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Comparing Nasdaq and Bitcoin: What Lessons Can We Learn?

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Bubbles

Over the past few months, lots of people have talked about the similarities between the .com bubble in the early 2000s and the bitcoin market today. It seems that the further down the bitcoin market goes; the more people are using this analogue to help them stay in the game for the long-run.

One of the influential people in the crypto space who often refers to this comparison is Teeka Tiwari at Palm Beach Research Group. While he usually compares the Nasdaq during the late 1990s with the total cryptocurrency market cap, we are here going to compare the Nasdaq during that same period with the market for bitcoin specifically.

Nasdaq vs Bitcoin

In the image above, the top chart is a weekly chart of bitcoin, while the bottom chart is a monthly chart of the Nasdaq 100 Index from 1989 to 2004.

As we all know, the crypto market tends to behave like the stock market on steroids. Moves are larger, and trends change faster in crypto compared to in stocks. It therefore makes more sense to compare these two charts using different timeframes, which is why I have chosen the monthly chart for Nasdaq while bitcoin is represented with a weekly chart.

There are a few interesting things to take note of regarding this comparison:

The Nasdaq found support following the crash in 2000 and 2001, and has later gained more than 600%. The Nasdaq has, in other words, returned more than three times as much for investors than the broader S&P500 index has done.

One explanation for why all financial bubbles have so much in common is that the one thing that causes them – human fear and greed – never changes.

What was different during the dot-com bubble back in the early 2000s was that communication was slow and ineffective compared to the high-speed Internet connections we have today on our phones and laptops. This is one of the reasons why it took the Nasdaq a few years to rise 1,700%, while bitcoin managed to achieve the same return in just a few months.

Similarly, it took the Nasdaq 30 months to fall 78%, while bitcoin lost 70% in just one and a half month.

Another thing both markets have had in common is that when they were down 70% from the top, many people completely lost faith in the future of these markets.

It has been pointed out by observers that even the arguments these people used against investing in the said markets were largely the same: No underlying value, too much volatility, too much regulations/lack of regulations/bad regulations, lack of social responsibility from the market actors, etc.

In hindsight, it has become clear that only the investors who had the mental clarity to ignore all this noise during the early 2000s were able to catch the 600% move that followed in the Nasdaq.

Diversification saved investors

When we are talking about ignoring noise and riding out the storm, let’s not forget that many of the companies that made up the Nasdaq in the early 2000s did eventually go out of business. Betting everything on a single company, in many cases, ended up being a catastrophe for the investor, despite the fact that the sector as a whole did incredibly well. This really made the benefit of diversification clear to everyone.

We can assume that the same is true for the cryptocurrencies of today. Some will emerge and become hugely successful, while others will slowly but steadily decrease in value and become irrelevant. Which ones they are is extremely difficult to tell at this early stage, but the lesson to be learned is clear: Diversification may be the only free lunch we will ever get in the world.

Featured image from Pixabay.

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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4.3 stars on average, based on 34 rated postsFredrik Vold is an entrepreneur, financial writer, and technical analysis enthusiast. He has been working and traveling in Asia for several years, and is currently based out of Beijing, China. He closely follows stocks, forex and cryptocurrencies, and is always looking for the next great alternative investment opportunity.




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  1. suguru

    June 13, 2018 at 9:24 pm

    Hi, how much would it be technically legitimate to compare a cryptocurrency with an index of multiple stocks? It just looks to me the shape of the charts has been similar and it would make much more sense to compare it with another so called “store of value” (which a stock index is obviously not; it’s just a number), say traditional gold. Research on the fundamental conditions which have decided the gold price should tell us something informative I guess. Regards,

    • Fredrik Vold

      June 14, 2018 at 3:30 am

      Hi Suguru,

      You could definitely compare the Nasdaq to the overall cryptocurrency market as well, and not just bitcoin. As I mentioned, some people like to compare the chart of the total crypto market cap with the Nasdaq during this period.

      The problem with using gold is that it’s been around for thousands of years. Bitcoin is brand new as a “store of value” and therefore hasn’t reached maturity yet. When bitcoin matures as a digital store of value (whenever that is), I think the price would probably behave more like the gold price.

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Market Overview

It’s Getting Hot

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Hi Everyone,

Welcome to the first day of summer!!

Top news in crypto-land today is the flash announcement from world-famous rapper Akon, who is now getting into the ICO market with his own crypto called Akoin.

It doesn’t stop there though. Apparently, his vision includes building a brand new crypto city in Senegal to use the currency exclusively.

I suppose with the recent updates from the in the United States it would be very difficult to raise money for an ICO of the coin there. Perhaps Akon can do some other type of token introduction without raising money from the public to get started.

In Senegal of course, this isn’t the first attempt at localized currencies in the region.

As we’ve been saying, the real need for Bitcoin and other decentralized currencies comes specifically from emerging markets. Only once natural growth picks up there, will the institutions get involved. If that takes a day or a year, nobody can say.

