By Pater Tenebrarum
A Purely Technical Market
Long time readers might remember that we courtesy Bitcoin and other glass big top cryptocurrencies as delegate media of sell from a financial speculation viewpoint for the time being. The call of suppositional direct that has propelled them to startling heights was triggered by marketplace participants realizing that they have the potential to turn money. The routine of achieving more widespread adoption of these currencies as a means of remuneration and substantiating suitable (and potentially more stable) sell rates relations to state-managed fiat currencies is still underway.
A image of cryptocurrency marketplace caps as of Jun 12 – they made internal lows two trade days later. After the small miscarry since then, marketplace caps are now somewhat aloft than those shown on this map, but it is still roughly in the right ballpark. Note: XRP-USD has the third top marketplace cap, but we do not courtesy it as a loyal “cryptocurrency”. It is not a decentralized banking at all, it is a token underneath control of the association that released it (it can be traded though, and for a while there was a big detonate of suppositional direct for it, infrequently enough especially from South Korea). Bitcoin Cash (BCH-USD) is the most critical flare from the original BTC blockchain and in our opinion the better Bitcoin. It has a much incomparable retard size, avoiding the scaling problems BTC-USD encountered late last year (which were compared with long watchful times for sell and mountainous fees). BTC still enjoys a first inciter advantage and trades at a distant aloft turn as a result. There is no judicious reason because it should, but that is a subject for another occasion.
At present, the above mentioned routine is still at a very early stage, hence suppositional trade stays the widespread activity. Other use cases continue to be grown at a sincerely fast shave and an whole new mercantile zone surrounding blockchain record and cryptocurrencies has emerged (currencies sojourn the vital focus for blockchain record for now, but many other possibilities are explored). If and until the successive theatre is reached, cryptocurrencies are essentially one thing though: sparkling trade sardines.
It is quite formidable to establish by what yardsticks to weigh practical currencies. Similar to gold, they have no P/E ratio, so to pronounce (gold at slightest has a franchise rate though). Some people disagree that one should review the market cap of BTC to that of the superb supply of US dollars to arrive at a long-term aim for the sell rate. We don’t trust it is that elementary – and either such comparisons make even a jot of clarity depends on the still capricious awaiting of BTC indeed apropos a ubiquitous middle of sell one day.
Moreover, as we conspicuous above with honour to the BCH fork, there is, e.g., no good reason because BCH should trade at a vast bonus to BTC (it would indeed seem to make more clarity if it were the other way around). There is no receptive reason for the gratefulness gap, solely for the first inciter advantage argument. Obviously, this is not something that can be quantified.
Our point is that these markets are driven almost exclusively by psychological factors. In other words, they are quite technical markets. The only things value examining are technical indicators and marketplace sentiment. The latter can only be finished around anecdotal evidence, as quantitative positioning indicators that could be used for this purpose don’t exist as of nonetheless (note that inter alia no blurb hedgers are active in CBOE BTC futures).
We don’t courtesy that as a problem; trade exclusively on technical signals is ideally excellent with us. Of course, traders had it very easy when the longhorn marketplace – or burble if you cite – was still going strong. One could not make any deadly mistakes by shopping during this time period, since all timing mishaps were eventually “bailed out” by the market.
This is no longer the box now that the most new burble iteration has burst. Timing has turn rather critical if one wants to make income as a trader. Despite overarching bear marketplace conditions the crypto markets sojourn appealing for traders though, as very high sensitivity in both directions continues to persist.
Watching out for Divergences
In sequence to sign extremes in marketplace sentiment, it is value following the headlines of articles on marketplace movement and the compared criticism sections on vital cryptocurrency-focused web sites. Short-term lows tend to be tie when the magnitude with which absurd upside targets are conspicuous by assorted “experts” and/or comment managers articulate their books subsides and headlines mentioning downside targets start to appear. At the same time, disastrous view voiced in criticism sections needs to be palpable.
