Bitcoin Weekly: The $40b Consensys Dump

Consensys 2018 is over. History did not repeat itself as several forecasters were predicting. Instead we went the other way and dumped nearly $40b of the total crypto market capitalization this week. We cover some of the reasons analysts are claiming for the dump below. However one thing can be made certain, predicting the way Bitcoin will move in the short term is similar to flipping a coin. There are certainly no absolutes in this space. Which is why in the courses we teach at ProButterfly we always build and trade according to a plan. One which has three independent reasons of taking every trade.
 

Consensys 2018 Predictions Gone Bad

Tom Lee of Fundstrat Global made a bold and very public prediction prior to the start of Consensys 2018 that we are going to be seeing the beginnings of a summer rally. Unfortunately there was no rally, rather the markets took a considerable dump this last week. After being asked about why he thought his prediction had gone awry he mentioned three main components that he believes held Bitcoin back. 
 
  1. Missing institutional custodial solutions: We have mentioned this in the past about the lack of solutions for large funds to securely store and trade crypto assets. Unfortunately at the moment we have yet to see large custodial figures coming into the space. Without this link it will be very difficult for funds to comply to their regulatory requirements.
  2. Large buy-ins from banks and investment managers: Across the board we are hearing about all of these large funds and banks getting ready to start getting their feet wet with crypto. However many of them are still at the planning stage. Very little institutional money has yet to enter the space.
  3. Regulatory clarity: Is Ethereum a security or is not? Large institutions are still looking for clearer guidance. Until we do not see a framework put into place larger institutions are going to remain on the sidelines. 
 
The analyst community was hoping that a lot of these topics would be discussed and fleshed out with such a large gathering of all the most important people in the space. However that did not happen and those are the reasons being pinned on the sell off. 
 

Launch of Coinbase Institutional

Coincidentally on the 15th of May 2018 Coinbase announced yet another product initiative to cater to the institutional market. This news is almost counter to the points that Tom Lee put up as Coinbase is moving forward with a solution of providing custodial management for large hedge funds. They have partnered up with SEC registered broker-dealer to provide a custodial solution to large funds. The announcement also went on to discuss the launch of a service called Coinbase Prime. This is an updated version of their trading interface that will allow for institutional tools such as margin trading and OTC trading capabilities. We saw a weeks ago that Gemini got into this space as well. 
 
All of this is the underlying good news which is keeping the markets propped up. It is public knowledge that large institutions are at the front door. The only thing missing are all those control measures discussed in the point above. What should clear is that those gaps are being actively worked on to being filled. It is important we keep and eye out for it when it does happen.
 

JP Mogran’s Appoints new Crypto Strategy Head 

Right after Goldman went ahead with it’s announcement of setting up their crypto trading desk, it didn’t take very long for JP Morgan to up its ante in the space as well. Taking charge is Oliver Harris, 29, who is taking on a new role as head of crypto-assets strategy, reporting to Umar Farooq, the head of blockchain initiatives at the corporate and investment bank. Harris will also lead JPMorgan’s Quorum project, the internal blockchain platform developed by the bank that’s rumoured to be preparing for a spinoff.
 
Prior to his role he was responsible for finding promising startups in the fintech space for JP Morgan. This role shift is tangential to the Jamie Dimon’s prior comments about cryptocurrencies and specifically Bitcoin being a fraud. More recently he told CNBC, “I’m open-minded to uses of cryptocurrencies if properly controlled and regulated.”
 
 

Warren Buffet Gets Trolled

At the Berkshire Hathaway annual shareholder meeting earlier this month, Buffet said bitcoin was “probably rat poison squared” and urged his fellow investors to avoid the “nonproductive” asset. That comment has triggered a whole suit of responses from the technology world CEO’s and venture capitalists. They are quick to point out that Berkshire Hathaway missed the technology wave with their fund and they may be repeating the mistake with Bitcoin.
 
Marco Krohn, co-founder of Genesis Mining, tweeted photos of the signs that allude to Buffett’s admission that he was wrong about investing in mega-cap tech giants Amazon and Google in their early days. “Maybe you’re wrong about Bitcoin?” the signs taunt.
 

Technical Analysis

This entire week we have been closely watching and trading a downward channel that had developed for Bitcoin on the 4hr Finex chart. 
On the chart we can see that we got a large pop up to the 8800 - 8900 zone with the launch of the Consensys conference. However we were rejected twice in the area and rolled over after that. We lost our prior lows and edged lower down the channel. We are now slowly beginning to recover and head back up to a resistance zone near the 8400 mark now. 
 
On the daily chart we are still stuck in a sideways channel. Volume is starting to taper off and we are currently stuck below the 13EMA. 
 
At the moment it is uncertain as to which way this is going to break on the start of futures trading tomorrow. For traders who are hunting for setups it is best to keep a close eye on the 4hr chart and see how it develops. We are still stuck in a bearish downwards on the higher times and need to be taking our positions selectively until we resolve a position.
 
 
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