Kashkari: Federal Reserve Doesn’t Need to Protect Investors

Another Federal Reserve president has spoken out on interest rates. Neel Kashkari says there is no need for interest rate hikes right now but that the US Federal Reserve does not exist to protect investors.

Though the stock markets are exhibiting “nervousness,” says Kashkari, investors have to figure out what to do next.

We are not here to protect investors from losses. This is a capitalistic economy we live in and if investors take risks, they should bear the consequences of those risks.

But, says the Minneapolis Federal Reserve chief:

We pay attention to the stock market.

No Reason to Apply Economic Brakes

Kashkari, echoing Atlanta Federal Reserve President Raphael Bostic’s recent comments, believes it’s time to stop interest rate hikes:

I don’t see any reason that we need to tap the brakes pre-emptively on the economy, let’s let the job market continue to strengthen and wages and inflation pick up and we can always raise rates then.

Bostic said last week that, amidst uncertainty:

The appropriate response is to be patient in adjusting the stance of policy and to wait for greater clarity about the direction of the economy and the risks to the outlook.

After a slew of interest rate hikes in 2017 and 2018 and a declining equities markets at the end of 2018, the US Federal Reserve took the pressure off the markets early this January. Federal Reserve Chair Jerome Powell said:

We will be patient as we watch to see how the economy evolves.

The markets responded, with five days of consecutive gains.

S&P 500 (Blue) Dow Jones Industrial Average (Red) and Nasdaq (Yellow) Performance Over the Last Year | Source: Trading View

Federal Reserve United and Independent

Federal Reserve Vice Chairman Richard Clarida has since said the Federal Reserve could be “very patient.”

Kashkari’s comments on investors come in defense of US President Donald Trump’s attacks on the central bank. He says the Federal Reserve is “united” in its independence and focus on data.

Federal Reserve Chair Powell knocked back Trump’s criticisms as the market struggled in late 2018, saying he would not resign. The Federal Reserve is an independent body, and despite Trump’s comments, he cannot fire Powell or force him to quit.

With further interest rate hikes in the near future now very unlikely, investors appear more confident despite other concerns. The Dow Jones Industrial Average ended the day up 141 points or 0.59%.


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Author: Melanie Kramer  
Image Credit:  Featured Image from Flickr/ProPublica

The Biggest Problem for ICOs? In 2018, It Was Their Own Investors

Simon Seojoon Kim is CEO and partner at Hashed, a crypto-focused accelerator focused on community building and impact investing.

The following is an exclusive contribution to CoinDesk’s 2018 Year in Review.

At the beginning of 2018, the blockchain community reached the pinnacle of the ICO bubble.

The slogan of ICOs, which promised that “anyone can invest in an initial project,” sounded wonderful and future-oriented. However, as the prices of most ICO tokens continued to tumble over the past year, it appears that the first chapter of this grand experiment has ended in failure.

Why do most ICOs fail to succeed? Some would cite the greed of individuals blindly looking to make a quick fortune, incompetent project teams led by entrepreneurs that lack expertise, the technical limitations of platform blockchains that lack scalability and inadequate regulations in countries that have been unable to keep up with changing market conditions.

These are all true. However, there is little to learn from this, as these are difficulties that all innovative, paradigm-shifting technologies face when forging new markets in their early stages.

In this article, I aim to take stock of the current situation by examining the inherent limitations of ICOs, in particular the belief that “anyone can invest in an initial project,” and discuss some potential solutions.

The popularity of group purchasing channels

Despite the burst of the ICO bubble, the blockchain craze in Asian markets is not waning.

In fact, interest in new technological trends and expanding ecosystems is growing. In particular, in markets like China and Korea where cryptocurrencies have gained greater acceptance, retail investors continue to take part in initial investments for blockchain projects through a variety of methods.

In China, the secondary market has become popular because Chinese nationals are restricted from participating in ICOs by law, while in Korea, a number of ‘coin group purchase’ channels are being operated surreptitiously through KakaoTalk messenger or other communities.

Setting aside government regulation, there are other important reasons behind these trends.

Up until as recently as mid-2017, anyone with an interest in blockchain projects could participate in an ICO without much difficulty. However, from the second half of 2017, there has been a movement towards larger private rounds instead of public sales and lower participation from individual investors.

In particular, projects that were more confident in their fundraising ability increasingly sought a greater proportion of investment from institutional investors or dedicated crypto VCs instead of through public sales. Key examples of this are Ontology or Handshake, who simply engaged in community airdrops after a private sale, without conducting an ICO.

