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The Effect of Derivatives on Crypto

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Although they have had a slow rollout, derivatives for cryptocurrencies have been gaining support over the last year. Many worried that with Bitcoin ETFs stalling in their adoption, this could extend to derivatives. However, the demand for these products has continued to grow for various reasons we are going to examine in this article.

Derivatives are financial instruments that allow you to speculate on the price movement of a good without having to actually take ownership for that good. Some companies use them in order to hedge their positions and smooth out their income, but at the same time, derivatives were a large part of the volatility that led to the last major recession in 2008.

Current Status of the Market

Right now there are not many big players in the game, but more firms developing their own solutions and releasing them, you can expect to see the competition intensify in the next few months. The landscape includes everyone from privately funded investment funds to public exchanges. A big part of the market is about institutions gaining access to cryptocurrencies in a way that is less risky for their client base.

There are companies like LedgerX, which has experienced continually increasing demand for their cryptocurrency derivative products as 2018 has progressed. But where things get interesting is when existing financial players delve into cryptocurrencies.

The Chicago Board of Exchange (CBOE) started offering Bitcoin futures on December 10th, 2017, and this marked a change in the market. When well-regulated derivatives exchanges begin to acknowledge the legitimacy of cryptocurrency (or at least the high demand from their customers) it is a signal of a larger shifting of the tides in the works.

The plot thickens as recent rumours about Goldman Sachs hiring a cryptocurrency trader seem to be all-but-confirmed. Their goal is to figure out their customers’ direct needs and although they do currently clear Bitcoin futures, they are very cautious about further expansion into the cryptocurrency space.

In terms of sentiment, all of these actions together signal a shift in the way the legacy financial industry views cryptocurrency. A common retort used to be that Bitcoin was not a currency, but now that demand has continued to increase, banks are much more willing to cooperate and cater to their customers.

2nd Order Effects

It may be nice to have cryptocurrency derivative products available, especially for the firms who are making tons of money selling them, but it is also important to think about how this will affect the cryptocurrency market as a whole. Derivatives distribute the risk in a way that allows speculators to make bets without actually owning the cryptocurrency. Bitcoin has gained traction, but it is unclear how this sort of institutionalized speculation would affect it in these early stages.

The general argument for derivatives is that they allow for more liquidity and trading volumes of non-blue chip coins. Companies issuing derivatives for these alt-coins would increase the general awareness of these coins and their quality, which could lead to heightened demand for the coins.

Additionally, with every company, exchange, or investor who trades anything cryptocurrency related, regulators feel further pressure to regulate them more fairly. The current “no man’s land” crypto is in can’t last forever, and if the adoption of derivatives helps, then this is a clear benefit.

On the flip side, derivatives allow for bets against Bitcoin as well as the ability to invest in cryptocurrencies without owning them. This could lead to decreased demand, which may affect it negatively, since it hasn’t reached equilibrium like other currencies have.

Cryptocurrencies are an inherently risky asset, and with the introduction of derivatives, there are a lot of different things that could happen in this space. Increased volatility may ensue, but with it may come increased adoption.

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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Analysis

Ethereum Price Analysis: ETH/USD Subject to an Extended Breakout Higher

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  • ETH/USD price action has formed a bullish pennant via the 4-hour chart view.
  • Ethereum network hard fork scheduled for January 16th 2019, but still subject to potential change.

ETH/USD price action has cooled since the recent bull run. This isn’t too surprising given the fast gains seen initially and the touted profit-taking following the explosive move north. A technical move appears to be the case across much of the market. Price action looking ready to breakout again.

Ethereum News Flow

The developers at Ethereum have now set a new date of January 16th, 2019, for their scheduled hard fork of the Ethereum network. This came at the back end of last week, on their bi-weekly call, where they discuss anything relating to the blockchain technology.

It was detailed that this agreement made via the call was non-binding verbal, leaving room for that date to still be moved, should any issues or problems come to light. Hacked’s Sam Bourgi covered in a recent crypto market update.

As covered in October via Hacked, Ethereum’s software upgrade saw a failure. The hard fork that they had been working on did not activate on their test network Ropson. This was largely anticipated to have been activated in November. As a result, they were forced to delay.

Technical Review – ETH/USD

ETH/USD daily chart

ETH/USD price action has been cooling, after failing to break above vital resistance seen around $220-225. This is in proximity to the 61.8% Fibonacci. Over 6% has been lost after the decent advances seen from 30th October, breaking out from pennant pattern.

The price was initially contained within the mentioned pattern since September. Bulls however gained some upside momentum at the back-end of October, seeing a breakout to the upside. ETH/USD had gained over 15%, up to the high print on 7th November, just above $225.

At present ETH/USD is somewhat magnetized to the 50% Fibonacci, hovering around the $210 price area. Clearly it has re-entered consolidation mode after the surge higher last week. This type of behavior is typically seen following on from explosive moves.

4-hour Chart View

ETH/USD 4-hour chart

Looking via the 4-hour chart breakdown, given as mentioned above, the current consolidation state, a bullish set up has formed. A bullish pennant pattern, as a result of the cooling from the high area on 7th November has formed.

Near-term resistance is eyed between $214-215, the upper trend line of the pennant. A breach above, will likely see a retest of the 7th November high. Further north, a strong area of supply can be seen running from $230-235.

ETH/USD faltered in the above supply area on several occasions, from 27th September up until 10th October. Lastly, in terms of upside, $250 would be a target for the bulls. The price hasn’t been up at these heights since 21st September, where it encountered strong sellers.

To the downside, immediate support is eyed around $210-208, the lower trend line of the pennant pattern. Any breach here, could very well see a fast move back down sub $200, buyers are seen around $195.

