On Bitcoin, Amazon, ICOs and More / by FPM Team

  • Last week, Terry Duffy, CME Group Chairman and CEO said, “Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract … As the world's largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities."  CME also reported that "Cryptocurrency market capitalization has grown in recent years to $172 billion, with bitcoin representing more than 54 percent of that total, or $94 billion.  The bitcoin spot market has also grown to trade roughly $1.5 billion in notional value each day."
  • Also, various news sources reported that Amazon.com (through one of its subsidiaries) registered the internet domain names amazonethereum.com, amazoncryptocurrency.com, and amazoncryptocurrencies.com. 
  • Note: Amazon registered the domain name amazonbitcoin.com three years ago.
  • The article “Greater fool theory: The bitcoin bubble" (The Economist – Nov. 1) said, “There may be good reasons for buying bitcoin. But the dominant reason at the moment is that it is rising in price … 
  • "All this indicates that Bitcoin has reached a new phase. The stockmarket has been trading at high valuations, based on the long-term average of profits, for some time. But there is nothing like the same excitement about shares as there was in the dotcom bubble of 1999-2000. That excitement has shifted to the world of cryptocurrencies like Bitcoin and Ethereum. A recent column focused on the rise of initial coin offerings, a way for companies to raise cash without the need for a formal stockmarket listing—investors get tokens (electronic coins) in businesses that have not issued a full prospectus. These tokens do not normally give equity rights. Remarkably, as many as 600 ICOs are planned or have been launched."
  • Recently, Ethereum creator Vitalik Buterin discussed ICO’s and said, ”This, basically, is tokens 1.0. There are some good ideas, there are a lot of very bad ideas, and there’s a lot of very, very bad ideas, and quite a few scams as well. I expect that tokens 2.0 and the kinds of things that people will start building in 2018 and 2019 will generally be of substantially higher quality. Especially once we start seeing what the consequences of the first wave of tokens are in the medium-to-longer term … What is a good role for them and what is a role that doesn’t really make sense?"

OUR TAKE

  • Regarding the CME - While its action may increase the legitimacy of cryptocurrency, the introduction of bitcoin futures contracts will also attract a new class of speculators.
  • Regarding Amazon - It remains unclear what Amazon's intentions are for the domain names, but the firm has the  e-commerce presence and technical expertise to successfully introduce its own cryptocurrency.
  • Regarding the bitcoin bubble - Demand and innovation for cyrptocurrencies, smart contracts and other digital assets will continue to grow in the long term. However, the brisk short term upward price move in many cyrptocurrencies will likely falter in the short-term.
  • Regarding Vatalik on ICOs - As he points out that innovation is needed, current investors should understand that most (perhaps 90% or more) of ICO-driven projects will fail.