Navigating the Election Week Volatility: Macro Trading Strategies and Bitcoin #35
Market Meditations | November 2, 2020
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Scan the Week
Navigating the Election Week Volatility: Macro Trading Strategies and Bitcoin
JPMorgan Readies for Post-Election Market Shift by Cutting Tech
Markets Enter the Week Oversold
China’s Digital Yuan Pilots have Processed £300m so far, says PBoC Head
Australia to Explore Blockchain-Based Wholesale Central Bank Digital Currency.
Suit Alleges BitMEX Chiefs ‘Looted’ More Than $440M From Exchange After Finding Out About Probes.
Declining Dex Volumes Reflect Defi Investors Shift to Bitcoin, Data Shows.
Give In Order To Get
Nigeria Fintech Week
FTX: Equities Trading Goes Live
IoTeX: Burn-Drop Begins
An exceptionally busy week in the global markets. A wait and see approach being taken by some investors until after the U.S. Presidential Election outcome is revealed.
The U.S. Presidential Election.
AUD RBA Interest Rate Decision. The markets have pretty much priced in a rate cut.
GBP BoE’s Governor Bailey Speech and Interest Rate Decision. Investors anticipate further quantitative easing given brexit, negative economic outlook and the national lockdown. Sterling interest rate June futures currently trading at 100.30 (price of futures is 100 – yield and therefore a number above 100 means negative rates have been factored in).
U.S. Fed Interest Rate Decision and FOMC Press Conference.
USD Nonfarm Payrolls. Significant indicator (arguably most important US monthly statistic) that is notoriously difficult to predict.
Navigating the Election Week Volatility: Macro Trading Strategies and Bitcoin
As discussed at the beginning of this week’s market meditation, we are set to experience a pretty hectic week. This kind of week brings us to the core of what this newsletter sets to achieve: to guide traders through the crypto and macro markets. Providing you with the tools to come out of periods of high volatility with confidence. Sort of like a pirate, steering his ship and navigating stormy seas.
There are big, market moving events almost everyday this week. These offer the opportunity to get things very right and equally to get things very wrong. I don’t think we can blame anyone for feeling risk off and cautious as an investor right now. In fact, many will decide to sit back and see what happens (particularly as Trump makes more and more comments questioning the validity of the election process). That’s why I would like to take this opportunity to discuss a strategy that can be applied to both macro and bitcoin trading. This strategy can be particularly helpful in times of volatility. I have created a video on this previously and wanted to go into a bit more detail today in light of all the upcoming events.
The trading strategy is dollar cost averaging (DCA). It is a simple and appealing one: pick some assets, figure out how much you can afford to invest, and then commit to buying shares at preset intervals. For instance, say you decide you want to invest in Ant and can dedicate $200 every 2 weeks towards its shares. In that case, you’d buy Ant every other week, regardless of the price it’s trading at on the day you purchase your shares. It is a balancing act in essence. While you might overpay in some weeks, you’ll also underpay in others.
Dollar cost averaging is a safer bet than aiming to time the market during periods of volatility. Remember, the stock market is unpredictable on a good week, but when we’re in the midst of election season, it can be even wilder. And at a time like that, being consistent is crucial.
Our good pal Warren Buffet has long advocated this strategy for young investors. To take this strategy a step further, an investor may consider dollar cost averaging to buy shares of S&P 500 index funds. That way you don’t even have to do the legwork involved in vetting individual stocks.
Data indicates that the same strategy has proven efficient for Bitcoin in the past several years. For five years in the last decade, Bitcoin recorded 100% gains per annum. What’s more, 98% of Bitcoin addresses are currently in a state of profit. By way of example, if an investor averaged $100 into Bitcoin since January 2014 and spent $35,700 in total, it would have returned 1,648% or around $589,000. Take a moment to read that sentence again. Perhaps check your savings account and compare the two returns offered. The difference is astronomical.
