Wikicoin Katya Michaels

WikiСoin: ICOs and SAFT

📚 Wikicoin
The way security regulations affect ICOs may not be clear, but SAFT facilitate compliance for token presales.
WikiСoin: ICOs and SAFT

ICOs — Initial Coin Offerings — have become a familiar phenomenon in the crypto community. Coinmarketcap lists more than 79 completed and ongoing ICOs, and over 700 unique coins. Blockchain entrepreneurs used ICOs to raise a total of nearly $500 mln over the past two years.

What, then, is SAFT? And how is it related to ICOs?

The Simple Agreement for Future Tokens is actually a type of investment contract, developed by Protocol Labs to work with their platform CoinList. The reasoning behind the creation of these tools has to do with US securities laws.

ICOs

ICOs are infamous for not being regulated by any financial authority such as the Securities Exchange Commission. Although similar in name and concept to IPOs — Initial Public Offerings — ICOs would be more accurately described as crowdsales, and can frequently turn out to be fraudulent.

That being said, whether an ICO is subject to financial regulations depends on whether tokens are officially determined to be securities, which they haven’t been so far.

Token presales

Not all ICOs are the same. If the company is distributing tokens after having completed development, those coins are less likely to be considered a security. However, if the company is fundraising ahead of development with the intention to distribute tokens to investors in the future, then it’s a token presale which can be seen as a securities sale.

In such cases, to avoid securities restrictions and regulations, companies have resorted to incorporating outside the US and excluding US investors. Otherwise, a company needs to face the complications of complying with US securities laws.

SAFT

Such contracts like SAFT can help facilitate compliance with US securities regulation and enable companies to include US investors in token presales. SAFT is modeled on the YC Simple Agreement for Future Equity (SAFE), a contract widely used by startups for angel and seed investments. SAFT is available to download for use outside of the CoinList platform. Thus, regulation compliance and token sales are facilitated, allowing technology companies to develop innovative products and investors to support them with confidence.

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10 Bitcoin Millionaires: People Who Became Rich From Cryptocurrency

📚 Wikicoin
Becoming a millionaire overnight is possible with the right crypto investment.
10 Bitcoin Millionaires: People Who Became Rich From Cryptocurrency

These stories of 10 Bitcoin millionaires prove that there’s nothing impossible, and a smart investment made once can make you go from zero to hero. Let’s find out how people managed to gather their Bitcoin wealth.

Together with revolutionizing the world economy, Bitcoin has irreversibly changed lives of many people– mostly the ones who believed and bet on it. Stories of some of them prove that it’s possible to become a Bitcoin millionaire overnight– such wonders happened. It’s time to read about ten people who have managed to wake up as Bitcoin millionaires.

The list of Bitcoin millionaires 2017

In this Bitcoin millionaires list, we compare the revenue obtained from trading and investing in the currency.

Gavin Andresen

$2 mln

Yufi Guo

$5 mln

Winklevoss Twins

$ 11 mln

Tony Gallippi

$ 20 mln

Jered Kenna

$ 30 mln

Dave Carlson

$ 35 mln

Charlie Shrem

$ 45 mln

Roger Ver

$ 52 mln

Ross Ulbricht

$ 100 mln

Satoshi Nakamoto

$ 1.1 bln

Jered Kenna

This young millionaire started his way as a trader by buying the coins for $0.20 each. A few years later, he sold the coins for $258 each. The man confesses he lost nearly $200,000 when he formatted a flash drive. Therefore, the millionaire could actually earn way more than his $30 mln, hadn't he made a few mistakes. Anyway, the revenue he's received impresses– not so many traders manage to make millions.

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Winklevoss brothers

Winklevoss twins were among the first to join the Bitcoin club even when the cryptocurrency wasn't popular at all. They started the career path in Facebook and paid attention to the cryptocurrency at the earliest stage of development. Thanks to wise investment, they have managed to earn $11 mln.

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Charlie Shrem

Being among the youngest millionaires from Bitcoin, Charlie Shrem actually started his way as a co-owner of Evr, a well known gastropub in Manhattan. By the way, this place was among the first to accept Bitcoin payments. Initially, Shrem purchased Bitcoins for $3-4. Eventually, he purchased a few thousand more when it reached $20. Later on, he organized Bitinstant- a physical store where people could buy Bitcoins. At the moment, Bitinstant serves as an exchange platform.

