Bitcoin price failed to stay above the $3,520 and $3,480 support levels against the US Dollar.There is a strong resistance formed near $3,500 and a bearish trend line on the hourly chart of the BTC/USD pair (data feed from Kraken).The price tested the $3,400 support and it remains at a risk of more losses towards $3,200 or $3,000.Bitcoin price moved into a bearish zone below $3,500 against the US Dollar. BTC might extend the current decline towards the next key support at $3,200 or even $3,000.Bitcoin Price AnalysisThis past week, we discussed a couple of important hurdles near $3,600 and $3,650 for bitcoin price against the US Dollar. The BTC/USD pair failed to surpass the $3,650 resistance and finally reacted to the downside. There was a sharp decline below the $3,520 support, which dragged Ethereum, ripple and altcoins lower. The price even broke the $3,480 support level and the 100 hourly simple moving average. During the decline, there was a break below a connecting support trend line at $3,485. It opened the doors for more losses below $3,450.A new weekly low was formed at $3,403 and the price moved into a bearish zone. If there is an upside correction, the price may find offers near $3,450. The next resistance is the 23.6% Fib retracement level of the last drop from the $3,672 high to $3,403 low. The main resistance is near $3,500 and a bearish trend line on the hourly chart of the BTC/USD pair. Therefore, if the pair corrects higher, it is likely to face sellers near $3,450 or $3,500.Looking at the chart, bitcoin price is back in a negative zone below $3,500. It seems like there are chances of more losses towards the $3,200 support. If $3,200 fails to hold, the price may test $3,000. On the other hand, a proper close above $3,500 might push the price back in a positive zone.Technical indicatorsHourly MACD – The MACD for BTC/USD is placed heavily in the bearish zone.Hourly RSI (Relative Strength Index) – The RSI for BTC/USD is placed in the oversold area below 20.Major Support Level – $3,200Major Resistance Level – $3,500
Archives for January 27, 2019
Speaking at a CNBC panel at the World Economic Forum in Davos, Sergio Ermotti, the chief executive officer of Swiss bank UBS said the massive December sell-off was the result of political fears as well as the reality setting in that the Fed is tightening up the money spigots.
December losses on the S&P 500, Dow Jones, and NASDAQ made 2018 the worst year for equities since the devastating financial crisis of 2008, the worst December of trading on the U.S. stock market since 2008 as well, and even the worst December since the Great Depression.
U.S. Stocks Were Massively Overvalued
The signs that U.S. stocks were overvalued going into December 2018 were there before there was blood in the streets. A year ago the price-to-earnings (P/E) ratio for the S&P 500 was above 25.5, whereas the average historical P/E ratio for the S&P 500 over the past 146 years is 15.6.
In October of last year an analyst at Market Watch pointed out:
There are only two other times in history that stocks were more expensive than they are today: just before the Great Depression hit and in the 1999 run-up to the dotcom bubble burst.
“Liquidity Can Freeze Like The Water in Davos”
At the world economic forum in Davos last week, UBS Chief Sergio Ermotti said:
“The implied assumption that we hear about liquidity being there, being able to step in and function the leveling out tensions, is the wrong assumption,” adding with some dramatic flair that, “liquidity can freeze very easily, like the water in Davos.”
As a report on Ermotti’s talk for CNBC.com explained:
Stocks got dumped amid concerns of an economic slowdown and fears the Federal Reserve might be tightening conditions to a point where liquidity in markets could dry up. For investors, liquidity is the ability to sell an asset reasonably quickly and at a price close to where it last traded.
The Federal Reserve open market committee raised interest rates for the fourth time in 2018 last month, and the ninth time the Fed has hiked rates since it began raising them from functionally zero percent interest rates three years ago.
To say, as UBS’s Ermotti did in Davos last week, that equity prices depend on the last ten years’ radical experiment in monetary liquidity, unprecedented even for the Federal Reserve, is to admit that they are woefully overpriced.
No More Federal Reserve Money Pump
The logical and necessary corollary and conclusion to what Ermotti is saying is: no serious investor would buy these securities with real money, only with the easy money being lent out at artificially low rates by a central bank that can create as much of it as it wants.
