Real World Assets Enter DeFi Through Chainlink #40
Market Meditations | November 13, 2020
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Happy Friday to my fellow investors, followers, friends. We have had an exciting week indeed.
BITCOIN/ DOLLAR
One Day
$16450 – Key Resistance
$15978– Key Support
$15597 -Key Structural Level
Bitcoin has continued its steady uptrend as demonstrated by price action staying steadily above 50 day moving average. We’ve also seen two key resistance flip to support. On November 12th $15597 resistance flipped support, followed shortly by the key psychological level $15978 ($16,000). Going into next week we will remain heavily bullish so long as price trades above $15597, favoring longs over shorts. Both breakout and retest plays are viable should we claim $16450.
And what lies ahead? Weekends bring a quiet time for reflection and exploration of new trade ideas and I’ve found something you can all take a look at. In the latest news, Brent crude oil futures are now tradable on DeFi exchange Synthetix. This is a unique opportunity to trade something different and exciting. Any DeFi user can now get on-chain exposure to one of the world’s most important commodities, oil.
Using syndicated data from Intercontinental Exchange (ICE), the sOIL and iOIL tokens are live today on the Synthetix trading platform, according to a release shared early with CoinDesk. sOIL allows traders to take a long position, and iOIL, and Inverse Synth allows traders to take a short position and has upper and lower limits that cap profits and loss.
To provide context, Brent is one of two major futures contracts for global oil markets, the other being West Texas Intermediate (WTI). The contract tracks the future price of oil found in the North Sea and generally helps set the spot price of European oil. Outside of fiat-backed stablecoins, the product is one of the first real world assets to enter DeFi trading.
Trading oil is like trading anything else. A comprehensive crude oil trading strategy could include fundamental analysis, technical analysis and risk management. Once a trader understands the fundamental supply and demand factors that affect the price of oil, he/she can look for entries into the market using technical analysis. Then, when a buy or sell signal has been identified using technical analysis, the trader can implement the proper risk management techniques. For fundamental analysis, this newsletter can help you out. We regularly comment on commodity prices. Broadly speaking, it comes down to supply and demand factors. Supply factors include outages (instability in the middle east), OPEC production and announcements from top global oil suppliers. Demand factors include seasonality and oil consumption (typically, there is more demand for oil when the economy is doing well, particularly for Asian countries such as China and Japan). As for the technical analysis, let’s work through an example together.
This might be a good time to get up to speed with commodities trading. The addition of more real world assets “will be up to the community to request,” Synthetic founder Kain Warwick told CoinDesk in a Telegram message, adding that there is “a lot of interest in adding other commodities”.
Pricing data for sOIL is supplied by data provider Chainlink, further sourced from ICE for an undisclosed sum. Framework Labs, sister company of venture capital firm Framework Ventures, helped syndicate the data.
Beyond oil futures, the platform currently offers 24 trading pairs ranging from cryptocurrencies to crypto indices to foreign exchange (FX) such as the euro. All opportunities to expand and diversify your portfolio. Cryptocurrency traders will increasingly be able to gain exposure to a varied range of assets across many different industries without having to leave their cryptocurrency wallet. Have some fun with sOIL and let me know how you get on. This could mark the beginning of lots of new trading opportunities and ideas in the space which is constantly evolving and growing.
Paypal Says It’s Opening up Crypto Services to All Eligible U.S. Users. Paypal accelerated their timeline and said that all eligible Paypal account holders in the U.S. can now buy,hold and sell cryptocurrency directly with Paypal. The complete rollout was expected to happen in 2021 but due to high demand from Paypal’s leadership and a waiting list getting too big, Paypal decided to do an earlier launch. The weekly purchase limit was also raised again and will be $20k/week. Read more.
ECB’s Lagarde Has ‘Hunch’ Digital Euro Will Launch in 2-4 Years. European Central Bank President Christine Lagarde said, on a virtual panel with Federal Reserve Chair Jerome Powell, she believes that the EU will launch a digital version of the euro in the next two to four years. Powell also said that the U.S central bank is evaluating the possibility of creating a digital currency although it does not appear likely that it will happen within the next few years. This year made it abundantly clear that Central Bank Digital Currencies (CBDC’s) are a matter of ‘when’, not ‘if’. Read more
Defi Project Akropolis Exploited for Over $2 Million. On Thursday morning, decentralized finance (DeFi) protocol Akropolis lost $2 million in DAI due to an exploit. The team posted an update on Twitter that the hacked contracts ‘have been audited twice’ and were working with security specialists to provide a post-mortem analysis later. The exploit was abused through a series of flash loans on Akropolis’ YCurve and sUSD savings pools. All stablecoin pools have been paused and exchanges have been informed of the hack. Read more.
