PM Daily Market Commentary - 5/25/2017

davefairtex
By davefairtex on Fri, May 26, 2017 - 3:43am

Gold fell -3.10 to 1258.80 on heavy volume, while silver fell -0.08 to 17.14 on moderately light volume. Trading ranges were very narrow in both metals; the spotlight today was on OPEC, where they agreed to extend the current oil supply restrictions for another 9 months. This was treated as a massive sell-the-news event, with oil prices plunging -2.59 [-5.05%] to 48.71.

The narrow trading range for gold resulted in a candle print of a short black/NR7, which the code felt was somewhat bullish. Gold is right at the top of its ascending triangle pattern, and certainly today's NR7 print could be hinting that a breakout is in the offing.

Open interest at COMEX for GC rose +7,452 contracts.

Rate rise chances (June 2017) rose to 88%.

Silver also printed a short black/NR7 candle, which the code thought was neutral. Really not much happened today of note.

Open interest at COMEX for SI fell -640 contracts.

The gold/silver ratio rose +0.16 to 73.42.

Miners gapped down at the open, and traded sideways in a relatively narrow range. GDX was off -1.13% on moderately light volume, while GDXJ dropped -1.46% on moderate volume. Both ETFs printed doji candles on the day, which the candle code felt were singularly useless in determining direction.

Platinum fell -0.25%, palladium rose +0.69%, and copper edged up +0.08%. The code felt copper's high wave candle looked bearish, and both platinum and palladium also looked slightly bearish too.

The buck chopped sideways today, up +0.03 to 97.04; candle print was a closing white marubozu/NR7 which the code felt was slightly bullish. The buck appears to be trying to put in a low here around 97. It really needs a close above the 9 EMA to mark a low.

As mentioned, crude was smashed today, dropping -2.59 to 48.71, with the big moves coming both during and after the OPEC meeting. The market seemed disappointed that the existing supply cuts were merely extended, rather than increased. Actually, the word “disappointed” was really an understatement. The high volume long black candle was a “strong line”, which has an 86% chance of marking the top. The oil services companies were hit hard, most down 7-8%. The message that the market received from OPEC was that “the low price beatings will continue for the foreseeable future.”

SPX rallied +10.68 to 2415.07, breaking out convincingly above round number 2400. Candle print was a long white candle, which the code felt was slightly bullish. Sector map shows that cyclicals led (XLY:+0.88%) while energy trailed (-1.82% - they really got crushed). The vast majority of sectors moved higher today. Financials still look weak (XLF:+0.17%) so this isn't yet a general celebration.

VIX fell -0.03 to 9.99. That's a 5.5 point drop from where it was last week following the one-day Trump Impeachment follies.

TLT rose +0.03%, with the code viewing the short white candle as slightly bullish. TLT is holding up fairly well given the strength in the equity market.

JNK fell -0.11%, rising to a new high intraday and then selling off. The bearish harami/shooting star candle was seen by the code as relatively bearish.

CRB was hit hard today due to the drop in energy, losing -1.51% and plunging through its 50 MA. It looks like that commodity rally is over. Only 2 of 5 groups fell, but the big dog is energy, and it had a very bad day.

While the miners are back to languishing, gold appears poised for a breakout, and silver continues to look strong.  If the buck puts in a low that might cause problems; gold is just chopping sideways when viewed in Euros.

The massive drop in crude today probably doesn't help; while PM and oil aren't perfectly correlated, they often tend to move together.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

27 Comments

davefairtex's picture
davefairtex
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asia: gold breakout; +9.10 to 1270.20

Looks like we have a gold breakout through the 1260-1265 resistance zone; gold new high to 1270.20.  It looks like a good-sized move higher in JPY, up +0.80% (USD/JPY down -0.80%), may have been a contributing factor to the move.

 

davefairtex's picture
davefairtex
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charting bitcoin issues

mrees-

So I'm having trouble picking an exchange!  I currently have data available for four different exchanges.  Their four charts look different enough to my code that it ends up affecting the projected outcome.

Today's data:

BTCE: swing high (79% - bearish)

COINBASE: high wave - no swing high (70% - bullish)

KRAKEN: swing high/confirmed shooting star (92% - bearish)

BITSTAMP: long legged doji  - no swing high (69% - bullish)

My code puts great stock in those confirmed bearish events.  In 2 of the 4 exchanges, (btce, and kraken) that's what happened.  Its also possible that those 2 exchanges close the day out at different times.

