What Are NFTs? Everything You Need To Know

NFTs are the latest cryptocurrency rage these days, with bands like Kings of Leon releasing their next album as limited edition “golden tickets,” and NBA digital collectibles being sold for millions of dollars. They’re interesting to collectors and cryptocurrency fans alike, but is there a future there? In other words: Should you spend some actual dollars to invest in a digital trinket?

What Are NFTs?

NFTs, or non-fungible tokens, are a type of cryptocurrency created on a smart contract platform such as Ethereum, Avalanche or Solana. They are unique digital objects that can be cool to own or even profitable to trade. Think of them as digital collectible cards. They typically start out as something only enthusiasts care about, but if you get a rare one, it could be worth a lot one day.

What is fungible vs. non-fungible?

Cryptocurrencies can be fungible, meaning all the currency’s units (i.e., tokens) are the same and equal, like (for example) dollars or common shares of a company. You give me a dollar, I give you a different dollar back, and we’re both back to exactly where we started.

Non-fungible tokens are the opposite — every cryptocurrency unit, or token, is unique and cannot be replicated.

This “non-fungible” property can be used for many things, even certain types of currencies. But the current enthusiasm over NFTs is mostly fueled by digital art and collectibles. People have figured out that a unique, digital object can be interesting, cool, and even have a significant monetary value. It’s why the space has recently blossomed, encompassing thousands of projects involving artworks, gaming, and sports.

How do NFTs work?

It really depends on the platform. But given the vast majority of NFTs are created and traded on Ethereum, we’ll focus on that.

NFTs are created on Ethereum’s blockchain, which is immutable, meaning it cannot be altered. No one can undo your ownership of an NFT or re-create that exact same one. They’re also “permissionless,” so anyone can create, buy, or sell an NFT without asking for permission. Finally, every NFT is unique, and can be viewed by anyone.

So yes — it’s like a unique collectible card in a forever-open store window that anyone can admire, but only one person (or cryptocurrency wallet, to be exact) can own at any given time.

In a practical sense, an NFT is typically represented by a digital artwork, such as an image. But it’s important to understand that it’s not just that image (which can easily be replicated). Its existence as a digital object on the blockchain is what makes it unique.

How do I buy or trade NFTs?

NFTs are bought and traded just like any other cryptocurrency based on Ethereum, only instead of buying some amount of tokens, you buy a single token.

To do that, you should start by installing Metamask, a browser extension that lets you interact with various facets of Ethereum, such as exchanges and dApps (decentralized apps). MetaMask is also a digital wallet for Ethereum and all the tokens created on Ethereum (both fungible and non-fungible).

After installing the extension, you should buy some Ethereum (you can do it directly in MetaMask with a debit card or Apple Pay by clicking on “Add Funds”). But be very careful with your funds — store your MetaMask password and your wallet’s private key somewhere safe. Then, when you visit a website that sells NFTs (such as NBA Top Shot) or a marketplace where you can trade them (such as OpenSea), connect your MetaMask wallet to the site (only do that on sites you know are safe), and buy your first NFT.

Why do NFTs have value?

Of course, before you buy anything, you’ll probably want to know why it’s a good purchase. Indeed, why would anyone buy an NFT and why should there ever be a buyer willing to spend even more money down the line?

Ideally, the value of NFTs doesn’t just come from a game of digital hot potato, in which you purchase something hoping you’ll sell it for more later. And so on, until the whole thing crashes. Ideally, the NFT should be valuable to you because… you like it. If you’re an NBA fan, you might want to have an official NFT representing your favorite player. Or, perhaps there’s a digital cat that you really like.

Sure, in some ways, many NFTs are just a digital image that you can easily right-click and save to your computer. But NFTs also reside on the blockchain, which makes it extremely hard to truly copy them in their entirety. The blockchain entry also transparently tells you who created the NFT. If a famous musicians says: “Yes, that’s my Ethereum address that created this digital image of a possum.” Then that can be verified on the blockchain.

