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.

Bitcoin Could Become the First Global Asset Bubble

Why Bitcoins Price Could Go Much Higher

This is pure speculation. Don’t trade off of my opinion. Its a quick thought.

When thinking about the “bitcoin bubble” that so many are wanting to call  I was theorizing at what price might you say: “This is a bubble”. Throughout history there have been countless bubbles: real estate, tech stocks, beanie babies. The thing about all of these bubbles is that they were fairly localized. Meaning these were bubbles that had high barriers to entry. Someone in India would have a hard time speculating on San Francisco real estate prices. A guy with $10 in Uruguay probably couldn’t open a brokerage account and buy internet stocks.

But, here is the thing:

All people, virtually anywhere can buy Bitcoin. If you have access to an internet connection, you can get in. Heck, with Bitcoin ATM’s maybe you don’t even need that. Governments globally are talking about how to handle Bitcoin and cryptocurrency.  I can’t recall of a time when every government in the world was talking about bond or stock prices.

I think this is the first time in history that the entire world can all speculate on the exact same asset. Currently, there is very little barrier to entry. There are no storage fees, minimum purchase levels or geographic restrictions.

When you start to think about that it becomes difficult to process. You can argue that the current price is in “bubble” territory. That does not mean the price can’t continue to rise.

Who knows, maybe this is just the start. The point is I don’t think the world has ever seen anything like this before. Hopefully it ends well.

 

Bitcoin FOMO Pushes Prices Past $5,000

Why the Bitcoin Price Surged Through $5,000

Everyone seeks to assign a reason to price moves. Early this morning Bitcoin started on a tear on heavy volume moving from $4,800 to >$5,100 on heavy volume. There was no news release that appeared as a catalyst, so it appears that “FOMO” (Fear of Missing Out) is driving price. While I don’t love technical analysis, it can provide useful.

As you can see in the Bitcoin chart below, volume has been growing and is very strong on this last push up. $5,000 is a psychological barrier (people think in big, round numbers) and once through that it started a “buying panic”.

Bitcoin Price Passes the $5,000 Mark

Hedge Funder Mike Novogratz predicted bitcoin $10k is right around the corner based simply on the mass of instituions coming in. While we don’t offer trading advice its clear that Wall Street and their big dollars are pushing into Bitcoin. See here. And here.

Harvard Economist Says Bitcoins a Bubble

He brings up some valid points, particularly:

  • Governments will let the private sector develop the technology and then usurp it for their own use
  • Its not easy for alt-coins to beat Bitcoins lead in credibility and scale

People continue to say that Bitcoins value is in its anonymity – its not really anonymous. The IRS uses software to track people using it now. You can’t discount the value of speed and also owning your own money. This means not having to rely on a bank.

As for the bubble talk – I don’t think Bitcoin is a bubble. But I think ICO’s are definitely a bubble. 

Read the Guardian Here:

Is the cryptocurrency bitcoin the biggest bubble in the world today, or a great investment bet on the cutting edge of new-age financial technology? My best guess is that in the long run, the technology will thrive, but that the price of bitcoin will collapse.

If you haven’t been following the bitcoin story, its price is up 600% over the past 12 months, and 1,600% in the past 24 months. At over $4,200 (as of 5 October), a single unit of the virtual currency is now worth more than three times an ounce of gold. Some bitcoin evangelists see it going far higher in the next few years.

What happens from here will depend a lot on how governments react. Will they tolerate anonymous payment systems that facilitate tax evasion and crime? Will they create digital currencies of their own? Another key question is how successfully bitcoin’s numerous “alt-coin” competitors can penetrate the market.

In principle, it is supremely easy to clone or improve on bitcoin’s technology. What is not so easy is to duplicate bitcoin’s established lead in credibility and the large ecosystem of applications that have built up around it.

For now, the regulatory environment remains a free-for-all. China’s government, concerned about the use of bitcoin in capital flight and tax evasion, has recently banned bitcoin exchanges. Japan, on the other hand, has enshrined bitcoin as legal tender, in an apparent bid to become the global centre of fintech.

