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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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4.7 stars on average, based on 417 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

XRP/USD Price Analysis: Israel’s Largest Financial Services Company GMT Partnering with Ripple

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  • Ripple has another large financial firm leveraging its technology, as the list keeps on growing.
  • XRP/USD will search for buyers within $0.3000-$0.2500 range initially, ahead of possible $0.2000 return.
  • XRP/BTC looks surprisingly encouraging, subject to a potential breakout to the upside.

XRP in line with the rest of its peers across the cryptocurrency market remains firmly on the back foot. XRP/USD is running at its third consecutive session of losses. At the time of writing, the pair has dropped 7% over this mentioned period. A renewed wave of selling pressure hit the market after the price was allowed some time to consolidate. The market was very much within range-bound mode, before the bears struck again. As a result, XRP has firmly given up the $0.3000 mark.

Israel’s GMT to Utilize Ripple Technology

The largest financial services organization in Israel, GMT, has announced a partnership with Ripple. They will be utilizing Ripple’s technology for their cross-boarder payments.

GMT said via their latest blog update: “GMT is joining companies like MoneyGram, AmericanExpress, CIBC, Earthport, AKBANK and many more, who are already authorized to use Ripple’s platform. This partnership is establishing GMT’s place in the forefront of the Israeli Fintech industry, also allowing us to work side by side with some of the leading companies in the world.”

GMT are the largest and leading financial services organization in Israel. They have an outreach of  250 branches spanning across the country. GMT specialize in local and international remittance services, among many other financial offerings.

In terms of which technology of Ripple’s they will exactly be leveraging, it does not appear to have been stated for now. Whether GMT will be using either xCurrent or xRapid is still subject to debate. Hacked will be sure to provide further details upon those being announced.

Technical Review – XRP/USD

XRP/USD 4-hour chart

Price behavior seems to be quite readable of late. XRP/USD is going through periods of hard selling, which is then followed by some range-bound trading. Once again, bears breakout from this consolidation mode to ignite more downside pressure. Between the 7th and 14th December, XRP/USD had formed a range-block. The sellers came piling in on the 14th December, and as a result the recent range was broken with $0.3000 giving way.

XRP/USD weekly chart

XRP/USD is now moving within a critical area. This is seen running from $0.3000 to $0.2500.  A very well-known area for big buyers coming in, as proven on occasions this year. Any failure of this initial range holding could see a free-fall down to $0.2000.

XRP/BTC daily chart

Finally, looking the daily chart of XRP/BTC, it remains somewhat encouraging. XRP is holding its ground again BTC, in comparison to many of its peers. The price is ranging for now, looking possible to see a chunky breakout to the upside. It remains trading around levels seen during the explosive run in December 2017.

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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4.5 stars on average, based on 86 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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Analysis

Stellar Price Analysis: XLM/USD Bears Break Big $0.10 Level

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  • Fear and panic spreads as XLM takes out another big psychological level, $0.10.
  • Support of XLM continues to take place, as AlphaPoint and CoinField announce support.

Stellar’s native token XLM has been a real victim of this heavy market selling pressure. The downward trend is very much stubborn and showing lack of a shift in sentiment anytime soon. Market hopes have been dashed on numerous occasions, when the price has looked like bottoming. Each small bounce and sign of possible recovery from the bulls continues to be sold with force by the bears.

Like several of XLM’s peers, fundamental developments remain strong. There is still much in terms of positive developments surrounding the Stellar foundation. However, with the pressing lower and breaking of these key psychological levels, it only sparks more panic and fear with market participants.

XLM Support Spreads

XLM continues to be added by exchanges globally. There is certainly no shortage with the supporting developments for Stellar Lumens. This week, AlphaPoint, a white label cryptocurrency exchange platform, announced their collaboration with the Stellar foundation. They will now be supporting Lumens for their clients, covering; deposits, withdrawals, custody, and trading.

Elsewhere, CoinField, a Canadian cryptocurrency exchange, detailed via Twitter that they are launching Stellar Lumens on their platform, as an XRP based pair. They noted that the XLM/XRP pair will be available with other fiat pairings, including; USD, CAD, EUR, GBP, JPY, and AED.

Technical Review – XLM/USD

XLM/USD 4-hour chart

The bears most recently pressed for a devastating technical development as the $0.10 mark was broken to the downside, which was previously anticipated via the last article posted on Hacked. Sideways trading had initially been observed, for seven sessions, as XLM/USD formed a range-block. This technically was vulnerable to an extensive breakout south.

