Cryptocurrencies seem to be all the rage in investing right now. Bitcoin is the oldest of the cryptocurrencies and hit an all-time high this week after the Chicago Mercantile Exchange announced plans for a futures contract by the end of the year. CME Group CEO Terry Duffy stated, “Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract.” The contract will have to pass regulatory requirements from the Commodity Futures Trading Commission.
Up to this point cryptocurrencies have been somewhat cryptic. They developed from being “mined” and were often used to pay for illegal goods and services online. While they have come a long way in the past ten years, some financial experts view them as some sort of scam. Within the last few months, Jamie Dimon, CEO of JPMorgan Chase, has called Bitcoin a “fraud”, said that “It’s just not a real thing, eventually it will be closed,” and that “if you’re stupid enough to buy [bitcoin], you’ll pay the price for it one day.”
Let’s just say that Mr. Dimon is not a fan of Bitcoin and I think we can assume he feels that way about all cryptocurrencies. It is probably also safe to assume that there are many other banking executives that feel the same way. Of course, these executives may also be worried about protecting their turf. If you don’t need big banks to store your assets, it will hurt their business models. Given how big banks, investment banking firms and insurance companies led the global economy in to the financial crisis, I don’t think they should be casting any stones either.
Regardless of how bank and finance executives feel about cryptocurrencies, it is hard to ignore how the values have soared in the past few years. Bitcoin is the oldest of the digital currencies and the chart from Coindesk.com shows how the value of Bitcoin has risen over the past year. On November 7, 2016, the price for Bitcoin was $704.02 and as of November 5, 2017, the price stood at $7382.45. That is a 950 percent gain in one year. Regardless of how you feel about Bitcoin, 900 percent gains get your attention as an investor.
Now that Bitcoin is going to have listed futures on a regulated exchange, it will be interesting to see how the financial industry views the overall cryptocurrency market. One investment seems to think the listing is going to bring credibility to the market. Ari Paul, the CIO and managing partner at cryptocurrency investment firm BlockTower Capital, was quoted in an email to CNBC. “The addition of CFTC-regulated bitcoin derivatives will bring a great deal of liquidity and legitimacy to the cryptocurrency ecosystem.”
Even without the aid of being listed on a regulated exchange, the market for cryptocurrencies has grown to almost $200 billion and Bitcoin represents approximately 60 percent of that market cap. The chart below is from Coinmarketcap.com and it shows the current values of the five largest cryptocurrencies based on market cap.
The top five highest cryptocurrency market capitalizations according to Coinmarketcap.com.
With the tremendous growth in the market, there has also been a rise in fraudulent activity within the space. A recent article from The Atlantic pointed out a recent raid on a company called OneCoin, just outside of Mumbai, India. Authorities raided a meeting and arrested 18 representatives of the company. They also seized more than $2 million in investor funds, but that is only a fraction the company had already scammed from investors which was estimated at $350 million. These developments have led the Indian government to seek more regulation over digital currencies and a government panel has advised closing all cryptocurrency dealers in the country.
Despite all of the negative rhetoric from governments and financial executives, cryptocurrencies are garnering a lot of attention from investors. And as we said before, it is hard to ignore an investment that has grown like Bitcoin. The market has also garnered the attention of Amazon.com. A recent report from USA Today noted that the company had secured three different domain names associated with the cryptocurrency market. It isn’t clear yet whether the e-commerce giant intends to accept the currencies as payment in the future or if they intend to use the domain names in some other way.
Details of the futures contract have yet to be released, but the announcement that a regulated exchange will be listing contracts has sent the cryptocurrency market in to a frenzy, or should I say a bigger frenzy. It seems like cryptocurrencies are here to stay and will only continue growing at this point. Our own Tim Kaelin was at a presentation on cryptocurrencies last week in New York. He said, “The consensus was that in 10-15 years cryptocurrencies will be a challenge to national currencies.”