Find out how Cryptocurreny market did.

#886 April 18, 2018

Tharp's Thoughts

Inbox Mentoring

Feature: April Cryptocurrency Update, by Van K. Tharp, Ph.D.
Workshops: Van's Cornerstone, Peak Performance 101, May, July and October
Tips: Johnny Appleseed Planted a Lot of Seeds But Only A Few Grew into Trees, by Dr. Ken Long
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Ken will host three coaching calls following the workshop, approximately one per month and if you can’t make a session, you can watch the recording when it’s convenient for you. These sessions are more than just Q&A as traders also share what’s working great for them and collaborate on ideas to make the systems even more robust.

Additional Adaptive Swing Trading Systems

In addition to the robust seven patterns found in the RL Framework (talked about in more detail below in this issue), Ken will also teach at least three other swing trading systems:

MaxPain Range Compression System — In any given two-week period, some stocks and ETFs will be down. If you compare all of the issues that are down, some of them are down more than others. These are the issues with “max pain”. Of that max pain group, some of them are very near their 10 day lows — they have not yet started to recover. These are the ones who have range compression. MPRC symbols have a higher probability of popping than other groups and Ken has effective and simple ways to take advantage of these situations.

Autoframer System — For this system, Ken starts with the assumption that every symbol has a reward to risk relationship with its 10 day high and 10 day low. The potential long reward is the distance from its current price to its 10 day high and the risk is the distance from its current price to its 10 day low. Ken will stalk very closely those symbols with the greatest reward to risk ratio within those parameters. That idea is so simple that you might not think this system would work well but if you thought that, you would miss out on nearly daily opportunities.

Daily Squeeze Play System — While prices do not move reliably in a cyclical pattern, volatility tends to move much more cyclically. Periods of low volatility are typically followed by periods of high volatility. With an effective way to find symbols that have had low volatility recently, Ken has developed an effective system that captures those volatile moves out of the narrow price ranges.

To learn more about this this workshop, scroll down to our workshop's section.

Feature Article

April Cryptocurrency Update

by Van K. Tharp, Ph.D.

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I personally think that blockchain technology and some cryptocurrencies represent the opportunity of a lifetime. Consequently, I plan to write monthly updates on the cryptocurrency world. These will include some education so you can begin to take advantage of this opportunity as well as include an overview of what is happening in the cryptocurrency world for the last month. We are encouraging each Super Trader to have one of their three systems operate in the world of cryptocurrencies and we are developing special programs for Super Traders to help them take advantage of this unique opportunity. Why? Because the opportunities are staggering and cryptocurrencies are relatively uncorrelated with other types of assets. These updates on the crypto market will now come out the Wednesday after the 15th of each month and will cover developments over the last 30 days. The format, of course, will evolve over time. Because I am moving this week, I have written only an update for the last month.

The crypto market skyrocketed in the final months of 2017. Bitcoin (BTC) started December at $14,000 (USD) on the 1st and by December 17th, BTC had climbed to $20,000. Around January 1st, BTC had fallen back to about $14,000 and the market capitalization of all cryptocurrencies was about $600 billion (USD). Since then, the crypto market has crashed from its all-time highs. So fast forward to mid-April and here’s where the four main cryptos stand for the last few months in USD.

I’m adding a second table to these updates which includes the market cap for cryptocurrencies, the percentage of Bitcoin of the total crypto market cap, the percent of market cap for the top five cryptocurrencies, and the total number of cryptocurrencies listed.

The data in both of these tables comes from www.coinmarketcap.com.

¹ Bitcoin's percentage of the total crypto market cap was as high as 90% at the beginning of 2017 and as low as 32% at the top of the market. Part of the difference is that there are now over 1,500 cryptocurrencies.

² This was the peak of the crypto market cap value according to Tama Churchouse, Asia West Investor email on 4/11/18

Yahoo Finance now lists prices for about 100 cryptocurrencies so I can run some of my normal studies on the data. I’m only looking at those coins for which there is at least 100 days of data — which does not include every crypto in the top 100 list by market cap.

