Wall Street | Biz Builder Mike

Bitcoin price hits $11,100 wall and drops 6% — Relief rally to follow?

September 22, 2020 by bizbuildermike

The price of Bitcoin (BTC) brutally rejected the $11,100–$11,300 resistance range with a 6% drop. Following the steep pullback, analysts remain cautiously optimistic toward BTC and the rest of the cryptocurrency market.

Analysts have generally attributed the short-term fall of Bitcoin to the uncertainty around the COVID-19 pandemic. On Sept. 21, the Dow Jones Industrial Average fell by over 800 points at the day’s lowest point. Bitcoin, gold and other risk-on assets fell in tandem, causing a sell-off across most asset classes.

The recent pullback was similar to the market crash in March wherein the majority of assets dropped altogether. Hence, analysts say that some progress in the development of vaccines or a new stimulus package could rejuvenate market sentiment.

The bullish case for Bitcoin

Speaking to Cointelegraph, John Todaro, head of research at TradeBlock — an institutional trading platform — said the near-term performance of BTC is conditional. Todaro believes investors are increasingly positioning for “more risk-off” assets due to a contentious election, lacking stimulus and rising COVID-19 cases. If the three factors continue to worsen, then Bitcoin will likely see a larger pullback.

But the price of Bitcoin could also recover in the short term if there are improvements in any of the three factors. For instance, if a stimulus bill is approved, it would immediately cause stock market sentiment to rapidly improve and, in turn, cause a BTC rebound. Todaro noted:

“Over the past few weeks we have seen declining equities with investors positioning more risk-off given the lack of continued stimulus for businesses, political instability associated with a likely contentious election, and the risk of rising COVID-19 cases in the fall and winter… if those three risks previously mentioned rise, then we will see a further correction; however, if there is progress towards COVID-19 vaccine/treatment, and more fiscal stimulus then this correction will likely have been the worst of it for some time.”

The current market dynamics of Bitcoin are significantly different from previous cycles because they are dependent on the traditional financial market. The overall sentiment of investors across various asset classes is moving simultaneously due to the pandemic’s economic effect. Strategists are unsure whether the recent resurgence of COVID-19 cases could cause additional restrictions and lockdowns in Europe and in the United States, but Wall Street is bracing for another potential downturn. Sam Stovall, chief market strategist of CFRA, told CNBC: “Things had to have changed for investors to be so nervous.”

The short-term bull case for Bitcoin would be a swift retest of the $11,100 resistance level. Bitcoin has tested the resistance area only once since its correction on Sept. 2. The resistance level will weaken if BTC continues to wear it down with repeated retests. For that to happen, the overall investor sentiment across various markets, including gold and stocks, has to improve.

Bitcoin has one potential catalyst that could ignite a rally despite the weakness of the traditional markets. In the past several days, decentralized finance tokens have plummeted in value. As Cointelegraph reported, even DeFi giant Yearn.finance’s YFI token and Uniswap’s UNI fell by 46% and 48%, respectively, within a week. The drop occurred as BTC rallied from $10,300 to $11,100, leading analysts to think the take-profit pullback of DeFi tokens is buoying the buying demand for BTC.

The cycling of profits from DeFi tokens to Bitcoin does not necessarily mean the market is rebounding. But Todaro noted that investors might be moving their funds to more reliable and stable assets, like Bitcoin. If the trend continues, there is a chance BTC sees another take-profit rally while the DeFi market corrects. Todaro explained:

“Capital exited lower market cap alts and Ether to a greater extent than bitcoin. I do not think this necessarily indicates a rebound in the markets but rather a greater flight out of higher beta tokens than in bitcoin, which has been more stable.”

Bitcoin decoupling from U.S. stocks?

Denis Vinokourov, head of research at crypto brokerage and exchange firm Bequant, told Cointelegraph that political factors and the pandemic fueled BTC’s recent drop. He pinpointed the passing of U.S. Supreme Court Justice Ruth Bader Ginsburg as a key factor. He clarified that the level of uncertainty in the U.S. markets heading into the election was already high, but now investors are even more uneased:

“Digital assets fell sharply across the board, in tandem with equity markets and even safe haven assets such as gold, as concerns over the upcoming US elections took a dramatic turn. The aforementioned unease and uncertainty stems largely from the passing of the Supreme Court Justice Ruth Bader Ginsburg which, without a prompt replacement will lead to a 4-4 deadlock in the country’s highest court.”

