MORNING BID – Crypto-sale of the Century

Jul 1, 2014 13:38 UTC

Details on the sale of about 30,000 bitcoin have been spare, but what can be inferred by reading through the lines is that the sale of about $18 million went a lot better than many expected – particularly those who expected to get the coins on the cheap somehow. The prevailing market rate at the end of Monday was about $639, according to Coindesk, currently the leader in the pricing world, and the chatter trickling out was that the unsuccessful bidders – including hedge fund Pantera and SecondMarket’s Barry Silber, who put together a consortium of more than 40 bidders – aimed too low in one of those “Price is Right” moves but without the warmth of Bob Barker to confront you when you lose on these things.

With that in mind the speculation on just where the auction ended up can run wild – did it go for $650? $700 for the lot? Perhaps; those commenting on twitter and to Reuters in a story from Gertrude Chavez and Nate Raymond on Monday were suggesting that there were plenty of newer bidders in the process, firms that have been just getting going in the bitcoin world and probably wouldn’t mind to get their hands on a large stake even at a somewhat elevated price.

Either way, it points to the possibility of more sales from the U.S. Marshals, who are still hanging onto another 144,000 bitcoin that it obtained off a hard drive from Ross Ulbricht, who is accused of running the Silk Road online drug ring, which was shut down last year. (Keep in mind of course the Marshals Service hasn’t released any results.)

Whatever its inauspicious beginnings, that the USMS was able to stage such a successful sale of the crypto-currency means the product has been given real legitimacy as it sold with substantial demand, and leads to more sales later. So there’s only so many times one can say this is fake before one has to think somewhat differently.

Bitcoin is down about 16 percent on the year, so it’s been a loser in a year where almost everything else has gone well in the first half. In a somewhat uncommon fashion, both stocks and bonds, along with gold and oil, are all higher on the year. YTD asset performance

That’s a surprise in both the equity and debt markets, where higher interest rates were supposed to sap investor enthusiasm for bonds and reduce the attractiveness of stocks as well. But markets are funny and instead the second half begins with the S&P not far from a record and bond prices surging (high yield bonds, notably, were at their tightest rates against U.S. Treasuries in 2007). We’ll be looking at this a bit later, but suffice to say some people in the credit world are starting to get somewhat nervous about this, believing that the rally has come far enough.

With that there’s some adjustment going on among big credit managers who see the opportunities in riskier credit waning. Fund flows remain strong, though, so what’s a person to do? Either way, the excesses that many discuss when it comes to credit don’t seem to quite be there yet – but they are starting to move closer. The Fed remains very much in the game, but there are plenty of strategists who believe it won’t be more than a few months before they start to pull back, which means a rough ride for almost everyone else.

MORNING BID: Bitcoin, gravity, and “Gravity”

Feb 28, 2014 14:01 UTC

United States markets have hit a relatively calm period. Where problems in Ukraine and Russia are giving a modest safety bid to treasuries, the U.S. stock market continues its climb after a better-than-expected earnings season, though concerns remain over the weather’s impact on some recent weak economic data.

The more interesting action is taking place in the world of bitcoin, where the biggest exchange Mt. Gox, filed for bankruptcy after several months of dwindling as the most influential exchange in this fledgling market.

Reuters has a nice story from Emily Flitter and Brent Wolf that explains how the company and its CEO remained a champion of the business even as it started to lose its edge.

Proponents of the bitcoin phenomena have noted that with this downfall, there are at least no bailouts to be had. But that speaks more to the tiny size of this market then any ideal relating to bitcoin’s disintermediation from the rest of the financial markets. In fact, the growing pains we see in the sector will only intensify as regulators take a closer look at the digital currency.

It was inevitable that someone would eventually find a way to put together some sort of indicator that talked about the Academy Awards and their effect on the movie studios in question.
CMC Markets ended up doing just that and they found a way to really lay out the fact that the studio that has the Best Picture winner would get an extra boost to its stock over a period of time following the award.

“On average, the studio most closely associated with the Oscar winning film has outperformed the sector by 1.7%,” CMC analysts wrote, referring to its March performance. That could bode well for a number of studios, although this column thinks Time Warner will be the ones smiling when Warner Brothers’ “Gravity” walks away with the crown on Sunday.

Cryptpcurrent events

Nov 19, 2013 22:46 UTC

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Yesterday, the Senate, considering the decentralized cryptocurrency bitcoin, “saw the potential benefits of virtual currencies” according to Danny Vinik. In a letter to Congress ahead of the hearings, Fed chairman Ben Bernanke said virtual currencies “may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system”. Bitcoin is currently valued at… well, just head over to Mt. Gox and check for yourself because the price has fluctuated between $500 and $900 in the last three days.

Izabella Kaminska argues that what we are seeing is not a bubble, but a short squeeze that can be traced back to the closure of the online drug hub Silk Road back in October (or, alternatively, a virus spreading around the internet demanding payment in bitcoin). While there’s no way to short bitcoins, they can be stolen from exchanges, which would then need to buy new coins on the open market, at just about any price, in order to preserve trust. “The squeeze is now exposing the fractional practices of totally unregulated exchanges all around the world”, she writes.

Tim Fernholz adds that new markets have popped up in China, increasing demand. This is backed up by the fiatleak, a map that shows up-to-the-minute bitcoin trades by region.

Cullen Roche seems to think there might be something to the fact that bitcoin’s recent rise coincides with a fall in the price of gold:

So the interesting thing about this rally in Bitcoin is not that Bitcoin is rallying, but that it’s occurring at a time when gold is collapsing.  I can’t help but wonder if this is a sign of the anti-fiat money crowd voting with their wallets on the potential that gold really isn’t a viable form of future money while something like Bitcoin might just be….

But, as Fernholz says, “bitcoin’s practical value is still nearly nil”. Justin Wolfers tweeted, “Money is: a) A unit of account; b) A store of value; c) A medium of exchange. Bitcoin is none of these things. How is Bitcoin even useful?”

To be fair, there are real businesses that accept Bitcoin. Timothy Lee reports that Bitpay, which processes Bitcoin transactions, just reached the 10,000 vendor threshold. The WSJ recently profiled a couple that tried to travel the world using only Bitcoin. They found it “consistently inconvenient and occasionally frustrating, but never impossible”.

So what’s the bitcoin solution? Paradoxically, Neil Irwin argues that what the decentralized currency really needs is a central bank. — Shane Ferro

On to today’s links:

Long Reads
The era of the self-driving car is near – Burkhard Bilger

Modern Problems
Secular stagnation and the problem of our “post-scarcity economy” –  Marco Nappolini

New Normal
Life under “Bernankecare”: Stocks with weak balance sheets are soaring – Bloomberg

Popular Myths
Young, high-growth companies can, in fact, be valued – Aswath Damodaran

American inequality in six charts – John Cassidy
The best argument against income inequality: it hurts growth – David Callahan

“The computer would have to be bigger than the universe..So why even bother building it?” – Discover

London FX traders passed info to day traders to make personal trades for them – Bloomberg
A lonely short-seller bides his time – Paul Vigna

Financial Arcana
Tesla “lacks basic skills in accounting and disclosure” – Jonathan Weil

Five years after QE started, a look at its distributional effects – Sober Look

Too big to fail: the role of metrics – Narayana Kocherlakota

Right On
Public universities should really be free, you know – Aaron Bady

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