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Analysis

Bitcoin Futures Opened the Door to Short-Sellers, Resulting in Subsequent Crash: Study

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The introduction of bitcoin futures was widely regarded as a watershed moment for cryptocurrency. But now researchers say derivatives precipitated the rise and subsequent fall of the digital asset class, mirroring a similar cycle before and after the 2008 subprime mortgage crisis.

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Shedding Light on Bitcoin Futures

Bitcoin futures have long been regarded as a double-edged sword. On the one hand, they open up the crypto sphere to institutions and day traders who otherwise would not have bet on digital assets via online exchanges. On the other hand, the derivatives product gave short-sellers a much easier way to bet on declining prices.

New research from the Federal Reserve Bank of San Francisco uncovers a much stronger link between bitcoin futures and the broader market decline that occurred during the first quarter. The paper, which appeared in the Economic Letter publication on May 7, shows that bitcoin prices peaked on the very same day that bitcoin futures contracts began trading on the Chicago Mercantile Exchange on Dec. 17.

The researchers differentiated bitcoin’s transactional demand from its speculative demand, arguing that the introduction of futures made it much easier to bet on the decline in BTC. So while speculative demand had always been there, the introduction of futures made it more prominent.

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Bitcoin futures got off to a rocky start but have since picked up amid the latest surge in market prices. CBOE, which was the first to launch the bitcoin futures contract, has averaged about 6,000 contracts daily since trading began back in December. That number surged to 18,210 for the May contract, easily topping the previous high set in mid-January.

An Ominous Comparison

Bitcoin’s price movement since the launch of the futures contract mirror the rise and collapse of the home financing market one decade ago. Citing 2012 research by Fostel and Geanakoplos, the Fed analysts said the initial mortgage boom was driven by new innovations in securitization and bond groupings, which attracted bullish investors. Meanwhile, the subsequent collapse was triggered by the development of new products that allowed short-sellers to bet against the market.

“Similarly, the advent of blockchain introduced a new financial instrument, bitcoin, which optimistic investors bid up, until the launch of bitcoin futures allowed pessimists to enter the market, which contributed to the reversal of the bitcoin price dynamics,” the researchers said.

As we are all well aware, the U.S. housing collapse triggered the biggest economic landslide of a generation. While no-one is suggesting that cryptocurrency will have a similar impact (it can’t due to the relative size of the market), a comparable decline would be devastating to the blockchain industry as a whole and not just cryptocurrency. This dynamic ecosystem includes exchanges, startups of all stripes and the plethora of service firms operating within the market.

Bitcoin peaked at $19,511 on Dec. 17 before a 70% reversal just a few months later knocked the market back below $6,000. The cryptocurrency has since recovered from its bear market low, with prices trading above $9,100.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Analysis

What Is Po.et?

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There are now so many alt-coins out there that it’s almost impossible to keep track of which projects are legitimate and which are garbage.

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This article is the first entry in a series I will write for Hacked which will give summaries and context around a specific crypto project.

The topic of today’s summary is Po.et.

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So what is Po.et?

Essentially, Po.et is a universal ledger built off of the Ethereum Blockchain that intends to track attribution and ownership for the world’s digital creative assets.

In the digital age, all it takes is one click to copy someone else’s picture, video, paragraph, or song, and repost it as your own. The thief then reaps the monetary benefits of someone else’s work while the creator gets nothing.

Even if artists or journalists wanted to license their work properly, the current methods are highly labor-intensive and generally aren’t worth the time and effort spent.

Po.et wants to digitally timestamp content and be utilized as the main source of what content is licensed by who and when they were licensed.

Po.et utilizes this via something they dub, “Proof of Existence”, which they describe as the first non-financial application of the blockchain.

If I were to upload a media file or essay to the Po.et platform, the file is given a unique digital “fingerprint” that can’t be altered given the immutability of the ledger.

While a useful implementation of blockchain technology, the real value that Po.et offers is that there is no barrier to the licensing information itself. All of it is public and viewable by anyone without having to spend any money or tokens.

Po.et also wants to be a platform for content to get discovered.

Creators can create their own decentralized marketplaces that use POE tokens to upload and rate content. In order to add content to a specific marketplace, a creator must stake a certain amount of POE tokens. If the users of the marketplace don’t feel that the content belongs there, they will reject it and confiscate the staked coins.

