The Wolf Den #101 - Markets Hate Uncertainty
Bitcoin Thoughts And Analysis
There is almost nothing to talk about here. Nothing has changed and it's been a while. Very few people are trading Bitcoin, as can be seen from looking at volume and social sentiment. My friend Joe at LunarCRUSH informed me that September was the lowest month this year for social mentions of Bitcoin. This is sideways, boring chop at it's finest and I see no reason to trade it.
The charts also have not changed, so updating the high time frames is meaningless.
DAILY CHART
This is basically the plan. I do not expect the lines to follow that timeline, but the general idea is that a break of the bottom line is a short, a break of the top line is a long. Ideally with a retest for confirmation. This could completely not happen, it could fake below or above, but this is what I am currently watching to get me interested in a trade. I know, not much to see here!
This is still the other approach. $10,540 is a key line as always, and the blue box is resistance. If you are trading horizontals, the "safest" long is above the blue box.
4-HOUR CHART
Price has formed a more local triangle here, between the blue lines. If you are trading shorter time frames, the plan is effectively the same - long above the top line, short below the lower line.
IntoTheBlock: Current State of Bitcoin
In this report, we bring to you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market.
This section is written in conjunction with IntoTheBlock (ITB). ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data.
The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market.
Bitcoin’s price has been relatively stable following a market-wide correction in early September. Despite dropping approximately 8% in September, Bitcoin has managed to achieve a record: it has closed above the $10,000 mark for its longest streak of 71 days and counting.
By analyzing on-chain activity, we are able to obtain a clearer picture of Bitcoin’s current state and what may come next.
Despite the lack of volatility, Bitcoin Daily Active Addresses hit a two-year high.
See the Bitcoin Addresses Stats
Daily active addresses, for instance, provide a valuable metric for Bitcoin’s usage. While the number of addresses does not necessarily equate to the number of Bitcoin users, this indicator still provides a valuable approximation to Bitcoin’s daily activity. As we can see in the graph below, Bitcoin daily active addresses hit a two-year high a few days ago:
This is a clear indication that demand to use Bitcoin has been growing steadily, as reflected in the number of active addresses. Moreover, Bitcoin saw a similar pattern in early July when daily active addresses also reached a high while prices were trending sideways. This increase in demand preceded a 20% break-out.
The number of Bitcoin ‘hodlers’ has been constantly increasing throughout the last 12 months
See the Bitcoin Ownership by Time Held Stats
The number of Bitcoin ‘hodlers’ has been constantly increasing throughout the last 12 months, even during the 50% crash experienced in March. This continuous growth in Bitcoin’s hodlers in spite of it losing half its value in one month points to the likelihood of most Bitcoiners expecting higher prices down the road. Given the low volatility environment, more and more Bitcoin addresses have opted to invest in it long-term rather than trade it as the number of hodlers recently surpassed 21 million for the first time.
Similarly, the percentage of addresses that hodl has been on an uptrend. Currently 66.13% of all Bitcoin holders have been holding their tokens for over a year, up from 62.15% a year ago. The growth in the net number of Bitcoin holders along with the relative increase in the percentage of hodlers point to Bitcoin’s strengthening proposition as a store of value.
Bitcoin Hash Rate Also Reached a New High
See the Bitcoin Hash Rate Chart
Another key Bitcoin indicator has been reaching new highs: its hash rate. In this case, the hash rate has hit several all-time highs in 2020. The hash rate — which measures the aggregate computing power contributed by Bitcoin miners — is a key indicator of Bitcoin’s security.
The growing hash rate is even more remarkable when considering the Bitcoin halving reduced the amount of Bitcoin rewarded to miners by 50%. Despite the reduced profitability, miners continue to contribute more resources to mining Bitcoin, potentially signalling their bullish stance on the decentralized cryptocurrency.
Altcoin Charts
Altcoins look terrible across the board, so it would be irresponsible to post setups, as they are likely to fail. I presently have minimal exposure to alts. Almost every setup I have shared has failed to trigger, with the coins unable to break resistance or hit a level where an entry was possible. I stopped out of ANKR and ALGO, the trades that I did take. I will discuss the ANKR trade in a case study in the education section below.
The alt market literally dumped about 2 minutes after I sent out the newsletter on Tuesday, so it's unlikely any of you took those trades, as they never broke resistance!
I have no interest in trading alts right now. As I discussed in the intro, the market is uncertain and shaky.
Sitting on the sidelines is as much a position as taking a trade! Wise traders only take action when the market looks good.
Let's take a look at Bitcoin Dominance and Ethereum, both of which can be good indicators of what is happening in the alt market.
BITCOIN DOMINANCE
As you know, we often look to the Bitcoin Dominance chart to see what's likely happening with alt coins. Alts tend to do well when Dominance is dropping and to underperform when it is rising.
It is presently rising.
We were in a sustained downtrend for months which I chronicled and largely predicted. That trend is presently over, although it can change quickly.
