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.

More Evidence That Wall Streets Coming to Bitcoin

We wrote the other day that Wall Street and its vast capital is headed towards the crypto space. More evidence piles up daily, but I found one that was prescient.

ReformedBroker.com posted a note on his blog explaining how and why he purchased his first Bitcoin. I’d summarize it as “Bitcoin doesn’t seem to be going away so I best try it out.” He doesn’t offer much insight or new perspective, just seems to be capitulating and accepting that there just could be a future in cryptocurrency.

This guy is a financial advisor with a large blog following. This is how he describes himself:

I’m a New York City-based financial advisor and the CEO of Ritholtz Wealth Management.

We help people align their investments with their financial goals and manage portfolios for them. Our clients range from high net worth households to corporations to retirement plans to charitable foundations. For younger investors and those just getting started, we’ve created the Liftoff automated advisor – a simple, low-cost way to access a professionally managed portfolio selected just for you.

I am also the author of the books Backstage Wall Street and Clash of the Financial Pundits from publisher McGraw-Hill.  In addition, I serve on the advisory board of financial technology firm Riskalyze as well as CNBC’s Financial Advisor Council.

In 2015, I was named to the Investment News “40 Under 40” list of top financial advisors.

Here is the full article, from Reformed Broker:

So you are now free to dump all of your crypto-currencies because this surely marks an all-time top.

But I thought I’d mention it anyway.

For those who are curious about why and how, I’ll just say the following…

I’m old enough to realize that just because I don’t see a use for something, that doesn’t mean I won’t be proven wrong by others who do. At the current moment, I don’t see the financial industry use for Bitcoin other than some marginal activities like settling commodity trades that are very far divorced from my day to day existence. I understand the benefits of these things – the blockchain acting as verification that the counterparty has made payment instantly, etc. I’ve probably read all the stuff that you have. I’m skeptical.

I also think it’s hard to imagine the IRS, Treasury etc allowing anonymous transactions without any reporting becoming a global standard for US persons.

But I’m willing to look beyond that because the goddamn thing won’t go away. I was talking with Justin Paterno (StockTwits) the other day and his attitude toward it is pretty much where I am – “Anytime something just refuses to die, you probably have to pay attention to it.” Bitcoin, if it were complete and utter nonsense, probably should have died already. But 7 years since it burst into the public consciousness – with all of the attendant volatility and criminal activity you’d expect to come along with something so new and unproven – and it’s still here. Despite the hacking and stealing and malfunctions and crashes, it’s still a thing. It’s the f***ing rooster. Ain’t found a way to kill me yet…

Anyway, I’m not a disruption hippie or an early adopter or a visionary or an evangelist. But I’m too curious to not experience Bitcoin ownership for myself. Oh, by the way, I don’t see myself trading it on price swings, more on that in a second.

So I used Coinbase, which from what I gather is the “safe” way to buy, sell and store. We’ll see. I began with a small amount of money so if they hack the site tonight and empty everyone’s wallets, I won’t feel it. The process was fairly simple.

First you create an account and connect it to your phone and email. They text you a code to verify and send you an email to confirm. No big deal. Then you connect a bank account, which only takes a second. From there, Coinbase makes two small deposits into your bank (pennies, don’t get excited) over the next 48 hours. You log back in and report what those tiny deposits were so it can verify the connection to your bank. Once that’s done, you can transact.

I bought some BTC, although ethereum and litecoin were also on the menu. I look at those other two like silver and bronze to Bitcoin’s gold. But I’m just making that up. Ethereum (ETH) might one day be better because it allegedly has some technological advantages, but I’m a newb so I’m starting with the more established fake thing rather than the less established fake things.

Anyway, I expect a lot of volatility and I really don’t know what I will ultimately do with my digital thing. Maybe I will add to it or maybe I will buy ETH also at some point. It went up 8% today I think so already I’m a genius 😉

I think at this stage in the game, it’s important to be open-minded and not afraid to lose money or look foolish. I’ve invested into way dumber things in my life. And as far as what the future holds – if the disruption hippies turn out to be right, and the 21 million BTC that will eventually be the limit are out there in public hands, it’s hard to imagine them not appreciating in price. Especially if they become more institutionalized and embedded into enterprise scale transactions – which is what the banking industry seems to be leaning toward from what I read and hear. I like the idea of scarcity and owning something that is finite by design.

And yes, I am aware of the possible split in the community, I have no opinion about it and nothing worthwhile to add. I’ve factored this risk in mentally. The resolution of this scaling problem may turn out to be a powerful upside catalyst just as easily as it could lead to a panic. Brexit-esque.

One other thing. On the Silk Road two thousand years ago, you needed gold to settle transactions. Because from Korea to the Asian Steppe to the Mediterranean, there had to be one thing whose value was never questioned. Gold facilitated trade and liquidity from one end of the known world to the other. My opinion is that this property of the element – it’s universal acceptance – remained in force for centuries…until it was disrupted by the internet. Once computers arrived, we had instant access to values and prices of goods around the world. Gold’s role in global liquidity and verification suddenly mattered less. No one realized it at the time, but gold as a currency had been permanently disrupted by the microchip and the operating system.

