December 2017


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Block.one, a software startup registered in the Cayman Islands and lacking a central office, has accomplished an astounding feat: So far, it has extracted $700 million in real money from the global public by selling tokens, called EOS, in an initial coin offering. It is by far the largest ICO ever.

An ICO is similar to an IPO, but here buyers got nothing other than the digital tokens – no ownership in the company (unlike what an IPO offers), no promises of any kind, no participation in anything, not even any fake promises of free future products. No matter how awesome and world-changing the blockchain platform or whatever the company might be developing might turn out to be, it won’t be connected to the tokens.

The purchase agreement that buyers in the ICO must sign states this very clearly and explicitly:

The EOS Tokens do not have any rights, uses, purpose, attributes, functionalities and features, express or implied, including, without limitation, any uses, purpose, attributes, functionalities and features on the EOS Platform.

By comparison, with an IPO, investors actually end up with shares in the company. They become part-owners of the company.

The only thing buyers in this ICO got was the hope that the price of the token, given the current cryptocurrency mania, would surge by thousands of percent in the shortest time span – on the principle that the less people get, the more they’re willing to pay for it, and if they got nothing at all, they’d be willing to pay the most. Those hopes have been realized.

The price of the token has skyrocketed, though prices vary around the globe, depending on the exchange where EOS is traded. At the moment I’m writing this, on the top 10 exchanges by EOS volume, prices range from $9.67 at Bithumb to $8.54 at Binance.

In mid-October, the price was still in the 50-cent range. So to people who bought at the time, it doesn’t matter that they own not even one iota of the company or its world-changing technology platform or whatever because since mid-October the price has multiplied by 19. That’s all that matters (via Coinmarketcap.com):

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To pull off the mega-ICO, block.one “made a public relations splash, hosting numerous informational sessions, sponsoring post-conference receptions, giving out free t-shirts and even advertising on a Times Square jumbotron,” Coindesk observed. Its executives “have spoken at myriad conferences and met colleagues and potential clients at “meetups” in cities like London, Amsterdam, Singapore and New York,” the Wall Street Journal observed.

The sale of EOS has started in late June. And it’s not finished yet. Every day, block.com sells two million tokens via an auction process. According to Brock Pierce, a co-founder of block.comcited by the Wall Street Journal, the company plans to keep the ICO going until next June to raise “well north of” $1 billion.

But even at $700 million raised so far, this ICO is leagues ahead of the prior records:

  • The second largest ICO, Filecoin, raised $262 million from August 10 to September 7, which broke the all-time record for ICO funding at the time.
  • The third largest ICO, Tezos, raised $232. It is now embroiled in lawsuits, controversy, and allegations of US securities laws violations and investor fraud.

The most recent class-action lawsuit, filed in the Tezos case a few days ago, stated:

In sum, Defendants capitalized on the recent enthusiasm for blockchain technology and cryptocurrencies to raise funds through the ICO, illegally sold unqualified and unregistered securities, used a Swiss-based entity in an unsuccessful attempt to evade U.S. securities laws, and are now admittedly engaged in the conversion, selling, and possible dissipation of the proceeds that they collected from the Class through their unregistered offering.

Practically anyone can sell tokens in an ICO. So far in 2017, 165 companies have raised more than $4 billion via ICOs, up from $226 million in 2016. Often, companies promise investors something of perceived value for their money, such as something for free down the road, other than ownership. It’s really more like a donation. The main thing is the digital token that can be traded for instant riches if enough buyers can be dragged out of the woods.

Regulators are just now beginning to wake up. A week ago, the SEC ruled Munchee’s $15-million token sale illegal and halted it. SEC Chairman Jay Clayton, still rubbing his eyes from having slept through much of the mania so far, warned “main street investors”:

The world’s social media platforms and financial markets are abuzz about cryptocurrencies and “initial coin offerings” (ICOs). There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain, “this time is different.”

