Since the world’s markets were thrown into turmoil by the latest round in the US-China trade war, Bitcoin has been performing in a very peculiar manner – it seems to be tracking gold! Could traders be increasingly seeing the former bad boy of financial markets as a safe-haven asset, or is Bitcoin simply the quickest asset with which to make money in a turmoiled global market?
And is it mere coincidence that in a two-week period covering the outbreak of war and Trump’s Black Thursday Tweet, 100 thousand new miners were added to the BTC environment – a disproportionate number of them in Iran (where power is cheap) and China (one of the few nations still freely trading with Iran and where electrical power is not so cheap).
Over the weekend following the Presidential spurt, indices plummeted 10% while BTC soared by 23%. The only thing holding it back – apparently – is the security issues associated with hacks, heists and other online hitches.
Either way, clearly, cryptocurrencies are swiftly becoming so much more than a mere fad – witness, AvaTrade’s recent addition of the Crypto-10 index.
Folly Facing the Consensus
Just over a decade ago, Bitcoin represented the counterculture. It was born of the disappointment in the often corrupt, certainly self-serving establishment of banks, funds and other perpetrators of the 2008 financial disaster. Today, more and more of those established firms are themselves turning to cryptocurrencies and blockchain technologies, and the sector is no longer seen as the playing ground of dark web players and money laundering terrorists.
Crypto futures are multiplying exponentially – even Chicago’s CME and ICE (owners of the NYSE) are joining the game. The SEC (the US’ Securities Exchange Commission) has so far declined to allow crypto-based Exchange Traded Funds – the final seal of approval – but more and more of its commissioners are expressing their approval, in principle. Indeed, the current Bitcoin surge began on April 1st of this year, when prank notifications were circulated that ETFs had indeed been approved. The idea was so believable that the trend has long outlasted the hoax.
Indexes, Futures & Traders, Oh My!
Some European exchanges are already offering exchange-traded bitcoin financial products, like Stockholm’s Bitcoin Exchange Traded Notes (ETNs). And last year, Germany’s BITA GMBH introduced its ground-breaking Crypto-10 index (listed elsewhere as B10, BITA10…).
A fintech firm that provides enterprise-grade indexes, data and infrastructure BITA’s new index tracks Bitcoin, Ethereum, Ripple, Bitcoin Cash, EOS, Monero, Litecoin, Cardano, IOTA and Dash, plus three more in a market-capitalization-weighted product, which represents about $202 bn in market capitalization – over 83% of the total market cap of all traded digital currencies. BITA closely monitors the exchanges trading the index and reviews the constituents every 3 months – replacing underperforming assets with those climbing in value.
Steadying the Shake
Clearly, the wider the acceptance of cryptos becomes, the more liquidity these assets and their derivatives will show. And higher liquidity means – consequently – lower volatility. Although presenting less chance for speculators to make a quick profit (or loss), the end result will be a stable secure asset, akin to Forex, whose $5 trillion daily market is evidence of its importance.
Meanwhile, the world’s financial markets are in the midst of an upheaval – one that challenges the staid institutions of old, those that will have to improve their record of transparency and fair dealing with their clients if they stand a chance of competing with the online environment. One that challenges the way we perceive money, value and the world around us.
In such a world, the security of an index is a good thing!