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On Speculative Bubbles, Strategies, FOMO, and Early Exits

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In the 16 years that I have spent observing and trading the markets, there were several incredible events that changed how I look at investments. The bull market in stocks that is fuelled by free money, the Lehman-Crash, and the Dot-Com bubble were among them. To be clear, the current cycle in cryptocurrencies is not one of those, even as some of the coins routinely double daily.

Why is that? Because the dynamics behind the moves are familiar; precious metals in 2011, the Chinese stock market a couple of times in the past 10 years, oil in 2008, the Dot-Com bubble, and so on. All of these trends had an eerily similar dynamic, although the exact path of price movements and the volatility of the moves differed substantially.

“History doesn’t Repeat itself but often Rhymes”

Allegedly Mark Twain observed that, and I couldn’t agree more. As a certain topic goes through boom-bust cycles with spectacular gains and higher and higher bottoms, it naturally draws in new investors that are standing on the sidelines waiting for confirmation of some sorts.

After a while, as publicity rises, the success stories go mainstream, and the number of participating investors multiplies, the market reaches an inflection point where the influx of capital won’t be enough to hold the marginal selling by the already invested public. To be precise, this inflection “point” is sometimes a longer period of grinding gains, one blow-off advance, or another topping pattern such as a double top for instance.

Tha Nasdaq Bubble and the Aftermath

Here is the catch though; in advance, you never know when this point arrives, as the pool of potential investors, the willingness of the previously entered investors to hold, and several other factors are unknown. That said, as the market matures, it will be harder and harder to sustain the gains that drove the valuations far from reality already, and the market will be more and more similar to an old-fashioned pyramid scheme, where the last entrants lose almost everything.There were several potential tops along the way, just as it has been the case with BTC, and the majority of the most successful long-term investors sold very early, in line with their tested strategies.

The Crypto-Boom is Legit, But…

As I stated in one of my articles before, I don’t doubt the validity of the crypto-boom for a second, and I believe that blockchain applications are one of the next big things. Having said that, the validity of a story, at the end of the day, can’t justify the insane gains that we are experiencing currently, just as the validity of the dot-com story didn’t justify the lofty valuations of basically non-existent business during the late phase of the tech-bubble.

Are We There Yet?

Back in July, when already a lot of people were calling the top mind you, I wrote that:

“(…) the attention given by the investing public to coin offerings is nowhere near the levels of the .com bubble and the major players participating in the field are few and far between. That could mean that the top of the current bull market is far away, as there is a huge potential of additional buyers left that could fuel the rally.”

I also said that the conditions didn’t feel like the end of a speculative bubble, rather the end of a cycle within. Both were true, but the real question is not about the past, rather about the future… And now the situation is different, on Bloomberg, CNBC, and other major news outlets, Bitcoin has been the headliner for weeks, every second Google and is an ICO or a trade-signal provider, people are quitting their jobs to trade crypto, the market is at $500, oh wait $600… no $650 billion…

The Total Value of the Crypto-Segment Since June

So yes, now it feels like the end of a speculative episode that could end in a multi-month or even multi-year bear market. But where will be the exact top? Honestly, I don’t know, but by now, you should be sitting on healthy profits and waiting for the current cycle to end.

Why am I Out of this Market?

Those only reading my daily analysis, and following my advice, might see this as a mea culpa, as they are likely looking at the market without major positions—but it is not, I would trade and analyze such trends similarly all over again. I firmly believe that this is the time to fight the FOMO, even as we might see further stellar rallies, and keeping your “gunpowder“ dry – holding cash or fiat – will pay off greatly in the coming weeks and months.

Trading these markets (using our recommendations for example) is, of course, different, you can still jump in an out for quick gains, riding the volatile waves. But while doing that, remember the basic rules of trading (stop-losses, position sizing), and how it is fundamentally different from investing.

I admit that this cycle has been different from the others and we missed a whole lot of the profits in several coins. But again in July, we had a similar experience, and in hindsight, selling Ethereum at $330 or $400 is not that big of a deal, as the token fell all the way to $130 during the correction. I fully expect corrections in that dimension in the segment, so if you are not ready to endure such draw-downs, please keep your portfolio conservative.

To fight the Fear Of Missing Out remember Baron Rothschild’s answer to the question on how he became one of the richest investors ever:

“I always sold too early…”

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 351 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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13 Comments

13 Comments

  1. MinerMatt17

    December 19, 2017 at 4:39 pm

    What are your thoughts on the regular correction that bitcoin and other crypto have undergone regularly. Wouldn’t the market, being younger and faster growing just experience growth, correction, and consolidation on a much more compressed timeline. Also, we may be hearing about bitcoin and crypto all the time, but look at the number of people in the US, Europe, Asia, that have wallets or own bitcoin. It’s absurdly small compared to the number of people that are invested in stock markets around the globe.