Individual investors interested in these projects attempt to get involved through influential brokers that can grant them access to the private round. At the same time, there are many complaints within the community about the expanding trend of institutional investors taking up the lion’s share of private rounds.

A reluctance to accept individual investors

There is a large gap between the role that many projects had hoped individual investors would play during the ICO, and the reality that they have been faced with afterwards.

While providing the public with a fair investment opportunity, project teams also hoped to create a loyal community that would be aligned with the project’s incentives and share in its growth.

Compared to the existing startup model, where the company grows based on investment received from a small number of institutional investors through closed channels, teams believed that ICOs would facilitate the creation of a more open ecosystem which would lead to a virtuous cycle of rapid growth.

However, individual investors in blockchain projects ultimately failed to provide much help to the projects in many cases.

The majority of ICO participants who formed the community’s persona were often “creditors” who only cared about the token price, rather than “contributors.” Many of these individuals simply jumped on the bandwagon of popular projects without a clear understanding of or trust in the project’s core technology or business.

Accordingly, they contributed very little to the productive activities that promote healthy growth within communities. In addition to this, few of the individual investors who took part in ICOs for blockchain projects actually used the tokens they received for the intended purpose once the dapp or platform was released. Instead, they were essentially free riders who sold off their tokens as soon as the price hit a certain level.

This led to a growing awareness among teams that they could actually threaten the long-term development of projects. From the perspective of project teams, it seems more efficient to manage a small number of professional investors rather than have to communicate and provide explanations to a community of individual investors who constantly ask about the price and listing on exchanges, especially during the launch stage when the team is naturally spending most of its energy on development.

Institutional investors also tend to have their own networks and greater insight into the blockchain industry. In many cases, institutional investors have provided practical assistance to help grow the project by playing an advisory role to entrepreneurs or recruiting team members during the early stages. These investors can provide support in a number of ways, including building local communities in key locations, hosting hackathons to connect developers to the project, or acting as a liaison with major media channels.

Because there is a longer lock-up period in private rounds than in public rounds, institutional investors have no choice but to believe in the mid-to-long-term growth of the project and offer assistance where they can. Of course, not all institutional investors effectively contribute to the development of a project. The behavior of some institutional investors who fail to provide promised support or lack expertise and judgment has also been a source of complaints within communities.

However, the competitive nature of markets is helping to correct this problem.

Because of the free and transparent flow of information in the hyper connected crypto ecosystem, information about reputable and not so reputable institutional investors spreads quickly between blockchain entrepreneurs. In time, only reputable crypto funds will be given the opportunity to invest in promising projects, similar to the growth process that venture capital markets went through.

Is investment the only way to contribute to a project?

Thus far I have looked at the growing trend of smaller public rounds in 2018.

I am not trying to raise the dichotomous question of whether individual or institutional investors are more suitable for investment in initial projects. The more fundamental question is, “How do we create an ecosystem in which those who contribute to projects can become initial shareholders?” and I believe the mechanism to enable this is Proof of Contribution.

Think back to the advent of the world’s first cryptocurrency, bitcoin, which represented the beginning of the decentralization paradigm, and the process through which tokens were issued. Bitcoin issued tokens to the community purely through mining, without any token sale targeting investors. When miners provided hash power, their contribution would be verified in a way that enhanced the security of the network, and they were rewarded with bitcoins in return.

Although the protocol-defined method of contribution to the network was simple, it was fundamentally a proof-of-work (PoW) concept, which could also be viewed as a form of ‘Proof of Contribution’ that reflected the philosophy of compensating those who contribute to a project. During the long period where no one paid attention to the price of Bitcoin, the majority of early shareholders in the network were people who carried a strong belief in decentralized currencies rather than those looking to make a short-term profit.

In the IT industry, there is a clear distinction between the role of 1) investors, 2) the company and 3) employees during the early stages of a startup. Investors receive equity in the company in return for providing initial capital. It is then the company’s job to use these funds effectively to grow the company. Employees receive stock options upon joining the company, and are incentivized to work hard because of the clear upside potential of a higher share price.

I believe that this stock options system was the biggest driving force behind innovation in the Silicon Valley startups of today.

Accordingly, it is unfortunate that most blockchain projects have reduced the role of external stakeholders who join the project in its initial stages to that of ‘investors’ in traditional IT startups. This is demonstrated by the fact that the token allocation section in the white papers of most blockchain projects resembles a business development plan and marketing budget that was determined entirely by the project team, instead of a system of autonomous token distribution through the protocol. In most cases, the token model is only described briefly, with a focus on the main activities that will take place once the network is sufficiently established.

