What On Earth Happened This Week? Our Bitcoin Plan #37
Market Meditations | November 6, 2020
What on Earth Happened This Week? Let’s Talk About It
As we described in the ‘Scan the Week’ section of Market Meditations on Monday, it was a crazy week for the global markets. Let’s take a not so random walk through it. Including a technical analysis and detailed explanation of our exact for Bitcoin.
On Tuesday U.S. Presidential Election. The world anxiously awaited a result. We saw decent market volatility in anticipation of a Trump or Biden win. A Biden win was deemed ‘risk-on’ because of the fiscal packages he has set to push and the positive economic growth associations. A Trump win was deemed more ‘risk-off’. We can see this nicely in the GBPUSD chart.
On the night of Tuesday 3rd November we see the pound strengthen against the dollar. The anticipation was a Biden win. Biden win = risk on = less demand for safe haven USD. We see that sink right down when a Trump win was deemed more likely. Hindsight trading is easy but there was scope for serious gains for anyone who was adamant on a Biden win and buying GBPUSD here.
Anyone out there do that? Let me know.
Throw in Biden winning Wisconsin and boom we are back up and continuing to strengthen as a Biden win is more and more likely. Biden is on the cusp of victory after ongoing vote counts put him ahead in several battlegrounds, including Pennsylvania. He also narrowly overtook Trump in Georgia, a state that last selected a Democratic presidential candidate in 1992.
In terms of whether dollar weakening will continue, we should see how a Republican senate with a Democratic president plays out. Markets have risen under a variety of political regimes, but where it seems to do the best is a period of divided government in Washington when you have limited prospects for sweeping changes in legislation that would affect very legislative sensitive industries. As quickly as the blue wave trade crashed, a new narrative seems to have built up that investors ought to be aware of: that a Democratic president, and split Congress, is somehow the ideal outcome, a “cross-asset sweet spot”, in the words of Dutch bank ING.
It was interesting to note that Bitcoin dropped simultaneously with the dollar. Typically, when the dollar drops, Bitcoin and gold tend to rally, since both stores of value are priced against the dollar. Similarly, there were range moves in most major altcoins, including ethereum XRP, litecoin, EOS, XLM, lINK, BNB, TRX, bitcoin cash and ADA.
On Thursday we had the US Fed meeting. In a tweet, Tyler Winklevoss, co-founder of crypto exchange Gemini, said that Powell’s speech was “code for buy Bitcoin”. Powell reiterated that the central bank had not exhausted its range of tools for supporting the economy. How does this relate to Bitcoin? Well, it is the concern around government debt that attracts institutional investors to Bitcoin. The Fed’s balance sheet stood at $7.14 trillion on Friday, near record highs. U.S. national debt has topped $27.2 trillion, a figure never before seen in history. Unsurprising therefore that Bitcoin continued climbing while Powell delivered his speech. Despite some volatility around the election, Bitcoin has gained over 15% since the start of the week, rising to levels not seen since the end of 2017.” There is virtually no BTC left for sale”, Twitter account Girevik summarised.
On Friday the U.S. stocks are mostly lower as rising virus cases and the presidential election continue. The S&P 500 fluctuated between gains and losses after posting the biggest 4 day increase since April. Treasury 10 year note yields climbed back above 0.80% and the dollar lingers at a more than two year low. US NFP data being positive today combined with the election outcome being likely to calm down next week may lead to a rally in stock markets.
On Bitcoin,in the face of virtually no historic resistance we are on track to hit new all time highs. In a heavily trending market entry is now difficult, allow me to help. There are 2 key psychological levels on our radar; $13,900 and $13,000. There’s no guarantee we will get these before continuing to $20,000+ but they currently provide the current best Risk:Reward. $13,900 is confluent with the 0.382 fibonacci level, historic monthly support from 2017 and also psychological support of $14,000 as a round number just above it. Now should we be extremely fortunate we may also get a ~50% retracement and a chance to enter $13,000 also.
And there you have it. A recap of a week of madness and points to look out for as we go forward into next week and the weeks to come. I’m sure many of us did very well this week. Remember to share your stories in the comments sections or to drop me a message. Good luck.
Gold Set for Biggest Weekly Gain Since July as Biden Closes In.
Facebook and Twitter Struggle with Online Fury from Trump Supporters.
Negative Yielding Debt Total Hits Record $17.05tn.
U.S. Officials Seize ‘More Than $1 Billion in Bitcoin’ They Say Was Stolen From the Silk Road Dark Market.
Ethereum 2.0 Countdown Begins With Release of Deposit Contract.
