Bitcoin Volatility

Volatility is a measure of how rapidly and unpredictably change occurs, a risk assessment. By comparison with other assets, such as gold (1.2%) and the dollar (1.8%), Bitcoin (3.13%; 30-day est.) is a risky investment indeed. That being said, what is interesting is the change to Bitcoin’s volatility over time.

In the early days, while Bitcoin was just beginning to gain traction, it was difficult to assign meaningful numbers to its volatility since the prices fluctuated so drastically but the absolute values were so low. Bitcoin could have gone from $0.000125 to $0.000190 in one day but that 65% rise in valuation did really amount to much. But, remember the fall of 2017 when Bitcoin’s price soared to $19,500? The volatility index was hitting values of 7.5% and 8.0%. Since then we watched as Bitcoin’s value returned to earthly amounts like $4500 and $3800.

Now, Bitcoin’s price is steadily rising again ($10,350 as of 9/11/2019). Meanwhile, Bitcoin’s volatility index continues to fall. This is a good thing. If Bitcoin is to be the asset class of world finance, the volatilty index has to be equal or less than that of gold today. It looks like we’re going that way.

Why Are There So Many Different Cryptocurrencies?

During my professional career we publishing software for graphic designers who wished to put barcodes in their graphics such as the barcode on the back of a paperback book or grocery box. In the process, we became experts at printing all of the various barcode types. Barcodes come in many different forms. Think of different barcode types the way you would think about different languages. If you print Code 39 and someone’s scanner reads Code 39 they understand each another. If you are shipping groceries in cartons you’ll need Interleaved 2 of 5. If you want to distribute coupons, you’ll need a GTIN number. The list goes on and on. There are hundreds of barcode types and they have all been optimized to do something well whether it be easily readable, large data content or small image. Each has been optimized to do something well. The same can be said for cryptocurrencies.

Each cryptocurrency has been optimized to do something well whether it be fast transactions, handling large values, being ultra-secure and so forth. As I read through the various schemes that have been designed in the cryptocurrency raison d’être some strategies are more compelling than others. At this early stage of development, it is difficult to see which problem being solved is the problem that makes the cryptocurrency that solves that problem famous. It’s worth taking a look at a few different strategies to see which resonate. For example, a couple of years ago a new crypto appeared called Electroneum.

Electroneum drew attention to the fact that cryptocurrency was a huge drain of energy. I read one statistic that said that all Bitcoin miners are now using the equivalent energy of the country of Denmark. In this day and age that’s not good. Electroneum was designed so that it could reside on a person’s smartphone, and, if there were enough smartphones with Electroneum, the app would use the smartphone in the background to mine Electroneum. By sharing the load with millions of smartphones the mining function could be done without an additional drain on precious resources. That sounded like a sensible approach to solving a real problem. Unfortunately, Electroneum, two years later, is still struggling to find a footing in the crypto space. Only one exchange that I know of actually trades Electroneum.

Bitcoin’s Killer App

In my quest for Bitcoin’s killer app, I watched David Schwartz, CTO of Ripple, being interviewed by Fortune’s Jeff Roberts on YouTube. The interview was recorded on June 12th, 2019 at the Future of Fintech conference in NYC. For those interested in Bitcoin’s nuts and bolts, this was a very interesting discussion. As far as killer apps were concerned, Schwartz touches on some very promising technologies in the works that may be killer apps.

The killer app would be the application that launches Bitcoin into the stratosphere by making Bitcoin indespensible, giving anyone using it such a definitive advantage over those that don’t that Bitcoin becomes a must have, go to asset. There have been many proposed killer apps but so far none have stepped up. I’m seeking that application that makes Bitcoin impossible to live without.

If you were living in Venezuala right now you might feel Bitcoin was your only guard against the rampant, runaway inflation. By Venezuelan standards, Bitcoin’s valuation barely fluctuates. If you were a drug dealer or holding someone’s computer for ransom, Bitcoin might also be your goto application. But David Schwartz mentioned an application which I felt is worth further investigation — micro-payments.

