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Analysis

Crypto: A Look At Where Demand Is Hiding

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The bloom is off the crypto rose.  People, like comedian John Oliver are taking shots at bitcoin. Even JP Morgan Chairman Jamie Dimon’s dire bitcoin predictions don’t seem so ridiculous any longer.  It is a safe bet to state that confidence in crypto is about as low as it has been in quite a long time.

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With this in mind, I recently suggested that a V shaped price recovery was unlikely and that the three problems that stood in the way of higher prices were the obvious: the threat of restrictive government regulation, poor security and transaction speeds bordering on snail speed.  Yet as critical as these are to rebuilding investor confidence, each of issues has a solution – it’s just going to take time.

But what’s a hungry investor to do in the meantime?

Inflation and Uncertainty: The Perfect Storm

By time, we aren’t talking about a few days, it could be many days and months, maybe even longer.   But what if some powerful external force caused a change in investor mindset that sent demand for crypto heading higher once again?

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What we are talking about is the fear of significantly higher inflation where investors turn to bitcoin, ether, Ripple and other altcoins as a storehouse of value.  Does this sound far fetched? Not really when if you consider the following.

The Dow Jones Industrials at about 24,700 is near it’s all time high of 26,616.  Stocks are fully valued. There is no disagreement. The pull back in prices since January relates to higher interest rates as inflation is now running ahead of the 2% target set by the Fed.

The Fed’s job is to use monetary policy to manage inflation and balance that against economic growth.  This is easier said than done. It took nearly a decade of Quantitative Easing and more than $3.7 trillion to raise inflation from zero to 2%.  Signs now suggest that Quantitative Easing went to far. That would be something of a perfect storm for crypto. That’s the message from the CNBC Fed Survey for March. The average forecast sees the yield on the 10-year benchmark Treasury ending the year at 3.17% and rising to 3.54% by next year. Quoting Peter Tanous, Chairman of Lynx Investment Advisory: “When the 10-Year goes above 3%, we’ll finally realize the enormous burden we face servicing the national debt”.

Anything like a 3.5% rate on the 10-Year Note implies that inflation is running more than 50% above target levels.  That isn’t the end of the world but it dramatically changes the nature of Fed policy compared to anytime in the last decade.

Potential Trade Wars Create Uncertainty

In the event of a trade war, would you rather own dollars, euros, yen of some other asset? That is a trick question. There is no right answer because a trade war would create loads of fear and that sends investors searching for safe havens: perhaps gold or something else, crypto currencies.

Here is a caveat.  Considering the source of the tariffs on aluminum and steel came from POTUS and we understand the nature of his negotiating style, the prospect of a real trade war is less than it may appear.  Nevertheless, POTUS is the uncertainty and uncertainty will send investors searching for safety in their investments.

Storehouse of Value

The picture that is emerging is one of greater monetary uncertainty than anytime in recent years.  Usually this means good things for the price of gold. At the time of this writing, gold was trading at $1310.50 which is below the 2011 peak of $1831.  So gold bugs can argue with authority of golds virtues.

But when investors are looking for a storehouse of value which offers the greater value, a shiny asset that is down 28% from it’s all time high or an asset that is less proven and more speculative but down over 60%?  

The odds favor gold but that doesn’t mean investors in bitcoin and altcoins will be left out.

Conventional thinking calls for the definition of a storehouse of value to include adjectives like stable and predictable.  Clearly cryptocurrencies don’t yet match that description. So after the collapse of prices, it might be better to describe crypto as a reservoir of value where during periods of heightened uncertainty, investors will want to store their assets. By itself, this could be an important key to the current crypto price puzzle.

 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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4.3 stars on average, based on 60 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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2 Comments

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  1. crazyoldgoat

    March 21, 2018 at 9:34 am

    This article feels unfinished. Do you see cryptocurrency as something that will continuously rise and fall by huge amounts over small periods of time that investors will simply dump money into when it reaches lows and take money out of when it reaches a certain figure? Would this, in itself, not make cryptocurrencies increasingly easy to predict and in turn make them stabilize somewhere in the middle?

    • James Waggoner

      March 21, 2018 at 4:54 pm

      Your thoughts are appreciated. Perhaps the reason you felt the article was incomplete is that it was just one of four articles written over the past week. The intent was to put a perspective on the currency price correction rather than just report price changes. In this particular article the point I wanted to make is that sometimes assets become attractively priced because other assets become overpriced. When this happens, investors find value.

      With cryptocurrencies these days, everyone is wanting to know what it will take to get prices up. Most of the time we look for fundamentals but at present levels, relative prices may make a compelling case to buy crypto. Thanks again for your comment.

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Analysis

Crypto Update: Ethereum Tops $550 as Altcoins Hit New Rally Highs

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The major coins are having another bullish day after a consolidation period with all of the top 10 cryptocurrencies sporting meaningful gains. Altcoins are leading the charge higher, as the switch in relative strength that we pointed out several times seems to be a lasting phenomenon, with the ETH/BTC pair confirming a short-term uptrend.

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BTC/USD, 4-Hour Chart Analysis

Bitcoin is also up today, but while the majority of altcoins are trading on new rally highs, BTC is stuck below the prior swing high at $8400, which is also a previously established resistance level. The dominant declining trendline is also in that area, and that strong zone could hold back the largest coin for a longer period. A breakout would confirm a new rising short-term trend, with the next major resistance zone ahead between $9000 and $9200.