Lest you think, I’m putting words in Ermotti’s mouth, here’s more from the CNBC report:
The Swiss banker said many of the world’s bigger investors were now managing money for others and, unlike banks, they not might stand by willing and able to trade an asset just to ensure markets run smoothly.
Just to ensure markets run smoothly. What does “run smoothly” mean? Obviously, it’s a euphemism and not a technical term. And obviously in this context, it means when markets don’t reflect losses by evaluating equities on the basis of their objective value, but on the ability of the trader to sell them to a greater fool flush with that easy Fed money for a higher price.
How The Fed Turns Equities Into A Ponzi Scheme
If these investors were really value investors looking for equity in companies that are delivering profits rather than a hot speculative investment they can sell at a higher price to a greater fool before the entire thing collapses like it did last month––
Then why were U.S. equities so overvalued last year, while foreign equities were so undervalued, even though U.S. stocks were paying an estimated forward dividend yield of 1.84% while emerging markets were paying 3.35%, fully 82% higher?
The losses from overpaying for an overpriced asset like a share in a U.S. publicly traded company circa November 2018 are diffused throughout the entire monetary base and absorbed by anyone who holds U.S. dollars when they go to spend them and find they are worth a little less every year.
What’s 2% inflation? That’s nothing right? No, it’s definitely not nothing. It’s billions and billions of dollars constantly being stolen from the entire economy and redistributed to the investment banking class via the central bank. And if you do the math, the result is these bankers steal half of the cash in the economy every 30 years.
And when there is the occasional market correction after years of easy money and malinvestment in a speculative bubble driven by monetary expansion, the last greater fool holding the hot potato takes a big loss like we saw last month.
I could just bathe in these bankers’ tears:
The CNBC report concludes with an amazing quotation from another panelist speaking alongside Ermotti in Davos, Mary Callahan Erdoes, J.P. Morgan’s asset & wealth management CEO:
They have a lot of capital that could be deployed but they are not going to go in to make markets in the way banks used to. They are going in as a fiduciary, to make money for their investors, and those are the dynamics that everyone is struggling with.
Wow. These are the dynamics institutional financiers are struggling with:
Having to actually make good investments because the Federal Reserve won’t steal as much money as they have been from everyone else to pump banks full of more cash to keep passing the same hot potatoes back and forth to each other. They might actually have to be real, talented investors now without that constant monetary bailout. #FirstWorldProblems #TheStruggleIsReal
Sergio Ermott image from REUTERS/Arnd Wiegmann
Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.
The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.
A year into the crypto market meltdown, we’ve gone from one extreme to the other.
Where investors and commentators were once consumed with the naïve belief that ICO-funded startups would quickly usher in a new token-driven decentralized economy and unlock untold wealth, we’re now at a point where any idea associated with tokens, good or bad, struggles for legitimacy and money.
It’s time to find the middle ground.
Token-economics is not some hocus-pocus concept. That bitcoin and ethereum’s incentive systems have sustained viable, decentralized communities exchanging value and building products is proof of that. But to assume people will quickly adopt similar models across all sorts of mainstream industries when their livelihoods currently depend upon incumbent centralized systems is also dangerously misplaced.
It would be a crying shame if we threw out token economics altogether. From the widespread mistrust in online media data to the fact that electric utilities obstruct the creation of independent solar microgrids, there is much wrong with the world that could potentially be overcome if digital asset systems enabled communities to enter into exchange without having to trust intermediaries.
The challenge is twofold: figuring out which models are most viable as a starting point and how to most effectively bring them to market.
I, for one, believe industries in which the traded product is already a fully formed item of digital value – such as online media, entertainment or gaming – are a logical place to start. But at the same time, token solutions for these or any industries cannot be simply introduced with a build-and-they-will come mindset. The struggles that Civil faced in introducing a complex, token-based reward system for decentralized journalism suggest that a gradual, transition-based model is needed rather than a bold vision to change the system in one fell swoop with a solution that ordinary people struggle to understand.
Many projects would do best to build a market that first makes old-fashioned fiat money, but with a clear, fully signaled game plan to later introduce a token model that clearly improves the existing customers’ experience and enables the business to scale within a decentralized structure. A game developer, for example, who builds an enthusiastic community around a particular online game, could later introduce tokens, fungible or non-fungible, enabling users to trade digital goods for off-platform services or rewarding them for widening the community.
