Market Lab Report / Crypto Report - Premarket Pulse 7/29/19 Justice vs. FAANGs; Trump Ban Bitcoin? Bakkt Institutionalizes Bitcoin

The Wall Street Journal reported this week that the Justice Department is opening a broad antitrust review into whether dominant technology firms are unlawfully stifling competition. Of course, Microsoft experienced this in the 1990s.

Companies that have massive presence in the areas of internet search, social media, and retail are under the gun. Sounds as if it's the FAANG stocks' turn. Facebook, Google, Amazon, Netflix, and Apple. But so far they seem unaffected, trading in accordance with other metrics such as FB which had a pocket pivot on a strong earnings report vs. NFLX which we had mentioned has potentially unsustainable levels of debt as well as substantial competitors in the streaming space. Meanwhile, GOOGL is gapping up also on strong earnings while AMZN gapped lower due to earnings.

Trump Ban Bitcoin?

Given that bitcoin is in full discussion among the nation's top brass politicians, the question has arisen what if the US banned bitcoin. The answer is the same thing that happened to bitcoin in China. Companies would just move offshore. This would also further empower the dark web as bitcoin would go underground in the unlikely event that all governments banned it. The dark web at well over $11 T is the second largest economy according to an article published in Forbes a few years ago. That said, it is far more likely that some governments will always embrace bitcoin and blockchain technology. Thus bitcoin and blockchain tech would simply move to those countries where such technologies were welcomed. As one example, Thailand has accepted Dash privacy coin as real currency next to the Thai baht. But some countries are being more difficult when it comes to defining regulatory laws in the cryptospace. German regulators are being criticized by a few members of parliament where one member said "The federal government acts contradictory. The government is now forcing cryptocurrency trading platform providers to overrun the country and seek another location in the EU." Indeed, such would happen much as many companies in New York had to leave after the BitLicense law was passed a few years ago in the state making it prohibitively expensive for new companies which typically lack deep pockets to follow the costly regulations the law required.

Bitcoin vs. Ethereum

Some have asked if ethereum will outpace bitcoin like it did in the latter stages of the last bull market that ended in late 2017/early 2018. Price/volume action of ETH along with top performing cryptocurrencies will tell all. This will depend on the progress of bitcoin's layer 2 technologies. If bitcoin's Rootstock can port over companies that have built on ethereum's blockchain, bitcoin's dominance which is currently at approximately two-thirds of the cryptospace's total market value, may increase further.

Bakkt Catalyst

A company called Bakkt is building the future of digital infrastructure. Bakkt was created by the Intercontinental Exchange (ICE) which owns the New York Stock Exchange and other global marketplaces. It is the first time a federally regulated market for bitcoin has been launched with the aim to transform bitcoin into a trusted global currency with broad usage. ICE's CEO has said “Bakkt is designed to serve as a scalable on-ramp for institutional, merchant, and consumer participation in digital assets by promoting greater efficiency, security, and utility. We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce.”

Indeed, the ex-CEO of the NASDAQ said recently that in 5 years, all stocks will be tokenized. In other words, the financial infrastructure is going digital.

Despite facing multiple long delays, the Bakkt Bitcoin futures platform has finally began testing. It has been said this could be a strong tailwind for bitcoin and the cryptospace in general. Importantly, one analyst group is now noting that the official launch of this platform could be a “huge catalyst” for bitcoin and the aggregated crypto markets. All trades are physically settled with bitcoin, which means that all profitable trades are paid out with actual bitcoin, rather than a sum of cash that is equivalent to the value of the BTC.

If Bakkt tests out as planned, a number of new bitcoin funds would emerge making it a safe and easy choice for retail investors. This includes millennials getting their first 401(k)s who tend to favor bitcoin over gold. It has been said that millennials don’t trust traditional financial institutions. To gain their trust, banks, brokerages, and asset managers can use a currency that millennials believe in, like bitcoin.

Bakkt hopes to tap into the 401(k) and IRA market for cryptocurrency as well as disrupt the world of retail payments by moving consumers from swiping credit cards to scanning their bitcoin apps. The market opportunity is massive as this would materially reduce bank credit card fees to both merchants and consumers. Online-shopping fees alone account for $25 trillion a year in annual purchases.

During such a disruption, Wall Street would no doubt be taking advantage of bitcoin’s popularity as an alternative to stocks and bonds which would help bitcoin mature. By then, bitcoin valuations would most likely be in the many trillions of dollars. At such levels, volatility in bitcoin would be materially diminished thus it would better satisfy some of the defining characteristics of money. In the meantime, automatic conversion into fiat to remove the exchange rate risk is what businesses who accept bitcoin have been doing since 2013.