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Analysis

The Crypto Bull Is Off Of Life Support

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There may be some bad days for cryptocurrencies in the future.  There may even be a few bad weeks. But crypto markets survived the worst shellacking in their brief history.  The soon to be ending month of April is an appropriate time for Mark Twain: “Reports of my demise have been greatly exaggerated”.

Anytime an asset class gains $100 billion in value over the course just under 30 days, the death watch is over.  Anytime the largest member (bitcoin) gains 30% in value and still ends up being the weakest major performer, the crypto bull market is not only off life support, it is alive and in recovery.

Signs of Better Times

Making highly successful predictions about the direction and magnitude of stocks, bonds or cryptocurrency is a 51% proposition. What this means is that at least 49% of the time, you are going to be wrong.  

At least with stocks and bonds there is a huge database that can be massaged in the hope of  accurately predicting the future. None of that applies to crypto. So here are some of the things that create confidence that the future will be far better than the most recent past.

Relative Value

When the stock market is near a record high,  interest rates are headed much higher and the market fear index, the VIX, suddenly shoots up, this is a clear sign of an overvalued market for conventional intangible assets.  The same can be said for tangible things like real estate.

After having lost more than half their value in something like 90 days, cryptocurrencies offer comparative value.  Most interesting is how the smallest and most speculative cryptos experienced the best performance. That type of recovery never took place in the post dotcom period.

This is a measure of long term vision investors are applying.  Many of these Gen III projects are little more than white papers and promises at this stage.  This is good to remember the next time someone drags up the notion of a crypto bubble.

Skeptics will point out the thin trading in many of these Gen III names as the underlying reason for their quantum moves.  There is probably some truth here, but simple risk analysis argues in favor of the big familiar names like bitcoin holding leadership.  Crypto investors obviously see things differently.

Cryptocurrencies Can Take A Punch

While watching the favorable price action in recent weeks, there was little obvious impact from the same regulators that contributed to the Q1 price avalanche.  What we are referring to is the April 23rd talk at the MIT Technology Review: Business of Blockchain.

The secession was headlined by an address by Gary Gensler the former chair of the CFTC. The issue at hand: are cryptocurrencies securities and thus regulated by the SEC?  In my mind, Gensler exploded a bomb: Ethereum and Ripple were securities while bitcoin fit the description of a medium of exchange.

Wow, think about this for a second.  If Ethereum was truly a security that could spell a miserable amount of registration work to conform with SEC regs.  While that would be unpleasant, the implications for the thousands of ICO tokens using the Ethereum platform could be far worse.  Fortunately, Gensler isn’t running the SEC but his legal arguments can and probably will be used at some point.

Back in February, when crypto prices were tumbling, Gensler’s comments would surely added to the fear and selling pressure.  On the day of Gensler’s talk, ether rose in price by nearly 7% according to Coinbase while Ripple gained 8%. This shows that cryptocurrency investors are learning to take a punch without losing perspective.

Trade Signs Are Good

We can all pretty much agree that we are relieved when see prices are rising.  However, when price increases are driven by higher volume, that gets technical analysts buzzing. Since the beginning of April, bitcoin transactions have increased 90% and Ethereum by 50%.  While all of this has been happening the median fee for bitcoin has been $0.16 and ETH is an even lower $0.07. While this isn’t exactly free, it is a gargantuan improvement over the $30 bitcoin investors were paying back in December.

A Two Way Street

Not every period will be as profitable as the month of April. Double digit price changes, the hallmark of this market, are part of the drill.  But even after the April rally, cryptocurrencies will still offer better value than the average Nasdaq technology stock.

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 97 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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Analysis

Ethereum’s Tumble:  ICOs Aren’t The Problem

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Trying to come up with a rational explanation for crypto price movements is a thankless task. Sure, there are several attempts being made by quant jocks to develop a model for valuing coins and tokens.  Most of these that I have reviewed suggest that prices undervalue both the underlying asset or the eventual demand.

In other words, crypto prices are cheap: what a surprise.

