ICO Token Rewards Policy Can Have Unintended Consequences, Pose Dilemma: Expert Blog

Token policy may have a strong impact on the price and usefulness of the token.

Expert Blog is Cointelegraph’s new series of articles by crypto industry leaders. It covers everything from Blockchain technology and cryptocurrencies to ICO regulation and investment analysis. If you want to become our guest author and get published on Cointelegraph, please send us an email at mike@cointelegraph.com.

Some cryptocurrency ventures promise prospective token holders rewards for acquiring and holding their cryptographic tokens while they simultaneously promote their cryptocurrency’s suitability for use in everyday commercial transactions. These cryptocurrency ventures double up on token use cases thinking that they are engineering a more valuable token: a token that is a form of currency that also rewards you for holding it. Instead, they create a token with conflicting fundamentals for unsuspecting participants in their ICO and potentially put their project in jeopardy.

Crowdfunding Competition

The problem is rooted in fundraising ventures issuing tokens that initially have no function or value. These rewards tokens are created purely to take advantage of the advances in crowdfunding provided by the Ethereum network and ERC-20 smart contracts.

Unlike cryptocurrency tokens that can immediately be used for something on a distributed network, rewards tokens are a purely speculative creation from their inception.

Token purchasers collectively assign value to rewards tokens based on their assessment of the possibility that the venture will make good on the promises in its white paper and online marketing materials. The dilemma surfaces as competitors, also fundraising, enter the marketplace. Since funds are scarce, these competitors need to signal that they are a better value to speculators.

For example, after the fundraising success of the first venture to promise a cryptocurrency debit card in a token sale, several competing cryptocurrency debit card projects followed suit. In order to differentiate their projects, each venture engineered more enticing rewards programs and appealing value propositions. Strategies included claiming to support over 8 different major cryptocurrencies to providing 0.2% rewards on card transactions.

Medium of Exchange

One competitor decided to establish relationships with real estate companies and obtained agreements requiring the customers of those realtors to transact business exclusively with their rewards token. In their white paper they guarantee that the rewards token will appreciate in value because of this scheme. However, they would need to continually invest in expanding the number of goods and services that use their token as an intermediary instrument, without financing benefits that mining affords proof-of-work networks like the Dash network.

In promoting the token as an intermediary instrument to facilitate the purchase, sale, or lease of real estate, the rewards token becomes a medium of exchange. However, the supply of rewards tokens is fixed. The supply is engineered this way so card transaction rewards are not diluted.

The venture guaranteed the token price increase, wagering that there would be increasing demand for the few houses that the token supply represents.

Unfortunately, it is a wager that assumes that the tokens provided sufficient incentive to change, perhaps intransigent, consumer behavior. For example, seniors are not likely to begin using cryptocurrencies to buy, sell, or lease property. It is too expensive a behavior change for consumers not in the young, male-dominated, tech savvy demographic that embrace cryptocurrencies. Instead the reverse is more likely. Demand for token-denominated houses will fall.

Even if adoption wasn’t an issue and demand was unaffected by the scheme, if the supply of real estate transacted using the rewards token decreases then the tokens become less valuable collectively. This scenario is very possible when demand for housing remains the same in the short term, but the cryptocurrency venture doesn’t have sufficient partner agreements in place to replenish the supply of units that have been purchased or leased. Under these conditions, the fixed supply of tokens represent an increasingly smaller supply of real estate, diminishing the collective value of the tokens.

Conflicting Strategies

Rewards tokens have different economic fundamentals. When a token offers rewards, there is an incentive to hold on to the token. The larger the expected reward, the higher the incentive to hold becomes. When many owners of the token decide to hold, the result is an appreciation in the price of the token. The reverse is also true. If many token holders decide to sell, there is a depreciation in the price of the token.

Assuming that the token purely represents the right to a portion of the future rewards provided by the venture, and is not used to buy and sell goods and services, its price would never be influenced by the supply of real estate.

When a venture decides that its rewards token should also support real estate transactions as a medium of exchange, it confounds its rewards strategy to a varying extent. The problem may be particularly acute if the marketplace for goods and services is relatively small in comparison to the expectations market for token rewards. Fluctuations in supply could have a disproportionate impact on token price.

Summary

Keep token policies simple. Imagine a world where Amazon’s stock could be used as a currency in the Amazon Marketplace. Moreover, imagine that it is also the only method of exchange permitted in the marketplace. Depending on expectations, a stockholder speculating on an increase in the value of the stock may not want to buy anything in the marketplace with their Amazon stock.

On aggregate, transactions in the Amazon Marketplace would drastically decrease if all stockholders held similar expectations to that individual stockholder. This dilemma is exactly what is created when projects simultaneously use a rewards token as a unit of exchange. Avoid it.

