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Living in the new age of Private Money

Living in the new age of Private Money

The most famous Austrian economist is 1974 Nobel laureate Friedrich Hayek. Because of his moderate views excusing state interventions in various circumstances, hardcore Rothbardians tend to regard Hayek as less than pure in many areas.

However, one area where Hayek is certainly more radical (though perhaps not correct!) than even Murray Rothbard is monetary institutions, as detailed in his fascinating (1978) pamphlet The Denationalisation of Money.

When it comes to the free market’s handling of money, the typical Austrian argument is over fractional reserve banking (FRB). Some think FRB is perfectly legitimate (so long as the banks do not receive special privileges from the government), while others consider it inherently fraudulent. But both groups agree that fiat money is a horrible creation of the state and that the free market would always settle on a commodity (such as gold) as the underlying base money.

Inasmuch as many of the participants in the FRB debate are far more radical than Hayek on most policy issues, it is quite surprising then that Hayek’s proposal calls for privately issued, competing fiat currencies. That is, Hayek proposes that individual firms issue pieces of paper that are not backed by any production or consumption good. In a sense, Hayek wants to privatize central banking.

As the reader can imagine, this proposal strikes almost everyone—even modern Austrians—as absurd; we will deal with some of the major objections below. But partly because of this near-unanimous rejection, and partly because the analysis in any case is instructive, I will attempt in this article to give Hayek’s case the best possible defense.

Hayek’s Proposal

Hayek argues that, if only government obstacles were removed, the free market would provide the optimal quantity (and variety!) of monetary products. Just as the forces of competition lead to low prices and superior quality in every other line, so too would competition in the “fiat money industry” lead to monies that were infinitely better than their government-produced counterparts. For example, the private monies would be far more stable in their purchasing power, would be harder to counterfeit, and would be available in more convenient denominations.

Although one can imagine an equilibrium situation given that the public is already holding vast quantities of such private currencies, it is difficult to conceive of how they would “get off the ground” in the first place. Here is the most ingenious part of Hayek’s proposal (which naturally I am adapting for a modern exposition):

A private firm could initially print up, say, 1 million pieces of paper (that of course would be difficult for an outsider to reproduce) with a cute picture of Friedrich on them. The firm then contractually pledges to redeem each “Hayek,” at any time, for either $10 or 80 Chinese yuan. Assuming that the firm has substantial assets and that everyone is fully confident of their redeemability, the Hayeks at auction will sell for somewhat more than $10. This is because they will always be worth at least $10, but they might (in the not too distant future) be worth more, if and when the Chinese government lets the yuan appreciate against the dollar. (In that case, investors could redeem each Hayek for ¥80, which would exchange for more than $10.) For the sake of argument, let’s suppose that the firm initially auctions all 1 million Hayeks for $12 each.

Thus far the proposal involves nothing too radical; each Hayek is really just a derivative asset. How, then, would the issuing firm get the public to start treating the Hayeks as money? On the night of the initial auction, after the market price of the Hayeks had been ascertained, the issuing firm would specify a commodity basket (consisting of bread, eggs, milk, and other goods relevant to consumers) that cost, say, $60 at Wal-Mart. Then the firm would announce to the public the following nonbinding pledge: “We will use our firm’s assets to adjust the outstanding supply of Hayeks such that 5 Hayeks will always (insofar as it is humanly possible) have the purchasing power to buy this specified commodity basket.”

Now, as time went on, the US dollar and the Chinese yuan would depreciate vis-à-vis real goods and services. In particular, the dollar price of the specified commodity basket would increase. So long as the Hayeks were still being valued solely because of their tie to dollars and yuan, their value as well would begin to drop; the Hayek price of the commodity basket would start to rise from 5 to 5.05, etc.

At this point the issuing firm would need to prop up the value of its fiat currency. It would need to enter the market and buy back Hayeks from those marginal holders who were most anxious to sell. In this way, the issuing firm could (at least temporarily) maintain the purchasing power of the Hayeks such that 5 Hayeks could still buy the relevant commodity basket at Wal-Mart, even though the dollar price of that basket has risen above $60 (as the US government continued to print new dollars).

