Has Bitcoin Met Its Match?

Thursday, September 14, 2017

The second-largest market exchange in China, the second-largest economy in the world, has decided to stop trading Bitcoin in a bid to become less risk-oriented. BTC China followed the lead of Chinese regulators earlier this month when it announced it will stop trading the cryptocurrency as of the final day of this month. This has led to a precipitous fall in value of Bitcoin before today’s market open here in the States — Bitcoin fell in the Chinese market overnight as much as 35%.

China had been the biggest purveyors of cryptocurrency trading up until Beijing stepped in to put a stop to it via a series of limitations implemented over time. The country has now gone from 90% of all cryptocurrency trading less than a year ago to under 40% of global volumes today. And without the backstop of heavy transactional activity, trading risk for Bitcoin naturally increases, which makes it even less desirable for the governing body in China to get behind.

Here in the U.S., Bitcoin value has fallen close to 10% as of today’s pre-market. Earlier this week, JPMorgan (NYSE:JPM) CEO Jamie Dimon called the cryptocurrency a “fraud” during an interview with CNBC during its Delivering Alpha conference. "It's worse than tulip bulbs. It won't end well. Someone is going to get killed," Dimon said. Even still, it’s taken major steps taken by BTC China to finally set Bitcoin’s trajectory downward this week.

That’s not to say there’s not a use for Bitcoin; plenty of creative — and wholly legitimate — uses have been put into place by those who find U.S. dollar-denominated exchanges inconvenient. Yet its value has risen over 300% in 2017, and that, according to people like Dimon, is a recipe for disaster. Wherever you stand on this issue, it should be heartening to see some self-regulation going on within the marketplace, at least here in the U.S.

New Econ Data

Initial Jobless Claims fell by 14K to 284K claims last week, which is still far higher than the range we’ve seen for the past couple years. These results continue to be affected by hurricanes Harvey and Irma, and will likely remain in the mix until recovery efforts — still in their early stages in Florida — finally recede. In fact, Irma’s impact may not even have registered in this latest gauge of the U.S. labor market, so we may see weekly claims data spike north of 300K at some point in the coming weeks, which is a level we haven’t seen for two years.

Consumer Price Index (CPI) results also hit the tape this morning, and the headline read of 0.4% is a bit hotter than the 0.3% expected. This follows yesterday’s Producer Price Index (PPI) that came in a shade cooler than estimates. A rule of thumb at this stage in economic growth is that higher numbers are better: they indicate inflation taking place in the economy, which the Fed watches closely in its decision whether to raise interest rates. The Fed is still waiting for the arrival of 2% inflation; we have still not come within sniffing distance of this figure.

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Meanwhile, the stock market continues its surge to higher ground, setting new closing records along the way. The (temporary) absence of global static and/or threats this week have helped buoy the bulls, as has optimistic discussion of tax reform (tax cuts) coming sooner rather than later. We’re still a ways from seeing anything material on this front, but market participants remain hopeful.

Mark Vickery
Senior Editor

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Zacks Investment Research

Written By: Zacks Investment Research