Altcoin Analysis for 30-09-2017: NEO, DASH, IOTA, XMR and NEM – newsBTC

newsBTCAltcoin Analysis for 30-09-2017: NEO, DASH, IOTA, XMR and NEMnewsBTCNEWS · ANALYSIS · CHARTS; EDUCATION. What is Bitcoin? Accepting Bitcoin · Using Bitcoin · Mining Bitcoin · Trading Bitcoin · How to Buy Bitcoin? What is money? Blockchain 2.0 · Bitcoin Glossary · CryptoCurrency · Proof of Existence · LiteCoin ...

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Protesters ‘walk the line’ to show location of underground <b>oil</b> pipes in Northwest Indiana

"Line 6B/78 is an integral part of he region's critical energy infrastructure, providing a safe and efficient supply of crude oil to numerous regional ...

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Morgan Stanley CEO, James Gorman, Offers More Rational Words on Bitcoin

It might seem that lately, the world of high-finance want nothing more than to drop a proverbial load all over Bitcoin but CEO of leading global financial services firm Morgan Stanley, James Gorman, offered words to support the contrary on Wednesday. Speaking at a conference hosted by The Wall Street Journal, he said he considered Bitcoin... View Article

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A Market In Which “Shocks No Longer Shock”: Deutsche’s Kocic Explains How To Trade It

Back in June, one of Wall Street's more philosophical derivatives strategists, DB's Aleksandar Kocic looked at the state of the market and postulated that far from "stable" the existing risk  "equilibrium" is one which can be described as "metastable", the result of widespread complacency, and which he compared to an avalanche where "a totally innocuous event can trigger a cataclysmic event (e.g. a skier’s scream, or simply continued snowfall until the snow cover is so massive that its own weight triggers an avalanche." Putting it in his usual post-modernist style, Kocic said that "complacency encourages bad behavior and penalizing dissent – there is a negative carry for not joining the crowd, which further reinforces bad behavior."

This is the source of the positive feedback that triggers occasional anxiety attacks, which, although episodic, have the potential to create liquidity problems. Complacency arises either when everyone agrees with everyone else or when no one agrees with anyone. In these situations, which capture the two modes of recent market trading, current and the QE period, the markets become calm and volatility selling and carry strategies define the trading landscape. But, calm makes us worry, and persistent worrying causes fear, and fear tends to be reinforcing.

Kocic framed the current state of the market as follows:

 

Unfortunately, the relentless grind ever lower in volatility, which as reported yesterday has resulted in both the lowest average September VIX on record...

 

... as well as the lowest September monthly settlement on record and only the second sub-10 monthly settlement... 

... appears to have finally unsettled Kocic' expectations, even if ever so tacitly implied, for a spike higher in suppressed vol, and as he writes in his latest ruminations on volatility, "as volatility continues to be unfazed by what lies ahead in the near term, short of surprises in inflation, we are likely to linger at low levels."

Following up to his note from last week, which explained how the Fed's fake "transparency" killed long-term investor, Kocic writes that "as transparency became the word of the decade, by its very nature it created the forces that push everything to the surface. Things exist thanks only to the attention they produce. There is no room for ambiguity." 

Which ties in to the current news cycle, a relentless barrage of flashing red headlines, one scarier than the other, yet which on aggregate have zero adverse impact on volatility, and certainly on risk assets, which on Friday spiked to a new all time high following the latest last-second VIX-smash. Or, as Kocic puts it, "although shocks (political and other) keep arriving in the market, they seem to be appearing at what looks like predictable time intervals (usually, on Fridays). Practically every week, there is a new issue that eclipses the previous one, and we lose interest in past issues, before there is any semblance of resolution."

And with traders' attention spans already severely lacking, this habituation to hyperbolic, staccato newsflow means that not only is the market not discounting the future as Matt King postulated several months ago, but it is no longer able to even respond to the present, to wit:

Shocks, if they are predictable, lose their spell and gradually become facts of life. Predictable political shocks feed back into their source. Due to their antagonistic character, they gradually erode the ability to make consensus and reduce the ability to legislate, making further reforms at least questionable, if not highly unlikely. The market “euphoria” (aka the Trump trade) that followed immediately after the elections is being perceived as increasingly remote. Despite all the promises of reflation of the economy, fiscal stimulus, expectation of economic turnaround, no change is on the horizon. We are stuck with the status quo, albeit a noisy one.

