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Analysis

Fed Explains The Bitcoin Crash: What Were They Thinking?

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I heard a really dumb idea the other day.  In fact, it was so ridiculous that I wanted to just laugh it off and forget about it.  But because it involved something that cost real money and that money was paid by taxpayers like you and me, I had to share it.  OK, so here we go.

On Monday, 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.  

With all respect due the brilliant minds that are nestled into Stanford or the San Francisco Fed, this is more than just far fetched stuff. Quite frankly, it is junk.  The advent of futures trading in bitcoin had as much to do will falling bitcoin prices as the swallows returning to Capistrano: totally ridiculous.

A Few Facts

After reading through the report, I realized that much of their conclusion was based on a favorite tool of statistical research: correlation.  Bitcoin futures trading began on December 10, about the time that the price peaked on December 18th at just over $19,000. Drawing from the Fed’s data bank showed how other asset prices corrected when future contract trading was started.  For them, that was enough to prove their case.

Birds flying north correlate almost 100% to the arrival of  spring. But they don’t cause it. Here are just a few facts to illustrate the lack of cause and effect.  In the first month of bitcoin futures trading, reports were coming from all over of the sheer lack of volume in bitcoin futures.  In fact 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.

Open interest measures how many contracts had been bought but not sold during the period. In other words, not only was there almost no interest in bitcoin futures but more than half remained open at the end of the month.

To be clear, unlike other futures contracts, a bitcoin future is equal to one single bitcoin not thousands of barrels of oil, for example.  So let’s put this total of less than 5,000 futures into context. During the month of December and for the months that followed up to April 1,  itcoin traded an average about 1.4 million digital coins per week.

Fed Bias Or Just Bitcoin Bias

To many readers the San Francisco/Stanford report may be just another headline to be filed away on your hard drive.  So you may ask, what is the point of all the fuss? 

The first reason has to with SFO Fed Chair and soon to be President of the New York Fed, John Williams.  This guy is no friend of crypto. He holds an outspoken opinion that cryptocurrencies don’t represent a storehouse of value. Clearly crypto investors won’t have a friend when Williams takes over the largest position in the Fed system next to the Chair.

Extraordinary Popular Delusions And The Madness of Crowds

In explaining the movement of asset prices there is one correlation that is almost never mentioned.  It is the correlation between asset prices and the public assessment of those prices. The correlation is proven everyday in the changes of prices for bitcoin, Ethereum, Ripple and the bazillion of altcoins out there.

Way back in 1841, Charles Mackay published a three part volume titled Extraordinary Popular Delusions And The Madness of Crowds.  For the record, he broke down into Natural Delusions, Peculiar Follies and Philosophical Delusions.

Mackay’s work may be older than your great grandmother but it is suggested reading for crypto investors in general and specifically for anyone trying to make sense of the crypto crash.  It explains in clear terms how, when certain events take place, mankind desperately searches for reasons to explain the happening.

Just for the record, the official celebration for the return of the swallows to Capistrano was March 19, which correlates with the beginning of the most recent crypto rally.  Well, finally we now have irrefutable evidence of why things have been going so well lately.  

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 96 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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3 Comments

3 Comments

  1. mvppvm_07

    May 11, 2018 at 3:33 am

    Shall we just name future Fed assessments of correlation the Capistrano effect? After all, they’re just wingin it.

  2. Dr_shibeh

    May 11, 2018 at 3:44 am

    You’re right. He is not the friend of BTC but do u think really the people who buy FUD instead of BTC ( specially the bankers and stockers like Goldmansachs that involved once again before the crash)are friend of BTC?

  3. Dr_shibeh

    May 11, 2018 at 3:49 am

    And the readers of the San Francisco/Stanford report had more Volume and effect as FUD and all other investors in the World?

