With digital currencies taking the financial world by storm, the banking industry is being revolutionized from the outside. And it’s about time. The global banking system, which relies on currencies whose value is partly determined by the people in power (and partly by the demand) and thus, spin the wheels of the capitalist machine, could possibly be turned inside out.
Cue cryptocurrencies. The premise is simple: They are not controlled by any particular country, which means supply depends on demand and the value depends on the movements within the blockchain. However, the programming gets far more complicated than that, as does their relationship with “regular” money and banking. It’s a love-hate relationship, or at least the banks love to hate them, seeing as the more transactions that are performed using crypto, the less power they have to maintain control of the financial capital in their country, and subsequently worldwide.
China was the first country to ban ICOs (initial coin offerings — the process to start a new currency). This shouldn’t really have come as much of a surprise from the country that has a bit of a history of trying to keep their population in check. When the news hit, it had a less than enthusiastic reaction from miners and investors alike. China says the move was to protect investors, which would make sense at a basic level because the Chinese stock market is less than 30 years old and investor protections need to be comprehensive enough for the ever-complicated ecosystem of alternative finance, which still needs time to develop. On the other hand, reports back in September revealed that China is hoping to eventually develop its own fintech sandbox, so their banning of ICOs could possibly be considered as a pre-emptive strike on the competition. Time will tell.
Other countries will also introduce some kind of regulation, but there’s nothing as extreme as China, yet. The USA doesn’t have an outright ban, but the strict regulations with the infamous IRS mean that you have to be an accredited investor to have the right to participate in ICOs. Malaysian officials have issued cautions and announced that there will be regulation to follow and they are not ruling out the possibility of banning cryptocurrencies completely. Most recently, South Korea has stated that strict controls are needed and there will be heavy penalties for offenders. Experts say that this is just paving the way for more control on cryptocurrencies in general. And it’s not just in Asia that governments are starting to play hardball: The banking capital of Europe, Switzerland, has introduced a code of conduct regarding ICOs and regulations for currency use.
Does this all come down to a country’s desire to regulate their own finances and wealth? Maybe. But it seems that they’re missing the point somewhat. The sheer beauty of digital currency is that they work independently of any government or central bank. And seeing as the cryptocurrency market is booming and is only set to continue, completely prohibiting ICOs in these countries is likely to be as effective as trying to ban gaming in the Bahamas, which now plays host to PokerStars' annual high-stakes championship tournament for poker.
As for bans in more countries, there are a couple of possibilities. Some countries will follow suit and introduce regulations on both ICOs and cryptocurrencies, making them lose what made them so appealing and successful in the first place. And others will allow investors to get in on the ground floor of this unregulated space for them to increase wealth in the hope that it benefits the country of the investor. Given the plans for economic growth in Southeast Asia, investors are sure to be plugging for this second option and subsequently leaving their competitors in the dust.
Of course, there will always be those looking for loopholes. After all, where there is a will, there is a way, and when the value of cryptocurrencies increases 400% in a six-month period, a will is easily found. It’s also possible that something as simple as a name change might suffice — premines are becoming an increasingly popular concept in the US at least — until regulations affect these as well, creating a cycle of innovations within the digital currency world.
You’re hearing more and more news about bitcoin, the blockchain and cyrptocurrencies, but the big question floating around is whether bitcoin is the new gold, or just a fad. Richard Tall, Partner and Head of Financial Services at DWF, here provides Finance Monthly with an insight into the answers.
Economic history has delivered many assets, which, for seemingly little reason, deliver huge surges in value. Dutch tulips, the South Sea bubble, railway shares and the dot com boom are all examples of these surges, most of them driven by what the objective observer operating with 20/20 vision would categorise, using modern parlance, as "FOMO".
And with the advent of Bitcoin and other cryptocurrencies, many have claimed that the next "FOMO" driven asset surge is already taking place.
Cryptocurrencies arise from the solving of a complex series of arithmetical equations. Mankind has been solving arithmetical equations from the dawn of time, but with the exception of the development of an industrial or commercial purpose, has any intrinsic value been attributed to the simple solution of arithmetical problems? The value of any asset is a matter of perception of a variety of factors; why is gold any more valuable than iron, other than it looks nicer and there is less of it? While gold has been around longer, is it inherently more valuable than bitcoin simply on the basis that it has been around for longer and mined from the ground rather than a machine?
Had one been around for the first gold market, would market conditions have fluctuated more or less than the bitcoin market? In 2017 alone, Bitcoin has seen a rise in value of 700%. Its banning, along with other cryptocurrencies, by one of the world's most significant financial regulators, and a slamming by the CEO of one of the world's largest investment banks, have caused its price to swing significantly too, having touched both $5,000 and $3,000 in the three weeks prior to this article being written. Did gold do that?
