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  • South Korea Responds After China Launches Cryptocurrency Exchange Restrictions

    Following China’s statement of new restrictions and regulations they are placing on Bitcoin, which sent cryptocurrency exchanges tumbling, South Korea responded by rolling out their own restrictions. On June 13th, 2021, The Korea Times reported South Korea’s Financial Services Commission (FSC) released a public statement that would force banks to classify clients with cryptocurrency in their portfolio as “high-risk”. Those individuals would in turn be subject to more stringent monitoring and trading rules. South Korea’s goal in doing this was made abundantly clear: reducing the regulatory risks posed to banks servicing crypto firms (Hwang, The Korea Times).

    The FSC’s new guidelines make it mandatory for banks to report high-volume crypto transactions from suspicious entities. Additionally, they are requiring impacted firms – current and future – to implement a KYC (Know Your Customer) guideline prior to partnering with any crypto exchanges. As mentioned, this comes directly on the heels of China (the largest economy in the world) announcing rigorous cryptocurrency trading regulations. South Korea appears to be aligning themselves more closely with their neighbor, however other countries and governments have been looking at cryptocurrency exchange trading from a different perspective.

    Goldman Sachs responded to the news very quickly, announcing to their shareholders that they will expand into Ether in order to limit their exposure to just Bitcoin (Singh, MINT). The legendary investment bank will additionally offer futures trading and options for Ether, but they do not appear to have any plans of exiting the crypto space. That’s because there is still plenty of room for capitalization. To some, volatility suggests greater return opportunity, rather than enhanced risk potential. Additionally, as Mathew McDermott, Goldman Sachs’ Global Head of Digital Assets, announced the firm will be offering services to facilitate trades involved with exchange-traded notes linked to Bitcoin (Singh, MINT).

    When it comes to other governments, many emerging markets and emerging economies in particular are looking to expand cryptocurrency acceptance. The following day, June 14th, 2021, Tanzania’s President suggested the country’s central bank should explore cryptocurrency. “We have witnessed the emergence of a new journey through the internet,” Samia Suluhu Hassan – President of Tanzania – said, also adding “the central bank should be ready for the changes and not be caught unprepared” (Haig, Cointelegraph).

    The same desire was echoed by several Latin American countries in particular, most notably El Salvador and Paraguay, where Bitcoin has been mandated as legal tender. The President of Tanzania may have more of a realistic pulse on crypto trading, unlike China and South Korea, as she appears very cognizant of the profound emergence of digital currency as a widely popular, booming global investment tool. Rather than trying to restrict and limit trading practices, which can be extremely important in certain instances and definitely not meant to be underscored, recognizing the uncontrollable phenomenon crypto trading has become is valuable in and of itself. Restricting or attempting to disincentivize investors from participating in this particular market can adversely lead to more fraudulent activity, as investors clearly see a benefit to trading in this market, but are constricted from it because of their country’s regulations. Furthermore, this may lead to some seeking out non-traditional, or even illegal, methods of participating in that market because they have to circumvent rules.

  • What is Cryptocurrency and is it a Good Investment in 2021? Here’s What You Need to Know

    Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. A large part of the appeal of this digital technology is in its security.

    Just recently, in the middle of April 2021, many cryptocurrencies, including Bitcoin, have hit their all-time peak trading price. The table below shows the 10 largest trading cryptocurrencies by market capitalization as tracked by CoinMarketCap, a cryptocurrency data and analytics provider.

    It may be surprising for readers to learn there are currently over 6,700 different cryptocurrencies that are publicly traded, with a total market capitalization of over $2.2 trillion (CoinMarketCap). But the central question remains: why have cryptocurrencies continued to skyrocket in popularity and are they a good investment?

    Studies have shown different reasons for the rise in cryptocurrency trading, but there are definite common denominators between the different sources. There’s the most popular reason; investors see this as the ‘currency of the future’, therefore they are buying now in anticipation of elevated future prices. Secondary reasons include a particular interest in crypto’s technology and security aspects (as previously mentioned), plus many investors cite them as being immune from inflation concerns, since there are no central bank regulations. Finally, crypto’s are attractive investments to swing sellers due to their relatively large and very rapid market price changes. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again.

