Cryptocurrency propels into trillion-dollar market
WOW! What a couple of weeks it has been for the cryptocurrency market. In our last newsletter, Merry Christmas, ya filthy animals!, we spoke of Bitcoins monumental all-time high that had just been printed of c$24,000. Fast forward three weeks and the price has surged higher to c$42,100, a colossal 80% of further bullish momentum for the undisputed king of crypto.
On January 7th, we saw the total market cap for cryptocurrency explode into a $1 trillion market. This came as deep-pocketed institutions showed their willingness to get involved in the asset class nearing the end of 2020, seeing firms like MicroStrategy purchasing over 70,000 BTC. This has cemented cryptocurrency as an investable asset class for large institutions, not just a playing ground for retail investors. The crypto market cap is monumental, especially considering it was below $200 billion less than a year ago.
Although this milestone is vast, crypto's total market cap is still a fraction of gold, equities, and many other assets showing it still has tremendous growth even from these new heights. All being said, 2020 has proved that crypto has enough liquidity present to meet the big boy's larger orders, and we expect their participation will only increase.
With all the institutional capital pouring in, we were expecting to see the $1 trillion market cap at some point in 2021, but not by the first week of January!
While we are on Bitcoin, let's quickly break the technicals down for this pair. In the first chart above, we can see BTC is looking overextended and needs a pullback. As we are writing this, the price has pulled back 15% from all-time highs, tapping the previous daily high at c$35,000. Further to that, the 4H 50EMA is being very well respected, and the price action looks similar to January 4th, before we then had another 50% bull run. The 1H has broken down and formed a lower low, so we have a mixed-signal on the lower timeframes of exactly where we are heading next, but looking at previous price action, we could be in store for a new high.
Is ALT season upon us?
Bitcoin is still extremely dominant, equating to c70% of the overall market cap currently, similar to what we saw at the end of the epic December 2017 bull run.
When we dive into the BTC dominance chart's technicals, we can see a lower high printed on the 4H chart, which appears to have formed the right shoulder of a head and shoulder pattern. This pattern we typically perceive as a reversal pattern before a trend change. We will need to see the neckline broken to have confidence in this thesis.
What typically happens after an enormous surge in BTC's price is we see investors take profits off the table and distribute them into ALT coins, resulting in massive pumps, commonly coined 'ALT season'. As we can see in the crypto market cap, excluding BTC, is a flow of capital injected into these coins.
Our approach to trading ALT coins is the same as how we trade any other asset class, using technical analysis, looking for strong setups on the HTF's, either to play the breakout or the pullback following the breakout to capture the next leg of momentum. This week will be busy as opportunities are looking abundant.
Let's talk cannabis
The cannabis industry saw a big win on January 6th when the pro-legalization party, Democrats, took control of the senate. The first catalyst that started to build hype in the cannabis sector after a dreadful couple of years was back in mid-December 2020 when the MORE act was passed by the house.
The second catalyst that led to bullish momentum in cannabis stocks was the democrats taking control of the senate. This makes it much more likely the Senate will consider the bill when re-presented. At this point, there are still a lot of what if's, who's and when's, standing between the MORE act being passed by the senate. Cannabis is currently legalized in eleven states in the USA, nine of which have a legal market place. Taxes are incredibly high for current businesses, and due to the nature of their business, they have zero access to banks or loaning money, meaning the only way they can raise capital is by issuing more stock. Among much more, the MORE act would reduce taxes to 5%, enormously increasing companies' profits, and they would be able to access banks as per any other typically conducted businesses.
Although from a fundamental standpoint, we don't feel the bias for being bullish cannabis stocks is quite yet at the strength it needs to be the technicals paint a clear picture. When we look at the largest ETF index for the cannabis sector, MJ, all higher timeframes align with a bullish view. The monthly chart has double-bottomed, the weekly and daily charts broke out, printing a higher high before retesting our confluence area, giving a textbook entry on January 5th, 2021, before the stock rocketed 15%.
Another Cannabis stock we have our eyes firmly on is Aurora (ACB). Aurora is yet to break out on the daily chart, still respecting the resistance above, which we await a break of.
When we look back to 2017, when hype began to build in the sector, as it was looking likely the Democrats would take control of the house in 2018, we saw a substantial bullish run of over 400%. Although we believe the fundamentals are weak at this point, the technicals are showing similar price action to this previous run, and it aligns with the saying, 'buy the rumor, sell the fact'. We think it's likely we could see another bubble like run happen again on the hype built around the industry, even if we're a few years from real change. We will cover this in more detail in this week's Market Update, so make sure to tune in!
CURRENCIES - The majority of currencies picked up after the holidays exactly where they left off, continuing with the momentum they closed the year out on. Our main watch is on AUD and NZD pairs, looking to play quick pullback plays as the runs continued to get more and more overextended.
US DOLLAR - The US dollar's technicals and fundamentals are incredibly bearish (we will cover this in full depth in another newsletter). However, after long overextended bearish runs, there does appear to be some deceleration across the board. This week quick bullish dollar plays are on our radar.
EQUITIES - Major US Index's, SPX500, NDAQ, and DJI, continue to confirm the saying 'stocks only go up' as all sit at all-time highs. However, some attractive opportunities are presenting in specific sectors. Our favourites are the cannabis industry (covered above) and the travel and tourism sector.
A welcome to all old and new
We have had many new members joining our club throughout the holiday period, and we wanted to take this time to welcome the new and old faces into a new year. We are all about collaboration breeds success, so make sure to introduce yourself to the club and share your wisdom with others, as they will you.
We have some fantastic projects lined up this year, which you'll love, but let's wait and show you them rather than being all talk. This year is all about taking action and less chat. Have a wonderful week & catch you on Monday's Market Update.
What's happening this week?
Monday, Jan 11th, 2021 @ 1pm PT
Market Update with Jonny Godfrey
Wednesday, Jan 13th, 2021 @ 1pm PT
Market Update with Jonny Godfrey
Friday, Jan 15th, 2021 @ 1pm PT
Insights with Irek Piekarski
All the best for the week ahead and we'll see you in the club!
Jonny Godfrey & the TMC Team