FTX Founder Sam Bankman-Fried Is Among Joe Biden’s Top Contributors With More Than $5m in Donations.
Bitcoin Birch: Building relationships, Taking Risks and Getting His Startup Funded.
Sunk Cost Fallacy and Trading.
Gold Set for Biggest Weekly Gain Since July as Biden Closes In. Gold headed for the biggest weekly gain since July and copper rose as Joe Biden tightened his grip on the race for the White House, while investors also weighed the prospects for further Federal Reserve stimulus. Bullion broke out of a narrow trading range seen over the past month as uncertainty over the election and renewed stimulus hopes boosted demand for the haven. Spot was up 0.2% at $1,952.91 an ounce, after gaining as much as 0.6%. In base metals, copper turned higher, and was last up 1.4% at $6,946.50 a ton in London. It’s also heading for a weekly advance on the back of recent dollar weakness. Zinc reversed an earlier loss to reach the highest since May 2019.While a contested election ending with a divided government would be the least bullish of all possible outcomes for commodities markets, copper could still hit fresh highs next year on the back of faltering supply and robust demand, Morgan Stanley analysts Susan Bates and Marius van Straaten said in a note. Read more.
Facebook and Twitter Struggle with Online Fury from Trump Supporters. Facebook and Twitter are struggling to contain rising anger from Donald Trump’s supporters online, as a wave of momentum builds around the US president’s claims that the election is being stolen from him. In the past 24 hours, Facebook has invoked emergency measures to make it harder for users to share posts that contain misleading information, to remove such posts from people’s news feeds, and to restrict the circulation of poll-related livestreams. The social media company has also expanded its warning labels from posts by political candidates to a wider web of rightwing influencers, many of whom were echoing Mr Trump’s messages, saying that it was flagging individuals based on whether their posts were going viral. On Thursday afternoon, Facebook moved to shut down a “Stop the Steal” group, which had amassed more than 360,000 followers in just a day, saying that it was concerned about calls for violence from some of the group’s members. Read more.
Negative Yielding Debt Total Hits Record $17.05tn. The global pile of negative-yielding debt has swollen to a record size after Tuesday’s US presidential election sparked a rally in global bond markets. Bonds worth $17.05tn now trade with a yield below zero, according to the market value of the Bloomberg Barclays Global Negative Yielding Debt index, surpassing the previous peak reached in August last year. It means buyers are willing to pay a high enough price for the debt that they are guaranteed to make a loss if they hold it to maturity. The landmark is the latest sign of red-hot demand for top-rated bonds, despite massive borrowing by governments and companies as they navigate the economic fallout from the Covid-19 pandemic. Investors say that bond markets have been able to swallow the deluge of extra issuance, despite the worse economic picture, thanks to the huge asset-purchasing programmes unveiled by central banks to counter the Covid crisis. The Bank of England was the latest to scale up its stimulus, announcing an extra £150bn of government bond purchases on Thursday, while the European Central Bank is widely expected to follow suit with an expansion of its €1.35tn programme next month.Read more.
U.S. Officials Seize ‘More Than $1 Billion in Bitcoin’ They Say Was Stolen From the Silk Road Dark Market. Users on Twitter acted surprised yesterday when bitcoin on-chain data suddenly indicated that $1 billion worth of bitcoin was moved. Later that day, news came out that The U.S. Justice Department had seized and is now seeking the forfeiture of thousands of bitcoins tied to the infamous Silk Road dark web market that was shut down in 2013. Investigators discovered that a hacker breached Silk Road several months before it went offline, stealing an amount of nearly 70,000 bitcoin that were kept in a digital wallet for several years without being moved once. The Justice Department said that “the seizure represents the largest seizure of cryptocurrency in the history of the Department of Justice.” Read more.
Ethereum 2.0 Countdown Begins With Release of Deposit Contract. Ethereum 2.0’s deposit contract has been published and is now live and is the first physical implementation of Eth 2.0 for the everyday user. One of the biggest changes that Eth2.0 will bring is a change in consensus mechanism from proof-of-work (PoW) to proof-of-stake(PoS) and the deposit contract acts as a bridge between the two phases. Ethereum stakers can nog deposit 32 ether (ETH), currently valued at ~$13,800, which will be the required amount to stake on Eth 2.0. Once 16,384 so-called validators have deposited funds equivalent to a total of 524,288 ETH, the beacon chain will kick into action as Eth 2.0’s genesis event which is expected to happen in a few weeks. Read more.