I recently simplified to the Dominance analysis to this one line, as a break through signaled a break of the downtrend. Well, that line has now been broken, tested as support a number of times, and been left behind. This is a decent signal that alts are not worth trading for the time being.
ETH/BTC
The Ethereum/Bitcoin pair has been flirting with more downside for quite a while. As you can see, there was clear bearish divergence with overbought RSI that indicated a top was likely in. We then saw the formation of a clear head and shoulders. The red box was a "breakdown," but was not valid because of the lack of volume. A head and shoulders should always see significant volume on a breakdown! It ended up being a fake out (small bear trip) for a move up.
Price is back at the same neckline, threatening a break down. If it does drop, look for volume to confirm the pattern and move. For now, it's sitting on support so there's nothing to worry about yet.
We have not seen hidden bullish divergence to cancel the bear div, and we expect RSI to eventually travel from overbought to oversold. It's not particularly close yet, so more downside could definitely be in the making.
ETH/USD
This is NOT a trade. I continue to average into ETH as an investor, but have no interest in it for trading. As you can see, price has formed a clear range, and price is trading below the EQ (equilibrium, center dashed line). We want to see price in the top half of the range. At the moment, the only viable trades would be to long a break of the top or short a break of the range bottom.
We saw clear bearish divergence with overbought RSI repeatedly, so the top was likely in weeks ago for now.
Altcoin Psycho also had some thoughts, which are effectively the same:
This set up is quite simple. I think ETH will chop around between the two ranges here until make a decisive move. If you aren't comfortable scalping choppy markets, it's okay to sit out here until we have a more clear set up. My plan is to go long if we close above, and short if we close below.
Legacy Markets
Thoughts and charts below from Altcoin Psycho.
Watch alert: I'm not entering a trade yet, but keep your ears peeled on stimulus talks. If we do pass another round of stimulus, I will be market buying $DAL (Delta Airlines) and $UAL (United Airlines). No chart needed on this one since it's not based on a set up (for now). I will update everyone with a chart if the stimulus bill gets passed
APT (ALPHA PRO TECH)
I really like APT here. There's a lot of uncertainty around the President's health, and regardless of what you think is going on, the truth is that the covid uncertainty always makes $APT pop. APT is one of the leading producers of masks. And with Biden reiterating that he plans on issuing a nationwide mask mandate, I think APT will continue to jump. From a technical perspective, the chart looks really strong with the continuous higher lows. It looks like we're about to break above the resistance ahead. Invalidation is if we close below the dotted blue line.
APT was a massive play for newsletter subscribers a few months ago.
SPWR (SUNPOWER CORP)
Update on $SPWR: In last week's newsletter, I shared SPWR and mentioned it as a buy at around $11 with a target of $15. Well one week later we've already moved almost $5, breaking the target of $15. I took half off here, but am letting the rest ride out. The rest I will likely hold long term depending on how the election shakes out. If you believe Trump will win, get out before the election. If you believe Biden will win, SPWR will be a great hold through early next year and will likely uptrend until the macro market loses its bullish momentum.
For SPWR, the green box is where I intend on reloading my longs (if) we dip down that low.
Trade Management Case Study - ANKR
This is an interesting case study, because it was both a profitable and losing trade, depending on when you joined and how it was managed.
The first entry was shared a few weeks ago in the newsletter, which was around 44 sats. I took the trade at 47, when it broke the descending resistance, rather than trying to catch the dead bottom on the bullish divergence with RSI. I set my stop loss at 39 sats, to give it some room below the 43 level for a long wick and liquidity grab. I thought there was a chance we would see a quick move below that level, and that would also account for a retest of the descending line as support.
I immediately set take profit orders at the 3 lines shown, and sold 25% of the position at 58 on the very next candle. Price continued to look bullish, so I kept my stop in place and waited for higher targets. Price hit the 70 sat target as well, and I sold another 50%, with 25% remaining for the target at 85.
That was the good part.
On Tuesday I shared another trade idea on this, which was still a "good trade" because it had a lot of upside and limited downside. That's what we are looking for - good risk/reward. We cannot control what happens, so we need to make sure we control our losses.
I entered again at 70 sats, I kept the same stop loss in place, because I was already well in profit on the trade and as I said on Tuesday, I only intended to close the trade if I saw a candle CLOSE below the 70 line. I was expecting a wick below at least, and did not want to get stopped out there.
When support breaks, we usually see a retest as resistance. The candle broke support and closed at 65, so I knew I wanted to exit. I ended up exiting for a small loss at 68 sats after the drop to 65 sats. Price ultimately continued down and is presently trying to hold support at 58 sats and is presently oversold again on RSI. I will be watching for bullish divergence to potentially enter again.
