Market Lab / Crypto Report - Global Economy; Alt Coins

Global Economy

Inflation in the U.K. fell to its lowest level in nearly 3 years to 1.5%, moving further below the Bank of England's 2% target. This in addition to Brexit further increases the likelihood of additional interest rate cuts. We know the EU is teetering on recession with Germany's economy also slowing while China struggles with its own issues which are amplified by the trade war. China's industrial production growth slowed sharply in October, with the 4.7% year-on-year rise well below forecasts for 5.4%. Investment growth hit a record low and retail sales also missed expectations. Then over in the EU, growth rose at just 0.2% in the third quarter.

For now, Powell has suggested no more rate cuts for the foreseeable future unless the economy weakens significantly. The CME Fed Futures shows there's a slightly better-than-even chance of no further rate cuts for the first half of 2020. But given the state of things, Powell will once again have to soften his position. Odds greatly favor more QE in the form of lower rates in the coming months.

LINK (Chainlink)

Fundamentals: One of the strongest companies among the alt coins as they have secured deals with Google, Oracle, and Intel among other megacap technology companies. They essentially enable communication between on-chain and off-chain. Data that moves off the blockchain needs trusted third parties but TTPs cant always be trusted as they are vulnerable to attacks. Chainlink overcomes this issue via its decentralized oracles which connect on-chain smart contracts to real world data. Oracles act as agents to verify real-world data and prepare it to be recorded in a smart contract on the blockchain. The smart contracts initiate this based on specific criteria, such as a payment transfer or price fluctuation. The block is then processed by a network of oracle nodes that reach a group consensus. This process of selecting oracles, gathering and presenting data, then verifying it among oracles is the on-chain smart-contract processing that occurs on Chainlink. This means everything from investment market data to bank account balances, product purchases, election results, and more can be recorded on the blockchain. The possible use-cases of Chainlink are endless.

One of Chainlink's functions is to build communication bridges between payment services such as PayPal and Visa, banks like HSBC and Wells Fargo, and blockchains such as bitcoin and ethereum. This is a form of enterprise blockchain technology on which Google is looking to capitalize. As another of many examples, in Uber, there is a mapping application which is needed to be integrated for the driver; there is the need for messaging between drivers and customers; there is a payment application for both customers and to pay drivers. All of these applications operate within the Uber app, but they were all not created by Uber. In other words, the Uber environment houses many outside applications. And, in the blockchain space, with smart contracts that have the power to reach data from sources outside the blockchain, an enterprise environment is far more natural to build, and a lot more efficient.

Technicals: Chainlink has been one of the strongest performers this year as it keeps winning contracts with major companies. It rocketed more than 10-fold earlier this year during the alt coin run. All cryptocurrencies should be on log plots to give proper perspective as the asymmetry among the best coins is massive. Bitcoin is a perfect example of this. Typical pullbacks of 1/3 to 1/2 look tiny in comparison to the rocket ride it has enjoyed since 2009. Thus a 10-fold gain in an alt coin in just a few months or less is not uncommon. The pullback may easily be more than 50% in the case of an alt coin, but such a pullback looks relatively insignificant on the chart when placed in perspective of its upside gains as can be observed in LINK. As of late, LINK has more than doubled off lows, thus showing on a relative basis it remains a strong performer.

Log plot Chainlink:

vs. Log plot Bitcoin:

With alt coins, it is important to measure a coin's performance relative to bitcoin as the correlation remains very high between bitcoin and alt coins, with bitcoin leading the way in terms of direction. As long as my metrics continue to show bitcoin is in a bull market, I will search for the very few coins I believe will outpace bitcoin. Bitcoin has been the coin to beat as most alt coins have been unable to outperform bitcoin beyond more than one bull market. It's somewhat similar to the dot-coms of the late 1990s. Only a handful of dot-com companies emerged after the 2000-2002 bear market such as Amazon and Ebay. The charts revealed both companies issued buy signals in March 2003.

Also, on a risk/reward basis when it comes to alt coins, it important to understand than one breaks even if a coin triples while the other one loses two-thirds of its value. But the asymmetry is so large that the best coins tend to rise 10-100 fold, thus one could be sitting on other coins that lose two-third or more but still come out way ahead. And the correlation among alt coins is still relatively high as we saw in the first half of this year when ethereum, the bellwether for alt coins, had its bull run. The best alt coins ran up 4-6 fold in a few months while second tier ones still gained 50-100%. Since then, alt coins have pulled back but one must be willing to give the coin much room as long as the coin itself is behaving relatively well compared to its peers. Fundamentals play an important role so using sites such as reddit, telegram, and other platforms give perspective into the degree and speed of development taking place. Remember that most of these companies will go bankrupt just as in the days of the dot-coms, thus only the ones showing strong fundamental progress as well as price action will survive and thrive. There are only a small handful compared to the more than 2000 alt coins that currently trade. Crypto which is still very much in development is not simple computer science but bleeding edge computer science.


BAT (Basic Attention Token)

Fundamentals: BAT pays users to watch ads through its Basic Attention Token browser which is one of the fastest browsers ever created due to the elements it does not load such as trackers, third-party cookies, or the many ads displayed usually on browsers such as Chrome. BAT effectively removes the middle man such as Google's ad sense. As a consequence, BAT will eat into Google's and Facebook's ad revenue but neither company can do anything about it. BAT browser now has nearly 30 mil downloads on android alone. BAT is democratizing the planet as those in 3rd world countries can use it to make $5-10 a day which is big money in these countries. And an accelerating number in 3rd world countries now have access to the internet through cheap mobile phones. Indeed, borderless transaction of value will certainly help the tide rise in third world countries.

Technicals: Early this year when alt coins had a good run, BAT was one of the strong performers as it rose nearly 5-fold from Feb to Apr-2019. Then bearish price action overtook the alt coins until recently. BAT has nearly doubled once again showing it has strong price leadership characteristics vs. most all of the other alt coins. That said, its price history through the crypto market top in early 2018 shows it has never been as fast as some of the faster coins. It is still worth keeping an eye on.


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