Week In Perspective


3 Δεκ 2013 (πριν από 4 χρόνια και 7 μήνες)

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JANUARY 22, 2013

APRIL 5, 2013

Week In Perspective

Key Statistics (week-over-week)
Ending April 5, 2013

Weekly Change
MSCI World Index (USD)
S&P 500 Index (USD)
S&P/TSX Composite Index
MSCI Europe (EUR)
MSCI Emerging Market Index (USD)
Hang Seng (HKD)
Topix Index (JPY)

Previous Week
10-Year US Treasury Yield
10-Year GoC Yield
Gold USD/oz.
Oil USD/bbl.
Source: Bloomberg, Manulife Asset Management

Macan Nia
Manager, Portfolio Advisory Group
Manulife Asset Management

APRIL 5, 2013


Bitcoin – Is it the new Beanie Baby or is it legitimate?

The global equity markets were negative last week as we
saw profit-taking going into March’s non-farm payroll on
Friday and the upcoming first quarter U.S. earnings. For
the week, the S&P 500 Index lost 1.0 per cent on a total
return basis (USD) while the S&P/TSX Composite Index
lost 3.3 per cent on a total return basis (CAD). March’s
employment statistics were a mix bag. In the United
States, the Bureau of Labor Statistic’s reported that
88,000 jobs were created in the month. Markets initially
sold off, but reclaimed the majority of those loses as the
underlying data was more encouraging. Employment for
January and February was revised upwards by roughly
30,000 for a total of 148,000 and 268,000, respectively.
However, in Canada, the March employment story was
downright awful. Statistics Canada announced that the
economy lost 54,000 jobs in March which brings the
four-month total to a net creation of 1,000 jobs. It was
the worst month for jobs since February 2009. The
number would have been worse if it wasn’t for the
39,000 jobs created through self-employment. The
public sector was flat, while the private sector lost
85,000 jobs.
In the midst of U.S. non-farm payrolls and the European
Central Bank’s policy decision last week, there was
increasing coverage of the rise in price of Bitcoin. For
those of you who are not familiar with Bitcoin, it is a
virtual currency that has gained popularity since Cypriot
deposit holders were taxed (or whatever you want to call
it). I began researching this topic last week, and I have
witnessed the price increase to $170 before falling
sharply to $150 and surging to $200 as of the date of
this publication (Figure 1 below). Since late February
2013, the price of a Bitcoin has increased over 550 per
cent. Our introduction to Bitcoin will be two parts in
nature; this week’s Week in Perspective will focus on the
characteristics of Bitcoin and next week will focus on the
viability of Bitcoin as a medium of exchange and
What is a Bitcoin? Bitcoin is a digital currency that was
introduced on January 9, 2009. It gained traction within
a small group of people when the health of the U.S.
financial system was questioned. As risks of a financial
collapse were alleviated, and the global economy
rebounded, popularity in Bitcoin fell. It should be of no
surprise that Bitcoin’s recent rally comes at a time where
confidence in policymakers has decreased; specifically
recent policies to “tax” deposit holders in Cyprus and
the Bank of Japan’s goal of actively devaluing the yen.
Bitcoin has been seen as an attractive alternative to fiat
currency as it is electronic; there is no centralized
authority that determines its supply; it is encrypted; it’s
potentially anonymous and there is a finite supply.
We know how gold is created. It’s mined. We
understand how global currencies are created and
controlled by central banks, but who created Bitcoin and
how are Bitcoin’s created? The identity of the founder of
Bitcoin is unknown, but it is rumored to have been
created in Japan. As of today, there is approximately 10
million Bitcoins in existence, and the Bitcoin mining
process is designed in a way that there will never be
more than 21 million Bitcoins. In a time where central
banks across the world are conducting aggressive loose
monetary policy, the ceiling on the amount of Bitcoins
created appears to be attractive for some investors
(Figure 2 below) In 15 years, 95 per cent of all Bitcoins
will have been mined.
Bitcoin has been touted as the new gold, but how are
Bitcoin’s generated? Bitcoin is electronic currency that is
generated (or mined in Bitcoin lingo) by computers
running specialized software. The software attempts to
solve complex mathematical formulas which are used to
confirm past Bitcoin transactions, to confirm who owns
which Bitcoins and to prevent fraud. Confused? I know I
was, but I don’t pretend to be a techy, so for the time
being, we will assume that the process is legitimate.
Once these Bitcoins have been mined, where can I obtain
some Bitcoins? One can use real-world currencies which
range from U.S. dollar; Euro to the Polish zloty, to buy
Bitcoins on real time exchanges, the price is determined
by market dynamics of supply and demand.
Once you have Bitcoins, where do you store them?
Bitcoins, like fiat currency, need to be stored, and you
can store Bitcoins on either your personal computer or
store them online through a third party host through

APRIL 5, 2013

what is called a Bitcoin wallet. We will discuss the
implications of the storing Bitcoins next week.
Once you have your Bitcoins, you can purchase goods or
services through merchants/individuals that accept
Bitcoins. As of today, only 10 per cent of all Bitcoin daily
volume is for transactions. The majority of all volume is
through exchange trading.
I’ve lost my wallet a couple of times, and although a
nuisance, other than money that is lost, I can easily
replace the content of my wallet. What happens if I lose
my Bitcoin wallet? If you lose your Bitcoin wallet, you
lose the Bitcoins forever. What’s an interesting dynamic
is that since there is a ceiling on the amount of Bitcoins
that will be generated, the more users that lose their e-
wallets, the more valuable the remaining Bitcoins
become as Bitcoins become scarcer.
I now hope that you have a better understanding of a
Bitcoin, and the dynamic that shapes its value. As we see
it, Bitcoins have two true purposes: one is a form of
money and other is as an investment. Next week, we will
look at the viability of Bitcoin to appease these two
Before I leave you this week, I’d like to highlight the
ingredients for a bubble, and for us to think about
whether Bitcoins fit these characteristics over the coming
The underlying has an appealing underlying story…
The underlying has a sexy cool novel appeal…
The underlying is fueled by a small and finite supply…
The underlying asset has a fundamental value which is
highly speculative…
There is a high level of risk and excitement associated
with trading the underlying…


Source: Bitcoinchart.com

APRIL 5, 2013


Figure 2

Source: Central Bank Balance Sheets, MAM

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