With traditional stock brokers getting in on the game, Ethereum and Litecoin will now be accessible to a larger population of mainstream investors. This type of fundamental progress is what changes order flow behavior in these markets. And currently price structure across the board is beginning to reflect a much brighter future. Ethereum in particular has shifted from laggard to being poised for the 200 level, all in a matter of a few weeks, thanks to Bitcoin leadership and access to a larger pool of investors.

I am not one to trade on fundamentals BUT notable changes in variables that affect the size and magnitude of the market participants is worth paying attention to. Case in point: Etrade and TD Ameritrade, two of the most mainstream broker platforms out there are preparing to offer the ability to trade Litecoin and Ethereum.

These two retail brokers are opening the door to mainstream investors, AND providing a sense of safety and credibility through their well established reputations. This translates into the potential for a large amount of NEW capital to flow into these markets. And new capital is what sustains broad trends.

New money also invites changes in price behavior. Many inexperienced analysts who like to bring up chart scenarios pre 2017 and compare to present day are missing one IMPORTANT factor: In the early days of these currencies, there was little to no institutional participation. These markets were purely made up of inexperienced and emotional money. Kids were basically the most active players, and they are much more likely to do things like over react, and trade at the least opportune times.

Institutional money on the other hand not only understands how markets work, and have the resources obtain information unavailable to everyone else, but they also know how to create very unfair advantages, ESPECIALLY in an unregulated space. They are experts in shaking out weak hands, and the retail investor is the perfect liquidity provider for their portfolio of tactics.

Back in December of 2017, I specifically wrote that once the CME and CBOT get involved, the behavior of these markets will likely change and it has dramatically since those days. The stupid money vanished along with the unbelievable ranges that these markets used to exhibit.

And with the doors opening to the much more mature and capitalized retail investor population, these markets are poised for a much brighter future than many (especially the current shorts) realize.

The retail investor is the opposite of “smart money”. They may be more mature than the previous population of pimple faced high school kids, BUT that does not make them any less prone to the herd mentality and emotional reactions. One key difference is they have much more money to invest and that is where timing opportunities come from.

As more brokers follow suit, more and more investors will feel comfortable investing in this space. Stronger and more persistent price trends are likely to follow. After all, what drives a trend to begin with is the herd mentality. The key take away: a more favorable environment for trading is on the horizon and it can take hold faster than you may expect. This is the next step toward mainstream adoption. Thank you retail stock brokers.

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As the structure of these markets have been improving over the previous couple of months, these fundamental changes could not come at a better time. Since December of 2018, the entire space has established a bottom, and a number of broader support levels.

Even alt coins like Ethereum, which was completely out of favor by our standards, has shown dramatic improvement. When institutional players take a position and build inventory with the intent to make a market at some other time, when do you think they conduct these operations? A highs? Or when these markets look like complete garbage as perceived by the average and inexperienced eye (including all the internet analysts with their RSI).

Ethereum Coming Out Of It's Shell?
Recent structure presents bull flag formation.

In Ethereum, along with many other alt coins, the short term technical situation has shown significant improvement since the December low. It begins with a series of higher lows and higher highs (which establishes a bullish trend line). There is now a structural support around the 134 level. And current price action is unfolding toward a bull flag formation (parallel trend lines). As price currently tests the bullish trend line, this market is poised to attempt another leg higher. How high is reasonable? The low 190s is where we anticipate a near term target.

What can go wrong? A decisive close below 134. In this scenario, price can activate a broad bearish wedge formation (visible on a much larger time horizon). It can happen, but that does not mean that it will.

Looks bearish, but a chart doesn't provide context.

This chart shows the current short term price action in relation to this market’s history. At first glance, the recent progress is unimpressive and appears to hint toward a broader bearish continuation.

Why is this bearish structure not such a big concern? Recall what I wrote earlier: new capital flowing into these markets. It is a fundamental shift that you cannot see on a chart. This change in capital flow renders the price action of a year or two ago obsolete in a sense. The ignorant money of that time is either out, or waiting for higher prices to get out. Meanwhile institutions are positioning to capitalize on the future of this space (remember TD Ameritrade and Etrade?).

The other important factor that many seem to MISS when evaluating larger time frames is that Bitcoin is still the leader. No matter how ugly these charts get, if Bitcoin rallies back to 10K where do you think Ethereum is going? Lower? If so, please sell me your coins.

Global Forces, Not Just Charts.

Overall, charts serve as a record of order flow that offer clues about the sentiment of the market crowd and provide insight as to how the participants are likely to act next.

For short term strategies, focusing on minor details is fine, BUT when considering broader movements, other variables that are NOT on the chart must also be considered in order to account for the global forces in play.

Many can argue that the bigger picture price structure in Ethereum is still bearish, but how do you account for the potential capital sitting in retail investor accounts anxious to get in on any new developments in this space? Price structure will not show you that, only the ability to connect the dots behind what drives the price will.

Questions and comments welcome.

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2 Responses
  1. Coinvc

    Hi Marc, thank you for this analysis. Much appreciated!

    I have a question regarding the different instruments that will be available for the institutional players that will enter the game. As I understand, but I’m new to the world of trading, is that these professionals can make money either way (long and short). They do not need to drive the price up to make money. How do you feel about this? And do you expect to have the inflow of capital to drive the price up in the long term?

    Thank you!

    1. Andrew Gonci

      Hi Coinvc, If and when trading becomes available through ordinary exchanges it will bring more retail traders to the market. Many are still unsure about signing up with coinbase and others, and being it is on a brokerage firm they trust and have used, it will likely see a lot more capital inflows. This is probably a good first step in seeing a future ETF. This will allow for options trading and this is when traders will feel more secure in shorting because you can buy insurance. Right now you can short with futures contracts but the spreads are wide, and it is not conducive to day trading yet.

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