2017 Is Not the Year for a Bitcoin ETF, Fears Ensuing Volatility

Bitcoin entrepreneur Vinny Lingham believes it is too soon for the SEC to approve a bitcoin ETF. In a recent blog, he says that if the SEC approves an ETF soon, another bitcoin bubble could be in the works which will make it harder for the cryptocurrency to stabilize and become a widely-accepted store of value.

Vinny Lingham

He noted that a recent Gizmodo article questioned why bitcoin’s price has hit an all-time high when the writer thought bitcoin would have died by now. The Gizmodo writer is one of many who wonders why bitcoin didn’t die when the market crashed in 2013 after falling from a previous price high of $1.200 to $180. The scenario reminded Lingham of the post-2000 period when many believed the Internet died.

Bitcoin’s Recovery Mode

Bitcoin has been recovering for three years following a boom-and-bust cycle caused by Mt. Gox and the media, in addition to negative situations caused by Craig Wright, Mike Hearn and the block size debate.

In an earlier post titled “Finding Equilibrium” in 2014, Lingham took a somber look at factors contributing to the downward and sideways price movement that lasted 18 months.

Lingham now feels the need to warn people about the risks of excessive price appreciation. While bitcoin’s scarcity and value will drive the price over time, excess appreciation could deliver another boom-and-bust cycle, which does not bode well for moving bitcoin from a commodity to a store of value.

Bitcoin has to become boring again for this to occur. A store of value by definition means low volatility. Every boom-and-bust cycle sets bitcoin back many years in this endeavor.

Lingham expects that bitcoin’s price will not break $1,300 until the SEC rules on the bitcoin ETF March 11, unless someone with inside information on ETF approval starts buying bitcoin ahead of the SEC decision.

Volatility Brings Danger

Lingham wants to warn those who welcome another bitcoin price spike. The $1,300 mark is a psychological price point.

Those who did not believe in bitcoin are starting to believe again, which Lingham sees as a potential danger.

If the SEC approves a bitcoin ETF, such approval is expected to deliver up to $300 million into bitcoin’s ecosystem, which will bring further upward pricing pressure.

Lingham disagrees with those who are saying the ETF is not priced into the current bitcoin price.

Assuming a 10% to 15% chance of the ETF being approved, the current price factors in around $100 to $150 worth of net value. Should the ETF not be approved, Lingham doubts there will be any more than a $150 fall in bitcoin’s price, providing a strong buying opportunity.

If the ETF is approved, a massive bull run will ensue. It will likely indicate the second ETF decision due March 13 will also be approved.

Bitcoin’s price would be at $2,000 or higher now except for the fact that the chances of ETF approval are low.

But should the approval happen, the price will hit $2,000 within days or weeks. The likelihood of a crash below $1,300 would be low.

All of this will trigger more volatility.

‘Smart’ Money At Stake

Should the price reach $3,000 on account of hype, the bubble becomes a possibility once again. “Smart” money starts to bolt.

Lingham list the following archetypes in bitcoin.

1) Mooners who shout from the rooftops

2) Pump and dumpers

3) Hodlers who buy and forget

4) Speculators and day traders who buy and sell frequently

5) Smart money that buys and sells based on facts

All these archetypes want to see the price spike without concern about its impact on the bitcoin economy or public perception and adoption of bitcoin.

The real problem is the smart money, which has been slowly entering the market. A lot of it has come in the past year at prices below $1,000.

If bitcoin breaks $2,000 and hits $3,000, the smart money will exit, unleashing boom and bust once again.

The ETF presents other challenges if smart money exits the bitcoin ecosystem. ETF holders tend to be high net worth individuals who trade OTC but keep coins off the market, cramping supply and making sure new money and new coins find an equilibrium price point with minimum volatility.

Also read: Vinny Lingham: Bitcoin is close to being the global currency

Arguments Against An ETF

Lingham does not think ETF is in bitcoin’s best interest. His reasons are as follows.

1) The block size debate has not been resolved. Lingham does not view a hard fork as a good thing. An influx of unsophisticated investors could disrupt market value significantly.

