Crypto VS. USD - Victor Cobra's Crypto Update 9.10.20
Updated
This is my first crypto update in a while. I've begun my graduate studies while trying to maintain some part time work, and unfortunately I don't have much time to write extensive posts at the moment, but here we go!
Finally, the market has corrected. My previous analysis showed how it was safe to assume a pullback towards the 100 day Moving Average at some point in the near future. TOTAL (the total crypto market cap, including Bitcoin) has achieved this, but TOTAL2 has stopped just short. Regardless, if this were 2016, right now would have been an excellent point to buy.
Here is my last analysis:
It seems that the crypto narrative depends on the Dollar's weakness. In the main chart, DXY is still somewhat trapped in a downtrend channel. A breakout could mean an interruption in the uptrend for crypto. You can clearly see that in the 2016-2017 bull run, DXY (the U.S. Dollar currency index) was also on a decline. In the below chart, I've drawn some speculations as to where markets may be headed in the next few years, if no major fiscal policies change. I do think it's fairly likely that DXY declines at least towards the low 80's, but it's important to note that major events and policy changes can shift the narrative at any moment. Right now, the narrative in the mind of the investor is that the U.S. Dollar will continue to decrease in value, and assets will continue to increase in value. Cryptocurrencies are assets. But maybe they're becoming more than that. Regardless, people put dollars into assets to grow their dollars, or at least protect them against inflation.
It will certainly be interesting to see what happens after the U.S. presidential election. If Trump gets elected, I think confidence will continue to be lost in the U.S. Dollar, but if Biden wins, he may create more programs that spend government Dollars. Either way, the Dollar can continue to decline. Even if a higher tax rate is instituted on the wealthy, and wages increase for the lower/middle class, the prices of goods in Dollars may increase, which could also coincide with continued currency devaluation. But I see this scenario as the most likely to end the asset bubble. Either that, or a revolution. And we're getting into that political territory now. Needless to say, it's really hard to predict the future...but some things do repeat.
I still think there is likely to be a large depression for asset prices similar to the Great Depression. In that scenario, does crypto have a place? It seems dangerously correlated to traditional assets at the moment, and that's because only the privileged Americans can afford to own any significant amount of cryptocurrency. Some may argue that their value would have to crash heavily before the everyday person begins using them. And how crypto looks in the future may be very different from today. Crypto needs to be around for much longer in order to really understand its place. Analysis makes an attempt to predict future scenarios based on current behavior, but the irony is we'll have much more data as time goes on. I do think that if a crypto bull run fails to materialize soon, the market will need much longer to change and evolve.
In any case, this next chart compares the current price action for alts with price action from 2016. Here, the channel was held for the most part. Eventually it broke to the upside. The first major wave took alts from the $37 Million valuation to the $134 Million valuation. That's a 3.6x increase. The pullback was large - roughly 40%. That was the last time the altcoin market ever saw a valuation that low. If that happened today, this might have been the last buying opportunity for many coins before the market enters a true bull run. But that's only going by what happened in the past.
Here it is with just the Moving Averages, showing the touch of the 100d MA (green).
BUT As we know, these ascending channels can break down, and when they do, they can indicate a much longer bottoming period. Take what happened in 2019, for example. It looked as if the market was about to take off, but altcoins were much weaker than Bitcoin at that time, and their weakness caused them to extend their bear market by at least a year. If it happened again, it would be a huge blow to the cryptocurrency space. Everyone wants a bull run here, and if it doesn't materialize, many will wonder what the catalyst would have to be. It's important to note the new high reached on the recent peak, when compared with 2019.
The monthly chart for the TOTAL crypto market valuation looks almost too healthy. Perfectly holding the 9 month EMA (orange). The current monthly candle also looks fairly similar to July 2016. This was very early on in the bull market.
I've been following Bitcoin dominance for quite a while, successfully calling the top last summer. After breaking down from the long term uptrend, dominance has continued to look weak. It's even following the yellow trajectory I drew back in July. In this case, it can just continue its decline towards the 50% area. It looks horrible on most timeframes.
Especially the monthly:
Of course, if things start to look drastically different, I will update and reassess. The main chart shows bullish and bearish projections with targets in green and pink. This is not financial advice! This is my own personal record of my analysis, so I can look back on it in the future and either laugh or cry. Please use this only for your education, entertainment, and speculation.