In other words, the model for network growth is selling tokens to investors through marketing, sales or partnership activities, with the use of such funds arbitrarily determined by the project team. This suggests that blockchain projects to date have not taken full advantage of the benefits of decentralization. Instead of treating individuals who make early contributions as merely financial investors, projects that are truly pursuing decentralization should recognize them as more akin to employees who receive stock options (and can actively contribute to the network from outside the organization) and adopt a philosophy of ‘compensation through the protocol’ to leverage them.

Blockchain projects have the potential to design detailed and effective reward systems catered to the nature of their token model that can verify the contributions of members and compensate them accordingly. For example, even if initial investors are given bonuses as a reward for financial contributions, the calculation and payment of the bonus could take place at a later date once it has been proved that the individual has reached a certain level of use on the project’s sapp or made a contribution to PR activities though a method defined by the protocol.

This would incentivize investors to participate in a more substantive way. In addition to this, a variety of protocols could be designed that encourage non-investors to contribute through participation in permissionless networks, and distribute tokens for such involvement.

In the future, we will see blockchain projects with more complex value chains that have greater crossover with the real world. The ultimate goal of decentralized projects should be decentralizing the project’s entire value chain. To achieve this, all of the key sections of the value chain of ordinary companies, from R&D to marketing and sales, should be turned into protocols that are as detailed as possible, and companies should also consider mechanisms to incentivize top experts from outside the organization to contribute to the project’s growth in efficient ways by offering rewards.

Tokens can be used as effective tools in this scenario, but it is critical that the method for calculating incentives for contributions is based on a transparent and defined protocol that is made public, unlike in centralized startups where it is based on the fleeting, arbitrary decisions of the management team.

This can give protocol-based organizations the competitive edge over centralized companies.

Distributing tokens only to real contributors

Investment is merely one of many ways to contribute to the growth of a project.

I believe that the underlying reason behind the failure of so many ICOs these days is that the communities are filled with initial shareholders who only care about the token price because they joined as investors.

The identity of any organization is determined by the nature of its initial shareholders. This leads to a chain reaction which influences those who join the community later on, and also has a critical influence on the direction and speed of the network’s growth. In order to succeed, blockchain projects from 2019 onwards will have to demonstrate more advanced methods than their predecessors when it comes to determining the composition of their initial shareholder pools.

They should look to move away from the current methods of giving tokens to anyone who invests, random airdrops and relying on partnerships based on the decisions of centralized entities when forming initial shareholder communities.

Despite the failure of so many ICOs, many still believe in the strong underlying value of blockchain technology which has the potential to completely change the foundations of our economic systems.

Moving forward, I hope that more blockchain projects will take up the challenge of using token distribution models where ‘not just anyone can become an initial shareholder,’ and consider a “proof of contribution” model which distributes tokens only to those who have made a substantive contribution.


Source
Author: Simon Seojoon Kim
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Insights on the Future of Cryptocurrency as 2018 Draws to an End

The idea of cryptocurrencies (digital currencies that are cryptographically encrypted) has been moving around in the academic circles since the 1970s. The idea, however, took on form and shape with the arrival of Bitcoin in 2009. Over the last 9 years, Bitcoin has grown on to be disruptive in the fields of monetary policy, finance, economics, and e-commerce – and it has spawned an industry of more than 2,000 coins, tokens, and altcoins in what is being generally referred to as the cryptocurrency market.

 

Future of Cryptocurrency

Interestingly, the cryptocurrency market peaked last year when the price of Bitcoin rallied more than 1400% to $19,000 and the market cap of the cryptocurrency market skyrocketed to almost $700B. However, in the year-to-date period, the trading price of Bitcoin has crashed about 53% to about $6,500 and the market cap of the crypto market has declined more than 56% to $209B.

Now, no one knows for sure how cryptocurrencies will fare going forward. There’s an ongoing debate on whether cryptocurrencies will become the future of money or whether the idea will eventually fade into oblivion if it is unable to build up a critical mass. This piece provides insights into how the fate of cryptocurrencies might pan out going forward.