The cryptos in the following table had the top Market SQN scores (for 100 days) on April 15, 2018 —

Some Perspective on the Crypto Crash

What about the cryptocurrency crash in 2018? Actually, it’s quite normal. Bitcoin has the longest track record for any crypto and it has had the following moves according to the historical data at the www.coindesk.com website.

It went from 6 cents for the earliest data (7/18/2010) to $31.91 on 2/8/11 for a 531x gain.
It went down from $31.91 to $2.27 on 10/20/11 for a drop of 93%.
It went from $2.27 to $266 (4/10/13) for a move up of 96x.
And then it went down to $62.90 on 7/7/13 for a 76% decline.
It went from $62.90 to $975.22 (1/7/14) for a 15x move up.
It went down from $975.22 to $170.21 (1/14/2015) for an 82% fall.
It went from about $170.20 to $5013.91 (9/21/2017) for a 29x move up.
It went down from $5013.91 to $3226.40 ($9/14/2017) for a 36% decline.
Then it went to a new high of $20,089 (12/19/17) for a 6x move up.
After last December's high, it fell to the current low for this move on April 6th at $6,575 for a 67% decline.
The biggest drop since 2010 happened on April 4, 2013 when bitcoin went from $266 to $140, a 70% drop . . . in two days.

Bottom line: Bitcoin saw a huge uptrend from 6 cents to $20,089 but to realize all of that gain, you would have had to have put up with multiple 70% - 93% drawdowns to get there. Could you have lived through those? The current decline from the December 2017 peak to the February 2018 trough has been “only” 67% — so far. What if the price drops from here? A 93% decline from the recent all time high would take bitcoin down to about $1,400. Current mining costs for one bitcoin are estimated to be $1,400 so miners will probably stop mining if the price went below that level for a prolonged period.

The Internet, Big Money, and Cryptos

Cryptocurrencies have an interesting parallel with the Internet in the mid-1990s. Back then, the Internet was mostly composed of individuals and big money proclaimed the Internet was just a fad that wouldn’t last. There was a huge crash in Internet stocks in 1994 - 1995 and at that point, institutions started to take over. Now the Internet is dominated by a few big companies with huge market caps (most of them with individual market caps several times larger than the market cap of the entire crypto universe).

What’s going on now with cryptos that parallels the Internet? Publicly, institutions are saying cryptos are a scam or a bubble and they are trying to scare away the little guy. Why? The blockchain technology that makes cryptocurrencies so secure, private and safe goes far beyond electronic payments and is being used to dramatically transform business:

Facebook is running scared because crypto upstart Steemit has created a social media platform which makes it impossible for third parties to steal and sell your private information. Unlike Facebook, which just admitted to a security breach impacting 50 million people, all user data is encrypted and private.

MasterCard has filed 25 blockchain technology patents making it the most active crypto patent filer in the world.

Walmart is testing blockchain technology to reduce spoilage, lower inventory costs and speed regulatory compliance. Record keeping that previously took a week now takes 2.7 seconds.

Pfizer and Genentech are using blockchain technology to weed out counterfeit drugs from the medical supply chain.

British Airways is develping a blockchain to help eliminate late flights and lost baggage.

Toronto Dominion Bank has filed 20 patents to use the same kind of technology to speed up checking and wire transfers while also making them more secure.

Sweden is testing blockchain technology for land sales because it would reduce the transfer time for a title from three months to an hour.

Dozens of American hospitals already use blockchain technology to reduce widespread insurance fraud and to secure the privacy of patient medical records.

These examples are just the tip of the iceberg for this revolutionary technology which is changing the world so it works for the better. Blockchain technology is making business safer, faster, cheaper. Investing in this area is like investing in the foundation on which an entire new economic system is being built.

In spite of the billions already in or moving into cryptocurrencies, from an institutional perspective, the crypto asset class is still just a speck in the capital markets. This is partly why the regulators haven’t bothered much with them — cryptos have not yet been worth the regulators’ trouble. For some perspective on how small cryptos are in terms of a well-known company and major indexes, consider the following —

Bitcoin’s market cap is less than half of Apple’s gross cash position right now.
Bitcoin’s market cap is less than one sixth of Apple’s market cap.
The market cap for the entire crypto universe is less than 10% of the combined market cap for 2,000 companies in the Russell 2000 Index.
The market cap for all cryptos is less than 5% of combined market cap for the 30 companies in the Dow Jones Industrial Average.
The market cap for all cryptos is a small fraction of a percent for the US corporate and US Treasury bond markets.

