Strong Inflows Into Gold and BTC Exchange-Traded Funds
Market Meditations | August 6, 2020
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Examining the Week
Key Crypto Events
August 6: Global DeFi Summit. Speakers including LINK, Bancor, REN, Aave and other big Defi projects.
August 8: Bluzelle (BLZ) soft mainnet launch.
Key Global Events
August 6: Bank of England Bank Rate, Asset Purchase Program Total and Monetary Policy Report and Financial Stability Report.
August 7: UK Construction PMI.
August 8: Chinese Data (CNY) -> Trade Balance, Imports, Exports and Foreign Reserves.
BITCOIN / DOLLAR
$13,000 / $12,265 / $11,200 – These levels are minor resistances. Each break strengthens the bullish case.
$11,500 – Derived from the weekly chart this is the most important resistance standing between Bitcoin and the $14,000 high of 2019
$10,385 – Invalidation level. Put simply, below this level we have to re evaluate the trend.
CHAINLINK / DOLLAR
8.65 – Recently broken resistance. Should price revisit this level it will provide a fantastic opportunity to trade potential the flip.
$7.1 – Invalidation level. Link has managed to provide us with steady highs. Every established supported thus far has remained in tact. For the current bullish structure to remain in tact we must hold this level.
$6 – Danger Zone. Below this level we need to reconsider the entire trend, bearish arguments will start to hold more weight than bullish ones.
Square’s Cash App generated $875 million in bitcoin revenue, reporting 17 million gross profit for Q2. Payment processor Square, which is founded by Twitter CEO Jack Dorsey, saw a surge in bitcoin revenue this quarter. Revenue grew from $306 million in Q1 to $875 million in Q2, gross profit grew from $7 million to $17 million. Growth year over year is even more impressive, up 600% and 711% respectively. Read more.
DeFi market cap reaches 9 billion bringing ETH transaction volume to an all-time high. The DeFi craze responsible for ETH’s latest rally shows no signs of slowing down. Coingecko’s DeFi index shows a total market cap of 9 billion and a Dapprader report recently showed the majority of transaction volume (~95%) on ETH can be attributed to the DeFi ecosystem. Compound, Aave, and Curve were the biggest contributors, responsible for 48%, 14% and 14% respectively. Read more.
Coinbase explores the addition of 19 new tokens. Coinbase is looking to take advantage of the increase in volume surrounding the popular DeFi Coins. Coinbase aims to “support at least 90% of the aggregate market cap of all digital assets in circulation”, so we can expect more of these announcements as new projects enter the market. By mentioning them together, Coinbase is attempting to dampen the effect of the famous Coinbase listing pumps. Read more.
GOLD RECORD-BREAKING RALLY: HITTING $2000 AN OUNCE ON TUESDAY
The 32% rally this year has made gold one of the world’s best-performing mainstream assets. Investors are flocking to gold on sinking inflation-adjusted bond yields and a weaker U.S. dollar, as noted on twitter by macro analyst Holger Zschaepitz.
BTC is also acting like a macro asset (meaning it responds to large-scale events in the world’s economies) and enjoying the same appeal as gold. Gold and BTC exchange-traded funds have seen strong inflows over the past five months on the growing demand for an “alternative” currency, according to JPMorgan Chase & Co.
According to Bank of America, there is more to come: the bank said the impact of CV19 and US-China tensions could push the gold price towards $3,000 a troy ounce in the next 18 months.
Gold is still under-owned by global investors relative to global stocks, according to the bank, with less than 3% of their assets in the precious metal. In 1980, allocations were as high as 6.2%, the bank’s analysts said. “We still see ample scope for traders to consider increasing their gold holdings,” they added.
Coindesk echoes this sentiment, writing: gold and bitcoin could continue to rise as governments and central banks are unlikely to slow or halt liquidity-boosting programs launched this year to counter the CV19-induced recession.
