In late January, Robinhood announced that they would be launching cryptocurrency trading. Today they started rolling out 24/7 trading to the first batch of users on their waitlist.
In case you don’t know, Robinhood is a mainstream financial brokerage service which is expanding at an incredible rate. Founded in 2013, the company started with free stock and exchange-traded fund trading. They managed to keep commisions at zero by making money off of users cash balances as well as an optional margin feature called Robinhood Gold. In late 2017, they announced that they would be releasing a web platform as well as free options trading. These two new capabilities in and of themselves were massive announcements from the underdog brokerage firm. A web app, options trading, and commission-free trades allows Robinhood to compete in terms of products with many traditional brokerages such as TD Ameritrade and Charles Schwab. Adding crypto trading widens their user base even more-so.
Robinhood is known for its easy-to-use interface and for attracting new, young investors. In many ways, Robinhood has been to stocks as Coinbase has been to cryptocurrencies. By Robinhood allowing crypto trading for the United States, they are directly competing with Coinbase. It is still to be seen how much, if any, of the market share Robinhood will take. Currently, users can make commission free trades using Coinbases trading platform, GDAX, and utilizing limit buys. But, if Robinhood can make crypto even easier to purchase, it may catch on. Another thing to consider is that Robinhood is not starting from zero user-base; it is possible that there are many traditional investors who have been wondering about crypto and see this as an opportunity to get in safely and easily.
Most importantly, this is a major win for the crypto space in general. Not only will this bring in more traders, other brokerages may feel the pressure to adopt crypto or fear getting left behind. Coinbase already grew to have more accounts than Charles Schwab which is significantly older. If Robinhood can follow suit, it has the potential to become a household name. While some brokerages have shown positive attitudes about adding crypto products, others such as Vanguard have announced that they will never touch Bitcoin. With the rate that crypto is growing and being adopted by others in the industry (e.g. TD Ameritrade Bitcoin Futures), we will soon find out if Vanguard is making the right decision, or if Robinhood will reign supreme.
Link to official announcement, here.
Wells Fargo Bans Buying Crypto with Credit Cards
In an email to CBS MoneyWatch, a Wells Fargo spokesman has confirmed that the company will now ban all cryptocurrency purchases with their credit cards.
The abrupt decision is “due to the multiple risks associated with this volatile investment,” said the spokesperson, who also stated that “this decision is in line with the overall industry.”
In the past year, Bank of America, JPMorgan Chase, and Citigroup have all banned cryptocurrency purchases. Since the crypto space is hyper-volatile, they are worried that many customers may not be able to pay back the loan. In a poll conducted by loan marketplace LendEDU, it has been discovered that 18 percent of bitcoin buyers used a credit card to pay for the currency. Of that 18 percent, 22 percent were unable to pay off their balance after purchasing bitcoin.
These sweeping changes to policy come after a rough two quarters of 2018. Bitcoin has fallen from around 20,000 USD in December 2017 to around 7,000 USD currently.
It is unclear where the cryptocurrency market will be in the future, but Wells Fargo has stated that they will “continue to evaluate the issue as the market evolves.” In order for these large banks to fully back crypto purchases, the market will need to prove that it is mature and stable.
Bitcoin is Beginning to Trade Like a Commodity
For much of the last year Bitcoin’s price appreciated at exponential levels. Clearly this was due to demand side pressure driving the price upwards, as the supply of Bitcoin, currently circulating at 17,000,587 coins, will only able to marginally increase over time, with a max capacity of 21,000,000 coins. A small, potentially immaterial amount of supply side pressure can be added, as people will inevitably lose private keys to their Bitcoin due to cold storage failure or hardware corruption.
However, in the recent time frame of the last three months, Bitcoin has seen a marked change in its price action. This particular cryptocurrency now has taken on attributes of the price action commonly seen in the commodities market. The two types of traders of cryptocurrency and commodities also share a similar profile. Commodities traders will seek to purchase futures to hedge crop prices needed to run a business or lock in profit on a sale so that they are guaranteed to meet all operational and living expenses. Many Bitcoin purchasers also seek to hedge against the inflation of their local government’s fiat currency or governmental political risk of losing ownership of physical assets in times of political instability.Additionally, speculators in both markets trade the price swings and, at times, can amplify price movements in either direction. While price volatility is seen as commonplace in the cryptocurrency space, the commodities market has its share of volatility also, however. An important caveat to note is the difference of the reference time frame.
We can see the apparent departure from extreme volatility as Bitcoin traded within a 43.60% band from its height in this three-month span.
data source: https://coinmarketcap.com/currencies/bitcoin/historical-data/?start=20180127&end=20180427
Here we can see the chart for oil as it fluctuates 73.63% percent from its high over a 5 year span. It is important to note that even blue chip commodities can go on long losing streaks before rebounding.
data source: http://www.macrotrends.net/1369/crude-oil-price-history-chart
It can be seen below that gold fluctuated 27.7% over this 5 year period of time. While it would have been a good choice to hedge against rampant inflation, buying gold on leverage or holding a large position in it would have seen a sizeable downswing for many years in a portfolio.
Bitcoin would have to maintain a track record of many years of trading within a relative band to match some of these long time commodity giants. Perhaps recent volatility can give us hints to a potential price floor and some illiquidity from amongst those owners who keep their coins off exchanges. Regardless of the degree, volatility has, and always will, behoove one to correctly construct a portfolio with asset allocation matching his or her appetite and ability to sustain risk (volatility).
NVIDIA Profit Forecast Slumps Due to Plunging Crypto Prices
After the second worst quarter for cryptocurrencies in history, analysts on Wall Street are now changing their predictions on NVIDIA’s profit margin.
Wells Fargo Securities, whose parent companies are Wells Fargo and EVEREN Capital Corp, announced that they will be lowering their predictions due to the high valuation of crypto in Q4 2017 and the dramatic decrease seen in Q1 2018.
Even though NVIDIA continues to market their products and company as one centered towards gaming, it is hard to ignore the obvious correlation between them and crypto. Earlier this year, The Hodlr covered an NVIDIA earnings call where the CEO was quoted saying that “Crypto is a real thing, it’s not going to go away.”
David Wong, an analyst for Wells Fargo Securities, released a letter to clients entitled “We See A Significant Rise In Risk.” In the letter, he states that “In recent months … we felt that there were multiple risks associated with Nvidia’s exposure to cryptocurrency mining and our concerns over the sustainability of Nvidia’s gaming, automotive and datacenter growth.”
After the letter was publicly released, NVIDIA shares plunged almost 5%.
In conclusion, Wong later revised his original 2019 prediction for NVIDIA shares from $5.39 to $5.26.
It is unclear whether or not this prediction will last the year. 2018 may prove to be a strong year for crypto, and if so, the analyst might have to revert to his original number.
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