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European Speed Trader Begins Trading Bitcoin and Ethereum Exchange Traded Notes (ETN)

Flow Traders NV, the biggest speed trader in the EU, has started trading Bitcoin and Ethereum exchange-traded notes (ETN). The ETN is being offered by XBT Provider who in 2015 and 2017 launched both BTC and ETH ETNs respectively. The Amsterdam-based Flow Traders becomes the first company to participate in the cryptocurrency-backed ETN market.

Details of the ETN

XBT Provider, responsible for the BTC and ETH ETN is listed on the Swedish stock exchange. The company reportedly controls an asset base worth over $1 billion. Flow Traders hopes to leverage its pedigree as a speed trading behemoth to hedge each trade. By so doing the company plans to maximize its profits from the market.

The price movement of either virtual currency does not in any way affect the profitability of the ETN trade. The company also announced that it would hedge its ETN trading with futures contracts offered by both the CME and Cboe. The aim of doing this is to eliminate liquidity shortages as well as reducing slippage.

Dennis Dijkstra, the CEO of the company, says this approach will be highly profitable for the company. He, however, did not discuss how the company plans actually to hedge each trade. The main question whether it will utilize the underlying cryptocurrencies – Bitcoin and Ethereum.

ETN is in a sense similar to ETF. They both allow people to invest in a commodity without actually having to hold that commodity. The only difference is that with ETFs, the trader invests in a fund that tracks the price movement of the underlying asset while for ETNs, the trader is more or less investing in a bond.

Bitcoin and Ethereum ETN Trading

By becoming the first company to trade a cryptocurrency-backed ETN, Flow Traders seems to be setting a standard that bridges both the mainstream and virtual currency finance industries. Not since the emergence of Bitcoin futures in late 2017 has there a cryptocurrency investment avenue tailormade for mainstream investors. Like futures trading, ETNs aren’t affected by the volatility of virtual currencies – something that is anathema to many institutional traders.

Speaking on the ETNs, Dijkstra said:

People underestimate crypto. It’s big, and it is to be regulated very soon. The market participants are much more professional than people think. Institutional investors are interested – we know they are because we get requests.

Opposition from Regulators

While Dijkstra is optimistic about the prospect of the ETN, regulators from the Netherlands don’t share the same view. Nienke Torensma, a spokesperson for the Dutch Authority for the Financial Market said:

We discourage activities in cryptos both by consumers and professional license holders. By virtue of its newness and the anonymity it potentially offers, it is very prone to abuse. Given its inability to serve the promised purpose as a currency, we don’t regard it to be an asset class.

For now, there is precious little that regulators can do against the ETNs seeing as they are listed on a regulated stock exchange market.

What do you think about Flow Trader’s new BTC and ETH ETN trading product? Do you think this development will hasten the emergence of cryptocurrency-backed ETFs? Keep the conversation going in the comment section below

Image courtesy of Getty Images.

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Bitcoin is Not Dead, Says Brian Kelly

Brian Kelly of BKCM LLC remains bullish on Bitcoin despite the steady decline experienced in 2018. Speaking to CNBC yesterday (June 22, 2018), Kelly boldly declared that Bitcoin isn’t dead yet. The top-ranked cryptocurrency has plunged by more than 65 percent since the start of the year.

“Sentiment is Approaching the Lows”

According to Kelly, the negative sentiment in the BTC is approaching the lows. Thus, a revival is right around the corner. He dismissed the idea that Bitcoin was dead, highlighting several factors that have contributed to the dip in BTC prices since the start of 2018. The BKCM boss identified the tax selloffs and crypto exchange hacks as part of the reason for the negative sentiment of retail traders in the market.

Brian Kelly / Courtesy: CNBC

Kelly also highlighted the fact that despite the BTC price decline, Bitcoin is still more valuable than it was a year ago. In June 2017 BTC was trading at $2,500 which is still miles away from the lows being experienced in the market at present.

Mt. Gox Civil Rehabilitation Means No More Selloffs from Tokyo Bitcoin Whale

Kelly also referenced the recent development in the Mt. Gox bankruptcy case. A Tokyo District Court issued a ruling yesterday that the company was to halt criminal bankruptcy proceedings and move into civil rehabilitation. Thus, the remaining BTC held by the defunct Bitcoin exchange bankruptcy trust will be divvied up among its creditors.

