Showing posts with label bubble. Show all posts
Showing posts with label bubble. Show all posts

December 22, 2017

The Moment of Truth for Bitcoin and the Cryptocurrency Market

December 22, 2017 (seekingalpha.com)

Summary
  • The chorus of voices labeling Bitcoin a huge speculative bubble is growing louder.

  • 2017 was a pivotal year for the future of cryptocurrencies, but 2018 is likely to be more insightful regarding their ultimate fate.

  • Bitcoin's meteoric rise has ushered in a new era and represents the birth of a new asset class. How digital currencies mature remains an open question.

One of the most notable developments in financial markets during 2017 was the phenomenal rally in cryptocurrencies and their ascent into a new, unique asset class. Throughout the year the mainstream view remained dismissive regarding the prospects of Bitcoin and its crypto-rivals. Yet, it is becoming increasingly clear that this phenomenon has deeper roots and, notwithstanding the vertiginous volatility, it is unlikely to fade away.


Very few could have foreseen the almost surreal pace of appreciation that took place in the past twelve months. In fact, the surging momentum of the Bitcoin rally was unlike anything we have seen in the past. This lack of historical precedent makes it exceptionally interesting, as well as challenging to investigate what triggered this phenomenon and which drivers continue to fuel it.

Admittedly, the substantial correction we saw the past week in cryptocurrency price movements renewed an element of uncertainty about the longer-term direction and, essentially, the fate of Bitcoin.


As a result, the chorus of voices predicting an imminent collapse in the crypto-market grew louder, to some extent silencing the optimists who expect further acceleration amid this meteoric rally. In light of the unprecedented nature of this phenomenon, widely divergent views about what lies ahead are to be expected. Nonetheless, the view that the digital currencies’ massive surge this year is nothing but a huge speculative price bubble, while logical, is inherently flawed.

A more sober examination of what we are actually witnessing is the volatile phase that typically precedes broader acceptance of a newly introduced asset class. If indeed Bitcoin becomes broadly accepted as an alternative global currency, its market capitalization is bound to grow further over the longer term. Until then and until the coexisting -- at the time of this writing -- irrational exuberance and the fatalistic predictions of Bitcoin’s premature demise subside, extraordinary volatility spikes will dominate price action in the cryptocurrency market.

Let us not forget the key developments that transpired in 2017, such as the introduction of Bitcoin futures by CME Group and Cboe Global Markets, which point to a wider recognition of the role that cryptocurrencies have the potential to play in financial markets. Meanwhile, emerging economies as well as a host of technologically advanced countries, including Japan and South Korea, are increasingly adopting a more open stance with regard to Bitcoin transactions. This is, in large part, why 2017 will go down in history as a pivotal year for digital currencies. At the same time, blockchain technology continues to evolve, and it is reasonable to expect that future iterations will address existing security vulnerabilities and facilitate a swifter adoption process, providing a more complete, credible and accessible alternative payment method.

The relentless rise of Bitcoin has also been underpinned by the high degree of difficulty that funds faced in shorting the digital currency. This is gradually changing with the inception of Bitcoin futures, but up until recently it served as a deterrent for speculators to aggressively initiate short positions. It is also especially challenging to identify reliable hedges with sufficient correlation to Bitcoin price movements. As a result, the cryptocurrency market has been relatively sheltered from external forces that tend to cause ripple effects in financial markets. This fostered conditions favorable for “long-only” speculative strategies, which, combined with the current low-volatility environment that encourages increased leverage and momentum trading, served as an excellent propellant for Bitcoin to skyrocket the way it did. In the short term, this tailwind is about to gradually run its course, and that will likely translate into a trend reversal, potentially quite sharp.

The moment of truth for Bitcoin and the cryptocurrency market will arrive after the critical correction that will inevitably ensue. At that point, it will be easier to assess whether digital currencies possess the necessary resilience to survive a concerted onslaught of external market pressures. The reaction of short-term momentum traders -- who ostensibly dominate the digital currency market-- in the face of a technical reversal remains a crucial unknown factor.

It is important not to lose sight of the fact that cryptocurrencies are built on a technological foundation that grants them a unique and lasting advantage over traditional currencies. This is why the probability of an eventual widespread cryptocurrency adoption as an integral part of the financial system is significantly higher than currently anticipated. It is, however, far too early to predict which cryptocurrencies will actually survive the ongoing tectonic shifts that are likely to redefine the future monetary landscape. In that regard, 2018 will be quite interesting, eventful and, hopefully, insightful.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

December 14, 2017

What is Ripple and why is it beating both Bitcoin and Litecoin?