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Gavin Andresen

A lot of rumor goes behind the back of this millionaire: Bitcoin creator, Satoshi Nakamoto, has chosen him to be a “successor” to maintain the code of the technology. Some say that Andresen is the mysterious Nakamoto himself– the man denies such claims. Meanwhile, he continues doing his job making Bitcoin easier in maintenance. He has been paid by the Bitcoin Foundation for the help he provided and cashed out a few times. Of course, the payments were accepted in Bitcoins.

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Roger Ver

Roger Ver also invested in Bitistant and together with purchasing Bitcoin gave the coin away. Why? To make people learn about this technology: Roger views it as a reliable way to store valuable assets and aspires to make it wipe out the fiat currencies. Therefore, Ver was the pioneer of startup investments. Being a successful businessman before Bitcoin’s popularity wave, he has managed to augment his riches considerably and now donates his riches to charity projects.

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Yifu Guo

This Bitcoin kid millionaire started his way in Bitcoin by mining it when he was a student living in New York. A bit later, he created Avalon - the company that specializes in building of mining hardware. The main goal of this initiative is to promote the development of Bitcoin and maintain network availability down the road.

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Tony Gallippi

Tony has long ago become a millionaire: Bitcoin was just another initiative that helped him to multiply his income. Gallippi has a rich experience in financial sphere- he's founded a company that processes payments. In fact, Gallippi’s company focuses on:

  • retail payments

  • real estate

  • bonds and stocks.

His current enterprise, BitPay processes payments worth $1 mln daily and is among the first enterprises to conclude Bitcoin-related agreements with retail stores.

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Dave Carlson

Dave Carlson is a self-made millionaire: he invested into equipment and mined hard. After earning enough money he has found MegaBigPower that allowed mining at an industrial scale – the facilities are placed in his basement. Today, he possesses over 2,000 square feet of space where mining hardware is located and was reported to earn at least $8 per month in 2016.

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Ross Ulbricht

This Bitcoin millionaire story is pretty sad. Despite its digital nature, Bitcoin is a two-sided coin, and the anonymous character of transactions makes it impossible to track the exchange of the currency. That led to the appearance of dark net and illegal operations done via Net. Silk Road was a black market established by someone called ‘Dread Pirate Roberts’. He’s managed to earn millions even before Bitcoin cost a thousand dollars. In 2013, the FBI finally figured out who the man was – Ross Ulbricht. The man got a life sentence, and his black market was shut down. Therefore, almost 150,000 withdrawn Bitcoins now is at FBI’s disposal.

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Satoshi Nakamoto

Our list wouldn’t be full without Satoshi Nakamoto – the mysterious personality (or a group of programmers) who have created Bitcoin. Here are some facts about him:

  • A few people were suspected to be Satoshi Nakamoto, including a famous mathematician. However, nobody knows for sure who stands behind the cryptocurrency.

  • All attempts to track down the personality of Satoshi Nakamoto failed. Today, only a few email chats with other Bitcoin developers exist.

  • Since there are about 1.1 mln Bitcoins existing, Nakamoto’s wealth is worth over $1.1 bln today.

Who is Satoshi Nakamoto?

Want to be the next to say “Bitcoin made me a millionaire”? There’s still every opportunity for it even despite the end of the era when a coin was worth 20 cents. Everything is possible, if you understand the rules of the game, and can predict the fluctuations of currency. If you need some motivation and inspiration, we hope the stories of these people will encourage you.

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WikiCoin: Litecoin

📚 Wikicoin
Litecoin aims to be silver to Bitcoin’s Gold, with faster transactions and lower fees.
WikiCoin: Litecoin

Litecoin was created by Charlie Lee in 2011, with the goal of being the silver to Bitcoin’s gold. Specifically, Litecoin was forked from Bitcoin, with the only changes being a different hashing algorithm and blocks that are mined four times faster than Bitcoin. As a result of these faster blocks, Litecoin has a maximum supply of 84 mln coins, four times as much as Bitcoin, and is less prone to congestion and high fees.

With four times as many blocks in a given time period, Litecoin has much higher transaction capacity, in terms of transactions per second, than Bitcoin. Litecoin’s supporters also point to their different hashing function, called Scrypt, as an asset. If anything ever went wrong with Bitcoin’s SHA256 algorithm, Litecoin’s network would continue to function.

