Fundamental TA Analysis
Or: "What Technical Analysis (TA) says about the crypto-sphere." Browsing the web the last couple of weeks I've seen only negative news because Bitcoin's price, and with it all other coins with the exception of BCH SV, has taken a nosedive.
This image was uploaded on August 22 last year!
Image by geralt - source: Pixabay
I've been "doing" crypto since mid 2017. There were two reasons for me to do so; I had a nice and fast video-card in my PC which I could readily use to modestly start mining some Ethereum because I didn't play much games anymore. I used the NiceHash miner for comfort, ease of use and the nifty fact that it automatically converted ETH to BTC. Satoshi's whitepaper was the other, more important reason; the prospect of having a peer-to-peer distributed public blockchain without a centralized middle-man, the true democratization of money, now that was something I easilly got behind.
Technical analysis wasn't important; I didn't even know what it was, and to this day I don't understand it's value in our particular corner of the marketplace. And when I just started following all things crypto, TA was something that was done only as an afterthought, because all the real news was about the technology and how it would free the world's unbanked masses by giving them the means to participate in global trade, by giving them a cheap alternative for Western Union that shamefully over-billed foreign workers for remittance.
Though leading cryptocurrency bitcoin is facing crackdowns by various governments across the globe, it's experiencing a surge in the overseas remittance market.
Instead of being used as a currency, bitcoin is increasingly being used as a medium for global money transfers. It allows the user to do away with the high costs charged by traditional banks and money transfer services.
source: Investopedia - March 29, 2018
That feels like news from last year or two years ago, but look at the date: it's this year. This reality of unbanked people and the need for foreign workers to send money back home hasn't changed a bit. And do you think these people give two bits if Bitcoin is worth 2,000 or 20,000 dollar? Maybe I'm wrong, but I don't think so. I think they are just stoked that there's a way for them to circumvent the centralized money monopoly held by governments and banks. I think it's you, mr. T.A. Barracus, who's only interested in Bitcoin's price.
Image by parveender - source: Pixabay
Fundamental analysis takes a long-term approach to investing compared to the short-term approach taken by technical analysis. While stock charts can be delimited in weeks, days, or even minutes, fundamental analysis often looks at data over multiple quarters or years.
source: Investopedia
You see, that's what TA is all about; making a profit in a zero-sum game where one person's gains are another person's losses. It's all about the profits, and nothing else. The technical analyst is a trader, not an investor, and can laugh all the way to the bank, not caring if prices are rising or falling, as long as he's "predicted" the right direction. In a marketplace with low volumes and high susceptibility to any positive or negative news, like the crypto-sphere, the technical analyst is reduced to a mere gambler.
Technical analysis and fundamental analysis have different goals in mind. Technical analysts try to identify many short- to medium-term trades where they can flip a stock, while fundamental analysts try to make long-term investments in a stock’s underlying business. A good way to conceptualize the difference is to compare it to someone buying a home to flip versus someone that’s buying a home to live in for years to come.
source: Investopedia
Really, I've seen just as many hits as misses by technical analysis, probably more misses. Also I've heard noises coming from the TA camp that prove to me that they're not interested in crypto's promise of a world, where wealth is distributed in a more honest way by eliminating central banks' power over so called democratic governments. This started late last year, when the mighty crypto-boom took off. This launch was powered by the news that finally, after 8 years waiting, the doors to the crypto-sphere would be opened to big money.
source: MaxPixel
Everybody went cuckoo after that, and the TA guys were at the forefront making stellar predictions because of the entrance of institutional, "old" money into our community. This I never understood and I still don't understand. When I started, I often heard those same analysts say how lucky we, small retail investors were with Bitcoin. It was, as they rightfully said, the first time common people like you and me were able to invest in anything big, something normally outside of our reach. And what's more, institutional money couldn't get at it because of Bitcoin's shady legal status. And that was a good thing they said, because if big money was in the game, the rules would immediately be changed to their benefit.
In the days before talk about ETF's and securities, before BAKKT, our analyst friends would laugh in the face of anyone trying to "short" Bitcoin. Now it's being mentioned as one of the main reasons for the bear market. Funny how that works, right? What's even funnier is that, now prices are about to hit rock-bottom, many of them see big institutional investors as the only ones that can get us out of this downward trend. I've even heard some say that prices have to drop even lower for these whales to be incentivized to invest in Bitcoin. Does not compute...