In other words, token startups – the vast majority of whom have failed to generate anything near a critical mass of users – should aim to build a pre-token community first or at least build a token model on top of an existing community.
That, in turn, brings in real-world questions associated with accessing financial resources and sustaining self-funded growth.
How do you initially fund business development? Venture capital? Founder money? Loans?
What business model is best to bring in dollar-based revenue without discouraging users from also engaging with non-traditional, token-based mediums of exchange?
Is token price appreciation – at the heart of many ICO business models – even a viable concept for encouraging user growth? Can tokens be treated as components of the system with their own internal source of value without encouraging users to cash out into dollars?
These tough questions are now staring most ICO issuers in the face, especially those that either didn’t raise enough funds, left too much of their treasury in significantly devalued cryptocurrencies, or both.
The kinds of options confronting them were highlighted in two stories this past week.
One was that Galaxy Digital, the crypto-dedicated merchant bank created by former hedge fund manager Michael Novogratz, has created a $250 million fund to provide credit to struggling crypto firms. In difficult moments, credit is always an option, so long as you have a viable product. Better to have one on friendly terms than a shark.
The other was that BEE Token, whose ICO of a year ago promised a decentralized home-sharing platform, has pivoted away from a token appreciation model to one in which it charges fees for its services. The new focus, CEO Jonathan Chou told CoinDesk, “is to have a sustainable revenue model.” The question left unanswered was whether this is a transitional step toward a token solution in the future or whether the dream of a decentralized Airbnb is over – and, as such, whether it is even viable to compete with the home-sharing giant on its own terms.
It’s important – unavoidable, in fact – that crypto companies are pivoting on their funding and revenue models to stay afloat in these difficult times. Let’s hope, however, that those adopting these more traditional approaches can resist the pressure, from within or from outside investors, to simply stick with the more centralized models these approaches entail.
Don’t let the market meltdown kill the vision of a new economic order.
Rubber duck image via Shutterstock
Ripple price declined recently and broke the $0.3100 and $0.3070 supports against the US dollar.There is a major bearish trend line in place with resistance at $0.3030 on the hourly chart of the XRP/USD pair (data source from Kraken).The pair remains at a risk of more losses below the $0.3000 support area in the near term.Ripple price tumbled and broke key supports against the US Dollar and Bitcoin. XRP/USD could accelerate losses towards the $0.2920 support in the coming sessions.Ripple Price AnalysisThis past week, there were mostly range moves, with a bearish formation below $0.3200 in ripple price against the US Dollar. The XRP/USD pair recently faced an increased selling pressure, resulting in more losses below $0.3100. The pair broke the $0.3070 support and the 100 hourly simple moving average. Sellers gained paced and pushed the price below the $0.3050 and $0.3020 supports as well. A new low was formed near $0.3000 and the price remains at a risk of more losses.At the moment, the price is gaining bearish momentum below $0.3020. An initial resistance is at the 23.6% Fib retracement level of the recent slide from the $0.3075 high to $0.2997 low. Moreover, there is a major bearish trend line in place with resistance at $0.3030 on the hourly chart of the XRP/USD pair. It seems like the trend line and $0.3032 level may act as a solid barrier. Above these, the 50% Fib retracement level of the recent slide from the $0.3075 high to $0.2997 low is near $0.3036. Therefore, it seems like the $0.3030-0.3040 area might act as a solid barrier for buyers in the coming sessions.Looking at the chart, ripple price is clearly under pressure below $0.3040. Therefore, there are high chances of more declines below $0.3000. The next major support is near the $0.2920 level, where buyers are likely to appear.Technical IndicatorsHourly MACD – The MACD for XRP/USD is gaining bearish momentum, with a lot of negative signs.Hourly RSI (Relative Strength Index) – The RSI for XRP/USD is currently in the oversold area, with a bearish angle.Major Support Level – $0.3000Major Resistance Level – $0.3040