So what does this mean for risk assets, and markets? According to the Deutsche analyst, "despite all the distortions and disruptions introduced by the central banks’, which has created a semi-permanent state of exception, markets have not lost one main characteristic, their adaptability. As the markets are getting inoculated against event risk, volatility continues to be under pressure. While we are distancing ourselves from the idea of political change, the Fed is seen, once again, as the main source of volatility. However, the Fed’s position is an uncomfortable one. The main problem it faces is the balance between preventing inflation from becoming a risk while at the same time not causing a rapid and substantial rise of rates. This requires a high level of fine tuning. It means that the Fed has to continue with rate hikes, but the hikes have to be done carefully without triggering the bond unwind."

The implication for vol traders is that contrary to warnings of market "metastability" and "suppressed cataclysmic vol events", Kocic - in many ways pulling a Hugh Hendry of his own - comes to the admission that fighting the Fed's control over vol has become a futile pastime, and even though further complacency is in the cards, "continued vol selling" is encouraged.

... the market gradually, and reluctantly, trails behind the Fed, one hike at a time, and adjusts expectations on the go, without taking a longterm view on the Fed. It is difficult to see how this can lead to any excitement capable of inspiring higher volatility. As long as things evolve according to this scenario, everything shoiuld remain “predictable” with occasional noise that the market has learned to ignore. This is an environment that is bearish for volatility. It fosters further complacency and encourages continued vol selling.

Finally, Kocic takes a "Greek" detour and asks whether in this environment, in which every shock is ignored by a market now programmed to sell vol no matter what, "there is hope for Gamma?" Here is his answer:

In our recent publications, we have extracted one possible measure of liquidity from the volume data of Treasury futures. This measure quantifies sensitivity of the price to changes in trading volume. The liquidity index is expressed as a negative log of this sensitivity, so that large sensitivity corresponds to low liquidity and vice versa. The figure shows the (smoothed) liquidity (on the inverted axis) overlaid with the 3M10Y– low vol goes hand in hand with high liquidity.

 

 

Liquidity has a logical connection with volatility. This starts at the very short end and propagates across the term structure: By making a price, market makers are implicitly short volatility for which they are required to allocate risk capital and the bid/ask spread (which is an indirect measure of liquidity) is the compensation they receive for this risk exposure. All else equal, the ability to hedge an option is a function of liquidity of the underlying, and the option prices should reflect that. From the figure, we note that post 2004, with the disappearance of mortgage negative convexity hedging and the growth of  volume on the exchanges, liquidity has been providing a lower bound for gamma – whenever gamma reached this lower bound, it has been pushed up. Also, the departures from that lower bound have been increasingly rarer and short lived. This holds not only for rates, but for equities as well.

 

As volatility continues to be unphased by what lies ahead in the near term, short of surprise in inflation, we are likely to linger at low levels. In that context, liquidity constraints are going to define the lower bound on gamma.

As a reminder, none of this is new: those who have traded this market (for more than just a few years) instead of merely commenting on it, will recall all those vol traders who lost their jobs in early 2007 when vol crashed so hard, there literally wasn't a swaptions market. If Kocic is right, vol traders in 2017 (and perhaps 2018) will suffer the same fate. Of course, the 2007 episode is best remembered not for the the vol linked pink slips, but the explosion in VIX shortly thereafter and the resultant near collapse of the US financial system. Despite the Fed's relentless pressure, trillions in liquidity injections and vol selling, we see nothing that has changed since then, and no reason why this time will be different.

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How to Enter Crypto Market without Expertise? CryptoFund Gives Answer!

The interest of potential investors to the new market is understandable, as alternative investments compared to traditional ones give the opportunity to profit more than 1,000% per year, and the apparent market bull trend allows expecting even higher levels of profit. The forecasted profitability on cryptocurrency investments may exceed 1,250%. Not Too Late However, cryptocurrency … Continue reading How to Enter Crypto Market without Expertise? CryptoFund Gives Answer!