Much news was generated by the entrepreneur and Baroness Michelle Mone being linked to a disposal of units in a residential development, where payment would be accepted in bitcoin. Cutting-edge, but had Mone accepted bitcoin at $5,000 per bitcoin two weeks ago, she would be sitting on a loss. As with all of these things, it is possible for parties to agree to trade any asset for any other asset, in ancient times this was simply a barter system, but it still exists in many forms today. The first gold market would have been a barter market, the premise being that gold looks nicer than a sheep, albeit you cannot eat gold. The market would have arisen because a hungry person met a person who fancied a nice necklace. By definition, a number of factors, such as the supply of sheep and the acceptability of bling in the ancient world would have affected the barter price. Gold too (and no doubt sheep) would have had its naysayers.
So what is the future for cryptocurrencies? Or, should the real question be, what is the future for distributable ledger technology? The latter has implications for trade and payment systems which humankind is only beginning to fathom. What we have to come to terms with, is whether the value lies in the instrument which is created when a cryptocurrency is born, or if it lies in the service which it facilitates or delivers. By definition, the value has to be in the service facilitated or delivered, as without those, as has been pointed out by Jamie Dimon, all there is is a currency invented "out of thin air."
So where now for cryptocurrencies? This depends on whether they remain as tools of speculation or the means of delivery for a service. The latter will flatten values, with the value being inherent in the service or the entity controlling the service. The former will maintain the status quo, but with huge volatility being driven by the most unpredictable variable of all; sentiment.
In recent weeks the mainstream media has gone Bitcoin crazy, with articles and segments, raising the profile of cryptocurrencies generally and Bitcoin more specifically in the popular consciousness. This is in part because of recent price rises that briefly took the price to more than US$5,000
per BTC. The question is, is now a good time to buy?
Before embarking on an answer, it is worth outing myself. I have been a Bitcoin investor for almost two years, so I have had the chance to bank some of those 1,000% gains. As you might imagine, I’m a fan.
However, on 1st August, Bitcoin changed in nature and to my amateur investor eyes, it seems that the risk profile has altered dramatically as well.
After more than three years of discussion (read: hostile arguments) online about the way forward for Bitcoin, a change in the code was enacted on 1st August. This is called a hard fork – owing to the fact that the underlying blockchain was split into two. This created a new coin called Bitcoin Cash.
Those arguments, which were quite ugly in places, related to the size of each block in the chain. Being data files, smaller blocks can contain less data than larger blocks. To you and I, that means that less transactions can be processed in smaller blocks. If Bitcoin is to really grow and scale, the argument is that it needs to be capable of handling many more transactions per second than was the case. One side of the debate wanted bigger blocks and more transactions, whilst the other side wanted new software projects that occur “off chain” with the current block size to remain fixed.
The arguments pre-fork were that smaller blocks would make Bitcoin slow and transactions more expensive, while bigger blocks would make the system fast and transactions would be cheap. After a little over one month, the evidence seems to suggest that is likely to be what is actually happening, but it is really too soon to know for sure. Faced with two coins, one that enables transactions within minutes and costs a few cents and another that is many multiples more expensive and takes an unknown amount of time, perhaps more than an hour to complete a transaction, there are many people that believe that most consumers and merchants are likely to opt for low costs and fast processing.
Will Supply And Demand Be Impacted?
These changes come at an important time for Bitcoin’s acceptance. The Japanese government has recently introduced rules to make Bitcoin legal and this year it is being rolled out across bus and railway stations nationwide, plus major shopping chains and into society at large. This, along with many other positive steps suggests that demand is going to continue to head upwards. However, the split of 1st August will have an impact on the supply side of the new Bitcoin Cash.
Anyone with Bitcoin on 1st August was able to “split” their coins and create an exactly equal number of Bitcoin Cash. The new Bitcoin Cash uses the same coin creation and halving schedule as the original Bitcoin, meaning that there is a fixed limit of 21 million coins to be created. In contrast to Bitcoin though, there are likely to be a great many people that were not following the debate closely and will not create their additional coins. Who knows how many this may be in total? The reality though is that when added to the number of the original Bitcoin that has already been lost or burned over the years, total lifetime supply is likely to be much lower than 21 million coins. If Bitcoin Cash catches on, this will likely be a future driver of price.
Opinions on the fork differ widely. Finance Monthly spoke to Ofir Beigel, founder of the popular website 99Bitcoins.com. When asked how he viewed the split he told us, “I consider Bcash to be just another altcoin - I'm saying this mainly from a market perspective. The market has spoken in the sense that Bitcoin's adoption and usage weren't hindered by the fork and the emergence of Bcash. Personally I think the results of this fork were a huge vote of confidence for Bitcoin, its maturity and stability.”