Since the SEC started issuing warnings about ICOs in June, block.one has closed its ICO to residents in the US. China too cracked down recently on ICOs, and block.one also closed its ICO to residents of China. But cryptocurrencies are transnational, exchanges are everywhere, and people in China and the US who want to buy into the ICO can probably figure out how to do it.

Oh, and over the time that it took me to write this, EOS spiked another 23.8% on Bithumb, to $11.97. So it really doesn’t matter that it doesn’t convey any kind of ownership of the company or anything else, as long as it continues to surge exponentially forever.

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There are not many reliable stock market indicators out there. Some work some of the time. There is one however that has a far more reliable history: the interest rate inversion.

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Part of the reason that an inversion is such a strong signal is that when bank assets (longer-duration loans) generate less income than bank liabilities (short-term deposits), the incentive to make new loans dries up along with the money supply. And when asset bubbles are starved of that monetary fuel they burst. The severity of the recession depends on the intensity of the asset bubbles in existence prior to the inversion.

So the yield curve has not yet inverted, but it increasingly looks as if it will in the near future.

Are assets, stocks, overvalued? Not the easiest question to answer as there are so many different valuation methods that one can use. My money would be on a drawdown though. Markets don’t move in only one direction forever. They may move far further, for far longer than any rational explanation can explain, but at some point the ride is over.

The good thing about an inversion signal is that it generally gives you advance warning and time to act.

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A definition of money is that it provides the function of [universal] indirect exchange. Currently, Bitcoin fails that test. The use or acceptance of Bitcoin in indirect exchange is still restricted to [mostly] early adopters.

The current surge of interest in Bitcoin, myself included is as a vehicle of speculation. I have no interest [currently] in using Bitcoin as ‘money’. It is an asset class that to date has increased in value and could further increase in value.

One major issue [for me] is that in the event of war, possible invasion, could I store any wealth in Bitcoin and could I, if necessary, access it? Currently you need a computer and access to the internet, assuming an internet still exists. Sure this is an end-game argument, but it is an argument put forward by advocates of Bitcoin. This however is a scenario where fast access to a gold coin, to offer a bribe, comes out streets ahead of, I’ll just login and transfer to you a Bitcoin.

As to transferring money around the world, it can already be done. True it’s not invisible to the authorities, but most people have no real need of the anonymity provided. For the few that do, then this is a major advantage.

The jury is still out on whether Bitcoin will go mainstream as a money. This is however an argument that drives the valuation of Bitcoin, that Bitcoin will replace fiat money and to do so, Bitcoin will be valued at the current value of all available money in the world. I have no idea whether that will happen. I personally just couldn’t be bothered to use it as a medium of exchange, in its current form it’s just too much effort. To date, your average person does not understand Bitcoin, although due to the phenomenal rise in money prices, they have heard of it.

 

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Bought HK $10 strike @ July 2018 @ $0.55

This was on the back of some pretty heavy buying by a couple of Hedge Funds.

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There is a [recently filed] class action lawsuit. Essentially stating that GE management knew that earnings were going to fall below estimates and that this was ‘misleading’.

 

NEW YORK, NY / ACCESSWIRE / December 13, 2017 / The Klein Law Firm announces that a class action complaint has been filed on behalf of shareholders of General Electric Company (GE) who purchased shares between July 21, 2017 and October 20, 2017. The action, which was filed in the United States District Court for the Southern District of New York, alleges that the Company violated federal securities laws.

In particular, the complaint alleges that throughout the Class Period, defendants made materially false and/or misleading statements and/or failed to disclose that (i) the Company’s various operating segments, including its Power segment, were underperforming Company projections, with order drops, excess inventories and increased costs; (ii) in turn, the Company overstated GE’s full year 2017 guidance; and (iii) as a result of the foregoing, General Electric’s public statements were materially false and misleading at all relevant times.