Today’s Highlights

  • Dollar Rising
  • Gold Falls Further
  • Crypto Ramps up Regulation

Please note: All data, figures & graphs are valid as of June 21st. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

Stocks are mixed to negative today but the currency markets are in the throes of a strong US Dollar swing.

This is primarily the result of the new direction in policy from the US Federal Reserve, which is planning to increase interest rates while the rest of the world largely sustains their very low rates.

We’ve discussed before how the Dollar may be reversing the trend but now we can see that it is at its highest level in almost a year.

On this chart, I’ve put a Fibonacci Retracement line. For those of you who are green on technical analysis, fib lines are used to predict the likelihood in nature of a specific price being reached, according to Fibonacci’s patterns found in nature.

As we can see, we’re now approaching the 50% level.

 

Metals Moving

The main mover lately has been gold and other precious metals which are currently dropping like it’s hot.

As the Dollar get’s stronger gold tends to get weaker as you can buy more ounces of gold with a single dollar.

The recent slide has brought us all the way back to the medium term trend line that we’ve been watching for the last year.

Of course, everyone draws their trendlines a bit differently, but for those that are bullish on the long-term prospects for precious metals, this might be a good time to start looking for an entry.

On the other hand, the hotter it gets, with the USD and other reasons, the more gold tends to melt.

Also watch out for the Bank of England today, which will deliver its decision (most likely not to raise rates) at noon in London.

Though there will be no press conference following this decision, Governor Mark Carney will be speaking later tonight at the Mansion House Dinner.

Crypto Regulation

As we go forward, the role that governments play in cryptocurrencies is increasing at a rapid pace.

In response to hacks on Coinrail and bithumb, the government of South Korea has already released the details of a new bill to regulate crypto exchanges.

Europol is also ramping up efforts to get a handle on the space and will be meeting this week with more than a dozen major crypto exchanges, discussing anti money laundering initiatives.

Here at eToro, we’re doing our part as well. Yesterday, our very own Iqbal Gandham,UK Managing Director, addressed the Treasury Select Committee in London and did an amazing job representing the crypto industry.

Iqbal is not only the managing director of eToro UK but he is also the Chairman of Crypto UK self-regulatory body and a huge advocate for the sensible regulation of cryptocurrencies.

You can catch the recording at: https://www.parliamentlive.tv/Event/Index/252986ff-cec8-4647-a208-787618136dfb

The more clarity we see from global governments about how the space will be regulated the more people will feel free to invest and use cryptocurrencies regularly.

Let’s have an awesome day ahead!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation. The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro. Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose. Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

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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4.7 stars on average, based on 103 rated postsSenior Market Analyst at Etoro.com.




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Market Overview

Market Update: Technology Stocks Power Nasdaq to Record High; OPEC Meeting in Focus

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Technology stocks propelled the Nasdaq Composite Index to record highs on Wednesday, as investors eyed potentially improving trade relations between the United States and European Union.

Technology Stocks Rally

The technology sector outperformed Wednesday as shares of Netflix (NFLX) and Facebook (FB) set fresh record highs. The large-cap S&P 500 Index rose 0.2% to 2,767.32. Its IT component advanced 0.4%. Meanwhile, real estate rose 1.1% and discretionary shares added 0.5%.

The Nasdaq climbed 0.7% to close at 7,781.51. The tech-driven index is up 4.6% for June, having set record highs on half a dozen occasions.

Dow industrials extended their slump to seven days, falling 42.41 points, or 0.2%, to close at 24,657.80.

Dow blue-chip Disney Co (DIS) upped its bid for Twenty-First Century Fox (FOXA) assets to $38 per share, or $71.3 billion, surpassing an earlier offer made by Comcast. Last week, the NBCUniversal parent offered $65 billion in cash.

Expected volatility over the next 30 days declined on Wednesday, as calm trading conditions returned to Wall Street. The CBOE Volatility Index fell 4.1% to 12.80. The VIX trades on on a scale of 1-100 where 20 represents the historic mean.

U.S.-EU Trade Rift Thaws

Investors received some reprieve Wednesday from trade-war rhetoric amid reports that the U.S. and European Union were working out a new deal on automobiles.

According to The Wall Street Journal, the U.S. ambassador to Germany has met with German automakers BMW, Volkswagen and Daimler, where they proposed the idea of ending car tariffs between the U.S. and its EU allies. Germany has reportedly offered to scrap the EU’s 10% tax on EU automobiles  as part of a broader pact involving industrial goods.

Stocks have been pressured all week by the threat of all-out trade war between the United States and China after President Trump announced tariffs on up to $50 billion worth of Chinese goods. The president late Monday directed his administration to identify $200 billion worth of Chinese goods for additional duties after Beijing threatened counter-tariffs on American-made products.

OPEC Meeting in Focus

A Saudi-led plan to boost oil production is being met with resistance by Iran ahead of a high-profile OPEC meeting later this week.

Iran’s oil minister Bijan Zanganeh called the cartel an “American organization” and signaled his country’s opposition to higher production quotas. Earlier, the Islamic Republic had reportedly agreed to make a compromise on a small increase in output.