By Chris Morris - December 14, 2017 (www.bitcointalkradio.com)


Forget Bitcoin. So long Litecoin. There’s a new cryptocurrency on the rise.

Ripple, which was designed for banks and global money transfers, has seen the value of its XRP digital currency skyrocket in the past three days. On Dec. 10, the company had a market capitalization of just over $9 billion. As of Wednesday morning, that market cap had more than doubled to $18.1 billion.

Prices for an individual Ripple XRP are considerably more affordable than its alternatives, making it even more attractive to cryptocurrency speculators. As of late Wednesday morning, a single XRP cost just 47 cents, a 66% jump from yesterday’s close, according to CoinMarketCap.

This surge has pushed Litecoin down to the fifth most valuable cryptocurrency. Both Ripple and Litecoin are still far below Bitcoin and Ethereum, however.

What is Ripple?


While it wasn’t released until 2012, Ripple is actually older than Bitcoin. The original version of the company was created in 2004, according to Bitcoin Magazine. It never really went anywhere, though, until it put a professional management team in place, which included E-Loan co-founder Chris Larsen and Jed McCaleb, founder of MtGox.

Ripple’s cryptocurrency has been adopted by banks and other financial institutions. Those companies believe Ripple’s system offers both better prices and is more secure than other digital currencies, including Bitcoin. It allows users to send, receive, and hold any currency in a decentralized way via the Ripple network. The company is cash-flow positive and holds a vast store of XRP, which it periodically releases into the market.

But the real appeal of Ripple’s XRP for banks is its liquidity.

“The liquidity needs of banks today is managed with literally ten trillion of float that sits in these nostro and vostro accounts. We believe very strong this is an inefficient model. You can use digital assets to fund liquidity, and Ripple is uniquely positioned to capitalize on that. Bitcoin takes four hours to settle a transaction. XRP takes 3.6 seconds,” Ripple CEO Brad Garlinghouse told Fortune earlier this year.

Why is Ripple surging?


Ripple’s rise seems to be a (pardon the pun) ripple effect from the surge of interest in Bitcoin. Investors who believe cryptocurrency may be reaching a peak are looking for others that could provide a greater return in the long term. The company has hit some notable milestones in recent months, though.

As of October, Ripple had licensed its blockchain technology to over 100 banks. Last month, American Express came on board. And Michael Arrington’s $100 million cryptocurrency hedge fund will be valued in Ripple’s XRP.

How much has Ripple grown in 2017?


Year to date, Ripple’s XRP has seen its value jump more than 7,000% and its market cap increase by nearly 7,700%.

The Bitcoin bubble – how we know it will burst

December 07, 2017 (theconversation.com)

Ready to pop? Adam Dachis/flickr, CC BY

In the last year, the price of Bitcoin has increased from less than US$800 to more than US$12,000. This huge spike in value has many asking if it is a bubble or if the high price today is here to stay.

Finance defines a bubble as a situation where the price of an asset diverges systematically from its fundamentals. Investment mogul Jack Bogle says there is nothing to support Bitcoin, and the head of JP MorganChase, Jamie Dimon has called it a fraud “worse than tulip bulbs”.

Like any asset, Bitcoin has some fundamental value, even if only a hope value, or a value arising from scarcity. So there are reasons to hold it. But our research does show that it is experiencing a bubble right now.

Together with Shaen Corbet at Dublin City University, we took as the fundamentals of Bitcoin elements of the technology that underpins it (and other cryptocurrencies). We looked at measures, which represent the key theoretical and computational components of how cyrptocurrencies are priced.

New Bitcoin is created by a process of mining units called blocks. Bitcoin is built on blockchain technology – a digital ledger of transactions – which enables the currency to be traded independently from any central banking system, without risk of fake or duplicate Bitcoins being used. Instead of having a bank verify pending transactions (a “block”), miners check them and, if approved, the block is cryptographically added to the ever-expanding ledger.

So the first measure we examined relates to mining difficulty. It calculates how difficult it is to find a new block relative to the past. As per the Bitcoin Protocol, the number of Bitcoin is capped at 21m (there are currently 16.7m in circulation). This means that as more people mine for Bitcoin and more blocks are created, each block is, all things being equal, worth less than the previous block.

Bitcoin mining affects the cryptocurrency’s values. shutterstock.com

The second measure we looked at relates to the “hash rate”. This is the speed at which a computer operates when mining. To successfully mine Bitcoin, you must come up with a 64-digit hexadecimal number (called a “hash”), which is less than or equal to the target hash. The faster you can do this, the better chance you have of finding the next block and receiving payment.

