Friday, 13 May 2022

Classic head and shoulders formation

In technical analysis, which means recognising patterns in price charts of quoted shares or commodities, one of the most powerful signals is the head and shoulders pattern.

These can form over several months to two years. Basically, the longer the pattern takes to form, the more reliable it is.

Here's Bitcoin over the last five years, from msn:

Purists might argue this looks slightly different to the classic pattern, i.e. the left shoulder is higher than the right shoulder. Or whether we should be using a logarithmic scale. If you zoom in to the last six months, it could be a double top with a consolidation flag on the way down. Be that as it may, a head and shoulders over a one-and-a-half year time frame outweighs such minor niggles, and it looks like the tulip crypto bubble is finally bursting, as any sane person has expected all along.
HMRC had an outbreak of common sense and updated their guidance on crypto-currencies. They decided that despite the name, crypto-currencies are not money or a currency, for the simple reason they are not backed by anything. I can't find the quote right now, it was something had to read up on at work. OK, apparently some issuers pretend they are a bank (how is that even legal?) and say that if you can't find a taker for your tokens, you can hand them back to the issuer for a fixed price. In real life, that's not asset-backed* as the issuer will have frittered away your money on something else, that's a Ponzi scheme (and how is that legal?).

* Despite what people say, a fiat currency is backed by something - demand for that country's currency:
- You can only use a country's currency to pay your taxes in that country.
- People will always have to pay taxes, so there will always be demand for your country's currency.
- Everybody in Country X could decide that their country's currency is a load of rubbish and decide to only use USD for savings and payments if they wished.
- Doesn't change anything, Country X tax office works out your tax bill in X-dollars and send you a demand in X-dollars which you have to pay in X-dollars.
- You then have to change the USD you have in your bank account for X-dollars and hand it over to Bank of X.
- So Bank of X will always be able to issue (print) more X-dollars, knowing that sooner or later, people will have to 'buy' them (i.e. hand over hard currency USD).


Rich Tee said...

All the goods and services I bought in the past year, none of the suppliers accepted bitcoin as a payment. So to spend my bitcoin*, I would have to convert it into fiat currency first.

Therein lies the problem.

* I don't have any cryptocurrency as it has always been too risky for me, but if I could spend it with suppliers directly on a day-to-day basis I would certainly consider it.

Bayard said...

Interestingly, credit predated currency by thousands of years and currency was invented as a handy way for both the government to pay its debts (mainly to its army) and for citizens to pay their taxes. Before the introduction of currency, money was simply a unit with which to measure credit and debt.

Mark Wadsworth said...

RT, "therein lies the problem". It's a bit more than that. These made up things are worth what people think they are worth, there is no fundamental value whatsoever.

B, "money was simply a unit with which to measure credit and debt"

And still is today. If you add up everybody's positive money (deposits at the bank, govt bonds) and deduct everybody's negative money (mortgage debt, national debt) what you are left with is precisely zero.

Kes said...

"It has increased the base rate which many mortgages are linked to which may increase some items mortgage payments."

Which then increases rents as landlords look to recover their losses. Particularly as landlords are usually highly leveraged since that's the only way to make money in that game.

As there is a shortage of houses to rent, the rent rise will stick.

Come on, think a bit.

Mark Wadsworth said...

Kes, rents are the Maypole around which house prices dance. If interest rates and taxes go up or down, then house prices go down or up accordingly. Rents stay the same.

If the price that LLs paid had an influence on the rents they charge, then rents in an area would vary wildly according to when the LL bought the home.

mombers said...

Kes interest rates dropped dramatically over the last 15 years. Rents would have dropped if there was any relationship. And why would any landlord charge anything less than market price, regardless of what their monthly interest payment is?

Mark Wadsworth said...

M, ta. Kes is a georgist who is winding us up.