Scalability

Even back in 2011, there was evidence to suggest that Bitcoin’s lack of scalability would eventually become a problem. Thus, Lee designed a currency with faster transactions and the ability to handle four times as many transactions per second as Bitcoin. Transactions sent over Litecoin’s network are roughly four times quicker than Bitcoin, with blocks being mined roughly every 2.5 minutes versus Bitcoin’s 10 minutes.

So, at the end of the day, Litecoin is a quicker option for those with time-sensitive transactions.

Google background

Litecoin was founded by a former Google employee, Charlie Lee, who is still is a prominent figure and influencer. Lee recently announced that despite still being involved in the Litecoin project, he had sold all of his coins.

Litecoin has frequently served as a kind of informal test bed for Bitcoin, with the currency adopting new features being considered for implementation on Bitcoin’s network. Last year Litecoin continued this tradition, being the first major coin to adopt Segregated Witness. Soon after, in May of last year, the first Lightning Network transaction was completed on the Litecoin network.

A lite fork

Litecoin is technically a fork of Bitcoin Core, as it broke off from the original chain on Oct. 7, 2011. The difference was the decreased block generation time because of the implementation of a different hashing algorithm.

As the scaling debate has raged on, and the need for faster transactions has grown, the value of Litecoin has grown. Always a popular coin that is usually in the top five of coins in terms of market cap, Litecoin had its first spike in November 2013 where it doubled in value in under 24 hours.

In the same year, it reached a $1 bln market cap. At press time, each Litecoin is worth $134 with a total market cap of $7.5 bln. It is currently the eighth-ranked coin by market cap.

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Verge Price Prediction 2018/19/20: Will XVG Surprise Us?

📚 Wikicoin
Will Verge cryptocurrency reach $0.1 this year?
Verge Price Prediction 2018/19/20: Will XVG Surprise Us?

After being in the shadow of Bitcoin and other coins alike, Verge finally started making waves and attracted the attention of crypto traders from all over the world. Wonder whether it is a good option for investment? Let’s find out the Verge price prediction for the nearest future and decide whether the game is worth the candles.

What is Verge?

Verge cryptocurrency was initially invented in 2014 and initially called “Dogecoin Dark.” However, the name was changed to avoid association with crimes. Its creator, “Sunerok,” decided that Bitcoin doesn’t sustain proper anonymity, so he developed a Blockchain that would guarantee private fund transfer.  Verge hides everything: the owner of currency, historical transactions and account balances. Therefore, it’s best suited to tackle anonymous transactions.

Verge vs. altcoins
Comparison of Verge with other cryptocurrencies

 

Were the previous XVG predictions justified?

To get better insight, let’s learn about the history of the coin right from the start. The peculiar fact that Verge was launched without an Initial Coin Offering and even without pre-mining contributed to zero popularity of this project. Until 2016, the rebranding year, no one knew about Dogecoin Dark.

Some two years ago, XVG was worth $0.000005 per coin. After rebranding, the price raised to $0.00001, which is a 100 percent rise. The highest value of Verge in 2016 was $0.000227 per coin. In 2017, the price started growing slowly, and at the end of the year, it soared together with the other cryptocurrencies. It reached the height that hasn’t been repeated since then.

In November 2017, Verge coin prediction was as follows:

XVG Price prediction December 2017
Verge price prediction for the end of 2017

In three weeks of December, the cost of Verge sprang from $0.005 up to $0.14, which was an increase of 2,700 percent! However, in a week, it dropped down to $0.09. Apparently, Verge coin price predictions were too optimistic back then, but what happened truly amazed the investors.

Verge prediction 2018

Although Verge experienced a severe drop since January 2018, some investors are sure that it may rise by 100 percent and higher by the end of this year. So, what’s Verge price prediction 2018? According to market analysts, XVG is in the ‘bullish’ zone, which means investors believe in its potential, and their contribution makes the coin grow in price.

A good example is a tweet posted in March 2018. Verge claimed they would establish a “Mystery Partnership,” which actually was postponed, but made Verge rise quickly and even reach $0.11.

Here are some other versions of Verge coin price prediction 2018:

  • According to Coin Switch, XVG may rise to $0.0736 by the end of 2018, and in five years, it may even hit the benchmark of $0.2069.

  • Walletinvestor Verge coin 2018 forecast is around $0.0442 (within a year). The five-year prediction is $0.165.

