The Bitcoin Whales: 1,000 People Who Own 40 Percent of the Market

On Nov. 12, someone moved almost 25,000 bitcoins, worth about $159 million at the time, to an online exchange. The news soon rippled through online forums, with bitcoin traders arguing about whether it meant the owner was about to sell the digital currency.

Holders of large amounts of bitcoin are often known as whales. And they’re becoming a worry for investors. They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up nearly twelvefold from the beginning of the year.

About 40 percent of bitcoin is held by perhaps 1,000 users; at current prices, each may want to sell about half of his or her holdings, says Aaron Brown, former managing director and head of financial markets research at AQR Capital Management. (Brown is a contributor to the Bloomberg Prophets online column.) What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market.

“I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.” One reason to think so: At least some kinds of information sharing are legal, says Gary Ross, a securities lawyer at Ross & Shulga. Because bitcoin is a digital currency and not a security, he says, there’s no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in minutes.

Bitcoin: What’s Coming in the Year Ahead

Regulators have been slow to catch up with cryptocurrency trading, so many of the rules are still murky. If traders not only pushed the price up but also went online to spread rumors, that might count as fraud. Bittrex, a digital currency exchange, recently wrote to its users warning that their accounts could be suspended if they banded together into “pump groups” aimed at manipulating prices. The law might also be different for other digital coins. Depending on the details of how they are structured and how investors expect to make money from them, some may count as currencies, according to the U.S. Securities and Exchange Commission.

Asked about whether large holders could move in concert, Roger Ver, a well-known early bitcoin investor, said in an email: “I suspect that is likely true, and people should be able to do whatever they want with their own money. I’ve personally never had time for things like that though.”

“As in any asset class, large individual holders and large institutional holders can and do collude to manipulate price,” Ari Paul, co-founder of BlockTower Capital and a former portfolio manager of the University of Chicago endowment, wrote in an electronic message. “In cryptocurrency, such manipulation is extreme because of the youth of these markets and the speculative nature of the assets.”

The recent rise in its price is difficult to explain because bitcoin has no intrinsic value. Launched in 2009 with a white paper written under a pseudonym, it’s a form of digital payment maintained by an independent network of computers on the internet‚ using cryptography to verify transactions. Its most fervent believers say it could displace banks and even traditional money, but it’s only worth what someone will trade for it, making it prey to big shifts in sentiment.

Like most hedge fund managers specializing in cryptocurrencies, Samani constantly tracks trading activity of addresses known to belong to the biggest investors in the coins he holds. (Although bitcoin transactions are designed to be anonymous, each one is associated with a coded address that can be seen by anyone.) When he sees activity, Samani immediately calls the likely sellers and can often get information on motivations behind their sales and their trading plans, he says. Some funds end up buying one another’s holdings directly, without going into the open market, to avoid affecting the currency’s price. “Investors are generally more forthcoming with other investors,” Samani says. “We all kind of know who one another are, and we all help each other out and share notes. We all just want to make money.” Ross says gathering intelligence is legal.

Ordinary investors, of course, don’t have the cachet required to get a multimillionaire to take their call. While they can track addresses with large holdings online and start heated discussions of market moves on Reddit forums, they’re ultimately in the dark on the whales’ plans and motives. “There’s no transparency to speak of in this market,” says Martin Mushkin, a lawyer who focuses on bitcoin. “In the securities business, everything that’s material has to be disclosed. In the virtual currency world, it’s very difficult to figure out what’s going on.”

Ordinary investors are at an even greater disadvantage in smaller digital currencies and tokens. Among the coins people invest in, bitcoin has the least concentrated ownership, says Spencer Bogart, managing director and head of research at Blockchain Capital. The top 100 bitcoin addresses control 17.3 percent of all the issued currency, according to Alex Sunnarborg, co-founder of crypto hedge fund Tetras Capital. With ether, a rival to bitcoin, the top 100 addresses control 40 percent of the supply, and with coins such as Gnosis, Qtum, and Storj, top holders control more than 90 percent. Many large owners are part of the teams running these projects.

Some argue this is no different than what happens in more established markets. “A good comparison is to early stage equity,” BlockTower’s Paul wrote. “Similar to those equity deals, often the founders and a handful of investors will own the majority of the asset.” Other investors say the whales won’t dump their holdings, because they have faith in the long-term potential of the coins. “I believe that it’s common sense that these whales that own so much bitcoin and bitcoin cash, they don’t want to destroy either one,” says Sebastian Kinsman, who lives in Prague and trades coins. But as prices go through the roof, that calculation might change. 

