Bitcoin Tops $11,000 Again - Becomes World"s 6th Largest Currency In Circulation

After "crashing" earlier in the week, Bitcoin soared in the last 24 hours following confirmation from the CFTC that it has approved regulated futures (and options) trading on CME, CBOE, and Cantor. This sent the price back above $11,000 and shifted the cryptocurrency to become the sixth most-circulated currency in the world.

Bitcoin had, by all accounts, a remarkably volatile week, losing $3 bln in market cap in just 90 minutes as the price slid from $11,400 to close to $9,000 (on some exchanges it flash-crashed to the low $8,000s). Nevertheless, within 36 hours, the cryptocurrency has rebounded to over $11,000.

image courtesy of CoinTelegraph

As CoinTelegraph reports, the CFTC news quickly rippled out across the industry and media, with a stream of delighted bullish statements gracing Twitter and other platforms.

“It’s an orgy” is how one strategist described the breaking news that US regulators have approved Bitcoin futures to start this month.

Digital Currency Group CEO Barry Silbert said on CNBC: “I think it is going to enable finally the approval of Bitcoin ETFs, and other digital currency ETFs, which is game-changing,” he added.

And Bitcoin prices jumped...

As did Ethereum...

At a value of Bitcoin at around $11,000 each, the total value of all Bitcoins in circulation is around $180 billion, which as CoinTelegraph details means Bitcoin is now the sixth most circulated currency in the world, behind five super powers, and outranking the Pound, the Ruble, and the Won, according to the Bank for International Settlements.

Source

While the number is substantial, should Bitcoin rise to $15,000, it will overtake the next highest circulating currency, the Rupee. The other four currencies outranking Bitcoin are the Yen, Yuan, Euro, and Dollar, all of which have dramatically greater levels of currency in circulation (the Dollar, for example, stands at $1.4 tln).

These numbers are, of course, somewhat skewed, because the value of notes in circulation is not reflective of the total value of a currency. Nevertheless, the numbers reveal the substantial power of Bitcoin in terms of currency interactions.

As Some Firms Defy SEC, Overstock Is Set To Cash In On "Wild West" ICOs

The Securities and Exchange Commission roiled the blockchain industry last week when it announced that so-called Initial Coin Offerings are considered securities offerings. While some firms are embracing a strategy of open defiance, vowing to push ahead with their planned ICOs without registering them, at least one former innovator in the blockchain arena sees the new rulings as a boon for its nascent cryptoasset trading platform, according to CoinDesk.

Overstock.com, one of the first major US companies to embrace blockchain technology, believes the regulations could drive business to its cryptoasset trading platform known as T-0. Overstock cemented its status as a blockchain innovator back in December 2015 when it raised $2 million by offering a small tranche of Overstock corporate bonds on its platform. The offering, which received approval from regulators, created the first blockchain-based financial securities to trade in the US.

Overstock CEO Patrick Byrne

Since then, the company has been quietly building out its platform while waiting for US regulators to create a framework for legally offering and trading blockchain securities. And now the day it has long been waiting for has finally arrived, according to CoinDesk.

“…earlier this week, tØ got the news it had been waiting for when the SEC finally published the results of a landmark report in which it clearly laid out its rationale for why some tokens are still securities.

Moreover, the report clarified that, once a token issued in an ICO has been deemed a security, only national securities exchanges like Nasdaq and some alternative trading systems (ATSs) are permitted to be involved in the trading.”

Overstock.com started building its T-0 blockchain-based trading platform in the spring of 2015, when it purchased a stake in an alternative trading system. Now, the company believes its system is ready for the mass market, and hopes to receive permission from the SEC to traffic in ICOs in the coming months.

“Moreover, the report clarified that, once a token issued in an ICO has been deemed a security, only national securities exchanges like Nasdaq and some alternative trading systems (ATSs) are permitted to be involved in the trading.”    

According to CoinDesk, Overstock CEO Patrick Byrne has long hoped to build a platform that would allow trading in stocks and bonds backed by the blockchain. The platform’s name, T-0, is derived from Byrne’s claim that blockchain-backed transactions are inherently superior to the current system because, in theory, these trades will settle instantly, instead of taking up to three days to clear.

However, many competitors, including some of the world’s largest financial institutions, are quickly catching. Earlier this month, Goldman Sachs was awarded a patent for its own crypto trading system called “SETLCoin.”  