The third measurement was “block size”. This relates to how large the chain is at any given time, with larger chains taking longer to mine than shorter ones.

And lastly we looked at the volume of transactions conducted. Any asset, in particular any currency, which is more widely used will be more valuable than one which is used less frequently.

In our study, we examined data from Bitcoin’s early days – from July 2010 to November 2017. The price of one Bitcoin did not rise above US$1 until April 16, 2011, then to US$10 on June 3, 2011 and US$100 on April 2, 2013. Since then the price rise has clearly been exceptional.

Price of Bitcoin

Source: Data: investing.com






We then applied an accepted method that is used to detect and date stamp bubbles after they burst. In essence, this involves identifying the existence of an explosive component in a series. As the series, here the price of bitcoin, “explodes”, it runs the risk, like any explosion, of flying apart.

A possibly counter-intuitive result of this approach is that if a fundamental driver and the price of an asset both show an explosive component, we might not conclude a bubble is present. A bubble is when something deviates from its fundamental value. If the fundamental value is itself growing explosively then the price would also.

Think of dividends on a stock. If, somehow, these were to grow at an explosive rate we might expect to see the price do the same. While unsustainable, this is not technically a bubble. To overcome this, we then date stamp a bubble as being present when the price shows an explosive component and the underlying fundamentals do not.

Here are the results of the analysis:

The Bitcoin Bubbles. Authors own calculations


The orange lines denote when the price is showing explosive behaviour. We also see a period where the hash rate was growing explosively – the blue columns in late 2013 and early 2014. This is also an indication of a price bubble, which went on to burst.

So there are clear points where bubbles are visible – including now. The price of Bitcoin at present shows explosive behaviour in the absence of anything similar in its fundamentals. We see the price moving upwards in a manner that is not related to the technical underpinnings. It is a clear bubble.

A weakness of these tests and indeed all bubble identification tests is that they take place after the bubble has burst. Even this test, which can be redone as swiftly as new data arrives, is such. Bubbles by their nature grow in a compound manner – so even a day or two delay in addressing the situation can make a bubble significantly worse.

What is not yet available is an accurate advanced warning bubble indicator. In its absence, this approach may be the best. Unfortunately, we cannot use this approach to determine the extent of the bubble. There is no well-accepted model that suggests a “fair” value for Bitcoin. But whatever that level is, it is almost certain that, at present, it is well below where we are now.

December 04, 2017

$300 Bln is a drop in the ocean, Bitcoin is still a baby and can’t be a bubble

By Darryn Pollock - November 27, 2017 (cointelegraph.com)


Looking at the total market cap of the cryptocurrency market, which recently crossed over the $300 bln mark, it is both exhilarating and terrifying at the same time. This digital currency world that came into being less than 10 years ago has grown astronomically in such a short space of time.

Indeed, 2017 alone has seen just Bitcoin go from $800 to nearly $10,000, and there is still a month to go. The records have crumbled for the Big digital currencies, as well as the new ones as the boom in ICO’s have also help set unprecedented growth.

Thus, as the most impressive performing asset class ever seen, surely Bitcoin is on the verge of taking over the world? Even that has two ways of being viewed - in relation, or in fear - but, no, Bitcoin is a small fish.

Bitcoin vs Gold


Looking at the actual commodity markets out there, and weighing up Bitcoin’s $300 bln, it quickly becomes apparent that the digital currency is still splashing in the shallow end.

Gold, which Bitcoin is supposed to be challenging, has a market cap of $6 tln. On top of that, only about a fifth of all the mined gold is held for private investment purposes, the rest is either in jewelery - the large majority - or the official sector, or still underground.

Thus, seeing as the value of all gold mined comes in just over $7 tln, about $1.6 tln of it is being used for private investment purposes.

Look deeper at the markets. Equities, another investible asset, has a market cap of $55 tln; then there is $94 tln in securitized debt and $162 tln in residential real estate, according to a 2016 report.

Not even close to being overvalued


So, what does it mean if Bitcoin is a record breaker for speed, but not for size? It breaks down a lot of the bubble talk that is floating around there. For a market that only makes up 0.3 percent, when put next to residential estate value, securitized debt, equities, commercial real estate, farmland and gold, -- it can hardly be called a massive bubble.


When it comes to bubbles, and overvaluing, stock picker and Bitcoin Bull Ronnie Moas breaks down the numbers a little more.