All of the cryptocurrencies could go away tomorrow with barely a financial ripple across the markets — but all of this will change. Like 1994-95 was for big money moving into the Internet, 2018-19 is when big money starts moving into cryptos in a major way because it’s still easy for them to build a significant position in a rapidly growing area. Getting in now allows institutions to participate in the longer term ride up and eventually to harness blockchain technology. Here are some ways big money is quietly moving into the scene:

George Soros, while publicly stating that BTC is a bubble, just allocated a portion of his $26 billion to cryptocurrency positions.
The Rockefeller family has a $3 Billion fund that now invests in cryptocurrencies.
The number of funds dedicated to crypto assets has risen from 19 in 2016, to 167 in 2017, to about 245 this year according to Autonomous Next.
The NYSE purchased a stake in Coinbase, one of the largest cryptocurrency exchanges that serves customers with brokerage services for fiat currencies and cryptocurrencies in 32 countries.
While Goldman Sachs has been saying cryptos are not real money, a GS subsidiary just used real money to buy a major cryptocurrency exchange, Poloniex.
JP Morgan’s Jamie Dimon has publicly called bitcoin a “fraud” and “worthless” while his trading desks are actively trading cryptocurrencies.
The Chinese government has banned BTC but it is backing a billion dollar blockchain fund.

The bottom line — pay no attention to what big money says about cryptos but watch carefully what they are doing.

Some Positive Quotes About Bitcoin

Besides the naysayers, many well-known people have been commenting positively on Bitcoin. Here’s a sample:

Eric Schmidt, former Executive Chairman of Google/Alphabet

“[Bitcoin] is a remarkable cryptographic achievement… The ability to create something which is not duplicable in the digital world has enormous value…Lots of people will build businesses on top of that.” [Newsbtc.com]

Bill Gates, Co-founder of Microsoft, investor and philanthropist

“Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient.” [Bloomberg]

“Bitcoin is a technological tour de force.” [Fox Business]

Richard Branson, Founder of Virgin Galactic, and 400+ businesses

“Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin, some have lost money. It is volatile, but people make money off of volatility too.” [Source: Bitcoin.com]

“Virgin Galactic is a bold entrepreneurial technology. It’s driving a revolution. And bitcoin is doing just the same when it comes to inventing a new currency.” [CNBC]

John McAfee, Founder of the software and anti-virus company McAfee Associates

“It is not a speculative investment even though it is being used as such by other people. As Bitcoin network grows the value of Bitcoin grows. As people move into Bitcoin for payments and receipts they stop using US Dollars, Euros and Chinese Yuan which in the long-term devalues these currencies.” [RT YouTube]

“In the long term Bitcoin moves above $500,000 within three years. Bets?” [17 July 2017 tweet]

In a reply, McAfee added that if bitcoin didn’t move beyond $500K: “I will eat my d**k on national television.” [RT.com]

Nassim Taleb, statistician, former trader and risk analyst

“Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative. But I am not familiar with the specific product to assert whether it is the best potential setup. And we need a long time to establish confidence.” [Wikipedia]

Peter Thiel, Co-Founder of PayPal

“PayPal had these goals of creating a new currency. We failed at that, and we just created a new payment system. I think Bitcoin has succeeded on the level of a new currency but the payment system is somewhat lacking. It’s very hard to use and that’s the big challenge on the Bitcoin side.” [Cryptocoinnews]

Milton Friedman, Economist, 1976 Nobel Memorial Prize in Economic Sciences winner for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy.

“I think the Internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing but that will soon be developed, is a reliable e-cash.”

Jeff Garzik, Co-Founder of Bloq Inc, a contributor to Bitcoin Core, Bitcoin developer

“When I first heard about Bitcoin, I thought it was impossible. How can you have a purely digital currency? Can’t I just copy your hard drive and have your bitcoins? I didn’t understand how that could be done, and then I looked into it and it was brilliant.”