This bit of wisdom may be of some comfort to committed long term investors, but it hasn’t translated into higher market prices. A good example of this is Ether. Over the past six months, while Bitcoin has been treading water (down 7%), the price of Ether has been cut in half.  This altcoin was the topic of one of my recent articles called: Has Ethereum Lost It’s Cache?

The essence of this article was to point out how Ethereum, the platform preferred by 75%-80% of all ICOs, was suffering from investor indifference.  When you measure the activity of the top 100 tokens according to CoinMarketCap.com, the US dollar value of 9 of the top 10 most actively traded amounted to an average of $14,000 over the previous 24 hours.  Please keep in mind, trading activity in ETH over the same 24 hour period amounted to $1.8 billion USD.

Bloomberg Speak

One of the more interesting contradictions to my research into Ethereum’s plight comes from an article originating from a highly respected source: Bloomberg News.  The headline reads: “Ether Tumbles as Concern Increases That ICOs Are Cashing Out”.  It is totally defies the data to believe that every ICO cashing out when there is almost no volume to confirm this claim.

Quoting from an August 13th article:

Initial coin offerings using the Ethereum blockchain are seen as one of the main catalysts for sending Ether’s price surging last year. Now they’re being blamed for its decline.

It is quite true that initial coin offerings using the Ethereum blockchain was a catalyst for sending Ether’s price surging last year. It gave investors a reason to buy Ether even if they didn’t tell an ICO from a UFO. But are ICOs the real blame for both the good and the bad of Ethereum price?  I will step aside and let you be the judge.

For starters it is important to remember that ICOs raised $2.4 billion last year while ETH value appreciated almost $70 billion. The concept of ICOs may have fueled blind speculation but the math tells us that real demand was much less.

As for taking the blame for falling ETH prices, consider this notion. At its peak in January ETH was valued at $133 billion.  Currently that value is $100 billion+ lower than just eights months ago.

Using the data from ICOWatchList.com, since the beginning of 2017 ICOs have raised a total of $8.5 billion.  The statistical experts claim the Ethereum platform was used by between 80%-83% of all ICOs, thus reducing the $8.5 billion number to $5.7 billion.  

There is no question that ICOs influenced ETH speculators but that doesn’t begin to explain the more than $600 billion in aggregate losses for all crypto assets.   

Criticism Of Startup Managements

Critics claim that ICOs give startups the ability to raise lots of capital but they are proving weak in management on the funds once they are in their crypto wallet.  There is a certain validity to this since the number of founders with deep experience as CEOs and CFOs is pretty limited. But how can anyone separate insider selling activity from all other volume?

Research website Santiment, which compiles a selection of Ethereum-based projects, estimates startups have spent over 110,000 Ether in the past 30 days. At current prices that amounts to about $33 million.  For sake of discussion, let’s assume this high rate of token liquidation took place each and every month this year. Then use and average ETH price of $700 and that brings the total to $616 million.

There is no question that ICO sellers have contributed to the decline in ETH.  It would even be fair to call it a catalyst that created fear of losing all (FOLA).  Now if we could only quantify fear with an index like the VIX used by stock investors, we would see the major cause of the decline.

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 97 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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Analysis

Commodity Update: Wheat Not Yet Out of the Woods

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Wheat (WHEAT/USD) is up 29.12% year-to-date as the market came to life early this year. The successful defense of a key support level attracted investors who were staying on the sidelines for years while waiting for a tradeable bottom. This ignited a powerful rally that saw the pair generate volume that’s never been seen in over 15 years. As a result, many investors believe that Wheat may have finally reversed its trend.

In the midst of the bullish rally, it appears that bears are pulling the biggest trick that’s up their sleeve. In this article, we explore why Wheat is not yet out of the woods.

Premature Reversal for Wheat

A quick look at the daily and weekly charts reveals that the commodity appears to have broken out of a cup and handle pattern. From a short-term perspective, the market registered a higher low of $3.908 in December 2017. This gave bulls the confidence to stage a massive rally. The rally eradicated resistance of $5.00 in July 2018 with colossal volume.

Weekly chart of Wheat

The price action has led many to believe that the multi-year downtrend is over. But what if it isn’t?    

