Mati Greenspan, Senior Market Analyst at eToro
“What has been will be again. What has been done will be done again and there is nothing new under the sun.”
So goes the Ecclesiastes saying – a tidbit of biblical wisdom with unexpected applications to the world of cryptocurrencies.
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Bitcoin or any other cryptocurrency is no different than any other asset class before it. They follow the same rules of supply and demand where a buyer and a seller agree on a mutually beneficial price. Just as the seasons change, financial markets gradually turn from hot to cold and hot again. Every asset has its unique patterns and the wise investor usually incorporates a countercyclical approach.
Where some markets have decades or even centuries of data to lean on, the crypto asset class is acclimating to new markets at such a rapid pace that the price discovery is on steroids. Until now this has resulted in extreme volatility for bitcoin and its peers, but each boom and bust cycle brings increased adoption that serves to stabilize prices. As the market cap of the token grows, the more volume it takes to move the needle.
On this graph, we can see rather plainly the world famous surge that brought bitcoin up to $20,000 in December and the subsequent plunge that took it down 70% from that peak.
This next chart may look similar but what it shows is that the rise in price correlates rather strongly with volumes. As new users join in, the amount of money being sent multiplies.
On May 9th of 2017, bitcoin volumes surpassed $500 million for the first time ever and have managed to sustain above this level ever since.
The neat thing is, this isn’t the first time this has happened. Nor is this the most extreme growth bitcoin has seen. Not even close.
In 2011, the price went from 30 cents per coin to $35 in just a matter of months. As we can see, this massive growth of 11,500% was indeed followed by a “crash” of 93% back down to $2.30. Needless to say, it never went back to 30 cents again.
The 2011 surge was very much driven by adoption from tech geeks and fringe economic journalists. Quite a few who came in left after that but many stuck around. Similar to what we saw above, the spike in price did bring about a lasting increase in volumes. In January 2011 the average transaction volumes were less than $10,000 a day but grew to a steady $500,000 by December, excluding a few wild spikes of course.
The last graph below ties the whole thing together. This is a logarithmic style chart, which makes it easier to spot percentage movements. We can see here the 2011 surge and retracement highlighted above, which was followed by a long period of relative calm. Then in 2013, there were two seperate surges that brought the price to a new peak above $1,000.
The last run-up spanned from mid-2015 and culminated at the peak of $20,000 in December 2017. As you can see, the pull-back this year, which seems rather devastating in the very first chart, is barely noticeable when we put things into perspective. Looking at the price patterns in this light also gives a good explanation of why some are calling for bitcoin to reach $100,000 or more.
If the 2011 surge was brought on by industry insiders, the 2017 surge was mostly driven by the middle-class. When faced with zero interest on their savings, many people turned to this unique market to try and get better returns, even if it meant additional risk.
The next surge is likely to be spurred by Wall Street and institutional investors. The bitcoin futures contracts from CBOE and CME Group were implemented in December, which proved to be too late to catch the last upward cycle. This would explain why the volumes on these contracts have been extremely low so far. Nobody really wants to invest when prices are moving down.
As we’ve seen in the past, the current period of relaxation is being used to develop the network further. New apps and solutions are being built as we speak, including one of our own at eToro. In the meantime, big name Wall Street firms are also using this time to build bridges of liquidity and prepare themselves, their partners, and their clients for the next big surge.
About Mati Greenspan
Mati has been at eToro for over five years as a Senior Market Analyst and has over a decade’s experience working in financial advice.
At eToro, Mati works as a portfolio manager for VIP clients with a minimum equity of $1 million and manages eToro’s Premium Club Network.
He also provides a daily market update, providing experts analysis on financial news and cryptocurrencies for clients, partners and media.
He studied Financial Markets at Yale University before moving on to the Economics of Money and Bank and Columbia, becoming a fully licensed Portfolio Manager in 2017.
