It only seems like a few months ago the oracles of crypto were calling for a retest of the low, screaming to lock in profits, and now those same gurus are putting rocket ships back on their charts. When the guys that were shorting Bitcoin just a month ago, are now calling for 20k, I just have to step back and think, maybe this is time to pause.
In the same week that Bitcoin is pushing new highs, Gold has also broken out of it’s multi-year consolidation and is poised for a bullish run. Nothing like the Fast Money Chart Master pushing it over the top with Bitcoin breaks 10k last night and talking about Gold’s next parabolic run. So are the runs in Bitcoin and Gold signaling the end of a market cycle and the next parabolic run for deflationary or wealth preservation assets?
Euphoria All Around:
We are also starting to see the Euphoria pick up surrounding the space, and what has me pause on trimming out here was the recent release of the Grayscale Ethereum Trust. Wow opening day and it was like Beyond Cryptos! Opening at $300 it shot up to a high of $590 with a gap, just unbelievable how much stupid money is flowing in now. I say stupid money, because dumb money is the typical retail investor like myself.
We do not have access to the information smart money has, but we can assess fundamentals and charts. Stupid money just buys anything at any price and is often the evidence of a Overly Frothy Market, and I love froth in my Cappuccino, but in the market, not so much.
Let’s not forget about the bond market which is also pushing higher. Bond prices go up as yield’s go down, and the yield is down nearly 10% on 6 month US treasuries which is a big move in this market. So with all this money flowing into all these equities, what the heck is going on, and does one have to break?
Currency vs Assets:
Forget the trade wars, we are in a currency war and stagflation! What I mean is the central banks are poised to increase QE (increasing the money supply) but inflation is not moving higher. This devalues fiat bills and smart money sitting in Fiat is likely looking to get into assets and out of Fiat currencies. We are seeing a transition, or the flow of fiat going into safety assets which are wealth retainers.
Wealth is built by working for fiat, but wealth is kept by converting fiat to deflationary assets like Real Estate, Gold, Stocks and now Bitcoin. The difference between the wealthy and the general population is what they consider assets to be. Many think buying a new car or other depreciating assets is an investment.
Bad Assets vs Good:
Many take loans out to buy cars, shop, and get that instant gratification that comes from owning something, with the misaligned thought that they are building assets. They are actually transferring their sweat equity to those that understand what an asset is. Those that invested in credit card companies, and other stocks for which the common worker spends their money on.
This is why we preach, put something away! Of course one should always have at least 6 months to 1 year of cash on hand to cover bills in the event of an economic downturn. Nothing worse than having to sell equities at the wrong time to cover your bills. Remember stocks do not pullback because of fundamentals or a flying bat on the chart, they pullback because there are no buyers.
Putting $100-$200 a month into stocks, Bitcoin or Silver and Gold is the start of making your money work for you. STOP TRYING TO GET RICH QUICK!!! Though some do hit the lottery, this is the exception not the standard so stop thinking you are the exception.
Why the Warning:
We never know when the market is going to turn, but we do know what signs to look for and we are starting to see them. It could be months or years before we get an economic downturn, but we will get one, and the question is are you prepared? Ok enough of my ranting, but I can not emphasize enough you need to put something back for a rainy day and stop chasing unicorns in lollipop land.
At the current rate of ascent Bitcoin is on target to reach 24k by the end of September. Whether this happens or not, the current rate of increasing money flow is on a path to hit 24k sooner than we could have ever thought.
We had a 15k target by the end of the year, but with all the FOMO surrounding Bitcoin recently we are looking at taking this level out by July. Yet this also breathes a sign of caution as we have now taken out an important psychological level and there are likely profit takers in this area.
This does not imply we are going to get a huge pullback, we have been mentioning for weeks that any pullback is likely to be shallow and short lived. We have entered the parabolic phase of the next cycle, and whether we are already in a broader leg 3 of finishing wave 1 it is insignificant.
The probability of a pullback, however so shallow, increases as the initial FOMO heats up.
The market has changed fundamentally since 2017 where there are more larger players and this can bring about technical changes in the chart. Can we see a 20,000% move like we saw in 2017?
Sure we can, but larger operators play by different rules. They do not ride equities up and then ride them back down, they sell at highs. I would not be surprised to see some profit taking here and we may already see some signs of hedging.
BTCUSD (Short Interest)
Short interest continues to climb as Bitcoin pushes new highs and there has been no short squeeze as of yet. On June 10th Bitcoin was trading at 7500 and since has pushed nearly 50% of that price which would normally result in a short squeeze. Instead we continue to see short interest rise.