How Decentralised Is Bitcoin, Really?
One fear for Bitcoin is that it is not as decentralised as people might think. Yes, there are miners and nodes (processing the blocks) around the world. Yes, coins are owned by funds, companies, investors and traders. Yes, businesses globally are now accepting payments. And on and on. However, because of the nature of its formation, much like modern society, there is a disproportionate amount of power in the hands of a small number of guys (Bitcoin’s early adopters were overwhelmingly male). They came to be known as Bitcoin Barons.
Most of those early adopters bought - and still own – large numbers of coins. This has made them very, very wealthy. Some have used parts of that wealth to launch their own crypto start-ups, invest in other start-ups and coins, launch their own currencies and generally be very involved in the growth of cryptocurrency. This means that this relatively small group of developers and technologists are typically involved in more than one part of the ecosystem and many of them know each other. In other words, they have influence.
How Annoyed is Everyone, Really?
The arguments of the last few years have been very personal and many people have taken offence. Whilst they were all stuck in the same boat supporting one Bitcoin, the arguments could rage, insults be hurled and the show went on. Now that there is a second coin, that is no longer guaranteed.
Ultimately, both Bitcoins are incredibly similar, which means that if a person or business was capable enough to develop something useful for one, it can be applied to the other very easily. In some cases, such as mining, automatic scripts enable switching between the two at a moment’s notice.
Will Both Survive?
This is the crux of the problem. Do all those heavily invested technologists need to support the original Bitcoin when they now have their own Bitcoin Cash to support and grow? The answer is clearly no and the situation is not helped by the previous and ongoing animosity.
Earlier in 2017 consensus formed the New York Agreement when most of the major players agreed to provide support until November, but there is no guarantee that this will be upheld. For all their confidence over the last three years, the developers arguing for small blocks seem to be quite vulnerable. Either or both of heavy selling by the early investors – who we might think of as whales – or removal of services by businesses within the ecosystem could cause major dislocations in the market.
It is not easy to image Bitcoin in a death spiral, it is very likely to survive long into the future. The risk is that the chain does become slow and clogged, transaction times and fees do increase and it becomes less and less usable, with the faster, cheaper and directly comparable Bitcoin Cash available in the market. If that happens and the technologists remove support or sell their coins, the old chain and those amazing prices could be in grave danger.
It is clearly in nobody’s best interests to crash Bitcoin. That would set the cryptocurrency space back several years. Removing support, selling holdings over time and letting the market decide is a different matter though. For both Bitcoin and Bitcoin Cash the next few months will be make or break.
About the author:
Stuart Langridge is originally from the UK and has lived in Malta for 6 years. He has worked as a freelance writer on a wide range of economic and financial topics for many years and now works in marketing for an online gaming company.
Bitcoin just hit the $5,000 mark, and the growth of blockchain is taking various sectors by storm, in particular that of currencies. In this article, Fraedom CIO Simon Raymer identifies five important points to consider when discussing the use of cryptocurrencies.
1 - Gaining a greater understanding
There remain many challenges ahead for the established financial services businesses before they can start to successfully embrace these new technologies, in general there remains today a low level of understanding of the impact, both perceived and real, of new cryptocurrencies.
Most discussions around cryptocurrencies are directed or based on the perception of bitcoin. There is generally a great deal of misunderstanding about bitcoin and blockchain, especially in the media where they are both hot topics.
However, many established financial services organisations have a mixed understanding of the impact both blockchain and cryptocurrencies can and will have on their businesses. The way decentralised transaction mediums and P2P are likely to reshape the way businesses interact with financial services (such as loans, or cross-border financial exchanges) is something of a grey area, as is how it will affect the way businesses pay or receive payment for their goods or services.
Other challenges businesses face in embracing cryptocurrencies include creating expensive innovation centres within existing teams. Moreover, gaining senior support to provide budgetary allowances to obtain subject experts who understand these technologies to educate and champion them within the organisation is a difficult task, as is supporting the technical entrepreneurs to use these technologies to find the right business opportunities to challenge the market with.
2 - The blockchain infrastructure
A Direct transactional P2P model does not typically use blockchain today, but with faster and more cost-effective processing as a by-product, it’s only a matter of time before its use becomes widespread.
That, in turn, will help drive further growth in already burgeoning cryptocurrencies, like bitcoin, ethereum and ripple. Almost every one of these new secure payment mechanisms uses blockchain as its underlying infrastructure, with its success in doing so raising prospects for the cryptocurrencies also.
3 - The chance to innovate
Established businesses who embrace blockchain and/or cryptocurrencies have great opportunities to drive innovation themselves in these areas. They have the chance not only to deliver both existing and new services to the market using new technology but also to bring their own established trusted brands to the table.
