The Major Pros of Bitcoin & Ethereum, and How I Would Invest $1,000,000

Let’s say someone were to hand you $1M to invest between two primary cryptocurrencies, Bitcoin and Ethereum. How would I recommend they allocate their capital based on a simple pro & con assessment? Exciting right?! Let’s go over the pros of Bitcoin(BTC first). 

You’ve Won The Lottery!

Pro #1: Bitcoin is a heavily adopted, scarce asset that has been heavily adopted globally to further the cause of decentralized finance. The first and largest pro is digital scarcity. Currently, in the world, there are about 47M millionaires. That’s a lot of millionaires! The thing is if each of these millionaires wanted to own 1 Bitcoin, they couldn’t. This asset has an extreme level of scarcity and if it ever becomes adopted by more countries and states, and if we see more millionaires in the future – we know that there is a lot of upside potential in the price primarily due to the scarcity. To elaborate this point even further, as the supply decreases even further crypto exchanges may have an even harder time getting ahold of it in the future. If there is a situation in which crypto exchanges can’t get supply to distribute to their customers, it will cause a bidding war to the miners, causing the prices to increase. 

Pro #2: The removal of non-value added middleman and corruption. The list goes on for too long of countries that have carried out poor monetary policy at the expense of citizens’ financial wellbeing. While there may have been a point in time where BTC was used for illicit purposes, this mostly has been flushed out of the system. All fiat currencies eventually come to an end or become reset. The beauty of having a BTC is the fact that it will be around for a very long time. It is not prone to the folly of bad actors at this point as it is SHA 256 encrypted. Many governments and those in traditional finance fear Bitcoin. These people fear the fact that since it is deflationary, and if a crisis were to come that the fixed supply will be a negative impact on citizens. I don’t see this being a negative impact whatsoever, as even owning a small amount of Bitcoin will help secure your financial future whether there is a catastrophic event, hyperinflation, or an economic collapse. 

Bad Actors, Government Regulation and Lobbying can hinder growth in Bitcoin.

Con #1: While it is true that Bitcoin does remove a lot of corruption and non-value added middlemen, it is prone to bans and restrictions by the government (in any country). We’ve seen this in Turkey, India, mining in China, and many other countries. By nature, governments tend to want control of their citizens. One form of control is that in a monetary form. The issue is, the government can’t control the BTC source code and inflate, deflate the monetary supply. They have no way to give handouts if a crisis were to come. There is tremendous lobbying by the traditional financial services world for the government to put additional regulation and restrictions on this asset class as a form of control. 

Con #2: The layer one technology isn’t the most advanced and there are more advanced blockchain protocols that offer faster transactions per second, with lower fees that are better for the environment. Furthermore, while SHA256 is encrypted, it could potentially be hacked one day and an exploit like this could cause tremendous waves in the market, if not a total collapse. Something to consider is that quantum computing could potentially pose a risk to the cryptocurrency markets in ten to twenty years. 

We discussed the major pros and cons of Bitcoin, but what about Ethereum (ETH)? 

The Ethereum Token

Pro #1: The most important thing about Ethereum to consider is that it is looking to decentralize all types of applications. It is a decentralized operating system. Just like Bitcoin was trying to decentralize finance (banks, credit unions, etc.), Ethereum is looking to decentralize Google, Facebook, Insurance, and any inefficient thing. Throughout time, we have seen countless examples of big tech silence or oppose certain lines of thought. Through decentralized apps or dAPPs this will change in the future. 

Pro #2: An ecosystem where you don’t need permission to build. There isn’t too much of a barrier to entry, and with no barrier to entry, you get so many great problems being solved (some of which we didn’t even know existed). It truly is a beautiful thing. In a world of being credentialed, caught in the system, red tape, and policy, this isn’t needed anymore. If you want to create an ERC-20 token that isn’t an issue. What is cool is that if you can vision it, you can build it out on an excellent network that will transform the way we interact with others whether that be art, gaming or insurance. 