Bitcoin price
Bitcoin price Photograph: Project Syndicate

The United States is taking tentative steps to follow Japan in regulating fintech, though the endgame is far from clear. Importantly, bitcoin does not need to win every battle to justify a sky-high price. Japan, the world’s third largest economy, has an extraordinarily high currency-to-income ratio (roughly 20%), so bitcoin’s success there is a major triumph.

As of early October, Ethereum’s market capitalisation stood at $28bn, versus $72bn for bitcoin. Ripple, a platform championed by the banking sector to slash transaction costs for interbank and overseas transfers, is a distant third at $9bn. Behind the top three are dozens of fledgling competitors.

Most experts agree that the ingenious technology behind virtual currencies may have broad applications for cybersecurity, which currently poses one of the biggest challenges to the stability of the global financial system. For many developers, the goal of achieving a cheaper, more secure payments mechanism has supplanted bitcoin’s ambition of replacing dollars.

But it is folly to think that bitcoin will ever be allowed to supplant central-bank-issued money. It is one thing for governments to allow small anonymous transactions with virtual currencies; indeed, this would be desirable. But it is an entirely different matter for governments to allow large-scale anonymous payments, which would make it extremely difficult to collect taxes or counter criminal activity. Of course, as I note in my recent book on past, present, and future currencies, governments that issue large-denomination bills also risk aiding tax evasion and crime. But cash at least has bulk, unlike virtual currency.

It will be interesting to see how the Japanese experiment evolves. The government has indicated that it will force bitcoin exchanges to be on the lookout for criminal activity and to collect information on deposit holders. Still, one can be sure that global tax evaders will seek ways to acquire bitcoin anonymously abroad and then launder their money through Japanese accounts. Carrying paper currency in and out of a country is a major cost for tax evaders and criminals; by embracing virtual currencies, Japan risks becoming a Switzerland-like tax haven – with the bank secrecy laws baked into the technology.

Were bitcoin stripped of its near-anonymity, it would be hard to justify its current price. Perhaps bitcoin speculators are betting that there will always be a consortium of rogue states allowing anonymous bitcoin usage, or even state actors such as North Korea that will exploit it.

Finally, it is hard to see what would stop central banks from creating their own digital currencies and using regulation to tilt the playing field until they win. The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates. I have no idea where bitcoin’s price will go over the next couple years, but there is no reason to expect virtual currency to avoid a similar fate.

Kenneth Rogoff is professor of economics and public policy at Harvard University. He was the chief economist of the IMF from 2001 to 2003.

Why Bitcoin is Going Up & Alts Are Not

Bitcoin is on the move, up around 5% today while Alts (Ethereum, Litecoin, etc) have been stuck in the mud. As you can see here in this chart of Ethereum priced in Bitcoin, Ethereum has been going down. Why is this?

Bitcoin is Outpacing Ethereum

I’m going to add my speculation – my guess is that Bitcoin will continue to move up faster than Ethereum or litecoin for the foreseeable future. Don’t be a fool and trade on my opinion.

  1. Ethereum is “all about the ICO’s”. ICO’s creating selling pressure as people buy tokens, and those tokens are transferred back into Ethereum and sold for fiat. That fiat is used by the “businesses” which issues the tokens. In my opinion this creates major selling pressure on Ethereum.
  2. Litecoin – I just don’t get why we need it. At least yet. This whole pitch of “its Bitcoins silver” makes no sense. Bitcoin is still in its infancy. Yes its the gold standard of crypto but is it really not meeting peoples needs at this point? Lets face it – Litecoin was created as a competitor to BTC and Bitcoin is kicking its @$$.
  3. No other ALT has created that “killer app” or that “must use” case. Therefore its all just speculation. Bitcoin is the household name when it comes to crypto and that’s where the money – the big money – is going to be flowing.
  4. I think the more Bitcoin outperforms the more investors will be running to it as opposed to the alts. However if Bitcoin tanks you can bet selling will happen in the alts. Inherently this boosts Bitcoin the best crypto bet.

Thats my analysis. Could be (probably) wrong, but hopefully thought provoking.

At What Price is Bitcoin’s Intrinsic Value?

Estimating Bitcoin Prices

Disclaimer: These are just my thoughts, don’t trade on my speculation.

