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What Crypto Investors Can Learn from Billionaire George Soros

Tanzeel Akhtar is an independent British journalist whose work has been published in the Wall Street Journal, CNBC, FT Alphaville, Investing.com, Forbes, Euromoney and Citywire.


Recent news that George Soros’ $26 billion family office is entering the cryptocurrency market has many investors speculating about the likely impact.

But one of the billionaire’s most famous ideas might be even more important to understanding how the market functions, with or without his participation.

For those unfamiliar with this powerful palindrome: In the world of economics and finance, Soros is feared and known as “the man who broke the Bank of England” when he made $1 billion in one day, September 16th, 1992 (known as Black Wednesday). This is one institutional player with the ability to go large and make or break a currency … even a digital one.

Soros has attributed his success in part to his understanding of what he calls reflexivity. In simple terms, this theory states that investors base their decisions not on reality but on their “perception” of reality.

According to reflexivity theory, there are two realities: the objective and subjective. Soros explains that the subjective aspect covers what takes place in the mind and the objective aspect is what takes place in external reality.

Reflexivity connects any two or more aspects of reality, setting up two-way feedback loops between them. In this way, actions resulting from each reality, the objective and the subjective, will affect investors’ perceptions, and therefore prices. Soros has cited the global financial crisis of 2008 as an illustration of the theory.

Markets, he reckons, are in a constant state of divergence from reality and far from accurately reflecting all the available knowledge, instead representing almost a distorted view of reality.

“The degree of distortion may vary from time to time,” Soros once wrote, adding:

“Sometimes it’s quite insignificant, at other times it is quite pronounced. Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend.”

He goes onto explain that when positive feedback develops between the trend and the misconception, “a boom-bust process is set in motion.” This is tested by negative feedback along the way, and if it is strong enough to survive these tests, both the trend and the misconception will be reinforced.

‘Near-religious’

So, how does his theory apply to the crypto market? For starters, we do see these feedback loops.

The more people form a positive view on bitcoin, the more the price will soar, and vice versa. This is what happened late last year: when the price of bitcoin jumped, it attracted more users, which further juiced the price, which brought in more people.

Crypto markets are just as prone to the phenomena of irrational exuberance, bias or opinionated actors as any other market, said Omri Ross, assistant professor at the University of Copenhagen and CEO of Firmo Network, a smart-contract startup.

Further, the community’s famous cultishness amplifies these effects, he said.

“The reflexivity of economic actors is confirmed by the proliferation of subcultures and fan groups emerging around various projects,” Ross said. “In the young and volatile crypto markets, near-religious beliefs about price appreciation with references to various intrinsic valuation models can be observed daily.”

Another area where reflexivity applied, for a time, is in the initial coin offering (ICO) sector, where momentum drove up prices, said Shane Brett, co-founder and CEO of GECKO Governance, a regtech startup. But it lasted only so long.  

“Recently, however, discussions around compliance, not to mention fraudulent ICOs, have caused some investors to retreat,” Brett said. “Conversely, institutional investors are keen to invest in the market, but in the absence of compliance, are remaining on the sidelines, contradicting this theory.”

Nobody really knows what the long-term effect will be of Soros’ entry into the crypto markets, only months after he joined other elites at Davos in calling bitcoin a bubble. Things are about to get more interesting.

But we can learn from his insights about the circular relationship between cause and effect, and the role of cognitive function in a new, developing and volatile market.

George Soros image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Jamie Dimon: The Final Frontier For Crypto (BTC, LTC, ETH, XRP) Investments

The crypto markets are a bit sluggish this Monday morning. But it is alright. Bitcoin (BTC) has only dropped 1.65% but maintained levels above $8,000. BTC is currently trading at $8,070. Ethereum (ETH) is still strong at $511 and Ripple (XRP) doing well at $0.655. Litecoin (LTC) seams to have found a footing above $120 and is currently trading at $127.

All the market action was catalyzed by a major pump by Bitcoin  on Thursday the 12th of April. What happened is that Bitcoin did a cool $1,000 gain in less than an hour and left many traders speechless and excited. Another possible reason for the pump is the current advice by a leading Islamic Scholar who stated that Bitcoin was permissible under Sharia Law. This then opened up Crypto trading to an estimated 1.6 Billion Muslims around the world. Perhaps they rushed in to buy as soon as this news was received.

It is with such momentum that one can muse that the final endorsement of Bitcoin (BTC) and cryptocurrencies in general, might come from the President and CEO of J.P Morgan and Chase, Jamie Dimon. Mr. Dimon was initially a tough critic of Bitcoin but he would later regret calling it a fraud. This was back in early January.

