle men, such as banks, and lets people deal directly with each other.  It is similar to how email enabled us to send letters without using a fax or the postal service.  There are several digital currencies, or cryptocurrencies, but Bitcoin is by far the best known.

Bitcoin was first created in 2009, during the height of the GFC, by the mysterious Satoshi Nakamto, who published this paper about Bitcoin.  Nobody is certain who he is, and some believe the name represents a group of people.   Inspired by the financial crisis, Satoshi designed Bitcoin with the goal of creating a currency for the people, run by the people.  

Unlike conventional currency, Bitcoin, like all cryptocurrency, is not underwritten by a central bank, and is not backed by any Government.   It is supported by a Peer to Peer network of computers called 'The Blockchain', which is maintained by members of the Bitcoin community known as miners. handles both the transfer of Bitcoin, and the creation of new Bitcoin.    This means that Bitcoin does not rely on trusted third parties, and can not be influenced by central bank or government policies.  

The  Blockchain is the underlying technology which, supporters believe, make Bitcoin an improvement to existing government issued cash.  Below are a few of the basic features which differentiate Bitcoin from other money:

• It runs an open ledger -  the Blockchain keeps a permanent record of every Bitcoin transaction that has ever occurred.  
• It is open source - anyone can become a miner and gain access to the entire Blockchain.  There is no central party who controls Bitcoin
• Transactions are approved through consensus - more than half the computers on the network have to agree before a transaction takes place.  This prevents double spending and protects the currency from fraudulent activity.
• Bitcoin is anonymous - open ledger will only show Bitcoin wallet addresses, these are 34 character alphanumeric codes, which do not contain any personal information.  Wallets can be created very easily and there is no limit to how many wallets one person can own.
• Bitcoin has a finite supply - At inception, it was decided that only 21 million Bitcoin would ever exist.  The supply of Bitcoin can not be altered by simply issuing more at will.  This, it is believed, will protect Bitcoin from devaluation, making it a 'deflationary currency'.
• Transactions are irreversible - Unlike credit card purchases, you can't cancel your transaction after it has gone through.  All payments are final

How Can You Use Bitcoin?

First you need to own some Bitcoin.  This is simple enough, you set up a Bitcoin Wallet, then go to an exchange and buy some Bitcoin.  Spending Bitcoin is also quite easy, all you need is the wallet address of the person you want to send funds to.  This can be sent to you as a link or QR code so no need to worry about remembering their 34 character code.

There are plenty of ways to spend Bitcoin, some of which we looked at in a previous article, here are some of the things you may find Bitcoin useful for:

• Sending money to friends and family - Bitcoin is a low cost option for sending funds to anyone in the world.  If someone has a Bitcoin Wallet, you can send them funds.  The fees are minimal, and do not change, regardless if you are sending to someone in the same room, or on the other side of the world.
• Support a Cause - Show some appreciation for a charity, a political party, or even an MMA fighter.  Bitcoin is a great way to raise funds directly from supporters.  Send as much or as little as you like, and it all goes directly to the cause.  Companies such as Changetip, are making it easy for anyone to accept contributions online through sites such as Twitter and Reddit 
• Buy Stuff from Merchants who Accept Bitcoin - The list of merchants is growing rapidly, and already has some  big players you can buy from recognized brands such as Dell, Microsoft, and Amazon. 

Why I Have Not Used Bitcoin

The price is too unstable -  Today one Bitcoin is worth around $250 US Dollars.  Over the past year, the price has ranged from a high of $675 to a low of $177. (see chart).  This  creates a financial risk, which makes holding Bitcoin unattractive.  If I put in $1,000 today, then I need to accept that it may not be worth $1,000 for very long.

It is inconvenient -  If I want to buy something with Bitcoin, then first I need to figure out how much Bitcoin I'd need, based on the exchange rate and price of what I'm buying.  Then I'd need to buy some Bitcoin, and pay exchange fees.  

Merchants do not have pricing in Bitcoin - If you look at Amazon or Dell, you'll see prices are all set in Dollars.  If the value of Bitcoin goes down, then the same goods suddenly become more expensive to buy with Bitcoin.  

There is no added value -  I've been using internet banking for over 15 years, and have never had any problems with it.  I can do everything I want to do using normal money.  I've never wanted my spending to be anonymous or irreversible, and I don't care if I have to trust a bank.  I'm perfectly happy with how things are, so why should I change to a system with more risk, and less convenience

It is no secret that I have a negative view on Bitcoin, and have even called it Enroncoin.  Maybe one day I will be convinced to use Bitcoin.  If there is some special offer, where I pay less if I pay with Bitcoin for example.  

As always we appreciate all feedback. If you have used Bitcoin, and found it better than cash, then we'd love to hear about your experience.  Who knows, maybe you can convince me to finally buy some Bitcoin :)

As the price of Bitcoin continues it's downward journey, we are finding more people start to ask if there are ways to 'short' Bitcoin.  A short position involves selling an instrument you do not own.  You are betting that the price will fall, at which point you close your trade at a profit by buying back the amount you initially sold.

Can this be done with Bitcoin?  The "short" answer to this question, is 'yes'.  It is very easy to short sell Bitcoin  One company we found which offers the ability to trade both long and short positions on Bitcoin this is CFD provider Plus500.

Trading is as easy as watching a chart, and pressing either buy or sell

Plus500 expresses prices of CFDS in the form of a buy sell spread.  At the time of writing, the spread on the Bitcoin CFD was $2.80, and the CFD price was; Buy: $206.20   Sell: $203.40.  

There are some fees with Plus500, and any trade you open will not be in profit until you are ahead of the fees.  One fee we experienced wasbthe maintenance fee, which is expressed as a percentage, and charged once a day at a predetermined hour. Plus500 expresses this in your own local time.