When trying to set a bottom price in Bitcoin – the price I view as “the bottom” I like to look at Bitcoin mining (go here to learn about mining). The process of mining itself isn’t what matters for this topic – just the cost to mine Bitcoin. Miners run computers which complete complex calculations to earn bitcoin. Computing takes electricity which is the “cost” to produce Bitcoin. When the price is high enough then miners make money. If any of the following happen then mining could become unprofitable:

  • Bitcoin price drops substantially
  • The price of electricity increases dramatically
  • The complexity of the calculation increases dramatically, requiring more computing power and therefore more electricity – aka Difficulty and Hashrate
  • Dramatic increase in mining competition

In a very dramatic scenario if the cost of mining Bitcoin was way above the price, then Bitcoin Miners would stop mining and the Bitcoin network would shut down.I want to stress at this point its highly, highly, highly improbable.

Bitcoin Miners Run the Show

Cutting to the point – many sites like this one allow you to enter in a bunch of variables and calculate “mining profitability”. The variables are very important for actual miners. I like to use the Bitcoin Mining breakeven price as the “bottom” in Bitcoin prices. For this exercise I just try to get a baseline.

My view is that the miners are the guys with millions of dollars in hardware aka major skin in the game. Therefore their breakeven price should be “defended”, meaning the Bitcoin price should stay above that mining breakeven level. Looking at it a different way (I am generalizing here) – if you can buy something for less than it costs to produce – thats a good deal, right? This is assuming there is major demand for that product/asset.

If the Bitcoin price was to stay below this level for an extended period then I think Bitcoin prices could fall further.

Bitcoin Price Breakeven Math

Currently CryptoCompare shows a 15% per day profitability in Bitcoin mining. This indicates that the breakeven price for miners is around $3,600 USD with Bitcoin currently trading at ~$4,000 USD.

In the last bitcoin selloff we went below this $3,600 number but bounced back and hung around that price. Could just be coincidence, who is to say for certain..

Bitcoin Mining Price
Bitcoin Breakeven Mining Price

There are obviously hundreds of other things to consider when determining the price of Bitcoin. Because its such a new market it can be tough to get a baseline value, and thats why I decided to post this outlining what I use.

Here is the List of Reasons Why are Bitcoin and Ethereum Price are Tanking

An amazing sh*t storm is the last few days is hitting Bitcoin and Ethereum prices:

Bitcoin tops Nasdaq in survey of world’s most crowded trade

Its popular now for investors to buy each and every dip in Bitcoin price, but also for hedge fund managers to talk about what a bubble Bitcoin is. Who knows which side is right – maybe its both.

I will say this chart from Bespoke Investments caught my eye:

My main issue with this is that Bitcoin is in its infancy and starting from zero. Many saying “its a bubble” follow the bitcoin price from 6 cents to the current level and say that simply based on the percentage return makes it a bubble.

Whats clear is that if you are a money manager it has to be painful if you missed this ride up.

From the Nasdaq:

Bitcoin tops Nasdaq in survey of world’s most crowded trade

     ft.com
Source: ft.com

Ominous omen? Bitcoin, the crypto currency that has exploded higher this year, has overtaken the also-buoyant Nasdaq Composite as the world’s most crowded trade, according to a closely watched survey released on Tuesday.

Some 26 per cent of investors polled by Bank of America Merrill Lynch in the first week of September said betting that bitcoin will rise is the most crowded trade of them all. That puts it ahead of 22 per cent voting for the Nasdaq and 21 per cent pointing to an anti-dollar wager. Nasdaq was pinned at about 30 per cent in the August survey.

Bitcoin has been garnering more mainstream appeal of late and has been catching the eye of risk-loving retail traders. It has surged from $968 to the dollar at the end of 2016 to above $5,000 last month, according to Coindesk data. It traded at $4,352.58 on Tuesday.

Notably, other crowded trades in recent history have not ended too well. The dollar was at the top for much of the start of this year, according to BofA Merrill. The currency has tumbled 10 per cent against six major trading partners since December 30.

