Public Service Notification: Bitfinex

First I’d like to say I have no idea if any of the below is either:

A) True

B) If it is true – that it results in Bitfinex blowing up.

This is a notification that if you use Bitfinex you should be doing some homework.

The general outline is that Wells Fargo cut off Bitfiniex – and Bitfinex started to leverage Tether for their funding. Tether is a currency their sister company started. Since April there has been a 400% increase in the amount of Tether. A second site offers that this Tether can be used for margin trading and this could be influencing the price of Bitcoin.

Read in depth research here:

I’d note that Mt. Gox made some errors and attempted to inflate the price of Bitcoin to get out of their trouble.

There were also some other strange happenings with Bitcoin Cash. After the fork Bitfinex changed their distribution method i.e. they went back on their word.

They also recently announced to stop adding US Customers.

Again – I am not saying to panic. But I am saying do some research.

Bitcoin: Move +$160 million for 67 Cents

Imagine what sirens would go off if you walked into your bank and asked to move $160,000,000. What do you think that would cost? How long do you think it would take? What body tissue samples would they ask for in the name of terrorism or the IRS?

Not with Bitcoin. Someone moved $160 million for 67 cents. It only took a few minutes.

Large Bitcoin Transaction
Large Bitcoin Transaction

This image is not mine – I unfortunately lost the link. If its yours please contact me.

Some Guy From Forbes Craps on Bitcoin

This article from Forbes: 

A Bitcoin Is Worth $4,000–Why You Probably Should Not Own One

is quite a ridiculous read. I don’t disagree with his underlying thesis: (I’m paraphrasing )”Bitcoin is rife with speculation”. But his article is full of contradictions and he demonstrates a lack of knowledge about the utility of Bitcoin. He says its just some currency, but it has no value. And he ignores any of the current and future utility of Bitcoin.

He advocates “investing” your money, not “speculating”. That makes sense it a lot of situations. Buying bitcoin is pure speculation, he says. I mean no one ever speculated in stocks or real estate, right? And he forgets to mention that just holding a fiat currency is inherently speculation that your purchasing power wont decrease.

This is the final line, which is all you need to really see:

The Bitcoin currency is not managed by any government agency, nor is it backed by any government.  Bitcoin values are purely dependent upon holders having faith they will continue to have value.

Talk to the people in Venezuela about currencies “managed” by government agencies. See how that “investment” worked for you:

Venezuelan Bolivar Chart

Second – the entire economy runs on faith. EVERYTHING. Its all trust. Houses have values only when people trust they will hold. Same with stock markets, food and all the rest. What happens when people lose faith in the economy? Just look back to 2008 when the entire economy almost collapsed.

His advice has some merit. I think hes trying to say that Bitcoin is a volatile investment and you should know what you’re doing before investing. But that goes for every investment you will ever make. Its no different than art, real estate, gold, or anything else – do your homework and make informed decisions.

Another Bitcoin ETF Proposed

Van Eck, a large ETF provider announced they are seeking approval to launch their own Bitcoin ETF. Instead of actually holding Bitcoin they are going to leverage the Bitcoin Derivatives market to track the price of Bitcoin. This is quite smart and I think has a better chance at approval before the Winklevoss Gemini ETF.

The CFTC approved a Bitcoin Derivatives exchange “LegderX” several weeks back. Because Van Ecks ETF will rely on that rather than Bitcoin it means that clearing and moving funds will arguably be more transparent and secure because the derivatives settle in cash. The SEC and CFTC understand cash better than they do Bitcoin.

I personally thing the challenge the SEC has with the Winklevoss ETF is that they cannot wrap their heads around how the storage of Bitcoin will take place and where the funds will held. There are lots of security issues here which needs to be addressed and that makes for a lot of challenges.

There is “GBTC” which is not actively managed and usually trades at a very high premium to Bitcoin – see here.

“Bitcoin Cash” Injection Making Cryptos Rise in Price

Last week Bitcoin paid a “special dividend” (as I like to call it) “Bitcoin Cash”.  As is well known anyone who owned Bitcoin during the hard for received new coin, bitcoin cash. Well, it seems to me that this new found money fueled quite a price rise in Bitcoin as presumably holders of Bitcoin sold some of their Bitcoin Cash and used those funds to invest in other cryptos. Its a bit like quantitative easing.