Reading the tea leaves, there's a lot of selling pressure right now.  Yesterday things looked ok.  Today we may be seeing a reversal.

davefairtex's picture
davefairtex
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bitcoin: low vs high risk buy points

If you really think Bitcoin will be the new gold, you might consider choosing a lower risk entry point.  Looking at the chart, bItcoin seems to have corrections every 2-3 times per  year.  Some disaster befalls it, and the selling panic drives price down.  The simple RSI indicator helps us identify the selling panics - namely, when RSI drops below 30.

So if you really have to buy bitcoin, and you can be patient, that's probably the time to do it.  Of course, that's when fear is highest.  When it feels most comfortable to buy, that's when that RSI is north of 80.  In the markets, you always pay a premium for having the emotional comfort of the herd.

Here's my evidence.  Note that the recent RSI was above 90.  That's one of those "higher risk buy points."  Ask anyone who bought bitcoin $2700 how they feel about their entry point today, at bitcoin $1800.

Same thing is true of gold, silver, oil, housing, etc.  We are basically built to buy the tops; its just how people work.  The feeling that "I'm missing out!" (that feeling that served us well on the plains of Africa, keeping us safely with the group) is one of those emotions that give you the clue in the markets that the RSI is probably > 85, and that you should sit on your hands instead of following the herd.

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nickbert
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Re: bitcoin

I decided to dip my toes in bitcoin and ethereum 7 weeks ago and bought a little of each, and while I've enjoyed the gains the steep rise has me thinking "this is too fast".  I don't get the sense bitcoin and cryptocurrencies are a bubble, but I'm definitely feeling the same way about it getting ahead of itself and not buying anymore until I see it drop more.  I'll definitely keep an eye on that RSI 30 point.

davefairtex's picture
davefairtex
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bitcoin mini-bubbles

nickbert-

Congrats on your trade!

I agree I don't think bitcoin has yet penetrated to the level of (say) silver in 1980 in terms of public involvement, so in that sense, no bubble, no phase transition, at least not yet.

However, the historical chart suggests that bitcoin engages in periodic mini-bubble spikes, after which it sells off as that chunk of new buying interest wanes (new buyers get rinsed out after not becoming instant millionaires as promised).

If history repeats, then for this run - the technical test will be if bitcoin can break out above the 2700 (2800?) high.  It is trying to do so now.   If it can't, if a lot of selling appears, I think it could pretty easily retrace as far back as, say, the 1100 level.  That's without any actual bad news.  Bad news could send it back down to 600-ish.

And again if history is any guide, after it corrects and then once it starts moving sideways - for a week or maybe a month - then that's the time to buy.

I also notice that each time, the low happens at a higher price level.

Mohammed Mast's picture
Mohammed Mast
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Mini Bubbles

I love bubbles

davefairtex's picture
davefairtex
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welcome

MM-

I love bubbles

Welcome to the human race.  We ALL love bubbles.  That's the only reason they happen.  If we were logical, rational creatures, nobody would ever pay 3000 guilders for a single tulip bulb.

Can bitcoin go higher?  Oh, I think so.  There is room yet to run.  Probably.  Perhaps "the real spike" will be the one to $10,000.  That's the point where literally everyone rushes in to buy - not just a few friends at work.  Everyone.

My guess: this current move will pop, and retreat, move sideways, and it will be the next one that will simply go vertical.  Everyone who watched this move from the sidelines will regret not getting in on the action, and they won't want to miss out next time around.  It won't just be SP buying, it will be SP's sainted grandmother grabbing him by the shirt collar and insisting he instruct her how to convert her social security check into bitcoin, growing angry if he tries to tell her that she should be careful.

As a part of my bitcoin research, I've been studying chart formations of the various bubbles.  Bitcoin doesn't quite yet qualify; the "right side" of the other bitcoin mini bubble-top pops don't quite match up with the other bubbles I've seen.  The public isn't quite sucked in yet either.

Here.  Let me post a picture of telecom stocks from 2000, just as a refresher.  Note the complete retrace.  Bitcoin hasn't done that.  It manages to retain a chunk of its gains after each mini-bubble.  That's one reason why I don't think it (currently) qualifies.

Bitcoin is a "humanity" trade.  We all love bubbles.  We delight in taking something really useful (like telecom & "the Internet", which really was a revolution - all those routers really do serve a purpose) and we turn it into a get-rich-quick scheme.  South Seas, railroads, internet, and apparently now cryptocurrency.

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nickbert
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Less of a trade

Well, it was less of a trade than just getting myself familiarized with the currency and the process (opening an account on Coinbase, putting a modest amount of money in, etc.).  To be honest, given the insane run-up (even with the recent correction) I'm a little tempted to exchange it and move it to my Coinbase USD wallet and wait for it to drop.  I'll keep an eye on the RSI levels you mention, and if it gets in the 80-90 range I'll consider it.  Whether I do or don't, either way I'm fine if it moves down to 1100 near where I bought it, or even if it goes down to 600.  This is a pure speculative move (for me), and I'm not putting any money there I can't afford to lose.  I think there's a big future in cryptocurrencies, but as to which will ultimately stand the test of time who can say.