For the instruments we looked at, the times fees are charged in our time zone are:

• 6:00am for Bitcoin
• 6:00am for AUD/USD
• 1:00pm for Gold

The daily premium charged varies between instruments and is expressed as a percentage

• Bitcoin premium is 0.10% both buy and sell
• Gold premium is 0.014% both buy and sell
• AUD/USD, the buy premium is 0.0190%, and the sell is 0.0160%.  

The difference in buy sell premium on the forex instrument, is due to interest rate differentials and other factors which influence the borrowing costs associated with investing in two currencies at the same time. 

There are two main advantages to trading with CFDS:

1. Market Exposure - Despite being located in Australia, I can easily invest in international shares, commodities, foreign exchange and a whole lot of other markets, including Bitcoin.  Investing directly into these markets as an individual, would be very difficult, specially if they are overseas or require large sums to open an account.
2. Leverage (click for TFG definition) - The borrowing side of CFDs is very similar to how a margin loan works.  The interest on the loan, is built into the daily premium.  The leverage available varies depending on which instrument you are looking at.  In the details section of each CFD, you will see a leverage ratio

In our hypothetical case, we are looking for ways to short sell Bitcoin,  Plus500 has that covered so we have found the market exposure we were looking for.  The next question is 'how much can we invest?', which depends on the amount of leverage available

T

Leverage gives us the ability to magnify our market exposure. So we are able to invest in more Bitcoin than we could have with an unleveraged deposit.

Any returns you experience will also be intensely magnified due to the leverage.  This means that investing through CFDs greatly increases the financial risk involved with any trade.  

 A Hypothetical example 

The table below, shows the cash flows, if we were to open a Bitcoin trade for 3 contracts, then close it at a price of $200 after one day.  We have shown the impact of both long and short positions. 

No trades were placed, and we don't know if the price ever hit $200, we aren't great at predicting the future :)

With a price of $200, the price has fallen 3.01% from the buy price of $206.20, and has fallen 1.67% from the sell price of $203.40.  You would expect that someone who was long would lose 3.01%, and someone who was short gained 1.67%.  Both positions incur a small holding cost (we assumed that the clock hit 6:00am over the course of our trade).

However due to the impact of leverage, the long position has lost 52.82% of their initial deposit, while the short position has a gain of 26.72%.  This huge magnification of both gains and losses, is part of what attracts so many traders to CFDs, and also what makes them so risky.

Want to see how the trade would look using different entry and exit points?  We've created a calculator just for you!

If you are interested in CFDs, either as a way to gain exposure to Bitcoin, or to invest in any of the thousands of instruments available, then Plus500 is worth having a look at.  We have traded with their web app, as well as their Android and iPhone apps, and find the interface very easy to understand and to use.

Plus500 offers a demo account which never expires, and offers full access to all of their services.  This demo account is a great way to test your strategies before putting any real money at risk :)

It's been two weeks since new years eve, but 2015 is already shaping up to be a bad year for Bitcoin supporters.  So far we've  seen the price fall by $132, more than 40%, (according to blockchain charts), as well as trouble at a major exchange, and two cloud mining providers

Bitstamp,  a major USD exchange based in Slovenia, halted operations for five days due to a 'compromise' in one of their operational wallets. While no official comment was released, the conjecture around the web was that the site was hacked and approximately US$5 Million worth of Bitcoin was stolen.

Using the open book features of the blockchain,  the reddit community have done some detective work and concluded that the stolen funds were moved to this bitcoin address.  We can see that the balances and transaction dates seem to line up with the theft, but due to the anonymity and irreversibility of Bitcoin, we still don't know who the theif is, and while we an look at the money, we can't do anything to get it back.  It reminds me of that kid on the playground who steals the soccer ball from smaller kids then holds it up in front of them saying 'nah nah nah nah'.

The news for Bitcoin miners isn't much better cex.io have decided pause their cloud mining services.   Customers who have contracts over the mining capacity will still own it, but it will be inactive.  The decision to pause was made because in the current market, the cost of mining exceeds any revenue generated. 

We have been told that cex.io customers will have the option to log into their accounts and manually 'unpause' them.   It will be interesting to see how many of them choose to mine with the expectation of losing money.

In other miner  news, Cointerra (a provider of mining hardware and cloud mining services), is being sued by C7 Data Centers for $5.4 Million for breach of contract and unpaid services.   Even if C7 win the court case, it may take a while before they see any compensation. There are rumors that Cointerra has 'defaulted on their secured notes', and as a result may face forced liquidation.  The reddit community has stated that Cointerra is currently unable to make payouts to its customers.  

We can not confirm that Cointerra is on the brink of liquidation, however if you visit their site, you will find that all products and services they offer (including mining contracts) are currently tagged as 'out of stock'.  They may not have admitted that they are about to go out of business, but they have made it very clear that they are not in a position to accept any new orders or take any new payments.

The year certainly is off to a bumpy start for the cryptocurrency which supporters will tell you is 'safer than cash' and is  a 'great store of value.'  It would be nice to say that 'things can only get better' for Bitcoin, but we believe they can, and will, get worse.  

From a technological point of view, bitcoin and the blockchain are great and we acknowledge the advances in cryptography in which bitcoin has been a catalyst.   There is no doubt that a p2p open ledger has the potential to revolutionize how we do certain processes  

We have taken a steetonomic look at Bitcoin as an investment. We've been researching, and writing about, Bitcoin for a little over six months.  Unfortunately our opinion on Bitcoin as an investment is less than positive.  It is our opinion that the price of Bitcoin is based entirely on perceived value.  We do not agree that Bitcoin offers a superior service to existing money and transaction system.

We are going on the record and saying that this hype base market reminds us of Enron.  We are not suggesting that Bitcoin is being run fraudulently (as Enron was).   Bitcoin is offering a service which is overly complicated and does not offer any significant improvements over the existing system.  Supporters are throwing money into Bitcoin based on the belief that 'someday this will be the future of money'.  This is where we see similarities to Enron, does anyone else remember this commercial?