At that point, it is customarily value looking closely at the charts. Consider the draft below, which compares BTC, the heading cryptocurrency (which all the others tend to follow) with BCH and LTC (Litecoin, one of the commencement BTC competitors) during the new bear marketplace duration (note: this image was made a few hours before announcement of this article).
We recently discussed divergences in the bullion sector. A identical research can be practical to cryptocurrencies. Since offered off from a Dec 2017 peak, BTC has put in 3 short-term lows. Both BCH and LTC have diverged at the second and third low. On arise of the second low, BCH put in a reduce low vs. a aloft low in BTC and LTC, and on arise of the new third low, it put in a aloft low vs. both, while LTC put in a reduce low relations to the first low. This creates a low-risk shopping opportunity, as the new lows can be used as stops.
We should discuss that ETH-USD diverged from BTC as well, with the divergences mimicking the ones seen in BCH:
During the longhorn marketplace phase, daily trade volume was a sincerely arguable indicator assisting to pinpoint short-term improvement lows. As a order of thumb, one simply had to wait for annulment candles to seem that were accompanied by intensely high trade volume. Often these reversals were immediately followed by a resumption of the rally, infrequently the initial improvement lows were retested on reduce volume first. In any case, it was easy.
However, in the bear marketplace phase, trade volume has gifted a solid downtrend, and on daily charts, one struggles a bit to brand any conspicuous stand-outs (occasionally they still appear, such as in LTC in Apr at the commencement of the last short-term rally). It is still value examination volume, but one has to do it in a different time frame.
The draft subsequent shows a image of BTC and BCH hourly charts taken progressing today. As these charts illustrate, panic offered waves, lows and successive upturns still tend to be compared with clever expansions in short-term trade volume. Reversal candles so to pronounce “gain credibility” when they start in and with clever trade volume – this creates it more expected that a short-term trend change has indeed occurred.
If one looks at a longer-term draft of BTC, it is immediately apparent that there are several critical parallel support levels situated well subsequent stream levels – the successive ones are two former insurgency points that after became support, at $5,000 and $3,000. Given the fundamental problem of evaluating these currencies and the vast size of prior corrections, it is really probable that one or both of these levels will be seen again.
Despite this caveat, it seems to us it is value holding low-risk trade opportunities when they appear. “Low risk” in this box means: risk can be particularly tangible by new lows which are not too distant off stream levels and can be used as stops. As long as these lows hold, a large convene is possible, or rather probable. If these lows are disregarded and a stop-loss is triggered, one takes a small detriment and waits for the successive event to emerge (the first of the above mentioned longer-term support levels will turn a expected aim in that case).
If a convene develops, the initial stop has to be altered into a trailing stop that takes into comment that substantial short-term sensitivity will accompany an upside pierce as well. If divergences such as those discussed above perceptible in the course of a convene (which happened prominently in Dec 2017-January 2018 between BTC, ETH, XRP and a few other “alt coins”), it is advisable to immediately tie trailing stops.
Why is it value it? Consider the convene from the Apr low: BCH had the best news upsurge during this convene and more than tripled in cost in about 6 weeks. That is zero to sneeze at, even if it was “just” a bear marketplace rally.
A Long-Term Sentiment Indicator
Lastly, here is one more view indicator suggested in a new article by Bianco Research on the May-June sell-off (requires registration). This strikes us as a longer tenure indicator, i.e., it is probably not very useful for short-term timing purposes, but it seems really value checking it out from time to time – namely Google hunt trends associated to cryptocurrencies. Not surprisingly, the indicator is mostly a duty of cost trends.
Google hunt trade indexes for the market cap leaders BTC, ETH and XRP and “cryptocurrency” generically. As prices have declined, so have searches. How useful this is as a contrarian indicator stays to be seen, but we think it is probably of medium- to long-term significance.
Charts by: Bianco Research, cryptowatch