Those who are only now becoming acquainted with Byrne’s story might wonder: What inspired a guy who built a billion-dollar business selling furniture and other household goods to try and revolutionize how financial securities are traded?

Byrne was initially inspired to try and disrupt the world of high finance after Overstock was nearly destroyed by “naked” short sellers, or speculators who sell a company’s shares short without first procuring the securities. The incident inspired Byrne to use the blockchain to cut out everyone who stood in the way of buyers and sellers, as CoinDesk explains.
Still, the question of whether it’s legal to trade blockchain-based stocks and bonds remains murky. However, there’s been at least one important breakthrough recently. Last month, the Delaware legislature passed a landmark amendment that opened the door to blockchain-backed stock trading on a massive scale – a decision that could significantly impact Overstock’s business.

“One possible explanation for the relatively few compliant blockchain capital raises is uncertainty about the legality of recording stock ownership on a distributed ledger, according to Andrea Tinianow, founder and director of the state-run Delaware Blockchain Initiative.

Using technology that tØ"s parent company invested in last week, made by New York-based Symbiont, Delaware has just signed into law a series of amendments that Tinianow has said will remove much of that uncertainly for firms incorporated in her state.

"We"ve got the regulatory framework for blockchain shares," said Tinianow. "Now the SEC is coming in with federal guidance and it’s a natural fit."

In another major regulatory accomplishment, the Commodity Futures Trading Commission recently approved the creation of the first clearinghouse for cryptocurrency options, a decision that could entice sophisticated investors like hedge funds and CTAs to increase their exposure to bitcoin, as we reported earlier this month.

“US regulators aren’t yet comfortable with bitcoin ETFs (although a quad-levered S&P ETF is just fine for mom and pop), but apparently options and swaps are another story. This week, the CFTC took a bold step forward in terms of granting institutional investors access to the bitcoin market, approving the creation of the first SEF or Swap Execution Facility. Previously, traders who wished to place bets in bitcoin derivatives markets were forced to operate in markets that were strictly OTC. But now the agency has issued a registration order to LedgerX, granting it status with the CFTC as a Swap Execution Facility, in the process approving bitcoin options trading.”

While Overstock has a long history of working with regulators, some companies are effectively choosing to rebel against the SEC’s ruling that all ICOs marketed in the US must be registered, according to Reuters.

“Technology companies looking to raise money by issuing digital coins are moving forward with their plans despite a U.S. regulator"s decision that their offerings may be subject to tough securities laws.

On Tuesday, the SEC decided that tokens issued through the ICOs can be considered securities, meaning they would fall under laws that require disclosures and are subject to regulatory scrutiny to protect investors, unless a "valid exemption" applies.

Some industry participants and analysts had thought such a decision would have a chilling effect on the ICO market. But 20 new ICOs were announced since the SEC"s decision, with more than 120 scheduled to launch this year, according to ICO tracker tokendata.io.

Representatives of Rivetz and ICOBox, which plan to launch tokens over the next few weeks, told Reuters they are pushing through with their offerings.”

According to Reuters, ICOs have raised more than $1 billion in capital this year as companies launched more than 900 new coins.

"We were kind of annoyed when these ICOs started taking off. They weren"t getting approval, it was the Wild West. We thought long and hard about doing our own ICO ... But we held off, going down the regulatory road," T-0 President Joseph Cammarata told CoinDesk.

ICOs are similar in principal to stock offerings in that investors bid up the price of tokens associated with companies they believe will grow profits. However, the paucity of information about many of these companies – some of which have been unmitigated frauds that essentially took investors’ money and ran - makes valuing them nearly impossible.

Hackers have plagued the cryptocurrency investment community since its early days, so it’s little surprise that they’re already started looting ICOs – a security problem that could potentially drive more customers to OverStock’s platform if it can provide enhanced security. As we reported earlier this month, hackers stole $7 million in investors’ funds from CoinDash, a blockchain startup focusing on "cryptocurrency social trading and portfolio management platforms.” Bloomberg notes that hackers have stolen more than $40 million from ICOs.

Why A Bitcoin ETF May Not Be Coming Any Time Soon

When it comes to the future of bitcoin, the "holy grail" has emerged as becoming the first to have a bitcoin ETF approved by the SEC.