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Jim H
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Bitcoin bubble?

Dave said,

As a part of my bitcoin research, I've been studying chart formations of the various bubbles.  Bitcoin doesn't quite yet qualify; the "right side" of the other bitcoin mini bubble-top pops don't quite match up with the other bubbles I've seen.  The public isn't quite sucked in yet either.

I think we are a long, long way off the final bubble stage when the public gets sucked in.  Indeed.. there has to be and will be an end or saturation point where everyone who wants to be in will be in.. I will not use the term, "last sucker in" or anything like that because it would suggest I think BTC and ETH are tulips - they are not.  Some of the other hundreds of coins are.. but the most useful of these that fill real needs are elegant software that have achieved what MREEs calls the, "network effect".. in other words they have captured enough computing power to be self-sustaining in their decentralized form.  Really amazing.  

If you think a Bitcoin is a tulip.. then you must also think any other conventional corporation that makes software is also a tulip.. because at the end of the day, Microsoft has value.. and Oracle has value.. only because of their code and the usefulness of it.  So, my point is.. nobody would ever say, "Microsoft has nothing backing it.. it's just a fad.. it's worthless without the internet.. etc."  Yet many will hang this on BTC.  BTC is a little harder to understand - it's a newly emergent entity.. not a corporation.. in fact it's an anticorporation : )

In any event... because of the techie hurdle and the negative bias many have against crypto's in general... I believe we are a long way off from any kind of investor saturation... I believe the general public is still a long way off from being sucked in. 

Again.. you have to be cognizant of the numbers here - just one compare/contrast;

Bitcoin in circulation;  16.5 million

Population of Beijing;  21.5 million 

Relative to the number of people in the world, the Bitcoin (unit) is a rare, rare beast.  It was designed to be divisible over eight orders of magnitude.. hence today 0.1 BTC = ~ $220.  0.01 BTC = $22.  0.001 BTC = $2.2.  0.0001 BTC = $0.22.  0.00001 BTC = $0.02 (cents)...  still a long way to go here folks.   

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MJB
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I agree Jim, no where near a

I agree Jim, no where near a bubble.

Dave thanks for the technical analysis on BTC! I look forward to more. Appears we are entering consolidation before another leg up imho.

Jim H's picture
Jim H
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ETH vs BTC

My recommendation to anyone looking to invest now in crypto's is to buy ETH.. and this is heavily influenced by commentary by Mrees.  It is therefore interesting to note that ETH is hitting new highs today... not in dollars per se.. but in the ratio of ETH priced in BTC.. in other words, ETH market cap is growing relative to other coins in the overall crypto space, including the (current) king of the hill, BTC.  See the 30 day chart at the bottom of the page here;

https://www.coingecko.com/en/price_charts/ethereum/btc

 

Mohammed Mast's picture
Mohammed Mast
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ETH AND ETC

I like Ethereum Classic as well.

Mohammed Mast's picture
Mohammed Mast
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I love bubbles

I love all kinds of bubbles. it is where you make money Dave. I made lots of money on the real estate bubble. The Bush years were some of the best financially for me. Bubble on this site is an obvious dirty word. Ye old hockey stick is its logo.

Your continued resistance to crypto currencies flies in the face of what not only the world wide tech industry thinks and knows but the growing number of financial institutions and governemnts are rapidly acknowledging.

The following might prove useful if you wish to take the time to explore it with a more open mind.

If not there are others who might appreciate the fact that blockchain technology is the most revolutionary development since the start of the internet.

Crypto currency is far more than just bitcoin. 

http://www.coindesk.com/consensus-2017-recap-biggest-main-stage-moments/

 

Mohammed Mast's picture
Mohammed Mast
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Ethereum

The following is a list of applications on the Ethereum network.

Some are live some are works in progress and some are concepts. Bitcoin is good (actually great at one thing) Ethereum is great at many things.

https://dapps.ethercasts.com/

davefairtex's picture
davefairtex
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loving the bubble & crypto coins

I've definitely changed my opinion on crypto coins over time.  I agree, they are absolutely not tulips.  However, what is the intrinsic value?  I don't think you can count up the number of bitcoins and divide by world population and come up with some sort of answer.  We tried that with gold, and it's still below $1300.  Either that's because "they control everything" (unlikely) or simply because people just don't want gold that much.  They don't feel it provides enough "utility" - collectively - to run out and devote a big % of their wealth to it.

