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Market Overview

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.

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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.

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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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Analysis

Pre-Market: Bulls Try to Fight Back after Ugly Overnight Session

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Following the steep late-day downturn on Wednesday, which followed the not-to-hawkish FED meeting minutes, Asian markets and US equity futures continued lower with a vengeance. The very active overnight trading is another sign of the regime change in traditional financial markets that we have been monitoring for the last two weeks, ever since the “Black Monday of 2018”.

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Dow Futures, 4-Hour Chart Analysis

EUR/USD Changing Behavior

The European session brought about an oversold bounce that stabilized markets from stocks to currencies. The EUR/USD pair that has started acting “normally” considering its relationship with US Treasury yields lately, is headed south once again, trading only 0.5% above its recent correction lows after clearly breaking below the rising trendline.

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EUR/USD, 4-Hour Chart Analysis

The bull-trap that we identified a few days ago was the start of the current leg lower, and if the regime change will be persistent, the most traded forex pair could be back to the role of the “risk-on/risk-off” indicator that has been the privilege of commodity currencies in the last couple of weeks.

USD/JPY, 4-Hour Chart Analysis

The Japanese Yen is showing notable strength after its overbought dip, and the primary safe-haven currency could be in for more gains, should the risk-selloff continue. The Yen also gained ground on the common European currency, following the dovish ECB meeting accounts and the misses in the German IFO business climate indicator and the British GDP, which all question the European growth-monetary tightening narrative.

Canadian Dollar in for a Wild Ride

USD/CAD, 4-Hour Chart Analysis

With the Canadian retail sales report and the US crude oil inventory data coming out soon, forex traders should expect sizeable moves in the recently weak currency, while the USD should also be very active during the US stock market session.

All eyes are on Treasury yields again, with the slight correction today helping the bounce in stocks and other risk assets. The Nasdaq could be the motor of a stronger rally on Wall Street, but we wouldn’t bet the house on that, as the short-term technical setup remains bearish, and a re-test of the correction lows is still the most likely scenario for the coming weeks.

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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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Market Overview

Play that Funky Market

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There’s only one way to explain what’s happening in the markets right now.

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It’s FUNK!

@MatiGreenspan
eToro, Senior Market Analyst

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Today’s Highlights

  • More Market Funk
  • No way but Right?
  • More Crypto Vol

Please note: All data, figures & graphs are valid as of February 22nd. All trading carries risk. Only risk capital you can afford to lose.

Traditional Markets Funk

Everything was going fine on Wall Street, they came back from lunch in a buying mood, but somehow things started to turn sour. By about an hour before the close things started to get downright ugly and by now we’re more than 500 points off the peak of that yellow circle and we’re now 3.82% from the all-time high.

Once again, the movement began in the bond markets, with the yields on the 10 Year spiking to a new high of 2.94% by the end of the day.

And of course, volatility can be seen with the VXX shooting up into the close.

Italian Splinters

It’s been five days since Italy stopped publishing opinion polls ahead of the national elections on March 4th in order to stop them having an influence on polling day itself.

That said, as we learned in Brexit and the Trump elections, polls can’t always predict what’s going to happen and in Italy, even less so. And this one is set to be even more interesting than usual.

Nevertheless, some analysts have come to the conclusion that the only party with an actual shot of winning an outright majority is Forza Italia, led by Silvio (I can’t believe I’m even writing this) Berlusconi.

This is still anyone’s game though, and even though there are 945 seats across two Houses of Parliament, alliances are so fractured that candidates are now battling for every single voter.

For the markets it’s still not clear what the effects might be, but as Europe’s 4th largest economy, and with the EU’s 1st largest economy still in a political deadlock, I’m looking squarely at the Euro.

In this chart, we can see the effect that a decisive election had on the EURUSD on April 23rd (yellow circle). Notice the large gap up that seemingly took the market from flat to flying in a single weekend when it became clear that Marine Le Pen had no chance of victory.

Crypto Volatility Continues

When Wal-mart’s stock dropped 10% on Tuesday it was a really big deal but when Bitcoin dropped an equal percentage on Wednesday, somehow it just doesn’t seem all that significant.

On that thought, here’s a meme I made yesterday. 🙂

That’s just the level of volatility that we’ve come to expect from this market. So please be aware that when I say cryptos are volatile, what I mean is they’re extremely volatile.

One thing that I keep noticing in the crypto-market is that when things are going up, we can expect to see different levels of returns in different coins and general divergence. However, when things are going down the correlation gets stronger and everything falls together.
You should be able to see that in this chart pretty clearly…

As always, let me know if you have any questions or if you need anything further.

Have a groovy day!!

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.

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

Daily Analysis: The Usual Post-Fed Pump and Dump…

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Wednesday Market Recap

Asset Current Value Daily Change
S&P 500 2700 -0.51%
DAX 12,470 -0.14%
WTI Crude Oil 61.28 -0.83%
GOLD 1325.00 -0.43%
Bitcoin 10480 -8.71%
EUR/USD 1.2336 0.61%

The script that we laid out for the FOMC meeting minutes has worked almost perfectly, with the major US indices completing a roundtrip that triggered most of the “weak” stop-losses, before a powerful move lower into the close.

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The predictable late-session intraday volatility aside, markets were quiet and choppy for most of the day, and the Dow, the Nasdaq, and the S&P 500, all closed just slightly lower, while covering 2% during the session, with the tech-index’s relative strength evaporating in late trading.

S&P 500 Futures, 4-Hour Chart Analysis

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Forex Markets and Commodities

What drove the decline in equities was the renewed rise in US Treasury Yields, and to answer the most important question of the day; yes, in fact, the yield-Dollar correlation of the past few months broke down, and today the Greenback rallied together with bond yields.

10-Year Treasury Yield, 4-Hour Chart Analysis

While that is how it should work according to common sense and economic theory, the recent inverse correlation helped a lot of trends in reaching extremes, and those extremes now might reverse.

The outperformance of US markets, the Euro strength, and the weakness in European equities were among those trends, and it’s interesting to see that the bullish technical setup in the EUR/USD is crumbling and the US indices are in the deepest correction since the Brexit.

EUR/USD, 4-Hour Chart Analysis

While there is no assurance that these changes are permanent, for now, we remain short-term bearish on US equities, and continue to look for upside in the battered Dollar.

At the end of the day, the Dollar finished higher against all of the major fiat currencies, although the Yen showed notable relative strength amid the stock rampage near the closing bell. Interestingly the USD vs. risk-on pairs trend continues to lead the other asset classes, as we have noted several times, and that could be something to monitor in the coming days and weeks.

Commodities had a mixed but ultimately bearish session, with oil and gold suffering both suffering losses amid the risk-off shift, although crude already traded lower before the FOMC release, while gold traded in close correlation with the Euro throughout the day.

Cryptocurrencies

The segment had a decisively bearish session, with only a few coins showing considerable relative strength amid the sell-off. Bitcoin, Litecoin, Dash, and Monero are still the leaders of this cycle, while Ethereum is the most notable laggard, pulling most altcoins lower as well.

ETH/USD, 4-Hour Chart Analysis

On a positive note, the majors held up relatively well amid the stock turmoil, but the next few days will be crucial, as important support levels could be tested. That said, most of the coins are well clear of the crash lows, and there is more than enough support below that, combined with the still present bullish signs should keep investors confident that a new uptrend is underway and new rally highs are ahead.

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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4.7 stars on average, based on 109 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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