A bottom area was eyed at the low of 7th December at $0.1010. This was breached after sellers were penetrating the supporting area during the session of 14th December. As a result, this forced the low of the 7th December to be exposed. In addition, it caused a drop below the psychological $0.10 level.

XLM/BTC Vital Demand Zone

XLM/BTC daily chart

XLM/BTC at the time of writing is trading within a vital demand zone. This can be seen tracking from 0.00003000 to 0.00002800. Previously, the area has proven to see chunky buyers come into play in driven the price back north. As already seen this year, on two occasions, in July and also September, both going on to see around 45% bull rallies.

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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4.5 stars on average, based on 86 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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Analysis

Forex Update: Dismal Chinese Data Causes Turmoil in Markets

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Forex Market Snapshot

Asset Current Value Daily Change
EUR/USD 1.1302 -0.47%
GBP/USD 1.2571 -0.68%
USD/JPY 113.35 -0.21%
AUD/USD 0.7179 -0.66%
GOLD 1,243 -0.20%
WTI Crude Oil 51.16 -3.18%
BTC/USD 3,180 -2.54%

We continue to have an unusually active December in traditional financial markets, as the recent bearish shift, the continued Brexit woes and the slowing global economy add up to a very nervous trading environment. Volatility is especially high in stock markets compared to seasonal averages but currencies are also having very active days, with the Dollar clearly being in focus.

Today we had negative headlines in China with both industrial production and retail sales missing the consensus estimates by a mile, and the history of manufactured economic releases from the country makes that even scarier.

It’s no surprise that the Chinese stock market is leading the way lower globally, while the Chinese Yuan is also among the weakest currencies globally, even amid the improving trade-related sentiment. Risk-on currencies got it hard today, and the Dollar is defying its bearish seasonality, trading very close to its recent lows, confirming the broad risk-off shift.

Technical Analysis

GBP/USD, 4-Hour Chart Analysis

The Great British Pound continues to trade with pronounced relative weakness, and as Prime Minister Theresa May was sent home empty-handed from Brussels, with the leaders of the EU refusing to renegotiate the draft Brexit plan, the currency’s position just got even shakier.

From a technical standpoint, the Cable confirmed the key breakdown with a failed pullback in the past couple of days, and with no major support found above the generational lows near 1.20, long-term odds now favor a test of that zone, and bulls shouldn’t enter positions below the key 1.27 level.

EUR/USD, 4-Hour Chart Analysis

The EUR/USD pair dipped below the 1.13 level after yesterday’s the dovish growth and inflation forecast by the European Central Bank and today’s strong US Retail Sales report. The US economy continues to perform relatively well compared to its global peers, and although we think that the slowdown will eventually reach the US, the fiscal stimulus and the labor momentum could keep the engines going for a while.

That only adds to the buying pressure which is pushing the USD higher, and the troubles in the European financial system are also mounting, which could lead to another leg lower in the common currency next year. The main technical levels to watch are still the 1.12 support and the 1.1440 resistance, and with the broader downtrend clearly being intact in the most traded currency pair.

AUD/USD, 4-Hour Chart Analysis

The AUD/USD pair fell below the bearish wedge pattern on the negative Chinese news as we expected, and it’s now testing the 0.7165 support zone. A move towards the 0.70 level is likely in the coming weeks, should the pair violate the support zone, and the short-term trend change is close to being confirmed, while the broader downtrend is clearly intact, with strong resistance ahead near 0.7250 and 0.74.

WTI Crude Oil, 4-Hour Chart Analysis

Another rally attempt faded away today in crude oil, and the crucial commodity continues to trade in a bearish consolidation range following the series of dead-cat-bounces. The top of the range is found near the $54.25 per barrel price level, while strong support is found in the $49.50-$50 per barrel range.

Given the deeply oversold long-term momentum readings, bulls can open speculative long positions near the bottom of the range, despite the clearly intact long-term downtrend, while bears should wait for a larger scale bounce to reenter the market.

Key Economic Events on Monday

ChartBook

Forex

USD/JPY, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

EUR/JPY, 4-Hour Chart Analysis

AUD/JPY, 4-Hour Chart Analysis

GBP/JPY, 4-Hour Chart Analysis

USD/CHF, 4-Hour Chart Analysis

USD/CNH, 4-Hour Chart Analysis

Commodities

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

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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4.7 stars on average, based on 417 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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