Commission Free Speculation?

As you’ll know if you read my last post, I’ve been getting into the whole crypto thing quite a bit recently.

I was introduced to it by a couple of mates who are slightly less risk averse, and slightly more accustomed to non-sporting speculative punts, than me.

And I’m glad I was. When I wrote that last blog, 9th September 2017, bitcoin was about £3,000. Now, bang on four months later, it’s four times that price. Likewise, Bitcoin Cash. Others have increased in the interim by more significant multiples than even those.

Of course, a little knowledge is a dangerous thing, and in the new frontiers of cryptocurrency investment that makes most people dangerous to listen to. Including me. Perhaps especially me.

For what it’s worth then, here’s what I know:

– Digital payment is not new. Many of us transact daily without using hard (i.e. physical) currency. I’m friendly with the boss of my local coffee shop, and when he started four years ago he took cash payments only. He told me this week that 75% of his business is now cashless. Seventy-five percent.

– Alternatives to sterling are not new. Anyone who has bought more than a handful of items online will probably have paid in at least US dollars for something. There is a conversion charge associated with that, which is normally expensive. Someone in the middle is getting some.

– Alternatives to fiat (i.e. government/bank-issued) currency are not new. People have been putting their cash into gold, wine, art, oil, orange juice and pork bellies for as long as anyone wanted to avoid the economic policy whims of one nation or the global macro-economy.

– One cannot spend a bar of gold or a bottle of wine or an oil painting or a barrel of crude of a pig’s carcass any more easily than one can spend a bitcoin. And nobody has a problem with liquidating those commodities.

So there is nothing new in the world of cryptocurrency, per se.

But are the crypto markets over-hyped? Is there value to be had? Any halfway decent racing punter will be able to articulate the crucial relationship between price and value. As will any halfway decent market trader, or stock or currency or commodities trader.

The principles are precisely the same; the subject matter the only differentiator.

What is difficult, in any of these arenas, is accurately identifying value.

To use the sports betting analogy, bookies used to be the only option, tote aside. So, when Betfair came along, with their very-tight-to-100% markets, the wagering world swooned. And coughed the 5% commission. Because they were still generally betting around 106% on a race where the bookmakers were maybe 115%.

Bookmakers had to get more competitive, and they did. Concessions, the price economies afforded by operating remotely (i.e. no high street shops or cashiers), and managing liability against the exchanges have pretty much evaporated the value chasm.

That nominal 9% difference is now almost non-existent, with punters who can get on with bookmakers generally electing to do that. Best Odds Guaranteed, rick-laden early markets, and a glut of competition have made it easier than ever for the unrestricted punter to get close to breaking even, at least.

But most punters who apply these opportunities get restricted, their stakes – even when minimal to begin with – are limited to pennies. Thus, the exchange becomes the last vestige of the volume bettor. And here, ‘volume’ could be twenty quid, or even a tenner.

The exchanges are marketplaces. They are a liquidity game, swiping their 5%, or 2% or somewhere in between, from all matched transactions. Their job is to keep the wheels turning and to keep the liquidity rolling. To keep turning over the turnover.

For providing the marketplace they charge a commission.

That’s also what currency exchanges do. And share trading platforms. And crypto platforms.

But the margins are getting smaller.

Meanwhile, demand for crypto is higher than ever. A very frothy market in which direction nobody knows it is going. Is it over-heated? Probably. Will it continue to rise in the short term? Very likely.

The market is made up of bitcoin, and the rest. Bitcoin is, for me, a commodity, like gold. It has value because people say it has value.

More than that, it has demonstrable value because people will exchange chunks of fiat currency (pounds, dollars, euros, rupees) for slices of bitcoin.

The cost of transactions on the bitcoin blockchain – again, see this post for a few words on blockchain technology – are very high. Like, unfeasibly high for small ‘coffee shop’ transactions. And they take ages to get settled.

But plenty of wealthy, and not so wealthy, people are ‘buying and holding’ bitcoin as an asset. As a commodity. Like gold.

There is plenty of demand, for now at least, and a limited supply ongoing.

But what of ‘the rest’? Every other cryptocurrency has been ‘minted’ with utility in mind.

(Sidebar: Bitcoin also had that aforethought at the outset, but outgrew its utility because of technical constraints. It also didn’t need to evolve directly because of its ‘new asset class’ status. Bitcoin Cash spawned from the code base to serve the original utility of bitcoin: payments).

