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Why Ether Is Worth More Than Facebook

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As the dizzying pace of stock market volatility continues shock turns to the question, what is the right course of action.  To make successful decisions starts with the answer to a bigger question.  What is causing the upheaval?

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Recently we put electronic ink to virtual paper in an article making the case for a strong dollar.  Our rational was based on the new Federal Reserve leadership raising interest rates in multiple increments this year.  The reason for this prediction is that the long term trend of disinflation is over and the Fed’s target of a 2% inflation rate is being exceeded.  That calls for an end to ultra low cost money.

The Tale Of The 10-Year Note

Investor anticipation of multiple rate hikes started showing last September when the 10-Year Treasury Note was selling for at a record low yield of 2.06% before raising to 2.85% early this month.  That is one of the highest yields in a decade.  The 10-Year Note is a good benchmark of where investors anticipate future inflation.

A Vulnerable Stock Market

While this is going on, the stock market is sitting near record high valuations.  According to the Wall Street Journal,  the Dow Industrials stood at 26 times trailing earnings up from year earlier levels of 20.  

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These numbers are not hidden in some secret data bank.  They are easily available even forming the basis of several cautionary warnings from Wall Street sources.  The key to market volatility is the uncertainty over the future rate of inflation.  This forms the backbone of our vision for Ethereum and its cryptocurrency Ether.

Inflation Is Ethereum Best Friend

There is good reason for the Fed to change its policy from Quantitative Easing following the 2008 financial crisis to inflation control.  Even though the price index is still in the acceptable range of 2%+, pressures are mounting.  Unemployment is ultra low, labor markets tight, oil prices have risen almost 50% since last summer, healthcare costs remain out of control while housing is in short supply with prices raising over 5% annually.

These are not good signs in spite of a US economy chugging along in the longest economic expansion in modern history.  There is more uncertainty today given the elevated stock market values and that is why investor fears drove the VIX fear index from 12 to over 50 in two short trading days this week.

Technology The Savor

Students of the economy are quick to give full credit to the benefits of technology in bringing down inflation from the lofty levels of the 1980’s to where we are today.  They are absolutely correct.  The benefits of today’s emerging technology is what will play a key role in the period ahead.  Investors will be drawn to technology that solve problems of tight labor, energy costs, healthcare and housing.  Such companies will be valued ever more highly.

Blockchain Technology Serves A Broad Audience

If bitcoin is a transactional currency, Ethereum is a practical software platform with a vast range of applications.  One of the big criticisms of Ethereum is not that its open sourced blockchain platform is special, but that too many people want a piece of the action.

In 2017, the world exploded with over $3.9 billion in Initial Coin Offerings. Almost 80% used the Ethereum platform.  True, some offerings came from bad actors casting aspersions on the the process of capital raising.  One the other hand the surge of applications provided all the necessary proof that Ethereum and its Smart Contracts were here to stay.

The Ethereum Moat

With enough skilled developers, anybody can build a blockchain, but can anybody replicate Ethereum?  The answer is, of course, yes….. but.  What is the probability?  There is a shortage of skilled developers that is one reason the lead to the formation of the Enterprise Ethereum Alliance in February 2017.  There are 300 members today with a few heavy weight corporations like Microsoft and JP Morgan Chase.

The Ethereum platform has been tested by a group of major Wall Street trading firms producing savings in the billions.  That is a pretty awesome endorsement for the technology.

When a list of today’s emerging technology like Artificial Intelligence, Self Driving vehicles, or the Internet of Things, each could individually act to buffer future inflation.  However, blockchain technology has a role in all of these and right now Ethereum is in a pretty good spot.    

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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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4.3 stars on average, based on 24 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. KD

    February 8, 2018 at 2:32 am

    1) No mention is made of Facebook in this article, nor any indication of why Ethereum is more valuable than Facebook, specifically. Hence, the title is simply clickbait.
    2) Re: Facebook again, I was at least expecting some commentary on some blockchain-based social networks that might potentially dislodge FB (e.g. Sapien, or something along those lines).
    3) The author claims that, “Students of the economy are quick to give full credit to the benefits of technology in bringing down inflation from the lofty levels of the 1980’s to where we are today. They are absolutely correct.” I am no student of the economy. But weren’t the record high Fed interest rates from 1978 on, responsible for bringing down inflation? “Full credit” to technology?
    4) How exactly are driverless cars and AI going to solve problems like housing and healthcare? This baffles me.
    5) This article is riddled with spelling and grammatical errors.

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Analysis

Daily Analysis: Oil Extends Rally as Nasdaq Leads Stocks Higher

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Friday Market Recap

Asset Current Value Daily Change
S&P 500 2749 1.38%
DAX 12,483 0.18%
WTI Crude Oil 63.58 1.29%
GOLD 1330.00 -0.16%
Bitcoin 10,14 -0.09%
EUR/USD 1.2295 -0.28%

US equities built up some bullish momentum towards the end of the week, ignoring the technical damage that the volatility-crash caused, and the major US indices rallied into the close today, squeezing the shorts. The Nasdaq, which led the rally as we expected, took out the key 6850 level in late trading and added another percent to, incredibly enough, finish only a hundred point of the all-time high.

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NASDAQ 100 Futures, 4-Hour Chart Analysis

Should the tech benchmark retest the high next week, it will be amid very strong negative divergences, but hey, those divergences have been building for months now. The rally in equities was boosted by the dip in Treasury yields, especially at the long end of the curve, while Amazon continued ot lead the charge, closing right at the historic $1500 per share level.

