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Crypto: Assessing the Damage

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A Tornado Hit

Oklahoma in the springtime has been hit with more tornadoes than about any region. We have all seen the videos of the devastation. The landscape is barely recognizable, wreckage spewed everywhere, a truck sitting on the roof of a building and crowds of displaced citizens looking lost and frightened.

The first of one of those tornadoes hit the crypto markets back in December.  But, instead of hitting hard and then quickly blowing through, this cryptonado has been hitting hard and hanging around.  From just before Christmas until today the combined value of cryptocurrencies has lost over $400 billion. That is more destruction than all of the tornadoes and hurricanes in the last century.

Thursday seemed to embody all the signs of capitulation.  It would not be unusual for a sharp rally to follow. Even if this good fortune was to take place, a certain amount of damage has been done.  Here are a few quick thoughts.

Of the leading cryptos, Ethereum and Ripple XRP appear least fundamentally challenged.  Bitcoin on the other hand could have a longer road back to $20,000.

Store of Value

Bitcoin’s image as a store of value has been tarnished.  There are those critics that will quickly claim that bitcoin never deserved to have that status.  Others believe that bitcoin was a better storehouse than gold. To be a true alternative it helps to remember that gold serves two roles: storage as well as industrial and consumer applications.

Bitcoin’s loss in value and subsequent volatility makes a strong case for the critics.  While it was soaring 7,000%+ in 2017 it was easy to buy bitcoin and store it away for the long term. There is a sense of comfort and security to help you sleep at night.  But when prices fall 50%, the storehouse empties out pretty quickly. Yes, bitcoin supporters can point to gold’s volatility. But for centuries, gold has had underlying demand as well as a medium of exchange.  This later function is critical to long term Bitcoin strategy.

The collapse of bitcoin pricing will require quite a while to reestablish credibility as a storehouse of value and this might conceivably make bitcoin less attractive to investors than other cryptocurrencies.  Time will tell.

ICOs

Regulators are taking aim at ICOs.  March 7 was a day of reckoning. That is when the Federal District Court judge ruled that cryptocurrencies are commodities and thus under the jurisdiction of the Commodities Futures Trading Commission(CFTC).

On the same day the Securities and Exchange Commission issued an order flexing their regulatory muscle over registering cryptocurrency traders.  

While you have to like the idea of regulators cleaning up the number of ICO scams, government tactics can be powerful and intimidating.  

According to Bloomberg News, the SEC Office of Compliance Inspections and Examinations has issued subpoenas to a number of cryptocurrency hedge funds.  I believe this is just the first step in their pursuit of violations related to ICOs.

Either way, you can expect more of this type of activity in the future.  Neither the CFTC nor the SEC has every issued a top 10 list for the most admirable members of Wall Street.  Their sole responsibility is to keep agents busy creating and pursuing bad guys. So along with the benefits of better enforcement will come more and bigger headlines.

Ethereum

So what does that mean for Ethereum?  At last count, Ethereum was the platform of choice for 80% of all ICOs.  If the CFTC and SEC are making headlines, no doubt there will be fewer ICO.  

So far this risk isn’t proving to hurt demand for ether.  Through the first two months this year, ICOs have raised nearly $2 billion in capital a 50% year over year gain.  This total amounts to almost half of last years total.

How should this be interpreted?  Perhaps investors are becoming more selective choosing the larger offerings.  There may be other reasons but this is the most plausible explanation.

Assuming this to be the case and the data on capital raised by ICOs is accurate, then a huge amount of the price collapse in Ethereum is nothing more than investors reacting to headlines.  If ICOs continue anywhere close to the current monthly average of $1 billion, neither the CFTC nor the SEC will be able to stop Ethereum.

Ripple:  In the Crypto Space at the Wrong Time  

The price of Ripple makes no sense.  It is not part of the ICO syndrome, no one ever claimed that it was a storehouse of value and its adoption by retailers is immaterial.  The XRP isn’t even available on one of the largest exchanges, Coinbase. And yet, Ripple has suffered the largest percentage decline of any crypto: nearly 80%.  

