Corporate giants join bitcoin merry-go-round
The digital currency's swings are now being driven by companies as much as individuals, and its volatility is confirming the I-told-you-so mentality of sceptics.
Michael Cogley and Matthew Field
Jan 6, 2021 – 12.01am
To most people it remains an enigma, a highly volatile investment class that is still difficult to understand, even for hard-nosed investors 12 years after its creation.
A few early buyers of bitcoin have become multimillionaires, of course, but many others have been left scratching their heads over what all the fuss is about.
Bitcoin's soaring values have intrigued many currency market observers. Bloomberg
Either way, as bitcoin powered to a record of more than $US34,000 last weekend, enthusiasts claimed it offered evidence of cryptocurrencies going mainstream.
The rally, they said, was being driven increasingly by purchases made by corporates and investment managers, as well as daredevil private investors with a strong stomach.
That glee was short-lived, however. On Monday bitcoin plunged 17 per cent, wiping almost $US100 billion ($130 billion) from its total market value, prompting a flurry of fresh warnings about the risks and fears of an impending regulatory crackdown.
"Almost nobody will be able to cash out without massive losses," according to cryptocurrency sceptic David Gerard, author of Attack of the 50 Foot Blockchain, calling the run "a completely fake bitcoin bubble".
He adds: "This is a pool full of sharks. You can totally make money in crypto, but beware."
Admittedly, the latest losses have done little to dent bitcoin's broader rally over the past 12 months, with the coin rising around 280 per cent in 2020. Cryptocurrencies are digital coins that are traded and recorded using blockchain technology, a digital ledger of all past transactions.
Despite its origins at the fringes of computer science and finance, many believe bitcoin represents a credible alternative to gold to hedge against currencies, including the dollar.
Taking out any substantial quantity of coins can cause a flash crash. The bitcoin market is very thin and manipulated.
— James Dice, data analyst, Crypto Parrot
The latest run on bitcoin, the largest cryptocurrency with a market cap of around $US550 billion, has echoes of the infamous 2017 rally when the value of a coin jumped from $US900 to just under $US20,000 within a year.
After reaching $US19,783 – fed by thousands of speculators and interest from celebrities and influencers – the bubble burst and bitcoin collapsed to a low of $US3212 a year later. This time around, however, the profile of the average bitcoin investor has changed. Increasingly, it is companies more than individuals that are fuelling the rally.
One example is US software company Microstrategy. Run by entrepreneur Michael Saylor, Microstrategy says it has acquired as much as $US2.5 billion worth of bitcoin during the latest run on the currency, with many of its purchases around the $US20,000 mark.
Square, the payments company founded by Jack Dorsey, bought $US50 million of bitcoin late last year, while insurance company Mass Mutual invested $US100 million in the cryptocurrency in December. Ruffer, a UK fund, also acquired £550 million ($972 million) in bitcoin shortly before the new year.
"The corporate inflows have been very significant," says Jason Deane, of Quantum Economics.
"We are seeing a spiral of ever-increasing demand on an asset that has an ever dwindling supply – a sort of institutional fear of missing out."
Not everyone is convinced, however, that buying cryptocurrency assets is any safer or more sensible than it was a few years ago. Analysts at Citi issued a sell rating on Microstrategy shares after its bitcoin buying spree. There have also been high-profile corporate misses when it comes to bitcoin.
Masayoshi Son, the chief executive of Japan's SoftBank, previously made a $US130 million bitcoin investment when the digital coin was near its 2017 peak. When the coin crumbled, the investment was almost totally written off.
Cryptocurrencies remain largely unregulated, and a handful of anonymous trades can cause the market to sink or soar.
One sale of 150 bitcoin late on Saturday night, worth around $US4.5 million, caused a market wobble and wiped $US3000 off its value. Around the world, regulators are sharpening their pencils amid fears that the industry could pose a growing risk to financial stability.
The UK's Financial Conduct Authority warns "cryptoassets are considered very high-risk, speculative investments" and that buyers should be "prepared to lose all your money".
