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Tuesday Inferno market report

TL;DR volatility returns, with gradually increasing volume?

After last week’s promising breakout, bitcoin took a dive and is now back within its range. With the failure to make higher highs, we’re back to the previous rules: resistance at $6,400 and $6,200, with $6,000 being the established demand zone. Should the price drop to ~$5,700, we’d say it’s time to short – as ever, though, do your own research.

At the time of writing, BTC stands at $6,275. Volume is up a little; while it’s still pretty lacklustre, the direction of travel is right at least. Coinmarketcap is showing aggregate volumes into the $4 billion range (check the Historical Data tab for Bitcoin). While we’d like to see figures much higher, a large proportion of the last three months have seen lower volumes than that.

Meanwhile, BCash is retracing hard after its pre-fork pump, which looks like nothing more than your traditional crypto P&D. It seems that this event may have brought some interest to the overall crypto space, as traders purchased BTC to buy BCH – which are now being sold again. Craig Wright has stated his aim to kill BCH entirely. He claims he has over 50% of network hashrate at his disposal, meaning he could destroy BCHABC (Ver and Wu’s chain) and ensure his own BCHSV survives. Needless to say, the futures market has been volatile, and given that Wu has a lot of Bitmain hashrate to draw on, it could all get very ugly. Wright has threatened legal action of Wu moves Antpool hashrate to counter-attack.

Just another day in crypto. Most likely we’ll need to wait until after the fork happens and all of that mess plays out before the situation for BTC itself becomes clearer. You can read our rundown of the BCH fork debacle here.

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Friday Inferno market report

TL;DR Positive for now, but it’s all about $6,800

 

After a long period of uncharacteristic stability, bitcoin is finally picking up. There are several reasons for encouragement, but a trend-change – a renewed bull market – is not certain yet.

 

On Wednesday bitcoin closed above the 50 daily MA for the first time in weeks. That area ($6,450) broadly lines up with a key support/resistance level, so remaining and consolidating above that will be important. For now we’ve dipped below that to $6,400, coming off the 50 and 200 MAs (which have just crossed bullish) on the 4h chart.

 

We have broken through the descending resistance line that has been in play since February. Bitcoin has tested this multiple times, as it has tested the $6,000 zone.

 

Volume is coming back in. It’s nothing like it was at the height of the rally or earlier this year, of course – but it’s picking up.

 

Bitcoin dominance is down. This is something that die-hard maximalists will view as a bad sign. For us, it’s a signal of strength for the overall crypto market. In a bear market, traders seek safe haven in BTC, assuming they don’t exit to USD altogether. This is why alts have typically fallen ~90% while bitcoin is down ~65%. When confidence returns, traders buy alts – pushing those thinner markets higher and reducing dominance, but indicating in the process that crypto is overall attractive.

 

For all that, bitcoin is still in a range and we know that $6,800 represents critical resistance. BTC has traded around that area enough in the past that it will necessarily be a key level in deciding trend. It may take a couple of goes to break that, if indeed the market decides that’s where it wants to go.

 

Additionally, bitcoin shorts have dropped to a three-month low against longs. This is not conclusive evidence of anything, but we take it into consideration. Longs have not picked up appreciably in cash terms. Remember that the herd is generally wrong. When shorts are high we often see a move to the upside, clearing them out. We’ll be watching this to nuance any technical analysis. Finally – and this will feel like Groundhog Day to anyone who’s been around since 2014 – China has just unbanned bitcoin. Again.

 

To summarise, passing $6,800 will be interpreted as a sign of strength, and many traders will be waiting for this point or $7,000 before buying.

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Three market scenarios

Right now it feels like a critical time in the markets. Bitcoin has dropped 65% over the course of the year, and we appear to be at a watershed; analysts are divided between the idea of a renewed uptrend, vs the danger of the market taking another leg lower. Meanwhile there are an increasing number of warnings about the stock markets and the global economy. The Dow has recently ‘corrected’ sharply, though we’re not yet into true bear market territory. Analysts here too are split between whether the pain is over for now and stocks will continue to rise, or whether there is more to come.

 

Which way the mainstream markets go will likely have significant bearing on crypto. As we’ve argued, crypto may no longer be uncorrelated to the stock markets, but neither is it treated exactly the same, as another risk-on asset.