We believe 2015 will be another tough year for bitcoin and the price will continue to decline for the following reasons:

• Mining is dying
• There is no intrinsic value 
• Cryptocurrency is an open market
• It is not a medium of exchange
• Using Bitcoin with merchants drives the price down
• There is no incentive to use bitcoin   
• It doesn't help the 'unbanked'

 Mining is Dying

In one of our previous articles, we expressed our opinion that  difficulty is causing centralization of mining.  During the 2013 meteoric rise of Bitcoin prices, there was a mad rush for mining power.  Bitcoin is designed to become more difficult as the hashrate grows, it was intended to be supported by individuals using their personal computers.  

The synthetic growth in the hashrate during the mania stages of this bubble, caused the difficulty rate to increase beyond the capacity of the natural market.  Mining has reached the point where it can only be done with specilized hardware which costs several thousand dollars to purchase, and is likely to be obsolete before without generating any real profit.  

We read the original Bitcoin.pdf released by Satoshi.  We believe that the difficulty algorithm was designed to grow at a pace which matches the growth in the size and use of Bitcoin.  It was intended to be supported by individuals on home computers, who would 'donate' computing power to support the network.   

Bitcoin is no longer a p2p network, it is supported by a small number of large players.   You may argue that the mining pools are made up of individuals, but this is no different from my money making up the balance of the funds on deposit with a major bank.  At the end of the day, the owner of the pool has all the decision making power.

With price below USD 300, (it is $220 at the time of writing), even the big players are finding it tough to turn a profit.  As we noted above, there are rumors that one provider of mining hardware and cloud contracts, is on the brink of liquidation, and another is going to pause their cloud mining due to lack of profitability.

In the current market, even the large players with their expensive equipment can't turn a profit.  As they start to drop out, this will help stabilize or even reduce difficulty, however this will not save miners from falling Bitcoin prices and the next reward halving (forecast to occur in mid 2016)

Without miners, Bitcoin can not exist, and without a return on their investment, miners will continue to disappear, either by choice, or due to financial failure.  

There is no Intrinsic Value 

The price of Bitcoin is entirely speculative in nature.  Bitcoin exists only in the virtual world, and trades in a synthetic market, there are no underlying assets to give it an intrinsic value.   With no underlying assets, in a falling market, the value could go all the way to zero. The currency would simply be erased from existence.

In times of high inflation and low interest, people with cash savings may see the purchasing power of their funds decrease.  Basically your money grows at a slower rate than prices, so while you have more of it, you can buy less.  To protect against this, investors often move their savings to 'a store of value', (historically Gold has been a popular store of value).  

A store of value, is an investment which can be purchased near or at it's intrinsic value.  These investments carry more financial risk than cash, but  investors expect that their value will increase at a rate which is at least equal to that of inflation, therefore protecting their purchasing power.  A good store of value will have a reasonably stable price, and will be underwritten by assets which will continue to have use for the foreseeable future.

We do not see bitcoin as an effective store of value.  The price is extremely volatile, and it does not have any underlying assets.  

Cryptocurrency is an Open Market

There are already several imitators on the market.  None of them have significant market share so currently none pose any real threat to Bitcoin.  The fact that alt coins can be created so easily, is a point of concern.  Bitcoin may be the top cryptocurrency today, but that does not guarantee the will hold this spot into the future.   If that were the case, I'd still be playing video games on an Atari 2600

We feel that if cryptocurrencies have a future, it will be with a new generation coin, which will cater more to mainstream users.  For example a coin which can trade on a blockchain using either their created coin or normal money, would have potential to oust Bitcoin as the cryptocurrency of choice.  

Bitcoin is not a Medium of Exchange

A medium of exchange is used to help markets function efficiently.  A fiat currency is designed to replace the barter system.  When we work, we earn a salary in dollars, when we shop, we buy things which are priced in dollars.  Dollars are the medium of exchange which we use in order to transfer wealth and trade with each other.  The value of a $1 note is fiat and has no intrinsic value.  A fiat currency has value 'because we say so'.  As a society we have agreed to recognize and accept the value of cash.  

We do not believe Bitcoin is a medium of exchange.  It can be bought, but not earned, and while there are merchants who let you buy goods with bitcoin, the prices are set in fiat currency.  In the present market, bitcoin is acting as a service provider for transactions in fiat currencies, but is not itself a medium of exchange.

Using Bitcoin with Merchants Drives the Price Down

The growing number of merchants who accept Bitcoin is an encouraging trend.  It is an important step toward acceptance of cryptocurrency.  The way in which Bitcoin is being accepted, is less encouraging, and will add to the downward price pressure on Bitcoin.

If for example you go online to Dell and decide to buy something from them using your Bitcoin.  The first thing you will notice is that the prices are all in US Dollars, so the price in Bitcoin will fluctuate with the USD/Bitcoin exchange rate.  When you make your payment, your Bitcoin will go to Coinbase, who will instantly sell it for USD and transfer the agreed US Dollar amount to Dell.  Since Dell signed up with Coinbase in July, the value of Bitcoin has more than halved. It's no surprise that they prefer to be paid in cash.

This is how most merchants operate.  They have no interest in receiving or holding any Bitcoin.  Merchants are not accepting Bitcoin, they are allowing you to pay them in cash by selling your Bitcoin on the open market.  Companies who have become Bitcoin merchants have done so as a way to market themselves to the Bitcoin community.  Spending Bitcoin with merchants is no different to selling it for cash.   It causes a sale on the market which moves the exchange rate in a negative direction.

There is no Incentive to use Bitcoin

I understand that it is possible to use Bitcoin to pay for things from Microsoft, Dell, and a whole bunch of other places.  The question is, 'If I already have cash, why would I want to use Bitcoin?'  There is no added benefit for me to use Bitcoin rather than pay with a credit card or with an online cash payment.  Cash is convenient and fast.  Cash is federally insured, why would I want to fix a system that isn't broken?

