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Bitcoin Forges New Highs as Prices Quadruple This Year

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Bitcoin’s relentless surge continued over the weekend, with prices crossing $4,000.00 for the first time since the cryptocurrency was introduced back in 2009.

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BTC/USD: On to a New Milestone

The BTC/USD exchange rate reached a high of $4,190 for a new all-time record, according to Bitstamp.

After a brief pause, Bitcoin’s breathtaking rally resumed in mid-July. Prices have since doubled in value and are up nearly 300% on year.

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The new record follows multiple all-time highs in the wake of the Aug. 1 hard fork – an event that was far less volatile than analysts had feared. What’s more, the transition to the new SegWit protocol, which was officially locked in last week, has been smooth.

Since fork day, the BTC/USD has eluded volatility and retained market share from rival Bitcoin Cash (BCH). The newly minted BCH has witnessed volatile swings since coming into existence. It was last up 3.7% at $323.00.

Bitcoin Well Ahead of the Pack

In terms of overall market value, BTC and BCH are ranked No. 1 and 4, respectively. Bitcoin’s market cap crossed $66 billion over the weekend. Bitcoin Cash was worth just over $5.3 billion. Eight other cryptocurrencies are worth at least $1 billion. The total value of all cryptocurrencies is approaching $140 billion, according to CoinMarketCap.

Though fundamental and geopolitical forces are expected to keep bitcoin prices elevated, the cryptocurrency is already “ahead of the pack” in terms of longer-term momentum. This suggests altcoins such as Ethereum, Litecoin and Dash may be better better options from a purely risk/reward perspective.

Japanese Buying Frenzy Drives Gains

Japanese traders continue to drive the bitcoin rally, with nearly 46% of global trade volume denominated in the yen currency. That’s up from roughly one-third on Friday. U.S.-dollar bitcoin trade accounts for roughly 25% of the market.

As of April 1, Japan has accepted bitcoin as a legal payment method. It is estimated that hundreds of thousands of Japanese stores will begin accepting the cryptocurrency as soon as this year.

ICO Frenzy Boosts Confidence in Cryptocurrency Market

Initial Coin Offerings (ICOs) are all the rage these days. Just last week, it was announced that the amount raised via ICOs in June and July topped the amount raised via early-stage venture capital.

Filecoin, a highly anticipated cryptocurrency, raised a staggering $180 million in a few hours.

Analysts say that the hype surrounding ICOs reflects growing confidence in the future of cryptocurrencies. Even on Wall Street, there is a sense of urgency to “get to the bottom” of cryptocurrency-as-an-asset. Hedge funds, wealth managers and institutional investors are devoting greater time and resources to understanding this new asset class.

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Technical Analysis: Bitcoin Grinds Higher as Records Tumble in Altcoins

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The historical surge in the segment, which is the second such move this year, continued today, with another round of break-outs in some of the major altcoins and tepid gains for BTC investors. Ethereum, Ripple, Dash, and first and foremost Litecoin was leading the charge, with the recent star LTC topping $300, just after a day of hitting the $200 mark.

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Litecoin defied all odds after reaching extremely overbought readings, and the coin rode the speculative wave, turning exponential, not unlike IOTA and Bitcoin previously. With the coin being stretched in an unprecedented way on all time-frames, investors could even consider selling their core positions at the current levels, as a deep correction is almost granted in the coming period. The first meaningful support level is found at $125, and a re-test of the $100 level is probable during the next major correction.

LTC/USD, 4-Hour Chart Analysis

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Ripple finally ended a long period of relative weakness today, and the only major on a long-term by signal jumped over primary resistance at $0.26 and crossed the $0.30-$0.32 too in the euphoric sentiment. As the coin is not long-term overbought following the 6-month long consolidation, the buy signal in XRP remains intact, with the only major resistance level being found at the all-time high near $0.425.

XRPUSDT/USD, 4-Hour Chart Analysis

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Will CME and CBOE Change the Course of Bitcoin Trading?

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bitcoin trading

There has been a lot of media buzz in the investment world around the introduction of bitcoin futures trading. Two of Chicago’s major firms, namely Chicago Mercantile Exchange (CME Group Inc) and Chicago Board Options Exchange (Cboe), have announced plans for bitcoin futures trading on their respective platforms, with the latter already launching its contract on Sunday. While the main fear regarding future bitcoin trading at this point is price manipulation, investors are skeptical about how the whole situation will pan out.

