Crypto Bits — 30 Aug 2019
Bubblenomics
As the Northern Hemisphere summer draws closer to an end and we sit here watching the cryptosphere wilt lower amid tepid volumes, I can’t help but feel as though there’s a sense of irritation in the air for crypto-bugs. Perhaps you missed the chance to fade those big monthly reversal wicks that were staring us in the face not once, but twice, which would have put you in the enviable position of having more firepower to buy the dip going into Q4. Throughout the West Pacific Rim, the niggling reminder of missed opportunity leaping off the monthly charts is compounded by the mugginess of the tropics. Well, for those that missed fading the swing high, we can take comfort in the fact that the pullback can be put down to noise. ‘Par for the course’ in the British parlance — just a healthy correction within a larger bull market that is already underway.
It’s debatable how many ‘bubbles’ Bitcoin has been through. I count three obvious explosive advances on the Bitstamp charts, but if you include Mt. Gox then surely the move from $1 to $30 and back down to $2 in mid-2011 was also a ‘bubble’? Ah, but those other ones don’t count as they were too small both in market cap and volume terms, the “echo bubble warriors”, claim. I don’t find that argument very compelling at all. You can’t filter bubbles by size and cherry pick the most recent gyration as the only valid one. Bubbles are manifestations of the madness of crowds as people jostle for financial gain, and can pertain to specific hobbies (baseball card bubble 80s/90s), or even be contained to relatively small locales (Tulipmania in Holland). BTC looks notably different to the charts of other famous bubbles. Pets.com, Mississippi and Isaac Newton’s favourite the South Sea Company were all characterized by ‘one and done’ type movements. They lacked the fractal repetitions that you’d expect from an asset that experiences chaotic advances in adoption on the back of price appreciation feedbacks within a larger S-curve. Bitcoin is a different beast.
In the chart above I track and compare the pullbacks witnessed during bull runs since the mid-2013 bottom. The current consolidation is dragging on a bit, I do admit… but I think that’s to be expected. As the market continues to mature I expect cycles to take longer and gains to be more muted. The volatility of Bitcoin is an absolute gift for those who can monetize it. Some Elliot wave forecasters are calling for a move to 7k. If we see a correction that deep it would be the biggest bull market correction within this data set, and certainly not out of the question. You might notice pullbacks often culminate in sharp drops. Those are the wicks! Don’t forget to place your bids where you see support. In my view, that’s 7.5k-8.5k.
Scott Weatherill — Chief Risk Manager, B2C2 Japan
All that glitters is not Gold… not even Gold
It’s been a long-standing irritation of mine; the comparison of Gold (XAU) and Bitcoin (BTC). The catalyst for the battle of the “Golds” was the 2017 BTC price surge, which saw 1 BTC trade for the same value as a troy ounce of Gold — slightly more in fact but who’s counting.
Since then we’ve been inundated with both arguments for and against their likeness, here are some:
For
Scarcity: Both Gold and Bitcoin have a limited supply. Bitcoin is limited to 21 million coins of which over 17 million have been mined according to CoinMarketCap. In the case of Gold, according to US Money Reserve mining has been in decline for the past 20 years. As the vast majority of Gold dwells in the Earths’ crust there are many contributing factors that render it “limited” — production cost, finite amount of surface (Earth), accessibility.
Alternative Speculative investments: Both Gold and Bitcoin are widely considered to be alternative investments to the more conventional cash/equity/income markets — both are often sought as safe havens in their respective markets. Their speculative nature raise some concerns as Ben Bernanke stated in Congress in 2013 “No one really understands gold prices”, the same can be said for Bitcoin. Where the aforementioned conventional markets are valued against interest or earnings, Gold and Bitcoin (and many will disagree) are largely speculative.
Kings: Both Bitcoin and Gold dominate their markets — for the time being.
Against
Exchange/Currency: The “Gold Window” was slammed shut in 1971 when Nixon did away with the Gold Standard.So, Gold is not regarded as legal tender whereas Bitcoin can in fact be used as a medium of exchange, presenting itself as far easier to utilize and transact with. Now, that which is undeniable is that Gold has proven itself to be the ultimate survivor and armour against crises. Lest we forget 2009 where we saw S&P500 -56.8% and Gold +25.5% to name but a few.
Demand: According to World Gold Council, Metals Focus, GFMS-Thomson Reuters from 2012–2017 over 50% of Gold demand was attributed to jewellery. Which is where the two differ massively, much of Golds value is tied to its precious properties and splendour. Two things Bitcoin clearly lack.
Volatility: Bitcoin is incredibly volatile — the market has seen over 1,000% bull runs which raises questions around stability and store of value. Gold however has steadily increased in value and maintained an overall stable level of purchasing power.
Liquidation: The electronic nature of cryptocurrencies means that Bitcoin trumps Gold in terms of ease of selling your assets. Whilst ETFs and derivatives speed up the selling process when trading Gold — Crypto is a 24/7/365 market.
It would be foolhardy to deny the value of Gold not merely as an investment but as a hedging mechanism — what we should not do is blindly and strictly adhere to status quo methods of investment and engulf innovative ones with them.
Finally, it seems as though crypto-lovers will have been somewhat purged of the comparison as we learn of fake bullion infiltrating world markets. On 28th August 2019 Reuters reported “A forgery crisis is quietly roiling the world’s gold industry” as we learn of at least 1,000 forged bars of bullion resting in the vaults of JP Morgan. For the last 20 years we’ve seen an unabating Gold rocket ship that is strongly correlated with an increase in counterfeiting, which ironically raise money laundering red flags.
For an asset with zero counterparty risk we’re now left deliberating over whether or not what we hold in our vaults is worth anything at all.
So, let me offer one final point against — try though you may, you cannot counterfeit Bitcoin.
It can of course be exposed to a double-spend attack, though this is an incredibly arduous task — does that make Bitcoin a far less terrible store of value than Gold? Maybe, maybe not.
The point I am making here is that one cannot substitute the other — whilst Bitcoin has many attractive attributes it is not perfect.
In summary, like Biggie and Pac they’re both great but unparalleled.
Diana Pires — Global Head of OTC Sales
