the Tweedle Whopper Crypto Review

Coin Watch

Iota

Iota, one of five coins I recommended last week (together with Bitcoin, Litecoin, Dash, and Monero), has had a banner week, rising from about $1.35 to $4.30 at the time of this writing.  The rally seems to have been driven by an announcement of some partnership with Microsoft.

Iota is coin with super fast transactions and no fees.  It is designed to be a medium of exchange for machines.  The IOT in “Iota” stands for Internet of Things.  It also doesn’t have a blockchain.  It’s the only coin I’ve heard of that maintains integrity by having senders verify previous transactions as a condition of sending.  More about IOTA here.

Amazingly, four of the five coins I recommended set records.  I think a lot of it has been anticipation of big league Futures Trading.


Futures Trading

Crypto Prices are set by dozens of exchanges located all around the world.  A few of them have even offered the option of trading futures.

So, futures markets aren’t new, but this will likely still be the news of the month because Futures Trading is opening on not one but two enormous, regulated, reputable exchanges, the CME Group (Dec 19th), and the CBOE (today Dec 10th, 6pm Chicago time!).

This coindesk article offers a good analysis of possibilities, and this primer of futures trading:

First, a brief overview on how futures work: Let’s say that I think that the price of XYZ which is currently trading at $50, will go up to $100 in two months.

Someone offers me the chance to commit to paying $80 for XYZ in two months’ time. I accept, which means that I’ve just “bought” a futures contract. If I’m right, I’ll be paying $80 for something that’s worth $100. If I’m wrong, and the price is lower, then I’ll be paying more than it’s worth in the market, and I will not be happy.

Alternatively, if I think that XYZ is going to go down in price, I can “sell” a futures contract: I commit to delivering an XYZ in two months’ time for a set price, say $80. When the contract is up, I buy an XYZ at the market price, and deliver it to the contract holder in return for the promised amount.

If I’m right and the market price is lower than $80, I’ve made a profit.

Many people think the arrival of professional money will send the price soaring.  This week’s rally from $11k to $15.5k may have been the anticipation of professional money hitting crypto currencies.

But can Futures Trading kill Bitcoin?  Enough central bankers have commented on crypto currencies that it seems they finally realize it threatens the existing financial order.

The gold price is settled by the paper market, but it’s hard to imagine Bitcoin bowing to the same . . . . “fraud”(?).  Crypto users are savvy and skeptical.  The bigger threat comes from the paper market creating incentive for bit Bitcoin holders to cash in on futures by panicking the market.

As the Coin Desk article points out that the futures market will be a paper market, and a bigger market than Bitcoin.

Both the CME and the CBOE futures settle in cash, not in actual bitcoin. Just imagine the legal and logistical hassle if two reputable and regulated exchanges had to set up custodial wallets, with all the security that would entail.

So, it’s likely that the bitcoin futures market will end up being even larger than the actual bitcoin market.

However this is a very expensive gamble.  As Nassim Taleb tweeted:

Bitcoin: my answer to the repeated questions. No, there is NO way to properly short the bitcoin “bubble”. Any strategy that doesn’t entail options is nonergodic (subjected to blowup). Just as one couldn’t rule out 5K, then 10K, one can’t rule out 100K. Gabish?

The encounter with big institutional money will likely cause turbulence, but over the long haul, Bitcoin will remain the “Honey Badger of money“.

It’s not a stationary target.  Bitcoin evolves.  And even if there was a way to kill it with a paper market, there are over a thousand other crypto currencies.

Over the long term, Bitcoin’s price will still be dominated by technology adoption.  Over the next 3-5 years, I expect the number of users to rise from today’s 30 million to a billion.

It’s a technology adoption curve, and I think we are here:

James Rickards, whom I debated about Bitcoin vs Gold in 2013 (when the price had just rallied and settled around $700) remains one of Bitcoin’s harshest critics.  He has doubled, tripled, and 20xed down on his anti-bitcoin position.  With recent tweets like this:

“. . . . Bitcoin’s a fraud, a ponzi, and a bubble at the same time. Madoff was only two out of three.”

and this:

I’ve never been short bitcoin. I’ve never been long bitcoin. I have no position. The Chicago boys will take care of the short side soon enough.

 

As Peter Thiels advises: invest when you think you’re right about something that most of the world is wrong about.


What do you think of the visuals on my new Twitter account?

 


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