– Introduction to Timeframes
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– Understand Higher Timeframe Direction and its Use on Lower Timeframes
– Introduction to Timeframes
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– Understand Higher Timeframe Direction and its Use on Lower Timeframes
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However, there is one area, where stablecoins are stealing a march on bitcoin – settlement of crypto derivatives.
For the uninitiated, derivatives are financial products that derive their value from an underlying asset or a group of underlying assets. In the case of crypto derivatives, these underlying assets are cryptocurrencies or crypto-assets. The currency in which profit/ loss of a derivative contract is denominated is referred to as the settlement currency.
Derivatives are currently the most exciting area of crypto trading and have seen remarkable growth in the last 12 to 18 months. This growth is being led by new entrants which are shaking up several aspects of derivatives trading, including settlement currency. The incumbents, namely BitMex and Deribit have preferred BTC settled contracts. Deribit now also offers futures and options on ETH that are settled in ETH. However, the broader market is quickly moving towards stablecoin settlement.
New Derivatives Exchanges are Driving Stablecoin Settlement
Delta Exchange, which is a relatively new entrant in the crypto derivatives space, has been pioneering stablecoin settled futures. Delta launched its first USDC settled futures contract back in January 2019. Considering that USDC was fairly new then, the choice of USDC over the much more established USDT was a bold one. This bet on USD paid off as both volumes on Delta Exchange and USDC market cap grew rapidly in 2019. Encouraged by the response of traders, Delta Exchange went on to list USDC settled futures and perpetual swaps on several leading altcoins.
With the trader demand for stablecoin settled futures clearly established, other derivative exchanges have started to follow suit. The most notable among these is Binance. The exchange launched its futures trading platform in the 4th quarter of 2019 and has selected USDT as the quoting currency for the entire platform. Given Binance’s reach, this will give a big fillip to the market share of stablecoin settled derivatives.
Trader’s preference for stablecoin pairs has been clearly visible in spot markets. In fact, having USDT pairs on altcoins was one of the key reasons behind Binance’s strong growth in 2017. Even now, for most cryptocurrencies, the trading volume in USDT pairs is higher than that in BTC pairs.
Focusing on derivatives trading, stablecoin settlement is preferred by traders for primarily three reasons:
In mature asset classes, the sizes of derivatives trading is typically 4-5x of spot trading. The rapid growth of crypto derivatives suggests that the same relationship will likely get established for cryptocurrencies too. As crypto derivatives grow and mature, standardisation and a move towards established practices from traditional financial markets is natural. We believe stablecoin-settlement is part of this process. Introduction of more complex derivatives such as options and interest rate swaps is only likely to accelerate this trend. That said, it remains to be seen whether Delta Exchange can continue to innovate in stablecoin-settled derivatives and manage to stay ahead of its peers.
Cryptocurrency is a potentially great digital asset for investment. Some cryptocurrencies have better options for investment in 2020. Do you want to know what digital currencies are worth investing your money in the next 12 months? Read the following recommendations.
Despite the international trend of cryptocurrency devaluation in 2019, some coins still possess a very good potential for making quick and long-term ROI. Do not pay attention only to the current rate of cryptocurrencies because this index is the most volatile and may change drastically within a few weeks (take, for instance, the dramatic drop of Bitcoin price in 2018). On the contrary, consider the following factors and indicators:
Check the current top 10 cryptocurrencies with the highest market cap (January 28, 2020):
Rules to learn before investing in cryptocurrencies in 2020
According to AMarkets expert Artem Deev, the following recommendations will help to minimize risks and increase ROI for cryptocurrency investors this year:
Top 5 cryptocurrencies to invest in 2020:
In May 2020, the first and major cryptocurrency developers will offer 50% reduced rewards – 6.25 BTC instead of 12.5 BTC for each verified block. However, apart from that, Bitcoin is likely to bring the dominance index to 65-70% compared to other altcoins. In such a way, it can become the cryptocurrency with the largest market capitalization. These factors may significantly affect the growth of its price in 2020. Active use of Lightning Network may also change the BTC ecosystem. It will enable the implementation of Bitcoin in decentralized applications, micropayments, and e-commerce platforms. The current Bitcoin price (January 28, 2020) is $8 994,85.
