Are you on the right side of Bitcoin history?

John Lothian

John Lothian

Executive Chairman

1997 or 1637?

Shortly after JLN was published yesterday the news broke that the CME Group would be listing bitcoin futures in the fourth quarter of the year, joining the Cboe in such an offering. The price of bitcoin surged to new highs?

Why did the price go up? Because a new group of suckers,…errr, new traders would be reached with this news and want to buy bitcoin.

Why would they want to buy it? Because it is going up of course. Greed.

Why are the CME Group and Cboe offering bitcoin futures? Because, it is 1997 and you have to decide if you want to be on the right side of history with the Internet of money after missing out on the Internet back in 1997.

This is the argument I heard at the FIA Expo. Get with it, or miss out.

I have argued that the value of bitcoin comes from its marginal value to launder money. Why do you need bitcoin? So you don’t have to use the banks and all their fees. And so you can more easily launder money. It worked great for drugs and arms sales in the early days of bitcoin.

Bitcoin will not go to zero as many predict. Not right away. Instead it will fluctuate wildly. Profitably for some. Destructively for others. Greed. Fear. The fluctuation of bitcoin and its velocity is the risk to the money launderer, not the absolute price.

But this is also the point. The trading industry, including the futures industry, needs a bitcoin to trade. We need the volatility. We are volatility addicts in the midst of the worst volatility drought in the history of men crunching numbers with machines with electricity running through them.

The Dow just set a record for going up 51 days without a one percent break. You see, there is no such thing as downside risk anymore in stocks. Greed and no Fear.

I was wrong when I said Trump’s election as President of the US would lead to increased volatility. There I said it, I was wrong. But the game ain’t over yet, so I take it back because I know better. When the story of bitcoin is written, I may have to write those words again, so it is good practice.

There was also a Bloomberg story from about five days ago that said a company saw its shares surge 394% because it added “Blockchain” to its name, one of the names given to the technology underlying bitcoin.

If the CME’s name is connected to bitcoin, as the Cboe’s is to volatility and the VIX, then the sky’s the limit, right?  Time to take out those 2007 highs with just a few more promos for CME bitcoin futures on CNBC and Fox Business.

The magic words “futures exchange” made Refco want to go public and turn itself into a futures exchange because after the CME went public, exchanges and shares traded pretty much up, up and up until they didn’t, long after Refco went bust.

The risk of bitcoin is in its history and the cloud surrounding its creation and early fraudulent days. Who is Satoshi? Where is he today? What happened at Mt. Gox? Is it still used to launder money? Why won’t China let people trade bitcoin and what does this have to do with money laundering or capital controls?

The futures industry can’t even answer the question of how to stop another Refco from happening. Yes, we have apparently fixed PFG and have the Corzine Rule for MF Global, but millions were spent on due diligence on Refco and there has never been an answer to satisfy me. Are we sure we have done the due diligence on bitcoin, or does it not matter because it is a cash settled contract?

Sometimes fraud happens. Sometimes people get caught up in the spirit of the bull market and forget to look at the details, or worse, don’t ask the necessary questions. Thank you Bernie Madoff for proving this.

I have not done my own due diligence to see if I want to trade or even own bitcoin. I am starting the process, though for my generation Z son Robby, it was easy for him to decide and learn to mine Etherium and then convert its value to bitcoin when Ether got too wild for his liking.

But I know what real money looks like. I am a baby boomer who had a passbook savings account. That is what money looks like to me: in a bank, protected by the FDIC, listed in a passbook. That ledger was distributed to my passbook and my bank.

But that is also part of the problem here. I am a baby boomer, not a millennial or even Generation Z. I did not grow up with a computer and with everything I could ever want somehow connected to a computer, tablet or smartphone.

It is 1997. Some are going to get this, and some are not. Maybe I am one of the “nots,” at least for now.

I don’t want to be on the wrong side of history. But the history I am looking at is not just 1997, but 1636-37. That was the peak of tulipmania.

Why did people give away whole fortunes for tulips? Because the price was going up.

Why were people ruined? Because the price does not always go up. Sometimes it goes down too.

I am not a Luddite and tinfoil hats have never looked good on me. I understood that electronic trading was going to change everything and made the appropriate moves to be part of the future, not the past. Others decided to hang on to the old world order for as long as they could and stayed down on the trading floors until there was nothing left in the pits but memories.

If bitcoin takes off as money, and blockchain decimates the back office and legal staffs of the banking and brokerage firms as some predict, then who will come to the FIA EXPO parties?

There are existential questions to be answered. What does the future look like and will I have a future in it? All of us need to ask that question as we all are impacted by money, how it is spent, stored and otherwise used.

Back in the 1990s I had just bought my own answering machine when this whole Internet thing happened. You mean I need to change again? Even drop the landline? Geez! And I am now using my debit card for everything and barely ever have cash or change to give the homeless people. What becomes of their incomes?

I have started to use apps to buy my Starbucks coffee and give online to my church. But bitcoin? Not so fast.

Bitcoin is a distributed ledger for parties who are unknown to each other but have the surety of the blockchain to conduct the business. But the futures industry and related industries are not based on untrusted partners, they are built on trusted partners.

Bitcoin and blockchain say not so fast. You can trade with anyone in the world and you don’t need a broker or bank. You just need an electronic wallet and you can’t leave home without it because it is in your phone.

It is 1997? Or 1637? Or both. Are you on the right side of history? Are you on the right side of the latest innovation to rock the trading world?

There will be plenty of people who will want to trade the CME Group’s or the Cboe’s bitcoin futures. They will love the vol. But this mania is not for everyone. I am willing to be in the late majority of the lifecycle of innovation of bitcoin.

And while I wait, I may just go ahead and get rid of my rotary phone landline.


John Lothian Newsletter

Today's Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

Now Read This

Bitcoin’s role in the Mueller investigation

What do the investigation by FBI special counsel Robert Mueller and bitcoin have in common? Potentially, they’re both connected to a Russian hacker named Alexander Vinnik. The crypto world is lousy with individuals who have criminal records,...

Pin It on Pinterest

Share This