 

And so it appears that at some point soon – within 12-18 months at most – we will see a stock market rout. In the same time period, bitcoin is widely forecast to pick up, powered by the shiny new infrastructure coming online at the end of this year and beginning of 2019, facilitating waves of institutional cash. The timing of the first will have a high degree of impact on the second. We broadly see three different scenarios.

 

1) The Dow tanks, crypto tanks

Should confidence in the US stock markets fail soon (i.e. this year or early 2019), then traders will be taking heavy losses. Bitcoin is more correlated with stocks than it used to be, and traders won’t be feeling wealthy enough to take a punt on BTC – they’ll adopt a risk-on approach and hedge in cash or gold. This could kill or delay a nascent rally in bitcoin, as institutions wait for more favourable conditions.

 

2) The Dow (temporarily) rallies, crypto rallies

With the Midterms out of the way, markets have greater certainty – and, indeed, the split in Congress is broadly favourable to Wall Street, curtailing the riskiest excesses of the Trump presidency while maintaining a light touch for businesses. If the stock markets continue to rise, then it’s reasonable to expect traders to start funneling some of their gains into bitcoin – which will not only start to appear underpriced, but will have those all-important on-ramps. That could push BTC significantly higher over the course of next year – though, of course, at some point the stock market will top out and then the party would most likely end for crypto too.

 

3) The stars align

Should the two market cycles occur out of phase, we could be in for something more dramatic. A rally in the Dow might not coincide with a bitcoin bull market; it may still be too early for that. If there was a period of further consolidation, it’s possible that bitcoin might start its next rise when the Dow is already much higher. If, however, bitcoin was gaining momentum as the Dow topped out, we might see a huge round of profit-taking and the money being pushed into crypto in the biggest FOMO bull market yet.

 

We know that markets move in cycles, and that both the global stock markets and crypto are due for a change in trend. Precisely when and how that happens could have some far-reaching consequences.

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Wednesday Inferno market overview

With the new month, bitcoin has still been trading within that very tight range. Just this morning, however, we may – may – have seen the first signs of green shoots as the price breaks out of its holding pattern. We will know more later.

 

November has historically been a bullish month for BTC and there’s some expectation that will happen again – but remember, we’re contrarians here at Inferno and when the herd thinks something is going to happen, the opposite is likely. Now we don’t know whether ‘the majority’ think things are bullish at this point – the evidence suggests not – but take what ‘everyone’ says with a grain of salt. In a market, nothing is definite.

 

Volumes are still low, but appear to be rising slightly, which will be a critical factor in determining the strength of any given move and how likely it is to follow through into the next stage of the cycle. Analysts are split on whether we are consolidating here ahead of a recovery in the final two months of the year – as we’ve said, bitcoin’s traditional Christmas rally – or whether we will break support at $5,700 and head into a long crypto winter. Remember, with low volumes, it’s easier for large players to push the market around, so a pick-up in volume is critical for the health of the ecosystem.

 

Right now, it’s still unclear which way things will go. Sunday saw a $100 leg up but BTC still sits within the established $200 range. We’ve just pulled above $6,500 at the time of writing, but there’s no telling whether that will be sustainable or whether it’s a fakeout. There’s support at the $6,200 zone, resistance around $6,500. If we close above that the scenario becomes more bullish.

 

As we suggested on Monday, the outcome of the midterms could have some bearing on what happens next, since this will impact the US financial markets – and those wider market conditions will likely play into whether bitcoin breaks up or down out of its nine month descending triangle pattern. If traders feel wealthy (due to a rally in the Dow, for example), they will be more prepared to put money into BTC. So it will be worth watching the stock markets and taking some cues from them. However, this is just one factor of many.

 

In the alts, there are signs of life. BCash has posted significant gains ahead of its fork mid-month. In previous such forks and similar events these rallies end before the fork itself as traders look to front-run each other ultimately selling the news. The same will almost certainly happen here – expect blood for BCash soon.

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Tech entrepreneur: Sasha Ivanov

Get in for the tech, stay for the money, stick around for the lulz? As the market evolves from bear to bull and back, it can be hard to remember why you’re here in the first place. When all is crashing around you, it’s only natural to lose sight of what’s really important – the tech, the adoption and the long-term odds of success for crypto.