Unlike Bitcoin, Ethereum is based on practical smart contracts used by many projects for the digitalization of transactions. The currency value may increase due to the increasing demand for its blockchain and functions, rather than a deficit of the asset as it happens with BTC right now. A major role in the success or failure of this currency will depend on upcoming fork updates and rapid implementation of the Proof-of-Stake algorithm. The approval by regulatory organizations and community decision to de-list ETH from the list of altcoins may also affect its price growth in 2020. The current ETH price is $171,38.
The NEO project is often included in different cryptocurrency investment ratings for the next year. This cryptocurrency breaks many stereotypes, including being the first open-source token originated from China. It claims to transform the traditional financial system by combining digital and real assets. Its unique Superconduct trading mechanism allows users to trust the funds through a decentralized platform. So, NEO’s appliance is beyond doubt, as its rapid demand growth. NEO may even hold an ICO, but so far it is trading at the level of $11,14 USD per token. The current NEO price is $11,14.
Chinese experts, according to CoinTelegraph, really like to include EOS to the list of the most promising cryptocurrencies for the next few years. Even if you don’t know much about crypto coins, it is definitely worth your investment in 2020. If Twitter, Uber, and Amazon ever move to a blockchain, the core of their work will definitely be EOS. The EOS system is free of Ethereum problems with scalability and it is ready to replace other competitive blockchains. If Ethereum fails, EOS can level up to 100 USD per token. EOS achievements become possible thanks to the consensus algorithm of delegated proof of ownership (DPoS) and an infinite number of similar blockchains. The current EOS price is $3,94.
Some experts call XRP the “king of banking infrastructure”. The successful partnership with major financial market players made the Ripple ecosystem a breakthrough in the crypto industry. Take the latest integration with Western Union and the potential replacement of SWIFT to accelerate and reduce the cost of large money transfers between counterparties. However, do not expect huge profits with XRP in 2020, it is good for long-term investment. Even with the most optimistic approach, XRP price is unlikely to rise above 0.7 USD in the next couple of years. The current XRP price is $0,233759.
Cheap but potentially good for investment cryptocurrencies in 2020
Besides the obvious choices of popular cryptocurrencies, one of AMarkets experts – Basil Gamov – recommends to take a closer look at cheap but potentially great cryptocurrencies to invest in the next 12 months:
1) Chainlink (LINK) – appeared in 2017 in the USA. These crypto coins developed a technology that forms channels between different data providers employing smart blockchain technology. Chainlink allows all network operators, like information providers, to earn their token LINK. From an investment point of view, Chainlink has great potential. This is the list of partners who also believe in this crypto coin’s future: Dapps Inc, Google Cloud, ETHA, ConsenSys. The price (January 28, 2020) is $2,62. The market cap is $917 350 826.
2) Basic Attention Token (BAT) is another functional type of tokens based on the Ethereum blockchain. It is used only in the Brave browser. The cryptocurrency was launched in 2015. Developers offer a various concept of interaction for all network participants. Browser users pick to choose ads or not and can monitor the token’s price in real-time via Brave. The token has a very active and massive affiliate program, has the support of the Tor browser and DuckDuckGo search engine. The current token price is $0,218456. The market cap is $311 019 624.
3) Synthetix Network Token (SNX) is a potentially interesting platform network based on the ERC20 token. It helps to create synthetic assets (Synths) for tracking the value of physical assets. People can create and support their Synths and make money with them, without actually being the owners of these assets. The token appeared in 2017 and back then it was called Havven. The current token price is $1,19. The market cap is $193 220 205.
Sure, you are free to pick any cryptocurrency to invest in 2020. Remember to diversify and work with reliable exchange services and brokers to protect your investment deals from any fraud. Make sure to include crypto coins into your asset portfolio as soon as possible while top currencies like Bitcoin and Ethereum are still hot for investment.
The risks are rapidly building up. The fact that stock indices are still close to their all-time highs and credit spreads are tightening is outright surprising. To be fair, though, crises rarely happen when the crowd is prepared for them. Instead, the analyst community first goes from ultra defensive to balanced. And only after the risk assessments are lowered, the trouble strikes.