2) ETF investors will be subject to market fluctuations depending on who has access to supply and demand data, which could cause price and market manipulation.

3) An ETF will bring unsophisticated investors who will not understand losing 15 to 20% in a day.

4) The bitcoin market cap has not grown organically enough to support $300 million in demand from fickle investors with stop loss triggers. Bitcoin will be most successful being held in small amounts by large numbers of people.

5) Gold and silver, assets that ETFs are being compared to, have experienced big failures. Bitcoin, with a much lower market cap, is all the more prone to market manipulation and the losses could be worse. Bitcoin does not need such risks now.

6) While ETFs open the market to newcomers, the investment is a “vanity metric.” New bitcoin investors would do better to open an account at Coinbase and learn about bitcoin.

7) Lingham favors bitcoin mining companies and hardware manufacturers listing shares on exchanges. The more publicly traded companies in bitcoin, the better. Investors can have access to the ecosystem without worrying about the underlying assets and fluctuations in asset prices.

8) Bitcoin was designed to be a decentralized store of value and currency. ETFs, on the other hand, are from the old world. They create centralized pools. Bitcoin has just moved past the “fake” volumes from China. A new store of tens or hundreds of thousands of coins brings that risk back to the market. Some traders will be able to short sell the ETF.

9) The SEC is supposed to protect the public. It should not work to bring back volatility.

10) Research indicates gold ETFs increased its volatility.

Lingham is not against ETFs, but 2017 is not the right year for them in his view. When bitcoin reaches the $3,000 to $5,000 range and volatility has receded, then it will be time to expose it to retail investors.

Bitcoin, the People’s Money, Roars to All-Time High

What a comeback. The digital currency that so often has been proclaimed dead, has risen from around $163 just two years ago, to now breach the all-time high on the average price weighed index.

Bitcoin stood, across exchanges, at $1,147 in late 2013. Now, on a weighted average, it stands at $1,161, officially breaking the all-time high.

Few thought this will happen. Mired in controversy regarding transaction backlogs – a Champaign problem some say, we have too many users, how do we make space for more in a way physical resources allow – challenged too by new cool kids such as ethereum, disparaged by the more stiff upper lips who kept proclaiming blockchain, but not bitcoin – the digital currency marches, unperturbed, undeterred, proving, once more, all wrong.

It’s market now is nearing $20 billion. It finds mentions in TV sitcoms, it is accepted by Microsoft, it is patroned by that naked, unfiltered space, which keeps up the dreams of the 90s. It has the attention of PBoC. It pre-occupies, currently, the two commissioners of the SEC.

The Living Code

That is because this is not just a currency. It’s not even just a movement. Bitcoin is a network. With synapses, communication lines, a greater structure that takes all parts and forms something very new, an artificial brain with a life of its own, something we have never seen before.

Bitcoin takes all the individual, opinionated, parts and merges them, forming a holistic formidable whole. It is an organism. It lives, breaths. It thinks, metaphorically speaks.

It is served by computers in massive facilities, their power greater by far than any supercomputer. It is connected by many nodes across the world. Within it, there are debates and arguments, that’s how it grows. Outside, “cells” just decide.

No one man’s opinion controls bitcoin’s fate. However influential or prominent they might be. And if it is a group, leashing out propaganda, sockpuppets, attempting to engage in political campaigns, trying to centralize all things, why, bitcoin has no center.

It’s impossible. They only fool themselves. This currency cannot be hijacked. This currency cannot be controlled. There cannot be coups here. There cannot be proclamations or dictats. For, it is only by the will of the people bitcoin lives. Only by the wisdom of the crowd bitcoin roars or dies.

The Formidable Phoenix

I was here, though not participating, in 2011, when positive opinion sent bitcoin up to $30, to then crash due to a hack of an amateur and incompetent exchange. It stood at $2 for almost two years.

I was here too when it roared, rising at $266, to then crash again due to the above centralized and amateur MT Gox exchange. It inspired a decentralization of exchanges. There are many now, but Gox was not done.