Vitalik Buterin – Founder of Ethereum

Con #1: Just as I mentioned how there isn’t much of a barrier to entry, this also leads to many bad actors being able to create ERC-20 tokens and scam people. Countless rug pulls or scams are coming out that have been built on the Ethereum network. It is a double-edged sword, this very blade that can fight against socialism, control, and red tape can also harm people in the community. Countless influencers have come out promoting crypto rug pulls like Ethereum Max or Save the Kids. In reality they get paid out by the protocol and the influencers/ software developers line their pockets, and the crypto community/ audience is caught holding the bag. 

Con #2: The lack of a max supply is another big con. Too much circulation makes the price go down, and while I do see some valid points in inflationary mechanisms, this decreases what Ethereum should be worth. Another con I couldn’t pass up is the fact that Ethereum 2.0 is way behind schedule, and this is due to the lack of leadership amongst the developers and disorganization in the going-forward plan. 

Diversifying based on risk tolerance, research and correlation is of high importance

So if I were to win the lottery, or someone gives me $1M how would I allocate it between these two cryptos?

I would recommend putting 70% in Bitcoin (BTC) and 30% in Ethereum (ETH). Something to consider though, what are you going after? Do you believe more in digital scarcity and economic security, or do you believe more in an operating system that moves power to the edges? Can you see Ethereum disrupting big tech, which is a $10 trillion industry? Can you see Bitcoin disrupting gold which is a $10 trillion industry? I can, but as someone in the financial world, I place higher emphasis on scarcity hence why I am putting 70% into BTC and 30% into ETH.


Disclaimer: Nothing stated in this video is a recommendation from PieceofPaul to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.


DeFi – Democratizing Finance for All

Democratizing financial solutions for all tends to be the northern light for many new
cryptocurrency projects. Our society does a great job of finding out what is not working and
developing a technology that will help all, not just a few influential individuals in Washington in
tandem with the help of the FED. DeFi will substantially evolve how traditional commerce is
carried out for many reasons. These reasons include reducing the amount of unbanked/
underbanked, equitable access to financial services, access to permissionless financial products,
and the lack of central control by for-profit companies.

Graphic Explaining High Level Decentralization Versus Legacy Financial System – The Medium

First, what is DeFi? It is a movement whose mission is to decentralize standard financial services
(e.g. borrowing, investment, trading, payments, and more). Below, I showcase an example
(borrowing and lending) of how it works, alongside how it will transform traditional commerce
and lastly, I go over some current obstacles DeFi needs to overcome.

Democratizing payments solves many problems that traditional financial services has not
solved. For example, many people in our society are either unbanked or underbanked and do
not have the same access to financial services as other individuals. From a Report on Economic
Well-Being from 2018 to 2019, 21% of U.S. citizens are Unbanked or Underbanked[1], which
leads to approximately $68.9M of the U.S. population facing financial challenges when it comes
to getting access to traditional financial services and products.

Federal Reserve Graphic – Conceptualizing the Under/Unbanked versus the Banked

Decentralized finance aims to make it, so payments are available to anyone in the world no matter what income level, net
worth, minority group, or where one is located. If one has an internet connection, they can
participate in today’s modern, fast, transparent, secure, and forward-thinking DeFi world.

Statista – Internet Users Worldwide – Out of 7.8 Billion Global Population

While much of the world still doesn’t have a reliable/consistent internet connection, this is
continuously being reduced and thus allowing citizens to participate in this new global financial
system. This new financial system is not just limited to peer to peer payments, but it also
expands into other areas in which individuals use financial services or products. These include,
through smart contracts, everything from high-interest savings accounts, loans, asset trading,
asset management, staking, tokenization, derivatives, insurance, and more.

