Crypto News Updates

Why Bitcoin Dollar Cost Averaging (BTCDCA) Is The Next Big Thing

Many of you reading this might be able to relate to an all too common scenario. You discovered Bitcoin some time ago, started to inform yourself, fell down the rabbit hole, raised your level of curiosity and, with it, your knowledge about how Bitcoin is going to radically change the world — only to continually find yourself wondering: In light of all of this volatility, when is the best time to buy bitcoin? 

As a matter of fact, while Bitcoin, with its absolute digital scarcity, is a new fixed point in our universe, it is able to relentlessly take people’s thoughts and minds captive. Because Bitcoin’s price has been on a rollercoaster ride ever since it was introduced, the ups and downs can easily make you go crazy. Anecdotal evidence even suggests that the wellbeing of more than one family is at stake, because newly-turned Bitcoiners are completely absent, constantly thinking about when to buy bitcoin and not paying any attention to relatives at their mom’s birthday party.

Trying to time the market and find the best entry point into volatile assets like bitcoin is not only nerve-wracking and potentially detrimental to family relationships, it’s also impossible for the average Joe. While timing the market is said to be best left to professional traders (even though they might not be that much better at it), retail investors are generally advised to follow a different strategy.

Time In The Market Beats Timing The Market

For the traditional as well as the bitcoin market, the most prominent and established strategy is that of Dollar Cost Averaging (DCA) or, as Friar Hass has put it, Fiat Cost Averaging (FCA). In simple terms, this means: Investing a fixed amount of fiat into bitcoin every week, month, quarter — whatever suits your timeframe best. By sticking to a fixed schedule, capricious human behavior strongly influenced by emotions is taken out of the picture. Choosing this rule-based approach does not only offer you better average returns in the long run, since your buying pattern is smoothed out, but also gives you peace of mind and the ability to pay family members the level of attention they deserve.

But let’s have the numbers speak for themselves: Buying $100 of bitcoin every week for one year starting one year ago would have turned $5,200 into $6,295, which adds up to a return of 18 percent. Investing $100 of bitcoin every week for three years starting three years ago would have turned $15,600 into $23,125, which is a return of 47 percent. And finally, if you had put $100 into bitcoin on a weekly basis for five years starting five years ago, your $26,000 would be worth $199,626 now, a total increase of 664 percent.

These numbers are truly astonishing. And they have not gone unnoticed. Several Bitcoiners from all around the world, all having gone the bumpy road of continually figuring out the best moment to buy bitcoin, have set out to make FCA into bitcoin an easy and convenient task. Today, almost any continent on this planet is populated by people taking this easy route to Bitcoin.

Bitcoin: By The People, For The People

In the U.S., one of the hottest apps is Cash App. Behind this popular app is none other than Twitter CEO Jack Dorsey, with his company Square. As such, the business has reported a significant bitcoin revenue increase in the second quarter of this year. The app generated a total of $875 million in revenue, a 600 percent increase from the previous year. While Cash App offers stock investing as well, Square’s bitcoin gross profit jumped 711 percent.

Following suit are native Bitcoin startups like Swan Bitcoin and River Financial that have positioned themselves as innovative companies offering DCA services into Bitcoin. Swan Bitcoin, for example, has thousands of users, 100 percent of whom are on automatic recurring purchase plans, and they buy millions of dollars of Bitcoin each month.

Right across the border in Canada, customers looking for DCA options are served by Bull Bitcoin. While thousands of Canadian are using Bull Bitcoin as individuals, the company has recently released a open-sourced Batcher via Cyphernode, which allows any enterprise to efficiently process DCA orders and perform multiple bitcoin transactions per day. 

Outside of North America, the English speaking world is pretty well covered with Bitcoin DCA services, too.  Coinfloor (U.K.), Bitaroo (Australia) and Amber (Australia) have been established players for the past few years, each of them continuing to add specific features for recurring purchases. 

The rest of Europe was previously supported by Bittr, but it shut down earlier this year due to AMLD5 legislation. Fortunately, Relai, a Swiss-based team that includes Bitcoiner Giacomo Zucco as an investor, is showing signs of being able to fill the gap left by Bittr and avoids some of the registration pitfalls that were cited as reasons for Bittr’s shutdown.

