In this episode we talk about the biggest news on Ethereum, some of the benefits from early adoption of this technology and some Bitcoin price predictions with some interesting topics we also touch on.
Kyle Fraser: Hello, and welcome to Chelle Radio, where we focus on providing you with an avenue to learn more about investing and finance, especially within the real estate and cryptocurrency industries. I'm your host, Kyle Fraser, the content specialist here at Chelle Service Capital, and this is Episode Two of Chelle Radio.
Kyle Fraser: Today, we will be talking to our currency trader, Konrad Kubicka-Fitzpatrick about the latest and biggest news on Ethereum, some early adopters, as well as some future price predictions for Bitcoin considering its downtrend recently. Stay tuned for a great episode.
Kyle Fraser: Can you tell us a little bit about the biggest news with Ethereum?
Konrad K-P: Thursday, June 14, 2018, Director of Finance at the Securities and Exchange Commission stated that he does not believe Ethereum to be a security. He believes that Ethereum is decentralized enough for the Ethereum token to not be considered a security.
Konrad K-P: Now, what is a security? A security is a representation of ownership in a publicly traded company, a creditor relationship with a governmental body or a corporation, or rights to ownership as represented by an option.
Konrad K-P: Basically this has a lot to do with all the ICOs that have been done. The public will give a company money in some cases, and a company will, in exchange, give the investor some tokens that are to be used in the company's project, as a utility token.
Konrad K-P: But because so little of these tokens are actually being used for the utility purposes, and many of them are treating them as an investment, a lot of people are skeptical of saying that a lot of these ITOs are basically unlicensed, unregistered security offerings. Which are illegal.
Konrad K-P: Now, Ethereum being named or not being named a security is quite a big deal, because many many ICOs are built on Ethereum and Ethereum has become quite this foundational project for the entire cryptocurrency market.
Konrad K-P: By saying that Ethereum is not a security, it provides a lot of stability, or a lot more stability, to the market. Investors looking to get into Ethereum can now feel a little bit more confident about regulatory risk for approaching the project.
Konrad K-P: So overall that's pretty good news for the cryptocurrency market. Up until that news broke, the market was on this downtrend for a while and then it seemed to have halted around there and it's beginning to move up. So this could be some news that drives the market forward once again.
Kyle Fraser: The last I heard about Ripple, it was on The Ellen DeGeneres Show. Can you tell us a little bit about the news with Ripple?
Konrad K-P: The Ethereum security discussion with the SEC official did shine a lot of negative light towards XRP. Some of the things that the official said, and I'm retweeting this from Nathaniel Pauper's Twitter, very good source of information there.
Konrad K-P: He said the SEC officials said that the key in determining whether a digital asset is a security is the role that a third party plays in the asset. Do they play a key role in the maintenance of the asset? Do they retain a stake in the digital asset?
Konrad K-P: Another Tweet he said "But Hinman, the SEC official, said that if a token is guided by a third party that holds lots of tokens and that takes actions to increase the value of that token, it is probably a security. That sounds a lot like the description of Ripple in XRP."
Konrad K-P: The reason Ripple is being criticized, Ripple is the company. They have Ripple Net and they also have XRP, which is their token. Ripple Net is a messaging service that banks can use to send money around, kind of replacing and circumnavigating the SWIFT system.
Kyle Fraser: What is the SWIFT system?
Konrad K-P: The SWIFT system allows banks in other countries to communicate with one another and send money to one another. Now, the SWIFT system is like a group of all banks willing to participate for these types of exchanges.
Konrad K-P: And if a bank in Canada, let's say RBC, wants to communicate with a bank in The Philippines, they can't directly send money to one another. There's a lot of intermediaries that have to stop in, facilitate the exchange, exchange currencies. That's why if you ever try and send a wire transfer to somebody it can take quite a long time, like a week to two weeks sometimes. And it'll cost you like a lot of money.
Konrad K-P: It's not like doing a regular e-transfer from let's say RBC to TD. That would be pretty much no fees, near instant, very very easy. Very few intermediaries there.
Konrad K-P: The SWIFT system is for international payments. It's long, it's expensive, and it's what Ripple is looking to replace.
Kyle Fraser: Why is Ripple being criticized?