‘Banks Will Have to Adjust’ to Crypto, Says Bank of England Leader. Cunliffe posited that it is not the responsibility of the Bank of England to ensure mainstream banking businesses remain relevant. Central bank digital currencies, or CBDCs, pose a threat to the solutions commercial banks provide, cutting them out as middlemen. Crypto, more broadly, presents users with the option of self-custody, which challenges banks, although banks still function as fiat currency on-ramps.Read more.
Redxbt: Achieving His Dream, Self-Awareness, Finding Your Trading Style
Red is a well-respected cryptocurrency trader and streamer. After starting on his own, he managed to get a job and trade for a small fund while sharing his results publicly and recently found his dream job at an OTC trading desk.
In this episode, we talk about building a Twitter account and sentiment farming, why he likes to stream on Twitch and how it helps him build a view on the market. We talk about the two spectrums of trading, finding alpha in common sense and how red managed to find his dream job at an OTC desk. We end with how red plans to build a legacy, some of his book recommendations, his thoughts on investing and the importance of picking your own style.
Things I learned:
Twitter allows you to interact with everyone. It’s incredible to be able to interact with a large audience at will.
Sentiment is a powerful trading tool. There are traders out there that use Twitter regularly to make their decisions.
People tend to overthink simple things in the markets. Simplify and cut stuff out that is not useful to you. Try to find the basic principles that make you a profitable trader
The market is never wrong. The setup you’re watching can get ruined by a single market participant. Remain flexible with your bias at all times.
Self-awareness and knowing your strengths is important both in markets and life. Find your personality and then pick your style
Even though the charts may look the same, things change. Past data certainly has its use, but situations don’t necessarily have to play out the same way. Use it as confluence with other data.
Twitter is a solid networking tool. Don’t be afraid to ask questions, people generally want to help as long as it’s done with good intentions.
Keep trying and don’t be afraid to struggle if you have a gut feeling that you’re going to make it. If you think you can do it, anything is possible as long as you don’t give up too early.
Circle of Competence
Similar to mindset, a topic that gets brought up on almost every single episode of my Market Meditations podcast is the importance of realizing your strengths and weaknesses. We tend to believe that society expects us to be good at everything but that’s just not the case. Everyone has a different personality, everyone has their own specific strengths but also weaknesses. As author Tim Ferriss once wrote in his book Tools of Titans: “Humans are imperfect creatures. The superheroes you have in your mind (idols, icons, elite athletes, billionaires, etc.) are nearly all walking flaws who’ve maximized one or two strengths.”
A mental model around this that was popularized by legendary investor Warren Buffet is called the ‘circle of competence’. We all have different skills and expertise and we should focus on those areas. As Warren puts it: “Everybody’s got a different circle of competence. The important thing is not how big the circle is, the important thing is staying inside the circle.” Warren used this model in a financial context to remind himself to only invest in companies or sectors he had deep expertise in while staying away from ‘hot’ investments where his knowledge was limited and he knew that he didn’t have an ‘edge’. That said, we can apply this model more broadly in our lives as well.
As crypto traders/investors, we can use this mental model to find the style that fits our personality best. Opportunities to make money in a market like crypto are abundant, but that doesn’t mean we should be good at all of them. The better strategy is focusing on your strengths and keep improving them, while simultaneously making sure that your weaknesses can’t hurt you either. Traders that don’t have a lot of patience might find they are good scalpers. Others get completely distracted by the short-term noise of the market and are better off focusing on higher time frame swing trades. Others shouldn’t trade at all and focus on being long-term investors. Finding something that suits your personality or even calendar will make you a better and less stressful trader/investor in the long run. Don’t be afraid to avoid certain ‘strategies’ in the market, staying on top of everything is a losing game. Have a great weekend!
Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.
