Bitcoin takes a licking but don’t bet on it to keep ticking
Sorry Bitcoin holders! You may have to surrender your Bitcoin wallet, as the bad news continues, short- and long-term.
The immediate threat is US tax day on April 17 when digital currency owners will unload their cryptos to pay for capital gains, but even before the taxman cometh, prices are weakening.
Future threats revolve around Bitcoin being overvalued, primed for a crash, and that digital currency is structurally unsound to meet economic adversity.
Prices: A whimper
Bitcoin dropped more than 6% over two hours Monday, hit a low of $6,646, as the April tax-filing deadline approaches, said CNBC, quoting data from coindesk.
Bitcoin prices have dropped more than 27% over the past 30 days, with tax-related selling prompting April’s sell-off, according to Thomas Lee, head of research at Fundstrat Global Advisors, who said in a report last week that U.S. households likely owe $25 billion in capital gains taxes for their cryptocurrency holdings.
“To meet tax liabilities, investors are selling bitcoin, which could mean “massive” selling into U.S. dollars ahead of the April 17 tax filing deadline,” Lee said.
Bitcoin prices are down more than 52% in 2018, dropping from a year start price over $14,000, according to CoinDesk.
“The entire cryptocurrency market has lost more than half its market capitalization since the beginning of this year, CNBC said quoting data from Coinmarketcap.
“Bitcoin began falling below $10,000 in March after the SEC announced that online platforms trading digital assets that are considered securities need to register with the agency,” said CNBC.
The SEC has also cracked down on a fundraising technique known as initial coin offerings (ICOs).
The Reserve Bank of India banned banks from dealing with cryptos.
The news from India didn’t get any better when the Crime Investigation Department (CID) in the Indian state of Gujurat has accused 10 police officers of kidnapping, and attempted extortion and corruption after they allegedly abducted a businessman and forced him to hand over 200 Bitcoins.
Rampant crypto crimes from fraudulent ICOs to wallet thefts have dampened the mood for digital currency.
Also a recent study by researchers at ETH Zurich found Bitcoin is a “sparsely connected network” in which every user is connected to only 10,000 other users instead of 1 million.
“The researchers arrived at 0.79 million users that are currently in bitcoin’s network. They expect the number to grow to 2.6 million by 2023. Based on those figures, Bitcoin should currently have a valuation between $22 million to $44 million while the Bitcoin market cap is currently $119 billion.”
The name of the game
As more than 1500 cryptos are already in existence and more coming on the way, it is becoming challenging for new companies raising an ICO to pick a unique name.
Not being careful can easily get you in trouble as was the case with Dubai-based developers of the cryptocurrency Alibabacoin, who in a recent email to Forbes denied allegations that they infringed the trademark of Alibaba Group, after the Chinese e-commerce giant filed a lawsuit against them in the U.S. last week.
“The word Alibaba does not belong to a certain entity or individual. Alibaba.com may have protection afforded by the trademarks acquired, however, [the] word Alibaba is free of use in its legitimate business activities,” reads a statement emailed to Forbes Middle East by the Alibabacoin Foundation, which is one of the entities behind the development of the cryptocurrency.
“Alibaba’s lawsuit alleges the cryptocurrency’s creators intentionally used the retailer’s trademarked name in an attempt to raise more than $3.5 million in an initial coin offering (ICO),” said Forbes, explaining that the lawsuit alleges the crypto company made investors believe it was part of the ecommerce giant.
The Alibabacoin Foundation website identifies Jason Daniel Paul Philip as its founder and CEO, and Hasan Abbas as its co-founder and chief technology officer. Other firms associated with the cryptocurrency in the suit, such as ABBC Blockchain IT Solutions, are also listed as being Dubai-based.
A recent MIT technology review revealed that Bitcoin would be a calamity, not an economy, should it ever become the norm.
Bitcoin is something people trade, like a stock or bond, rather than something they exchange for goods and services like fiat money does.
“As a medium of exchange, Bitcoin remains today pretty much what it was in 2010: an interesting complement to the existing monetary system, primarily useful for people interested in avoiding legal authorities or living in societies racked by inflation (like, say, in Venezuela or Zimbabwe),” said the research.
Still, the dream that cryptocurrency could replace our existing system of fiat money is of a system where the government can’t manipulate the money supply, and market competition determines which currencies people use.
“But what would happen if that dream came true? If the dollar and the euro were replaced by Bitcoin, how would the system adapt, and how would the economy and the financial system function?” asked MIT.
“The simple answer is: not well. An economy in which Bitcoin was the dominant currency would be a more volatile and harsher economy, in which the government would have limited tools to fight recessions and where financial panics, once started, would be hard to stop.”
As Bitcoin and other cryptos are by rule limited in quantity, with Bitcoin capped at 21 million coins, then there wouldn’t be a crypto ‘central bank’ to provide ‘liquidity’ when in times of financial crisis.
“The problem is that in the event of a crisis, there would also be no way to add liquidity to the system, since you can’t “print” more Bitcoins,” said the MIT study.
Since scarcity is key for Bitcoin, people will be more likely to hold on to it when demand for it rises and with it Bitcoin prices, “the opposite of what you want in a financial crisis.”
“Bitcoin would also make it hard for governments to fight recessions, which they typically do by using what economists call countercyclical monetary and fiscal policy where central banks slash interest rates, and pump money into the system by buying assets (quantitative easing).”
Here again, a Bitcoin economy would limit the government’s options, since the central bank would have no control over the currency, i.e. no control over interest rates, and its stash of Bitcoins is limited to pour money into the economy.