What’s the Big Deal?

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.

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.