Peter Diamandis, Founder and chairman of the X Prize Foundation

“At its core, bitcoin is a smart currency, designed by very forward-thinking engineers. It eliminates the need for banks, gets rid of credit card fees, currency exchange fees, money transfer fees, and reduces the need for lawyers in transitions… all good things.”

Al Gore, Former Vice President of the United States

“When bitcoin currency is converted from currency into cash, that interface has to remain under some regulatory safeguards. I think the fact that within the bitcoin universe an algorithm replaces the function of the government … [that] is actually pretty cool.” [Learning Bitcoin]

Max Keiser, American broadcaster and film maker, host of Keiser Report

“Bitcoin is the currency of resistance… If Satoshi had released Bitcoin 10 yrs. earlier, 9/11 would never have happened”

Until the third week of May, this is Van Tharp.

About the Author: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling books and his outstanding Peak Performance Home Study program - a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp www.vantharp.com.

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Trading Tip

Johnny Appleseed Planted a Lot of Seeds

But Only A Few Grew into Trees

by Dr. Ken Long

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From Ken — I wrote the following quick note to my military officer students this morning. I realized it has everything to do with a successful trading mindset as well so I thought I would share. It describes a certain state of mind required to be successful and to have the emotional resilience of dealing with failures. "Failure" is such an emotionally-loaded word which often we tend to attach to our sense of identity and self-worth.

Think of the difference in feeling between these 2 statements:

"I don’t know where I am right now."

"I'm lost."

I think it's the same difference as in these 2 statements:

"That trade didn't win."

"That trade failed."

Keep planting...

Entrepreneurs rapidly envision possibilities (seeds) and keep putting them out there. Sometimes, something surprising will stick, flourish, and then in retrospect it will seem obviously destined to have succeeded. Seeds, however, all look the same when first planted.

You have to make a lot of offers...

In my dissertation work at the military college, I looked at a bottoms up change initiatives generated "by the people" (as opposed to top-down changes planned "by the leaders"). Over a 3 year period, we created something like 200 "offers" for changes and only about 50 made it to the second round of action. In retrospect, that was pretty darn good. That means that you can expect 75% of your change initiatives to stop at the initial screen and get no traction. But do not let that fact diminish your energy, enthusiasm or optimism in any way. In fact, each "No" becomes fuel for your fire.

Lots of startups fail...

A friend of mine is a venture capitalist and his performance benchmark is that 70% of his placements fail (lose some or all of the investment). If his failure rate is too low (i.e. more than 30% of his investments make a profit), then he was waiting too long to get his money into the ventures. Funding very early-stage companies generates outrageous returns when the few take off against all the odds. Later rounds of funding generate higher probabilities for positive results but they offer only conventional returns ... which is unattractive for a VC.

Learn to be comfortable with venturing, with controlled, framed failures-as-learning experiments about the world.

Each of these examples represent the opposite approach of a carefully planned and meticulously perfected deliberate attack. Instead, they are more similar to decentralized pressure all along the frontage and then rapid exploitation of the surprising breakthroughs in the "expanding torrent" attack characterized by Guderian in his book Achtung Panzer.

Can you rapidly exploit success and secure the shoulders to maintain the momentum? (Imagine that being asked in the voice of Clint Eastwood's Inspector Harry Callahan.)

Guderian saw that the British writers Fuller and Hart were correct about tanks and set the wheels in motion to create the Panzers. Then he led them in the 1940 breakout to the channel. He was a quartermaster and signal officer...tough as nails, relentless in his disciplined application of a good idea.

Never lose sight of the FACT that the guy on the other side is burning the midnight oil to figure out ways to kill you (because in war, you can't tap out).

About the Author: Dr. Ken Long retired from the Army as a Lieutenant Colonel and teaches at the U.S. Army Staff College. He is a proud father of three, a husband, teacher, student, martial artist and active trader. Ken also instructs dynamic trading workshops for the Van Tharp Institute, including Adaptive Swing Trading, Day Trading Systems, and two video workshops covering swing trading and long-term core systems.

Ken is currently supervising several Masters theses this year on applying AI to military decision making.

Workshop Schedule

April 2018 - US

Futures Trading Workshop

Presented by Gabriel Grammatidis

April 21-23

Saturday-Monday