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JSEcoin Self Mining is Now Back Up and Running Again

It seems that quite a lot of websites have recently got into crypto mining Monero (XMR) using the Javascript miner provided by Coin Hive without warning their users that there will be such a thing when you visit them. That of course cannot remain undiscovered for long time due to the increased CPU load when […]

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IMF Chief Lagarde Tells Central Bankers: “Not Wise to Dismiss Virtual Currencies”

IMF Chief Lagarde Tells Central Bankers: "Not Wise to Dismiss Virtual Currencies"

Christine Lagarde, head of the IMF, warns central bankers that bitcoin is rising. She has told them not to discount digital currencies, because they are gaining more adoption and traction. Lagarde addressed this issue in a conference Friday in London. She said digital currencies might give existing currencies “a run for their money.”

Also read: Cayman Investment Forum Focuses on Rise of Bitcoin and Failing Dollar

An ABC News article quoted her: “In many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.”

Digital Currencies are Still in Their Infancy

IMF Chief Lagarde Tells Central Bankers: "Not Wise to Dismiss Virtual Currencies"
Christine Lagarde

Lagarde went on to say that digital currencies will not replace the current currencies anytime soon. She believes bitcoin is still too volatile. This is why many institutional investors are still waiting on the sidelines. However, the time will come when they decide to jump in.

“For now, Lagarde said, digital currencies are unlikely to replace traditional ones, as they are ‘too volatile, too risky, too energy intensive and because the underlying technologies are not yet scalable.'”

She also mentioned that high profile cases of exchange hacks, like the Mt Gox debacle, has caused mainstream investors to be wary of big investments into the space.

Technical Innovations Will Push Bitcoin Into the Limelight

Nonetheless, Lagarde said there will inevitably and undoubtedly be more technical innovation. These digital currencies will continue to grow and thrive. She said, just like the internet, cryptocurrencies will scale and quickly slither their way into the mainstream consciousness. In other words, central bankers should not ignore the technology or underestimate it. The ABC news article quoted her:

Not so long ago, some experts argued that personal computers would never be adopted, and that tablets would only be used as expensive coffee trays, so I think it may not be wise to dismiss virtual currencies.

Furthermore, Lagarde believes computers will be able to assist governments and other organizations. They will be able to set policies, perform bureaucratic tasks, spot bubbles, and manage other aspects of the financial system.

Mainstream Awareness and Other Perspectives

IMF Chief Tells Central Bankers Not to Underestimate Bitcoin

From the mainstream perspective, Lagarde represents a growing number of influential people who recognize the power of bitcoin and blockchain. However, there are still those who disagree or believe bitcoin is bound to break. People like Jamie Dimon and Jordan Belfort recently called bitcoin a fraud. Not to mention, China recently banned ICOs and acted to ban some bitcoin exchanges.

However, these comments and actions did not harm bitcoin. For every negative comment or publicity, there are positive comments and activities. For instance, Japan recently endorsed 11 exchanges and became Asia’s dominant bitcoin hub. The love of bitcoin and cryptocurrency seems to be accelerating at a greater pace despite significant push back.

Do you think the central bankers will respond to Lagarde? Will the mainstream fully embrace bitcoin soon? Let us know what you think in the comments below.


Images via Shutterstock, Marieclaire.fr (cover photo), and Forbes


At Bitcoin.com there’s a bunch of free helpful services. For instance, have you seen our Tools page? You can even lookup the exchange rate for a transaction in the past. Or calculate the value of your current holdings. Or create a paper wallet. And much more.

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Analysts: Russia May Be Helping Catalonia Secessionists

Catalonia’s secessionists, who are trying to organize an independence vote from Spain on Sunday, may be getting aid from Russia as part of the Kremlin&#8217;s ongoing strategy to destabilize the European Union, according to European Union analysts. Spain’s central government has deployed thousands of police to contain expected disorder. They have threatened local officials who [...]<br />Visit Analysts: Russia May Be Helping Catalonia Secessionists on .

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Hackers from North Korea Attempt to Steal Bitcoin

Hackers from North Korea have attempted to infiltrate several cryptocurrency exchanges in South Korea, and...<br />The post Hackers from North Korea Attempt to Steal Bitcoin appeared first on Bitcoinist.com.

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Dispute Resolution Within the Pally Community

Pally aims to connect like-minded people, enable better travel experiences and in turn bring the world closer together — across borders and cultures. Through innovative technology, a dedicated team and the right automated safety measures much is being done to ensure that this vision is realized in a responsible way. It is fair to acknowledge … Continue reading Dispute Resolution Within the Pally Community

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