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Op-Ed

Technical Analysis of Crypto Is Impossible

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With no disrespect to those folks that have successfully practiced the art of technical analysis and are making a bountiful living from it: Bravo.  Trying to figure what to do with a stock like General Electric where there is great uncertain about the business and just after the dividend has been cut, you don’t have much to rely on.  So things like investor sentiment that is the embodiment of  technical analysis can be very useful.  But technical analysis for cryptocurrencies, I beg your pardon.

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There are plenty of believers in using the technique on crypto.  When you Google the topic, there are 775,000 stories offered.  We decided to dig into one in particular that will remain anonymous out of respect for having their own point of view.

Old School Techniques Work On Long History

The cornerstone of technical analysis is based on the century old Dow Theory.  The most important premise in the Dow Theory is the assumption of perfect knowledge. “All existing, prior and upcoming details have already been factored into the current price. In other words the existing price reflects fully informed and knowledgeable buyers and sellers.

In the case of General Electric where there are hundreds of analysts, portfolio managers, investment advisors and everyday investors watching CNBC or Bloomberg, this concept of perfect information may be valid.  In a world where well over half of the world still has heard the term blockchain and where it has been estimated that 70% of crypto buyers are pure speculators with little or no knowledge what they own, this is a long way from perfect knowledge.  

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Everything Works In Theory

The next key to understand Dow Theory is buying into the notion that there is no such thing as random price movements.  This is where trend analysis is important and technical analysts have their own language.  The important thing is once a trend has begun, it is likely to continue.  This is the principle of inertia that says moving objects will continue until stopped or their direction is changed.  

In the real world, the force that stops or changes direction is never know.  The first month of trading Bitcoin futures contracts on the CME and CBOE is nearing and end.  The amount of open interest (a measure of volume) has turned out to be disappointing.  If there was a clear trend in Bitcoin prices, futures traders would have been big players.  Instead we will have to wait for more time to measure this gauge.  In other words, there is imperfect knowledge.

The real focus of technical analysis is on their  focus on supply and demand. That makes sense in the case of GE where robo traders can analyze supply versus demand in fractions of a nanosecond and react accordingly.  Thus far in the crypto world where supply is generally fixed (within certain limits) and demand is driven both by speculators and application platform demand, this is a meaningless measure.  

One Sided Crypto Markets

Supply and demand have meaning in a two way market where transactions can be processed by the millions every second.  Bitcoin speeds are around 7 per second while fast footed Ethereum is about twice as fast.  This well known shortcoming accentuates volatility.   

Technicians believe that history repeats itself.  True that Terminator II was a repeat of Terminator I.  Beyond that we won’t dispute the general idea that patterns from history can display similarities.  But in order for history to repeat itself, there at least has to be a history to start with.  If 2017 alone were deemed enough history for Bitcoin, the price by the end of this year will have gone up nearly 1200%.

The New Tax Laws Change The Math

If you disagree with the unflattering assessment that is fine.  We aren’t against using technical analysis where it is appropriate.  I used it in the past whenever making stock trading decisions.  But the new tax law ended my interest in trading.

Last year two things happened.  First the IRS declared cryptocurrencies to be securities not hard assets.  Secondly, the new tax bill put an end to 1031 trades and this encourages disciples of cryptocurrencies to be long term investors.   

Before this you could sell a $1 million of Bitcoin with a cost basis of $100,000 for example and buy the exact same amount of Ethereum, Bitcoin Cash, Litecoin or Ripple and not pay a penny to the IRS.  This is no longer possible, sorry.  So forget about the short term swings, the future is not so far off.

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 75 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. letusallunite

    January 24, 2018 at 6:58 am

    Why the focus on US investors? There is a whole world beyond the US.

  2. Mister.Ticot

    January 24, 2018 at 6:39 pm

    While it’s true that Bitcoin network handle up to 7 transaction/second, it seems pretty obvious that a lot more than that happens on exchanges without any limitation.

  3. jksmith815

    January 26, 2018 at 1:54 am

    LOL… isn’t the majority of the content in Hacked.com some kind of technical analysis?

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Op-Ed

Is Manipulation Behind Bitcoin Cash’s Absurd Rally?

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Although you wouldn’t know it by today’s prices, bitcoin cash (BCH) has topped the crypto market leader board this month. The digital currency more than doubled over the span of 18 days, and in doing so far outpaced the broader market. But a closer examination of the value drivers suggest manipulation could be partly responsible for the rally.

