It is Highly Inaccurate to Describe Bitcoin as a Bubble, Here’s Why
Many public figures in the traditional financial sector including JPMorgan CEO Jamie Morgan have criticized Bitcoin, describing it as a bubble. However, because of its decentralized, mathematical and transparent nature, it is highly inaccurate to call Bitcoin a bubble of any sort.
Tesla, Amazon, Bitcoin “Bubbles”
Bitcoin is not a bubble, contrary to the dishonest and non-factual claims of bank executives. There was a bubble in Bitcoin in 2013 when the demand for Bitcoin rose to a point where the market could no longer support it and the Bitcoin price crashed from $1,300 to $200. But, it is not accurate to call Bitcoin itself a bubble, the same way it is not accurate to describe Amazon or Tesla a bubble.
Even up until April of this year, analysts described Tesla’s exponential increase in value a “bubble,” as analysts did with Amazon throughout the company’s 20 years of existence. Six months ago, Matthew DeBord, the transportation editor at Business Insider, wrote:
“At this point, a Tesla bubble looks obvious and it looks as obvious as it has since early this year. The difference now is that it’s grown so large that it’s become terrifying.”
Another “expert” Greenlight Capital’s David Einhorn, stated that Tesla is a bubble that will not pop anytime soon, but it is a bubble. “In due time, we expect these bubbles to pop,” said Einhorn.
It is important to acknowledge this trend in any emerging company, technology and startup. Analysts and experts are quick to claim that anything is a bubble, given its rapid increase in value and exponential growth rate.
From 2013 to 2017, the share price of Tesla has increased from around $20 to $302, with many minor and major corrections. In December, the price of Tesla shares dropped by over $100, from $250 to $150, due to the company’s struggling finances. Still, over time Tesla recovered and it developed a sustainable business, a market, and most importantly, a consumer base identical to how Bitcoin has evolved into a sustainable financial network, a robust market and secured an active consumer base of tens of millions of users.
Furthermore, it is far-fetched to claim that the Bitcoin market, which has a similar liquidity and trading volume of Apple, the world’s most liquid stock at $3.3 bln daily trading volume, because it has significantly matured since its introduction in 2009.
Bitcoin is more legitimate than most systems
As Apple co-founder Steve Wozniak observed, Bitcoin is more legitimate and transparent than most systems in existence today. Wozniak noted at the Money2020 conference:
”There is a certain finite amount of Bitcoin that can ever exist. Gold gets mined and mined and mined. Maybe there’s a finite amount of gold in the world, but Bitcoin is even more mathematical and regulated and nobody can change mathematics.”
Written by CoinTelegraph
Hedging Bitcoins With Options on the World Wide Web: Expert Blog
Since the beginning of 2017, Bitcoin price has increased sevenfold, with a few sharp drops and this volatility has given way to the development of Bitcoin options.
Bitcoin options are not for the faint-hearted. They trade like any other basic call or put option, in which an investor pays a premium for the right – but not obligation – to buy or sell an agreed amount of currency on an agreed date. Currently, there are two types of Bitcoin options—a binary option and an exchange-traded option.
Binary Bitcoin Options
A binary option is a simple type of option that is valued according to a true/false statement. For example, if the price of the underlying asset Bitcoin is above a certain level, the call (long) option will pay 100; if it is below, it will pay 0. For a put option, the reverse is true.
Binary options make for simple valuation and are therefore a good way for traders to avoid complicated valuations, which often work in favor of option issuers to the detriment of buyers.
- There are two different ways to use Bitcoins for binary options trading: The first is as a payment method at a standard binary options broker – you deposit your Bitcoins at the site and trade using the various assets. This is similar to playing at a Bitcoin casino – your Bitcoins are the currency and you trade/play in the same way as someone using fiat currencies as a deposit.
- The second method is trading Bitcoin as an asset. Several brokers offer this option as one of their many assets, while others deal solely in Bitcoin trading.
Both types of brokers are often referred to as a Bitcoin binary options brokers (BBOB). Most BBOBs only offer it as a virtual currency pair versus the USD.
