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What’s the Big Deal?

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So everybody seems to be worried about this issue with Tether. If you’re not familiar with the situation, here’s an excellent article that explains the whole story.

Several clients have already approached me asking what the ramifications could be, but honestly, I really don’t see the big deal.

Firstly, the US Government has been creating USD out of thin air for the better part of the last decade without having any major negative impact on the Dollar’s price or it’s ability to be used as a medium of exchange.

Secondly, even if market players do lose confidence in Tether and it goes to zero, what’s the worst-case scenario for Bitcoin and other cryptocurrencies? All it means is that alternative investors will prefer to rotate out of Tether and into other coins.

The biggest impact that I can see is on the exchanges who use Tether as their base currency. But please… the exchanges aren’t hurting at the moment. We saw coincheck in Japan just got hacked for nearly half a Billion Dollars only to announce the next day that they will pay it back from their own ample pocket.

Perhaps I’m missing something, as I often do, but from what I see, the faster this whole thing shakes out the better.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

Record Breaking Stocks

2 Euro Headwinds

Red Cryptos

Please note: All data, figures & graphs are valid as of February 1st. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

Despite the pullback in the stock market at the beginning of the week. January has ended by breaking several records on Wall Street.

The Dow Jones has closed it’s 10th consecutive month in the green, making it the longest streak of monthly gains since 1959 and the S&P500 has had its best start of the year since 1997.

The US Dollar, on the other hand, is not having a fab year and has extended the losses seen in 2017.

As if things weren’t bad enough for the buck. Janet Yellen got a bit aggressive yesterday on inflation. Stating that it may be coming sooner than expected. Yellen out!!

On the one hand, that could be good for the Dollar since the Fed will likely raise their rates quicker once Jerome Powell takes over, on the other hand it means that inflation is coming.

I might need to rethink what I wrote in the opening letter about the US and inflation. :/

Over to Europe

The Dax in Germany has been rather patient as they wait for Angela Merkel to put her government together. The country has been in political deadlock since the elections on September 24th.

The stocks did in fact rally after Merkel’s apparent victory (yellow circle) however it seems to have been flip-flopping and hasn’t made any significant moves since then.

The Euro on the other hand has been rather strong. Perhaps in the face of a weaker Dollar, or due to a tighter stance from the European Central Bank.

Either way, over the next month focus will likely shift to their fourth largest economy. Elections are coming in Italy on March 4th and things don’t look pretty.

The anti-establishment Five Star Movement (yellow) has been gaining strength but more notably, the center-left Democratic Party (red) has been losing popularity.

Europe seems to be impervious to political risk ever since Marine Le Pen’s defeat in France. It’s not clear why more people aren’t talking about the Italians at this point.

Crypto Watch

As I’m writing, things are rather red in crypto-land. Despite what it looks like on the short term charts and the FUD on the front pages, January’s loss needs to be seen as a reaction to the gains from November and December.

Here’s a chart that was posted yesterday by @Liamdavies, who sees this entire falling wedge as a bullish indicator.

Of course, we always need to hammer home the risk disclaimers when it comes to crypto, there is always a chance of everything going to zero, which is why it pays to diversify, diversify, diversify!!!

Use proper money management. If more than 20% of your overall assets is on cryptocurrencies you are taking an enormous risk!!!

Rather, the best way to go is to spread your investments across the different stocks, indices, currencies, commodities, and ETFs that are on the platform. This can be done simply copying other investors with more experience or by using some of the copyfunds that are in the platform.

On Monday, our CEO and founder Yoni Assia will be hosting a webinar to deliver his outlook for 2018. Space is limited so if you’d like to be in the live event, please register now.

As always, let me know if you need assistance or if you have any questions. Have an amazing day ahead!!

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

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 Comments

4 Comments

  1. Baja Surfer

    February 1, 2018 at 8:35 pm

    I see comments about Tether like “I really don’t see the big deal” from very smart people and it worries me.

    I’m not sure how old you are but I’m old… I started programming Basic/DOS in 1982 and my first video game was pong… so I’ve lived through a lot of technology up/downs, and I’ve seen my fair share of investment schemes/fraud collapse, and Tether has all the red flags of a scheme/fraud… it’s not about financial stability, using wash trading to build reserves, it’s about honesty and transparency, they have breached their fiduciary responsibility with their customers by not being audited, why would you not hold them accountable? If this was Apple, Google or any other legitimate company you would call them out in a heartbeat.

    Now I know many people are invested in cryptos on an emotional level, so it may cloud their judgment, but this statement:

    “Firstly, the US Government has been creating USD out of thin air for the better part of the last decade without having any major negative impact on the Dollar’s price or it’s ability to be used as a medium of exchange.”