I was here, too, when they announced their bankruptcy and misled the public in stating all, almost one million, bitcoins had been lost. That wasn’t true. I announced, with concrete evidence, they still had 200,000 bitcoins, forcing them to reveal their hidden holdings, which eventually they admitted, worth at the time and now more than $200 million.

I saw the currency in 2014 go down and down to around $160, but what a story for it to come back and now roar louder than ever.

The People’s Money

How can it not? It’s the people’s money. It’s the first free market backed currency. It has no central control, whatever some may believe in their stupid thoughts. It cares for no one’s opinion. It operates not under anyone’s permission. It’s a living, breathing, thing, with a life of its own.

Bitcoin operates solely under what is obvious and self-evident. Its complicated mechanism ensures objectivity. Its security based on the fundamental assumption that 51% of people are honest. An assumption we must take for granted for otherwise how could we have ever advanced to become what we have.

Yet, some try, but whether individuals, groups, cliques, governments or multinationals, they can say or do what they please, bitcoin cares not. Many may attempt to censor or ban, try to impose their ideology or opinion, try to force matters, propagandize, even smear, but bitcoin shrugs it off, like dust on a coat.

It roars, instead, above it all, for it is the people’s voice. The people who are taking back their rights and imposing what is obviously good – the true value of market prices, free from any manipulation, guaranteed by code, governed by us all.

It is a right, long denied, but now some genius has forced and gifted us.  No one, no group, can do anything about it. Not governments, not popes, not charlatans, not so called experts, no one at all.

Roar, bitcoin, roar.

Image from Shutterstock.

Ethereum Price Falls by More Than 7%

Ethereum appears to have entered a bear market with price falling by more than seven percent today.

Eth’s Price Falls by More Than 7%

The catalyst seems to be last week’s accidental hardfork where ethereum’s blockchain was split into two due to a bug that caused eth’s two main clients, Parity and Geth, to lack consensus. It was the fourth hardfork of the network in just as many months, beginning with the DAO fork on the 20th of July 2016.

Although price quickly began to gain appreciation after the DAO fork, the surprise listing of ETC by Poloniex returned chaos to the market, with the tense period of two weeks giving way to a slow decline of ETC and a gradual appreciation of ETH, up to Devcon2’s opening in September.

Eth Looses Almost Half of its Value Since September 2016

Since then, price has experienced a steady decline with no bottom in sight as an attacker exploited a bug that nearly brought the network to a halt. The developers recommended that there should be two forks to fix the bug, with one carried out in October and another this month which led to last week’s accidental fork.

That last fork may have been too much for the barely nascent network, seemingly shaking confidence as investors wonder whether further complications are to be expected. Overall sentiment, therefore, seems to have turned bearish, with the community probably waiting for some level of stability at the protocol layer.

Another reason may be a slowdown in new DApps or eth based projects with most of them launched during or shortly after Devcon2 when 700 attendees were showcased the ethereum ecosystem. One interesting yet to be launched project, however, especially in light of Reddit and Twitter censorship as well as tampering of comments, may be Akasha, which incorporates eth for voting. Mihai Alisie, Akasha’s founder, publicly stated in giving an update:

“[W]e’ve made tremendous progress and everything is coming together really nice – this week we ran tests on the MacOS and Windows. The dapp works on Linux and Windows but we are working on a few kinks related to the MacOS release. The final steps related to the cross-platform pre-alpha tests are now in motion.”

A third cause for the price decline may be bitcoin’s appreciation in light of monetary mismanagement by authorities in China, India, Venezuela, Zimbabwe, Nigeria and other countries. Traders, therefore, may have sold declining eth for appreciating bitcoin, further contributing to the trend in both.

That all said, after a euphoric spring, chaotic summer, and somewhat productive early autumn, it may well be the case that investors now just want a calm winter, and wait it out for the protocol to show stability as well as the return of the more ambitious projects which makes us once more dream of a world of machine to machine payments, owned by individuals scattered across the world through smart contract ruled tokens.

Featured image from Shutterstock. Charts from Poloniex and Tradeblock.