Let's look at some of features of Bitcoin one by one and see if any of them appeal.

• There are less fees - It may be possible to transfer Bitcoin without paying fees, but right now I have cash.  In order to use Bitcoin I'd first need to buy some.  That's easy enough, I can do that online, but wait, the act of buying bitcoin would trigger the same fees I would incur if I just made the purchase online with cash.
• Bitcoin offers anonymity - this would be a great feature, if I had something to hide.  Do I really care if my bank records show that I paid for a copy of Microsoft Office? No, it doesn't bother me at all.  If I really wanted to spend money off the record, I'd use actual cash, or the visa debit gift card my mother gave me for Christmas
• Transactions are irreversible - So if I pay for something, there is no way that the money can be sent back to me?  Wait how is this a benefit?  If a merchant is worried that customers are going to reverse their purchases, then maybe they should focus on the quality of what they are selling, rather than try to find a way to prevent this.
• The open book ledger and blockchain offer added security - Well it didn't stop $5 Million from being stolen from Bitstamp. 

Bitcoin does not help the 'unbanked'

The market for micro transactions may be huge, and there is no doubt enormous potential in servicing the 'unbanked' of the world.  It's true, you can send these people small amounts of bitcoin, which they can receive without incurring costs, but how does that help them?

Think about it from their point of view.  Imagine an underprivileged person who lives in a war torn country and is 'unbanked'.  You decide to help them out by sending $100 worth of Bitcoin to them.   Now try and answer these questions:   How are they going to access the bitcoin? If they can access it, how can they spend it?

We are looking at a portion of the world's population who, among other services, also lacks access to  quality education.  They don't have a bank account because they either have no access to a bank, don't trust the bank, or don't have enough savings to justify opening an account.  You send them some Bitcoin. To receive it, they need to first obtain a wallet.  Someone who is either unable or unwilling use a bank, must now find access to the internet, create a wallet, and remember the 34 character alphanumeric bitcoin address and tpasswords which we all know make bitcoin so great. If they do manage to open a wallet, it is safe to assume that a large number of these wallets will become zombies due to loss of phones, or the information required to access them.

If we look at the portion of the unbanked who are able to open a wallet and retain access to it. The next question is, how will they use it.  The market for pure bitcoin transactions in the developed world is minuscule.  In the developing world, it will be non-existent.  So now that the 'unbanked' person has bitcoin, the only way it can help them, is if they find a way to convert it to cash.  Not having any banking services makes this quite a challenge as there are no bitcoin ATMs in the developing world.  Even if they find someone to help them convert their Bitcoin to cash, they will do so using the banking system, and will pay banking fees.  They could go online and spend their $100 worth of Bitcoin on Amazon, but I'm not sure any of the products there are of interest, and I can not confirm if Amazon ships to this part of the world.

When reading about the 'unbanked', and micro payments, I frequently come across  the success of M Pesa as a case study for the potential of Bitcoin.  There are similarities between the two systems, but there are also some key differences, and these differences bring attention to some key flaws in the Bitcoin system.

M Pesa, which is owned by Vodafone, was first launched in Africa in 2007.  It is a bank account for your phone.  It is available to all Vodafone prepaid and post paid account holders over the age of 18.  Opening the account requires the provision of proof of address and photo ID.

M Pesa is an app for smartphones which operates like a bank account. M Pesa is more secure than cash because even if your phone is stolen, your funds are protected by a password.  Customers have the ability to:

• Make deposits
• Transfer to other mobile accounts
• Transfer t.o bank accounts
• Make bill payments

We agree that the above structure resembles something which can be created with Bitcoin, however there is one key difference, which we feel is the underlying key to their success. M Pesa, does not try to replace cash, it is an alternate way to use it.  That's right the balance of your M Pesa account is held in fiat currency.  This is why it is so easy for customers to use it, and it is so easy for merchants to accept.  It also means that the value of funds held with M Pesa, does not fluctuate, if you put in $100 today, then next week it will be worth $100, even if the dollar drops...M Pesa does not have any problems with price stability because there is no price of M-Pesa, it's just a different way to store ordinary money.

We are assuming that  M Pesa, conforms with any regulations relating to deposit taking institutions within the respective countries in which it operates.  That means that funds held with M Pesa qualify for the same federal protection offered to banks (if this exists in these areas).  

The accounts are managed by Vodafone.  If you lose your phone, or forget your password, you can still go to them, prove your identity and gain access to your funds.  If you lose your Bitcoin account key or password, the funds are simply inaccessible.  Your funds will always be accessible with M Pesa accounts, and we have not found any cases of hackers stealinusing the internet to steal millions of dollars from M Pesa.

If anything M Pesa is a case study as to why Bitcoin will fail.  Bitcoin is trying to replace cash, rather than work with it.  There is no point having a state of the art transaction system, if it's for a currency which nobody uses or wants.  

Bitcoin advocates will vehemently disagree me on the above point.  Despite how they feel about cash and the existing money system.  The vast majority of us have no problems using cash, and keeping it in a bank.  Convincing me that cash and banks are the cause of all the economic problems of the world, is a tough sell.  

The only value we see in Bitcoin, is in the infrastructure and services it can provide as a financial intermediary, and provider of low cost banking services.  If the existing banking system is going to be  disrupted by a cryptocurrency, it will not be Bitcoin.  It will be a system which works with existing fiat currencies.  It is unlikely that such a system would offer anonymity or irreversibly of transactions.   This may be bad news for the criminal and paranoid elements of society, but for the rest of us, it's loss of a feature we never wanted and adds no value.

One of the key features of the Blockchain, is difficulty.  The algorithm is designed to become more difficult as the network grows.  This is to control the rate at which Bitcoins are discovered by miners.  As we all know, there will only ever be 21 Million Bitcoins mined, and we have already found over 13.5 million of them.  It is expected that the last Bitcoin will be discovered in 2040.  