    Are you really trying to compare a government with physical assets to Tether? Which is backed by no physical assets. This is irresponsible. Yes, from a macro perspective the monetary policy of the US dollar is unsustainable, and there will be a reckoning, but comparing Tether is not even close.

    Tether as a company has a responsibility to fulfill their promises to customers, just like any other business, and as a prudent investor, you should know this, it’s not personal, it’s business. You provide one example of a company you invest in other than Tether that has failed to meet their commitments to investors/customers and not be audited.

    • Mati Greenspan

      February 1, 2018 at 10:49 pm

      Hi Mr. Surfer,

      Love this reply!! Thanks a lot for taking the time to write it. In fact, this is exactly what I was looking for when I wrote that “I might be missing something.”

      In fact, I was born in 1983 so still have a lot to learn. 🙂

      My main question is.. ok, let’s say this is a huge scandal as it does appear to be, what’s the worst case scenario?

      I don’t see volumes on Tether as large enough to have any lasting impact on the market. So perhaps you can answer, what would a complete blow up look like? How would it impact the exchanges?.. more importantly, how would it impact the price of BTC ETH and the rest?

      Thanks,
      Mati

  2. Baja Surfer

    February 1, 2018 at 11:09 pm

    These are great questions, and I believe these are the questions everyone should be trying to answer:

    Let’s say this is a huge scandal as it does appear to be, what’s the worst case scenario?

    What would a complete blow up look like?

    How would it impact the exchanges?

    Would it impact the price of BTC ETH and the rest?

    Here’s a viewpoint from someome that does a lot of research (https://www.tradingview.com/chart/BTCUSD/mfQ7rG2F-BTC-India-and-Tether-Just-Another-Distraction/):

    FACTS:
    #1 Bitcoin’ is NOT the only coin traded in Tether. So this statement is misleading to say the least. Around 60% of the Tether market is traded paired with bitcoin’ but the other 40% is among a basket of other currencies. I’m sure it fluctuates from exchange to exchange but bottom line its not traded paired with bitcoin -9.85% only.

    #2 Tether is simply a crypto currency “pegged” or supposed to be backed by the dollar.

    #3 Tether is 0.4% of the overall crypto market cap and 0.7% of the alt coin market cap with a 2.2 billion dollar cap.

    #4 It works just like every other fiat currency in which it is simply a median of exchange

    Now lets assume Tether is a complete scam and there is not $1 USD in any bank account to back it.
    Tether would lose 100% of it’s market 2.2 Billion dollar market cap instantly. Does this mean that Bitcoin’ is doomed?

    NO! Now it may bring to light the corruption in the space which may adversely affect bitcoin’ and the market as a whole temporarily, but it does not change the fundamentals of bitcoin’. So it is simply a coin that is backed in faith by the faith of another currency. The irony! So in my opinion, unless you own Tether’ directly I personally am not worried and would use the fallout as a buying opportunity.

    And I concur, the numbers indicate it’s not going to destroy the market, but you know the market is an emotional being… so for us as traders/investors it’s up to us to understand the numbers for the “intrinsic value” (and that’s a whole different discussion) and not dismiss facts as FUD.

  3. dbenn8

    February 1, 2018 at 11:52 pm

    Hey all, the major concern in this NYTimes article is that these valueless Tether have been used to repeatedly prop up the Bitcoin market. I think they are claiming that many times that Bitcoin has started to fall in price, $100Mil worth of tether have been added to the ecosystem and used to start buying BTC to push its value back up.

    So, the concern here is that BTC’s fundamental value is actually much lower than the market has been valuing it at, since zero value tether have been used by the exchanges to prop up its price when it falls.

    As we know, Alts are pretty strongly tied to BTC, so it could theoretically be propping up this entire giant rise in market cap…

    https://www.nytimes.com/2018/01/31/technology/bitfinex-bitcoin-price.html

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Market Overview

Bitcoin in Backwardation (this is fine)

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Bitcoin Options

Hi Everyone,

One of the joys of having a futures market is the ability to understand what investors are thinking about the future of the price. For bitcoin, it doesn’t seem so great at the moment.

As we can see, the contracts for the bitcoin futures on the CBOE are currently in backwardation, meaning that contracts with a later expiration are trading consecutively lower.

Of course, something like this might have made me nervous on a normal day, but then I remembered that oil futures were trading in contango (opposite of backwardation) before the prices collapsed back in October.

Also, the volumes here are kind of silly. I mean, 227 BTC (less than $1 million) trading on a contract that expires today. Sure, the title is catchy but what can we really learn from this?

