Traders Insight Magazine [September 20]

BRINGING YOU MARKET ANALYSIS FROM OUR TRADERS

CAN BITCOIN BECOME THE NEW DIGITAL GOLD? Read more, p. 14

EXCLUSIVE: GLOBAL EQUITIES HIT A RECORD HIGH

TRADER OF THE MONTH

NOITIDE 0202 REBMETPES

TRADER'S INSIGHT

FEATURED ARTICLES PAGES 4-5: Market Overview PAGES 10-12: Cross market technical and fundamental analysis PAGES 14-16: Can Bitcoin become the new digital gold?

THIS MONTHS CONTRIBUTORS GAVIN PANNU: HEAD OF TRADING ACADEMY

Gavin is an experienced trader of a multi strategy fund. He is a certified market technician with both the STA and IFTA organisation and has worked with trading companies and brokers as a Senior Market Analyst and Mentor. He has been a regular contributor to financial publications.

DESMOND: TRADER & MENTOR

Junior FX Trader at Alphachain Capital with a Mathematics and Economics (BSc) degree. Possesses a strong focus in technical analysis and prefers to trade in line with the fundamental theme.

PATRICK: TRADER & MARKET ANALYST

Junior Cryptocurrency Trader and Market Analyst at Alphachain Capital with an Aerospace (BEng) degree. Patrick focuses mainly on the cryptocurrency market using technical analysis with a topdown approach. He is keen to help newcomers learn about trading with an honest and realistic approach.

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MARKET OVERVIEW: GLOBAL EQUITIES HIT A RECORD HIGH GAVIN PANNU Global equities hit a record high as the month of August comes to an end. The FTSE All World index climbed above its previous high which was set in February, as the technology sector have propelled US markets higher have now lifted the global benchmark to a new peak. Even so, Covid-19 numbers continue to rise and are now above 25 million cases.

Experts suggesting a new epicentre for the virus could be India as they set a world record of highest single-day cases of 78,761. Here are the most trending talking points for the month of August.

The Federal Reserve announced a change in policy on inflation and employment, which means US interest rates are likely to stay lower for longer. Chair Jerome Powell said the US Central Bank will allow both to run above target levels to support the economy. In practice, this means that the world’s most important Central Bank is less likely to raise interest rates when the economy is showing signs of positive growth. It will also be more tolerant of a booming jobs market, when it may once have feared this would impact inflation.

Japanese Prime Minister Shinzo Abe announced his resignation for health reasons. “I needed to fight against the disease and be treated and I was not really in a perfect state in terms of the health condition,” Mr Abe said. “I would like to send my apologies to the people of Japan.”

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Oil and gas exports from the US were severely disrupted by Hurricane Laura, with nearly a million barrels per day of crude exports hit by closures of US Gulf Coast terminals and disruptions at ports. The price of gold hit a record high on the 7th of August at $2075 as investors decided the precious metal is a great safe haven in troubled and uncertain times.

Gold prices have reversed recently as investors begin to book profits. Manufacturing reports out of Asia, India and Europe show some progress in August, but hopes of a Vshaped recovery faded a long time ago.

The largest corporate news in August was the impending ban by Donald Trump on TikTok and the chief executive Kevin Mayer quit after just two months in the job. The Chineseowned firm has been accused of being a threat to US national security by the Trump administration. Meanwhile, TikTok called Mr Trump’s ban ‘political’ in a lawsuit. The US has already impacted Huawei in a similar fashion, but if Washington succeeds in destroying one of China’s leading tech groups, Beijing may be forced to retaliate against US groups such as Apple.

Shares of Zoom Video Communications are gaining higher after the virtual meeting company blew out second quarter earnings as it has made itself indispensable for our stayat-home lives. Shares of Apple and Tesla also continue to climb following their stock splits on the 31st of August. The winners in this recovery keep winning, and investors are sticking with their positions.

Decentralized finance (DeFi) has continued to erupt in popularity, with capital flooding into this space at an amazing pace. The price of the Ethereum-based Yearn.finance (YFI) hit $38,000, meaning the coin now has a market capitalisation in excess of $1 billion. Stepping back, all the coins pertaining to this space have cumulatively reached a value of $16 billion.

There have been already some calling it a bubble, pointing to the similarities in the growth trajectories and market trends of DeFi in 2020 compared to the entire crypto market in 2017 and early 2018.

Happy Trading.