Munair Simpson

Munair Simpson is a business strategist and the principal researcher at Useful Coin Research. Munair lives in South Korea and enjoys teaching Capoeira when not obsessing about the future of finance. Munair graduated from the Wharton School with an MBA in Marketing.

Source: Coin Telegraph




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Bitcoin Will Be Safe Haven During Next Stock Market Crash, Says Expert

eToro analyst says financial institutions will turn to Bitcoin during a crisis.

As Bitcoin powered ahead to a new high for a second week in a row, some have speculated that institutional investors could seek safe haven in the virtual currency in the future. The prevailing rhetoric over the past month has been more affirming than damning of cryptocurrencies, with the likes of Ronnie Moas and Max Keiser predicting new highs in 2018. Speaking to RT, eToro analyst Mikhail Mashchenko says financial institutions could look to Bitcoin if a major financial crash hits global markets.

“The demand for Bitcoin is growing as the crypto market has become less volatile, and an increasing number of professional investors see it as insurance.”

Second-oldest bull market

The current bull market in stocks is the second-longest in history, according to Fortune, having lasted 104 months so far. The longest bull market in history ended in 2000 after an impressive 113 month run. With the current rally getting a bit long in the tooth, many on Wall Street are making contingency plans for the stock market’s inevitable turn. If Mashchenko is right, Bitcoin will have a role in some of these plans.

Shifting opinions

Mashchenko’s statements come on the back of changing sentiment in the mainstream financial sector. Last week, JP Morgan Chase announced plans to offer Bitcoin futures on the Chicago Mercantile Exchange – an important move by one of the biggest banking and financial services providers in America. Even more satisfying, this moves comes only months after Chase CEO Jamie Dimon condemned Bitcoin as a scam.

Online banking service providers and exchange operators LedgerX and Revolut are also adopting Bitcoin support. The former was recently cleared to offer Bitcoin derivatives as people look to do more than just trade the cryptocurrency.

“LedgerX launched its first long-term options for Bitcoin, with an expiration date of December 28, 2018. In the coming months, we will continue to see the ‘domestication’ of Bitcoin: the Chicago Board Options Exchange and the Chicago Mercantile Exchange are planning to launch tools based on the cryptocurrency in the near future.”

Big money

If and when a stream of institutional investors start investing large amounts of capital into cryptocurrencies, some of the stunning predictions made by Bitcoin bulls could well be realised. However, Mashchenko’s prediction was quite conservative, suggesting that Bitcoin reaching a $10,000 high by the end of 2017 would be driven by emotion rather than fundamentals:

“We could see a Bitcoin at $10,000 in a month or so. However, such a surge will be based on emotions, not on fundamental factors. So, further growth of the cryptocurrency will require something more than euphoria.”

Having hit the $8,000 mark last week, Bitcoin surged another $1,000 dollars in just a few days, breaching the $9,000 level during the Thanksgiving weekend. At press time, the price of Bitcoin sits at $9,500, just $500 below Mashcenko’s predicted level.

Source: Coin Telegraph




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Bitcoin Touches a Milestone Price of $9K Across Global Exchanges

Bitcoin Touches a Milestone Price of $9K Across Global Exchanges

The price of bitcoin has crossed the $9,000 USD zone across global exchanges on November 26, 2017, at approximately 10:40 am EDT. Earlier this year, bitcoin’s meteoric price rise had crushed those who believed it would tank when it passed $2K, and has continued to exceed some of the more modest expectations.

See also: New Trading Tip Column `Writing On The Wall´ says “Sell Bitcoin Gold”

Bitcoin Crosses the $9K Region

Bitcoin Touches a Milestone Price of $9K Across Global ExchangesBitcoin is on the tip of everyone’s tongues these days, as the decentralized currency has breached many all-time highs month after month. 2017 has been spectacular as far as the currency’s value is concerned, with bitcoin rising over 700 percent this year alone. For instance, back in January the price finally breached $1,000 per BTC, but then kept roaring all year long. On October 7 the price surpassed $4,500 which was half of what it is today, and you could have bought the dip on November 12 when the price was $5,850. Although the present value of bitcoin has astonished many, how quickly it has risen has been a shock to most. The currency is now being taken very seriously by naysayers, with it’s massive $150B market capitalization. At press time the price per BTC is at an all-time high of $9020 per token.  