Here is where the theory ends and we are stuck with an empirical question: Would the firm eventually buy back all 1 million of the Hayeks? Or, at some point before this happened, would the record of stability of the Hayek (in terms of its purchasing power vis-à-vis the specified commodity basket) allow for a self-fulfilling prophecy in which people begin holding Hayeks not because of the underlying legal redeemability, but because of its expected purchasing power in the future?

Problems

Hayek’s proposal was understandably treated with suspicion. Murray Rothbard1 argued that it violated Mises’s “regression theorem,” which demonstrated that all money—even government fiat currency—must ultimately derive its purchasing power from a historical tie to a commodity that was valued in a state of barter. However, this objection overlooks the fact that Hayek’s proposal does contain an initial link to an underlying asset in order to get off the ground.

Rothbard also objects that not all government functions should be privatized, in particular tax collection, torture of prisoners, and the issuance of fiat currency. The point may be conceded, but Hayek’s proposal would certainly be legally permissible in a libertarian society. Even those who consider fractional reserve banking as fraudulent could find no violation of property rights in Hayek’s proposal;2 they would simply have to argue (and a compelling argument it is!) that any firm attempting to circulate its own fiat currency would go bankrupt.

A different problem is that, in the world Hayek envisions, there would be no single money, and hence the benefits of a common medium of exchange would be curtailed. To this I would respond that it is possible that even under a 100 percent commodity standard, some groups use gold, others use silver, and others use cows as a medium of exchange.

Yes, there would be forces tending to promote the emergence of a single money throughout the entire world, but this would not be instantaneous, as conditions differ greatly from region to region. So long as each of the local monies could be freely exchanged against one another, modern currency markets (aided by computers) would significantly reduce the transactions costs involved. By the same token, we cannot say that the benefits of a single money outweigh all other considerations and that therefore Hayek’s system must be rejected.

Another objection (raised by Selgin and White) is that a private “central bank” would, just as its government counterpart, always find it most profitable to hyperinflate. It is true that this would cause the public to abandon the currency, but so what? If 5 Hayeks currently exchange for so many eggs, milk, etc., why not print up 2 billion of them and buy as many real goods as possible? Surely this one-shot move will earn more than the present discounted value of responsible management of the supply of Hayeks.

This fear overlooks the fact that the Hayeks (in our example) are always legally redeemable for $10 or ¥80. That places a floor below which their value cannot sink (without draining the reserves of the issuing firm).

Pete Canning acknowledges this fact and refines the objection by pointing out that, eventually, the government currencies will have depreciated so much that this check will soon be impotent. Ironically, here is where another of the alleged deficiencies—namely the multiplicity of currencies—comes to the rescue. Precisely because each issuing firm will only provide the money held by a fraction of the public, one firm’s decision to hyperinflate would not be nearly as disastrous as when a monopoly government does so.

Moreover, if a major firm ever did decide to hyperinflate, the public would demand measures to prevent a recurrence. For example, in addition to pledging to redeem Hayeks at any time for $10 or ¥80, our hypothetical firm might also legally pledge “We will never increase the supply of Hayeks by more than 100 percent per year.”3

Benefits

Let me close by pointing out some of the overlooked benefits of Hayek’s scheme. First, in principle privately issued fiat currencies could prove more stable than even commodity metals in terms of their purchasing power. The whole job of the firm issuing Hayeks (in our example) is to closely monitor the financial markets to fine tune the exchange value of the Hayeks, such that five of them always purchase the specified commodity basket at a major grocery store. This is not true when it comes to gold; the exchange rate between gold and the commodity basket would be far more volatile (though of course much more stable than the exchange rate between government currencies and the basket).

Another benefit is that the firms could change the composition of the commodity basket to reflect the preferences of the holders of their monies. For example, some people may not care about the price of eggs and bread, and would prefer a money that had stable purchasing power in terms of a basket of aluminum, platinum, etc. A firm could fill that niche.

Another interesting feature of Hayek’s system is that holders of money would themselves reap the advantages of inflation of the currency, rather than the issuing firm. Consider: if the public ever did accept Hayeks (and Lachmanns etc.) as media of exchange, over time the market would increase the production of eggs, butter, etc., and hence there would be a tendency for their Hayek price to fall. Therefore, in order to maintain the stated purchasing power, the issuing firm would need to print up and distribute additional Hayeks periodically.