What kind of risks are we talking about? For the most part, the economic ones. Global economy continues to slow, dragged down by China. The country’s industrial output growth weakened to 4.4% y/y in August, the slowest pace since February of 2002. The reader is likely familiar with the number, but it’s crucial to fully understand its significance. Just like the market was late to recognize the scale of China’s growth and its consequences, it is now failing to grasp the magnitude of the slowdown. It is by no means priced in.
There’s no reason to expect an improvement either. As the U.S. presidential primaries get underway, it becomes clear that the Democrats’ stance on China isn’t much different than that of Trump’s. Virtually everyone favors a stricter policy towards China—the U.S. political elites haven’t been this united since the Russia episode not so long ago. Donald Trump himself has already promised a much tougher stance on Beijing when re-elected. And even if, hypothetically, the next American president is a Democrat, the chances for a softer policy are slim to none.
China’s response to the external challenges has been largely muted. It’s almost as if the officials have decided that if the economy goes down, it should take everyone with it (in our previous review we wrote about Germany being in a recession, which is a direct result of China’s problems). The government’s tax incentives primarily compensate for trade war losses. The PBoC is just keeping monetary conditions unchanged, but is not softening them. And both institutions are making sure that the real estate bubble doesn’t inflate.
Perhaps things could’ve simply stayed this way for a while, but the U.S. is ramping up pressure on China. In late September, it was reported that Trump’s administration considered limiting Chinese firms’ access to USD funding (both debt and equity). Treasury officials played down the reports, specifically saying they were “not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time.” But the key words here are “at this time.” If this does eventually happen, Chinese investors will be shut out of the U.S. markets.
Such a step can be very damaging to China’s financial system and economy. The country’s corporate debt stands at 165 of GDP, the broad money supply is 200% of GDP. This is 2-2.5 times higher than that of developed countries and is a sign of enormous risks. In fact, China is long overdue for a credit crisis, but has managed to avoid it, chiefly due to its closed capital account. But the Trump administration seems to have found a creative way to trigger a fundamental repricing of Chinese assets that also serve as collateral for the country’s banking system. Should the U.S. proceed with this idea, it is highly likely to trigger extreme risk aversion across global markets.
Another key story of the month was the liquidity crisis in the U.S. interbank market. The fed funds rate broke out of the Fed’s target corridor, which, in theory, shouldn’t be happening. Even worse, it seems like the Federal Reserve doesn’t have a clear understanding of why exactly that happened. So far there are two working hypotheses. One is that there is still a liquidity surplus in the system, but it is unevenly distributed across banks. The other boils down to reaching a certain “terminal” reserve level, i.e. the lower limit of the Fed’s balance sheet has been empirically established.
Of course, the Fed needs to determine the source of market stress. For traders, however, the picture tells only one thing: any positioning should account for an episode of sharp risk aversion. If the first hypothesis proves correct, it would imply that the financial institutions are experiencing difficulties obtaining a loan. Because if the whole theory is based on the assumption that the system is still operating under liquidity surplus, then someone must be hoarding that liquidity. This is called a lack of trust, and it can quickly turn into a full-fledged crisis. If the second hypothesis is to be accepted, the U.S. financial system has reached the point when there’s simply no natural supply of fresh liquidity anymore.
Perhaps the only significant takeaway from this discussion is when to expect a crash-type episode. If what we’re seeing is loss of trust between interbank players, 2019 could end much worse than 2018. If the system has hit a structural bound, the Fed’s repo purchases can buy another 3-6 months. Unlike most of the market, we do not expect recent events to push the Fed back into QE as such operations are not flexible and do not adjust to fluctuations of demand for reserves. The beginning of the U.S. fiscal year should also be very telling (it is known that the Treasury’s expenses were one of the factors that led to a surge in interest rates).
Finally, a few words on the U.S. political landscape. Democratic leader Nancy Pelosi announced that Congress officially opened an impeachment investigation against Donald Trump. We’re not political analysts, so we will not delve too deep into the issue. But the impeachment is likely to play out under the “Bill Clinton 2.0” scenario, where the House votes to impeach, but the Senate does not convict. A different outcome is very unlikely as the upper chamber is controlled by the Republicans, and the evidence for Trump’s impeachment is too weak. So far, at least.
