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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

  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

Market Update: U.S. Stocks Rebound as Turkish Lira Rebounds; Cryptocurrencies Plumb 2018 Lows

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U.S. stocks rebounded on Tuesday, as the threat of contagion from Turkey’s Lira crisis showed signs of fading. Meanwhile, the downward spiral in cryptocurrencies intensified amid signs of a large-scale ICO cash-out.

Stocks Return to Strength

All of Wall Street’s major indexes returned to positive territory, with the Dow Jones Industrial Average rising 112.42 points, or 0.5%, to 25,300.12. The broader S&P 500 Index gained 0.6% to 2,839.96, with all 11 primary sectors finishing in positive territory. The technology-focused Nasdaq Composite Index returned 0.7% to finish at 7,870.90.

Gains were evenly distributed across multiple sectors, with consumer discretioanry, financials and industrials shares leading the rally.

The CBOE VIX, also known as the fear index, pulled back sharply from five-week highs as risk-off conditions cooled. VIX closed down 10% at 13.31, on a scale of 1-100 where 20 represents the historic average.

Chinese Growth Figures Miss the Mark

Signs of a sputtering Chinese economy emerged last month with key industrial and consumption metrics missing their mark.

Industrial production and fixed-asset investment grew at their slowest pace in nearly two decades, the National Bureau of Statistics reported Tuesday.

Industrial production rose 6% year-over-year in July, unchanged from the previous month. Fixed-asset investment growth slowed to 5.5% annually from 6% a month earlier. Meanwhile, retail sales grew 8.8% annually in July compared with 9% in June.

China’s cooling economy comes as policymakers look to counter America’s protectionist policies, which have resulted in a tit-for-tat trade war between the world’s two largest superpowers. However, China’s massive trade surplus with the U.S., combined with its reliance on smoke-stack industries, suggest that Beijing can’t counter Washington’s escalating expansive levies.

Last month, U.S. President Donald Trump announced plans to administer levies on an additional $200 billion in Chinese goods. Earlier in the month, the administration implemented tariffs on $50 billion worth of Chinese goods.

Cryptocurrency Downtrend Intensifies

Ethereum was at the center of another crypto crash Tuesday, as the total market capitalization fell to $193 billion, the lowest point of the year. The ether price shed more than 10% to plumb new 14-month lows.

As Hacked reported earlier, ICO burnout appears to be largely responsible for the protracted selloff, leaving bitcoin with a 54.5% share of the total market. The largest digital currency by market capitalization came to within $100 of its yearly low, which would have likely sparked a deeper correction in the broader market.

At one point during the day, 78 of the top-80 altcoins had reported double-digit percentage losses. With the exception of a few obscure names, no major cryptocurrency in the top-100 was spared the losses.

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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4.6 stars on average, based on 544 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Analysis

Pre-Market: Stocks Rebound as Turkish Tensions Ease

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While nothing has been fixed in Turkey overnight with the vague plans announced to fight inflation by the finance minister, global markets rebounded after yesterday’s panicky conditions.US stocks undoubtedly led the way higher yet again, as the Lira, which made it to the mainstream media in the last few days, is up by more than 7%, with the USDT/TRY pair pulling back to 6.50 from a high above 7, and risk-on assets are higher globally, with especially equities staging a rally.

USD/TRY, Daily Chart Analysis

The other emerging market currencies that sold off are also correcting, with the Argentinean Peso, Brazilian Real, and the Russian Ruble all being off their lows. Despite the positive signs today, the underlying trend is still bearish in the FX segment, and the Dollar’s strength doesn’t seem to abate, with short-term Treasury yields also looking stable.

DAX Index, Daily Chart Analysis

While the major European indices are slightly in the green, headed to the closing bell, European banks that are exposed to Turkey are not showing much enthusiasm, and we expect risk-off sentiment to return in the coming days, until meaningful action is taken by the Turkish authorities.

Emerging market currencies are definitely feeling the contagion effects, with the Argentinean Peso, the Brazilian Real, and the Russian Ruble all being down big time in the last few days. So far, the Turkish leadership failed to calm the market, rather they fueled the fire with the aggressive rhetoric, and the seeming ignorance of the basic macro-economic rules.