I was there at the dawn of the Internet.  I was writing TCP code and using "the utility" of the internet a decade before it hit mainstream consciousness.  The ultimate value & promise of Internet was there in 1990, there again in 2000, and it was still there in 2003.  You wouldn't know that by how prices of the telecom stocks acted, however.

Prices sometimes run far, far ahead of underlying utility.  That's a bubble.  The housing bubble didn't mean that houses had no value.  It just meant people were overpaying for them, and buying them largely for speculative reasons rather than for reasons tied to underlying utility.  The farther away you get from utility, the bigger the bubble.

Crypto coins definitely have utility.  I'd say Ethereum provides a lot more utility than bitcoin at a technical level but not from a name-recognition viewpoint.  Maybe that's why Jim is seeing that in the BTC/ETH ratio move.   Its hard to say.  I like ethereum, I think once they fix all the bugs it will do great things.  Its a nifty platform and I still don't think we've seen the killer app.  We're in Internet 1997, and the equivalent of "google" and "facebook" have yet to emerge - my opinion.

Now then regarding how bubbles are viewed here: you are definitely right, bubbles are a dirty word here at PP.   Why is that?

In general, the vast majority of people lose money in a bubble.  That's because they buy at the high, and are rinsed out as the bubble crashes.  That's just the way it has to be - the majority of people absolutely must be wrong for a bubble to form, and then crash.  And since the site is here to serve "most people", and since "most people" just spend their time living their lives rather than chasing the next bubble, bubbles are probably things to be avoided rather than things to be sought after.

On the other hand, if you can see a bubble forming, and you can get in early enough, its a way to make huge amounts of money.  You cannot marry the bubble - if you do, you'll lose it all.  You have to remain relatively emotion-free (hard for most people), you have to avoid marrying your trade (very hard for most people), and you have to walk away once the bubble peaks, and simply not look back (exceptionally hard for most people).

All our programming we're born with as humans works against us when attempting to execute the "get rich from the bubble" gameplan.  Our very biology betrays us.  That's a tough road to travel.

 

Historical example of "overpaid-for utility" - that telecom stocks chart.  Underlying reality of the Internet: going strong, bigger every day, powers everything we do.  Telecom stocks: never, ever recovered.  Ever.  Never ever.

This will happen to the *coins too.  You can just feel it - that gambling fever, the "get rich quick" feeling.  Its that same feeling we had during the housing bubble.  People will excessively overpay for their *coins, price will rise to some absurd level - just like the telecom stocks - and then price will crash to something approximating "the actual utility level", and it will never return to its bubble-peaks.  The crash will be incredible.  Wealth destruction: equally incredible.

Can you get out at the peak?  Will you know it when you see it?  The vast, vast majority of people will not.  Those who see it forming will (probably) punch out too early.  Others will stay too long, buying the dips post-peak, looking for that next rally that just never happens.  "Coins have great utility - bitcoin should be $100,000" - something to justify their desire to keep gambling.  Their "faith" will cause them to buy these "fake dips" all the way down the right side of the spike.  Most will simply buy the high, and hold on all the way down, and then sell near the lows in disgust, pretending they never actually owned a *coin in order to avoid embarassing themselves at parties.

MM, I'm entirely with you.  If I can find a way to successfully trade bubbles, and do it properly, it will be fantastic.  That's why I'm working on some new code to give me a coldly logical historical perspective on bubble formation and crash.  It is showing some promise.

"Who Moved My Cheese" is an example of a very simple self-help book that neatly explains why gold took 25 years to return to $800.  Those who experienced the peak in 1980 were sure gold would do the same thing again, if they were just patient.   They kept metaphorically returning to the spot where their cheese had been, sure that it would eventually return.  It surely did, 25 years later.

Of course, all those people burned by the 1980 gold bubble crash (which was most of them) felt cheated by gold, and wouldn't touch it with a 10 ft pole.  They all (more or less) had to die before the price could recover.

The *coins might be Internet 1997.  Or maybe 1998.  But "bitcoin time" runs a lot faster than stock market time.  The repeated mini-bubble structure looks unique in my experience.  How to trade this?  I'm still trying to figure that part out.

But ethically speaking, what advice should we give "most people", if we know their biological programming will cause them - in all probability - to pull the trigger on bitcoin at the highs, and hold all the way down the right side only to sell in disgust at the lows?

That's the question.

And for my part, I would feel terrible if I enthusiastically told everyone to buy, only to realize later that they didn't pull the trigger at the dips when I told them to, but instead they bought the highs along with everyone else because of that "herd biological programming" thing, and ended up holding through the inevitable crash, destroying their capital in a frenzy of standard bubble-market buy-high-sell-low.