However, if the Democrats somehow manage to succeed in removing Trump from office, the immediate effect on risk appetite will be negative. Donald Trump has proven to be an investor-friendly president. His policies have been directly beneficial for those holding higher-risk assets, and are still indirectly supporting the dollar. We also note that back in the Clinton impeachment days, the main market stories were the Asian financial crisis and the Fed’s response to that external shock. Which is why we’re putting politics third among our key trends and keeping a closer eye on credit markets and developments in China.
We remain long XAUUSD, XAUEUR. If stop-loss is reached, will again buy XAUUSD at 1390 targeting 1562, stop-loss at 1335.
The stress in the U.S. interbank market has surprisingly had no initial effect on the dollar. Even as rates were skyrocketing, USD strengthened only moderately. This is interesting for the simple reason that if someone needed liquidity (and could not borrow it), that could be done by selling some assets. And if the bank settled the transaction in a foreign currency, the next step would be to convert it into dollars. In turn, the demand for the USD would cause the currency to appreciate.
But the greenback only rallied at the very end of the month. EM-currencies and commodities took a hit, and gold was no exception. The yellow metal plunged more than 5% from its recent highs. We did expect the move (see our previous review), even though this severe shortage of dollar liquidity wasn’t a factor a month ago. From the technical viewpoint, the 1480 mark, as well as the critical support at 1435 is now important for XAUUSD. A break through these levels would mean bad news for gold in the long-term, while a return to the 1300 area could even make the old targets below $1000 per troy ounce possible.
Actual trading isn’t the only reason we are carefully monitoring precious metals (as well as for cryptocurrencies). In the current environment both gold and silver help gauge the degree of the dollar-funding stress. If XAUUSD drops below the mentioned levels, but, say, EM-currencies don’t go down with it, it would be a good reason to go short on them. This strategy works for risk-related assets in general, but of course, requires thorough quantitative modelling.
We remain short EURGBP, looking for EURUSD rebounds to 1.118 оr a breach of the 1.086 to enter shorts targeting 1.0325, stop-loss at 1.131/1.093 respectively.
While the dollar has been gaining broad-based strength, the euro has been just as broadly weak. In our last report we stressed the very low probability for the EURGBP parity. While this scenario still can not be ruled out, the chances are getting slimmer. However, shorting the pair at the current levels is tactically impractical: the rate has gone down significantly, thanks to both the Brexit drama and the general weakness of the European currency.
But it is not about the EURGBP anymore. EURUSD has been showing signs of life, with a shallow, but consistent downtrend emerging. The unit closed September at 1.09, which is just above the critical support at 1.086. This is of an equivalent importance to the 1435 level in gold. If things worsen in the U.S. interbank market, the euro and gold can become highly correlated and tank simultaneously. For the euro, the first intermediate target lies at 1.064, and then the move could extend towards 1.032-1.046.
We buy USDRUB at 65.00 targeting 68/69.7, stop-loss at 64.00.
EM-currencies in general and the rouble in particular were also late to react to surging dollar rates. Over the past 3 trading sessions, however, they did all the catching up. USDRUB is trading by a full figure higher, and it’s very likely that it’s only the beginning. From a technical point of view, the conservative target is 68. But it is very well possible that it will reach levels closer to 70 before 2020 (or at the very beginning of the year). Our models suggest that the next year is to be challenging for the entire EM universe. In the worst-case, but still realistic scenario, the rouble could depreciate by another 15% by the end of 2020.
In our previous review we also pointed out USDMXN as another candidate to go long. The unit still trades at levels where longer-term investors can enter. Among the potential losers are also ZAR and TRY. No one is immune to the U.S. interbank stress and it will first affect crosses with the dollar itself. The entire EM-sector still has a long way to fall.
We hope these trade ideas will be useful for you. Be free to try them in AMarkets.
Analytical materials and comments reflect only personal views of their authors and can’t be considered as trading advices. AMarkets is not responsible for losses as the result of analytical materials usage.
So where are we now? It seems to me that “terrible” is not just the most likely scenario, it’s not even the worst possible scenario any more. In my view, an interim government under Labour with Jeremy Corbyn at its helm represents the worst of all possible worlds for GBP: economic dogmatism that will frighten markets coupled with a pro-Leave bias. Which is not to say that I’m any great fan of the incumbent Conservative government either, except insofar as I’m an American citizen and so grateful for any group of politicians that make our Congress seem reasonable and well-functioning by comparison.