Tezos is a competing project with Ethereum, and has integrated Smart Contracts, Staking and More – Contributing to the DeFI Ecosystem

Ethereum is the primary blockchain for smart contracts, but Tezos is another large competing
DeFi project that has been gaining momentum in the past couple of years. On these
blockchains, developers have created smart contracts which are essentially hard-coded
contracts in which certain conditions are or are not met. There is no ambiguity or
misinterpretation as there may be in the standard court of law. For example, let’s say a
borrower defaults on a loan that they took out with a smart contract. Depending on the terms
of the smart contract, if he misses a few consecutive payments, the collateral the borrower put
up will automatically go to the lender due to their failure to uphold the contract. How the
contracts are written is almost completely airtight and does not execute until the initial
conditions are met, which helps mitigate risk for lenders, insurance companies, investors, and
more.

These smart contracts (often referred to as DeFi apps/DAPPS) are not centralized and managed
by any for-profit institution, bank, etc. They are essentially rules that are written into code by
the developers of the given project. Since there is no centralized institution managing the smart
contract there is reduced bias on any individual or organization. Since the code is visible for
anyone to see, if there are any bugs/issues with contracts or anything, developers working on
the project can implement updates if necessary. The power is in the hands of those using the
protocol, rather than a for-profit institution looking to maximize profits for themselves.

Centralized Versus Decentralized Network

There are some noteworthy obstacles in the way of DeFi taking over as our new financial
system. Foremost, many people in the world do not have internet access. Specifically, 19 million
Americans do not have an internet connection[2], and worldwide, there are 3.22 Billion people
who do not have access to the internet.[3] Many of the individuals who are under/unbanked
are those who are poor, and can not afford internet, or maybe in an area of the world that is
more rural and has a less developed infrastructure. These very people that would stand to
benefit the most from DeFi, cannot access the platforms/networks to participate. Next, as DeFi
is currently in its infancy, there are still rare cases where there have been flaws in the code of
smart contracts, and if this were to occur it could cause a contract not being executed properly
or, the worst case, a loss of funds overall[4]. Next, while there aren’t financial institutions
running DeFi projects, developers are. It can be more challenging to assess the motives of a
developer/team as much as we can assess the motives of a financial institution (especially
those publicly traded). The developers have a large amount of control of the code. Even with
proper voting on the network, there is always the potential for missteps. Finally, not pertinent
to just DeFi, but many governments around the world have or are putting regulations in place
to limit their citizens’ access to DeFi, due to lack of control. While it is unfortunate, this is a
reality that DeFi is facing and is something that can impede its full potential.

There are numerous benefits to DeFi that we have already seen, and even more beneficial use
cases to come. With billions of dollars moving in, many individuals, critics, and institutions alike
witness how this can revolutionize the world we live in. While it is not without its flaws, these
issues are continuously being worked out by talented teams who aim to make the financial
world more permissionless, secure, and less controlled. With the erosion of trust amongst the
FED policies, and for-profit financial institutions’ antiquated ways of finance, the future holds
many pros for DeFi, and it will change the way humans transact for the better.


References
[1] https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-
in-2018-banking-and-credit.htm
[2] https://www.fcc.gov/reports-research/reports/broadband-progress-reports/eighth-
broadband-progress-
report#:~:text=Notwithstanding%20this%20progress%2C%20the%20Report,lack%20access%20
to%20this%20service.
[3] https://www.statista.com/statistics/617136/digital-population-worldwide/
[4] https://news.bitcoin.com/DeFi-protocol-bzx-loses-8-1-million-in-third-hack-this-year/


Disclaimer

Disclaimer: Nothing stated in this video is a recommendation from PieceofPaul to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.

Easily Explained – Ethereum

This blog is meant to inform those who are interested in understanding more about Ethereum, thinking about investing in ETH or curious on a high level understanding of what Ethereum is. I tried my best to remove as much financial jargon as possible, but additionally aimed to reduce cryptocurrency technical lingo. If you would like a deeper more technical understanding of Ethereum, please see the link at the very bottom(relevant articles from Forehand Financial). Please enjoy!

Ethereum is essentially the city layout, but things can be built on the layout of the city. While one cannot necessarily change the layout (without further releases of Ethereum’s network), one can build on top of it, in fact many projects and other things. Homes, parks, bridges, games, trees, markets, hospitals – you name it. These things that you can build on top of the city layout are essentially non-controlled applications on Ethereum’s network.