Now if the firm were a monopoly, naturally its owners would spend the new Hayeks themselves. But because of competition, the firm can only keep the public using Hayeks if, in addition to the incredibly stable purchasing power, holders of Hayeks receive new units in proportion to their holdings. That is, the firm would have to periodically increase the supply of Hayeks at large in order to maintain a constant purchasing power, but it would need to give the new units to its customers. (An easy way to achieve this would be for the firm to also act as banker and pay dividends on deposits.)

Finally—and I admit this is quite fanciful—suppose that in the distant future, humans develop the Star Trek capacity to reproduce (within limits) any type of physical item. In that case, no commodity could serve as a useful medium of exchange, because people would simply mass produce it at virtually no cost. In such a world, money would probably become mere numbers on computers.

Yes, if governments were expected to responsibly run such a system, all would be lost. But it is at least worth exploring whether a system based on Hayek’s ideas could provide sound media of exchange in that futuristic environment.

Convexity Opens in Abuja

Convexity Opens in Abuja

Nigeria’s first Blockchain Hub is set to open it’s office in the second largest blockchain country Nigeria. On the 8th Day of May 2021 in Abuja, Nigeria.

Convexity is a leading innovative Dapp, Smart Contract, and Blockchain development hub.

Nigeria’s first Blockchain Hub is set to open it’s office in the second largest blockchain country Nigeria. On the 8th Day of May 2021 in Abuja, Nigeria.

Convexity is a leading innovative Dapp, Smart Contract, and Blockchain development hub.

And Convexity offers you access to tools that can improve the day to day activity in your work place through blockchain technology.

Convexity will Partner Blockchain User Nigeria Group on the same day to host one of the biggest Crypto events in Abuja.

The Abuja Blockchain and Crypto Meetup is set to host the biggest names in the crypto industry.

Seeking to teach and train participants all there is to know in blockchain and Cryptocurrencies.

Should I Get My Salary in Crypto?

Should I Get My Salary in Crypto?

Table of Contents

The Key Advantages of Digital Currency Salaries

Fees

Transparency

New market opportunity

Speed

The Disadvantages of Crypto Salary Payments

Taxes

Volatility

Difficulty to Use

Regulation

 

Should I Crypto or Not?

Despite Bitcoin and crypto currencies becoming a common alternative to fiat currency transactions, financial institutions still has an upper hand over digital assets in the area of salary payments.

While daring effort have been made by brands such as BitWage; which provides payroll services and allow organizations to pay workers a portion of their salaries in BTC, a lot of us still choose bank accounts as our default choice. Let’s look at the Advantages and disadvantages of receiving your salary via Bitcoin.

 

The Key Advantages of Digital Currency Salaries

FEES

Prior to the pandemic many freelancers had adopted the work from home system but COVID-19 and the gig economy also meant compulsory working from home and online for many freelancers. Some of these people own businesses online and that suggest they have clients away from their location and around the world. For such service providers, a major challenge they may face working with clients around the world is exchange rate being too expensive and eating into their profit.

Advocates claim that Bitcoin transfers are more cost effective than using PayPal or a remittance service, and Bitcoin payments can be converted into U.S. dollars easily.

TRANSPARENCY

In the case of a dispute, Blockchain also provides an accurate, transparent record of the wage settlements that have taken place. And, if an employee continues to maintain their BTC, particularly in a Bull Run market, they could see the value of their salaries increase over time.

NEW MARKET OPPORTUNITY

Accepting Bitcoin salaries may even offer freelancers new market opportunities, opening up their network to crypto companies and startups that also pay employees in crypto than more conventional companies.

SPEED

Funds received in an Ethereum or Bitcoin wallet arrives quickly and that’s an added advantaged compared to the old- fashioned bank accounts which may often take days or weeks to clear salary transfers, greatly inconveniencing those who have bills to pay.

 

The Disadvantages of Crypto Salary Payments

TAXES

While some of the irritating issues associated with bank accounts and credit cards are solved by digital currencies, they also generate completely new problems. Employees would also have to pay income tax, although many accountants are conversant with how cryptocurrencies run right now. And, if, after being paid, Bitcoin salaries increase significantly in value, the question of capital gains tax might arise.

VOLATILITY

The instability of cryptocurrencies such as Bitcoin, Ethereum and Bitcoin Cash also means that their value could fall significantly in the span of a few hours except these digital assets are quickly converted into a fiat currency.