It took us approximately 6 years to mine 64% of all the Bitcoin that will ever exist (13.5 Million).  Mining the final 35%, (7.5 million) is expected to take 25 years.  The supply rate will be controlled by a combination of increasing the difficulty and decreasing the reward rate.

This is not good news for those hoping to make a profit from mining bitcoin.  The future of mining will see difficulty increase with rewards decreasing.  Difficulty has risen exponentially over the last year as shown below:

The difficulty rate for mining bitcoin has increased from 707408283.051496 to 40300030327.8914.  That's a 5597% increase!  Discovering a block has become 56 times more difficult in the last 12 months, and it's only going to get more difficult in the future.

As the chart below shows, this is not good for revenue, which has fallen steeply over this period, and will only fall again when the reward rate halves to 12.5 Bitcoin (expected in late 2016).

Over the same 12 months, miners revenue, in USD, has decreased from an average of approximately $4.5 Million per day to the current average of $1.5 Million per day. Mining revenue has fallen 66% in the past year

Bitcoin mining is designed to have diminishing returns.  Unfortunately this means that only big players who achieve economies of scale, can turn a profit mining bitcoin.  Mining bitcoin is no longer feasible to individuals, as there is no profit to be made.  The only way is to pool your resources and join a major pool.

This has resulted in emergence of major players in the mining market, as shown below:

As mining becomes more difficult, major players are emerging.  Currently the top 5 bitcoin miners represent 55.74% of the entire hashrate.  A further 22.47% of mining capacity is controlled by 'unknown miners'.  Bitcoin mining is becoming centralized to these key players.

Bitcoin is supposed to be a currency for the people regulated by the people.  It's supposed to move the trust away from central figures like governments. Bitcoin has moved away from the people and is now an oligopoly controlled by a small number of corporate players.

Anyone can join  a mining pool, all they have to do is purchase a share of their mining capacity.  However when you join a pool, any bitcoin mined is owned by the administrator of that mining pool.  It is up to them how they distribute any rewards.  Joining a pool requires you to take a leap of faith and trust that the people running the pool will in fact pay you your fair share of any rewards earned.

There are several potential threats with an oligopoly including

• Collusion - The big 5 represent 55.74% of the total market, if they joined forces, they could effectively take control of the entire blockchain
• Corruption - If you don't trust a government, why are you trusting a corporation?  We wrote about the case of disappearing bitcoin, who is to say that the same won't happen with one of these companies?
• Reward Distribution - The best way for individuals to become miners, is to buy 
• Targets of Crime - The blockchain is secure, but how secure are each of these companies.  Are you confident that a criminal couldn't hack their way inside and steal your bitcoin?

It is our opinion that the difficulty rate has grown too fast.  To be a bitcoin miner, you need to either purchase capacity from a pool, or spend thousands on specialized computer equipment featuring Application Specific Integrated Circuits (ASIC).  If we as individuals can not join the block chain and be part of the open ledger verification, can we still call bitcoin a P2P decentralized currency?

A decentralized system needs to have low barriers.  It should be easy to take part and even small players should see some level of reward for their contribution.  If everyday people can't be part of it using their standard hardware, then the everyday people are not in control of the system.

Ironically the growing difficulty has made mining bitcoins riskier.  If you buy specialized hardware, there is no guarantee that you will discover any bitcoin, and as the difficulty continues to increase, your equipment will rapidly be obsolete

If you choose to purchase capacity from a mining pool, then bare in mind that the company you are buying space from is in business to make a profit.  They will charge upfront and ongoing fees, which will dilute any returns.  On top of this, you are not in control of the rewards, so if the pool is rewarded, there is no guarantee that you will get your fair share.

We have no doubt that home computers will continue to evolve and one day we will reach the point where home computers can once again be used for mining bitcoin.  Until that day, we are not comfortable calling bitcoin a decentralized currency  

Bitcoin is once again heading into negative territory.  When we published our previous article about the decline in Bitcoin, we received a lot of  feedback explaining that the price fall was all because of 'one large seller'. 

The price did bounce back since then, peaking at just over $400, but is now once again on a downward journey:

The price has dropped 12.5% in 9 days and this time there is no 'sell wall'.  A contributing factor could be the collapse of cryptocurrency exchange Moolah.  $1.5 million worth of bitcoin formerly held with the company has gone missing, and is believed to be in the possession of former CEO Alex Green.  

In his last public statement, Green confirmed that he is in fact a suspected con artist and was formerly named Ryan Kennedy.  This announcement made on October 19th coincides perfectly with the current down turn.    

Is this Green/Kennedy character to blame?  While $1.5 million in sales may not be enough to justify the current decline, an event such as this certainly shakes investor confidence.  Individuals who had btc held with this exchange have effectively lost their money.  There is a very strong belief that the money has been stolen by this alleged con man, but there is no recourse against him, and no way to prove that he has the money, because it's all in bitcoin.

The anonymity offered by the blockchain has made this a crime which, can only be alleged.  We can all see that the balance of the btc was transferred into, then promptly out of a single address.  We can say for sure that the money is gone, but there is no way of tracing where it went, who took it, or where it is now.  

The fact that this has happened shows a significant weakness Bitcoin.  We can all see that the money was stolen, we can all see the bitcoin address used by the thief, but because this is bitcoin, the transactions are irreversible, and the identity of the thief is secret.   

All it took was one man with access to the right part of the Bitcoin system, an exchange.  He did not need the combined power of the worlds computers to defeat the security of the blockchain because his crime is right there on the blockchain.  The features which are meant to make bitcoin safer than government backed paper have been used for a broad daylight crime with only one suspect, and no usable evidence.

This event should cause a change in attitude toward Bitcoin.  If you knew that the money in your bank account could vanish over night, would you leave it there, or would you find somewhere else to keep your money?  

