Markets Rebound Off 8 Month Low

Altcoins Outpace Bitcoin

The market gained back the 10 Billion it lost yesterday before settling somewhere in between.

What’s going on? A small short squeeze combined with market disgust over recent losses combined with renewed vigor for the ETF after the CBOE President made positive comments. For now it could just be a reflexive move — market volume is still pretty low.

Remember we are a week away from another ETF decision. How the SEC decides that one will affect the Direxion (Futures backed) and VanEck / SolidX (Commodity Backed) ETFs. The Proshares ETF is much more of a weathervane than the Winklevoss ETF decision.

That said, shorts are still extremely high. The last time we saw them around this level predicated the mid-April bull run. It will be interesting to see if they are blown up like last time.

Meanwhile, today showed promise for restoring investor faith in seeing this market turnaround.

Let’s start with the Bitcoin ETF.

“As we chip away at their issues to make them less concerned, at some point they’ll be comfortable with an ETF,” said Chris Concannon, CBOE president and chief operating officer.

The SEC is mostly concerned about manipulation in the unregulated digital currency markets.

“Having the underlying futures come to market first, prior to an ETF, I think you have a healthier, more mature market,” Concannon said. “The problem with a futures-based ETF is, what is the right level of liquidity? It’s never been tested before.”

He’s of course talking about the ProShares and Direxion ETFs which are to be decided on by August 23rd and September 21st, respectively.

Meanwhile the VanEck / SolidX ETF filing that the CBOE is planning to list emphasized that it will only invest in Bitcoin for the benefit of investors. Earlier this year the SEC voiced concern about insufficient insurance for cryptocurrency investors.

“An ETF is a multibillion-dollar ‘not-your-keys-not-your-Bitcoin’ vehicle, so that’s why I’m against it and I wouldn’t buy any,” Andreas Antonopoulos, one of Bitcoin’s chief experts, said.

But it is going to happen anyway… because there’s enormous market appetite and very little technical knowledge, so institutional investors simply can’t at the moment hold Bitcoin directly.”

We’ll see what the SEC has to say about the Futures-backed ETF next week, and if they would prefer a commodity-backed ETF like the VanEck / SolidX ETF.  It’s not much of a stretch to say that the ETF would raise the level of Bitcoin futures trading, but the SEC would be reluctant to approve the ETF if there is not sufficient liquidity in its underlying futures.

So unfortunately, it stands to reason that we might see back-to-back denials which will shake the already timid market. They are also very likely to delay the VanEck ETF once again on or before September 30th, which may add more selling pressure.

Today’s short squeeze has people laughably calling the reversal or bottom and declaring an impending bull run, but we need to see more that can fundamentally shake the market out of this miasma.

What is interesting is that there was an SEC approval today that will give people the ability to buy Bitcoin without actually owning the underlying asset, just like an ETF.

Starting Wednesday, investors can buy a Bitcoin exchange-traded note (ETN). The product, called Bitcoin Tracker One, is now quoted in U.S. dollars under the ticker CXBTF. It started trading on the Nasdaq Stockholm exchange in 2015.

“Everyone that’s investing in dollars can now get exposure to these products, whereas before, they were only available in euros or Swedish krona,” said Ryan Radloff, CEO of CoinShares Holdings Ltd., the parent of the company that offers the ETN. “Given the current climate on the regulatory front in the U.S., this is a big win for Bitcoin.”

Trading Bitcoin Tracker One is now similar to buying an American depositary receipt — traders will see a foreign-listed asset in U.S. dollars.

Unlike exchange-traded funds, ETNs are debt instruments that are backed by their issuers — often a bank — rather than a pool of assets.

Bitcoin Tracker One gives investors an alternative to Grayscale’s Bitcoin Investment Trust, which also offers exposure to Bitcoin. Grayscale’s product trades at a premium to Bitcoin, whereas Track One does not and is liquid.

This is certainly not the miracle solution to Bitcoin and the crypto market’s problems, but it does show that cryptocurrency is becoming easier to trade and invest in. You will be able to own this ETN with a Fidelity account, for example.

So once again we find ourselves with a positive day and positive news, but without much to sustain it. This is what we’ve seen consistently over the past 8 months.

Market forces could certainly be coalescing at this point, but we need a reason for people to jump into crypto again.

As I’ve often remarked, it will be both internal and external forces that do this.

Internal in the sense that we are seeing progress made towards scalability and fungibility issues every day.

External in the sense that there are many red flags with the world economy and crypto is a compelling alternative to a bloated and debt-ridden system.

While the path forward is obscured, it cannot be denied that we are on the path to somewhere interesting. Can you feel it?

Technological progress and more efficient economical processes in tandem with global markets’ evolution and automation changing the workforce.  

This is the start of something big.

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Defensive Actions for the next trading day: 

• None.