The Wolf Den #1023 - From The Mattress To The Market

Don't Sleep On Cash...

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In This Issue:

1. From The Mattress To The Market

2. Bitcoin Thoughts And Analysis

3. Altcoin Charts

4. Legacy Markets

5. USDe Is live On Solana

6. Crypto Is Winning This Election At Every Level

7. Ripple Wins—It’s All Over

8. I Have My Concerns

9. Crypto Explosion: Bitcoin Bounces Back & Meme Coins Soar | What’s Next?

From The Mattress To The Market

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The psychology of holding cash in a portfolio is fascinating.

On one hand, too much cash can erode investors' risk appetite, leading to missed growth opportunities. On the other hand, having too little cash can leave investors vulnerable to unforeseen expenses or market downturns, potentially forcing them to sell investments at inopportune times.

Today, I want to explore these two extremes to ensure you're not either literally sleeping on a pile of cash under your mattress or ‘sleeping’ on the benefits of having some cash readily available.

Looking back to just the beginning of the decade, there have been several key opportunities where holding cash proved to be a highly advantageous strategy. For instance, during the COVID-19 pandemic, the S&P 500 plunged approximately 34% from its peak in February 2020 to its trough in March 2020. Additionally, the index endured a bear market, falling around 25% from early January 2022 to October 2022. And then even this week, a flash crash that opened the door for a fire-sale on blue-chip equities at steep discounts—I haven’t even touched on crypto yet.

I found this fun fact while prepping for this article - interesting, right?

Fully allocated investors miss these rare opportunities to lower their cost average during these windows. However, they also avoid the additional risk and emotional stress that can come from managing cash in a portfolio - everything has its trade-offs.

Holding cash can be advantageous if you're able to deploy it at the right times. However, for most investors, it often has the opposite effect, adding pressure to decision-making and creating the illusion that precise market timing is increasingly important.

For fully allocated investors, the advantage is that they will see gains from their initial purchase point to their final sell point. They don’t have to worry about moving in and out of positions or holding onto cash that could have been deployed earlier but never reached the initial starting point on a dip.

Speaking of dips, a fully allocated investor with a long-term time horizon is unlikely to see a dip that revisits their initial starting point—after a significant passage of time - assuming they are invested in major indexes or high-quality positions. In this instance, it probably would have made more sense for them to deploy the cash when it was originally ready to be invested rather than sitting on it because it’s ‘common practice’ to hold cash.

For cash to play an effective role in a portfolio, an investor needs access to the cash, a need for cash, good timing, and a willingness to act. Surprisingly, timing isn't as challenging as overcoming fears and seizing the opportunity when it arises. Investors don’t fail at spotting the dip; they fail to take action.

During corrections and bear markets, it becomes harder to take action. Conversely, it becomes easier to take action when you are sitting on cash and your assets are rising, tempting you to put everything you have to work. Our emotions are always working against us.

From the outside, it’s easy to think falling stock prices would encourage buying, but having cash on hand can be very tempting. It’s like binge-watching TV on the sofa when you know you should be exercising. As the market continues to slide, this comfort can lead to procrastination, where you keep promising yourself you'll invest once prices drop a bit more or once things seem more stable. Each time the market dips, you push the threshold for when you'll buy even further, until you find yourself stuck in a cycle of inaction… and then it’s too late.

Imagine this scenario stretched not over months but years—the wall of anxiety to climb and escape only grows taller and steeper.

For long-term investors who prefer to be fully allocated and are skeptical about the benefits of holding cash, consider this: cash represents your reserve purchasing power that increases whenever an asset you’re interested in drops in value.

For investors looking to accumulate more Bitcoin, a 30% drop in its value makes the cash in your portfolio 30% more valuable. By accumulating cash, you can then build a list of assets you want to acquire and act when the time comes on those with the steepest discounts without having to sell other positions at a loss or gain. Fully allocated investors miss out on this opportunity entirely.

Furthermore, fully allocated long-term investors might question the need for cash if a dip only returns asset prices to where they were a few months ago, especially if they've been invested for a longer period. What they overlook is that holding cash provides the flexibility to quickly seize new opportunities as they arise, which may not have been present before, and to pursue investments with excellent risk/reward potential.

Hopefully, what I am imparting is that cash can play an effective role in a portfolio for skilled investors and that sitting on the extremes of hoarding it and avoiding it comes with their own set of drawbacks.

Don’t act like a hedge fund manager and feel the need to time the market perfectly with a massive sum of cash waiting for the ‘perfect’ opportunity.