Milestone After Milestone, Bitcoin Just Won’t Quit

The cryptocurrency’s market price isn’t the only milestone of bitcoin’s ninth year of life. The currency is being used more than ever before – as there are roughly 250,000-375,000 transactions confirmed on the network every single day. Further, well over three-quarters of the cryptocurrency has been mined so far leaving just 4.3M bitcoin’s left to mine. Bitcoin mining is more profitable than ever – with 24 pools splitting the current hashrate. Right now, the biggest mining pools in the industry as far as hashrate is concerned include Antpool, Viabtc, BTC.com, Slush, and BTC.top. Hashrate itself is massive, as miners at press time are processing over 10 exahash per second, and on October 24 the hashrate surpassed 12.5 exahash. In contrast to the positive news regarding bitcoin during 2017, the network has experienced congestion and significantly higher fees this year as well.

Bitcoin Touches a Milestone Price of $9K Across Global Exchanges

Technical Indicators

Looking at the charts since our last markets update, we can see some massive resistance up to $9300. During our previous analysis, the two 100 & 200 Simple Moving Averages (SMA) were parting ways after crossing paths earlier this week. Now the short term SMA is well above the long-term trend line indicating bulls may break key resistance quite easily. There is a bit of sell off with consolidation trying to form, as both the RSI and Stochastic show oversold conditions. Bitcoin’s price could see a correction in the near future, but it depends on the when buyers run out of steam. If a drop takes place, order books and some Fibonacci retracements indicate some possible $8,500-8,800 scenarios short-term. For now, bitcoin is trying to hold steady above $9K to keep the momentum going.

Bitcoin Touches a Milestone Price of $9K Across Global Exchanges
Bitcoin smashed an all-time high of $9020 per BTC on Bitstamp at 10:40 am EDT.

Global Interest

Bitcoin has had a fashionable year all around, as mainstream media and the masses are taking notice of the currency’s benefits. Every single top publication and television news channel worldwide has mentioned bitcoin this year, and most of them are talking about it optimistically – with mainstream media highlighting the decentralized currency in some form multiple times a week these days. Media pundits are all talking about bitcoin mining, people using the currency, and, of course, the significant price rise.

Bitcoin Touches a Milestone Price of $9K Across Global Exchanges
Bitcoin interest according to Google trends has risen exponentially.

In addition to the media attention, citizens all across the globe hear about bitcoin far more often than they did in the past. Back in 2015, you could ask someone about bitcoin, and they wouldn’t know what you were talking about. Now, a friend of a friend or family member who knows a cousin just so happens to mine bitcoin – it’s like suddenly everyone knows about bitcoin!

Alongside this, the world’s citizen’s are using BTC in great number where economies are failing; capital controls are tightening, austerity measures are getting worse, and national currencies are suffering from hyperinflation. These countries include places like Venezuela, China, Zimbabwe, Mexico, and many other areas around the world. And we can’t forget about Japan whose been one of the friendliest nations towards bitcoin so far, as the country has legalized BTC for payments across the land. Japan has streamlined thousands of merchants who accept bitcoin, and roughly 88% of the country’s people have heard about BTC.

Are We Nearing the Moon or Are We Not Even Close?

Bitcoin has become a serious contender in the world as far as money is concerned. Reaching $9K per BTC is just one feat this technology has seen this year, and enthusiasts are celebrating it all. As bitcoin slowly creeps towards $10,000 per BTC, people are starting to question where the moon really will be? $10K, $50K, $100K or maybe a million? The kids keep asking where that confounded moon will be?

Where do you see the price of bitcoin heading from here? Let us know in the comments below.

Disclaimer: Bitcoin price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”


Images courtesy of Shutterstock.


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The post Bitcoin Touches a Milestone Price of $9K Across Global Exchanges appeared first on Bitcoin News.

Source: Bitcoin News




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Bitcoin Going Mainstream: Coinbase Has More Users Than Charles Schwab

Coinbase user numbers now exceed the number Schwab brokerage accounts, indicating widespread interest.

In a sign of growing mainstream acceptance, digital currency exchange Coinbase now boasts more accounts than brokerage firm Charles Schwab. According to its website, Coinbase has 13 mln users while the number of Schwab brokerage accounts stood at 10.6 mln as of the end of 2016.

These numbers don’t paint a complete picture, since the amount of assets controlled by Schwab certainly vastly exceeds those of Coinbase users. Nevertheless, the actual number of users indicates a massive volume of adoption, as the public begins to dabble in cryptocurrencies. Coinbase user numbers have grown by 167% this year.

Widespread awareness

Coinbase openly publishes the number of active accounts on their site, and traders have been keeping a close eye on those numbers throughout the digital currency boom this year. Such large numbers of individuals creating accounts on cryptocurrency exchanges should put an end to the thought that Bitcoin is just a fringe economic event.

Regardless of bullish or bearish expectations, the reality is that Bitcoin is gaining traction amongst members of the general public. This is further demonstrated by the offering of futures by the Chicago Mercantile Exchange (CME), the proliferation of hedge funds and the embrace of Bitcoin in cash-strapped countries.

Source: Coin Telegraph

 




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