Asia markets slide as higher bond yields test tech sector
By Tom Westbrook
SINGAPORE (Reuters) – Falling tech stocks in China and Hong Kong pulled Asia’s markets sharply lower on Wednesday, as recent gains in U.S. Treasury yields put lofty equity valuations under pressure even as bond markets stabilised.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.8% and has lost 3.2% for the week so far.
Chinese blue chips fell 3% and the Hang Seng headed for its sharpest daily fall in nine months with a 3.4% drop that was further stoked by a rise in stock-trading stamp duty.
Japan’s Nikkei fell 1% and mining shares dragged Australia’s ASX 200 down by 0.9%. S&P 500 futures dropped 0.6%, while EuroSTOXX 50 futures fell 0.2% and Britain’s FTSE futures fell 0.7%.
On Tuesday U.S. Federal Reserve Chairman Powell did not seem too peturbed by a selloff in Treasuries that has driven 10-year yields up by 40 basis points this year, telling Congress it was a statement on the market’s confidence in the pandemic recovery.
But he cautioned that the economy remained “a long way” from employment and inflation goals and said that rates would stay low and bond buying would proceed apace until there was “substantial further progress”.
“Powell has done enough to dampen the upswing in bond yields, but he has not derailed it,” said Vishnu Varathan, head of economics and strategy for Mizuho Bank in Singapore.
“Yields are consolidating and not retreating – and that’s a result of this optimism that’s driving bond yields which he hasn’t pushed back against expressly.”
Ten-year Treasury yields fell about two basis points after his remarks and more or less held there through the Asia session to trade at 1.340%. Wall Street indexes recouped losses but the tech heavy Nasdaq closed 0.5% lower.
Tech stocks are particularly sensitive to rising yields because their value rests heavily on earnings in the future, which are discounted more deeply when bond returns go up.
February’s rise in yields reflects not just higher inflation expectations but better growth forecasts too, and ten-year U.S. real yields are on course for their sharpest monthly rise in more than four years. [US/]
“In the next couple of days the movement of the Nasdaq 100 will be pivotal, especially for China’s big tech sector,” said CMC Markets’ analyst Kelvin Wong.
Nasdaq 100 futures were down 1% late in Asia trade.
In foreign exchange markets, commodity-linked currencies forged ahead as prices of growth-sensitive raw materials from copper to crude oil traded around milestone highs.
The Australian and Canadian dollars hit three-year peaks of $0.7945 and C$1.2560 respectively. [FRX/]
The New Zealand dollar also hit a three-year peak at $0.7384 after the central bank sounded upbeat on the economy even as it signalled – like Powell – that rates would be staying low.
Copper hit a 9-1/2 year high in London and Shanghai while benchmark Brent crude futures slipped 0.4% to $65.10 a barrel after hitting a one-year high of $66.79 on Tuesday. U.S. crude futures fell 0.8% to $61.17. [O/R]
Later on Wednesday traders’ focus will turn to German GDP data, further testimony from Powell as well as speeches from Fed members Richard Clarida and Lael Brainard.
Price moves in a handful of hot assets popular with speculators – from bitcoin to Tesla and U.S. tech shares more broadly will also be closely watched as the rise in bond yields tests their stretched valuations.
(Reporting by Tom Westbrook in Singapore. Additional reporting by Echo Wang in Miami; Editing by Lincoln Feast & Simon Cameron-Moore)
Dollar falls as risk appetite increases, kiwi ruffled by RBNZ
By Stanley White
TOKYO (Reuters) – The dollar slipped to a three-year low against the British pound and fell against commodities currencies on Wednesday as investors increased bets that a global economic recovery will boost riskier assets.
The New Zealand dollar briefly fell but then quickly stabilised after the country’s central bank kept monetary policy on hold and said inflation and employment will remain below its targets in the medium term.
U.S. Federal Reserve Chair Jerome Powell reiterated on Tuesday that interest rates will remain low and the Fed will keep buying bonds to support the U.S. economy, which many traders say is a long-term negative factor for the dollar.