Over three years ago, in 2013, the company of the Winklevoss twins, Cameron and Tyler, Winklevoss Capital Management LLC, launched the first proposed bitcoin ETF, the Winklevoss Investment Trust, looking to trade on the HFT-dominated BATS exchange. The SEC is expected to make a decision on it by March. A second group, SolidX Partners followed last July seeking SEC approval for its bitcoin ETF, SolidX Bitcoin Trust, which also would be listed on the NYSE.

Then on Friday, Grayscale Investments, a unit of Barry Silbert’s Digital Currency Group filed with the SEC to list its own Bitcoin Investment Trust on the New York Stock Exchange: as with the previous two attempts, the fund hopes to get SEC approval to expand the audience for the virtual currency. Initially, the trust will seek to launch with $500 million, the filing said, though the target is subject to change. At Dec. 31, it had about 1.8 million shares outstanding. Based on a net asset value of $89.39 a share, its assets under management totaled $164.2 million.

As the WSJ notes, "Grayscale"s Bitcoin Investment Trust, first launched in 2013, already trades on OTC Markets Group Inc.’s over-the-counter exchange, OTCQX. With the new filing if approved, the trust would operate as a traditional ETF, meaning that specialized traders would create and retire shares based on demand."

Two Wall Street firms, KCG Holdings Inc. and Wedbush Securities Inc., are in discussions to serve as authorized participants, according to the filing. Additionally, the fund’s trustee will be Delaware Trust Co., and the transfer agent will be Bank of New York Mellon Corp., based on the filing.

The goal of a bitcoin-based ETF is to offer an product that would be easier for investors to access and would mute at least some of bitcoin’s volatility, although it would hardly eliminate all of it, which would still make it a riskier investment than most other ETFs.

More importantly, approval "could prove an early test for how an SEC run by a Donald Trump appointee will greet innovations that may raise investor-protection or other market-structure issues." Furthermore, the benefits of being first on a major exchange could be big, assuming that bitcoin does manage to establish itself as a viable asset class. The SPDR Gold Shares ETF launched Nov. 18, 2004, has $31 billion in assets. The iShares Gold Trust ETF launched Jan. 21, 2005, has $7.7 billion in assets. Gold, a commodity not backed by any particular government, appeals to investors for some of the same reasons as bitcoin... even if many physical hard-core "gold-stacker" fans mock both the concept of a paper gold representing their physical holdings, while relentlessly ridiculing the idea that "digital money" contained in a server somewhere, is in any way safe (following recent dramatic breaches of a Chinese bitcoin exchange, they have a point).

Earlier this month, Needham analyst Spencer Bogart wrote that “it appears there is significant pent-up demand from the investment public for such a vehicle" although he conceded that "the probability of one being approved in 2017 was very low, expecting the SEC could be cautious about such a risky asset."

Indeed, as one of the lawyers who helped craft the application for what would be the first-ever bitcoin exchange-traded fund (ETF) told Coindesk, he is doubtful the SEC will approve such a request any time in the near future. The critique, courtesy of former Gemini general counsel David Brill, is particularly relevant as his old employer"s last and final deadline to receive approval for the experimental product is on 11th March.

Though Brill is quick to point out he is a “proponent” of the creation of bitcoin ETFs and pro-bitcoin regulation more broadly, the prognosis does not bode well for its success. In conversation with CoinDesk, Brill explained that he believes factors such as China"s impact on the price of bitcoin make an approval unlikely.

Specifically, he said that "It seems unlikely, among all the other reasons, that the commission is going to want to move forward with a product where the major trading is done on an exchanges that may not be following our AML guidelines." In other words, China"s domination of bitcoin trading - as much as 98% of recent bitcoin transactions took place in China - would likely force the SEC to deny any of the bitcoin ETF applications.

Blame China: "a career lawyer for 20 years, Brill worked at Thompson Financial from 2003 through 2010, when it acquired Reuters. Prior to departing Gemini last year, Brill worked as the New York-based exchange"s general council, where he said he helped create the legal infrastructure of the exchange and craft a number of responses to amendments to its S1 filing."

Though Brill does believe that that a bitcoin ETF will eventually be allowed to do business on a major stock exchange, he said the SEC will be unlikely to do so while as much as 95% of all bitcoin transactions are carried out in China.

That, coupled with the China government’s recent crackdown on cryptocurrency exchanges and anti-money laundering practices, makes for an even less likely approval, he said.

"It"s more that the overwhelming majority of trading is not being done in the US, and being done in an area where the rules and regulations are not consistent with the rules here," said Brill.