Konrad K-P: The reason that Ripple is being criticized somewhat in the crypto space is because Ripple holds a massive percentage amount of their tokens. Like Jackson Palmer, great figure in the space, showed some data on how I believe it's like 90% of the XRP tokens are held by the top account holders.
Konrad K-P: Most of the XRP that are held these top 90% are held either by Ripple employees or by the Ripple company itself. So because the firm holds so much of this token, they do really have a stake in this token.
Konrad K-P: We quite often see promotional activities done by Ripple where they donate money to charities and whatnot. While these are charitable acts, they are also marketing acts. They're giving away tokens that they created and now have value.
Konrad K-P: It's kind of like they're giving away money they printed. Which many of these things are, in that case that.
Konrad K-P: There is questions of whether or not the company itself has a stake in this token. And if they do, then the token itself is very much like a security.
Konrad K-P: The ruling of whether or not XRP will be a security will be pretty important for the industry, because if Ripple isn't named a security then a lot of projects ... it would be hard for a lot of projects to be named securities.
Kyle Fraser: So when you're talking about this stuff, I get a real sense of passion about it. And I just want to kind of know what really interests you with cryptocurrencies and Bitcoin in general.
Konrad K-P: Like the financial opportunity is terrific. But also the global financial opportunity. I'm really attracted to how it's inexpensive for people to join the global financial economy, lack of restrictions on setting up a Bitcoin account and making a transaction.
Konrad K-P: Today we have expensive transaction fees, we have minimum payments on bank deposits, SWIFT banking system makes it extraordinarily expensive to send money outside of your country or outside your currency zone.
Konrad K-P: And the promise of Bitcoin is to eventually allow for microtransactions, which can help people make very inexpensive payments. So people in poverty living off a few dollars a day, if they need to make a small fraction of their daily earnings and make a purchase with that amount, it wouldn't be feasible to make a bank account and send like an e-transfer.
Konrad K-P: But it may be feasible to send a small Bitcoin transaction once the coin scaling solutions are further in place. That's something that's very attractive about it.
Konrad K-P: With Bitcoin is that censorship resistance, the government can't say hey, you know what? I don't like your or I don't like your political views, I'm going to stop you from being able to make any purchases.
Konrad K-P: This is something we're already seeing happening in China. Many other totalitarian type governments are definitely looking to do something like this as well. The censorship resistance is terrific.
Konrad K-P: It's very safe, hack-proof. Bitcoin has not been hacked. There has not been a 51% attack. You cannot really say this for some of the larger companies like Visa, Equifax. Even the NSA was hacked. It's pretty ridiculous, like central points failure.
Konrad K-P: And then there's the possibility for other use cases. So Ethereum allows for the development of decentralized apps. You can build an app on Ethereum very easy, makes it very easy for entrepreneurs to build something low cost entry. It's a good point across all of crypto.
Konrad K-P: And a lot of interesting applications have been built on Ethereum. Solve identity issues, we're looking to solve issues buying real estate and exchange of property. Both in the physical exchange of properties and also in the registration of property.
Konrad K-P: There's a lot of really interesting use case that can be put out there. It's kind of like saying, with the internet, it's exciting because there's a lot of really interesting websites you can build. And then at some point in time, in the 80s or 90s, I could say hey, this website's cool, this website's cool, this website's cool.
Konrad K-P: But in the end, it's really the opportunity to build a seemingly limitless collection of applications and use cases that people can use. It's really hard to predict right now. We don't know when it will come, but there's a lot of exciting things that can come.
Konrad K-P: And that's what I'm excited about with Ethereum and those other platforms, allow people to build and create something.
Kyle Fraser: Can you tell us a little bit about Bitcoin maximalists?
Konrad K-P: Bitcoin maximalists, there's this philosophical reasoning behind it and there's also, from what I understand, a great deal of technical reasoning behind it.
Konrad K-P: But it's basically that true digital scarcity is either most achieved or only achieved by Bitcoin. Bitcoin's really the only currency that matters, in their views.
Konrad K-P: A lot of projects, even like Ethereum and a lot of ICOs, are scams or unregistered securities that are kind of bogus and the only thing that really matters for this decentralized future of the internet, or at least decentralized exchange of value, is Bitcoin. Everything else is wrong.
