Tag: Black swan

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Crypto Guides

Bitcoin & The Possible Black Swan Events!

Introduction

Introduction

Introduction

The cryptocurrency is a domain where there are several varieties of critics. And most of them have a negative sentiment on it. There are financial bears who do not have a positive outlook on cryptocurrencies in the long term. Then there are techies who believe that blockchain, not a technology that is going to give a breakthrough to the current technology. There are also government mongers who are fearful and anxious about investors grabbing their interest in cryptocurrencies, which would drop their tax money.

Then we have a black swan event, which is a different case altogether. A black swan event for Bitcoin or any other cryptocurrency, for that matter, is the absolute worst-case scenario that could take place.

Why is it necessary to consider the possibility of Black Swan scenarios? If the FUDsters give a healthy level of condensing for the market as a whole, the black swan forecasts are like a rototiller. Their job is to assume that the market is going to collapse anytime soon and is required to stay away or look for other options. If such a thing is inevitable, it is useful to know what to expect.

Here are a few worst-case scenarios that cryptocurrencies could affect. Before getting right into it, first, let’s start off by understanding what a black swan event actually is.

A Black Swan Event

This was described by a financier and author, Nassim Nicholas Taleb, while he was writing about the 2008 financial crises. Taleb referred to the Black Swan event as a completely unpredictable beforehand consequence, which is devastating.

Taleb also pointed out that the black swan event is a relative concept. This event may not be a terrible scenario for everything equally. It can be localized as well, where one market’s black swan could be another’s market’s bull booster. For instance, the failure of cryptocurrency and blockchain could give more room space to other technologies and financial sectors.

We have listed out some examples which would be torn apart the cryptocurrency space – and not necessarily shake the other related sectors.

The Regulatory

Bitcoin and other cryptocurrencies currently operate in a very legal state at the moment. In the U.S. and many other countries, there have been tentative steps regarding the management of cryptocurrencies. The U.S. Securities and Exchange Commission has not confirmed whether cryptos are securities on a case-to-case basis.

However, the bomb hasn’t been dropped yet. There could be a moment where the countries like the U.S. and South Korea simultaneously decide that the cryptocurrencies would be banned outright. This would hit the entire crypto market really bad.

Catastrophic Code Failure

Cryptocurrencies are virtual currencies that are hardcoded. So, there is a possibility of a bug being found and exploited in the code. As a matter of fact, recently, a malicious attack happened to Verge, which allowed hackers to mine extremely easy blocks and extract off millions of dollars of the coin. Also, 51% of attacks can be carried out easily out of smaller coins that were discovered.

However, such a thing is unlikely to happen to the cryptocurrency giant, Bitcoin. But the Quantum Computing has something dissimilar to say: “The massive calculating power of quantum computers will be able to break Bitcoin security within ten years, say security experts.” Still, Bitcoin has proven itself countless times that it is resistant to attacks. Either way, a solution of the same would reach before it becomes possible.

Final words

Going by the definition, Black Swans are harder to identify ahead of time. They are also an event that could be devastating to the market. As the author Taleb says, it is like a variation of the “prepare for the worst” mindset. Though there is still enthusiasm and forecasted potential in the cryptocurrency space, it is also vital for such optimists to have their end on the negative side of it. After all, the cryptocurrency always proves to be a perfect example of “expect the unexpected.” All The Best.

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Forex Videos

A Black Swan Event, No, It’s A Flock! – How To Trade During The Crisis!

https://youtu.be/AdBu6tUPisM

https://youtu.be/AdBu6tUPisM

A Black Swan Event, No, It’s A Flock

We are undoubtedly in the worst economic crash the global economy has seen since WW2, and the financial impact may be even more far-reaching. With the financial markets in turmoil and no end in sight, maybe we should pause and take a look at what’s happened over the last few weeks and see if it can give any pointers to future direction, especially within the forex space.
In January, in our video on How to guard your financial assets against the Coronavirus outbreak, we warned that stock indices across the globe would come under continued selling pressure. Although the virus was mostly contained to China, it wasn’t possible, at that time, to predict the terrible crash that we have seen. It was only really when the virus took hold of Italy and broke out in Hong Kong and South Korea, that market jitters forced investors to see the potential of this deadly outbreak and begin selling stocks. Nonetheless, anybody who heeded our advice may well have reduced their exposure to stocks and been financially better off as a result.

