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What do Volcanoes, Banks and Whales have in common?

Dear Meditators

Start your weekend right. Start your weekend with the Market Meditations newsletter. In today’s letter:

  • Volcanoes: Answer To All Our Problems?

  • Somewhere Between Fear and ‘Wait & See’

  • BTC/USD Analysis

  • Regulation: Friend or Foe?

  • ETH/USD Analysis

  • Don’t Be Tricked By The Illusion of Control

Read, enjoy and share with your network. Let’s all build wealth together.

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Volcanoes: Answer To All Our Problems?

Just hours after becoming the first nation to authorise bitcoin as a legal tender, El Salvador’s President Nayib Bukele instructed a state-owned geothermal electric company to plan to use geothermal energy from the country’s volcanoes for mining the cryptocurrency. The videos of which, shared from the President’s twitter account, are stunning: 

This highlights one of the environmental strong suits of Bitcoin: Bitcoin can be mined anywhere. In contrast, almost all of the energy used worldwide must be produced relatively close to its end users. Bitcoin has no such limitation. The move comes amidst growing criticism of the environmental impact of bitcoin mining with experts pointing out that the underlying network to produce the cryptocurrency now requires nearly as much energy as the entire country of Argentina. 

So, where does that leave us? In other words, how much is too much environmental impact? The answer comes down to how much energy you think a monetary system should consume and how you feel about Bitcoin

  • If you consider Bitcoin a ponzi scheme, or a device for money laundering, then of course it would be logical to conclude that the amount of energy it uses is wasteful. 

  • If you are one of the millions of people using it as a tool to escape monetary repression, inflation or capital controls, you may conclude the energy is extremely well spent. 

This becomes a question of whether you think Bitcoin has a valid claim on society’s resources and therefore how much value you think it creates for society. Perhaps, like any other industry, we can acknowledge and address these environmental concerns, working in good faith to reduce Bitcoin’s carbon footprint. Recognising that for the societal value Bitcoin provides, it is worth the effort of finding creative solutions. And so, maybe volcanoes are the answers to all our problems 🌋


Somewhere Between Fear and ‘Wait & See’

📈 Last night we briefly made it above the $38k level on the BTC chart. Getting closer and closer toward that key $40k resistance level. Only to retreat back down. A pattern we are seeing too often recently. A powerful quote to capture the current market sentiment:

The market seems to have settled somewhere in between downside fear and a wait and see approach,” the quant trading firm QCP said in a recent investor note. “Retail volumes have thinned out and movements from whales are dominating the price action.

BTC/USD

Regular subscribers will know we are watching a few levels:

  • Resistance at $39k 

  • Key Support at around $33k 

  • Most Important Structural level at $30k 

Pivot points to the upside are around $45k and $48k; market structure will start to look a lot better for the bulls. 2 potential plays in the short term:

  1. Decent long opportunity here, targeting to sell at $39k or at $45k if you are a bit more aggressive.

  2. Wait for breakout play or retest play above $39k targeting a sell at $45k. Safest and most preferable play right now.


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Regulation: Friend or Foe?

🏦 The Bank for International Settlements’ Basel Committee is the world’s most influential banking regulator. Established with the aim of monitoring commercial and investment banks solvency and liquidity. These measures aim to avoid situations such as the 2008 Financial Crisis, which was able to shake the core and foundation of the economic system. The current suggestion is to split crypto assets in two groups: those eligible for treatment under existing frameworks and those that are not. 

The first category would comprise tokenized assets and stablecoins, which “with some modifications and additional guidance” would be eligible for treatment under existing rules. Bitcoin and similar cryptocurrencies would fall under the latter category because “these pose additional and higher risks”. They would be subject to a new conservative prudential treatment. 

⚠️ We tend to hear the word ‘regulation’ and want to run for the hills. Thinking that regulation will reduce volume, activity and general interest and opportunities in the space. Another way to consider regulation would be an important development for our space:

  • To regulate an activity in the realm of the financial markets is to recognise its place and role in the financial markets. This, in itself, is an important development. 

  • There is no regulation of crime or illegal activity. It is ruled out, period. We need not stray far to see an example of this: earlier we heard Dutch officials call for a complete ban on Bitcoin

  • In contrast, regulation is the oversight and monitoring of legal and recognised activities that play a role in our society. 

  • Consider regulation a seal of approval. For less risk averse members of the financial markets (more conservative institutions and less risk seeking retail investors), the regulation of crypto assets may well incentivize their involvement.

  • Consider regulation a right of passage. For some large institutions, it might actually open the doors for them to get involved in the markets. Where, previously, the lack of regulation might have meant shareholders and owners would not allow it.


ETH/USD

Just as with BTC, subscribers will be aware of our stance on Ethereum. 

Currently at a key support level at around $2.4k.

Should BTC continue its move up, we might see a bounce heading up to $2.9k. 

Key structural level at $2.1k. 

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Don’t Be Tricked By The Illusion of Control

We cannot control everything in our lives. Unfortunately our minds often tell us otherwise. The existence of this bias, known as the illusion of control, was shown by a series of experiments run by Ellen Langer in the 1970s1. In 6 different experiments, participants played a game governed by chance and in each one, displayed that they believed they could have an impact on their chances of winning. Not only does this phenomenon exist, it also has negative impacts. In another study, traders were given the opportunity to play a game2

They were sat down at a computer and shown an index displayed as a graph. It changed at random every 0.5 seconds however the traders were told pressing 3 certain keys may or may not affect the outcome. Their job - to get the highest score. Afterwards they were asked if the 3 keys had any impact on their final score and interestingly the traders who displayed a higher illusion of control, also displayed significantly worse yearly trading performance.

Thinking you are able to control something when in reality you cannot, forces you to focus on matters that do not increase your chances of success as opposed to matters that do have an impact. As we have seen, this is detrimental to long term performance. It also has negative impacts on our psychology. If we believe that we have control over an event, and the ultimate outcome of that event is not desired we can blame ourselves, thinking we are somehow at fault. As Roman Emperor, and stoic philosopher Marcus Aurelius said “you have power over your mind - not outside events. Realize this, and you will find strength”.

In reality this is easier said than done, however, in our podcast with certified NLP coach Jimie, (listen here), he shared a method that can train our minds to carry out this behavior; reward yourself for the process, not the outcome. Applied to trading, when you follow through on your strategy, reward yourself, regardless of whether you won or lost that trade. Applied to personal finance, reward yourself for adhering to your monthly budget not hitting arbitrary net worth figures.

These rewards can be anything from a chocolate bar to a weekend hike. We are all susceptible to thinking we have greater control of life's events than we actually do. Focus on things that you can influence, reward yourself for the process not the outcome and you can avoid getting tricked by the illusion of control. 


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1

Langer, E.. “The illusion of control.” Journal of Personality and Social Psychology 32 (1975): 311-328. 

2

Fenton-O’Creevy, Mark et al. “Trading on illusions: unrealistic perceptions of control and trading performance.” Journal of Occupational and Organizational Psychology 76 (2003): 53-68.