The wild and wooly world of cryptos is here to stay

No financial development of the past decades has created as much, excitement, interest and doubt as the explosion of crypto trading.  From the initial release of bitcoin 12 years ago to today's universe of thousands of currencies, millions of new traders have been drawn into the financial arena by the lure of electronic profits.  Join FXStreet senior analysts Valeria Bednarik, Yohay Elam and Joseph Trevisani for a critical assessment of this intriguing addition to the trading world.

Yohay Elam: May 19 2021 will likely be remembered as a day in which volatility in Bitcoin was abnormal -- 30% down, then up, within a short span of time

Joseph Trevisani: The volatility in cryptos last week... looked very much like panic profit selling.

Yohay Elam: Cathie Woods called it "capitulation"

Valeria Bednarik: I like it. Still, we should also add some manipulation. Guess many took their chances and bought the dips.
What puzzles me if that all this frenzy is being attributed mostly to Musk's tweets.

Joseph Trevisani: It is interesting the news that moves cryptos is connected to its integration with the real world...ie the ability to translate into trains, planes and automobiles.

Yohay Elam: Electric automobiles made by Tesla -- until Elon Musk abandoned BTC

Joseph Trevisani: Exactly and then the Chinese

Yohay Elam: Indeed. For me, such moves and so much influence from very few actors means Bitcoin is far from nearing the status of currency

Joseph Trevisani: If he owned BTC there was a bit of talking his book..initially

Valeria Bednarik: I do agree with that Yohay. Also, is clear that crypto fans are hoarders, not traders

Joseph Trevisani: Some are hoarders but many must be traders to get the types of moves we have seen

Yohay Elam: Hoarders are call HODLers in crypto-speak, and they have "diamond hands" things we are all learning...

Valeria Bednarik: I would clarify, newbie holders.

Yohay Elam: Yeah

Valeria Bednarik: So easily panicking

Yohay Elam: For traders, it is clear why this world is exciting, volatility is extreme

Joseph Trevisani: Secret languages sound like secret knowledge but cryptos behave like standard technical analysis  albeit with a lot of volatility. A lot of volatility

Yohay Elam: Technical analysis applies in a way to Bitcoin and Ethereum, I agree. The rest are too wild. Perhaps a logarithmic chart would be useful

Joseph Trevisani: A certain amount of volume, participation, is necessary for technical analysis to have a grasp.  I think there are something like 5 or 6 thousand cryptos listed on some sites.  it is impossible for the vast majority to have any appreciable volume of trading.

Yohay Elam: I was excited earlier this week to see EUR/USD break to the highest levels since January. Only to see it go some 20 pips beyond the previous peak and return back to the previous range
NZD/USD had a super-wild move this week that was some 1.2% up

Valeria Bednarik: Yes, but at the end of the day you can count "majors" with your hands. Although I have to agree that new ones appear here and there.

Joseph Trevisani: I think cryptos are draining some of the volatility from currencies.

Yohay Elam: They are draining lots of attention from other things...
Fellow runners, my architect and other people have asked me about cryptos. If I had gone to the gym, I'm sure that would be the talk of the day.
For me, this is a sign of a bubble

Joseph Trevisani: Exactly...I agree it is a bubble. There is an only saying, I think from the 1920s, when your barber is giving you stock tips...Its a sign. Old saying..

Yohay Elam: Yeah. A saying that isn't literally relevant for me and you...

Joseph Trevisani: If I were still driving a cab, I bet there would be more than a few crypto conversations.

Valeria Bednarik: But I do agree, my family and friends are asking me also, more questions than cryptos available.

Joseph Trevisani: Still, does this volatility, and the likelihood of further declines undermine their long term viability as tradign instruments?

Yohay Elam: I think volatility makes them great trading instruments

Joseph Trevisani: I agree.

Yohay Elam: But prospect of further declines is not what most crypto enthusiasts are looking for. Contrary to forex, where traders are agnostic to the direction of a currency pair, with cryptos it's mostly bullish

Joseph Trevisani: Yes there is a bit of the messianic or utopian about cryptos, though the libertarian version.

