Long $GCAP – Why Gain Capital could see a “super spike” today

 

  • “Dinner Table Effect”. Crypto assets spiked sharply after both Thanksgiving and Christmas. Traders expecting crypto assets to again spike very sharply on Jan 2.
  • In anticipation, traders, funds and algos may start aggressively buying crypto assets today. So GCAP may see abnormally strong buying pressure today.
  • “Let it ride”. With GCAP now at steep new highs, all recent investors sitting on large taxable gains. Refusing to sell until Tues defers taxes until 2019.
  • Even at $30 most rational investors would refuse to sell until Tuesday. This allows them to hold for further gains expected from sector on Jan 2 as well as show “window dressing”.
  • These sharp imbalances could cause a year end “super spike” in GCAP. Crypto stocks LFIN and FTFT recently spiked by several hundred percent in just a single day.

 

This article is the opinion of the author. The author is long Gain Capital (GCAP).

Gain Capital (GCAP) is an established financial services company which has been in business since 1999. The company is consistently profitable and cash flow positive and provides advanced trading services to customers in over 100 countries worldwide.

Yesterday at MoxReports.com I showed why GCAP is already worth $18-23 based on its recent crypto trading launch and it prospects for increased crypto trading revenues. But I also made it clear that GCAP could actually spike much higher due to the current hyper enthusiasm for all things related to crypto. It looks like this second scenario is what is already unfolding.

Yesterday GCAP soared by 26% in the regular trading session on record volume of over 11 million shares. That volume represents nearly 30x the average daily volume and is more shares than GCAP typically trades in a full month. The stock continued 17% higher in the after hours on substantial volume, hitting $11.60.

As I sit typing this during the pre-market, the price has already hit as high as $12.70, with nearly 1 million shares already having traded before the market is even open !

I now see a reasonable chance of a “super spike” hitting GCAP shares today.

As we saw in the trading yesterday, much of the volume and price surge came in the last 90 minutes of the day and then well into the after hours. So today could make for a very interesting day of trading, even right up into those volatile last 15 minutes of the day.

 

Why are traders expecting a sector spike for crypto on January 2nd ?

Traders are widely expecting a large spike in crypto related assets on January 2nd. This is likely to lead to very strong buying today (Friday December 29th) because it is the last trading day of the year. This is why I expect to see strong buying pressure on GCAP today.

The reason that traders are expecting a sharp spike in all crypto assets on January 2nd is that this is precisely what we saw on the days after Thanksgiving and Christmas. It is called “The dinner table effect”. These large holidays are the few times of the year times when people spend substantial amount of time around their closest and most trusted friends and relatives. When tales of recent crypto riches come up, along with trusted advice urging “buy on the dips” the FOMO becomes too much to resist.

In the two days prior to Christmas this year, there was near panic selling of Bitcoin, with the price plunging by more than 30% from its recent highs. Other crypto assets were similarly affected. Yet on the first day after Christmas, Bitcoin quickly surged by more than 20% due to this dinner table effect. Likewise, immediately after Thanksgiving, Bitcoin began surging to all new highs.

CNN November 27: Bitcoin’s incredible surge hits new heights

These crypto fanatics have now thoroughly learned that any dip in crypto prices is a buying opportunity. After China shut down crypto trading in September, panic selling saw a 30% plunge in Bitcoin to around $3,000. By December it was up by more than 6x from those levels. This lesson of “buy on the dips” was then further reinforced when crypto prices again bounced back after a vicious pre-Christmas selloff.   This past week, South Korea started attempted to curtail trading in crypto currencies.   This is meaningful because South Korea often accounts for as much a 20% of daily volume in cryptos such at Bitcoin. But by now, crypto investors were no longer falling for it. Bitcoin briefly dipped a bit overnight. But by mid-day it had recovered nearly all of its losses.

 

September 14: Bitcoin Crashes After Chinese Exchange Says It Will Halt Trading

December 28: Reminder: After China Closed Bitcoin Exchanges, Prices Rallied Three-Fold

This weekend is New Years Eve and a three day weekend. People all across the country will be educating their friends and family all about the future of crypto. Some of these people are adamant that Bitcoin is going to $1 million. And even if they don’t necessarily believe the predictions that Bitcoin is going to $1 million, they will still consider current crypto prices a screaming buy following its recent pull back from $20,000. A sharp spike in all crypto related assets is therefore highly likely on Tuesday January 2nd.

 

Three reasons why investors might simply refuse to sell GCAP until next week

Taxes. GCAP has now risen by as much as 50% since Wednesday. As a result, virtually any investor who has bought GCAP this year is now sitting on very large taxable gains. By simply refusing to sell their shares until next week, they defer these suddenly-large tax payments until 2019.

More near-term upside potential. In addition, as explained above, regardless of where the price of GCAP goes today, many investors are still expecting wide spread across-the-board buying of crypto assets on Tuesday, January 2nd.   So many investors may just choose to “let it ride” until at least late Tuesday or Wednesday. Regardless of price.

Once they have established momentum, recent crypto stocks have quickly traded up by 5-10x within just days. The people with the biggest regrets recently are simply the ones who sold after the stock merely doubled or tripled.

Window dressing. Fund managers like to be able to market themselves as the “smart money”. By refusing to sell GCAP until next week, fund managers who currently own GCAP will get to publicly show in their filings that they held a high profile crypto winner as of the December 31 reporting date. If they sell just one day earlier (ie. today) then they also lose that benefit.

 

How high could a super spike take GCAP today and/or Tuesday ?

Yesterday I included a list of 17 crypto related stocks, each of which had jumped by at least 100% since November 1st. Five of these stocks had jumped by more than 5x during that those several weeks.

Today I make a different point.

When we see supply and demand imbalances like what we are seeing today with GCAP, it creates to possibility of very large moves in just 1-2 days. The advance clue is when you see a dramatic surge in volume, just like we saw with GCAP yesterday.

With GCAP, such a move could occur either today or on Tuesday. In past similar situations, much of the price spike comes towards the end of the day. This is exactly what we saw with GCAP yesterday.

We previously saw shares of Riot Blockchain (RIOT) go up by more than 6x from $7 to over $45. But this took several weeks. Other stocks literally made this type of move in just 1-2 days.

On December 15th, shares of crypto stock Longfin (LFIN) quadrupled from $5 to over $20. The very next day it again more than tripled to $72. This was a two day spike of 14x.

On December 19th, shares of Future Fintech (FTFT) tripled to a high of $5.79 in a single day.

 

Conclusion:

In many instances, these “super spikes” become self fulfilling prophecies. A few investors start piling in to a stock, but because there are few sellers, the share price starts to spike. This then draws in more momentum traders. At some point in time, the algos kick in and that is when we see super spikes like what we saw with the massive spikes in LFIN and FTFT.

 

 

 

 

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