At the beginning of the year, Bitcoin (BTC) was trading below $1,000. The price kept increasing as the year progresses and by the end of the year, it is now worth almost 18 times its value at the beginning of the year.
Analysts and experts raised concerns about bitcoin, with some arguing that it doesn’t qualify as money. Comparisons to Dutch tulip mania piled up, with bitcoin virtually taking over the financial sector.
2018 is now presented with just one question: Is there any chance Bitcoin’s jagged, face-melting run for the stratosphere might become a bit tamer?
The launch of bitcoin futures contracts on trading platforms like (CBOE), CME Group (CME) and, eventually, Nasdaq (NDAQ) has the potential to bring bitcoin into the fold of the traditional currencies. There is a possibility that a bitcoin ETF would be launched in 2018.
With regulators across the globe paying more attention to bitcoin, investors would be better informed and could aid in eliminating fraud.
After a week that saw some adjustments in the market, volatility has returned.
The share of some Bitcoin-related stocks like Riot Blockchain (RIOT), Marathon Patent Group (MARA) and Bitcoin Investment Trust (GBTC) have started experiencing increase daily, while some companies are restructuring themselves with blockchains such as Long Island Iced Tea (LTEA) and Net Element (NETE) witness their shares going up.
Other cryptocurrencies such as Ethereum and Litecoin aren’t left out as their prices have increased recently.
Banks though are yet to accept bitcoin and other cryptos, and it is highly unlikely that they would treat bitcoin like a normal investment. Analysts are still debating whether investors would be ready for the more complicated world of investing next year that the futures will bring.
Ihor Dusaniwsky, a managing director at financial analytics firm S3 Partners while commenting on the issue, stated that “So, someone who put in $10,000 now has $2 million in his account — does he know how to protect it when trading might go against him?”
Does bitcoin (BTC) price has a peak?
This is a question that was addressed by trading on Friday. The price of bitcoin plunged below $12,000, then picked up another $1,000 later in the day.
This came after a week that financial experts warn about the possibility of insider trading. The bitcoin futures from both Cboe and CME were tracking close to the price of Bitcoin itself.
The bitcoin futures will make it possible for investors to bet on the price of bitcoin, speculating whether it would rise or fall. If more investors with the view that the currency will bubble speculate that the price of bitcoin could plunge, it will likely help tap the brakes on bitcoin’s feverish price increases, the reasoning goes.
Dusaniwsky added that “So if I bought Bitcoin at $200, and it’s trading at $15,000, I might want to hedge out some of that without actually selling my Bitcoin. And this might be much easier with futures, to get in and out of that position intraday.”
The bitcoin contracts would have limits in trading and price, thus opening a path for some Bitcoin exchange-traded fund to trade in the stock market. According to Dusaniwsky, this is something that will likely occur in 2018.
CBOE file their request with SEC to list six bitcoin ETFs. As more securities are available, the opportunity would be shorter. The company behind the NYSE Intercontinental Exchange (ICE) has also concluded plans to offer a bitcoin ETF.
Earlier this month retail brokerage TD Ameritrade (AMTD) announced that it would make it easy for their clients to trade Cboe’s Bitcoin futures, with rivals E-Trade Financial (ETFC) announcing the same move days later.
This was followed by Interactive Brokers (IBKR) stating that their customers would be able to make some bets against those futures.
Indications last week suggested that short-sellers would likely come in and alter the bitcoin market. Bloomberg reported back then that the price of bitcoin futures on CBOE is expected to be 13% higher than the price of bitcoin itself, came closer to the price of bitcoin.
At the moment, not everyone is convinced that bitcoin futures will slow down the bitcoin markets. Lex Sokolin, global director of fintech strategy at Autonomous Research, in his email stated that:
“While the futures markets help to bring traditional financial institutions into space, they do encourage speculation rather than owning the underlying asset and are unlikely to dampen volatility.”
He further added that a bitcoin ETF or mutual fund would be more helpful when it comes to easing volatility.
Most short sellers at the moment are betting against bitcoin. Even though short selling is expected, it isn’t expected to happen in large numbers.
Dusaniwsky said “Number 1, short-sellers aren’t gluttons for punishment. With Bitcoin going up $1,000 a day some days, I don’t see these guys jumping into the short side, just doing outright short positions, on a whim.”
Institutional investors to focus on bitcoin (BTC).
Institutional investors are beginning to turn their attention to bitcoin. Goldman Sachs at the moment is setting up its cryptocurrencies trading division with the hope that it would be fully functional by June.
This move would make Goldman the premier Wall Street’s top trading firms to enter the crypto trading world. Rivals such as Citigroup (C) and Bank of America (BAC) are not rushing to enter the fray. The banks are of the view that bitcoin futures are at the moment too new and too small, with too little regulatory underpinning, thus making it hard for them to enter into it now.
Bitcoin which is volatile isn’t something that is favorable for banks’ wealth management divisions. It is understandable that banks are calculating potential risks on bitcoin-tied assets after the loss they suffered in the 2008 financial crisis.
Clyde Tinnen, a corporate finance partner at the law firm Withers Bergman, that gives clients legal advice on crypto markets stated that “I wouldn’t expect to see JPMorgan (JPM) involved anytime soon.”
That hasn’t stopped hedge funds from entering the fray. Two hedge funds Fortress Investment Group and Horizon Kinetics have purchased Bitcoin recently. Other companies such as Quantbot Technologies and Steven Cohen’s Cubist Systematic Strategies have held discussions regarding profit to be made from cryptocurrencies.
Cryptocurrencies Vs. their hype
The SEC has started to take note of the progress of bitcoin and other cryptocurrencies as their prices soar higher. The financial agency earlier this month halted two ICOs after they were considered as suspicious or in violation of securities laws.
The agency has also advised investors to avoid ICO, including those that celebrities throw their support behind.
In November, SEC stated that:
“Any celebrity or other individuals who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion. Those celebrity endorsers often do not have sufficient expertise to ensure … compliance with federal securities laws.”
But as bitcoin exchange continues to be strained due to more interest and money, developers are currently at an impasse regarding how to speed up the transactions through the network, an issue that would likely resurface next year.
This dispute has created the two “fork” currencies we have now; Bitcoin Cash, in August, and Bitcoin Gold, in October. Bitcoin, bitcoin cash, and bitcoin gold all use different algorithms and equipment and have different sizes of the blocks of code that store transaction information.
With the debate still ongoing, investors are most likely to turn their attention to some lower altcoins like Ripple, Ethereum, Litecoin, and others.
Analysts at JPMorgan in their research note for December stated that “Some of them could even gain an advantage in the future by offering better compliance with regulatory requirements.”
The bubble that will lead to the end.
As more investors and traders enter the bitcoin world, financial experts across the world continue to state their concern.
The latest warning came from Fed Chair Janet Yellen who stated that at the moment, the landscape of bitcoin is still small, adding that it was “not a stable store of value” and “highly speculative.” The global chief economist at UBS described bitcoin as the “bubble to end all bubbles”.
Tinnen further added that “Most of the investors that I talk to, they look at Bitcoin truly as a commodity. I have to say that they are very enthusiastic, and sometimes that enthusiasm means that they are not always taking as clear-eyed a view as they should to hedge it.”
Dusaniwsky argued that investors and traders of bitcoin aren’t the typical ones you see on the stock market. This implies that they aren’t familiar with investment vehicles and technicals. He stated that “You’ve got a lot of sheep that are long Bitcoin, and the wolves might be starting to get into the market.”