 

‘The community’ will not provide you with good information under these circumstances. The herd is always wrong – in a market, almost by definition. If you want to cut through the emotion of the current cycle and get back in touch with the fundamentals, then it’s well worth following a few key influencers: professionals who have been in crypto for years, who know what’s really going on behind the scenes, and who have an eye on the big picture and ultimate goals.

 

The Influencer we’ve chosen today is Sasha Ivanov, the Russian physicist who launched the Waves blockchain platform back in 2016. Ivanov has been active in crypto since 2013, building several businesses and projects before he crowdfunded Waves. Here, we’ve compiled ten of our favourite tweets:

 

 

#1. On the goals of blockchain research:

#2. On how blockchain isn’t suited to computation:

#3. On the economic realities of decentralisation…

#4. …which won’t be adopted until it makes good business sense:

#5. On cryptocurrency as a distraction from blockchain:

#6. On the new blockchain-enabled internet:

#7. On surviving the ICO bubble:

#8. On market manipulation:

#9. On open blockchains and security:

#10. On the interplay between public and private blockchains:

 

And one for luck:

On how old money always finds new opportunities:

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Bitcoin and the midterms

Tomorrow is the midterm elections in the US. What will the impact be for bitcoin?

 

Tuesday 6 November sees the midterms: the polls for all 435 seats in the House of Representatives and 35 out of 100 in the Senate. The elections are widely seen as a referendum on the Trump presidency. The electoral math tilts in favour of the Republicans for the Senate, and towards the Dems for the House.

 

Of course, politics is an uncertain business, and especially American politics at the moment. We might see a #MeToo-inspired backlash against the Republicans; equally, the ‘silent majority’ might quietly vote Red.

 

The results will help determine economic and foreign policy for the remainder of the presidency and potentially beyond, which in turn has profound implications for crypto.

 

Should the Dems gain strength, this will significantly hamper Trump’s legislative agenda. He may struggle to push through controversial changes relating to China and trade tariffs, sanctions on Iran, policy towards North Korea, and more. This could have a re-stabilising effect, or at least push things back towards the status quo that existed before 2017.

 

Conversely, a reinvigorated Trump presidency might see further tariffs and a full-blown trade war, impacting the US and global stock markets and pushing the world into a recession that already seems highly likely. Potentially a stronger dollar, in the short term, as more economic activity happens at home, but this would be limited by a host of other factors in the medium term as the global economy faltered.

 

Traders tend to react in the short term, so a surprise tomorrow will likely see an immediate move one way or another. For example, if the wider markets react to the results by selling dollars (perceiving a weakened US economy), dollar-denominated bitcoin holdings will be worth less (i.e. a $6,400 BTC is worth less in real terms than it was a day earlier). We might reasonably expect a sell-off as traders seek to cover other positions and increase their cash holdings. Meanwhile a result that points to a stronger economy might convince more traders to seek returns in a risk-on asset – though, as we’ve pointed out, bitcoin’s status is far from clear cut.

 

Longer-term, as we come into the next market cycle, bitcoin demand will likely be a function of institutional interest but also international instability – particularly from failing states, as we’ve already seen, but also should capital controls be implemented.

 

Just as we can’t call the elections, we can’t call the direction of movement for bitcoin. However, it seems likely that there will be a market reaction of some kind. Markets hate uncertainty, and at the very least bitcoin will probably react to the temporary resolution of that uncertainty for the dollar.

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Friday Inferno market update

Is the picture finally changing for bitcoin?

 

Bitcoin has been trading in a very tight range for some time, bumping up against that daily 50 MA. We’ve seen a remarkable lack of volatility over the past three weeks, after the Tether-fuelled spike shoved the market out of its previous range and the immediate risk of breaking downwards.

 

As often happens – and encouragingly in this instance – the former resistance zone has now become support. On Wednesday, when bitcoin dumped from the $6,400 level at which it had sat for many days, it found strong demand at $6,200 and bounced hard.

 

Right now we’re at an interesting point in the cycle. We’ve had an 11-month bear market, with repeated strong demand at $6k. That large wedge on the chart that formed at the beginning of February has played out very reliably; $6k has been hit multiple times, as has the down-sloping ceiling. It’s textbook stuff. BTC is currently flirting with that sloping ceiling once again. There’s plenty of indecision in the air, with traders hoping for a break upwards – perhaps fuelled by the many new infrastructure projects coming online at the end of the year – but equally concerned we may break the $6k floor instead and take a leg down.