Micro-payments are very small payments, sometimes as little as $0.0001 (one ten thousandth of a cent) or less. For some applications they are very useful but impossible to manage. For example, have you ever run up against a pay-wall when trying to read an article from a publication you don’t subscribe to and you forego reading it because the $19.95 per month or whatever the cost is wasn’t worth it for this one article. Besides, you weren’t really interested in a subscription, anyway. It would have been nice to get charged $0.99 for this one page article, and leave it at that. But in order for the publisher to charge you that $0.99 with a credit or debit card, there would be a $0.35 minimum charge plus between 2% and 6% fees from the publisher, and several forms to fill out for you, the reader, before you could read the article. Since those type of transactions take a day or so to post, there will also be enough follow up work that the small publisher would opt NOT to offer the small fee. In fact, few if any do.

If that $0.99 transaction were made using Ripple (XRP) cryptocurrency, the transaction could be accomplished totally anonymously, with a few cents in fees, in seconds. The website could be charging you per column inch read, or any other smaller scheme which would be served by micro-payments. Let’s say you read 18 column inches at a cost of $0.0016. MasterCard would charge the publisher $0.365 cents for you to pay this $0.0016. The publisher would lose money with every visitor. With cryptocurrency you would pay $0.0016 plus $0.00012 in service charges. In other words, you’re paying next to nothing for Ripple payments. It’s all done safely and securely and in a matter of seconds. If this capability is built into your browser, as it will some day be standard on all browsers, micro-payments will be nothing more than a key stroke.

Environmental Protection Act

I, for one, am so disheartened and disgusted with what is happening to the environment these past two and a half years I want to cry, almost daily.  Instead of watching the Trump administration rape and plunder the environment, I propose the following: let’s just write a check and be done with it.  Give a billion dollars to each company that promises not to drill, mine, frack, pump or dump. That’s the idea. They don’t have to lift a finger. In fact, that’s just what we want they to do: nothing at all.  

Why do we have to watch as these companies undo all of the decades of environmental good deeds we’ve accomplished cleaning the air, purifying the lakes, rivers and streams and making our food supply safe?  The only reason those companies do what they do is money. So why don’t we just give it to them, no questions asked, in exchange for them stopping altogether. 

The Exxon-Mobils, Cargills and Kochs get their money and we get to keep the parks, national monuments, fields, rivers and streams.  We get the birds and the honey bees, and the icebergs for another generation or two.

Climate Change

Perpetuating the myth that if only we are able to keep climate temperature increases to 2ºC everything will be okay is almost worse than the claims of the climate change deniers.  The complacency today in the face of the absolute collapse of our planet’s biosphere is unconscionable. We watch as the world is turned uninhabitable, and rather than take up the challenge, we continue, if not accelerate, in the wrong direction.  More carbon has entered the atmosphere in the last thirty years due to mankind’s activities than in all the time we had been on this earth till then combined. Instead of reducing our carbon emissions to zero, we have increased our output by 1.5% since Al Gore wrote An Inconvenient Truth in 2006.

We’re apathetic because we’re losing, and see no possibilities of a good outcome. But it’s much worse than that.  We’re already seeing the devastating effects but have not yet felt them at home. Those days are about to commence.  We’re literally dancing at our own funeral. The insect world has collapsed. Amphibians are disappearing around the globe.  The bumblebee has been put on the endangered species list. Did you see any smashed bugs on your windshield this past summer? Any moths dancing by the night lanterns? I just drove from NYC to Boca Raton, FL and back.  Not a bug on my grill in twenty-six hundred miles. Last spring I drove to San Francisco and back. The state of Utah was practically covered in the smoke from forest fires the entire time I was crossing the state.  Tornadoes in the middle of winter? Arctic cyclones? Meteorologists are having to invent new names for weather events. The end has already begun, we just don’t know it yet.

Bitcoin: State of the Art

It’s been some time since I’ve written here regarding Bitcoin and for good reason.  There were no clear trends developing that I could see.  While my faith in Bitcoin remains unwavering, I did not see what might have been influencing the marketplace, in general, nor Bitcoin in particular.  Meanwhile, the price of Bitcoin had fallen in a series of steps downward to $6500, then $4500, then $3500.  Two factors made my ears perk up this morning.  Perhaps, we’re at a crossroads, now.  Only time will tell.