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ETH/USD, 4-Hour Chart Analysis

Ethereum is among the strongest coins short-term, and with smaller cap altcoins also joining the rally, the whole segment could be ready for a move higher. That said, the broader declining trend is still intact with the coin trading in a strong resistance zone between $555 and $575. A new short-term uptrend is now confirmed but with the declining trendline just ahead, the coin could be in for volatile swings in the coming days. The next target zone is at $625, while support is found at $500 and $450.

Broad Altcoin Rally Lifts All Ships

XRP/USD, 4-Hour Chart Analysis

Ripple, which was among the weakest majors for a prolonged period is one of the leaders today, climbing above $0.75, and eyeing the next major level at $0.84, with tbe coin already being above the previously dominant declining trendline.

On a slightly negative note, correlations are still high between the majors, but there are standout performers despite the concerted rally. Among the long-term leaders, Litecoin is trading near $150, while Monero added to yesterday’s gains, and it’s testing the $240 resistance as we speak.

The early leaders of the rally are slightly lagging in the current short-term swing, but that is likely a sign of rotation, as the likes of EOS, NEO, and IOTA are also higher today, while holding up wrll above the correction lows.

With all of the majors on buy signals in our trend model, we expect the rally to continue even as strong resistance zones are ahead and the road will likely be bumpy after the steep and lengthy downswing.

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 225 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

Rally Fades in Stocks as Apple Weighs on Nasdaq

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We warned yesterday that stock markets got vulnerable as the major US indices reached short-term overbought readings, and after a choppy Wednesday session, equities turned lower today in early trading. Apple fell by more than 2% in early trading on a supplier report regarding declining orders from the smartphone giant, and the sliding stock dragged the tech segment lower.

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S&P 500 Futures, 4-Hour Chart Analysis

While the short-term technical picture deteriorated, the losses are muted so far, and the rising short-term trendlines are holding up. Volatility ticked higher, with the VIX bouncing off its two-month lows, but the index is well below the levels seen in the beginning of the month, as Syria-related fears continued to ease and the Chinese-US trade spat also took the back seat in the mainstream media.

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DAX, 4-Hour Chart Analysis

Stocks finished broadly lower in Europe, while Asian equities reversed their early gains, with trading volumes still being low across the board. The economic calendar was almost empty today, with only the much worse than expected British retail sales figure adding to the string of negative surprises coming out form the UK this week. In the US, the Philly Fed index came in higher than expected, while weekly jobless claims were in line with expectations.

Dollar Stable as Short Yields Hit New Highs

2-Year Treasury Yields, 4-Hour Chart Analysis

Treasury yields resumed their rise in the quiet environment, and as the short end of the curve continues to outperform the flattening of the yield curve continues in earnest. While forex markets are still mostly flat, the Dollar is drifting higher against most of its peers in US trading.

AUD/USD, 4-Hour Chart Analysis

Commodity-related currencies are little changed, although both the Aussie and the Canadian Dollar are off their recent highs, and should they roll over, the bullish case would receive another hit.  Despite the weakening of the risk rally, crude oil continues to hit multi-year highs, with the WTI contract getting close to the $70 per dollar level today. Gold fell back below $1350, as the choppy consolidation pattern is still intact, and the slight risk-off shift wasn’t enough to trigger meaningful safe-haven flows.

Featured image from 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 225 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

More Chance to Go Up for Litecoin

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Litecoin short term outlook is quite positive, while in a longer term, it’s somewhat mixed. Shortly, the digital coin may face a very strong resistance at $141, being currently priced at $140. As Dmitriy Gurkovskiy, Chief Analyst at RoboForex, says, Litecoin already tried to test this level earlier this week, but did not succeed.

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In the mid-term Litecoin is trying to break out the current range, and in case it finally manages to break out $141 and stay above, it may go up to $168. Before reaching this target, however, another downtrend may be formed, with Litecoin plunging to the support at $114 again. If the bears succeed in breaking out this level, too, another sell-off target will be at $87.

Current outlook, however, is mostly positive, with the key support being at $114 and the key resistances at $141 and $168. The MACD on D1 is in its negatives, but is going up, issuing a buy signal, while the Stochastic is in the positive area and confirms its buy signal, already issued some time ago.

Fundamentally, Litecoin has got much support this week. The market started buying out the coin once the news on the token being listed at Korbit appeared. As the recent reports say, the crypto started being traded on Korbit yesterday, while withdrawal should be available starting today, Apr 19. This is important for Litecoin: first, Korbit is one of the oldest and most reliable exchanges in Korea; second, as we have already stated a few times, if the crypto becomes widespread across multiple exchanges, its liquidity gets boosted, while the accessibility simplifies the transaction processes.

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Korbit decided to hold a contest, with the top 6 LTC/KRW traders getting prizes in Litecoin (the winner gets LTC 50, the runner-up will walk away with LTC 25). Meanwhile, Litecoin being available on Korbit also helped the crypto to rise on Bitfinex.

Currently, Litecoin is one of the most volatile currencies, mostly because of it always being in the news, which does good to its promotion. As such, it was announced a few days ago that LTC would be used as a payment method, and TenX already started developing a prepaid card for that purpose.

By: Dmitriy Gurkovskiy, Chief Analyst at RoboForex

Disclaimer
Any predictions contained herein are based on the authors' particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

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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5 stars on average, based on 1 rated postsI have two degrees in Social Psychology and Economy. After graduation I worked as the Head of the Laboratory of Technical and Fundamental Analysis of Financial Markets at The International Institute for Applied Systems Analysis. The experience and skills he gained helped me to realize my potential as an analyst-trader and a portfolio manager in an investment company. At the moment I'm a financial expert, writing for various financial media sources and a Chief Analyst at RoboMarkets.




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