What then has happened since then, is that Cryptocurrencies have taken mainstream investing by storm with a few notable turnarounds by former Bitcoin critics like Jamie Dimon. The first to change his mind, was Shark Tank Investor and Dallas Mavericks owner, Mark Cuban. He was later followed by billionaire investor, George Soros. His approval for crypto investing was not direct but through his investment fund management firm. He gave a go ahead for it to invest in crypto. Another entry of a prominent Wallstreet firm was the partnership of the Rockefeller family arm of investing, Venrock, with crypto startup, Coinfund.

It is with such a premise that an endorsement by Jamie Dimon – whether directly or indirectly like in the case of George Soros – would be one major step to legitimizing cryptocurrencies 100% as profitable alternative sources of investment. The event would be monumental in the sense that J.P Morgan Chase is the largest bank in the United States with a similar reach across the globe.

However, the bank has been accused of inflating its fees for cryptocurrency purchases by traders  in America who used their credit cards to do so. According to customers, the bank was treating crypto purchases as cash advances. Perhaps this is the indirect endorsement the Crypto-verse needed. If the bank treated the purchases as cash advances, then it recognizes crypto as currencies. Right?

[Photo source, huffingtonpost.com]

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All Hell Breaking Loose For Bitcoin (BTC) In The Markets

Less than two weeks ago, Abra CEO, Bill Barhydt, had predicted that All Hell Will Break Loose in the Crypto markets once the big time investors started pumping their funds into the crypto markets. Well, perhaps Bill can now be considered a prophet for the market is all green in the last one hour. Bitcoin (BTC) has done a massive $1,000 gain in less than 30 minutes, and it has pumped the entire market with it.

Bill was quoted as saying:

“I talk to hedge funds, high net worth individuals, even commodity speculators. They look at the volatility in the crypto markets and they see it as a huge opportunity. Once that happens, all hell will break loose. Once the floodgates are opened, they’re opened.”

The flood gates seem to opened ladies and gentlemen. Bitcoin (BTC) jumped from around $6,800 to $7,796 in a period of less than an hour in one of the most massive pumps seen this year. It has since settled to levels of $7,627.

So where is the volume and funds coming from?

The first and most obvious theory, is the one that Bill Barhydt had predicted of big time investors jumping into cryptocurrency investing. To note is that the famous Billionaire, George Soros, has been noted as welcoming the idea of investing in cryptocurrencies through his company, Soros Fund Management. The Rockefeller family is also getting in with the partnership of its investment arm, Venrock, with crypto startup, Coinfund.

A second explanation, could be American money coming in from the annual Tax refund season in the country that ends on April 15th. Perhaps a few crypto savvy individuals are planning for their Lambos by investing in crypto with their refunds; rather than buying new cars, paying mortgages or even saving for college. Famous stock market strategist and crypto investor, Thomas Lee, was quoted as saying that the markets will revive after the 17th of April and particularly after the American Tax Season.

According to Thomas Lee, Bitcoin (BTC) is on the path to $25,000 by the end of this year and $91,000 by 2020.

In a nutshell, the signs of a resurgent Bitcoin have stated showing in the markets over the past few hours. What remains to be seen, is if the volumes can be maintained for the new crypto prices to be sustained.

TO THE MOON!

[Photo source, steemit.com]

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First It Was George Soros, Now The Rockefellers Want In On Crypto

A few days ago, George Soros, the billionaire business magnate and investor, was noted to be warming up to Cryptocurrencies. This is after Adam Fisher, who oversees macro investing at the New York-based Soros Fund Management, said he had gotten internal approval for a move to trade digital assets just a few months ago. This was a complete 180 Degree turn from the early year sentiments of Mr. Soros who had vehemently stated that Bitcoin was not a currency due to its volatility.

Now, news reaching Ethereum World News also indicate another prominent and traditional investment venture capital firm, is also getting knee deep into the world of cryptocurrencies.

Venrock, the investment arm of the Rockafeller family, is now teaming up with CoinFund.

Coinfund and Venrock partnership [Photo source, stupen.com]

According to the Venrock website, the company helps entrepreneurs build some of the world’s most disruptive, successful companies. They partner with entrepreneurs who have grand ambitions – who want to tackle big, hard problems that most think not possible. Their collaboration – engagement, network, passion and experience – gives entrepreneurs the unfair advantage needed to win, and win big.

On the other hand, CoinFund is a Cryptofund based in Brooklyn, NY, that invests in the community through Blockchain research, advising and investing.

So what does this mean?

David Pakman, a Venrock Partner, is quoted as saying:

“We wanted to partner with this team that has been making investments and actually helping to architect a number of different crypto economies and crypto token-based projects…There are a lot of crypto traders in the market. There are a lot of cryptocurrency hedge funds. This [partnership] is different. We’ll be working closely with them to help mentor, advise, and support teams in the space. We’re trying to cultivate a unique synergy between teams as we see more experienced founders and more traditional tech startups taking up blockchain.”

