This week on Planet... Earth - 15 January 2016

Friday 15 January 2016

TL;DR Crazy things are happening, in crypto and the traditional financial world. Precisely none of them are good.

I’m away for a few days, so won’t be able to post my usual Friday market report. Instead, I’m giving an overview of what’s been going on in the markets the last few days, in crypto and out, because it’s fair to say it’s unusual times for both.

Firstly, crypto. I’m writing this on Wednesday so the picture at time of publication will necessarily be incomplete, given the speed with which things move in crypto. But the lie of the land is clear nonetheless.

After a welcome lift back up to the $460s, bitcoin experienced a gradual decline for a few days and then a crash that wiped out all of the gains of a week earlier and sent it back to the $420s. Like the rise, the fall was sudden, possibly the result of one or a handful of large sellers acting at the same time.

The alts, meanwhile, have seen some startling action. Many have seen double-digit rises, and a handful were up 30-40% or more at one point. The selection was eclectic, with some popular suspects like Dogecoin and Litecoin not seeing much interest at all.

The cause? As ever, China stands in the background of so much that happens in crypto world. Turning from cryptocurrency to the traditional financial system, we can start to deduce what has happened.

‘Sell everything’

Mad Max

RBS say it could be a bad year, and you should prepare yourself for tough times

China is in a fix. Two major falls on the stock markets last week triggered their ‘circuit breakers’: a mechanism that ends trading for the day if the market falls more than 7%. The authorities then removed the measure, which clearly did not work. This sent a message that the Chinese government is not capable of controlling the markets. Volatility has continued ever since, with some more heavy falls. Most of China’s investors are individuals rather than institutions, and they have lost a lot of money.

That has big implications for the global economy, and taxpayer-owned British bank RBS has been shouting that loud. It has warned of a ‘cataclysmic year’ and urged clients to ‘Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.’ In other words, if you're going to sell, sell first. The bank did much the same before the financial crisis of 2008. RBS’s analysts expect 10-20% falls on European and American stock markets, and even heavier ones for the UK due to the number of energy and commodity companies that make up the FTSE. Oil has been hit hard in recent weeks and months, and when sanctions on Iran are lifted - possibly in the next fortnight - there will be even more downward pressure from new supply. The result could be a deflationary crisis. In short, RBS expect the Apocalypse and haven’t been backward in saying so.

Gambling and manipulation

Back to crypto. Meanwhile, China’s policy of devaluation to support its exports continues. What is interesting about the recent movements in the crypto markets is that bitcoin, a growing means of circumventing capital controls, has fallen heavily. That points to one or both of two things.

The first is that many Chinese use the stock market as a form of gambling. Now that it’s not bringing good returns, they may have switched to certain altcoins. The massive volumes on Chinese alts exchanges support that. Unfortunately, though, there’s probably more to it.

The second is outright market manipulation, also led by the Chinese exchanges BTC38 and Jubi, though key thinly-traded alts. Hence, no Doge, no Litecoin, which have higher volumes. Volumes for the chosen coins may be higher than normal, but the number of bids and users is low. The conclusion is inescapable.

Nothing to see here, folks. Just another day in cryptoland.

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