Asset and non-asset based cryptocurrencies within a digitalized and decentralized economy, and investigations and speculations on fundamentals underlying cryptocurrencies in such a market.
An increasing number of analysts agree that non-asset based Cryptocurrencies (e.g. Bitcoin) have a positive correlation with the stock market, giving ample room to speculation of the reasons behind such a potential correlation. According to Nick Colas, co-founder of DataTrek Research, reported by CNBC, the correlation between the daily percentage returns of the cryptocurrency and the S&P 500 in the past 90 days is 33 percent, the highest since the cryptocurrency started gaining public attention in January 2016.
Even if without any doubt, the use of S&P 500 is the gold standard of measurements, it’s also interesting to see the graph below, which shows a correlation of Bitcoin with the Dow. The graph was constructed by using a hypothetical investment of $100 and by increasing the volatility of the Dow by a hypothetical 800% over a one-year period.
Speculation of the probable correlations vary. One being, an appetite for more risk-friendly investors drives them to invest into cryptocurrencies. Other speculation predicts a top ceiling of the potential value increase of Bitcoin because of its correlation to the stock market. Furthermore, other analysts point out that we simply don’t have enough data to conclude whether there is a correlation at all. In addition, the mere existence of a mathematical correlation does not prove that there is a correlation based upon any causality (e.g. there are many correlations, which have nothing to do with each other, rainy days in London and stock market performance for example).
One fact whether the correlation is real, related to common factors or not remains; most analysts compare the performance of Bitcoin and other non-asset based cryptocurrencies to the stock markets rather than to foreign exchange and currencies. Thus it seems obvious that cryptocurrencies are rather behaving like a stock than currencies in their value. If not we could use, like with regular fiat currencies, indicators such as purchasing power parity, unemployment- or interest rates, to predict if the currency will appreciate or depreciate in value. But this said, it doesn’t matter. Gold has been used as a payment method for millenniums and is surely a commodity. More interesting is that there is next to no correlation between gold price or any commodity index and cryptocurrencies.
The real question is:
• Will this commodity/stock (non-asset based cryptocurrencies) have longevity (e.g. or drop one day to zero or be a solid investment like gold)?
One of the most common criticisms of Bitcoin is that it is not backed by anything, nor is it intrinsically valuable. However, others have long been arguing that the US dollar has no intrinsic value and neither does gold. But to really answer this question, this analogy is too flat. True, the US dollar is not directly backed by a useful commodity but rather indirectly by a very large user base and indirectly with the GDP of a whole country and its resources. Gold on the other hand was used for decorative purposes and a payment method for millenniums. Bitcoin advocates argue that Bitcoin is backed by a predictable supply over time. This allows to plot the supply schedule of Bitcoin, meaning it is highly predictable while also being uncheatable through the manipulation found in traditional monetary policies.
The problem is that for this argument to hold water, cryptocurrencies would have to be perceived by investors as a commodity; but this argument cannot be supported because of the missing correlation between the gold price and the missing correlation to any commodity index. It seems that investors rather see cryptocurrencies more related to a speculative stock index.
Furthermore, until today a very small part of investment money is allocated in cryptocurrencies. Thus, it may be possible that the current investments in cryptocurrencies are undertaken by a non-representative part of the overall investment community. Because of this and the limited data range, it is not possible to predict with any certainty, whether non-asset based cryptocurrencies are just an effect of market exuberance or not. The main question is whether it is possible to convince enough people to use non-asset based cryptocurrencies until it becomes accepted as a currency by the majority of people and whether or not it will reach a relevant trading volume between individuals and organizations as a means of payment.
Those facts above give rise to introduce an asset based cryptocurrency.
