Bitcoin Plunges After Plans for Split Called Off

Bitcoin continued its retreat from a record high after traders weighed in on the cancellation of a technology upgrade that threatened to disrupt the biggest cryptocurrency.

Investors who were expecting the extra coins stemming from a split of the chain may be taking profits, while others who are disappointed the update was scrapped earlier this week may be switching to alternative coins, according to Charlie Lee, founder of litecoin, the fifth-largest cryptocurrency by market value.

While bitcoin soared to a record $7,882 within minutes of news that it would avoid another split on Wednesday, the gains have evaporated. Bitcoin is now trading more than $1,000 below where it was after a faction of the community scrapped plans for a so-called hard fork. Bitcoin was down 8 percent to $6,575 at 2:19 p.m. in New York.

Some speculators are disappointed they won’t get the additional coins that would have been created by a hard fork. While bitcoin splits are potentially disruptive, they’ve so far amounted to free money for holders of the cryptocurrency. Bitcoin Cash, the result of a hard fork in August, has climbed to about $900 from as low as $565 on the day the split was canceled, while bitcoin has slipped almost 10 percent after touching a record right after the news.
The main architects behind a change to its underlying software, known as SegWit2x, canceled their controversial plans Wednesday, saying they wanted to avoid deepening divides in the developer community.

Bitcoin developers, users and miners — those running computers that crunch the complex math required to verify transactions — have been trying to agree on ways to make transactions faster, as the network’s growing popularity has led to congestion. After an initial upgrade in August known as SegWit, short for Segregated Witness, a group in the bitcoin community was calling for SegWit2x. The second upgrade hadn’t gained as much support and was only a week away from confronting bitcoin with one of its hardest tests ever.

Bitcoin had climbed from about $6,00O since CME Group Inc., the world’s largest exchange owner, said on Oct. 31 that it wants to offer bitcoin futures by the end of the year, only a month after dismissing such a plan. Cboe Global Markets Inc. said in August that it wants to sell futures. Both need approval from the U.S. Commodity Futures Trading Commission.

Skeptics of the digital currency ranging from billionaire Warren Buffett to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon have warned that the unregulated asset is a speculative bubble in danger of bursting after its almost sevenfold increase this year.

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    How to Make Money Off Bitcoin Without Actually Owning It

    It’s the equity investor’s conundrum: how to get access to the skyrocketing returns of bitcoin and blockchain without actually owning the tokens.

    To Thomas Lee, a major bitcoin bull who heads research for Fundstrat Global Advisors, a dozen stocks should do the trick.

    “We believe investors should have exposure to blockchain, particularly given bitcoin has essentially zero correlation to equities, bonds and commodities —- hence, as a portfolio strategy, bitcoin is a good diversification tool,” Lee wrote in a note to clients Friday. “But this is impractical for many equity managers, given the parameters of their mandate or because of practical issues (custody of tokens, etc.).”

    Investors recently have sought ways to participate in the eye-popping bitcoin rally without having to purchase the cryptocurrency on the unregulated exchanges that have proven susceptible to hacks. Absent from Lee’s list are bitcoin futures, regulated derivative products that will debut on Cboe Global Markets Sunday and CME Group Dec. 18.

    Lee has long been one of Wall Street’s biggest advocates of the cryptocurrency. Two weeks ago he doubled his price target on bitcoin to $11,500 by the middle of 2018. It went for $15,552 as of 10:31 a.m. in New York on Friday, according to Bloomberg composite pricing.

    He suggests equity managers look to these ideas to leverage blockchain in their portfolios:

    • Bitcoin Investment Trust (GBTC)
    • MGT Capital Investments Inc. (MGTI)
    • HIVE Blockchain Technologies Ltd. (HIVE)
    • U.S. Global Investors Inc. (GROW)
    • DigitalX Ltd. (DCC)
    • NVIDIA Corp. (NVDA)
    • Advanced Micro Devices Inc. (AMD)
    • CME Group Inc. (CME)
    • Cboe Global Markets Inc. (CBOE)
    • Overstock.com Inc. (OSTK)
    • Goldman Sachs Group Inc. (GS)
    • Square Inc. (SQ)

    The looming availability of futures weighed on these equity proxies this week, as speculators may be shifting away from stocks of companies that have benefited as bitcoin’s price rose more than 15-fold this year. Both HIVE Blockchain Technologies and U.S. Global Investors are down near 10 percent this week. Nvidia and Advanced Micro Devices have also suffered losses in the five days ending Dec. 8.

    As for the totality of Lee’s picks, an equal weighted basket of these stocks is up 136 percent this year, according to the note. But as impressive as that may seem, he points out that it still lags bitcoin’s 1,685 rise in 2017.

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      Why Arbitrage Traders Are Salivating Over Bitcoin Futures

      The proverbial free lunch is just sitting there in the hours-old bitcoin futures market. So why isn’t it being gobbled up?