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The last three months of 2018 promise to become interesting: Verge price can still grow considerably. First, Verge will establish a partnership with TokenPay (they will even release a debit to be funded with Verge). Secondly, Verge can become one of the first privacy coins to promote the smart contract technology. The team is tight-lipped about the creation of the proprietary Rootstock protocol, and if released successfully, it can trigger the XVG price considerably.

XVG price prediction 2019

According to megacryptoprice.com, Verge will rise to $0.169428 in a year, which will add 1,100 percent to the current value. Verge coin price prediction on WalletInvestor is less optimistic: while users expect it to rise to $0.02, Facebook is more optimistic with its forecast $0.07. The website claims XVG will grow to $0.039 in a year. Coinfan website shows that the price can grow from $0.029 to $0.12.

Verge coin future price in 2020

In 2020, we can witness a significant growth of Verge price: according to Coinfan, it can grow from $0.1 to $0.45. WalletInvestor shows that Verge price will be around $0.06 in 2020. TradingBeasts has the same numbers.

Check out a video report about Verge forecast:

https://www.youtube.com/watch?v=22Z2-GEkndE

How much is Verge now?

With the market cap of $212 mln and a huge circulating supply of 15,172,086,051 coins, Verge sells for $0.01402. XVG is on the 41st place in the rating of world cryptocurrencies. It is present on different exchange platforms, so you can easily purchase some coins.

What may influence Verge cost?

Verge XVG price prediction will be defined by a whole range of factors. Let’s check how its cost can be impacted:

Factors that may drive its growth

Factors that may slow down its growth

Overall demand for private cryptocurrencies and XVG.

Competition. Verge is not the only private cryptocurrency. PIVX, Monero, Zcash, and other coins are its direct rivals.

Availability. Since Verge is present in many different exchange platforms, users have more chances to buy and sell it, which adds up to its value.

The potential for criminal activities. Since it’s a private coin, it can be used in the criminal sphere, which can potentially damage its reputation and slow down adoption rate.

Regulation opportunity. Optimal regulation will help Verge to overcome legal and tax barriers.

Too large supply. Overall XVG supply is 16,555,000,000 XVG, which is too much.

Future implementations and developments. Users bet that the Rootstock project can significantly promote Verge. The team is also working on the Wrath Protocol which will hide all details from the transaction.

It’s not fully developed. The technology at the foundation of Verge is still being developed, so it’s not clear what the future of Verge will be.

Adoption and acceptance. Verge is on its way to implementation in real life, which only increases demand for it. For example, recent news about Verge adopted by PornHub has exploded the crypto community.

 

Taking all these factors into consideration, it’s hard to give some precise forecasts: you never know which factors will play the key role.

 PornHub started accepting Verge!
PornHub started accepting Verge payments, which contributed to significant coin growth

 

Bottom line

So, is Verge a worthy investment? Although it’s hard to give any certain forecasts, this crypto coin promises to grow. Slowly but steadily. Therefore, if you’re ready to wait two to three years to get revenue, invest right now. Verge is one of the crypto pioneers in the niche of private transactions, so should definitely retain its position.

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Top 10 Coin in 2020 Forecast: Prediction How Much Will the Big Cryptocurrency Cost?

📚 Wikicoin
Top 10 crypto coins that can multiply your riches in 2020
Top 10 Coin in 2020 Forecast: Prediction How Much Will the Big Cryptocurrency Cost?

We’re slowly moving towards a utopian society where the economy is totally decentralized, and people use cryptocurrency instead of fiat currency. Whether you like it or not, the crypto community continues making waves and gathering enthusiasts all over the world. Virtual money is only rising in popularity, while the value of coins is highly unstable.

Definitely, buying some crypto won’t hurt if you have some bucks to spare. But what are the best coins to invest in? Today we will muse about the future of the most well-known coins and their value.

‘’Predicting the long-term outcome is easier than the short-term‘’- Naval Ravikant (Zcash Foundation)

In fact, short-term predictions appear to be more challenging because, in short terms, we have to consider temporary risks, such as geopolitical events, technological advancements, and failures, etc. In the long term, these factors may not necessarily matter.

What the coin price depends on?