While a lot of consumers and businesses are willing to take a risk with a small start-up, many are hesitant to either try or commit at a large scale without the backing of a trusted established brand, and the sense of control, security and maturity that comes with that. This encapsulates the opportunity that established financial services businesses are likely to have by embracing these new technologies – but they must not delay too long. The success achieved already by P2P and cryptocurrencies, together with the growing number of start-ups using traditional financial services, acts as a warning shot to any established financial services business that they cannot ignore these new technologies and start-ups.
4 - The peer-to-peer boom
The use of peer-to-peer (P2P) transactions that bypass the banking channel is gathering pace. We see this especially in developing nations like India, where traditional banking and financial services are not as well established, and consumers and businesses are jumping directly to P2P transactions providers.
The saturation of smartphone devices has also driven growth and this usage is likely to grow further as apps become more widely accepted across the P2P delivery platform. Currently, the strongest growth of P2P is taking place in the B2C space but many new start-ups are embracing the P2P concept and trials are taking place using blockchain and P2P-based approaches
It’s true that the direct transactional P2P model does not typically use blockchain today, but with faster and more cost-effective processing as a by-product, it’s a matter of time before its use becomes widespread.
5 - Welcoming third party expertise
Third party technology providers with knowledge and understanding of how new technologies, not just limited to blockchain and cryptocurrencies, can best be taken advantage of to challenge and disrupt the market in the right way.
Traditional financial services providers need to tap into the experience and expertise of their peer group, the key providers in the marketplace. In addition, they need to tap into those in the industry who can help them to navigate these new technologies successfully, quickly and with less cost, than if they try to do it alone.
ICOs are like IPOs, but for new coins. By now you’ll have heard about Bitcoin and blockchain, except that by now there are already over 900 other brand-new cryptocurrencies, just like Bitcoin, competing for a cryto-market in which digital money has created its own markets, with its own B2B markets and so forth.
One of China’s latest bans involved the absolute ban on introducing new currencies, whereby neither private companies nor banks can make a move on the cryto-markets. This is widely considered, by FinTech and crypto-enthusiasts at large, as a bad move.
However, Jakob Drzazga, co-founder of Brickblock, a firm that is on the verge of its own upcoming ICO, welcomes this ban, and explains to Finance Monthly why.
The Chinese know very well that pigs get fat and hogs get slaughtered. The country’s rich list is often dubbed the 'Hogs-slaughtering List' and appearing on the list can immediately attract attention, investigation, and sometimes even prison time for financial misconduct.
Initial Coin Offerings (ICOs) seem to have suffered a similar fate – getting too fat and attracting too much attention. On 4th September 2017, People's Bank of China declared ICO as an illegal fund-raising activity following weeks of intense and critical media speculations. ICOs have reached a state of frenzy in China with reportedly USD 400 million raised since the beginning of 2017, in comparison to the global total of USD 2.16 billion. Millions were raised based on a white paper containing fancy concepts elegantly outlined, but understood by few, and scrutinized by fewer still.
The secret formula of getting rich quickly spread. For a country that has produced more millionaires than any other in the last 30 years, ICO is seen as a fast track to join the millionaire’s club.
When ICOs have become a business model, rather than a financing method for an innovative business to grow, something has to be done. The Chinese regulator has rightly done just that.
According to the regulator’s in-depth study of numerous white papers circulated in the local market, the fund-raising activities of 90% of ICO projects were distinctly dubious. Of the rest, less than 1% is genuinely invested in the technology claimed behind most ICO projects – blockchain. Therefore, there is an important distinction between China’s ICO ban and its support to the development of blockchain technology which has been included in the country’s 13th Five-Year Plan (2016-2020).
So why would Brickblock, a start-up that is just about to launch its ICO globally next month, welcome the China ICO ban?
The ban will help to tame the ICO hype and provide a healthier eco-system for genuine and committed blockchain businesses to stand out and stand up to the test.
The ban will have an adverse effect on the short-term speculative investment but not too much on long term strategic investment committed to developing sustainable blockchain businesses.
The future of asset allocation is no longer about different asset classes, not even about including crypto currencies as an asset class, it is about bridging the digital and real world asset through tokenization.
At Brickblock, we have a grand but simple vision: building a trading platform on the blockchain where transactions are done seamlessly and asset classes transcend beyond forms or borders. We believe in tokenization as the future and as the new derivative market.
Just like the internet bubble, the fittest will survive and thrive. Neither ICO hype nor ban will help or hinder us to achieve our vision. To achieve that, we need strategic partners, visionaries, talents and the community who share our passion and long-term commitment.
Bitcoin's recent climb above the $4,500-5,000 mark is just one example of how its market capitalization continues to gain unprecedented reach. From cannabis to technology, bitcoin has impacted industries far and wide, but analysts believe that the cryptocurrency isn't done climbing.
