The Long Road to Credibility

Bitcoin still in a world of its own

Last week I wrote about how Bitcoin was starting to react to its drivers in a way that mirrored the way Fiat currencies do. Option structures are being built around the volatility of the currency (I think I can call it that) and it was beginning to act just a little more predictably.

This week I have seen a few differences that will need to change if Bitcoin, or any other cryptocurrency, is to join the mainstream.

Whilst trading, mostly in cable and Eur/Gbp, this week, I glanced at the bitcoin chart and I realized a difference that still highlights differentiation but is also entirely natural.

Bitcoin doesn’t move in sync with other currencies but when why would it as it is still in its infancy. The clear majority of Bitcoin trades are cleared versus the dollar. Yes, it doesn’t really move versus the dollar as the pound or Euro do. When there is a move attributed to, for example, a Fed decision, like this week. The pound and Euro rally almost in unison since there is no reason for the cross rate to change, yet Bitcoin is unaffected. In the dealing rooms of the major trading banks, I can still see the Crypto trader kept in a broom cupboard somewhere well away from the “real action”.

The second stage is just beginning

So, where are we really in the development of the crypto world. There is still plenty of interest in investment new ICO’s and if that continues the path to mainstream acceptance of the other great benefit of Cryptocurrencies, that of funding for new technologies and their linked businesses, will continue.

I saw this week a comment from a prominent Wall Street investor who said that he firmly believed that ICO’s would replace small cap IPO’s within a few years. He cited cost and principal control as the main reasons such a development could take place.

One of the lessons that needs to be understood by Joe Public is that cryptocurrencies weren’t developed simply to trade they were primarily designed and a by-product of the Blockchain and its many possibilities. The simple creation of blocks yet linking them in an almost infinitely secure way has opened a whole new paradigm creating entire new industries.

One possibly positive yet concerning development around cryptocurrencies this week were the comments from the Governor of the Bank of Italy that they need to be monitored not banned.

The possibility of banning cryptocurrencies has long since passed but monitoring can be a scary word. It is my view that the entire industry needs to be given its head for a few more years to see how it develops and in a similar way to Mark Zuckerberg’s comments this week, “we need to know what kind of regulation is needed; the question is no longer whether regulation is necessary.”  

Meanwhile in Brexitland

In a week when shocks were at a premium, there were three “dead certs” that came to pass.

First, the Fed hiked rates, second Mario Draghi made a dovish speech (but was proved right, again) and a Brexit Transition agreement was reached.

It feels to me that a couple of months ago, David Davis, the man with the world’s least imaginative parents, and Michel Barnier sat at a conference table and Barnier handed Davis a list of terms that need to be fulfilled for Brussels to agree a transition period. For appearances sake, they adjourned, then met up this week for the UK to simply concede every point.

But wait, there is a conspiracy theory!

A rumour is circulating that a deal over the Irish border was part of the EU’s demands but that hasn’t yet been made public. Why? Because it is going to cause uproar in Belfast and put the Good Friday Agreement in jeopardy.

This is given a little credence following a speech to EU Heads of Government in which UK prime Minister Theresa May referred to the Northern Ireland issue a couple of times rather than the Irish Border issue.

Brexit is going to be bad for the UK whenever it finally happens primarily due to the attitude that is going to be adopted by Brussels which sees no reason to give an inch!