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Analysis

Cryptocurrencies: Five Reasons Why The Worst Is Behind

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February 5, 2018 is the day when investor fear was replaced by greed. That marked the current bottom for cryptocurrency prices.  Simple enough to make this claim now that we have had a few good trading days.  But how do we know for sure that the worst is behind?

Oh if there was a reliable way to measure fear and greed in this nascent crypto world. It could tells us emphatically when market tops and bottoms are occuring, we could make some real digital dough.  True, there are lots of tools that have been tried on traditional markets likes stocks and bonds.  But if these will truly work in crypto land remains to be proven.

Sometimes the most reliable barometer is nothing more complicated than “gut feel”.  Here is what feels encouraging when I apply this test.

The February 5th Bottom

Volatility has been a major feature in crypto trading since day one.  After better than a 7000% appreciation in Bitcoin and Ether in 2017, should a massive correction be a surprise? Between December of last year and February 5th, Bitcoin lost almost two thirds of its value while Ether dropped almost 50%.  We could go on listing every currency but you get the point.

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It this were the infamous Dutch tulip bubble of 1634 the carnage would have continued endlessly.  With crypto, investors collectively found value starting on February 5.  Since then, Bitcoin has gained 50% and Ether about 30%.  That has all taken place in a matter of a two weeks.

This is unprecedented.  When the dotcom price burst in February 2000 the Nasdaq began a 75% fall before hitting bottom in November.  It took fully 14 years before the Nasdaq fully recovered.

Running Scared Of Government

Many investors try to connect the stock market correction with the slide in the cryptocurrency markets.  That would be a mistake because the circumstances are quite different.

The crypto correction and frightening headlines coming from China and Korea about threatened government crackdowns had everything to do with investors heading for the sidelines. This is not to ignore the mechanical influences like the slow transaction speeds etc. But the minute the word government comes into the picture, the worst fears take over.

With the benefit of time, investors are slowly coming to the realization that no government regulation can effectively control ownership of cryptocurrencies. They can however, regulate the operation of exchanges and that is a good thing.  This offers the chance to clean up the bad practices, excessive fees and outright scams which have hurt the individual investor.  

Initial investor reaction to the Chinese and Korean government news reminds us of an important point.  There is no such thing as perfect information in the crypto market.  Even so called professional investors know very little.  The general public are price driven momentum players.  Even erroneous headlines move markets; facts take more time .  

A  Pickup In ICOs

It doesn’t matter if you are dealing with stocks bonds or Bitcoin, when investors are willing to put money in the most speculative sectors, that is a sign of market strength.  Recently we wrote an article noting a precipitous drop in capital raised from ICOs during January.

We used data compiled by ICO Watchlist.  These folks are the only ones collecting data and their numbers don’t alway agree.  But we are using their date consistently for comparative purposes.

From a monthly average of about $400 million during the four peak months of 2017,  January dropped to just $76 million.  Easy to understand, investors lost their confidence in high risk instruments.

Things are beginning to change. With the recovery of major currencies the ICO market is showing new life.  With more than a week left in the month, ICOs have raised over $176 million, according to ICO Watchlist.

These figures exclude the current ICO underway for messaging app Telegram that claims it has raised $850 million thus far in a $2 billion total effort.  If these initial reports prove accurate it would be the largest ICO on record and create bold headlines.

More Hedge Funds Are Coming

According to Autonomous hedge fund money is piling up to between $3.5 and $5 billion marked exclusively for crypto investing.  The rise is dramatic reaching 226 funds globally compared with about half that many as recently as 5 months ago.  At the start of last year there were just 37.

The Negative Headlines Are Gone

There is nothing like raising prices to force the media to seek explanations.  Now instead of naysayers like Warren Buffett being quoted incessantly, CNBC brings on Shark Tank host Robert Herjavec declaring the Bitcoin is “going to skyrocket again” the “blockchain technology is here to stay” and that more government regulation will be the key driver.

CNBC even dragged out an old forecast by Tom Lee prejecting Bitcoin at $25,000 this year and Kay Van-Petersen of Saxo Bank predicting Bitcoin at $100,000.