Resisting Dumb Money

Appealing to the masses out there is evermore important. In our day and age, regular folks are lured into trading assets of all kinds. Money printing by central banks has turned financial markets into global casinos. To Robinhood traders and crypto fanatics trying to make a quick buck, the case for FCA sounds rather boring — and yes, it is exactly that.

But this is intentionally so. As a Bitcoin DCA investor you are acknowledging that the world has gone crazy. It has dawned on you that because fiat money is being constantly devalued and made worthless as a savings vehicle, swaths of laymen are forced to speculate in order to escape the creeping devaluation of their cash and bank deposits.

In their desire to farm markets, the many eager lay people don’t realize that they are not the predator, but the prey. They contribute to an ever-increasing pool of so-called dumb money that sophisticated traders gratefully exploit. Mind you: The calling out of dumb money is not some elitist jargon to mock the many ordinary investors. It is not so much a derogatory bashing as it is the sober recognition of the fact that greater and greater amounts of people are being driven to speculating with financial assets, a task they have little to no knowledge of. 

A few decades ago, our great-grandparents were able to build up their retirement provisions through hoarding. Gradually turning away from the gold standard and the transition to pure fiat currencies, this has become increasingly difficult. When our fiat money was finally cut off from gold in 1971, an ongoing systemic credit creation was institutionalized and mere hoarding turned into a meaningless strategy for the ordinary citizen.

Making Hoarding Great Again!

With the emergence of Bitcoin, this has changed. Bitcoin is a tool that gives you a good way to hoard money again, without it being devalued in the long run in the age-old war on hoarding. While history books euphemistically speak of currency reforms, these reforms were really just anti-hoarding efforts by governments all around the world and the current manifestations of this fight are the policies of quantitative easing and negative interest rates.

In a sense, Bitcoin serves as a global piggy bank. As such, it serves as a global piggy bank, a new global liquidity pool that — because of its open, neutral and digital nature — serves nearly anyone on this planet. Helping to access and reserve one’s seat in this global piggy bank are the many different DCA services that are bound to grow in size and relevance — just as Bitcoin itself.

The post Why Bitcoin Dollar Cost Averaging (BTCDCA) Is The Next Big Thing appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

Crypto News Updates

What Is Happening to Money?

Money — the magical power it has on people is almost universal. But whether we earn it, spend it or save it, we hardly ever think about the following questions: What is money? Why does it exist? What will money look like in the future? And why should we think too much about it? Our money works. Day in, day out, we use it without much effort. So what’s the problem?

As August Friedrich von Hayek pointed out, we humans constantly use things we don’t know anything about. For example, you don’t need to know anything about internal combustion engines in order to drive a car.  It’s no different with money. We don’t have to think deeply about money in order to use it successfully. This very fact is what makes us such a successful species and indicates how well our market and knowledge society functions.

Given recent developments, more and more people have started pondering the state of today’s money. This is indicative of the fact that strange things are happening in the realm of money.

What the general public is being told right now is that money can be created ad infinitum. With the coronavirus popping the so-called “Everything Bubble,” central banks have been interfering heavily by providing vast amounts of money — in all the different flavors that money or money-like substitutes exist in today’s financial world. On top of that, governments have set up stimulus packages in the trillions of dollars, exceeding anything the world has ever seen by far. 

In the wake of the enormous money tsunami unleashed onto economies and societies, people have begun (rightfully) to start asking the question: What has become of money? Is money even worth anything any longer?

A Battle of Devaluation

Others, among them many bitcoiners, are asking the question: How has money gotten to this point? In order to answer this question one has to go back to 1971, when the dollar, as the last national currency, was cut off from gold. Perhaps surprisingly, government currencies did not crash to zero at that time; rather they moved to a system of free exchange rates. 

Whereas the yellow precious metal had previously served as an anchor of value and price, henceforth a battle of national currencies was unleashed. This battle turned out to be quite costly. The different exchange rates of individual currency pairs led to an increase in currency risks. The latter increased transaction costs for international trade, which continue to weigh heavily on global trade to this day, representing a globally inefficient barter system on a national currency level.

