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In This Issue:
It Takes Money To Make Money
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Glassnode Breaks Down BTC vs ETH
FTX Announces A New Recovery Plan
The Biden Administration Does Not Want Our Crypto Votes
FTX Is Still Selling Solana
Altcoin Bloodbath - Buy The Dip Or Wait? | Trading Alpha
It Takes Money To Make Money
Roman playwright Titus Maccius Plautus, who lived in the 200s–100s BC, profoundly said, “You have to spend money to make money,” in his play Pseudolus.
Over time, this phrase has evolved into "It takes money to make money," but its core meaning has remained largely unchanged.
Rappers rhyme about it, small business owners swear by it, and investors buy into it. Despite its widespread popularity, I wouldn't categorically label it as always true.
Today, I want to explore how accurately or inaccurately this phrase holds up in the pursuits of trading and investing, as its relevance is particularly distinct in these endeavors.
When it comes to professional trading, Titus Maccius Plautus was very right—it does require money to make money. Many beginning traders are blinded by the promise of making boatloads of cash without leaving the comfort of their couch. This is a false reality unless they already have significant capital to trade with.
A trader who wants to be a professional needs to support their entire life with trading. Their profits must cover living expenses without eating into their trading capital. In most parts of the world, this requires at least $50,000–$100,000 to trade with and a steady profit of 10% monthly.
In reality, this is very difficult to achieve. As a result, many beginning traders find themselves under a great deal of stress when their expected trading returns fail to align with their actual results.
Peter Brandt recommends having a FULL TWO YEARS of living expenses set aside before you even start trading, just in case you're not profitable and have a bad run. That doesn’t even include your capital for trading. I think you could get away with a year’s worth, but that only adds additional pressure to an already challenging task.
If you want to be a pro trader and have a real chance at success, heed Titus’s advice.
The good news is that if you want to start trading without depending on profits, you can begin with as little as $10 or even less. While most people might not be excited about making less than a dollar on a trade, in this context, you don't need to have much money to learn.
When it comes to investing, the same advice applies. You can't simply wake up one day and decide to become a full-time investor—which I would never recommend—if you don't have the starting capital to support yourself through the market's ups and downs.
Unlike trading, investing should begin as soon as possible and be taken seriously regardless of the amount of starting capital. One of the most common questions I’m asked is, “How can I start investing if I don't have a lot of money?” and my answer is always the same: start with what you have.
Whether you begin with $10, $100, or $1,000, the key is time in the market. I would even suggest taking investing more seriously than trading because your long-term investments will be what you rely on when you retire. Compounding wise investment decisions will pay off tenfold compared to trading for 99% of people.
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it.” — Albert Einstein. He knew what’s up.
When it comes to investing or trading, being undercapitalized is not an issue unless you're trying to make either endeavor a full-time career. The misconception between the two often arises from beginners choosing trading over investing because they believe they don't have enough capital for the latter. I believe there shouldn’t even be a decision in the first place; there is a right and wrong starting point.
Trading shouldn't be taken seriously until you have your investing strategy soundly in place. It's important to focus on investing first and channel all your starting capital into it before considering trading. Find success in investing, THEN proceed to trading if you’re compelled—not the other way around.
Attempting to trade to build your investment capital is a recipe for disaster and often stems from the misconception that you need more money. Ignore this instinct. Moreover, it's important to note that not all trading profits should be reinvested into trading. A prudent professional trader will transfer profits from trading accounts into investment accounts. This underscores the importance of getting the sequence of these two activities right.
Engaging in finance at scale does require some capital, but anyone can start at any time with any amount to begin learning and compounding. This point is more crucial than anything else. Don’t fall victim to believing investing isn’t worth your time because you aren’t starting with X. Open an account, start with what you have, add to it with what you can, and be patient. Future money is never guaranteed, and there’s no time like the present.
Don't let an ancient Roman playwright be the reason you're not making money. The only rules of investing are: A. start, and B. be patient. Everything else is just a suggestion.