On October 20, 2017, the Company disclosed quarterly results for the third quarter 2017, disclosing earnings per share (“EPS”) of $0.29, falling below estimates of $0.49 per share. The Company also lowered 2017 earnings expectations, lowering EPS to $1.05- $1.10 from $1.60-$1.70. On a conference call to discuss its financial results, CEO John Flannery stated that the Company had been completing a review of its operations and that, “While the company has many areas of strength, it’s also clear from our current results that we need to make some major changes with urgency and a depth of purpose. Our results are unacceptable, to say the least.”

Shareholders have until January 2, 2018 to petition the court for lead plaintiff status. Your ability to share in any recovery does not require that you serve as lead plaintiff. You may choose to be an absent class member.

If you suffered a loss during the class period and wish to obtain additional information, please contact Joseph Klein, Esq. by telephone at 212-616-4899 or visit http://www.kleinstocklaw.com/pslra-sb/general-electric-company?wire=1.

Joseph Klein, Esq. represents investors and participates in securities litigations involving financial fraud throughout the nation. Attorney advertising. Prior results do not guarantee similar outcomes.

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Just bought GE.

There are some big buyers of the stock, individuals and Hedge Funds over the past couple of weeks. The price is now [pretty much] bottomed and seems to be stabilising [see daily chart] at these levels.

To get some leverage, I bought Jan 18 2019 Calls at $0.43 at strike $23.

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I have posted many articles on bitcoin and read a hundred more. Bitcoin traded towards, or has possibly already exceeded $18,000/coin. There are predictions of $1,000,000/coin out there. Who knows.

Of all the arguments for bitcoin, its uses, the only one that really resonates with me is the one that argues that where you live in a country with no [honest] banking, no legal system, high inflation, countries like Zimbabwe or Venezuela or any other of twenty crazy countries, then Bitcoin or something like it makes it easier to hide/transport your wealth out of the country.

The real benefit however is not Bitcoin per se, it is the blockchain. It is the non-centralised computer code that provides the benefit.

If I could hold some other form of wealth on the blockchain, then the value of Bitcoin would arguably fall. So I could hold my shares of Berkshire Hathaway, my Treasury Bonds, my deeds to real property and my gold futures on the blockchain.

The value therefore does not reside in the cryptocurrencies, it resides in the blockchain technology. Someone [a programmer] will at some point realise this is make it possible to hold these assets on the blockchain.

Already ‘smart contracts’ are being discussed in relation to the blockchain, it is just another step to any contract. If [when] it happens, what then is the value of a Bitcoin?

 

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To call Bitcoin the biggest and most obvious bubble in modern history may be a disservice to its surreality.

The price of bitcoin has doubled four times this year. In early January, one bitcoin was worth about $1,000. By May, it hit $2,000. In June, it breached $4,000. By Thanksgiving, it was $8,000. Two weeks later, it was $16,000.

This astronomical trajectory might make sense for a new public company with accelerating profits. Bitcoin, however, has no profits. It’s not even a company. It is a digital encrypted currency running on a decentralized network of computers around the world. Ordinary currencies, like the U.S. dollar, don’t double in value by the month, unless there’s a historic deflationary crisis, like the Panic of 1837. Instead, bitcoin’s behavior more resembles that of a collectible frenzy, like Beanie Babies in the late 1990s.

But defining and identifying bubbles is harder than it seems (kind of like defining bitcoin). The term technically refers to an asset whose price dramatically exceeds its intrinsic value. But who determines price and value, anyway? Those aren’t scientific concepts with formulas, like gravity or the length of a hypotenuse. They are the co-creation of buyers and sellers whose needs and attitudes are constantly changing.

Sometimes, spotting a bubble is very easy. Imagine three public companies that make shoe leather—Derek Leather, Inc., Joe Leather, Inc., and Becca Leather, Inc.—with the exact same revenue, expenses, talent pool, and customer demographic. Let’s say the market caps for all three companies start the year at $1 billion and Derek Leather and Joe Leather don’t appreciate; meanwhile, the public valuation of Becca Leather climbs to $2 billion, then doubles to $4 billion in a month, and then doubles again to $8 billion in the following week. It would be pretty clear that Becca Lather’s valuation makes no sense with an apples-to-apples comparison to Derek and Joe.