Let’s say you received $4,000 monthly salary in BTC on Thursday mid-day, only to find out at Thursday mid-night that a flash crash occurred and that means it’s now worth $2,200. When you explain why you can’t pay your rent, your landlord may not be too sympathetic. It puts you in a tight corner.

DIFFICULT TO USE

In as much as it would be a huge boost for mainstream adoption to use Bitcoin to pay workers, the average user might find it difficult to understand cryptocurrencies and crypto mining. Bank accounts are fairly simple and easy to use. If they forget their password or attempt to send funds to the wrong place, there are also safeguards that protect them.

Some cryptocurrency exchanges do not provide these safe guard features, which mean that if a long Bitcoin address is typed incorrectly, there is a chance of making expensive mistakes.

Ethereum vs Ethereum Classic

Ethereum vs Ethereum Classic

Ethereum and Ethereum Classic are similar names and they both have a complex common history… What separates the two cryptos?

Table of Contents

What’s the difference between Ethereum and Ethereum Classic, and how did we end up with a common name for two cryptocurrencies? Is there a fractured group of bitter rivals out there throwing shades at each other after violently disagreeing on the future of blockchain?

Well, it’s a complex story, one that prove humans will can still play an important role in any platform’s future…even in a decentralized space and code is not inherently “law.”

There was a time, as you would guess, when only one Ethereum ecosystem existed. A hard fork emerged during one of the most critical events in cryptocurrency history, producing two separate implementations of the blockchain network.

Ethereum and Ethereum Classic

The history of the original Ethereum network started back in 2013, when Vitalik Buterin’s proposal for a new programming language did not gain much traction inside the Bitcoin community.,

Buterin argued for a new programming language to be generated by Bitcoin that could automate tasks and allow apps to be built on top of its blockchain.

He went ahead to raise funds through a crowdsale since there was no much interest in his idea. One of the biggest crypto fundraising campaigns, amassing 25,000 BTC with a market capitalization of $17 million at the time, took place in July 2014.

Ethereum — a global, open-source software platform — was birthed.

The platform allowed the development of decentralized smart contracts, which are mainly agreements between two parties that are written in code. Once the conditions in the agreement are met, the contract is processed automatically by the blockchain. Smart contracts are very appealing to many businesses because of the combination of blockchain’s immutability, teamed with its open-source functionality.

However, fast forward to summer 2016, and one of the most spectacular crypto attacks in history unfolded, altering the course of Ethereum for life. The most suitable course of action was considered a hard fork, with most developers opting to upgrade to Ethereum. This left the original blockchain out in the cold to find its own course, now known as the Ethereum Classic. All this chaos was ignited by the decentralized autonomous organization.

The DAO: Decentralized Autonomous Organization

In its core, a highly promising concept was the DAO (which stood for decentralized, autonomous organization), giving many would-be investors and entrepreneurs an opportunity to pitch and back proposals, with both sides reaping the benefits if they were effective.

It was basically a decentralized Kickstarter that used the Ethereum blockchain and operated via a set of smart contracts and worked by a series of smart contracts. In April 2016, it raised more than $150 million or 12.7 million Ethers, making it one of the biggest crowd funding campaigns in history.

To get engaged, you needed to purchase DAO tokens using Ether. Then you could use your tokens to vote on whether to support a particular decentralized application (DApps). A share of the investment funds from the DAO would be awarded to projects that earned more than 20 percent of the community support.

The DAO was a good way to promote Decentralized Investment- preventing management types from making a final decision as to who received funding but there were some significant weaknesses which would eventually lead to its demise.

The “Split Function,” which was developed as a way to allow an investor to withdraw their support from a project, was a major flaw. Once you decide to withdraw your investment, you would get your Ether back and have the option of making a “Child DAO.” The only rule was that for 28 days your funds could not be accessed. Although the public ledger would be updated, and everybody was satisfied until DAO exploit happened.

The DAO Exploit

The DAO was taken advantage of on June 17, 2016. In order to understand what happened, let’s go back to the splitting feature, which was repeatedly activated to drain the DAO of 11.5 million ETH at the time worth $50 millio. The quantity taken constituted approximately one-third of the DAO Ether.

