Cryptocurrency News: Should You Trust the Bitcoin Rally?

Posted On July 25, 2018 3:43 pm

Bitcoin coin, Bitcoin currency

Source: GoodFreePhotos.com


The price of Bitcoin has enjoyed a bit of resurgence of late, crossing back above  $8,000 on Tuesday — its highest level since May. Indeed notable cryptocurrency news.

Asset management giant Blackrock will set up a working group to explore cryptocurrencies and blockchain technology. And the SEC is targeting September for a decision to approve Bitcoin and other crypto-based Exchange Traded Funds (ETFs).  

While the SEC’s new date is actually a continued delay since submissions were made by fund firms such VanEck, StableX and a Winkelvoss twins-ran company, many took the news that the SEC is even still considering giving approval as a positive sign.  The thinking is that the SEC is merely buying some time before giving the stamp of approval to an ETF.

For many, this $8,000 price level is key, as it represents point from which Bitcoin went parabolic — last November — on the way to $20,000. Many people called the ‘friends and family’ rally as college kids came home during Thanksgiving convinced parents to open a Coinbase account.

stock chart, bitcoin

But now, some of the interest seems to be driven by higher net wealth and institutional money.  

In addition to the above-mentioned Blackrock move, Grayscale, which manages $2 billion in assets, said in a recent report last week, that it’s seeing more institutions interested in cryptocurrency products.

If institutional money does indeed allocate even a small portion of their assets towards Bitcoin, it would easily drive the price dramatically higher.  It’s estimated that Thanksgiving rally, from $8,000 to $20,000, was driven by approximately $6 billion of inflows to the top 3 crypto exchange — a drop in the $31 trillion managed by the top 100 mutual and hedge funds.

The problem with the theory that big money is waiting for an ETF, which ignores Bitcoin futures geared towards professional money managers, is that neither the CME nor the CBOE, which both listed futures contracts back in January, have gained much traction.

Trading volume remains a few 100 contracts per day, and open interest on both exchanges is just under a few 1,000 contracts in any given month.

The other problem with Bitcoin is it’s a chimera. It’s not a currency in any meaningful sense. Nor is it a commodity. There is no underlying physical asset and it is not legal tender. It is not even a particularly good store of value in the context of modern finance, where inflation and money creation have been very muted in the past few years. Even as inflation has been stable and low in the US, the quantity of cryptocurrencies has exploded.


Cryptocurrency Chart, Cryptocurrency graph


But, the biggest problem of all is one of technology. People may remember Netscape and Myspace for revolutionizing (or outright creating) new sectors. But, being first rarely means being the best in the world at rapidly-advancing technology. If blockchain is here to stay, and that seems to be the case, it will give rise to increasingly sophisticated tokens and coins.

Meaning, the case for bitcoin as either a currency or a store of value will become invalidated.


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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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