If ICO’s Slow Can Ethereum Rise?

According to coinschedule October (~$400mm)had much less ICO issuance than November (~$800mm) Coincidentally the SEC is starting to go after the ICO scam artists, something thats been sorely needed as people (aka “Investors”) can’t be relied upon to do their own due diligence.  Regulation should help remove some scams and improve the quality of the ICO offerings.

While I had soured on the price of Ethereum as a result, it appears (its still VERY early) that if this ICO market can slow issuance the price of Ethereum could propel.

From a technical perspective you could argue a move through $350 would signal “breakout” and possibly higher prices.

Ethereum Price Chart
Ethereum Price Chart

Plus the Bitcoin fork is out of the way – it appears Bitcoin price was propelled by many looking to collecting a “free” bitcoin when the segwit2x for took place. Its common for traders to sell ethereum, litecoin or other “alts” to go long Bitcoin (and vice versa).

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.

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.

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 an ICO Problem

Initial Coin Offerings (ICO’s) are raising hundreds of millions of dollars on pretty much hopes and dreams, using an Ethereum platform which is in its infancy. (Some ICO sales even jammed up the Ethereum network). I say hopes and dreams because despite raising mounds of cash they aren’t near releasing product. Seriously, here are just a few:

  • Tezos currently raised >$200 million, and the funding isn’t over yet
  • Bancor raised $153 million
  • Block.one / EOS raised $185 million

The total amount raised in ICO’s in 2017?

>$798,251,174

That is staggering.

How Initial Coin Offerings Hurt the Ethereum Price

Raising “cash” isn’t really the right word. They’ve raised heaps of Ether, which they need to sell in order to get cash. What does this mean? You have hundreds of millions of dollars in Ether either being sold, or potentially being sold.  Its quite possible these companies only sell portions of their holdings, or even none at all. However, these companies need to use the funds to hire developers, buy computers, or just take exotic vacations. (Remember, there are no regulations in ICO land.) Its therefore a reasonable assumption that there is a good amount of Ethereum supply created from this.

The ICO’s need to start adding actual value to the ethereum network. They need to provide a service thats good enough to bring new people into Ethereum. This would raise demand for Ethereum and should raise the price. As of now this is all just a transfer of wealth from existing ETH holders to various “start ups”, with the hope that value is created at some point in the future.

Here is a beautiful graph that lays out how much has been generated by ICO’s in 2017:

ICO Sales by Month

For sake of argument, lets just say that all of the funds will be used for legitimate business purposes. Again, they need to sell Ether to get cash to buy stuff or hire people. This means you have many sellers that have a desire to get out, for which Ethereum needs aggressive buyers. If the sellers are more aggressive than the buyers, you get a price drop.

If you use google trends as a proxy for Ethereum demand, well, you can see why the price is currently ~$250 down from $400 a few weeks ago.

ETH is trending down on google.

Notice a trend? Both peaked in June 2017. What about the Ethereum price? Peaked in late May…just before the huge ICO month in June. I can’t say for certain that the two are related, but I’d speculate there is some correlation for good reason.

Ethereum Price July 2017

Short Term Ethereum Price Forecast

First, Ill state I have no clue where ethereum prices are going. I also own ethereum. Also, the short term picture is different from long term. Long term I have high hopes, but this is about the next few months.
To recap:

Where does this leave us? Hard to paint a pretty picture there. With more ICO’s coming daily there will be more ETH supply from companies needing cash. Eventually one of these will turn out to be a “killer app” or at least an app that maims. This would draw actual users to Ethereum, as opposed to speculators. Who knows when this will happen, but I suspect within the next year well see the technology start to move up towards the hype. This would in theory bring in new capital and get the Ethereum price moving in the right direction again.