Bitcoin Thoughts And Analysis
Absolutely a brutal chop fest. The good news? We were all prepared for it, and know that it is highly likely to continue for many months. Hopefully it will not, but if this is just a “normal” 4-year cycle, then we could be doing this until the fall.
At the moment, Bitcoin is retesting the range lows set after the all time high. Bulls want to show some strength here and hold price above ~$60,700.
Altcoin Charts
There is just nothing to see here. I can’t imagine a compelling reason to be actively trading this market right now. We are having the boring, choppy post halving hangover as I assumed would be the case.
Legacy Markets
European stocks took a breather after setting fresh records on the back of solid corporate earnings, with the Stoxx 600 remaining steady following a four-day rally. Meanwhile, S&P 500 futures pointed to a decline at the Wall Street open, and 10-year Treasury yields dipped for the second consecutive day after lukewarm demand at a $42 billion bond auction.
As the earnings season winds down, investors are awaiting new data for clues on how soon policymakers might begin cutting rates. The Bank of England (BOE) is expected to maintain current rates on Thursday, but traders are seeking signs of a dovish shift in the voting. “The Bank of England in all likelihood won’t do anything today, but there will be a good amount of interest in the message that policymakers are trying to send,” said Richard Flax, Chief Investment Officer at Moneyfarm.
US initial jobless claims data, due later on Thursday, will provide further insight into the state of the labor market and whether it is finally softening, potentially paving the way for the Federal Reserve to start lowering rates by year-end. The prospects for a Fed rate cut improved following softer-than-expected US payroll data last week.
Inflation figures due next week will offer additional clarity about the US economy after recent employment data showed a cooling labor market. Fed Bank of Boston President Susan Collins emphasized that interest rates will likely remain at a two-decade high longer than anticipated to curb demand and control inflation.
In corporate news, US-listed shares in Arm Holdings Plc extended their decline following a lackluster annual forecast, and Airbnb Inc. shares fell due to signs of slowing growth. In Europe, Banco de Sabadell SA rose after Banco Bilbao Vizcaya Argentaria SA launched a $12 billion hostile bid for the lender.
Key events this week:
UK BOE rate decision, Thursday
US initial jobless claims, Thursday
UK industrial production, GDP, Friday
ECB publishes account of April policy meeting, Friday
BOE Chief Economist Huw Pill speaks, Friday
US University of Michigan consumer sentiment, Friday
Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.1% as of 10:39 a.m. London time
S&P 500 futures fell 0.3%
Nasdaq 100 futures fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index fell 0.2%
The MSCI Emerging Markets Index fell 0.3%
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.2% to $1.0729
The Japanese yen fell 0.3% to 155.92 per dollar
The offshore yuan was little changed at 7.2326 per dollar
The British pound fell 0.2% to $1.2479
Cryptocurrencies
Bitcoin fell 0.9% to $61,020.87
Ether rose 0.7% to $2,970.4
Bonds
The yield on 10-year Treasuries advanced two basis points to 4.51%
Germany’s 10-year yield advanced four basis points to 2.50%
Britain’s 10-year yield advanced three basis points to 4.17%
Commodities
Brent crude rose 0.5% to $83.99 a barrel
Spot gold was little changed
Glassnode Breaks Down BTC vs ETH
Glassnode has published a detailed report comparing metrics between Bitcoin and Ethereum in the current and past cycles, providing some color to Ethereum's underperformance. If you're interested in this type of analysis, such as bull market correction drawdowns, Net Unrealized Profit/Loss, short-term holder cost basis, and long-term holder behavior, I recommend checking out the report.
“There has been a growing divergence in performance between Bitcoin and Ethereum during the 2023-23 cycle thus far. This has manifested as weaker price performance for ETH, and can be explained by an overall weaker capital rotation trend, especially relative to past cycles and ATH breaks.”
