Thursday June 20, 2019 - Thursday June 27, 2019
Tradecipher is a crypto investment app that combines an intuitive trading platform with useable, relevant research available for users in 100 countries. Every weekday (M-F), we publish a weekly report covering XLM, EOS, Industry, BTC, and ETH (in that order).
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In this issue: View the PDF here
- Price Reports: Bitcoin is up 26.3% in the last week - outperforming basically every digital asset ETH (+6%) & LTC (-16.4%), the equity market S&P 500 (-1.08%) and Gold (+2.22%).
- Tradecipher Take (TT) #1: Flash crashes are nothing new to crypto (or the stock market) - let us break yesterday's crash down for you. Plus, how you can avoid losing money during them in the future.
- Tradecipher Take #2: Mobile peer to peer BTC payments go mainstream on IOS. That's good for BTC adoption but you should never do it yourself.
- Tradecipher Take #3: A big ray of sunshine is all you need - energy for crypto mining get's clean, and attracts big investors.
- Tradecipher Take #4: Bitcoin has been dominating the market - crushing altcoins in its path. It may continue to do so until 2021 - find out why.
- Tradecipher Take #5: Sentiment- It has been a whirlwind of sentiment among BTC, but we can find some signal in the noise.
- See you tomorrow for the ETH report. Subscribe now to get it in your inbox, or if you want to join Tradecipher early, become an early member.
TT #1: Why do Flash Crashes Happen?
This past week BTC crashed 13% - from $13,685 to $11,908 - in just over an hour (1). Two major exchanges Robinhood and Coinbase reported major outages after the price fell - leaving everyone to wonder what happened.
Flash crashes, exceptionally deep and fast declines in price, are a common occurrence in crypto markets.
Flash crashes have occurred for a variety of reasons - hackers manipulating markets to steal funds, faulty algorithms, or a lack of market liquidity. In June 2011 BTC flash crashed from $30 to $0.01 due to a trading bot malfunctioning. In 2014 BTC crashed from $602 to $102 due to a market sell order executing significantly below the market price. In June this year, BTC on the exchange Kraken crashed from $11,200 to $101 as hackers utilized a large market sell to transfer funds to their fraudulent buy orders.
This particular flash crash was likely due to three reasons:
- Margin traders made poor decisions due to the market upswing - and a small slip in price caused their investments to be sold off in large quantities - due to the nature of margin trading
- A lack of support underneath the new 52 week high
- Market manipulation to falsify the Monthly candle
Bitmex is a high leverage trading platform. It allows users to borrow funds (at high interest rates) to increase the size of their investments. The downside is that if prices fall by a certain percentage - called a liquidation differential - their orders are immediately sold off so that Bitmex avoids seeing a loss. Most traders on Bitmex use a 50x margin, so BTC needs only to move ~1.3% in the opposite direction of their position for traders to get liquidated. Because of the huge upswing in BTC price, traders started purchasing even more BTC at high leverage. When the unexpected downward move occured - it became a cascading effect as Bitmex sold off their Bitcoin - causing a minor slip to become a short-term crash.
From a technical perspective BTC may have initially sold off as market manipulators sold the market to “paint” the monthly candle close. Candles are the primary tool by most traders and algorithms in analyzing and predicting future price. In manipulating candle data, institutional traders are able to trick the retail market into selling shares to institutions at a lower price, and to later buy back from the institution at a higher price.
Institutions buy at a relatively low price - prompting retail investors to chase them - buying at the now-raised price. Then they sell - prompting retail investors to panic sell - allowing them to buy back in at a lower price. This cycle repeats in most markets - and is a major reason to buy when things are quiet in markets.
Just 4 days away from the end of the month, the timing seems appropriate for such a theory. We see candle manipulation activity like this on most major time frames, from the Hourly, Daily and the Weekly candles. Depending on the time frame, we experience large volatility in a relatively close period to the end of the candle closure. With hourly candles we see large volatility 15 minutes before the close, on daily we see manipulation the final hour, and with weekly we see manipulation the last day or two.
Flash crashes and market manipulation happen in traditional markets as well - sometimes costing trillions of dollars. Most S&P 500 stocks see 20% of their volume in the last 30 minutes before market close, and up to 10% in the last 5 minutes. These numbers show that institutions attempt to manipulate the markets in both crypto and traditional finance.
