Bitcoin: "Crowded Trades" Can End Badly. Here's How to Spot One.

Cryptos can hugely reward, yet just as swiftly -- punish

By Elliott Wave International

The phrase "bank run" tends to conjure up images of the 1930's Great Depression.

However, that phrase is now applicable to the 2021 world of cryptos.

This is from a June 17 coindesk.com article:

A near-total collapse in the price of a share token of a decentralized finance (DeFi) protocol was "the world's first large-scale crypto bank run," the people behind Iron Finance said in a blog post providing a postmortem. The run brought the worth of the protocol down from $2 billion to near zero on [June 16].

It all started when "a series of large holders tried to redeem their IRON tokens and sell their iron titanium (TITAN), the token of the Iron Protocol." In other words, a lot of people were headed for the exit door at the same time.

Of course, that has a parallel to a "bank run," when throngs of depositors want to take their money out of the bank all at once.

So, like with other exceptionally volatile markets, cryptos can hugely reward, but just as quickly -- punish.

Indeed, the June Global Market Perspective, an Elliott Wave International monthly publication which provides forecasts for 50+ worldwide markets, showed this chart and said:

So-called altcoins, dash, litecoin and ethereum, rallied until May 7, May 10 and May 12, respectively. Then they crashed. Various other indicators also pressed on. According to a Bank of America monthly survey, fund managers were never as enamored with bitcoin as they were in the first few days of May. The result of its poll of 194 managers showed that bitcoin was the "most crowded trade," with 43% saying they were long bitcoin.

Mind you, this chart published on May 28 and you probably know that cryptocurrency volatility has persisted since.

The question now is: What's next for cryptocurrencies?

Well, here's commentary from the June 11 U.S. Short Term Update, a thrice weekly Elliott Wave International publication which offers near-term analysis for key U.S. financial markets, that might surprise you:

Decentralized finance and cryptocurrencies may be the wave of the future, but the odds are low that it will be led by bitcoin, or even include it. Investors have come to view the current conditions as normal, but they're anything but.

You can find our latest commentary on cryptocurrencies, plus Elliott wave analysis, in our Global Market Perspective.

And, speaking of Elliott wave analysis, if you'd like to learn how the Elliott wave model can help you as an investor or trader, you are encouraged to read Frost & Prechter's book, Elliott Wave Principle: Key to Market Behavior. Here's a quote:

No matter what your convictions, it pays never to take your eyes off what is happening in the wave structure in real time. Ultimately, the market is the message, and a change in behavior can dictate a change in outlook. All one really needs to know at the time is whether to be long, short or out, a decision that can sometimes be made with a swift glance at a chart and other times only after painstaking work.

Good news! You can read the entire online version of this Wall Street classic for free!

That's right -- all's that required for free access is a Club EWI membership, which is also free. Club EWI is the world's largest Elliott wave educational community and allows members free access to a wealth of Elliott wave resources on investing and trading.

Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free and instant access.

This article was syndicated by Elliott Wave International and was originally published under the headline Bitcoin: "Crowded Trades" Can End Badly. Here's How to Spot One.. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

"Everybody's Getting Rich (and Having Fun) Except Me"

The idea of "missing out" on stock market gains "literally generates fear in many people"

By Elliott Wave International

Hardly anyone wants to miss the party -- whether on Wall Street or elsewhere.

Thus, the acronym FOMO -- which stands for the "fear of missing out" -- is in vogue. After a 12-years long bull market, the acronym has appeared in many financial articles.

Yet, the acronym was coined years before the current bull market.

As the March 2019 Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, noted:

The "fear of missing out" and its abbreviation were coined by Dr. Dan Herman. ... It was first published in The Journal of Brand Management in 2000, coincident with the front edge of the Great Peaking Process. ... After more than 200 years of rising stock prices, not being in the stock market literally generates fear in many people. The underlying cultural dynamic is also appropriate as it coincides perfectly with the long-term peak in social mood.

Social mood also governs attitudes and behaviors in society-at-large, including social life.