Each marketplace determines their own voting terms requirements and amount of POE that new content contributors must stake to join. The more quality content in a given marketplace, the more valuable the marketplace will become.

In theory, this incentivizes members to only accept quality, relevant submissions and reject content that does not fit.

The process of staking is supposed to act as a self-selecting mechanism for individual markets. For example, in a marketplace for cat pictures, adding a dog picture would get my staked coins confiscated, disincentivizing me from trying to add it there in the first place.

But what if the first time a piece of content is submitted to Po.et is by someone who has plagiarized it?

Po.et gives users the ability to “challenge” the submission. Using the unique fingerprints assigned to each document, members can vote to accept or reject a challenge. If the challenge is approved by the majority of the members of a given marketplace, the new content is removed from the marketplace.

The Po.et team describes the use of POE tokens as follows:

  1.  To bootstrap the network effects of Po.et by creating a community of engaged invested stakeholders and publishers
  2. To raise funds for the long-term development of the Po.et Foundation
  3. To provide a mechanism to incentivize and reward early adopters and positive contributions to the Po.et network

The founder’s argument is that POE tokens will serve as the economic incentive behind Po.et’s need to promote quality, curated content on their trustless platform.

The team minted a total of 3,141,592,653 POE during their ICO in August 2017. The team sold 50% to the community through a token sale event, raising a total of $10 million USD.

The rest of the token allocations were as follows:

  • 8% Founding Team
  • 10% Angel Investors
  • 10% Integration Partners
  • 22% Foundation
  • 50% Token Sale

The Po.et team currently has 10 core members, who include CEO Jarrod Dicker.

Having Dicker as a CEO is impressive given that he previously served as the president of innovation and commercial strategy at The Washington Post. As such, it stands to reason that he is extremely well versed in the issues plaguing the licensing of media content.

The development of Po.et has been separated into three phases by their team. These are as follows:

1. The Rosetta Era

The Rosetta Era began in June 2017. During this period, Po.et released their ICO and raised $10 million dollars from the token sale. They used these funds as their seed round and were thus able to launch their public test net and integrate their first publishers onto the platform. WordPress users were officially able to timestamp and keep an updated log of all of their written work.

2. The Guttenberg Era

This is the era the project is currently in. According to their roadmap, Po.et will unveil their licensing marketplace in the upcoming months. This marketplace will supposedly integrate 20+ established publishers and allow creators to begin hosting their written content.

As well as facilitating discovery, the marketplaces will also accommodate creative licenses and allow for payments to content creators through what they describe as frictionless payment channels.

3. The Alexandria Era

The final era of development for the platform will be open to all interested users and begin supporting images and videos in the marketplace.

The current value of POE tokens is hovering about $0.03 cents.

Given that the team is led by an absurdly overqualified CEO, and that the team has already reached multiple successful development milestones on time, my analysis is that Po.et is a sleeping giant.

They solve a very specific problem that the leaders of the project have tons of professional experience dealing with in their prior careers.

Po.et could be a great token to hold long-term in anticipation of the platform being fleshed out. As always, I encourage readers to exercise caution and do their own due diligence on a project.

In the future, I will write a guide on how to properly allocate an altcoin portfolio but for now, I would recommend putting in no more than $200-$400 for small accounts (as part of a diversified portfolio), or $500-$1000 for larger accounts.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Crypto Update: Ethereum Back Above $700 as Coins Rise but Buy Signals Still Lacking

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The major cryptocurrencies are all sporting gins today, with Ethereum, EOS, Stellar, and Monero leading the way higher percentage-wise. Despite the rally, the short-term technical setup is unchanged in most cases, with the top coins still on neutral trend signals, and with no buy signals having been triggered just yet.

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From a technical standpoint, Ethereum is still clearly the coin to watch, as the price of the ETH token rose back above $700 today, showing relative strength yet again, getting close to a short-term buy signal.  While a signal is not confirmed yet, a break out from the bullish corrective pattern could be near.

ETH/USD, 4-Hour Chart Analysis

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The coin faces strong resistance between $735 and $780, with targets above that at $845 and $900, while support is found between $625 and $645 and between $555 and $575. We still advise traders to wait before entering new positions here, even as the correction lows are likely in.

