Attitudes widespread favor As the old Bob Dylan

Attitudes change
toward Bitcoin:  Blockchain backed coins
gain widespread favor

 

As the old Bob
Dylan tune famously states “The times
they are a changing” and in 2017 that rang particularly true for the
cryptocurrency markets. Once considered merely a dark web tool for hackers,
political dissidents, and criminals, Bitcoin and its brethren gained widespread
acceptance over the past year. In an odd turn, the adoption of a new investment
vehicle happened on Main Street before Wall Street. To the chagrin of bankers
and financial sector stalwarts, cryptocurrency adoption soared with an unlikely
contingent of college students, housewives and blue collar workers, while the
doubters on Wall Street waited on the sidelines and appear to be playing catch
up. 

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In a landscape
often compared to the old, untamed Wild West because of its mix of wealth
opportunities and lack of regulatory oversight, the current American attitude
towards cryptocurrencies seems to be shifting from skepticism to
acceptance.  Perhaps nothing better
explains that shift in opinion than to compare the statements JP Morgan Chase
CEO Jamie Dimon gave in the fall of 2017 to the mea culpa he issued earlier
this week.

In an October
appearance at the Institute of International Finance Conference, Dimon, who had
previously also called Bitcoin a fraud, said “The only value of Bitcoin is what
the other guy will pay for it.” In response to a moderator follow up he added “If
you’re stupid enough to buy it, you’ll regret it one day.”

Dimon’s sentiment
appeared to match that of others within the traditional banking sector.
Although hedge funds and individual investors interested in the technology
behind the currency flocked to cryptocurrencies, major brokerage firms avoided
them altogether. Financial Services firms that packaged and resold their own
subprime loans as mortgage backed securities prior to the great recession of
the previous decade have eschewed involvement in cryptocurrency. In December
Grayscale Investments, Cboe Global Markets and CME Group each launched
derivatives investments based on Bitcoin, but the investment arms of big banks
including  JP Morgan Chase, Bank of
America Merrill Lynch, and Citigroup have banned their advisors from offering
them to clients or accepting orders from clients.

The vacuum created
by the absence of big banks in the blockchain investment sector has been
partially filled by hedge fund investors, and by venture capitalists, but some
think it is time for the traditional financial firms to find an opening.  One insider who thinks sitting out would be a
mistake is Bryan Chambers, managing director of the UT Dallas Seed Fund and a
professor of entrepreneurship at UT Dallas. Through partnerships at his own
Venture Capital firm and the work of his students, he has seen the value of
blockchain and related currency.

“I think it is
smart for financial organizations to adopt blockchain,” Chambers said. “Banks
will adopt blockchain or they will get left behind.”

He explained that
the term “cryptocurrency” does itself a disservice by hiding the other
benefits, and that calling them assets or solutions would be more to his
liking.

“I don’t like the
term cryptocurrency because it insinuates this movement is only about publicly
traded coins, which couldn’t be further from the truth. Blockchain solutions or
Crypto assets can serve as an investment or a way to get rewarded. SaiCoin, for
example lets people earn coins sourcing their extra storage. Or there’s
SolarCoin which rewards and incentivizes people like carbon credits for
generating electricity through solar.”

In the intervening
quarter year since Dimon’s disparaging comments, the price of Bitcoin, the
largest and most widely known cryptocurrency, increased in value more than
threefold. Altcoins, a name popularly ascribed to the over 1,300 other
cryptocurrencies, have also seen a surge in popularity and price.  Much like small cap stock darlings, several of
the altcoins outpaced the percentage growth of Bitcoin as the year ended,
bringing the cryptocurrency market cap into focus of those left out of the run
up in price: the old school institutional investors and their clients.

Values of Bitcoin from October 2017 to December 2017, chart courtesy of
coindesk    www.coindesk.com

 

Just one year ago
Bitcoin traded at a price of almost $1,000, but its price peaked at $19,783 in
mid-December and has traded close to that territory ever since.

Perhaps it was the
missed opportunities that softened Dimon’s opposition to blockchain-based
virtual currencies, because in a January 9 appearance on Fox Business News, the
longtime Bitcoin critic said he regrets those previous comments and would not
rule out offering the products through his company.

“The blockchain is
real. You can have crypto yen and dollars and stuff like that. Ico’s you have
to look at individually,” he told Fox Business’ Maria Bartimo.

