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Regulators Allow Option Trading On Bitcoin: The First Step Towards Smoothing Volatility

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The U.S. Commodity Futures Trading Commission (CFTC) announced over the weekend that it has issued a registration order to LedgerX LLC (LedgerX), granting it status with the CFTC as a Swap Execution Facility (SEF). These terms are opaque to most, but they are very important if you trade digital currency. It is important because many US based Funds currently are not able to commit capital without a mountain of paperwork and side pocket deals within the funds.  This passage makes it clean, and I fully expect volatility to start to tighten day one when active trading begins.

The Details

The trading will happen on a non-traditional exchange (not the CBOE) via LedgerX which is an institutional trading platform who have been patiently waiting for full regulatory approval from the CFTC to trade and clear options on Bitcoin. Many portfolio managers have wanted other vehicles that fit into their offering documents so they can commit capital, and the fact that the larger exchanges were outmaneuvered by and upstart is also a surprise.  I think in general the speed with which digital currency is coming into play reflects a softer regulatory environment across all markets.  I still do not understand why the SEC declined the Winklevoss ETF.  It makes no sense – but the SEC is historically a huge fade – ask Bernie Madoff’s clients.

LedgerX is now the first federally regulated bitcoin options exchange and clearing house which will list and clear fully-collateralized, physically-settled bitcoin options for the institutional market.

LedgerX

Back in May, Ledger Holdings, the parent company of LedgerX, closed $ 11.4 Million in Series B financing. Led by Miami International Holdings Inc. and Huiyin Blockchain Venture Investments, this funding will go to support LedgerX’s plan to develop its regulated exchange and clearing house for bitcoin and other digital currencies.

Just some history, you need to know that on December 16, 2016, Ledger Holdings and Miami International Holdings, Inc. (MIH), announced that MIH had completed an investment in Ledger Holdings. Early investors in Ledger Holdings include Google Ventures and Lightspeed Venture Partners, so these are not neophytes, but historically these have gone to the CME, CBOT or CBOE where they have a pool of liquidity.

It was a bit of luck that the arcane laws related to SEF’s (which are platforms that operate under the CFTC’s regulatory oversight for the trading of swaps), that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized the creation of SEF’s years back. I view this as well thought out on behalf of LedgerX, but I am still flummoxed that the Chicago Mercantile (NYSE:CME) was asleep at the wheel.

What Options Mean for the Market

The conclusion is evident in today’s sell off across the board, and this is a good thing if you want mass adoption of digital currencies.  No one needs 150% implied volatility every day, it will keep a huge part of the market away.  The introduction of options trading for Bitcoin is the first step in smoothing volatility for all digital currencies. Portfolio managers worldwide applaud the ability to participate in a fun exciting asset class, and they get to do this without asking investors to sign additional paperwork – most of the standard agreements for hedge funds refer to approved CFTC or SEC products which opens the floodgates.  Hail Bitcoin Options !! Today is a good day for cryptocurrencies – making positive steps for global adoption.

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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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Steve began his career at the Chicago Mercantile Exchange in 1980 and ran Morgan Stanley Derivative Prop Trading for the firm. He continued his career as a Trader/Portfolio Manager for multiple Hedge Funds during the Internet Boom of the 90's. Steve is known as an expert in trading stocks and digital currency and has published thousands of articles and archived video with important market participants related to US Equities, private shares, and crypto currency. He offers a humorous, unique insight related to volatile stocks and the related back stories and drivers. He is a featured speaker on the conference circuit specializing in market volatility, liquidity and emerging market assets.




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2 Comments

2 Comments

  1. embersburnbrightly

    July 11, 2017 at 12:32 am

    Very exciting! Welcome aboard, Steve. 🙂

  2. bitsurfer

    July 11, 2017 at 12:35 am

    Wow, great news! Thanks Steve.

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Analysis

Crypto Update: Coins Hold Their Ground as Bulls Take a Breather

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The major cryptocurrencies settled down following yesterday’s Litecoin-led pullback, and as the coins respected the key trendlines and support levels, odds favor the continuation of the short-term uptrend. The leaders of the rally remained strong amid the shallow correction, and although the long-term setup remains clearly bearish, the traders could enter smaller speculative positions, still using strict risk management rules.

While the top coins haven confirmed the short-term swing lows yet, the coming days could see new highs, with all eyes on the $4000-$4050 zone in Bitcoin and the $160 price level in Ethereum. The majors still have to form a pattern of higher highs and higher lows on the long-term charts to change the long-term outlook, so our trend model remains on sell signals on that time-frame. That said, the overbought short-term momentum readings are quickly being cleared, so the short-term outlook remains positive.

