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Where’s the Money Gone?

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By now it is clear that we are in the throes of a historic market sell off. Money is flying off the table at a record-breaking pace and it’s affecting everything from stocks to bonds to commodities to cryptos.

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One of my colleagues asked a really smart question yesterday if everything is selling off where is the money actually going?

We know that in most major market sell-offs other assets tend to rise in relation. Gold is usually a benefactor as it is seen as a safe haven and hedge. Many times the US Dollar and the Japanese Yen will rise as stock investors move to hold cash.

In this case, everything is just falling. The answer is that it doesn’t go anywhere it simply disappears.

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Let’s think about Market Cap. This metric is calculated by multiplying the total number of shares by the current value. So, if Apple is worth $180 per share and there are 5 Billion shares so we get to a market cap of $900 Billion. ($180 X 5 Billion)

Here’s the fun part. Let’s say there are only two people on the floor of the NYSE today and one person wants to sell his shares but the other guy doesn’t want to buy. The seller will have to keep lowering his price until the buyer agrees to pay for it. If the price they place the trade is $160 then that becomes the market price.

We then adjust the entire Market Cap to incorporate the current price to ($160 X 5 Billion) $800 Billion. Boom!

With one trade everybody holding apple lost money and the company itself lost $100 Billion worth of value.

Now, between you and me, some of the most successful investors in history have gotten their start in the markets just after a huge crash. So for those of you who are just thinking about getting in, maybe not right now, but very soon, we will likely see the best buying opportunities in decades.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

  • Global Multi-asset Sell-off

Please note: All data, figures & graphs are valid as of February 6th. All trading carries risk. Only risk capital you can afford to lose.

Volatility Spike

We looked at this chart yesterday but already need to check it again as the level of the VIX Volatility Index (AKA the fear gauge) has nearly doubled in the last 24 hours.

In fact, this index has only ever been higher than it is now four times since it was created.

I would like to call your attention to the previous spike (red circle), which occurred in August of 2011. Some will recall that this was the sell-off related to the European debt crisis with Greece, Italy, and Spain dragging down the French and German economies.

Here you can see the effects of that sell off (yellow circle) in the Dow Jones.

As you can see, the Dow’s plunge over the last two trading sessions is already worse than that. If not in percentage value than certainly by number of points shed.

Why is this happening?

Well, nobody has really figured it out just yet. However, we can look at where it all started to get some clues.

As we noted in the daily update (titled: Let’s Take the Power Back) from January 10th. There was a sudden spike in Bond Yields that caused some concern in the stock markets.

Furthermore, the selling pressure really intensified last Friday after the US government reported that the job market was much stronger than expected.

The running theory is that a stronger economy could spur mega-inflation in the United States. Let’s not forget that the US Federal Reserve has created $4.5 Trillion over the last decade and has essentially pumped the system full of money.

Back when they started the quantitative easing program in 2009 there were concerns that all this money creation would eventually lead to large-scale inflation and asset bubbles. So now this is simply playing out.

What about Gold?

One thing I haven’t quite figured out is, if there are fears of inflation, why isn’t gold going through the roof as it did from 2009 through 2011?

Here we can see, it hasn’t budged much since the recent rout began…
One analyst that I heard this morning had a good theory. He was saying that at present time stocks traders are panicking. As their accounts go into margin call, they need to free up some cash in order to support their positions. Gold and oil are easy targets to close positions in the green to support those red positions.

What about Crypto?

Crypto is just as much a part of this sell off as everything else in the world. Here we can see the proof of that…

This chart from Bloomberg shows bitcoin in white at the S&P500 in yellow since January 23rd. Notice any similarities???

So, to conclude we must try and think of a trigger for all this. One idea that I’m playing with is that it may have something to do with Korea. Remember, the North and the South joined together for talks on January 9th, the day before the sell-off in bonds.

I know it’s a half-baked theory but it’s the best I could come up with on short notice. I’d be very happy to hear from my readers if any of you have a clue what has recently changed in the world that would suddenly prompt investors to remove all risk from their portfolios?