“We currently have $200 tln in the world tied up in cash, stocks, bonds and gold alone and all four of those, in my opinion, are overvalued. If 1/2 of one percent of that 200 tln dollars ends up in Bitcoin, you are looking at a one tln dollar valuation that would be above where Apple Computers, the most valuable company in the World, is today.”

November 29, 2017

Billionaire Bull Novogratz - Bitcoin will be the ‘Biggest Bubble of Our Lifetimes’, And that’s okay

By Rebecca Campbell - November 29, 2017 (www.cryptocoinsnews.com)


Billionaire investor and hedge fund manager Mike Novogratz has made the claim that ‘bitcoin will be the biggest bubble of our lifetimes.’

Speaking at a conference in New York on Tuesday, Novogratz explained that there is a lot of fraud in something that’s ‘exciting’ as the crypto market, reports CNBC, adding:

"I think this [crypto] is going to be the biggest bubble of our lifetimes by a long shot. To be fair, this is a bubble and there’s a lot of fraud mixed in. We look at tons of projects. And some get funded, and they literally look like Ponzi’s".

However, unlike critics who have said dismissed the digital currency as a speculative bubble, the former Fortress manager wasn’t using his bubble comment as a negative connotation. In October, during an interview, Novogratz was asked whether bitcoin’s gains constituted a bubble. Even though he replied in the affirmative, he added that this wasn’t necessarily a bad thing, adding:

"Historically, manias or bubbles happen around things that fundamentally change the way we live. If it’s the railroad bubble or the Internet bubble, it really changed the way we live".


He added that in 10 to 15 years the blockchain and decentralised systems would be in use everywhere, claiming that this bubble is ‘going to be the great manias of all time.’

Since October, bitcoin has not only scaled the $10,000 milestone, but it’s continuing upward trajectory has pushed it up to its current value of $11,147, according to CoinMarketCap, pushing its market total to $185.7 billion for the first time.

The comments from Novogratz, who has compared to bitcoin to digital gold, come at a time when he recently stated that bitcoin could ‘easily‘ reach $40,000 by the end of 2018. Furthermore, he was reported yesterday as saying that the digital currency market cap will reach $2 trillion at the end of next year. At present, it’s worth an impressive $339.1 billion, making it more valuable than Visa and the Bank of America. Slowly, but surely, it’s steadily gaining on the market cap of JPMorgan Chase, at $343 billion, who’s CEO called bitcoin ‘a fraud‘ in September.

However, while Novogratz believes that the cryptocurrency will reach $40,000 by the end of 2018. he doesn’t think that the journey will be smooth sailing.

He added:

"There will be wild crashes in it because you’re going to get to levels so far ahead of where the technology’s at. It makes investing really, really exciting, but difficult".

Since the beginning of the year, bitcoin’s value has, so far, increased by more than 1,000 percent.

Featured image from Flickr/Acumen.

November 12, 2017

Bitcoin Price Weekly Analysis – BTC/USD breaks key support

By Aayush Jindal - November 12, 2017 (www.newsbtc.com)

Bitcoin price struggled and moved below $6500 against the US Dollar. BTC/USD might continue to decline and it could even break $6000.

Key Points


  • Bitcoin price struggled to move above the $7770 level against the US Dollar and started a downside move.
  • There was a break below a major bullish trend line with support at $6780 on the 4-hours chart of BTC/USD (data feed from SimpleFX).
The pair is now well below the $6500 level and remains in the bearish zone.
Bitcoin price struggled and moved below $6500 against the US Dollar. BTC/USD might continue to decline and it could even break $6000.

Bitcoin Price Turned Bearish?


It was yet another bullish week for bitcoin price as it moved above the $7500 level against the US Dollar. The price even managed to move above $7700 and traded to a new all-time high of $7773. Later, it failed to hold gains and started a downside move. It broke the 23.6% Fib retracement level of the last wave from the $5362 low to $7773 high. The downside move was strong as the price broke the $7000 level and the 100 simple moving average (H4).

Sellers even broke a major bullish trend line with support at $6780 on the 4-hours chart of BTC/USD. Moreover, the pair is now well below the 50% Fib retracement level of the last wave from the $5362 low to $7773 high. That’s why, there are chances of it extending declines in the near term. At present, the pair seems to be approaching the $6000 handle, which might act as a support. Once there is a break of the $6000 level, there are chances of more declines toward $5650.




On the upside, the broken support near $6750 and the 100 simple moving average (H4) are resistance zones. Selling rallies near $6750 can be opted in the short term as long as the price is below $7000.

Looking at the technical indicators:              

4-hours MACD – The MACD is gaining pace in the bearish zone.