    • Mate Cser

      December 19, 2017 at 5:45 pm

      Hi MinerMatt,

      thanks for the great comment, I agree that the market is getting more mature and corrections will be different over time, but for now the boom-bust cycle is still intact in my opinion, just look at the percentage gains recently. The futures contracts and the more diverse pool of investors will “smoothen” price action on the long-run – and for a lot of use cases that will be more than welcome – but I believe that this cycle will have a similarly spectacular ending than before. The exact timing and the trigger are not known yet. My guess is a regulatory “bomb”.

      The number of users will definitely grow over time, but I believe that the current valuations are way ahead of the underlying growth. Of course, I can be wrong, but at the least market cycles will continue to exist, even if they are hard to exactly “catch”.

      • MinerMatt17

        December 19, 2017 at 6:59 pm

        This assumes zero value given to bitcoin and other fixed supply cryptos as digital stores of wealth? Or am I missing something with you evaluation?

        Thanks!

        • Mate Cser

          December 20, 2017 at 12:55 am

          No, of course, there is (a not small) value of those functions, although I would say that at this point most of the new capital is in for the speculative gains. The store of wealth function will be more important once volatility will be lower. I believe that the current market dynamics are not driven by the real and undoubtedly great properties of the coins.

  2. Mister.Ticot

    December 19, 2017 at 5:36 pm

    Very interesting.
    Thank you!

  3. Montebrond

    December 19, 2017 at 6:09 pm

    Hi Mate,
    I’m new to hacked.com, but your analysis really resonate with me. Assuming you’re not recommending using tether as an efficient way of getting in/out of trades (?), what’s your view on the best way to be set up to do short-term trades and move profits from crypto into a more stable asset?
    – i’m Looking for whether there’s a better way than having to move profits to eth/btc, to then having to transfer it to a funding platform such as coinbase to convert to cash. This can be slow / costly / time-consuming.

    • Mate Cser

      December 20, 2017 at 12:39 am

      Hi Montebrond,
      Tether is a valid alternative, also shorting USD pairs on an exchange in the amount of your holdings. I will write an article about the topic, thanks for the question.

      • Montebrond

        December 20, 2017 at 11:50 am

        Thanks Mate, looking forward to it.
        Interested in more details on how you view tether – it’s obviously a very practical trading tool, while many view it as a Ponzi scheme potentially without the 1:1 backing of real fiat. Certainly cause for some concern how quickly the amount of tether in circulation has been increasing over the last couple of months.
        Another valid concern is for how long US regulators is going to allow a fiat crypto to be left untouched.

  4. vlm4life

    December 19, 2017 at 7:06 pm

    “the market reaches an inflection point where the influx of capital won’t be enough to hold the marginal selling by the already invested public.” What about the notion of literally Billions in NEW capital injection into the asset? In other words, Main Street were early adopters in the Crypto Boom #1, whereas Wall Street (and hundreds of Billions) are just getting started in this asset space in crypto Boom#2. There’s a “turning of the guard”, and new “whales” in this space. Can u opine on this? Thx!

    • Mate Cser

      December 20, 2017 at 1:07 am

      Sure, but the investment scope of the early adopters, who obviously understand the underlying tech better than the public and Wall Street, is likely much longer. I think that the influx of the speculative capital will quickly dwindle when the trend changes. The mathematic background of these events is pretty robust; now you have 6 times as big of a pool of potential sellers that has to be satisfied by buyers. FOMO turns into “get me out at any price” rather abruptly, especially in leveraged markets (forced liquidations).

      • johnnyquid

        December 20, 2017 at 3:30 pm

        Just chiming in. The futures are already set for more then $20,000. Bitcoin is already showing all the signs of regular crypto cycle downtrend. It just made a double bottom at 15,800 respectively and has failed to reach previous highs. Now I know “flash crash” but a lot of that is FOMO and I wanna get rich on the Bitcoin Cash pump. My point is this, what is wall street and big money going to think of this “new experiment” when the first futures contracts fail to hold? That the men responsible for selling those to their companies or investors have to engage in shorting to make back the amount? Or worse settle the contracts? I love crypto. This year has been stupid amazing, but way to good to be true. We all need to backup, count are assets and get ready for the Bears. Plus you can do really well in a bear market if your the one buying at the bottom boys. My two satoshis

  5. felix

    December 20, 2017 at 11:37 am

    Great article, thanks

  6. Tarik

    December 21, 2017 at 1:55 am

    Another of your great articles, Mate!

