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In This Issue:
Everyone Hates Losing
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Coinbase’s Takeaway From Token2049
It’s All About Perspective
CZ Released, The Bull Market May Resume
Choose Your Custody Provider Wisely
The Bitcoin & Crypto Bull Market Is Raging Here
Everyone Hates Losing
Have you ever heard your favorite investor or market analyst discuss the idea that the pain of loss outweighs the joy of gains? In other words, have you noticed that losing money hits harder emotionally than the satisfaction you feel when gaining an equivalent amount?
If you didn’t answer yes to either of these questions, it means A) you’re the world’s greatest investor or trader when it comes to managing emotions, or B) you’ve been tuning out everything that matters.
Today, I want to dive into this phenomenon and explore some strategies to counteract it. This discussion is relevant even in a bull market where, technically, we’re making money—because many investors still feel like they’re missing out (experiencing loss) when comparing themselves to the elusive ‘perfect portfolio.’
So, let’s get into it!
The reason everyone hates losing can be explained by prospect theory.
Prospect theory, introduced by renowned behavioral economists Daniel Kahneman and Amos Tversky, explains how people irrationally perceive gains and losses, especially their strong aversion to losses.
Let’s consider a hypothetical example.
Imagine you have 0.1 BTC and are faced with two options:
You can either hold on to your 0.1 BTC with no changes or flip a coin, which could either double your amount to 0.2 BTC or reduce it to 0.0 BTC.
OR…
Imagine you have 0.1 BTC and face these two options:
You can either guarantee yourself 0.1 BTC or take a 50/50 gamble for the chance to win 0.2 BTC or end up where you started.
Your intuition probably nudges you toward the safer option—mine certainly does—but the expected value, or average outcome, remains the same in both scenarios. I’d wager many of you share my gut reaction. While one could argue for the principle of never selling your BTC, which is valid, from a purely mathematical standpoint, both outcomes are equivalent.
This chart puts it all into perspective.
Before wrapping up prospect theory, I want to acknowledge that it has its limitations. In fact, there's a well-known alternative perspective that offers a compelling counterargument. Can you guess what it is?
If you thought of the efficient market hypothesis (EMH), you'd be correct. This hypothesis assumes markets are rational and efficient. EMH argues that irrational behavior is canceled out across the broader market because asset prices reflect all available information. As a result, markets are efficient, and irrational behavior doesn’t consistently affect prices or create predictable patterns for investors to exploit.
We could debate the merits of both theories endlessly, and each has valid points. However, in the context of Bitcoin and this industry, I tend to believe that asset prices—and our reactions to them—are often irrational. At its core, if you believe Bitcoin is undervalued and the world just hasn’t realized it yet, then the market isn’t efficient, and we aren’t unreasonable for buying into the sky-high price predictions we all believe in.
Now, let’s shift back to how we can apply strategies to balance the emotional weight of losses with the satisfaction of gains. By doing so, we can maintain a more levelheaded approach to investing. Minimizing emotion in decision-making is always beneficial, helping us stay focused and objective in our strategies.
The first strategy is to stay mindful of our emotional attachments to our positions. Like many of you, I believe Bitcoin is a revolutionary asset, but I strive to keep my emotions separate from it. Emotions are better reserved for family, friends, and personal achievements—not finances.
The second strategy is to focus on the long game. Remember my write-up comparing poker to investing as one continuous session? If you feel emotional over a loss, remind yourself that it’s not a reflection of your abilities or a sign of failure. Instead, view it as part of a larger journey—one where we’re constantly learning, improving, and refining our strategies.
The final strategy is to curb feelings of loss from missing out on opportunities where others seem to be “winning.” Limit your social media exposure, reduce how often you check your portfolio, and trust fewer internet personalities. Step away and approach everything with a healthy dose of skepticism—especially those flaunting their supposed millions from meme coins. In most cases, they’re either exaggerating, lying, or likely giving it all back.