4-hours RSI (Relative Strength Index) – The RSI is currently near the oversold levels.

Major Support Level – $6000

Major Resistance Level – $6750


Charts courtesy – SimpleFX


Aayush Jindal
Aayush has spent over a DECADE as a financial markets contributor and observer. He specializes in market strategies and technical analysis, comes with an IT background. He possess strong technical analytical skills and is well known for his entertaining and informative analysis of the currency, commodities, Bitcoin and Ethereum markets. He is a software engineer by profession, loves blogging and observing financial markets.

Bitcoin Cash drops from $2,800 to $1,300, What lies ahead in long-term

By Joseph Young - November 12, 2017 (www.newsbtc.com)


The Bitcoin Cash price has dropped from $2,800 to $1,300 in a matter of hours, as the price of bitcoin rebounded from $5,500 to $6,400.

Many bitcoin experts including former Coinbase executive and Litecoin creator Charlie Lee stated that in the long-term, it is less likely that Bitcoin Cash would be able to compete with bitcoin due to its lack of infrastructure and developer activity.

Lee stated:

“The BCH pump in the past few days is super impressive. I should have kept my BCH. I still don’t think BCH can compete with BTC long term, but markets can stay irrational for a long time. I’m glad there’s a blockchain for big blockers though. Hopefully, resulting in less drama.”

He further emphasized that there exists a clear gap between the development teams of bitcoin and Bitcoin Cash, which could play as a major role in the long-term growth of the two cryptocurrencies.

“Without decentralization, you lose censorship resistance. Censorship resistance is what gives Bitcoin value. Without that, it’s just PayPal 2.0, which is not revolutionary. BCH also has a very weak dev team when compared to Bitcoin Core. It’s like high school team against pros,” Lee added.

Since Bitcoin Cash has fallen from $2,800 to $1,300, the global cryptocurrency exchange market has stabilized to a certain extent, with Ethereum retaining its spot as the second largest cryptocurrency behind bitcoin. While the trading volume is still exceedingly high at over $26 billion, given the major correction of Bitcoin Cash in such a short period, it seems as if the current trend of bitcoin leading the market and Ethereum being the distant second will continue in the mid-term.

With Bitcoin Cash being marketed and used as a currency, mainstream adoption will be key for the long-term growth of Bitcoin Cash in terms of market valuation and user base. Bitcoin Cash will require businesses to adopt it as a payment method, as many leading Japanese conglomerates have done for bitcoin, and large-scale businesses within the cryptocurrency sector to build infrastructure around it.

If SegWit2x supporting businesses have moved on from their plan of increasing the bitcoin block size to 2MB to Bitcoin Cash, in the upcoming months, many existing bitcoin businesses will likely provide support for Bitcoin Cash, which include wallet services, exchanges, and brokerages.

However, if existing bitcoin companies do not move towards adopting and integrating Bitcoin Cash, it will significantly limit the potential of Bitcoin Cash.

Earlier today, prominent bitcoin and security expert Andreas Antonopoulos encouraged the bitcoin community to focus on the development and the growth of bitcoin, rather than discouraging the Bitcoin Cash market and its industry, as there is space for the two cryptocurrencies to co-exist.


In the long run, Bitcoin Cash will serve a different market to bitcoin, while bitcoin continues to evolve into an established robust store of value, with strong infrastructure to process payments with lower fees.

Disclaimer: The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. It should not be regarded as investment/trading advice. All the information is believed to come from reliable sources. NewsBTC does not warrant the accuracy, correctness, or completeness of information in its analysis and therefore will not be liable for any loss incurred.

Joseph Young
Joseph is a web developer and designer, writer and a passionate musician who loves to travel often. He's worked as a researcher for a number of venture capital firms and as a freelancer designer for resorts and corporations in Korea and the Philippines. Joseph will be covering new technologies, startups, technical analysis and breaking news in the bitcoin industry.

November 09, 2017

Nouriel “Dr. Doom” Roubini loves Blockchain, but thinks Bitcoin “will find its end”

By Miguel Gomez - November 09, 2017 (cryptovest.com)


The man who predicted the 2008 subprime lending crisis foresees an eventual end to Bitcoin due to its speculative bubble and pressure from regulations.

Nouriel Roubini is one of the men who sounded the alarm on the subprime lending crisis that happened back in 2008. What makes him stand out from the crowd is his decades of experience analyzing the economy and advising the government on policy decisions that may affect it.

Yesterday, he sat down for an interview with Business Insider, and while his opinion of the economy in the West is not very optimistic, even less could be said about what he thinks of Bitcoin.