But Vinokourov emphasized that Bitcoin and Ether (ETH) could rebound strongly due to their “solid network fundamentals.” The correlation between the U.S. stock market and BTC could be short-lived, given that the markets slumped unexpectedly within a short period of time, with unprecedented intensity.

The fundamentals of Bitcoin have strengthened in recent weeks, especially as the blockchain network’s hash rate reached an all-time high. The timing of the upsurge of the hash rate is noteworthy because it comes less than four months after the last block reward halving. Following a block reward halving, the hash rate tends to drop because the amount of BTC mined decreases. The continuous increase in the hash rate indicates miners expect a higher BTC price in the medium term.

Not only has the hash rate recovered to pre-halving levels, it has exceeded the previous high to reach a new all-time high, and Vinokourov expects a rebound to occur shortly because of strong network fundamentals: “Looking at the playbook following the covid-19 related sell off in March, which also spilled over into digital assets, markets tend to decouple.”

What do traders think about BTC?

In the near term, traders anticipate BTC to range between the weekly low at $10,200 and the $10,600 resistance level. A pseudonymous trader known as “Salsa Tekila” said a “choppy” range in the near term is most likely. He stated:

“Wouldn’t be surprised we bart down, swing the weekly low, chop back up another day or two… $BTC looks choppy, keeping my trades private; I’ll flip flop all day probably. Don’t think we’re ready for a big one, maybe 10.2k – 10.6k range till Thursday unless catalyst.”

Some traders such as Cantering Clark believe that BTC is primed for a relief rally. Similar to the stock market, BTC saw an intense pullback in a short period, which typically results in a short-term recovery. The futures and options markets tend to neutralize after a big price movement, leading BTC to recover with low volatility. The trader noted:

“$BTC likely sees relief in the near future. Nice selling into the close of yesterday’s session. If you ask me, that looks like an optimal way to set up a trap for any systematic shorts that would get the green light at that point.”

Bitcoin price hits $11,100 wall and drops 6% — Relief rally to follow?

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Crowdfund Capital Advisors Now Providing Crowdfunding Data to Bloomberg

August 18, 2020 by bizbuildermike

Crowdfund Capital Advisors (CCA) is now providing its data services to Bloomberg Data License clients via Bloomberg Enterprise Access Point, according to a release.

CCA is a data service covering securities offering issued under crowdfunding exemptions including Reg CF as well as Reg A+ and Reg D 506c.

CCA normalizes data from thousands of offerings into a single format. CCA states that there are over 100 different metrics within the dataset that include: offering date, company description, location, incorporation date, price per share, valuation, capital raised, Naics code classification, summary income statement and balance sheets, number of employees and more.

CCA has been collecting pre-IPO/startup and small business data for online offerings completed under the 2012 JOBS Act. CCA reports that it is now updating over 3,000 private offerings from over 890 locations across the United States on a daily basis.

“The 2012 JOBS Act ushered in a new era of online investing,” stated Sherwood Neiss, principal at CCA. “But until now it was difficult for Wall Street, analysts, venture capital, asset managers and hedge funds to have a clear understanding of issuers raising money, how this industry is evolving or what it means for the broader capital markets. This partnership with Bloomberg was one of the missing links. We are excited for what this awareness will do for the industry.”

Jason Best, principal at CCA, added that the data helps analysts understand more about the economic impact of online capital formation:

“The data goes down to zip-code level and as such can show investor sentiment and Startup/SME sentiment at the most detailed level. This is important visibility for the industry and we believe can accelerate its growth.”

Launched in September 2018, Bloomberg Enterprise Access Point is the company’s web-based data marketplace that allows Data License clients to easily discover, access, and immediately use high quality, market-leading content from both Bloomberg and third-party providers.

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Profiting Off Misunderstanding

July 17, 2020 by bizbuildermike

Lately I’ve been analyzing my investment history — both successes and failures.

