Wall Street giant Goldman Sachs was working on plans for a cryptocurrency trading desk. While some have eyes on the possibility that crypto and blockchain technology will eventually render banks like Goldman obsolete, the desk would have given the upstart asset class new respectability in the financial world of today. In a press release put out by Reuters (https://reut.rs/2NpHyl0), Goldman announced it was scrapping those plans for now.
About 24 hours after the announcement, Bitcoin was trading about 13% down from its price right before the Goldman press release of $7,388 to just about $6,400. That’s one of the largest 24-hour drops this year.
We may hear the usual doomsday prepping and other shouting on blogs and social media, but here’s what happened: A trading desk that would have offered, in the eyes of many, legitimacy and perhaps stability to cryptocurrencies won’t be created anytime soon. And their exchange rates against the dollar fell. That isn’t a ponzi scheme, a conspiratorial black box, or animal spirits run amok. That, in all its messy and occasionally terrifying glory, is a market.
People are quick to cast cryptocurrency markets as shady black boxes full of manipulation, bubbles that have nothing to do with facts, and the ability of small numbers of investors to move markets. It is not manipulation. it’s new information that moves the prices of cryptocurrencies.
To be sure, the reaction of Bitcoin’s price to news of this type doesn’t yet look like that of a stock in a large corporation trading on the New York Stock Exchange. Intraday data show that the lion’s share of the drop came in two bursts.
The first burst came in the early hours of September 5, a few hours before any solid news of Goldman’s decision. Perhaps word did leak out — it certainly can do that on Wall Street — or perhaps something unrelated happened.
The second burst came late afternoon. It was larger and also more consistent with the possibility that traders absorbed a big piece of news or traders on the other side of the world came into the fray.
And then there’s the hallmark volatility of both Bitcoin and its fellow cryptocurrencies. The magnitude of these swings is still far higher than in more established asset classes.
This is still a volatile market in which good investing involves looking at a full picture of upsides and downsides. We don’t understand it as well as the New York Stock Exchange. But once again, recent events show that new information is the catalyst for moving crypto markets, a stepping stone on the path to greater efficiency and transparency. In fact, Citigroup has developed (https://bit.ly/2O4tevD) a new mechanism for investing in the cryptocurrency markets. The US bank plans to act as an agent issuing so-called digital asset receipts, or DARs, to enable trading by proxy without direct ownership of the underlying coins, a person with knowledge of the plans. That is to say, FUD news are spread only to scare weak hands. Top richest Bitcoin addresses are still accumulating.
And while weak hands are panic selling, they don't see that Bitcoin use cases are spreading among people all over the world. Last example is Argentina. Argentines pulled about $490 million dollars from personal savings accounts in the final two days of August, when the peso reached a record of 41.6 per U.S. dollar.
This is the biggest drop in 15 months as Argentina's Reserves have tumbled back to pre-IMF bailout levels. It is evidently very clear that the collapse of the Argentine peso is making the country’s citizens nervous... and the bank run has begun. And what are they choosing? Bitcoin (https://bit.ly/2x4ivKq). First Venezuela (https://www.yours.org/content/the-first-city-in-the-world-that-is-switching-to-bitcoin-fd6d8d7977a2), now Argentina, then Turkey and at the end the whole world. Cryptocurrencies will prove the best hedging against next financial recession and the best money chosen willingly by people.


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