After deriding banks in Spain and Greece for being full of bad loans, he then went on to say that there is a “gigantic speculative bubble revolving around Bitcoin.”

On the other hand, the man had nothing but great words to share about the potential applications for blockchain technology.

“First of all, I would separate the blockchain from the bitcoin. Blockchain creates an enormous chance to increase productivity in many companies and I think the technology to be something very good. But the bitcoin and other cryptocurrencies – this is something entirely different. In my opinion, there is a gigantic speculative bubble related to the bitcoin,” said Roubini.

He appears to share the attitude that Severin Cabannes—deputy CEO of Société Générale—had towards blockchain when he spoke to Bloomberg last Friday.

During the interview, Cabannes expressed that the bank is “not very keen to invest in Bitcoin, but […] very keen to invest in blockchain technology.”

Roubini considers that Bitcoin’s future may be jeopardized by the countries attempting to draft regulations against its use and exchange.

“There are no fundamental reasons for [Bitcoin’s] price to reach such levels. What’s more – it is also used by criminals, for their shady business. I think that more and more countries will start to make cryptocurrency exchanges illegal like China did. New regulations will be adopted. So, this will find its end,” he said.

He isn’t necessarily wrong. If Bitcoin becomes too tricky to use, purchase and acquire in most of the world, it will likely experience a sharp decline in value as people attempt to sell it back for its equivalent in local currencies.

Such a decline would probably not end Bitcoin entirely, but it would reduce its global influence long before it becomes a veritable mainstream asset.

However, the fact that options exchanges in the United States are taking the cryptocurrency seriously might just give it the credibility it needs to resist efforts to regulate it, at least in North American and European markets.

November 08, 2017

Bitcoin Futures mirrors Tulip Bubble Crash - UBS Analyst

By Josiah Wilmoth - November 08, 2017 (www.cryptocoinsnews.com)


A UBS economist says that CME Group’s plan to launch bitcoin futures contracts mirrors Tulipmania in 17th-century Holland.

As CCN has reported, Chicago derivatives exchange operator CME Group has announced plans to provide its clients with bitcoin futures contracts before the end of the fourth quarter. In addition to luring Wall Street capital into bitcoin-related products, the creation of bitcoin futures will likely lead to the first commercially-available Bitcoin ETF.

However, not everyone is excited about bitcoin derivatives. UBS economist Paul Donovan told CNBC that he sees dangerous parallels between the structure of CME Group’s bitcoin futures and the crash of the Dutch tulip bubble in 1637.

The tulip bubble comparison has been hashed and rehashed on multiple occasions, and as CCN has explained in the past, it is inaccurate. However, Donovan introduces a new dimension to the argument by focusing his criticism on the similarity between the proposed bitcoin futures contracts and the tulip futures that contributed to the collapse of the tulip market in Holland.

Specifically, he points to the fact that the futures will be cash-settled rather than commodity-settled. Ordinarily, the way a futures contract works is that a buyer and a seller agree on a price for a commodity that will be delivered on a certain date. Professional traders buy and sell these contracts to place bets on the future value of the underlying commodities, and whoever owns a contract at its expiration receives physical delivery of the commodity.

However, CME’s bitcoin futures will be cash-settled, which means that cash will be delivered upon contract expiration rather than bitcoins. Donovan says this mirrors the creation of cash-settled tulip futures in Holland in 1636 – just one year before the tulip bubble popped.

“The idea of not physically delivering the product was rather shocking to contemporaries (as it turns out, the market crashed before bulbs could have been delivered anyway – bulbs were lifted in June 1637 for physical delivery). Traders met in groups (in taverns), called ‘Colleges.’ Think of the taverns as the cryptocurrency exchanges of their day,” Donovan said.

Donovan is not the only person at UBS to express skepticism about the future of bitcoin. Just last month, the investment bank published a research paper referring to bitcoin as a “speculative bubble”. Nor is he the only critic of CME’s launch of bitcoin futures. Themis Trading principal Joe Saluzzi said that the exchange was “playing with fire” and said that the products reminded him of the collateralized debt obligation (CDO) products that contributed to the 2008 financial crisis.

Posted by Josiah Wilmoth
Josiah is a former ancient and medieval literature teacher. He has been writing about cryptocurrency since 2014, and his work has been cited in Business Insider, NPR, and Yahoo! Finance. He lives in rural North Carolina with his wife and son. Email him directly at josiah.wilmoth@cryptocoinsnews.com.

