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    Volatility Reports Bitcoin a Risk Asset

    June 1, 2020

June 1, 2020

Volatility Reports Bitcoin a Risk Asset

Digital Assets the Inflation Hedge Assumption

The case is made for these “man-made” electronic mediums of exchange, that instead of owning shares of a company or a dollar bill, your invest your money – USD – as a store of value and to be used to buy goods and services.  The idea is to move your money from fiat currencies to these “coins” for protection.  The bulls list the following:

  • The Federal Reserve is vastly expanding the monetary base.
  • Like gold and other precious metals, Bitcoin and other digital assets should benefit from exploding money supply.
  • Goldman Sachs is holding a conference on crisis, Bitcoin, and inflation.
  • And it’s not just Bitcoin, other top coins look set to outperform.

The last point is very true. there is a burgeoning new industry manufacturing blockchain project/network for its computerized system of bookkeeping that is “fraud-proof.”  That is fine, but there is no control of the supply because every computer hack wants to be the next inventor of the next unique blockchain to use to buy and sell certain products and services.

So they have a supply issue plus they do not have the “full faith and taxing power” backing up this “digital assets.”

Like Gold back in the late 70s and early 80’s the boom and bust will take a decade of base building before it has its next leg up.

If you recall when you first heard about the Bitcoin, before the CME brought the futures markets into play, there were maybe two or three other competitors of BTC. Today there are many, here is a list with market caps:

  • Bitcoin: $163 billion
    Ethereum: $23 billion
    Litecoin: $2.8 billion
    EOS: $2.4 billion
    Tezos: $1.9 billion
    Cardano: $1.4 billion
    Stellar: $1.3 billion
    Monero: $1 billion
    Tron: $968 million
    Ethereum Classic: $782 million
    Neo: $695 million
    Dash: $695 million
    IOTA (MIOTA-USD): $540 million
    Cosmos: (ATOM-USD): $482 million
    Zcash: $420 million
    VeChain (VET-USD): $267 million
    DigiByte (DGB-USD): $249 million

What the fundamentalist needs to do is figure out which are overvalued or undervalued relative to their future functionality, capability, and market share potential.

What the charts reveal is a collapse when the regime change first hit the equity markets in early 2018. A decline BTC has not recovered from the smash in the face of new highs two years later by the Dow and the Nasdaq if you are looking at nominal prices only.  But, in money terms, it lost $16,000 per coin in less than a year, an 84% decline.

 

 

The recovery thus far looks typical to every other boom-bust market observers have witnessed throughout history.  The 62% retracement is common, it is not a magical number that is expected to be touched or if exceeded precludes a scenario. But if you look at Gold, Crude, and shares in 1929, you will see the fractal.  These two weekly charts tell a story of c bear market rally with one last rally to $1,500/coin to finish off the counter-trend. In EWT terms finish wave two going into the meet of the decline, wave three, which will take out the lows at [A].

The tension underneath the market is high and will support a valid trend once the direction is determined. In other words the weekly chart has TEM on a new rule #2, a background that sets up to exit the trading range and trend for a period certain.

 

The Short Term – Daily chart has the same set up by the Technical Event Model. This close up look shows the coiling up in the bar chart that should lead to the break to the $10,500 level.  A terminal move and a head fake from our side of the desk.

Short only hedge intra-day scalper is engaged since May 27. No trades thus far.  It made 12k in May, but that is not our prime mover. The process laid out above is.  This is similar to H.M. Gartley’s entry technique, except we engage a trend following system that trades one way from point “C” where a normal dis-engage is if point “A” is taken out.

However, in the 1930s they would go short at point “C” and risk to point “A,” again a low risk. However, today, Contrary Thinkers, have a trend following system that only gets hit if the weather turns choppy, which is even lower risk. It should not whip-saw conditions after a new TE#2. Once the market breaks in will carry over intra-day; and once a long term trend is established the trend should be forceful every day.

TEM is direction neutral and the bulls could be right, if you have a breakout system that trades long or a trend following systems, you can run with the bulls. I will accept it if the break higher of $1,000 occurs, I do not see risk to the strategy unless the market turns into a windmill.

You don’t need TradeStation to run our systems, let me know what you use from NinjaTrader to Microsoft excel, etc.

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Great and Many Thanks,

Jack F. Cahn, CMT
Contrary Thinker since 1989,
Copyright 1989-2020

Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 800-618-3820 or

25/1 Poinsettia Court Mooloolaba, QLD Australia 4557 614-2811-9889

— Contrary Thinker does not assume the risk of its clients trading futures and offers no warranties expressed or implied. The opinions expressed here are my own and grounded in sources I believe to be reliable but not guaranteed.
— Pricing is subject to change without notice. My indicators and strategies can be withdrawn for private use without notice, at any time.
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