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Analysis

Ethereum Takes Baby Steps to Recovery as Global Markets Surge 10%

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Following the first serious rebound from the last week’s carnage the global market gained 10% overnight, pushing back through the $200 billion barrier after a brief dip to $190 billion yesterday.

Ethereum Price Recovery

The rebound was not distributed equally, with many of the altcoins which had previously lost the most now benefiting in turn. Ethereum made a strong push in the last twenty-fours as it climbed from a near year-long low of $254.56 up to the current range in the $280’s, where it sits at the time of writing.

The 11% gains for the day sound good, but amount to relatively little in dollar value considering how much the coin lost in recent weeks. At one point during the night ETH climbed to a unit price of $290 – but that’s as far as it could go during this particular twenty-four stretch.

The sudden surge over the last twenty-four hours wasn’t enough to take Ethereum to the £300 mark, although that could be achieved following another 5% growth. The current $284 price per ETH is still one of the lowest witnessed in the last 11 months, so there’s still plenty of scope for investors to jump on board.

Predictably, USDT trades are the most popular today, making up close to 20% of the daily total as a significant portion of ETH becomes un-tethered. Wash-trades, or transaction mining on multiple exchanges once again comes close to equalling the actual recorded daily volume of $1.8 billion.

Global Surge Re-Rearranges Altcoins

While nothing could be termed normal in the crypto world, several coins have returned to their former market cap positions from before the dip. EOS is back in 5th place after temporarily being ousted by Stellar, and Cardano has returned to 8th spot after briefly giving up its place to Tether.

TRON and IOTA are still lingering outside the top ten, with Monero holding strong in the 10th spot previously occupied by TRON, and then IOTA in recent times.

Correlation and Causation

You’ve probably seen the Google Trend charts which show an alignment between ‘cryptocurrency’ Google searches, and the total cryptocurrency market cap. Right now the search volume is as low as it has been since before the surge of 2017 – but that isn’t necessarily an indicator of a lack of interest. It just means that people aren’t typing the word ‘cryptocurrency’ (or Bitcoin, which has an immensely larger search volume) into Google any more.

It says nothing about the number of people checking CoinMarketCap every day, and it doesn’t let you know how many people have suddenly become interested again after seeing prices drop to such long-time lows.

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 38 rated postsGreg Thomson is a full-time crypto writer and digital nomad. He eats ICOs for breakfast and bleeds altcoins. Wherever he lays his public key is his home.




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Analysis

Pre-Market: Selling Resumes as Dollar Extends Rally

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Global stocks are sharply lower today after the US open, as a bearish Asian session was followed by a lackluster European showing, and the major US indices also opened lower, erasing yesterday’s gains. Emerging markets are still to be blamed for the current selloff, even as the underlying cause is still the global tightening cycle and the Dollar’s rally.

S&P 500, 4-Hour Chart Analysis

The Chinese stock market and the Yuan led the way lower today, with the Shanghai Composite getting close to hitting new bear market lows, and with the currency hitting fresh 13-month lows. European stocks also continued their relatively weak streak, with the DAX trading at the lowest level since the end of June. The undoubtedly leading US benchmarks are all down by more than 1% today, but they are still close to their all-time highs, even as the divergences are just getting deeper and deeper.

Shanghai Composite, 4-Hour Chart Analysis

The Turkish Lira is still in the center of attention, as the battered currency added to yesterday’s gains after the Turkish central bank intervened in the interbank markets. The bank made it harder to short the Lira, which in effect also make it harder to hedge against the decline of the currency, so basically the country started on the road of capital controls.

USD/TRY, Daily Chart Analysis

While preventing a run on the currency is a legitimate goal, by not changing its confrontative stance and not taking steps to clam the market, the risk of a massive capital flight is still very high. The broad rally in the Dollar is just making matters worse for the country, and contagion is far from being dodged by global markets at this point.

