Tuesday, December 12, 2017

Bitcoin and cryptocurrencies : US-based trading

Bitcoin market — which hit $150 billion in August 2017 — looks more like the 1840s gold rush. Many rushed in, but few got rich.
While bitcoin advocates call it a currency, the Commodity Futures Trading Commission (CFTC) views it as a commodity. Skeptics view it as a commodity without any intrinsic value, with demand driven by novelty and the scarcity imposed by bitcoin's software protocols, which will cap its production. Some analysts think it will trade more like a volatile stock, while others expect it to develop into a new asset class entirely.

Bitcoin normally trades on a network of unregulated exchanges, which have their own prices for the digital currency -- and a long history of problems that range from service crashes to hacks and thefts.

For traders, bitcoin offers an entirely new landscape to navigate. One hallmark of bitcoin trading is unpredictable price swings, a stark contrast to the eerie calm that's settled over other financial markets, including U.S. equities.

Live quotes:

Bitcoin, cryptocurrency and blockchain-related stocks and exchange traded products:
  • Net Element (NETE): mobile payment services
  • Long Blockchain (LTEA) (previously known as Long Island Iced Tea)
  • Riot Blockchain (RIOT):  It was a pharmaceutical company known as Bioptix until this year. In October, the Colorado company said it was changing its name, making an investment in a Canadian virtual currency exchange and creating operations to mine Bitcoin and other virtual currencies. Also says it is applying the digital currency ledger technology to the biotech market.
  • Marathon Patent Group (MARA) -- owns some blockchain-related intellectual property.
  • Bitcoin Investment Trust (GBTC) -- holds bitcoins
  • Overstock.com (OSTK) -- includes an ecommerce arm that accepts bitcoin and a venture fund that invests in blockchain, the technology behind cryptocurrencies.
  • Crypto Co. (CRCW): To become a public company, The Crypto Company acquired a small existing public company, Croe, which previously developed women’s fitness clothing. In June 2017, the company said that its “core services include consulting and advising companies regarding investment and trading in the digital asset market.  Mid-December the SEC suspended trading of its stock. 
  • Digital Power (DPW): owns cryptocurrency hardware
  • Seven Stars Cloud Group (SSC) 
  • LongFin (LFIN)  
  • U.S. Global Investors (GROW) : cryptocurrency mining operation in Canada.
  • Microsoft (MSFT) is making great inroads with Blockchain-as-a-Service. The big idea is that the foundational distributed ledger system central to cryptocurrency can be monetized on a pay-as-you-go basis. The concept is finding a lot of interest, and Microsoft has first-mover status.
  • Online Blockchain PLC(LON:OBC) : On-Line was a small British company that previously incubated internet businesses. This fall, the company said it was renaming itself and shifting to focus on virtual currency technology.
  • Intercontinental Technology (OTCMKTS:RCGR): Previously known as Rich Cigars, the company produced cigars. But the Florida company said in Dec. 2017 that it was changing its name, getting out of the cigar business, moving to Colorado and creating  subsidiaries to mine for virtual currencies.
Stocks above -- day's change: https://finviz.com/screener.ashx?v=211&t=NETE,LTEA,RIOT,MARA,GBTC,OSTK,CRCW,DPW,SSC,LFIN,GROW&ta=0&o=change

U.S.-based brokers that let customers invest in bitcoin futures
  • E-Trade (ETFC) -- Bitcoin futures on the Cboe Global Markets (CBOE) exchange
  • TD Ameritrade (TD)

Futures contracts: Cboe Global Markets, CME Group, Nasdaq 
Three of the largest U.S. exchange companies, all overseen by the Commodity Futures Trading Commission (CFTC), are debuting bitcoin futures contracts. Cboe is getting its contract to market first. CME will begin offering a competing product on Dec. 18. Nasdaq Inc. is planning to introduce bitcoin futures next year. The other major U.S. exchange player, Intercontinental Exchange Inc., has not yet announced any plans to do so.

Futures contracts — which derive their value from some underlying thing like corn, wheat, or in this case, a digital currency — oblige a buyer to pay for something at an agreed-upon price at a certain date in the future. They can be used to make a bet on which way the market for a product is going to move. They can also be used to short a market, or bet that prices will fall.

ETFs with cryptocurrency exposure
  • ARK Investment Management, which runs six ETFs, offers exposure to bitcoin and was the first ETF to own GTBC shares, which has helped boost the funds' performance.   ARK Innovation (ARKK) and ARK Web X.0 (ARKW) provide exposure to bitcoin, but have diversification to more traditional equity investments such as Amazon.com, Tesla and Twitter.  ARKK and ARKW were the top two sector ETFs based on their year-to-date returns through Dec. 7, according to Morningstar Direct, with respective gains of 83% and 80%.