BTC/USD, 4-Hour Chart Analysis

Bitcoin is still stuck below the key $8400-$8700 zone after it hit another marginal new correction low near $7900. Although BTC is not a buy signal, the downside momentum is fading and the coin could be close to a breakout of the correction pattern, despite its recent relative weakness. Strong support is still found between $7650 and $7800, while resistance is ahead between $9000 and $9200, $10,000, and $10,500.

New Leadership yet to Form

IOT/USD, 4-Hour Chart Analysis

While the leaders of the April rally are trading consistently with an ongoing uptrend, for now, there are no standout performers spearheading the rally among the majors. EOS is still holding up above the $12 while the other prior leader IOTA is also trading above key support at $1.7 but without clear bullish momentum. Should the coin move above the $1.9 resistance, the short-term trend signal would switch to buy, but as of now, the corrective pattern is intact.

As the long-term charts are looking more constructive after the pullback, long-term investors could soon be looking for entry points,  while traders could also get buy singles in the coming days.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 253 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

U.S. Indices Weekly Technical Update

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This week, U.S. indices pulled back slightly (less than 0.5% for DJIA and S&P 500, and 0.66% for NASDAQ) after rallying by more than 5% over the previous 7 trading sessions (since the intraday low on May 3 to EOD on May 11).

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Technical Overview

S&P 500

Bullish developments – the index closed above:

  • The 2,700 – 2,710 support area (green horizontal trendlines in Figure 1).
  • The January-March resistance (orange trendline, now serving as support).
  • Its 8 EMA, used as one of the shortest-term supports in fast-moving markets (yellow line).

Bearish developments:

  • The down-gap from Tuesday (May 15) was filled, and subsequently, the pre-gap range has served as resistance (purple trendlines).

Major resistance levels:

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  • The March high (2,800 – red trendline).
  • The 2,725 – 2,742 range (purple trendlines).

Major support levels:

  • The above mentioned three support levels (green, orange and yellow lines).
  • The intermediate-term support (ITS – violet trendline, currently at 2,630) and the 200 SMA (white line, currently at 2,627), which continue to overlap.

Figure 1. S&P 500 Daily

NASDAQ

Similar to S&P 500, its tech-heavy counterpart held above several key support areas:

  • The April high (7,320 – white horizontal trendline in Figure 2).
  • The lower support of the large trading channel (green trendline; only lower support shown).
  • The 8 EMA (yellow line).

Figure 2. NASDAQ Daily Chart

DJIA

  • There were no major divergences between U.S. indices as the Dow Jones Industrial Average also managed to remain above the 24,500 level (dark blue horizontal range in Figure 3) and its 8 EMA (yellow line).
  • Monday’s high (24,499.19) fell less that one point short of the 24,500 level. A break above will 24,500 will is expected to lead to a swift 500-point jump.
  • The 200 SMA, which provided support during the mid-March and May declines, is currently at 23,910 (white line; retests – white arrows).

Figure 3. Dow Jones Industrial Average Daily Chart

Implications

  • This week’s price action is indicative of a short-term consolidation.
  • Long positions in index-tracking ETFs and constituents are recommended. If indices break their 8 EMAs, hold long positions but no new positions should be initiated.
  • Potential breaks, on a closing basis, of the intermediate-term supports for both S&P 500 and NASDAQ (violet trendlines) at any point in the future should take precedence over all other technical developments (i.e. a break below the ITS will negate any bullish outlook). If it were to occur, long positions should be closed.

Outlook

  • Bullish short-term outlook as long as U.S indices remain above their respective 8 EMAs.
  • Short- and long-term bearish whenever S&P 500 and NASDAQ break their respective intermediate-term supports.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.8 stars on average, based on 12 rated postsPublished author of technical research. In his work on price “gaps”, published in the 2018 International Federation of Technical Analysts’ Annual Journal, he developed a new technical tool for analyzing and trading the “gap” phenomenon – the “K-Divergence” (http://ifta.org/public/files/journal/d_ifta_journal_18). Besides obtaining a Master in Financial Technical Analysis, he has completed a BBA and an MBA from the Schulich School of Business in Toronto and has completed all exams for the CFA, CMT and CFTe designations. Currently, providing research to investment management and financial advisory firms. http://www.linkedin.com/in/konstantindimov




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