BTC/USD, 4-Hour Chart Analysis

Bitcoin has formed a bullish consolidation pattern in the past day, and the $3850 level has been clearly supporting the coin, leaving the relatively weak short-term uptrend firmly intact. The MACD indicator is still pointing to an ongoing correction, but our trend model remained on a buy signal on the short-term time frame, and the uptrend could soon resume.

Despite the positive immediate outlook, the $4000-$4050 resistance zone is still very strong, and further consolidation is also possible before a successful break-out. A move above that zone could open up the way towards the $4450 level, but even that wouldn’t change the bearish long-term setup in the most valuable coin’s market.

XRP/USDT, 4-Hour Chart Analysis

Ripple has been trading near the $0.32 support level in the past 24 hours, still being relatively weak compared to its major peers.  The coin remains stuck below the dominant declining short-term trendline that it tested during the recent upswing, and our trend model continues to be on a short-term sell signal.

Below the primary support zone, further levels are found near $0.30, $0.28, and $0.26, while short-term targets for a possible break-out are still ahead near $0.3550, and $0.3750, but traders should still stay away from XRP

Litecoin, Ethereum, and EOS Look Ready to Lead Again

LTC/USD, 4-Hour Chart Analysis

While Litecoin entered a correction after touching the $51 resistance level yesterday, the pullback has been contained so far and even the steep short-term uptrend line remained intact. Given the extent of the recent move higher, even a test of the $44 level would leave the break-out intact.

A move above the primary resistance zone could lead to a rally towards the $56 level, and as Litecoin has been leading the market during the current counter-trend advance, its performance should be monitored closely. Below $44 further strong support is found near $38, and $34.50, and our trend model is back on a short-term buy signal while being bearish from a long-term standpoint.

ETH/USD, 4-Hour Chart Analysis

Ethereum is still trading in a bullish short-term correction pattern near $145, working its way through the overbought short-term momentum readings. The short-term uptrend is clearly intact, and although a deeper pullback is still possible traders could already enter new positions here.

With the long-term downtrend in mind, strict risk management rules are still essential here, even as Ethereum is one of the strongest majors from a short-term technical point of view. Support levels below $145 are still found near $130 and $112, while above $160, the next major resistance zone is ahead near $180.

EOS/USD, 4-Hour Chart Analysis

EOS is still the strongest major from a short-term technical standpoint, and although it continues to be overbought according to the key momentum indicators, aggressive traders could enter positions here. Buying pressure is apparent in the coin, but a deeper pullback towards the $3.50 level is still in the cards. Support is also found near $3.80 and $3, while resistance is ahead near $4 and $4.50.

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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4.7 stars on average, based on 470 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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Bitcoin Rebounds from Midweek Lull as Bulls Eye a Return to December Highs

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Bitcoin’s price rebounded Friday, as the bulls continued to target a return to December highs – a move that would put the digital currency on track for a bigger short-term rally.

BTC/USD Update

Bitcoin was last seen trading hands at $4,065.10 on Bitfinex, having gained 1.4%. On Thursday, the digital currency peaked at $4,175 before correcting lower almost immediately. At current values, bitcoin has a total market capitalization of $70.3 billion, according to CoinMarketCap.

The next major area of resistance is seen tracking just north of $4,200, which is the high from December. Bitcoin staged a large relief rally in the back half of December, gaining more than 35% over a nine-day stretch. That’s a peak-to-trough swing of $3,100-$4,200.

A return above $4,200 would put bitcoin on track to continue climbing, as the next major area of resistance is located at $5,000. This psychological inflection point doesn’t have much technical significance. Long-term, the bulls must eye a return above $5,500 and eventually $6,000 in order to reverse the downtrend.

Trading volumes are certainly indicative of a fast move higher. Volumes peaked at ten-month highs earlier in the week and remain well above the bear-market average. Over the last 24 hours, BTC trades on virtual exchanges were worth $7.4 billion. BitMEX, the popular derivatives exchange, processed 10% of the total daily turnover.

Snapping a Brutal Cycle

With the latest rally, bitcoin is well positioned to snap a six-month losing streak. That brutal stretch saw bitcoin’s market cap plunge by roughly 60%. Earlier this month, the leading digital currency officially entered the longest bear market in its ten-year history.

