Bitcoin the cryptocurrency built on a technology of a decentralized ledger has gained global popularity by mainstreet as an alternative to fiat money, in an era of populism that saw President Donald Trump win the elections to the highest office in the world, US Presidency. The fact that its market value has risen consistently in 2017 from a price of $1100 through to as high as $20,000, many retail bulls who have moved from using their life savings to taking out mortgage facilities to borrowing from family and friends, in order to catch in on the bull frenzy, absolutely believe that the price will ascend to as high as $100,000 per coin and will one day replace fiat money as we know it.
Global Central Banks do not share the same optimism, in her last press conference on the final day of the December FOMC meeting, Chair Janet Yellen made these remarks when she was asked about the future role of Bitcoin in the global financial system “Bitcoin at this time plays a very small role in the payment system. It is not a stable source of value and it does not constitute legal tender. It is a highly speculative asset. The FED really doesn’t play any regulatory role in respect to Bitcoin, other than assuring the banking organizations that we supervisors are attentive, that they are appropriately managing any interactions they have with participants in the market, and appropriately monitoring anti money laundering, bank secrecy acts responsibility they may have”. Following her comments, the price of bitcoin dropped 10%.
However, the largest lender and wealth manager in Switzerland, UBS has also come out to give its position on bitcoin, recently “Cryptocurrencies like bitcoin are in a speculative bubble and are unlikely to become mainstream currencies. We think the sharp rise in cryptocurrency valuations in recent months is a speculative bubble. The need for companies and individuals to pay tax receipts in government issued currency, and the potentially unlimited cryptocurrency money supply, pose significant barriers to widespread adoption”
On the 17th December 2017, the world’s largest commodities exchange Chicago Mercentile Exchange (CME) adopted bitcoin as a futures instrument that can be traded by institutional investors who are interested in making money from the insane volatility of the instrument, this came two weeks after the Chicago Board Options Exchange (CBOE) adopted it as a futures instrument for trading. The CBOE reports that 3k contracts were purchased on its inaugurial trading day with even more volume purchased by CME traders. The value rose between the time CBOE started trading and when CME launched it on its exchange. This ability for institutional shortsellers to enter buy or sell as an open position, has presented sell side risk for the cryptocurrency that might be subject to heavy shortselling by investors who are only interested in riding the wave down to make profits.
And that is exactly what we have seen since it launched on the 17th December on the CME. 30% of its market cap or $122bn of valuation was wiped off with prices dropping down to as low as $10,660 as at 12:30pm in New York. It will be recalled that the Winklevoss Twins (Founders of Gemini Platform, that the CBOE uses for price discovery) had challenged the ever skeptical Jamie Damon (Chairman & CEO of the Largest Bank in the World, JP Morgan), that if he so sure of his position that cryptocurrency like bitcoin is a bubble that will bust, he should back it up with cash and go short! well, did he?