Maybe Bitcoin Futures Isn’t Bullish for Bitcoins Price

CME Launches Bitcoin Futures on November 14th. This is a big deal because it legitimizes Bitcoin as a player on the “institutional” stage. It says there is major demand from large players and that the exchanges and regulators see a future in the asset class.

My sense is that Bitcoin owners view this launch as unbelievably bullish for the price of Bitcoin. Bitcoin tends to have younger investors who in general have had nothing but success from owning, trading or holding Bitcoin. They buy and the price goes up. Some well known “old guy” says something bad about Bitcoin, yet the price goes up more. Bitcoin holders thump their chests, mock the “old out of touch” naysayers and go back to talking about their wealth.

By the way, I’m not here to guess what will happen to Bitcoins price. I own Bitcoin and think its an amazing asset. Don’t trade off of what I write here.

Not All Bitcoin Futures Traders are Buyers

Lets say that you are Warren Buffet and you think Bitcoin is a huge bubble (he actually does, see here). If you wanted to express that investment view (i.e. short Bitcoin) its pretty much impossible. He’s not going to open a Coinbase account and start shorting (explanation of why here).  With CME futures though he’d have no problem launching his short orders. Thanks to the exchange he doesn’t have to worry about counterparty risk, regulator risk or operational risk.

For the first time ever these “old out of touch guys” can back up their “bitcoin bubble” views.

Bitcoin, Gold and Futures Trading

Many like to say that Bitcoin is “the new gold” from an investment perspective. Both bitcoin and gold capture the same objectives of getting your money out of the banking system, being an inflation hedge, etc. Bitcoin, however,  is much easier to store and transport. Gold retailers also say Bitcoin is hurting their business.

Gold futures started trading on the COMEX NY exchange in December 1974 and as you can see in the chart below, it didn’t equate to a major increase in price in the months or even years following.

Image result for 1974 gold futures

Who is to say that this has anything to do with CME Bitcoin Futures trading, but its an interesting analog. (Note these chart annotations where on the chart, they’re not mine and irrelevant to this post.)

Between Futures launching on November 14th, and the possible Segwit2x fork  which should happen on roughly the same day its shaping up to be a wild month for Bitcoin.

So Paris Hilton Did Call the Ethereum ICO Top?

Paris Hilton tweeted she was “participating” in the Lydian Coin ICO back on 9/3/17. Ethereums all time high was ~$390 and occurred just a day or two before this ominous tweet.

Paris Hilton “Involved” With ICO

We likely wont see anything like this ever happen again. The SEC has decided to step in and warn other celebrities to stop shilling ICOs.

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.”

3 Concerns about #Ethereum

While I own Ethereum and have belief in what the network can do I’ve come across a few recent developments that are casting shadows of concern as an “Investor” in Ether:

  1. Victim of its own success – I believe the ICO market is a huge bubble. This should be a short term problem as the market punishes those who commit fraud and don’t do their due diligence.  This report from Bloomberg shows that only 20 out of 226 ICO’s are actually running a network. The rest are pure speculation. However it also opens the doors to regulated competitors (here). I also think the ICO market is capping the current price of Ethereum as ICO’s cash out (they sell their ICO tokens for ETH, and then sell ETH for fiat). There is little to stop any exchange such as the Nasdaq form launching its own ICO market, just as Overstock has done with tZero.
  2. Competition – Private companies can launch their own private Ethereum network which does not require the use of Ether. Many love to point to the Enterprise Ethereum Alliance as proof that large companies are interested in Eth – and it is – but that does not mean this will have an impact on Ethereum price. On the contrary these companies seem to be getting a “free ride” in the public development of crypto/blockchain technology.
  3. Regulation – will governments crush the ICO market and make it impossible for ICO’s to crowdsource?

Because this technology and its progress is in uncharted waters its hard to pin down what happens next. While I’m hopefully we realize the full potential of the Ethereum network (and I make some $!) you have to watch every angle.

 

Edit: I hadn’t see this before Vitalik sees the ICO madness. He is an incredible guy and gives a lot of faith in the future of Ethereum:

The founder of the second most popular cryptocurrency in the world has always been skeptical about initial coin offerings, or when companies issue digital tokens to attract investment. Those digital tokens’ price is based only on the desire of people to have them, Mr. Buterin noted on the ETHWaterloo hackathon, dedicated, as one can guess from the title, to the structure of Ethereum.

As Vitalik Buterin believes, 90% of current ICO projects, even based on trusted ERC20 standard and even those listed on Coinmarketcap, will eventually crash. What we see right now is only the first version or first practical implementation of tokens, and “tokens 2.0” that will emerge somewhere between 2018 and 2019 will be much better. The hype around current token projects is doomed to fall, and after that, Buterin thinks, we all will finally understand which projects are worth investing and which are not. The ICO rating system is, indeed, one of the most serious problems the market is currently facing. But the market will mature, Ethereum founder assures.

Previously, when it became known to Buterin that independent Ethereum upgrade developers had launched an ICO, he immediately told this is not what he wants to see with his currency development and swiftly established a private fund that invests in decent Ethereum development projects.

Why Bother with Litecoin?

Bitcoin’s recent price rise to all time highs has been quite amazing. Not so much that it hit $6k but that it happened in mere weeks. Ethereum has been doing, well, nothing. My unqualified opinon is that the ICO market is capping ETH prices(read here). But whats Litecoins excuse?

The chart below shows just how much Bitcoin has risen since April of 2017. The little triangle shows when ICO madness started kicking in which I think keeps ETH prices down. Litecoin over this period has done absolutely nothing.

Top Cypto Coin Chart
Comparison of BTC ETH LTC

Yes its true that many people will sell the “alts” (litecoin, ethereum, dash et all) to buy Bitcoin during strong moves. But has Bitcoin exerts in dominance just what is the purpose of a “Bitcoin Lite”? This isn’t a knock on Charlie Lee the (creator of Litecoin) I just think originally he wanted to be the #1 crypto and he lost that game. Litecoin is often branded as “Silver to Bitcoin’s Gold”.  Other coins like Dash say “this is why we’re better than Bitcoin“. Other coins like ZCash offer true anonymity.

Yes people wax poetically that Litecoin could be used for transactions in small denominations because Bitcoins transaction fees are higher – but I don’t think there is a big market for actual “spending” in Bitcoin. i.e. how many nerds are out there buying coffee with Bitcoin? I’d guess very few as everyone seems to assume Bitcoin is going to $10,000 plus in price.

In this moment there is no need for a “Silver to Bitcoins gold”. Litecoins network seems healthy if you check the stats. I’m not here to say Litecoin dies tomorrow. But I think if you’re speculating that its price will play “catch up” to Bitcoin you’ll have to wait a very long time (think mass crypto adoption). (Unless Bitcoin blows itself up with a forking or some other such catastrophic incident, of course).

 

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.