The Institutionalization of Bitcoin

by | 14 Nov, 2017

The cryptocurrency market just changed forever, after CME Group announced they would be listing a Bitcoin futures product on their exchange from December 2017.

Hindsight is a wonderful thing. Just 5 years ago, a single Bitcoin traded below $15 against the US Dollar. At the end of November 2017, the price peaked above $11,000. Many investors who parted with a little of their spare change back in 2012 to invest in the cryptocurrency are now millionaires, while initial coin offerings are being created at an astronomical rate, but its beginnings were far more humble, and its future was anything but certain.  

In 2012, the cryptocurrency existed in relative obscurity, usually known only by those engaging in shady activities such as the purchasing of items on the dark web, where users could find anything from illicit drugs, weapons, medical equipment, passports and ATM hacking guides to hitmen for hire.

The most well known of these sites was the Silk Road, one of the largest online black markets, which users could only access through Tor, an anonymous network originally developed by the United States Navy to protect US intelligence communications online.

Tor logo containing the onion, which represents how messages are encapsulated in layers of encryption using onion routing technology

For those who ‘travelled’ on the Silk Road, Tor was the first layer of protection from the authorities, but there was yet another for safekeeping – Bitcoin. The mysterious cryptocurrency allowed buyers and sellers alike to conduct transactions directly without using a third-party platform like PayPal, or moving funds from one bank account to another. Through the use of blockchain technology, people could have relative anonymity whilst making dubious purchases. The combined use of these technologies prevented them from leaving a digital footprint which could have been used to prosecute them.

When Silk Road went mainstream after being featured in a Gawker article in June 2011, it quickly caught the interest not only of the public at large, but authorities the world over.  It took over 2 years since the piece was published before the Federal Bureau of Investigation stepped in and moved to close the marketplace. In 2013, the sites owner Ross William Ulbricht was arrested by the FBI. Data taken from 2012 showed that business had been booming – with an estimated $15 million worth of transactions being made on an annual basis on Silk Road, all entirely in Bitcoin.

New iterations of the site existed since it was first shut down, but they never had the same traction the original did, but for Bitcoin, the journey was just beginning.

The original logo for the Silk Road marketplace. The name derives from a series of trade routes that connected ancient civilisations across Asia.

Before legal action for the Silk Road came, other sites watched closely by regulators such as WikiLeaks began accepting Bitcoins as a form of donation. By 2012, WordPress was on board and accepting the cryptocurrency, and it started to look as if Bitcoin was moving into the mainstream. 

In the years between its original emergence in 2009 and now, there have been far too many important events which have taken place in its evolution to be able to discuss in detail here. Sufficed to say however that there has been periods in which the future of Bitcoin as well as other cryptocurrencies like Ethereum and Litecoin have seemed in jeapordy, as regulators who were usually trying to control conventional banks struggled to get a grip of a currency which operates beyond official financial systems and monetary authorities.

Indeed, there have been numerous crackdowns on Bitcoin trading, not least in China this year. In mid-September, Beijing moved to stamp out cryptocurrency exchange trading as well as ICO’s (initial coin offerings), sending the price dipping and diving. By November 2017, the last digital currency exchange in China was officially shut, but this did not stop the move upwards in Bitcoin’s value for long. 

Regardless of state intervention across the globe, there may yet be hope for crypto fans everywhere. On November the 13th 2017, Terry Duffy, head of the worlds largest options and futures exchange (CME Group), told CNBC that the firm would be listing a Bitcoin futures product as early as next month.

CME Group is the world’s leading and most diverse derivatives exchange marketplace, offering the widest range of global benchmark products across all of the major asset classes, including futures and options based on interest rates, equity indices, foreign exchange, energy and metals.

The move to accomodate digital currencies is symbolic, as it ultimately represents just how far the cryptocurrency has come since its days of relative obscurity. 

Noted names in the banking world such as JP Morgan’s Jamie Dimon have trash-talked Bitcoin in the past, calling it a ‘fraud’ and denouncing those who trade it, but others, including Wall Street titan Goldman Sachs have seemed more open to the idea of cryptocurrencies in general. In a recent discussion with CNBC, Goldman CEO Lloyd Blankfein said he would not prevent the firm from establishing an institutional Bitcoin trading desk, according to reports.

