Waves
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Why Investors Should Pay Attention to Waves

Crypto prices continue to confuse.  For all the logic related to supply and demand, the reality these days continues to be that prices are being determined by emotion.  

The fundamental news these days is mixed. For example, take todays mention of Bitmain, one of the most valuable cryptocurrency companies, is expecting a September filing of an IPO for as much as $18 billion. That would eclipse even Facebook back in 2012.  The buzz swirling around Bitmain is about more than just crypto. Even so, $18 billion makes a loud and positive statement about investor interest.

On the other side of the digital coin, we have declarations from guys like Ken Bianco, who happens to be part of the US Treasury Office of Terrorism and Financial Intelligence.  Last week he spoke in threatening terms of how the US intends to enforce its AML/KYC regulations virtually everywhere in the world. If this sounds a little bit like an infamous German gentleman with an odd looking mustache, you have your history right.

In between these two extremes, of course, there has been lots of information each day that correlates closely with theoretical supply and demand for crypto, none of which has made a bit of difference as crypto prices continue to tumble.

Nevertheless, an objective point of view holds that there is a disconnect between what is happening in reality and crypto prices.

So unlike last year when prices were rising for no other reason than the fear of missing out (FOMO), today they are falling in the face of the fear of losing all (FOLA).  Maybe it’s fear that is the key to the future.

FOLA Could Be Our Friend

On many occasions we have mentioned how important traditional investors have used relative value.  We continue to believe that global stock and bond markets are overvalued using metrics like price earnings ratios and other financial measures.  While quantitatively speaking, this point is absolutely right, it hasn’t resonated. Since the beginning of the year, for example, investors in the Nasdaq Composite has enjoyed a 13% gain.

This gain comes even though Facebook, the fourth biggest stock in the cap-weighted Nasdaq Composite, has been a dud.  By comparison, over the exact time last year investors in the Nasdaq Composite experienced a 12% gain on the way to a bountiful 25% full year return. Overall, these folks have had very little reason to be unhappy, or fearful.

Tipping Point Could Come From Trump

Credit Datatrek for keeping a thumb on the pulse of the outside world.  Here are some insights from a recent poll on the fears of institutional money managers.  The two most important issues in late March were: unpredictable political events in Washington DC and Trade/tariff disagreements between the US and China.  Some 70% of respondents were very concerned or somewhat concerned about these issues.

Since then, things have only become more critical.  Washington’s confrontational foreign relations strategy is shaking global currency exchange markets.  In the last two weeks the Russian Ruble has lost 12% against the US Dollar. At the same time the US Dollar has increased over 40% against the Turkish Lira.  

While it can be argued that Turkey is of little importance to the global monetary system, Russia is not. Turkey plays a key role in the Middle East and any instability in that area is enough to strike investor fear that is reflected in energy, inflation and currency markets.

In earlier times, this scenario pointed investors in the direction of gold.  This is not happening. At the time of this writing, gold had just broken through $1,200 having fallen 8% this year.  In the face of the Turkish situation, this signals a loss in confidence for gold in a region of the world with a historic close connection to the metal.

Only Theory So Far  

Now if a strong correction were to take place in stock prices or an equally strong rally in crypto, there would be evidence of investors taking advantage of the relative value here. Unfortunately, at this moment that is not taking place. Bitcoin prices are down marginally but sellers continue to pound most altcoins. Until this changes, crypto prices are being driven down by FOLA.

Featured image courtesy of Shutterstock. 

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