Crypto Trader Digest – August 31

Arthur Hayes

QE 4EVA

Alice cooking her shot in the bathroom of a Taco Bell in Denver. Places where you can lock the door and not have anyone barging in is a pretty safe place to shoot. She and Iris made enough quick money for a bag each and after getting high will fly their signs again to make money for their afternoon and morning shots and also a bag for rent for the room they are living in. Denver, Colorado Tuesday, July 17, 2012. Joe Amon, The Denver Post When I was 13 I started taking pills and then I figured out you could shoot up some of them and I liked doing that more than meth. But itÕs way more expensive and way harder to find. From the time I was 13 until now. Like I donÕt really do pills anymore because heroin is a lot better and not as expensive but if it were ever like, I didnÕt have the money or if someone were to still give me pills I would still do them just out of lack of anything else I guess.

For the first time in almost two decades, Petrodollar recycling countries are net sellers of USD denominated assets. To arrest the fall of the RMB, China has begun selling US Treasuries to support their currency. Other Emerging Markets countries faced with plunging currencies now must sell USD assets to intervene as well. If that’s not bad enough, the Fed just might raise interest rates for the first time in 6 years.

Up until now the Fed has strongly telegraphed its intentions to begin raising rates this fall. Liftoff looks more and more unlikely given the global macro landscape. An even stronger USD exacerbates the above issues. EM currencies and RMB will get weaker and cause more selling of USD assets for their defense. Standing still is not an option for the Fed. To get out in front of potentially catastrophically high interest rates, another round of money printing is in the cards.

If the world financial markets continue free falling even after another hit of the free money heroin, investors will seek safety in other risk assets. Bitcoin having bottomed at $162 (down over 80% from the ATH) looks very attractive on a longer term horizon. BitMEX recently listed March 2016 Bitcoin futures contracts, XBTH16. The pernicious effects of a global central bank printing orgy will be unmistakable by March. Consider buying XBTH16 to express a 6 month bullish view.

First They Laugh… Then They Buy

Logos are seen outside a branch of Barclays bank in London July 30, 2013. REUTERS/Toby Melville

Earlier this year I proclaimed that 2015 would be the year Bitcoin was co-opted by legacy financial institutions. It started with investments in high profile Bitcoin firms (Coinbase, Circle etc.). Now the first bank has publicly admitted to buying Bitcoin, and is now rolling out a program that allows their clients to donate Bitcoin to charities. It only applies to charities, but this is a step in the direction of a full scale trading and storage operation.

The Wall Street moment that Bitcoiners have been dreaming about is here. Nothing happens in a vacuum. Now that Barclays has backed Bitcoin and the blockchain publically, banks will come out of woodwork announcing how they to are innovating by buying and accepting Bitcoin for certain purposes. The bear winter is nearing an end.

The zeitgeist is changing and profits are in order for savvy traders. The grand finale of summer is upon us. VC’s are all busy taking drugs in the desert, and the east coast Brahmans are finishing out the summer in the Hamptons, the Cape, or Nantucket. Come September 8th, a full on barrage of positive acceptance news will change the tide of sentiment.

Barclays to become first UK high street bank to accept bitcoin

XBT Term Structure

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XBTQ15 expired and XBTH16 was listed in the past week. The downdraft to $200 compressed basis as well. The steepest fall was for XBTZ15, which fell almost 18% points. A break out in either direction should see the curve shift upwards. On a down move, bottom feeders bid up the basis to get long exposure for the rebound. On an up move, Fomo buyers bid up basis to ride the upward momentum. Volatility is cheap at these levels especially for longer dated futures. If 30 day volatility normalises to 75%-100%, the basis will rise significantly especially for XBTH16.

Trade Recommendation:

Buy XBTH16 and sell XBTU15 to take advantage of a rise in longer dated basis.

XBT Spot: Margin Call

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The final weeks of summer are not going quietly. Tuesday’s flash crash took Bitcoin below $200 on Bitfinex. The $162 print I will call the double bottom. While we might drift lower towards $200, I find it very unlikely it is breached again.

Cash buyers will emerge and will pick at the carcasses of leveraged longs. The $220 level was breached again, and now we hover between $215-$220. Expect another down draft to $200-$210. At these levels consider increasing leveraged long exposure to overweight and prepare for a V-shaped rally.

Trade Recommendation:

Buy XBTU15 with spot at $210-$220 with an upside target price of $240.