Bitcoin landed in Wall Street. Yesterday the bitcoin enjoyed its first full day traded as a futures contract on the CBOE exchange. This is the first of several well-known, well recognised exchanges to trade bitcoin futures, with CME starting in just over a week and the Nasdaq expected to begin in quarter 2 of 2018.
Bitcoin's admission to the exchanges has added to the cryptocurrency’s legitimacy and is serving to calm some investors concerns over regulation. At the same time the virtual currency is being pulled into the mainstream, being made available for all to trade, not just tech geeks, seasoned professionals and high-ranking institutions.
Since Jan 1st the value of a Bitcoin is up 800% in comparison to the S&P is up some 18%, making the difference between the two strikingly clear. And an 800% return is just one year sounds extremely appealing. Just six months ago the bitcoin was worth $2000 and yesterday it peaked at $17,270 But as with all large rewards, the risks are also large.
For starters the bitcoin is extremely volatile. We will have all read or seen news headlines such as the Bitcoin has rallied or fallen 20% or so in 24 or 48 hours. Trading the bitcoin is certainly not for the fainthearted!
But that in itself could be half the appeal. Volatility in the wider markets is at historic lows and has been for a good part of 2017 but particularly the second half of the year. The VIX, often referred to as the volatility index has rarely popped above 11 over the past 6 months.
In this respect, the Bitcoin is the perfect antidote to historically low volatility elsewhere. The interesting thing about the bitcoin, is that it keeps outperforming. Back when it was $2000 or $3000 the same warnings existed about trading at its peak as the ones that we hear today whilst it hits $16,000, $17,000 and onwards.
Some say it will go on to $20,000, some say it will crash, and some say it is impossible to have an investment strategy with such a volatile asset.
It could be suggested that Bitcoin moves on demand trends rather than increases in intrinsic value (as it has no intrinsic value). In this case a trend following strategy could provide the best returns. The ascending 10-day MA suggests further upside in prices, with pullback in price to be short lived.