As a June 7 New York magazine article says:

The city runs on FOMO, a connoisseurship of opportunities and possibilities; the catechism of "Did you get invited, are you on the list, can you get a table?"; the performance of plans.

So, the "fear of missing" out on rising stock prices goes hand-in-hand with the "fear of missing out" on a fun social life. The desire to "see and be seen" and "live it up" is especially pronounced during times of an exceptionally positive social mood (think the Roaring '20s).

So, social mood is all encompassing. And, returning to the financial aspects, here's the latest on that front from Marketwatch (May 25):

[The] FOMO ETF [started] trading on the Cboe Options Exchange on [May 25], providing the market with a new tool for leveraging the retail trading boom by investing in all the buzziest "meme stocks" and funds from special-purpose acquisition corporations ... to crypto-adjacent investments.

Right now, hardly anyone appears to be contemplating the total opposite of FOMO -- which one of Elliott Wave International's analysts said is the acronym FOBI. It stands for the "fear of being in."

In other words, when social mood shifts from positive to negative (ushering in the next bear market), expect the "fear of being in" to replace the "fear of missing out."

Remember, at the end of the 1920s, the stock market crashed. Social life -- which had been characterized by vibrancy -- was soon covered by a heavy blanket of gloom. The Wave Principle suggests that the next financial and social shift might be even more dramatic.

If you'd like to learn about the Wave Principle, you can do so by reading the online version of Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior for free.

Here's a quote from the book:

It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.

The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting. Many of these guidelines are specific and can occasionally yield stunningly precise results.

All that's required for free access to the book is a Club EWI membership -- which is also free.

Club EWI is the world's largest Elliott wave educational community (about 350,000 members and growing rapidly) and offers members free access to a wealth of Elliott wave resources on investing and trading.

Just follow this link to get started: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline "Everybody's Getting Rich (and Having Fun) Except Me". EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling

By Elliott Wave International

The world of cryptos includes something known as non-fungible tokens, which go by the acronym NFTs.

If you're unfamiliar with them, they're a bit bizarre but quite simple. Here's what the April Global Market Perspective, a monthly Elliott Wave International publication which covers 50+ worldwide financial markets, noted:

Investors' manic behavior has expanded to include non-fungible tokens, paying large sums of money for essentially a picture of something.

Getting more detailed, "a non-fungible token is a unique identification code that is affixed to a [digital] asset using blockchain to distinguish it from all other [digital] assets."

The April Global Market Perspective provided more insight with this chart and commentary:

The chart shows the performance of one of the most unseasoned of all collectibles, the non-fungible token (NFT), which first hit the market in December 2017. ... In addition to rocketing prices, NFTs surged into the culture at large with tokens tied to everything from basketball and football players to Passover and a Saturday Night Live skit. Capping the rage is a "digital collage" of bizarre, post-apocalyptic images called Everyday, which sold for $69.3 million through Christie's on March 10.

Well, the NFT craziness has persisted, as the May Global Market Perspective followed up by showing this NFT and saying:

Apparently, NFTs are still a thing. Paris Hilton, who is famous for being famous, garnered a bid of $1,111,211.00 for this Iconic Crypto Queen token on [April 25]. The absurdity of it all is not lost on everyone. "Each market frenzy seems crazier than the last," says MarketWatch.

As for one of the latest developments, on June 10, Barron's showed this image under the headline:

'Covid Alien' CryptoPunk Sells for $11.75 million in Sotheby's Sale

The reason for pointing out investors' interest in non-fungible tokens is to emphasize the level of financial mania that has been reached.

The monthly Global Market Perspective employs Elliott wave analysis to forecast what's next for cryptos, global stock markets, rates, metals, energy, forex and much more.

If you'd like to learn how the Wave Principle can help you analyze financial markets, you are encouraged to read Frost & Prechter's Wall Street classic book, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliott isolated five such patterns, or "waves," that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in turn link to form the same patterns of the next larger size, and so on, producing a structured progression. He called this phenomenon The Wave Principle.

Although it is the best forecasting tool in existence, the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that description does impart an immense amount of knowledge about the market's position within the behavioral continuum and therefore about its probable ensuing path. The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market's general position and outlook. At times, its accuracy in identifying, and even anticipating, changes in direction is almost unbelievable.

