What the Dickens?
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”
A Tale of Two Cities (1859)
I wonder if Dickens was a day trader…
- Tale of Two Sell-Offs
- Fed Expectations
- SEC Twist
Please note: All data, figures & graphs are valid as of November 20th. Only risk capital you can afford to lose.
Though we’ve shown in the past that on a day to day basis the stock markets are not very correlated with cryptoassets. However, it’s impossible to shake off the feeling that somehow the current sell-off in tech stocks is somehow related to what we’re seeing with the cryptos.
Indeed, the macro-economic story incorporates all assets and looking at the long-term graphs, we can spot clear similarities between these two seemingly unconnected markets.
This chart shows the movements of bitcoin (in blue) against the Nasdaq 100 (purple) since the beginning of 2017.
The year 2017 was an exceptional year for high risk assets, including cryptos and tech stocks. In 2018, we’re seeing is a retracement of that.
When prices reach levels that are higher than can be justified, they need to pull back and so the cycles continue. It’s important to note that over this time the Nasdaq is still up 30% and Bitcoin, well… you can see the percentage in blue on the above chart.
It isn’t possible to time the markets to a T, so every person needs to take the decision if they’re an investor or a trader. If you’re trying to catch each and every small move, it can prove to be difficult, especially in times of uncertainty such as these. For long-term investors, results are usually much more predictable.
What’s Causing this?
The simple answer is that everything we’re seeing across all markets is still the aftermath of the 2008 financial crisis.
The world’s governments and central banks have pumped very large amounts of money into the system over the last 10 years in order to stabilize the financial system. Much of this money has by now found its way into various markets, often times with little research on the part of the investor as to what the value of the assets should logically be.
With this in mind, it’s important to note that a lot of this cash is still on the sidelines looking for a home. So, whenever these markets do find themselves their respective bottoms, there’s still a mountain of capital that could potentially be put to work. The only question that nobody can answer with certainty is exactly where those bottoms may be.
If things turn around now, it would certainly be a very bullish sign, but it’s also entirely possible that this could last a while longer.
No News is Good News
Despite what many are claiming, my view is that current news events are only having a limited impact on prices at this time.
The current scandal surrounding the auto tycoon Carlos Ghosn, CEO of Renault, has certainly influenced short-term pricing in the automotive sector, but it’s only a very small piece of the larger macroeconomic story playing out above.
Same goes for the Bitcoin Cash Hard Fork and crypto, and OPEC with crude oil. These developments do influence short-term sentiment but are still not the main drivers.
Sometimes people get so wrapped up in finding a story to go with a movement that they misinterpret the new entirely. A great example of this is the SEC ruling that came out on Friday, which many have blamed for the current price action.
If you read the ruling, you’ll notice that this new update brings a lot more clarity than we previously had, and should be serving to bolster confidence rather than tearing it down.
The fact that the SEC chose to settle with AirFox and Paragon is a clear sign that the US authorities are taking a supportive stance towards blockchain startups. Here’s an excerpt from the document.
Consider what this might mean for XRP for example. It’s very possible that the SEC could come out and say, that it is an illegal unregulated security, hand them a fine, have them compensate any outstanding claims, and then they could very well be allowed to register as a security and continue their business.
Of course, we can’t pretend to know how things are going to play out, but this is why it always pays to diversify our investments and think long-term.
Let’s have an amazing day ahead!
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Senior Market Analyst
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