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Russell 2000 (Small Cap) Index, 4-Hour Chart Analysis

The advance in the Dow and the S&P 500 is much less convincing and with small caps also lagging the tech-behemoth juggernaut, we remain skeptical regarding the sustainability of the move. That said, if the broader indices stay above the key levels, we will be trading the long side in equities, even as from an investment standpoint, valuations are still way above acceptable.

Forex Markets and Commodities

The lackluster performance of European and Asian stocks adds to the negative divergences, especially as the Euro stopped appreciating against the Greenback, and that should be helping stocks of the old continent. Of course, the DAX and the EuroStoxx 50 could play catch-up next week, barring another surge in the common currency.

EUR/USD, 4-Hour Chart Analysis

The most-traded forex pair remains in a short-term downtrend, as it failed to recapture the previously broken rising trendline, and the commodity related risk-on currencies also remained under pressure. The Canadian Dollar did bounce back off yesterday’s 8-week lows, boosted by the much hihger than expected inflation release and the jump in the price of crude oil.

USD/CAD, 4-Hour Chart Analysis

Oil benefited from the positive shift in sentiment, while the Syrian situation, which took a backseat in the headlines, still supports the rally. The Japanese Yen and gold were stable amid the risk-rally and that adds to our suspicions regarding the upside potential form these levels.

Cryptocurrencies

The segment started out the day with a strong bounce that carried the major coins higher by around 10%, but given the recent steep short-term pullback, even that wasn’t enough to turn the tide, and the day ended with an (almost usual) sell-off after the US close. Despite the recent volatility, the overall picture is still encouraging, with most of the majors being safely above the crash lows, likely in a new bullish cycle that has the potential to last for several more weeks or even months.

While new all-time highs are it guaranteed following the 60-70% declines among the largest coins, but even without those, plenty of upside potential is left for investors. With that in mind, investors should hold on to their coins and even add to their holdings on the short-term dips like the current one.

ETH/USD, 4-Hour Chart Analysis

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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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Analysis

Technical Analysis: Majors Stage Rally but Strong Levels Still Ahead

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The cryptocurrency segment has recovered from a broad correction today in early trading, with the most valuable coins all turning into green during the session, despite the bearish start to the overnight session. With bottom-to-top gains of up to 15%, the rally helped in easing the worries of bulls, especially in the case of the relatively weaker coins.

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Bitcoin and most of the largest altcoins remained stable during the selloff, and BTC recaptured the $10,000 level quickly after trading as low as $9600 overnight. The initial rally topped out near $10,400, and the coin is trading back near the $10,000 level, as the bullish momentum faded away somewhat.

BTC/USD, 4-Hour Chart Analysis

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That said, we expect the uptrend to continue even if the correction could still carry Bitcoin lower. Further strong support is found between $9000 and $9200, while targets are ahead at $11,300, $13,000, and $14,250.

ETH/USD, 4-Hour Chart Analysis

Ethereum showed strength during the bounce again after yesterday, together with the early leaders of the rally, and although the coin dipped below the $845 level in the second half of the session, the signs remain positive for bulls. Support levels are now found at $780, $740, $625 and $575, while resistance is ahead near $910 and $1000.

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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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Analysis

Pre-Market: Stocks Refuse to Fall Even as China Takes Over Key Insurer

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Although it should have been a very quiet week in China, thanks to the New Year celebrations, the recent surge in volatility and the plunge in equities didn’t pass without consequences in the key market. Just shortly after effectively shutting down the Chinese version of the Volatility Index (VIX) (presumably to calm the markets…), one of the main actors of the monstrous financial web, Anbang, of the country had to be taken over to avoid a systemic event and stop the “creative” financial engineering that involved criminal activity (the shadow of 2008).

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China will likely need many more duck-tapes like this one if it wants to stop the largest credit bubble in human history to collapse, but for now, the solution could work. Equity futures edged higher since yesterday’s volatile close, and as the major US indices are holding up well, not far off last Friday’s highs, our bearish short-term view might have to be revised.

Nasdaq 100 Futures, 4-Hour Chart Analysis

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As we discussed before, the long-term uptrend is intact, and we expect at least a re-test of the highs even if we are in a large-scale top formation, but we thought that the technical damage caused by the crash three weeks ago would require more healing.

We are not turning bullish just yet, but today’s session could finally decide if we the BTFD-crowd is strong enough to turn the tide after the choppy drift lower this week. We are still focusing on the Nasdaq, as the broader market seems to be following the lead of the tech benchmark, and a move 6850 (in the Nasdaq 100 futures, and still the 2735 level in the S&P) would be a very positive sign for bulls.

DAX Index, 4-Hour Chart Analysis

The German DAX index is also showing some tentative short-term relative strength although it remains almost 10% below its all-time high, and it remains a strong negative divergence to be monitored.

Forex Markets Quiet

EUR/USD, 4-Hour Chart Analysis

The main pairs are trading in a choppy narrow range today after the strong move in the Yen and the drop in the USD yesterday. US Treasury Yields are edging lower today, helping the calm in equities and currencies, but on a bearish note, commodity currencies failed to rebound so far, and they were providing good signals since the crash. Day-traders should note that the Canadian Dollar will likely be very active again, with the Canadian CPI report coming out pre-market.

To sum the outlook up, we are still leaning on the risk-off side here regarding the short-term outlook, but we wouldn’t bet the farm on that, as there are mixed signals before the weekend.

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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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