What do you think, is the recent theft to blame for the current downturn, or is it something else?

Over the past four days, the price of Bitcoin, has fallen 22% from $385 to $300 against the US Dollar.  There has not been any major negative events to cause this sharp drop.  It's a simple case of supply and demand.

One opinion is that the influx of merchants accepting Bitcoin is causing the price to fall as they instantly sell any Bitcoin they receive.  We discussed this effect in our article 'how will you spend your bitcoin?'.  The BTC/USD price has fallen $287 or 48.9% since we last looked at it on August 10th. 

The chart below shows the BTC/USD movement over the last 2 months

Bitcoin Supporters Remain Loyal

Supporters of Bitcoin, will tell you that this is not unusual.  Bitcoin has always been extremely volatile.  Some would argue that the drop in the BTC/USD price is an opportunity to buy.  They are reacting in much the same way we'd react if our favourite brand of jeans were on sale.. put a few more in the closet.

This is an attitude which works for jeans, but could be dangerous when applied to investments.  We all know the benefits of buying on sale, so let's look at the risks. 

When you buy jeans on sale, you get ... an extra pair of jeans.  This will increase your supply of jeans, so you may wear each pair less due to the dilution of their share of total jeans. 

The worst that can happen... you bought them on an end of season sale.  The next day the new look version is released and your new jeans look old and out of fashion right away.  This risk is offset by the price reduction. 

You could argue that the sale offered you fair value rather than a discount.  You may not have jeans which meet the 'current look', but you didn't pay full price.  So it may not have been a big saving, but it is still a good purchase

The BTC/USD price is a market price, Bitcoin is a traded investment on free markets. The price is not down because someone decided to 'put it on sale'.  The price is down because Bitcoin sellers are outnumbering the buyers.  Put simply: Money is flowing out of Bitcoin.

The faithful see it as a chance to 'buy more'.  The logic being, that when the price goes back up, you'll be in a better position.  If the price goes up, it is true, they will make a profit on the Bitcoin bought cheaply.  This strategy comes with financial risk:  What if the price doesn't go back up?  Or worse yet, what if it keeps falling?  

Buying more Bitcoin magnifies your profit if the price recovers, but also magnifies your losses if the price falls further.  Unlike the jeans, you have overpaid for the Bitcoin as it has not yet found it's intrinsic value. 

If you currently have $10,000 worth of Bitcoin (at a price of $300), and decide to buy an extra $2,000 worth, you now have 20% more Bitcoin.  Your potential for gains is now magnified by 20%, but so is your potential for losses, as shown below:

Investments carry the risk of permanent and total loss.  Any veteran of the 2000 tech wreck will tell you all the about the risks of buying more when prices are down.  The faith they had in internet stocks is no different to the faith we are seeing in Bitcoin.  Statements like 'it will reach $10,000 in 2 years time' or  'this is technology that will change the world', are reminiscent of the internet bubble.

We are not saying that Bitcoin will disappear into nothingness, but it is a very long way from causing any disruption to fiat currencies.  Unless there is a significant change, it is hard to imagine the price recovering.  If sellers continue to outnumber buyers, the price will continue to fall, it's as simple as that. 

What do you think?  Can the price recover, and if so, what will drive it upward?

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At some point in the future, Bitcoin will either be an accepted form of exchange, or a forgotten fad.   When we look back at the road taken toward main stream acceptance,  July 2014 will be a significant month.

• July 18 - Dell Computers announced that US customers can now make payment by Bitcoin.  Dell is working with Coinbase and is the largest ecommerce company in the world to accept Bitcoin.
• July 28 - Californian Congress Candidate Christina Gagnier announced that she will be accepting campaign donations in the form of Bitcoin.
• July 30 -  Wikipedia starts accepting  Bitcoin Donations through Coinbase.

Bitcoin has made its way into corporate and political America, as well as the world of Wiki.  The Bitcoin community should be proud of these achievements.  These are significant steps toward wide spread acceptance.  If we want Bitcoin to be seen as a medium of exchange, then we need places in which it can be used as exchange.

In the past, news like this would have caused the price of Bitcoin to spike upward.   The market sentiment toward the news has been muted.   In the three weeks since the Dell announcement, the US Dollar price of Bitcoin (BTC/USD) has drifted down 6.05% from $626 to $588. 

Many in the Bitcoin community were left wondering why the price BTC/USD price did not react to the good news.  After all, nothing moves Bitcoin like news.  Here at TFG we are less surprised at the market non-reaction. 

All three developments are positive for Bitcoin, and will help it develop as a medium of exchange.  While the news is good, we do not feel that it is ‘price sensitive’.  There is nothing to suggest a change in the intrinsic value of Bitcoin.   We do not believe that these developments will lead to more funds being invested in Bitcoin.  The price of Bitcoin might move if a major corporation decided to hold Bitcoin as an alternate to cash.   The biggest winner from this news is Coinbase

Any Bitcoin Spent, will be Converted to Cash Quickly

It is great that we now have more places to use our Bitcoin, but we expect that any Bitcoin received by these parties, will be sold for US Dollars very quickly.  All three have expenses which need to be paid in cash.  Holding Bitcoin creates a financial risk for them.  It is in their best interest to convert any Bitcoin to US Dollars as quickly as possible.   Holding BTC creates too much uncertainty.

In the 23 days since Dell agreed to accept Bitcoin, the BTC/USD price has fallen 6.05%. If you bought an item today using Bitcoin, it would cost  more BTC than it did non July 18th.  Conversely if on July 18th Dell received $1,000 worth of BTC and kept it as BTC, today it would be worth $939.  That’s less money to pay employees, and suppliers, and less profit for shareholders.  This loss could have been a gain if the price of BTC went up, but it’s a game of speculative risk which no corporation wants to play with their cash flows.