So now they're gambling on where the bottom is. Some say it will level off at 3000 dollar, some say it'll go down to 1000 dollar, some say it'll stay that low for a couple of weeks, some see a five year crypto winter ahead, and everything in between has been predicted too; they are all reading the exact same charts, keep that in mind. This should ease the minds of all those who are in the crypto-sphere because of it's ideological long-term implications. All the negativity is coming from people only interested in the short term future of their own wallets, and I say that without wanting to condemn them. But this is a time when the world is slowly waking up to the realization that this short term profit perspective has done us no good as a society.
Taking an even wider view, one could easily claim that the very existence of ways to make money without adding real value, is the reason why our capitalism is failing so hard. Creating money isn't wrong in itself; it's the creation of money without increasing productivity, without an increase of the amount of goods and services available in the real economy, that's causing crash after crash. Trading stocks also adds no value whatsoever, so it's fundamentally wrong to artificially increase market value through trading.
Bulls AND bears are wrong!
Image by geralt - source: Pixabay
Big, professional traders can make money even if prices are dropping by betting on the price to go down, by "shorting" the stock. One of the explanations I've read by a technical analyst is: "Remember, there was a euphoria phase for bulls when they said, 'This will never stop going up.' There is also a euphoria stage for bears where they say, 'This will never stop going down.'" (source: Nye The Crypto Guy) What was that saying again? "Bulls make money, bears make money, pigs get slaughtered"? Well, I guess all of us ideologs, all HODLers are pigs then?
I've learned fairly quick to not pay attention to the chart readers, for I'm not a trader. My fundamental analysis about the crypto-sphere hasn't changed since the day I got started more than a year ago, and on the technical side, the real technology that is, things are moving ever faster. The fact that there are miners who are willing to keep their machines running at a loss, tells me that there's still a core group of ideologically motivated people who won't let go of their stake in a better future. And there's a far bigger group of unbanked people that still needs crypto-currencies for a chance to get a piece of the cake.
I'm not worried about any of the price predictions, up or down. The only real set-back I fear is if we let market prices dictate our attitude toward crypto-currencies, especially knowing that these prices are almost certainly being manipulated by institutional and other big investors. So, what's more important: short term FIAT gains, or the prospect of real honest money in the long term?
In closing, let me tell you that I don't mean to say that TA is totally worthless in "normal" or "traditional" markets, nor am I saying that great guys like Tone Vays, Data-Dash (Nicholas Merten), or the countless other technical analysts I've come to know are bad people or have bad intentions. I just don't see much real world value in what they're doing, that's all.
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Good article on the surface, however, TA, depending up how it's used, can indeed yield rather impressive outcomes for long-term applications and in quantifying major bull and bear market trends. Check my last post for a small example...
There is an old industry saying which states that ALL of the "fundamental" news is already baked into the technical construct of price action - and as such, in theory, though nice to have a good fundamental "story" for backing one's case, all one truly needs is a properly tweaked technical perspective and the discipline to listen to what it is telling you over the long-haul.
Thanks so much @passion-ground for your insightful response (as usual ;-)). Sorry for the rather late reaction and that I'll have to keep it short.
I read your article and I agree TA could be useful for determining possible futures, and the trick is determining which is most plausible, has the highest chance of being realized. But still, this is not what I see TA being used for. Nor is it what TA is used for in the explanations I can find on Investopedia and other sites.
And yes, there were some level-headed voices to be heard late last year, but they were usually brushed aside, at least that's how I remember it. What I see happening time after time in the crypto-sphere (don't have experience with traditional markets) is an attempt by some to be rational, but only a few actually succeed in doing so; the emotions that accompany any stake based gamble soon takes over in the form of euphoria or panic.
That said, I love your latest article; this does look like the 80-90% correction some analysts showed as an aside, a remote possibility amidst last year's bullish sentiments. Let's see where "the bottom" will be, opinions vary wildly.
Thanks again, @passion-ground, always great to read your articles and comments 😍
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