“OPEC is not an organization to receive its instruction from President Trump,” Zanganeh said upon his arrival in Vienna, Austria, the venue of the upcoming meeting.

“The U.S. president has blamed OPEC for the price hike. Indeed, the real responsibility for the current oil price hike lies with the U.S. president himself,” he added, as reported by the Financial Times.

Saudi Arabia is scrambling to convince fellow members of the Organization of the Petroleum Exporting Countries to pass a resolution relaxing production cuts as the kingdom seeks to maintain market share.

Russia, which openly backs a production hike, wants OPEC and its allies to boost output by a combined 1.5 million barrels per day.

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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4.6 stars on average, based on 461 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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Market Overview

What Doesn’t Kill you Makes you Stronger

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Hi Everyone,

This is it. After months of wheeling and dealing in the UK government, Prime Minister May’s showdown with her own party comes to a head this evening.

They’ve already decided that parliament should have a say in what Brexit will look like. Today we’ll get a better understanding of what level of authority that “say” will carry. In other words, do they have an advisory role or are they the decision makers.

Opponents of the “meaningful vote” amendment say that it will weaken May’s hand. Proponents say that, if passed, the amendment will weaken May’s hand. May has maintained that “no deal is better than a bad deal.” It would seem that most economists and authorities disagree, so this parliamentary vote is about blocking the no-deal option.

Though the average citizen maybe feeling fatigued by now, the EU negotiators will be keeping a keen eye on the countdown timer, which is now set for just nine months.

As far as the markets g, their concerns are aligned with the economists. Any chance of a no-deal Brexit could hurt confidence in local companies and in the Pound.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

  • Please Remain Calm
  • Metals Melt & Oil Leaks
  • Another Crypto Hack

Please note: All data, figures & graphs are valid as of June 20th. All trading carries risk. Only risk capital you can afford to lose.

Etch-a-Sketch Markets

Whatever trade war concerns may have been in the market yesterday seems to be completely gone by now. The People’s Bank of China might have had something to do with that.

The following headline may be translated in laymen’s terms as: don’t worry about trade, take some cash and settle down.

The amount of the cash injection may also be symbolic. Even though ¥200 billion is only worth 15% of the $200 billion proposed tariffs, the number itself is more than enough to raise eyebrows.

The CEO of Goldman Sachs, Lloyd Blankfein was also on Bloomberg this morning playing down the trade risks. Saying basically that Trump has made his point but he’d need to be crazy to carry out the threat and that this is more likely just a reminder to China that the U.S. has more available tariff firepower.

In any case, here we can see that stock indexes this morning are all green.

Platinum Got Smelted

In the weirdest way, during the height of the trade tensions yesterday gold took a massive plunge.

This strange behavior is something we mentioned in Monday’s update as well (Title: Let’s Break the Internet). Gold usually acts as a safe haven and goes up during times of uncertainty, but now it seems to be doing the opposite.

I still haven’t heard any convincing theories as to why this might be. The best I got was a few reassurances that the world isn’t about to end and therefore there’s no demand to hold physical gold.

The effect on Platinum seems to have been even more dramatic, as it got slammed down to the lowest level in 2.5 years, and is now relatively close to its lowest point in a decade.

It is also important to note the three day OPEC meeting in Vienna. Though any final decisions are usually reserved for the end of the meeting, there’s a strong possibility that we could get some leaks or even a complete breakdown.

Some countries want to start increasing output and some would rather decrease it. Both from a fundamental and technical perspective, this could go either way. Will be interesting to watch what happens.

What Crypto Hack

Less than two weeks ago, mainstream media was attributing a $1,000 drop in bitcoin prices to a minor hack attack on a previously unknown Korean crypto exchange.

Last night, the largest, most well known, crytpo exchange in South Korea got hit and cryptotraders across the globe woke up to this

The price of bitcoin however, seems to have barely budged. Here we can see the time of the bithumb news circled in purple and the drop following the Coinrail hack in yellow. What’s wrong with this picture?

One disadvantage to bitcoin is its immutability. Once a transaction happens, it can never be undone, which is one of the reasons cryptocurrencies can be a target for hackers.

However, immutability is also one of bitcoin’s most attractive qualities. The fact that it operates transparently and independently is a clear advantage for many.

The industry is certainly getting better at dealing with these types of attacks as well. Bitcoin’s high level of transparency makes it easier for authorities and businesses to track any illicit activity or stolen goods and eventually return them to their rightful owner. Very likely, we’ll continue to see more emphasis and development around security and the trusted custody of cryptocurrencies and that’s ultimately a good thing for the industry.

As always, please feel free to connect with me at the links below. I’m always glad to hear any questions, comments, and feedback. Let’s have an amazing day ahead.

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

Best regards,
Mati Greenspan
Senior Market Analyst

eToro: @MatiGreenspan | Twitter: @MatiGreenspan | LinkedIn: MatiGreenspan | Facebook:MatiGreenspan

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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4.7 stars on average, based on 103 rated postsSenior Market Analyst at Etoro.com.




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