This simply means Venrock is in on blockchain technology, crypotcurrencies and ICOs. And they bring in the Venture Capital to back Blockchain and Crypto Projects.

We can now safely bet that J.P Morgan’s Chairman and CEO, Jamie Damin, will also see the light and potential of cryptocurrencies very soon.

[Photo source, Venrock.com]

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George Soros Warms Up To Crypto (BTC, ETH, XRP)

In an epic move, George Soros, the billionaire business magnate and investor, is now in the business of cryptocurrency investing. Soros was initially one of the prominent investors that were vehemently against Bitcoin (BTC) and crypto in general earlier this year.

Adam Fisher, who oversees macro investing at New York-based Soros Fund Management, says he got internal approval for the move to trade in digital assets a few months ago. Mr. Fisher is yet to declare the depth of the investment by the fund.

This is a complete 180 degree turn from what Soros said in January this year. He was quoted as saying:

“Cryptocurrency is a misnomer and is a typical bubble, which is always based on some kind of misunderstanding…Bitcoin is not a currency because a currency is supposed to be a stable store of value and the currency that can fluctuate 25% in a day can’t be used for instance to pay wages because wages drop by 25% in a day. It’s a speculation. Based on a misunderstanding.” 

From the point of view of many Crypto traders and enthusiasts, his statement were viewed as ‘blasphemous’. But you can at least try to put yourself in Soros’ shoes when he made these statements. Blockchain and crytpocurrencies came into the global limelight in a manner similar to a Tsunami. And being a traditional investors of stocks, bonds and shares, digital assets would look like ponzi schemes to Mr. Soros.

But for the generation that is under 35 who have grown up with the internet, video games and social media, cryptocurrencies seemed like any other good idea in their generation similar to the iPhone or Spotify. This is why we find teenagers being Bitcoin millionaires after buying the coin years ago using their $20 weekly allowances that they saved up under their pillows.

Soros joins a growing list of big investors who have seen the proverbial light of cryptocurrencies and their potential to change global economics. Another Bitcoin doubter turned believer, is the popular Shark Tank Investor and owner of the Dallas Mavericks, Mark Cuban. He too had declared Bitcoin as being a bubble only for him to recant his statements and further accept Bitcoin (BTC) as a form of payment for tickets to see the Dallas Mavericks play.

We can now safely bet that J.P Morgan’s Chairman and CEO, Jamie Damon, will also see the light and potential of cryptocurrencies after also calling Bitcoin a fraud earlier this year.

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Roubini Doubles Down on Crypto Criticism, Calls Blockchain 'Overhyped'

Nouriel Roubini, the former Clinton administration economist who predicted the 2008 financial crisis, says there is a revolution happening in the financial services industry, but blockchain – “an untested, Utopian pipe dream” – is not its catalyst.

In a new opinion piece published by Project Syndicate Friday, Roubini (nicknamed “Dr. Doom”) said blockchain’s potential has been overstated while condemning the notion that cryptocurrencies could replace fiat currencies as “utterly idiotic.”

Roubini has made harsh public comments about bitcoin before, calling it a “Ponzi game” and a bubble, but his latest piece broadens the attack to include the underlying technology.

The New York University professor, who has also held positions at the International Monetary Fund, the Federal Reserve and the World Bank, claims that blockchain proponents erroneously compare the technology to the internet in its early incarnations.

Unlike the internet, he wrote, blockchain’s accessibility is lacking and it has only one application: cryptocurrencies, which in his view are an unsuccessful experiment based on the false claim that they cannot be devalued by banks and governments. He continued:

“According to its promoters, Bitcoin has a steady-state supply of 21 million units, so it cannot be debased like fiat currencies. But that claim is clearly fraudulent, considering that it has already forked off into three branches: Bitcoin Cash, Litecoin, and Bitcoin Gold. Besides, hundreds of other cryptocurrencies are invented every day, alongside scams known as ‘initial coin offerings,’ which are mostly designed to skirt securities laws.”

Likewise, he argues that cryptocurrencies are especially precarious because they lack inherent value that fiat currencies naturally derive from citizens having to pay taxes.

George Soros, the billionaire who broke the Bank of England in the early 1990s, echoed Roubini’s dismissal of cryptocurrencies this week in a speech at Davos.

Soros was quoted as saying that “cryptocurrency” is a misnomer, because its lack of stable value precludes it from being a currency at all. He joined the World Economic Forum’s “Crypto-Asset Bubble” panelists in this conclusion, while also stating that the current market capitalization appears to be in a bubble.

In contrast to Roubini, however, Soros did praise blockchain technology during his speech, and said he plans to apply the technology to help migrants. He did not offer more specific details on these plans.

Nouriel Roubini picture via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.