Blockchain Now!

Reuter’s reports that Germany’s justice and finance ministries have proposed to launch a state-run register to boost the use of blockchain. We’ve seen these same efforts repeated with other governments across the globe. While bitcoin is slowly being adopted, its underlying blockchain technology is being widely adopted. That the blockchain regulations, policing of the blockchain technologies, and the registration of blockchain based exchanges are being put in place now will later prove useful to a bitcoin economy.

Blockchain technology replaces a centralized network with a decentralized, distributed network. Instead of a central clearinghouse for all transactions, exchanges are made throughout the network. Instead of a physical token for each transaction, such as printed shares of stocker each trade, trades can be made in blockchain technologies entirely digitally. In order for investors to pay their fair share of taxes on blockchain transactions, both the government agency and the tax payers have to have the apps that allow them to compute the necessary amounts. To follow up on complaints of foul play, emergencies, and general police detective work, law enforcement agencies need to know what blockchain technology is and how to deal with it. There is no difference between researching a transaction made in a blockchain network for real estate and for a bitcoin transaction. The list goes on, but in short, learning to work with blockchain is the very skill required to work with bitcoin.

Kroger Drops Visa

Quote from Cointelegraph, a daily cryptocurrency news feed:

“On Friday, Mar. 1, Kroger officially announced that its Smith's Food & Drug stores will not accept Visa cards starting Apr. 3 due to the high fees that company imposes on major retailers. "Visa has been misusing its position and charging retailers excessive fees for a long time," Kroger's chief financial officer Mike Schlotman said, explaining the decision.”

Link to the original online statement:

It stands to reason that a grocery chain such as Kroger’s would find it necessary to restrict the use of VISA cards in their stores.  You would think the small fees merchants are required to pay to accept VISA cards is well worth the attraction to customers. But grocery stores work with extremely small margins.  While a typical suburban store may hold a million dollars in inventory on its shelves and turn over that merchanize several times per year, the markups are so slight that added VISA costs could tip the economics in the wrong direction.  

The equivalent ‘fees’ cryptocurrencies charge are miniscule by comparison.  Mining fees are usually just pennies compared with VISA and MASTERCARD fees which are a small fraction of the total spent.  A $6.00 item might cost the merchant $0.45 in fees. Grocery stores are particularly hard hit by the VISA costs since fees are comprised of a flat fee for every transaction, around $0.15, and a percentage of the gross amount.  Higher percentages are charged for smaller ticket items. An expensive item might have a 1.5% VISA fee, while an item selling for under $2.00 might have a 4% fee. Groceries are usually under $10.00 per item.

A merchant, therefore, must compare VISA fees of $0.45 or more and cryptocurrency fees of just pennies.  What merchant wouldn’t want to save an extra $0.30 per transaction?

To make matters worse, VISA and MASTERCARD formulae include extra premiums on smaller merchants, out-of-the-way sales locations, and sole-proprietorships.  In other words, the smaller, less secure the merchant’s situation, the higher the fees. Some Etsy-type merchants selling from their homes are being charged a 10% processing fee.

Cryptocurrency is going to attract merchants facing these excessive plastic card charges.

Jamie Dimon: “Buy Bitcoin, folks.”

Comment by Jamie Dimon on Paul Krugman’s weekly column on Bitcoin

Jamie Dimon
New York
Technobabble? “The Times They Are a Changin’,” (not the NY “Times”) As intelligent as Krugman is, his intellect may be stuck in the legacy financial system. Buy Bitcoin, folks. But like with any investment, only invest what you are willing to lose. Krugman’s negativity probably stems from a lack of understanding Bitcoin’s technology. Or he is closely associated with the Fed, banks and other financial institutions, all which hope to dissuade as they buy Bitcoin at suppressed prices. Or… he’s just “blocking up the hall.” 

