ASX adopts blockchain technology, bitcoin and cobalt both soar as new era dawns

ASX blockchain technology bitcoin cobalt
WEEKLY MARKET REPORT

The Australian Securities Exchange (ASX) announced on Thursday that it will replace the current 20+ year old CHESS system for clearing and settling share transactions, with the new and improved distributed ledger technology (DLT), blockchain.

This is something we at Small Caps predicted when outlining how blockchain will change the world.

The ASX will implement the ledger technology supplied by Digital Asset Holdings, a start-up run by Blythe Masters, former JP Morgan executive and creator of the ‘credit default swap’.

The service will allow for real-time transactions rather than relying on a third party such as CHESS to make sure both parties of the transaction honor their part of the deal. Currently it can take up to three days in a T+2 transaction for settlement to occur, clearly an outdated model that needed to be brought up to speed with modern technology.

The ASX stated that it will notify the public at the end of March 2018 with a proposed launch date of the new technology.

Being a more efficient model, it may open up the opportunity for savings to be passed on and brokerage rates reduced.

ASX Managing Director and CEO Dominic Stevens stated, “We believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets.”

Blythe Masters gives a brief overview of blockchain technology:

From this you can see how the banks will soon need to adopt this technology otherwise may see themselves become made redundant in the coming era with speedier transactions available outside the system as we are already seeing with platforms like PayPal for example.

Speaking of replacing banks…

Bitcoin rises to over US$19,000

Last week we wrote about how the world’s most famous cryptocurrency reached US$10,000. Well only seven days later and Bitcoin has set a new high of US$19,697.

The relatively new form of decentralised currency is certainly shaking up the world and is a major threat to the current money changers that I’m sure Jesus would be whipping out of the temple if he could.

At time of writing Bitcoin has dropped back from its peak to be trading at US$15,510.

Where it will be next week or even tomorrow is anyone’s guess.

Here are recent bitcoin price movements in USD with the time taken to achieve each move:

$0000 -> $1000: 5 years

$12,000 -> $13,000: 17 hours
$13,000 -> $14,000: 4 hours
$14,000 -> $15,000: 10 hours
$15,000 -> $16,000: 5 hours
$16,000 -> $17,000: 2 hours
$17,000 -> $18,000: 10 minutes
$18,000 -> $19,000: 3 minutes
$19,000 -> $15,500: 30 minutes

With movements like that you can see why there is plenty of hype in Bitcoin.

‘Rags to riches’ or ‘riches to rags’?

Most of us wish we had had bought years ago when Bitcoin was under $5, who doesn’t?

But fear not, it could be worse.

A lad from Wales by the name of James Howells threw out his computer four years ago.

‘So what’ I hear you say? Well James happened to have key codes to his 7,500 Bitcoins stored on the hard drive, which today would be worth just over US$140 million.

James is now requesting to have access to dig up the landfill site, even offering the local council half of his reward in a bid to recover his missing treasure. Good luck James!

Further to this it should be noted that US$78 million was stolen from cryptocurrency mining marketplace NiceHash this week.

The notice on the NiceHash website offers nothing more than confirmation that there was a security breach and advising users to change their password. Hardly comforting to those who have had their coins stolen.

Also for those that are new to the crypto scene, Mt. Gox which once handled over 70% of global bitcoin transactions was hacked and had fraudulent dealings with 850,000 bitcoins go missing. At today’s value that’s around US$15 billion missing or stolen, making Bonny and Clyde look like rookies and eclipsing any known bank robbery…excluding the legalized robbery today’s (privately run) central banks get away with.

Whilst some investors have made multiples on their investment in cryptocurrencies over the past few years, the above scenarios must to be noted as others have lost everything in the blink of an eye in what is still largely an experimental asset class.

Bitcoin to launch on futures exchange

Bitcoin futures contracts are set to begin trading on Chicago exchanges CME Group and Cboe Global Markets on 10th December and 17th December respectively. However, given the volatile nature of the cryptocurrency some larger banks are pushing back citing concerns over the market’s preparedness to handle such a volatile asset class.

The CME bitcoin futures contract will operate under the ticker BTC and be equal to five bitcoins, whilst the Cboe equivalent will have the ticket XBT and be on an equal 1:1 footing with bitcoin itself. Margin rates are set to be around 30-35%.

Trades are to be settled in fiat currency, known as the US dollar.

Will the bankers try short bitcoin through the futures exchange like they have supposedly done with gold and silver? Time will tell.

Venezuela planning ‘Petro’ cryptocurrency

In a desperate bid to rescue Venezuela’s failing economy, monetary system and get around heavy US sanctions, Vеnеzuеlа’s Prеѕіdеnt, Nicolás Mаdurо аnnоunсеd plans to introduce a сrурtосurrеnсу bасkеd bу Vеnеzuеlа’ѕ оіl, gоld, аnd mіnеrаl reserves.

Dubbed the ‘Petro’, the bold move is being faced with skepticism as the country continues to sink into economic turmoil.