Merchants, companies and politicians reacted to this situation. Within the political sphere, the U.S. dollar developed into the global unit of account for oil and other commodities due to U.S. hegemony being the strongest economic power around the globe. To this day, the U.S. dollar continues to function as an international reserve currency. In this way, the greenback facilitates global trade, but due to its importance it also let the U.S. exploit what is called its “privilège exorbitant.” The sheer dominance of the dollar and the advantages for U.S. markets are impressive

Financialization of the World

The entrepreneurial response has been to financialize the world and create derivatives and more and more hedge funds. The former are financial products whose primary objective is the contractual hedging of risks over time and space. The latter, hedge funds, are entities that trade in these financial products in the form of actively managed investment funds. It is, therefore, hardly surprising today that hedging transactions to minimize exchange rate risks account for a considerable proportion of total financial transactions.

Government currencies beget ever greater financialization. It’s the entrepreneurs’ reaction to them. So the ever-increasing number of derivatives used today is ultimately a consequence of the costly effects of this diversity of national currencies. Anyone wishing to send money across national borders today pays hefty fees. The reason: the reality of different currency areas requires the involvement of banking and financial institutions. Countless banks, partner banks and financial service providers from different countries are involved and want their “fair” share. So, ultimately, our current international monetary order resembles a global barter trade based on numerous fiat monies. Legacy systems and regulatory requirements make their efficient and rapid transfer difficult.

The various fintech companies of today are therefore also actors in the entrepreneurial reaction to this state of affairs. The most popular and successful among them are those who want to remove artificial barriers in international payment transactions resulting from this global barter. Upstart companies such as TransferWise or Revolut are making possible those things that banks have barely managed to do. Sending and receiving national currencies is not only becoming faster but also cheaper.

Bitcoin: The Ultimate Reaction

The entrepreneurial reaction in the form of financializing the world has its drawbacks though. It might help investors, entrepreneurs and corporations to deal with the hassle of government currencies, but the system at large is being inflated and becomes ever more fragile. Ironically, this is also the reason why we see central banks floating the markets now. They are reacting toward something that has itself been a reaction to central bank national currencies in the first place. The problem is a closed loop that creates an ever greater problem.

In 2009, a new player entered the stage: bitcoin. In a sense, the crypto asset is the final reaction that aims to break this closed loop of national currencies and financialization. Born at the height of the financial crisis, Bitcoin represents the antithesis to the existing financial order. It is an attempt to wrest money as a force influencing the economy, politics and society from the hands of centrally planned God players. 

Money again should be scarce and decentralized in order to tame the endless appetite of politicians, functionaries and economic giants. In the eyes of its supporters, Bitcoin is a counter-reaction to the shameful misuse of fiat money. Whether fiat money is supported by the state and issued by private banks or even corporations, the problem remains the same: It remains in centralized hands and users cannot keep self-sovereign control of it. 

Digital payment solutions that promise to turn current money into “fiat money 2.0” are merely putting “lipstick on a pig,” according to the argument of Bitcoin aficionados. This would not solve the fundamental problem of monetary socialism that is ailing our current monetary system. Money is still tied to intermediaries and every payment made is recorded in a central database controlled by a third party. Transactions can be censored at any time.

A Real Alternative

For this reason, a distinction must be made between digital currencies and cryptocurrencies. The latter can be exclusively controlled by individuals using cryptographic methods. So-called cryptographic values can thus be held and used directly by their owners and without intermediaries, similar to bearer instruments or material objects. Instead of being managed by an intermediary, cryptographic values are based on a blockchain. This is a distributed database that nobody has sole control over. A blockchain is ultimately a computer protocol, based on programming code. From a technical point of view, this turns the crypto assets into pure information and mathematics.

Consequently, Bitcoin stands for an alternative way of thinking about financial systems. Today, our financial system is a conglomerate of abstract constructs such as contracts, promises and balance sheets. This bears witness to the fact that our economy has been becoming ever more abstract. Money is no exception. The great philosopher and sociologist Georg Simmel already noted this tendency toward ever greater abstraction in his work “The Philosophy of Money.” 

