For Cryptos, Geopolitics and Liquidity Don’t Mix


Cryptos and liquidity do not go hand in hand, especially not where geopolitics are concerned.

Conventional wisdom may hold that cryptos are the place to be, when trade tensions rise, when governments tremor.

Consider the fact that stocks have sold off amid macro headlines where the US threatened tariffs against China and delayed them, where Hong Kong faces mounting protests, where Argentina has seen a shock defeat of an incumbent president.  where in the US the yield curve has inverted.  Consider the fact, too, that bitcoin as proxy for cryptos has been volatile, but on the main, relatively buoyant, changing hands at a recent $10,540, down mid teens percentages from recent peaks but leagues above nadirs seen in recent months at below $4,000.

Bloomberg noted yesterday that bitcoin has proven to be haven, at least for some, against currency devaluations.  But might the trade be getting crowded enough that premiums get levied? In one example, bitcoin traded earlier this week on, described as a peer to peer platform, for a 10 percent markup compared to other exchanges.  In Hong Kong, the premium was four percent.

Differences of degree, and not of kind, for we note that a premium is still a premium.  And though anecdotal, the premiums suggest a flaw in the system.

The very idea of an exchange is to smooth the relationship between buyer and seller, to provide transparent bid/asks and to help provide liquidity to markets.  The fact that there are such price differentials in far flung markets means that there is no real agreement as to what bitcoin (and again, it’s a proxy for other cryptos, here) is worth.

Volatility in pesos, it seems, now means volatility in digital coinage.  But when price differentials climb into the hundreds of dollars, this speaks to a new level of speculation for what is speculative to begin with.  In a way it’s “paying up for the right to pay up” and it underscores the fact that bitcoin is not worth anything more than the recent quote, wherever it is that you happen to look for that recent quote.

The use cases still have yet to materialize for bitcoin in a way that might bring stability to pricing, and in turn further the embrace of, well, more use cases.  There’s even been a recent blow to using the crypto in the use case that proponents tout – as a hedge against other trading activities.  The SEC just postponed until later this year a decision on two funds that ostensibly would have bowed in the US – the Bitcoin ETF Trust and the VanEck SolidX Bitcoin Trust. The delay comes, as Barron’s reported earlier this week, as SEC Chairman Jay Clayton, has had reservations about Bitcoin manipulation on exchanges.  We wonder if the recent premiums seen on exchanges, globally, may lengthen a pause.


Latest Insights: 

The Which Apps Do They Want Study analyzes survey data collected from 1,045 American consumers to learn how they use merchant apps to enhance in-store shopping experiences, and their interest in downloading more in the future. Our research covered consumers’ usage of in-app features like loyalty and rewards offerings and in-store navigation, helping to assess how merchants can design apps to distinguish themselves from competitors.