Exchange Traded Bitcoin Options
On July 24, 2017, in a breakthrough ruling, the US Commodities Futures Trade Commission (CFTC) approved a proposal to launch a regulated Bitcoin derivative clearing market, New York-based LedgerX. According to the company, LedgerX allows institutional investors to obtain virtual currency and then hedge its volatility using a US federally regulated venue. “Initially, LedgerX intends to list a Day Ahead Swap and one to six month Bitcoin to US Dollar options contracts,” a company spokesman said. Noting that “the New York-based LedgerX, the first and only digital currency exchange and clearinghouse licensed by the US Federal Government, has begun exchange and clearing operations for centrally cleared Bitcoin contracts. In the first week of trading, 176 swaps and options contracts traded with notional values of more than $1,000,000.” These trades were executed by 20 institutional investors — including investment banks, asset managers, hedge funds and proprietary-trading shops.
At a Bitcoin derivatives exchange, virtual currency listings and prices are tracked and can be looked up by ticker symbol. By publishing continuous, live markets for Bitcoin option prices, an exchange enables independent parties to engage in price discovery and execute transactions. Chicago Mercantile Exchange Group (CME) and Chicago Board Options Exchange (CBOE), the world’s largest options exchanges will roll out Bitcoin futures by the end of this year or early next year. The largest futures market in Argentina, the Mercado de Termino de Rosario (Rofex) is considering offering Bitcoin futures as well. Other platforms that offer virtual currency options trading are Bitcoin Mercantile Exchange, owned by Seychelles-incorporated HDR Global Trading Ltd., Deorbit of Amsterdam, Singapore-based Coinut options exchange and Dublin-based Predictious.
Bitcoin Invested Hedge Funds
Options are widely used to manage hedge funds’ portfolio risks or “to hedge or speculate on the price of an underlying asset with a quantified risk,” according to retired hedge fund manager Michael Steinhardt, whose career earnings made him a legend in the industry.
Steinhardt set up his first fund in 1967, “following a strategy created by Alfred Winslow Jones. He married (1) short sales to hedge against stock market risk; (2) leverage to boost stock trading returns; (3) and long positions in stocks, to continuously extract stock market trading profits as their prices moved up and down.”
Steinhardt, in an interview, explained that he expanded on Jones’ strategy “by incorporating bonds in addition to stocks, as well as new derivative hedging products that entered the markets in addition to short sales” to his portfolio, throughout his career. He began hedging with “long and short exchange-traded stock options to hedge the price of stocks when stock options debuted in 1973, at the CBOE.” That same year, two professors, Fisher Black and Myron Scholes, conceived the Black Scholes Options Pricing Model, which standardized options pricing at options exchanges. Over a period of 28 years, using his own “Steinhardt Style Hedged Trading Strategy,” he earned “hedged annual returns of 24.5 percent – triple the S&P 500 average,” Steinhardt said.
The illustrious careers of hedge fund legends has inspired contemporary Bitcoin traders, to set up Bitcoin-invested hedge funds that surf Bitcoin’s extreme price volatility on the world-wide-web just like:
- Michael Steinhardt (1967-1995, 24.5 percent);
- George Soros who incorporated foreign exchange in addition to stocks and bonds to his hedge fund trading strategy was only deemed the title “the Man Who Broke the Bank of England” when he successfully shorted the British pound out of the European Exchange Rate Mechanism (ERM) mechanism. He became a billionaire overnight on Black Wednesday, September 16, 1992 (1973-2011, 20 percent);
- Bruce Kovner, the global macro hedge fund manager who incorporated commodities in addition to stocks, bonds and foreign exchange to his hedge fund and combined computerized as well as traditional trading strategies to arbitrage world financial markets, like Mozart’s piano sonatas (1983-2011, 14 percent); and
- Prof. David Shaw, the quant who developed first of its kind computerized hedged-trading strategies for stocks, bonds, foreign exchange, commodities, asset backed securities, convertible securities and reinsurance contracts to exploit inefficiencies in world financial markets with the help of state-of-the-art high-speed computer networks (1988-2012, 14 percent).