The other crypto’s are tokens which can be used to affect some utility or other. In plain English, they can be used to buy a service and/or, ultimately, physical goods.

We’re in the very early days of blockchain technology. The likelihood is that, as with the early dotcom years, there will be many more losers than winners, but the winners will go on to become behemoths of their sector.

Think FriendsReunited and facebook; mom-and-pop-eshop and Amazon.

Thus getting involved away from the top handful – Bitcoin, Ethereum, Ripple (?!), and Bitcoin Cash – is a very risky business. It also offers the potential for greater reward.

I have the vast majority of my (smallish) portfolio in Bitcoin Cash, Bitcoin, and Zcash. But I also have a few ‘penny share punts’: speculative plays that possibly won’t pay off but which were interesting to me at the time of investment and enhance my ‘skin in the game’ engagement.

I have small holdings in such as espers, ATBcoin, and siacoin. They are interesting to follow, and if any of them ‘break out’ the return will pay for the losers and some.

And that’s the main reason for this post: I’m getting involved with a new ICO (initial coin offering) next week. It was recommended to me by a friend who has been both lucky and good with his non-sporting speculations, and who likes the setup here.

The tokens from this ICO will be used to trade bitcoin futures – the most ‘now’ of now trading propositions. But here’s the kicker: this platform will enable traders to operate commission-free.

They will buy their tokens, trade in their tokens, and sell their tokens, all without commission. How is this achieved? By the platform operator minting some of the tokens for themselves of course – more like a share offering where the management team retain equity.

And, like an IPO, the management team have a vested interest in the ongoing success of the platform because it directly impacts the value of their own investment.

This platform aims to be the bitcoin futures trading equivalent of Betfair, but with two major differences:

  1. Betfair charges between two and five percent per transaction; Digitex will charge zero percent. Zero.
  2. Betting exchange trading volumes are quite small (in the millions per day); bitcoin trading volume in the last 24 hours was $17,704,000,000
    (£13 BILLION). In a day. Every day.

Demand for tokens – the only unit of currency acceptable on this commission-free bitcoin futures platform – is expected to be high, which could push the value of each token upwards.

Now obviously, at this point, please do take time to perform your own due diligence and get your head around the general context (i.e. crypto investing) and this  particular ICO.

There are other commission-free trading platforms emerging, in the same way that there are multiple betting operators and online retailers and banks and, well, everything really… some will survive and others will fail.

Things I am drawn to in terms of taking a punt on Digitex Futures are:

THE TEAM

It’s being built by a team led by the UK-based developer behind Bet Trader, exchange trading software; and supported by established Ethereum/ blockchain developers. This already gives the project a leg up on plenty of ICO’s out there.

THE OPPORTUNITY

Most ICO’s are in some way incentivised and this one is no different. For those investing in the first week of the offering – which begins on Monday 15th January – there is a 20% bonus.

So, for every five tokens you buy, you’ll get a sixth as a bonus. Of course, six times nothing is worth exactly the same as five times nothing, and that could be the outcome here. Caveat emptor. Natch.

THE TIMELINE

The ICO will provide for further development of the project and some of the initial liquidity on the trading platform. You can read more about it here.

Trading on the exchange is projected to begin in the middle of this year, though my own expectation is that towards the end of the year is more likely (just based on how development almost always takes longer than planned). So, while any investment is not tied up for that long necessarily, the action in terms of token price will align to the action in terms of exchange trading. That is what will drive demand for the tokens. Or not.

Before then, Digitex has to complete its build, run rigorous testing, get the tokens listed on crypto exchanges (which again drives demand), and then start marketing the platform to build ‘real’ liquidity (as opposed to the planned-for seeded markets, to keep spreads tight).

HOW IT WORKS

Here’s a video demo of the platform. The interface will look somewhat familiar to Betfair traders.

WHY THIS APPEALS TO ME

I would say there’s an 80% chance (number plucked out of my, erm, back pocket, but ballpark sufficiency) of this project going tits up, and any investment in it going to zero.

But 4/1 is a price I play every day when I think the upside is notably higher. Bitcoin futures trading is going to be a big thing. It’s more accessible than actually buying/holding bitcoin, and appeals to the gambler in everyone from stocks and commodities traders to hedge fund investors to the man or woman in the street.

