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Holy Smokes

April 26, 2020 • 
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The Events

Another crazy week has passed in markets, with oil being the biggest news. We had covered it in our last newsletter, repeating public information from a number of sources that

Oil just keeps going backwards although volatile and it is anybodies guess what moves are being made on that front. A structural reality of there being a huge amount of oil everywhere overhangs the market.

The public story is that these two world leaders are in a fight to the death over oil output, where potential bad-debt losses to the United States are enormous — something we had first mentioned in our Q1 report.

Foreign Policy identifies it as ‘Russia overplaying its hand in the region’ but Saudi and Russia had been forced to cut oil production in 2016 after Saudi failed to increase output and gain market share. In divining what is going on here we must presume that the Kingdom run by a rich-kid that famously murdered a journalist-dissident in Jamal Khashoggi does not enjoy not having its way.

Foreign Policy on April 9th also states that

Either way, one likely outcome of this episode will be an end to the idea that Moscow will play a significant role in establishing a new regional order. In a different context, the Italian Marxist political theorist Antonio Gramsci once wrote about the “interregnum” after the death of one order while the “new [order] cannot be born.” It is in this period that Gramsci observed “morbid symptoms appear.

We are in such a moment now, which is why those searching for a new order should not mistake the apparent strengthening of Saudi-Russian ties in the previous few years for anything other than a function of decay, not a feature of an emerging and novel global system.’”

This strong language, relying on the sentiment of political theory perceptively flipped later this month in Foreign Policy, smoothing the pillow for the deterioration of the US/Saudi relationship (something we also suggested after this ambitious oil offensive) in an article titled ‘How the Bottom Fell Out of the U.S. — Saudi Alliance’ April 23.

On the subject of inherited position and wealth, Kim Jong Un is reported to have passed away in multiple reports from different countries. North Korea had been joining Russia, Iran and China recently in agitating against the United States, firing barrages of missiles in what Australian ABC news called ‘its busiest period of missile testing on record’. Besides immense power, Kim also inherited a potentially fatal deep, structural geo-political problem.

For the upcoming week, we think that a potential Gold break-out is going to be a game-changer, and with it an implicit signal of serious fear with the global financial system. On a similar note, digital assets have been bid into the weeks end, and gold + bitcoin strength together an interesting combination as strength in things considered money.

Our own Omar Hannoun has suggested the potential for Gold weakness with oil weakness as states relying on oil income are forced to sell assets.

And of acute interest is that the dollar index is creeping up in the same way that Gold had — both assets ignoring the obvious technical information (it looked like both assets were overbought) in a way where grinding trade higher (or lower) often ends up in a major capitulation / repricing event.

Between Bitcoin, dollar index and Gold, all types of money appear to be set for a break-out higher in the next fortnight (besides oil, if included)

Finally, we have to wonder if there is an event on the horizon when Western countries (currently benefitting from their own suppressed currency price) want to reign the United States in for abusing its ‘exorbitant privilege’ in holding the worlds reserve currency and creating enormous systematic risk and moral hazard.

The Numbers

It will not surprise anybody that oil was down significantly during the week. Equities were down marginally and Gold up marginally. The VIX was marginally up.

Bitcoin

Bitcoin has perceptibly repriced itself higher in the last week, being unable to get close to challenging the lows and having no chance to test bulls. It has been quite a strong performance from the asset since making its low. With the halving coming up, perhaps it is an easy narrative in which to stay long.

The Daily BTC/USD Chart shows the potential for a flag that takes Bitcoin back to the 200 day MA at 8000, potentially the first place Bears have a stronger case in the market than they have so far (we had sought a squeeze of the free long the last 2 weeks)

Daily BTC / USD

This has brought Bitcoin dominance down, which we have been watching.

It will take a turnaround in digital assets to see Bitcoins position in the set of digital assets more clearly (it may be suppressed more aggressively than other assets because it is easier to short).

This Bitcoin dominance chart has a fairly arbitrary high and low range (judge for yourself) with a 200 day MA and the red line to show how we think it looks like it is rolling over (as opposed to consolidating to go higher).

Daily Bitcoin Dominance

The late part of this week included rallies in alt-coins, a more generalised bullishness of the asset class. With many assets under selling pressure for years and with BTC dominance potentially rolling over, we have looked at alternative tokens to pickup in the space.

These tokens are worth investigating from a purely technical perspective, the market having responded quickly to Bitcoin’ bullishness.

Ethereum, Tezos, Stellar, Cardano, Ontology, Digibyte, Enjin, Theta, DigixDao, Status, Zilliqa, Aave, Matic, Blockstack, Unibright and Ren (potentially amongst others)

After bullish sentiment spread, a second wave included

Cosmos, Iota, BAT, Algorand, 0x, Kybe, energi, Steem, Hyperion, IOST and Aion.

Sorry if we missed your well-performing token, and our only suggestion here is that these assets were picked up quickly, most likely considered strategic assets.

Volumes for the week were the lowest since the price bottomed, but still high for the last 6 months

Bitcoin by Week over 6 Months

Bitcoin by Day over the Last 30 Days

Sentiment has been very interesting, where the needle is finally moving away from extreme fear with the rally

On sentiment over time, we can see that it is trending higher and is about to surpass its swing-high. This low sentiment has been during a time that the asset is almost up 100% from its low-price.

Daily Crypto Fear & Greed Sentiment (0 = Extreme Fear, 100 = Extreme Greed)

Money

Gold, Bitcoin and the US Dollar Index were all strong in the last 7-days, with all of them grinding up in a way that ignored perceptible technical barriers for the US Dollar Index and Gold. Because of the strange way the market moved we wonder about the potential for a dollar shortage.

US Dollar Index on the Daily

There is a large red flag in this chart

The day that the chart ignores its consolidation pattern (the triangle) and begins an ugly and grinding rally higher is the day that extraneous liquidity was cut from $30 billion / day to $15 billion / day.

This coming week it will be $10 billion / day.

Nothing particularly interesting is noticed in the published repo rates.

M2 US Dollar velocity collapsing over time it would be interesting to see more updated data (this data ending 2019). We have talked about the problems with extraneous liquidity not being linked to actual economic activity, and perhaps this chart is the best demonstration of what we mean by that. Dollars are stuck somewhere in the financial system, boosting asset prices and are unable to grease the wheels of global finance. In fact the warped asset prices that creates the shortage seem to be the squeaky wheels asking for liquidity.

That’s all from us for now — we will see you next week.

The Knowledge by Mine Digital

Written By
Operations & Trading Manager
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