Despite the prolonged bear trend, bitcoin has made more progress within institutional circles in the last six months than its entire history combined. Intercontinental Exchange and Fidelity have confirmed their intent to launch new markets for bitcoin, and Nasdaq is said to be doing the same. Pension funds have also committed some $40 million to a crypto venture-capital fund headed by Morgan Creek Digital. Grayscale, the cryptocurrency asset manager, recently announced that 66% of the capital invested in its products last year came from institutional investors.

It’s also apparent that retail traders and long-term bitcoin holders are getting back into the game. The amount of bitcoin in circulation has been rising steadily since last summer. The influx of coins intensified in the fourth quarter as long-dormant bitcoin addresses became active once again. More on this story: Bitcoin Likely Headed Lower as Whales Activate Long-Dormant Accounts.

At the time it looked like many of these traders would become net sellers. Now, it seems like the tide is turning the other way. A closer look at the bullish and bearish cases was presented just a few weeks ago.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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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4.7 stars on average, based on 773 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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Analysis

Crypto Update: Litecoin Leads Pullback in Majors

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The major cryptocurrencies are all lower today following the test of the recent swing highs. Yesterday, the early leader of the current short-term uptrend, Litecoin hit the key $51 resistance, and today the coin pulled back sharply, triggering a broad correction in the segment. The leaders of the rally are all notably lower, but they are still holding on to the bulk of their recent gains, and the rising short-term trendlines are all intact.

From a short-term technical perspective, the current pullback is orderly, and as the coins clear the overbought momentum readings, traders could re-enter smaller, speculative positions with strict risk management rules. The long-term technical picture continues to warrant caution, and bear market rules still apply despite the consolidation of the recent months.

LTC/USD, 4-Hour Chart Analysis

Litecoin’s performance continues to be an important tell for the whole segment, and after yesterday’s downgrade in our trend model, the coin’s pullback is weighing on the whole market today. That said, volume patterns and price action in general, are still in line with a short-term uptrend, and traders could be looking for re-entry points and the overbought momentum readings get cleared.

The key $51 resistance level, which halted yesterday’s move, could be in focus again in the coming days, while a deeper correction could see the test of the $44 level. For now, our trend model remains on a neutral short-term signal, while the long-term signal is still clearly negative, with further support levels found near $44 and $38, and with strong resistance also ahead near the $56 level.

BTC/USD, 4-Hour Chart Analysis

Bitcoin remained within its short-term consolidation pattern, as the $3850 level provided support, so far, during the broad pullback in the segment. The MACD indicator is now pointing to an ongoing short-term correction, but the relatively weak short-term uptrend is still clearly intact.

Traders could hold on to their positions here despite the pullback, as the momentum indicators haven’t reached extreme overbought levels, leaving our trend model on a short-term buy signal, but we would with entering new positions until the pullback runs its course. While the long-term technical outlook is clearly negative for BTC here, a move above the key $4000-$4050 zone could lead to a test of the next major zone near $4450, while support below $3850 is still found near $3600 and just above $3450.

Ethereum and EOS Remain Stable as Ripple Fails to Show Strength

ETH/USD, 4-Hour Chart Analysis

Ethereum continues to trade in a bullish short-term correction pattern near the $145 resistance level. The uptrend is clearly intact in the coin, and although the short-term momentum indicators continue to show overbought readings the rally could soon continue, with the $160 price level still being in sight. Support levels are still found near $130 and $112, while the next major resistance zone is found near $180, and the long-term downtrend is still in no danger here.

EOS/USD, 4-Hour Chart Analysis

EOS, which has also been among the leaders of the rally, continue to show stability amid today’s pullback, but as it got severely overbought during the recent upswing, our tend model is on a neutral signal. Traders should wait for the correction to run its course before re-entering their positions, since the long-term setup in EOS still warrants caution. Support is found near the current price level at $3.80, at $350 and near $3, while resistance is now ahead near $4 and $4.50.

XRP/USDT, 4-Hour Chart Analysis

Ripple remains the primary concern for bulls here, as the relatively weak coin failed to show signs of stability falling back to the vicinity of the $0.32 level. The coin got stuck below the dominant bearish short-term trendline, and our trend model is now on a short-term sell signal, despite the broad rally in the segment.

With the long-term technicals still being hostile even in the case of a new swing low in the coming week, traders should remain cautious with XRP and focus on the stronger currencies with regards to trading positions. Below $0.32, further support zones are found near $0.30, $0.28, and $0.26, while short-term targets are still ahead near $0.3550, and $$0.3750.

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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4.7 stars on average, based on 470 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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