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Trader of the month Top 3 Performing Traders of august, 2020

1. Sami: 3.73% 2. leo: 2.29% 3. seb: 0.40% 8

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MONTHLY OUTLOOK DESMOND Thin trading was the experience for most during the month of August as many looked to recover from what has been a very active and volatile year in markets so far. This was illustrated in the VIX which traded to lows of 20.15 during the month as volatility slowed. In spite of this, a variety of pairs within the FX space managed to breakthrough some key technical levels due to the broadly bearish USD tone. The DXY trickled lower by over 1% and at the time of writing trades just above the 92.00 level. The week ahead will see markets tune into the very much anticipated US Jobs report as the forecast looks to print an additional 1.5mln jobs. Should this figure come in line with expectations it will still leave the US economy over 9mln jobs short from the initial shock that took place where over 20mln jobs were wiped out due to the effects of the pandemic. GBP/USD is up over 2% for the month so far as price trades to levels last seen in December 2019 whilst EUR/USD continues to eye the 1.2000 level.

Traders, investors and financiers awaited the annual Jackson Hole Symposium where the speech given by Fed Chair Powell took centre stage. Powell’s comments fuelled expectations that the shift in the current monetary policy framework is likely to remain in place for a prolonged period of time as the Central Bank now aims to maintain an average inflation rate of 2%. The implications of this will largely weigh on the greenback as the current ultra-low rates are likely to stay in place for an extended duration leading to continual bearish pressure for the safe haven currency. This move could also trigger a domino effect for other central banks as they all look to recover from their pandemic beaten economies.

UK’s Governor Bailey outlined that the nation has more resources to support the economy after its initial economic shock, though many are still cautious with placing bets on the pound as talks with the EU have failed to progress after months of deliberation. Most recently, reports have suggested that the UK is prepared to walk away from Brexit trade discussions if the EU fails to compromise on requiring the UK to align with EU State aid rules. Whilst talks with Australia and Japan intensify and progress, a deal with the EU hangs in the balance and therefore the downside risk for cable remains wide open. It is clear that the UK is not entirely out of the woods as more jobs are expected to be cut once the furlough scheme ends this October. The UK health secretary has also already warned that extensive local lockdowns and nationwide restrictions could be deployed in the event of a second wave this winter, this threatens PM Johnsons plan to urge and encourage workers to return back to the office as many have resorted to staying home despite certain measures being lifted.

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The nation of Australia are set to release their rate statement on Tuesday and all polls suggest that the rate is likely to remain unchanged at 0.25%. In the last policy meeting, the RBA outlined that they will be looking to purchase Bonds in the secondary market in order to ensure that 3yr yields remain consistent with its target. The board also outlined that their commitment remains to ensuring that they are continuously providing support to the economy in the best way possible. Whilst acknowledging that the nation is going through a rough patch, inflation forecasts are set between 1.0-1.5% for the next couple of years. Going into the meeting, Credit Suisse believe that there is a 50% chance that the Bank will announce further QE plans as they look to maintain their current stance on monetary policy measures. Due to the bearish USD, AUD/USD is currently trading at highs last seen in December 2018. The AUD has appreciated by over 3% in comparison to the US Dollar and though the board have outlined that they would prefer a lower exchange rate they affirmed that they will not be looking to intervene.

After breaking record highs and finishing the month of July up over 10%, Gold experienced a bout of volatility within the month of August after it traded between $1,862 – $2,075/oz.

With the USD weakness set to potentially continue, bets to the upside still remain favourable for the commodity. The $1,920 level has proven to be a level where buyers are happy to add to their positions and as the presidential election draws nearer bullion is set to become a haven for investors to continue to hedge their bets.

Technical Outlook

DXY (DAILY)

Stochastic remains below the 50-level demonstrating the overall bearish sentiment in the market. A break below the daily level of support around 92.30 is likely to see a move down to 91.00

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GBPUSD (WEEKLY) Â Currently GBPUSD trades at a key resistance level around 1.3375-1.3400. A violation of the bearish trendline and break above the 200SMA has given cable a near term bullish outlook. The pair is currently trading at a pivotal point as a break above could trigger a move up to at least 1.3600. Near term support for the asset remains at 1.3000.

XAUUSD (DAILY) Â The strong correction in XAUUSD earlier on in the month gave some the opportunity to cover their positions and potentially add given that $1,920 has held as strong level of weekly support. Further upside still remains with near-term resistance being at $2,000. The stochastic is also set to move above the midpoint signalling further bullish momentum.