Bitcoin is still the king of crypto

Bitcoin is still the biggest and most popular cryptocurrency in the market; in fact, the first interaction that most people have with cryptocurrency and blockchain technology can be traced to Bitcoin. Bitcoin currently has a dominance of about 53% of the cryptocurrency market; hence, its price often determines how other coins and the general cryptocurrency market will fare. Going forward, the realities of the market suggests that the dominance of Bitcoin might not increase but it will most likely remain unchallenged. Of course, some coins are correlated to Bitcoin and some other coins have inverse relationship with Bitcoin; nonetheless, smart cryptocurrency traders and investors will do well to pay attention to Bitcoin in formulating strategies about how they want to play other coins.

Massive changes are coming to cryptocurrency exchanges

Cryptocurrencies exchanges serve the dual function of facilitating the exchange, buying, selling, and trading of cryptocurrencies – they are a large cog in the wheel of the cryptocurrency industry. Ironically, most of the cryptocurrency exchanges in the market are centralized in nature—in sharp contrast to the decentralized nature of cryptocurrencies and blockchain technology. The centralized nature of these exchanges has made them prone to data breaches, hacks, and outright heists. Going forward, there will be growing demand for DEX Exchanges, which are decentralized in nature and maintain a public ledger of transactions through consensus.

The volatility of the markets won’t die anytime soon

Cryptocurrencies are inherently volatile, and their volatility is one of the reasons fortunes are made (and lost) in the market. One of the main reasons behind the volatility in cryptocurrencies are that they are still in the early adoption phase and there’s a huge upside potential if they could break out into the mass market. However, every bit of news about cryptocurrencies will either hint at the possibility of stunted growth (and the prices fall) or hint at the possibility of reaching the mass market (and prices rise). The volatility in the crypto markets will continue to be felt since news moves the market and the volatility won’t likely stop until there’s mass-market momentum.

Institutional investors will bring more funds and insist on sanity in the market

In the early day s of cryptocurrency, traditional financial institution and government financial agencies were quick to denounce, criticize, and vilify cryptocurrency enthusiasts. The crypto market has however proven to be incredibly adept and resilient in the face of these attacks. Now, the perception of traditional financial institutions about cryptocurrency is changing. Going forward, stakeholders can expect to see an increasing inflow of funds from Wall Street into the crypto market as crypto funds, ETFs, and other investment vehicles debut. However, the inflow of Wall Street will also require increased transparency, accountability, and regulations.


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Author: Guest Author
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Poll: 8% of Americans Invest in Cryptocurrency

Nearly 1 in 10 Americans Are Actively Invested in Cryptocurrency

A poll released by the analytics firm Harris Insights earlier in the month has revealed that roughly 8 percent of American adults are invested in cryptocurrency. While this number pales in comparison to a similar Gallup poll figure conducted in 2016, which found about 52 percent of Americans own stock, it does show a substantial makeup of investing for the relatively young industry.

TIP

The results come from a survey first circulated in June 2018, in conjunction with the cryptocurrency app Gem. In addition to finding 8 percent of adults currently invested in cryptocurrency, a large response to digital assets was negative, with 41 percent of the 2,000 polled stating they were not invested in crypto and nothing could motivate them to change their mind into doing so. Similar to previous reported findings, the largest reason for the lack of interest in cryptocurrency was price volatility and belief that the current market is still in a ‘Wild West’ phase, two risky features that make the form of investment less appealing to older generations. However, the poll did find that younger investors and those with less overall capital were much more willing to participate in the risky market, with Gem’s founder and CEO Micah Winkelspecht saying,

“We find that younger people with less income are more willing to put money in crypto,. My guess is that crypto is of the digital age. And the younger generation is of the digital age and used to doing everything on the internet.”

One of the more surprising results from the survey was the reluctance of polled adults, of any age, earning over $100,000 annually to invest in cryptocurrency, with the percentage of crypto investors increasing with decreased yearly income. In addition to cryptocurrencies being more in vogue with younger generations, Winkelspecht also posits that the upside of crypto investing outweighs the risk of loss and volatility to younger adults with less overall capital. He also admits that the trend of less wealthy investors putting money into cryptocurrency could be an effort to ‘get rich quick,’ ignoring the significant risks posed by the market in an effort to cash in on the regular double-digit swings of the industry.

LIONBIT

“The cryptocurrency space is still in its Wild West phase, so there’s potentially some of that going on. When you have less to protect, you are more willing to take the risk.”