November 04, 2017

Bitcoin is the “very definition of a bubble” - Credit Suisse CEO

By Francisco Memoria - November 04, 2017 (www.cryptocoinsnews.com)


At a time in which bitcoin reaches a new record high around the $7,500 mark and catapults the cryptocurrency market cap above the $200 billion mark for the first time in history, Credit Suisse CEO Tidjane Thiam makes it clear that he isn’t a fan of the cryptocurrency, as he stated it was the “very definition of a bubble” while speaking at a news conference in Zurich.

The CEO expressed caution as interest in bitcoin could eventually subside. He noted that right now people are buying the cryptocurrency expecting a price rise that will help them make money, not as a store of value, meaning it is a bubble. He notably stated:

“From what we can identify, the only reason today to buy or sell Bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble.”

Tidjane Thiam added that bitcoin currently presents a number of challenges, and expressed concern over its anonymity, as to him it is particularly problematic for financial institutions that, given the potential money-laundering risks, are likely not to get involved with the cryptocurrency. He added:

“Bitcoin presents a number of challenges. The first of them is really the anonymity. (…) I think most banks in the current state of regulation have little or no appetite to get involved in a currency which has such anti-money laundering challenges".

Analysts believe that more institutional investors are going to enter the cryptocurrency ecosystem, as one of the largest derivatives exchange in the world, CME Group, recently decided to launch bitcoin futures.

Given his words, Thiam now joins a list of bankers and Wall Street executives who believe bitcoin is a bubble. Among them are Berkshire Hathaway CEO and billionaire investor Warren Buffet, who warned there’s a “real bubble” in bitcoin as, according to him, the cryptocurrency cannot be valued because it isn’t a value-producing asset.

Earlier this year, JP Morgan CEO Jamie Dimon also criticized bitcoin by calling it a “a fraud” and stating he would fire anyone in his financial institution trading it. Later on, Dimon stated that the cryptocurrency was “worth nothing” before taking a third shot at the cryptocurrency and its investors, notably stating that anyone “stupid enough to buy [bitcoin] will pay the price.”

Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, also stated that bitcoin is a bubble, as it met his firm’s criteria for it., partly because some investors buy coins to later on sell them at a higher price, and because of its volatility.

On the other hand, some aren’t as dismissive of bitcoin. Goldman Sachs CEO Lloyd Blankfein recently told Bloomberg he wasn’t willing to “pooh pooh” the cryptocurrency, despite having a certain “level of discomfort with it” as is the case with anything new. Morgan Stanley CEO James Gorman also recently stated that bitcoin is “more than just a fad” that “isn’t inherently bad.”

Featured image from Flickr/Africa Progress Panel.

Posted by Francisco Memoria
Francisco is a cryptocurrency writer who's in love with technology and focuses on helping people see the value digital currencies have. Twitter: https://twitter.com/FranciscoMemor

October 29, 2017

'A Real Bubble'- Billionaire Warren Buffett doubles down on Bitcoin doubt

By Nikhilesh De - October 26,2017 (www.coindesk.com)


Billionaire investor Warren Buffett has joined the ranks of those who believe the market for bitcoin is in bubble territory.

According to MarketWatch, Buffett touched on the subject during an annual question-and-answer session held in Omaha earlier this month. While Buffett focused on a range of topics, he honed in on the cryptocurrency market during his remarks.

"People get excited from big price movements, and Wall Street accommodates," he was quoted as saying. Describing bitcoin as a "real bubble," according to the publication, Buffett also criticized the idea of applying a value to bitcoin.

He told attendees:

"You can’t value bitcoin because it’s not a value-producing asset."

Buffett's comments came amidst a significant month for bitcoin's price, according to CoinDesk data. After fluctuating around $4,300 at the beginning of October, the price surged to more than $6,100 less than a week ago.

That Buffett would take a harsh stance toward bitcoin is perhaps unsurprising, given that, in 2014, he advocated that investors stay away from bitcoin entirely.

"It's a mirage basically," he was quoted as saying at the time.

Nor is Buffett the only market observer to issue remarks around the market's recent developments. Earlier this week, Saudi Prince Al-Waleed bin Talal said that he expects bitcoin to fail.

Others, however, have adopted a different approach. On Oct. 24, New York University's "Dean of Valuation," Aswath Damodaran, argued that bitcoin is a true currency and not a fraud in a new blog post.

Warren Buffett image via Krista Kennell / Shutterstock


Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

October 22, 2017

Could Bitcoin’s bubble lead to long crypto winter?

By Jacob J - October 22, 2017 (cointelegraph.com)


In the mad mania for cryptocurrencies, there are some dissenting voices from old timers, calling this irrational exuberance. Could a crypto winter be in the offing?