We’re all human, and we share a strong dislike for losses—myself included. As we move into Q4, our portfolios are expected to trend upward. However, this brings a new kind of loss to manage: the fear of missing out. This unconventional but equally potent form of loss can be disruptive, so it’s essential to prepare for this shift. One final note for traders: keep an eye out for heightened activity at midnight on October 1st—there might be fireworks.
Bitcoin Thoughts And Analysis
Bitcoin officially broke bearish market structure and made a higher high, even on the weekly close.
That is good news.
This often leads to a dip, where you look for an asset to establish another higher low.
As you can see, bitcoin is backtested the 200 MA on the daily as support. Further, we have a situation where RSI never made it to overbought, which it should before discussing any meaningful correction.
Anything can happen, but I still view dips now as buying opportunities going into a positive Q4.
I could be wrong, but this is my theory for now.
Altcoin Charts
I will simply make a general statement. Many altcoins recently broke their bearish market structure, as discussed last week. As I mentioned, this made me start to feel very bullish about Q4, which is already my base case. I was starting to believe that dips were for buying.
Now we are getting some dips.
When coins break out, they usually come back to test key former resistance as support. I am seeing that in a number of charts today, so will be watching to see how they close the day.
Legacy Markets
European stocks began the week with losses, driven by profit warnings from major automakers, overshadowing the positive impact of China's economic stimulus measures. The Stoxx 600 index fell 0.7%, led by declines in automakers like Stellantis, which lowered its profit margin forecast, and Volkswagen, which issued its second profit warning in three months. Aston Martin also warned its 2024 profits would be below last year's.
In contrast, China's CSI 300 Index surged by as much as 9.1%, benefiting from the country's latest stimulus. European miners and luxury stocks saw gains due to their exposure to China, though analysts caution that sustained improvements will require more time.
Investors are preparing for the third-quarter earnings season and are also watching key upcoming economic data, including Eurozone inflation, manufacturing reports, and the US jobs report, to gauge the Federal Reserve’s interest rate outlook.
Additionally, political risks in Europe and rising tensions in the Middle East, following Israel's killing of Hezbollah's leader, are adding uncertainty to markets. Oil prices rose amid these geopolitical concerns and China's stimulus efforts.
Key events this week:
Italy, Germany CPI on Monday
Fed Chair Jerome Powell delivers speech at National Association for Business Economics conference in Nashville on Monday
European Central Bank President Christine Lagarde speaks at EU Parliament monetary dialogue on Monday
Bank of England policy maker Megan Greene joins panel at NABE to discuss global monetary policy on Monday
Atlanta Fed President Raphael Bostic, Fed Governor Lisa Cook, Richmond Fed President Thomas Barkin and Boston Fed President Susan Collins attend conference on Tuesday
ECB policy makers speaking at various locations include Olli Rehn, Luis de Guindos, Isabel Schnabel and Joachim Nagel on Tuesday
BOE chief economist Huw Pill speaks at Confederation of British Industry economic growth board on Tuesday
Bank of Japan issues summary of opinions for September on Tuesday
South Korea CPI, S&P Global Manufacturing PMI on Wednesday
Fed speakers include Richmond’s Thomas Barkin, Cleveland’s Beth Hammack, St. Louis’s Alberto Musalem and Fed Governor Michelle Bowman on Wednesday
US nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.7% as of 9:47 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures fell 0.1%
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index fell 1%
The MSCI Emerging Markets Index fell 0.1%
Currencies
The Bloomberg Dollar Spot Index fell 0.1%
The euro rose 0.3% to $1.1198
The Japanese yen fell 0.1% to 142.41 per dollar
The offshore yuan fell 0.2% to 6.9945 per dollar
The British pound rose 0.4% to $1.3422
Cryptocurrencies
Bitcoin fell 2.7% to $64,068.51
Ether fell 1% to $2,633.85
Bonds
The yield on 10-year Treasuries advanced three basis points to 3.78%
Germany’s 10-year yield advanced four basis points to 2.17%
Britain’s 10-year yield advanced four basis points to 4.01%
Commodities
Brent crude rose 0.9% to $72.60 a barrel
Spot gold fell 0.2% to $2,653.78 an ounce
Coinbase’s Token2049 Takeaways
Coinbase provided a comprehensive write-up on its perspective of Token2049, along with the major macro events that coincided with the event that week. I’ve highlighted the key points from their report below.