Since CFTC’s approval of New York-based LedgerX, 70 additional Bitcoin-based hedge funds announced that they would be launching soon. Among these hedge funds is Silicon Valley-based Pantera Capital, which will launch a SEC, registered $100 mln ICO focused hedge fund. And French bank BNP Paribas, which will add Bitcoin to one of its currency funds. There are now about 120 virtual currency hedge funds: (1) those that have portfolios containing exclusively virtual currencies, Bitcoin options and ICOs; and (2) those that have added some virtual currency to a mix of other asset types.
Source: Autonomous Next
In China, the Fintech Blockchain Group runs an exclusively virtual currency invested hedge fund which trades virtual currencies 24 hours a day, seven days a week using a cutting-edge computerized lightning quick trading strategy to arbitrage tiny price discrepancies on the countless web venues where it changes hands. Zhou Shuoji, Fintech Blockchain Group’s high-speed Bitcoin trader said: “It’s the golden age to be in the Bitcoin market because it’s imperfect.”
In the US, hedge fund manager Timothy Enneking of Crypto Asset Management said “I don’t think the world has seen but the pointy end of the spear in terms of what’s going to happen in cryptocurrencies” and launched the first SEC-registered Crypto Asset Fund exclusively invested in virtual currency products. Hedge fund manager, Mike Novogratz who was the president of Fortress Investment Group (US) that was among early investors in virtual currencies and exchanges admitted that “10 percent of my net worth is invested in Bitcoins and it has been the best investment of my life.” Softbank Group acquired Fortress Investment Group earlier during this year.
According to a spokesman for FinCEN, “A foreign hedge fund may have to register with FinCEN depending on several factors. If the foreign hedge fund is registered with, and functionally regulated or examined by the SEC, CFTC or if it engages in activities that, if conducted in the US would require it to register with the SEC or CFTC, then it would not have to register as an MSB. If it does not satisfy this condition, the answer depends on how it operates, on behalf of whom and where its customer base is located.”
Bitcoin invested hedge funds can be legally structured in a variety of ways. For example, a Swedish company, XBT Provider that is listed on the Stockholm Nasdaq exchange is structured as an “exchange-traded note” (ETN) that tracks the price of Bitcoin. An unregistered virtual currency hedge fund managed by John Chalekson is structured as a plain vanilla, limited partnership. This hedge fund, using a “game theoretic equilibrium” trading strategy, to “dominate the hedge fund indices with extraordinary numbers,” delivered an astonishing “2,129 percent investment return to his investors through August 2017 primarily by investing in new virtual currencies, ICOs in long positions, without hedging or using any leverage—266 times the S&P 500 average.” Traditional hedge funds, on average, returned 3.7 percent through the first half of 2017, according to data provided by HFR, and the S&P 500 gained 8 percent over the same period.
US mutual fund giant Fidelity Investments, with $6.3 tln under administration, joined with the $10 bln Coinbase Inc, a Silicon Valley virtual currency exchange, “to enable Fidelity clients to track their digital assets alongside more traditional investments, like stocks, bonds and mutual funds.” Fidelity did so because, a company official said, “we can see that the evolution of Bitcoin and Blockchain technology is setting the investment industry up for disruption.”
As virtual currencies seep into the current world regulatory and financial infrastructure while transforming it at the same time, the good news is that there are several virtual currency based financial alternatives that will satisfy both the Bitcoin bulls and the bears.
Written By CoinTelegraph
CSD Blockchain Consortium Advances Work on Proxy Voting System
A blockchain consortium backed by a group of central securities depositories (CSDs) is pushing ahead with plans to develop a distributed ledger-based proxy voting system.
The CSD Working Group on DLT was formed earlier this year by a group of companies – chiefly responsible for storing huge amounts of financial instruments – that are looking to apply the technology to their operations. The consortium, which includes Russia’s National Settlement Depository (NSD), as well as central securities depositories from South Africa, Switzerland, Sweden, Chile, Argentina and the United Arab Emirates, announced this week that it has outlined the technical requirements for a proxy voting platform to be used in shareholder meetings.
The details were shared during a recent workshop which included IBM, Hyperledger and SWIFT, among other companies. SWIFT assisted in ensuring the document adhered to the ISO 20022 standard. They did not announce which company would develop the platform.
