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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.

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.

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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4.7 stars on average, based on 142 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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Bitcoin

Bitcoin’s Year of Accumulation

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Although bitcoin looks poised to extend its January losing streak to five consecutive years, 2019 will be a year of slow accumulation for the virtual currency, according to Eric Thies, a well-known technical analyst. In the meantime, traders can expect the bear market to reach its climax once a new yearly bottom is breached.

Accumulation Year

In promoting the view that 2019 will be an accumulation year for bitcoin, Thies directed our attention to the major bear trend that emerged in 2015. That was the year bitcoin exhibited significant volatility, albeit in a lower range. Following the latest breakdown in price, bitcoin could be in for a similar trading pattern this year.

“Similar to 2015, 2019 may be the year of accumulation,” Thies said, according to CCN. This means bitcoin is likely to be an attractive investment in $2,000-$4,000 range – even with wild swings priced in.

Bitcoin’s volatility regime has changed dramatically in the last two months. Following a period of unprecedented calm, volatility surged to nine-month highs in the back end of December. Volatility will likely remain a factor for the foreseeable future as the technical tug-of-war continues. More on this: Bitcoin Maintains Narrow Trading Range as Recovery Faces More Resistance.

Circulation Grows

That bitcoin will remain highly volatile is supported by the recent influx of digital currency into circulation. Anonymous owners of dormant bitcoin wallets have been trading with greater frequency since October, which means their activity may have predated the November price collapse.

Data from Flipside Crypto recently showed that long-dormant bitcoin wallets have accounted for about 60% of the market’s circulating supply in the last 30 days alone. What’s more, active bitcoin supply has increased by a whopping 40% since the summer. This, of course, feeds into higher expected volatility.

If that’s not enough, consider that 1,000 addresses hold 85% of available bitcoin. As Bloomberg recently noted, many of these holders remained on the sidelines during the 2017 bull run and its subsequent collapse. If dormant accounts are becoming active again, there’s good reason to suggest that the whales are looking to re-enter the market.

Not Overnight

It’s reasonable to expect that bitcoin will become more attractive at lower prices, especially as more institutional investors access the crypto market in the coming year. But that doesn’t mean the accumulation will happen overnight. Previous bear cycles have taught us that downtrends can stretch for 1-2 years before any noticeable accumulation takes place. The only difference this time is there are more people involved, and more eyeballs on the price.

Additional reading: Crypto Winter and the Fed?

To demonstrate bitcoin’s potential at current levels, and why 2019 will be an attractive year to boost one’s holdings, it’s worthwhile to reflect on the cryptocurrency’s yearly lows rather than its highs. Below is a quick snapshot of bitcoin’s yearly bottoms stretching all the way back to 2012:

  • 2012: $4
  • 2013: $65
  • 2014: $200
  • 2015: $185
  • 2016: $365
  • 2017: $780
  • 2018: $3,200

Traders tend to focus on bitcoin’s lack of new all-time highs as evidence that the market is going nowhere, but these figures clearly show that BTC is a solid investment at almost any period in the last seven years (of course, this isn’t the case if you bought during the peak of 2018).

Make no mistake: technical analysis and market sentiment clearly show there is more pain ahead for bitcoin and the broader cryptocurrency market. But as the long-term value proposition continues to hold, there’s strong reason to believe we haven’t seen the last bull market. In the meantime, 2019 prices could represent a unique buying opportunity for those who missed the boat two years ago.

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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4.7 stars on average, based on 738 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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Bitcoin

Bitcoin Maintains Narrow Trading Range as Recovery Faces More Resistance

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Bitcoin’s price held within a narrow range on Wednesday, as the latest corrective bounce failed to spur a bigger buying trend despite the presence of larger than normal volumes.

Stuck in a Range

The bitcoin price is currently trading at $3,673.66, little changed from 24 hours ago, according to aggregate data provided by CoinMarketCap. Over that stretch, BTC traded between $3,620 and $3,698.

At last check, bitcoin was trading hands at $3,614 on Bitstamp. The hourly momentum indicators show very little room for recovery in the short-term, with the RSI falling below 50.

Trading in BTC approached $5.6 billion on Wednesday, with BitMEX accounting for 14.3% of total daily transactions. The Hong Kong-based exchange announced this week that it is halting U.S. accounts amid regulatory scrutiny. It remains to be seen how whether this will have a noticeable impact on bitcoin derivatives trading. Relevant reading: As Race for Bitcoin ETF Heats Up, SEC Identifies Cryptocurrency as a Top Priority in 2019.

Bitcoin made a significant move higher at the beginning of the week, which averted a potentially bigger downfall that could have exposed the cryptocurrency to new lows. Immediate support is eyed at $3,550, the so-called “GTFO” level. The bulls must maintain this level to keep short-sellers at bay.