Some NFTs can be valuable in other ways. Say, for example, you buy an NFT related to an online game. Perhaps that NFT will one day give you special prestige in the game, or it could even be the basis for you getting some other, hard-to-get object; something that only you can have because every NFT is unique. If you’ve ever played World of Warcraft or a similar game, you know how valuable a piece of armor or a weapon can be. Now, with NFTs, no one can take it away from you, not even the game’s owners.

Let’s return for a second to that game of digital hot potato. NFTs are a nascent space, and there’s a lot of hysteria and scamming going on. You might see a certain NFT sold for millions, and think you’ll also be able to buy something for a few dollars and become rich selling it to someone later on. It can happen, but it’s rare.

And these things can be manipulated. For example, a cryptocurrency whale (someone that owns vast amounts of crypto money) can buy many NFTs and then “sell” them to himself (his other cryptocurrency address) for millions, artificially inflating the price. So be careful: Just because some NFT was traded for a lot of money, do not think this automatically means all other similar NFTs are valuable as well.

What are the most expensive NFTs?

In the early days of the space, we saw a blockchain game like CryptoKitties sell virtual cats for tens or even hundreds of thousands of dollars. Music producer 3LAU sold a collection of 33 limited edition NFTs for more than 11 million dollars. The musician Grimes (aka the mother of little X Æ A-Xii) even sold her digital art collection for $7,500 apiece, totaling $6 million in sales. CryptoPunks, which are amongst the most coveted NFTs around, regularly sell for millions. Yes, these things can get very pricey.

Are NFTs a good investment?

Buying an NFT because you like it, or maybe even to earn (or lose) a few quick bucks is one thing. But investing in NFTs is another. Again, it’s a nascent space. Even a Van Gogh painting or a rare Babe Ruth baseball card required some passage of time before becoming very valuable.

Given the digital nature of NFTs, it’s hard to compare them to prized physical artworks, such as statues and paintings. On the other hand, we live in a world where one Bitcoin is worth more than $50,000, so things from the digital realm can certainly be very valuable and even sustain that value over longer periods of time.

In any case, if you plan to invest in NFTs, you’ll need to dive deep into this complex world because each NFT market is slightly different. It’s also pricey — trading on Ethereum can be quite costly as the network’s recent congestion is causing fees to rise. Finally, you’ll need to think strategically and follow the often rapidly changing cryptocurrency trends. In short, it’s possible to earn money by investing in NFTs, but you’ll have to do your homework.

By Stan Schroeder

Source: What are NFTs? Everything you need to know.

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Crypto Incubators, Accelerators And Venture Capitalists Rise To The Challenge Of Web3.0 For All Investors

Many will recall the ICO craze of 2017 as crypto startup projects raising capital exploded onto the scene from May of that year with bitcoin hitting all time highs and surging above $15 thousand by December. Projects flooded the market seeking capital to mint new coins and promised groundbreaking changes.

The ICO landscape rapidly descended into chaotic scenes of indiscriminate buying and selling often for quick profit, disregarding long-term sustainable growth and investor interests. Hype and expensive marketing campaigns often misled investors, many of whom succumbed to greed instead of performing even cursory due diligence.

Though there were many excellent projects, some still with us today, many were fraudulent, ill-intentioned or at best, misguided. The SEC gave notice that it considered many tokens as securities and would apply the Howie Test to coin projects. This significantly dampened the market and in the end, some studies identified more than 80 percent of all ICOs as scams earning the badge of shitcoins for many from the lCO boom.

This was not crypto’s best day and the sector did little to engender legitimate and responsible inclusion within the financial system with policy makers and regulators, and this sentiment still lingers in the corridors of power today.

This is the principal reason many in my global community came to together to form Global Digital Finance, an industry not-for-profit organization focused on developing and sharing leading market practices and standards for the crypto and digital assets sector.

Many of us were called to action to demonstrate that the crypto and digital assets sector was founded, staffed, and run by responsible people who could abide by jurisdictional and global laws, and were keen to support policy makers and regulators with meaningful compliance, while asking for patience with the new technologies and business models as the developed.