But let’s put politics aside and look at the economics. Where is the pound nowadays? The simplest way to value the currency is relative to its past value. For this exercise, we use the real effective exchange rate (REER): the value of the currency against the country’s major trading partners, adjusted for inflation. It’s important because trade imbalances are one of the major factors moving currencies over the longer term.
On this metric, back in March, the pound was just 1.2% undervalued against a basket of currencies of the major economies. Currently, it’s about 7.1% undervalued – still not at the 10% undervalued line that has sometimes (but not always) been a barrier in the past. That means even under normal circumstances, it can fall further. And as you can see, in extraordinary circumstances, such as the Global Financial Crisis in 2008/09, that 10% line is no barrier to GBP depreciation. (Last time I used the IMF’s calculation for the GBP REER, but this time I’m using the BIS’, which is updated more frequently.)
The more theoretical way of valuing the pound would be with purchasing power parity. That’s as close a metric as we can get in forex analysis to seeing whether a currency is “fairly valued.” Looked at this way, the pound is still relatively expensive against the euro. According to the OECD’s way of calculating PPP – taking a large basket of goods and services and pricing them in different countries — the pound is 12.7% undervalued vs USD but still 8.1% overvalued vs EUR! This compares with -8.7% and +11.%, respectively, back in March. And considering that the EU is Britain’s largest trading partner (51.6% of total trade) vs 10.6% to the US and 7.6% to China, the two dominant USD trading partners, it’s clear that the pound’s value relative to EUR is the more important of the two prices. It’s got far to go before it hits up against the 20% line that has in the past provided some resistance (as that’s about the level where the currency starts to impact trade flows).
For GBP/USD to hit the -20% line, the pair would have to be at 1.14. For EUR/GBP to hit that level, the pair would have to be 1.20 (implying GBP/USD at 1.08, assuming EUR/USD stays at its current rate). It looks like the long-awaited “pound parity party” is coming up!
This analysis so far builds on what I said last time: although the pound has fallen considerably since before the Brexit vote, that doesn’t mean it’s cheap yet. It can still fall further.
Back in March, I made the balance of payments argument for why sterling should fall further: that after Brexit, the current account deficit is likely to widen further (because exports will be held up) while the financial account surplus is likely to diminish (as both direct investment and portfolio investment turns into an outflow). That argument still holds. Now I’d like to focus on the monetary reasons why the pound is likely to weaken, namely: the market isn’t at all discounting the Bank of England’s likely reaction to Brexit.
Basically, the market sees little chance of any significant Bank of England easing – it’s only pricing in a 50% chance of even one rate cut by June of next year.
The market is implying that over the next year, the BoE may cut rates about as much as the ECB – which already has negative rates – and the Bank of Japan – which hasn’t had significant inflation for about two decades.
Over the longer term, it’s expected to cut rates very little – even less than the Bank of Japan, somehow.
The small amount of rate cuts that are priced in probably reflect the fact that Bank’s policy rate may be positive, but it still isn’t that high in international terms, neither in nominal nor in real terms, even if it is positive.
However, that comparison fails to take into account the impact of the quantitative easing that other central banks undertook. If we adjust for that, we get what are called shadow policy rates.* These show much better just how tight UK monetary policy is relative to the urozone or Japan. It’s nearly the same as in the US, where rates had been lifted from almost the same starting point (effectively) nine times before coming down once (the graph only has month-end data and so doesn’t encompass the Fed’s rate cut this week).
In other words, UK monetary policy is still very tight and yet the market is only pricing in the minimum amount of loosening – about as much as central banks that are already well into negative territory for their policy rates. Is this reasonable? It was back before Brexit, when the Bank of England was in the process of “normalizing” interest rates (on the assumption that “normal” was still the way the world worked before September 2008). And that’s basically what the Monetary Policy Committee (MPC) would have us believe. Following Thursday’s meeting, they repeated their usual comments that if it looks like Brexit will go smoothly, they would raise rates “at a gradual pace and to a limited extent.” Even in the case of a no-deal Brexit, the Bank’s response “would not be automatic and could be in either direction.”