In the blockchain code, the exploiters discovered a loophole that meant the network repeatedly refunded the same DAO tokens without registering the transactions on the public ledger.

And how did this come about? Well, one major problem was that the probability of a recursive call was not taken into account by the coders of the DAO smart contract. The smart contract was also developed so that ETH will be refunded prior to updating the internal token balance.

The individual or individuals responsible were unable to run into the sunset laden with virtual assets. There came into play the 28-day rule of not being able to reach your funds, which meant that the Ether was not entirely lost. The group was left attempting to pick up the pieces and examine the damage. Eventually, the individual or individuals also stopped draining the DAO, even though they could have persisted.

Also, the problem did not come from Ethereum rather it was an exploited vulnerability within the DAO code, which was created on the Ethereum blockchain network. Nevertheless, it was extremely reputably harmful for Ethereum, and this meant that the team needed to redeem itself quickly.

The problem was the bitter disagreement about how to correct the situation. Many argued that blockchain should be immutable, so nothing should be done. Other virtual assets have been attacked in the past without having to hard fork to reimburse those who have laughed.

A vote was taken after much deliberation within the community about the adopted Ether, and it was decided that the best course of action was to hard fork and reimburse all affected token holders. The hard fork allowed the stolen funds to be sent to an account which could be accessed by the original owners.

This left Ethereum Classic as the initial chain, with the tokens unexpectedly taken from the DAO left untouched with the exploiter. On the other hand, Ethereum was the chain that returned the tokens.

Ethereum vs Ethereum Classic

Which is the best digital asset amongst the two?

It’s worth noting that the hard fork was seen as particularly controversial when comparing the two and was hotly debated at the time. However, for many, it was the only way to save the prestige of Ethereum But for some; it was a betrayal of what blockchain technology set out to do: avoid things being exploited on the basis of a human whim.

As a consequence, the ETC group believes that they have remained true to the principle that the blockchain should never be altered. Their network includes the original blockchain showing every transaction, including the exploit. Ethereum critics claim that for any reason considered worthy enough to violate the rules, future forks might end up taking place.

In comparison, the Ethereum group thought they had to take drastic action because so much investor money had been taken, and confidence in Ether was dropping. Ethereum benefited from the encouragement and support of co-founder Vitalik Buterin, who within the community is highly respected and influential.

Ethereum is still more prominent today than Ethereum Classic and has the business backing of Enterprise Ethereum Alliance, which has more than 200 members, including financial heavyweights such as JPMorgan and Citigroup. In 2017, it was home to a flurry of ICOs, it is supported by nearly all crypto currency exchanges, has a wider development team via the Ethereum foundation, and this Ethereum edition is now at the core of decentralized finance.

The Ethereum Classic network has a market cap of around $890 million as of February 2021-a tiny fraction of the $164 billion value of Ethereum. This is partially attributable to how the ETC chose to follow in Bitcoin’s footsteps by restricting the availability of coins to about 210 million. In contrast, at steady rates with no hard limit as to how much digital currency can be mined, Ethereum produces Ether.

Another distinction between the two is that the Ethereum chain will soon be revised to follow a proof-of-stake (PoS) algorithm from a proof-of-work (PoW) consensus system in an improvement known as Ethereum 2.0. This should mean that the Ethereum network will be faster, more efficient, and transactions will be able to scale significantly. As the fork meant that the new blockchain was not backward compatible, many in the Ethereum Classic camp are waiting to see if they would all follow in the same direction.

What’s next for Ethereum and Ethereum Classic?

In December 2020, the largest derivatives marketplace in the world, the Chicago Mercantile Exchange (CME), publicly announced that it will launch Ethereum futures in February 2021. If the United States Commodity Futures Trading Commission (CFTC) signs all off, the future could look even more positive for Ethereum. The derivatives would allow investors to bet on an underlying asset’s future price without actually having to own it.

The future of the Ethereum Classic is not so obvious, and looks less promising than that of the Ethereum. Many developers have lost trust in the network following a series of 51 percent attacks and analysts have suggested that ETC needs to move to a PoS consensus system in order to prevent potential hacks.

Will Bitcoin boost the demand for Altcoin?

Will Bitcoin boost the demand for Altcoin?

As Bitcoin breaks $41,000 for the first time, should we expect altcoins to follow?