Bitcoin Sees Backwardation

As Hacked recently reported, bitcoin futures on the CBOE have entered backwardation, which means later contracts are trading consecutively lower than earlier expirations. Typically, futures markets operate in a contango state, meaning distant contracts trade incrementally higher than earlier expirations. In contango markets, futures prices are higher than the spot price, which means that speculators are willing to pay more now for a commodity at some point in the future than the actual price of that commodity when the contract matures.

Backwardation sometimes occurs when a market enters a periodic state of volatility. It’s not uncommon for energy futures or even CBOE VIX Volatility futures to enter backwardation at various points during the year.

In the case of bitcoin futures, volumes remain too low to have a significant impact on the overall market. While BTC circulation has spiked since the fourth quarter began, futures trading on CBOE and CME remain only a small drop in the bucket.

That being said, bitcoin has seen a sharp rise in volatility over the last two months, which eroded a period of unprecedented stability in digital currency trading. Bitcoin’s 30-day volatility index, courtesy of bitvol.info, is currently 4.57%. This figure conveys considerable uncertainty about the size of changes in bitcoin’s future value. The volatility index was as low as 1.02% at the start of November.

The following chart highlights bitcoin’s 30-day volatility index going back three months. As you can see, the November selloff upped the tempo of expected moves in bitcoin’s spot price.

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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4.7 stars on average, based on 738 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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Crypto Update: Coins Retreat After Rally Attempt

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While yesterday the major cryptocurrencies recovered their weekend losses and bounced back above their prior lows, the bounce got halted before changing the short-term technical setup. As the world is focused on today’s key Brexit vote, trading volumes are once again very low, but the lack of bullish follow-through is a warning sign for traders here even considering the low level of trading activity.

We haven’t seen signs of a developing leadership in recent days, with correlations remaining high and with the top coins failing at the first major levels of resistance for now. That said, should the coins hold above yesterday’s lows and push above consolidation range, the formation of a bear-trap pattern is still possible even as odds still favor the continuation of the bear market.

In light of the short- and long-term setups, traders and investors should still stay away from entering new positions, with our trend model still being on sell signals on both time frames for the majority of the top coins.

BTC/USD, 4-Hour Chart Analysis

While the breakdown in Bitcoin got bought yesterday, the bounce failed to reach the $3850 level and the most valuable coin is still hovering near the $3600 level, leaving both the neutral short-term, and of course, the long-term sell signal intact in our trend model.

A move above $3850 would be a positive sign for bulls, but odds still favor a negative outcome and a likely test of the $3000 level in the coming weeks, so even short-term traders should still away from entering new positions here. Further, weaker support is found near $3250, with resistance ahead between $4000 and $4050, and near $4450.

ETH/USD, 4-Hour Chart Analysis

Although Ethereum briefly topped the $130 level after plunging below the $120 support, a failed breakdown pattern hasn’t been confirmed in the previously leading coin, and the short-term sell signal remains in place in our trend model.

With the bearish long-term picture in mind, and with the oversold short-term momentum readings now cleared, the outlook for the coin remains negative, even as the resumption the counter-trend rally is still a possibility here. Further support below $120 is found between $95 and $100, while resistance is ahead at $160 and near $180.

Altcoins Still Stuck in Downtrends Across the Board

LTC/USD, 4-Hour Chart Analysis

Litecoin’s rally stooped near the upper boundary of last week’s consolidation range, and although the coin is safely above the key $30-$30.50 support zone, the momentum of the bounce is waning. The bearish long-term forces still seem to be dominant, and the coin is well below the primary resistance level near $34.50, so our trend model remains on sell signals on both time-frames. Further strong resistance ahead near $38 and $44 and with support is found near $26 and $23.

XRP/USDT, 4-Hour Chart Analysis

Ripple experienced a brief period of relative stability after the weekend sell-off, but that didn’t change the bearish overall picture for the coin, and technicals are still hostile for bulls here. The coin continues to hover around the $0.32 price level, but we still expect a move below $0.30 in the coming weeks with a test of the bear market lows being the most likely scenario.

Another strong support level is found near the $0.26 level, with resistance ahead near $0.3550, $0.3750, and in the key long-term zone between $0.42 and $0.46.

XMR/USDT, 4-Hour Chart Analysis

Monero is also among the weaker majors and although it bounced back together with the broader market, it failed to sustainably recapture the $45 level, and it remains in clear short- and long-term downtrend. Our trend model is o sell signals on both time-frames as well, and the re-test of the bear market low just below $38 seems very likely in the coming weeks.

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 442 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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