Don’t let these flash crashes drive you crazy. You can protect yourself from them by following a few easy steps:
- Don’t leverage more than 5X
- Use exchanges with high liquidity
- Don’t chase daily price spikes and collapses, BTC is up in the medium and long term - invest for those horizons
TT #2: #1 Finance App adds BTC deposits
Cash App has formally announced that customers can now accept BTC Deposits in app.
- Ability to sell BTC into fiat then on to Cash debit card
- $65.5M in Bitcoin related revenue for the first quarter 2019
- Square Crypto hired former Google director Steve Lee to develop tools for the Bitcoin blockchain
- Downloaded 1M times in May 2019 - #1 in IOS Finance category
The addition of BTC deposits in app on this many mobile devices bring mainstream attention to Bitcoin as a new method of peer to peer payment. Users with the Cash debit card will be able now spend their BTC as easily as cash bringing further adoption to BTC as a currency. As we reported in yesterday's Industry Review regarding Litecoin and Crypto.com debit cards, we do not recommend users spend BTC but use it as a store of value - similar to gold.
This news comes after we reported last week that Cash was working with Lightning Labs to integrate new Lightning network capabilities of low-fee and near instant BTC transfers. We are delighted to see a company with such a large user base in the mobile peer to peer payment industry integrate cryptocurrency and increase ease of access to all users.
TT #3: CA gets 49 acres of solar panels for BTC mining
California is getting a 49 acre solar panel farm to power Bitcoin mining. Plouton Group will rent out their 5,000 ASIC mining farm to individuals and institutions who want low cost mining options.
Successfully raising investment capital for this project suggests two important points: there is profitability in bitcoin mining with the proper business model, and that the investors believe there is a path of continued expansion in this industry. The use of clean energy like this is the solution to most Bitcoin critics who argue the proof of work consensus model is unsustainable and highly inefficient.
TT #4: BTC market dominance approaches 2 year high - not a good time for Altcoins
Bitcoin dominance - the percentage of the total market cap of cryptocurrencies that BTC accounts for - is at 64% and is expected to rise to as much as 70% in the short term, potentially reaching 90% by the end of the year.
- BTC held over 90% dominance until February 2017
- BTC could return back to 90% dominance if it crosses beyond 70%
- Other tokens are falling in price even as BTC rises
- Technology built on top of the Bitcoin blockchain allows it to fulfill any of the use cases of other blockchains - potentially making those chains less valuable
Tradecipher Take: As Bitcoin heads into it’s halvening - reducing block rewards and inflation to 1.79% - in May 2020, the price of Bitcoin should increase as we have seen with the past halvenings.
The run on other tokens in early 2017 occurred almost 7 months after BTC halved in July 2016 and that pattern may occur again - meaning altcoins may run again in the first quarter of 2021. Until then, BTC dominance is likely to increase, and BTC will outperform the market.
Sentiment: Emotional Rollercoasters aren’t always bad
BTC price started the week rapidly increasing as social activity increased (1). Price and sentiment declined as price hit $11,000 resistance and sentiment peaked (2). We then saw sentiment and price bottom out (3) and eventually increase again.
Given the most recent rapid increase in BTC price and sentiment (4), Tradecipher recommends a HOLD as price and sentiment should decline following the recent peak. We recommend waiting for prices to stabilize before re-entering the market.
BTC sentiment analysis has shown to be a very useful tool in predicting overbought or oversold conditions - see our previous EOS report2. We typically see a near term high when social activity peaks. Then, price bottoms out when social activity hits relative lows. If we know the trend on a larger time frame we can use these high and low sentiment periods periods as sell and buy opportunities respectively.
BTC is currently in a significant upward cycle. However, to maximize our gains in the short term, we should buy when sentiment is low and sell when sentiment peaks.
That’s it for the BTC weekly report from June 20 - June 27, 2019. Make sure to subscribe to get tomorrow’s ETH report. Full reports are free until July 9, 2019, at which they will only be available for Tradecipher Members.
Additional Readings And Sources
TT#1: Why Do Flash Crashes Happen?
TT#2: #1 Finance App adds BTC Deposit
TT#3: California gets 49 acres of solar panels for mining BTC
TT#4: BTC Market Dominance approaches 2 year high - not a good time for Altcoins