Commission-free trading, or negligible commission trading, will eventually establish itself as the norm, because that’s how efficient markets work.

Whether this platform will be a/the winner, I don’t know. Whether it has to be an outright winner when the market is this big, I don’t know either. It probably doesn’t need to be the 800lb gorilla to yield a hefty return.

So, for me, there is a large amount of upside potential which mitigates the ‘shit or bust’ risk that almost all such ICO’s bring with them.

And thus, come Monday, I’ll be in for a few quid. Enough for me to be upset if it goes to zero, but not so much that any other portfolio plate has to stop spinning. A sensible sum in the context of the offering.

You can read more about it here, including how to register your interest.

Matt

p.s. If you decide to register your interest in this offering, I will get some tokens for referring you. I obviously wouldn’t be writing this if I didn’t think there was merit in the ICO. Nor would I be putting my own cash in the pot.

I know you know that, but I want to be absolutely up front and above board about it. If you’d rather I didn’t get a ‘ta muchly’ from Digitex if you decide to sign up, that’s absolutely fine. Here’s a ‘naked link’. Go take a look.

p.p.s. If you think it’s fair enough, then here’s my special link 🙂

p.p.p.s. I’m going to be using this blog much more in 2018 to share my own thoughts on the wider world, and stuff in it. I appreciate that won’t be for everyone, and I’m more than happy to try to respond to any questions where they’re a) reasonable and b) can’t easily be answered by a three word google search (!)

 

6 thoughts on “Commission Free Speculation?”

  1. Hi Matt, Interesting blog but I have to call you on a couple of things (you know me so should expect no less).
    1. Bitcoin and all other crypto-currencies have absolutely no value regardless of who believes otherwise, the value lies in the Block-chain technology underlying it.
    2. Crypto-currencies will only flourish as long as three criteria are met – firstly, that national governments allow them to do so (becoming perilous) due to secondly, the principal users of crypto-currencies are criminal operations (Dark-web denizens such as Silk Road type operations and ransomeware purveyors) and these, largely, equate a US$ value to their products and operations (noticeably, these operations have been pulling away from Bitcoin to using Etherium and other cryptos) and finally, that there is some method of expanding the currency pool (i.e. more currency can be “created” and introduced into the chain) precisely to avoid the hyper inflation of the crypto-currency’s “value”.

    The example of Bitcoin is somewhat salient, its first heavy adopters were the underground markets as the technology made tracking transaction very difficult whilst making the confirmation of transaction exceptionally easy – if that sounds contradictory, it isn’t – the transaction chain can be routed through any number of blind recipients (e.g. to a Cayman Island account, to other offshore accounts ad infinitum, eventually to some form of negotiable instrument) to obscure the end recipient, but the transaction is hard written into the chain making confirmation readily available. Most western banking and regulatory administrators are actively looking to regulate crypto-currencies (and ban crypto IPO’s) as is China, predominately for those very reasons. The result has been a relative crash in the “value” of Bitcoin (and the start of inflationary pressure on the other cryptos). Ultimately you cannot create value from nothing – you can create hype and induce “get-rich-quick” seekers in and you can see market traders setting up futures markets to try and leverage a commission generating platform but, again, the currencies as they stand have no value – by necessity the only winners are those first in and the platform owner-operators.

    Invest in Block-chain technology companies by all means (those developing secure transaction paths, secure software signing methods etc) or those adopting or developing block-chain technology to enhance their existing business (most financial transaction companies (Banks), financial clearing houses (SWIFT) etc) but leave the currencies alone unless / until a central banking system actually underwrites its asset base.

    1. Hi Jez

      Thanks for the comment. However, I fundamentally disagree, for a number of reasons which I’ve largely outlined on my previous blog post, and won’t be repeating here.
      Suffice it to say that 1) bitcoin has hardly crashed, relatively or otherwise and 2) I think the notion that criminals are using crypto to launder is no different from them doing what they’ve always previously done – i.e. launder through banks etc. And I think that whole line of argument is overblown and conspiratorial.

      In short, it’s not my job to persuade you – or anyone – to change your/their mind. But I fundamentally disagree and think you’re missing a big opportunity (in the bigger context) by convincing yourself it’s corrupt. It patently is not.

