Academy Blog

It's All About Infrastructure

[fa icon="calendar"] Jan 28, 2018 2:30:03 AM / by Robert Brinkman

Robert Brinkman

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In the Spring of 1998 I was having lunch at an outdoor restaurant in Stockholm Sweden, while on break from a Wall Street analyst meeting. As I was about to enjoy another bite of crispbread, I watched a guy walk up to a vending machine, point his phone and click - a pack of cigarettes dropped out. I put my food down, literally rubbed my eyes and turned to my colleague next to me and asked incredulously, “Did you see that?” My associate was too busy gawking at the natural blonde women at a table across from us, so I was left with my own thoughts: Why can’t we do this back in the United States? Obviously, this is universal technology, how can Sweden be so far ahead of us?

I thought about the local telecommunications giant (at the time) Ericsson and next door in Finland, Nokia. They dominated cell phone manufacturing in the late 90’s and early 2000’s and people in the US were certainly using them with a very high adoption rate, but why couldn’t I point my phone at a vending machine and buy a bottled water or granola bar? Answer = Infrastructure.

Actually, paying for infrastructure is why America lagged Europe in cell phone adoption. AT&T and many others had sunk BILLIONS of dollars laying hard wire and cable ALL across the fruited plain and they weren’t going to pivot from that phone service platform until they earned a return on their investment. You know what? I don’t blame them one bit.

If you’ve ever moved from one city to another, you’ll remember having to call the local Bell to get phone service and in the process you would be asked what Long Distance provider you wanted. I moved to a new house 3 years ago and we didn’t even bother establishing a landline. Why would I? This is an example of when the United States, with its mesmerizing capital spending ability, fully engages in a system, platform or technology - it completely changes everything.

You’re about to see the same thing happen in cryptocurrencies and to bring my cell phone analogy full circle, let’s look at headlines about Bitcoin and crypto-currencies over just the last 10 days. Negative are marked ‘red’, positive are marked ‘green’.

 

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Britain’s Prime Minister Theresa May commented Action on crypto-currencies may be needed “precisely because of the way they are used, particularly by criminals,”

 

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Robinhood Financial, which is reportedly the "fastest-growing online brokerage in history" for the simple reason that it is - or rather was - free, is getting into cryptocurrencies. The popular free stock-trading app with more than 3 million users said it will add options for trading Bitcoin and other digital coins, entering competition with fellow fintech startup Coinbase. As of today Robinhood will let all users track the price, news, and set up alerts on those and 14 other top crypto coins, including Litecoin and Ripple.

 

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Bitcoin ATMs allow consumers to exchange their cash for Bitcoins, and vice versa. Although the Bitcoin machines are not ATMs in the more traditional sense that we are accustomed, these kiosks are connected to the internet in order to accept cash deposit, exchange for Bitcoins or send Bitcoin to a public key on the blockchain.

 

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The news of the week is payment processor Stripe just dropped Bitcoin as a means of payment saying the fateful words, “It fails as a currency.” “Over the past year or two, as block size limits have been reached, bitcoin has evolved to become better-suited to being an asset than being a means of exchange,” the company said in a statement.

That’s the bad news.

The good news is that Stripe still believes in cryptocurrencies, just not Bitcoin. The company’s statement makes it clear it understands the issues and that other projects may be suitable for future needs, most notably Litecoin and Steller Lumens.

 

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Nasdaq is looking into bitcoin futures, but refused to offer a timeline and emphasized that they're still in their exploratory phase. "We are continuing to investigate the idea of a cryptocurrency futures (contract) with a partner and we continue to look at the risk management around that, making sure we are putting the right protocols in place, making sure there's proper demand, and that the contract is different from what's already out there,"

 

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CME Bitcoin Futures launched contracts that will be cash-settled based on a “CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin. Since November 2016, CME Group and Crypto Facilities Ltd. have calculated and published the BRR, which aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time.

BitFlyer, the Tokyo-based operator of one of the world’s largest bitcoin exchanges, is expanding in Europe after it was issued a Payment Institution license to operate in the European Union. Yuzo Kano, the founder and CEO of bitFlyer, said, I am proud that we are now the most compliant virtual currency exchange in the world; this coveted regulatory status gives our customers, our company and the virtual currency industry as a whole a very positive future outlook.” The exchange - which is one of the largest in the world with up to 30% of the global market and controls 80% of bitcoin trading in Japan - is launching its European service on Tuesday, after it received a license from Europe's financial regulator.

 

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Amazon has secured three new domain names related to cryptocurrency, sparking speculation that the e-commerce giant could be preparing a move into the cryptocurrency space: amazonethereum.com, amazoncryptocurrency.com, amazoncryptocurrencies.com.

 

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South Korean government has announced Monday, Jan. 22 that it will be collecting a 22 percent corporate tax and a 2.2 percent local income tax from the country’s cryptocurrency exchanges.

 

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Overnight after one of the most popular - if unlicensed - Japanese exchanges, Coincheck, told financial authorities that it had lost 500 million NEM cryptocurrency coins in today's cyberheist, which at the current exchange rate amounts to roughly $400 million

 

These last couple headlines caused two significant drops in Bitcoin and bled punishment across other coin currencies, leading to doom and gloom calls and bubble burst announcements. Is this warranted? Take a look at this chart:

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This is the Elliot Wave: The Elliott Wave Principle is a form of technical analysis that traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors. Ralph Nelson Elliott (1871–1948), a professional accountant, discovered the underlying social principles and developed the analytical tools in the 1930s.

I used the published definition, because I like the language ‘identifying extremes in investor psychology’. If we look at the below price graph of Bitcoin everyone would scream, “See, we’re on the A, B, C correction wave!”

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However, if we look at this next chart, it’s pretty difficult to make that argument, in fact I could argue that it’s in the Impulse Wave 1, 2, 3, 4:

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I believe saying Bitcoin is a bubble, it’s vaporware, it’s tulip mania is like saying The Internet is a fad. Blockchain technology, which is the platform that makes a cryptocurrency work, IS NOT going away. It’s as integrated and irreversible as a cell phone.

Speaking of a cell phone, allow me to circle back to my Stockholm lunch story. The headline above about South Korea implementing a tax on Bitcoin caused a significant price drop. Should anyone be shocked that countries are looking to tax these financial transactions? This is called growing pains. And all of them are occurring in smaller countries and smaller economies, because like Sweden and the cell phone, they have less infrastructure to way down their early adopter ability.

Two years from now the integration by the average American will be massive. A headline about South Korea and a coin exchange will be insignificant – literally a drop in a bucket.

 

 

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Topics: Hedge fund, S&P, Stock Market Volatility, stock market, Bitcoin

Robert Brinkman

Written by Robert Brinkman

Rob Brinkman is the Founder of Safe Harbour Retirement, LLC and has been an Advisor for 31 years, opening his first investment firm for Edward Jones in 1987. He has been a Registered Principal and Executive for one of the largest Investment/Insurance companies in the world. He speaks Internationally and was selected by Jim Collins, author of the New York Times Best Selling book Built to Last, to panel his pre-release of the again Best Selling book Good to Great. For the past decade Rob has been focusing on mentoring and coaching business owners and the high net-worth on how to leverage their success more toward a life of meaning and significance. An expert with tax and investment issues, he writes blogs www.robbrinkmanacademy.com and produces video ‘white boards’ for numerous websites every month.

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