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DeFi

  • Bitcoin Technical Analysis 17 June 2021

    By Jonathan Hobbs, CFA
    June 2021

    Bitcoin has rejected the first resistance zone we outlined in yesterday’s update, between $40 and $42K. Once it dropped out of this price range, it fell to about $38,100. Since then the bitcoin price has bounced to around $39,300.

    Let’s now dive deeper into the charts to see what could potentially be next for bitcoin.

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  • Bitcoin daily chart 16.06.2021

    Bitcoin Technical Analysis: 16 June 2021

    By Jonathan Hobbs, CFA
    June 2021

    Since Tuesday 8 June 2021, bitcoin rallied about 33%. It went sideways yesterday and is now testing the $40-$42K resistance box on the 4-hour chart that we outlined on 14 June. For the past two days, it has been hovering in this range.

    Yesterday, there was a strong breakout attempt out of this $40-42K resistance zone, but it was quickly rejected. A break of this area in either direction will signal the next move.

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  • Bitcoin technical analysis 1-day 14 June 2021

    Bitcoin Technical Analysis Update: 14 June 2021

    By Jonathan Hobbs, CFA
    June 2021

    Bitcoin dropped down on Friday and Saturday, with most people fearing the usual ‘bloody Sunday’ once again. But instead of falling further, bitcoin put in a strong bounce around the $35K support area. Let’s now look at the charts to see where we are and what could be next for bitcoin.

    Bitcoin daily chart:

    Below we have the bitcoin daily candle chart.

    We have 3 major support zones. The support zones coincide with past support levels from before the correction.

    We also have 3 major resistance zones. These are in line with prior resistance levels, but also coincide with key Fibonacci retracement areas as shown on the right-hand side of the chart.

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  • Defi blog cover image

    A Simple Ratio to Find Undervalued DeFi Investments?

    By Jonathan Hobbs, CFA
    June 2021

    With bitcoin in a downtrend, an important question comes to mind. Is now the time to look for undervalued DeFi investments?

    While most crypto assets could easily dip further from here, finding value in the DeFi market is easier today than it was two months ago. In this article, we will examine a simple ratio to help us do just that.

    What is DeFi?

    DeFi stands for “decentralized finance”. This is a movement that aims to cut out centralized middlemen (such as banks, exchanges, and lending and borrowing platforms) from complex financial transactions.

    Here, all transactions take place through automated smart contracts, such as those programmed on the Ethereum blockchain. Through various DeFi protocols, we can easily lend, borrow, and trade digital assets.

    None of these funds are held by a central party at any time. Instead, they are “locked” inside a protocol and used as lending/borrowing collateral or trading liquidity.

    In the world of DeFi, the laws of finance are written in the code.

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  • Bitcoin bear market

    Is Bitcoin in a Bear Market?

    By Jonathan Hobbs, CFA
    May 2021

    The bitcoin price has taken a serious knock in recent weeks, shedding more than half of its dollar value. Are we now in a bitcoin bear market? Or, is this ‘normal’ bull market price action for the world’s most volatile asset class?

    What happened to bitcoin?

    On 14 April 2021, bitcoin broke $65,000 for the first time. But just over one month later, on 19 May, its price dipped below $30,000. From top to bottom, this was about a 54% correction.

    There are many reasons why the drop happened. Take your pick:

    • Bitcoin was is a ‘Wyckoff distribution’ topping pattern.
    • Institutional investor concern about the environmental impact of bitcoin mining (which I believe are misplaced).
    • Elon Musk tweets.
    • Altcoin mania.
    • Mainstream media FUD and market manipulation by whales (funny that it is never manipulation on the way up).
    • More sellers than buyers (my theory).

    Comparing similar bitcoin price drops:

    Scrolling through crypto Twitter, we can see the usual sentiment: this is just a bullish dump. This is ‘normal’ in a bitcoin bull market.

    But is it normal? Or have these types of price declines historically brought the bitcoin bears out of lockdown?

    To answer this question, we need to study similar bitcoin price corrections. Some of these have resulted in a bitcoin bear market, others have not.

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  • Hash ribbons indicator bitcoin

    The Hash Ribbons Indicator: What’s Next For Bitcoin?

    By Jonathan Hobbs, CFA
    May 2021

    The bitcoin price has taken a major dive in the last few weeks. Right now, it is firmly on the ropes. Is the party over? Or is it time to buy the dip? Let’s try to answer this question using the bitcoin hash ribbons indicator.

    What is the bitcoin hash rate?

    Before we get to the hash ribbons indicator, we first need a basic understanding of the bitcoin hash rate.

    Put simply, the hash rate is the amount of computing power that miners contribute to the bitcoin network at a given point in time.

    The hash rate goes up when more miners compete to mine bitcoin. Typically, this happens when the bitcoin price is relatively high as there is a good incentive for them to mine bitcoin. The hash rate can also go up when the electricity cost of mining is low relative to the price of bitcoin.