The Information Technology Revolution began in the early 1980’s when the computer became first a ubiquitous business tool and then eventually a household appliance. It should come as no surprise when I tell you that this moment also was the inflation-adjusted high for gold, still unsurpassed almost 40 years later.

Blockchain technology may have just permanently disrupted traditional currencies. It’s obvious to me that even if this is true, we will not know it for sure until decades have gone by.

Bitcoin Bloodbath – But a Reminder: Wall Street Is Coming

Todays Bitcoin and Ethereum bloodbath was more or less expected ahead of the (potential) coming Bitcoin “Segwit” event. While this is causing major moves in the short term I think its prescient to remind the cryptocurrency community that Wall Street is on its way.  In the past we posted about what some of the roadblocks are, but with todays Bitcoin and cryptocurrency bloodbath we thought maybe some positive predictions were due.

Yesterday we posted some concrete evidence, but there are some other speculative indicators.

First, trading in “traditional” (stocks, options, bonds, etc) Wall Street products is flat, at best. There is nothing indicating that those traditional volumes will pick up either. (See JPM trading revenues, weak). [Note, other areas of banking appear to be strong – I am referencing the trading sector specifically]

Take a look at US stock and options volume for example. Yes, there is some deviation month to month but its been flat for years.

US Daily Stock Volume
US Daily Stock Volume
US Exchange Options Volume
US Exchange Options Volume

Its no secret that Hedge Funds are having a hard time. They are a major source of banks trading revenue. Why, well multiple studies show that buying and holding over time crushes Hedge Fund performance. Vanguard is the poster child of this, and is growing at a ridiculous pace offering investors low cost ETFs. Whats my point? This is good for investors but terrible for Hedge Funds and Banks.

Trading desks on Wall Street need a new revenue source. Enter Bitcoin, Ethereum and cryptocurrencies.

All of this is could be brand new business in a market that is expanding rapidly.

Crypto Volume is Exploding

High volumes mean dollar signs for brokers. All evidence points to volumes that rival US Stock Exchange volume.

Below is Bitcoin 7 day average volume. I’d suspect most would argue that this volume will continue to grow over time – if not in Bitcoin than certainly in other cryptocurrencies such as Ethereum or Dash.

Bitcoin Volume
Bitcoin Volume

Just a few days options trading in Bitcoin was approved by the CFTC (US Commodities Futures Trading Commission). This means that regulators are starting to turn positively on Bitcoin and crypto. This is great news for banks in particular as they can more easily move into cryptocurrencies when the regulators are approving.

This offers opportunities not just in trading – but in services for trading:

  • Cryptocurrency clearing and storage
  • Research and Analysis
  • “Smart Routing” and algorithmic trading

It would be easy to argue that as more large entities enter the space, more technology is built and more capital flows in. While today Bitcoin prices are getting hammered, we’re in the first inning of a game that most likely will not end in our lifetimes. Reminder: this isn’t investment advice, just an offering of perspective.

Why the Recent Bitcoin Price Explosion Was a Dry Run

The recent rise and fall of Bitcoin and Ethereum prices brought massive attention to the cryptocurrency space. While that fevered speculation created a short term price spike that proved to be unsustainable, the price move also put a spotlight on the viability of cryptocurrency from investment and technological perspectives.

The Recent Bitcoin Ethereum Price Spike was Fast Money

Fast money – money that floods in, speculating on price. Thats what pushed up prices not of just Bitcoin and Ethereum, but every other cryptocurrency over the last few months. Fast money leaves just as fast as it arrives. Fast money brings “weak hands”. These are speculators that don’t have conviction or a belief in what they are investing in. They freak out when price moves against them by more than a few percent.

Ethereum Price Chart June 2017
Ethereum Price Chart June 2017

Fast money tends to be smaller amounts. Why? Because if you are a large piece of the market you can’t liquidate that easily. For example, if you own 75% of all Bitcoin you’re going to have a much harder time selling that if you own 7 bitcoins.

While this recent price spike and subsequent drop probably burned a lot of people, it may have set the stage for much larger investment. Ethereum and Bitcoin were plastered all over the news, on CNBC, Wall Street Journal and the like. Coinbase, for example, had record account openings. These are people who figured out where to go to buy crypto (I’d argue thats not an easy task) and that paves the way for future investment. There are millions more people who now have not only heard of Bitcoin and Ethereum, but they will remember that they missed the boat last time. I’d wager they’re more ready to participate in future price ramps.

Big Money Is Coming to CryptoCurrency

Wall Street and major investment is moving to the cryptocurrency space. You see it happening all over, and that is money that is making real investment in cryptocurrency and that could help set a floor in Bitcoin and Ethereum price. This is money that takes longer to impact the price. Business plans, approvals, infrastructure all has to be built before actual money moves in.

