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.

“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.

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.

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.