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Analysis

Crypto Update: Market Stabilizes as Ripple Craze Fades

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The major cryptocurrencies had crazy Friday, with the skyrocketing Ripple in the center of attention. XRP more than doubled in 24 hours, and the coin was up 3 times off its low from earlier this month before entering a correction in the second half of the day. Ripple briefly took over Ethereum as the second largest coin by market capitalization, even as ETH also hit an almost three-week high amid the broad rally in the segment.

XRP/USDT, 4-Hour Chart Analysis

XRP settled down above the $0.50 level near the market cap of ETH, but short-term the coin is severely overbought, and a pullback to the $0.42-$0.46 zone is still very likely even if the coin manages to hold on to its stellar gains and enter long-term rising trend. For now, a long-term trend change is not confirmed, despite the huge bullish move, with most of the segment still being in bearish long-term trends.

That said, the short-term buy signal is still intact in our trend model, and should the overbought readings get cleared, traders could enter new positions again. Support levels are found near $0.54, $0.51, while resistance is ahead near $0.57, $0.64, and $0.75.

BTC/USD, 4-Hour Chart Analysis

Bitcoin got up to $6750 yesterday, but so far, it failed to overcome the resistance zone near that price level, and the coin is now trading in a shallow short-term correction. BTC needs to stay above the $6500 support to maintain the break-out that followed Ripple’s surge and to remain on a buy signal in our trend model.

The fact that correlations are still declining between the coins is a positive sign, but the overall bearish picture in the segment and Bitcoin’s proximity to the key long-term zone still warrant caution here. Further resistance zones are now ahead near $7000 and between $7200 and $7300, while support below $6500 is still found at $6275, $6000, and near $5850.

Altcoins Pull Back with Ripple, Short-Term Setup Still Promising

ETH/USD, 4-Hour Chart Analysis

Ethereum finally broke above the key $235 support/resistance level thanks to yesterday’s broad rally, and the coin reached the next major resistance zone near $260 as expected after the bullish move. Now the dominant declining trendlines are not far away, so traders should reduce their positions, since the long-term trend is still clearly bearish.

A test of the lows is still in the cards in the coming weeks, and the coin remains on a long-term sell signal despite the short-term rally.  Support is found near $200, $180, at the low near$170, and at $160, while further resistance is ahead between $275 and $$280 and at $300.

Stellar/USDT, 4-Hour Chart Analysis

Stellar was among the strongest coins during yesterday’s rally, following Ripple higher, but now it is testing the key support/resistance zone between $0.2375 and $0.25 after entering a correction together with the broader market.

That said, the break-out is intact in Stellar, and traders could hold on to their positions here. Support levels are found near $0.21, $0.1930, and $0.1830, while further resistance is ahead near $0.2650 and $0.2850.

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 351 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

Forex Update: A Good Time to Accumulate Euros

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On our August 31 Forex Update, we revealed how the Euro is looking strong against major currencies such as the British Pound (EUR/GBP), Japanese Yen (EUR/JPY), and the Canadian Dollar (EUR/CAD). Widening our scope, we discovered that the Euro is also doing well against other major currencies. Other than its recent struggles against the US Dollar (EUR/USD), we can say, with conviction, that the Fiber is one of 2018’s top performers.

In this article, we review EUR’s performance against the Australian Dollar (EUR/AUD) and New Zealand Dollar (EUR/NZD) to show why it may be a good time to accumulate Euros.

Euro/Australian Dollar Analysis

The EUR/AUD pair dropped to as low as 1.16033 in August 2012. This concluded the long bear run that saw the 45.06% devaluation of the Euro against the Australian Dollar from the 2008 high of 2.11197. While the drop may look depressing to long-term investors, seasoned traders pray for plummets like this. They know that fortunes are made by investing when markets crash.

So far, EUR/AUD is rewarding those who bought the crash.

Monthly chart of EUR/AUD

Those who bought the bottom are now up by close to 30%. More importantly, it appears that their investments may be about to significantly grow. EUR/AUD has just broken out of a large ascending triangle pattern on the monthly chart.

In addition, the monthly RSI is threatening to break out from its own symmetrical triangle pattern. From the looks of it, the breakout can happen anytime.

With EUR/AUD reversing its trend, you have one very good reason to accumulate Euros.