Ultimately, what you propose is just really hard for the vast majority to execute.  It looks easy, but if it were actually easy, we'd all be f*king rich sitting on a beach somewhere drinking margaritas.  And the really nasty part?  Intelligence plays no part whatsoever in your ability to execute the "buy-the-bubble" (but sell before it dies) strategy.  You must be aware and able to first recognize, and then override your biological programming, for an extended period of time.

Our biology has evolved so as to reward us for finding and returning to the fruit tree that gives off the tasty sweet fruit.  Even after the tree falls down and rots away, we continue to return, remembering how sweet the fruit was, telling ourselves that maybe a new tree will grow in time.  This most likely had a big survival benefit back in the day, which is why we all end up feeling and acting this way regardless of intelligence, but it absolutely crushes almost all of us when trying to trade a bubble.

Uncletommy's picture
Uncletommy
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Do Bit Coins have heads and tails?

"I made my money by selling too soon. "  

Bernard Baruch

 

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Jim H
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Perspective on the cryptocurrency market..

Perspective is very useful in addressing whether Bitcoin and other crypto currencies are getting to bubble valuations, or not.  Dave said, 

I don't think you can count up the number of bitcoins and divide by world population and come up with some sort of answer.  We tried that with gold, and it's still below $1300.  Either that's because "they control everything" (unlikely) or simply because people just don't want gold that much.  They don't feel it provides enough "utility" - collectively - to run out and devote a big % of their wealth to it.

Yes, I did compare the total number of Bitcoins that will ever be (~ 21Million) to our population as one means to show that valuations could go much higher.  Another way to look at the situation is relative market capitalization;  The total market cap for the top 100 crypto's is now about $80B... a little more than 1/2 the market cap. of one Dow component, IBM.  Does that sound like a bubble?  It's tiny in the world of ever expanding fiat money... the penetration in terms of knowledge and interest is still very, very early as far as the general public is concerned.  

I want to be very explicit in my advice.. which reflects what I am doing myself;  Buy some ETH and hold it.  Don't go crazy.. I am presently at 1% net worth.  I believe that the ETH:BTC ratio has been, and will continue to support the narrative that ETH is the place to be.. yes, there may be more wild rides on some alt. coins, and Mrees may be able to predict some of this.. but I am just doing buy and hold on ETH based on the corp. adoption story.  ETH is continuing to take mindshare in the crypto space at the expense of BTC;

https://www.coingecko.com/en/price_charts/ethereum/btc

My own use of perspective here.. the relative size of the markets, the size of the world population and the very tiny slice that is investing now, and of course the still being realized utility of things like ETH.. these all point in my mind to very large future gains.  As an unperturbed market, it is heavily influenced by the emotions of the speculative component of the investor pool.. which I would suggest is pretty large right now.  If you understand all this.. you can, like I did.. ride through ETH running up to $210.. down to $130.. and now back up to $210.. in just a matter of days without any worries.  

I want to address one more point of Dave's on Gold;

simply because people just don't want gold that much.  They don't feel it provides enough "utility" - collectively - to run out and devote a big % of their wealth to it.

Dave, this statement implies that a lot of people have actually thought about Gold.. considered it and decided that they don't want much.  I would argue that most people have not even considered Gold.  I would argue that most people have no idea why anyone would want Gold because they don't know how risky fiat money is.  I would argue that most investors have no idea what Gold does for them.. so I think the premise of your point is just misleading.  All that being said, there is enough Gold for each person in the world to own 0.7 ounces were it to be divided equally.. .and the price is still around $1300 (to actually acquire an ounce) and the market cap for all Gold around $7Trillion.  

The ownership of Gold is very lopsided.. most of it is concentrated in the hands of a (relatively) few people and entities.  When broader recognition of the need for monetary insurance finally ignites.. it will take higher prices to dislodge some of this Gold and allow for some redistribution.  It's not that most people have considered it and rejected it.. most people have simply never considered it and don't even understand why they should.          

 

       

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Jim H
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M Mast... ETH vs ETC

I am much less positive on ETC... I cannot find a value proposition for it.  I don't see a narrative that drives it's value high in the long run.  Here is some perspective to consider;

https://www.reddit.com/r/ethtrader/comments/6d62td/the_story_behind_ethe...

Does anyone have an alternative story that explains what will drive the value of ETC longer term? 

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davefairtex
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dont go crazy

Buy some ETH and hold it.  Don't go crazy.. I am presently at 1% net worth.

Yes I'm totally supportive of that approach.  Until the bubble peak.  At which point you should probably bail out, as those "telecom stocks" chart shows.  Same thing with gold.  We'll guess that the peak will follow an explosion of general public interest.  When your grandmother buys bitcoin, that's when you sell the "lower high".  Sell, and don't look back.