ETH price traded below the $114 and $112 supports levels to move into a bearish zone against the US Dollar.There is a major bearish trend line formed with resistance at $112 on the hourly chart of ETH/USD (data feed via Kraken).The pair may correct higher a few points, but it likely to face sellers near the $112 or $114 level.Ethereum price made a sharp bearish turn against the US Dollar and bitcoin. ETH/USD is now trading in a bearish zone and it could continue to move down towards $104.Ethereum Price AnalysisIn the weekly analysis, we discussed the next possible break in ETH price either above $120 or below $114 against the US Dollar. The ETH/USD pair failed to gain momentum above the $116 and $118 resistance levels. As a result, there was a bearish reaction below the $114 support. The pair even broke the $112 support and traded well below the 100 hourly simple moving average. The decline was such that the price even traded below the $110 level and formed a new low near $109.At the moment, the price is consolidating losses near $110, with a bearish angle. An initial resistance is near the 23.6% Fib retracement level of the recent decline from the $117 high to $109 low. More importantly, there is a major bearish trend line formed with resistance at $112 on the hourly chart of ETH/USD. It won’t be easy for buyers to clear the trend line resistance and $112. The next hurdle is near the $113 level. It coincides with the 50% Fib retracement level of the recent decline from the $117 high to $109 low.Looking at the chart, ETH price is clearly trading in a bearish zone below the $114 and $112 levels. If there is an upside correction, the price is likely to face a lot of sellers near $112, $113 and $114.ETH Technical IndicatorsHourly MACD – The MACD for ETH/USD is now placed heavily in the bearish zone.Hourly RSI – The RSI for ETH/USD is currently placed in the oversold area, but with no major sign of a recovery.Major Support Level – $104Major Resistance Level – $112
As Nobel Prize-winning economist Robert Shiller put it, “Bitcoin is a social phenomenon.”
Rumors, fear, and hype all play an enormous role in influencing the price of cryptocurrency, but these things are not so easy to identify on a chart. While many institutional traders use technical analysis to gain insights into price action, to ignore the emotional state of the market is to ignore a huge aspect of what defines it.
Those who truly understand how the market ‘feels’ have a huge advantage over competing traders and institutions – so how can such a thing be measured?
Acknowledging the influence of psychology and emotions in the market is one thing, but the key is being able to measure it and use it to create an actionable, data-driven trading strategy – doing this is called sentiment analysis.
Over the last ten years, interest in sentiment analysis has grown drastically, as shown in the Google Trends chart below.
Quantitative Sentiment Analysis
In a way, it seems quite straightforward to gain some sort of basic insight into the public sentiment of a single company or cryptocurrency project. For example, if certain influencers paint an overwhelmingly negative picture of Bitcoin on a given day, it’s likely that the public sentiment will have a negative trend.
This, of course, is due to the well-documented phenomenon of crowd psychology which a recent survey indicates plays a strong role in the price of Bitcoin.
The answer to measuring and predicting this phenomenon with relevant data points lies in analyzing vast swathes of social media updates on platforms like Twitter and Telegram as well as the news headlines and forum comments sections. Unlike reading the daily news on Bitcoin, this can’t be done efficiently by a single person – this is a job that only artificial intelligence can handle.
The recent fusion of AI and social media data can give hedge funds the data required to gain real insight into the emotional state of the cryptocurrency community as a whole along with communities for individual projects.
Crypto Hedge Fund Darwinism: Survival of the Fittest
A recent report by crypto research and fintech analysis firm Autonomous Research LLC showed that as of August 2018, most crypto hedge funds were down 50% for the year, with many funds shutting down. As the bear market continues and panic sets in for many retail investors, irrational emotions play an even stronger role in the price action which makes understanding market sentiment all the more important, helping to reduce risk.
The ongoing “crypto winter” is creating arguably the toughest conditions for crypto hedge funds to date. Only the strong will survive, and part of that strength lies in adaptability.
Hedge funds need to take a lean, cautious approach towards low-risk investments with a high chance of a good ROI, and part of identifying low-risk investments lies in tapping into the crowd psychology at play among retail investors.
Yale economists recently published a study which found that cryptocurrencies behave differently from other asset classes, but could be predicted by monitoring investor attention. According to the Ivy League economists, cryptocurrency price movement is tightly correlated with the number social media mentions it receives on Google, Twitter, etc., with prices surging as abnormally high mentions occur.