In any case, as mentioned above this market volatility can potentially create abundant opportunities. In the short term, I expect that many people will take some losses, even the most diversified investors will get a draw down, but for those who know how to react to such events we’ll be seeing great gains.

Let’s make it an amazing 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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4.6 stars on average, based on 33 rated postsSenior Market Analyst at Etoro.com.




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2 Comments

2 Comments

  1. fwheban@gmail.com

    February 6, 2018 at 2:14 pm

    well then… can’t wait for your tips to buy the dips!

  2. winthorpeautomatons

    February 6, 2018 at 3:05 pm

    I believe the real money moved into bonds and we are seeing that in large volume. The stock market has been the real earner lately, but now things are changing and it’s back to bonds.

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Altcoins

Crypto Correction Deepens With Bitcoin Falling Below $10,000

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Cryptocurrencies hastened their decline on Thursday, with the total market cap falling to its lowest level in over a week as bitcoin and the major altcoins backtracked.

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Fresh Selloff Hits Crypto Market

Ninety-two of the top 100 cryptocurrencies tracked by CoinMarketCap were trading lower Thursday afternoon. The combined market capitalization for all coins fell 6% to $430 billion, the lowest since Feb. 13.

Bitcoin broke below $10,000 for the first time in nearly a week, and was last seen trading at $9.891. Even with the decline, bitcoin is maintaining its bullish outlook insofar as prices hold above the technically important $9,000-$9,200 region. Although downside is expected to persist in the short term, a bounce back toward $11,000 is expected. This is confirmed by the oversold Relative Strength Index (RSI), which also points to a rebound.

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As the following chart illustrates, the value of bitcoin peaked near $11,800 earlier this week before the recent bout of profit-taking took hold.

Ethereum, the world’s no. 2 cryptocurrency by market cap, fell below $800 for the first time in almost two weeks. At the time of writing, one ether was worth around $793, which represents a decline of 4% from the previous close.

Like bitcoin, ether is also grappling with oversold levels. However, the recent low is much shallower than the one Ethereum experienced in early February when prices fell toward $550.

Meanwhile, Litecoin tumbled to a session low of $188.73, more than offsetting a 50% gain earlier in the week. At the time of writing, the coin was down 6.5% at $192.59.

Elsewhere in the market, Ripple plunged nearly 9% to $0.93, while bitcoin cash fell fell nearly 8% to $1,210.

No Immediate Catalyst for the Decline

Like previous corrective phases, there was no immediate catalyst for the market’s sharp reversal, a sign that technical traders were largely responsible for the downshift. Since peaking above $518 billion on Saturday, the crypto market has declined 17%, all but reversing the previous week’s sharp rally.

On the regulatory front, the French government just announced it will be cracking down on unregulated cryptocurrency trading. In a statement issued by Autorite des Marches Financiers (AMF), the nation’s financial market watchdog, regulators said they had noticed a growing trend in unregulated futures and derivatives trading involving cryptocurrency.

“The AMF concludes that a cash-settled cryptocurrency contract may qualify as a derivative, irrespective of the legal qualification of a cryptocurrency,” the AMF said in the statement, as reported by CCN. “As a result, online platforms which offer cryptocurrency derivatives fall within the scope of MiFID 2 and must therefore comply with the authorisation, conduct of business rules, and the EMIR trade reporting obligation to a trade repository.”

MiFID stands for Markets in Financial Instruments Directive, a harmonized regulatory framework for the European Union’s financial markets. MiFID 2 was launched earlier this year to provide more transparency on traders and go after non-compliance more aggressively.

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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4.5 stars on average, based on 161 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

Crypto Update: Bitcoin Tests $10,000 amid Correction

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The altcoin-triggered correction continued in the segment overnight amid the renewed sell-off in global stocks, with a slight bounce in Asian trading and a subsequent dip after the European open. The major coins are all down by more than 5% since yesterday, but for now, the momentum of the move is not worrying, and most importantly the leadership of the rally is holding up relatively well.