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Fear of Price Manipulation

As mentioned earlier, price manipulation is a big threat to the profitability of bitcoin futures trading. According to the Commodity Futures Trading Commission (CFTC), they will only play the role of a derivatives regulator and not actually manipulate the underlying cash contract. Exchanges will continue to play a major part in handling the underlying cash contract, keeping it safe from the dangers of manipulation. Since the underlying cash market of bitcoin is not regulated, the CFTC has also warned investors about this fact.

Fig 1

Figure 1: Hypothesised Daily Trend of Bitcoin Values

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The Role of CBOE and CME in Bitcoins Trading

The CBOE and CME both have been competing to become the market of choice in the United States. CBOE has already rolled out its bitcoin futures contracts, which they call XBT futures, with a limited free trading offer for the rest of the month for its customers. The rival CME group, on the other hand, is scheduled to release their version of hitcoin futures Dec. 18.

These announcements played a pivotal role last week, influencing traders and institutional investors to perform bitcoin futures trading in a more recognized and secure market. The price of a single unit of bitcoin was also affected, jumping from a formidable $10,000 to a new record high of close to $20,000. The main reason for this can be attributed to investors who understand that the exchanges will bring liquidity and price stability on an otherwise unstable and volatile cryptocurrency.

Here are just some of the ways bitcoin futures trading will change the course of bitcoin trading significantly.

  1. Risk: There’s no denying that bitcoin’s past has been marred by volatile spikes and crashes.  Some of these price changes have occurred over a very short period, enabling traders to recover their positions within a short period of time.  However, with the introduction of CME and CBOE futures trading, the United States markets might prolong the decline through the “domino” effect of selling futures trading.  Moreover, a snowballing effect through selling can affect the entire market.  The Futures Industry Association has already stressed on the bitcoin volatility issue and has requested for some form of “guarantee fund” to clear settlements to the community.
  2. Unstable Exchanges: Besides the CME and CBOE, the majority of bitcoin exchanges in the world come from unregulated markets without proper overseeing or supervision. This is problematic for traders since such exchanges form a reference point in price for the asset. Frequent outages in exchanges are a real threat to bitcoin’s price, often resulting in wild price swings. For instance, Coinbase and IG group, two famous bitcoin exchanges stopped trading on a Friday. As a result, bitcoin’s price shot up and subsequently crashed within 20 minutes.
  3. Increased Volatility: Futures markets work very differently than commodity markets, which draw in a lot of traders as well as speculators. When it comes to bitcoin, the recent Whipsaw in price is unfavorable for the introduction of new traders in the market at this point.
    The increase in speculation surrounding bitcoin price will result in even more price volatility if the number of traders is increased. Many people are of the opinion that the recent parabolic price curves will attract traders with added incentives to play with its price.
  4. Trading Profits: The aspect of trading profits becomes more complicated with the CME’s contract rules. CME’s contracts have price limits which are 20% above or below bitcoin’s reference price. This is done in order to curb unpredictability and regulate volatility.  The sole purpose of these price limits is to minimize the adverse impact of the cryptocurrrency’s wild price swings on futures markets.
    Economists, however, have stated that this might result in an opposite effect, where the trader’s profits are compromised significantly. This is due to the fact that the reference price of the whole bitcoin market is based on exchanges, which are largely operational in unregulated markets.  Such unregulated markets see frequent price swings in excess of 20%. This directly results in futures traders who will no longer benefit from the spike of a greater than 20% increase in bitcoin prices, at the aforementioned exchanges.

Side Effects of Bitcoin Futures Trading on the Market

The bitcoin market is poised to receive institutional money as a result of futures trading.  It will also open up various avenues of asset investment, as many funds that are currently prohibited from dealing in bitcoin-like alternative assets will also be able to participate in the trading exercise.
This, however, can be a major problem, as investors won’t actually be pouring their funds into the bitcoin market, but rather acquire synthetic derivates instead. No extra money goes into bitcoin itself, as these futures do not require ownership of actually bitcoins.

Final Word

The introduction of bitcoin futures trading in two major firms is definitely a blessing as well as a curse.  Both exchanges are seeking to exploit bitcoin’s popularity by attracting interest from Wall Street. Institutional investors have also been keen to trade the asset in a more recognized and regulated environment, which have also seen the increase in CME/CBOE shares by at least 9%. Normal traders are also required to pay higher than normal accounts to backstop their bitcoin trades and allow continued funding for their trade positions. However, it still boils down to the trader’s decision and his or her understanding of the movement of the bitcoin markets, which have in the past experienced significant and unpredictable volatility.

Featured image courtesy of Shutterstock. 

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Is Bitcoin Stealing Gold’s Luster?

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It may still be too early to gauge Wall Street’s attitude towards bitcoin but so far the sentiment we’re seeing is extreme caution.