-Victor Cobra
Finally, the market has corrected. My previous analysis showed how it was safe to assume a pullback towards the 100 day Moving Average at some point in the near future. TOTAL (the total crypto market cap, including Bitcoin) has achieved this, but TOTAL2 has stopped just short. Regardless, if this were 2016, right now would have been an excellent point to buy.
Here is my last analysis:
It seems that the crypto narrative depends on the Dollar's weakness. In the main chart, DXY is still somewhat trapped in a downtrend channel. A breakout could mean an interruption in the uptrend for crypto. You can clearly see that in the 2016-2017 bull run, DXY (the U.S. Dollar currency index) was also on a decline. In the below chart, I've drawn some speculations as to where markets may be headed in the next few years, if no major fiscal policies change. I do think it's fairly likely that DXY declines at least towards the low 80's, but it's important to note that major events and policy changes can shift the narrative at any moment. Right now, the narrative in the mind of the investor is that the U.S. Dollar will continue to decrease in value, and assets will continue to increase in value. Cryptocurrencies are assets. But maybe they're becoming more than that. Regardless, people put dollars into assets to grow their dollars, or at least protect them against inflation.
It will certainly be interesting to see what happens after the U.S. presidential election. If Trump gets elected, I think confidence will continue to be lost in the U.S. Dollar, but if Biden wins, he may create more programs that spend government Dollars. Either way, the Dollar can continue to decline. Even if a higher tax rate is instituted on the wealthy, and wages increase for the lower/middle class, the prices of goods in Dollars may increase, which could also coincide with continued currency devaluation. But I see this scenario as the most likely to end the asset bubble. Either that, or a revolution. And we're getting into that political territory now. Needless to say, it's really hard to predict the future...but some things do repeat.
I still think there is likely to be a large depression for asset prices similar to the Great Depression. In that scenario, does crypto have a place? It seems dangerously correlated to traditional assets at the moment, and that's because only the privileged Americans can afford to own any significant amount of cryptocurrency. Some may argue that their value would have to crash heavily before the everyday person begins using them. And how crypto looks in the future may be very different from today. Crypto needs to be around for much longer in order to really understand its place. Analysis makes an attempt to predict future scenarios based on current behavior, but the irony is we'll have much more data as time goes on. I do think that if a crypto bull run fails to materialize soon, the market will need much longer to change and evolve.
In any case, this next chart compares the current price action for alts with price action from 2016. Here, the channel was held for the most part. Eventually it broke to the upside. The first major wave took alts from the $37 Million valuation to the $134 Million valuation. That's a 3.6x increase. The pullback was large - roughly 40%. That was the last time the altcoin market ever saw a valuation that low. If that happened today, this might have been the last buying opportunity for many coins before the market enters a true bull run. But that's only going by what happened in the past.
Here it is with just the Moving Averages, showing the touch of the 100d MA (green).
BUT As we know, these ascending channels can break down, and when they do, they can indicate a much longer bottoming period. Take what happened in 2019, for example. It looked as if the market was about to take off, but altcoins were much weaker than Bitcoin at that time, and their weakness caused them to extend their bear market by at least a year. If it happened again, it would be a huge blow to the cryptocurrency space. Everyone wants a bull run here, and if it doesn't materialize, many will wonder what the catalyst would have to be. It's important to note the new high reached on the recent peak, when compared with 2019.
The monthly chart for the TOTAL crypto market valuation looks almost too healthy. Perfectly holding the 9 month EMA (orange). The current monthly candle also looks fairly similar to July 2016. This was very early on in the bull market.
I've been following Bitcoin dominance for quite a while, successfully calling the top last summer. After breaking down from the long term uptrend, dominance has continued to look weak. It's even following the yellow trajectory I drew back in July. In this case, it can just continue its decline towards the 50% area. It looks horrible on most timeframes.
Especially the monthly:
Of course, if things start to look drastically different, I will update and reassess. The main chart shows bullish and bearish projections with targets in green and pink. This is not financial advice! This is my own personal record of my analysis, so I can look back on it in the future and either laugh or cry. Please use this only for your education, entertainment, and speculation.
-Victor Cobra
Note
One thing I forgot to mention in this analysis is debt - this is a key factor, particularly in the US, that could very well influence the next major meltdown. The country runs on debt. Markets have chosen to ignore it, but when people need cash to pay back their loans, they will have no choice but to liquidate their assets....or rely on debt forgiveness. Interesting times. I’m here for the ride.
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