A Vibrant, Decentralized City

Picture a large vibrant city, with no controlling body or government. It is large, growing and there are a lot of transactions that occur throughout. This city has no center power, so it is not completely controlled by any single business or person. If one business were to go bankrupt, the city will still be able to operate – because there is no central point of failure.

The things that go in the city do not always need to be new. They can be old businesses or buildings, that need to be renovated. They can also be started completely from scratch, like a brand-new coffee shop. The people that transact in the city can do so directly with each other. There is not a bank, card processor, government entity or financial institution taking a cut of the profits on the transactions of the city. Only transactions occur between the people and that is it. No reseller, no middleman – just you and the other party (Unless you dictate otherwise).  

Without police or a central authority to ensure people are operating in check, the individuals/business/groups in the city enforce the rules. It is a collaborative effort that everyone in the city partakes to make sure the city is operating in the best legal and ethical manner possible. All those who do participate in helping to police and ensure ethical behavior will receive a little money in exchange for doing so. This money is called Ether.

Smart contracts run the city. If someone commits a crime and is found guilty in the court of law, no worries, the smart contract will execute due to the terms and conditions written therein. If a borrower defaults on a lender, again no problem, the lender will receive the collateral automatically as written per the contract.


Smart Contract As Per Wikimedia Commons

Ether is the electricity, the movement, or the lifeblood of the city. Without Ether, the city will turn into a ghost town. People who better the city(stake), receive the Ether as a type of incentive to continuously improve, refine and weigh in on improvements.

Revisiting the city layout from earlier on, the city wants individuals building things whether it may be for monetary gain, improving how things are done or simply for enjoyment. If a guy named Sam wants to build a few properties to rent out, he will then pay charges to the city. Individuals who decide to live in Sam’s properties likely will need to pay to use the property. If Sam’s properties use a lot of the city’s resources (electricity, water, etc.) he will need to pay more, if Sam’s properties use less resources, he will need to pay less Ether.

The Ethereum Token

As dictated from the founders of the city, only 18 million Ether will be created per year. To keep the city in balance, and prevent drastic inflation, this number was decided on by the founders to help promote transactions amongst individuals. This number will keep the city operating at a healthy level.

All in all, Ethereum is a city. ETH is the lifeblood of that city. Both are needed to create the excellent fin-tech ecosystem we have today. The city is ever evolving with further upgrades to the layout and the technology that the city can be built upon.


Relevant Articles from Forehand Financial: https://wordpress.com/post/forehandfinancial.com/443

Article References: https://commons.wikimedia.org/wiki/File:Smart_contracts_in_insurance_policies.png

Disclaimer:
Nothing stated in this article is a recommendation from Forehand Financial to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment. 

The Two Most Popular Cryptocurrencies This Month by Market Cap

In this article, we are going to look at the two largest cryptocurrencies by market cap, and discuss both the factors at play as to why, but also the importance of relying on additional metrics to make a purchasing decision in this space.

An important metric to determine when purchasing cryptocurrency is the market capitalization (or cap). While this factor is important, please note, when purchasing in this asset class to consider other important investment factors. At a minimum, some factors to include with one’s decision is to analyze the volume, technical trends, previous price, use cases, and non-circulating supply.

You can determine the market cap with an easy to remember calculation. To find this, take the current price and multiply this by the number of coins in circulation (Market Capitalization = Current Price x Circulating Supply).

Over the previous ten years, several hundred billion dollars have entered the cryptocurrency space. Per a popular source for Crypto research, CoinMarketCap[1], there is $430.34 Billion in the crypto asset class, with 7,600 cryptocurrencies.[2]

Before we get started, it will be beneficial to address non-circulating supply, because this is such an important factor when understanding market cap. Many cryptocurrencies have large amounts of crypto that have not been mined yet or released from the early adopters/founders. This can dramatically impact the price of the currency downward once the crypto is released on the exchanges.