    On the flip side, the hash rate usually goes down when the bitcoin price drops, or when the price does not increase for a long time. When this happens, miners often take their resources elsewhere. In other words, bitcoin mining activity goes down because it is less profitable for miners.

    If you would like a more technical explanation of how hash rates fit into the bitcoin mining process, you can read this article on how bitcoin works. But for the point of this post, there are just two things we need to know about hash rates:

    1. Higher hash rates mean more bitcoin mining competition
    2. Lower hash rates mean less bitcoin mining competition

    Here is a chart from blockchain.com showing bitcoin’s hash rate for the last 3 years. Notice how it has trended up with the bitcoin price.

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  • Ethereum post cover image

    Ethereum’s Price Rally of 2021: What You Need to Know

    By Jonathan Hobbs, CFA
    May 2021

    Ethereum has seen some exceptional price action lately. Why is this happening, and will the good times continue for holders of ether (ETH) tokens?

    What is Ethereum?

    Before we get to the ETH price chart, let’s first dive deeper into what Ethereum actually is. This will provide us with more context on what is driving the Ethereum price rally.

    In my mind, the best way to explain Ethereum is to compare it with Bitcoin.

    Through the Bitcoin blockchain, anyone can send digital currency (bitcoin with a small ‘b’) from point A to point B. This can be done without the use of a financial middleman, such as a bank.

    This is because the Bitcoin system (Bitcoin with a large ‘B’) is just a public record of who owns bitcoin at any point in time. This record is updated and secured roughly every ten minutes through the bitcoin mining process.

    Like Bitcoin, Ethereum has its own blockchain that can record simple financial transactions.

    But unlike Bitcoin, the Ethereum blockchain also records complex financial transactions.

    These can be programmed to its blockchain in the form of smart contracts.

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  • Bitcoin NVT Ratio blog cover

    What The NVT Ratio Says About The Bitcoin Price

    By Jonathan Hobbs, CFA
    May 2021

    The NVT ratio (or Network Value to Transactions ratio) is the closest thing to a price-to-earnings ratio that you will find for bitcoin. In this article, we will learn about the NVT ratio and what it currently means for the bitcoin price.

    Who came up with the bitcoin NVT ratio?

    Willy Woo first introduced the NVT ratio in a tweet he put out in February 2017. Here, Woo stated that bitcoin was not currently in a bubble according to NVT.

    NVT first tweet Willy Woo

    At that time, Bitcoin’s price was about $1,200. So, it turns out he was right.

    In late September 2017, Woo wrote an article in Forbes Magazine explaining the NVT model in more detail. In the article, Woo again confirmed that bitcoin was not yet in a bubble.

    At the time of that article, bitcoin stood at $4,000 and would rise a further five-fold before it came crashing down. So again, Woo’s ratio was right on the money.

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  • Blog cover image for crypto investment strategy

    A Simple Crypto Investment Strategy for Altcoin Season

    By Jonathan Hobbs, CFA
    April 2021

    The altcoin market is going ballistic right now. Since the good times won’t last forever, it is important to 1) make hay while the sun shines and 2) have a ruthless plan to take profits along the way. With this in mind, here is a simple crypto investment strategy that I am using in the current market conditions.

    What is happening in crypto right now?

    Before we get to the strategy, I will first give my quick thesis of what I believe is happening in the crypto market right now. I could go on about the fundamentals of bitcoin, lockdowns and money printing, corporate treasuries buying bitcoin, and so on. But I will not do this. This is because, to me, the current state of the crypto market can be summarised in three simple charts.

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  • Main heading image

    3 Things To Help You Survive The Crypto Bull Market

    By Jonathan Hobbs, CFA
    February 2021

    The crypto bull market is relentless right now. With bitcoin breaking $50,000 and most other digital assets climbing higher, you may be asking yourself what to do next? These 3 things can help you get the best out of the bull run and also survive it emotionally.

    1. Get your crypto mindset right

    It’s easy to get consumed by the current “crazy gains” to be had in the crypto market. And for many people, these gains can and will be life-changing.

    With that said, bull runs can be physically and emotionally exhausting. The fear of missing out on further gains and the fear of losing out on current gains are enough to keep most people awake at night.

    A good mindset towards crypto will help you sleep better and stop you from putting the rest of your life on hold. Not only that, but it will probably lead to better “gains” in the long run.

    Here are some things that might help with this:

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  • Cover image for Blog post on emotional investment biases.

    5 Emotional Investment Biases To Avoid

    By Jonathan Hobbs, CFA
    October 2020

    Investing based on emotions rarely leads to success in the markets. In this article, we will explore 5 emotional investment biases that can lead to poor decision making when investing.

    1. Loss-aversion bias

    Loss-aversion arises when investors feel more pain from a loss than pleasure from an equal gain. If Alice lost 10 percent on a bad trade, it would crush her emotionally. But if she made 10 percent on a good trade, she would only be mildly happy.