The market litmus that I call “ gut feel” is hardly scientific.  There are probably analysts of big data that can offer better supporting evidence.  But for now, things are looking pretty good.

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 81 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. tommudd

    February 20, 2018 at 4:42 am

    This year is going to make the nocoiners cry in their beer (provided they can afford beer) and we will laugh all the way to the wallet.

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Analysis

Crypto Update: Coins Pop Higher as Consolidation Continues

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Trading activity increased in the major coins today, amid a mixed news flow, and for now, bulls scored a small victory following last week’s bearish price action. Bitcoin, Ethereum and most of the largest digital currencies gained several percents, despite the weekend’s deterioration, and although the technical setup didn’t change significantly, an immediate breakdown has been averted.

The discouraging BIS report that has been making waves today wasn’t enough to push the coins below support, but for now, the short-term strength left the trading range intact with the primary resistance levels still keeping a lid on prices. Given the uncertain long-term picture, the coming weeks will be crucial for the largest coins and the whole segment alike, with Bitcoin being in the center of attention after its long period of relative weakness.

BTC/USD, 4-Hour Chart Analysis

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Bitcoin held up above the April low, despite the bearish short-term picture, and the coin the highest price level in a week, breaching the $6750 level in the process. While the most valuable coin fared relatively well today, it clearly remains a laggard from a broader perspective, and it is still trading in a declining short-term trend, with several strong resistance levels just ahead.

The $5850 is the key from a long-term perspective, with further support levels at $6500 and $6275 and resistance ahead at $7000 and $7350.

Bearish Rotation Among Altcoins

ETH/USD, 4-Hour Chart Analysis

On a negative note, the leaders of the latest rally were among the weaker coins today, and that is a sign of bearish rotation in a segment, and until major resistance levels are broken traders shouldn’t enter new positions here. Ethereum managed to rally above $500 yet again, but it remained below week’s bounce high, leaving the trading range intact, while the declining short-term trend is also still dominant.  Strong resistance is still ahead between $555 and $575, while support below $500 is found at $450, $400, and $380.

EOS/USD, 4-Hour Chart Analysis

EOS, which is one of the strongest majors technically speaking also edged higher today, but it remains stuck in the declining short-term pattern, and below key support/resistance zone near $12. The coin is well below last week’s high and until a confirmed short-term trend change, traders shouldn’t enter positions here.

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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4.6 stars on average, based on 276 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

Brent Crude Might Be at Risk

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At the beginning of this week, the Oil prices are still under pressure. By the middle of Monday, Brent is trading at 73.36 USD, but it was much lower during the Asian trading session.

Attention of market players is focused on the OPEC meeting, which is scheduled to take place in Vienna on June 22nd and 23rd. The Austrian meeting has been under scrutiny for some time now: earlier, investors were worried by discussions about possible increase of the daily output by 1 million barrels, but now they are concerned by intention of three countries, namely Venezuela, Iraq, and Iran, to block such decision.

In fact, 1 million barrels per day is about 80% of the oil supply excess, which the OPEC+ has been fighting over the last 18 months. If the countries make decision to increase the daily output, the oil market will be quickly back to the numbers it was against for a long time. The oil supply will rise, but the demand won’t be able to grow at the same pace. As a result, the oil prices will have to fall again.

Still, there is one interesting detail. The OPEC+ can’t increase the daily output by a split decision. However, Saudi Arabia and Russia need this decision, that’s why one may assume that these countries will try to find the way to increase the daily output by sidestepping other members of the organization.

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From the technical point of view, Brent is trading downwards. In the H4 chart, one can see two descending channels: the major channel, which is quite wide, and the internal one, which is narrower. Speaking of the first channel, one can see that the price was reaching new lows step by step, without touching the support line, which shows the downtrend weakness. The internal channel is looking more stable and if the price rebounds from its support line, the instrument may resume growing towards the resistance level at 76.00. However, if the price breaks the support line at 72.00, Brent may fall to reach the psychologically-crucial support level at 70.00.

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 3 rated postsHaving majored in both Social Psychology and Economics, Dmitry went on to continue his education in post graduate. He then worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped him to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. Dmitry is a pro in the financial field who authors articles for various international media. He also holds the position of Chief Analyst at RoboForex.