ChainBLX is proposing robust decentralized blockchain technology to apply to a wide range of digitalized securities (reaching from ICOs/IPOs and foreign exchange, to blue chips stocks, like Apple, digitalized over investment funds) and asset-backed cryptocurrencies. Creating a digitalized economy of its own, ChainBLX digital financial instruments combine the key to success (e.g. stock trades as digital certificates, foreign exchange, IPOs and easy creation of tradable derivatives). ChainBLX automates the recordkeeping with a decentralized blockchain. It charges a maximum fee 0.25% of a transaction’s value, charged to each party of a transaction, which will be attributed to the ChainBLX management fund. Digital certificates of this management fund are issued as BLX-MF to miners for their efforts to keep the blockchain updated. Furthermore, BLX-MF will have to be acquired by companies engaging in IPOs/ICOs on the ChainBLX decentralized blockchain system, as well as an initial security deposit for miners. (ChainBLX does not use proof of work, but a less costly way to mine, thus a deterrent against attempts to cheat had to be established over a security deposit rather than electricity costs.) Because those BLX-MF are freely tradable from all participants, BLX-MF may function as a method of payment, thus establishing an asset based cryptocurrency.
With each executed trade within the system, the ChainBLX management fund acquires a fraction of digital stock certificates, and different currencies. Those assets and their dividends paid will build a steadily increasing asset base value for the BLX-MF. Therefore, the BLX-MF is backed by the assets of the companies trading on the system as well as fiat currencies held by the ChainBLX management fund. Consequently, it is very unlikely that a BLX-MF will ever fall below the underlying value, or to zero. It is more foreseeable that BLX-MF will have more purchasing power than the underlying asset base would allow, because of scarcity and its necessity to be purchased by certain entities to gain access to the system. For a full discussion about the ChainBLX economic system please visit www.chainblx.com).
This opens BLX-MF up to two main questions:
• How much is the underlying portfolio worth, as it is not managed and depends only on executed trades?
• At how much premium a BLX-MF will trade as it is in addition a limited commodity which is needed for certain entities to participate.
• What are the underlying algorithm for the creation of a new certificate?
It is obvious that that BLX-MF overcomes by design, some of the challenges of non-asset based cryptocurrencies. Of course the question “What is backing a BLX-MF?” is apparent. The underlying assets including the future value of those assets are backing it up.
The second main question is whether it is possible to convince enough people to use BLX-MF cryptocurrencies until it becomes accepted as a currency by the majority of people and whether or not it will reach a relevant trading volume between individuals and organizations as a means of payment? ChainBLX is confident that this will be achieved, because like in a country with its own fiat currency, the BLX-MF will be necessary to be acquired or held to participate in its economic system. Hence the longevity and stability is given to convince an increasing number of the population to accept this cryptocurrency.
The question of the performance of the underlying portfolio has to be answered in more detail: The question is, “How does a fund that constantly buys stocks based upon trading volume and holds an equal part of t-bonds in value in currencies that the stocks were bought preform?” A fund which through its buying strategy of trading volume adjusts its beta value, but never liquidates a position. (Please follow the discussion on www.chainblx.com). The short answer is outperforming most of the mutual funds.
The question of how much the premium of a BLX-MF will be depends on the demand and supply of the BLX-MF and therefor is related to the mining algorithm as well as speculative aspects of the investment community investing in BLX-MF.
What is the Algorithmic regulation of Chain-BLX
The foundation of ChainBLX is a network, which is a regulated by an algorithm determining that new blocks will be mined on average every minute. This ‘uncheatable’ math, which is intelligently constructed by system design, ensures that nothing can alter the predetermined issuance rate of a BLX-MF.
Every minute more BLX-MF will become available. This mathematical guarantee formulated by a crude form of artificial intelligence is exactly what backs a system that has amazing intrinsic value similar to Bitcoin.
BLX-MF follows more Friedman’s k-percent rule than non-asset based cryptocurrencies as Freedman’s rule was thought to be applied to a fiat currency (backed by the GDP of a country); in addition the asset based component ensures that it takes care on a magnitude of other economic factors. Friedman predicted the rise of a computer capable of automatically adjusting the inflation rate of money, and this is precisely what we see in the case of ChainBLX through its hybrid design of asset based, but yet algorithm based nature.
The above information just describes the asset based cryptocurrency aspect of ChainBLX. ChainBLX is far more than a mere cryptocurrency. The cryptocurrency is just a byproduct of the overall economic system ChainBLX is creating. Please follow chainblx.com for more information.