BITCOIN DIARY: Bitcoin hits R100,000, just enough to buy Gigaba's shiny watch
'What this shows is that as the establishment starts to take a bite - even a small bite - of the crypto apple, the effect on the price is dramatic'
On Wednesday morning, history was made when Bitcoin smashed through the R100 000 barrier and then kept climbing (see ice3x graph below).
The Gigaba effect (that budget speech, remember?) lingered on and there were developments in the US that added to the hype.
File under "what could possibly go wrong" and then buy yourself some Bitcoin futures. That's right, the Chicago Mercantile Exchange (assets $69bn) will soon take the crypto coin mainstream by placing it among its derivative currency options.
If you want a peek at the CME's thinking, read The Evolving Economics of Bitcoin, Gold and Fiat Currencies on the CME web site. Here's a slice of their analysis:
However volatile they may be, the reason why gold and bitcoin are perceived as stores of value is simple: their money supply doesn’t grow quickly and, in the case of bitcoin not at all, some day. Both gold and bitcoin money supply growth is determined by mining output. Over the past half-century, new gold mining supply has added anywhere from 1.1% to 2.4% to the existing stock of previously mined gold and gold prices tend to vary inversely with the degree of mining supply coming on line. This is much slower growth than the money supply of the US dollar and credit. Even during the 14 years prior to the 2008 financial crisis, the Federal Reserve’s balance sheet, one of many proxies for the amount of money in the system, grew by 5.6% per annum. Since the fall of 2008, it has expanded by nearly 20% per year.
Cryptocurrencies such as bitcoin have very specific processes for expanding their money supply – mining by technology with strict limits. For bitcoin, most of the “mining” activity happens in China. The strict money supply rules mean that if demand grows, as it has, the price can soar, which it has.
It's a big deal as this will expose a large number of investors to the coin. Bitcoin, as noted above, responded by powering to an all time high. This from Reuters:
Bitcoin climbed to a new all-time high of $6,450 on Wednesday, boosted by bets the cryptocurrency could enter the financial mainstream after the world’s largest derivatives exchange operator said on Tuesday it would launch bitcoin futures.
CME Group Inc said it would provide a regulated trading venue for the cryptocurrency market and would launch the new derivatives in the fourth quarter of 2017.
What this shows is that as the establishment starts to take a bite - even a small bite - of the crypto apple, the effect on the price is dramatic.
Another driver of the Bitcoin price is that - don't choke now - it is the stable first mover in this market with the longest trading record. That's right, fundamentals or no fundamentals, it's taking on the role of old establishment darling. As the CME article put it:
Two things argue in favor of bitcoin’s continued success: network effects and government regulation. Just as Facebook, LinkedIn and a handful of other websites or apps dominate social networking, it is possible that the incumbent currencies like bitcoin and ethereum could continue to dominate cryptocurrencies as well for the simple reason that they have large networks of users who accept them.
Bitcoin rises as hype robs new crypto offerings of legitimacy. Here's Dmitry Khan, writing on The CoinTelegraph:
In today’s ICO market greed plays the first violin, conducting and soloing simultaneously. Driven by greed, major speculative crypto funds began to call themselves "smart investors" and tailor the ICO market to match their own interests.
These new crypto funds start any talk with startups with arrogance.
If they are interested in a project, they demand such terms and conditions that founders, in order to fulfil them have to lie to ‘dumb investors’ sneering at them. Receiving a 3x return on their investments in a few months from capital raised to conduct an ICO, these smart investors look more like cheaters.
These are the rules of the game created by such crypto funds and are supported by transactional consultants.
It makes for depressing reading and I hope that South Africa's own crypto intitative, UBI, doesn't get tarred with the same brush. (Full disclosure: I'm investing, albeit on a microscopic scale ...)
By the way, nowhere was the Gigaba speech dealt with more effectively than on the cover of the Financial Mail. (You might want to go further and read Claire Bisseker's detailed analysis which demonstrates just how extremely badly screwed we are.)
Which reminds me. Last week I asked readers to help identify the watch that Gigaba was wearing. You know, the one which became visible in the government publicity shot when his sleeve accidentally pulled up over his wrist? Here's a close up:
The watch is a Cartier Santos 100, which retails for $7,000, as the Cartier website pictured below shows. But don't be too hard on Gigaba, it's the cheapest in the Santos range by some stretch.
Interesting point: The watch was pictured at 13h32 at which point the rand was trading at R13.74 to the dollar. By the time Gigaba had finished speaking at around 17h30, the rand had tanked to R14.12 against the dollar.
Which means that Gigaba's budget speech shifted the price of his wristwatch from R96,180 to R98,840 - just over 2.5%. Nice little hedge there.
* This column does not offer serious investment advice. But you knew that already, right?