At the same time, more money is flowing toward currencies that are expected to benefit from a pick-up in global trade and to countries that are bouncing back quickly from the coronavirus pandemic, which is also weighing on the dollar.
“Signs of economic recovery are lifting commodities prices, which in turn supports currencies of commodities exporters,” said Junichi Ishikawa, foreign exchange strategist at IG Securities.
“Risk appetite has improved a lot, and this leaves the dollar at a big disadvantage.”
The British pound rose to $1.4170, the highest since April 2018.
The outlook for sterling has brightened as investors cheer Britain’s rapid coronavirus vaccination programme and its plans to ease lockdown restrictions on economic activity.
The New Zealand dollar edged up to $0.7367, close to a three-year high.
The Reserve Bank of New Zealand expressed some caution about the outlook, which may have disappointed some traders who expected central bankers to acknowledge a recent improvement in economic data.
The Australian dollar, which tends to benefits from rising metal and energy prices, jumped to a three-year high of $0.7945.
Against the euro, the dollar traded at $1.2158, close to a six-week low.
The dollar managed to rise to 105.40 Japanese yen and hit an almost three-month high against the Swiss franc, but overall sentiment was still negative on the greenback.
Powell pushed back against suggestions that loose monetary policy will lead to runaway inflation and financial bubbles, which have emerged as two important themes this year, because there is growing scepticism about the rapid pace of gains in global stocks.
For economies that have limited disruptions caused by the coronavirus outbreak, their central bankers now face questions of when to start tightening policy, which makes the dollar look less attractive, some analysts say.
The dollar index against a basket of six major currencies fell to 90.025.
In the cryptocurrency market, bitcoin halted its plunge from a record high above $50,000 and stabilised at $49,052. Square Inc has invested $170 million in the digital asset, but some analysts still argue that bitcoin’s recent surge was excessive.
Rival digital currency ether recovered from a sharp sell-off to trade up slightly at $1,591.
(Reporting by Stanley White; editing by Richard Pullin)
GameStop CFO to step down after Reddit driven stock rally
By Jessica DiNapoli and Subrat Patnaik
NEW YORK (Reuters) – GameStop Chief Financial Officer Jim Bell will step down next month, the video game retailer said on Tuesday, as it focuses on shifting into technology-driven sales in the wake of headline-grabbing big betting in its stock.
GameStop said Bell’s resignation was not due to any disagreement with the company relating to its operations, including accounting principles and practices.
However, a source said that while Bell’s exit was unrelated to the recent wild swings in GameStop’s stock spurred by retail traders on the Reddit social media site, his departure was initiated by the company.
The source, a person familiar with the firm’s thinking, said GameStop had become dissatisfied with Bell as it works to transform into a technology-oriented business and was not confident he would be the right CFO moving forward.
Bell, who will leave the company on March 26, previously worked at brick-and-mortar retailers Gap Inc and Coldwater Creek and restaurant chain P. F. Chang’s China Bistro, according to his LinkedIn profile. He did not respond to requests for comment.
Shares of GameStop fell about 5% to $42.75 in extended trading after the announcement. The stock has risen about 140% this year, after paring most of the gains that sent short sellers scrambling to cover losing bets and saw the company hit a record high of $482.95.
GameStop has also been targeted by shareholders pushing it to focus more on digital sales rather than its mall-based locations.
New directors focused on this strategy have recently joined its board and the source said those additions had helped create more momentum for the CFO transition.
GameStop said it has begun a search for a permanent CFO, adding that it would appoint Chief Accounting Officer Diana Jajeh as interim CFO if a permanent replacement was not found before Bell’s departure.
(Reporting by Subrat Patnaik, Ankit Ajmera and Nivedita Balu in Bengaluru, and Jessica DiNapoli in New York; Editing by Shailesh Kuber and Jane Wardell)
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