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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4.4 stars on average, based on 45 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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Altcoins

Stellar Price Analysis: XLM/USD Continues to Head for the Stars

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  • XLM/USD bulls resume upward trend, having gained another 8% over the past two sessions.
  • Cryptocurrency wallet provider Blockchain is to host Stellar Lumens (XLM) airdrop worth $125 million.

Stellar’s native token Lumens is notablly outperforming several of its peers. XLM/USD has seen its firm move north has continued, with the price gunning towards the $0.3000 mark. As a recap, the bulls exerted pressure to the upside, which forced a firm breakout from a triangular pattern formation. This resulted XLM/USD moving into an explosive short-term bullish trend.

The price ran higher between 4-6 November, gaining over 16%. For the next three sessions after this, the price cooled, between 7-9 November. This was a move which was very much in line with the rest of the market. It appeared profit-taking kicked in, given the fast and explosive gains. The bulls are back on the move within the past two sessions.

Recent Stellar News Flow

Cryptocurrency wallet provider, Blockchain, will be hosting what they say is the “largest crypto giveaway in history.” They will be dispersing $125 million worth of the Stellar Lumens, to Blockchain wallet holders, that choose to sign up for the airdrop. It is offering $25 of Stellar Lumens (XLM) for free to its 30 million users, a move to encourage new users and ever so slightly assist towards the greater goal of mass adoption.

The Blockchain CEO had reported that the company is working with the Stellar foundation partly because he believes it represents a superior blockchain capable of massive transaction volumes. He added that the airdrop is designed to “put users first” and allow them “to test, try, trade and transact with new, trusted crypto-assets in a safe and easy way.”

Technical Review – XLM/USD

XLM/USD daily chart

XLM/USD over the past two sessions now is running at consecutive daily gains. Bulls having gained over 8% at the time of writing, between 10-11 November. This demonstrates the strength of the current bullish trend, which had commenced on 31st October. Technically, the market accommodated a small pullback, as mentioned in the prior article before resuming its move north.

Upside Targets

There was some sticky resistance seen around the 50% Fibonacci, but the bulls having made a firm clearance of that now in latest move. The next near-term challenge is seen at the 61.8% Fibonacci, around $0.2830. This was the high area for 21st, 23rd and 24th October, where the price faltered on each of those occasions. A breakdown will likely open the door for the $0.3000 return.

Should XLM/USD bulls manage to firmly conquer the $0.3000 price region, there doesn’t appear to be too much in the way of $0.5000. During the chunky market sell-off seen in April, XLM/USD ran straight through from $0.5000 down to the $0.3000 territory, leaving little in the way of technical observation within the $0.4000 region.

Overbought Dangers

Despite all noted above, it is worth considering the RSI’s behavior. On the daily time frame, the RSI is again approaching the 70 territory. At the back end of July and September XLM/USD saw a steep sell-off. Given the recent surge in price action higher within a short time period, it still leaves XLM/USD vulnerable.

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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4.4 stars on average, based on 45 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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XRP Price Analysis: Largest Bank in Japan, MUFG Bank, Set to Utilize Ripple Technology

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  • Japan’s largest bank MUFG will be collaborating with Brazilian bank, Banco Bradesco, leveraging Ripple technology for payments between Japan and Brazil.
  • XRP/USD technical bullish formation eyed (a pennant pattern on the daily chart view) subject to a breakout.

It was reported last Friday that the largest bank in Japan, MUFG Bank, will be utilizing Ripple’s technology. MUFG Bank and one of the largest banks in Brazil, Banco Bradesco, announced signing a Memorandum of Understanding. They will be collaborating to develop a new cross-boarder payment service, which will leverage Ripple’s technology between Japan and Brazil. It is anticipated that they will be using Ripple’s xRapid, which requires the use of XRP,  to facilitate with the transactions overseas between the two countries.

Ripple announced via their Twitter account“@Bradesco and @btmu_official are leveraging Ripple’s #blockchain technology to create a new cross-border payment service between Japan and Brazil.”

Ripple continue to add large financial players to their ever-growing list of users on their network.  It was only reported at the back-end of last month that the National Bank of Kuwait (NBK), one of the largest banks in the Middle East, is actively testing and readying to go live with Ripple’s xCurrent payment solution.

Technical Review – XRP/USD

XRP/USD daily chart

XRP/USD over the past two sessions is moving back higher, after a chunky cooling in the price was seen. On 6th November, XRP/USD ran up to its highest level that was seen in around 6 weeks, moving just above $0.5700 mark. This was part of a 30% gain, which commenced after bouncing off support on 31st October. The bulls then ran into some near-term resistance, an upper trend line, that has formed a bullish pennant pattern. As a result, then price eased lower for two sessions, dropping just over 10%, during that period.

Upside Targets

Looking to the upside, should the bulls continue this pick seen going on two sessions now, a retest of the pennant will likely be seen. The above descending trend line is now currently tracking at $0.5500. A breach here could see a fresh wave of bull buying, initially with a firm move above 6th November high at $0.5705. Ultimately, a breakout from this mentioned pattern, could see a fast move back into the $0.6000 territory. XRP/USD last traded here on 1st October, before running into sellers.

Support Levels

If the technical set up as described above fails to play out, then there are key areas of support that must be looked at. Firstly, the lower part of the pennant pattern, which is observed at $0.4700. This is also in proximity to a demand area, running down to $0.4400. Any failure to provide comfort at the mentioned, then it could be disastrous. XRP/USD could be forced to free-fall back down below the $0.3000 territory. The price was last traded down here on 18th September, when it had entered into a strong bull run.

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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4.4 stars on average, based on 45 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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