Here are just a few examples:

I think this bodes very well for the future of cryptocurrency. Fast money “set the stage” for larger participation in the future. If Wall Street and other large corporations continue their push into the space that should “legitimize” crypto in the eyes of the public and could pave the way for more capital flowing in.

Ethereum Has a Mining Problem

Ethereum Price Mania Leads to Mining Hardware Mania

The mining difficulty for Ethereum has been rising steadily, but it really spiked over the last several days. Coupled with a sharp drop in Ethereum price, this creates an issue which makes mining less profitable, or even a loser. If miners bail on Ethereum that makes the network slower, which is obviously a bad thing.

Ethereum Mining Difficulty Chart
Ethereum Mining Difficulty Chart

There are two possible reasons for this:

  1. More miners jumped into the game, increasing the difficulty
  2. Its something that the Ethereum developers are purposefully doing

Ethereum Mining Hardware Sold Out

A recent article from TweakTown states “The cards [mining equipment] are either selling out, are sold out, or they’re being sold for ridiculous prices in the second hand market. (As a strange side note: Millennials #1 stock purchase on Robinhood is AMD) PC World says ” mainstream graphics cards like the superb Radeon RX 570 and RX 580 can’t be found right now, with all models either out of stock or selling for wildly inflated prices online.”

So what?

Well, more miners means more competition for mining. To me the above means that “speculators” are diving in, rather than guys with a concrete, long term business plan. As competition heats up it means less return on investment for miners, be it huge server farms or the Average Joe with one RX580 in his parents closet. When the Ethereum price drops as it has been recently, this can make mining “cost ineffective” wherein the cost of electricity is more that the value of Ethereum you can mine. If your return on investment is calculated using a price thats up 5000% over the last several weeks, you’re probably in trouble.

I posted the chart below in reference to the Ethereum price, but it could work as an analog for mining hardware, too. The time for buying mining hardware was the “Stealth” or “Awareness” phase. Overspending on mining hardware based on “Mania” Ethereum prices is a recipe for failure.

Investment Cycle
Investment Cycle

Coinwarz has in depth information on mining ROI for those interested.

The Ethereum Difficulty Bomb

Its not 100% if its simple “mining mania” due to speculators, or if the mining difficulty increased. Ethereum uses an algorithm dubbed “DAG” which can essentially vary in complexity. The more complex the solution is to the algorithmic problem, the harder it is to solve aka “mine”. A tougher problem takes more computing power to solve the problem.

More on the bomb from The Merkle:

From the outset, the plan was to make Ethereum mining impossible at some point in the future.This change will be introduced through an arbitrarily difficult block to mine, which will effectively create the difficulty bomb in question. As this difficulty bomb is activated on the network, the mining difficulty will skyrocket and eventually make Ethereum mining unfeasible and extremely unprofitable.

This “bomb” was apparently an intended feature built by the Ethereum developers and leads to a lengthy discussion around “Proof of Stake”[POS]. (read about that here) For purposes of this post, I’ll just note that POS is supposed to be the answer to this mining issue. The problem is that POS does not have a hard launch date, but should be out “by the end of 2017” according to Vitalik Buterin the head of Ethereum.

Ethereums Future Needs Proof Of Stake

Higher and higher difficult combined with lower prices just won’t work. If prices drop, then some miners should back out and hopefully things find an equilibrium again. Proof of Stake is something that many in the Ethereum community has been focused on for a long time, and its delivery is not just important for the Ethereum technical network to actually operate, but also the confidence people have in the Ethereum product.

I could actually make the case that whats best for Ethereum is people forgetting about it for a while. Mania leads to network issues and things breaking that just haven’t been tested yet. This is the first or second inning of a very long game, and no one can predict the future off of what has transpired in the last few weeks. There are many potentially amazing things in the works, roadmap here.

This BTC/ETH Price Analog Is Working

What follows below is rampant speculation. Do not take any of this as investment or trading advice.

Bitcoin vs Ethereum Price Charts

We originally posted this analogy comparing the first (2013) exponential ramp in Bitcoin to the Ethereum price ramp of the last few months. This isn’t a prediction, but I find it quite interesting. You could make a case that Ethereums price is tracking this initial run of Bitcoin.

Ethereum now vs Bitcoin 2013
Ethereum price ramp compared to bitcoin ramp.

This chart of stock market bubbles (or any investment mania, I suppose) is well known, and seems applicable here. If I had to toss a guess, we’re in the bull trap phase. Ethereum is right around ~$200 now and I’d speculate that round numbers often prove to be support areas.

Investment Mania

Another interesting thing about this analogy – the Bitcoin hard for is 20 days from now. There was 20 days between the “Bull Trap” phase and “Return to Normal” in the Bitcoin price bounce. If Bitcoin forks on August 1st that could have a major price impact on all cryptocurrencies and drive real “Fear” into the crypto market.

Bitcoin Peak to Trough vs Ethereum

We’ll keep updating this chart to keep an eye on this analogy. While I believe in Ethereum long term, the Bitcoin fork and Ethereum ICO’s it could make for a bumpy road in the short term.