ChineseInvestors.com Inc. (OTC: CIIX) is one business taking advantage of bitcoin's success by setting up bitcoin payment acceptance through its wholly-owned subsidiary, Chinesehempoil.com Inc. SinglePoint, Inc. (OTC: SING) also continues to develop its bitcoin cannabis payment solutions, while technology company NVIDIA Corporation (NASDAQ: NVDA), graphics cards maker Advanced Micro Devices, Inc. (NASDAQ: AMD), and bitcoin investment vehicle Bitcoin Investment Trust (OTC: GBTC) occupy their own unique positions.
ChineseInvestors.com (OTCQB: CIIX), in July 2017, announced that its Chinesehempoil.com subsidiary was ready to accept bitcoin payments, in addition to more common payment methods such as debit cards and PayPal, in order to enable consumers to purchase its hemp-based health products online. The move marked CIIX's official entrance into the burgeoning digital currency market and enabled the company to offer its customers a heightened level of cost savings, privacy and ease of use.
By August, CIIX took its knowledge of bitcoin a step further. On par with its core operation as a provider of financial information, CIIX launched its cryptocurrency education and trading subscription service on Chinesefn.com, its dynamic financial website that provides real-time market commentary; analysis related to digital currency, trends and stocks; and education-related services to Chinese-speaking investors. The subscription service covers a spectrum of vital cryptocurrency data, including news, analysis, industry trends, price movement, sector related stocks and ETFs, and more.
ChineseInvestors.com (OTCQB: CIIX), CEO, Warren Wang, in the press release announcing the new service, described why providing this information to the Chinese-speaking population represents a significant market opportunity.
"With the use and trading of cryptocurrencies on the rise in Asia, it appears that a much wider adoption of digital assets may be right around the corner. With an estimated 85% market share, China is one of the dominant players controlling bitcoin volume, along with Japan (which recently legalized bitcoin as a form of payment) and the United States," he explained. "While many see the unique opportunity that cryptocurrency poses for investors and desire to capitalize on this market opportunity, they may not have a full understanding of the concept of digital currency or how the system works. CIIX intends to provide fundamental knowledge to Chinese speaking newcomers to cryptocurrency, including straightforward explanations of the basics of cryptocurrency, how to buy it and straightforward trading guidelines. For those with cryptocurrency experience, the Company will provide more detailed information regarding currency mining, blockchain technology, stock trends and ETFs. Through its innovative cryptocurrency education and trading subscription service, the Company endeavors to be the leading Chinese educational site providing up to date news and information on digital currencies."
Headquartered in Los Angeles with offices in New York City and Shanghai, CIIX continues to grow its core as a specialized investment services company with a 100,000+ user base, providing consultation, advertising, and public relations services to China-based companies.
SinglePoint, Inc. (OTC: SING) is another cannabis industry leader participating in the cryptocurrency phenomenon. In June 2017, the company closed a round of funding with an investor to support a bitcoin payments solution that was implemented in partnership with First Bitcoin Capital. By adding bitcoin payments to its diverse portfolio, SinglePoint is helping the cannabis industry - as well as other high-risk industries - overcome the challenges stemming from a lack of adequate banking access. SinglePoint also recently purchased $Weed from First Bitcoin Capital, a new currency in the market. WeedCoin is currently listed on three exchanges, and SinglePoint said it intends to list and market the currency on more exchanges moving forward.
Taking a step backward in the cryptocurrency process helps to understand these investment options in the alternative currency market. California-based graphics chip manufacturer and technology company NVIDIA Corporation (NASDAQ: NVDA), participates in the digital currency market by providing chips used for cryptocurrency mining. While there are numerous other uses for its chips, bitcoin miners favor graphics processing units to create new cryptocurrency units. According to several industry reports, this demand helped push sales of Nvidia's graphics card line 52% higher to $1.2 billion in the second quarter.
Likewise, Advanced Micro Devices, Inc. (NASDAQ: AMD) is benefitting from demand for its graphics card by cryptocurrency miners. In June, the chipmaker told CNBC that demand for its graphics cards was fueled by the 'newly resurgent cryptocurrency mining markets'. Earlier this week Advanced Micro Devices revealed details of its 'Radeon Software Crimson ReLive Edition Beta for Blockchain Compute' driver created to help boost the efficiency of cryptocurrency mining rigs. The beta-level driver targets graphics processors that are used for mining, or a way that new transactions are added to blockchains, addressing the demand for processors used by those tapping into the cryptocurrency market.