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As a reminder, the author has no vested interest in smearing BCH as I believe it to be one of the more advantageous coins on the market today. That said, the circumstances surrounding the most recent rally are peculiar to say the least.

What’s Up with Bitcoin.com?

A Hacked user informed me earlier this week that Bitcoin.com has been using the “BCH” ticker next to the word “bitcoin”. Normally, the ticker “BTC” is reserved for bitcoin, which is the original blockchain we all know about. Instead, the website quotes “BTC” next to the term “bitcoin core”.

In other words, BCH is quoted next to bitcoin and BTC is referred to as bitcoin core. See here for yourself:

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For most readers of Hacked, the distinction is easily discernible, but for new traders the difference isn’t easily gauged.

The first question I have is, how many people bought bitcoin (BCH) thinking they were receiving actual bitcoin (BTC)?

Bitcoin.com describes itself as the “premier source for everything bitcoin.” Although the website doesn’t appear to offer a full-fledged trading platform, users can purchase bitcoin and bitcoin cash using the following link.

It is unclear how long the website has been referring to BCH as bitcoin. For those of us who’ve been following the market for some time, the way BTC and BCH are quoted is certainly strange.

Antpool

A large cryptocurrency mining group by the name of Antpool has also been accused of pumping BCH in recent weeks. The pool announced about six days ago that it is responsible for confirming more than 8% of all bitcoin cash transactions. In addition to confirming those, Antpool is also said to be burning BCH on a daily basis in order to reduce supply and boost prices.

Of course, crypto pumps do not require such elaborate setups to achieve their goals. Pump-and-dumps can be orchestrated rather easily through a chat group on social media. But Antpool does have a large and privileged position in the BCH ecosystem, which has raised suspicion over its recent actions.

Bitcoin Cash is Overbought, According to Tom Lee

Fundstrat’s Tom Lee recently weighed in on the bitcoin cash phenomenon, concluding that the cryptocurrency was overbought. In his view, investors should stick with bitcoin if they had a choice between Core and Cash.

In a segment on CNBC’s Fast Money, Lee said:

“I prefer not to pick winners and losers when we’re looking at cryptocurrencies like bitcoin/bitcoin Cash… Both have merits but if I was putting new money to work today… I would be a lot more interested in buying a lagger that could attract inflows rather than something that’s potentially overbought.”

Bitcoin cash added around $1,000 to its value between Apr. 6 and 23, with prices peaking near $1,600. The cryptocurrency corrected sharply lower on Wednesday and was still declining as of Thursday’s early-morning session. At the time of writing, BCH/USD was down 4.6% at $1,268.

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 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Decentralization

JP Morgan’s Surprise Cryptocurrency Fees are a Reminder of Why Decentralization Is Sorely Needed

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JP Morgan Chase & Co has been hit with a class-action lawsuit by cryptocurrency traders over allegations of unannounced fees and higher interest rates on purchases of digital currencies. Though the allegations have not been proven, extra fees are a tactic routinely employed by traditional banking institutions. In the case of JP Morgan, this has karma written all over it given the way its chief executive has ridiculed digital assets by associating them with fraud.

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Class Action Lawsuit

Traders from across the United States are seeking statutory damages of $1 million for unannounced interest charges and fees on cryptocurrency transactions between January and February of this year. The named plaintiff in the lawsuit is Brady Tucker, an Idaho resident who paid a total of $163.91 in fees and surprise interest charges over a six-day stretch.

According to information obtained by Reuters, the lawsuit accuses the bank of violating the U.S. Truth in Lending Act, a piece of legislation that requires credit card issuers to inform customers in writing of any notable change in fees.

The lawsuit asserts that Tucker tried to resolve the dispute by calling Chase’s customer support service directly. His request was turned down, prompting him to seek legal help. According to Bloomberg, the case in question is Tucker v. Chase Bank USA NA, 18-cv-3155, U.S. District Court, Southern District of New York (Manhattan).

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The Growing Case for Decentralization

Depending on who you ask, the allegations against JP Morgan are akin to cryptocurrency fraud not unlike the kind Jamie Dimon talked about while ridiculing bitcoin. But the irony in Dimon’s comments extend far beyond Chase’s latest dealings.

As the actions of Chase bank and other financial institutions have clearly demonstrated over the years, those who control the size and growth rate of fiat money cannot be trusted to do the right thing. As Nassim Taleb argues in The Black Swan, banks have a tendency of losing as much money as they make in the long run due to shady business practices and high-risk ventures. Decisions like these are easy when you are Too Big to Fail.