But what happens when an entire industry is a bubble? It becomes harder to make an apples-to-apples comparison, since the entire sector is an incomparable fruit. A good example would be early Internet companies whose valuations soared in the late 1990s and crashed in the dot-com bubble. For years, Internet bulls defended the stock prices of companies like Pets.com by arguing that, due to the rising digitization of the economy and the global nature of the Internet, user growth was a more significant proof of value than old-fangled metrics like profit or revenue. Eventually, a combination of factors—the failure of some large Internet companies, changes to the tax code, rising interest rates, and venture capital exhaustion—contributed to the big pop.

In a way, the emergence of cryptocurrencies is akin the dot-com era, because there is no perfect comparison to illuminate the “real” value of something like bitcoin. It’s a currency (like the dollar), whose owners consider it a long-term store of value (like silver), which is appreciating as if it were a faddish collectible (like a Beanie Baby), and is running on a blockchain platform, which some insist could change the future of everything from legal titles to daily payments (like Internet). How can one be so sure bitcoin is a bubble if we don’t even know what the proper comparison is—dollars, silver, Beanie Babies, or the Internet?

In their great 1982 paper “Bubbles, Rational Expectations, and Financial Markets,” the economists Olivier Blanchard and Mark Watson explain why gold is susceptible to bubbles. It’s an explanation that sheds light on the bitcoin frenzy, too. Gold, like bitcoin, is not a company. There are no financial reports, and its investors will never receive dividends. Instead, there are at least two big reasons to invest in gold. First, goldbugs want a hedge against an economic catastrophe or inflation. Second, some people invest in gold simply because they see the price of gold going up. Such an investor “bases his choice of whether or not to hold the asset on the basis of past actual returns rather than on the basis of market fundamentals,” Blanchard and Watson write. In other words, the investor’s story is: The price will go up, because … well, it just went up!

These investors buy gold, not because of any fundamental economic insight or any analysis of value, but rather because they want to catch the train. They see the price rising and they assume they can buy gold, hold onto it as it appreciates, and then offload it to some greater fool before its value declines. In fact, the economic term for this sort of irrational belief is called “greater fool theory.”

Bitcoin is turning into a gaggle of greater fools. Retail investors are jumping into the market to buy bitcoin, in the expectation that they will be able to sell their investments for cash to some other sucker later on. In November, Bloombergreported that “buy bitcoin” had overtaken “buy gold” as an online search phrase. In December, bitcoin platforms soared up the app charts. Coinbase, an online broker where people can buy cryptocurrencies, is now the top trending app in the Apple App Store. Two similar platforms to oversee cryptocurrency accounts, Gdax and Bitcoin Wallet, are now fifth and eighth on the trending charts.

For the people downloading these apps, bitcoin probably isn’t a philosophical bet on the future of money and society’s relationship to the government, says Christian Catalini, a professor of technology at MIT Sloan School of Management, whom I have spoken to often about bitcoin. “There is a speculative frenzy among retail investors who just want to make a quick buck and the App Store is pretty clear evidence of that,” he said.

There is another important feature of the bitcoin market that could both explain its high valuation and suggest an imminent correction. The crypto market is insanely concentrated. Approximately 1,000 people own 40 percent of all bitcoin in circulation, according to Bloomberg. Just 100 accounts control 17 percent of the market. Many of these accounts have held bitcoin for years because they believe fervently in its value. But if a handful of them sell even a small portion of their shares, it could dramatically move bitcoin’s price, potentially triggering a massive correction, as retail investors (who only bought in because the price was going up) try to sell en masse to avoid losing all of their money. There is an upside to this concentration, however, which is minimal contagion effects. If the bitcoin bubble crashes, it likely won’t spill out into the general economy, like the subprime mortgage crisis did one decade ago.