Before we start observing the best coins to buy, let’s find out what the cost may depend on. The following factors have the potential to change cryptocurrency price:

  • Software upgrade. When the quality of the network improves (transaction time, block generation, defense against hackers), cryptocurrency prices soar. As a professional trader, you should keep an eye out on upgrades and their implications.

  • The hype around the coin. Probably, this is one of the most important factors. Indeed, public opinion can either put a cryptocurrency on a pedestal or destroy it. The traders that rely on hype should finish trading before it subsides.

  • Reliability of the wallet. Since all cryptocurrencies are digital, the absence of a good wallet can repel future investors and affect the currency price.

  • Governmental regulations. As soon as some countries ban cryptocurrency trading and mining, the interest in coins is killed, which affects its value and price immediately and seriously. The SEC and Venezuela are good examples of that.

  • Platform Applications. Some crypto networks host additional apps that might have their own tokens. If such an app does well, it may have a positive impact not only on the native token but the underlying platform, too.

Now it’s time to imagine what the cryptocurrency market cap 2020 will be like, and which coins are worth considering. Let’s review the top 10 coins.

There’s a great video predicting the future of five popular cryptocurrencies:

https://www.youtube.com/watch?v=edhJ0yHd1KA  

Bitcoin

Most cryptocurrency specialists are sure that Bitcoin will still rein the market of top crypto coins in 2020. Its value will be sustained thanks to:

  • institutional money,

  • fast adoption rate,

  • potential global financial crisis.

A lot of institutions buy BTC hoping to make an investment that can pay off in the future– this is a piece of the pie which everyone should have. It goes without mentioning Lightning Network which will add incredible value to the Bitcoin ecosystem.

As for Bitcoin price, it’s expected to grow by 200 percent over two years, which means it can be around $13,000-14,000 by September 2020. Some Internet users are sure it will grow to $27,526.10.

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Ethereum

Ethereum is in a controversial position: specialists’ opinion gravitates towards pessimistic predictions. Although now Ethereum is still one of the major dApp development platforms, things can change if this networks won’t be capable of handling the transaction load. Blockchain 3.0 and 4.0 projects are snapping at Ethereum heels and developers need to improve scalability or jump to EOS to ensure optimal performance.

It’s hard to calculate the future coins’ price when the total supply is unknown. According to Vitalik Buterin, there will be about ~100 mln ETH circulating in 2020, and the Ethereum market share will be about 1,137,500, 000,000

$1,137,500,000,000 : 100,000,000 = $11,375 per coin, ~+4,000 percent from today.

Possible Ethereum development scenarios

Ripple

It’s not a secret that XRP can become the king of banking infrastructure, so Ripple forecast 2020 is quite optimistic. The rumor is that Ripple has established a partnership with Western Union and even want to replace the SWIFT network. Today, Western Union and Moneygram are already considering using XRP

As for the price, Ripple predictions 2020 differ. According to WalletInvestor, its price may rise by 380 percent and reach $0.6-0.7 in a couple of years. The team from longforecast.com mentions the maximum price of $0.42. XRP price prediction 2020 from cryptoground.com is $1.20, which makes it perfect for long-term investment.

Stack of Ripple coins

EOS

If you are hesitant and are still wondering which coin to invest in, EOS will be a sure-fire way to raise money in the not-so-far future. EOS.io is expected to become the number one system for enterprise applications. If we ever witness shifting of Twitter, Uber and Facebook to decentralized platforms, they’ll certainly be built on EOS. It’s highly scalable, and most Ethereum projects can be shifted to the EOS network, which makes it a potential killer of ETH.

2020 can become the golden age for EOS: it may reach $95 in the middle of the year and drop down to $55 by December 2020. Other forecasts mention such numbers as $60 (Facebook) and $23 (Google).

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Stellar Lumens

XLR is the main contender of XRM (it has 5x market share of XLM), and while Ripple will dominate in the big bank sphere, Stellar Lumens may get the rest of the market. These areas include:

  • remittance payments,

  • decentralized exchanges, such as SDEX,

  • ICOs on Stellar,

  • implementation of the Lightning Network,

  • cross-border payments in small banks.

Stellar Lumens price prediction 2020 is around $0.64-$0.7. However, some websites give way for more optimistic forecasts.

NEO

Thanks to the revolutionary technologies underlying NEO, it’ll continue to grow with record-breaking volumes. The NEO ecosystem has the potential to become a major public infrastructure, and the Chinese government is interested in it. If “CrypoYuan” is created, it will only put NEO significantly above all competitors.

