Investors & Traders panic as Bitcoin sheds $122bn in Market Value

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?

Kelvin Emmanuel

About Kelvin Emmanuel

The Oil producing Angola in the Southern part of Africa faces what Nigeria faced 12months ago; a distortion in its exchange rate with a difference between the official markets and the parallel black markets. One dollar through the official window buys you 166 kwanza, while one dollar through the black market buys you 400 kwanza. Nigeria faced the same challenge 12months ago, when the distortion between the official and black markets was as much as the official markets trading at 306 with the parallel market ranging from 450 through to 510. The Central Bank Governor of Angola, Jose de Massano Junior announced in Luanda “We will stop having a fixed foreign exchange, we will adopt a floating regime of foreign exchange”. Angola faces exactly the same challenges and has been applying the exact same responses to an exchange rate crisis like using its foreign reserves that was sitting at $26bn to defend the currency kwanza, with no success so far, even though the external reserves has dropped to $14bn. Angola relies on Oil receipts for 80% of its government revenue, 90% of its inflow and 50% of its GDP. Angola is a $194bn economy that has been growing at an average of 10% on the back of rising oil prices since 2002 when its 27 year old civil war that started in 1975 ended. The state national oil company Sonangol reports that it produces up to 1.8m barrels of crude oil daily, however the government that until now has being led by the family dynasty Jose Eduardo dos Santos until recently when succession saw power transferred to Joao Lourenco, reports that the oil price rout in 2015/2016 that saw prices drop to as low as $28 per barrel caused ripples across the economic structures of the government, upsetting government revenues, its ability to fund its budget, capital project funding, foreign direct investments into the economy as a result of a currency crisis that was driven by the widening of gap between the official and street window of the kwanza, that until now has been pegged in a fixed exchange rate regime to the US Dollar.