 

Table of Contents

The question on everyone’s lips with Bitcoin’s price clearing customs at Crypto La La Land and moving past $40,000 on Jan. 7, 2020 is (and by everyone we mean those who sold at $19,000)-when does the altcoin season begin?

All their remaining frostbite-ridden fingers are crossed by the few altcoin investors who HODLed through the “crypto winter” of 2018 (which caused most altcoins to lose up to 95% of their value).

With a so-called “green sea” of altcoin values beginning to splash more regularly through crypto indices, their optimism is catching on, many assume that after a miserable past three years, altcoins are due for a huge leap in 2021.

Anyone who has invested and traded for more than a few months in cryptocurrencies other than Bitcoin will be aware that the success of the so-called altcoin market is very closely linked to that of Bitcoin.

In terms of price correlation with BTC, Altcoins run the gamut; often they spike in value with Bitcoin, sometimes their values remain relatively unchanged. Most times, the value of altcoins crashes twice as fast as Bitcoin’s in times of extreme market upheaval. Are there any patterns from which to distinguish this?

BTC’s lift on altcoins can not be boiled down to a simple yes or no, and even the most basic conclusions are very difficult to verify. The price rise of Bitcoin is combined with huge amounts of trading that takes the spotlight away from alternative assets. Given Bitcoin’s current 69 percent dominance of the entire market by market capitalization, this is easy to see. With Bitcoin’s recent surge to a new all-time high, a side-show bull run for other cryptocurrencies was ultimately supposed to catalyze the bullish momentum.

Unfortunately, hopes did not match fact, as is always the case with altcoins. In 2020, at least not. Nevertheless, the price action of the first week of 2021, which has seen many altcoins more than double in value, leaves investors daring to dream.

BTC’s 2020 Lift on Altcoins Applied to Only a Few Coins

The price of Bitcoin ultimately broke its all-time high and the magical $20,000 mark in late December 2020, closing at $38,000 at the time of publishing. For Bitcoin last year, however, it was mostly a lonely ride, as though it soared, most altcoins did not. However, it is important to see that the leading altcoins, such as Ethereum, Litecoin and XRP (at least before its SEC woes crashed its price at one point), have had good gains compared to the U.S. To the pound.

Perhaps the most important rivalry in 2020 for Bitcoin vs. altcoin was that of BTC vs. yearn.finance (YFI), a radically new DeFi protocol that ultimately provided a so-called “flippening,” exceeding the price of Bitcoin by touching $40,000. This was largely because of the rapid growth of DeFi and the relatively limited overall supply of the project. Since then, Bitcoin has regained its top position, and although YFI still leads on his heels, BTC continues to retain its price lead.

Many felt for a while in 2017 that Ethereum will be the first to flip Bitcoin. It has never occurred. Instead, until early 2020, ETH continued to drop in value.

In 2020, Ethereum took a while to get moving, eventually gaining traction in the fourth quarter thanks to its historic launch of the Beacon Chain that kickstarted the migration to the widely awaited Ethereum 2.0, and crossing the $20,000 promised land with Bitcoin. Since then, with a skip and a hop, Ethereum has flown past $1,000 and is currently eyeing its 2017 all-time high price of $1,400.

There is no doubt that a very powerful Bitcoin would finally lift its closest pretenders to the throne.

A pattern close to Ethereum’s has preceded Ripple’s XRP. On Jan. 4, 2018, before a prolonged freefall started that brought it to under 12 cents over the past year, the cryptocurrency hit a staggering all-time high of $3.84.

Buoyed by the bull run by Bitcoin and the Spark token airdrop by Flare Networks in December 2020, XRP climbed to over 70 cents on Nov. 24 until a brief plateau hit by Bitcoin. As the market leader continued to appreciate, XRP’s price then started to fall, eventually crashing to under 25 cents under the weight of the SEC’s announcement that XRP was indeed a security. On Jan. 7, however, XRP was then up by 45 percent again.

The momentum of Bitcoin does not always reflect the dynamics of the entire industry, but rather mirrors the first-mover gain enjoyed by the leading digital asset.

In most ways, the bullish run of Bitcoin is not in line with altcoins.