Smaller bitcoin bubbles have inflated and deflated before, without any macroeconomic effect. In 2011, the price rose from $1 to $30 and then crashed back to $2 all within the same year. “I wouldn’t be surprised with another crash, followed by another growth in line with transactions,” Catalini said. Indeed, the dot-com bubble was an unambiguous frenzy of speculation and financial malpractice. But 15 years later, many of the business propositions that flamed out spectacularly were reincarnated as successful companies. Chewy.com, essentially a modern incarnation of Pets.com, sold for $3 billion earlier this year.

Fifteen years from now, the blockchain, too, might be an integral infrastructure for the digital world. In this hypothetical world of 2033, bitcoin at $16,000 might be an absolute steal. But we don’t live in “hypothetical-world 2033.” This is still real-world 2017. And bitcoin’s last few weeks are the real-world definition of a speculative bubble.

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Just when you thought you finally got your head around bitcoin, along comes a new bitcoin-linked financial product: bitcoin futures.

Cboe Global Markets, the Chicago-based exchange group, will be the first exchange to launch bitcoin futures on Sunday. And you can be sure Wall Street will be watching. CME Group, Cboe’s cross-town rival, will launch its market later in December. And Nasdaq is preparing for a launch for the second-half of 2018.

The new product by Cboe will allow investors to bet on the future price of bitcoin, which skyrocketed to an all-time high above $17,000 on Thursday, according to data from Markets Insider. Many people think bitcoin futures, if they go well, will open the door to wider participation in the bitcoin markets by Wall Street firms and retail investors.

Cboe President Chris Concannon has already hinted other cryptocurrency futures might be on the horizon.

We’ve answered some of the questions you might be asking yourself about bitcoin futures.

What is a future?

A future is a type of financial product, which allows two parties to exchange an asset at a specified price at an agreed upon date in the future. They’ve been around since the late 19th century.  They are traditionally traded by professional investors and firms. There are  futures based on everything from oil to corn. In some cases, when a futures contract settles the buyer of the contract can receive their payment in the product itself (a barrel of oil, say), or in cash.  The latter are referred to as cash settled futures.

How do Cboe’s bitcoin futures work?

Cboe’s bitcoin futures, which are set to launch at 5:00 p.m. CT, will allow investors to bet on the future price of the red-hot coin. The product will trade under the ticker XBT.  Cboe will be waiving all transaction fees for bitcoin futures until the end of December. The futures will settle in cash, not the underlying cryptocurrency itself. That means traders can speculate on the coin without actually having to touch it.

Cboe is basing its futures on the pricing of Gemini’s exchange, which was founded by the famous Winklevoss twins.

Traders will have to put some money on the table for their bets. Since bitcoin is so volatile, traders of Cboe bitcoin futures are required to have at least 44% of the bitcoin settlement price set aside for their bet. So-called margins are typical for futures, but are under 10% for the most part. Think of them as a down-payment for risk. VIX margins, however, can get up to 50% because they can sometimes have a high risk profile.

MI

Can I short bitcoin now?

Yes. If a trader bets the price will go up and if the price of bitcoin is higher at the point of the contract’s expiration, then they profit. At the same time, if a trader bets the price will go down and it does, then they’ll get paid from folks on the other side of the bet. Cboe’s expiration date for the contracts being sold Sunday is January 17.

How do I buy a bitcoin futures contract?

Retail investors can buy futures contracts through their broker. But only a few firms are seriously thinking about unleashing bitcoin futures just yet. TD Ameritrade, one of the largest online brokers, is taking a “wait and see” approach and won’t provide the product for clients until they think the market is ready. It looks like folks with Charles Schwab, Fidelity, and Etrade accounts won’t be able to buy the product, at least in the short term. Ally Financial, according to Bloomberg, will let users buy bitcoin futures.

As far as the big banks are concerned, many have said they won’t clear trades for bitcoin futures. JPMorgan and Citigroup, which are two of the largest futures brokers, will not participate in the market Sunday. Nor will Societe Generale. Interactive Brokers and Wedbush will participate, according to reporting by the Financial Times.