“Looking ahead, we retain a constructive outlook for 4Q24 mostly predicated on our favorable view of the current macro environment, alongside the idiosyncratic factors listed above.”
“Overall, our impression from the conference is that crypto investor sentiment seems fairly positive, albeit this may have had something to do with the event coinciding with the Federal Reserve’s 50bps rate cut on September 18.”
“For example, just last week, we argued that one of the more significant implications of the Fed decision to cut 50bps is that this provides cover for other monetary authorities to take more stimulative measures. This has been followed with China revealing a massive double fiscal and monetary stimulus package that includes a record breaking rate cut, liquidity support for stocks, and a drop in the banking reserve requirement ratio – all in an effort to both ‘boost lending and reduce the existing loan burdens.’”
“What this means to the asset class (spot BTC ETF options), in our view, is likely greater liquidity and volumes as this product may expand bitcoin adoption primarily among institutional investors (and perhaps retail investors to a lesser extent.) Although CME does have options on bitcoin futures, these have been cumbersome for US institutional investors from a management perspective.”
Side note, here’s your forewarning: Ethereum fees are going to return in full force when the bull market kicks in. The small price rise we have all been celebrating this past couple of weeks has created a pretty significant uptick in fees on the Ethereum network.
“Although absolute transaction counts and active addresses have remained flat, the average gas price in the past 10 days (Sept 16-26) has risen 498% above the preceding 30 day average. The median transaction on Ethereum now costs $1.69 compared to $0.09 at the start of the month. (For reference, average fees were $6.45 and $0.59.”
“There has been no single driver of increased activity. Ethereum decentralized exchange (DEX) volumes are up slightly, +9% week-on-week (WoW). USDC deposit rates on lending platform Aave have also moderately increased from 3.5% to 4.5%, suggesting a slight increase in leverage. Meanwhile, total ETH transfer volumes have risen 17% WoW in line with increased fees.”
Here’s my final takeaway from the report: Coinbase shared the chart below, which clearly shows that retail investors have yet to return. Until these numbers swell significantly, retail participation remains absent — a very bullish sign.
It’s All About Perspective
Since its launch, the Ethereum ETF has faced criticism for its performance, particularly when compared to Bitcoin. However, considering all ETFs throughout history, ETHA breaking into the top 20% in just two months is no small feat. It's also important to note that the Bitcoin ETF launched back in January, while Ethereum’s ETF debuted only two months ago, during a particularly rough time in the market. It's still too early to determine the market capture ratio between Bitcoin ETFs and Ethereum ETFs. After a few more months, there will be enough data to make a more accurate assessment.
CZ Released, The Bull Market May Resume
Binance founder Changpeng Zhao has been released after serving a four-month sentence at California's low-security Lompoc II detention center. The big question now is what Zhao will do next. Since he’s barred from taking a management role at Binance, it’s unclear whether he’ll create something new or transition into a role like Arthur Hayes, who’s mainly known for his market commentary these days.
Choose Your Custody Provider Wisely
I don’t want to speak negatively about anyone in the industry unless necessary. My goal in sharing this is to emphasize how crucial the decision of custody is when choosing a provider. As for the news regarding Swan Bitcoin, the company has filed a lawsuit alleging that former employees, including executives, conspired to steal proprietary code, vendors, and business partners to create a competing company called Proton Management.
In the lawsuit, Swan claims that Tether aided in the scheme by delivering a “default notice” to facilitate the hostile takeover of Swan's Bitcoin mining operations. The lawsuit, filed in California, accuses former Swan executive Brett Hiley of downloading over 300 confidential documents and Proton CEO Raphael Zagury of inciting Swan employees to defect. Regardless of who wins or is ‘right,’ the better option is always self-custody or a major exchange like Coinbase. The last thing any investor wants is a lawsuit that disrupts their access to their coins or something even worse.
The Bitcoin & Crypto Bull Market Is Raging Here
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.