Yohay Elam: Yeah, many believers. But speaking of bubbles, how much is it the Fed and other central banks' responsibility? They have been flooding the world with money since 2008 and accelerated the process in 2020.
But bubbles existed beforehand as well

Joseph Trevisani: Bubbles are inherent in trading markets, one might say in humanity.
Think of the 2007-08 crude bubble...
No relation whatsoever to the underlying economics of oil.

Yohay Elam: Indeed, the swing from euphoria to despair and back is very human
If cryptos are indeed imploding from a bubble, what will the next bubble?

Joseph Trevisani: Well we have had stocks...and still have them,

Yohay Elam: GameStop for example

Joseph Trevisani: Despite the partial utopian aspect to cryptos I think the main attraction is trading profits...with perhaps a greater conviction that they will rise forever....which is not true.
Yes, Gamestop... though there the main difference was the method.
One interesting aspect of cryptos is that the movement fits in a general technical analysis scheme.
It's not surprising as the traders still need a framework for decisions.

Yohay Elam: Those buying GME assumed that by squeezing shorts, the surge would spiral higher. With cryptos, the conviction also adds to the feeling that they will go "to the moon"
TA helps rationalize the moves, and it becomes more useful with robust trading volume and a history of moves

Joseph Trevisani: Another old trading adage...pigs get slaughtered..

Yohay Elam: yeah, especially the ones that look happiest

Joseph Trevisani: Which is an unfair aspersion on pigs

Yohay Elam: Right

Joseph Trevisani: I'm not making an traif jokes here
Is there much overlap between cryptos and currencies?  Meaning a sharing of participants?
On an individual basis, I think not.  But on an institutional basis, it's quite possible.

Valeria Bednarik: I would say not much, but yeah there is overlap currencies are boring lately, but experienced traders remain. Newbies looking for adrenaline go to cryptos rather than FX

Joseph Trevisani: It's the institutions I wonder about. Hedgies etc.  Thye have to be attracted by the volatility.

Yohay Elam: Both are called currencies, but you cannot really use cryptos for too much
Unless you are in the ransomware business...

Joseph Trevisani: Weed? Where it's legal of course

Yohay Elam: I would assume that serious drug dealers prefer the stability of the dollar over Bitcoin, which can drop by 30%...

Joseph Trevisani: Yes, you are no doubt correct.
I just received an email in reference to cryptos, touting 4 cryptos that are "poised for a major breakout", due to "a massive technology upgrade called "The Awakening"".  There was a American religious revival in the 19th century that was also called The Awakening.   For traders that should be an uncomfortable parallel.

Yohay Elam: One of the latest stars is a cryptocurrency called "SafeMoon". Another is Shiba, a canine copy of Dogecoin, it seems
And last week, a cryptocurrency with a name that "blesses" Elon Musk also shot higher, all signs of a bubble

Joseph Trevisani: Gotta love it.  Calling all charlatans.

Valeria Bednarik: That we have a bubble is clear. However, we can wait for years before it blows.
So guess there are many that are willing to take the risk

Joseph Trevisani: True. Though given the speed of ascent, I would say sooner.

Valeria Bednarik: We said that about Wall Street for the last 4 years.. :lengua_fuera:

Yohay Elam: the most hated rally

Joseph Trevisani: Wall Street is composed of professional worriers. I was one myself

Valeria Bednarik: At least we know that that bubble won't blow as long as the Fed feeds the beast..

Yohay Elam: Barbara Rockefeller write "what to worry about"}

Joseph Trevisani: Still, after the strum und drang, I think the crypto world survives, perhaps a bit chastened.
There is a lot of structural financing going into the crypto world, coinbase and many others.

Valeria Bednarik: Agree with that. It will survive, but well, it's a teenager right now, and there's a long way toward maturity.

Joseph Trevisani: The teenager analogy worries me. I remember my teen years.

Valeria Bednarik: Well, but it is what it is. Those wild moves confirm so

Joseph Trevisani: I agree.