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

  • Shutdown: Day 26
  • Day’s to Brexit: 72
  • Constantinople Delayed

Please note: All data, figures & graphs are valid as of January 16th. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

You may have noticed that we’re now including a countdown to Brexit in the highlights section, right next to the US government shutdown counter. I think they fit together neatly. Two governments descending into a state of turmoil over political wrangling.

Today, Theresa May’s government will see the ultimate test. If she loses the vote of no confidence, the UK heads to new elections… again.

Over in the East, China decided to inject the market with a record level of stimulus. Yesterday’s tax cuts may have been insufficient to maintain growth, so they’ve gone the route of free cash for the market.

In addition, it seems the Institue of International Finance has made a rather shocking estimation. It seems our entire economic system, from our homes to places of work and our governments are increasingly reliant on debt.

Given all the above, it’s no wonder that the European Central Bank is now sounding a new alarm.

Don’t worry about any of this though. The stock markets are up today. Hope the earnings reports from the financial sector go well.

Ethereum Upgrade Delayed

After all the excitement, the crypto community was disappointed to hear last night that the long-awaited Constantinople upgrade has been delayed once again.

It seems a critical bug was found at the last minute and the lead developers pulled the plug. Here we can see the crypto market, led by Ethereum, dropping moments after the announcement was made

We’re seeing a bit of a recovery this morning but that was really scary. I mean, it’s good that they caught the bug before going live but the fact that it came within 30 hours of the upgrade is a bit nervewracking.

These things do happen, virtually all major platforms including Windows, Android, and Apple Operating systems, have seen critical bugs before. Though it would be possible to release a patch, fork the network again, and return to normal, that kind of process could in itself have done irreparable damage.

We hope that Constantinople whenever it is ready, goes through without any additional hitches.

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

eToro is a multi-asset platform which offers both investing in stocks and cryptocurrencies, as well as trading CFD assets.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

Best regards,
Mati Greenspan
Senior Market Analyst

Connect with me on….

eToro: @MatiGreenspan Twitter: @MatiGreenspan LinkedInMatiGreenspan |Facebook:MatiGreen

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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4.7 stars on average, based on 142 rated postsSenior Market Analyst at Etoro.com.




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Market Overview

U.S. Stocks Rise on News of China Stimulus; Theresa May’s Brexit Deal Falters in British Parliament

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Wall Street and global stocks bounced back on Tuesday, as investors rallied behind a renewed stimulus push from the Chinese government in the wake of dismal trade figures earlier in the week. Meanwhile, U.K. Prime Minister Theresa May’s proposed Brexit deal was swiftly rejected by British parliament, setting the stage for a tumultuous two months.

Stocks Rally

All of Wall Street’s major indexes bounced back on Tuesday from a slow start to the week. The S&P 500 Index gained 1.1% to 2,610.30, with nine of 11 primary sectors reporting gains. Technology, health care and communication services were the best performers. Surging tech shares lifted the Nasdaq Composite Index to a gain of 1.7%, where it closed at 7,023.84. The Dow Jones Industrial Average advanced 155.75 points or 0.7%, to close at 24,065.59.

European and Asian markets also reported firm gains. The U.K.’s FTSE 100 Index rose 0.6% to 6,895.02. The pan-European Stoxx 600 finished 0.4% higher at 348.71.

Japan’s Nikkei 225 index rose 1% to 20,555.29. Mainland China markets surged 2%, with the CSI 300 Index closing at 3,127.99.

China Pledges More Stimulus

The rally in global stocks on Tuesday was partly owed to a renewed pledge by the Chinese government to stimulate a moribund economy. China’s finance ministry has announced a new plan to cut taxes and increase federal expenditures this year in an attempt to combat weaker growth. Meanwhile, the People’s Bank of China (PBOC) said it will make monetary policy more forward-looking and ensure that markets don’t face a liquidity crunch in the future.

In reality, China’s economic slowdown appears to be inevitable as Beijing shifts from exports and manufacturing toward consumption and services. This generational transition will likely see GDP growth decline further in the coming yeas as China’s middle class continues to grow. However, the presence of asset bubbles and a worsening trade outlook could hasten the decline.

May’s Brexit Deal a No-Go

British lawmakers overwhelmingly rejected Prime Minister Theresa May’s Brexit deal on Tuesday, setting the stage for a political fallout that could threaten the U.K.’s planned exit from the European Union in March.

The Brexit deal was soundly rejected in British parliament by a vote of 432 to 202. The scale of the defeat highlighted the extreme opposition facing the prime minister from both sides of the political divide. By failing to agree on the terms of Brexit, the U.K. faces an uncertain future with respect to the EU.

