Investors cashing in on the digital currency craze.
CURRENCIES CRYPTOCURRENCY CRAZE
Cryptocurrencies are all the rage lately, with prices for the decentralized and digital currencies soaring. The leader among those currencies, bitcoin, has seen its value skyrocket this year by nearly 700 per cent. As of Friday, a single token was worth more than $10,400. But, other than just buying bitcoin, how are investors trying to get in on this phenomenon?
BITCOIN CASH
There is bitcoin, and then there is bitcoin cash, which is similarly “branded as ‘ peer- to- peer electronic cash,’ ” Canaccord Genuity noted last week.
Created after a heated debate in the cryptocurrency community, bitcoin cash is an “offshoot” of bitcoin, Canaccord noted, created over the relatively smaller blocks used for bitcoin’s blockchain technology — the public ledger used to track transactions. The blocks for bitcoin cash are eight megabytes of data, instead of the one megabyte for bitcoin.
“As a result, after a consensus was reached in the bitcoin community, bitcoin forked at block 478,558 of its blockchain on ( Aug. 1), creating Bitcoin Cash,” Canaccord said. On that day, bitcoin holders received an equal amount of bitcoin cash, which is traded on most major bitcoin exchanges.
Bitcoin cash is now the third-largest cryptoasset, Canaccord said, with a market cap of over US$ 20 billion. A single unit was trading above US$1,700 on Friday afternoon.
BITCOIN FUTURES
Chicago-based CME Group, the world’s largest derivatives exchange operator, said at the end of October that it plans on launching bitcoin futures later this year.
“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy, chief executive of the CME Group, in a release.
CME said that its new contract would be subject to all of its existing rules, settled with cash, and be based on its bitcoin reference rate.
The released added that the market capitalization of cryptocurrencies had hit US$172 billion by that point, with bitcoin worth more than US$94 billion of that.
A ‘ FUND OF FUNDS’
Investors may want to put their money into a fund that backs blockchain or cryptocurrency plays. But now they can also consider investing in a fund that invests in those blockchain and bitcoin-backing funds.
The world’s first blockchain and cryptocurrency fund of funds — which will seek out and put money into a variety of digital- focused funds — was launched this month by Luxembourgbased Block Asset Management and is now an option for qualified investors.
“It will invest in a carefully selected portfolio of blockchain/cryptocurrency investment funds, which apply a variety of strategies within the sector and have a combined (assets under manage- ment) of over US$ 500m,” a release said. “Via the Fund, investors gain diversified exposure to this dynamic new asset class by way of the funds unique five- prong investment approach: exposure to tracking/ index, trading, mining, lending and ICO funds through carefully selected managers and funds.”
SEMICONDUCTORS
Chipmakers offer an indirect play for cryptocurrencies — for now, at least — as semiconductors are needed to help power computers needed to solve extremely complex “puzzles” that can provide digital tokens.
“The complexity of the mining ‘puzzles’ also adjusts over time; the more compute power focuses on mining, the more complex the puzzle becomes,” Morgan Stanley said in a note this month.
Bitcoin has moved on from the graphics chips, but Ethereum, another blockchain that churns out digital tokens, has not.
“The original white paper describing Ethereum built an algorithm that was designed to be ‘ ASIC resistant’, that is, to avoid the use of specialized chip sets,” Morgan Stanley said. “So generally, it is expected that the mining algorithm will remain graphics based.”
The window f or chipmakers may be closing, though. Morgan Stanley said that it believes total graphics chip sales tied to Ethereum mining this year will be US$ 800 million, but that it will be halved next year.
“With payback diminishing rapidly as the complexity of the algorithm grows, and the obsolescence of mining equipment 12- 18 months away, deceleration in spending by miners seems likely to continue,” Morgan Stanley said.
WINDOW FOR CHIP-MAKERS MAY BE CLOSING.