Forecast 12/20/21 - Holiday Malaise
Eyes on Crypto
Welcome back to the 2nd week of free content.
Please refer to the Backdrop Post and trade with mindfulness.
Please refer to Definitions page for any terms or abbreviations that I use that you don’t understand. If a term is missing, please let me know.
Please feel free to skip around or ignore certain sections if it does not apply to you. The Table of Contents is made to preserve your time in this manner. You can always simply read the conclusion if you are in a hurry.
All times given in this update are in US Central time (UTC-6 clock)
Song of the Week - No Respect (Screwed and Chopped by SUS Phixion) - Lil Peep
Table of Contents
Economic Calendar
Global News
US Bond Auctions
US Durable Goods
Crypto on the Holidays
Upcoming Content
Conclusion
1. Economic Calendar
Global news
Refer to Economic Calendar Settings Post for filter settings used.
As far as news is concerned, this is a relatively slow week. You will note that both the RBA and BoJ are releasing the minutes of their interest rate decisions. This is a normal part of that process, and most central banks will publicly share the minutes from these meetings anywhere from 1-6 weeks after the meeting concludes. There are times when these can be very important to review for language from the meeting members in regards to monetary policy. Neither of these minutes will be relevant to us.
We will have a very focused week here, and none of these events will be particularly tradeable. The only one we will focus on is US Durable Goods orders. Durable goods are a component of GDP, and are typically characterized as goods that last longer than 3 years. A washing machine, a car, a clothes iron, a bed; these would all be considered durable goods. We are going to ignore GDP, because the way it is currently measured now is so far off base that it’s not really indicative of anything, and the markets ignore it too because its not a priority for the Fed. In truth, GDP growth in the US is negative, and likely has been negative for over a decade, maybe even two decades. GDP growth is deflated by the inflation rate, but as I’ve explained, the measurement for inflation in the US is significantly off base, which means our GDP data is also significantly off base.
US Bond Auctions
These are the auctions we will be watching for this week.
It’s mostly the short term bill auctions, with one long term auction here. These will be added to the spreadsheet. Of interest for us will be to see if the Bid to Cover ratio on the short term notes is indeed trending lower.
2. US Durable Goods
As covered above, Durable Goods are any consumer or capital good that is expected to last longer than 3 years. This release is less of a tradeable event, and more of an event we can use to measure the actual strength of the US economy. This is, of course, measured in US Dollars, so its less of a picture of growth in production (because it needs to be deflated by the real rate of inflation); but what it is, is a picture of how much consumers and businesses are willing to spend on things that can be considered capital investments. If we get another negative print, it is a sign of the economy further slowing, and of people either sitting on the sidelines, putting large purchases off, or that people are genuinely tapped out.
As you can see, the trend for the past few months has been for Decreases in durable goods. Over the course of the year so far (Jan-Oct), we can see a rough net growth of 10.5%. Using CPI, this would put actual durable goods growth around 3% annual (2 more months to go), but we of course know that real inflation is far higher than the ~7% that they are telling us right now. If it’s closer to the 30% that I presume, then we have a negative growth in Durable Goods, which makes sense considering the significant decreases in production that have been on-going since the pandemic began. I will be watching this release, more as a confirmation of my expectations and less as a tradeable event.
3. Crypto on the Holidays
The holidays are an interesting time for crypto. Most trading desks at institutions are making small, low-risk trades in order to protect their bonuses. Put yourself in their shoes. You’ve worked hard all year to exceed your annual return guidelines, are you going to mess that up with any splash trades, or are you going to relax for the holidays and new years? I work adjacent to the financial industry, and I can tell you that most of my coworkers are going to be off for the rest of the year starting on this coming wednesday. This is true for institutions and major banks. What this results in, is that trends can extend in an exaggerated sense. With less significant orders on the books, there is typically less profit taking in whichever direction the trade moves in. Below, you can see a chart of Ethereum from December 2020, the last two candles, are the last 2 weeks of 2020, and most of that move in the first candle, didn’t start until halfway through that week with Christmas falling on Friday.