Certainly if Bitcoin continues to rally we will likely get a short squeeze to 12-14k, but this is the largest swing we have had without a shorts exiting positions. My position on this is much of the short interest is may be larger operators hedging.
Some throw hedging around a lot, but in reality near highs larger operators will often use instruments to lock in profits where they see a higher probability of a pullback. In lieu of selling and getting hit with tax liabilities, the alternate option is to hedge.
In stocks you can buy PUTS or sell Covered Calls, or as we did a podcast on add a Covered Collar. With Bitcoin your options are limited to sell some inventory or short a portion of your holdings.
Someone that has accumulated 500-2000 coins at lower prices, is looking to lock in profits. I would if I had a sizable position and do often with larger positions in stocks. Especially fund managers who are not in the business of riding the roller coaster like many retail investors do.
They take profits because their investors want to see profits on their year end statements not watch them fade away because they didn’t sell. One way to do this is short the underlying asset creating a neutral position.
Say you have 100 coins and you want to lock in profits at 9500 but do not want to take a 30% tax hit, since you have a broader target level. You could short 20 Bitcoin locking in profits with 20 coins and you are a strong hand, because this is really a covered short.
This is completely different than those shorting 25-200/1 using margin. Strong hands can just wait out the storm, and if Bitcoin pulls back they will buy their position back, profiting on the short and still retain their inventory for the longer term.
What if Bitcoin does not pullback?
Since they only shorted a portion of their inventory, they essentially are locked in at 9500 with 20 coins. They own the coins outright so any increase in price is offset by the loss of the short. This is a partial neutral position NOT a net short position. Understand the difference, they are still net long.
If it does pullback they will cover their short with a profit, and if it continues higher, they can close out the neutral position and still have their inventory long.
Unfortunately most of us do not play that game and it is a risky game due to the exchanges being unregulated that offer short products. All we can do is trim off inventory.
My wave count is a little different than Marc’s but it is insignificant in the broader picture. Main support is between 8050 and 8850 but at this phase of the market, anything under 9k is an area to add for the broader move.
The 7150 level is lower support and though technically we can push into the low 6k’s I think it is highly unlikely.
If we see a shallow pullback to the 9500 level and a bullish reversal, than I would side with Marc and we have already entered leg 3 of the broader move to 24k. It is not about being right, it is about adapting to the changes in the environment.
We can still push higher and as I have written on in the past, the market does not care about EW and Fibb it is all based on order flow. These are guides not crystal ball indicators.
This move is not unexpected. We have written before his is exactly how the market will play out when everyone was trolling my long posts since last year. When we were fading the selloff since last year and people told me I was stupid.
Now The FOMO:
Those same people that did not add at lower levels, held tight to their personal bias of a bear market and were posting Short trades just a couple weeks ago, are now calling for 20k. You really think they added at lower levels? No they are the ones buying here on FOMO.
I remember someone asked me, “why not just sell out your entire position and buy lower last year at 6k?”. I said nobody knows where the bottom is, and though we can pullback to 2500 I will simply buy the dip.
There was no guarantee we pulled back to 3200, but when we did, as soon as we saw some support we bought at 3500 and still own that position today.
We did sell half the position we added at 5100 and made a few position trades along the way, but you never want to be out of the market entirely, because here we are now back at 11k!
Ethereum had a really weak chart just a few days ago. There was actually a short setup on the chart that never triggered and pretty much went vertical right after.
The $305 was an important level to clear and we still need to see if the market supports this price, and if it does, the path is clear to the mid 300’s.
This took me by surprise as there was nothing in the chart that showed a potential bullish swing. It was looking a if it was attempting to range not breakout.
Yet it did and that is just part of adapting to the environment as it evolves. The breakout was a little odd though and had all the characteristics of a news release.
Well shortly after, and before I could Google it, in our radio chat group, Henry (From the Henry Raines Show) sent a message that the Grayscale Ethereum Trust just opened on the Over The Counter (OTC) pink sheet market and was up to $580 per share out of the gate!
I was like wow that seems a little high for Ethereum that is trading just under $300 at the time.
ETHE (Grayscale’ Ethereum Trust)
Kinda looks like Beyond Meats first day chart, and this brings a whole new meaning to Beyond Cryptos! Sure paying $580 for Ethereum seems a little pricey, but when you factor in that each share represents only 0.0966 (less than 1/10th) of an Ethereum you have to step back and go wow.
I mean this is really stupid money entering the market and is one reason I am not selling here, though normally I would trim out some inventory at these levels.
Essentially they buyers of the stock are paying over $5800 per coin which is just stupid! Just shows you that stupid money buys FOMO and has often no idea what or where they are buying.