Konrad K-P: That's Bitcoin maxilism. There's a lot more people can look into. If you want to look at some traders and some people talking about it, a good resource could be Tone Vays. He has a YouTube channel where he has daily videos with a lot of other people in the space, some traders, some Bitcoin core developers. And they discuss their views and react to market news from the perspective of Bitcoin maximalists.
Konrad K-P: I think it's good to hear that kind of thinking, because there's a lot of different competing ideas and directions and velocities in the crypto space. It's nice to get an idea of how what everyone is thinking, or what all the different groups are thinking.
Konrad K-P: Because then that better helps you understand where the market can go and how things can move on. You don't want to just limit yourself to one view. You ought to challenge your views.
Konrad K-P: So yeah. That's Bitcoin maximalism.
Kyle Fraser: Can you let us in on some future price predictions for Bitcoin?
Konrad K-P: When Bitcoin had futures launched on CME, which is one of the largest issuers of financial products, derivatives, futures, whatnot, it was a really big deal for the market. And that was December 17th and pretty much ever since then Bitcoin has declined.
Konrad K-P: Now, there's a really interesting chart I was looking at. And you compare gold from when gold futures were added, I think it was like 1974, and there's this super sharp run-up, just like with Bitcoin we had in the fall of 2017. Like kind of the irrational exuberance phase.
Konrad K-P: And then a sharp correction downwards. And then the price tries to go back up, and it goes back down. And there's kind of like the peak, down, attempt to go back up, and then down further. We had that happen with Bitcoin.
Konrad K-P: I published on My TradingView, at Fitzpugh 59, and you can see the price goes from the 1.0 level, which is the peak, down to the 0.382 level, back up to 0.786 level. And both gold and Bitcoin do this.
Konrad K-P: And then they went back down further. With gold, there was this extended low and steady decline period that lasted for about 20 years actually. Up until the 90s. And after there's this long period and then a couple of intermediate highs in there.
Konrad K-P: And once the run-up started to begin and it started to pass these intermediate highs in the channel, gold went on this massive run-up. And it was like a few hundred dollars at this point, in the mid-90s I believe it was. And then it went up to over $2,000. So there's massive run-up for gold again.
Konrad K-P: And then since that peak in the financial crisis, it went down and it's settled at about like $1300 now, give or take maybe like $50.
Konrad K-P: Now, the run from gold's most recent peak in the 2000s to its peak when futures were first launched, if you [inaudible 00:12:37] trace levels and you drag it over the entire period, the gold peak is like the 1.0 level, sorry, in the 70s. And the peak in the 2000s is at the 2.272 level.
Konrad K-P: These are consistent relative levels that can be ... they're very comparable. So if you kind of chart out Bitcoin the same way, and it is following the same pattern now, the downside target would be 5K for this.
Konrad K-P: And then after it hits 5K, it will slowly start to recover and it might still kind of hang out in this low zone between 5K and like 8K. And then once it starts breaking up maybe past 12K, like it seems to be the nearest highs that are really kind of keeping us down because we've had double [inaudible 00:13:22] there, then that's when the next bull run could really start.
Konrad K-P: And if Bitcoin, if $20,000 for Bitcoin is the 1.0 level, then the 2.272 level would be about 44-45K. And I don't expect Bitcoin to follow a 20 year bear market like gold did. Even a multiyear bear market. I don't necessarily think it's too likely, the way Bitcoin had from 2013 to 2015-2016.
Konrad K-P: I think it's because of how much attention has come to Bitcoin, and also how quickly that attention spreads because of the internet. And also how accessible it is to invest in Bitcoin, because the internet.
Konrad K-P: So I think the bear market and correction will occur faster and the return to a bull market can also come faster. So 44, 45K is the end of year price prediction based off of gold. Which behaved very similarly with the bringing on of futures, [inaudible 00:14:18] exuberance, price decline, steady bear market, recovery past intermediate highs leading back up to 44 to 45K.
Konrad K-P: I think that this is a sign that we could see Bitcoin in the medium term. And we can provide links for that as well.
Kyle Fraser: How can we actually get to these higher price points for Bitcoin?