And try to buy low if you can, rather than buying at the peak of "buy bitcoin" google trends.  Here's a chart of what that looks like.  Red line in the chart below = "buy bitcoin" for google trends search interest, weekly, since 2013.  If the bitcoin hype - sorry, "search interest" - dies off, history suggests that the price will (probably) follow.  THAT is when I suggest you buy.  Assuming you want to roll the dice.

As for gold - back in 1980, lots and lots and lots of people wanted to buy gold.  There was a buying panic, because people lost faith in government, and the currency, and they got caught up in the excitement.  Unfortunately, that didn't work out so well for many of them.  Their gold trades all blew up, because the government got the money back under control.  People who bought at "max hype" got badly burned.  That stomped on people's interest in gold for a generation.

Today, not many people (in the west) want to buy.  Its not because they don't know about it, they just still have faith in government.  For now.

Of course, once the man in the street loses faith, then we'll be off to the races with gold.  We'll go to max hype, and then it will (probably) be advisable to exit and not look back for another 30 years.

As for counting people in Beijing and dividing by bitcoins, that reminds me a whole lot of a big no-no in the business plan space: "if we can just get 2% of the market share for our product, our company will be worth 50 million!"  If you try to use that line in your bplan, you'll get a spanking from any VC you show it to.

Eventually, once the hype subsides, price will sink to its "utility value".  That's what history suggests anyway.  Figuring out ahead of time what that actual utility is might be a useful exercise.

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Jim H
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words...

Dave.. you tinge words with implied meaning all the time.  What you call, "max hype" based on Google trending could simply, and maybe more neutrally be labeled as, "max interest".  See how work choice works to bring your message to the data? 

Anyway.. I digress.  I think we agree that even meaningfully valuable things can come into a bubble state.  I continue to make the case that, for the best crypto's, you ain't seen nothing yet.  The market cap of ETH individually is about $20B.... less than 1/5 of the value of the smallest of the Dow top 50 companies.  I, along with other commentators believe that the ETH market cap will eventually cross over that of BTC, becoming the dominant coin.  BTC is now about $37B.  

Mrees predicted $300 ETH by Sept... I don't doubt that will happen. 

When ETH hits $2000, in other words a 10 bagger from here.. we can talk about whether it's a bubble or not.  At that point it will have the market cap of Coca Cola.  

The ECB creates Euro 60 B monthly of thin air money.  Does $20B for a revolutionary crypto currency that is in the early stages of corporate adoption (via private branches) sound like a lot?  I don't think so.      

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Mohammed Mast
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Bubbles

As I have stated before I got my first BTC when it was $10. I have sold enough so that my holdings now are virtually free. That being said I do not advise people to buy BTC today. There are significant problems with scaling and even more problems within the community in the debate about what to do about it.

I find that due to some problems with some of the exchanges there is a lot of arbitrage going on. This in itself is fine if you wish to make money by engaging. One could have bought BTC recently when it dropped back into the $1,800 range and caxhed in today when it hit $2,300. I personally do not use that approach. I am  buy and hold kinda guy at present. I traded a bit early on but it as Dave says difficult to time entry and exit points. I do look for dips to buy to hold for the long term.

We have recently come out of a long bear market. It was fine with me watching BTC hang around $270-$300. Bought some more and went heavy in to ETH shortly after the presale DAMN lol.

I do not find technical analysis very useful in predicting the cryptocurrency market. There are just too many variables. You can't predict MTGOX, Bitfinex, Fincen rulings, Cyprus banks stealing deposits, et. etc etc. And you certainly can't predict that killer app that will send ETH into orbit. What I have found most useful is reading everyday world events, economic news, and of course cryptocurrency news.

My advice which these days I give sparingly is as Jim has said put you marbles in to ETH. Also ETC. A few months ago it was languishing around .70 it is over $ 17 today. At that price it is worth a flyer to get a significant position.

I also tell people to only invest what you can afford to lose. It is a volatile market especially now. Volatility also means you can make a lot of money. 

As for gold, well I have very little anymore. Sold when it hit  a little over $1,600. Have watched it go sideways for years and lose money to inflation. So I get the safety of gold lol.

As for Dave's point about bubbles and most people's behavior, I was under the impression that the folks on this site were a cut above John q public and better informed with loads of data. I would be curious to know how many have ridden the stock market up from its lows in the 5,000s. How many are still holding their gold and silver for dear life?