The growth and potential of bitcoin is further evidenced by Bitcoin Investment Trust (OTCQX: GBTC), which enables investors to gain exposure to bitcoin's price movement through a traditional investment vehicle without the challenges of buying, storing and safekeeping bitcoin. The U.S.-based, open-ended grantor trust is invested exclusively in bitcoin, and its shares are the first publicly quoted securities solely invested in and deriving value from the price of bitcoin. Bitcoin Investment Trust was recently named to OTC Markets Group's 'OTCQX Best 50' for 2017. Bitcoin digital currency has already been named an official method of payment in Japan, and it is being accepted by more and more major retailers in the United States, furthering the acceptance of bitcoin's presence as a valid payment method.
Market analysts continue to predict increases in bitcoin and digital currency in general. Cryptocurrency payments have benefited businesses and consumers in the cannabis products industry and in the graphics cards markets, driving growth in both sectors. Current trends show that it is also opening the door to markets worldwide, especially in the United States and China, with little signs of slowing down. This is true if pricing is any indication; bitcoin recently surged past $4,500.
(Source: NetworkNewsWire)
After Bitcoin fork, and a huge tech sell-off in July, Snap – the company behind Snapchat - has now joined the circus that is tech giant share prices. In one day in August, Snap Inc. dropped 4%, before bouncing back 6% 24 hours later. What is it about tech shares? Andrew Amy is Investment Manager at Cardiff-based digital wealth management service, Wealthify. Here he talks to Finance Monthly about this modern phenomenon.
One of the initial issues with Snap was, like many other tech companies, it was given a whopping price tag on the stock which, unluckily, was swiftly followed by two bad quarters of results. Despite currently sitting some 46% lower than at its peak in March, the company is still worth approximately $17 billion. That is a hefty price tag for a business that has yet to turn a profit.
Any company with an expensive valuation that fails to beat forecasts for two sets of results is going to struggle, especially as questions loom over the monetization of the business.
It’s not a whole world away from other tech companies. Facebook had a torrid time after its IPO, where its shares pretty much halved in value. Now, its shares are trading more than 300% higher than the IPO price, and its most recent financial updates were impressive. If Snap can replicate the same performance as Facebook, then shareholders may be able to breathe more easily.
So what is causing share volatility within the tech sector? It’s important to remember that, first off, there is volatility in every sector of every stock market, to varying degrees. For example, consumer staples are considered a low volatility sector, but that doesn’t mean there isn’t volatility there.
One way to analyse the tech sector is as two distinct sub-categories – the young guns and the old guard. Apple, Microsoft and Google have been around the block a few times, and so report fairly predictable earnings. They also have a proven track record of fending off competition and remaining at the top of their respective games.
The young guns, such as Netflix, Facebook and Snap, are equally recognisable brands, but are affected far more by volatility as a result of their valuations and competition.
Brand awareness is very powerful, and with some of these guys, especially Facebook, we’re seeing brand become monetised in the form of impressive earnings. However, these stocks don’t come cheap – you’re paying for exponential growth of future earnings.
When expensive stocks don’t deliver the returns that investors expect, the tendency can be to quickly dump them. Perhaps that’s what we’re seeing now, with Snap.
Competition in these fast-moving sectors is hard to predict. Many of the most innovative tech companies have little or zero competition at the outset, so their future earnings remain unchallenged. But, as with every type of business, where there is money to be made, eventually competitors will come.
Look at Netflix – it is currently under pressure from Amazon, but there are more challengers coming. The likes of Disney are set to go live with their own online TV offering, pulling content from Netflix in 2019, and traditional broadcasters are also not resting on their laurels.
Once these markets are more mature, perhaps we’ll see this area of tech become calmer.
While it’s easy to say there’s a tech bubble, it ignores that many stock prices and asset classes are following a similar suit at the moment. Global central banks have kept monetary policy ultra-loose with low interest rates and quantitative easing. This was seen as necessary to keep the economy afloat after the great recession of 07/08. However, when cash is earning you next to nothing, it pushes up the prices of other asset classes, as investors seek out higher returns.
Investment in tech companies such as Uber, AirBnB, or even Wealthify comes because of the innovation we bring to mature markets in terms of scalability, low cost to consumers, and easy access to services via apps and online. Not all startups will survive, but as we’ve experienced from our home in Cardiff, they can thrive, with the right investment and access to expertise and support.
The views above are personal opinions and not intended as financial advice or recommendations.
The Bitcoin (BTC), the first and original cryptocurrency worldwide, has been very volatile and seen incredible ups, with some downs, over the past few years. Last week saw its value fall once again, following days of gains, and after recently splitting to Bitcoin and Bitcoin Cash (BCC). Nonetheless, 1 Bitcoin is equal to approximately $3907.82 at time of publication.
It’s also not the only cryptocurrency, with many others following suit and gaining traction. What keeps it together and functioning without a central bank is the blockchain.