Konrad K-P: The main thing that is really stopping Bitcoin from having high prices is how many people are having it. Investing in it, buying it, storing it, using it, exchanging it, etc.
Konrad K-P: And how are we going to get to more people using it? Well, you're going to have the early adopters and the early investors. And then you're going to have the people that follow the crowd and then leave when things start to kind of get not exciting anymore, the way we saw a lot of people leaving the space in the first half of 2018.
Konrad K-P: But same with the internet. The internet wasn't that great. Computers weren't that great when they first started out. A lot of people were skeptical. And it was because the internet and computers in its current stage was just not feasible, not convenient, not practical. And as a result, it wasn't very functional.
Konrad K-P: Today, Bitcoin is functional, but it's not like super great at certain times. In the winter of 2017, if you wanted to buy a $3 coffee, you'd have to pay like a $40 network fee just to make that Bitcoin transaction.
Konrad K-P: Which is ridiculous. It's not feasible and people wouldn't use Bitcoin as a peer to peer cash system with fees that are 20% of your purchase. Fees have gone down. There is less network activity and less transactions happening on Bitcoin right now than there were then.
Konrad K-P: But also technological innovations for Bitcoin, like SegWit and Lightning, are being more adopted. So these kinds of transactions can become a lot cheaper.
Konrad K-P: So functionality can improve. Like the naysayers in the 80s and 90s about computers, they kind of didn't see forward how the technology could evolve. So Bitcoin's technological limitations, we can assume, based off of how technology evolved, that those technological limitations will be significantly improved in the coming, let's say, decade.
Konrad K-P: Okay. Technology is there. What do we really need? Well, with computers, you could do things, but what really had computers taking off was when you had to use a computer. You could say wow, I can't imagine like I used to have to write letters to somebody and send it across the world and then you got to wait and all this stuff, when you can just send an email and they get it instantly. Or like a text message.
Konrad K-P: You can check Wikipedia for doing your homework. I couldn't imagine doing that homework now without the internet. And that's what we really need for cryptocurrencies.
Konrad K-P: We need it to be easy, convenient to use like computers are today and how they have been with the advent of Windows 95 and Apple and whatnot, making it really easy to use computers. We need it to be easy and we need it to be like the convenience factor, like wow, I can't believe there were times I didn't use this before. How did I ever live without this?
Konrad K-P: That's what we're [inaudible 00:17:18] cell phones are like that today. Computers like that today. That's where we need cryptocurrencies to be for them to have the price that reflects their adoption.
Konrad K-P: So that's how we'll hit six digit or higher prices, is when everyone's using it and everyone can't imagine a world where they don't use it.
Kyle Fraser: Do you think a country like North Korea would benefit from adopting a currency like Bitcoin?
Konrad K-P: Well, a state controlled cryptocurrency would be very attractive for a totalitarian government. Because a state controlled currency, first off it wouldn't be decentralized like Bitcoin. Because Bitcoin is censor resistant and any totalitarian government does not want people to be able to do things freely.
Konrad K-P: They want to be able to control things. So you'd have a state backed currency that they could manipulate and they could control who is able to spend what, who has what, they can monitor that. And even use big data to further analyze it and control and monitor their citizens.
Konrad K-P: This is something China does want to do already. And North Korea, if they had the technological means, it's probably something they would do as well.
Konrad K-P: But the people of North Korea would very much want actual Bitcoin, because it is censor resistant. And because it cannot be tampered with the way governments can.
Konrad K-P: Bitcoin is very attractive in Venezuela today, in mid 2018. Venezuela is still in the midst of its incredible political and economic crisis. Government is removing political dissidents, it is printing money, it is destroying the economy. Hyperinflation causes people to have no wealth, no ability to buy food or basic goods.
Konrad K-P: And Bitcoin is kind of like the only safe haven for that. When your currency is losing half of its value every single day, like a cup of coffee will cost you $100 this morning but by the time you finish work the cup of coffee could cost $200. Your money is literally losing all value. It has no value.
Konrad K-P: Like we were seeing in Germany or Zimbabwe, people are burning buckets of money instead of firewood because it's cheaper to do that. That's what happens when you lose absolutely all faith in the monetary system, because it's tampered with by corrupt central authorities.
