Long Bitcoin, Short Western Union

Steve Kanaval |

Bitcoin.jpgWe last wrote about Bitcoin in early February, when the digital currency was trading for $221. A midday check-in shows pricing at $294. I try to watch the pricing daily, so I can grasp the volatility and liquidity, but more importantly, I try to understand what moves the overall pricing. What I can tell you is that I don’t have a clue. All I know is that I bought a Bitcoin ($BCOIN) and it went up 33% in 30 days with full liquidity and moderate volatility. It is much easier to stomach than I anticipated, and less volatile than most equities I’ve traded. Though to be fair, it’s still early on - I realize it’s the honeymoon period, and I have seen a few days with 5% moves, but Biotech trades in 20% moves. In fact, even soybeans and agricultural can easily move more than currency.

The key for Bitcoin is to determine what it’s Beta is to markets and whether it can become a haven or flight to quality. It has yet to prove that it can do anything except trend in a particular direction. It doesn’t trade like a currency, it trades like a metal ETF. I note today that it happens to be going up, with markets getting a good smashing on Tuesday. I have yet to conclude that Bitcoins run counter to the Dow 30, but I am watching.

Bitcoin Trumps the Old Guard?

The Western Union Company (WU) and Moneygram International Inc. (MGI) control 50% or more of the remittance market in most Sub-Saharan African countries. Africans in the diaspora pay an average of 12.3% to money transmitters to send $200 home, while the cost of sending money between African countries is also high. Each year, the ODI says total fees amount to $1.4 billion. I dare say the traffic between Mexico and the US for these companies dwarfs African numbers.

Any time you start talking about another inexpensive way to pay, you open so many doors. I see it every day, as small businesses do not have to use large credit card processors any longer, the rates to transact will fall naturally, as the internet creates a disruptive technology that reduces costs 70%, and the Western Unions and Moneygrams lose to the disruptive technology as fee’s compress. It makes me want to go on the next conference call and ask that question to the CFOs.

I saw also a report by Goldman Sachs Group Inc. (GS) saying 80% of Bitcoin transactions are in Chinese Yuan, which is perfectly curious, considering China attempted to stop citizens from using it. It makes the recent bottom in pricing look more like a bottom. 

I think the real yardstick is to compare the total marketvalue of the Bitcoin universe and compare it to the marketcaps of Western Union and Moneygram and I bet after the Goldman Report, some internal prop trader at Goldman is long Bitcoins and short Western Union and Moneygram...you can bet a whole bushel full of Bitcoin on it.


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Symbol Name Price Change % Volume
GS The Goldman Sachs Group Inc. 174.67 0.16 0.09 2,004,401
MGI Moneygram International Inc. 6.50 -0.03 -0.46 66,259
WU Western Union Company (The) 20.00 0.01 0.05 2,965,069


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