The world’s hottest stock is a money-losing tech giant soaring 880%. Going unnoticed to many, Sea Ltd. has quietly become the world’s best-performing large-cap stock (boosting its New York-listed shares by more than 880% in the past 18 months). This has triggered a debate on Wall Street: some claim the Singapore-based gaming, e-commerce and payments company is the next great internet colossus and others categorise it as just Exhibit A in a global tech bubble that’s destined to burst. Whatever your viewpoint is, we imagine Chief Executive Officer Forrest Li (42-year-old billionaire with estimated net worth of $7.5 billion who named himself after Forrest Gump) is pretty chuffed. Some short sellers who placed record bets against the stock in June are retreating but overall there is still a bearish position worth more than $3 billion, or about 8% of the stock’s free float. Read more at: Bloomberg News.
Amidst TikTok sale, challenger apps Triller, Reels and Byte attempt to lure away most influential stars. ‘When you build your house on rented land, you are one terms of service change, one algorithm update — and now, one executive order — away from oblivion’. With Trump setting the deadline for TikTok to be sold to a US company by September 15, the platform is now struggling to maintain its top stars. TikTok star Josh Richards (20m followers) has jumped ship to rival app Los Angeles based Triller (backed by Ryan Kavanaugh and Snoop Dogg). Triller is currently seeking to raise $250m from investors, giving it a $1bn valuation. Also amongst rival apps is Byte, launched by former founder of Vine and Reels, a short-form video feature with music that Facebook launched. These apps are offering financial compensation and/or equity to high profile TikTok stars in an attempt to lure them away. Defensively, TikTok has announced that it will offer a $200m “creator fund” to support its influencers, growing that to $2bn in the next three years globally. Read more at: Financial Times.
The most successful hedge-fund firm of all time hits a rough patch. In early 2020 Bridgewater was head and shoulders above the rest, having made $58.5bn, net of fees, for its clients since the firm’s inception in 1975. Founder of Bridgewater Associates, Mr Ray Dalio, is worth $17bn, making him one of the richest people in the world. The firm has two main types of funds: “pure alpha”, which makes active bets based on its predictions for the economy, and “all weather”, where holdings of stocks and bonds are based on their underlying volatility. The latter strategy lost around 7% in the first quarter. The pure-alpha funds fared even worse: down between 7% and 21% since the start of the year. That is in contrast to the performance of many other “macro” hedge funds (these made small positive returns, of 1.4% on average, in the first half of the year). As a result of its losses, and investors pulling their money out of its funds, Bridgewater’s assets under management have fallen—from $163bn at the end of February to $138bn at the end of April. Read more at: The Economist.
More Market Meditations
To expand on this commentary, the crypto markets have been very simple to trade from a technical perspective. Almost every asset has been forming a clean bullish structure of consistent higher lows and higher highs. This means that the severity of price dips in the market are not determined by % drops but rather by effect on structure. We must always ask ourselves “does this change the market structure?”.
My current favourite asset to trade is chainlink. This asset is:
1) Incredibly volatile
2) Trends strongly and
3) Provides enough liquidity to get in and out of large positions.
Here is my most recent breakdown and my thoughts on why the data suggest we will continue to see new highs.
Due to popular demand I also deep dived into LINK and spent all weekend taking a look at the fundamentals. You can find the video here.
This segment is designed to make you the best version of yourself. As my followers will know, this is an important theme for me.
The Chimp Paradox is an excellent book that develops a helpful approach to understanding how your brain functions and then how to manage your mind. It is popular amongst self-made billionaires such as the previously mentioned Mr Ray Dalio. Dalio has trained his brain, and so can you.
The basic idea is that your brain is made of several parts. There are ancient parts like the Limbic – Chimp – brain and more modern parts like the Frontal – Human – brain.
The problem is your Chimp brain gets information first. Your Chimp can perceive events as an attack; sending your brain into fight, flight or freeze. It is difficult to resist these urges (after all, a Chimp is five times stronger than a human). The Chimp is guided by emotions, feelings and impressions. The Chimp response it to jump to conclusions and act irrationally (sound familiar?). On the other hand, your human is rational, logical and evidence based (working with facts and truths). Any guesses which is more helpful for successful trading?
Whilst it is not possible to change your brain, you can exercise awareness and tame your chimp; it is important to recognise when the chimp mind is reacting and to deal with it. To slow down your thinking (allowing the human to get involved) and get perspective. That way, we can understand when we are over-reacting or being over-emotional, then pause and not act on it.