In economic news, China was all the rage today, and the country that has been targeted by Trump’s tariffs is feeling the pain. It would be foolish to think that the trade war alone is to be blamed for the weaker than expected indicators across the board, but the skirmish between the two mega-powers definitely triggered a slowdown in the credit fueled economy.

Shanghai Composite, Daily Chart Analysis

Industrial production, retail sales, and investments all came in well below the consensus estimates, and with the Shanghai Composite already being in a bear market, and the Chinese Yuan hovering near its 13-month low against the Greenback, all looks set for a harsh awakening in China.

US Still the Island of Caolm

In the US all eyes are on tomorrow’s retail sales report, while today only two less important economic releases came out. The NFIB small business indicator was higher than expected and import prices were unchanged as the Dollar’s rise likely evened out the first effects of the new tariffs.

Nasdaq, 4-Hour Chart Analysis

The Nasdaq rebounded strongly overnight, leading the major indices higher again, and with that it got very close to its all-time high, outperforming the rest of the world by a mile. With powerhouses Apple and Amazon still pushing to new highs, even as more balanced portfolios are left behind, the tech index could set a new record as soon as today, should the otherwise shaky risk-on shift hold.

Copper Futures, 4-Hour Chart Analysis

Commodities are mixed so far today, as copper fell below $2.70 again, as it got hit hard after the Chinese data dump, while oil continued to rally, climbing back above $68 per barrel, with regards to the WTI contract.

Gold also bounced back above $1200, despite the Dollar’s rally against its major peers, and we have to wait and see if the spike below $1200 finally marked the lengthy downtrend in the precious metal.

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 317 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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Market Overview

Reacting to the Buck

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Hi Everyone,

Extreme market action continues. What began earlier this week as a rout in the Turkish Lira has quickly spread throughout all markets and now it seems to be affecting the cryptos as well.

All the major cryptos fell over the last 24 hours. Bitcoin managed to hold the most steady and Ethereum bore the brunt of the selling.

This article on Bloomberg indicates that the reason for this could be that some ICO’s are cashing out.

However, there is a need for further analysis backed up by more in-depth intel before a final conclusion can be drawn.

The reality is that more money is flowing into ICOs than out of them. According to data collected from CoinDesk, $14.3 Billion has been raised so far in 2018. Nearly triple the $5.7 billion raised in 2016 and 2017.

On the ground, we continue to see positive headlines that show a clearly developing crypto industry. So the fact that token prices are falling could very well be a reaction to external factors like the rapidly rising US Dollar, as we’ll explore below.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

  • Volatility is Back
  • Gold < $1200
  • Crypto Reaction

Please note: All data, figures & graphs are valid as of August 14th. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets

Looks like we’re getting a bit of a rebound in the markets today as the markets are mostly reversing many of yesterday’s moves.

Looking at the Lira, it seems we’ve backed slowly away from resistance at 7 Lira to the Dollar (USDTRY). We should be hearing from Turkish officials including Erdogan later today.

Stocks are up across Asia and Europe. All except China who is processing some sour economic data.

No Safety

Perhaps the strangest thing about the current market action is the lack of safe haven sentiment.

We can see clearly that volatility is rising…

Yet, gold and other precious metals continue to fall. Yesterday, Gold dropped below the important level of $1,200 for the first time since January 2017.

This is a rather clear indication that whatever volatility is happening it’s not freaking anybody out.

Crypto Reaction

Though I couldn’t say with absolute certainty that the meltdown in emerging market currencies is what’s getting the crypto market down lately, it is the most likely explanation given the current market conditions

As the United States moves to tighten its economy and avoid strong inflation, they’re taking action that is strengthening the Dollar. Because the US Dollar is the global reserve currency, many smaller economies rely heavily on a stable exchange rate with the greenback.

So too, as the Dollar is being seen as a stable store of value at the moment, there really isn’t much incentive for people to store their money in digital assets.

Still, it does seem that we’re seeing some of the excitement spilling over onto the blockchain. In this chart, we can see the TPS (transactions per second) is rising rapidly over the last few days.

As well, we can see a noticeable spike in exchange volumes during the entire market action yesterday.

Many thanks to you for reading and to everyone sending me your questions, thoughts, feedback, and insight. It’s extremely valuable.

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.

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 | LinkedIn: MatiGreenspan | Facebook:MatiGreenspan

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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