As I told my Cycle 9 Alert subscribers on Tuesday, I’m no expert on cryptocurrencies. Still, I’m pretty sure 2017 will go down in the history books as the year of the Bitcoin bubble.
It’s checking all the “classic bubble” boxes…
Massive price gains. Up a hair more than 1,000% year-to-date!
Trending on Google Search. Bitcoin now garners 7-times more Google searches than Kim Kardashian. And it’s an international hot-topic, with the U.S. representing just the 8th-largest volume of search queries.
Non-investor interest. My wife is asking me about Bitcoin. She has no interest in investing, finance or economics.
New financial products. Both the Chicago Board of Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) will offer a Bitcoin futures contract, beginning December 10 and December 18, respectively.
Now, you might assume the Bitcoin mania can be kept in quarantine, so as not to infect the already animal spirits-prone psyche of stock market investors.
Sure, free-wheeling traders and speculators are naturally drawn to Bitcoin… just as they were drawn to internet stocks in the late ’90s. But real investors won’t fall victim to the craze… right?
The S&P 500 is up a little more than 17% in 2017, and the average year-to-date return of all U.S. industries is around 12%.
Meanwhile, the SPDR Capital Markets ETF (NYSE: KCE) is up 27%!
That ETF is predominantly invested in the stocks of brokerage firms and financial exchanges – essentially, the “gears” of the Wall Street machine.
These include names like Interactive Brokers (IBKR), Schwab (SCHW), E*Trade (ETFC), and TD Ameritrade (AMTD), on the brokerage side. And the Intercontinental Exchange (ICE), Nasdaq (NDAQ), CME Group (CME), and CBOE Global Markets (CBOE) on the exchange side of the business.
While banks make profits on lending, and insurance companies on premiums, capital market players make most of their money on trading fees. The more you trade… the more they make.
Can you see where we’re going with this?
Trading volume in traditional stocks has steadily declined in the wake of the Great Financial Crisis.
Investors have largely kept to the sidelines or gone “passive,” leaving the capital markets firms’ “toll booths” with less activity than they were used to leading up to 2008, and certainly less than they enjoyed in the trader’s paradise of the late ’90s.
Of course, all this leaves them clamoring for a new, “hot” product to offer busy-bee buyers and sellers.
Something like, that’s right… Bitcoin!
As I said earlier, both the CME and the CBOE have gained regulatory approval to offer Bitcoin futures on their exchanges. And in true “introductory-offer” fashion, you can start trading Bitcoin for FREE!
The CBOE’s chairman and CEO, Ed Tilly, made the jubilant announcement yesterday:
“Given the unprecedented interest in Bitcoin, it’s vital we provide clients the trading tools to help them express their views and hedge their exposure. We are committed to encouraging fairness and liquidity in the Bitcoin market. To promote this, we will initially offer Bitcoin futures trading for free.”
Free Bitcoin trading! What could go wrong? Right!?
Bitcoin is an infantile market. So it remains to be seen whether real investors join in on the mania seeded by the early-and-brave crowd.
Bitcoin may prove to be the next cash cow for the brokerages and exchanges.
Or, it could just as easily end up being a big headache, eventually leaving them with a regulatory nightmare and the empty bag of a passing fad.
What’s certain is, throughout all of 2017, capital market stocks have enjoyed the speculative run-up in Bitcoin’s popularity and the possibility it would go “mainstream.”
Have a look for yourself…
The Chicago Board of Options Exchange (CBOE) will be the first traditional U.S. exchange to offer a Bitcoin contract. And while regulatory approval just came in, investors seem to have been looking forward to this day pretty much all year.
With a year-to-date gain of 69.1%, shares of CBOE Global Markets (Nasdaq: CBOE) are up more this year than 485 stocks (97% of them) in the S&P 500.
Of course, the CBOE’s 69% rally may seem pale in comparison to Bitcoin’s 1,000% run. But, when appropriately judged against other common stocks, you have to wonder whether shares of CBOE have gotten ahead of themselves.
Often, it’s the anticipation of a “big deal” that drives stock prices higher, more so than the actual deal. If CBOE’s stock falls victim to Bitcoin’s bubble and investors’ tendency to “buy the rumor and sell the news,” it could be in for a disappointing drop.
That’s why I cautioned my Cycle 9 Alert subscribers on Tuesday against naively falling victim to the Bitcoin euphoria. And I showed them a creative way to potentially profit from the excessive excitement surrounding the CBOE’s introduction of Bitcoin futures.
So, while I won’t tell you what you can or can’t do with your own money… I’ll certainly encourage you, too, to approach this speculative market with a healthy dose of skepticism.
And if you’re interested in trading a proven strategy – one with a profitable track record much longer than Bitcoin’s – click here to gain access to my Cycle 9 Alert portfolio, which currently holds five profitable positions (of 5 total positions), averaging +73%.
To good profits,
Editor, Cycle 9 Alert