NEO is one of worthiest coins to invest in due to optimistic forecasts: thanks to investment from the Chinese government and other enterprises, its price can grow to $200 and $300 per token. According to cryptoground.com, future NEO value will be $88 in 2020, while Google mentions the price of $77.

Cardano

The launching of Goguen Project and KEVM testnet can trigger the growth of Cardano. When Goguen Project is completed, we may witness Cardano price soaring. What also contributes to its growth is implementation in the Eastern Pacific, especially Japan. According to previsionibitcoin.it, Cardano price in 2020 can rise from $0.29 to $0.5.

More detailed Cardano prognosis is here:

https://www.youtube.com/watch?v=c6anNr0NP14

Litecoin

One of the major crypto coins to invest in, Litecoin will continue conquering the market thanks to its technological superiority over Bitcoin. We know that Bitcoin cannot serve as a global payment network, while Litecoin platform is ready to share this network load. Thanks to the Lightning Network, LTC will be interchangeable with Bitcoin.

According to realistic predictions, Litecoin price can double in 2020 and reach $80. Some Internet users are sure that it will rise by 440 percent and reach ~$234 in the middle of 2020.

LTC forecast

QASH

Since QASH is going to become a convenient platform for both retail and institutional investors, its price can grow significantly even in 2018. Wouldn’t it be cool to trade alts without having to exchange them into ETC/BTC? That’s why QASH was created– its LIQUID platform combines all major exchanges to trade altcoins. According to tradingbeasts.com, we will witness the rise of QASH token price from $1.65 to $12 in 2020. Coin Predictions website displays that QASH will be in the range of $1.5-$7.

Why QASH is better than its competitors?

Success Factors

QASH

BANCOR

EXCHANGE UNION

SALT

Proven team

+

+

+

+

Is it present in exchange & banking?

+

N/A

N/A

N/A

Regulated?

+

N/A

×

×

Main products are built and tested?

+

+

×

×

tZERO

Haven’t heard about tZERO? By the way, this is an emerging leader of the cryptocurrency market: its creators aim to make it the New York Stock Exchange of Crypto. The tZERO token will pay 10 percent of gross revenue to the holders, which will encourage token holders to lock up their funds. Specialists say that TZRO price can reach $200-$285 by 2020.

Why tZERO is better than the usual stock exchange?

Final thoughts

Such events like the implementation of crypto worldwide and the next global economic crisis can contribute to the raising of cryptocurrency value. Despite rumors, the bubble called ‘crypto’ is going to explode neither in 2019 nor in 2020. Therefore, if you opt for the best coin to invest in, you can multiply your riches in two years. Don’t let this golden opportunity slip by: purchase top 10 coins while they’re still available.

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Bitcoin Price Volatility Explained

Trading Guide
Blockchain network effects cause Bitcoin price volatility
Bitcoin Price Volatility Explained

The network effect

In recent months a host of factors such as regulatory uncertainties, lack of oversight, custodial issues and bad press have been cited as causes of Bitcoin’s precipitous downfall.

While these factors do impact the price fluctuations of the cryptocurrency, economists say Bitcoin’s higher volatility compared to fiat currencies or stocks is caused by a characteristic known as the “network effect.”

The network effect is central to understanding Bitcoin’s valuation because it and other digital currencies run on a Blockchain ledger, which essentially a network.

The value of Bitcoin and other cryptocurrencies is based on Metcalfe’s law, which states that the measure of a network’s value is proportional to the square of the number of people who use it.

This basic equation is the foundation for Bitcoin valuation tools.  

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Metcalfe’s law

Expert analysts like Tom Lee and others use this fundamental law to determine Bitcoin’s future price. Tom Lee told Business Insider in an interview:

“94 percent of Bitcoin movements over the past four years is explained by Metcalfe’s equation.”  

Lee likened the exponential growth of Bitcoin to other networks like Facebook, Alibaba and Google, which have also increased exponentially in line with Metcalfe’s equation.

Essentially, what this means is that a network’s value grows exponentially, not linearly like other assets such as securities and commodities, says Navroop Sahdev, economist and blockchain expert:

“Networks gain and lose strength exponentially and a few actors leaving or joining the network can have a massive  impact.”