Goldman Sachs will clear futures for some clients.

Day one trading is going to be comprised mostly of the customers who have been begging for bitcoin futures, according to person familiar with Cboe’s bitcoin futures. These are likely to be the investors who’ve been trading bitcoin itself.

Why are people excited about bitcoin futures?

There are a number of reasons why bitcoin futures products are a big deal for Wall Street and the world of crypto. First, the launch of bitcoin futures by establishment firms is likely to to open the door to wider participation in bitcoin trading by other Wall Street firms. It could also pave the wave for an exchange-traded fund, which could bring more investments into the space. Most importantly, it could help dampen bitcoin’s spine-tingling volatility.

What are some of the concerns about bitcoin futures?

Some people don’t think the underlying bitcoin market is mature enough for a futures market. The market is unstable with bitcoin exchanges under pressure and printing wildly different prices when trading volumes spike. Hacks and security problems are also widespread. Critics think that instability in bitcoin could spread to other corners of the futures markets.

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While I agree with the sentiment of the article, I do not agree with the argument. Hayek’s argument was rebutted thoroughly by other Austrian economists. Further, the world had universal money, free from government control [monopoly] in gold & silver.

The issue with cryptocurrencies is that any programmer can create a cryptocurrency. The ease of creation destroys any other valuable attributes that other currencies have. Only 1 cryptocurrency can succeed. I personally would far rather hold gold/silver that has historical success.

After two centuries of government monopoly money, private monies are re-emerging and will likely come to dominate ultimately. Back in 1976, Nobel Laureate F.A. Hayek published his little classic, “Denationalization of Money.” In essence, Hayek argued that money is no different than other commodities, and it would be better supplied by competition among private issuers than by a government monopoly. His book detailed the problems with government monopoly money and how most of these problems could be overcome with private competition.

Even though many agreed with Hayek’s argument, it was not clear until now how the government monopoly on money would be broken. As with so many other things, technology has come to the rescue. We are now witnessing the beginnings of the development of practical, private, digital cryptocurrencies, the best known being bitcoin. Bitcoin and most of the other new currencies enable users to make transactions from person to person without going through a bank or other intermediary. This is accomplished through the use of a “blockchain.” Before the development of the blockchain, those who had developed cryptocurrencies were not able to solve the double-spending problem to keep people from copying or counterfeiting the digital coin, and the “Byzantine general’s problem” of how to keep a malicious party from intercepting and changing the transaction before it reached its intended recipient.

The blockchain, by using what is called a distributed ledger, solved those problems. As a result, developers of cryptocurrencies now have the capability to exchange value in a frictionless way, without regard to national borders, censorship and other laws, or institutions. It re-establishes much of the financial freedom, which has been lost, to the consternation of those who want more government control.

 

What really frightens the government regulatory class is that blockchains also allow and make unstoppable the development of “smart contracts.” A smart contract refers to computer code that will automatically execute contractual duties when a trigger occurs. As an example, if collateral of some sort is kept in a blockchain network, and if the debtor has not paid by a certain date, the computer will automatically transfer the collateral to the creditor, which guarantees certainty of performance. The smart contract can remove all human discretion in the execution and enforcement of contractual duties, and cannot be interfered with by third parties, including officers of court.

Bitcoin is not money in the true sense of the word, because it is only unit of account and a method of exchange, and not a store of value. Combining claims on real assets such as gold, silver, aluminum, wood, wheat, oil and other commodities with blockchains will create true cryptomoney. Some of these are likely to be superior in a number of ways to government monies, particularly those that are afflicted with high rates of inflation or overregulation.

Government officials who are concerned about money laundering and other illegal activities fear the new blockchain cryptocurrencies, because they enable a much higher degree of anonymity than traditional account-based transactions. That, coupled with the near instantaneous settlement of transactions, makes it almost impossible to know who has sent and who has received payment. There is no obvious way for regulators to overcome these problems without destroying the open internet.

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