It should also be noted that the fork went flawlessly with no market disruptions. Some had predicted dire happenings for Bitcoin over this fork. It went very well, and that had to bolster confidence in Bitcoin.

Combine the “special dividend” and increase trust and you get higher prices. You can see in the chart below that as Bitcoin Cash has been tanking (orange line) Bitcoin (in blue) has been leaping.

Bitcoin vs Bitcoin Cash
Bitcoin vs Bitcoin Cash Chart

Don’t forget big news from Wall St including the CBOE adding Bitcoin Futures as mentioned here. In my opinion all this clears the way to higher prices.

Bitcoin Bullish: CBOE Signs with Gemini for Price Feeds

The CBOE is now launching Bitcoin Futures in a plan with the Gemini exchange. I am not certain what the implications are of this for the Bitcoin ETF that the Winkelvoss were working on. Launching Futures is a much easier task for the CFTC and/or SEC to wrap their heads around as the Future just has to track the Bitcoin price. Whereas with ETF the SEC has to figure out how actual trading and settlement of the Bitcoins underlying the ETF would work.

One could argue that the Bitcoin ETF would have had a much bigger impact on price that the Future. But inevitably there will be players in the market which are arbitraging Futures versus the underlying. This means more capital flowing into the cryptocurrency space. It also means more legitimacy for Bitcoin wherein regulators and stock exchanges are grasping and embracing the products.

More thoughts on that here.

Government Making the Case for Regulation

It seems clear that the US government is making the case for Bitcoin regulation. It seems they’ve kept it in their periphery, but as of late they are more dialed in. Government headlines are coming “fast and furious” as of late. They probably figure that they will float ideas and statements out to the public to prepare everyone.

This all syncs up with the big arrest of the Russian guy who stole untold sums from his Bitcoin exchange, and is allegedly tied to Mt Gox.

So they point the finger at some possible shenanignas, make a move on some bad guys and say “See, we told you so! Now we’re coming to clean it up!”

Regulation and government intrusion is sure to make many “purists” in the crypto community upset. These are the guys who fled to bitcoin to flee their oppressors.

But for regular investors I think the regulation further paves the way for larger investments from Wall st and the like.

S&P500 and Ethereum Moving Together?

Yesterday we mentioned some interesting moves that seemed in sync from the US stock market and Bitcoin/Ethereum.Today was another curious move.

The chart below shows a good move up in the S&P500 (an Index of the US stock market) and Ethereum. Both moves occured right in the 10:11-10:12AM EST time frame. The top chart is Ethereum from GDAX and the bottom is the S&P500 (SPX).

Clearly there are good sized traders out treating Ethereum and Bitcoin as an asset class like equities…

Ethereum vs US Stock Market
The S&P500 Moved up in sync with Ethereum

 

Weird Bitcoin Ethereum Jump at US Stock Market Open

Its more than apparent that hedge funds and banks are pushing into the Bitcoin and crypto markets. Today I noticed that both Bitcoin and Ethereum prices gapped up at 9:30AM EST. Coincidentally thats when the US stock markets open for trading. Forgive the terrible notation in the GDAX charts below, I was in a rush.

Bitcoin Stock Market jump
Ethereum 930AM Stock Market Open

There is no obvious reason why the two would be linked, I suspect it has something more to do with some traders who have algorithms for the US stock markets. When their machines flip on they also have Bitcoin and Ethereum in their portfolios, so they begin trading them, too.

I don’t currently have the time to backtest this, but I wanted to post something as a reminder.

Whats a Buy/Sell Wall in Bitcoin or Ethereum?

There is a lot of action in Bitcoin and Ethereum trading – intra-day volatility can be huge. One thing that is frequent in crytpo trading is buy or sell “walls”. I great example happened today on the GDAX exchange.

You can see at the bottom  section of the chart below you have an aggregate of buy and sell volume at various prices. On the left in green is the amount in total that people are willing to buy at various prices. On the right in red is the amount sellers are wishing to unload. As you can see there is a massive amount of Ethereum for sale around $230 ETHUSD.  This is almost 8,000 ETH units for sale at $230/ETH which is roughly $1.8 million USD.

ETH SELL WALL
Ethereum Sell Wall on GDAX Exchange

For the price of Ethereum to move over $230 there needs to either be very strong buying demand to “tear down that wall”, or the large seller(s) need to pull back.

Buy and sell “walls” is something you will see frequently in crypto trading.