I can not imagine what the price of Bitcoin will be when E-Trade and Ameritrade offer it to a vast number of more stupid people. This makes 20k Bitcoin look like a non-event as far as FOMO goes. With this kind of inflow and inflated prices what happens when it really hits the streets?
Makes you almost want to go out and buy Ethereum, Bitcoin and Bitcoin Cash at these levels.
Gold has finally broken out of a multi year consolidation cycle and is now poised for a broader bull run. Now unlike Bitcoin, moves in Gold take years to develop which makes us Goldbugs the most patient investors ever.
We accumulate for years, before finally seeing the fruits of our investment pay off. Yes we are the epitome of the patient investor and now that the move has happened it is likely to attract more interest and push us higher.
I am not a buyer here, but I sure am not a seller either. With the patience of a mother watching 8 kids, I am looking for a broader move to 2600 which will likely take a couple years or more to evolve. The last bull run that started in 2002 took nearly 10 years to hit its high.
I’m not so sure it takes 10 years here, but 2-3 years from now we could see 2000 Gold. Gold was hated for years, as I remember many analysts calling for sub $600 prices.
When asset classes are hated, this is the time to slowly accumulate. No different than Bitcoin which was hated all of last year. This was a time to accumulate slowly, not a time to sell. But many did and now they will be the buyers I sell to at higher prices.
A new All Time High with the S&P and there is really no bearish signal other than the position it is in. The economy is still doing well, but yet data lags the market, and by the time we realize we are in a recession, it is likely already over.
Markets do not move on Fundamentals, they move because of market sentiment. I still think we are going to move higher, though we may see a pullback into the mid 2800’s prior to a final leg up.
This is a tricky area yet Earnings is only a couple weeks away, and the focus is going to be on a potential China Trade deal or at least any positive or negative news coming out of the G20 summit.
I want to have some exposure, but not be overly exposed here. Like our crypto portfolio we want to have cash on deck for a potential selloff. Companies we are looking at moving forward need to have good balance sheets and growth, or good balance sheets with a fat and safe dividend.
I do not mind holding dividend payers during an economic downturn, and I think regardless of the economy there are still some sectors to be invested in like IoT, 5G and AI.
There is also potential growth in the Cannabis sector and we are looking to increase our exposure in some certain stocks there as well.
Assets that do not pay a dividend like Bitcoin and Gold are safe haven moves that are considered stores of wealth. Other assets like dividend paying stocks or Real Estate provide income when market sentiment turns sour, or we have an economic crisis.
We are seeing a move towards these assets classes and expect the in-flow of capital to continue. This implies there is likely higher prices on the horizon, but we want to see some consolidation or a shallow pullback before adding to our inventory.
It is also important to have levels you stop adding. With Gold I stop adding at 1300, and I have those levels with everything I own. Often it takes months or years before an asset meets my criteria for buying or selling, but this is the long term approach to managing your assets.
It is easy with a couple thousand to be aggressive in markets, but once you start accumulating assets and wealth it is more about retaining it then looking for a home run.
This is our philosophy in trading and investing and though we do not look to get rich quick,we do look to build a nice nest egg of assets and wealth for the future. I know many do not want to hear this, and will blow out their accounts several times over trying to get rich quick.
How many were attempting to time the market all in all out with their crypto portfolios and how is that working for them now. Sure they are bragging about huge returns now, but what was their draw down in the bear market?
If your account saw a 50% draw down during the bear market, it takes 100% profits just to get back to even. This is why we want to remove cash when we can not when we have to. We also never know where a top is so we attempt to balance our cash and equity positions.
Euphoric markets are often followed by large selloffs and many tend to focus on the price move not the percentage. Even though they think they are disciplined they get caught up in the Euphoria.
The move in Bitcoin from 7500 to 11200 is the same move as Walmart made when it went from 75.0 to 112.00. They are the same move percentage wise, so do not get caught up in the price.
If you trade 5k and make 10% it is insignificant of the price. 100 shares of AMD moving up $3 is the same move that Bitcoin makes from 10k-11k. A $50,000 investment made the same amount of profit whether holding 18k shares of AMD or 5 Bitcoin.
We are not bearish by any means, we are still long term bullish, but this is not a time to be aggressive. Good things come to those that wait and have the patience and discipline to ignore the hypsters that were only a couple months ago calling for a retest of the low.
Missing an opportunity does not cost you anything, jumping into the market just based on FOMO will. I am happy with 70-80% of my crypto portfolio catching this move, and will be really happy if we get a solid pullback and have the cash to position and or swing trade into more inventory.
THE FASTEST WAY TO BECOMING POOR IS TRYING TO GET RICH QUICK!