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Market Meditations | March 22, 2021
Avoid These Pitfalls.
If you’re reading this, chances are you want to build your OWN wealth ? and live your dream life ?
Whilst the crypto markets provide every opportunity for this, there are also pitfalls along the way.
That’s why today, as well as the hottest crypto news ? we are going to talk about wash trading ? and how successful traders and investors can utilise volume profiles to improve their profitability ?
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Crypto. Fed Chair Jerome Powell’s comments on crypto seemed to have sparked a burst of negative market sentiment, with BTC/USD dropping almost $1,000 following his statements. He regarded crypto assets as: ‘highly volatile and therefore note really useful as a store of value’ going on to say ‘it’s essentially a substitute for gold rather than for the dollar’. These are some of the most direct Fed opinions on Bitcoin to go public in recent times. Bitcoin continues to be stuck in a narrowing price range, with both bulls and bears unwilling to lead.
Legacy. The dollar weakened slightly and oil fluctuated in the wake of its worst week since October. Turkey’s markets tumbled after the central bank governor was ousted.
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Coinbase Fined $6.5 Million
The ?️Commodity Futures Trading Commission (CFTC), a U.S. government agency that regulates derivative markets, has ?⚖️ fined Coinbase $6.5 million for allegedly submitting misleading reports about its trading volumes. ? This news is a good opportunity to explain the concept of a “wash sale” and elaborate on the way successful traders and investors can utilise volume profiles to improve their profitability. ✅ Let’s go!
Coinbase allegedly ran two in-house algorithmic trading programs that bought and sold Bitcoin and Litecoin internally with each other. ?Put simply, Coinbase was buying from and selling to itself, an illegal activity known as “wash trading.” ?
What are the implications of a wash trade? ?Remember, the total volume of transactions is calculated by summing the total quantity of coins traded. Every time the Coinbase software bought and sold a coin from and to itself, the transaction was added to the ?total volume calculation. This conveys an ❌artificially high degree of volume and liquidity.
Why does exchange liquidity matter and how do successful traders or investors leverage the volume profile to improve profitability? ?
✅ Liquidity refers to the ability to convert a coin into cash quickly at stable prices. Highly liquid markets are attractive because they allow you to open and close positions quickly without suffering from slippage. Highly liquid markets are also less risky because buyers and sellers can find each other quickly and agree on a trading price without struggle. However in ⚠️illiquid markets, even if you want to sell a position there may not be another party who is willing to buy it at that price, which leaves you stuck holding onto a position or forces you to transact at a less than ideal price. ?
Traders and investors can also utilise the volume profile in order to improve their profitability.
✅ Here are three things to consider:
1️⃣ Trend strength: a trend is stronger when supported by volume. If price moves up on high volume the uptrend is said to be stronger than if price moves up on low volume (the opposite is also true on the downside). ?This is because rising volume indicates more people are willing to transact. If price moves up, but volume stays flat or falls, it can be a warning ? if you’re in a long position to utilise a tighter stop or take profit at resistance.
2️⃣Breakouts vs consolidation: similarly, when you are buying a breakout above resistance or shorting a breakdown below support, you want to see volume rise aggressively ⬆️ and continue increasing on the move up or down. This suggests that there is interest to play the breakout or breakdown from other market participants. ?Breakouts or breakdowns on low volume often evolve into bull or bear traps. In contrast, when price is consolidating, for example in a bull flag, you want to see volume decline. ⬇️
3️⃣Exhaustion moves: in a rising or falling market, it is common to see one final aggressive move up or down in price accompanied by exceptionally high volume. ?This can signal that the current uptrend or downtrend is over and about to reverse. ↩️This concept is known as an “exhaustion move.” After identifying an exhaustion move, you may look to play a reversal after market structure officially prints confirmation. ?For a full volume tutorial, make sure to check out my ?YouTube video! ?
As you can see, providing misleading information, even unintentionally about volume or liquidity can often be a disservice to exchange users who rely on the data to take positions. ? When selecting an exchange, it’s important to consider not only the liquidity, but the trust you put in the product and the team. Check out my ?FTX Tutorial ?to see where I trade and how to create, secure, and fund an account.
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STABLECOIN NEWS & ANALYSIS
USDC Total Supply Has Surpassed $10 Billion
In recent news, USDC – a stablecoin pegged to the U.S. dollar – has exceeded $10 billion in total supply for the first time ? making it the second largest stablecoin by supply. Tether (USDT) continues to occupy first place ?
