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Analysis

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.

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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.

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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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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

Technical Analysis: Cryptocurrencies Start Week on a Quiet Note as NEO Shines

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The broad Bitcoin-led correction continued to dominate trading in the crypto-segment throughout the weekend, as the most valuable coin drifted sideways above the key technical level at $13,000, with dwindling trading volumes.

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BTC remains in a declining short-term pattern, although the digital currency still holds well above the mini-crash lows from December, spending almost a month now in the daily range of the year-end plunge. We still expect the largest coin to complete the current cycle with a move below the crash lows and the $10,000 level after the stellar rally of the previous months. Key support is still found near $13,000, with further levels at $11,300, $10,000, $9000, and stronger levels at $8200 and $7700

BTC/USD, 4-Hour Chart Analysis

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Altcoins also settled down across the boards with only a few coins registering strong activity. Ethereum and NEO have been among the coins making headlines, as the second largest coin continued to grind, higher still trading near its recent all-time high today. The price of the ETH token is moving in a short-term uptrend, in the face of the stretched momentum indicators, but we expect a meaningful correction soon, and long-term investors should wait for a more favorable technical setup before entering new positions, with key support levels at $1000, $850, $740, $625, and near $575.

ETH/USD, 4-Hour Chart Analysis

Ripple remained under heavy selling pressure in the meanwhile, as the oversold bounce of the weekend faded away and the coin got close last week’s lows again. As the short-term downtrend is intact, traders should stay away from entering new positions, while investors should wait for short-term sell-offs towards the main support levels at $1.50, $1.25, and $0.85 to add to their holdings.

XRP/USDT, 4-Hour Chart Analysis

(more…)

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: Coins Rebound as Key Support Level Holds Bitcoin

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The $13,000 level in the price of Bitcoin continued to be the center attention of traders today, as the most valuable coin successfully tested the crucial support zone overnight, despite another brief dip below it. The other majors followed the subsequent bounce higher, with Ethereum pushing past $1250 once again, while Ripple reclaiming the $2 level.

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Despite the bounce, the short-term trend in Bitcoin is clearly bearish and the correction is still likely to continue, although the extreme long-term overbought readings are now cleared. We still expect a move towards the previous correction low near $11,300, with a likely dip below $10,000 before the end of the current cycle, with further important support levels are found at $9000, $8200, and $7700.

BTC/USD, 4-Hour Chart Analysis

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Ripple recovered slightly after nearing the $1.50 level and reaching short-term oversold readings, and the coin tested the primary resistance level at $2.1 yesterday in late trading. The currency remains in a strong short-term downtrend despite the bounce and the continuation of the correction is likely, although long-term investors could already accumulate new positions near the main support levels at  $1.50, $1.25, and $0.85.

XRP/USDT, 4-Hour Chart Analysis

Ethereum bounced of the dominant short-term trendline, but the coin remains overbought on all time-frames and we expect a trendline break in the coming days. That said, traders could hold smaller positions here with tight stops as a push towards the prior all-time high is still possible. Key support levels are found at $1000, $850, $740, $625, and near $575.

ETH/USD, 4-Hour Chart Analysis

(more…)

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: Bitcoin Tests $13,000 as Hectic Correction Continues

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The cryptocurrency segment remained generally bearish in the middle of the week, as the Ripple and Bitcoin-led move spread to almost all of the majors, with even the recent leader Ethereum getting hit today.

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As BTC got smashed below the dominant rising trendline, a wave of selling pushed the coin under the key $13,000 level before a violent bounce started. Despite the bounce, the long-term picture remains negative, and we still expect a test of the correction low near $11,300 in the coming weeks, with a likely dip below $10,000 before the end of the current cycle. Further important support levels are found at $9000, $8200, and $7700.

BTC/USD, 4-Hour Chart Analysis

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Ripple got very close to the key support level at $1.50 today in early trading, and after the sell signal six days ago, the coin is nearing a neutral short-term signal in our trend model, and a more durable bounce is possible here. That said, the long-term picture remains bearish and further corrective price action is likely before the end of the current cycle. Despite the likely consolidation, long-term investors could already accumulate new positions on the short-term sell-offs near the main support levels at  $1.50, $1.25, and $0.85.

XRP/USDT, 4-Hour Chart Analysis

Ethereum’s rally topped out near $1350 for now, and given the now severely overbought long-term picture we expect the short-term trend to end in the coming days. With that in mind, although traders could still enter small positions near the trendline, correction risk is now high, and investors should wait for a deeper move lower before entering new positions. Key support levels below $1000 are still found at $850, $740, $625, and near $575.

ETH/USD, 4-Hour Chart Analysis

(more…)

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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13 votes, average: 4.08 out of 513 votes, average: 4.08 out of 513 votes, average: 4.08 out of 513 votes, average: 4.08 out of 513 votes, average: 4.08 out of 5 (13 votes, average: 4.08 out of 5)
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