There are several reasons why investing in Bitcoin over a long period has worked regardless of price volatility. One of these includes Bitcoin being a developing store of value that is miniscule compared to gold. Throughout 2020, Bitcoin has seen a considerable increase in institutional demand. Even the biggest opponents of cryptocurrencies can’t resist the kind of returns achievable from a method as simple as dollar cost averaging.
So, to conclude, familiarise yourself with DCA and have a think about whether it is the type of approach you want to apply to your macro and crypto trading ahead of this week’s volatility. As always, I’m interested to hear your thoughts and feedback. You can leave them on my twitter or on the substack comments sections – I will get back to you.
An exciting week ahead, good luck!
JPMorgan Readies for Post-Election Market Shift by Cutting Tech. JPMorgan Chase & Co strategists are dropping their longtime preference for technology stocks one day before the U.S. elections as they forecast a change in market leadership, no matter who wins the vote. This certainly comes as a surprise given they have been overweight tech for almost 2 years. They have now slashed to neutral the sector that has driven the recovery rally since March and raise their recommendation on banking and insurance stocks to overweight. Readers will remember in last week’s issue, we touched on the worst tech sell off in seven months after Apple Inc.’s iPhone sales and Twitter Inc’s user growth both missed estimates. Not to mention the Nasdaq tumbled almost 9% since Oct.12. They explain: “U.S leading has been consistent with growth outperforming value and tech outperforming banks. This might not continue in 2021”’. Read more.
Markets Enter the Week Oversold. U.S. stocks rebounded from the worst week since March as investors prepared for the presidential election and a Federal Reserve meeting. Treasury yields dropped and the dollar touched a one month high. The S&P 500 Index surged 1.2% to 3,308.90 as of 11am, New York time (the largest jump in 3 weeks). In a similar fashion, the Dow Jones Industrial Average surged 1.4% to 26,877.44 (the biggest jump in almost 4 weeks). Most other stock indices experienced gains. Investors also took comfort in data that showed strength in China’s economic expansion. In response to dollar strength, the euro fell 0.1% to $1.1637 (the weakest in more than 5 weeks with its 6th consecutive decline), the British pound declined 0.3% to $1.291 (the weakest in more than 2 weeks) and the Japanese yen depreciated 0.1% to 104.80 per dollar (the weakest in a week). Similar strength in the commodities markets. West Texas Intermediate crude climbed 0.2% to $35.85 a barrel. Copper gained 0.5% to $3.06 a pound, the largest rise in more than a week. Gold strengthened 0.7% to $1,891.29 an ounce, the biggest rise in more than a week. So we are off to a strong start this week. For many the focus will be the U.S. election. Rightly so. However, can I urge investors to also keep an eye on coronavirus cases please. These are surging in the States and Europe and have been known to move markets significantly. In Europe, the region has already seen more than 220,000 deaths, with a winter peak threatening to be even worse than the initial wave in the spring. Read more.
China’s Digital Yuan Pilots have Processed £300m so far, says PBoC Head. The governor of China’s central bank has given more details about the ongoing digital currency pilot. The digital yuan pilots have processed over four million transactions to date, totaling more than 2 billion yuan ($299million). The remarks were delivered at the Hong Kong Fintech Week conference on Nov. 2. The pilots have, apparently, been going smoothly so far (having rolled out for extended testing in four cities). This is a popular theme now, with growth in demand for digital and contactless payments amid the coronavirus pandemic which has posed major challenges for central banks. The official noted that fintech companies have some key advantages over commercial banks in terms of building a customer base and managing risks. Major tech companies have already begun preparing for the seemingly inevitable launch of the digital yuan. Huawei recently announced that its newest smartphone, Mate40, will feature a wallet for the currency and allow users to transact with it, even when they are offline. Read more.