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Bitcoin bounced off the key $10,000 level, the $200 support zone held in Litecoin, Monero is still in its consolidation pattern above $280, and only Dash showed deterioration since yesterday, but the long-term picture remains encouraging even in Dash’s case.

LTC/USD, 4-Hour Chart Analysis

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The above-mentioned levels in the technically strongest coins are not even the last line of defense for bulls, as the preceding strong rally left several key levels behind which could serve as the basis of the next leg higher.

Also, we expect the currently negatively diverging coins, led by Ethereum and Ripple, to start showing strength as the short-term momentum reaches oversold territory, and good entry points might be close both for traders and long-term investors.

BTC/USD, 4-Hour Chart Analysis

BTC touched the $10,000 support level, but for now, the technically more important $9000-$9200 zone is not in danger, and the short-term momentum indicators are already neutral thanks to the correction.

That said, more downside is likely in the coming days, but investors and traders should be looking for reversals to enter new positions, as we expect the uptrend to continue, with targets ahead at $11,300, $13,000 and $14,250.

Ethereum Provides a Glimmer of Hope

ETH/USD, 4-Hour Chart Analysis

Although bears are still in control regarding the short-term picture in the second largest coin, this morning ETH didn’t hit a significant new swing low, and that could be the first sign of relative strength, with the $845 support not far above the current price level, and the MACD indicator is already near oversold territory.

Despite the slightly positive sign, short-term traders should remain defensive concerning the weaker coins, while long-term investors should still accumulate the currencies on the dips.

Stay tuned for our detailed technical analysis later on today.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

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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Altcoins

Cryptocurrency Market Enters Corrective Phase as Majors Retreat from Recent Highs

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The cryptocurrency market declined across the board Thursday, as bitcoin, Ethereum and the rest of the major altcoins retreated from recent highs.

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Crypto Market Backpedals

After peaking above $518 billion on Saturday, the market capitalization for all cryptocurrencies has fallen to $469 billion, based on latest data from CoinMarketCap. That represents a decline of more than 9%. Trade volume across all digital assets approached $24 billion over the past 24 hours.

The latest drop in total coin value seems to have coincided with broader uptake in bitcoin, the world’s most popular cryptocurrency both in terms of market cap and trade volume. Bitcoin now accounts for more than 39% of the total market,  a near seven-point increase over last month’s lows.

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Bitcoin made a strong move above $11,000 on Wednesday, eventually hitting a three-week high of $11,329. As we wrote Wednesday, bitcoin in particular seems to be benefiting from a myriad of market forces ranging from favorable regulations to improved investor sentiment.

At the time of writing, the cryptocurrency was worth $10,901.

Other major cryptos were also down at the start of Thursday trading, with Ethereum slipping 3.6% to $864.83. Ripple’s XRP token declined 2.7% to $1.04, while bitcoin cash fell 4.3% to $1,336.50.

Even Litecoin, a currency that has witnessed a 50% surge this week, fell more than 3% to $219.43.

Paul Singer Calls Cryptocurrencies a Huge Scam

Elliot Management, a multi-billion-dollar hedge fund headed by Paul Singer, recently came out with a report calling cryptocurrencies “one of the most brilliant scams in history.” It added that “FOMO (fear of missing out) has solidly trumped WTHIT (what the hell is this??).”

In the cryptocurrency world, talk is incredibly cheap, and arguments from authority don’t hold much credence. Although Elliott dedicated three pages to cryptocurrencies, there doesn’t seem to be a strong argument against cryptocurrencies. (Calling cryptos “nothing except the marketing power of inventors, financiers and others who love the idea of buying a black box…” is not an argument.)

That being said, the fund’s comments may have resonated with speculators who are already on the fence about re-entering the market. After all, the daily news headlines play a huge role in shaping investor sentiment, regardless of whether those headlines are true. This has been demonstrated time and time again by regulatory developments in nations such as South Korea and India.

As Singer’s comments clearly show, there’s still plenty of FUD (fear, uncertainty and doubt) driving the cryptocurrency market. This is unlikely to change soon even as bitcoin and the technology that underlies it enjoys greater mainstream adoption.

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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4.5 stars on average, based on 161 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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