 

There are some anecdotal indications of OTC buys picking up as larger and institutional traders seek to capitalise on low prices (compared to the $20k peak). Plus those platforms like Bakkt and Fidelity, which will offer conduits for institutional money for the first time, will soon be up and running. So the picture is positive – especially the long-term picture, if you didn’t already know that.

 

But this is a market, people, and as we’ve often said, the market exists to make fools of as many people as possible. What the majority expect won’t happen – that’s a logical reality. In this instance, there’s enough uncertainty that we can’t take a reliably contrarian view, but we might imagine a few scenarios that surprise traders. A last shakeout, or a final plunge and period of consolidation at lower prices, is by no means unlikely. Is it also not unlikely that the launch of Bakkt would see precisely zero impact on the market in the short term – or even desperate traders selling the news and inducing capitulation or further loss of confidence. We have to add to this picture the instability in the global stock markets and the degree to which bitcoin is treated as a risk-on asset now (which we recently explored in more detail).

 

What we’re saying is that bitcoin’s period of stability will end, soon. And we know how this story ends. We just can’t say what the plot twists will be between the two.

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Bitfinex’ed doxxed, Tether update

We’ve never made any secret of our dislike of Tether, the centralised USD token. Supposedly, every token is backed by real dollars, but Tether’s reticence to provide an audit means there has long been doubt about that within the crypto community, and the company has been harshly criticised for its many apparent crimes.

 

And there has been no harsher critic than ‘Bitfinex’ed’, the once-anonymous blogger who has kept up the pressure on Tether and Bitfinex (the two companies share the same management, presenting a clear conflict of interests) for months. Bitfinex’ed himself has been a highly controversial figure. Some in the community see him as shining light on a very murky area of crypto; others as a FUDder and anti-crypto shill.

 

Bitfinex’ed has been careful about his anonymity, which is understandable given the threats he has received. But not careful enough, it seems: his identity was recently exposed.

 

The analysis linked above is well worth a read, because it’s a decent piece of investigation. The chief evidence is a series of unusual phrases seen in Bitfinex’ed tweets and articles. None on its own is convincing; together they present a compelling picture. Statistically, there’s little question about it. And it’s a cautionary tale of how you can disguise your identity, use Tor and a bunch of other privacy tools, and be given away because you leaked information in some small and unexpected way – like through your use of certain expressions. So kudos to author ‘thinkexclamation’ for the work.

 

We only hope you’re prepared for what might follow. We link the article here because it’s already in the public domain – and yes, it is a good piece of investigation – and anyone who wanted to know who Bitfinex’ed really is already does. But whatever you think of the guy, there’s a very real risk of him being targeted now.

 

And what about Tether?

In other Tether-related news, the spread between Bitfinex and ‘real’ USD exchanges like Bitstamp is now down to historical levels, just $60-70. This premium likely represents nothing more than the friction of getting money into and out of the Tether system, something only a few people can do anyway. It is possible to arbitrage those prices, but only if you have the right relationship with Tether (and possibly only if you are Tether). It would look like this:

  • Deposit funds to Coinbase
  • Buy BTC with deposited funds
  • Move BTC to Bitfinex
  • Buy USDT at a discount to the dollar using BTC
  • Cash out USDT for real dollars
  • Profit

 

However, aside from needing that relationship with Tether, you’d probably need to be doing this with significant volume to make profit, given bank charges and fees – likely five or six figures of USD before it was worthwhile.

 

It looks like that’s what Tether itself has been doing, buying up underpriced USDT and cashing them out for real USD. $800 million has come off Tether’s market cap in recent weeks, which likely represents many millions or even tens of millions of dollars of profit for someone. It also looks like Kraken has been acting as a conduit for this arbitrage.

All of this is encouraging, in its own way. It means that Tether most probably has not been running a fractional reserve and does not pose a systemic risk. They may be shady, sure, but their crime is not the one Bitfinex’ed has been claiming. Our former analysis stands.

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Is bitcoin now a risk-on asset?