According to Brill, one of the big hopes for further acceptance and advancement of bitcoin is none other than Donald Trump. Speaking shortly before Donald Trump’s inauguration as President, Brill said he is "cautiously optimistic about a more promising environment for bitcoin companies in the future."

From a strictly local business perspective, he predicted Trump would likely take a pro-bitcoin stance. However, considering concerns about a possible "trade war" with China following Trump’s expected policies, Brill said the predominance of bitcoin trading in the nation could be a hindrance.  He concluded: "I want to try to see what approaches might work to make it easier for bitcoin companies to expand across the US. Because right now, it is extremely difficult because every state has something different that they want."

Ultimately, bitcoin investors may have to make do without a bitcoin ETF for a while, especially if as some suspect, not only Chinese traders, but local HFTs have taken over trading of the extremely volatile product. Still, that may be a good thing: failing to get ETF approval will simply keep bitcoin extremely volatile, which is also why it has become the darling asset of a subset of traders starved for volatility in a world where central banks have eliminated virtually any daily gyrations from the equity class. As such, we would expect bitcoin vol to only grow, not decline, in the process making the attainment of the bitcoin "holy grail" that much more improbable.

China Launches Bitcoin Crackdown: PBOC Will Probe Abnormal Investor Behavior "And Rectify Misbheavior"

Having long been advocates of Bitcoin (ever since Sept. 2015 when it traded at $230) for the simple reason that we were confident the digital currency would eventually become China"s favorite means of circumventing capital controls - precisely as has transpired - two months ago we warned that the unprecedented surge which made bitcoin the best performing asset in the past year with a 5x return, may be ending as "China Prepares To Impose Curbs, "Capital Controls" On Bitcoin."

Since then, and especially over the past week, China has launched a series of incremental steps designed to do just that, which culminated on Friday when China"s central bank issued a statement calling the changes in the virtual currency "abnormal", and said authorities have required the trading platform to operate in compliance. They urged the platform to "probe investors" behavior and to "rectify misbehavior."

The statement hit shortly after China FX regulators, SAFE, said it would begin scrutinizing fund outflows via Bitcoin, as China sought to close this final gaping capital outflow pathway.

Furthermore, according to China Daily, China"s financial services authorities required major executives of the Shanghai-based bitcoin trading platform BTCC on Friday to "rectify misbehavior in the trading of the virtual currency", without clarifying precisely what this means, and to raise awareness of risks as the value of bitcoins experienced wild fluctuations.

China"s mass speculators flocked to the bitcoin market in recent days in a bid to gain from its fast appreciation, which rose 200% in 2016. However, after rising in near-exponential fashion over the past few weeks without any corrections, Bitcoin"s value fluctuated by more than 30 percent within the past two weeks as concerns of Chinese interference first emerged and were then confirmed. .The statement said authorities would like to reaffirm that the bitcoin as a virtual currency which cannot and shall not be regarded as currency in circulation.

* * *

It is unclear if the PBOC has successfully burst China"s latest bubble: According to data from the Shanghai-based bitcoin trading exchange, BTCC, more than 100 new investors started trading the virtual currency in the past three days, a fast growth compared to some 20 new investors before October in 2016.

"This trend shows that the bitcoin market"s appeal has been rising to a new level," said a market review by BTCC dated Jan 4.

Feng Xin"an, 43-year-old sales manager with Shanghai-based Maoxin Trade Ltd, said he invested some 135,000 yuan ($19,515) in the bitcoin market as he regards bitcoin as a "haven asset".

"The young generation, like my son and his friends, love to pay with digital currencies. Their demand for bitcoin can grow further, as I observe," he said.

Meanwhile analysts continue to warn that bitcoin is not a tool that "guarantees" yield, and warn new investors who have limited knowledge, that entering the market blindly could be risky.

"Investors should always remember that bitcoin lost more than 75% of its value in 2013. We do not recommend it as a long-term investment tool, particularly because of compliance concerns," said Zhang Yufang, investment adviser with Shanghai Shangding Investment Consultancy.

Then again, we are talking about Chinese bubble blowers: a legendary class of momentum chasers who will take any trend far beyond the level of max pain before allowing it to burst in a spectacular supernova of selling, in which the slowest sellers end up suicidal, either literally and metaphorically, before moving on to the next pre-bubble asset.

Following the PBOC statement, Bitcoin tumbled as low at 5,555 Yuan, or just above $800, before rebounding modestly as a new batch of BTFDers emerged.