Here’s Why We Have Our Eye on Ethereum #55
Market Meditations | December 18, 2020
So far in 2020, Ethereum returns are +402% (compared to Bitcoin’s +218%). This combined with Eth2 and the latest news that CME will launch Ethereum futures products seems bullish. In today’s letter, we provide you with the essential tools and knowledge for Ethereum trades. Looking for comprehensive price action, detailed technical analysis, fundamental analysis on futures and Eth2? We’ve got you covered. So let’s dive in and explore what this coin has to offer.
Here’s Why We Have Our Eye on Ethereum
Although it doesn’t always seem that way, bitcoin is not the only asset in this industry that has been the subject of fundamentally bullish news this year. While the majority of institutional interest has been directed towards bitcoin so far, investors seem to be opening up to the idea of Ethereum as well.
Recent news about the Chicago Mercantile Exchange (CME) launching an Ethereum futures product, 3 years after the introduction of Bitcoin futures, further validates the dominant smart contract platform for hedge fund managers and Wall Street in general.
To start this article off, let’s take a look at Ethereum’s recent price action. Once that’s out of the way, I take a look at some recent fundamentally bullish developments which investors should be aware or even look forward to.
ETH/USD Makes New Highs Although ETH/BTC Continues to Show Weakness
ETH/USD: Importance of $630 resistance level
A rising tide lifts all boats. Ethereum managed to make new highs this week and seems to be continuing with this year’s steady uptrend.
$630 was a big resistance level for Ethereum and as long as this level holds on a retest as support, a $700 Ethereum doesn’t seem that far away. The trend is your friend.
ETH/BTC: helpful indicator of altcoin strength
That said, those who are trying to allocate their capital as efficiently as possible should also pay attention to the ETH/BTC chart.Although it had a strong start to the year, the end of the DeFi summer in early September indicated the top on this chart and it has been downtrending against bitcoin ever since.
As we’ve written before, ETH/BTC is a helpful indicator of altcoin strength in general and I continue to pay close attention to this in chart in order to have an idea when altcoins could start outperforming bitcoin. A higher time frame reversal would be incredibly bullish for ETH and also the potential start of what Twitter likes to call an ‘alt season’. For now, a little bit more patience seems justified.
Don’t forget that as a trader, you should always pay attention to the benchmark of the market. Although paying attention to Twitter would make it seem that everyone is making money and getting rich, outperforming a trending bitcoin is not as easy as it sounds. A simple buy & hold strategy would work better for the majority of market participants. Always stay honest to yourself.
Institutions waking up to Ethereum as well?
While the paragraph above might seem a little bit bearish ETH, the opposite is true. It took Wall Street 10 years to consider bitcoin in their portfolio and it is unlikely that it will take another decade before they start considering ETH and other major cryptocurrencies. With the CME’s launch of their Ethereum futures product, institutional investors will now have easy, and more importantly regulated access to Ethereum exposure in their portfolio.
Ethereum’s network effect continues to grow while it attracts the world’s smartest developers to build on its platform. A lot of fundamental metrics show positive signs of adoption with this summer’s action around the DeFi ecosystem only accelerating that trend.
Anthony Sassano, a well known influencer in the Ethereum community posted a graph on Twitter that showed just how much had changed since 2017, the first time it hit $500. With this amount of activity on the Ethereum blockchain, it’s hard to imagine the token not accruing some value in the long run.
While competition is fierce in the smart contract niche, Ethereum remains the dominant leader this year and a successful transition to Eth2 will only strengthen that position.
In a nutshell, it is hard to imagine a cryptocurrency world where ethereum doesn’t accrue some long run value. In terms of price action and technical analysis, ethereum has had a strong year. The trend is your friend and as long as the $630 resistance level holds on a retest as support, $700 does not seem far away. However, from a pure technical standpoint, some caution is still prudent; we can see this in the ETH/BTC chart. From a fundamental point of view, Eth2 and the CME futures contracts are very positive developments. Similar to what we have seen in bitcoin, these developments may lead to an increase in demand from institutional investors. Certainly a coin to keep a watchful eye on.
Coinbase, With Bitcoin Soaring, Files in Preparation for Landmark Public Offering. The news that everyone knew would happen is finally here. Coinbase, the U.S. cryptocurrency exchange, is getting ready to go public and filed preliminary documents with the U.S. Securities and Exchange Commission (SEC). Coinbase’s IPO has been speculated on for months and now comes just days after bitcoin broke towards new highs, positioning itself as Wall Street’s most accessible bet yet on cryptocurrency. Coinbase was valued around $8 billion in private markets in October 2018, a number that has likely increased a lot given the exponential growth the industry has seen since then. Read more.