Global demand for dollar stablecoins is robust and growing ? as businesses and customers in international markets grapple with volatile fiat currency exchange rates and runaway inflation as struggling national economies ? try to print their way out of economic stagnation. And so, whilst these may not be the most exciting coins, we ought to note:
✅ The strong fundamentals underpinning them.
✅ The ability to earn passive income through stablecoins. As we explain in our ? Passive Income Guide ✏️ we use FTX margin lending to earn 10.00% – 100.00% APY.
CRYPTO NEWS & ANALYSIS
Turkey: The Latest Crypto Bulls
Google searches for Bitcoin from Turkey have exploded in the past 24 hours, after the value of the Turkish lira dropped 14% ?
The depreciation of the lira was due to Turkey’s President Erdogan firing the governor of the country’s central bank ? Former governor Naci Agbal has been credited with pulling the lira out of historic lows ? so his abrupt removal was said to have shocked domestic and foreign investors. According to data from Google Trends, the number of searches for Bitcoin spiked 566% ? in the hours immediately following the news.
Our first response as traders and investors would be to perceive this as positive bullish. Increased demand + finite supply = price appreciation. However, this news goes further ? than that. It goes to answer a very important question: What is Bitcoin’s Use Case? We all have our different opinions on this but perhaps this recent news suggests that Bitcoin is Empowerment ? For the first time, there is a convenient and permissionless alternative to the turbulence of fiat currencies ? for those who have the technological means to access it.
Become a Successful Investor Using Inversion
Charlie Munger, Vice President of Berkshire Hathaway stated “Invert, always invert: Turn a situation or problem upside down. Look at it backward”. So what was he talking about and what can we learn from this❓Typically we think about problems in a forward way; how can I be a successful investor? Inversion is flipping our problem ? and instead asking, how do I become an unsuccessful investor? In doing so, we are forced to consider actions that would lead to failure. Applying this to personal finance and investing, what actions would make us unsuccessful and what can we do to avoid these mistakes?
Losing money: ?. If you lose money, you will not be successful. Spend less than you earn and when investing, use effective risk management techniques.
Making poor decisions based on emotion. ? Fear, greed and anger can all lead to poor decisions including impulse spending and investing outside your proven framework. Monitor your own emotions, create a psychological framework and avoid making important decisions when emotional. To learn more about the psychology of investing, check out our podcast with trading psychology coach, Jimie.
Not thinking for yourself. ? Investing is hugely personal. We all have different time horizons, risk tolerances, asset allocations and criteria that dictate our overarching investing strategy. Do your own research, form your own convictions and plan for your own personal circumstances.
Inversion can also be applied to other areas of our life to great effect. To do this, simply follow this 3 step process:
Write down✍️ the problem you are looking to solve
Invert it: ↩️ consider what you therefore do not want to happen
Deliberately plan ? to avoid those outcomes
Inversion is a powerful tool that you can use to be successful in all areas of your life. Whilst it is still important to think about how to reach your goal, it is equally essential to consider undesirable outcomes and what you can do to prevent them.
SCAN THE WEEK
On Mondays, our ‘Scan The Week’ section is designed to show our community wht events and headlines we will be keeping an eye on.
Monday, 22nd March
International Conference on Blockchain in Healthcare ?
This conference brings together leading academic scientists and scholars to discuss research results on all aspects of Blockchain in Healthcare. It provides a platform for practitioners to present and discuss the most recent innovations, trends, and concerns and practical challenges encountered in the fields of Blockchain in Healthcare.
Tuesday, 23rd March
GameStop Financial Earnings ?
The struggling video game retailer is expected to post its strongest quarterly revenue and profit in two years.
MM Podcast Release #56: Gaining 1 Million Followers with Maren Altman ?
@marenaltman is a financial astrologer who has gained over 1 million followers across TikTok, Twitter, Instagram and more.
Wednesday, 24th March
Powell and Yellen to Speak on Covid Relief Efforts ??
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen will talk to Congress on Tuesday and Wednesday about Covid relief efforts. These events remain a source of angst for the markets, with Traders previously reacting to the fact that the central bank is willing to let inflation and the economy run hot while the job market recovers.
Thursday, 25th March
MM Podcast Release #57: How to Invest in NFTs with Andrew Steinwold ?
@AndrewSteinwold is the founder of the first NFT investment fund Sfermion. He also runs NFT newsletter and podcast, Zima Red.
Friday, 26th March
Elrond Staking Phase 3 (EGLD) ⚙️
Starting with Friday March 26 14:30 UTC, the Delegation Manager goes live and staking providers will be able to deploy non-custodial delegation smart contracts on the Elrond mainnet.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.