I haven’t posted since May, 2018 because I didn’t have anything to say.  Bitcoin hit bottom (around $6k) three times since then and seems to be ever so gradually beginning to find a new footing.  Paul Krugman, an intellect I admire and trust, has unfortunately been unable to understand Bitcoin.  He almost systematically refuses to comprehend the advantages of a Bitcoin economy.  In his column, Transaction Costs and Tethers: Why I’m a Crypto Skeptic, NY Times, July 31, he continues to expound upon his misunderstandings.  Lo and behold, the first of the column’s comments comes from Jamie Dimon, CEO of J.P. Morgan, whom you might recall vehemently shouted “Bitcoin was a fraud.” less than a year ago.  His very visible “BUY” is important.  It goes along with other evidence that the cryptocurrency world is about to explode.

We’ve been waiting for the banks to build out the infrastructure they need to be able to profit from crypto.  Until the banks figure out how they can profit from crypto, Bitcoin isn’t moving anywhere, soon.  We’re almost there, now.  For banks to profit from the handling, holding and hawking of Bitcoin several utilities must be put in place.

There needs to be a good, strong, secure, easy-to-manage place for banks to keep customer accounts.  The software that does that is now readily available.  There needs to be ways for brokers to buy and sell cryptocurrencies for their customers profitably.  Speculation also requires additional instruments such as options and futures.  These are now in place, too.  There has to be a general consensus that crypto makes a good investment.  Here, the banks may have done such a good job of putting down crypto that it is not easily undone, at least not  quickly.  That’s where Jamie Dimon’s words become so significant.

Dimon says, in a Paul Krugman blog comment, “Buy Bitcoin, folks.” Krugman is not known for his crypto enthusiasm; quite the contrary to be sure.  He wasn’t asked or pushed to say anything.  Why bother?  Dimon has to undo years of negativity to launch this new banking endeavor.  I read another investment bankers recommendation telling customers, “You should have seven per cent of your portfolio in cryptocurrency.” Times are a changin’.  These are the signs I’ve been waiting to see.  I’ll be writing more about further developments in crypto in the coming days.

Facebook Coin (FBC) — Company Scrip

Olga Coal Company scrip, West Virginia

Company scrip is a substitute for government-issued legal tender or currency issued by a company to pay its employees. It can only be exchanged in company stores owned by the employers. It was largely made illegal around 1950 in the U.S. .

Mining and logging camps were typically created, owned and operated by a single company.  Camp locations, some quite remote, were often cash poor.  Even in ones that were not, the workers were paid in scrip and had little choice but to purchase goods at the company store using scrip. The exchange into currency, if available, was usually done at an exorbitant exchange fee. With this economic monopoly, the employer could place large markups on goods, making workers dependent on the company, thus enforcing employee “loyalty”.” — paraphrased from Wikipedia.

It wouldn’t surprise me to hear that Facebook decides to issue Facebook branded cryptocurrency.  It would probably be called Facebook Coin, FBC for short.  Imagine at the outset, FBC is issued at a 1:1 equivalency with US dollars with the promise that a maximum of 1,000,000,000 (one billion) coins would be issued.  The coins would be used to purchase all things Facebook.

Everything you purchase from Facebook, and everything you purchase through Facebook would be paid for in FBC currency.  Since Facebook sells several billions in advertising quarterly, there would be an immediate crush on FBC as advertisers purchase enough to have on hand for the coming months.  When FBC goes to $2 per coin it would be seen as a good investment as well as a useful currency.  Facebook services, such as their newly announced exploration into dating, would be purchased with FBC.  Retailers who open Facebook page-based stores could use FBC, as well; another way for customers to differentiate and be differentiated in the marketplace.

Why would Facebook do this? There are many advantages to using a cryptocurrency. First, since advertisers would use FBC to pay for their ads, the demand on FBC would be a good leading indicator for Facebook’s marketing department.  Facebook could know months in advance their advertiser’s coming marketing intentions.  Second, Facebook gets the revenue long before the money is actually used.  In a sense, FBC would be like company stock expect that it would not be tied to any specific underlying commodity or service.  Third, FBC would be similar in use to gift cards in that they would be bought and set aside for the specific use of purchasing all things Facebook.   They might be used as gifts from one person to another, they might be a kind of savings account like a Christmas club account folks used to open at banks, or just strategic long-range planning. IF Facebook Coins are anywhere near as popular as gift cards, we should soon see them appear on a Facebook page near you.