Now that an established financial institution like the CME Group has given the official green light to trading a BTC derivative, listing it on the exchange, this adds a new level of legitimisation to Bitcoin, and could prompt more financial institutions to adopt official BTC trading in future. What could have once been considered the Wild West of the investment world, the cryptocurrency trading space may now be tamed. 

This could have the affect of driving up prices further, or indeed the opposite. By pushing digital currencies more into the remit of major financial institutions, are they at risk of becoming more and more regulated? If so, this may undermine the entire premise of cryptocurrencies, which are supposed to provide anonymity for their holders, spenders and buyers. 

Regardless of whatever happens next, up until this point the price has been going to ‘moon’ (as crypto investors like to say).

Bitcoin has survived throughout numerous challenges, but can it withstand the scrutiny of the mainstream?

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Oil's Slick Upward Move

Technocratic officialdom just declared UBS, Zurich Insurance, Nestle, and in fact, the entire Swiss stock exchange, 'off-limits.' They've done what, now?

Once upon a time, a complex myriad of red tape allowed Swiss stocks to be traded across the European Union (EU). Brussels said enough's enough to that and decided to craft one deal to rule them all. While that was being drafted, a Swiss subplot started to boil. Elections, euro-skepticism, and trade unionists became a focal point, and the EU's immovable deal hit a Switzerland's unstoppable sentiment. The treaty crumpled.

In short, the EU just sent the bloc's fourth-largest exchange packing. The SIX, valued at $1.7 trillion with Nestle and Novartis on its register, is out it's own bounds. We can't invest in it anymore!

It's hard to tell who has this worst. For a start, Swiss companies may be forced to other stock exchanges outside Switzerland. A few already have. Investors still with access could end up paying more for shares as, with a European third of orders gone, brokers recoup money by setting higher asking prices. And the officials behind all this? Truly at each other's throats. 

Within the political mire, many hoped both sides could iron out their differences and keep the "equivalence" agreement going. Nope. Switzerland is furious with the EU for what it sees as a flex of power in front of Britain, still in its Brexit muddle. Creating a theatre, it sounds like Brussels is shouting 'don't mess with us!' in the direction of the UK, now teetering closer to a no-deal cliff edge. As Brussels endures its own leadership merry-go-round, Downing Street doesn’t even know to whom it should address its strongly worded letters…

All this couldn't happen to British stocks, could it? Could it?!

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There is no minimum initial deposit required to open an investing account with DriveWealth. Expenses and Fees associated with the DriveWealth platform in conjunction with Beanstox includes either a monthly membership fee of $4.99 with a commission charge of $0.01 per share* or, in the event the membership fee is not paid, a commission charge of $0.0125 per share applies, subject to a minimum of $2.99 per transaction. There are no monthly minimum fees, or required ongoing minimum account balance. For non-resident aliens, there is a one-time tax verification fee of $5.00 (representing Form W-8BEN pass-through processing cost). View a full list of our fees at http://bit.ly/DWFees

The monthly subscription charge is four dollars and ninety-nine cents (US$4.99) per month plus one cent (US$0.01) per share traded (as examples, for a Transaction of 0.90 shares, the per share traded charge is one cent (US$0.01), and for a Transaction of 1.6 shares, the per share traded charge would be two cents ($0.02), and the quarterly subscription charge is fourteen dollars and ninety-nine cents (US$14.97) every 3 months plus one cent (US$0.01) per share traded. The monthly and quarterly subscription charges may be greater or less depending on additional services offered by a DriveWealth partners as part of the subscription model offering, or based on any subsidies provided by a DriveWealth partner as part of the subscription model offering. For non-resident aliens, there is a one-time tax verification fee of $5.00 (representing Form W-8BEN pass-through processing cost).View a full list of our fees at http://bit.ly/DWFees

This communication is not an offer or solicitation to purchase or sell securities. Investing in securities carries risk, including the loss of principal. Past performance is not indicative of future returns, which may vary. Online trading has inherent risk due to system response and access times that may be affected by various factors, including but not limited to market conditions and system performance. An investor should understand such facts before trading. The risks associated with investing in international securities, including US-listed ADRs and ETFs that contain non-US securities include, among others, country/political risk relating to the government in the home country; exchange rate risk if the country's currency is devalued; and inflationary/purchasing power risks if the currency of the home country becomes less valuable as the general level of prices for goods and services rises. Before investing in an ETF, an investor should consider the investment objectives, risks, charges, and expense of the investment company carefully. ETF prospectuses are accessible within the mobile application via a link under each company’s “Description.”

