The Wolf Den #103 - Will A Biden Victory Crash The Stock Market?
Bitcoin Thoughts And Analysis
Bitcoin finally moved! We have been waiting for some volatility to return to the market, which happened this weekend with a beautiful move up. There will be retraces, but technically things look bullish after a clear break to the upside. Let's take a look at the charts.
MONTHLY CHART
It is the middle of the month, so not much to see here. Just wanted to make sure to share the key levels again on this large time frame. Everything look bullish here, so far, with another potential successful retest of the $10,540 area as support.
DAILY CHART
As you know, I had a plan in place for either scenario, but was favoring up as more likely. We saw the 50 MA on the daily flipped to support last week and have seen nothing but bullish movement since. Price ultimately broke the descending black resistance of the triangle and move up, smashing horizontal resistance in the process.
I was on vacation and did not take the trade, because I was sitting on a beach instead of staring at a chart.
You can see that a fresh horizontal was created (red) and tested perfectly as support. Nice.
Also, there was a nice and clear short scalp opportunity around the top, when price pierced the 70.5% OTE (optimal trade entry). Nothing to worry about, just a good spot to take a shot on a likely retrace, which happened.
This was the other daily setup that I shared, and it did not disappoint. We had clear demand in the red box, with 7 long down wicks in a row. I was not particularly interested below the blue box, which was broken and flipped to support TO THE DOLLAR. That was a really nice entry, if you were watching and caught it. That's the spot I was looking for.
4-HOUR CHART
There was clear bearish divergence with overbought RSI at the top. Another sign there was a nice scalp short opportunity there. That div is still valid, so we could see more downside. That said, this would almost definitely print a hidden bullish divergence, a signal that the bear div is invalidated and price is ready to continue up. Watch for that, it's not there as of yet.
Bottom line, we got the move we were looking for. Now it appears price may consolidate and make a decision as to whether to retrace more and come down to test support levels, or continue up. I don't see a clear trade at this exact moment.
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.
This Week: Current State of Bitcoin
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 signaling their bullish stance on the decentralized cryptocurrency.
Altcoin Charts
We saw some amazing movement from altcoins since the past newsletter. It's been a while since alts looked that likely to bounce. We are once again at more of a "wait and see" moment as Bitcoin has been volatile. Here are a few things that I am watching.
BAT/BTC
BAT does not look very good. It has been ranging sideways for over a year, with a strong rejection at the range highs a few weeks ago that I shared, stating that this was likely to head way back down. It has.
So why am I sharing it?
It's currently testing a major weekly support, the black ascending line which has already held a few times. I am willing to take a SMALL position here, because it is a weekly chart and confirmation that it has failed could come with a pretty large drop on a weekly candle before getting the close. We could still see a wick down and for the line to hold as support. If this line fails on the weekly close, I will be looking to the bottom of the range, which ultimately is where this looks likely to head.
So, small position because it's hard to place a stop on a weekly chart without it being "too tight." The real invalidation comes with a weekly close below the black line. Targets are the channel EQ (dashed line) and the top of the range. If it can break above that, sky is the limit.
BQX/BTC
BQX is in a large descending wedge, with decreasing volume since the major spike and movement up in July. You expect to see decreasing volume during consolidation. My approach to this trade is simple - a break of the top descending resistance. I have an alarm set there. Any other entry is risky, although I think that anything above the red line at 929 has a decent R/R for a move up. Still, I want the confirmation of the macro move up, which would be breaking the wedge. That is a clear (but not guaranteed) sign that the recent downtrend is over and price is ready to head back up.
The line at 929 has held well, with a couple of small wicks below and candle closes above. Those are small local SFPs, so there's clearly some buying interest.
Again, the reason I want to see the wedge broken is because the wedge can remain value with price dropping all of the way down to test the bottom again. You don't want to already be long if that happens!
DUSK/BTC
Like BQX, there is nothing here to trade yet. This is a "set your alarm and forget about it" trade.
I am looking for a break of the descending white line - that's it! Key levels are marked. I have my alarm set, will revisit this coin if it goes off.
I like the nice spike on volume over the past few days, that is what grabbed my attention. We want to see that generally continue to grow leading up to that line.
Trade Management Case Study - YFII
This trade is currently active, so it has not been completed. Still, I wanted to share a trade and this is a good one to take a look at.
I posted the following setup on Thursday.
“Y” coins have taken a massive hit and have been slower to respond. That interests me, honestly. We can see multiple bullish divergences with oversold RSI and an attempt to break resistance. I would love to catch a retest of the 13467 area as support, that’s a clear local resistance that was broken. Best entry is a close above the descending black line, and then potentially a retest as support.
As you can see, we had clear bullish divergence with oversold RSI, which would have been a good entry. I was waiting for confirmation with a break of the descending resistance. Here is the current chart.
