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Mark dow bitcoin profitI bought $ in bitcoin. Here's what I learned
I hope the market will let me hold onto them. Typically, selloffs start because we get too optimistic and over positioned and some kind of catalyst makes us realize that maybe we have too much risk on.
Sometime, it can be a catalyst that has hidden in plain sight for a while before we belatedly overreact, and sometime they truly come out of the blue. Obviously, the more extreme the optimism and positioning, the smaller the trigger or set of triggers it takes to unleash the selling.
Once the selling starts, it almost invariably shows up in the sectors and assets where the optimism was most vigorously expressed. In this case, that would be large cap tech. The selling can be sudden and severe. These names and sectors underperform vol adjusted pretty much everything else. This is what I call Phase I. This would be Phase II. Also, the indices start to get squeezy and jumpy, as more people finish their de-risking and their anxiety shifts to being caught out in or left out of a market rebound.
I get asked often about how and when to buy assets that have taken a beating. Here are the five-year and one-year charts of GE. We all know the story: balance sheet overreach, fall from grace, flirt with bankruptcy, change in management, multiple asset sales, and now slow repair of the balance sheet. The five-year chart pattern matches up nicely.
We see progressively higher lows since late , and a break out last October that appears to be consolidating into some kind of bullish flag. GE will never be the company it once was, but one could easily imagine a narrative that takes it back to 20, once it gets through the residual overhead resistance between we can see back in mid On the one-year chart, GE is basically at week highs, with a good base having been built between February and July of this year in the In the short term, however, GE could pull back as far as Another balance sheet repair story that is showing a solid bottoming process is the home builder HOV.
They re-levered and bought land banks too soon after the GFC and almost lost the company. Little by little, they too have repaired the balance sheet, bankruptcy is off the table, and they are just now returning to topline growth. The tailwind to the sector is likely to last as well. Rates will stay some version of low for the foreseeable future, a true recession is unlikely for the next year, and supply from other home builders has been running scared for a decade.
You can see the scope for upside in the five-year chart. This is one that could run to 40 pretty quickly and eventually to 50 or On the one year-chart you see another stock not far off its week high, but with near-term scope to pull back further. The final example is UBS. The five-year chart shows what looks like a bottoming process over the course of , with higher lows since August. It too, like virtually the entire European banking, is laboring under the presumption of a bloated balance sheet and anemic growth.
The pattern, in any event, suggests it might be ready to break out of that funk. Traders would probably put their stop just below the 50dma, while an investor could let it pull back as far as There is less upside in this name, though, so less payoff asymmetry.
Another thing to be mindful of when sizing and setting stops. And whenever you can get a narrative to line up with a solid chart pattern, the odds of it being a big winner increase significantly. The flare up in the repo market back in September caught a lot of people off guard—including the Federal Reserve. There are two main types of change post-GFC that led the desired amount of excess reserves to be much higher than anyone had anticipated. If the volatility in available reserves is higher, it becomes optimal for banks to keep a larger cushion of them.
The second type of structural change was behavioral: the preference for reserves over Treasuries as an HQLA shifted significantly. This was the reserve backdrop going into September. And then the repo market got hit with a two-sided shock. On one side, the Treasury issued an unusually large slug of bonds, which primary dealers had to finance in the repo market. This increased the demand to borrow thru repo. On the other side, corporations around the same date had to make large estimated tax payments, the funds for which they needed to withdrawal from the overnight market, a market which lends heavily via repos.
So, we ended up with a positive demand shock and a negative supply shock. And this happened against a backdrop of cautious banks with a strong preference for reserves over treasuries. The bottom line is there are plenty of excess reserves in the system for settlement purposes, but the banks have been extremely reluctant to part with them for the structural and behavioral reasons given above.
This creates a sense of hoarding. The Fed now understands this and they are working with the banks to figure out ways to reduce the volatility in available reserves and loosen some of the de facto and de jure factors leading to reserve hoarding. Even for those not involved, it was hard to miss the dramatic reversal in bitcoin on Friday, ostensibly on news that Chinese president Xi Jinping expressed support for the development of blockchain technology. China banned bitcoin and cryptocurrency exchanges in Sentiment had also gotten bearish on a fairly rapid fall from 10k to 7.
On Friday the price jumped from to at about EST and then a few hours later spiked sharply from to in less than 10 minutes. Friday evening again, EST prices jumped one more time from up to , before trading in a range between and since.
We use patterns precisely because they help us protect ourselves from emotions. After a large selloff or downtrend there is typically a lot of technical damage that has to be repaired before you can get a safe entry point for a longer-term position.
The other problem is overhead resistance. From the charts above you can see that the support in the area that was built from June through September has now become overhead resistance. The old saying is support that breaks becomes resistance, and resistance that breaks becomes support. Yet a key reason the price of bitcoin keeps going up is, well, because it keeps going up. Small investors like yours truly have a fear of missing out on a chance to get rich quick. And when the value of your bitcoin doubles in a week, as it did for me, it's easy to think you're a genius.
But you can get burned assuming it will keep skyrocketing. Some investors have likened the bitcoin hype to the dot-com bubble. Others, like Dimon, have said it's even " worse " than the Dutch tulip mania from the s, considered one of the most famous bubbles ever. As Buffett put it back in , "the idea that [bitcoin] has some huge intrinsic value is just a joke in my view.
There's also no interest or dividends. Bitcoin serves as a new kind of currency for the digital era. It works across international borders and doesn't need to be backed by banks or governments.
Or at least that was the promise when it was created in The surge and volatility of bitcoin this year may be great for those who invested early, but it undermines bitcoin's viability as a currency. Related: Bitcoin boom may be a disaster for the environment. Then again, if bitcoin crashes, at least I'll always have the socks. Rather than a currency, bitcoin is being treated more like an asset, with the hope of reaping great returns in the future.
So is there anything truly valuable about bitcoin? Bitcoin is built on the blockchain , a public ledger containing all the transaction data from anyone who uses bitcoin. Transactions are added to "blocks" or the links of code that make up the chain, and each transaction must be recorded on a block.
Investors holding short positions on Bitcoin made huge profits which was a drastic fall. It was a disaster for others as they lost enormous amounts of money. The reasons told by Mark Dow two years earlier still hold true even in You should be prepared for when the price falls as there is a high chance that the history might repeat itself. Short-selling is profitable because you can buy back the borrowed bitcoins at a lower price and you need to be sure that the price of BTC will fall.
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