A fractional share is a share of equity ownership that is less than one full share. Fractional share investing has certain limitations and restrictions that investors should understand prior to purchasing fractional shares: ownership of less than one full share does not give the fractional share owner the right to vote on company matters; fractional shares are non-transferrable, meaning they cannot be transferred to another brokerage firm; and fractional share orders will be accepted as market orders only. For more information and details on fractional shares, and any associated limitations or restrictions please visit: https://drivewealth.com/fractional-shares-disclosure

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ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:

Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.

Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.

Brokerage services of US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth, LLC a registered broker-dealer and member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. 

DriveWealth provides no tax, legal, or investment advice of any kind, nor does DriveWealth give advice or offer opinions with respect to the nature, potential value, or suitability of any securities transaction or investment strategy. DriveWealth acts as the clearing firm for securities transactions entered on the Invstr mobile platform. DriveWealth is not affiliated with Invstr. Invstr does not participate in DriveWealth’s decision-making.

There is no minimum initial deposit required to open an investing account with DriveWealth. Expenses and Fees associated with the DriveWealth platform in conjunction with Beanstox includes either a monthly membership fee of $4.99 with a commission charge of $0.01 per share* or, in the event the membership fee is not paid, a commission charge of $0.0125 per share applies, subject to a minimum of $2.99 per transaction. There are no monthly minimum fees, or required ongoing minimum account balance. For non-resident aliens, there is a one-time tax verification fee of $5.00 (representing Form W-8BEN pass-through processing cost). View a full list of our fees at http://bit.ly/DWFees

The monthly subscription charge is four dollars and ninety-nine cents (US$4.99) per month plus one cent (US$0.01) per share traded (as examples, for a Transaction of 0.90 shares, the per share traded charge is one cent (US$0.01), and for a Transaction of 1.6 shares, the per share traded charge would be two cents ($0.02), and the quarterly subscription charge is fourteen dollars and ninety-nine cents (US$14.97) every 3 months plus one cent (US$0.01) per share traded. The monthly and quarterly subscription charges may be greater or less depending on additional services offered by a DriveWealth partners as part of the subscription model offering, or based on any subsidies provided by a DriveWealth partner as part of the subscription model offering. For non-resident aliens, there is a one-time tax verification fee of $5.00 (representing Form W-8BEN pass-through processing cost).View a full list of our fees at http://bit.ly/DWFees

This communication is not an offer or solicitation to purchase or sell securities. Investing in securities carries risk, including the loss of principal. Past performance is not indicative of future returns, which may vary. Online trading has inherent risk due to system response and access times that may be affected by various factors, including but not limited to market conditions and system performance. An investor should understand such facts before trading. The risks associated with investing in international securities, including US-listed ADRs and ETFs that contain non-US securities include, among others, country/political risk relating to the government in the home country; exchange rate risk if the country's currency is devalued; and inflationary/purchasing power risks if the currency of the home country becomes less valuable as the general level of prices for goods and services rises. Before investing in an ETF, an investor should consider the investment objectives, risks, charges, and expense of the investment company carefully. ETF prospectuses are accessible within the mobile application via a link under each company’s “Description.”

A fractional share is a share of equity ownership that is less than one full share. Fractional share investing has certain limitations and restrictions that investors should understand prior to purchasing fractional shares: ownership of less than one full share does not give the fractional share owner the right to vote on company matters; fractional shares are non-transferrable, meaning they cannot be transferred to another brokerage firm; and fractional share orders will be accepted as market orders only. For more information and details on fractional shares, and any associated limitations or restrictions please visit: https://drivewealth.com/fractional-shares-disclosure

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