Good news! You can read the entirety of the online version of the book for free!

All that's required for free access to Elliott Wave Principle: Key to Market Behavior is a free Club EWI membership. Club EWI members enjoy free access to a wealth of Elliott wave resources on investing and trading.

Just follow this link and you can have the online version of this Wall Street classic on your computer screen in moments: Elliott Wave Principle: Key to Market Behavior -- free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

The Bitcoin Crime Wave Hits

By Elliott Wave International

The conviction gripping bitcoin's ascendancy is so deep that children are now being indoctrinated into the bullish fold. We talked about this phenomenon with respect to the stock market last month. This Bloomberg column from May 16 signals its arrival in the cryptocurrency world: "Why I Pay My Seventh Grader in Bitcoin." The columnist claims he wants his "kids to be able to think independently about money" and "feel the full spectrum of feelings that money induces." Sure, why not feel the burn of the real world? Besides, the big kids are doing it, too. According to MarketWatch, "As Bitcoin and Dogecoin Plummet, College Students" are "Going Long on Crypto." According to a survey by College Finance, "more than 60% of college students and recent graduates see crypto as a long-term investment."

In April, EWFF showed two magazine covers' positive portrayal of bitcoin and other cryptocurrencies. We labeled it bearish for bitcoin's immediate prospects. Last month, we added that bitcoin's "Great Arrival" into the "mainstream" of finance confirmed this forecast. One of the signals of cryptocurrencies' acceptance into the financial establishment was Coinbase Global Inc.'s emergence as a publicly traded company. On May 19, with bitcoin down more than 53% from its high, Bloomberg observed the following about the premier cryptocurrency trading platform:

The siren song reached a peak with Coinbase Global Inc.'s market debut on April 14. The direct listing of the largest U.S. crypto exchange supercharged theories that crypto had made it to the investing mainstream, that Wall Street's embrace lent legitimacy to the asset class and the sky was the limit. Retail investors flooded in.

The chart at right shows the relationship between bitcoin's top and Coinbase's public offering, which occurred the same day. The chart also shows that the rise in crypto optimism pressed on as so-called altcoins, dash, litecoin and ethereum, rallied until May 7, May 10 and May 12, respectively. Then they crashed. Various other indicators also pressed on. According to a Bank of America monthly survey, fund managers were never as enamored with bitcoin as they were in the first few days of May. The result of its poll of 194 managers showed that bitcoin was the "most crowded trade," with 43% saying they were long bitcoin. The total was the highest for the cryptocurrency in the history of the survey, which dates from December 2013. In January, bitcoin was also the leading fund manager asset with 40% holding the crypto back then. The only other months in which bitcoin was the leading asset were September and December 2017, when about 30% of fund managers said they held the crypto. Bitcoin topped that very month and plunged 84% over the next 12 months. The same set-up is already well on the way to producing a similar result.

If there is one thing bitcoin enthusiasts cannot accommodate, it is criticism. In early May, after Berkshire Hathaway vice chairman Charlie Munger called the cryptocurrency "contrary to the interest of civilization," "crypto enthusiasts mocked his investment performance, compared him to an elderly Muppet and said he was too old to understand the technology." A well-known crypto investor/CEO added, "Do you go to your great-grandfather for investment advice on new technologies?" And then of course, there is dogecoin, the joke-coin-turned-crypto-blue-chip, which recently showed up for its curtain call. As discussed last month, the crypto took its star turn on Saturday Night Live on May 8, where guest host Elon Musk mentioned the joke currency. As he did, dogecoin's price fell 30%. From its peak of 74 cents, dogecoin declined 70% to May 19.

