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Betting Against Cryptocurrency Bubble as Dangerous as Gambling on Price Spikes

Betting Against Cryptocurrency Bubble as Dangerous as Gambling on Price Spikes
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Thursday, 07 December 2017 07:21 AM Current | Bio | Archive

The Middle East’s reactions to President Trump’s Jerusalem announcement were predictable and the shifting of capital flows after this will likely evolve slowly and it’s not likely to be significant in scale.

At the margin, one might call into question Middle Eastern investments in the United States if there is a further increase in tension, but conservative Middle Eastern investors have already been cutting back their U.S. assets and the low oil price has already encouraged a repatriation of assets by sovereign wealth funds in the region.

Trump’s decision does appear to have been diluted by not necessarily recognizing all of Jerusalem as being Israeli and planning to make the move over several years.

All of this is unlikely to have a direct market impact however. This is an instance of political rather than market importance.

In the meantime, media reports say that the UK foreign secretary has challenged the PM over possible solutions to the Northern Ireland questions. This is leading to rather dramatic media headlines. Ultimately, however, it is in everyone's interests to do a deal. Logic may not play much of a role in the EU, but self-interest does.

On U.S. economic data we got yesterday U.S. unit labor cost and good productivity data.

The U.S. has areas of very high productivity, but recent job growth has tended to be in low productivity areas. The unit labor cost data, as a reflection of inflation pressures, may be of note. It’s a fact that U.S. productivity rebounded, though wages lagged unit labor costs by declining by 0.2 percent as productivity rose faster than hourly compensation for workers

Financial markets seem to settle into something of a pre-U.S. employment report lull as far as economic data is concerned.

There is also the prospect of the Federal Reserve meeting next week to weigh on trading activity.

However, the idea of a rate hike is now being taken as certain, or at least as certain as these things can ever be.

It is perhaps more about the direction of U.S. interest rates in 2018 at this stage.

The financial markets tend to be too pessimistic in their interpretation of economic data and with that tend to underestimate more realistic interest rates expectations of central bankers and economists.

Talking for a moment about the incredible Bitcoin run that continues to hit new highs, which is perhaps a signal of how little else there is to do at the moment. Bitcoin just topping $15,000, or only 12 hours after clearing the $14,000 price mark.

The cryptocurrency market is now worth over $400 billion while the Cryptocurrency market has grown by $100 billion in the last 10 days.

Bitcoin futures are due to be introduced next week, which will allow investors to bet against the bubble.

However, bubbles are not rational. Predicting the precise time when a bubble will burst is therefore not possible using rational analysis. It is exactly the same as trying when the red on a roulette will show up.

Betting against the cryptocurrency bubble carries almost as much risk as betting on further rising prices.

Remarkably, banks and brokers are criticizing U.S. regulators for not being regulatory enough by managing the “futures.”

Media reports of retail investors getting involved, which is not unexpectedly, is quite common in the late stage of any bubble, but these facts are troubling.

In the main characteristic of this sort of bubble is that lots of smaller retail bubble buyers hand over their wealth to a small number of bubble sellers.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Betting against the cryptocurrency bubble carries almost as much risk as betting on further rising prices.
bitcoin, cryptocurrency, bubble, investors
Thursday, 07 December 2017 07:21 AM
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