In light of the popular rise of this type of currency and its systems, and now the unexpected coin split, Finance Monthly has heard from several sources around the globe on the latest Bitcoin opinion and analysis.
Richard Tall, Partner and National Head of Financial Services, DWF:
The surge in the price of Bitcoin began with its recent SegWit upgrade, a technical update which has made transactions of the cryptocurrency more efficient than ever before.
Since then, the upswing in the price of Bitcoin has received much attention, with many commentators speculating that its value could even climb as high as $5,000. And as Bitcoin’s price continues to hike on a daily basis, more and more people are looking to invest their hard-earned cash in the cryptocurrency, for fear of missing out on a big pay-off.
It is also interesting to note that there is strong demand in South Korea and the Far East for Bitcoin. With unrest taking place across both of these regions, it may be that some are buying Bitcoin as a convenient and safe place to protect their wealth – just like when people turned to gold during times of conflict – which may also be contributing to this recent surge in price.
Historically Bitcoin has suffered significant swings in value and while its pricing is impossible to predict, it may take little more than investor sentiment to reverse recent gains.
Dominic Williams, President and Chief Scientist, Dfinity:
The Bitcoin community was divided even before news broke that it would be splitting in two. There is a possibility we will see major instability in both Bitcoin and Bitcoin Cash over the coming months. Whilst the former has recently seen its price soar, the latter has seen its price slump, and so if Bitcoin Cash were to gain momentum we could potentially see major swings between the two currencies. As per expectations the new currency did not significantly impact Bitcoin’s market capitalisation when it was released. We must keep in mind though that the very first block of the new currency was only mined two weeks ago.
Jakob Drzazga, Co-Founder, Brickblock:
Before the final acceptance of the segregated witness update, people thought that Bitcoin had hit a ceiling in terms of price growth potential, and now there is widespread relief within the community that something is being done about scalability. This relief, along with the new capabilities of the blockchain to process more transactions goes a long way to explaining the surge in Bitcoin’s value.
It’s likely we’ll see even more growth of this kind in the future as people find new and innovative ways to use the technology. For example, Blockstream Inc.’s plans to make the digital ledger which underpins cryptocurrency available via satellite signal is also likely to contribute to this growth.
Looking at Bitcoin price surges and dips in the past, the trend seems to be cyclical. A rapid rise in price, many new users buy Bitcoin, price reaches previously unimaginable heights, then people start taking profit and converting to USD / GBP, price comes down. Eventually new features cause another surge of interest and so the cycle repeats.
In light of this, optimism around growth should also be accompanied by caution. Even as Bitcoin gains momentum, it is still capable of market contractions like the one we saw on Tuesday, which saw more than $6 billion to evaporate from the cryptocurrency market cap in a matter of hours. Volatility is still a big concern for those looking to invest in cryptocurrency, and has led to mistrust, especially amongst some larger investors.
As the industry grows, it’s important that more sophisticated ways of managing volatility-related risks are developed in order to make the market more inclusive and attractive to those who favour more passive investments.
Jimmy Nguyen, Chief IP, Communications & Legal Officer, nChain:
Bitcoin’s significant price increase since the August 1 ‘hard fork’ demonstrates increased confidence now that uncertainty over the hard fork’s impact has come and gone without major incident. Investors are believing in the future of Bitcoin as not just a cryptocurrency, but also a technology system that can change the way businesses and consumers operate.
While ‘original’ Bitcoin’s dramatic price rise is getting much of the attention, it’s important to remember that the Bitcoin Cash chain has also survived. Bitcoin Cash presents a preferred choice for forces supporting unlimited block sizes and massive on-chain scaling. At nChain, we believe that is the path to Bitcoin’s true maximum value. Massive on-chain scaling is needed to enable countless technology functions which can, and should, be performed in a decentralised manner on the Bitcoin network. We should have a Bitcoin network that powers a faster Internet of Transactions, and enterprise-level capabilities for payments, data, communications, smart contracts, and many other functions.
Today, the technology is not yet advanced enough to accomplish this, but nChain is working on many innovations and intellectual property assets - such as scalability solutions, security improvements, and software development kits - needed to achieve that level of Bitcoin network growth worldwide. The Bitcoin token is the key to delivering transactions on the network, and the token’s value will increase as the transaction capability increases. While more than one Bitcoin chain can certainly co-exist, we believe the highest value proposition for the future will be on a chain like Bitcoin Cash that supports much bigger blocks, lower transaction fees, and more exponential growth.
Jordan Hiscott, Chief Trader, ayondo markets:
The success of Bitcoin and other blockchain currencies this year has certainly been impressive. When Bitcoin initially began nine years it was only found in the dark corners of the internet, whereas it’s now becoming almost a mainstream financial asset.