Just the other day, I ran across a reader who was bashed on Facebook for investing in bitcoin because of the excessive and wasteful energy consumption in bitcoin mining.  The Ripple Network uses a fraction of that of most cryptos.

Ripple’s worst feature is having to sell their seamless global payments network to slow moving governments and financial institutions.  But does that warrant losing nearly 80% in value practically no time? I don’t think so. So for fans of XRP, it will pay to be patient.

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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4.4 stars on average, based on 104 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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  1. embersburnbrightly

    March 17, 2018 at 4:02 pm

    “From just before Christmas until today the combined value of cryptocurrencies has lost over $400 billion. That is more destruction than all of the tornadoes and hurricanes in the last century.”

    That is staggering. That also shows one how much money has been flowing into cryptocurrency, which reflects the interest in it. I’m sure a lot of the interest has been speculative, and the downtrend over recent months has definitely shaken out a lot of the purely speculative money. I’m share your belief that there are intrinsic values behind many of the coins, though, and I share belief that XRP remains an undervalued coin.

    • embersburnbrightly

      March 17, 2018 at 4:02 pm

      Sorry for the voice to text errors in my reply above…

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Analysis

Markets Looking for Direction as Dow Eyes All-Time High

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Global stocks have been trading without clear direction so far today, even after Asia kicked off the day in a bullish fashion, with the Shanghai Composite rallying for the second session in a row following Trump’s tariff announcement. The Nikkei retreated a bit after its recent surge, but Europe followed China’s lead and the majority of US stocks are also sporting gains, even as the Nasdaq is in the red, with the likes of Amazon (AMZN), Microsoft (MSFT) and Apple (AAPL) lagging behind.

Dow 30 Index Futures, 4-Hour Chart Analysis

The Dow, which has been relatively strong in the past weeks is outperforming again, thanks now mainly to the jump in mega-cap banks, and the index is edging ever closer to its all-time high from January which is less than 1% away currently. Should the industrial average set a record high, the correction that started with the February mini-crash would be erased by all the US indices, further widening the divergence compared to the rest of the world.

DAX 30 Index CFD, 4-Hour Chart Analysis

Looking closer at Europe, the DAX is trading at its highest level since the first days of the month, similarly to the EuroStoxx50, but the longer-term downtrends are not in danger yet. British assets were in the center of attention today, since the CPI came in higher than expected in the UK, giving a brief boost to the Pound in the generally choppy environment in the Forex segment.

In the US, the housing market provided the most excitement, with building permits significantly missing the consensus estimate of 1.31 million, coming in at 1.23 million, while housing starts beat expectations with 1.28 million units vs. the 1.24 units expected. The sector remains under pressure from rising rates, and activity is clearly below the cycle-peak earlier this year.

US Yields Continue Surge after the BOJ Meeting

2-year US Treasury Yield, 4-Hour Chart Analysis

The upward pressure on yields is apparent today again, with Treasuries plunging and rates rising across the curve. Today, the 30-, 5-, and 2-year yields all hit multi-year highs, and the 10-year yield is also close to the highs it hit in May, as rate hike odds continue to climb before next week’s Fed meeting.

USD/JPY, 4-Hour Chart Analysis

The Bank of Japan didn’t surprise the market today, sticking to its policy despite some recent tightening rumors, and the Yen is virtually unchanged after the decision, with a slight bullish bias.

Gold Futures, 4-Hour Chart Analysis

Commodities are higher today, even as copper gave back most of its early gains, with gold drifting higher towards the $1210 level and WTI crude oil getting back above the key $70 per barrel level. The precious metal is boosted by the slightly weaker Dollar, while oil gained ground after the larger than expected crude inventory draw in the US.

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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 348 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

Crypto Update: Worst Seems to be Over for Stellar and Cardano

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With so many cryptocurrency pairs losing as much as 90% of their value from this year’s high, it may seem that altcoins are deep in bear territory. Even if you’ve been following our bullish breakout series, the pullbacks in the last two few weeks would have made it easy for you to doubt our claims. However, we stand by our assertion that the overall crypto sentiment is slowly becoming bullish. The altcoins that we cover today serve as additional evidence.