The big message was, “there are adults on the room”, and there is some groundbreaking innovation going in here that is of benefit to society, lets not get lost in the technological jargon and please exercise a bit of patience.

Characteristic of bubbles that burst, a slump followed this high point, commonly known as the “Crypto Winter”. There was a silver lining to those dark days in that it proved to be a time for learning from mistakes for many and rethinking the future of crypto.

A wave of pioneering crypto-based incubators, accelerators and venture capitalists emerged aiming to restore normalcy and rekindle the flame of innovation. In addition to discovering and supporting genuinely promising early-stage startups, incubators significantly broadened the scope for capital formation and accumulation in the blockchain cryptocurrency sector.

The “2021 List of Blockchain Venture Builders, Incubators & Startup Accelerators,” is pretty comprehensive, and since their arrival on the scene, this collective has been a catalyst for increasing institutional investments in crypto-based projects, which has helped flood the market with record amounts of cash.

Kardia Ventures CEO Huy Nguyen believes incubators bring far more than expertise and experience to the table. They also provide startups with access to an essential and extensive network of investors, stakeholders, and service providers, and provide much-needed capital to help ensure early stage startups have a clear path to success. Kardia Ventures has made tens of millions of dollars in investments across 18 companies, including participating in an $8.5 million seed round for DeHorizon and a $2.1 million initial round for Thetan Arena.

A Record Year For Venture Investment 

Venture capitalists invested $26 billion in crypto-based projects in 2021, dwarfing figures from previous years. The surge includes a $10 billion investment in crypto exchange Bullish Global, and $350 million in funding for NFT gaming company Dapper Labs. Additionally, Paradigm and Andreessen Horowtiz have launched their own crypto investment funds worth $2.5 billion and $2.2 billion, respectively, the largest of their kind to date.

Venture capitalists aren’t getting into the crypto industry merely for the ROI. Shan Aggarwal of Coinbase Ventures highlights that short-term gain isn’t the primary metric for success given the blockchain-powered future that Web 3.0 promises. What’s really important is infusing liquidity into crypto markets. In other words, addressing volatility issues is key to long-term success, and the recent influx of venture dollars goes a long way to help ensure smoother sailing.

Institutional investors are increasingly interested in the crypto market but aren’t always aligned with the principles of decentralization and user-orientation and some have been at odds with the broader interests of the crypto and digital assets community. This prevalence has caught the attention of Cardano founder Charles Hoskinson who thinks institutional investment threatens the sector’s meritocratic and community-governed nature.

Hoskinson warns, “They (the institutional investors) are always going to get their pound of flesh before everybody else.”

The scenario is changing for the better with institutional investors rethinking their strategies to suit the needs and demands of the decentralized world of Web3.0. Deciding everything behind closed doors shrouded in secrecy has been the traditional way of doing things and these days, some seek to ratify investment decisions through community-oriented voting, as was witnessed during the funding rounds of SushiSwap.

Retail Investors Continue To Drive Adoption

Retail investors will always dominate the transaction volumes in crypto and have almost singlehandedly created to the $2 trillion crypto market without the governments and the legacy financial system, arguably Satoshi’s main goal with bitcoin. Many institutional investors access the market by participating in funds and listed equities focused on blockchain and cryptocurrency to get exposure to the asset class, especially in the West.

High volatility, a consistent feature in cryptocurrency, isn’t conducive to the demands of retail investors, who typically lack the capital buffer necessary for absorbing market fluctuations and do not have the hedging playbook or experience to rely on. Large capital losses pose a significant threat to many retailer investors who are limited to risk exposures far lower than institutional players. Volatility is also a big issue for regulators and is an important consideration in policies for investor protection as it relates to cryptoassets.

Recently retailer customers in Vietnam, India, Pakistan and the Ukraine have been buying cryptocurrencies and driving the adoption rate to more than 881 percent in 2021In India retail investment rose 600 percent from April 2020 to March 2021, leaping from $900 million to $6.6 billion,  however, traders went on a selling spree in anticipation of unfavorable regulations and a possible ban on cryptocurrencies, which led to tumbling prices.