    Investors like Alice will try to avoid losses at all costs. This can lead to the following poor investment decisions:

    • Holding bad investments for too long to avoid realizing a loss.
    • Not letting ‘winners run’ but instead banking small profits to avoid small losses.
    • ‘Doubling down’ on poor investments that are already losing money.
    • Taking excessive risk with money they already made from trading, but taking much less risk with the rest of their money.

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  • Feature image of bitcoin correlation post

    Bitcoin Correlation Over The Last 5 Years

    By Jonathan Hobbs, CFA
    September 2020

    Bitcoin is well known for catching investors off-guard with its volatility. It can do nothing for months on end, then move fifteen percent in a day in the opposite direction you thought it would. While this can be a deterrent for some, it does imply that bitcoin behaves differently to other investments. In this article, we will examine bitcoin correlation with other assets over the last 5 years.

    What is Correlation?

    Two investments are correlated if they move in a similar way. They are uncorrelated if they do not.

    Diversification works better when assets are uncorrelated or negatively correlated. If you own stocks and bonds, for example, bonds might go up when stocks go down.

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  • Stock market bubble article cover image

    Are We in a Stock Market Bubble Right Now?

    By Jonathan Hobbs, CFA
    September 2020

    Are we in a stock market bubble? With the S&P 500 and the Nasdaq both hitting new all time highs recently, and the world economy slowing down as a result of governments forcing people and businesses into lockdown, this question will no doubt be on the minds of most investors right now.

    What is a bubble?

    A bubble is a time when asset prices rise way above their intrinsic values because investors are in a general state of euphoria. Bubbles usually ‘pop’ at the peak of this euphoria and then start to ‘deflate’.

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  • 3 Ways to Manage Drawdown Risk

    By Jonathan Hobbs, CFA
    September 2020

    Markets are in a strange place right now. Are we about to have another crash like we had in March? Or will central banks keep pumping liquidity into the markets to keep the party going? Whatever happens, investors need a plan to manage drawdown risk in these uncertain times.

    What is drawdown?

    Drawdown is the maximum decline of an investment from its highest point (peak) to the next lowest point (trough). Using the Corona dump of 2020 as an example, we can see this for the S&P 500 below:

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  • Stock to Flow Bitcoin

    The Stock to Flow Model for Bitcoin and Gold

    By Jonathan Hobbs, CFA
    September 2020

    Bitcoin and gold are volatile investments in the short term. But in the long term, they may provide a hedge against unlimited money printing. Both of these assets are scarce and finite commodities. Relative to fiat currency this gives them value.

    In this article, we will compare the relative scarcity of bitcoin and gold using the Stock to Flow model.

    What is the Stock to flow model?

    The stock to flow (S2F) model can be used to measure the relative scarcity or abundance of finite commodities like gold or bitcoin.

    • The “stock” is the total supply that has already been mined.
    • The “flow” is how much new supply is mined each year.

    The stock to flow ratio is given by the formula below:

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  • Risk Management

    The Risk Per Trade Method of Position Sizing

    By Jonathan Hobbs, CFA
    September 2020

    In these times of major market volatility it is more important than ever for traders to manage risk. In this article we will look at the ‘risk per trade’ method of trade position sizing.

    What is trade position sizing?

    Let’s say Bob wants to short Tesla but he doesn’t want to take too much risk. The first thing Bob needs to keep his risk management in check is a stop loss. This way if Tesla’s price keeps climbing, Bob would automatically close his short position to limit his loss.

    If Bob has a tight stop loss on his Tesla short position, his loss would be smaller than if he has a wide stop loss (assuming the price reached both stop losses). But the loss on Bob’s trading account would also depend on the dollar value of his Tesla trade—this would be his trade position size.

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  • Fibonacci Retracement

    Fibonacci Retracements Explained

    By Jonathan Hobbs, CFA
    January 2020

    Fibonacci Retracement levels are a useful tool for many technical analysts. In this post, we will find out why.

    The usual disclaimer: none of this is investment advice. Any examples or references used are just for information and illustration. 

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  • Rebalancing Investments

    3 Things About Portfolio Rebalancing

    By Jonathan Hobbs, CFA
    January 2020

    Portfolio Rebalancing can improve returns and lower the risks of investing over time. In this post, we will explore 3 things to keep in mind when rebalancing your portfolio.

    The usual disclaimer: none of this is investment advice. Any examples or references used are just for information and illustration. 

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  • Bitcoin diversification

    Bitcoin and Portfolio Diversification

    By Jonathan Hobbs, CFA
    September 2018

    Diversification between assets classes can improve the risk-adjusted returns of your investment portfolio. In this article, we’ll see how portfolio diversification applies to bitcoin.

    The usual disclaimer: none of this is investment advice. It’s just for information and illustration.

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  • relative strength index

    Technical Analysis 101: The Relative Strength Index (RSI)

    By Jonathan Hobbs, CFA
    September 2018

    In this series of Technical Analysis 101, we will explore one of the most commonly used technical trading indicators: the Relative Strength Index (RSI). 

    The RSI is a momentum indicator that traders use to show whether an investment is approaching overbought (sell signal) or oversold (buy signal) territory.

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