There exists a hierarchy of money in today’s financial system: money in the narrower sense, which is also known as base money; and money in a broader, more abstract sense in the form of bank deposits, shadow banking IOUs, credit cards or mobile payment options. This development toward more abstract forms of money is driven by the financialization of the past decades, which has led to a stronger fusion of the economic and financial worlds. 

This amalgamate requires a financial alchemy that is now based on three basic building blocks: institutions (technology), incentives and human participation. In the existing financial system, the human element predominates. Contracts and promises are framed by institutions, but they are executed and enforced by human hands. 

An uneducated observer might regard Bitcoin as only the latest iteration in this constant evolution toward more abstraction. And although bitcoin truly is an abstract form of money, it is not a mere extension of this hierarchy of money in a seemingly endless game of financialization. It is a new form of base money for a new form of network or institution powered by what is today generally called an open, neutral, borderless, censorship-resistant public blockchain.

As a new form of base money, bitcoin will see financialization occur and with it, ever greater abstraction happening on top of the bitcoin base money. Interestingly enough though, on its most fundamental layer, the Bitcoin protocol reduces the human element to an unprecedented extent and gives technology and incentives more weight.

Incentives to keep the human element in check and technology are becoming more important due to mathematics, cryptography and computer science. A financial alchemy as we know it today, but one based on Bitcoin, is likely to depend less on the human element and more on computers, formulas and code in order to control, execute and enforce it. It’s the hope of bitcoiners that this sort of financial alchemy will be better in an objective sense than what we have today. 

The Endgame Is Upon Us

So let’s come back to the question asked in the beginning. What has become of money? Quo vadis, financial system? It seems obvious that our current financial system can only go down this one path: Ever more money is needed to keep it alive. Helicopter money is imminent in the U.S., another chapter in the tragic but inevitable trajectory of money.

Further reading: Zero Interest, Limitless Repo And QE4: The Federal Reserve’s Market Operations Explained

The ultimate chapter will finally be the adoption of what is referred to today as “modern monetary theory” or MMT. This theory, which ironically is not “modern” at all, holds that the state does not need creditors because it can create funds in its own currency at will. As a monetary sovereign, the state is, therefore, not dependent on borrowing on the market in the form of government bonds. It would much rather create the money itself via the central bank incorporated into it. 

MMT has been growing in popularity, probably because more and more people seem to intuitively feel the inevitable endgame. Other reasons are also more pragmatic: MMT is a blank check for all kinds of political projects such as “jobs,” “education” or “climate protection.” Fewer and fewer people are able to resist financial resources for political “necessities” — after all, the ultimate aim is to enrich society.

Another argument at the heart of MMT is that of justice. Today, bankers and other financial actors seek to enrich themselves in the process of financing of the state, so the argument goes. A few people get richer and richer at the expense of the masses. The fact that MMT wants to end the whole financial circus around interest rates and government bonds by depriving commercial banks of the opportunity to create money is thus met with approval, especially from the political left. The entrepreneurial reaction of financialization will not be made possible anymore; the state will take over all on its own.

Debating whether MMT will be more just than today’s system really doesn’t make any sense, in the end. Once money has lost all its meaning, there’s no point in debating any justice because there won’t be any left. Money will truly be worthless; people will only use it under a state of coercion. 

In the wake of this coronavirus crisis, the great triumvirate of our day and age — governments, central banks and banks — has set out to achieve the following: “Fiat iustitia et pereat mundus” or “Let justice be done, though the world perish.” The problem, however, is that in fiat money, there is really no iustitia left. Without justice, there is only pereat mundus… 

So, as an antithesis to endless growth and the meaningless of money, Bitcoin stands firm: Its network is limited to 21 million bitcoin units only. There will never be more bitcoin. That is the message of it all, and in a world in which “relatively scarce” money in the form of state fiat currencies will soon only be suitable for lame jokes, such a message is more important than ever. 

So if Bitcoin didn’t exist, it would have to be invented: As a psychological elixir of life, so to speak, it will give comfort and confidence to many more people in the light of the crazy money interventions of our times. What would we do without Bitcoin?

This is an op ed contribution by Pascal Hügli. Views expressed are his own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.

The post What Is Happening to Money? appeared first on Bitcoin Magazine.

Source: Bitcoin magazine