Such erratic buying and selling hinders the sector’s progress, setting off a vicious circle of perpetual volatility. Policymakers are advised to offer a greater degree of consistency and clarity when it comes to the direction of travel and regulatory certainty of cryptoassets to help better align to and address retail investor’s interests for longer-term market stability.

A Crypto Market For All Investors

The crypto and digital assets sector is on the verge of a paradigm shift with Web3.0, and for that shift to happen, incubators, accelerators and venture capitalists are poised to rise to the occasion. In addition, onboarding new investors is vital, and many are already meeting these new challenges with relative efficiency.

Creating a safe space for retail and institutional investors is one of their primary functions of incubators and accelerators. If policymakers and regulators can match this with regulatory sandboxes such as Hester Peirce’s Safe Harbor Proposal in the U.S., and the Pan-European Regulatory Sandbox as part of MiCA, the sector will be better grounded to efficiently and effectively serve all investor markets.

The opportunity to start a new era of innovative industry and regulator collaboration is upon us and we are close to the tipping point of policy makers understanding the importance and impact that this new and innovative digital financial infrastructure will have on society.

Platforms like Morningstar Ventures are leveraging in-house and outsourced expertise to boost investor confidence through rigorous assessment and risk management. Using these principles, Morningstar Ventures has broadened its portfolio to span a multitude of investments across the Decentralized Finance (DeFi) space, including tokens like Elrond, Polkastarter, Humans.ai and Yield Guild, and equity investments including NGRAVE, Moralis.io, Unstoppabledomains.com, and Ethernity.io. Successful incubators like Morningstar Ventures consider all the markers necessary for well-informed investment decisions, from revenue models to growth potential.

With ongoing innovations in crypto-based venture capital funding, the scope for secure retail investments is broader than ever before. Diverse fundraising methods, such as Initial Exchange Offerings (IEOs) and Initial DEX Offerings (IDOs), are crucial to further lowering the barriers to entry. Furthermore, present-day launchpads prioritize sustainable growth, implementing robust checks and balances to filter bad actors. DAO Maker, for example, offers a lock-in functionality that secures investors while ensuring accountability on the part of the innovator.

Ultimately, delivering the Web3.0 vision will require adoption by both retail and institutional investors. Institutional investors have the resources to deploy to reduce volatility and improve mainstream adoption by infusing liquidity into cryptocurrency markets, while retailers uphold the sector’s community-governed structure. Both are key to success. To bridge the gap and entice both sides to the table, incubators, accelerators and venture capitalists play an important and vital role in helping ensure the crypto and digital assets sector’s sustainable future.

Follow me on Twitter or LinkedIn.

I cover fintech, crypto and digital assets, and sustainable finance and investments, and promote policies for a transparent, secure…

Source: Crypto Incubators, Accelerators And Venture Capitalists Rise To The Challenge Of Web3.0 For All Investors

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A Finance Professor’s Advice on Investing In Bitcoin: Just Say No

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With inflation reaching 30-plus year highs, investors are looking to alternative investments to protect their capital from its erosion in case inflation is not “transitory,” but “permanent.” One popular alternative in recent years that has gained some currency is digital coins, such as bitcoin.

Bitcoin emerged in the wake of the 2008 financial crisis that led to an explosion of the liabilities of central banks. At the same time, debt issuance by private and public entities rose sharply. That brought into focus the realization that global economies had been living beyond their means. Inflation and devaluation of fiat currencies was feared.

The decrease in the trust of the banking system caused an increase in the demand for cryptocurrencies, like bitcoin because bitcoin provides the means to avoid governments and central banks.

Is this then what makes bitcoin valuable?

Bitcoin embodies two innovations: blockchain technology, a public ledger that contains all transaction records since inception, and decentralized governance. It is governed by “miners” who are incentivized to maintain a stable supply of bitcoin.