It is important to know how much circulating, non-circulating supply there is at a specific point in time, but also long term whether there is a hard-coded finite supply or an infinite supply.

Forehand Financial

Below, please see the top two most popular cryptocurrencies by market cap!

  1. Bitcoin (BTC) – Since Bitcoin was launched at the beginning of 2019, it has been the most widely used with the largest market cap.

The supply of Bitcoin is finite.

With the circulating supply being $18,536,750 and the current price being $14,908.68, this has a market cap of $276B which is 5.57X higher than the second coin by market cap. There are many reasons behind this price point, and a major reason for this high market cap is because of the limited total supply.

What are the major factors at play in driving up the price? Plain and simple, the primary factor is scarcity. As mentioned, currently there are ~18.5M BTC in circulation. The total available supply is 21M. Something important to note is that these remaining 2.5M Bitcoins are becoming progressively harder to mine.

The way one could look at it would be digging into the earth with a shovel. At first, it is easy to dig into the soft moist ground, as you dig deeper the earth gets harder and colder which makes it makes one much slower at digging. Eventually, around a thousand meters deep, you hit bedrock which is extremely thick and next to impossible to dig through. With Bitcoin, approximately every two weeks, the mining difficulty increases to ensure the stability of the verified blocks in the blockchain, thus fewer rewards per week, and eventually, Bitcoin mining will not be profitable anymore from a production standpoint.

Besides just scarcity, there is quite impressive liquidity, an ever-growing acceptance of it as a payment method, privacy, and independence from any central agency. While this is not every factor, most of these factors help drive up bitcoins value.

Bitcoin is a haven asset for countries experiencing hyperinflation.

While we know Bitcoin historically has had many dramatic swings, and many critics don’t look at it as a store of value, relatively it is stable, many countries such as Zimbabwe, Venezuela, or South Sudan stand to benefit significantly from the adoption of Bitcoin.[3] Each of these countries has experienced significant hyperinflation. Even with 20-50% swings in bitcoins value, these countries stand to benefit from the adoption of Bitcoin because you cannot just print more bitcoin, but central governments can always print more fiat currency.

From inception to present, Bitcoin has remained at the top in popularity by market cap. Entire books, articles, and research papers have been written on the countless use cases of bitcoin, and many calling it the digital form of gold. But unlike gold, the market cap for Bitcoin can be potentially more volatile, like we saw in the crash of December 2017 shedding hundreds of billions of dollars of value.

Debates can be made on both sides on the future of Bitcoin’s use as an everyday currency, but at this time, and the foreseeable future it will be the leader from a market cap perspective because of its current market price, wider vendor acceptance, and scarcity of coins available.

2) Ethereum (ETH)

In February 2016, Ethereum (ETH) took the second-place token by the Market cap.

Foremost, how scarce is ETH (the token sitting on top of Ethereum)? This is important to note because many often confuse the difference from the platform Ethereum versus the cryptocurrency ETH. We commonly understand it that there are 21M Bitcoins that will be or are in existence, but how much ETH is there, or will there be?

At this time, the supply of ETH is not finite, but this can change with further iterations of the protocol.

ETH never set an upper limit on the total coin supply to be mined. What this means is inflation might occur at points in the future, and the asset is not as scarce as Bitcoin. This is an important point to bring up from a market cap perspective because more supply can be rolled out through mining. If more supply gets rolled out, and there is not as much demand, it will harm the price thus lowering the market cap.

Looking at the current price and circulating supply we have 113,332,093 ETH circulating at $437.46 per coin. The total market cap of Ethereum is $49.577B.

With an impressive market cap, what gave ETH the trajectory to achieve second on our list in terms of most popular cryptocurrencies by market cap? What drove larger-scale adoption to the usage of Ethereum?

Ethereum’s protocol has numerous use cases and adoption amongst many important stakeholders. 