This is the first cycle Ethereum has faced formidable opponents, notably Solana, along with serious challenges related to regulatory scrutiny. These difficulties have been compounded by Bitcoin sucking the air out of the market since its bottom in late 2022. Despite these challenges, Ethereum stands out as the only other asset (aside from Bitcoin) receiving ETF attention, preference from Coinbase and BlackRock, and direct legal attention regarding classification clarity. The seeds of epic price runs are planted in the harshest environments.
FTX Announces A New Recovery Plan
The bankrupt exchange FTX has announced a new, and purportedly final, reorganization plan that entitles 98% of its customers to receive 118% of their claims—in cash—pending court approval. Additionally, other non-governmental creditors will receive 100% of their claims plus 9% interest to compensate them for their time. According to the press release, “FTX forecasts that the total value of property collected, converted to cash, and available for distribution will be between $14.5 and $16.3 billion.”
John J. Ray III, Chief Executive Officer and Chief Restructuring Officer of FTX, stated, “We are pleased to propose a Chapter 11 plan that includes the return of 100% of bankruptcy claim amounts plus interest for non-governmental creditors.” This plan supersedes the previous one, which offered a 90% payout from January, but there are numerous caveats involved, which I will now outline.
First, payments are made in cash, which creates a number of issues. Not every creditor may have reliable means to cash a check or receive mail. Failing to cash the claim within six months means losing out. There are also KYC requirements to cash the check, and failure to meet these requirements means losing out as well.
The primary issue is that investors receive the cash value of their portfolios back during bankruptcy. Consequently, all gains in Bitcoin and Ethereum from the bottom have been erased. It's akin to being compelled to sell during FTX's bankruptcy and being barred from repurchasing for a long period, possibly ranging from one to three months from now, if the plan progresses smoothly.
It's puzzling to witness the celebrations over a 'liquidity injection' and 100% repayments to creditors, all while disregarding the fact that Bitcoin has surged approximately 4x since its low, with even greater gains for most other assets. Creditors are effectively receiving only a fraction of the value of their initial Bitcoin holdings. FTX's actions are akin to robbery both before and after the bankruptcy.
The Biden Administration Does Not Want Our Crypto Votes
The Biden Administration has made it clear that it won't support pro-crypto legislation, regardless of what passes in the House or Senate. This statement was made in response to Rep. Mike Flood's (R-Nebraska) joint resolution expressing congressional disapproval of Staff Accounting Bulletin (SAB) 121, which represents a harmful shift in crypto policy. Essentially, SAB 121 effectively prohibits trusted custodians from managing digital assets.
The Biden Administration is backing the SEC, and the SEC is backing the Biden Administration. While I won't go as far as to say that Democrats in power are detrimental to crypto, it's worth noting that the vast majority of regulators hindering progress are Democrats rather than Republicans.
What makes this development significant is that the White House rarely comments directly on crypto, usually deferring to agencies, officials, and regulators who handle law writing, enforcement, and commentary. My guess is that something more sinister is happening behind the scenes, possibly related to banks and CBDCs.
FTX Is Still Selling Solana
The FTX estate is selling its third tranche of locked Solana this week, following previous large and smaller auctions. The bidding for this tranche is set for today, May 9, but the exact number of coins being auctioned remains unclear. In total, the estate is in the process of selling approximately 41 million locked Solana, which will be unlocked over four years, with staking rewards released according to the vesting schedule.
The first sale in March saw tokens sold for $64 each, with the overall sale estimated at around $1.7 billion, or two-thirds of the estate's total Solana holdings. Last month, a further 1.8 million Solana were sold in an auction for $232 million, with bids ranging from $85 to $110.
Since these sales are private, I don't believe they will impact the price of the token unless the winning bidder intends to sell it on public markets afterward. However, this does increase the circulating supply, which could have a temporary negative effect.
Overall, I don't expect these sales to have a significant impact.
Altcoin Bloodbath - Buy The Dip Or Wait? | Trading Alpha
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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.