    Finally, onto the golden question every market participant looks to make sense of: are cryptocurrencies a good investment at this time? Unfortunately, the answer isn’t a straightforward yes or no. As with the lastly cited example of Bitcoin, you can make a lot of money in a short period of time, if you are entering and exiting the market at a wise time. However, it’s important to keep in mind that at this stage, these are purely speculative investments with no tangible assets to back them. Nonetheless, investors are looking for undervalued assets or securities but just like any other currency, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did. This is specifically dubbed “the greater fool” theory of investment. Contrast that to a well-managed business, which increases its value over time by growing the profitability and cash flow of the operation. The latter is a far more stable, confident, long-term investment at, which is where cryptocurrencies are currently lacking; there seems to be a general consensus, especially amongst more passive longer-term investors, that cryptocurrencies have a very serious lack of predictability. No matter how interesting the concept is, for those who believe crypto’s like Bitcoin are the ‘currency of the future’, it has to be noted that a currency eventually needs to build a proven track record of stability to continue to enthuse new investors.

  • Mining Bitcoin: Tech Energy and Power

    For years, Bitcoin has been popularized as the face of cryptocurrency. After Bitcoin was introduced, it received critical backing from several prominent celebrity investment advisors and other notable figures, significant popularity followed. Once Bitcoin gained a platform, it gave rise to tens of thousands of other cryptocurrencies being mined and traded daily. Whether you believe in crypto’s or not, it’s hard to argue we’re not in the middle of one of the most exciting cryptocurrency trading times. While many participate in daily trading on platforms like Robinhood, Coinbase, CashApp, etc., not many of them have any insight into the technological know-how on creating a Bitcoin, or the Bitcoin energy required.

    In reality, the computer-based miners who create bitcoins use vast amounts of electrical power and energy in the process. The energy-heavy process even leads some experts to suggest that Bitcoin harms the environment. The process, known as “mining,” requires computers around the world to complete rapid calculations to try to solve the same puzzle. It always takes 10 minutes, and the winner is rewarded with some digital bitcoin. Then a new puzzle is generated, and the whole process repeats for another 10 minutes (Bradbury, The Balance).

    Breakdown of Bitcoin’s Power & Energy Output

    As more people learn about Bitcoin and mining—and as the price of Bitcoin increases—more are using their computers to mine Bitcoins. As more people join the network and try to solve these math puzzles, you might expect each puzzle to be solved sooner, but Bitcoin is not designed that way. The software that mines bitcoin is designed so that it always will take 10 minutes for everyone on the network to solve the puzzle. As more people join the Bitcoin network and try to mine Bitcoins, it becomes harder, and more computing power and electricity are used for each Bitcoin produced. It minimizes downtime, so you can mine more efficiently. That means a near-constant cycle of electricity use.

    To understand how to calculate the electrical energy used to power the bitcoin network, you’ll need to learn how Bitcoin creation works. First, you calculate how many sums are conducted per second to solve the puzzles. Then find out how much electricity it takes to do each sum. These sums are called “hashes” (Faife, CoinDesk). In early 2020, the computers on the Bitcoin network were cranking out close to 120 exahashes per second (Redman, BTC News). To calculate the cost of how much power it would take you to create a bitcoin, you need to know a few things first (Bradbury, The Balance). First, what is the cost of electricity where you live? Second, how much power would you consume? More efficient computer equipment uses less power, which means lower power bills. The lower the price of electricity, the less cost there is to miners. This increases the value of the Bitcoin to miners where the costs are lower to produce.

    The Conclusion: To Be Determined

    This is meant to emphasize that the energy and power utilized by Bitcoin and other cryptocurrency miners is a real, potential danger to the future global environment. Conversely, it may also leave a very low impact. The price that Bitcoin extracts in terms of energy use and environmental impact depends on how useful it will be to society (Bradbury, The Balance). Judging an ever-moving target is hard. The interest in Bitcoin continues to rise, which in turn leads to more power used to serve more people in the market. Therefore, ultimately deciding whether Bitcoin mining is worth the cost to the environment is still a very open question.