Trader Note

Greed does NOT work (in trading).

2017-09-18-WEEK

FOMC. China vs. Bitcoin. See: EVENTS

This Week

The FOMC will be releasing their rate and projections. This is followed by their press conference. They have not moved in a while and the market is starting to ignore their role in maintaining share prices. That is usually the time when they move on rates or make changes to their projections. They are bureaucrats, and bureaucrats are desperate to maintain their relevance. So expect the FOMC to try to put themselves back into the middle of the market and traders awareness.

China vs. Bitcoin

If you find ants eating a loaf of bread in your kitchen, throwing out the bread does not get rid of the ants. If you kill some of the ants, and scatter other ants, it still does not get rid of the ants. The ants are in every house on the block, in every neighborhood of the Earth. The ants are in the yard. The ants are eating your garden and your bread. Every new crypto currency has the potential to be red ant infestations, or even army ants. Bitcoin is the white ants (termites) of these markets because it is eroding the framework and foundations that the house of finance is built upon. They may be able to attack the white ants enough to get them out of the house, but they will continue to prosper in the woods. Once the ants have arrived on your shores, attacking the ants only moves the ants to a new location. You will NEVER be rid of the ants.

China has used a hammer by moving to ban Bitcoin exchanges. This is not a move to crash the market and destroy wealth, but a slow move intended to gently close these exchanges (many powerful people need to close their accounts). It implies that the Chinese government wants to play a more central role in crypto currency markets, removing it from private business.

Bitcoin moves billions of dollars a day (https://blockchain.info/charts/estimated-transaction-volume-usd) and crypto trades amount to over $150 million in a day. That is larger than trades made in the gold market. Governments want a piece of that crypto pie, but they are usually luddites. That means that they don't understand how crypto markets work or what the potential for the technology may become. Governments want to shut down crypto currencies, but they are only changing the venue of exchange through regulation. The ONLY way to diminish crypto currency trading is to shut down the internet. As crypto currencies can be transferred through Bluetooth, every phone and laptop could be a crypto currency market.

Online gambling was once a booming industry in many countries, but has now moved to the shadows by government intervention. Once those countries started to ban poker websites, gamblers created accounts in foreign counties to use them. Then they bought VPNs (Virtual Private Networks) to be able to play through a country that was legal to use these sites. Gambling sites tried to block players from the USA when it was banned, but users just created new accounts and logged in as Russians or Canadians.

Perhaps the next big crypto currency market will be Tuvalu. Tuvalu is a south pacific island that prospered from growth of the internet. This is because their internet tag was ".TV" so every television station and industry associate wanted to have their hosting there. This meant that the little country of Tuvalu had to build large computer systems and then train people to use them. It created a boom in the country for technology, simply because they are TV on the internet. Right now, any country has the potential to be Tuvalu in the crypto currency space.

If a small South Seas island wants to become wealthier than Singapore, they only have to deregulate the exchange of crypto currencies with a long term moratorium on regulation (100 years would be good). They will be the place that every trading server, mining operation, and marketplace will likely buy their hosting. That is where the public face of existing systems will relocate. Power requirements will be the issue, but advancements in tech (solar, wind, thorium reactors) will fill the gap when demand is that high.

In the near term, expect that the Chinese traders that have been profiting from crypto currencies will continue to trade in other countries. They will be using a Torr browser to link into a VPN. This will slow down their order placement due to lag, so there will be less at-market orders and more hanging at-limit orders. Traders will still be able to electronically cash out of their accounts in Bitcoin and then spend those gains locally to others trying to get a physical position (physical is not the correct term, but a term for having crypto currencies on a local wallet has not yet been created). Other than lag, there will be very little changes to markets.

China will shutter their exchanges on September 30 and Japan will be allowing exchanges to operate in October. Any Chinese exchanges that exist will have their code dropped onto a USB stick and will reopen in Japan a week later. It is more likely that they have already set up their hardware and systems in Japan and are waiting to go live. It is a short flight between the two, so these business people will still be able to fly home on weekends and CEOs will be able to fly home every night.

So look at the current selloff of Bitcoin as an opportunity to get a bigger position and discounted entry price. This move lower in prices is only a temporary move, not a long term trend. Bankers are afraid of this technology (see Jamie Diamond's recent comments) and governments cannot control it.

Thousands of species of ants are scattered around the kitchen and they will not be able to kill them with their hammers.

 

 

 

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