I am glad to see that there is a rational discussion here as opposed to what it could be. 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
bubble navigation

MM-

Great story.  You got an excellent entry point in BTC, took your risk, and now you're playing with house money.  It also sounds like you did well, jumping out of gold at (more or less) the right time.

For me, I bought into the goldbug story lines about hyperinflation and whatnot, and it has taken me years of research to sort out what gold is really all about.  I married the trade.  I haven't lost money, but I definitely rode it up, then down again.  I'm ok, because my entry point was decent.  Not quite like yours with BTC, but it wasn't bad.  The entry point price really matters.

I was under the impression that the folks on this site were a cut above John q public and better informed with loads of data.

Yes.  Here's the thing.  Data is information, and information is about thinking.  It turns out, thinking and data don't help you actually take advantage of bubbles.  Data and thinking helps you avoid bubbles, by being conscious, recognizing them and sidestepping them when they appear.  PP readers don't make millions (and then lose it all) in a Vancouver housing bubble - they sell early on, and watch everyone else go through it from the sidelines.  "Its never different this time."  This approach has the advantage of not getting emotionally involved, which (I suspect) works best for most people.  Certainly it works best for me to date, because I'm an emotional person.

Long before PP, I sidestepped the entire dotcom bubble.  I thought it was just crazy.  It didn't match what I knew about companies and valuations, etc.   A very good friend of mine, a QCOM hardware engineer, cashed in most of his stock options very close to the top in 2000.  He is now a gentleman farmer in Oregon.  How did he do this?  I do not know.  He nailed the top, walked away, and never looked back, something that the vast majority of his co-workers were completely unable to do.  If I had participated in dotcom, I probably could not have walked away either.  He is my model for what to do with gold.

John Q Public has no data, and acts strictly at the level of the unconscious.  JQP gets sucked into bubbles, does well initially, but then gets destroyed, and walks away poor.  Time passes, JQP forgets, encounters a new and different bubble, gets sucked into that, and gets destroyed once again.

You are proposing a third approach - namely, to recognize a bubble as it is forming, and to jump on board early, but then have the intestinal fortitude to bail out at a strategic moment.  You did this with gold @ 1600.  Near-perfect timing.

So we now have three possible approaches to bubbles:

1) unconsciously jump in there with the herd, buy high, and sell low (the JQP approach)

2) recognize them as they are forming, bail out early, and watch.  (the "PP" approach)

3) seek them out, buy early, and then with one eye on the exit, ride them until you can bail out before the pop. (the MM approach)

I find your third approach to be tempting, because we all do love a bubble, me included.  Just the thought of a bubble is exciting.

There are four risks to your approach which should be considered.  First, is to put money into something that never turns into a bubble.  That's a good way to lose money.  Second, is to get emotionally involved, to start believing in the the whole "eyeballs" metrics, to end up marrying your trade, which means you won't get out in time, and you will have spent all that energy for nothing.  Third is, a black swan prevents your exit, one of those unknown-unknowns, and once again, a lot of energy spent for nothing.  Fourth is, in spite of the desire to find bubbles early, the strong desire to find the next bubble means you end up buying in at or near the high.

So how can we address those risks?  Risk #1 requires basic analysis, and a willingness to consider new ideas.  Of course, that would have got me to buy ETH but not BTC, I would have bought AAPL and not MSFT.  So that's not a guarantee, but its not bad either.  Second risk - emotional involvement.  I believe this is where most people (including myself) will fall down.  We fall in love with the concepts, and become true believers, and we end up marrying the trade.  This means we will never exit.  Its a very human failing, to become attached in that way.  Third risk, best you can do is be clear-eyed about the downside.  Gold could be confiscated.  Bitcoin could be crushed by a unified banking establishment.  Etc.  Fourth - you absolutely must read charts to find your entry point.  Don't buy at points of max hype.  Those are easy to spot, and its much easier if you aren't emotionally involved.

For me, the most dangerous bubble is when the underlying story is true.  The story sucks me in, I don't wait for a good entry price because I don't want to miss out, I get emotionally involved, and then I marry the trade.  Usually the price chart looks vertical when that happens.

Look at JNPR, a company that definitely was a part of building the Internet.  If you bought any time in 2000, you'd be underwater today, 17 years later.  Even if you are right, and the company (or product, or *coin) ends up changing the world, price isn't just important, its really the only thing that matters.

I'm happy we're having a polite conversation about this too.  Its so much nicer than the alternative.  That way I get to hear your story, which I find both interesting and thought-provoking.

JimH-

My "tinged words" are attempts by myself - for myself - to prepare myself emotionally for what is to come.  Its a form of self-discipline.  Bubbles are all about hype.  By calling out the hype, I'm trying to insulate myself from the emotional pull of the true believers who believe in the story independently from price.  At gold $5000, they'll be talking about the inevitability of gold $50,000 - and they'll be really vocal about it.  Rising prices lends credence to every argument - in bitcoin, in gold, and in the stock market.  I absolutely do not want to get caught up in that again.