FTX Founder Sam Bankman-Fried Is Among Joe Biden’s Top Contributors With More Than $5m in Donations. Sam Bankman-Fried, the founder of crypto derivatives exchange FTX and trading firm Alameda Research, has apparently made a $5.2 million contribution to the campaign of the U.S. Democratic candidate Joe Biden, a move that made him one of the top donors in the 2020 cycle according to Opensecrets. SBF confirmed to The Block that made a donation via a vehicle and said it was through Alameda Research, a market making and trading firm he runs as CEO. Biden received $79.5 million from his top 100 donors, compared to Trump’s $75 million. Read more.
Bitcoin Birch: Building relationships, Taking Risks and Getting His Startup Funded
Joel Birch (@BitcoinBirch) is a successful entrepreneur, investor and cryptocurrency influencer. He’s the co-founder of Stacked, a startup looking to automate cryptocurrency investing that recently closed a seed round led by Alameda Ventures. Prior to starting Stacked, Birch worked on growth strategy at Grubhub which he helped IPO.
In this episode, we travel through the life of a successful entrepreneur. We talk about Stacked and its two main features, building an international team and getting funded after finding product-market fit. Later in the conversation, we talk about his expertise in sales and how it helped him become great at building relationships and networking. We also touch on more personal topics, ranging from his background to turning his health around after having a small stroke. Lots of topics to learn from in this episode!
Things I learned:
Stacked is the easiest way for a crypto investor to manage their crypto portfolio. It offers a unique modern UI to quickly move in and out of different exposures manually and also automate a part of their portfolio with automation strategies. Stacked is trying to democratize wealth management.
Ideas without execution are worth nothing. A well thought-out idea is probably being worked on already, at the end it all comes down to who executes the best.
If you are looking to break out as an entrepreneur and do your own thing, there is arguably no better niche than crypto. Get on Twitter, contribute to the space and meet new people. The space is ripe for opportunity if you take the time to look and reach out
Work harder. At the end of the day, you can’t control a lot but you can control how hard you work. Put the time in.
Offer help without expecting something in return. Find common ground, always try to find out how you can deliver value to someone, whether that is by giving him something or by doing something. There are to many people that ask for things first
The younger you are, the more you can overextend yourself. Working hard is easier before you have a family to run.
When reaching out to people, try to search for some common ground. Look for opinions and topics that you agree/disagree with and include that in your message when reaching out.
By default and even with regulation, the barrier to entry for crypto will be so much lower than any other asset class because of how easy everyone can access it.
You will never get rich just trading hours for money, as there are only 24 hours per day. You will get rich by making money work for you.
Try to surround yourself with people you look up to and aspire to be. “You are the average of the five people you spend the most time with.” – Jim Rohn
Failure is a necessary part of success. Don’t sit on your hands, you won’t win if you never try
Sunk Cost Fallacy and Trading
On the list of cognitive biases we have to protect ourselves from in the markets, the sunk cost fallacy is well-known. According to Wikipedia, “sunk costs do, in fact, influence people’s decisions, with people believing that investments (i.e., sunk costs) justify further expenditures. People demonstrate “a greater tendency to continue an endeavor once an investment in money, effort, or time has been made. This is the sunk cost fallacy, and such behavior may be described as “throwing good money after bad, while refusing to succumb to what may be described as “cutting one’s losses.” Losing money in the markets happens to everyone, but we shouldn’t let it cloud our future judgements and decision making.
Keep in mind that we differentiate between down cost averaging a well-thought investment thesis and the inability to take a loss on a (short-term) trade or investment because you’ve already invested time or money in it. Down-cost averaging into a long-term investment is a time-tested strategy that we wrote about in a prior edition. The situations we’re talking about in this segment are focused on averaging down on short-term losing positions, which are primarily trades that turned into investments because of mediocre risk management.
Imagine you invest X amount of money into an altcoin with the intention of buying something with the profits. The altcoin drops 20% overnight. Should you keep buying until the coin starts moving up? Generally, the answer is ‘no’. Attaching sunk costs into your valuation of an asset is how you go broke as a trader. Averaging down on losing positions without an invalidation point for your thesis is one of the biggest sins you can make as a trader, especially in a market like crypto where altcoins can drop 80% in less than 2 months.
In our most popular podcast episode, SalsaTekila talked about the importance of learning how to lose and being able to get rid of a losing position. Society teaches us how to win, but not how to take a loss. No trader has a 100% strike rate and being wrong happens to everyone who participates in markets. If you’re currently holding underwater positions, frequently ask yourself whether your thesis is still valid or not. Oftentimes, we’re holding on to positions which have been invalidated with capital that is better spent elsewhere. Have a great weekend everyone!
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.