Sahdev, a fellow at MIT, says it is this characteristic that makes digital currencies like Bitcoin so unstable.  

In the example of Mt. Gox ‘s recent sell-off of 8,200 Bitcoin, which sent the currency reeling downward by 30 percent, the impact was much more significant than it would have been if the same number of shares were sold in a company.

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Why traditional economics fail

Part of the reason we don’t hear about how digital currencies are valued is that traditional economics fail to predict their behavior, says Sahdev.

In a cryptocurrency network, nodes process transactions, but the strength of the system is hard to evaluate because the “effect” of two or multiple transactions interacting with one another is not a characteristic of the transactions or nodes themselves. Instead, they become a property of the entire network. Sahdev clarifies:

“One plus one is not two. The link between the nodes is not the property of any one node. The system is more than the sum of its parts.”

Even the best models cannot predict the impact of “interaction effect” because they can only be determined after it takes place. While it’s tough to predict what will happen, it’s possible to identify trends, Sahdev says.

Small sparks make big movements

Research conducted by Spencer Wheatley and his colleagues at ETH Zurich in Switzerland found that when markets become overvalued, even a small event or incident can result in a significant correction.

Wheatley and Co looked at four occasions when Bitcoin price had drastically swung and found Bitcoin price drops occurred when the price was nearly four times higher than what it should be using Metcalfe’s law.   

Spencer Wheatley at ETH Zurich says:

“Our Metcalfe-based analysis indicates current support levels for the Bitcoin market in the range of $22 to $44 bln USD, at least four times less than the current level.”

As Bitcoin price becomes overvalued, any small event can induce a market correction.

So, it’s possible, that the sell-off 8,200 BTC by Mt. Gox, which amounts to less than the total number Bitcoin traded within a 10-minute time frame, was able to cause a massive price drop.

Wheatley uses the analogy of a forest fire to describe Bitcoin’s network effect.  When all the branches are very dry, even the smallest spark can create a raging forest fire. The events resulting in the bust of a bubble are often insignificant but have a huge impact.

Impact of Bitcoin futures

A report published by the San Francisco Federal Reserve found that there was a correlation between Bitcoin price drops and futures contracts, which placed downward pricing pressure on Bitcoin and other altcoins. With falling prices, pessimists started to make money on their bets, fueling further short selling and exacerbating the price drop, the report says.

Given that Bitcoin is susceptible to a small number of members exiting or entering the network, the adoption of futures contracts could have had a more significant impact on the cryptocurrency when compared with other commodities, especially if it was already overvalued.

Bitcoin’s bubble-like behavior

Joost van der Burgt of the San Francisco Reserve explains that Bitcoin price developments mimic Hyman Minsky’s financial instability hypothesis which explained the bubble in the global financial crisis of 2007.

Minsky’s model explains that there are five stages in a credit cycle: displacement, boom, euphoria, profit taking and panic.

The displacement phase occurs when investors get enamored by a new paradigm- in Bitcoin’s case, between 2009-2013 when the price came close to $1,000.

Next, the boom phase is characterized by prices rising slowly at first, but then gaining momentum as participants enter the market due to fear of missing out. Van der Burgt says this is what we started to see in 2015 when Bitcoin price rose to $300 and then to $1,000.

Bitcoin is now in the third, euphoric phase, which emerged in the second half of 2017 when the price skyrocketed past the $2,500 mark, all the way to nearly $20,000 in December 2017.

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Euphoria phase

The euphoria phase is characterized by people extensively borrowing funds to finance their investments, much like the real estate market bubble in 2007.  Nearly 18 percent of active Bitcoin investors have financed their investments by credit card, and 22 percent of this group indicated that they have not yet paid off their credit card balance, according to the report.  

Further, in 2017 several Bitcoin exchanges started to offer margin trading. Japan-based BitFlyer indicated in December that some investors leverage their cash deposits up to 15 times to finance their Bitcoin investments.

If Bitcoin is a bubble, then the next phase is profit-taking, in which investors will cash out before the bubble bursts.

Van der Burgt says we might have already entered this phase with the recent drop that cut Bitcoin price by more than 60 percent early this year.

Future of Bitcoin remains uncertain

While Van der Burgt says that Bitcoin is likely to be overpriced, he also believes that it is different from anything we have seen before. It’s possible that a decade from now Bitcoin’s market capitalization will be sky-high as it attains the status of a new global currency.

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