VARIO’s CEO takes a look at the reporting on everything from China’s bans, to bubbles, to the SEC, ETFs, and the mining floor.

Jason Pigeon
August 30, 2018

As an avid digital currency investor, I’m constantly watching the price of Bitcoin (BTC). As everyone in the space knows, as Bitcoin goes, so does the rest of the market. Throughout 2018 I’ve seen some major news stories have a big impact on BTC — from a January high of $19,327 USD on Dec 16th 2017 to today’s close of roughly $6,700 USD. Now, I’m taking stock of what’s happened, story by story.

China Bans – China’s on-again, off-again relationship with all things crypto has been really hard to follow. One day the National People’s Congress is welcoming of crypto; the next day, there is another ban.

In February 2018, the Chinese government announced the “Great Firewall” would be blocking foreign exchanges and Initial Coin Offerings. The news was not taken well by the market. By February 5, BTC had lost 66% of its value since its December high, trading at $6490 USD. Obviously, China’s ban was not the only news driving the price down back then, but losing major Asian markets was certainly a big factor.

Flash forward to August 2018; the Chinese government has banned 124 overseas exchanges and blocked AliPay (China’s largest payment processor) from doing BTC payments or trades. It’s a severe clampdown, but this time, the markets aren’t getting beaten up by the news.

Exchange Traded Funds or “ETF” – An ETF is a financial product that tracks the price of an asset and is listed on an exchange. It means that investors don’t actually have to buy the underlying asset. ETFs are seen as a way for institutional investors to get into cryptocurrency, allowing them to invest through a safer mechanism than buying bitcoin on a crypto-asset exchange.

Some of the major players in the crypto-sphere have been trying to get an approved Bitcoin ETF for a while now. The Winklevoss twins’ (from the beginnings of Facebook) Gemini Exchange had their second application rejected back in early August and several others have either had their applications denied or decisions pushed back.

I first started to hear about crypto ETFs in Canada last year (there are a number you can invest in today). Shortly after that, they started having an effect on the market. The market was up 25% in July and many think it was buoyed by the news of ETF approvals. Then after some more rejections, the market quickly went back down.

Many seem to think that ETFs will attract the “holy-grail” of institutional investors, but I’m not so sure. Early last week there was another round of rejections and deferrals, but the market reacted quite differently this time, by going up.

The Mining Floor – The mining floor is when the cost of mining BTC is the same as the current value. There are many variables at play for miners, like cost of power, type of equipment, etc. but it’s commonly agreed that the “floor” exists at $6000 USD (June 23 low was $5920 USD).

Despite being near the floor throughout the year, we keep bouncing off that number. Why? While we can only speculate, there are people who seem to be in the know. According to documents obtained by CoinDesk (https://www.coindesk.com/crypto-unicorn-bitmain-weighs-18-billion-ipo-one-of-worlds-largest/), the cryptocurrency mining company Bitmain is filing an initial public offering (IPO) as high as $18 billion this September at a market capitalization of $40 to $50 billion. That is one of the largest IPOs in world history. And mining isn’t profitable….

So what does this all mean?
The point I am getting at is that the market went through a massive change this year — much more substantial than I could have predicted (I originally thought we’d be at $15,000 USD BTC by end of 2018).

The market seems to be exhausted by bad news and consolidation seems to have wound down. Bad news isn’t as painful as it used to be and we keep bouncing off the mining floor. These factors are laying the foundation for another positive fall season. We are still in with what we can afford as we believe this market and ecosystem has the ability to perform like it has in the past. And that, to me is worth a responsible risk.

[Plus, if you bought BTC this time last year and held through all the madness of the last 12 months you would still be up 37%…. not too shabby.]