Example A

In our February video about How to trade the Australian Dollar and The Convid-19 Pandemic Black Swan Event, again, we called it correctly. With Australia heavily exposed in China, it was highly likely that the Aussie dollar came under extreme selling pressure against the Dollar and that is exactly what happened and where we have seen highs of 0.70 in AUDUSD to a sharp decline to 0.54

Example B

We also warned that New Zealand, whose GDP is heavily dependent on their exports into China, may find that their currencies come under selling pressure too. It has also seen a huge decline against the Dollar from 0.6750 to a low of 0.5490.

Example C

We warned that countries such as Japan and Switzerland would find that their currencies grew stronger due to their safe-haven status. And where USDJPY declined from 112.20 to a low of 101.00 initially, before reversing due to concerns about the virus on the GDP of Japan.

Example D

We saw USDCHF tumble from 0.9855 to a low of 0.9160 and warned that the Swiss National Bank would likely intervene in the markets to drive the value of their currency lower for export purposes. That is exactly what happened.
We also warned that all of this could only mean one thing for the US dollar: it’s directional bias will be to the upside. Again, that’s exactly what happened with the Dollar index at highs around the 102.00 level against the Forex Majors.

Example E

So where to from here? Well, let’s just take a look at the 1-hour chart of the GBPUSD chart from Friday, 20th March. The Arrows show that there was extreme price action, which amounted to over 1400 Pip swings in this pair for this one-day period. This is almost unprecedented in financial trading. It can only tell us that the markets are thinning in volume and leverage and that institutional traders will be largely standing on the sidelines because as the crisis deepens the UK government, just like other western governments, are closing down, albeit temporarily, businesses that produce gross domestic product income revenues. All of that income has suddenly evaporated and gone out of the window. We are now in a situation where governments are financially bailing out business sectors, and they are doing that through borrowing. The burden of the debt that will grow and grow, month after month, as the crisis continues, cannot be predicted, and in fact, the repercussions will be the basis of a secondary crisis which will emerge at the end of the epidemic, due to overburdening debt caused by a virus, while countries and their workforces get back to normal in order to reimburse governments’ coffers in the form of taxation.

And nobody can predict when this virus will be contained enough for the markets to steady themselves. It will only happen when good news emerges, and this does not look at all possible or likely in the short term.
Therefore as institutional and professional traders are waiting on the sidelines and reducing leverage, we would advise retail forex traders to also exert extreme caution in trading these markets while the current crisis persists.

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Forex Videos

We Told You So! Forex Black Swan Event – what Happens Next!

https://youtu.be/Th9tFaIATnQ

https://youtu.be/Th9tFaIATnQ

The Convid-19 Pandemic Black Swan Event

We hate to say I told you so, but we pretty much called this crisis out back in January, in our article about How to guard your financial assets against the Coronavirus Outbreak.
Those who heeded our warnings had a great opportunity to convert equities to cash, while stocks were at an all-time high, which would have safeguarded them against the biggest equities crash in market history. Other aspects pertaining to the crisis have been largely fluid, with the possibility of a virus outbreak in Japan, initially, USDJPY pair went to bid, targeting the 112.00 handle, and when that did not happen the yen currency reverted back to being a safe haven. And where just a day ago the pair found support at 110.0, it is now tumbling and currently trading at 108 70.


Similarly, the rhetoric from the Swiss National Bank that they were happy with negative interest rates and ready to intervene in the markets in support of a weaker Swiss franc, which has been ignored by the markets, while the USDCHF pair has moved lower and is currently training at 0.9650, flying in the face of the SNB’s threats.
Yesterday also saw the biggest daily move in almost seven months in an otherwise subdued performance of the EURUSD pair, which pushed 125 pips higher and where it hit a high of 1.1050. Amazing, bearing in mind that only yesterday, the German health minister warned of a high probability of the Convid-19 virus causing an epidemic in Germany.


This has led to the dollar coming off its highs above 99.00 on the dollar index to below 98.00 currently, while the market price in a 0.5% interest rate cut at next month’s Federal Reserve meeting. And of course, the possibility of supply chains being affected by the virus outbreak, and signs that the problem may cause more damage to the US and indeed the global economy than was previously predicted.

None of this has been helped by the fact that US equities, until last week, were at record highs, and one wonders why that was the case, especially as the levels were not supported by traditionally more modest earnings to value calculations. And the fact that the world may well have been fed false information from the Chinese Government regarding the contagiousness of the virus in the early days, and that they would get it under control. The proverbial stuff really hit the fan when the virus took hold in South Korea, Hong Kong, and Italy, and when that started to affect airlines, who restricted flight destinations and whose stocks suffered immediately, then the second contagion set in market panic selling.
So where do we go from here? The markets are going to be incredibly data-sensitive, and will also be focusing heavily on policymakers’ decisions with regard to what financial tools they will implement in the event of further escalation of the crisis. Overall, we expect further toing and froing of the dollar index, further flight to safe assets, including precious metals such as gold, yen, and Swiss franc. And further weakness in the Canadian loonie, which recently found resistance at 1:33 against the dollar, but which has now punched well above 1.34 area as oil prices continue to fall.


