Cryptos are heading for the mainstream

Early on, when I began following Bitcoin, I suspected that it was showing bubble-like tendencies – much like Gamestop – and was unlikely to catch on as a serious asset. Prices were jumping around like a Mexican junping bean. It started life trading at a few US cents and months later, it had exploded into the hundreds – and then thousands. But what were you actually trading back then (and now)? Just a few lines of code – that’s it. For someone like yours truly who grew up well before the digital age, that seemed a pretty nutty concept.

But with recent serous interest being shown by many big boys, I have re-assessed my view.

Here are some highlights of what some companies and money managers are now doing:

August 2020: American business intelligence company MicroStrategy announces having purchased 21,454 bitcoins at a price of US$250 million, with the purpose to hold as a treasury reserve asset.

October 2020: American payments company Square (NYSE:SQ) announces having purchased 4,709 bitcoins (about US$50 million) in investment, representing 1% of the firm’s total assets.

October 2020: American financial services company PayPal (NASDAQ:PYPL) announces a new service allowing all users in the United States buy, hold, or sell bitcoin using PayPal.

November 2020: Bitcoin reaches a new all-time high of $19,860, surpassing the previous peak of $19,783 from December 2017.

December: Private German bank Hauck & Aufhäuser announces launch of a cryptocurrency fund which includes Bitcoin, Ethereum, and Stellar, in an attempt to pursue a passive investment strategy.

February 2021 Credit card company Visa (NYSE:V) announces plans to help banks roll out Bitcoin and cryptocurrency buying and trading services with a Visa crypto software program, set to launch later in the year.

February 2021: Tesla (NASDAQ:TSLA) announces having bought US$1.5 billion worth of Bitcoin.

February 2021: American financial services corporation Mastercard (NYSE:MA) announces that it will begin supporting cryptocurrencies on its network later in the year.

February 2021: The Bank of New York Mellon announces that it will begin financing Bitcoin and other digital currencies. This is regarded as a validation of crypto from a key bank in the financial system.

And now Coinbase, the fast-growing Bitcoin exchange, has issued an IPO valuing the company at $100 Bllion – more than the combined caps of the NYSE and Nasdaq! This is serious stuff and that means I am taking cryptos a lot more seriously.

I alerted VIP Traders Club members last week to the news that the Chinese are working on a digital yuan with a definite date of expiration. That way, they can control their economy by forcing citizens to spend before their money vanishes into cyberspace – and they can adjust the expiration date at will. Do let that concept sink in and what it would mean if that idea spread to sterling – and the US dollar. Remember, there will be a fixed number of Bitcoins to be produced so that having a BTC currency would be even better than the old gold standard (not fixed supply) for inflation.

But a digital currency is too attractive an option for the authorities not to push forward with it. With the pandemic giving free rein to authoritarian forces to flex their muscles, this concept will not go away. We have been warned!

I saw an interesting chart of the effect of price inflation over the years – 100 years ago, one US dollar would buy 12 bottles of beer. Today, it buys 1/3 of a bottle.

The crypto technical backdrop

Bitcoin is far and away the leading crypto – but there are others vying for attention. One of those is Litecoin which is third in market cap.

We are now trading Litecoin as it offers much better spreads than BTC. With the rush of interest from major money managers (see above), I believe we are in a major third wave up and may have reached a half-way point (see below).

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Third waves are the very best to trade

I have recently pointed out many of the markets we trade are very likely in third waves. In EWT, these are usually the ‘longest and strongest’ in a five-wave impulsive sequence. Of course, I am never highly confident in labeling a new wave as a third at the very start, it is only when the typical characteristics of third waves manifest that I accumulate sufficient clues that I am on the right track. Chart analysis is very a much a ‘suck it and see’ exercise.

So what are these third wave characteristics I watch for? Here are a few:

A sharp reversal of the ‘old’ trend usually flagged by a strong mom div
For bull third waves, a move above a recent significant high
A break of an upper down-sloping tramline with a possible pull-back to kiss it and then a Scalded Cat Bounce (SCB) up and away. The pattern off the low can be counted as a 1-2 to the kiss and a 3 on the SCB rally
When in the third wave, price advances are strong with small brief pull-backs (usually in threes)
In a large scale third wave up, a point about half-way up is what I call ‘The Point of Recognition‘ where previously many major players had been sceptical of the advance. At this POR, many of them see the light and decide the uptrend is real – and jump aboard. I believe we may be at this POR with the cryptos (see above).

The bottom line: Trading bull third waves makes trading seem so easy! Most days see advances and set-backs are brief and shallow. But when they end, your real problems begin!

My task as a trader and analyst is to foretell the future in real time – the future path of market prices. As in all walks of life, I have less than perfect – and always conflicting – information on which to make judgments. And sometimes, as with generals in time of war, decisive swift action is required to capture the initiative. Last Thursday’s trade in Gold below is a perfect example. On Thursday morning, the market had dipped into one of my potential support zones and I guessed a decent reversal lay directly ahead in what could be a third wave. The moment I published my daily Trade Alert, it took off like a scalded cat.

Gold has been tough to trade lately, but I am back on track now

This market has been all over the shop in recent weeks and we have had a few false starts. But the fog is clearing and this is my roadmap I am using

The waves off the $2075 ATH last August have been very choppy but with the decent decline to the major trendline and bounce up, odds are now piling up for a renewed uptrend. Just compare the weekly trading ranges recently with those back in 2019 – they are far wider now which indicates much higher volatility – and tougher trading to identify low risk entries

As a swing trader, I am never happy when the ,market does not move swiftly in my direction right after entry. All of my analysis work is geared towards finding high prob/low risk long entries on dips or short entries on bounces. But of course, as I never tire of pointing out, 100/1 long shots do sometimes win horse races, but over the long pull, it is always better to bet on more likely winning candidates – and so it is with trading.

Many are calling Bitcoin the ‘new gold’, as if gold will become irrelevant down the track. Far from it. Gold will remain a major store of value (and essential industrial metal) – and sometimes an inflation hedge (although its track record here is patchy at best).

The S&P heads for my upper tramline

Last time, I put out this chart for my S&P roadmap

And last week, the market pushed above my black trendline to the 4200 area. If it reaches my 4500 target (plus or minus), that should cap the fives – let’s see.

For those who are UK-inclined, the FTSE 100 jumped above the much-watched 7,000 resistance zone for the first time since last February when it started down in the Corona Crash collapse. Let’s see if it holds.