The spilt from Bitcoin to Bitcoin Cash in the form of a SegWit hard fork could have been a catalyst for derailing the impressive upward momentum in price and general popularity of Bitcoin, but so far we haven’t seen this. I would call Bitcoin the ‘poster boy’ for successful cryptocurrencies – it’s established, secure to a certain degree, has a huge mining community, a large amount of speculation traders and its price has increased at an exponential rate every year. To me, it’s no surprise that since the hard fork, its price has increased from $2,700 to an all-time high of $4,449.
Interestingly, the spin off to Bitcoin Cash has hugely underperformed at the same time, initially increasing to $600 on the day of the spilt to now trading at $300. In my view this abundantly shows the importance in having a secure blockchain, and support of the mining community, in relation to how the transactions and sizes were recorded. At this stage it would seem this is still yet to happen with Bitcoin Cash.
However, I do believe that the price of Bitcoin has been kept artificially low in the run up to SegWit and now that the fork has happened, without significant issue, its popularity in general will greatly increase. Bitcoin represents a technology that has a finite amount, and also importantly is in a digital form, so unlike fiat currencies it is not affected by central banks printing more money. It is this aspect which I believe will drive its popularity to the next level.
David Parsons, CTO, TrustMe™:
It’s clear the recent price surges in Bitcoin and Bitcoin Cash are composed of three distinct principal drivers. The first one involves demand generation coming from new speculators entering the market driven by media reports. In the case of bitcoin cash, new and old speculators are looking to reproduce their gains as they did when bitcoins where in the low hundreds. The second driver involves the hording of bitcoins as an appreciating store of value, as bitcoin goes up the supply further contracts thus correspondingly driving the price further up.
Lastly, the third driver and the most controversial one in my opinion signals the market’s realisation of BCC and BTC as the start of something that represents fundamental change to banks and financial institutions operations. Today, our economy relies on the ability of banks and other financial institutions to create currency out of thin air. When home mortgages or loans are issued by current financial institutions the physical currencies do not exits and never did. This enabled banks to dispense with the need of ever physically obtaining the actual currency being given out. BCC and BTC can be thought of as physical currencies that must be given and received. This is what’s driving the price surges, the realisation the current financial institutions will be forced to physically obtain the currencies to conduct business that they normally perform.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Bitcoin, the cryptocurrency built on blockchain technology, is fast becoming a major player in the currency market. Since the beginning of 2017, the value of “XBT” has rocketed by over 150% and the simplistic reason for this would be that there is more demand than there is supply. Vinay Sharma, Senior Trader at ayondo markets tells Finance Monthly more about the current state of the bitcoin and its future prospects below.
Bitcoin uses encryption techniques to regulate the generation of its units and verify the transfer of its funds. It essentially allows people to cut out middlemen and thanks to its supposed security and independence from nations and central banks, its value, along with that of other cryptocurrencies, such as Ethereum and Ripple, has soared in recent months. In the Middle East, Africa, South America and Eastern Europe, for example, concerns over the volatile governments or consistent long-term currency inflation have contributed to Bitcoin's rising valuation.
When you look at Bitcoin’s rise in the last seven years, the mind boggles. An investor who had bought 1,000USD of the cryptocurrency in 2010, would now own around 45millionUSD worth[1]. The question many people are now asking is: is its value increasing due to mere speculation, or is it actually becoming a more widely accepted form of money? The currency is now available to many traders and investors to trade as a standard forex product. At ayondo, for example, we recently added Bitcoin to our product portfolio, meaning clients can now trade on its anticipated price movements without having to actually open up an e-wallet to purchase it on the internet.
While Trading Bitcoin does open it up to speculation, the cryptocurrency is also being accepted more widely as a medium of exchange, which after all, is the purpose of money in the first place. The number of businesses accepting Bitcoin is rapidly increasing, with the likes of Expedia, Etsy, Microsoft and Dell, to name a few, all accepting it as a form of payment, although it’s fair to say the UK is lagging behind in its Bitcoin acceptance.
So what’s next for Bitcoin? At the time of writing, its value is 2,735USD and one thing I am pretty confident of is that volatility lies ahead. Last week, for example, Morgan Stanley released a note saying that it doesn’t believe Bitcoin will be a viable currency in the future, and its value subsequently fell 20%. However, it has since recovered those losses, and whilst I largely agree with Morgan Stanley’s analysis, it certainly offers plenty of upside potential as a trading instrument, as demand in the short to medium term is more than likely to outstrip supply. Whether it will in fact become a viable medium of exchange in the future remains to be seen, but what’s undeniable, is that current interest is immense and its high variation in price offers an excellent trading opportunity.
[1] http://www.marketwatch.com/story/as-bitcoin-rockets-to-records-heres-how-much-skeptics-missed-out-on-says-one-money-manager-2017-05-22