Defi Lending Protocol Warp Finance Attacked, Lost $7.7 Million Worth of Stablecoins. Yet another flash loan attack in the decentralized finance (DeFi) space. Popular community project Warp Finance was victim of an attack that resulted in a loss of $7.7m worth of stablecoins. In a tweet, the project explained that it “was exploited with a complex flash loan attack which allowed the user to borrow more than their collateral value resulting in a loss of stablecoin lender funds”. The team plans to recover approximately $5.5m that is still secured in the collateral vault which will be distributed to users who experienced a loss. Warp is expected to post a detailed analysis of the attack and next steps “in the coming days.” Read more
Compound Releases White Paper for New Cross-Chain Protocol. Decentralized finance money market protocol Compound has released a whitepaper detailing Compound chain, a new tool that could bring more assets into the protocol from numerous ledgers. In other words, users will be able to borrow and lend cross-chain assets from different blockchains like Polkadot and Tezos in the Compound Chain, which will have its own native token called CASH that will be used to pay for transaction fees. A limited testnet implementation is expected to be released in early 2021. Read more.
New Options Allow Bitcoin Traders to Bet on Rally to $100k. Call and put options at the $100,000 strike price expiring on Sept, 24 2021 went live on Derbit yesterday. Whilst not many trades have taken place just yet, it is noteworthy that the strike price is so high and expiration not so far away. If you need a recap on cryptocurrency options, Monday’s article covers them for free. Traders usually buy deep out-of-the-money calls during strong bull runs. That’s because they are relatively cheap and gain significant value amid a continued rally in the spot market. Read more.
#33 Nicholas Merten: Founding Digifox, Making An Impact and Humility As An Entrepreneur.
Nicholas Merten (@Nicholas_Merten) is a crypto Youtube influencer and entrepreneur. He is the founder of popular Youtube channel DataDash which currently has 362k subscribers. Nicholas also founded a startup called Digifox, which is an all-in-one finance platform.
Things I learned:
Each cycle lasts 11-13 months longer on average than the previous one. Nicholas thinks that we’ll reach the top of the bull market around November 2022.
Financial services is a use case that actually makes sense for blockchains. A lot of ICO’s that raised millions of dollars in 2017 did not need a blockchain at all.
When you take the market share of all of finance as a whole and you bundle it in the DeFi category, so much wealth is going to be driving into this space. Users want lower fees and not having to deal with middlemen.
An entrepreneur should always take the time to find out what his users are struggling with. Listening to customers is necessary to know your strengths and weaknesses as a company. Be open and listen to everyone.
A great entrepreneur tries to hire people that are smarter than themselves.
If you love what you do, you can push yourself to a level of discipline that others may not believe you can do.
You don’t need to create the next big tech company to have a positive impact in the world.
Any sound investment portfolio isn’t all in on crypto or another asset class. It’s very high risk and potentially even limits your rewards.
Nobody knows everything. There’s constantly something for you to learn or something to challenge yourself to.
The Art of Getting into a Trading Position
Spotting a market trend or coming up with a trading strategy is extremely exciting. You have taken a view on a coin, say ethereum to continue our earlier example, and the technicals and fundamentals support your view. The temptation might be to go charging toward the current market price but this isn’t always the best way to open a trade.Let’s take a moment to consider the art of getting into a trading position.
Many traders like the idea of opening a position by trading at the market (the current market price) rather than leaving an order that may or may not be executed. Trading at the market has the certainty of knowing that they are in the market. Also, it can be fun to actively trade and sell. You’ve spotted something here and you want to get stuck in. However, depending on whether you are taking a short, medium or long term view, there are different benefits and costs to how you open your trade.
For a short term trader (minutes to hours) you might feel tempted to open your trading platform and pay the offer. Afterall, it is the short term volatility you are looking to trade, so why wait around, right? Wrong. There is a lot of benefit from taking a step back and taking a look at your chart within a short timeframe. You can then let the routine price fluctuations work to your advantage. That is to say: if you are looking to go long, you can identify the dips and wait to buy there. The same is true of the highs if you are looking to short. More often than not, you will find that taking a small step back to identify the short term ranges means you can enter at a better level.
Again, rather than hitting the market price straight away, medium and longer term traders can benefit from averaging into a position. This is the practise of buying/selling at successively lower/higher prices to improve the average rate of the desired long/short position. Instead of whacking in your entire position at the current price, you can be a bit more nimble and allow market swings to unfold. For instance, you may have identified that a coin is close to a major resistance level and you anticipate a reversal. You don’t know how much higher the coin may go, so you don’t know when it is best to short. You can short some of the amount at current market levels and then you can wait to short the rest when/if the coin gets closer to that resistance level.
Many traders caution averaging into a position. And for good reason. Basic risk management still applies. 1) Take caution if markets are extremely volatile. Low volatility trading conditions tend to favour range trading environments, where averaging can be successful. 2) Always have a stop-loss level. You shouldn’t continue to average if this level is breached. You must also consider the difference between your stop-loss price and average position as the amount you’re risking on the trade.
So, what am I trying to say here?Well. Coming up with a fantastic trading idea or strategy is just one step on a long road. The real art is in also finding the right entry point, managing the trade and exiting at the right time. Today we have covered entering the trade. Market Meditators, I would be delighted to cover the rest for you in future letters.
Have a fantastic weekend. Stay safe, stay motivated and stay on your upward growth trajectory.
Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.