Of course, in 2020, the major institutions weren’t really that bought into crypto just yet, and where they were buying in, it was mainly still BTC. So the bull trend got extended with really no shorter term traders in the way able to stop the rise. This year, we’ve got the opposite situation. The trend right now is bearish, and the institutions have spent most of the summer time buying in to spot positions on BTC, ETH, and some of the basic DeFi protocols like AAVE. I suspect that the institutions still aren’t as positioned as they would like to be on ETH and likely have no interest in keeping the price up as they want to buy more. Below is a current chart of ETH.
The existing trend is bearish. The macro narrative is bearish. Most institutional desks will be on a skeleton crew taking very few risks to protect their annual bonuses. Not to mention there are interested parties that want the price to crash so they can buy in. What this adds up to is an interesting opportunity for a limited spot purchase of the assets you want. If we were to see an extended holiday dip, I suspect some decent short term buys could present themselves around $3,433 and $3,304. Below is my chart with a simple markup of significant levels on ETH for supply on the orderbooks. The first arrow terminates on Christmas. The second arrow terminates on new years eve.
Below I’ve included a fun (but old) video of what it looks like when a financial institution decides to attempt to manipulate the market by pushing the price far enough down to trigger stop losses and start a cascade. It takes a lot of money to do this, and a good bit of intuition and market feeling, its really easy to mess up what is depicted below. Yes, manipulation exists in markets, but it is less widespread than the conspiratorially minded would assume, but is much more common-place than many people suspect.
There is a chance that over this holiday period, which I will roughly define as December 22nd to January 3rd, that we may see a combination of market shenanigans as well as the trend extending and an absence of parties that otherwise might have intervened to ultimately push prices down. Should you sell any spot crypto and try to re-buy the low? No. But if you are DCAing or looking to buy, I would suggest planning your purchase for the christmas weekend, I suspect some deals may present themselves in whatever crypto you are looking at. Also be aware that during times of volatility, a centralized exchange can go down or be offline for a few minutes or an hour.
4. Upcoming Content
I will be stepping out of my cyborg skin and celebrating Christmas like a normal human being this weekend, and will not be making a Friday update post. To make sure that you are all still getting content and value from me, I will instead take this week and make a post about my first crypto protocol review. As I stated this past Friday I have begun working on it and will share a full review during the week before retaking my human form.
For those of you that follow me on Instagram you’ve already seen a bit of the following; I will be sharing about my experience having Liquidity tied up in a dApp that got exploited and had quite a bit of its TVL drained. Thankfully I keep my DeFi exposure to below 20%, and of my assets that were on this dApp, none were exposed, so I didn’t lose any of my underlying assets, but the weekly returns I’ve been making on this dApp have been nuked and essentially cut in half.
A good ending to the story all things considered. But I will take the time to start compiling an explanation about general smart contract security and putting it together. For those of you that are already crypto-native, a lot of this stuff will make sense, but I know many of you following aren’t fully plugged in just yet. Before the paywall comes down on January 16th, I will make a detailed post explaining some of the background for people trying to make the jump from owning crypto on a centralized exchange like Coinbase, Binance, etc; to using their crypto in a wallet where you have full custody of your coins and tokens. There is still a significant disconnect among the trading public who simply don’t get how or why to value protocols, and I intend to explain that with another article that is currently in my drafts titled Eth vs. Eth killers. The guide for moving from an exchange to using crypto, and the guide for understanding how to value crypto will both come out before the paywall comes down. At the very least, I hope that those of you not quite sure if you want to pay $10/month, can use those two articles to make $120 in a year where you otherwise wouldn’t have. Whether you spend that on access here, or you put it in your own pocket is of no consequence to me. But I do want to transmit value to each and every one of you.
A hint for this weeks crypto review: $STX
But please keep in mind, that prices across the sector will likely fall this Christmas weekend. So don’t go and rush out tonight to buy some, only to complain that you could have bought it cheaper over the weekend.
5. Conclusion
Despite being a relatively slow week for financial news, it should be a volatile week for crypto. If you have recurring buys, or are planning a buy soon, my advice is to have the money ready and waiting for christmas weekend, when prices are likely to be in an uncontrolled drop and some value can be scooped up.
great stuff, I'm waiting for that eth vs eth killers article