You may see gold's coming move as "the truth finally becoming known to all" or "the victory of good vs evil."  I don't see it that way.  I think gold's big move will come as the result of panic & hype, and if we're lucky, gold will rise way out of proportion to where it "should" be if everyone were rational actors.  And if I'm detached emotionally enough, I'll be able sell at max gold hype (or max gold panic, if you prefer) before the emotional surge subsides.

And by using those words - max hype - it provides me emotional distance that I know that I will sorely need to let gold go at or near the top.  I don't want gold to be "My Precious", with me clinging to it like Gollum in his cave.  I want to sell gold @ $800 in 1980.  I want to sell silver at $50 in 2011.

Then I want to walk away, and not look back.

Afridev's picture
Afridev
Status: Silver Member (Offline)
Joined: Oct 11 2013
Posts: 128
Crypto

Can't seem to be able to wrap my head around the concepts of crypto-currencies and their 'real' value with regard to set-up, implications and current and potential future use. Constructs and underlying principles don't align to my 'sense' of common sense (following the discussions on PP I did get a minimal amount of ETH though as I think crypto-currencies could potentially be ground-breaking and I like the underlying principles/ aims). While reading up on it I found this link: https://medium.com/@tuurdemeester/im-not-worried-about-bitcoin-unlimited...

Any thoughts to spare on the points put forward?

Yes, I'm a complete noob in this domain ... blush

Afridev's picture
Afridev
Status: Silver Member (Offline)
Joined: Oct 11 2013
Posts: 128
Some light on ethereum?

What it builds upon and where it might be heading?

https://medium.com/humanizing-the-singularity/by-the-end-of-this-article...

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Thank you Dave..

I get your explanation.. just be careful with the the, "by myself, for myself" thing when you are the daily commentator on a website.  

As with many commentators in the crossover between the PM and crypto space.. my excitement is in part driven by the fact that these are still relatively unperturbed markets.. i.e. they are trading freely, with all the associated volatility and chaos.  The really wonderful thing is;  Fundamentals and information really matter!  

ETH and the  ETH:BTC ratio remain on the rise.  This makes perfect sense.. and it will continue.  How about that.. something happening in a market that actually makes sense to the well informed!!!! 

https://www.coingecko.com/en/price_charts/ethereum/usd

 

  

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
That's a great primer Afridev...

Thank you for sharing it.  The use case, or value proposition for these ETH tokens is described at the end;

We are not done innovating yet. In a little while — we’re talking a year or two — Ethereum Serenity will take the network to a whole new level. Right now, adding more computers to the Ethereum network makes it more secure, but not faster. We manage the limited speed of the network using Ether, a token which gives priority on the network etc. In the Serenity system, adding more computers to the network makes it faster, and this will finally allow us to build systems which really are internet scale: hundreds of millions of computers working together to do jobs we collectively need done. Today we might guess at protein folding or genomics or AI, but who’s to say what uses will be found for such brilliant software.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
unperturbed markets

Well, if we get to gold $5000, and I start saying its time to sell, I think that will probably be a problem we'd both like to have.

I agree, its a great summary.  I came away with some new understanding for sure.

I think the real money in ETH will be made by people who come up with the killer apps for the platform.  Certainly it provides a massive amount of leverage for any developer.  No need to have a database, or a fleet of servers, an admin team, sales & marketing weasels - or really anything other than just you and your IDE.  I have to say, the whole ETH project really does put software engineers right at the tippy top of the food chain.  Somehow, I'm ok with that.  :)

It does make bugs a bit more problematic.  Imagine a bug in a will.  Or a legal agreement.  A whole new raft of problems to address.  Testing & validation becomes a lot more important.  That's probably a good thing, because as a group, we tend to be relatively sloppy.

The promise of being able to have seamless access to a flock of AWS-like servers without having to configure them is really pretty cool.  I certainly wouldn't mind paying for that.  And not having any VISA-like gatekeeper has promise too.  Of course, that will make VISA and the other gatekeepers angry, which means you start out with an enemies list right off the bat.

The economics of access are an interesting question.  One hopes that using smart contracts doesn't end up being orders of magnitude more expensive than a normal AWS server.  Will ETH currency speculation end up hosing the real users of the system, pricing the actual utility out of reach?

I'm sure they've thought of many of these issues.  I just need to get off my butt and do actual research.  Post less, read more, I guess.

Javascript.  Oh goodie.  Not my favorite language.

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