Trader Note

Rolls: Markets will be range bound with occasional short lived spikes. Spread stops wide.

2018-01-29 Week

ASX/ES spread. Why I trade Bitcoin. Corzine Fund.


This Week

Last Friday was an Australian holiday. Look for the Friday ECB move to hit the Australian market when it re-opens on Monday (move higher). It provides a good chance to take an easy chop from the Aussie market that reflects the USA market (floods float ALL boats). Also look for a reversal of the USA move on Monday (spread opportunity in the overnights) against the ASX.

EU bond auctions will give an early week insight as to investor desire for risk assets.

The Fed will underwhelm us this week with their wisdom before markets get excited about a mediocre NFP number.


Trading Bitcoin

Why do I trade bitcoin?

As a contract, crypto currencies have good volatility. Price moves can be over 25 percent in a day. My long term bias is higher prices (especially with failing bond/stock markets), so I use patience to get a good BUY entry price on flash crash and volatile days. This often quickly rebounds to a 10% or better move. This makes for an easy chop.

These markets are filled with amateurs, and that means that there is decent volume at strange moments. Pros all read charts and understand support and resistance. Armatures look at one or two fancy indicator and pile into small moves. Trading is about eating someone else's lunch, and much like poker it is easier to take money from suckers.

In crypto markets, there are very few HFTs. Algos have been soaking up wins out of stock and futures markets for years. Estimates are that HFTs have grabbed 5% of the wins out of the market. Often, the HFT is sitting between me and the market, but in crypto these markets are spread around the world making their New York supercomputer unable to front run my orders.

Leverage is limited in these markets. On the exchanges, most traders are using cash. That puts most buyers on the long side. Leverage on a site like Kraken (where I trade), is up to 5 times the contract, while other markets do offer up to 15x (most don't use it). Compare that to 20x leverage in FX markets and 10-20x in futures markets and you realize that this is a closer to a CASH market. That means that when price dips, there are not many shorts to pile onto the move. It means that there are less long-squeeze moves with this level of leverage.

When looking to the CME / CBOE futures of Bitcoin, you can see some of that short side action. Because these contracts are not directly associated to Chicago tangibles (price is based on external market price), then any manipulation of price must also be spread across other markets. The size of the crypto marketplace makes that very expensive (it is cheaper to slam the gold market than the crypto market).

I also believe in Bitcoin.

Belief is not a good reason to trade something, but it is a reason to watch the chart. I like the fact that crypto currency is outside of the system ruled by banking fees, corporate rip-offs and government money printing. I also like the fact that wealth can be transported easily, telegraphed anywhere on the planet and hidden from sight, if needed.

I also believe that crypto currency is a growth industry. Bitcoin is like bearer bonds, and is an excellent store of value. Bitcoin is not a currency, but neither is 10 year bonds or ounces of gold. It is a very liquid store of value, and will likely increase in value. Banks and governments cannot print more of bitcoin (21 million bitcoin limit). The current user base is 5% of population, which increase with availability and will surge when funds and wealth managers are able to put their cash.

The best reason to store money in Bitcoin is because of an anti-establishment belief. Mine belief comes from watching bank collapse after bank failure without any prosecution of these criminals. When banks get busted for laundering money, they pay a fine. When a crypto market manager got busted for the same crime, he went to jail. Where are the jail sentences for the banking thieves and liars?! Wells Fargo opened thousands of fraudulent accounts, yet nobody went to jail. Even Jon Corzine (MF Global) didn't go to jail for steeling customer funds. Now he is opening a hedge fund!

Is this the kind of system where you want to park your long term wealth? (You should be saying HELL NO!)

Gold bullion is an option, but at some point it becomes too heavy to carry (lucky you!). That is when crypto currency becomes an excellent option.

As disillusionment with the system increases, so will crypto's investor base.

As risk on mainstream assets increases (stocks, bonds, fiat currency), then intelligent investors will be looking for hedges. Easy liquidity makes cryptos an easy solution for large amounts of wealth.

So, look to get long on dips or scalp volatility.

Corzine Hedge Fund

Jon Corzine is opening a hedge fund, when he should be in jail!

Jon Corzine stole customer money to bet on Greek bonds and caused the collapse of MF Global. He didn't need to make that trade as a hedge. He was running the largest futures brokerage in the world, and decided that he wanted to make more money. He didn't risk his money, he used customer funds. He did NOT end up in jail for steeling these customer funds. The ensuing court case and settlement locked up customer funds for years after the failure.

Instead of jail, Corzine is actually starting a hedge fund and is trying to gather $300 million from investors. If you are dumb enough to give this thief money, they you deserve all of the leveraged losses you will soon incur.

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