 

 

From CNBC:

Bitcoin’s nearly five-fold climb in 2017 looks very similar to tech bubble surge

  • David Ader, chief macro strategist at Informa Financial Intelligence, shows how bitcoin’s gains resemble that of the Nasdaq Telecommunications Index before the tech bubble burst.
  • Bitcoin has gained nearly 400 percent this year, helped by increased interest from institutional investors.
  • However, digital currency expert Chris Burniske points out the market value of bitcoin is still a fraction of what stocks were during the dot-com boom.

Short seller Andrew Left targets Grayscale’s Bitcoin trust  

When charted, bitcoin‘s rapid gains resemble how stocks surged into the tech bubble before collapsing.

David Ader, chief macro strategist at Informa Financial Intelligence, matched a graph of the Nasdaq Telecommunications Index at its peak in 2000 to bitcoin’s five-year run to all-time highs.

“This is the price chart for an overly frothy market, in my opinion. I just don’t see anything quite as comparable to this in bubblelicious terms,” said Ader, a former top-rated bond market strategist.

Bitcoin climbed more than 3.7 percent Thursday to a record of $4,802.74, up nearly five times in price this year and about 67 percent higher for August, according to CoinDesk.

Source: Informa Financial Intelligence

“I think it’s going to come to a sorry ending,” Ader said. “I don’t know anybody who’s actually used a bitcoin for any purpose legal or otherwise. This looks like an overly frothy market and frothy markets lose their froth.”

Ader said he used the Nasdaq telecom index since many of those stocks led the Nasdaq composite’s overall gains during the tech bubble. The Nasdaq telecom index shot up more than 700 percent from 1995 to 2000, before collapsing 90 percent in the next two years. The index remains about 75 percent below its record high.

Bitcoin’s meteoric surge this year comes as many on Wall Street are becoming more interested in the digital currency and the blockchain technology behind it. New digital asset investment funds are rolling out and the Chicago Board Options Exchange is planning to launch bitcoin futures.

Many investors also bought bitcoin this month after it survived a relatively uneventful split on Aug. 1 into bitcoin and bitcoin cash, an alternative version supported by only a few developers. Bitcoin cash is up about 180 percent from its Aug. 1 low, to Thursday’s price of $588, according to CoinMarketCap.

However, bitcoin could split again this fall because there’s another upgrade proposal, and others have warned that the speculative forces behind bitcoin could quickly turn against it.

Here are a few of the alarm bells sounded this summer:

By percent change, analysis from Bespoke Investment Group shows how bitcoin’s surge has already well surpassed that of any major stock market bubble.

Source: Bespoke Investment Group

That said, some well-respected names on Wall Street have also issued positive reports on the digital currency.

Lee and Moas both reason that bitcoin can climb to those levels if even a fraction of the trillions of dollars in gold or other traditional investments move into the digital currency.

Bitcoin has a market value of about $78 billion, and digital currencies overall are worth $170 billion, according to CoinMarketCap.

That makes the value of all digital currencies less than 5 percent of the more than $4 trillion inflation-adjusted value of stocks during the tech and telecom boom, said Chris Burniske, author of the upcoming book, “Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond.”

“If people think this is the ‘big bubble,’ then they don’t have an appreciation for how big the idea of cryptoassets really is,” he said.

Many digital currency enthusiasts agree there is speculation in the digital currency. But they note that, just like the dot-com bubble, companies that were able to utilize the underlying technology then became global giants.

More Rumors of China Banning Bitcoin Exchanges

Caixin (Chinese news source) re-upped on the news of some type of Bitcoin Exchange banning. This was after rumors late last week which we talked about here.

While its not clear just what is happening – its even murkier when you’re english speaking and reading second and third degree sources. In times like this I think its best to look at the Bitcoin market itself. In trading there is a saying that the news doesn’t matter – its the reaction to the news that matters.

Here is the Chinese Bitcoin exchange Huobi as of this morning. I’d say the Chinese traders don’t see Armageddon on the horizon.

BTC Price on Chinese Bitcoin Exchange Huobi

What Does this Bitcoin Google Trend Mean?

The Google Trend data for the “Bitcoin” topic has stayed in step with the Bitcoin Price for the last year. Quite interestingly the trend has fallen off yet the Bitcoin price has surged higher. Who is to say what it means, but its an interesting divergence.

Bitcoin Google Trends vs Price
Google Trends Data decline vs Bitcoin Price Rise