    BOTTOM LINE – It’s not necessarily illegal for big holders of some cryptocurrencies to discuss trading with one another. That puts small buyers at a disadvantage.

    Source: http://www.bloomberg.com/

    Yen to Climb to 90 as Negative Rates Fizzle for Mad Dog Analyst

    The yen will strengthen almost 20 percent to 90 per dollar by early next year as Bank of Japan Governor Haruhiko Kurodas negative interest rates fail to weaken this years best-performing Group-of-10 currency, says former trader Eishi Wakabayashi.

    Known as mad dog for his aggressive trading style during a 50-year career in foreign-exchange markets, Wakabayashi analyzed long-term charts to predict the yens record high in April 1995, the end of its strength in the start of 2012, and the ascent toward 100 this year when the currency was around 120. Now hes predicting Japans currency will rise to levels unseen since January 2013 from 107.31 per dollar as of 10:08 a.m. in Tokyo Tuesday.

    Currencies arent moving on interest rates — they move in a wave motion, said Wakabayashi, the president of Wakabayashi FX Associates Co., an investment information service firm in Tokyo. How can you explain by the interest rate differentials the move from 121 to 105 yen as Japan decided to adopt negative rates? The yen will advance even with negative rates because it is currently in a rising phase.

    Japans currency has gained about 12 percent this year, posing an obstacle to the BOJs efforts to push inflation to 2 percent with record assets purchases and a negative interest-rate strategy. Policy divergence between the central bank and the Federal Reserve did little to prevent the yen from reaching an 18-month high in May. The currency also attracted demand as a safe haven amid speculation U.S. rates will rise and uncertainty whether the U.K. will stay in the European Union.

    Wakabayashis forecast goes against the trend. According to a Bloomberg survey of analysts, the currency is projected to end this year weaker at 115 per dollar.

    Mad Man

    Theres not much Kuroda can do to change the currencys long-term trend, based on chart analysis, said Wakabayashi, who joined Bank of Tokyo, now Bank of Tokyo-Mitsubishi UFJ Ltd., in 1966.

    The way Kuroda adopted negative rates shows he is totally a mad man, Wakabayashi, 72, said in an interview in Tokyo on June 2. To do something totally for surprise is an impermissible act for a central banker. Markets are telling Kuroda, Dont do anything, we wont listen to you.

    While Kuroda may not have much influence on the yens direction, he may succeed in getting prices to pick up next year as Japans economy improves, Wakabayashi said. He pointed to a recovery in the high-end condominium market and a better job market for university graduates as positive signs.

    Gold Attractive

    After the yen approaches 90, it will revert back to a weakening phase until the middle of 2018, before eventually rebounding to as high as 65 yen by March 2022, said Wakabayashi, who bases his analysis on trends lasting 40 1/2 years. What goes up must come down.

    He foresees an era of global deflation, and recommends investors seek capital gains and buy gold. The metal may climb to $6,000 in the next six years as U.S. stocks collapse and the nation struggles to spur inflation, he said. During the Great Depression, when the price of gold was fixed, mining stocks of the commodity jumped sixfold in the five years from 1930, according to Wakabayashi. Gold is currently at about $1,245 per ounce.

    Under deflation, asset values fall across the board, Wakabayashi said. How do you protect your financial assets? Its easy — Buy gold.

    Source: http://www.bloomberg.com/

    Angry Birds Fall From the Sky

    The maker of Angry Birds has had its wings severely clipped after fourth-quarter sales fell short of even the most pessimistic estimates. Rovio Entertainment Oyj shares dropped 40 percent because of tumbling revenue from licensing its main franchise and soaring spending on attracting new customers.

    The Finnish company has a problem. It needs to convince people repeatedly to spend money in its apps (or, being frank, in its app: most of its products are a derivative of Angry Birds). After downloading a game for free, Rovio tries to get users to buy "gems" and "coins", which make it easier to advance through the game's increasingly difficult levels.

    Less Eagle, More Icarus

    Rovio's stock has fallen to less than half its listing price of 11.50 euros

    Source: Bloomberg

    Rovio almost doubled its spending on customer acquisition in the three months through December. Licensing revenue more than halved. Total fourth-quarter revenue was 74 million euros, well below the 78-80 million euro analyst estimates.

    The game maker's biggest shortcoming, besides its failure to repeat the Angry Bird success, is not exploiting the hottest trend in apps: subscriptions. Rovio sells its gems and coins in one-off transactions, but if it offered users a subscription model — where they paid x dollars a month in exchange for x number of coins — it would keep more of the spoils.