Cable is capped at the 1:3000 level due to its spat with the European Union and the continuing risk that it may not be able to complete a trade deal by December 2020, leaving the possibility of WTO trading rules needed to be applied and the obvious disarray confusion and the likelihood of a damaging fall out between the two sides. We expect the pair to find support at 1.2750.
AUDUSD and NZDUSD both remain southbound; such is their dependence on exporting to China.

Looking forward, canny traders and investors will be waiting on the sidelines for the virus to abate, supply Lines reinstated, and positive market data before confidently coming back into the equities space on a buying spree.
Until then, expect more market volatility, and thankfully, fewer tweets from President Trump, who has been noticeably quiet this week.

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Forex Daily Topic Forex Videos

Forex Black Swan Event Update! What Should You Be Trading & Avoiding

https://youtu.be/eIbzumSjVcc

https://youtu.be/eIbzumSjVcc

Black Swan event update!

If you missed our earlier article, a financial black swan event is usually a catastrophic event such as the Japanese earthquake and tsunami of March 2011, or virus breakout events such as the Sars epidemic in 2002/2003, Avian flu, or the Ebola breakout in West Africa in February 2014.
These events cannot be predicted and have the risk of severe consequences for the global economy. Black swan events are thankfully rare and have a severe market impact. They are also almost impossible to predict.


The latest COVID-19 breakout in China could turn out to be a major black swan event, with severe implications for the global economy.
While previous black swan events such as the 2003-2004 Sars epidemic wiped 14% off of the S&P 500 in as little as two months, it subsequently went on to recover its losses and gained from there. The avian flu crisis in 2006, the Ebola crisis in March 2014, both had similar effects, where the S&P slumped at the time only to recover and thrive after the events. It would, therefore, seem that stock indices, especially in the USA, such as the S&P 500 and DOW 30, have taken that onboard and, as yet, have suffered no real sustained selling pressure. And although both have recently hit record-breaking all-time highs, we might expect normal ebbing and flowing based on US fundamentals until the real global impact of the COVID- 19 can be seen in terms of hard data. And that won’t be available for several weeks. History tells us that the markets are prone to short jolts during such events, but they go on to recover, and in many cases, make further gains than were lost.
Another fairly typical scenario would be for investors and traders to bail out of riskier assets, such as equities, but that isn’t happening in the USA at the moment. And where safe-haven assets such as the Yen or Swiss Franc currencies get bought.


However, when the Japanese health expert who visited the Diamond Princess at the port in Yokohama said the situation on board was “completely chaotic” it left the market wondering if there could be an outbreak of the disease in mainland Japan, who earlier in the week said the virus could impact their GDP by 0.2%. This, coupled with weak data and the possibility of a spread of the infection in Japan, saw the USDJPY pair punch through the psychological 110.00 barrier this week. Should there be a breakout, it will prove catastrophic for the Japanese economy and where we might see the pair accelerate to 115.00 and beyond.


With the Yen failing to act as a safe haven we might see a continuation higher in USDCHF, where the Swiss National Bank has made it clear they are not happy with a strong Franc, and they will defend this stance by intervention, in which case we might see a return to the 0.1000.00 level.

The pound and Euro have their own problems with uncertainty regarding if the UK can reach a trade deal by the deadline of December 2020 and where the economic data coming from the Euro area looks bleak and where Germany is struggling to achieve growth. The COVID-19 virus will not help.


The Australian dollar is also on the back foot due to its dependence on trade with China as with New Zealand, and we might see AUDUSD hit 0.63 and NZDUSD test 0.60 in the short term if there is no immediate resolution in China, which looks highly unlikely.

Oil prices are at risk, and we would expect gold and precious metals to remain bid.
The Chinese government has committed to honoring the trade pact with the rest of their partners across the globe, but the longer this goes on, the more likely the markets will doubt if this is possible.

And so while the US economy remains strong and while economically and geographically it remains on peripheries of the virus event, and with its higher interest rates than the other safe-haven currencies, we should now see a further surge in the USD DXY which is approaching the psychological 100.00 level and which is now being seen by the markets as a safe haven currency and preferred investment choice.
Therefore, all scenarios are strictly data dependant and likely to be fluid and volatile as things unfold.