Major Roadblocks Ahead

A long-term view of the commodity reveals that it’s still in a downtrend. The market’s inability to close above $5.50 on the weekly and monthly charts is a signal that bears are not yet ready to hand over the keys to the kingdom. They are fighting back and so far, it seems that they have the upper hand.

Monthly chart of Wheat

Wheat is not reversing the trend as long as it respects the long-term resistance. This trendline has existed for 10 years and it is responsible for the commodity’s multi-year downtrend. From this perspective, it is easy to see that the pair continues to post lower highs and a lower low, which is the textbook definition of a downtrend.

Wheat still in a downtrend

Projected Movements

It’s not gloom and doom for bulls however. Even though a major resistance is staring down at them, they might still be able to come out on top. Keep in mind, bulls posted a record-shattering volume in July when Wheat went above $5.00. That means $5.00 has now become a key support level. It might just be strong enough to ignite a new rally and finally take out the long-term resistance.

Possible movements of Wheat

Otherwise, the record-breaking volume would work against bulls. All of those who bought above $5.00 are most likely using the support as a stop loss. Breach of this support would ignite a selling frenzy that can drive the market to even lower levels.

It is very possible that Wheat could capitulate during this plummet. When it does, there will be a long-term support where bulls can stage a rally to break out of the large falling wedge on the monthly chart.

Bottom Line

Wheat’s recent move above $5.00 with massive volume has attracted a lot of investors. The market may look bullish but in reality, it needs to deal with a long-term resistance before it can reverse its trend. In other words, Wheat is not yet out of the woods.

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 224 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

Pre-Market: Turkey Back in the Crosshairs Amid Sanction Threats

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The “red-bar-green-bar-madness” continues in global stock markets, as after yesterday’s rally, today the major markets are all in the red once again. Emerging market woes are still feeding the bearish narrative, with the Turkish Lira being back in the center of attention. The currency which enjoyed a three-day relief rally slid lower following threats regarding further retaliatory US sanctions, should turkey keep Pastor Brunson in custody.

USD/TRY, 4-Hour Chart Analysis

The diplomatic troubles only add to the problems of the country, while also helping the rhetoric of the Turkish leadership that focuses on a western “attack” on the nation. With the vague budget plans in mind, the endgame for the Lira still seems ugly, even as at the current levels, strong Turkish companies can offer great bargains for a long-term investment portfolio.

DAX Index, 4-Hour Chart Analysis

The divergence between the US and the rest of the world seems to be getting wider by the day, as the Shanghai Composite closed on a fresh bear market low, while most of Asia is also stuck in short-term downtrends, while Europe is looking wounded too from a technical perspective. The main US indices, on the other hand, are still near their all-time highs, and today’s selloff is also just a small blip in the ongoing uptrend.

S&P 500, 4-Hour Chart Analysis

On a slightly negative note, the Nasdaq has been underperforming the broader market ever since Tencent’s earnings miss on Wednesday, and today, it’s also the worst performing benchmark on Wall Street in the wake of Nvidia’s (NVDA) lackluster guidance that came out yesterday after the closing bell.

Today’ session could still go either way in the US, as the overnight losses are moderate, and yesterday’s trade war optimism could still fuel a recovery in the worlds strongest stock market, even amid the deepening emerging market crisis.

Forex Markets Stable As Dollar Consolidates

Dollar Index (DXY), 4-Hour Chart Analysis

The Dollar is consolidating just below its recent 13-month highs, with the EUR/USD pair rebounding to 1.14, and the broader Dollar index settling down near 96.5. The reserve currency is still clearly in a rising trend, and as the short-term overbought momentum readings are almost cleared, the rally could soon continue, especially if risk-off sentiment remains dominant outside of the US.

Copper Futures, 4-Hour Chart Analysis

Commodities are virtually unchanged before the US open, with gold still hovering just above its 17-month low near the $1185 level, crude oil being stuck near $65 per barrel regarding the WTI contract, while copper trying to hold its ground after the recent key breakdown.

Dr. Copper is still signaling troubles ahead for China and the global economy, as although the commodity outperformed today, it’s clearly below the break-down level near $2.7, and the downtrend will likely continue in the coming weeks.

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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4.6 stars on average, based on 321 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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