Listen, there are people talking about Bitcoin on Monday. Have you noticed that?
See, as it turns out, everyone’s favorite “currency” that definitely isn’t a currency went mainstream overnight when the Cboe took the plunge into the great unknown with a possibly ill-advised foray into Bitcoin futures.
Of course you know that. You’ve read all about it and we’ve written far more about Bitcoin over the last 24 hours than we would otherwise like to (see here and here for our coverage of the Cboe launch). But as Bloomberg’s Cameron Crise noted this morning, “it’s hard to escape regular updates on the fortunes of the digital tulip — and believe me, I’ve tried!” Amen.
On Monday, the crypto community is celebrating. Bitcoin has officially landed on Wall Street and so far, the world hasn’t ended. We seem to have settled into a range with the futures trading at a relatively stable premium to spot.
You’ve got to think that will be arbed away eventually. I guess. Or maybe not. Maybe that’s a reflection of the demand for an instrument that allows you to participate without taking on the risk of owning actual make-believe space tokens. Who knows.
As Barclays dryly points out, “one of the hallmarks of a good derivative is significant volatility in the underlying asset class—which Bitcoin has in spades.”
Yes, yes it sure does.
“Bitcoin is 15-25x as volatile as the S&P 500, 20x-40x as volatile as gold, and even 5x-11x as volatile as oil as measured by the coefficient of variation,” the bank goes on to write, in a note dated late last week. Here’s the chart:
On that point, the above-mentioned Cameron Crise reminds you that while “there is some evidence that [volatility] tends to rise in the run-up to a peak, it’s far from conclusive” if you look back at the history of recent speculative bubbles.
Meanwhile, Nobel Prize-winning economist Robert Shiller was out again today talking about Bitcoin. A couple of weeks ago, at a Fintech conference in Vilnius, Shiller said the following about the bubble:
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.
Well on Monday, he has the following simple advice:
Don’t put your life savings in it, OK?
Ok. No worries on our end, but one certainly suspects there are folks out there who are betting the house on this – and quite literally.
Shiller went on to describe this in the same terms as a couple of other commentators have employed this month, characterizing it as a game. “Playing a little bit around with it is like a game,” he said, adding that “that’s part of what drives financial markets – it’s the pleasure.”
Yes, “it’s the pleasure.” And in all likelihood, that will eventually morph into “the pain”. And on that note, we’ll leave you with what one trader we spoke with over the weekend said when we asked about the “whales” who own a disproportionate share of the market:
They just want to get it hyped as much as they can before they begin the distribution.
You get it as high as you possibly can, and then sell it on the way down. They are expecting it to collapse.