Eerie similarities to 2013


A year after the block reward halving, with media buzzing about Bitcoin, and a multifold increase in price - this is not just a description of 2017 but also perfectly fits 2013. After the block reward halving in 2012, the price of Bitcoin shot up during the following year. The price increased from around $13 at the starting of 2013 to a peak of over $1200.

The reasons for this jump are manifold (including the bots  - Willie and Markus, which bought Bitcoins on Mt. Gox), but the almost 100 fold increase in price was unprecedented. The 500% increase in price of Bitcoin in 2017 appears tame in comparison. Of course, the base effect does make such 100 fold increases in price almost impossible now, with Bitcoin's market capitalization crossing $100 Bn.

This time Is different


When comparisons to 2013 are made, the common refrain is “this time is different.” There is increased Bitcoin adoption, there is no Mt. Gox, the ecosystem is better developed, institutional money is coming in and so on. If time has taught us one thing, it is that history usually repeats itself. Or rather, as Mark Twain said, “History doesn’t repeat itself, but it often rhymes.”

A 500% increase in price in just a year is the sign of a bubble building up. There has been no catalyst driving the growth and a fear-of-missing-out mentality seems to be at play. Newbies are being attracted to Bitcoin (and ICOs) driven by the promise of massive gains. They believe that "this time is different."

House money at play


While traditional economists believe that the market is made up of rational investors, behavioural economists believe otherwise. People who have made windfall profits take higher risks than they normally would. This is similar to gamblers taking higher risks after winning, believing that they are playing with "house money."

With Bitcoin's rapid rise in price this year, a lot of investors have seen their portfolio appreciate rapidly in price. Rather than evaluating whether Bitcoin is overvalued and it is time to sell, these investors may be willing to hold longer because of their windfall profits.

2013 ended badly


The crash of 2013 was the first long term downtrend in Bitcoin's price. Although there were previous crashes with higher percentage drops (from $32 to $2), this was the first time that the price didn't recover quickly. Bitcoin's price had risen during every calendar year until 2013 and people believed the price would recover in 2014.

This was not to be. It would take more than three years for the price to cross the $1200 levels attained in November 2013. This year has been extremely strong so far, but a crash would be terribly painful. A lot of recent cryptocurrency converts could get hurt and it could take even longer to recover this time.

October 21, 2017

Cryptocurrencies are a ‘speculative bubble’ - UBS

By Rebecca Campbell - October 21, 2017 (www.cryptocoinsnews.com)


UBS has said that cryptocurrencies like bitcoin are a ‘speculative bubble’ and are unlikely to become a mainstream currency. Yet, it believes the blockchain may have a ‘significant impact’ on many industries.

In a white paper titled ‘Cryptocurrencies – Beneath the Bubble‘ that was published this week, UBS said:

"We think the sharp rise in cryptocurrency valuations in recent months is a speculative bubble".
The bank added that it was ‘doubtful cryptocurrencies will ever become a mainstream means of exchange.’

"The need for companies and individuals to pay tax receipts in government-issued currency, and the potentially unlimited crypto-money supply, pose significant barriers to widespread adoption".

According to UBS, bubbles occur when there is something new, or relatively new, in the economy, which creates uncertainty, and a delay in real-world returns. It cites the Dutch tulip bubble in the seventeenth century, the Mississippi and South Sea bubbles in the eighteenth century, and the dot com bubble in the 1990s. UBS believe that digital currencies fall into the bubble category.

"Cryptocurrencies are relatively new. The real world benefits are said to take years to materialize, even among evangelists. And the relatively high volume of cryptocurrency turnover, against limited real-world use, suggests that many buyers are seeking speculative gain, never intending to use cryptocurrencies to make a real-world transaction".

Earlier this month, Sergio Ermotti, the CEO of UBS, said that wealthy investors are curious about the digital currency market, but are not ready to make significant investments. The bank joins critics such as Jamie Dimon, JPMorgan CEO, who claimed last month that bitcoin was ‘a fraud.’

Despite the fact that UBS doesn’t appear to favour digital currencies such as bitcoin, it is regarding the blockchain in a more positive light.

So much so that UBS believe that the distributed ledger will lead to ‘significant impact’ within industries such as finance, manufacturing, healthcare, and utilities. UBS are claiming that this could add as much as $300-400 billion of economic value by 2027.

The note added:

"Investing in the blockchain wave is akin to investing in the Internet in the mid-nineties".

For the time being, though, shortcomings will need to be addressed with the technology, UBS said.

Featured image from Shutterstock.