While in civil rehabilitation, the Mt. Gox trustee, Nobuaki Kobayashi, will be unable to offload any more BTC. Kobayashi dubbed the Tokyo Bitcoin whale, has been accused of contributing to the decline in BTC prices due to his massive selloffs. Based on the tentative schedule released by the company, the civil rehabilitation process will begin in 2019. Thus, traders can rest easy, knowing that the Tokyo Bitcoin whale isn’t striking any time soon.

Bitcoin Futures Not to Blame for Price Decline

As part of his BTC price analysis, the BKCM chief refuted the idea that the emergence of futures played a part in the BTC price decline. According to Kelly, Bitcoin futures trading hasn’t reached a level to impact the market price significantly.

Also, trading in the futures market is cash-settled so there ought not to be any negative liquidity implications on BTC on account of its futures market. The emergence of the CME and Cboe BTC futures coincided with the rapid ascent of prices seen in mid-December.

Bitcoin Will Rebound in 2019

In a related development, Todd Gordon of Tradinganalysis.com expects BTC to bounce back in 2019. In a telephone chat with CNBC yesterday, Gordon revealed that he wasn’t shocked by the way BTC has declined in 2018 saying:

It [the BTC price drop] was part of the plan. I expected Bitcoin to drop below $5,000, shake out a lot of longs, [and create] a lot of discouragement. I think the technicals will kick in around the $3,000 or $4,000 mark.

Gordon predicted that BTC would be back above $10,000 in February 2019.

Do you agree with Kelly that Bitcoin is not dead? What factor(s) do you think are responsible for the current BTC price decline? Let us know your views in the comment section below.

Image courtesy of the CoinMarketCap and Ethereum World News archives.

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Here Is Why Ethereum (ETH) Futures are A Double Edged Sword

The metaphor of something being a double edged sword might have originated in ancient Arabia when swords were the epitome of weaponry. Others might debate that it originated from the days of the Samurai in Japan. Whatever the origin of the metaphor, it means the same thing globally; that something has the potential for being favorable and also unfavorable. Picture the blade which is sharp on both ends. It is a threat to both the opponent and an inexperienced user.

The reason for the extensive explanation of the metaphor, is to give a clear picture of what the announcement by the CBOE President that the SEC decision to declare Ethereum (ETH) as not fitting the bill of being classified as a security, paves the way for ETH futures being offered by not only the CBOE (Chicago Board Options Exchange), but also other firms such as the CME Group.

Chris Concannon, the CBOE President had this to say about the SEC’s new stance on Ethereum:

We are pleased with the SEC’s decision to provide clarity with respect to current Ether transactions. This announcement clears a key stumbling block for Ether futures, the case for which we’ve been considering since we launched the first Bitcoin futures in December 2017.

So why is this a double edged sword?

Firstly, and referring to the past market reaction when BTC futures were announced as being offered by both CBOE and CME Group, Ethereum might rally to new highs as was the case with BTC right before December 17th when the BTC futures went live. Bitcoin was trading at $20,000 on the eve of the BTC Futures roll-out. A rally of Ethereum is very welcome.

Observing history once again, the price of BTC would then tumble through January and to the current levels we are seeing. Some have even pushed the theory that the BTC futures dragged down prices.

Therefore, Ethereum might experience a similar fate of a rally and decline as a result of the SEC giving an unofficial green-light for the offering of ETH futures.

Secondly, and using the past history of BTC futures, traders might use the history of BTC outlined above, and decide to short Ethereum. Shorting is the activity of borrowing an amount in stock, or in this case crypto, then immediately selling and hoping its price will decline. When it does so, the trader immediately buys the same amount at a cheaper price. He refunds the borrowed amount and keeps the difference in cash as profits.

Shorting will flood the markets with ETH leaving traders who want to go long, with no option than to sell or incur losses. This means that ETH will flood the markets and its price will tumble due to an over supply.

Thirdly, the ETH futures might give validity to the crypto-markets and bring in the institutional investors everyone is talking about. As they buy more crypto, the market capitalization of the entire crypto markets is sure to increase and so will the price of all our favorite coins and tokens. This means that we might be headed for the December and January levels once again.

In conclusion, the entry of ETH futures was expected and is a welcome proposal. This might end up benefiting Ethereum and the entire crypto-markets by bringing in institutional investors. The other side of the coin, is the two cases described where the value of Ethereum will first rise then tumble as was seen with Bitcoin in the past; and the second case where ETH will be shorted en mass, leading to its decline in value.

Disclaimer: This article is not meant to give financial advice. It is an opinion piece. The opinion herein should be taken as is. Please carry out your own research before investing in any of the numerous cryptocurrencies available.

[Photo source, buyblade.com]