Decentralization, like the kind advocated by blockchain startups and cryptocurrencies, allows users to trade directly with each other without having to go through a (predatory) middleman. Decentralized systems not only help participants avoid unnecessary fees, red tape and other forms of unwanted intervention, they are virtually impossible to shut down. In this vein, decentralized currencies give people a fighting chance in their battle against never-ending inflation. As we’ve argued before, this is not only a prudent fight, but a noble one as well.

Cryptocurrencies that rely on decentralization offer society a unique value proposition unlike anything we’ve seen in recent history. What’s more, their adoption is not contingent upon us leaving the realm of traditional finance – at least, not yet. That’s because cryptocurrency started off as an obscure and esoteric asset class but has since become a value store for investors. Tomorrow, it will become a viable medium of exchange accepted worldwide.

That said, we are still in the very early days of the crypto revolution and it may be a while still before we can conclusively prove people like Dimon wrong. But crypto backers and investors should take comfort in knowing that big banks rarely lead in disruption these days. They have the resources to play catch-up, which they are clearly doing with blockchain.

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 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Altcoins

Will Dash Be the Bitcoin Killer?

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Well, it has finally happened.  We’ve gone a full week with crypto prices showing positive returns.  OMG, what a big surprise; ether is leading the pack, advancing nearly 15% at the time of this writing.  This is encouraging because it shows that perhaps finally value investors are stepping in and helping set a pricing bottom.  

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It hasn’t hurt a bit that stock and bond market investors have become seasick from all the volatility.  Suddenly, a tiny little weekly Litecoin move of +0.46% or even a 2.47% bitcoin cash gain, looks like pure serenity.  

 

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For a while now our focus has been on relative value and there is very little argument that, after the first quarter price collapse, a whole lot of risk has been taken out of bitcoin, ether, Ripple and thousands of others.

The question is where to go and what to go with from here.  The big crypto names are the safe way to go in the short run, but each has become mired in network limitations on scaling and the concomitant cost issues.  

Yes, transaction fees have dropped like a stone from their prohibitively high levels of December but then transaction volumes have fallen by half and more.  That is not the stuff an investor wants to see.

Both bitcoin and Ethereum hope to solve scaling issues with the Lightning Network and Raiden. But for now, if transaction volume were to suddenly rise, the same network limitations would be there.  So even though the big crypto names offer the safest short term options, does that mean we shouldn’t look further out to find value?

Will Dash Solve Bitcoin’s Problem?

Dash emerged last year as one of the most popular and most valuable altcoins. At the time it was considered a real competitor to bitcoin and the leading cryptocurrency of the future. The price of Dash increased from $11 to over $1,430. Dash had a capitalization of over $11 billion at its December peak. Since then it has tumbled more than 80%.  Is now the time to move into Dash? The timing could be very good but before making that decision, we should consider a few things.

Judgement Time

If a jury of its peers were to grade Dash on its performance in 2017, the majority would say it lived up to its billing.  Using Dash, users could send money instantly using the InstaSend feature that allowed for complete anonymity. At the peak, transaction costs were around $0.60, which were dwarfed by bitcoin’s high of $30. 

Since then, Dash fees have fallen to about $0.20, making them attractive for small sized transactions. All alone this represents a compelling feature of Dash.  Add to that the immediacy of InstaSend and you have the makings of a genuine challenge to Bitcoin.

Caveat Emptor

In appraising Dash’s performance it is useful to look at Metcalfe’s Law, which values social media assets based on a formula of network size.  For Dash, it’s network is processing a tiny fraction of bitcoin’s. The limitations of its network have very likely not yet been tested, so proclaiming Dash the speed king is a bit early. There is still a larger issue to consider.

In the case of Metcalfe’s Law we need to include merchants and other service providers that accept Dash as payment.  That is the big hump for them to overcome before overturning bitcoin. So far, after all, bitcoin is accepted by only about 10,000 or so merchants.  

Further progress by bitcoin is stymied by transaction costs that remain far too high.  Even so look at how many years it has taken bitcoin to attract merchants. Dash faces the same hurdles.

In other words, the trick for Dash is the find a way to gain mass acceptance quickly. That is when the huge $11 billion valuation of last December will begin to be justified. Look over your shoulder bitcoin – faster, lower cost competition is looking to eat your lunch. Dash could be one of those.

 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 75 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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Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

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