Australia to Explore Blockchain-Based Wholesale Central Bank Digital Currency. The Reserve Bank of Australia (RBA) is thinking about the potential use of a blockchain-based central bank digital currency (CBDC) in a wholesale form. In an announcement today, the RBA announced that it is partnering with Commonwealth Bank, National Australia Bank and Perpetual and ConsenSys Software “on a collaborative project to explore the potential use and implications of a wholesale form of central bank digital currency (CBDC) using distributed ledger technology (DLT).” The partnership will involve the development of a proof-of-concept for the issuance of a tokenized form of a CBDC. The project is expected to be completed around the end of 2020 and the ones who are involved are planning to publish a report on the main findings during the first half of 2021. Read more.
Suit Alleges BitMEX Chiefs ‘Looted’ More Than $440M From Exchange After Finding Out About Probes. A civil lawsuit claimed that the top persons behind HDR, the parent company of crypto derivatives trading platform Bitmex that was charged with facilitating unregistered trading and other violations, apparently looted ~$440 million from HDR accounts. ‘It appears to me that while being keenly aware of the Commodity Futures Trading Commission (“CFTC”) and Department of Justice (“DOJ”) investigations and imminently forthcoming civil and criminal charges, and while preparing to go on a lam from the U.S. authorities, Defendants Hayes, Delo and Reed looted about $440,308,400 of proceeds of various nefarious activities that took place on the BitMEX platform from Defendant HDR accounts.’ The lawsuit claims that the alleged ‘looting’ done by Hayes and his partners was done to reduce the amount of assets that could be seized by authorities when charges were brought against them. Read more.
Declining Dex Volumes Reflect Defi Investors Shift to Bitcoin, Data Shows. Data from Dune Analytics shows there has beena steady decline in volume on decentralized exchanges (DEX’s) since late September. Furthermore, strong price decreases on some of the decentralized finance (DeFi) altcoins suggests that investors and traders have shifted their attention back to bitcoin. With bitcoin trading at yearly highs, it has attracted a lot of new eyes and continues to show more strength than the overall altcoin market. That said, despite the price correction and drop in volume, the total value locked (TVL) continues to remain near record highs. TVL peaked at $12.4 billion in October and currently still sits at ~11B, indicating that fundamentals remain strong and DeFi is here to stay. Read more.
Give In Order To Get
“You can have everything in life you want, if you will just help other people get what they want.” ~ Zig Ziglar
With almost 20 episodes of the Market Meditations podcast published, there is one theme that keeps coming back with almost every successful person I’ve interviewed. Don’t start a conversation by simply asking for something. Provide value to people’s lives first and you will reap the rewards in the long run. Offering help to people without expecting something in return is one of the easiest ways to get your name out and setting yourself up for success eventually.
Keeping things to yourself and having a scarcity mindset is generally not the best way to develop a friendship/relationship with someone. Instead of thinking in terms of ‘your win is my loss’, looking for situations where you can both win. Sharing knowledge generally doesn’t negatively affect you, it’s a win-win. Those who give tend to receive back more in the long run. It comes with a caveat though. As Blas Moros writes: “Those who freely and voluntarily give as much as they can tend to receive much in return. However, the scarcity approach is more common because a mindset of abundance requires trust, time, patience, persistence, a long-term gratification mindset, and not worrying about how or even if you will be “repaid.” Vitally, you have to act first–giving before you receive–in order to reap the benefits of this paradox.”
Looking for a new job? Think about ways how you can provide value to the company or even the CEO personally before reaching out and asking for a job interview.
Looking to build a network? Find common ground with people you want to connect with, research them and what they like before you approach them and ask for some of their time.
Looking to build a Twitter following? Share valuable information and you’ll get picked up eventually.
Because this approach requires a small risk upfront, most people won’t do this. Dare to stick your neck out and you’ll differentiate yourself with a minimal amount of effort. The world would be a better place if we weren’t so protective over everything we own, whether that is our time, knowledge or our network. As the Chinese proverb goes: “The best time to plant a tree was twenty years ago. The second-best time is now.”
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.