Sentiments and Topics Moving the Crypto Market
Sentiment analysis is used to greatly augment existing trading strategies, based on, for example, technical indicators or price action. Here sentiment analysis provides alternative signals, which are especially relevant for intangible assets.
Human traders make rash emotional decisions. Using technology, we can monitor how sentiments and trends drive investment decision, and use that to inform trading strategy.
By scientifically analyzing the reaction of the cryptocurrency community as a whole, analysts can now finally place an ear to the beating heart of the cryptocurrency market and transform opinion into data.
About the Author: Michael Baumgartner is the CEO of Augmento, an AI firm offering proprietary software that can grasp market-driving emotion and topics of discussions within milliseconds, giving hedge funds a vital competitive edge in the fast-paced crypto markets.
Featured Image from Shutterstock
Ever since initial coin offerings (ICOs) became mainstream, regulators, especially the U.S.’ governmental agencies, have sought to make moves against this newfangled form of funding. The crypto assets from these sales are touted as utility-centric, but incumbents have argued that they resemble securities.Jay Clayton, a commissioner at the U.S.’ Securities and Exchange Commission (SEC), has claimed on multiple occasions that ICOs are not exempt from the financial legislature. In a speech, Clayton, a Trump appointee, remarked that not only should ICOs adhere to the SEC’s laws, but that such models are inherently risky, touching on the fraud and manipulation that questionable projects could enlist.Yet, an up-and-coming watershed case could change ICO-issued tokens’ legal classification altogether.Related Reading: Sign Of The Times: Basis Shutters $133M Crypto Project Due To RegulationKik Challenges SEC Over KIN Crypto OfferingAccording to an exclusive report from the Wall Street Journal, the Ontario, Canada-based social media giant, Kik, is looking into challenging the SEC over its 2017 KIN token offering. Speaking to the Journal, Ted Livingston of the Canadian upstart explained that his firm intends to fight proposed enforcement action over the ICO, which raised $100 million and wasn’t registered with the SEC.While cynics would claim that Livingston & crew don’t have a leg to stand on, Kik believes that its rebuttal, which is to be filed in civil courts, is valid and could set a precedent for this nascent ecosystem. In fact, Kik’s lawyers even called the financial regulator’s approach to cryptocurrencies “flawed,” writing:“Bringing the proposed enforcement action against Kik and the foundation would amount to doubling down on a deeply flawed regulatory and enforcement approach.”If an American civil judge determines that Kik’s ICO wasn’t a securities offering, not only would the firm be safe from hefty fines and other stringent measures, but it could also aid dozens of other projects struggling under the SEC’s iron fist. But will the overseeing judge, who has yet to be named, deem that KIN is out of the SEC’s jurisdiction?Crypto-Friendly Lawyer: Token Taxonomy Act Could Get PushedThe precedent that this case could set shouldn’t be the only occurrence that cynics of crypto-related regulations should be looking forward to. Per previous reports from NewsBTC, in mid-December, amid a widespread market meltdown, two U.S. congressmen revealed the “Token Taxonomy Act.” The bill, a bipartisan effort from Warren Davidson of Ohio and Darren Soto of Florida, will disallow the SEC from classifying fully-fledged “digital tokens (crypto assets)” as securities.Speaking in a statement on the matter, Davidson noted:“In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space.”While the integration of such a bill would likely revitalize this industry, the Token Taxonomy Act is still months, if not years away from going live in the real world. Jake Chervinsky, a crypto-friendly attorney at Kobre & Kim, recently took to Twitter to note that there will likely be “months or years of Committee hearings & revisions” before the bill could reach a voting stage.I don’t know if there’s any validity to the rumor that the Token Taxonomy Act will be reintroduced in Congress on February 14, but even if true, there will be months or years of Committee hearings & revisions before the bill could even possibly see a vote. Don’t hold your breath.— Jake Chervinsky (@jchervinsky) January 26, 2019Featured Image from Shutterstock
“What do you have that sparks joy? And can we pay with bitcoin?”
Her Netflix television series, Tidying Up with Marie Kondo, became available to stream in January 2019 and quickly became a cultural phenomenon. Marie Kondo is the author of the best selling book:
The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing.
Some quotations from the book:
The question of what you want to own is actually the question of how you want to live your life.