The theoretical roots of bitcoin can be found in the teachings of the Austrian School of Economics and the writings of Friedrich von Hayek, who believed that private banks should have the right to issue their own currencies.

Like gold, central banks cannot print bitcoin. And, not unlike the rarity of gold, the supply of bitcoin is fixed to 21 million bitcoins and is determined by an algorithm. New bitcoins are created after performing computationally intensive tasks that are necessary for the bitcoin system to function. However, only a limited supply of bitcoins is “mined” every year.

In light of the increased demand for bitcoins, due to the hype, media reports of rising prices, fear of missing out and uninformed speculators and the feedback loop that ensues, a severe imbalance between demand and supply has been created. That has driven bitcoin prices skyward.

However, having said that, eventually, bitcoin investors will have to ask themselves the following questions:

First, what is the value of a bitcoin? Is bitcoin money? Is bitcoin an assets class? And finally, what does bitcoin give you a right to? When I teach valuation in my classes at Ivey, I define value as economic or fundamental value, which relates to the ability of an asset to produce a stream of after-tax cash flows. What are bitcoin cash flows? None!

What is the value of bitcoin? Or better, what makes it valuable? Is it because many people think it is valuable? Is it valuable because it is cool, and we expect other people, especially those in the online community, to believe it is valuable? Does the dynamics of investor demand matter as much as fundamentals? In a recent paper by Xavier Gabaix and Ralph Koijen, the authors argue “prices move because people do things independently of fundamentals.”

In their paper titled “In search of the origins of financial fluctuations,” they explain that the amount of money entering the markets can have a large impact on share prices regardless of fundamentals. They do, however, conclude that in the long run prices return to fundamentals. But how long is long run?

Is bitcoin money? Well, it is not as it fails the three key functions of money: store of value, unit of account and medium of exchange. Bitcoin is extremely volatile, very illiquid, and unable to handle a large volume of transactions.

Bitcoin is not an asset like real estate or a stock as it generates no cash flows or expects to generate any cash flows and it is not a bond for the same reason? It also has no inherent value like gold. Gold is perceived to be valuable because it has certain unique characteristics, and attributes, like best conductor, more malleable, can be used to make tools and jewelry and can be worn and so on – we cannot do this with bitcoins.

Bitcoin has no correlation with other markets, like the stock market. For example, the correlation coefficient between bitcoin returns and the returns of S&P 500, NASDAQ, Russell 2000 and the S&P/TSX are 2%, -3%, -5% and 4%, respectively, none of which are significantly different from zero. And so, bitcoin cannot be used as a hedging instrument. Despite the bull market of 2018 and 2019 bitcoin’s value collapsed.72ecba17-6d0b-4a22-8a7e-e531c7c347c9-2-1Moreover, heavy regulation by governments weakens bitcoin’s value proposition. Many central banks have announced that they intend to launch their own cryptocurrencies. And hostile government policies against bitcoin (e.g., China) increase the vulnerability of bitcoin and reduce its attractiveness.

Every generation must learn things the hard way. It is now the turn of millennials, who love everything digital. It’s time to learn the risk of fads, be they digital or analog.

George Athanassakos

George Athanassakos is a professor of finance and holds the Ben Graham Chair in Value Investing at the Ivey Business School, University of Western Ontario.

Source: https://www.theglobeandmail.com/

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What Crypto Investors Need To Know About Charitable Tax Planning

Ah, December. It always feels like this month sneaks up on us. For many, it is the last chance to impact their tax planning. But in the year end rush, there is a lot to consider.

The past 18 months have been a wild ride in the capital markets. From the lows of March 2020 to the highs of the recent months, investors have done incredibly well. Further investors who fearlessly entered the crypto market a few years back might find themselves with significant gains.

And that is where taxes can become tricky. “Think of cryptocurrency like a stock. Sell it in less than a year at a gain, and it is ordinary income. More than a year, and it’s taxed at long-term capital gains rates,” explains Adam Markowitz, EA and Vice President, Howard L Markowitz PA, CPA

While recognizing a gain might seem like the only option available to crypto investors, a unique tax planning opportunity is available:  the ability to use your cypto holdings to donate to charity. As crypto becomes commonplace in investment portfolios, more donor advised funds (DAFs) and charities are accepting these holdings in their donations.