Here's what EWFF said to look for in the culture with the onset of a new trend: "When a bear market begins, the focus will shift from crypto speculation to crypto crime and scandal." It didn't take long. On May 12, two days after the Dow's recent intraday high, Bloomberg Businessweek columnist Joe Light reported that "a criminal gang" responsible for the cyberterrorism attack that shut down 45% of the East Coast's fuel supply, demanded to be paid "a ransom in bitcoin, or another cryptocurrency. How's that for "contrary to the interest of civilization.'" He went on to list various ways in which regulators are moving in on the crypto sphere. As bitcoin declined over 30% on May 19, the attacks against the legitimacy of cryptocurrencies spread. "China banned the use of cryptocurrencies for financial institutions," reported Barron's. "Other countries might be considering tighter regulation, particularly as cryptos become the currency of choice for ransomware hackers. Tesla stopped accepting bitcoin as payment for vehicles." On May 21, Bloomberg ran an editorial stating that bitcoin's "price is completely disconnected from any practical use. It's useless as a means of payment and store of value (unless you're a criminal). Your crypto is worth only what the next buyer will pay--and that could be an awful lot less than you hope." In investment markets, it was ever thus. As bitcoin started its post-December 2017 crash, EWFF observed:

Bear markets are always more volatile than bull markets. Yet-higher volatility will further damage bitcoin's role as a medium of exchange, which will destroy its role as a store of value. The currency has always been vulnerable to this vicious cycle.

The attacks in more public forums are occurring because the vicious part of the cycle is underway once more. But this is not to say the optimism is in any way extinguished. Bitcoin hedge funds are reportedly treating the decline "as nothing more than a sale." Here's a quote from a Singapore-based hedge fund operator on May 21: "Every time we see massive liquidation is a chance to buy. I wouldn't be surprised if bitcoin and ethereum retrace the entire drop in a week." On May 19, Bloomberg reports that a well-known investment manager is "keeping the faith." "We go through soul searching in times like this," she says. "Our conviction is just as high." Bloomberg's headline says she's still a "Bitcoin Believer, Sees It Going To $500,000." Our guess is that it will not be the last wild bitcoin prediction.

---

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When it debuted in 2009, one Bitcoin was worth ~0.5 a cent. By 2011, it suffered one blow after another, from hacking and theft, and remained currency-non-grata to most of the world.

But the contrarians at Elliott Wave International saw Bitcoin's potential as early as 2012; quote:

"Presuming Bitcoin succeeds as the world's best currency -- and I believe it will -- it should rise many more multiples in value over the years."

Result: What happened next... well, you already know.

The question is, how do you ride Bitcoin's upcoming twists and turns? (And there will be many!)

EWI's free crypto report gives you 5 clear Bitcoin strategies.

Read EWI's "Crypto Trading Guide: 5 Simple Strategies to Catch the Next Opportunity" now.

This article was syndicated by Elliott Wave International and was originally published under the headline The Bitcoin Crime Wave Hits. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

What Drives Gold Prices? (Don't Say "the Fed!")

 By Elliott Wave International

Excerpted from Elliott Wave International's new FREE report "Gold Investor's Survival Guide: 5 Principles That Help You Stay Ahead of Price Turns."

There is a glaring hole in the popular understanding of what drives gold's price.

Mainstream finance believes the Federal Reserve's monetary and interest rate policies shape the trend.

That sounds like a solid explanation... except, the Fed officials themselves disagree!

Consider their own statements:

In July 2013, Fed chairman Ben Bernanke told Congress he "doesn't pretend to understand gold prices... nobody does."

Bernanke's successor Janet Yellen later concurred: "I don't think anybody has a very good model of what makes gold prices go up or down."

And at the 2014 New Orleans Investment Conference, perhaps the most famous Fed chair, Alan "the Maestro" Greenspan, explained that gold's "value...is outside the policies conducted by governments." (You know, like the highly revered quasi-government institution he used to be the head of.)

Despite the uncertainty voiced by the three most recent Fed chairs, mainstream analysts today still believe the Fed's monetary policy pushes around gold's price.

Investors accept this idea as fact because they hear it endlessly. But the notion is simply not accurate. As a result, these investors find themselves on the wrong side of the trend time and time again.

Fortunately, you don't have to be one of them.

Principle #1: Forget the fallacy that "gold follows the Fed."

Consider this chart of gold prices alongside the Fed's monetary policy since 2011.