TL;DR analysts suggest that traders sell bitcoin at times of economic uncertainty, just like they sell stocks, but that’s an argument that needs better nuancing than it currently receives.

 

Bitcoin used to be seen as an uncorrelated asset: a commodity that was independent of the mainstream financial world. The moniker of ‘digital gold’ was apt: in times of economic crisis of one form or another, bitcoin often saw a boost. Just as investors flock to gold when the stock markets are taking a beating, a handful saw bitcoin as a safe haven, of sorts – or, at least, as an alternative play when nothing else was generating returns.

 

With increasing mainstream and institutional interest, and the progressive financialisation of the space – think futures, and platforms designed for regular retail investors – that was bound to change somewhat. When the Dow Jones recently crashed, bitcoin nosedived the same day. The narrative was straightforward: in a risk-off environment in which traders seek lower-return but safer opportunities, they were as likely to sell crypto as they were stocks.

 

But one swallow does not a summer make, and one coincidence does not a correlation indicate. There undoubtedly has been some increase in the perception of bitcoin as a risk-on asset, but the days following the recent volatility on the global stock markets indicate it’s not as clear-cut as first it seemed. The Dow bounced; bitcoin didn’t. Bitcoin bounced; the Dow didn’t.

 

That shouldn’t come as much surprise, because global stocks and bitcoin are still very different animals. The reasons for demand for each are different. It’s quite possible to see, for example – as we have in the past – that certain types of economic pain would increase demand for bitcoin. Imposition of capital controls for major economies (China, 2015-) is one obvious example. Bail-ins for the banking sector, where the government takes money from account-holders and creditors instead of using taxpayers’ money (Cyprus, 2013), are another. Basically, if you think your money is going to be taken from you or controlled in ways you don’t like, bitcoin starts to look more attractive.

 

And then there’s the simple dynamic that bitcoin’s market cap ($100 billion) is tiny compared to the global stock markets (Dow Jones alone: ~$7 trillion), and it’s already collapsed by 65% over the course of this year. The Dow has only just come off its all-time high. While now technically in ‘correction’ mode, it has plenty further to fall if the mood music from the economy starts to sound more discordant.  

 

The bottom line, then, is that bitcoin is becoming more closely correlated to mainstream markets – if only due to the quantity of regular traders’ money coming in. But is by no means treated as a typical risk-off asset just yet. Whether it ever is treated as such will depend on the directions in which it evolves and its major use cases in the future.

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Tuesday Inferno market report

BTC has been extremely stable – almost too stable. Yesterday that changed, at least a little.

 

The past two weeks have seen exceptionally low volatility. In fact, given the critical narrative over the course of 2018 that bitcoin is too volatile to have any meaningful use case, it is ironic that it has been more stable than the Dow Jones or Nasdaq, both of which have posted corrections recently. We have not seen such a period of stability since 2016, and the last weekly candle had less than a 2% range. Price has been confined to within $100 or so.

 

That changed somewhat yesterday, as sellers took over and BTC dropped sharply from $6,400 (Stamp) to just over $6,200, where it found its customary resistance and bounced back. It is currently trading around $6,250. This does not represent any significant development, since we’ve been here before already – many times.

 

Price has been bumping up against the daily 50MA for some time, but now sits below it; right now that 50DMA coincides with resistance at $6,400. It is also pushing right against the descending resistance line that has held since February, while the $6,000 floor established over the course of this year stays intact.

 

Of course, this situation cannot continue indefinitely – as we have noted repeatedly – and we must be reaching an endgame. Right now the most likely outcome appears to be more sideways, on low volume, with the market ‘breaking’ that down-sloping resistance level merely by drifting through it. $6k+ is the price the market has accepted for a bitcoin for a long time now, and it looks like further consolidation is on the cards. Smart players are picking up BTC at a price that has proven robust for many months.

 

Fundamentals haven’t changed and news isn’t making much difference. A bitcoin ETF still remains tantalisingly out of reach as the SEC’s process rumbles on. ICE/Bakkt will start trading BTC futures on 12 December. And the issues with Tether’s banking and the price of USDT seem to have been resolved. In all, the market is in ‘Wait’ mode. For what it’s worth, we believe this is where substantial opportunities lie – but don’t consider this trading advice.

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