Why Accept Bitcoin?

If Dell, Christina and Wiki have no intention of accumulating Bitcoin, why accept it?  The answer is marketing: The Bitcoin Community is a valuable market segment.  We are more tech savvy than the general public, and more likely spend money on computers.  When voting in an election, we are more likely to care if the candidate understands the laws surrounding the internet.  We are more likely to use Wikipedia, and more likely to understand and support the community based culture it offers.

Wikipedia have stated that one of the reasons they agreed to sign up with Coinbase, is the ability to immediately convert any Bitcoin into US Dollars.  After one week, Wikipedia received $140,000 in donations.  That’s 237 BTC that have been sold for cash.

On May 14th, Christina Gagnier wrote an article for her company where she recommended Bitcoin as ‘a way to attract clients who like your forward-thinking nature in terms of taking alternative online payments.’ In the same article she advised those who accept Bitcoin to ‘ensure you understand how to get it converted to dollars pretty quickly’.

It is our view that this is bad for the price of Bitcoin.  Selling BTC for US Dollars will cause supply to increase and price to fall.  That’s just how the invisible hand works.  The Wall St disagrees, they feel that the key to driving the price of BTC up, is for us to go out and spend more BTC.  That will be true in the long term, but right now, spending will have the same effect as selling.  

There needs to be some incentive for people to buy and use Bitcoin rather than cash.  Merchants accepting Bitcoin will not drive the price up.  Specially if they sell the Bitcoin for cash as fast as they receive it.

Bitcoin has a long journey before it is accepted a medium of exchange.  Developments like this will help generate awareness, and give us ways to use our Bitcoin.  If we want Bitcoin to be taken seriously as an alternate to currency, we need more ways to use it in place of currency.  In the short run, this may cause the price to fall, but maybe a lower price is needed today for the long term success of cryptocurrencies.

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A recent survey found that 33% of Americans over the age of 50, could not grasp the concept of compound interest earned on term deposits.  Half the respondents in the same survey, did not see the benefit of investing in more than one company on the stock market.

Our recent article looked at financial literacy in amongst teens.    Australia may have some of the world's most financially literate 15 year olds, but the grown ups still have a bit to learn.  Adults in Australia scored poorly with even basic financial literacy.  Rather than learn how investments work, or ask questions, Australians simply trust financial advisers.  This raises the question 'what do advisers really know?'.

The Australian investment community, is recovering from a major scandal involving misconduct by financial planners within their largest, and most trusted bank, the Commonwealth Bank of Australia.  This has led to a Senate inquiry of the Australian Securities and Investment Commission (ASIC).  The 'watchdog' is under fire for having let this happen.

The ASIC inquiry found that investors 'need to be educated.' and financial advisers, 'need higher educational qualifications'.  Educating the general public may be a difficult task, but increasing educational requirements of advisers is long overdue.  

Australian financial advisers can obtain the  required diploma in less than a month there are no educational prerequisites.   They just need to complete a short course which scratches the surface of investments, insurance, taxation and retirement planning.  Passing the course is a matter of a few assignments and open book, multiple choice exams.

While writing this article, we spoke to an investor who agreed to share their recent encounter with a financial planner.  As per their request, no names are included, but their story can be found here.

When you consider the years of university study that accountants and other financial professionals complete, it is disturbing that this simple course is all you need if you want to sell insurance and investment products. At makes it look like a glorified sales course in disguise as a professional qualification.

I recently  caught up with a group of friends, and one of my conversations was about the  stock market.   The friend I was talking to is an experienced investor, and to the best of my knowledge has been successfully making a living from day trading for the past 4 years.  

We talked about leverage, the benefits of derivatives and had a brief debate about the  direction of a certain forex pair we both trade.  The conversation caught the attention of some of our friends, who either quietly listened, or threw in occasional questions and opinions.

The group came to life when the topic of stock brokers came up.  As a DIY investor, I want online access, with lowest possible brokerage.   Fees impact the break even point of investments, so my goal is to keep them to a minimum.

I am happy with my online broker for shares, options and a margin loan, and an online CFD provider for my other activities (forex included).  My agreed with my logic, but added, 'you also need a full service broker', and mentioned that he is currently looking for one who will 'give him good tips'.  He is happy to pay extra fees on the portion he invests with this broker.

My opinion is that brokers should be viewed as over the phone sales people.   They only make money when you trade.  They make a slice of the commission on every trade, whether or not the investor is making money, has no baring on this.

My theory is that brokers will only recommend that you buy shares which have a buy rating within theirr company.   If you ask for information on companies outside of this list, they will simply convince you to disregard that company and buy one on the list.  Most of the major brokerages make their ratings publicly available, so why pay a broker when you can read the list yourself, and for a small fee, gain access to the full recommendation reports.

At this point we had divided the room into two teams.  My team believed that brokers were not worth their fees.  The other team believed, that they could provide added value, but you need to find the right one.

My friend sees brokers as qualified professionals.  He feels it is their job to find sound investments and share this information with their clients.  I see them as sales people closing enough deals to pay the bills.  There is no incentive to help you make money, the only motivating factor, is generating trades,  every phone call needs to be a buy or a sell trade.  Who cares what stock, and who cares if the investor has won or lost.

If you had the ability to generate ongoing profits trading the stock market, would you quit your job and trade the market for a living, or would you get a job sitting on the phone convincing others to follow your ideas?

Want to know just how accurate stock recommendations are?  A US based firm, CXO Advisory Group, has already looked into this for you.  They studied the accuracy of predictions made by 'market gurus'.  The results of their report are here.

If you wanted to 'share the wealth', would you launch a website and work freely from anywhere in the world, or would you find a desk in a loud office surrounded by sales people hungry for the next deal, while  limiting your recommendations to 'the company list'.

