Crypto Is On The Rise. Is This Good News For Stocks?
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Market On Open, Friday 16 March
by Alex King, CEO, Cestrian Capital Research, Inc.
Charts I would not have expected to see include this one:
Since the crypto lows of last month, with the war in Iran having started and as yet showing no sign of abatement, oil up, Vix up, sure. But Bitcoin, Ether up during this risk-off period in the S&P? Now I have long learned to not ask why, and just follow price and volume, but this one is a headscratcher. Can it really be that the originally promoted value of crypto (keep your assets outside the Government’s span of control) is coming to fruition, Bitcoin and Ether being used to spirit away assets from various imperilled nations around the Gulf? I mean it’s possible but since BlackRock is now the biggest owner of Bitcoin, and since Jamie Dimon is telling you that your account will pretty soon run on Ethereum rails, is this stuff truly anti-establishment in any way anymore? I would say not. I do think, however, that it is an early-warning system for moves in equities. Crypto is more rapidly tuned to liquidity entering and leaving the system than is the S&P and it tends to move first. Here’s a study of what has happened in the past when crypto has moved up off of its lows.
For now, Bitcoin and Ether are on the rise; both are over their 50-day simple moving averages and I think that anyone looking for an emotionless signal about the direction of equities would do well to include this. A drop below the 50-day SMAs, probably bad for stocks; a continued move up, probably good for stocks. Nothing is for certain and correlations real or imagined can change tomorrow. But this kind of method is a lot better than reading or watching the news and trying to work out, from the information you have been presented by someone else’s editorial policy, what may happen with the stock of your choice.
For what it's worth, and based on simple pattern recognition with a dose of volume analysis, here’s where I think Bitcoin and Ether may be headed. If true, and if the relationship with equities holds, then an upside rally may be coming in stocks that surprises a lot of people.
Bitcoin has a shot at $120k - $156k in my view - such targets (60-100% up from here) look absurd at present, but that’s the nature of risk-on reversals when they happen - they always look impossible. Until they don’t. Risk management? A stop below $60k is probably sensible in BTC, it would prevent capital being exposed to new lows but a 20% drop from here would mean the stop is unlikely to be taken out by market-makers on a frolic of their own.
Ether? It has a shot at $7500 in the next year or so, and potentially much higher thereafter. Remember that Ether isn’t just frou-frou nonsense now; it’s the token you need to pay for transaction processing on the Ethereum blockchain which everyone from Mr. Dimon on down will tell you is forming the new financial plumbing. (Not because Wall St has lost its mind - the opposite - because it’s a more reliable database than the systems currently in use. The financial establishment has ensnared and adopted this once-renegade system for its own purposes). You can open a full page version, here.
Ether's recent lows are 25% away; you wouldn’t use a 25% stop in the S&P, but in something this volatile, it’s not so silly. Perhaps a trailing stop.
If you’re an Inner Circle member, check in with Fred’s analysis of Bitcoin, which has a more bearish take. You can find it in Slack.
Now let’s dig into the market at large.