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CAN BITCOIN BECOME THE NEW DIGITAL GOLD? PATRICK Bitcoin has been compared to gold since they share a lot of similar properties. Even though this is the case, Bitcoin’s price action has been more correlated to traditional equities rather than gold.

Since the inception of Bitcoin in 2009, a lot of people have called Bitcoin the new “Digital Gold”. It is important to understand that the biggest cryptocurrency shares a lot of properties with its potential tangible counterpart. Even though this is true, it is imperative to remember that the idea of gold being a hedge of the overall economy has been an ideology settled for a long time. Due to this psychological factor, it may prove difficult for people, specially elders, to associate the value of gold to an intangible coin that you cannot either see or touch.

Before analysing the price action of both assets, it is important to consider the different properties they share and their corresponding advantages and disadvantages.

Centralisation

Even though both assets can be shared between peers, gold is very centralised in terms of how you can get access to big supplies. Most stores, jewellery shops and suppliers in general, fix a determined cut in the price of gold you can get in the retail environment. It is very difficult if not impossible to obtain gold at the exact spot price on the markets. On the other hand, Bitcoin, is more accessible and can be obtained with lower positions due to its divisibility property. One bitcoin is equivalent to 100,000,000 Satoshis; therefore, you can invest and be exposed to the asset as low as 10 dollars or even less depending on the chosen broker.

Scarcity

It is well known that gold is scarce and that there is a limited supply on earth as it is a nonrenewable resource. Due to this, the price action tends to go up when the strength of a country’s economy or currency goes down. This happens naturally as the economies’ inflation is generally greater than the new mined gold. Even though gold is limited, there is still a total unknown supply and increase on the overall circulating supply from mining companies. In comparison, Bitcoin is also scarce but the overall supply and circulating supply can be known at any given time due to the transparency and coding of the ledger.

The limit number of Bitcoins that will be available in the future is of 21 million BTC and the inflation of Bitcoin is fixed as per its original algorithm.

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Mobility  One huge advantage that Bitcoin has over gold, is the ease of transportation as you do not require to hold on a tangible asset. Also, the fact that it is coded cryptographically makes it very secure if correct security protocols are followed such as storing the asset in a cold storage (wallet). In comparison, gold is difficult to store as expensive equipment might be needed to lock it in a safe place. It is noted that there is a lot more details to discuss regarding security and storage, but this topic is beyond the scope of the article.  Correlation  Having mentioned the points above, it would be natural to think that Bitcoin would behave similar to gold in terms of price action. Even though a lot of people call Bitcoin the new gold, its respective price action is more similar to equities (risk-on assets) than to gold as it can be seen from the following charts.

A comparison of Bitcoin against the S&P500 is seen on the first chart. It is important to highlight that the pre-pandemic peak is very noticeable followed by a v-shape recovery that overextended above the mentioned peak.

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On the other hand, the second chart (below) demonstrates a comparison against gold. It is noted that even though there is a similar price movement, gold has been rising far beyond the ratio between Bitcoin and traditional equities.

As a concluding factor to this article, it is impossible to tell from the price action alone if Bitcoin will serve as a digital gold. There is a lot of unknown variables that may play a role on this. For instance, psychological factors might play a huge role since people might feel safer holding something tangible that they can see and touch. On the other hand, younger people might feel more comfortable with the technology as they are used to interact with digital platforms most of the time.  From a price perspective, we will only be able to tell if Bitcoin is the new era’s gold only once the price action decouples from traditional equities and follows the price of gold more closely. Even though there might be arguments saying that the price of Bitcoin is recently going up due to the pandemic, it has to be noted that most assets have been appreciating due to the fact that the United States’ dollar strength has been decreasing as the Federal Reserve keeps printing more money in order to support the economy.

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ABOUT ALPHACHAIN Alphachain Capital is a proprietary trading firm founded with a vision of combining strategy, innovation and technology to succeed in today’s global markets. Alphachain Academy focuses on the development of our new traders for our prop firm. For aspiring and novice traders, the Alphachain Academy's programmes have been designed to develop, select and grow a new generation of talented prop traders from a variety of backgrounds who wish to trade cryptocurrency or FX markets. For established traders we offer state of the art infrastructure, investment capital and a collaborative trading environment nurturing success.

Web: https://www.alphachain.academy/ Phone: +44 20 7097 1715 Email: info@alphachain.co.uk Office: 25 Clarendon Road, Redhill, Surrey, RH1 1QZ Disclaimer: Trading in any financial products whether with or without margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. All information in this publication is for education only and should not be seen as advice or a trading signal.