In This Issue:
This week’s major crypto events:
- PayPal announced that it would be enabling its userbase to directly purchase Bitcoin and other crypto assets through the platform, but users will have no direct ownership of the asset as they will not be issued the private keys
- Once a major critic of digital currencies, the Bank of International Settlements has announced they will run a proof-of-concept trial of a CBDC
This week’s major legacy events:
- The Bank of Canada will announce its interest rate decision on Wednesday, with expectations that it will maintain rates at 0.25%
- The Bank of Japan will announce its interest rate decision on Wednesday, with expectations that it will maintain rates in negative territory at -0.1%
PayPal made a splash last week when it announced it would enable support for multiple cryptocurrencies, including: Bitcoin, Ethereum, Litecoin and Bitcoin Cash. Users of the payment goliath will have the ability to purchase any of those coins directly from the payment app, but while the news sounds great at face value, it comes with a few catches which undermine the entire point of cryptocurrency. Users will have no ownership over their coins, as PayPal will maintain administrative authority over the private keys, and users will not be able to withdrawal or deposit crypto to their PayPal accounts. The motto that has guided crypto for years has been ‘not your keys, not your coins,’ but institutions are only interested in maintaining control, not giving it up. The news further reinforces our theory of a rapid institutionalization and take over of the asset and opens up the assets to be more accessible to PayPal’s 300M+ user base, which is a net win for the ecosystem and prices. On the heels of this news, we expect that other institutions will continue to move forward with plans to enter the crypto space, further vacuuming up supply and cementing their control of the digital revolution.
BTC/USD – W (BNC:BLX)
POINTS OF DISCUSSION
S = $12,100, $10,800
R = $13,600, $14,000
1) Bitcoin bulls are in control of momentum and to maintain a bullish market structure, price will have to hold above $12,000
2) Bitcoin is perhaps the worst asset for day traders, given its low volatility vs other assets and massive capital requirements to move price +/- 10%.
Bitcoin above $10,000 is bullish, Bitcoin above $12,000 is very bullish, and signals the strength of the momentum in the bull’s favor going into the later half of the quarter. Similar to our theory on gold, dips on Bitcoin are for buying, and will remain so as long as price holds above the former resistance, now flipped to key support at $10,000. None of the (lagging) momentum indicators have signaled any sign of bearish divergence, and price action has been relatively healthy. Key resistance now sits at the 2019 highs at the $14,000 handle – about 7% from current prices. If bulls are able to continue the current upswing momentum and sweep the $14,000 highs, we will be looking for the $15,700-$16,000 weekly resistance to be tested before year end. Any dips into the election will likely run into significant buy side demand around the former resistance level at $12,100. A retest and flip of this level would confirm mid-term momentum and prepare for the next drive up.
This recent drive up since $11,000 has been a slow staircase grind, making it an awful asset to day trade, as 30-day volatility remains under 2%. Bitcoin’s volatility will likely snap back once the real move begins, but until then, we suggest day traders focus on assets that offer a wider trading range and volatility.
ETH/USD – W (GEMINI:ETHUSD)
POINTS OF DISCUSSION
S = $360, $320
R = $420, $445
1) Ethereum moved above the bearish throwback level at $395, and has since come back to re-test the bullish throwback.
2) Ethereum holds the now bullish throwback at $395, it will form a new intraday range between daily resistance up to $440.
Per our previous analysis, price came up to touch the $420 resistance level nearly to the cent, confirming the level and setting up the next intraday trade after a successful retest of the now bullish throwback at $395. If bulls can hold above the $395ish level, we expect price to climb back up to $420, before driving up to the proven daily resistance at $445. A close above $445 on the daily will signal that momentum is firmly in the bull’s favor and give a high probability of continuation up to the yearly highs at $480. Above that level, it will trigger the range expansion move, which would see prices driving into the weekly resistance block near $562. Inversely, if bears take control and are able to drive price back below the bullish throwback at $395, we expect that we would see a fade back down to the range support at $360. Ethereum has correlated with Bitcoin well in the past, but recently we saw the two decouple while BTC sucked the air out of the room, causing Ethereum to dip on Bitcoin’s last drive up. Often, when you see this price action, assuming momentum stays green for Bitcoin and other majors, Ethereum tends to play catch up, which is exactly what we saw this week following the PayPal news.