Ethereum was built to address many of the things that Bitcoin could not do or was not programmed for. The most widely known and well-accepted uses of Ethereum would be the use of Smart Contracts and dApps(decentralized application). Having this functionality has helped propel Ethereum in popularity because it increases the use cases several times over. Use cases involve everything from market predictions, legal contracts, financial contracts, crowdfunding, web hosting, and more. With all these use cases, large banks, developers, individuals, and institutions alike are using the protocol’s technology to drive the adoption of the Ethereum network, which drives the price up higher.

The secondary function of Ethereum is the use of the cryptocurrency ETH, but since it is not as widely accepted across vendors, this is not the primary use case. Unlike Bitcoin, it can be a challenge trying to find those who accept the ETH currency. A route many holders of ETH take would be to convert ETH into BTC to make a purchase or to just move into cash.

Ethereum also has adoption through diversification, correlation trading, and retail investors.

Something that is not as investigated with Ethereum is the spillover from Bitcoin by retail investors. This plays into increasing the market cap because if investors see the price of Bitcoin go up, correlated assets are another way to capture upside potential. The correlation between BTC and ETH remains positive averaging 50% over a year’s time frame (correlation coefficient). While the correlation can swing dramatically, on average, the prices have a generally positive correlation in the long run.

Also, with the rise in the adoption of cryptocurrencies, many individuals purchase altcoins to diversify and speculate on different products that may take off. Since Ethereum is listed at the top of many exchanges, and it has the power of network effects, without doing ample research, many individuals drive up the price and market cap just through speculation.

Nevertheless, it is without a doubt that Ethereum has earned its place as the second-largest crypto by market cap. With the adoption of smart contracts/dApps, with countless use cases, adoption, and use by larger institutions, this protocol will be here to stay and even evolve into further iterations such as Ethereum 2.0.

My call to action to everyone today is to look at market cap as an important investment criterion, but it needs to be analyzed through several other factors concurrently.

Forehand Financial

When trading stocks, one will not base a decision solely on the price, it is important to understand how all the factors work together. There are currencies out there with very large market caps but under $1,000 trading volume a day. By just looking at the market cap, one may think a coin has a strong foothold in the cryptocurrency space, but often you do not want to trade coins with such low volume because liquidating can be very challenging, but also, these projects have the potential to be scams.

While Bitcoin and ETH reign at the top of cryptocurrencies by market cap, only time will tell if they hold the top two positions well into the future. While these coins are not without their flaws, the network effects are critical when it comes to the mass adoption of a new currency to replace or coexist with fiat money. The cryptocurrency space is still young and evolving, and with the underlying technologies and unique characteristics of these two coins, many are confident they will hold their dominance for years to come.

Key Points

When looking at the market cap, please try to remember the points below:

  1. Market Capitalization = Current Price x Circulating Supply (MC= CP x CS)
  2. Bitcoin & Ethereum Market Cap = Bitcoin has the second-largest Market Cap at $276.35B, and Ethereum has the second-largest Market Cap at 49.577B
  3. Supply = Identify both circulating and non-circulating supply, and long term whether there is a hard-coded finite supply or an infinite supply
  4. Price = Realize the factors that drive up the price on the cryptocurrency being analyzed
  5. Interconnected Factors = Know how each factor plays into each other (Price, Market Cap, Supply, Volume, Etc.)
  6. Unique Crypto Characteristics = Each cryptocurrency has unique characteristics that give it unique qualities, do your best to understand the protocol and what sets one apart from another

Do you think Bitcoin and Ethereum will stay at the top in the popularity of cryptocurrencies by market cap? Please feel free to let us know in the comment section below.

Resources


[1] https://www.coinmarketcap.com/

[2] Data Pulled as of September November 7th

[3] https://news.bitcoin.com/venezuela-bitcoin-use-hyperinflation-crypto-adoption/#:~:text=The%20firm%20elaborated%3A-,The%20country%20has%20reached%20one%20of%20the%20highest%20rates%20of,preserve%20their%20savings%20against%20hyperinflation.


Disclaimer:
Nothing stated in this article is a recommendation from Forehand Financial to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.