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MARKETS LIVE BLOG:

STOCK FUTURES CLIMB AS RESULTS SEASON KICKS INTO HIGH GEAR

Tech-focused investors prepare for fresh wave of earnings highlighted by struggling Tesla

Bitcoin Bubble Burst? ETFs in Focus

Sanghamitra Saha
Updated
Steel Dynamics (STLD) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

The hottest investment of 2017, bitcoin, hit the brake to start 2018. The cryptocurrencydropped as much as 20% on Jan 17, sliding below $10,000. Other cryptocurrencies also followed suit in apprehension that regulators could enact a crackdown on them to halt speculation. Bitcoin halved from its record peak of almost $20,000 a month ago.

Ethereum and Ripple, the other sought-after crypto currencies, toppled after reports that South Korea and China could put an embargo on cryptocurrency trading, stirred concerns of a wider regulatory crackdown. Notably, South Korea makes up about 20% of global bitcoin trading (read: Bitcoin: 'Red Tape', ETF Filings & Withdrawal Explained).

What Caused the Slide?

Many analysts are issuing warnings about a bitcoin bubble. Most central banks are skeptical about its monumental rise. Most recently, Federal Reserve Chair Janet Yellen termed bitcoin as speculative, not a stable store of value or a legal tender.

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UBS Wealth Management said, “cryptocurrencies only have value if accepted as currencies.  However, they cannot be used for the most important transaction in an economy, and cryptocurrency supply can only rise and never fall (making them a poor store of value).”

From China to Australia, to Japan and Singapore, Asia and Pacific markets are getting uncomfortable with the monumental rise of bitcoin. Japan, South Korea and Vietnam together made up about 80% of bitcoin trading activity at the end of November, as per the Wall Street Journal, as quoted on CNBC. But the Bank of Japan Governor Haruhiko Kuroda termed bitcoin prices as "abnormal."

Crackdown on Cryptocurrency

China enacted a crackdown on cryptocurrencies, with authorities banning bitcoin trading and initial coin offerings (ICO) in September. The Reserve Bank fears that cryptocurrencies may be used to escape taxes, launder money or finance terrorism. South Korean Finance Minister Kim Dong-yeon indicated a crackdown on cryptocurrency trading.

Reserve Bank of Australia sees it as "speculative mania" and finds bitcoin more popular in the illegal economy, not among consumers. Governor of the Reserve Bank of New Zealand, sees it a "classic case" of a bubble. Citi analysts predicted that bitcoin may decline to a range between $5,605 and $5,673 "looks very likely to be very speedy.”

Issuance of Blockchain ETFs

As a result, no bitcoin ETF has been launched yet. Amid such hype, two Blockchain ETFs were launched, namely Reality Shares Nasdaq NexGen Economy ETF BLCN and Amplify Transformational Data Sharing ETF BLOK. Both funds look to track a portfolio of stocks from companies that are deemed to have strong exposure to blockchain technology’s development. But the issuers are not allowed to use the word “blockchain” in the name.

Now, with so many central banks’ and regulators’ skepticism about the rise of cryptocurrencies, investors might shift to safer so-called blockchain ETFs like BLCN and BLOK (read: Two Blockchain ETFs Go Live for The First Time).

Bitcoin’s Impact on the ETF World?

Gold coin sales rose fivefold early this week at one of Europe’s largest online dealers when Bitcoin fell flat. If the upheaval in the cryptocurrency market continues, this safe haven currency may gain strength and SPDR Gold Trust GLD may rise in the coming days.

The sheer success of cryptocurrencies benefited semiconductor ETFs like iShares PHLX Semiconductor ETF SOXX and VanEck Vectors Semiconductor ETF SMH. This is because mining of cryptocurrencies needs the usage of semiconductors. A hardware known as an ASIC (Application-Specific Integrated Circuit) is designed explicitly for mining bitcoin. 

Now, although cryptocurrencies are suffering, blockchain technology still make semiconductor ETFs winners. Blockchain technology requires huge computer processing power, which involves loads of memory chips, graphics cards, and processors. So, bitcoin’s crash is not synonymous to a semiconductor slump. On Jan 17, SOXX and SMH advanced about 2.9% and 3%, respectively.        

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