For many this will be a significant planning opportunity, but just because it is permissible, doesn’t mean it’s straightforward. There are a few rules of the road that crypto investors must consider when donating to charity.

Tax Mechanics

Before we get into how crypto can be donated, it is important to understand the mechanics of donating noncash assets to charities.

“In addition to cash donations, individuals, partnerships and corporations are allowed a charitable deduction on their tax returns for donated property,” explains Lorilyn Wilson, CPA & CEO of Lookahead LLC and DueNorth PDX.

Publicly traded securities are commonly-donated non-cash items. In this situation, investors can get a special two-part tax benefit. First, they do not have to recognize the capital gain; second, they get a charitable deduction when the holdings go to the charity or donor advised fund.

“But there are rules. For property donated with a combined worth of more than $500 (think Goodwill donations, cars, etc.), an additional form called Form 8283 must be filed as well,” says Wilson. For publicly traded holdings, only Part I of the form is required.

“The IRS requires you take the charitable deduction at the fair market value of the property being donated – and this is the form used to do just that,” says Wilson.  “Questions such as the name of the organization donated to, property description, date property was acquired and contributed, how much it cost, and what the resale value is – is all information gathered on this form.”

Donating stocks can be a powerful tax management tool, but charities and DAFs have historically been nervous about crypto. Things are changing and the door for donating crypto is now open.

Be Aware of Appraisal Rules

Donating crypto is not as straightforward as donating publicly traded stocks. The world of crypto has not been transparent and the rules around donations reflect that.

“Now let’s say someone has decided to donate their crypto or other non-publicly traded securities. Could they artificially inflate the value of their donated property to get a higher deduction and pay less in taxes? As usual, the IRS is one step ahead of them,” says Wilson.

That’s why it is important to be aware of another set of rules surrounding Form 8283. Unlike publicly traded securities, a donation of cyrpto currency that exceeds $5,000 will require a qualified appraisal.   Wait, aren’t crypto currencies actively traded, with the ups and downs of their prices making headlines? The answer is that neither the IRS nor the SEC has taken any official position to treat cryptocurrencies as securities. In fact, the IRS has designated cryptocurrency as property and not currency.

A qualified appraisal must meet IRS requirements, including the need to use a qualified appraiser who has met education and experience requirements. Qualified appraisers are usually licensed or certified in the state in which the property is located.

Further, the appraisal must be done no more than 60 days prior to the donation and no later than the due date of the tax return including extensions. The appraisal is reported on Form 8283 and the appraiser is required to sign the form. No appraiser? No deduction.

It can be challenging to find a crypto appraiser, but as the technique is in greater demand, there are more resources available. Investors who use a donor advised fund like Schwab Charitable or Fidelity Charitable, may also be able to draw on their expertise.

Investors should anticipate that they will spend approximately $500 to $1,000 on appraisal fees, but the tax benefit may be worth it.

Check With Your Tax Professional

Ultimately, crypto investors should seek help from their tax professional to make sure that they take the appropriate steps in donating crypto to a DAF. It could mean the difference between a great tax planning experience and the disappointment of a disallowed deduction.

Follow me on Twitter or LinkedIn. Check out my website.

Ever since my first tax class in law school, I have been fascinated by wealth and the journey one takes to achieve it.

Source: What Crypto Investors Need To Know About Charitable Tax Planning

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Omicron Risk Unlocks Profit For Retail Traders Shorting Bitcoin

The latest Commitments of Traders (COT) report issued Monday night by the Commodity Futures Trading Commission (CFTC) for the week ending Nov 23 revealed a three-fold increase in the number of short bitcoin futures contracts held by retail investors compared to the previous week. These holdings, called open interest, represent capital held at the CME as collateral for long and short trades.