Diginex Is The First Crypto Exchange On Nasdaq
Diginex, an institutional grade crypto company that owns the exchange Equos, has been listed on the NASDAQ, which is a massive move for the entire cryptosphere. Diginex also owns a custodian, investment bank and VC, asset manager and basically everything else any institution could need to simply and safely gain exposure to the space.
What's most meaningful here to me is that an average person can now gain exposure to crypto without having to buy Bitcoin - something that many are hesitant to do. Another step towards mainstream adoption. If you missed it, I had Richard Byworth, the CEO of Diginex, on the podcast a while ago.
All Stocks Could Be Tokenized
Like it or not, the future is digital, and with that comes total tokenization. Jay Clayton, the SEC Chairman was just recently in a meeting with the OCC (Office of Comptroller) acting comptroller Brian Brooks, and in it, Jay publicly said, “it may very well be the case that those (stocks) all become tokenized." He cited the evolution of stocks from paper certificates, to digital entries, to blockchain’s all-encompassing tokenization as his reasoning.
While welcoming crypto innovation and the challenge it poses to banks, Brooks noted that “most cryptocurrencies projects are going to fail.” I agree. While all boats may rise for now, eventually like the dot-com bubble, only the strong will survive. On a bullish note, the meeting between the SEC and OCC revealed their keen awareness of the space and what it brings to the table.
Bitcoin Pledged To Each Congressperson
The “Crypto for Congress” initiative has pledged to donate $50 of Bitcoin to every person running for re-election in the U.S. House and Senate. The plan is to give members of Congress a chance to interact with Bitcoin and thereby receive a bit of crypto education (they could just join the newsletter).
After Congressman Tom Emmer’s recent announcement that he would accept campaign contributions in the form of cryptocurrencies, we predicted similar announcements would follow suit.
The ultimate goal is to continue raising awareness until crypto and blockchain become a wider political concern.
The SEC Catches Up To John McAfee
The SEC has charged John McAfee with illegally promoting unlicensed securities in the form of 2017 ICOs. Just yesterday, October 5th, the SEC found McAfee to be violating anti-trust laws and anti-touting laws. During the ICO boom, McAfee lied to investors on the coins he owned and dishonestly denied that he was receiving compensation for his promotions. He allegedly made 23 million dollars from this activity.
ALWAYS do your due diligence on a project, even when your favorite influencer is doing the promoting.
The Wolf Of All Streets Podcast Ft. Mike McGlone
Mike McGlone grew up 20 minutes from the Chicago Board of Trade with a deep interest in finance and trading. Climbing the ladder quickly, Mike went from taking phone calls on the trading floor to becoming a Senior Commodity Strategist for Bloomberg Intelligence. Having spent his entire career in Chicago and on Wall Street, Mike has a keen eye for macro economic trends, in legacy markets and beyond. While his opinions are strictly his own and not financial advice, Mike believes to have strong evidence for a long-term bullish Bitcoin scenario.
Mike and I further discuss the screams and shouts of the trading pit, determining the volume of the market by the odor of the other traders, the Bloomberg Terminal, the election’s impact on the market, CBDCs' unstoppable trend, tempting the market gods, quantitative easing, the classic signs of a bear and bull market, the growing advantages of hard assets, where the market is heading, Bitcoin’s true value and more.
Sponsored By:
ROUNDLYX
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EQUOS
Diginex is the first company with a cryptocurrency exchange to be listed in the US. That exchange, EQUOS, has been built to institutional standards, but is available to everyone. You can trade Bitcoin and Ethereum spot, as well as Bitcoin perpetuals, and get a 5% discount on all fees, by signing up using equos.com/wolf.
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CELSIUS
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My Recommended Platforms And Tools
This is where I trade with leverage and can also trade spot with no fees.\
This is where I spend my days teaching and learning! Our Discord group is a one stop shop for everything you need to learn to trade and control your emotions. Feel free to DM me on Twitter or respond to this email for questions.
This is where I invest, commission-free. They now let you earn interest on your Bitcoin held in Voyager, so you can compound while trading. Not only that, you’ll get $25 in free BTC when you download & fund.
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I use RoundlyX to buy small amounts of Bitcoin every single day. They automatically round up my credit card purchases (with 10x multiplier) and invest them in crypto. Absolutely brilliant. Passively invest money you don’t need without a thought. Further, they have integrated with Voyager (see above) to offer commission-free purchases.
Rewards Code: WOLF
This is one of the main places where I hold crypto to gain interest. Celsius also offers dollar or stablecoin loans against your crypto, starting at just 1% annual interest. Celsius is giving WOAS followers $20 to open a new Celsius wallet. All you have to do is enter promo code WOLF, then transfer and keep at least $200 worth of crypto in your wallet for 30 days.
My preferred crypto tax software.
Binance is finally available in Florida!
Concierge Phone Service for Americans that protects your from SIM Swaps and other phone related hacks. I cannot stress enough how amazing this service is.
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
On-chain and fundamental analysis, research, predictions and indicators, all in one place. Highly recommend.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor.