Pigs Get Slaughtered: Margin Trading Bitcoin

There is a famous saying “a fool and his money are soon parted”. One thing that bothers me about the Bitcoin space is all that all of the people catching this rising tide think they are the Warren Buffet and can’t lose. News flash: you aren’t a great trader. When every crypto goes up everyone looks like a genius. Then they get cockier and their false bravado builds pushing them to trade on margin making even more money.

Then suddenly a sharp drop in price hits a few margin players as the exchange forces them out of their position. This creates cascading margin sales as other people are then forced out.

This article on BI talks about the guys hurt in Bitcoins recent flash-crash. They trade using margin on Bitfinex and when the price tanks they get liquidated at prices they say aren’t fair. Its possible they were forced out at bad prices – but they still would have lost a lot of their holdings. Keep in mind these guys are using margin (very dangerous) on an exchange which is completely unregulated and has major rumors of shady behavior. This accident was waiting to happen.

This brings us to a well known trader saying to all those in the crypto space:

“Bulls make money, bears make money, pigs get slaughtered”

Bitcoin Popular with Preppers & They’re Wrong

Much has come out recently about Bitcoin becoming more popular than Gold as a hedge against calamity. This makes inherent sense to me for “mainstream” investing. Bitcoin is outside of the banking system and control of government. Its (on its way to becoming) universally accepted and has shown great utility for people in escaping governments which are collapsing (see Zimbabwe and Venezuela).

Whats odd to me is when the Preppers come in and we see stories that they are looking to Bitcoin as an alternative to gold for use in a doomsday scenario. Bloomberg highlights this here:

Across the North American countryside, preppers like McElroy are storing more and more of their wealth in invisible wallets in cyberspace instead of stockpiling gold bars and coins in their bunkers and basement safes.

They won’t be able to access their virtual cash the moment a catastrophe knocks out the power grid or the web, but that hasn’t dissuaded them. Even staunch survivalists are convinced bitcoin will endure economic collapse, global pandemic, climate change catastrophes and nuclear war.

“I consider bitcoin to be a currency on the same level as gold,” McElroy, who lives on the farm with her husband, said by email. “It allows individuals to become self-bankers. When I fully understood the concepts and their significance, bitcoin became a fascination.”

On one side she exhibits a true understanding of the value of Bitcoin – becoming a “self-banker”. This to me is the greatest value of Bitcoin. On the other points I am lost.

If the power grid goes out for a sustained period or there is a nuclear war then forget Bitcoin. Firstly the Bitcoin network would most likely grind to a halt particularly if the power problem is in China or any other place where mining is concentrated. If they can’t run then the network crashes and you can’t trade those precious bitcoins. In a true doomsday scenario you are going to want food, toilet paper, etc and are going to want to trade for things with true utility.

What I suspect is happening is people are jumping on the bandwagon here for bitcoin as a speculative investment betting that prices will rise. They then claim that Bitcoin is useful (even if the power grid is down) to support their speculation. If you are a truly wanting to get out of the system you can convert all of your fiat cash to Bitcoin and use Bitcoin exclusively to buy and sell everything (get a Bitcoin Visa card). I don’t get the impression that is what preppers and others like them are doing.

This brings me to my final point. Bitcoin can be a beautiful answer to much of what is wrong in this fiat/central banking dominated system. If people all started to use  bitcoin rather than hold it because it will make them rich – then Bitcoin has a real future. I suspect that it will take a systemic shock to get people to switch to using Bitcoin to transact. An event wherein everyone sees the value of being outside the banking system.

For now it appears Bitcoin is more of a “get rich quick” scheme.

If You’re a CEO just say “Bitcoin”

Squares CEO Jack Dorsey (also CEO of Twitter) announced Square is going to add the ability to buy Bitcoin through its app and the stock is up ~3% today.

square bitcoin chart
square bitcoin chart

There are other examples here where stock news comes out including buzzwords like “bitcoin” and “Blockchain” which sends the stock soaring. If the recent Bitcoin/Bitcoin cash debacle proved anything its that this crypto space is rapidly changing and highly speculative. If you’re a CEO you can’t possibly predict your revenue from adding Bitcoin. Bitcoin is growing slowly as a payment method but its dominated by traders and holders. Yes “blockchain” is a revolutionary idea that will change business but I question the incremental value of Square adding Bitcoin purchases. Don’t get me wrong, as a holder of Bitcoin its great news. But is it really going to move the needle for Square in the near future?

I am not sure if the people buying Square on this news are just bullish on Bitcoin and its a way to express that, or if they think this is really going to boosts Square’s business. I wonder if the launch of Bitcoin Futures on the CME this December will cool this off a bit.

To me it reeks of speculation when stocks rip up just using these catchphrases and is something that helps build the Bitcoin “bubble” case.

Bitcoin Fork Called Off, Price…Drops??

The bitcoin hard fork knows as Segwit2x was “called off” today causing a sudden price spike then drop.

The strange thing about this is that the fork was a major point of dispute for those in the Bitcoin community and posed some risks. One would think that when you eliminate a risk the price would go higher, but not here.

This says to me that people were piling in ahead of the fork in anticipation of a “dividend” and nothing more. That tells me that greed is driving price, and its a bit concerning.

Ethereum Parity Bug

Ethereum wallet company Parity Technologies found a bug in their code that leaves hundreds of thousands in Etherum (millions in USD) exposed to “being deleted”. Read here if you want more on this.

Or, more succinctly:

Turns out Parity wallets were hacked in July of ’17, too (see here).

This is what happens when untested technologies are used in “production”.

This is not supportive for Ethereum’s price at a time when Bitcoin is exhibiting dominance and ICO’s are coming under intense scrutiny. It shouldn’t take away from the promising future of the technology.

What Do CME #Bitcoin Futures Mean for Bitcoin

Everyone in crypto is excited about the launch of Bitcoin futures on the CME (Chicago Mercantile Exchange). The CME is one of the largest futures exchanges in the world. A few notes on this as I am reading a lot of nonsense out there:

  • Overall this has to be seen as bullish for Bitcoin and establishes the asset on the “institutional” playing field.
  • Bitcoin futures are CASH SETTLED which means when the contract expires you are charged or credited in USD the difference between the futures price and Bitcoin spot price. If you’re futures contract is $7000 USD and Bitcoin spot is $6000 USD you will lose $1000 USD from your account.
  • Cash settlement means the futures volume doesn’t necessarily translate into actual Bitcoin  volume. That being said I’d wager that Bitcoin volumes would move higher as traders arbitrage the futures versus actual Bitcoin.
  • Yes, some people will hedge with actual Bitcoin but settlement is still a major issue for institutions and will prevent them from trading actual Bitcoin. Essentially Hedge Funds and Banks can’t yet handle the storage and delivery of Bitcoin. (see here) Plus Bitcoin itself hasn’t been explicitly approved by the SEC or other regulatory bodies.
  • LedgerX already launched Bitcoin options which many will use in conjunction with Bitcoin Futures. You can buy or sell the options and use the future as a hedge if you’d like to trade the “volatility” of Bitcoin. You can also express a directional Bitcoin price view using Bitcoin futures and then hedge with options.
  • I find it somewhat ridiculous that this is a grand conspiracy by the banks to take down bitcoin. CME is a for profit exchange and Bitcoin is an asset with rapidly growing demand.

Stock Adds +250% by Adding “Blockchain” to Its Name

File this under: “a fool and his money are soon parted“.

This Company Added the Word ‘Blockchain’ to Its Name and Saw Its Shares Surge 394%

 

A British company that has been investing in internet and information businesses is having its best day on record.

On-line Plc jumped as much as 394 percent on Friday after announcing plans to change its name to On-line Blockchain Plc, following an initial climb of 19 percent on Thursday when it first announced the news. It’s the biggest one-day gain for the small-cap company since its December 1996 listing. The trading volume that reached 2.9 million shares by early afternoon in London is equal to more than 16 times the entire year’s trading before the last two days.

“Blockchain technology and cryptocurrencies are a new and exciting area we have been working on for some time,” the Essex-based company said in a statement on Thursday. “We feel the time is right to re-name the company to reflect these developments, where we believe the future growth will be in our sector.”

The shares pared gains after the company published a follow-up release on Friday, cautioning investors that the development of its blockchain product is still at an early stage. Still, the 238 percent rise as of 2:36 p.m. in London leaves the company’s market value of 4.4 million pounds ($5.8 million) at its highest since 2005.

This isn’t the first time that investors have gotten excited about a name. Shares in Colorado-based Bioptix Inc. nearly doubled in value in the days leading up to its name change to Riot Blockchain Inc. earlier this month. In what seems to be a case of mistaken identity, a New York-based startup called SNAP Interactive Inc. jumped more than 150 percent in the days after Snap Inc. filed for a $3 billion initial public offering in February. Little-known SNAP Interactive makes mobile dating apps, while Snap Inc. is the parent of the popular Snapchat photo-sharing app.

Catalonia Crypto Isn’t #Bitcoin Bullish

“Catalonia is also considering adopting its own digital token or cryptocurrency” I saw this on zerohedge as an attempt to ascribe a reason to the Bitcoin price spike today.  First, not every single move in an asset must have news attached. Second, Catalonia isn’t even its own legal entity. So you could buy into this crypto and have the EU reject it or call it illegal. Also they are looking at an ICO:

From Coindesk

Blockchain experts in Catalonia have sought help from Vitalik Buterin, Ethereum’s founder, according to El Pais. Vitalik advised the Catalonians to create an ICO to offer a currency that would work in tandem with the financing of a business project for the virtual residence program. The e-residency ecosystem could create an economic community independent of a central bank.

Estonia recently proposed “Estcoin,” a national cryptocurrency. If the country follows through on this plan, it would be the first national government to launch an ICO.

Kaspar Korjus, managing director for Estonia’s e-residency program, posted a Medium blog in August claiming Estonia could offer Estcoins to residents. The coins could be managed by the Republic of Estonia, but accessed by anyone through the e-residency program. The program would launch an ICO to offer the coins.

Korjus also said the ability to start a location independent company is the main factor driving the growth of the e-residency program.

IF this were all to happen it would be competition for Bitcoin. Second there is no proof it would launch on Ethereum.

Any news like this is crypto-bullish but don’t read that to mean “Bitcoin bullish.”

Ripple Shows How Disrupted Tech can be…Disrupted

Only a few weeks ago everyone was patting themselves on the back for “buying the dip in Ripple”.  If you bought the late September drop at 18 cents you were quite happy by early October when the price hit 28 cents. Easy call right? I mean, Ripple is obviously going to take over all banking.

But then, this happened:

“IBM’s Stellar Move: Tech Giant Uses Cryptocurrency in Cross-Border Payments”

Top chart below is Stellar and the bottom is Ripple. As you can see Ripple fans don’t like this news. This is only one little news item and certainly does not seal either companies fate. So, who cares? Read below.

Ripple price down on Stellar IBM News

Read Wikipedia about Stellar, and you see this tidbit:

“At launch, Stellar was based on the Ripple protocol. After making several changes to critical consensus code, the Stellar network forked.”

This is the problem with investing in anything crypto right now. You can take pretty much any coin/token and copy it to make your own. All these people investing in ICO’s think they are Warren Buffet because basically all ICO’s go up. Its a brand new market that is very rapidly saturating. Don’t believe me? Just scroll through this list of ICO’s. Very few of these will be winners long term. The ones that do start to win can just be cloned.

Think thats just ICO’s? I’d disagree. Governments are copying Bitcoin. I’m not sure what that does to the price, but I have a feeling the market doesn’t anticipate competition from the ruling class. See here for example:

Whats my point? The market now is pricing in all things crypto going up. The market does not appear to be concerned about competition both private and public. Its dang near 100% that crypto is the future, but its 100% impossible to state which coin or token is “the one”. So don’t put all your eggs in one basket.

North Korea is Mining Bitcoin But So Is….Fidelity?!?

There is a story here about North Korea using excess coal reserves to mine Bitcoin.I’m not really sure what the value of Bitcoin is to them if they lose all of their trading partners. I guess its all Black Market stuff they would be buying – I’m just not sure the Bitcoin black market is big enough to satisfy the needs of a sovereign nation. That being said I’m totally ignorant on the subject.

What I want to note here is the dichotomy between North Korea, our arch enemy, and Fidelity – a darling of Wall street and all that America stands for. Read here about Fido.

They’re both mining Bitcoin! If both the bad guys and the good guys see the utility in Bitcoin then what does that make Jamie Dimon?

I would have thought the news about Fidelity mining bitcoin would have pushed the bitcoin price up a bit more – but some rumors out of South Korea (the “good Korea”) banning ICO’s put a bit of a damper on things. I would note that at the time of this writing Bitcoin recovered to ~$4,200 USD but ethereum had not regained $300. Certainly this ICO news (if verified) would hit Ethereum harder than Bitcoin.