      Matt

      p.s this particular opportunity IS an investment in blockchain technology, as are all others – some good, some terrible – except Bitcoin, which has now become commoditized as I’ve outlined in this very post.

      1. Hi again Matt,

        Hey, that’s what a blog is for – we can agree to disagree.
        I’d suggest reading Warren Buffett and Charlie Munger’s views on crypto-currencies (Berkshire Hathaway Inc), Chinese reactions, current ban proposals by South Korea (the largest country market for crypto-currencies), Central Bank of India comments etc., etc. Bloomberg offer a summary of various country’s views on crypto-currencies (https://www.bloomberg.com/news/articles/2017-12-15/what-the-world-s-central-banks-are-saying-about-cryptocurrencies), with most intimating that the technology underlying them, the Block-chain, is interesting and may be incorporated into their banking systems the currencies themselves have them harbouring doubts (with ICO’s banned in some areas and trading unless linked to fiat currency in others, with China leading that path).

        1. I’m aware of all of that, Jez, but using old world thinking in a new world doesn’t work. This is a disruptive technology for banks and financial institutions. So no shit that they’re against it, unless they can make it bend to their will. Was the same with Betfair and the bookies, and so on.

          As for Buffett, I watched his little video on cnbc, and what he actually said was he doesn’t know anything about them and it’s not what Berkshire Hathaway does and that most of them will go to zero. I agree with the last point, and respect his acknowledgement that he doesn’t know – or want to know – about crypto.

          If you use old world thinking, or listen to people with a vested interest in the failure of something, you’ll stay where they are. It’s right and proper to take a rounded perspective, to challenge both sides of an argument. But to look to only one side – regardless of which side – is reckless and foolish. I am neither of those, regardless of where my little portfolio winds up.

          Matt

          p.s. yes yes, I have said from the very outset that the blockchain technology is where it’s at. But it is not simply the technology, but rather what is built with the technology, that is or is not investable. I’m repeating myself now. I’ve made all of these points before in one or both of my crypto posts.

  2. All turned out to be nothing in the end anyway as I should have known. Sold every token in 20 minutes. Since it started at 2PM UK time on a Monday that meant none of us real people with actual jobs had any chance of getting involved. Wouldn’t have mattered anyway though as the Ether that I bought took so long to arrive it wouldn’t have been there to purchase with anyway.
    If this is the cack handed way these things are run I won’t be getting involved any time soon. I thought the whole point of digital tech based stuff of any kind was the ability to do things quickly? That’s the lie they all sold us in the 80s & it doesn’t look like anything’s changed on the “new frontier” 6 days to buy coins? My crap bank processes payments faster than that.
    Still, the people in charge of the ICO now have a nice stack of ETH so why should they care? Only thing left for me to do is hope the price of ETH goes up so I can sell & cover the commission charge.

    It really annoys me that these things are set up in such a way that only people with the time & luxury of being able to sit on their arses in front of a PC all day seem to have the ability to participate. If demand was that high then surely they could have launched on a Saturday?

    Complete waste of my time & the utter ballache of getting my ID verified.

    Of course we all know the next step don’t we? A “miraculous” 2nd offering where another stack of tokens suddenly becomes available out of nowhere accompanied by some geeky doublespeak as to why (which barely anyone will understand)

    Well they know where they can stick it.

    Despite the fact that I now own some I’m now hoping that ETH crashes through the floor & their holding ends up worthless. Trying to get in to an investment market shouldn’t be like trying to buy tickets for Taylor Swift surely?

    1. Hi Bri

      I have to say that, while I totally understand – and indeed empathise with – your frustration at not getting in, some of the other comments are a little ‘heat of the moment’, shall we say. I will try to cover them off in a forthcoming post. Suffice it for now to say that 1. you will be in a position to participate in a future opportunity should you so wish, and 2. I’ve never – and I don’t know anyone else who has – seen an ICO sell out so fast.

      There’s was a low capitalization, raising 7,000,000 USD or thereabouts, but still, it was bonkers that it went so fast. I missed out by five minutes, and I don’t know anyone who got in.

      But, like the stock market, or sports investing/betting, this isn’t the only opportunity in town. There are a few good – and plenty of bad – value options around every week.

      Anyway, I’m pre-empting the next post. I hope you’ve cooled down a little, and have enjoyed the dip in the crypto market valuations – again, nothing to be unduly concerned by long-term based on the past few years.

      Matt

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