Bitcoin Has Slumped Below $10K. What’s Next?

July 23, 2019
“The secret to investing is to figure out the value of something and then pay a lot less”
― Joel Greenblatt

5-Day Change

  • Bitcoin: $9,993.00
  • Ethereum: $212.04
  • S&P 500: $2,984.89
  • Dow Jones: $27,170.62

Top Trading Ideas:

Why Bitcoin is Declining? And What’s Next?

No, the end of the 2019 bull run isn’t near...and all it takes to know that is a look at the charts. Bitcoin has broken back up above the $10,000 ceiling, and the correction that brought it down to $9,600 last week seems to be coming to an end. That doesn’t eliminate the risk of more losses, but the major news driving the price down last week has already passed, like the Libra hearings and the Trump tweet. Now that this is over, it should lead to a resumption of the upward trend we’ve seen most of the year.

So what are the charts saying, anyway? Charts don’t talk, but a good technical analyst can get them to sing. For example, a clear break with the upper trendline of the short-term trendline can be seen, reversing the downtrend. The  Stochastic is also in the oversold range, meaning that a near-term price appreciation is likely. There are a few countervailing signals, however - a declining MACD, for one, but the overall picture is of a corrective wave that is passing.

How are the altcoins doing? They’ve more or less resumed their usual behavior of mimicking Bitcoin moves, with Ethereum dropping 5.67%, in line with Bitcoin’s fall of 5.75% over the week. On the other hand, Ripple and Litecoin both appreciated this week, 1.69% and 4.05% respectively. For Ripple, that may have to do with a recent Bank of America patent filing giving the name more exposure. And Litecoin may be reverting to its previous status as an outlier altcoin.

Can anything bring power back to the bears? It’s not entirely smooth sailing for Bitcoin from here. While individual US congresspeople have noted that there’s ‘ capacity to kill Bitcoin…’, the overall mood on Capitol Hill has soured on cryptocurrency following the Libra hearings, with Treasury Secretary Steve Mnuchin mentioning that he’s ‘not a fan’ of Bitcoin. There’s also the possibility that the price breaches $12,000 and swiftly corrects back down under $9,000, which, coupled with increasing bad press, could send the price down for a while.

Wut We Think: As fun as watching the daily charts can be, never forget that there’s plenty of evidence to support Bitcoin’s appreciation in the medium-to-long term or HODL. Linear regression models over the past four months have indicated nothing but an upward trend, while the Bitcoin network itself - the true fundamental of the cryptocurrency, has never been stronger. There’s also the Bitcoin halving due in a little under a year, which almost guarantees to cause price growth the closer we get to it, due to the literally halved supply. In other words, corrections can and will happen, but it’s a good bet that Bitcoin isn’t going to see a repeat of 2018 any time soon..

Microsoft sets a profit record ($13B). What are the underlying drivers of this growth?

The days of Micro$oft are long gone...and now the venerable tech company is embracing a new title - Wall Street sweetheart. This comes in the wake of the reveal that Microsoft has posted a record profit of $13.19 billion in the fourth quarter of 2019 fiscal year, which ended on June 30, making it the only company currently worth 1 trillion dollars. If those numbers are hard to parse - you’re not alone. Microsoft is now worth more money than the GDP of most countries, putting it in an exclusive club with Apple and PetroChina - though neither can boast of that sweet trillion at the moment.  

How did they do it? Easy - strong growth in all three of its main focuses - cloud, PCs, and business software - though cloud was the biggest gainer, growing in revenue 14% (up 17% in constant currency) year-over-year, with net profit margin at 23%. And it keeps going, Q4 revenue grew 14%, and CFO Amy Hood said that cloud will keep delivering double-digit growth throughout the year.

Is cloud really that important? While your local mom-and-pop grocery store down the street probably doesn’t need it, nearly everybody else does. Storage and bandwidth have gotten cheap enough that the economics of scale play a role. And the growth follows. While Amazon’s AWS still leads the pack in cloud, Microsoft’s Azure is now second by market share, with 73% y-o-y Q4 improvement.

And everything else? As impressive as the cloud numbers are, business software, including Office and Linkedin, and hardware, including the Xbox gaming system and PC sales, hasn’t disappointed either. LinkedIn revenue grew by 25% (up 28% in constant currency) in Q4 with record levels of engagement highlighted by LinkedIn sessions growth of 22%. The gaming grew 9%. All in all, every segment in Microsoft saw revenue growth for the 2019 fiscal year, and the company’s outlook for the 2020 fiscal year forecasts growth in every segment.

Wut We Think: Microsoft has never looked quite so attractive. It’s stock jumped 3.1% on Thursday, the highest intraday jump on record, and with every part of the business expected to grow the rest of the year significantly, it’s hard to see a downside. Microsoft has even avoided the legal and regulatory battles other tech giants such as Google, Amazon, and Facebook have found themselves in. This success can be attributed to CEO Satya Nadella’s handling of the company since he took the reins in 2014. It may be one of the older tech companies now, but in Microsoft’s case, it still has a lot to teach the upstarts - and a lot to look forward to.

Netflix Loses 130,000 Subscribers in Q2 and its price tumbles. Here is WHY

It turns out it’s easy being a market leader when there’s no competition...but with Disney, HBO, and others launching or growing their streaming services, Netflix is feeling the hit. The video streaming company lost subscribers for the first time in a decade according to its Q2 earnings, filed last Wednesday. But the bad news doesn’t stop there. The company also missed its subscriber growth target by a significant amount, gaining only 2.7 million new subs compared to the 5 million forecasted. Due to all of this, Q2 earnings led to an immediate 12.2% price drop and is now 15% down at press time.

What happened? A lot of factors contributed to the fall. According to Netflix’s comments during their Q2 earnings call, the subscriber miss was due to a simple miscalculation. And as Netflix put it, the difficulty of accurately forecasting growth numbers. On the other hand, the earnings call didn’t mention the loss of subscribers due to rival streaming companies - popular shows like The Office and Friends will leave Netflix this year and the next, dulling reasons to resubscribe for some viewers. It’s two biggest markets, the US and the UK, also saw price increases for the service in Q2, further depressing that quarter’s numbers.

But Netflix isn’t dead yet: Netflix execs on the earnings call pointed out that even with US growth lags, the international market is still ripe for expansion. With a particular focus being paid to India and Scandinavia. Their massive content spree hasn’t slowed down either - with so many popular staples being reclaimed, Netflix is pushing harder than ever for original content, and is expected to hit $15 billion in spending this year. 

What about the future? Q3 seems to be on the right track, at least, with hit shows like the third season of Stranger Things. But Q2 earnings have brought along a lawsuit from shareholders, alleging that the missed subscriber growth was ‘misleadingly represented to investors’. On the other hand, Q1 saw 9.7 million new subscribers, and the spring season has traditionally been a weak one, with content offerings in Q3 and Q4 significantly more appealing to viewers.

Wut We Think: Doom and gloom are always trendy stories, and Netflix is indeed facing significantly higher competition than before, especially with losing some of their most popular shows. Disney, ABC, TimeWarner, and Apple are all going strong into the streaming game. But Netflix still has tons of popular shows coming up, and their focus on productions for local markets, like India and other countries, gives them a leg up on other companies, whose shows have traditionally been focused on the US market and US pop culture. If Netflix can capitalize on that international growth, then it’ll be in a good place for a while to come. But if it misses its Q3 guidance as well, then Netflix may well be in real trouble. 


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