I noticed that all my winning investments have one thing in common. In almost all cases, I understood something that the market didn’t.

That may sound a bit strange (or arrogant). So let me explain this idea with an example.

Back in 2004, I started using Google’s advertising platform for my job. It was the same year the company went public. Within a year of using the product on a daily basis, I was convinced that this was the future of advertising. And I knew that Google was incredibly far ahead of its primary competitors — Microsoft and Yahoo — because I used their products too.

I first bought shares of Google in 2006. And I continued to add to my position until 2012. During that time, I followed the company very closely. And I was really surprised by how Wall Street analysts and other investors misunderstood the company.

For example, analysts complained that Google’s $1.65 billion acquisition of YouTube in 2006 was a poor use of shareholder funds. They thought YouTube — and other acquisitions — would distract from Google’s very profitable core business of search advertising.

What many analysts failed to understand was video was going to become a huge part of search. But Google’s founders knew this. They went ahead with the acquisition despite complaints from some investors. Today, YouTube has been called the best tech acquisition of all time. In 2019, YouTube advertising produced revenue of more than $15 billion — and it’s growing at more than 30% per year.

A similar thing happened with Google’s core advertising business. From 2006 to 2012, analysts paid a lot of attention to Google’s cost-per-advertising-click. Whenever this metric went down, analysts worried about the health of Google’s ad business.

The analysts were looking at the wrong metric though. While the cost-per-click was declining, the ad click-through-rate (the percent of ad views that generate a paid click) was soaring. So yes, Google was seeing less revenue per click, but the number of clicks they were seeing was going through the roof. Google was smartly optimizing their platform for the most possible revenue by showing ads that would pay less per click, but get clicked much more often.

The analysts didn’t understand the nuances at play. If you want to know more about the complexity of cost-per-click and analysts’ misconceptions, check out CNBC’s excellent piece on the topic.

What’s Misunderstood Today?

I believe the biggest example of this “misunderstood” phenomena today is U.S. stocks.

No matter how you look at it, U.S. stocks are expensive on a historical basis. Here’s a chart showing Warren Buffet’s favorite indicator of whether stocks are overvalued. It shows the ratio of the total U.S. stock market to our GDP. As you can see, we are currently near levels last seen in 2000.

It’s one of many worrying signs. When I look at the American economy, I see a troubled picture. Real economic growth remains slow. The S&P 500 today pays a lowly 1.93% yield. And yet somehow stocks are leaping higher.

Both the government and corporations have record levels of debt. And since the COVID-19 crisis began, it’s been piling up even faster. As I say frequently, eventually all this debt will have to be dealt with. And the options we have to deal with debt aren’t pretty — higher taxes, slashed spending, sustained inflation or some combination of all three. No matter how we do it, it’s going to have a majorly negative impact on U.S. companies. They’ll either see higher taxes, lower spending by customers or be hurt by rising prices. The bill will come due.

This fact is being completely overlooked by investors. It’s as if all this debt doesn’t matter. But I believe that in the long run, it will matter. Very much.

For these reasons, I continue to prefer emerging market (EM) stocks over American ones. EMs are basically the only place you can consistently buy solid companies at reasonable prices. These factors alone help to limit any potential downside.

I like the fact that I can get up to 7% yields on stocks in emerging markets like Russia. At those dividend levels, I’m fine parking money there for 5 years and just letting the dividends compound.

Another reason I think investors should pay attention to unpopular markets like Russia is that their levels of debt are incredibly low. Surprisingly, the Russian government today runs a surplus and has almost no debt (Russia’s debt to GDP ratio is around 10%, versus more than 100% in the U.S.). Corporations in these countries are sometimes poorly run, but they’re cheap. And they are unlikely to have nasty surprises related to government debt in their future. You can’t say the same for most developed markets like the U.S.

EM stocks, including Russia, have basically done nothing over the past decade. That makes people understandably hesitant to invest in them. But that stability is a huge part of the reason I like them. Eventually, EM will come back in favor. And when that happens, the multiples people are willing to pay will rise. Until then, I’m happy compounding my money at 5-7% a year from dividends.

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