2019 Market Update 006 - May in Review
Major Market News:
Smoother than Teflon
Tether was sued by the New York Attorney General for mixing funds with Bitfinex exchange, causing Tether to only be backed 75% by cash. The market flash crashed and recovered within days to new highs.
Binance, the biggest exchange, got hacked for $40 million USD worth of Bitcoin. The exchange maintains a safe assets fund that was used to reimburse customers. The market flash crashed and recovered within days to new highs.
US Congressman Brad Sherman proposed banning bitcoin. The market rallied higher the same day.
Institutions Get Serious
AWS launches Blockchain Service
AT&T accepts bitcoin to pay your phone bill
Facebook announces Global Coin, it's own transactional stable coin project
Facebook lifts ban on Crypto related Ads
Microsoft is building on Bitcoin
Amazon patents a Proof of Work system
Flexa launches app allowing you to pay for your Starbucks, Wholefoods and various retail purchases with Bitcoin
Financial Firms Scale
Coinbase Custody now has 1 Billion USD under management
Bitfinex raised 1 Billion USD in token sale
AskFigure closes 1 Billion USD crypto loan with Jeffries
Binance launches margin trading
Grayscale receives approval for Ethereum Trust ETP
Fidelity prepares to launch crypto trading
Fidelity reveals it has been mining Bitcoin
Robinhood acquires Bitlicense and launches trading in New York
Nasdaq adding XRP index
The Government plays along
Montana law exempts utility tokens from securities laws
Startup allows US tax payers to get their refunds in BTC
We are officially in a Bull Market. Against all expectations Bitcoin continued what seemed like an already over-extended rally to $5,200, thrashing through its major resistance at $6,000 only to ascend to $7,000, $8,000, and even peak above $9,000 for a few minutes. What is most impressive is that it did so at a time when all our worst nightmares came true: A US Congressman threatened to ban Bitcoin, the biggest crypto exchange got hacked for deca-millions, and the leading stable coin got found out to not be backed fully by USD. These were all ticking time bombs that caused a lingering fear that could at any moment cause an extension of the bear market. The fact that the market not just grew but went parabolic amidst all this news is testament that Bitcoin is in a Bull Market, because in a Bull Market no bad news can stick to Bitcoin, like teflon. Bitcoin in fact found extra strength amidst the rising trade war tensions between the US and China. As the equity markets saw a decline, Bitcoin has diverted from mirroring risk-on assets and has found its place as a Safe Haven Asset, similar to gold. This series of events strengthens the case of Bitcoin becoming a Digital Gold, which would justify a token value of north of $500,000. Considering that, we believe that we are still very early in this run. If this was a football game, this is not Q1, or Q2, instead the players just walked onto the field, and the real game is just about to begin. Knowing this, the management team plans to keep adding any available personal funds until Bitcoin reaches 2x it's stock to flow value ($100,000), and it is fair to say that every quarter we are likely to see new highs in the market, so a further allocation, or alternatively a recurring allocation is recommendable.
Our Past Predictions
Prediction from Market Update 004 "The return of the bull market. Based on past similar market cycles, from the Bitcoin bubble in 2014 to the Tech Bubble in 2000, and the recession in 2008, most of these markets return to their next bull run after 600-800 days. Since we are over 500 days into the bitcoin bear market now, this timeline is closer than we think. Hence we believe by year end things are very likely to start going up, and when things go up in the Crypto space, they go up dramatically."
Result: Though a few months sooner than we thought, we did call the bottom, and the bull market has commenced. And as predicted when things go up in crypto they go up dramatically. Knowing this we kept riding the waves when many sold their holdings pre-maturely.
Macro Economic Prognostic for the coming months:
Short Term (till September):
After it's powerful run to $9,000 we expect Bitcoin to consolidate in the $6,000 to $9,000 price range, with the option of a second run to the last bull market end-zone of $13,500. As Bitcoin's volatility fizzles, we expect a lot of money to get bored and seek faster and bigger returns in alt coins that have not yet experienced the type of rally Bitcoin has. Some of these assets stand to gain 100%+ returns simply to catch up to their November 2018 levels. We believe that should there be an altcoin "season" it is likely imminent, as they tend to coincide with post-Bitcoin rally cool-off periods. This is quite logical as investors take profits off their Bitcoin trades and cycle them into what they think might be next. This is further substantiated by Bitcoins reversal in dominance as of the final days of May.
Long Term (2020-2023)
We expect Bitcoin to hit between $200,000-$500,000 in this coming bull market. We based this on nearly a dozen modes of analysis, from UTXO, to NVTS, to RSI, to Stock-to-Flow, to price action and market cycle analysis, which all line up with similar valuations. Some of these we share below. The global macro-economic backdrop is supportive of this as well as central banks are pushing off the next coming recession by artificially lowering interest rates to the extent that the IMF is considering negative interest rates. An economic environment where the bank charges you money to keep your savings, is one that we find extremely supportive of a crypto future. Sprinkle in Trumps plans for new Quantitative Easing (also known as printing more Dollars), and combine it with a Bitcoin halving which makes Bitcoin more scarce than Gold, we are looking at the perfect storm for digital asset appreciation
Technical Prognostic & Management Update
As we enter the bull market we are switching our strategy to a crypto to crypto trading focus.
In past bull markets price ascended so rapidly that it broke below:
- the 200 day moving average less than 0-1% of all days.
- the 100 day moving average less than 2-14% of all days
- and in certain time spans did not even break the 20 day moving average for more than 90 consecutive days
Selling crypto to fiat and calling intermediate fiat wave tops can be the biggest mistake traders make in a bull market as they hope to get a 5% lower entry, only to find the market outrun them by 25%, forcing them to buy back higher, often times even on a fake breakout leading to a first shortened winning trade, a second losing trade, and a third more expensive buy back.
We take the stance of going entirely long crypto and instead focus on trading crypto against crypto to squeeze the market for all it's got and ride the waves and volatility that the many coins provide.
What does that look like? EOS is trending low while Ethereum hits a new high, so we trade our Ethereum for EOS. As EOS recaptures its previous decline we trade it back to Ethereum and now own more Ethereum without ever having left crypto. All boats tend to rise with the tide, so we're always on-board the boat, but focus on being on the most ideally positioned boat to maximize returns on every wave.
This strategy certainly has more exposure and may see harsher short term declines as we are embracing the volatility. However at the same time, this may provide us with regular deep double digit returns or even triple digit returns during parabolic phases, while also making us immune to fiat manipulation and flash crashes.
We have about a dozen macro signals that we continuously watch that communicate if the macro bull-market top is hit. As the first signals light up, we will increase our cash position, or ultimately go all cash in preparation for a bear market. However this is likely still 2+ years away from occurring, leaving us with ample opportunity to create life-changing returns.
These positions will of course adapt over time, but they are based on taking a deeper look into similar market cycles, asset classes, and macro economics.
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