My opinions since that day have softened, and if that same conversation were to take place now, I may be less harsh on brokers.  At that time, I had just finished reading Dan Reingold's 'Confessions of a Wall Street Analyst'.  An autobiography giving an inside look at the world of stock analysis in the late 90's.  Dan was an exceptionally successful analyst who specialized in the telecoms during their dream run (which ended April 17 2000, with the 'tech wreck')  

Want to read Dan's book? Links to both paperback and kindle edition are below :)

When discussing investments, it is difficult to find a topic more polarizing than cryptocurrency. Investors either love it, or hate it.  Kind of like that sports team.  You know, the one with a huge fan base, and is the most hated team in the league.

There are almost 300 cryptocurrencies on the market, with the biggest player, Bitcoin, representing over 90% of market capitalization (see list)

Depending on who you ask, cryptocurrency, is either 'going to change the world', or 'a bubble waiting to burst'.  When discussing investments, conflicting opinions is a way of life.  After all, nobody can predict the future, but everyone has an opinion of where we are going.

 One notable opinion within the investment world, is that of the Oracle of Omaha, Warren Buffet, who was recently on CNBC's Squawk Box. Buffet acknowledged that Bitcoin is great as a way to transfer funds.  As an investment, his opinion was not so great, as he did not believe it to have any intrinsic value. I seem to remember him saying something similar about technology stocks in the late 90s.

With a market capitalization of over $8,000,000,000,  Bitcoin has a very significant fan base.  While haters will complain about the volatility, there is no denying that investors in Bitcoin have made some very significant gains.

Most of us think of Bitcoin enthusiasts as tech savvy, highly educated, and capable of understanding the complexities of cryptocurrency.  It may seem surprising that without Dogecoin, the Jamaican bobsled team would not have made it to the Sochi Winter Olympics.

The two man bobsled team raised over $40,000 in donations through Dogecoin, which enabled them to compete in the games.  They are not alone.  Nascar driver Josh Wise, has also been the beneficiary of Dogecoin donations, and his car even sports the Dogecoin logo.

Cryptocurreny is growing as a way for fans to directly support their favorite athletes.  On July 5th, two MMA fighters used cryptocurrency as a way to accept donations from fans.

Jon Fitch, appeared in the World Series Of Fighting (WSOF). He was sponsored directly by Nautiluscoin, and was also accepting donations from the community.

Chris Camozzi, appeared in the UFC, and had a large QR Code on his shorts, which lead to his Bitcoin donation page.

Cryptocurrency may have a very interesting future in the world of sport.  Being a professional athlete in a sport such as MMA is not cheap.  There are training camps, months between paychecks, all sorts of people wanting a slice of the winnings pie in exchange for their services.  

Enabling athletes to raise funds directly, would enable us to support our favorite stars.  Even if only send a few dollars, if enough of us do it, it will add up.  The benefit to athlete is that they get all the funds, and don't have to deal with third party obstacles.  The fans benefit by keeping their favorite stars in the game.  

If all athletes raised funds this way, then pay would essentially be based on a popularity contest. Which we think would be great for any sport, as it would motivate the contestants to put on an entertaining show.

Jon Fitch, is officially the first professional athlete to have been sponsored by, and paid in, digital currency.  Nautiluscoin will be visible as one of his sponsors on July 5th.  Fitch, a professional MMA fighter in the welterweight division, is due to take on Dennis Hall, at WSOF 11.  Maybe someday Jaden Newman  will get sponsored in  Digi-Dollars, 

Nautiluscoin sees this sponsorship as the start of their journey toward "acceptance as a medium of exchange".  They are very proud to have sponsored Fitch who they refer to as the ' No 2 World Ranked Welterweight'.  

What they meant so say is that Fitch is Ranked 2 within WSOF (see rankings)

If Jon Fitch wins, he will be in line for a shot at the WSOF title.  The last title fight he had was back in August 2008, when he fought GSP for the UFC title at UFC 87.  Jon, like all who followed, was unsuccessful in dethroning GSP.  He was released from the UFC in early 2013, and was promptly signed by WSOF.

With a market capitalization of $841,365, Nautiluscoin is ranked 39th for Digital Currency Market Capitalization.  Don't feel bad if you haven't heard of them before, after all, the no. 1 ranking Bitcoin represents 93.74% of market capitalization within the top 100. 

Coincidentally, Chris Camozzi is fighting in the UFC on the same night, and he will be raising funds directly from fans through Bitcoin in the form of donations.  Check out the QR code on his shorts.  Camozzi is not the first to use Bitcoin in this way.  The Jamaican Bobsled team used Bitcoin donations to pay their way to the 2014 Winter Olympics.  However neither of these involve actual sponsorship.

The value of Jon's sponsorship is as yet unconfirmed.  Nautiluscoin opened a special account so members could contribute and increase the value of the sponsorship.  The benefit to Nautiluscoin, is that by paying him more, they can improve their prominence amongst Finch's sponsors.  If you are a fan of digital currency and MMA, then it's a great opportunity to personally support them both. 

While stepping into a cage and letting another man hit you in the head for 15 minutes is a risk unto itself.  We are not sure that Jon Fitch fully understands the financial risk he is exposing himself to, but accepting pay in the form of a digital currency.  (see definition of financial risk)

Due to the volatile nature of digital currencies, even if Jon knew how much Nautiluscoin he was going to be paid, he'd have no idea what that meant in US Dollars.  If Jon had been told he'd be paid 1,000,000 Nautiluscoin, then this could have meant anywhere between $114,800 and $141,400 US Dollars.  That's a fluctuation of over 23%, and that was within the last 7 days.

While the future may be digital, in the present, cash is still king.  A medium of exchange needs to be stable.  People want certainty with their currencies.  Volatility and risk have their place in the speculative markets.

Imagine if, at the end of your work week, you received 23% less money than last week, for no reason other than 'market volatility'.  This volatility is why we at TFG feel that Digital Currencies are a very long way from being accepted as a medium of exchange.