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Yesterday, the CBOE’s new contracts saw just 411 coins traded, which comes out to about $7.3 Million, or about 0.062% of the total amount traded on the world’s largest exchange sites.

The SEC financial regulator in the United States has now issued a warning on cryptotrading and especially on ICOs saying what most of us in the industry already know. If something looks like a scam and smells like a scam, it probably is one.

Furthermore, by calling something an ICO it does not change the underlying nature of the asset itself. If a company is offering a token that acts as an investment in the success of that company, it still falls under the jurisdiction of the same regulations as any other financial asset.

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We can expect them to continue to crack down on specific companies who have intentionally tricked investors in this space as they probably should have been doing right from the start.

In today’s update, I’d like to explore with you the relationship between the world’s newest financial asset and it’s oldest most established store of value. Please keep an open mind as I’d love to hear your opinion after you read it.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

Oil & Ice in London

Bitcoin Replacing Gold?

Some Data and a Question

Please note: All data, figures & graphs are valid as of December 12th. All trading carries risk. Only risk capital you can afford to lose.

Market Overview

Stocks in the United States climbed further yesterday nearing all-time record highs powered by advances in tech stocks and the energy sector.

The UK’s main North Sea pipeline has been shut down for repairs due to a hairline crack and will likely be out of commission for a couple weeks. There’s a yellow weather warning out in London telling residents to prepare for ice.

The combination of greater demand and less supply has sent the price of oil up in the UK but even the West Texas Instruments oil that is traded at eToro is seeing a significant surge toward the highs.

The price of oil has been rising steadily thanks to efforts from OPEC to reduce the global glut. Still uncertain, how US oil producers are going to react to all this.

Stock markets in Asia did not continue New York’s sentiment and the China50 index fell 1.8% today. The European markets are opening just now but looking rather flat.

In addition, we’re seeing a notable risk-on sentiment in the currency markets, with the safe haven’s (USD, JPY), and Euro) down and the risky currencies gaining in comparison.

What about Gold?

Normally, we would look to gold to understand investor attitude towards risk on any given day. After thousands of years of acting as a store of value and a solid place to keep your money in times of crisis, it has forged a sturdy relationship with other assets and served as the main barometer for risk sentiment.

Indeed, with the markets showing risk on today, we do in fact see gold taking a dive. However, what’s more interesting to investors at the moment is gold’s relationship with bitcoin.

An analyst on from ACG on CNBC yesterday made the claim the bitcoin was stealing some of gold’s market share, saying the the crypto-market is now standing at about 23% of the liquid “tradeable” gold in the market.

Seemingly in response, an analyst from Goldman Sachs was quoted in the Financial Times as saying that this is not happening and that the markets remain unconnected.

Let’s take a look at some charts

Over the last few weeks, we can spot a rather clear reverse-correlation between the two assets with the chart creating a rather large X as bitcoin surges and gold declined over the same period.

but the most interesting thing that I’m seeing is actually what’s happened in the last 20 hours or so. Here, take a look at this snapshot.

Of course, it’s a very small amount of data, but at least from 16:00 yesterday afternoon bitcoin and gold are trading in a lockstep mirror image.

Deeper in the data

In eToro, it’s no secret that we’re seeing a lot of new customers mainly thanks to the rise in populist finance surrounding the cryptocurrencies. I’d like to take this opportunity to welcome everybody, I hope you’re enjoying the platform so far. 🙂

After an extensive conversation on the above question with one of our senior officers in the trading department. It seems that what we’re seeing in eToro is actually a trickle-down effect.

Meaning, yes. We’re seeing volumes on bitcoin going through the roof but the volumes on gold are rising as well. Of course, this is only an initial finding and we’ll need to pour into the data a bit further later on, but it seems that the volumes that we’re seeing on gold so far this year have more than doubled what we saw last year.

In comparison, we are also seeing increases in the volumes of Oil and the Euro Vs the US Dollar but the increase on these assets is not as much as the increase that we saw in gold.

This indeed could be a remarkable find in behavioral economics. Similar to when a new Pizza Shop opens up just down the street from an established one. It would seem initially that they would now need to fight over market share but in fact, as the awareness grows so does the hunger for investments and in fact, both end up benefiting as a result.

As this is only my personal view from where I sit. I do believe that this question is more of an emotional one that should be put to the general public and not one to be answered by financial analysts such as myself who may be already stuck in a certain way of thinking.

If you have a moment, please reply on this post either by Email, or with a comment below (depending where you see it), or just tag me on social media with your thoughts and opinions.

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.
The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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