Conversely, don’t be a bum who goes all in and then ‘sleeps’ on the advantages of keeping some cash to make strategic moves when opportunities arise.

Buy assets you like, hold them for a long time, deploy cash periodically, and be patient. You should sleep comfortably at night, not stressed about an overallocated position or stacks of cash under your mattress.

Before I finish, I want to address the buildup of Ethereum FUD happening on the timeline right now. The last time we saw sentiment this negative was moments before the ETH ETF was approved when the odds were sitting at 6% on Polymarket. Solana has really become the darling of this cycle, but consider where the DeFi space would be without Ethereum. You can say goodbye to Polymarket, Base, RWAs, stablecoin creation and issuance, NFTs, tokenization, lending, and so much more.

Solana broke through the barrier that once separated Bitcoin and Ethereum from everything else, and its price appreciation reflects its quest to find a fair value footing among these two assets. Solana is excelling in stablecoin volume and retail capture, but Ethereum continues to play a crucial role in expanding the possibilities of DeFi, and I expect its price will eventually reflect that. However, Solana is clearly the darling of this cycle, much like Ethereum and Bitcoin were in previous cycles.

As for Solana: solid recoveries from weak times often lead to explosive gains in strong times. Solana is a strong pick.

As for Ethereum: don’t let market sentiment fool you. Ethereum remains a high-quality asset and will still catch a bid.

Bitcoin Thoughts And Analysis

WEEKLY CHART

We have a SERIOUS weekly reversal candle brewing, but it is only Thursday. As you can see, we have a long wick down through support, and a tiny candle body. This shows tremendous buying demand on the drop.

We will have to see how the week ends, but the higher this close happens the better. If price returns down, we do not want to see the wick disappear.

Altcoin Charts

For those who are new here, I share SETUPS and not SIGNALS. These are ideas that I am watching - if a certain thing happens, then the trade triggers. I am not telling you what to buy or when. I am showing you how I am watching certain charts and what has to happen for me to take a trade.

XRP/USDT

This is NOT a buy signal, but rather an analysis of the chart following the XRP decision. XRP is now clear of any litigation overhang.

However, I still see a major descending blue resistance line that has remained unbroken since 2021. I cannot imagine buying below that line, but a breakthrough should signal a powerful upside move. That said, we see fake outs all the time.

I have an alert set for a break of the blue line and would want to see it on massively increasing volume. If that happens, this looks good for a trade, regardless of your feelings toward the asset.

Legacy Markets

• US Index Futures Waver With Focus on Jobs Data: Markets Wrap

US equity-index futures fluctuated while European stocks declined, continuing the recent market volatility driven by central bank policy debates. Contracts on the S&P 500 and Nasdaq 100 swung between gains and losses, while Europe’s Stoxx 600 index fell, dragged down by technology and mining shares. Japan’s Topix Index also dipped after an earlier rebound. The dollar weakened, and Treasury yields dipped.

Tepid economic data has fueled worries about a deeper slowdown due to Federal Reserve policy. Thursday’s US jobless claims figures are under scrutiny following weak payroll numbers last week. Investors are also watching for potential interest rate moves by US and Japanese central banks, which could strain the yen-funded carry trade.

Kerry Goh of Kamet Capital Partners described the market as being in a “consolidation period” with investors likely staying sidelined until new data appear, adding, “The next couple of days will be crucial — either calm returns, or we see a new bout of volatility emerge.”

Corporate earnings continue to influence markets. Warner Bros Discovery shares plunged after a $9.1 billion write-down, and Monster Beverage Corp. slid after missing profit estimates. In Europe, Siemens AG and Zurich Insurance Group AG saw declines, while Allianz SE and Deliveroo Plc reported stronger earnings and gains.

The divergence in US and Japanese central bank policies is impacting the yen's role as a cheap funding source. The Bank of Japan reassured that it wouldn’t raise rates when markets are unstable, helping buoy stocks and lower the yen.

The debate about the US economy’s path continues, with JPMorgan Chase & Co. now seeing a 35% chance of a recession by year-end. However, some investors, like Francois Rimeu of La Francaise Asset Management, believe the economy is simply experiencing a slowdown, not a dramatic downturn.

The dollar weakened on Thursday, and lackluster demand for a 10-year Treasury auction posed headwinds. In commodities, oil steadied after its biggest advance in a week amid market fluctuations and Middle East tensions.