Does anyone believe that? Will the one rate cut that’s not even fully priced in be enough to fight the biggest shock to the UK economy since James Callaghan had to borrow money from the IMF in 1976? Of supermarket shelves empty while lambs that were destined for foreign markets are being slaughtered by the thousands? Central bankers may be dedicated to fighting inflation but they also have to be aware of what the population is facing. Besides, even the BoE itself said Thursday that if there was “entrenched uncertainty” over Brexit, “domestically generated inflationary pressure would be reduced.” That gives no reason to expect a hike in rates any time soon – and a lot of reasons to expect the Bank of England to join the world’s rate-cutting cycle.
I think the market is being too, too sanguine about the likely impact of Brexit on the UK economy and the Bank of England’s likely response. The rational course in case of a downturn would be for the Bank to cut rates and let sterling act as a “shock absorber” in troubled times. I still see plenty of downside to the pound as the prospect of below-consensus interest rates add another reason to sell on top of impending economic and political chaos.
This article was written by Investment Strategy Contributor Marshall Gittler that shared his exclusive insights in an in-depth Brexit analysis powered by BDSwiss.
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Since the price is low, an investor with little capital can buy shares, and, in case he can read the market correctly, his investment will have healthy returns.
When cryptocurrency was introduced in 2009, and subsequent cryptocurrencies, a lot of investors witnessed similarities between penny stocks and cryptocurrencies. Despite their similarities, they also have differences you should take note of.
After reading, you will determine which one is better for short term investments.
What makes the two different from each other comes from what makes them similar because neither of them is regulated. When you trade penny stocks over the counter, it means they are not under the monitoring and regulation of the stock exchange. No central bank controls cryptocurrencies because they are decentralized. However, lack of regulation is riskier with penny stocks since their susceptibility to fraud and scams are higher.
Cryptocurrency is less risky because of the blockchain technology they use, which is a public ledger. There is less fraudulent activity because all records, accounts, and transactions are public.
Bitcoin has had a strong performance over the years with huge returns and continuing customer adoption. Compared to the worldwide currencies, Bitcoin yielded bigger returns than any of them for 5 out of 6 years.
2011 – Bitcoin + 1500%
2012 – Bitcoin +299%
2013 Bitcoin + 5400%
2014 – USD + 13%
2015 – Bitcoin + 37%
2016 – Bitcoin + 130%
The percentages show how outstanding payouts were during a 5-year stretch for all assets, stocks, currency, or bond. Since Bitcoin is on the rise again, the underlying computational network has become stronger and more secure than before. In addition, there are a lot of user-friendly wallets, applications, and arising resources.
Whenever cryptocurrency is launched, founders become interested in circulating the currency virtually so certain amounts of units are resold to investors. They will either get an existing digital currency, or fiat currency, which is normally USD. The majority of cryptocurrencies have a value between $3-$4 per unit during the early months of existence, like the price of penny stocks.
There are opportunities that have a low entry fee. It involves some hunting, but you do not need a lot to get started. With penny stocks, you can get involved in big board stocks options trading at a few hundred dollars in every share. Another similarity is that penny stocks and cryptocurrency can have low commission rates and they are both volatile with gains and losses.
It is an encouraging sign that the volatility is decreasing because of the lower daily returns in the previous years. In the past, Bitcoin was perceived as a volatile investment, which is true. However, this has lessened because of market maturity.
There is already a decrease in variation to levels that are more synonymous to traditional currencies. That is because of the daily standard deviations which decreased the returns from 5% to 10% daily from 2014, and under 2 before that. The reason behind this is the deeper liquidity among exchanges, a better understanding and use of Bitcoin, and overall confidence in buying Bitcoin. The network experiences less panic in buying and selling cryptocurrency. With a lower variability, the asset is less risky and becomes more comparable to the behavior of investment in gold as a global hedge when there is a collapse in the currency and negative pressures from the market.
You can invest in penny stocks and cryptocurrency with a low capital and they both have the potential to bring high yields, and highly speculative. A lot of traders prefer to trade in safer environments, which involves price movement investments.
Whichever you choose, there is always a risk in penny stocks and cryptocurrency investment, but you can be sure that the returns are healthy if it works out.