The ICOs he
referred to are the initial coin offerings, the cryptocurrency version of the
IPO, or initial purchase offering, which is when a new stock is sold by an
underwriting commercial bank to the stock investors in the marketplace.  In the ICO, however, the decentralized
virtual coins offered are currency to be used in transactions along a network,
or as a store of value for international trade, not a share of ownership in a
company. The coins can be offered by the team of developers spearheading the
technological project, not a commercial bank that has poured over the financial
statements of a company as would happen in a traditional Initial Public
Offering.

The lack of
oversight is appealing to some who feel like outsiders manipulated by the
traditional financial system, but the streamlined efficiency and convenience
touted by the lack of regulatory oversight has brought its own set of
problems. 

 For example, while an investor purchasing
stocks in the United States can trade stocks in about 2,800 companies are
listed on the New York Stock Exchange and can be accessed by the same prices
regardless of which institution hold the client’s accounts. In the untamed
crypto market, however, there are about 1,380 coins trading on a variety of
exchanges housed in places like New Zealand, South Korea, Estonia and Japan,
but none of them carry the full listing of coins. Whereas an investor with a
brokerage account at Merrill Lynch or Fidelity can buy any of the individual
stocks offered on the NYSE, a crypto investor may have to search among several
exchanges to not only find one that has the desired coin, but also to see which
exchange has it at the most favorable price.

An additional
hurdle lies with the exchanges’ habit of requiring coin purchasers to buy coins
using coins. Investors first visit a popular coin issuer, like San
Francisco-based CoinBase, where they exchange dollars for Bitcoin, or one of
the few other large altcoins it sells, then the investor sends that
cryptocurrency to the exchange that trades the desired coin. It can be a
cumbersome process, and a coin accidentally sent to the wrong currency
destination could be lost forever. Additionally, coins left in an account on an
exchange could become prey to savvy hackers. Without trained, certified
advisors, investors are left to do their own research or to filter online
gossip. Underground advisory channels emerged on Youtube channels and twitter,
and some of those have been accused of using pump-and-dump tactics that would
be illegal in the regulated stock market.

There are few
legal protections for jilted investors and as with all technology, there are
occasional hiccups, but despite these risks, the cryptocurrencies have surged
in popularity on college campuses nationwide. Most of the world’s
cryptocurrency mining is performed in formally organized setups in China and
Russia, but it also happens in homes and on colleges in the United States. Dorm
room occupants have repurposed their computer’s graphics cards that once ran
video games to have them perform cryptocurrency verification algorithms, called
mining, to help them earn units of cryptocurrency.

Despite the risks,
tech professionals believe cryptocurrencies are here to stay, and mainstream
investors may have caught a chance to get out in front of the big banks for
once.  Michael Abdelmalek, a technology
manager based in Dallas, Texas, has studied blockchain and cryptocurrencies.

“Blockchain
technology can revolutionize almost every industry you can imagine and right
now everyone is trying to come up with uses for blockchains, so cryptocurrency
is very speculative. Look at Etherium for example,” Abdelmalek said. “People
are planning to use it to track chain of title for home ownership so when you
go to sell your house you can show ownership of it because the deed is in the
blockchain – it can’t be altered or reversed. Any liens against the house would
also show up in the blockchain.  It would
make title searches obsolete.”

                Like
many blockchain enthusiasts, Abdelmalek added, he has a stake in several
cryptocurrencies.               

               

 

Sources

Interviewed – Bryan Chambers, President of Chambers Venture
Capital, LLC, Director of the Blackstone Launchpad and Managing Director of the
UT Dallas Seed Fund. He has invested in companies involved in blockchain
technology and teaches entrepreneurship at UT Dallas.

Interviewed – Michael Abdelmalek, a technology manager at
Dallas based Mary Kay who has experience as a computer programmer and is a
blockchain enthusiast.

https://www.reuters.com/article/us-bank-of-america-merrill-lynch-bitcoin/merrill-lynch-bans-clients-from-investing-in-silbert-bitcoin-fund-idUSKBN1ET02N

https://www.marketwatch.com/story/merrill-lynch-blocks-clients-from-buying-bitcoin-citing-risk-2018-01-03

Bitcoin Price Analysis for 10/13/2017 – How High Can It Go?

https://www.coindesk.com/900-20000-bitcoins-historic-2017-price-run-revisited/

https://www.cnbc.com/2017/10/13/jamie-dimon-says-people-who-buy-bitcoin-are-stupid.html

http://www.foxbusiness.com/markets/2018/01/09/exclusive-jpmorgan-chase-chairman-ceo-jamie-dimon-regrets-saying-bitcoin-is-fraud-but-still-isnt-interested-in-it.html

http://www.advfn.com/nyse/newyorkstockexchange.asp

 

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