Ethereum Remains the Altcoin Gatekeeper

Previous bull markets saw an uptrend in Bitcoin until altcoins entered the surge. After Bitcoin hit an all-time high or a peak, alternative cryptocurrencies followed. Innovative Ethereum, the unofficial crypto gatekeeper on which the bulk of ERC20 crypto ventures, DeFi protocols and smart contracts live, stands between this ebb and flow. What happens to Bitcoin and Ethereum affects a few whales with altcoins, such as suckerfish.

This is a rising trend that will possibly continue to be replicated. In general, Altcoins pull back during a Bitcoin bull run. It is only after Bitcoin’s big brother has stabilized and ended her rally that an altcoin uptrend kicks in.

Over time, some deductions have been made by market analysts; they remain speculative, however. The Bitcoin rally has to consolidate and before altcoins can see a sizable rally, Ether’s price needs to break out.

The price of Ether is relevant because, apart from Bitcoin, Ethereum is one of the most trusted cryptocurrencies, and a significant weather vane of pending price action. By effectively pioneering both the 2017 ICO boom and the emergence of the fledgling decentralized finance (DeFi) industry in 2020, Ethereum claims its place in space as the most trusted altcoin.

In order to increase the altcoin trading rate, the market for DeFi protocol tokens was instrumental. If the market for DeFi tokens takes a nosedive, however, the momentum will change in favor of Bitcoin.

Can Altcoins Lift BTC?

Short reply. Often not. Altcoin rarely improves Bitcoin. Bitcoin was seen as the biggest beneficiary who would see a spike in mainstream exposure to cryptocurrencies when Facebook launched its Libra project in mid-2019. Libra (now Diem) brought a great deal of attention to the crypto market, which, in turn, played in favor of Bitcoin, the highest-profile digital asset.

However, the majority of altcoins experienced significant drops in value as the blue-chip partner consortium of Libra served existing leaders in the very industries that altcoins had announced they were disrupting.

Since then, a violent backlash by regulators has suffered from Facebook’s much-maligned stablecoin project, forcing it as rebrand to Diem.

 

It would seem that the original cryptocurrency typically swiftly steps in to retake its throne after altcoin pumps have run their course and asserted so much dominance from Bitcoin.

Altcoins Shoot Themselves in the Foot

The BTC lift on altcoins has more to do with altcoins than Bitcoin, or lack thereof. Bitcoin serves as the crypto industry’s gold standard. Completely decentralized and liquid, the leading digital asset is eligible for trading on virtually every crypto exchange on the world. This builds trust among investors.

For altcoins, however, the tale is quite distinct.

Some of them are not as good, though there are good altcoins on the market, and others are just a catastrophe waiting to occur. The bulk of the ICO boom ventures in 2017 have failed, leaving investors suffering from financial losses. In fact, it has been estimated that 85% of all ICOs are actually scams. Investors who have stayed in the crypto industry may have selected the most trusted assets to consolidate. As the flag bearer for the virtual asset market, Bitcoin is the obvious choice.

Exit scams have now become synonymous with Altcoins. Bitconnect, which made off with more than $3 billion in investor capital, is a good example. It was a few years ago that the market might no longer be the wild west, but investors are shying away from shady altcoins. As investors pour their money into Bitcoin, this affects the wider Altcoin market. What leaves altcoins behind is the vote of confidence in Bitcoin.

Also, liquidity is a factor. Less common altcoins suffer from inadequate liquidity in the market, opening them up to market and price manipulation by larger investors (whales), resulting in extreme price volatility and an unlikely prospect of a potential 51% assault.

BTC’s Lift on Altcoins: Hope for the Future

Retail investors pumped up the market in the early days of the crypto market. As long as they saw the potential for fast and runaway gains, they invested in all sorts of altcoins.

With many cycles of booms and busts enduring in the market, institutional players are joining the fold. On Bitcoin, they bet big, and less on altcoins. In Bitcoin’s favor, this holds the momentum. It will be a while before altcoins can be completely lifted by BTC.

Ethereum, seen as the silver to the gold of Bitcoin, is the hope of the demand for altcoins. For Ethereum, the beginning of bullish momentum may be the beginning of the so-called altcoin season. Altcoins face the mammoth challenge of keeping up and taking back some of Bitcoin’s lion’s share of the business, with Ethereum already firing on all decentralized systems.

Altcoin investors, meanwhile, have a straightforward question to sort out: are you a crypto suckerfish or just a plain sucker?

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