Shattering the average number of short bitcoin futures held by retail traders (about 798 contracts through last week), the COT report showed a 200% jump in short bitcoin contracts from 887to 2,663. The monetary equivalent of this net short increase is $511 million, and it should be noted it did not come from trading in micro bitcoins (MBT) futures, which is still nascent and 20 times smaller than the BTC futures market.

This dramatic shift follows a temporary but equally sharp bullish (long bitcoin) move on the second half of October. Together, these moves suggest that perhaps wealthy retail investors, those able to purchase the typical $300,000 CME bitcoin futures contract, may be starting to place short-term speculative bets in tandem to profit from short-term movements in the volatile cryptocurrency market.

In recent weeks and months, the market for providing crypto trading insights has grown from trading platforms like LMAX Digital and Coinbase to also a few US banks with crypto research teams. Wealthy retail traders require specialized brokerage access to trade CME futures and this can be done through firms like ADM, Stonex, thinkorswim (owned by Schwab), and also a small number of investment banks that have authorized wealthy clients to buy and sell CME crypto futures.

One surprising development seen in the CME bitcoin futures market is the fluidity by which market participants take on and ease off trading risk. While retail traders are uncharacteristically short bitcoin presently, a small (eight to ten) group of asset managers active in CME futures have taken massive, long bitcoin futures positions in November, totaling more than 5,000 bitcoin futures contracts equivalent to $1.5 billion.

Thus, the long bitcoin futures holdings of commercial and retail traders seen in October amidst the ProShares BITO bitcoin ETF launch, ushered asset manager demand which they, in turn, received from institutional clients wanting a long bitcoin position in their funds.

Commercial traders, which are firms and/or professionals with deep industry and market knowledge generally hired to mitigate business risk through use of futures contracts, cut back sharply their long bitcoin futures holdings to pre-BITO levels but boosted sharply their ‘spread’ contracts – which is the practice of holding long and short positions in the same contract to provide liquidity to those who need it.

Separately and over recent weeks, this group of traders has built a large short position equivalent to $113 million worth of MBT futures contracts which makes them the largest short liquidity providers. Said differently, this group of traders went from facilitating liquidity for the large surge from bitcoin ETF in October to now getting back to a smaller exposure and selectively providing liquidity in new areas like MBTs.

Meanwhile retail traders shrewdly adopted the previously discussed short bitcoin futures position, betting on the price of bitcoin possibly falling below the $57,600 level bitcoin seen last week – bitcoin did fall to a low of 53,200 on Nov 28 and that could have provided some of these retail traders a profitable exit of their short trades – which become profitable as the price of an asset decreases in value.

The big picture remains bright for bitcoin and cryptocurrencies at large as institutional demand continues to grow, with large asset managers like Vanguard and BlackRock allowing funds they manage to pour approximately $3 billion each into crypto stocks as of Nov 2021 and rival Fidelity nearly doubling to 200 their institutional clients – hedge funds, family offices, registered investment advisors, pensions and corporate treasuries – that use the firm’s bitcoin execution and custody services.genesis3-2-1-1-1-1-1-2-1-1-2-2-1

While bitcoin price has dropped 18% below its $69,000 Nov 10 high, this has been due to robust macro headwinds like rising inflation and the Omicron variant impact on the global economy, and not due to weak bitcoin demand. In fact, the sharp drop in crude oil prices – Brent crude oil price down 20%+ since Nov 10 – shows that Omicron uncertainty is providing an organic break to inflationary forces.

It will be weeks if not months until the world regains confidence that it can defeat the Omicron variant, and in the meanwhile it’s sensible to expect lower expectations for global economic growth, lower inflation, and a modest appreciation of risky assets like cryptocurrencies. For these reasons, shrewd investors will continue to look to crude oil price action as a proxy for the expected energy demand globally but also as a guide for bitcoin appreciation potential over the short term.Follow me on Twitter or LinkedIn. Check out some of my other work here. Send me a secure tip.

I write about digital assets trends and am a leading creator of the Forbes Digital Assets tools and functionality our viewers require. I support the

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