Bitcoin ETFs
There have been more than a dozen different filings for a bitcoin ETF. Most plan on using bitcoin futures.
  • Winklevoss Bitcoin Trust ETF (COIN):  Filing Status: Filing made on 7/1/2013; Denied by the SEC on 3/10/2017; SEC currently reconsidering. Strategy: Will use actual bitcoin
  • VanEck Vectors Bitcoin Strategy ETF:  Filing Status: Filing made on 8/11/2017; Withdrawn on 9/27/2017; Refiled on 12/11/2017. Strategy: Will use bitcoin futures.
  • REX Bitcoin Strategy ETF and REX Short Bitcoin Strategy ETF.   Filing Status: Filing made on 8/23/2017; Withdrawn on 10/5/2017; Refiled on 12/8/2017. Strategy: Will use bitcoin futures.
  • Evolve Bitcoin ETF. Filing Status: Filing made on 9/22/2017. Strategy: Will use bitcoin futures.  Toronto-based Evolve Funds has filed for its own bitcoin ETF to be traded on the Toronto Stock Exchange in Canada.
  • ProShares Bitcoin ETF and ProShares Short Bitcoin ETF. Filing Status: Filing made on 9/28/2017. Strategy: Will use bitcoin futures.
  • Reality Shares Nasdaq Blockchain Economy ETF:  Reality Shares filed in November 2017;  would invest in companies that commit significant resources to blockchain technology.
  • Amplify Blockchain Leaders ETF filed by Amplify ETFs; Nov. 2017
  • Horizons Blockchain Index filed by Horizons ETF Management.
Cryptocurrency exchanges:
  • Coinbase, an exchange where crytpocoins can be bought, sold and stored in wallets. Coinbase added more than 100,000 users Nov. 2, 2017 in a 24-hour period after CME Group announced its plans to introduce Bitcoin futures by the year's end.
  • U.S.-based Coinsetter, Coinbase, Cryptsy, 
  • London-based Bitsamp and 
  • Bulgaria-based BTC-e.
More about bitcoin mining
  • The amount of bitcoin rewarded for a successfully mined block slowly decreases over time via a known methodology, becoming zero in 2140. 
  • Miners also receive transaction fees, which would be the continuous incentive for miners after the reward ends in 2140. 
So-called miners perform a crucial function within the blockchain, or the decentralized ledger technology that underpins all crryptocurrencies, by solving complex computational problems to validate transactions on the network, In exchange for this function, which powers the blockchain, miners are rewarded with bitcoins.

Mining is a very energy-intensive process; by one estimate, bitcoin requires 215 kilowatt-hours of energy for each transaction. According to Morgan Stanley data, the total energy consumption of the bitcoin network consumes as much electricity as 2 million U.S. homes.

Mining becomes a magnitude more difficult and energy-draining the closer miners get the 21 million maximum number of bitcoin that will ever exist, a level that is calculated to be reached in 2140. Presently, the number of bitcoins in existence is roughly about 16.8 million since the first block of bitcoin was mined March 2009.

dollar vs. bitcoin  (inflation)

Misc crypto news:
  • 5/24/18: U.S. Justice Department launches criminal probe into bitcoin price manipulation.
  • 4/13/18:  Yahoo Japan (OTCPK:YAHOY) said it would buy a 40% stake in cryptocurrency exchange BitARG Exchange Tokyo. Services are planned for launch in the fall. The deal also comes after Japanese online brokerage firm Monex (OTCPK:MNXBY) announced last week that it would acquire hacked crypto exchange Coincheck for $34M.
  • 3/7/18:  Japan's Financial Services Agency punished seven cryptocurrency exchanges, ordering two of them to suspend business, just hours after a warning from the SEC that many online trading platforms must register with the agency. 
  • 3/7/18:  The Commodity Futures Trading Commission can legally classify and regulate cryptocurrencies as commodities, according to a new ruling from a federal judge that allowed a CFTC lawsuit against company Coin Drop Markets. Crypto legislation is still in its early stages in the U.S. and the federal government has held off from making any major rulings on regulation.
  • 1/8/17:  The Financial Industry Regulatory Authority (FINRA), the organization that regulates brokers, advisers and financial institutions in the United States, announced that it was going to focus on cryptocurrencies. 
  • 12/28/17:  South Korea said it was eyeing options including a potential shutdown of at least some cryptocurrency exchanges to stamp out a frenzy of speculation.  South Korea has been ground zero for a global surge in interest in bitcoin and other digital currencies as prices surged this year.  South Korea will require real-name cryptocurrency transactions and impose a ban on the offering of virtual accounts by banks to crypto-exchanges, according to a statement from the Office for Government Policy Coordination.
  • Ethereum has jumped 5,628% in 2017 from $8.03 on Dec. 31, 2016, and was at $459.99 Dec. 8, 2017. It surged as high as $464.99 early in the day.
  • 11/21/17 NY Times: Warning Signs About Another Giant Bitcoin Exchange (Bitfinex, and exhcange incorporated in the British Virgin Islands)
  • In other moves by financial companies to bring bitcoin to investors, on Sept. 6, 2017, CoinIRA, Goldco's digital currency unit, launched its new Digital IRA Bundles. The bundles, available in amounts of $25,000, $50,000 and $100,000, come prepackaged with digital currencies. Investors can choose from three portfolios based on their risk appetite: conservative, moderate or aggressive. The conservative bundle is made up of 50% Bitcoin, 41% Ethereum and 3% each in Ether classic, Litecoin and Ripple.
  • China banned initial coin offerings and trading in cryptocurrencies. (Sept 2017)
  • But many retailers are accepting Bitcoins as payment, including Microsoft, Target, Home Depot and Subway. And more uses are in the works.
What Is Bitcoin?

Bitcoin arrived on the scene in 2009. The digital currency is created and held electronically. Its value stems partly from the fact that it's decentralized; no single institution or government controls the network. It was developed based on a proposal from a software developer called Satoshi Nakamoto, according to CoinDesk, which tracks cryptocurrency prices and reports on events in the crypto space. Low transaction costs are another feature along with instantaneous transfers.

Perhaps its biggest attraction is that its supply can't be increased or decreased at the whim of a controlling entity. Similar to gold and other precious metals, Bitcoins can be "mined," but it's done by using computing power in a distributed network. And like gold, Bitcoin supply is limited. And it's headed toward terminal creation.

Bitcoin rules state that only 21 million Bitcoins can ever be created, though the coins can be split into smaller parts. That could make Bitcoin, like gold, an attractive inflation hedge, backers say. There are 16.67 million Bitcoin in circulation now.

On the other hand, the potential creation of new digital currencies creates "the possibility of limitless supply of different cryptocurrencies," undermining the value of existing ones, UBS warned recently.

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