Interestingly Tunisia was the first country to put its currency on the blockchain with the ‘eDinar’. Other countries may soon follow suit.

Something that is not widely reported however is the vast amount of energy required to power these crypto systems.

Bitcoin mining to consume global electricity production by 2020

A bitcoin transaction is around 5,000 times more energy intensive per transaction than VISA.

Bitcoin mining currently uses more power than 159 countries on the planet, and by February 2020 will need today’s total global electricity production to power it.

Solutions could come by way of forking the crypto into a more energy efficient way of operating if possible or one of the many other alt coins taking the lead as the dominant cryptocurrency by being more efficient.

Perhaps new energy metals like cobalt will offer the solution to help power this very real upcoming energy requirement.

Cobalt price charges up to decade highs

The cobalt price has rallied over the past 12 months from US$30,000/t to reach the US$70,000/t barrier this week, which is the highest the metal has hit in almost a decade.

Whilst still a way short from its pre-GFC highs of around US$110,000/t, the new energy era metal is expected to increase in demand over the coming years.

Driving the surge is expected demand from cobalt’s use in lithium-ion batteries that are used in electric vehicles.

A UBS report recently stated that in 2025, one in six cars sold in the world will be electric. The report also includes the claim that in 2018 electric vehicles will reach cost parity with their petrol counterparts.

Small Cap stocks this week

Always action in the small cap space, the news seemingly spread across all sectors this week.

However, noteworthy of late is a surge in companies planning to sell products into China in recent weeks, recent examples being Broo (ASX: BEE) and Creso Pharma (ASX: CPH), below are three more to add to the list.

But first, let’s continue with cobalt…

Northern Cobalt (ASX: N27)

Northern Cobalt announced it had uncovered further high grade, near surface, cobalt mineralisation at its Stanton deposit, with mineralisation remaining open in multiple directions.

Located in the Northern Territory, the project is near supporting infrastructure and doesn’t face the same issues as cobalt explorers operating in the Democratic Republic of Congo, where around half the world’s cobalt currently comes from.

Winmar Resources (ASX: WFE)

Located in the mining friendly jurisdiction of Canada, Winmar Resources is set to acquire the Boom Lake project.

The project is in Ontario, one of Canada’s high-grade silver and cobalt districts with an estimated 60.2 million ounces of silver and 1.3 million pounds of cobalt had been produced in historic mining up until 1969.

Following due diligence, the transaction is expected to be finalized January 2018.

Argosy Minerals (ASX: AGY)

Plans to produce its first lithium carbonate equivalent for the battery market by the end of March 2018 remain on track according to Argosy.

Announcing it has completed stage two evaporation ponds and the first production well at its Rincon project in Argentina.

DigitalX (ASX: DCC)

Two cryptocurrency start-ups appointed DigitalX to act as a corporate advisor for their upcoming initial coin offerings.

DigitalX finished the week in a trading halt pending “an announcement on the company’s activities”. With Ookami (ASX: OOK) also going into a trading halt around the same time regarding a “proposed strategic investment by the company in the Blockchain sector”.

Fueling speculation that there may be an announcement coming out with regards to business between the two companies.

Queensland Bauxite (ASX: QBL)

Subsidiary of Queensland Bauxite, Medical Cannabis, commenced mass hemp food production and farming for its Vitahemp product suite.

Around 60 tonnes of hemp seed has been stockpiled in storage with Vitahemp products scheduled enter the market next month.

EVE Investments (ASX: EVE)

Continuing with its recent positive news flow, EVE announced this week that it has confirmed its 50% stake in Meluka Health, which is set to produce honey water with Refresh Group (ASX: RGP) for the Chinese market.

In separate news, EVE has partnered with Eagle Health (ASX: EHH) to distribute a diabetes pre-meal shake into China.

Bioxyne (ASX: BXN)

Another ASX company entering the Asian market this week was Bioxyne, with the launch of three new products in the health and beauty space.

A recently approved direct sales license into Malaysia and 16,000 cans of its BK18 nutritional health drink already ordered for surrounding Southeast Asian countries, shares in BXN more than double in the two days following the announcement.

The company formulates its products in New Zealand using proven ingredient shown to have health benefits.

Jatenergy (ASX: JAT)

Sneaking in with a late announcement at 3pm on Friday afternoon was Jatenergy with news its 100% owned subsidiary Cobbitty Country Pty Ltd is finalising logistics for delivery of first orders of its instant full cream milk powder into China.

Jatenergy is planning to have the product ready for Chinese CFDA approval over the next two months, with sales anticipated soon after.

Shares in JAT rose from 2.9c at beginning of trade, hitting a high of 9.5c, before closing out at 7c.

Over $2m of stock was traded for the day, with the share price almost doubling prior to the announcement being released, hence receiving a please explain letter from the ASX.

The week ahead

Employment numbers for November come out on Thursday, with the unemployment rate tipped to remain at 5.4%.

Overseas we have the US Federal Reserve, European Central Bank and Bank of England coming out with decisions on interest rates. The Reserve Bank of Australia announcing this week it will leave rates at 1.5%.

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