Byte Me: bitcoin turns 10

Bitcoin has its birthday on Halloween. Make of that what you will. The shadowy phantom (or cabal of phantoms) known as Satoshi Nakamoto published the bitcoin whitepaper 10 years ago.

  • By Costas Mourselas, Lewis McLellan
  • 01 Nov 2018
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It was, of course, another couple of years before bitcoin was traded by people other than Satoshi and his/her/their immediate circle, and longer still before it had a respectable dollar value (although everyone Byte Me meets claims to have heard about it by 2010 and to have been frustrated to have missed out).

So what has bitcoin given us over the last 10 years? A couple of thousand other cryptocurrencies, a couple of hundred blockchain conferences and a couple of squillion extra uses of the word "disruptive".

What it has not done, on the other hand, is encroach on banks’ stranglehold on payments and transactions.

The cryptocurrency market’s 24hr volume is around $7bn-$8bn. The daily volume of Visa alone is perhaps triple that. And to be clear, very little of that $7bn-$8bn is transactions that would otherwise have taken place. The vast majority is trader flow. A scant proportion will be transfers of value based on the purchase of coffee, or heroin, or contract killings.

It has been clear for years that bitcoin’s transaction fees and wait times mean that it is not a serious competitor to organisations like Paypal or Mastercard.

Of course, a day may come when a cryptocurrency can be a real competitor to bank transaction services. But will people care? You might be able to save a little on international transfers, but is that enough to persuade people to adopt a new payments system?

The unique selling point of cryptocurrency is decentralisation. Being able to transfer value securely without relying on a central third party’s oversight seems (especially to libertarians) like a nice idea. But does anyone really care? Recent history does not suggest a great clamour for what bitcoin offers. While GDPR has told us we own our own data, and a few people deleted their Facebook accounts when the Cambridge Analytica scandal broke, ultimately very little has changed.

People are, by necessity, growing used to the idea that their locations, preferences and communications are accessible to corporations and governments at the press of a button. Compared to all that, getting upset that banks can see all of our transactions (which has been the case for far longer) just doesn’t seem worth the trouble.

Nevertheless, bitcoin is here to stay, as are some of the other cryptocurrencies that have emerged over the last 10 years. And, as long as they are, people will try to make money from them and regulators will do their best to control how they do it.

A cryptoasset task force made up of the Bank of England, UK Financial Conduct Authority and UK Treasury has published a report giving the burgeoning sector an indication of what regulatory oversight may look like in the immediate future.

The report said that the body is considering regulating initial coin offerings — a way of raising capital by issuing cryptocurrency. True to the long-standing tradition of such reports, the task force highlighted the blindingly obvious possibility that ICOs could be used to circumvent regulation of conventional capital raising methods, such as IPOs.

Most eye catching for prospective UK investors may be the fact that cryptocurrency derivatives — products that hit the US with much fanfare last year — could be banned in the UK for retail investors.

The task force singled out contracts on “exchange tokens” like bitcoin and litecoin as the ones that would be part of the ban. The task force said it would consult on this, and a form "comprehensive" response to the use of cryptoassets for illicit activity. 

A retail cryptoderivatives ban would likely enrage some cryptocurrency enthusiasts, who are convinced that a cabal of central bankers and high ranking UK public officials are conspiring to take down bitcoin. The reality is probably far less exciting, and not as ripe for a thriller novel.

The regulatory climate in the European Union (and yes, that still includes the UK for now), has become increasingly hostile to leveraged financial products for retail customers.

Pan-European securities supervisor the European Securities and Markets Authority (ESMA) recently extended emergency measures that heavily restrict the use of contracts for difference (CFDs). Many of these products are highly leveraged.

Binary options, a product that make fixed payouts if you are either in or out of the money during a bet, were temporarily banned.

The FCA has backed ESMA’s moves, highlighting in January that 76% of CFD buyers lost money between July 2015 and June 2016.

However, it is possible the crypto task force has got ahead of itself on this particular occasion. Bitcoin seems to have become more stable than some world currencies (cough, cough, Turkish lira), and certainly more stable than the US stock market.

Since September, Bitcoin has failed to break out of the $6,000-$7,000 range, when taking exchange data from Chicago Mercantile Exchange Group's Bitcoin Reference Rate. Even since June this year, the cryptocurrency has managed to stick around the $6,300-$6,400 mark, albeit with some violent moves on certain days. 

The vibrant cryptocurrency community on Twitter has been joking nervously about bitcoin becoming the new “stable coin”, though many wish it would “go to the moon”, and be worth at least $100,000 by the end of the year.

This stability is really remarkable in the cryptocurrency market. Even coins pegged to the dollar have had less stable prices. In its month of life, the Winklevoss brothers’ dollar-pegged stablecoin has been worth between $0.97 and $1.19 — fluctuations that, on a percentage basis, make bitcoin look rock steady.

Digital gold

With such a steady range, bitcoin may perhaps be fulfilling its other great promise. Rather than becoming a medium of exchange, it is emerging as a store of value.

Indeed, for people in countries like Venezuela and Iran, bitcoin already plays an important role in the lives of citizens seeking an alternative to failing currencies.

Is this a realistic job for bitcoin to do? Well, perhaps. You’d certainly rather have been in bitcoin than US equities for the last month. But a couple of months of stability does not make it the digital equivalent of a nuclear bunker.

Despite the claims of crypto traders, we still have very little understanding on what moves the price. There are frequent headlines describing the waves of institutional money poised to pour into bitcoin, and just as frequently, predictions of doom as new regulations emerge or potentially rotten struts underpinning the asset are identified. But the effect of such news on the price is far from clear. That’s not what you want in a store of value.

Bitcoin may be here to stay, but if it isn't a good store of value or a decent medium of exchange, what, the question remains, is it here to do?

  • By Costas Mourselas, Lewis McLellan
  • 01 Nov 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 325,433.10 1264 8.10%
2 JPMorgan 317,420.42 1383 7.90%
3 Bank of America Merrill Lynch 292,651.96 1006 7.28%
4 Barclays 245,574.95 917 6.11%
5 Goldman Sachs 216,745.88 728 5.39%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 45,688.28 179 7.05%
2 JPMorgan 43,572.44 88 6.72%
3 UniCredit 35,452.34 152 5.47%
4 Credit Agricole CIB 33,170.05 159 5.12%
5 SG Corporate & Investment Banking 32,244.80 125 4.97%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 13,643.79 60 8.96%
2 Goldman Sachs 13,204.47 65 8.68%
3 Citi 9,716.40 55 6.38%
4 Morgan Stanley 8,471.86 53 5.57%
5 UBS 8,136.41 33 5.35%