With several European markets being closed the large pre-market moves are not a surprise, even as the key economic indicators leaned bullish before the bell. The most awaited US retail sales report was a sizeable beat in both the headline, and the more reliable core figure, although the previous numbers were revised lower. The Empire State Index was also well above the consensus estimate, but US industrial Production missed, similarly to yesterday’s Chinese and European indicators in the segment.

Dollar Break-Out Continues

EUR/USD, 4-Hour Chart Analysis

The US Dollar’s surge is arguably the most important trend globally, and the reserve currency confirmed its break-out to new 13-month highs today, as the EUR/USD pair hit 1.13, the GBP/USD pair trading with a 1.26 handle for the first time in a year, and with commodities suffering heavy losses again.

Copper Futures, 4-Hour Chart Analysis

We have been following copper’s struggle to stay above the key support zone near $2.7, and today’s Asian weakness sealed the faith of the commodity for a while as Dr. Copper hit a new 14-month low itself, signaling that more trouble is ahead for China and the commodity-complex.

Gold is also at levels not seen since early 2017, and crude oil gave up its recent bounce falling to an 8-week low, getting close to $65 per barrel with regards to the WTI contract.

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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4.6 stars on average, based on 318 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: Lisk’s Bearishness Hides True Trend

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Many avid cryptocurrency traders have taken Lisk off of their watchlist (LSK/BTC) and for good reason. The pair has plummeted like a shooting star crashing down the surface of the planet. From the high of 0.003398 on February 10, 2018, LSK/BTC is down below 0.00043 today. The pair’s fall wiped out almost 90% of its value.

Nevertheless, long-term investors shouldn’t be worried. As bearish as Lisk looks, we are convinced that it is not yet ready to go the way of the dinosaurs. On the contrary, LSK/BTC is flashing signals that it is about to come back to life soon. If it does, it will confirm our assumption that Lisk is currently range trading.

Lisk is Locked in a Wide Trading Range   

If you’re an experienced technical analyst, then one of the things that you probably do is map out key areas of support and resistance. This helps you determine the overall trend of the market. It is then easy to come up with a strategy once you establish the trend.

We performed these steps in our analysis of Lisk and the charts showed us that the pair is range trading when looking at it from a long-term perspective.

Weekly chart of LSK/BTC

LSK/BTC is locked in a wide trading range. The bottom of the range is support of 0.0004, the middle is 0.0016, and the top end is 0.0032. The market has been trading within this range since May 2017.

The “smart money” investors buy the bottom of the range. You can see this as volume spikes whenever the pair drops to this level. This tells us that they accumulated enough positions to influence market movement. As soon as they are ready, they spark a rally and constrict supply to inflate market price. Then, they wait for the top to start distributing positions.  

Volume differences in the daily chart of LSK/BTC

The “smart money” investors are very likely to repeat the process once LSK/BTC hits the bottom end of the range. We see that process developing right now.

Breakout from a Falling Wedge

Lisk is fond of falling wedges. Between June and December 2017, the pair broke out from three falling wedges as it range traded between 0.0004 and 0.0016. This appears to be the pattern used by “smart money” investors to distribute positions and keep prices from climbing further.

Fast-forward to today and we see that LSK/BTC has created another falling wedge on the daily chart.   

Daily chart of LSK/BTC

What’s interesting is that the apex of the falling wedges always formed around the bottom end of the range at 0.0004. This usually sets up the market for a bounce and a breakout that sends the pair to the midpoint of the range.

We believe that the market is repeating the same process today. LSK/BTC is in extreme oversold territory on the daily RSI. On top of that, the stochastics are respecting support of 3.08. This support has never been breached. The market may linger on this level but it always bounces. This tells us LSK/BTC can only get stronger from this point.

Bottom Line

LSK/BTC may have lost over 90% of its value from the high of 0.003398, making the market look ultra bearish to many investors. However, technical analysis from a long-term perspective show that the pair is currently range trading. Breakout from the current falling wedge should confirm this assumption.

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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3.6 stars on average, based on 223 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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