However, new rules are being introduced to combat money-laundering and illegal financing.
Firms that trade in the UK could be forced to stop as soon as January 10 if they fail to comply with the new rules, according to the FCA.
Meanwhile, from this week, companies trading cryptocurrency derivatives, such as options or futures, will be banned from selling to non-professional investors, saving them around £53 million a year, according to the regulator.
Regulators in the US also now have a keen eye on digital coin schemes. In December, the Securities and Exchange Commission declared it would sue Ripple, the company that created XRP, the world's third-largest cryptocurrency. The SEC lawsuit alleges Ripple had sold more than 14.6 billion XRP as unregistered securities over the past seven years, accruing $US1.38 billion in exchange.
In an interview with CNBC, chief executive Brad Garlinghouse said the SEC's claims were incorrect and that XRP should be viewed as a currency instead of a security.
Despite the proposed crackdowns, there remain considerable differences over how cryptocurrencies are treated across jurisdictions.
Nonetheless, digital coin trading has become increasingly popular as new consumers are introduced to the coins, especially as consumer-facing apps such as Revolut and PayPal offer the option to buy bitcoin.
Downloads have also soared at pure-play cryptocurrency apps. Coinbase was downloaded 875,000 times in November, up 61 per cent, according to figures from SensorTower.
Over the past 30 days, bitcoin's average trading volume stood at $US39.1 billion, more than the volumes at Apple, Microsoft, Amazon, Facebook and Alphabet combined, which recorded $US37.7 billion, according to figures from trading simulator Crypto Parrot.
"Bitcoin's trading volume has taken off," says James Dice, a data analyst at Crypto Parrot.
Mr Grider acknowledges there are downside risks. "Prices have had a significant run and profit taking may slow or reverse the rally."
Bitcoin to reach $US40,000: Fundstrat's new target
Bitcoin has surged past $US30,000 as more mainstream investors consider digital currencies.
How central banks boosted bitcoin
Though many believe there is money to be made at a retail level, some warn buyers to beware of being bitten.
"Taking out any substantial quantity of coins can cause a flash crash, as we saw on Saturday and the price crash on Monday from $US34,000 to $US27,600," says Gerard. "The bitcoin market is very thin and manipulated."
The Telegraph London
35 k looking for a short entry??37k ish??
Bitcoin investing makes sense as part of an investment portfolio in this current economic environment with a weak dollar, former U.S. Federal Reserve governor Kevin Warsh said during a Squawk CNBC interview.
Warsh said that part of the current large inflow of funds into bitcoin (BTC, +6.74%) has come from gold. "I guess if you are under 40 bitcoin is your new gold," the former Fed governor said.
“I think that bitcoin does make sense as part of a portfolio in this environment where you have the most fundamental shift in monetary policy since Paul Volcker ... I’m not surprised bitcoin is doing what it is doing,” said Warsh.
Intrinsic value based on belief.....its a hollow world we live in.
If it ends for what ever reason, ugly it will be.
38500 was 19k at xmas and 600 in 2016
he number of addresses holding over 1,000 bitcoin (worth of approximately $37.5 million at the current price) is now at 2,334, a new all-time high, after the number dropped at the end of December by 3.7% to 2,221. This is an indication “whales” (large bitcoin holders) have been bullishly accumulating more bitcoin and driving the price higher.
The 2,334 addresses each holding more than 1,000 bitcoin represents a gain of more than 30% compared with the end of 2017, the height of the previous crypto bull market, according to on-chain data site Glassnode. The metric has been on the rise since mid-October 2020, but suffered a temporary 4% drop between Dec. 18 and Dec. 26.
The number of addresses holding more than 1,000 bitcoin.
“The dip and renewed increase at the end of December shows relatively little interest in profit taking on the part of these large holders, even though almost all holdings are currently in profit,” according to CoinDesk Research’s quarterly review report published on Jan. 7.