In this article, we show how the worst appears to be over for Stellar and Cardano.

Stellar/Bitcoin Analysis

The last two weeks have been very difficult for Stellar/Bitcoin (XLM/BTC) investors. The pair appears to have breached the uptrend line when it dropped to as low as 0.00002933 on September 11, 2018. At that price level, XLM/BTC lost over 56% of its value from the 2018 high of 0.00006789.

Those who cut their losses after the pair breached the uptrend support would have been badly whipsawed. Stellar/Bitcoin eventually managed to recover the support.

Weekly chart of Stellar/Bitcoin

With the recovery of the support, the outlook is bullish for XLM/BTC. First, the false break of the support is bullish. In most cases, this can ignite a rally to the top end of the range or the resistance.

In addition, the weekly RSI appears to have broken out of its own falling wedge. This is a very good sign that bulls are gaining momentum. Keep in mind, the RSI has been trapped inside this falling wedge since April 2018.

Lastly, the recovery of the support marks the end of the E wave, which is often the last wave down. With bulls taking back the support, we have a convincing case that the worst is over for XLM/BTC.

Cardano/Bitcoin Analysis

Just like XLM/BTC, the last two weeks have also been difficult for Cardano/Bitcoin (ADA/BTC).The pair came off lows of 0.00000969 on September 12, 2018. At that point, the market was down by almost 90% from the 2018 high of 0.00008788.

To many crypto investors, ADA/BTC may be fighting to stay alive. Bears have given their best shot and it may have appeared that the market was down for the count. However, just as ADA/BTC looked hopeless, the market bounced back like a true champion.

Weekly chart of ADA/BTC

As if on cue, ADA/BTC bounced as soon as it hit the support trendline of the falling wedge. This price action emboldened bottom fishers to enter long positions. The increasing demand coupled with decreasing supply due to bearish exhaustion are creating the ideal conditions for a bullish reversal.

As of this writing, ADA/BTC is taking out resistance of 0.000011. Breach of this support will enable the market to reverse its trend and bid goodbye to bear territory.

Bottom Line

Cryptos are slowly stepping out of bear territory. The last few weeks have been difficult but overall, altcoins are becoming bullish. This seems to be the case for both XLM/BTC and ADA/BTC. The worst appears to be over for the two altcoin pairs as they prepare to finally reverse their trend.

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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3.6 stars on average, based on 234 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Ethereum Making a Decision Where to Go

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Ether is losing its value slightly today on Sep 19, trading at around $207.98. Losing 0.25% on Wednesday is not that surprising after a very hard Monday (although Tuesday was neutral). The crypto was above $210 when the session started, but then failed to stay near the local highs, says Dmitriy Gurkovskiy, Chief Analyst at RoboForex.

On H1, the bearish trendline is at $216, which is confirmed on D1. The resistance levels at $216 and $220 are strong, and they must be broken out in order to go up or at least pull back upwards.

In case Ether fails to find any drivers, it will likely consolidate at around $205. This is exactly where the key support lies, while the resistance is at $216, as mentioned above.

The MACD is negative on D1, moving along the signal line, still giving a moderate buy signal, while the Stochastic is not going anywhere and is not issuing any signal, while being in the positives.

Lately, Ether is very much volatile, with no certain direction. Last week the cryptocurrency spiked 32%, but early this week it reverted and started falling. Ether is vulnerable to the general negative sentiment in the crypto market, although the inside news influence it, too.

People are waiting for the Constantinople update, as well as for the introduction of Ether futures on CBOE which should take place before the end of the year. Meanwhile, low activity in ICOs does no good to Ether’s price either.

Recently, news has come that the Ethereum network reduced its reward for mined blocks, from 3 to 2 ETH. This nearly equals the profits of Ether and Bitcoin miners, so some ETH miners are sure to switch to Bitcoin after this happened, especially those that are unable to cover their costs and expenses (and there are quite a few).

The only positive piece of news now is the pending payment option in MyCrypto wallet designed by Ethereum. This option enables scheduling the payment date and time, which simplifies matters when it comes to recurring payments, such as subscriptions.

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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4.4 stars on average, based on 7 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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