Euro/New Zealand Dollar Analysis

The EUR/NZD pair suffered an even longer bear run than the EUR/AUD pair. After posting a high of 2.57906 in February 2009, EUR/NZD went into a long downtrend. The correction drove the pair to as low as 1.38792 in April 2015. In over six years, the Euro lost over 46% of its value against the New Zealand Dollar.

Then again, there are those who make a very good living by buying the bottom. This is risky business. However, a fundamentally strong currency like the Euro is likely to bounce back hard after losing almost half of its value.

Monthly chart of EUR/NZD

If you bought the bottom, you would be in the green by over 26%. If not, well, it’s not too late. As you can see, EUR/NZD has just broken out of an inverse head and shoulders pattern on the monthly chart. This structure is one of the best if not the best reversal pattern in technical analysis.

On top of that, you can see that the monthly RSI is already in an uptrend. It’s been generating a series of higher highs and higher lows for some time now. This is a great signal telling us that bulls have taken control of the market.

With this breakout, EUR/NZD has just launched a new uptrend. This is another very good reason to accumulate Euros.

Bottom Line

Other than its struggles against the mighty greenback, it appears that the Euro is performing brilliantly against other major currencies. Recently, it managed to reverse its trend against the Australian Dollar and the New Zealand Dollar. In addition to its rosy outlook against the British Pound, Japanese Yen, and Canadian Dollar, we believe that now is a good time to accumulate Euros.

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 237 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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Analysis

ETFs: What Is The SEC  Really Thinking?

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As a veteran Wall Street type, I was not surprised at Thursday’s SEC announcement on the VanEck-SolidX Bitcoin ETF.  Once again they gave a “no decision”. This pushes the deadline back to December 29, 2018. Don’t be surprised if New Year’s Eve comes and goes and nothing happens before the SEC is forced into a action by the end of February.

Back in August, when the first delay was announced, crypto investors’ reaction was swift and painful.  On Thursday, after a temporary hiccup, prices took a surprisingly positive turn. If we are to believe for just a moment that crypto prices act rationally (or just occasionally) then comes two obvious questions, are crypto ETFs good or bad? Secondly why can’t the SEC come up with an answer?

Never Say Yes

Let’s start with the easy question first: what’s up with the SEC?  Having dealt with this teflon organization for over 30 years, their actions with regard to VanEck-SolidX are the same pattern they have followed forever.  Practically never do they approve anything. Instead they provide two choices: reject or delay. By delaying the VanEck-SolidX application they are accepting the ETF concept in principle but laying out objections that must be corrected.

The result of this regulatory song and dance, don’t expect a decision until the last minute. The reason is that the main issues are not likely to be resolved in time. In fact, I doubt that the ETF proposal gets approval for perhaps as much as another year.  Here is why.

SEC Speak: Obfuscation

According to Jake Chervinsky, attorney for VanEck, the SEC asks “18 multiple part questions covering seven pages.” He adds: “It’s not encouraging to see the SEC ask if the bitcoin futures markets are “of significant size” despite having already concluded last month that they’re not.”

This is a tactic in obfuscation that the SEC loves when an applicant has not provided an adequate response.  In this case there is no objective answer to how liquid a market must be to meet the measure of significance.  Moreover, there is little or nothing that can be done in the short run to create greater liquidity.

The SEC is a political body as much as any agency of the Federal Government.  In raising the issue of liquidity, they can stand behind their role of protecting the public without at the same time hindering public access to a class of assets, even at current depressed levels, is worth $200 billion, more or less.

The SEC Is Right With Their Delays

Does the crypto world really benefit, as this stage of its evolution, by fostering a group of ETFs?  The argument in favor says that this is the way to simply and safely offer the individual investor a way to participate in a diversified portfolio of crypto.  That sounds noble – or is it just something that makes lots of money for those who create them?

But so far, at least from the viewpoint of the SEC, ETF applicants have not created a more secure domain.  More importantly, even if this were not the case, what does the investor gain from investing in a diversified list of crypto when Bitcoin overshadows about every other altcoin?

With nothing against those that believe in the benefits of ETFs, the benefits in current terms is far better for the ETF sponsor that it is for the investor.

Looking just at the math, an individual investor could be just as well off buying Bitcoin, Bitcoin Cash, Ripple, Ethereum and EOS. Admittedly, it is somewhat more complicated finding a place to buy and store Ripple, but with this small portfolio, you cover 75% of the entire crypto asset class. If security is an issue simply go to  blockgeeks.com/cryptocurrency-safe/ and select from a list of hardware wallets.

So whether the SEC gives their approval of VanEck-SolidX in December or February might make a difference if this were 2020 or sometime thereafter.  As for now, it really isn’t critical to the mass acceptance of crypto.

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 106 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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