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Data from BitInfoCharts also shows there are 6,633 addresses holding bitcoin worth more than $10,000,000 and, according to crypto exchange Kraken’s market recap and outlook report for December 2020, bitcoin addresses with more than 100 bitcoin accumulated an additional 47,500 bitcoin (currently worth $1.8 billion) throughout December because of the price rally.
The so-called “Bitcoin Rich List” reflects rising institutional involvement in the bitcoin market since the beginning of 2020. Another sign of that is the fast-growing volumes and open interest on the Chicago Mercantile Exchange (CME), an institution-focused derivatives exchange.
At the press time, bitcoin’s price was trading at $38,290, down only moments after breaking the $40,000 landmark for the first time ever. Only the day before, it crossed the $36,000 mark for the first time. The total value of the whole crypto market also surpassed the $1 trillion landmark on Wednesday.
Read More: Bitcoin Tops $40K for First Time, Has Doubled in Less Than a Month
“While the 2017 bitcoin rally was largely driven by retail frenzy, the 2020 rally was driven mainly by institutions,” according to CoinDesk Research’s report . “The accelerating rhythm of large institutional investors publicly talking about an investing in bitcoin as a portfolio asset has not only lent validation of bitcoin’s role in portfolios; it has also attracted the attention of other investors. This self-reinforcing loop is likely to continue into 2021, especially given the mounting uncertainty around currencies and inflation.”
A chart from Arcane Research summarizes the institution's money bitcoin rush in the last three months of 2020.(Arcane Research)
Bitcoin’s market capitalization currently stands at ninth on asset tracking website Assetdash’s asset list, only lower than that of electric vehicle maker Tesla. That company’s CEO, Elon Musk, replaced Amazon’s Jeff Bezos earlier Thursday as the richest person in the world after Tesla’s share price soared.
European users of eToro are claiming they were given the bum’s rush regarding leveraged crypto positions, which have been abruptly closed in the face of what the trading platform called “extreme market volatility.”
Retail investors in the U.K. and U.S. are barred from buying into crypto derivatives, including financial contracts that allow margin trading where investors need only put up a small amount of the contract’s notional payoff.
Customers of eToro in European countries that allow such trading in contracts for differences (CFDs), were told via email on the evening of Friday, Jan. 8: “If you do not increase the margin to 100%, then the position will be closed at 21:00 GMT today.”
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This came with an explainer, saying clients with available balance could keep the positions open by adding funds, while those that don’t have available balance had the option to close other positions in order to free up funds.
However, disgruntled traders have taken to Twitter stating that four hours later eToro closed all leveraged positions on cryptocurrencies, including those that users had attempted to keep open.
“eToro violated the contracts it had agreed with its clients,” said Slavko Vesenjak, an attorney in Slovenia who represents several eToro clients from across Europe. “A four-hour notice before closing all leveraged crypto positions made people wake up in their different time zones, seeing their positions closed.”
Amy Butler, global head of PR for eToro, said the vast majority of eToro’s customers were unaffected by the changes.
“We understand that there are several dozen frustrated clients and we are working hard to resolve their frustrations,” Butler said.
Also last week, eToro, which is said to be planning a $5 billion public listing, raised its required deposit level from $200 to $1,000 in order to better manage overwhelming demand from hopeful crypto traders attracted by rocketing prices.
See also: Deluge of Would-Be Bitcoin Traders Prompts eToro to Put Out the Unwelcome Mat
The temporary decision to increase deposit minimums is to manage the surge in demand, said Butler. As far as the removal of leveraged crypto in Europe, this decision was taken “from an internal risk management perspective,” said Butler, adding that it was not related to any potential IPO plans.
“The eToro clients will get their funds. If eToro does not refund them, the Cyprus state will,” said Jurij Toplak, a law professor at Alma Mater Europaea in Slovenia and an adjunct at New York’s Fordham Law.
Toplak said aggrieved eToro customers he’s representing will be approaching the Cyprus Securities and Exchange Commission in a bid to have eToro’s license revoked.
“I guess cryptocurrencies were just going up and eToro discovered they were not able to pay out that much amount of money to the customers,” Toplak said in an interview. “And then they just canceled the contracts.”