Award-winning cryptocurrency writer Gary McFarlane finds out what price for bitcoin the experts think is reasonable and whether widespread adoption of the blockchain is likely.
US investment bank Morgan Stanley's decision to build a bitcoin derivatives product has prompted a rally, ending a brutal sell-off this past week that has seen Ethereum hit a 12-month low at $170.
Bitcoin is currently holding steady at $6,487, coming off strong support seen at $6,200 last weekend.
Total market capitalisation of the sector fell as low $186 billion, but has since climbed back above $200 billion, with bitcoin dominance is at 56%.
Morgan Stanley responds to client demand with bitcoin swap products
Morgan Stanley is setting up a bitcoin swap derivatives product so that its clients can get synthetic indirect exposure to the virtual currency.
The Bloomberg report said that the bank was ready to go from a technical standpoint and is weighing institutional demand. The news comes on the back of a flurry of institutional initiatives around crypto.
From Goldman Sachs to Citigroup, not to mention the owner of the NYSE, Intercontinental Exchange, setting up a crypto investment and payments ecosystem called Bakkt, institutional interest is growing.
News from the custody realm is promising, with leading crypto security player BitGo launching BitGo Trust Company, which it claims is the first regulated qualified custodian service in the US, putting its institutional-grade custody solutions on an even firmer footing.
BitGo received its trusted status qualification from the South Dakota Division of Banking.
"Custody has been the missing piece of cryptocurrency market infrastructure and this gap has kept institutional investors out of the market," said BitGo chief executive Mike Belshe.
From dotcom bubble to crypto bubble
With many coins down 80% or more, there has been comparisons made between the dotcom boom of the noughties and crypto, and how much worse the bursting of the crypto bubble, if that is what is happening, has been.
Sonny Singh, chief commercial officer at payments firm BitPay, certainly thinks it’s the end for many altcoins [all crypto other than bitcoin].
He says BitPay has “never been more bullish on bitcoin” but it’s a different matter when it comes to many altcoin, which, he says, "will never come back". He expects to see a rebound next year for bitcoin.
From peak to trough crypto may have fallen further that tech stocks. The Nasdaq Composite fell 78% and crypto is off 80% or more. Ripple's XRP is 86% below its all-time high. But there are at least two critical differences between dotcom and crypto’s speculative price appreciation.
First the sheer difference in size between the two – crypto's combined value today is around $200 billion; US tech stock valuation was north of $3 trillion in 2000 when the tech bubble burst, an order of magnitude greater than crypto.
The bursting of the tech bubble brought low the entire market. The implosion of crypto wouldn’t be much more than a rounding error when compared to the size of global equity and bond markets, not to mention the trillions of dollars in derivatives.
The other critical difference is that we have been here before. Since 2013, bitcoin has seen four "bubble pops", with falls greater than 70%.
Nevertheless, bitcoin keeps coming back because the use cases for both bitcoin and the underlying technology haven't gone away – from banking the world's unbanked to taking on the centralised platforms such as Facebook and Uber.
Those companies survived and thrived because of the pace of internet adoption. Crypto and blockchain adoption may not happen as quickly.
'Crypto not dead' says Allianz’s El-Erian
Mohamed El-Erian, chief economic adviser at financial giant Allianz, reckons $5,000 is a "reasonable" price for bitcoin and thinks others in the financial industry may be too quick to write off crypto.
"Crypto is not dead, and certainly the underlying technology is not dead," said the Allianz chief economic adviser.
"For me, at $5,000, it’s reasonable." The price of bitcoin fell to about $5,800 in late June, which remains its lowest point so far this year. It was at $6,314 on Wednesday afternoon.
That comment, from such a respected economist and financial commentator has helped to buoy the crypto partial recovery of the past two days.
El-Erian has previously raised doubts about bitcoin ever becoming the "digital cash" that displaces fiat, but he believes it will likely have a place in the financial system. "I think it's going to be there, it's going to last for a long time, it's going to play a role in the ecosystem, but it's not going to be the currency that a lot of proponents would like it to be."
He is confident there will be greater adoption down the road: "We're going to see more widespread adoption, by both the private and public sector, of the blockchain technology and related technologies."
El-Erian also thinks there is now more realism in the market about the speed of adoption. "What we're getting is the realization that adoption is not going to be as big and as quick as the proponents of crypto would like.”
He continued: “I think it's going to be there, it's going to last for a long time, it's going to play a role in the ecosystem, but it's not going to be the currency that a lot of proponents would like it to be."
Courts and regulators busy in the US
US Commodity Futures Trading Commission (CFTC) chairman J. Christopher Giancarlo says that regulators should take a "do no harm" approach to avoid hampering innovation and restricting growth.
His remarks to CNBC will be welcomed by the industry: "And I'm advocating the same approach to cryptocurrencies and all things having to do with this new digital revolution of markets, and of currencies, and of asset classes."
Giancarlo added: "When it comes to fraud and manipulation, we need to be strong. When it comes to policy making, I think we need to be slow and deliberate and well informed."
A US judge in Brooklyn, New York, has ruled that securities law does apply in the prosecution of fraud cases concerning cryptocurrencies.
