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Market Meditations | April 9, 2021
Markets have been hard to read recently.
Here is a range of technical and fundamental analysis to help.
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Crypto. Sounding like a broken record here but bitcoin remains range bound with buyers defending support around $55,000 and strong resistance around $60,000 which has been tested many times since March.
Legacy. Stock futures wavered after a measure of inflation exceeded forecasts, indicating potential price pressures as the economy reopens.
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Let’s start with a look at bitcoin.
BITCOIN / DOLLAR
$60,000 remains our key resistance, a clear break and we should see a breakout.
$50,000 Invalidates our bullish bias.
Altcoins have plenty of room to run with bitcoin going sideways.
ETHEREUM / DOLLAR
We’ve retested previous key resistance at $1935 as support and successfully held, this is confluent with a 0.382 retracement demonstrating strength.
While the 0.382 level holds, we expect to see an extension to the $2300-$2500 level in April.
DEFI NEWS & ANALYSIS
Coinbase Joins DeFi Alliance
Coinbase CEO Brian Armstrong said in the firm’s earning call this week that providing access to DeFi apps would be a priority for Coinbase going forward. This has taken shape in the form of a partnership with the DeFi Alliance: a group that provides mentorship and funding for early stage tech teams. It is not difficult to comprehend the appeal of DeFi from the perspective of Coinbase.
In terms of narrative, DeFi is one of the most powerful in the space: the potential to create a more open, free and fair financial market for anyone with Internet access. It would mark an important milestone in the history of financial wealth accumulation. Something that was once only accessible to monarchs, then to corporates and now, finally a public good.
According to data collected by the Block, DeFi protocols generated more than $200 million in revenue last month. Due to the reflexive nature of those DeFi protocols, some token valuations have now become even more attractive as higher token prices lead to more volume, which in turn leads to more fees that accrue back to the token holders.
MARKET NEWS AND ANALYSIS
Bitcoin Displacing Gold As An Inflation Hedge
A recent Bloomberg article sets out to explain the use case of bitcoin and further, why it does not convey the typical features of a speculative bubble. It has already formed a series of bubbles, which have burst and then re-inflated. Further, Bitcoin’s strength in the last few months has come despite a distinct drop-off in Google searches for the term, which might be taken as a proxy for retail interest, or the kind of excitement that typically accompanies a bubble.
Another interesting statement in the article, considers the extent to which bitcoin has displaced gold as an hedge to fiat or traditional currency. Indeed, there is circumstantial evidence to suggest that money has flowed from gold into bitcoin.
Not all of the money leaving gold has gone into bitcoin, but quite a big chunk has. Adding to the argument that institutions are allocating money from gold to bitcoin. With Bitcoin being perceived as a superior ‘anti-fiat’ asset. (Another important destination appears to be Chinese bonds).
Improve your Investment Decisions with Occam’s Razor
Trading and investing is complex, especially when looking at crypto markets. How do we deal with this complexity and ensure we remain profitable? One way is to consider Occam’s Razor. This states that the solution requiring the smallest number of assumptions is often correct.
If there are less assumptions we are more able to verify if these hold true. Additionally, a simpler solution is easier to execute. Now, let’s consider some actionable insights into trading and investing.
Don’t use too many indicators when analysing charts
From Elliott wave theory to moving averages to RSI there are a huge number of indicators we can use to carry out technical analysis. Instead of trying to use them all at once, focus on ones that suit your strategy.
Don’t get distracted by noise
There has never been such an abundance of information available to investors, a lot of which can be low quality. Focus on high quality information that affects your strategy and that is actionable.
Seek simplicity in execution
When putting together a saving plan or an investment strategy make sure to keep the number of steps to action this strategy as low as possible. Execution can be half the battle and reducing the number of steps allows us to be more consistent in the long run.
Consider relative importance
Just because a hypothesis is correct, it does not mean it will have a major effect on your strategy. Focus not just on what is correct but what actually has a significant impact on your final outcome.
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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.