Stock market vs. Cryptocurrency market

21

October

2018

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In line with the required article in week 6, this blog will look at the influence of social media on the valuation of Bitcoin. This article will also look at the differences between the stock markets and the cryptocurrency markets, with regards to regulations and inspection.

Academic research shows that social media is an important indicator to predict Bitcoin returns. Mai et al. (2016) came up with the following results:

  • Bullish (bearish) postings on social media lead to positive (negative) bitcoin returns on the next day;
  • Greater disagreement across messages on social media preceded higher bitcoin exchange volume on the next day;
  • The total volume of message posting had a significant influence on Bitcoin volume the next day.

These results seem similar to the results in the article of week 6.

However, it is important to realise that stock markets and the cryptocurrency market are different.

At the Wall Street stock exchange, there is this agency called the SEC (Securities & Exchange Commission). This agency attempts to ensure that all trades on the stock market are fair, avoiding price manipulation or insider trading. An example: After Elon Musk tweeted that he planned to remove Tesla from the stock market, he received a 20 million dollar fine from the SEC, as he manipulated the stock price through his tweet.

In the cryptocurrency market, there is no such thing as a SEC and therefore, the market is vulnerable to insider trading and price manipulations. This is also one of the reasons why people are sceptical about cryptocurrencies. Similar to the SEC, the cryptocurrency space also needs to have a regulatory system. This will eventually remove uncertainties and fraud, which will be extremely important for the market to mature.

Sources:

Mai, F., Bai, Q., Shan, Z., Wang, X. S., & Chiang, R. (2016). The impacts of social media on Bitcoin performance.

https://www.cnbc.com/2018/10/16/judge-approves-elon-musks-settlement-with-sec.html

 

 

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Blockchain to fight fake products

16

October

2018

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Fake products are a rising concern in the modern marketplace. According to NetNames (2014), a leading online brand protection company, the global cost of counterfeiting was around 1.8 trillion dollars in 2014, seeing a huge rise every year. [1]

Initiatives, build on Blockchain technology, try to fight counterfeit. VeChain, a Chinese enterprise blockchain startup, as well as a major cryptocurrency, will be discussed in this blog. VeChain focusses on the wine industry, a major industry in China that struggles with fake wine. VeChain is not alone, as China’s national government also tries to fight this problem. Their strategic objective with regard to counterfeit: “to complete product traceability system by 2020”. [2]

Now how does this work? To understand this, you probably want to get to know more about the Blockchain Technology. “A blockchain is a decentralized, distributed and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network”. [3]

Let’s point out some key points of this definition. First of all, Blockchain Technology makes information systems more transparent. Every transaction that is made on the blockchain will be displayed in the system and will be available for everyone to see. Second of all, every individual transaction is uniquely time-stamped. This means that every transaction includes some information about the previous transaction. In this way, all transaction (or blocks) are connected (chained) to each other (now you also know why it is called Block-Chain). This makes it impossible to tamper a single transaction, as you then have to tamper every transaction in the blockchain. [4]

Now you know somewhat more about the technology, let’s get back to VeChain. Let’s say that you are a wine lover that is willing to pay more than a 1000 dollars for a bottle of wine. Your favourite wine is one from a very specific region in Italy, and you want to be very sure that the wine bottle you are buying online or in a store is actually from that region. As of now, you have to trust the producer or intermediary. However, as mentioned in the introduction, there are not too many reasons to trust these persons, as fake wine and counterfeit are becoming more existent in the current market space.

Through Blockchain Technology, VeChain provides a solution. If you buy a bottle of wine that uses Blockchain Technology, you can simply scan the QR-code on the bottle, and you can see all product specifications of that specific bottle. You can see the region where the grapes are picked, where it is manufactured, etcetera. Because it saved is on the blockchain, you can be sure that this information has not been tampered, and be assured that the bottle you just bought is actually from that Italian region you like.

Want to know more about Blockchain Technology, use-cases, or cryptocurrencies? Do not hesitate to contact me or respond to this blog! 🙂

Sources:

[1]
NetNames 2014
https://industrytoday.com/article/global-cost-of-counterfeiting-is-1-8-trillion1-according-to-new-netnames-report/

[2]
VeChain Foundation, 2017
View at Medium.com

[3]
Siraj Raval 2016
https://books.google.nl/books?id=fvywDAAAQBAJ&pg=PA1&redir_esc=y#v=onepage&q&f=false

[4]
IBM 2018
https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=24012424USEN

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