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Altcoins

Crypto Critics: Fractured Facts

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I have another confession.  As a long time investor, I believed in the theory of efficient markets. This basically means that every participant in the market has immediate and complete access to all information facts like price, earnings and other data.  

I made the mistake in applying this theory to cryptocurrencies. Lately, this has been a mistake.  Yes it is true that anyone with the time and interest can go about gathering all the facts. But are all facts telling the truth or are they really fractured facts?  Either way they are dictating investor thinking and that is a key to this market.

According to reports on MarketWatch, crypto prices slumped on the release of a 24 page report from the Bank of International Settlements. BIS stated that cryptocurrencies suffered from “a range of shortcomings that would prevent cryptocurrencies from ever fulfilling the lofty expectations that prompted an explosion of interest — and investment — in the would-be asset class”.

The BIS is no small town organization. They serve as a central bank for other banks and they have been doing this since 1930.  When the BIS talks, people take things they say very seriously.

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The doomsday article released Sunday paints an accurate picture of the state of cryptocurrencies today. But what about tomorrow?  Most everyone is familiar with the issues of speed, security and energy consumption, not to mention regulation. But for the BIS to conclude that none of this problems will ever be solved is down right nieve.  It is the equivalent of declaring in 2001 that the Internet was doomed because 90% of users were connect on dial up modems.

Rotten Research

The BIS report is not the first fracturing of facts presented by well regarded organizations that is scaring investors. Remember back in May? We were treated to the research headline: Bitcoin Futures Caused The Crypto Market Crash according to Federal Papers.

Both the Federal Reserve Bank of San Francisco and a Stanford University professor released a report concluding the launch of bitcoin futures last December contributed to the ensuing price collapse. Pretty far fetched stuff, and here is why.

Bitcoin futures trading began on December 10. BarChart.com shows the CME traded a measly 932 contracts while the CBOE handled 3,887.  Of that total some 2,828 contracts were still “Open Contracts” on December 29th leaving just 1991 coins to do all the harm. During that final week of December over 1.4 million coins were traded. The findings were simply flawed.

Much like the BIS, when the Federal Reserve speaks, people believe they have done their homework carefully.  Throw in Stanford and that adds further weight to this conclusion.

And Then There Are Those Other Facts

And then there was the revelation last week that, much of bitcoin’s 2017 boom was market manipulation, research says.  In a huge 66 page report it was claimed that at least half of the 2017 rise in bitcoin prices was due to coordinated price manipulation using tether.

The author, University of Texas at Austin finance professor John Griffin, argues that Tether was used to buy bitcoin at key moments when it was declining, which helped “stabilize and manipulate” the cryptocurrency price. BTW: this is the job of the specialist on the floor of the New York Stock Exchange.

Professor Griffin appears to have done an excellent job correlating events without much consideration for the economics involved.  According to Bloomberg’s Aaron Brown, for Professor Griffin to be correct in his assertion that tether pushed up bitcoin prices four basis points per 100 bitcoin, Bitfinex would have needed to spend a boatload to inflate the cryptocurrency.  With Bitcoin at $10,000, for example, that means Bitfinex spends $1 million to push the price up to $10,004.

When you look at things from this perspective, Griffin’s findings look pretty absurd.

Look Closely At The Facts

These days with crypto psychology the worst since Mt. Gox in 2014, it seems like a good time for investors to capitalize on the fractured facts.  Technical analysis shows that cryptocurrencies bitcoin, Ethereum, Ripple and others are hovering around key support levels. It would not be shocking at anytime to find some academic study linking crypto to the common cold.  By the way, it is a fact that last years dramatic crypto price spike came right at the start of the flu season.

A far more relevant fact was last week’s announcement by the Securities and Exchange Commission that neither bitcoin or Ethereum were securities. Perhaps equally important is the conclusion that when ICO do not convey an equity ownership position, they too are considered in the same non-security category as bitcoin and Etherrun.  This is a fact.

What we do know is that crypto prices are as low as they have been since well before the spike last December.  Just as the markets recovered from Mt. Gox, the mindset of investors will recover and that is the key.

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 81 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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