Konrad K-P: So buying volumes for Bitcoin in Venezuela are increasing, because people want Bitcoin to protect their wealth, to be able to conduct transactions, and be able to basically build some sort of wealth or value while their country is completely taken over by this horrible economic situation there.
Konrad K-P: Citizens like North Korea would want it, because North Korea does have a lot of poverty issues. They're a very private country, so it's hard to speak on their monetary policies. But I assume they're as controlled as their government policies are.
Konrad K-P: And if people are starving and starving to death and malnourished, I don't think that their economic situation could be great. So I would imagine that while it would be unlikely that it would be allowed, citizens would embrace Bitcoin.
Kyle Fraser: You've got some cool news about Bitcoin and Lightning. Can you tell us a little bit about that?
Konrad K-P: There was a new game that came out, I believe it's Pokemon or a game like Pokemon, where you pay a very very very small amount of Bitcoin. I think it's you pick a couple satoshis. A satoshi is one hundred millionth of a Bitcoin.
Konrad K-P: Like for example, if one Bitcoin was worth a million dollars, a single satoshi would be the equivalent of a penny.
Konrad K-P: What we're seeing with this video game is that you can pay a couple satoshis to play. Which is like a fraction of a penny, it might be like a few hundred satoshis. But it's like fractions of a penny to play a single time.
Konrad K-P: What's really important about this is that this wouldn't be feasible with regular currency. Because it's too expensive to process. First of all, you can't even process 0.6 pennies for transactions. It just wouldn't happen. It would be wroted off. Which would nearly double the transaction.
Konrad K-P: A single penny transaction over the internet wouldn't even be feasible. Like no merchant would do it, because Visa or PayPal fees would just be far more than the transaction.
Konrad K-P: This is done by Bitcoin's Lightning network, which allows you to create a payment channel and all the payments that occur within these payment channels are pretty much instantaneous and free, or very low cost from my understanding. And they do not appear on the official Bitcoin blockchain.
Konrad K-P: Which, as I mentioned earlier with expensive coffees in December, all the transactions on the blockchain have a fee for being processed. Now, on these payment channels, think of it as being like on the side.
Konrad K-P: The thing of the Bitcoin main network, main blockchain, has been the highway. Right? So every time you drive on the highway you have to pay tolls to the highway.
Konrad K-P: Let's say then you get off the highway and you drive on a side road. You can drive on that side road pretty much instantly, quickly, and limitlessly, because you don't have to lay tolls for the highway because you're on the side road.
Konrad K-P: And then the only time you pay the network fee is when you close the Lightning channel. This would be like when you get back on the highway. What you do is you pay for some sort of signature that says hey, I left the highway and got back on here, here's my payment. Lightning channel's closed, all the transactions within the Lightning channel are settled between other players involved.
Konrad K-P: This is terrific because it allows for really really cheap payments. Now, this video game, Pokemon, once cent Pokemon whatever, it's probably not going to be like the thing that brings cryptocurrency to the masses. Like this use case that people can't live without.
Konrad K-P: But what it is doing, it is proving that Bitcoin's efficiencies are better than traditional currency. Because you couldn't do something like this with traditional currencies.
Konrad K-P: So it's really showing that hey, you know what? We have all ... there's going to be all these terrific ideas that are going to be coming out in the coming years. Taking advantage of these feasible micropayments, which is a brand new concept, and we're going to see a lot of really interesting ideas be developed from this.
Konrad K-P: We can see some really exciting things coming from financial systems for people in poverty. People who live on a few dollars a day cannot afford to send microtransactions, because a traditional banking system isn't feasible for that.
Konrad K-P: But with Lightning network, people who live on a few dollars a day can regularly send and receive micropayments for either basic services or products, for pretty much anything.
Konrad K-P: So this is really exciting, I think, for banking and banks, and also for developing new products and new services using Bitcoin and Lightning.
Kyle Fraser: Thank you very much for listening to episode two of Chelle Radio. If you're interested in learning more about our own cryptocurrency, you can visit www.chellecoin.com. And if you'd like to hear a little bit more about myself, including Konrad, you can visit www.chelleservicecapital.com.
Kyle Fraser: Thanks for listening.