Keep only those things that speak to your heart. Then take the plunge and discard all the rest. By doing this, you can reset your life and embark on a new lifestyle.
The space in which we live should be for the person we are becoming now, not for the person we were in the past.
Following Marie Kondo’s philosophy of decluttering and organizing, and applying it to the crypto economy, here are some things we should throw out to declutter the crypto industry:
1. Fake Coins
Those altcoins that aren’t really trying to create a good digital currency. The ones that are a cryptocurrency shoe-horned into another kind of business ranging in quality from total scam or really dumb business idea to maybe a decent business, but aren’t really trying to be a currency.
They’re just a business in disguise as a cryptocurrency to generate interest and raise money because so many dollars are chasing after altcoins looking for the next big thing.
Not everything is the next big thing. And almost nothing is. But that doesn’t mean there aren’t ever any next big things. There never has been and there doesn’t have to be one currency in the vast global economy, and it’s vanishingly improbable that there ever will be.
There doesn’t have to be only one kind of any product in a free market. There are innovators who bring new things to the market. Bitcoin is all about demonstrating that fact.
Buying into the hype is acting with hope, but without understanding. The fact that Bitcoin turned out to be the most profitable investment in history has clouded many speculators’ objectivity.
Hyped cryptocurrencies and startups in the crypto space are heavy on the marketing and sales for a product that isn’t very special. This creates much unnecessary noise and clutter.
4. Reinventing the Wheel [or Bitcoin]
There are too many crypto startups for which the entire premise is solving an alleged problem with Bitcoin that is actually an intended feature of the Bitcoin architecture.
This is also the premise for too many journalists’ treatments of Bitcoin. To keep the space organized and coherent we need to push back against these misapprehensions.
5. Fair-Weather Crypto Fanatics
It’s amazing how, in a span of just 12 months, so many crypto investors went from believing this technology represented the future of finance to believing that Bitcoin was dead. | Source: Shutterstock
The people that scatter and sell a security when they see some bad short term news in the headlines don’t really have the big picture in mind. They clutter the market with FUD.
If they don’t understand why they bought the currency they bought other than hoping the price of it would never go down — even for a day — maybe they shouldn’t have bought it in the first plaace.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.
Marie Kondo Image from RISE/Wikimedia Commons
This past December, cryptocurrency investors were delighted to hear that lawmakers had put forth a bill – aptly dubbed the “Token Taxonomy Act” – that would change the Securities and Exchange Commission’s 72-year-old definition of securities in order to exclude crypto.If passed, this bill would entirely alter how the industry is regulated going forward and would offer companies and projects significantly more room for experimentation without worrying about regulatory authorities.Although news regarding this bill was seen as being decisively positive, one prominent attorney who focuses primarily on blockchain and cryptocurrencies, is now claiming that investors shouldn’t get too excited about this bill.Crypto Likely to be Regulated Under Securities Laws for Foreseeable FutureThis bill was introduced to Congress in late-December by two lawmakers and is a bipartisan attempt to modernize the SEC’s archaic securities laws in order to exclude cryptocurrency from its framework.Representative Warren Davidson, R-Ohio, made a statement at the time the bill was proposed, saying in-part that the bill’s primary goal is to ensure that nascent markets and technologies aren’t over-regulated, which could significantly stifle innovation.“In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space,” Davidson explained.Washington DC gridlock could lead to major delays in the Token Taxonomy Act being voted on.US regulatory authorities have been slow to regulate the cryptocurrency industry, but the massive influx of neophyte investors into the crypto markets in late-2017 led the SEC to take an increased interest in the industry, and they have since been cracking down heavily on scams and uncompliant crypto-related operations.Attorney: “Don’t Hold Your Breath on Token Taxonomy Act”In a recent tweet from popular cryptocurrency and blockchain-focused attorney, Jake Chervinsky, he explained that the Token Taxonomy Act, which could be reintroduced in Congress on February 14th, likely won’t be voted on any time soon.“I don’t know if there’s any validity to the rumor that the Token Taxonomy Act will be reintroduced in Congress on February 14, but even if true, there will be months or years of Committee hearings & revisions before the bill could even possibly see a vote. Don’t hold your breath,” Chervinsky explained.I don’t know if there’s any validity to the rumor that the Token Taxonomy Act will be reintroduced in Congress on February 14, but even if true, there will be months or years of Committee hearings & revisions before the bill could even possibly see a vote. Don’t hold your breath.— Jake Chervinsky (@jchervinsky) January 26, 2019Although it could take a while to be voted on, and there is no guarantee that it will be passed, the Token Taxonomy Act could ultimately prove to be highly beneficial for the cryptocurrency industry, and it could help the United States to incubate greater technological innovation.Featured images from Shutterstock.