Prosecutors are pursuing a case against Maksim Zaslavskiy, who allegedly raised $300,000 from unsuspecting investors in two cryptocurrencies it was claimed were backed by collateral – REcoin and Diamond.
Judge Raymond Dearie rejected the lawyer's argument that the Securities and Exchange Act didn't apply because the digital assets are in fact currencies.
In an unrelated matter, this week the US Financial Industry Regulatory Authority (FINRA) charged Timothy Tilton Ayre with securities fraud because of "the unlawful distribution of an unregistered cryptocurrency security called HempCoin".
On the same day the SEC took enforcement action against Crypto Asset Management for a "registration violation", which is a first.
The SEC's press release in part read: "The Securities and Exchange Commission today announced its first-ever enforcement action finding an investment company registration violation by a hedge fund manager based on its investments in digital assets."
Ethereum recovers but its inventor gets flak
The calamitous collapse in the Ethereum price has been partly blamed on ICO projects cashing in the ETH raised in their token sales.
However, research by Diar shows that this doesn’t appear to be true, especially concerning the more high-profile projects. Their researchers gave the example of TenX, which has voluntarily disclosed its reserve position.
“Companies that did an ICO before the price boom of 4Q17 are sitting on massive reserves that could potentially fuel development teams for years to come. Last week TenX, a basic wallet that promises a Visa debit card, voluntary disclosed their financial positions revealing that the company is sitting on over $100 million. Not only is that more than the company originally raised, but it’s more than their whole network is currently valued on secondary markets. And they’re not the only ones.”
While we are on Ethereum, Vitalik Buterin, its inventor, is deserved of a mention for his not unreasonable statement that the days of 1,000% returns in crypto have gone.
Speaking to Bloomberg News he said: "the blockchain space is getting to the point where there's a ceiling in sight, going on to say the stratospheric returns are over".
That was followed by a rebuttal from co-founder Joseph Lubin: "Vitalik is brilliant, but I would have to disagree with him on that. This is a technology that's going to impact how economic, social and political systems are built over the next few decades. So we're really just at the start of this."
Buterin later revisited his initial statement declaring that he "never said there was no room for growth", just that "there isn't an opportunity for yet another 1,000-times growth in anything in the space anymore".
Chief executive Changpeng Zhao of the fast-growing Binance exchange which this week announced a tie-up with the Malta Stock Exchange to launch a crypto exchange, is in the 10-bagger camp.
"I will say 'crypto will absolutely grow 1,000x and more!' Just reaching USD market cap will give it close to 1000x, (that's just one currency with severely restricted use case), and the derivatives market is so much bigger."
Clearly, Buterin's comments were not what those who bought near the top of the market wanted to hear, as they hold on with the hope of seeing much better days ahead for portfolios deep in the red.
It was grist to the mill for the Ethereum shorters on their favourite venue Bitfinex, where sell positions reached a record high earlier this week, and there are still plenty of outstanding orders.
Reporting on the thinning out of crypto start-up scene in London's Canary Wharf, the Financial Times suggests in a story today that crypto start-ups based mostly on ICO funding are at risk of failing.
Max Booen, boss of crypto broker B2C2 said: Max Boonen, chief executive of broker B2C2, a cryptocurrency market maker, said: "It's clear that there's some companies that are going to fail as their business cases are predicated on a different price."
Market participants holding ETH will be watching nervously to see if the token can consolidate above $200, and advanced beyond $220 (its high last night) over the weekend.
UK hedge fund group setting up crypto fund of funds
AK Jensen, the hedge fund group, is launching a crypto fund of funds. Some observers might say that's a brave thing to do, given the current state of the market and the poor performance of the 300 or so crypto hedge funds in existence.
However, AKJ, which has assets under management of $20 billion, may be entering the market at a far more opportune moment than its peers.
The company is launching the AKJ Crypto Fund upon which the fund of funds product will be built, and in so doing "bringing the benefits of its award-winning hedge fund solution to funds trading digital assets".
Currently at the private fundraising stage, focusing on institutions and professional investors, the project stands out from the typical initial coin offering, in that it is from an established and successful regulated financial institution, offering a product that operates under the EU prospectus directive, which, among other things, guarantees the consistency of information across the EU and minimum protection for EU-based investors.
AKJ token holders are receive a dividend from their entitlement to "25% of net revenues and fund appreciation".
The company is positioning AKJ Crypto as the "leading platform for hedge funds trading crypto assets" and is yet another example of the cross-fertilisation taking place between mainstream finance and crypto.
Yet another stablecoin…
The Winklevoss twins have created a stablecoin called Gemini Dollar (GUSD) to act as a bridge between the crypto and fiat worlds. Stablecoins are crypto pegged to the value of another asset, in this case 1:1 with the US dollar.
New York financial regulators have approved the product.
The largest stablecoin is Tether, which has attracted a lot of controversial coverage because of persistent doubts that the issuance is fully backed by dollar as claimed.
Tether parted ways in January with law firm Friedman LLP that was auditing its reserves and to date no audit by accountants has taken place.
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