    That's because of the way Apple shares revenue with the app developers. Every time you purchase the gems or coins on Angry Birds, the iPhone-maker takes a 30 percent cut. If, however, the user was a subscriber (think how Netflix and Spotify do it) then that cut would drop to 15 percent after the first 12 months' subscription. Google uses a similar tiered model in its Play Store.

    While cutting Apple and Google's take, Rovio would also be able to get recurring sales from those customers it spent so much to win, and show much more predictable revenues to investors. And it could still keep selling more coins to addicted gamers when they've spent their monthly allotment.

    The Finnish company has taken tentative steps in this direction through a subsidiary named Hatch, although that was started back in 2016 and is still only available in beta in 14 countries, and only through Google Play. Rovio could certainly use some help in monetising its customer base. At the end of September, it had 80 million monthly active users, but only 600,000 spent cash in its games. 

    As ever with Rovio, there are understandable doubts about whether it's a one-trick pony (to mix animal metaphors) and whether its place is on the public markets. But that number of active users is serious enough, if it can only find ways to exploit them.

    To resurrect investor confidence, Rovio desperately needs the embryonic Hatch division to, well, hatch.

    This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

      Source: http://www.bloomberg.com/

      Angry Birds Fall From the Sky

      The maker of Angry Birds has had its wings severely clipped after fourth-quarter sales fell short of even the most pessimistic estimates. Rovio Entertainment Oyj shares dropped 40 percent because of tumbling revenue from licensing its main franchise and soaring spending on attracting new customers.

      The Finnish company has a problem. It needs to convince people repeatedly to spend money in its apps (or, being frank, in its app: most of its products are a derivative of Angry Birds). After downloading a game for free, Rovio tries to get users to buy "gems" and "coins", which make it easier to advance through the game's increasingly difficult levels.

      Less Eagle, More Icarus

      Rovio's stock has fallen to less than half its listing price of 11.50 euros

      Source: Bloomberg

      Rovio almost doubled its spending on customer acquisition in the three months through December. Licensing revenue more than halved. Total fourth-quarter revenue was 74 million euros, well below the 78-80 million euro analyst estimates.

      The game maker's biggest shortcoming, besides its failure to repeat the Angry Bird success, is not exploiting the hottest trend in apps: subscriptions. Rovio sells its gems and coins in one-off transactions, but if it offered users a subscription model — where they paid x dollars a month in exchange for x number of coins — it would keep more of the spoils.

      That's because of the way Apple shares revenue with the app developers. Every time you purchase the gems or coins on Angry Birds, the iPhone-maker takes a 30 percent cut. If, however, the user was a subscriber (think how Netflix and Spotify do it) then that cut would drop to 15 percent after the first 12 months' subscription. Google uses a similar tiered model in its Play Store.

      While cutting Apple and Google's take, Rovio would also be able to get recurring sales from those customers it spent so much to win, and show much more predictable revenues to investors. And it could still keep selling more coins to addicted gamers when they've spent their monthly allotment.

      The Finnish company has taken tentative steps in this direction through a subsidiary named Hatch, although that was started back in 2016 and is still only available in beta in 14 countries, and only through Google Play. Rovio could certainly use some help in monetising its customer base. At the end of September, it had 80 million monthly active users, but only 600,000 spent cash in its games. 

      As ever with Rovio, there are understandable doubts about whether it's a one-trick pony (to mix animal metaphors) and whether its place is on the public markets. But that number of active users is serious enough, if it can only find ways to exploit them.

      To resurrect investor confidence, Rovio desperately needs the embryonic Hatch division to, well, hatch.

      This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

        Source: http://www.bloomberg.com/

        The Bitcoin Whales: 1,000 People Who Own 40 Percent of the Market

        On Nov. 12, someone moved almost 25,000 bitcoins, worth about $159 million at the time, to an online exchange. The news soon rippled through online forums, with bitcoin traders arguing about whether it meant the owner was about to sell the digital currency.

        Holders of large amounts of bitcoin are often known as whales. And they’re becoming a worry for investors. They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up nearly twelvefold from the beginning of the year.

        About 40 percent of bitcoin is held by perhaps 1,000 users; at current prices, each may want to sell about half of his or her holdings, says Aaron Brown, former managing director and head of financial markets research at AQR Capital Management. (Brown is a contributor to the Bloomberg Prophets online column.) What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market.

        “I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.” One reason to think so: At least some kinds of information sharing are legal, says Gary Ross, a securities lawyer at Ross & Shulga. Because bitcoin is a digital currency and not a security, he says, there’s no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in minutes.