The ETH/BTC pair looks concerning and could lean on Ethereum’s price while it fills a 5% gap to retest its bullish throwback level at 0.027. Once that price inefficiency is filled, we believe that Ethereum will continue its positive correlation with Bitcoin in the event of a mega rally
US DOLLAR – W (FX:USDOLLAR)
POINTS OF DISCUSSION
S = 1200, 11920
R = 12080, 12140
1) USD tagged the bearish throwback level at 12,140 and failed to hold above the bullish throwback at 12,050 – Must now hold above range support at 11,950
2) Macro plays take time and are subject to thousands of variables, but tracking the USD gives valuable insights into other correlated or inversely correlated assets.
USD bulls and bears remain in a stalemate in the current two-month consolidation range between 11,900 and 12,100. Until either of those range lows/highs is taken out, triggering the range expansion move either up to 12,300 or down to 11,730, there are no trades to be made. It is best for traders to set some alarms and just check on it at US open/close to remain in the know, but we don’t expect any significant volatility unless there is some other black swan event in 2020, or the range levels are broken. Global debt denominated in the USD continues to tick up, and with many European countries going back into lockdown, following a very sharp spike in COVID-19 cases globally, expect central banks to continue to resume/ramp up their QE, as output will be negatively affected in the short term. While we don’t expect similar price action to what we saw in March, as people are now more knowledgeable about the virus and responses to it, an increase in QE will certainly provide some downside pressures as the Fed continues its efforts to stabilize the markets and ensure ample liquidity to swap lines. For now, the USD will remain in a wait and see a pattern for traders.
SPX500USD – W (OANDA: SPX)
POINTS OF DISCUSSION
S = 3395, 3330
R = 3500, 3580
1) Bears took control in early trading this week and drove price back to the 3,395-support level, which must be held to maintain short-term bullish market structure.
2) Ignore hourly news reports about the seesaw news intended to bait algorithms and give the market hope – focus on price action.
Mainstream media lies, politicians lie, but price action is true. When trading equities, I tend to tune out the noise, which is often heavily biased to the masters that own the networks, pushing forward their own agendas. I bring this up because it is important as a trader to remove all bias from the trading systems – both external and internal. The weekly chart is clearly painting some bearish candles for the past three weeks, but overall, the market remains stuck in a consolidation pattern between 3,600 and 3,200. If bulls are to regain short-term bullish momentum, they will need to maintain price above the former all-time highs at 3,395. If that level flips back to resistance, we can expect a swift retest of weekly support at 3,200. With the election about a week away, unless there is a major black swan event, we expect the price to continue to oscillate between those levels. A close above 3,500 will give an early signal that the market is likely about to run to new highs, which would ignite another high momentum up move into new price discovery to 3,600 and beyond.
XAUUSD – W (OANDA: XAUUSD)
POINTS OF DISCUSSION
S = $1,800, $1760
R = $1,945, $2,000
1) No reasons to be macro bearish above $1,750-1,800, but bulls need to regain the bearish throwback at $1,945 to reignite the short-term momentum
2) Inflation will accelerate in weaker economies such as Iran, Turkey, Argentina, which will give much greater % gains than the USD
For day traders everywhere, we can report that the market continues to remain bearish below the bearish throwback at $1,945, with no fresh long entry signals until the market can close a daily candle above that price, which would provide traders with a signal that the bulls were back in control, and a price run up back to $2,000 was imminent. Until that happens, it is best to cool it with the green button and wait for confirmation and make sure that bids are set at the former yearly resistance and untested bullish throwback level at $1,760 – $1,800. If bears manage to drive price below the current lows at $1,850, expect price to continue its retreat to the $1,760 level, which would be the ideal place for price to find a bottom and consolidate, before continuing its long-term drive back above the $2,000 mark.
Momentum indicators continue to reset with volume tapering off, with the major markets likely waiting for a decision from the U.S. election. A re-cross of the stock above the 20 mark would add further confluence in an up move that there was strong momentum back on the bulls side. This cross is likely at least a month off, but will be something to keep a close eye on when looking for extra confluence between market structure and momentum indicators.
The TMC added $50B, reinforcing the strength we identified in previous candle prints and ticked to new yearly highs this week.
Market charts are a visual representation of its participants – Human beings – which live life algorithmically, whether they are aware of it or not. With this in mind, it is possible to develop an edge from anticipating that human behavior and its effects in the markets.