President Donald Trump and the US government are neck-deep in a trade war with China. Yet US businesses and investors pushed more venture capital investment into China in 2018 than ever before. Though Trump has added tariff after tariff on the country, America’s private sector doesn’t appear to share the same urge to punish or restrict the growth of companies in China. Likewise, China’s venture capital investment into the US continues, albeit at a somewhat slower pace.
US Investments Make up 35% of all VC Money in China
According to the South China Morning Post, USD-denominated capital raised for Chinese investment burst upwards by 125% last year, compared to 2017. The figure reached $15.5 billion and formed 35% of the market. In 2017, USD-denominated investments were lower at 28.7%, according to Zero2IPO.
Hui Wang, founder of Bolian Financial, says US investors have not been “affected as much by the domestic Chinese environment” compared to even Chinese venture capitalists themselves. He says:
US venture capital has been increasing steadily.
This, even as Chinese-driven venture capital investment in China itself has fluctuated over recent years.
Crunchbase reporting confirms the trends. US venture capital investment into China has increased, and it’s greater than the flow from China into the US.
VC Money Continues to Flow Both Ways
The US-China trade war and the economic slowdown in China have made it tougher for new and growing companies in China. Despite the surge in US-based VC money, the total amount of both Chinese yuan and USD-based venture capital investment into China fell in 2018 by 13% to $44.5 billion.
2018’s total US venture capital investment appears to illustrate an apathy to the US government’s stance on China. New tariffs between the countries were temporarily suspended on December 2, 2018, and trade talks need to drive a forward resolution by March 2, 2019. Investment during and after this period may change, especially with the growing feud over Huawei.
Zhu Min, a former deputy governor of the People’s Bank of China and former deputy managing director at the International Monetary Fund, told CNBC:
I can tell you, after the Huawei events, all the Chinese money into Silicon Valley stops. And no US money will want to invest into China either.
Min is concerned the “trade war” will become a “tech war.”
The Attraction of Chinese Unicorns and IPOs
US venture capitalists are attracted by China’s innovative $1 billion-dollar “unicorns” and Chinese startups delivering IPOs. SCMP says 132 startups with US backing went public in mainland China last year. But, a massive 264 Chinese companies with US investment also achieved their IPOs in Hong Kong.
Wang says the past two years have seen more foreign venture capital activity in China “because lots of Chinese star unicorns went public.”
New data from Hurun says 97 new unicorn companies emerged in China in 2018. This takes the country’s total to 186 startups valued at $1 billion or more for the year. These startups, writes SCMP, are:
Riding on a flood of enthusiastic investments from domestic and overseas venture capitalists.
The Hurun China Rich List, according to Hurun’s chief researcher Rupert Hoogewerf, has seen many wealthy Chinese leaving its ranks as China’s slowdown tightens. But:
There are still more than 200 new billionaires on the rich list and the leading companies of these new billionaires are these unicorns.
Venture Capital Investment and Capital Outflow Are Just Two Metrics to Watch
The slowing economic pace of China will mean strategists are watching closely levels of investment and capital outflow from China. Attention is also being drawn to trends in China’s imports from Hong Kong, which could mean some of China’s wealthy are secretly removing capital from the country.
The futures of two of the world’s strongest economies and technological leaders, China and the US, are deeply intertwined. But technology and innovation often serve to cross borders despite political influence.
— Aaron Lucchetti (@AaronLucchetti) April 12, 2018
US venture capital investment flows into China could illustrate a so far unaffected private sector sentiment. But the Trump-led trade war, economic fears, and the Huawei dispute could change this in 2019. A drop in venture capital investment either to or from the US would be felt by innovative new companies on both continents.
Donald Trump/Xi Jinping image from Nicolas Asfouri/AFP