As Fortune points out, the survey was conducted in the middle of an extremely bearish year for cryptocurrency, with Bitcoin falling from an all time high last December of near $20,000 to below $7000, making the investment appear far more volatile with less enticing upside than if the same survey was conducted during last year’s bullish fourth quarter. Rather than continuing to build excitement for blockchain, Bitcoin and crypto adoption, most of the conversation surrounding the industry in 2018 has shifted to increased regulation and the possibility of a Bitcoin-based Exchange-Traded fund.

Despite only 8 percent of polled investors currently participating in cryptocurrency, the survey found that 50 percent of American adults are interested in trying out the asset class in the future, similar to a finding reported earlier in the month that cryptocurrency will make up 5 percent of all investments in 2019. With the SEC still planning to weigh in on the debate over Bitcoin ETFs, it is possible that the market will continue to grow exponentially in response to increased regulation enticing institutional investors.


IZX

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Students, Retirees, Millionaires: Who Is Buying Cryptocurrency?

Since the beginning of the ICO fervor in early 2017, cryptocurrency investing became a worldwide trend – making and toppling millionaires each day. Of those pursuing this new digital asset class, how many are actual professional investors and how many are actually profitable?

eToro Unveils Key Statistics

Established in 2007, eToro is internationally renowned as the foremost social trading platform for retail investors around the world. In addition to traditional securities trading, eToro introduced cryptocurrency as a tradable asset on their platform in 2017.

eToro compiled of data from March 2017 – February 2018, providing an overview of which populations are investing in cryptocurrency the most and the extent of their investment experience

Age, Experience, Profitability

According to eToro, the majority of cryptocurrency investor today are males between the ages of 18-35 and are either current students or pursue occupations in the fields of Sales/Marketing, Computer/IT, and Financial Services.

Despite their risk-tolerance, these youthful investors continue to pad their portfolios primarily with the most popular coins in the market: Bitcoin, Ripple, and Ethereum.

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Interestingly, it is evident that portfolios grow more altcoin-heavy with older investors.

From this data, the oldest age group (55+) holds the most Bitcoin Cash, NEO, and Stellar compared to younger groups – a contrast to the typically risk-averse older investor.

As a developing industry in both application and investing, cryptocurrency attracts a wide range of users with varying degrees of experience – most of which consider themselves novices.

Those with greater expertise (intermediate or professional-level knowledge) make up a minority of the total cryptocurrency trading population.

This lack of experience infers that most novice investors are not likely to yield huge profits. However, according to the data by eToro, it’s clear that most users do have positive returns from their investments on specific coins.

Although this information does not reveal the duration history of investment, the greatest average return appears to come from Ripple (XRP) investments and the greatest average loss derives from investments in Bitcoin Cash (BCH).

As of now, most cryptocurrency investors are young, less experienced males, but as the global setting for cryptocurrency continues to evolve, so too will the investor demography.

 


Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

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Author Jonathan Kim 
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Buffett: Bitcoin Is More Gamble Than Investment

“Oracle of Omaha” Warren Buffett, whose aphorisms and advice many investors take as gospel, has laid into bitcoin, saying it’s a gamble, not an investment.

The Berkshire Hathaway chairman and CEO – and the world’s third-wealthiest person, according to Forbes – has long been skeptical of bitcoin. In his latest comments on the subject, he told Yahoo Finance on Saturday, “If you buy something like bitcoin or some cryptocurrency, you don’t really have anything that has produced anything. You’re just hoping the next guy pays more.”

He continued:

“There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.”

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Buffett bought Berkshire Hathaway, a struggling textile mill, in the early 1960s and turned it into one of the world’s most successful investment vehicles. According to his most recent letter to shareholders, the firm’s share price has increased by 2.4 million percent since the takeover, compared to 15,500 percent for the broad stock market.

That success has been attributed to a strategy of buying strong firms with business models that are simple to understand and difficult to disrupt. That philosophy has led Buffet to be sceptical of the technology sector and of bitcoin in particular, which he called a “mirage” in March 2014.

Bitcoin was trading at around $600 when Buffett made that comment. In January, when the price was around $14,000, Buffett doubled down, saying cryptocurrencies “will come to a bad ending.” The cryptocurrency’s price is close to $9,300 at the time of writing.

One of Buffett’s most famous quotes is “our ideal holding period is forever.” In Saturday’s comments, he further criticized bitcoin, arguing its value is too dependent on trading.

“Now if you ban trading in farms, you can still buy farms and have a perfectly decent investment,” he said, but if trading in bitcoin was banned, people would have no reason to invest.

He did not address the bitcoin “hodler” movement, whose advocates urge investors never to sell.


 

Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

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Author David Floyd

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