It wasn’t that long ago that Goldman Sachs was watching the $4,827 level on Bitcoin USD, predicting a bull market. This was before exchange heavyweight CMEGroup and Terry Duffy piled into what was declared an asset that could be “tamed.” In announcing the launch of Bitcoin futures, a move juxtaposed to that of JPMorgan’s Jamie Dimon, who called investments in the cryptocurrency a “fraud,” CMEGroup isn’t taking directional price exposure but rather transactional exposure. Such market gyrations are playing themselves out as Goldman Sachs, after accurately predicting the recent price rise in Bitcoin USD, now looks to $7,941 as a new cryptocurrency hedge fund launches in the wake the CMEGroup’s Bitcoin announcement.
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Former Citadel portfolio manager launches cryptocurrency hedge fund despite seeing “hype” exceeding reality
When former Citadel portfolio manager George Michalopoulos decided to primarily trade cryptocurrencies in his newly formed hedge fund, he recognized it was an asset class where “hype has exceeded reality.”
“I understand the skepticism behind cryptocurrencies,” he told ValueWalk after announcing the launch of the Leonidis Cryptocurrency Fund on Typhon Capital’s Argos Fund Platform, first reported by HFMWeek. But to Michalopoulos, it looks like the 1990s with the launch of the Internet. On a long-term basis, “the technology is changing the game.”
Looking at the short-term price patterns, however, is where he sees a reduction in volatility and a consolidation in a trading range. But in 2018 he thinks the currency will continue its ascent higher. “Short term the market is a little one-sided,” he said, but he doesn’t see a major drawdown, just more consolidation. While there has not been a long statistical price history behind cryptocurrency trading, he notes that “investors have exhibited a tendency to withstand high volatility markets.”
Goldman Sachs sees Bitcoin USD price rising on technical level
Michalopoulos bullish outlook isn’t that different from that of Goldman Sachs technical analysts Sheba Jafari and Jack Abramowitz.
In a client report out November 5, the pair sees a consolidation with a corrective pullback potentially testing the 6,767 level before embarking on another leg higher to challenge the 7,941 level.
Jafari and Abramowitz say that now that the Bitcoin USD $4,921 level has been broken, “this opens up the possibility of being in wave three.”
Much like standard technical analysis in commodities, currencies, and equities, the Goldman analysts see price cycles taking place and apply traditional Fibonacci analysis as they predict a lull in the price action at the end of a fourth wave.
“It’s important to emphasize that a stall near 7,941 should be viewed as corrective/counter-trend,” they told clients. “A typical 4th wave will often hold ~23.6% of the length of wave 3; which from 7,941 measures out to ~6,767. Given that this is just a 3rd of 5-waves up, the implications are that Bitcoin USD has potential to run further over time.”
Michalopoulos, for his part, utilizes technical analysis common in managed futures CTA strategies for his Bitcoin USD price target but also applies a fundamental overlay to drive both long and short strategies. He is willing to invest long in certain initial coin offerings (ICOs) when there is a strong fundamental base case. On a technical level, his strategy performance drivers include momentum factors, Fibonacci levels and trading bands among other indicators.But it is a fundamental overlay, particularly in adoption rates, that is the primary performance driver of the trade execution.
While recognizing that there is “a lot of snake oil” and marketing ploys in the ICO market, he looks for offerings that have a strong technical justification and “address a pain point” and will go long during strong market environments of price persistence.
When it comes to shorting cryptocurrencies, he only uses listed derivatives. “The opaque over the counter (OTC) market doesn’t have the liquidity,” Michalopoulos said, noting that during high volatility periods it is an exchange-traded product that is best for getting in and out of markets quickly.
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