First red arrow: In 2011-2015, gold prices plunged 40%. By mainstream logic, gold's freefall must have coincided with hawkish Fed -- because higher rates make other investments besides gold more attractive, so gold prices fall. Right?

In fact, it was just the opposite. During the same period, in 2011-2015, the Fed left interest rates at their lowest level ever, 0% to .25%. But that's not all. The Fed also injected $4.5 trillion in stimulus into the markets and economy during this time via quantitative easing. According to conventional wisdom, either action should have pushed gold's price higher -- and together, MUCH higher.

Yet... gold fell over 40%!

First green arrow: Now look at December 2016 - August 2019, when gold prices moved mostly higher. That must mean the Fed was LOWERING interest rates at the time -- right?

Nope! During this time, the Fed RAISED rates eight times -- and QE had long been retired. Gold rose anyway.

Second green arrow: Next, look at November 2019 - July 2020. The Fed cut rates five times and launched QE4 in January 2020. Gold fell, right?

Ha! Despite the dovish Fed and the new QE, gold's rally resumed.

Second red arrow: Lastly, look at August 6, 2020. The Fed said it'd keep rates near 0% indefinitely and inject trillions in new stimulus money. Did gold rally?

Yeah, right! Gold prices peaked and turned down.

If anything, since 2011, the mainstream's understanding of the Fed/gold relationship has been backward.

Except, there is an even better explanation. Read it now in EWI's new "Gold Investor's Survival Guide." You'll learn an objective method to help you forecast gold's price moves, how to identify and stick with gold's trend and more. A $49 value, yours FREE. Get it now at elliottwave.com.

Why "Trouble is Brewing" for the U.S. Housing Market

"Home price declines follow home sales declines"

By Elliott Wave International

In many parts of the country, the price of homes has been skyrocketing.

Indeed, the index of home prices across 20 large cities increased at a yearly pace of 13.3% in March, according to a well-known home price index.

That statistic appears to represent a sign of health for the housing market. So, you may ask: "Why is trouble brewing?"

Well, this chart and commentary from our May Elliott Wave Financial Forecast provide insight:

We keep hearing about the "Housing Madness" that shows "No Signs of Slowing." A would-be renter offered $2 million for a summer rental in the Hamptons and was turned down! Still, there are subtle but important signs of trouble in paradise. As the chart shows, total new and existing home sales made a countertrend rally high in October, which was still 21% below the all-time high in July 2005. As we have noted, home price declines follow home sales declines.

In fact, after the May Elliott Wave Financial Forecast published, a May 29 Marketwatch headline said "Pending home sales sink as the housing market falls back to Earth." Here's a quote from the article:

Pending home sales dropped 4.4% in April compared with March, the National Association of Realtors reported this week... [which] offers reason for caution. Buyers who have been unable to get into a contract for a home may eventually opt to give up and wait... That could throw cold water on the hot housing market.

Also, keep an eye on the stock market. History shows that stock and real estate prices tend to be closely correlated.

Here's a chart and commentary from the 2020 edition of Robert Prechter's Conquer the Crash:

Real estate prices have always fallen hard when stock prices have fallen hard. The chart displays this reliable relationship.

You can get Elliott wave analysis of U.S. stocks – plus more insights into the U.S. housing market – by reviewing Elliott Wave International’s Financial Forecast Service.

If you’re unfamiliar with Elliott wave analysis, or need to re-acquaint yourself with the Wave Principle, know that you can access the online version of the book, Elliott Wave Principle: Key to Market Behavior, for free!

Here’s a quote from Frost & Prechter’s Wall Street classic:

The Wave Principle often indicates in advance the relative magnitude of the next period of market progress or regress. Living in harmony with those trends can make the difference between success and failure in financial affairs.

All that’s required for free access to the book is a Club EWI membership. Club EWI is the world’s largest Elliott wave educational community (about 350,000 members and growing rapidly) and is free to join.

Just follow this link and you can have the book on your computer screen in moments: Elliott Wave Principle: Key to Market Behavior – free and unlimited access.

This article was syndicated by Elliott Wave International and was originally published under the headline Why "Trouble is Brewing" for the U.S. Housing Market. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.