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3 charts show the crazy gains of cryptocurrencies



Photographers
take pictures in front of a mock bitcoin ATM during the opening
of Hong Kong’s first bitcoin retail store February 28,
2014.

Reuters/Bobby
Yip


“One word, a question: Ethereum,” said the guy at my swim club on
Sunday. “What do you think? It’s a ten-bagger since January.”
Meaning that the value of the cryptocurrency has multiplied by
ten in the four months since January 16.

It’s actually more than a “ten-bagger.” At the end of 2015, it
was worth $0.90. As I’m writing this, it’s worth $91.30. Those
who bought it at the end of 2015 had a ten-bagger on their hands
by January 16, 2017. Those who bought at that time also have
ten bagger on their hands. Those that rode it all the way up over
the 16 months have a 100-bagger. For percentage fans, that’s a
gain of 10,000%.

Here is the chart of this financial miracle (via WorldCoinIndex):


Cryptocurrency etherium2017 05 14Wolf
Street

What miracle “asset” did they get when they bought it? Don’t even
ask. Just believe in it. It certainly isn’t a usable currency for
legit purposes, obviously, given this kind of insane instability.
But it really doesn’t matter what it is as long as it is going
up.

By “market capitalization,” ethereum is now the second largest
cryptocurrency at $8.4 billion.

The largest one is bitcoin with a “market cap” of nearly
$30 billion. It’s the granddaddy of the cryptocurrencies. The
value of a single bitcoin, at $1,789 on Sunday, is 46% higher
than the value of one troy ounce of gold. In mid-May 2015,
bitcoin was at $240. Over the two years since, it has soared 645%
(via

WorldCoinIndex
):


Cryptocurrency bitcoin2017 05 14Wolf
Street

Number three in line, in terms of “market cap,” is Ripple,
which now trades for $0.215. There are a lot of them, and all of
them combined are valued at $7.3 billion. It’s up from $0.006 at
the end of February 2017. So in the 11 weeks since, it has soared
by 3,542%. Or to use my friend’s term, it’s a 35-bagger in 11
weeks. This is its ludicrous chart (via

WorldCoinIndex
):


Cryptocurrency Ripple2017 05 14Wolf
Street

It’s not some kind of bad joke. This is being played with real
money. That it will inflict maximum pain on the latecomers –
whenever this happens – is now perfectly clear.

There are over 830 “alt-coins,” as the alternatives to bitcoin
are called, out there, with new ones being added constantly. The
“market cap” of all these cryptocurrencies combined, according to
the Financial Times, has pierced the $50 billion
mark. So this starting to involve serious money.

But there are a couple of issues with this miraculous scenario,
according to the FT:

An increase in initial coin offerings (ICOs) – unregulated
issuances of crypto coins where investors can raise money in
bitcoin or other crypto currencies – is fueling the market and
drawing attention from lawyers and financial professionals.

Many fear ICOs, which are trying to market themselves as an
alternative to venture capitalists as a way of raising cash for
businesses, breach existing securities law.

“An ICO issues crypto tokens rather than stocks and bonds, but
that’s irrelevant to the substance of the activity, which is
raising capital from the general public,” said Ajit Tripathi, a
director in fintech at PwC. “Capital raising activities need to
be regulated to protect investors . . . The question is how
sophisticated are these investors?”

Many of these investors may not be “sophisticated.” But others
appear to be highly sophisticated, now that the sums involved
have gotten big enough for them. The FT:

Observers say many individuals are trading alt-coins from
corporate IT departments, concentrated in the financial sector
and falling under the radar of senior executives. Many are
sitting on virtual fortunes, but are unable to liquidate their
cash as banks clamp down on measures to avoid money laundering.

“Systems are being used here by employees to increase their own
individual wealth. In the process, corporate systems are coming
into contact with the fringes of the criminal world,” Brian Lord,
former deputy director for intelligence and cyber operations at
the UK’s electronic espionage agency GCHQ and now head of cyber
practice at security group PGI, told the FT.

Big sophisticated traders – including hedge funds and others –
are in this trade, not because it might make some real economic
sense, but because, as the charts above show, these things can be
pushed up quickly with enough money involved. And if enough new
people can be drawn in due to the ballooning hype, then the big
boys can get out, once they figure out how to deal with the
banks’ concerns about money laundering.

For now, the SEC and other regulatory agencies have turned mostly
a blind eye, as they usually do. Later, when it’s too late, after
considerable wealth has been transferred from those getting in
late to those getting out in time, the SEC might get interested
in it. And that act alone could reverse some of those charts
above.

For now, cryptocurrencies remain relatively small compared to
derivatives. Oh, and the unintended consequences of trying to
regulate that monster.

 


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