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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.

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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.

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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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4.3 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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  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

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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