        Bitcoin: What’s Coming in the Year Ahead

        Regulators have been slow to catch up with cryptocurrency trading, so many of the rules are still murky. If traders not only pushed the price up but also went online to spread rumors, that might count as fraud. Bittrex, a digital currency exchange, recently wrote to its users warning that their accounts could be suspended if they banded together into “pump groups” aimed at manipulating prices. The law might also be different for other digital coins. Depending on the details of how they are structured and how investors expect to make money from them, some may count as currencies, according to the U.S. Securities and Exchange Commission.

        Asked about whether large holders could move in concert, Roger Ver, a well-known early bitcoin investor, said in an email: “I suspect that is likely true, and people should be able to do whatever they want with their own money. I’ve personally never had time for things like that though.”

        “As in any asset class, large individual holders and large institutional holders can and do collude to manipulate price,” Ari Paul, co-founder of BlockTower Capital and a former portfolio manager of the University of Chicago endowment, wrote in an electronic message. “In cryptocurrency, such manipulation is extreme because of the youth of these markets and the speculative nature of the assets.”

        The recent rise in its price is difficult to explain because bitcoin has no intrinsic value. Launched in 2009 with a white paper written under a pseudonym, it’s a form of digital payment maintained by an independent network of computers on the internet‚ using cryptography to verify transactions. Its most fervent believers say it could displace banks and even traditional money, but it’s only worth what someone will trade for it, making it prey to big shifts in sentiment.

        Like most hedge fund managers specializing in cryptocurrencies, Samani constantly tracks trading activity of addresses known to belong to the biggest investors in the coins he holds. (Although bitcoin transactions are designed to be anonymous, each one is associated with a coded address that can be seen by anyone.) When he sees activity, Samani immediately calls the likely sellers and can often get information on motivations behind their sales and their trading plans, he says. Some funds end up buying one another’s holdings directly, without going into the open market, to avoid affecting the currency’s price. “Investors are generally more forthcoming with other investors,” Samani says. “We all kind of know who one another are, and we all help each other out and share notes. We all just want to make money.” Ross says gathering intelligence is legal.

        Ordinary investors, of course, don’t have the cachet required to get a multimillionaire to take their call. While they can track addresses with large holdings online and start heated discussions of market moves on Reddit forums, they’re ultimately in the dark on the whales’ plans and motives. “There’s no transparency to speak of in this market,” says Martin Mushkin, a lawyer who focuses on bitcoin. “In the securities business, everything that’s material has to be disclosed. In the virtual currency world, it’s very difficult to figure out what’s going on.”

        Ordinary investors are at an even greater disadvantage in smaller digital currencies and tokens. Among the coins people invest in, bitcoin has the least concentrated ownership, says Spencer Bogart, managing director and head of research at Blockchain Capital. The top 100 bitcoin addresses control 17.3 percent of all the issued currency, according to Alex Sunnarborg, co-founder of crypto hedge fund Tetras Capital. With ether, a rival to bitcoin, the top 100 addresses control 40 percent of the supply, and with coins such as Gnosis, Qtum, and Storj, top holders control more than 90 percent. Many large owners are part of the teams running these projects.

        Some argue this is no different than what happens in more established markets. “A good comparison is to early stage equity,” BlockTower’s Paul wrote. “Similar to those equity deals, often the founders and a handful of investors will own the majority of the asset.” Other investors say the whales won’t dump their holdings, because they have faith in the long-term potential of the coins. “I believe that it’s common sense that these whales that own so much bitcoin and bitcoin cash, they don’t want to destroy either one,” says Sebastian Kinsman, who lives in Prague and trades coins. But as prices go through the roof, that calculation might change. 

          BOTTOM LINE – It’s not necessarily illegal for big holders of some cryptocurrencies to discuss trading with one another. That puts small buyers at a disadvantage.

          Source: http://www.bloomberg.com/

          Brazil Currency Bears Re-Emerge as Brexit Outweighs Temer: Chart

          Foreign investors have increased their bearish bets against Brazils currency in the futures market to the highest level in eight weeks, according to data compiled by Bloomberg and BM&FBovespa SA. Thats a reversal from earlier this year, when short wagers declined amid speculation that a new government led by Michel Temer would revive the economy. “Theres no doubt among investors about improvements within Brazil, but in the external scenario, we are close to the Brexit vote, so foreign investors are protecting themselves,” said Leonardo Monoli, a partner at Jive Asset Gestao de Recursos in Sao Paulo.

          Read more: http://www.bloomberg.com/news/articles/2016-06-17/brazil-currency-bears-re-emerge-as-brexit-outweighs-temer-chart