Key events this week:

• US initial jobless claims, Thursday

• Fed’s Thomas Barkin speaks, Thursday

• China PPI, CPI, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 6:47 a.m. New York time

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average fell 0.2%

• The Stoxx Europe 600 fell 0.8%

• The MSCI World Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro was little changed at $1.0924

• The British pound was little changed at $1.2687

• The Japanese yen rose 0.3% to 146.29 per dollar

Cryptocurrencies

• Bitcoin rose 4.2% to $57,460.88

• Ether rose 4.1% to $2,446.81

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.92%

• Germany’s 10-year yield declined three basis points to 2.24%

• Britain’s 10-year yield was little changed at 3.94%

Commodities

• West Texas Intermediate crude fell 0.2% to $75.08 a barrel

• Spot gold rose 0.7% to $2,400.60 an ounce

USDe Is Live On Solana

• Synthetic Dollar Protocol Ethena Expands to Solana, Includes SOL as Backing Asset

The synthetic dollar protocol Ethena, developed by Ethena Labs, has announced the deployment of USDe on Solana. This allows users on Solana to transact using USDe, a synthetic dollar pegged to $1, and to stake USDe to earn yield.

From the official Solana announcement: “USDe is a crypto-native synthetic dollar that aims to solve the problem of scalability and censorship resistance in stablecoins.”

From the official Ethena Labs announcement: “Deployment on Solana allows Solana users to transact in USDe, as well as accrue Ethena's native rewards with sUSDe. >90% of the $3.5bn in stablecoin supply on Solana do not allow users to accrue rewards.”

The future of DeFi isn’t fragmented blockchains; it’s seamless transitions between them without even realizing it. Ethena is the 8th largest DeFi protocol by TVL, so it will be interesting to watch this collaboration develop.

Crypto Is Winning This Election At Every Level

• Crypto Super PACs win big backing candidates in 3 US state primaries

Major news outlets are catching on that three primary races in Missouri and Michigan were influenced by crypto-focused funds from the Fairshake Super PAC and its affiliates, with a fourth in Washington possibly being a victory as well. Fairshake and its affiliates, the Defend American Jobs PAC, and the Protect Progress PAC, invested roughly $4 million combined into these four primary races to support pro-crypto candidates or oppose anti-crypto ones.

What’s exciting about this news is that this is only the beginning of crypto influencing who is elected. Fairshake said it's securing advertising time in 18 general election contests, where it plans to spend $25 million on its picks for Congress. These contributions bring the crypto industry up to a seven-digit war chest to oppose candidates backed by Sen. Elizabeth Warren. We can soon kiss Warren’s anti-crypto army goodbye.

Ripple Wins - It’s All Over

• Click HERE To View The Tweet

District Judge Analisa Torres has ordered Ripple to pay $125 million in civil penalties and imposed an injunction against future securities law violations. The federal judge found that 1,278 institutional sale transactions by Ripple violated securities law, leading to the fine. Thankfully, this amount is significantly lower than the $1 billion in disgorgement and prejudgment interest and $900 million in civil penalties the SEC sought.

The order follows Judge Torres' July 2023 ruling that Ripple violated federal securities laws through direct sales of XRP to institutional clients, though programmatic sales to retail clients did not violate securities laws. The SEC's attempt to appeal this portion of the ruling was unsuccessful. Judge Torres banned Ripple from future securities law violations, citing a likelihood of future infractions. Ripple is required to file a registration statement if it intends to sell any securities.

Some might view this as a win for the SEC, given that they collected funds and demonstrated Ripple's violation of securities laws, albeit only concerning institutional sales. However, anyone familiar with the crypto industry recognizes this as a win for the sector as a whole.

I Have My Concerns

• Click HERE To View The Tweet

I can't help but read this tweet and be reminded of when Trump shared on Truth Social about a “MAJOR ANNOUNCEMENT,” which turned out to be an “official Donald Trump Digital Trading Card collection” in the form of NFTs for $99 each. I'm not knocking the NFTs—they sold out, and the fans seemed to like them—but it wasn’t quite the announcement some of us had in mind. I’ve seen rumors that this “HUGE” announcement is tied to some sort of real-estate RWA Trump-themed investment, but who knows. Given the track record of 'MAJOR ANNOUNCEMENTS' from this family, I'm not holding my breath - I hope to be wrong.

Crypto Explosion: Bitcoin Bounces Back & Meme Coins Soar | What’s Next?

Haseeb Qureshi, the Managing Partner at Dragonfly Capital, a global crypto investment fund, joins me today to discuss the latest in crypto, global macro, and venture capital.

Chris Inks will join us in the second part to share some interesting trades in crypto and beyond.

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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. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.