      Cboe Global Markets Inc.’s new contracts were priced as much as 13 percent higher than bitcoin itself since trading began Sunday night, according to data compiled by Bloomberg.

      That should have arbitrage traders salivating, especially among market makers starving after their — already successful and hugely profitable — efforts to make other similar assets trade in lockstep. Pity the poor S&P 500 arb living off spreads well below 1 percent, or merger arbs in the U.S., where the median gap is just north of 1 percent, according to data compiled by Bloomberg.

      “Arbitrage will close that gap, but it will be days and weeks,” Cboe Chief Executive Officer Ed Tilly said on Bloomberg Television Monday, less than a day after launching the product.

      Arbs make money when two strongly related assets converge in price, selling the one they consider pricey, buying the other, profiting off the difference.

      Their job is a little complicated with these futures. Bitcoin’s wild volatility makes it harder to predict where the most-active contract, which expires in January, will settle, Tilly added. Only a few thousand contracts have traded so far, perhaps not enough to exert much influence on the cryptocurrency. And some investors might be willing to pay a premium for futures on a regulated market instead of going to the trouble of creating accounts at bitcoin exchanges, which have been repeatedly hacked with millions of dollars worth of tokens stolen.

      “People feel a lot more comfortable in the futures on the Cboe than on an unregulated exchange,” said Kevin Kelly, managing partner of Benchmark Investments, which analyzes futures markets to develop indexes. 

      Then there’s the fact that when the Cboe contracts expire, buyers get cash, not bitcoin itself. When a derivative is cash-settled, that tends to weaken links to an underlying asset.

      “If you’re doing a cash-settled future, it’s just a bet,” said Aaron Brown, a former managing director at quant hedge fund AQR Capital Management who invests in the cryptocurrency and writes for Bloomberg Prophets. “If that’s not related to any underlying physical transaction, the only people who want to do it are gamblers.” The wide arb spread is “a big issue. It’s an illiquidity, it has to go away.” 

      Soon, Cboe won’t be the sole regulated exchange offering bitcoin futures. Rival CME Group Inc. will launch its own contracts on Dec. 18. And Nasdaq Inc. is planning to bring a competing product to market next year, Bloomberg News recently reported

      The price gap between bitcoin and bitcoin futures won’t last forever, said Dave Weisberger, CEO of CoinRoutes, a cryptocurrency data and order routing company.

      “The futures will ping-pong between premium and discount,” he said. “I suspect at some point, potentially triggered by a negative event, it will flip. Markets go up and down, and bitcoin has been no different. It’s just been fast.”

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        Bitcoin Soars Past $8,000

        Bitcoin’s relentless and volatile rally shows no sign of abating, with the world’s largest cryptocurrency defying growing bubble fears to hit yet another milestone.

        Bitcoin rose as much as 7.7 percent to a record $8,290 as of 2:47 p.m. in New York. It’s been a tumultuous year for the virtual currency, with three separate slumps of more than 25 percent all giving way to subsequent rallies.

        Even the most bullish analysts can’t keep up with bitcoin’s rally. Standpoint Research’s Ronnie Moas, who says bitcoin’s market cap will one day catch up to gold at $8 trillion, is raising his 2018 price target for the digital currency to $14,000 from $11,000. He had increased it from $7,500 last month.

        “The inflation in this thing is massive,” Luke Hickmore, a senior investment manager at Aberdeen Standard Investments in London, said in an interview with Bloomberg TV. “When will it collapse? Who knows. It will cause a lot of pain.”

        Even as many skeptics call the asset a bubble waiting to pop, it’s becoming too big for many on Wall Street to ignore. CME Group Inc., the world’s biggest exchange, will start offering futures trading on bitcoin next month, while senior executives at Goldman Sachs Group Inc. and Citigroup Inc. have said they are researching cryptocurrencies and the blockchain technology that underlies them.

        Terminal users can read more on bitcoin and bitcoin cash with our Q&A.

        Recent volatility has stemmed from a pickup in people switching to alternative virtual currencies, notably bitcoin cash. That’s gaining popularity due to lower transaction costs and faster speed. New cryptocurrency iterations are springing up as disagreements over bitcoin’s design persist and opportunities for making a quick buck prove hard to pass up.

        Bitcoin cash dropped 0.6 percent on Monday to trade at $1,189, down from a high of $1, 388 on Nov. 12, Coinmarketcap.com prices show. Bitcoin has advanced more than 700 percent this year and now boasts a market value of more than $130 billion.

        “I find it remarkable and somewhat frightening how, no matter how much bitcoin is pummeled by sellers, it simply bounces back even stronger,” said Lukman Otunuga, an analyst at currency brokerage ForexTime Ltd. “Will bitcoin hit $10,000 before year end? This is the question every investor is asking.”

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