According to the project’s outline, the group hewed to the ISO 20022 standard – used for financial maessages – in an effort to ensure that the final product can be applied across a broad spectrum of services.
Their ultimate goal is to create an e-proxy voting system which is both secure and transparent. The system would automatically allow or disallow voting privileges for members based on what voting rights they had within a particular organization. Minority stakeholders would not have as many rights as majority stakeholders, according the previously revealed plans.
“One of the key responsibilities of NSD as a systemically important Russian infrastructure is to define unified standards that enable implementation of new digital products both international and Russian markets,” Eddie Astanin, chairman of NSD’s executive board, was quoted as saying. “It appears that together with our partners we have managed to create a good working format and cooperation atmosphere aimed at creating new services and lowering the costs for the clients of CSDs.”
Voting box image via Shutterstock
Written by CoinDesk
Bitcoin Cash Markets Remain Resilient As the Network’s Upgrade Approaches
It’s been a crazy week for cryptocurrency enthusiasts as the digital asset ecosystem is still reeling over the canceled Segwit2x fork that was expected to take place on the Bitcoin network next week. Over the course of the past few weeks leading up to the planned 2MB Segwit2x hard fork, Bitcoin Cash (BCH) markets have doubled in value after hovering around $300 per BCH for weeks. Now the market has stabilized around the $625 region as the BCH network participants prepare for their own fork that’s just four days away.
Bitcoin Cash Network and Markets Remain Vigilant After the Canceled BTC Fork Event
The Bitcoin Cash network is thriving as the decentralized currency’s value has spiked quite a bit over the past few weeks. At the moment the price per BCH is hovering around $625 as markets currently command roughly $830M worth of daily trade volume. The price of BCH has allowed it to hold the third highest market capitalization at $10.4B just below the ethereum market cap. BCH markets are still seeing lots of trade volume from the South Korean won, as the currency typically captures around 49 percent or more of the daily volumes. The exchange rate stemming from BCH currently makes it the third highest digital asset trade volume within the cryptocurrency landscape. The exchanges trading the most BCH include Bithumb, Hitbtc, Bitfinex, Bittrex, and Korbit.
Miners Have Started to Signal Intent to Fork the BCH Network
As the currency’s network hard fork approaches, the BCH chain is 8100 blocks ahead of the BTC chain. BCH this week is operating at 8 percent of the current BTC difficulty, and it’s 3.4 percent more profitable to mine BTC. Mining profitability and its fluctuations may change after the BCH network reconfigures the Difficulty-Adjustment-Algorithm (DAA). BCH miners are now signaling their intent to activate the fork and the change is estimated to occur around 2 pm EDT depending on hashrate speed.
Bitpay Prepares Users for the Bitcoin Cash Consensus Change
Because the fork is drawing closer the Atlanta-based company, Bitpay, has announced to its wallet users its plans for the BCH hard fork. The firm explains that with any blockchain protocol change it must always ensure that customer funds will be safe.
“For the November Bitcoin Cash protocol change, Bitpay and Copay wallets will follow the bitcoin cash chain with the most accumulated difficulty — With current miner signaling, this means that our wallets will be compatible with the new rules activated by the bitcoin cash mining majority,” explains Bitpay.
We don’t currently have any reason to think that this hard fork will be contentious or will result in a blockchain split for bitcoin cash. Users can continue to receive and send bitcoin cash transactions from their wallets up to, during, and after the hard fork protocol change.
Kim Dotcom Asks His Fans Which Cryptocurrency Will Dominate — BTC or BCH?
Also this week the notorious Kim Dotcom started talking about bitcoin cash with his 671,000 followers. Dotcom asks his fans, “By 2021 which of these two is going to carry the larger volume of Internet payments?” With just 11 hours left remaining for the poll bitcoin (BTC) is leading by 64 percent and bitcoin cash (BCH) has 36 percent.
Overall the BCH community seems pleased with the currency’s growing ecosystem and many supporters believe next week’s fork will be smooth. With Segwit2x gone and the rest of the cryptocurrency competition constantly nipping at BTC’s heels many spectators will be focused on bitcoin cash.
Images via Shutterstock, Pixabay, and Poloniex.
Written by Bitcoin.com