Listen, Bitcoin entered a bear market yesterday.
I know the crypto crowd won’t like that characterization and they’ll trot out the usual list of excuses for why you can’t think about Bitcoin in those terms, but it is what it is.
Technically, bitcoin entered a bear market yesterday. JUST SAYIN! pic.twitter.com/VvHcIA7VMW
— Michael P. Regan (@Reganonymous) November 30, 2017
As you’re aware, it was a truly manic day for everyone’s favorite “money” that isn’t actually “money”.
And the news flow didn’t slow down even after the rollercoaster ride from an intraday peak above $11,400 to the low of ~$8,600. On Wednesday evening, we learned that Coinbase will now be forced by the IRS to turn over information on more than 14,000 users who the government suspects have failed to properly report their trading profits.
Well on Thursday, the obsession with Bitcoin has continued, with the Wall Street Journal running a featured story that includes this rather poignant visual:
As scary as that chart is, the color that accompanies it is even more unnerving. Consider this anecdote from the Journal’s piece:
Rita Scott’s grandson convinced her in mid-November to get in on the latest investing sensation and buy bitcoin. “I thought it was a big coin,” the 70-year-old said. “I didn’t even know what it was, a piece of coin? Why would I invest in a piece of coin?”
With a few hundred dollars of her money invested in it, Ms. Scott quickly caught on and started checking the price several times a day, even while playing poker at a casino in her hometown of Las Vegas.
Late Monday, as the price approached $10,000 for the first time, her grandson, Anthony Santa, sold the bitcoin that he and his grandmother held, netting what he said was a gain of around 45% over just a few weeks.
That was prescient. While bitcoin later topped the $11,000 mark—reaching its highest level in its nine-year history—the virtual currency tumbled more than $2,000 later Wednesday as several exchanges struggled to handle surging volume. It rallied again later to trade at $10,214.
“Believe me, I didn’t have this much fun with T. Rowe Price,” said Ms. Scott, a retired secretary and taxi driver, referring to her mutual-fund investments.
There you go. So that is literally someone’s grandmother – who is apparently predisposed to gambling anyway – buying Bitcoin through her grandson and actually checking the price while she sits at the Vegas poker tables.
But while the retired taxi driver/secretary grandmothers of the world are thoroughly enjoying trading Bitcoin while pushing their chips in Vegas, the pros are still skeptical.
“Financial regulators aren’t adequately focused on Bitcoin and other scams and someone is going to get hurt,” SocGen Chairman Lorenzo Bini Smaghi told Bloomberg on Thursday, adding that “when the authorities see that behind this Bitcoin scam there are some funds that are maybe going to finance terrorism, then maybe they will wake up.”
And none other than Robert Shiller weighed in, saying that eventually, Bitcoin will have its “1929” moment. To wit, overheard at a Fintech conference in Vilnius:
I don’t know where it’s going to stop. It’s going to go way up, like the stock market in the 1920s. We will reach a 1929 eventually. But then it won’t go to zero, it just will come down. It’s not a very helpful forecast, but it’s based on a reality that markets are driven by stories.
Then there was the the ECB’s Yves Mersch, who said this today:
I cannot call the assets currencies and sooner or later, I am afraid, there will be a price to be paid for having excessive speculation.
And on, and on.
Meanwhile, Goldman just attended the “Consensus: Invest conference” which, in short, is this:
The industry’s inaugural conference dedicated to institutional investment in cryptocurrencies with over 2,500 attendees, in New York. The event consisted of panel discussions, fireside chats, and trade exhibits from a variety of industry participants including cryptocurrency hedge funds, traditional institutional investors, market technology vendors, and technologists.
Here are some of the bank’s takeaways in terms of “challenges” to the industry:
- Futures, hedging, and liquidity: One of the most frequently cited impediments to institutional investment in cryptocurrencies is the lack of available futures and hedging instruments that would allow for broader market-making activity, ultimately driving greater market liquidity. CME Group outlined its Bitcoin futures listing, which it plans to offer as one of the first solutions available to the market in December (subject to regulatory approval). CME has also introduced its Bitcoin Reference Rate index, which it believes could address some of the pricing challenges faced by the market today. However, there was broad consensus among panelists that it could take several iterations before available solutions satisfy the requirements of institutional investors.
- Clearing and settlement: We have previously written extensively about the early-stage application of blockchain technology to the post-trade environment across traditional asset classes. Ironically, blockchain’s application to the clearing and settlement of cryptocurrency assets is far less mature today, with relatively few solutions available in the market.
- Custody: Given the importance of “possession” for cryptocurrencies (in other words, the bearer of private cryptographic keys is considered the “owner” of the assets), panelists expect custodians to play a critical role in the development of the institutional cryptocurrency market. In the long run, custody solutions may rely on diverse protocols involving hot/warm/cold storage, physical security mechanisms (secure environments in specific legal jurisdictions), and technical solutions combining hardware and software. In any event, there was consensus that large institutional investors will eventually expect to see capabilities for custody solutions that are not being offered by custody vendors today.
- Regulation: The regulatory obstacles to large-scale institutional investment in cryptocurrencies are numerous, and include significant differences by geography (for example, US, Japan, Switzerland, China), jurisdiction (for example, among US states), and regulator (for example in the US between SEC, OCC, and other regulators). Although most panelists noted a constructive attitude among U.S. regulators thus far, many believe that it may be some time before there is sufficient clarity to allow participation by large institutional investors.
So yeah, “just” all of that.
Sounds like the perfect “asset” class for your retired grandmother – or maybe for the legions of day trading housewives who lost it all in China during the 2015 equity bust…