The weekend just gone has seen some extraordinary price moves and yet as I looked through most of the media early this morning there was no mention of it. For example I have just scanned the front page of the online Financial Times and there was not a peep. One mention on Bloomberg seems a little confused.
Bitcoin’s march toward respectability faces another hurdle as hedge-fund platforms reject the overtures of firms trading cryptocurrencies.
I didn’t realise it was marching towards respectability myself and if it was are hedge funds a benchmark? Apparently things are going badly.
It’s the latest blow for a digital currency that’s struggling to break into the financial mainstream.
The next bit I found particularly fascinating.
Joe Vittoria, CEO of the Mirabella platform, said he has doubts over bitcoin’s liquidity and where oversight might come from. There are also suggestions that the digital currency’s valuation should be below where it’s currently trading, he said.
You see that second sentence applies to so many markets right now for example many of the world’s bond markets have been pumped up by central bank buying. Others might be wondering is another example is the online food delivery company Just Eat in the UK which looks set to join the FTSE 100 as it has a larger market capitalisation than the supermarket chain Sainsburys.
For an article posted around 4 hours ago they seem rather behind the times.
While investors have embraced bitcoin, sending it soaring above $8,000.
Last night as I checked how financial markets were starting the week in the far east I noted this and put it on Twitter.
Bitcoin has been on another surge and is US$ 9396 now.
Of course it is soaring above $8000 technically but is behind events. Indeed this morning it has risen again as Reuters point out.
Bitcoin’s vertiginous ascent showed no signs of stopping on Monday, with the cryptocurrency soaring to another record high just a few percent away from $10,000 after gaining more than a fifth in value over the past three days alone.
The digital currency has seen an eye-watering tenfold increase in its value since the start of the year, and has more than doubled in value since the beginning of October.
It BTC=BTSP surged 4.5 percent on the day on Monday to trade at $9,687 on the Luxembourg-based Bitstamp exchange.
There are different pricing platforms but on the one I look at it reached US $9771 earlier. Although as ever there is a fair bit of volatility as it is US $9606 as I type this sentence.
The Chief Executive of JP Morgan hit the newswires back on the 12th of September.
If a JPMorgan trader began trading in bitcoin, he said, “I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.” ( Bloomberg)
Considering the role of the banking sector in money laundering and financial crime this bit was somewhat breathtaking.
“If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars,” he said. “So there may be a market for that, but it’d be a limited market.”
This intervention can be seen two ways. The first is simply expressed by the fact that the price of Bitcoin has more than doubled since then. The second is ironically also that it has doubled as of course that is a building block in determining whether something is a bubble or not.
What has driven this surge?
Back on the 29th of December last year I pointed out the Chinese connection.
There have been signs of creaking from the Chinese monetary system as estimates of the actual outflow of funds from China seem to be around double the official one. Oops!
If we move onto this morning Reuters have been on the case.
By some estimates, China’s overall debt is now as much as three times the size of its economy……..Outstanding household consumer loans have surged close to 30 percent since the middle of last year and reached 30.2 trillion yuan as of October.
This has the government worried.
China’s central bank governor, Zhou Xiaochuan, made global headlines with a warning last month of the risks of a “Minsky moment”, referring to a sudden collapse in asset prices after long periods of growth, sparked by debt or currency pressures.
In such a position Bitcoin investment may seem a lot more sensible than otherwise. If nothing else those caught in the clampdown on the shadow banking sector may think that it is worth a go and the funds involved are so large it would only take a relatively small amount to have a large impact.
It was also be a particular irony if some of the money the Bank of China pumped into the system last week found its way into Bitcoin.
ECB and the war on cash
This is something which must provide some support to Bitcoin which is simply fears over what plans central banks have for cash. This particularly applies to those who have been willing to dip into the icy world of negative interest-rates such as the European Central Bank and I am reminded of this from the 22nd of this month.
The general exception for covered deposits and claims
under investor compensation schemes should be replaced by limited discretionary exemptions to
be granted by the competent authority in order to retain a degree of flexibility. Under that approach,
the competent authority could, for example, allow depositors to withdraw a limited amount of
deposits on a daily basis consistent with the level of protection established under the Deposit
Guarantee Schemes Directive (DGSD)34,
Currently those with most to fear seem to be those with money in Italian banks although just to be clear as we stand now the deposit protection scheme up to 100,000 Euros still operates.
If we look forwards to the next recession it would appear that some central banks will arrive at it with interest-rates still negative so if they apply the usual play-book we will then see interest-rates negative enough to mean that cash will be very attractive. I have postulated before than somewhere around -1.5% to 2% is the threshold. Then they will have to do something about cash. Perhaps they are on the case.
Other fears may come from the way that central banks have expanded balance sheets and thus narrow measures of the money supply. The Bank of Japan explicitly set out to double the monetary base.
There is a mixture of fear and greed in the price of Bitcoin. The fear comes from those wishing to escape domestic worries in China in particular as well as worries about the next moves of central banks. The greed simply comes from the rise in the price which has been more than ten-fold since I looked at it on December 29th last year. So if you have some well done although of course the real well done comes when you realise the profit. I note others making this point.
Bitcoin’s market cap just passed 150 billion USD. For those who do not know, that is how much money NEW bitcoin “investors” will have to spend, in order for the current bitcoin holders to get the money that they THINK they have. ( @JorgeStolfi )
That statement is true of pretty much every price although of course some have backing via assets or demand. So often we see a marginal price used to calculate a total based on an average price that is not known. Also with a price that has varied between US $8992 and 9771 today alone I would suggest that this below must have more than a few investors screaming for financial stretcher bearers. From @JosephSkinner74
Long/Short Bitcoin swings with up to 100x Leverage at Bitmex! Enjoy a 10% Fee Discount!
What could go wrong?
This leaves us with the issue of how Bitcoin functions as a store of money which depends on time. Today’s volatility shows that over a 24 hour period it clearly fails and yet if we extend the time period so far at least it has worked rather well as one.
A royal wedding
Firstly congratulations to the hopefully – our royal family has form in this area – happy couple. But fans of the magnificent Yes Prime Minister will already be wondering what it is designed to distract us from and whether Theresa May has turned out to be more effective in this regard than Jim Hacker?!