Cryptocurrency commentary on volatility and fundamental valuation.

As you know the new and amazing cryptocurrency arena is very fashionable at the moment. I would like to put my comments here for those who want my opinion. Firstly, this market is very thin. This means the liquidity is non-existent and volatility is therefore and not surprisingly high. Just today, Etherium dropped 28% and Bitcoin is about 12% down

. ( https://www.cnbc.com/2018/01/16/ethereum-crashes-30-percent-on-coinbase-in-24-hours-bitcoin-tumbles-25-percent.html ). That said it can be very profitable, however, keep in mind due to its low liquidity it has a long-term annualised volatility of 93! For perspective, $ZAR known by traders as the widow maker for its excessive vol has a 100 day annualized vol of 14.3. yeah.. 93 vs 14.3 from the widow maker. And, it is on the futures exchanges. On the 7th Dec, the biggest exchange for bitcoin Coinbase crashed.

Who owns bitcoin?… Exchanges need to have bitcoin and the other cryptos on their exchanges to give it value. The problem is we don’t know exactly how many are on these “pop-up“ exchanges. “On Nov. 12, someone moved almost 25,000 bitcoins, worth about $159 million at the time, to an online exchange. The news soon rippled through online forums, with bitcoin traders arguing about whether it meant the owner was about to sell the digital currency.” https://www.bloomberg.com/news/articles/2017-12-08/the-bitcoin-whales-1-000-people-who-own-40-percent-of-the-market.  In this case, if they do sell market crashes… Read the article above.

Where is the value?... The only value in crypto is the underlying concept of Block Chain. This should then make all cryptos have a similar market cap. This is clearly not the case. Currently, many speculators are jumping on board, artificially pushing up the price. For the long-only investors, this is dangerous. We have a saying in the broking industry “If you taxi driver is talking about buying it; this is a sell signal”.

Regulators tend to be reactionary rather than proactive. This means only until a popular mob outcry about investor losing money or something like that then the government will order the regulator to intervene. As this has not occurred YET, there may be a time when it does. Also, cryptos are global and any regulator in a major country will influence the value. – “China Ramps Up Crypto Crackdown:  China is planning to block access to online cryptocurrency trading platforms and mobile apps, sources say, as the country escalates its crackdown on bitcoin and other digital currencies. Chinese authorities have noticed an uptick in activity on homegrown and offshore platforms since cryptocurrency exchanges were banned last year. Bitcoin traded at $13,799.07 at 6:30 a.m. in Tokyo, according to Bloomberg composite pricing. Up until early last year, China was the most active market for bitcoin trading on exchanges and is still home to some of the biggest bitcoin miners, although mining may become more expensive after some facilities were ordered to close last week. China isn’t alone in increasing its scrutiny: regulators from the U.S. to South Korea have started looking more closely at cryptocurrencies.” Source: Bloomberg, 16 January 2018.