May still has three options for salvaging an exit agreement: (1) negotiate new terms with the EU and table a slightly different proposal; (2) hold a second referendum; and (3) call a general election.

Since taking over from David Cameron in 2016, May has faced an uphill battle satisfying living up to the hard Brexit mandate while also satisfying the pro-EU opposition. A botched early election in 2017 relegated her party to minority status in Parliament, which further complicated matters.

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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4.7 stars on average, based on 737 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Market Overview

Moment of Truth

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Hi Everyone,

What can I say? The adoption of crypto by large scale financial institutions is taking longer than expected but is still on track.

The bear market certainly caused some to hesitate but today we have confirmation that things are moving forward as planned.

The Wall Street backed service Bakkt, which plans to allow clients to store and spend crypto in a user-friendly and secure way, has clearly demonstrated that they are going ahead despite delays caused by the partial US government shutdown.

In this blog post yesterday, Bakkt CEO Kelly Loeffler announced their first strategic acquisition. The Chicago based company they’re buying is Rosenthal Collins Group, which boasts more than 100 years experience in the financial services industry. The deal, which is set to be finalized next month, will see RCG’s team completely integrated into the young crypto company.

Meanwhile, in Switzerland, a country that is way ahead of the curve on crypto adoption, a major financial institution known as Vontobel has announced their own crypto custodial service and digital asset vault, which is available for their clients now.

My friends, institutional adoption of cryptoassets is finally upon us.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

  • Shutdown: Day 25
  • Brexit Vote Day
  • Ethereum Upgrade Tonight

Please note: All data, figures & graphs are valid as of January 15th. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

Stocks are up today on the news that China will be following in Trump’s footsteps and stimulating their economy with massive tax cuts.

As economic conditions tighten around the world, one of the only solutions left for many countries to encourage spending is to cut taxes.

Of course, the long term effect of these type of actions is usually to increase the national deficit as the world’s largest economies sink further into staggering debt. But that doesn’t necessarily need to be an issue as long as they keep making their payments on the debt.

The rally seems to be holding into the European session and even the safe havens like Gold, Swiss Francs, and the Yen are pulling back.

Today is the 25th day of the partial US government shutdown with no end in sight. We’ll also hear from Mario Draghi at 16:00 in France. Let’s hope for some strong earnings reports from the financial sector today and tomorrow.

Brexit Vote

Bigger than all of that though, at least in the UK, is the critical vote on Theresa May’s Brexit plan, which is scheduled to take place around 19:00 London time.

Consensus seems to be that the vote will not carry and some are even predicting the worst upset for a Prime Minister in British History, which does seem a bit exaggerated to me.

Due to the potential impact on the markets many brokers, including eToro, have limited the maximum allowed leverage going into the event on all UK stocks and most major currency pairs. For details of how trading will be affected, please check out @eToroTeam page for updates.

Something tells me though, that this may not be as big as people are preparing for. First, the fact that brokers are limiting leverage in itself should reduce volatility. Second, if the announcement is already set to upset then there shouldn’t be much surprise to the markets. You never know though.

Upgrade Time for ETH

At block #7080000, which should happen sometime tomorrow night, the Ethereum network will undergo a hard fork.

Hard forks might seem difficult to understand because we’re so used to centralized computing, but in a decentralized world, the only way to make a major upgrade is to fork it.

For example, when Microsoft wants to upgrade from Windows 9 to Windows 10, they have their dev team write the code, and then users upgrade one by one in their own time. In decentralized computing, the entire network needs to upgrade together.

A hard fork is like a copy-paste action, where a new blockchain is born and if all goes well, the old one dies.

Sometimes, when there is a disagreement among the community about the upgrade, some members will choose to keep the old version of the blockchain alive and we see a split. The most famous cases of this was when Bitcoin Cash split off of Bitcoin on August 1st 2017 and when Ethereum split with Ethereum Classic back in 2016.

However, the Constantinople upgrade has already received widespread backing from the entire community and so we hope everything goes smoothly. It’s important to note that there is no action required by the end users. If you are holding ETH on eToro or any wallet or exchange, the upgrade should be done for you automatically.

By this time on Thursday, we should have a brand new Ethereum, which is faster, cheaper, and has 33% less inflation.

Let’s have an excellent day.

This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

eToro is a multi-asset platform which offers both investing in stocks and cryptocurrencies, as well as trading CFD assets.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.

Best regards,
Mati Greenspan
Senior Market Analyst

Connect with me on….

eToro: @MatiGreenspan Twitter: @MatiGreenspan LinkedInMatiGreenspan |Facebook:MatiGreen

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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