If only the TMC (total market capitalization) was a tradeable product on exchanges, as the price action has been some of the cleanest we have seen in awhile. Similar to Bitcoin or USD, it is a slow mover, but would make for a great asset to trade for the longer-term swing traders. The recent flip of the $340B resistance to support was the first signal that the markets were due for a relief bounce as the majors entered a short consolidation period after their recent drives up. When the majors consolidate, capital often flows back into the alts in the endless liquidity cycle, which looks something like this: Majors Mid caps Small caps Bottom of the barrel shitcoins.
Human behavior rarely changes unless heavily incentivized or disincentivized, hence why we see these liquidity cycles repeat year after year. You can apply the same theory to patterns in technical analysis across all markets, and from that knowledge, begin to know what signals to look for, building an edge against those who believe that markets are random and unpredictable. Studying human behavior and personality types, which influence that behavior in a predictable manner, was extremely beneficial to my own development as a trader. I highly recommended that any sufficiently advanced trader should dive into these patterns of human behavior to further develop your edge against market participants.
Gem Hunters (Extended)
DEX’s growth will continue to accelerate, but regulators will likely be close behind, as while the protocols may be decentralized, the companies behind them are often not.
Interoperability, cross-chain communication, and liquidity sharing are the future of the crypto space. Projects that silo off will suffer liquidity problems and users will move away from them, as liquidity attracts traders, creating a positive feedback loop.
The irony of DEX’s is that many of them have centralized operators, which creates a critical vulnerability – not so much for the networks, but for the development of those networks. As this centralized risk remains present, it will likely become the target of regulators in 2021, and we anticipate that in order to access the platforms, some form of KYC will be required, or else the companies behind the DEX’s will face action and penalties, similar to what we have seen the CEX’s encounter this past quarter. With this in mind, we believe that on-chain identity will become a micro trend in 2021, which will likely see a wide range of products and solutions deployed. With no clear winner initially, we will leverage the shotgun investing approach; scattering the bets across the trend and then consolidating the bets to the clear winner(s), as they emerge.
With DEX volume exploding the way it is, the future is clearly set in the sense that the crypto space will likely focus on interoperability, cross chain communication, and pooled liquidity. The most interesting projects to be launching in the short term are those that provide cross chain leveraged trading – ie: a decentralized version of Bitmex. For examples, you can look into what DerivaDEX or Injective Protocol are working on, which have been backed by some of the largest funds and market makers in the space, such as Three Arrows and Jump Trading. There has never been any shame in following the smart money in the space, and given the market demand for these products, this next evolution of DEX technology will likely take center stage in the coming months.
Developers test in production; hackers exploit in production. We have highlighted that these hacks, exploits, or whatever you want to label them as will not stop with the current deployment and testing practices.
The majority of DeFi projects are sitting on key support levels, including the DeFi perp, which if held, will give a sector wide relief bounce. If Bitcoin moves up aggressively, expect these supports to be broken, and what you thought could not go down anymore, will swiftly plunge as Bitcoin vacuums up liquidity.
Another week, another $20M of funds lost (for now). Normally, when people experience something negative, they learn from those mistakes, but the opposite is true in the DeFi space. This time around, a hacker was able to siphon nearly $24M of funds. However, for the hacker, this is a dangerous game to be playing at this point, as on-chain forensics have become sufficiently advanced, making it very difficult for financial crime to be gotten away with. It was reported that the identity of the hacker was a well-known individual in the space, but they have yet to DOX the individual. Expect these attacks and heists to continue and grow in magnitude as the capital injection into the DeFi space only accelerates into 2021.
While Bitcoin’s recent uptick sucked the liquidity out of most of the DeFi coins, the DeFi perp is sitting on a three month support level at 1,800, and if held, we can expect a sector wide bounce, as long as Bitcoin continues its current slow grind/consolidation. As we’ve seen in the past, Bitcoin’s abrupt moves affects the DeFi space, and we can expect downside continuation across the majority of mid- to low-cap coins if BTC goes on a large run. During these times, traders tend to move out of alts and into Bitcoin when it moves violently upwards. Long term, the space continues to flex healthy signals with TVL’s continuing to make highs across many DeFi platforms, signaling the underlying strength of the DeFi space, despite short-term price depressions. 2021 is shaping up to be an explosive year for DeFi, filled with plenty of opportunities for traders and pre-sale investors. Trends are our friends.
This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document. Past performance is not indicative of future results.
©2020 by Hxro Labs