As discussed, price broke the descending line and I was able to buy the retest of that line as support, at .148 sats. I immediately set take profit orders at .201 and .283. The line at .234 is new, based on the top of the current move.
I sold 50% of my position at .201 for a 35% gain. The other 50% is still open waiting for the higher target.
As you can see, I put my stop loss around .1285 when I entered the position, below the descending resistance (at that time) and a few percent below the horizontal support. My premise would clearly be invalidated with price action at those levels.
I have added to my position, after seeing another descending resistance form. I bought the retest of this line as support as well, and have moved up all of the stops to .183, well below the current support at .201. I will take profit with the bulk of this position if price reached .283 and reassess if I believe it is ready to continue up higher.
Gold Standard 101
By Sahil Bloom:
With the accelerating pace of money printing globally, interest in gold has boomed. If you’re following along, you’ve probably heard or read about the “Gold Standard” system. But what is a “Gold Standard” and how does it work? Here’s Gold Standard 101!
In simple terms, the Gold Standard is a monetary system where paper currency has a value tied directly to gold. Under this system, paper currency is a claim on gold at a set exchange rate. So if I had a $100 bill, I could go to a bank and redeem it for a quantity of gold.
The basic appeal here is that the system restricts the creation of new money. The physical quantity of gold is a limiter on paper money creation. You can trust in your paper currency, as it is backed by hard money. Let’s look at a simple society to illustrate how it works...
Imagine an island society - Goldland. Goldlanders are a fiscally prudent bunch! The Goldland Central Bank has 1,000oz of gold. It issues 1,000,000 in paper currency - called Golders - backed by the gold. Goldlanders can thus exchange 1,000 Golders for 1 oz of gold.
Goldland mines only surface about 25oz of new gold each year. So the Central Bank can only issue 25,000 in new Golders each year. It must maintain its ability to meet gold exchanges! Therefore, money supply increases at 2.5% max (less over time if the 25oz remains constant).
This system gives Goldlanders comfort. They can exchange their paper currency for hard money gold, which has real, tangible value (it is durable, scarce, etc.). They can trust their paper currency. It cannot be endlessly created! This is a pure form Gold Standard system.
Now I’ve intentionally used a very simple example to highlight the basics in 101. There are further complexities to this - reserve requirements, multiple countries, shocks - but we can save those for later. I hope this was a helpful primer on the topic.
Facebook’s Libra Token Faces More Red Tape
Financial leaders from the G7 have decided to oppose the launch of Facebook’s Libra token until it is, “properly regulated and supervised.” Publicly announced today, Tuesday the 13th, an early draft noted that stablecoins like the Libra token could be used for, “money laundering, terrorist financing” and could also, “undermine global financial stability.”
The G7 is far behind in terms of crypto awareness and adoption. While the U.S. is one of the members, even they have given clarity to banks as to how they can hold stablecoins for customers. We know that the U.S. is behind other crypto-friendly countries like Japan, Switzerland, and even China. That said, at least now it is clear the U.S. is not in dead last, and may even be catching up with its continuous stream of regulatory clarity.
Real Vision CEO’s Bold Bitcoin Prediction
Surprise! Another bold Bitcoin prediction. The predictive model from Raoul Pal, Real Vision’s CEO, puts Bitcoin’s price at a staggering 1 million dollar minimum by the end of 2025. The prediction has the mean price at 10 million, but 1 million was the "safer prediction" to publicly predict based on the model.
Outrageous price predictions are often accompanied by complex graphs called “stock-to-flow models” and in this case “regression on a logarithmic chart.” While these charts can be exciting and catchy, no two of them look the same because the outcome depends entirely on how the user reads Bitcoin’s historical price action. Hopefully one of these models is right, but neither lines on a chart or the credibility of the influencer can predict what the price of an asset will be at an arbitrary future date.
This is marketing, plain and simple.
Goldman Says "Short The Dollar"
Interesting take, with a number of banks starting to look towards a weakening dollar as likely. I find this to be strange - if the dollar goes down, the stock market generally goes up. Trump is committed to a weaker dollar and stronger stock market, so one would think that a Trump WIN would weaken the dollar, not a loss. That said, perhaps if he is reelected, he will no longer need to see the stock market rising.
Either way, Goldman usually says one thing and does the other - would we be surprised if they were actually long the dollar?
If the dollar does head down, Bitcoin should reap the benefits.
Podcast With KoroushAK
I recently recorded a podcast with my friend KoroushAK. He did a nice, quick twitter thread summarizing the conversation, which I think touches on most of my core beliefs about trading and life. The podcast itself is linked at the bottom of the thread. Enjoy!
The Wolf Of All Streets Podcast Ft. John Wu
John Wu, the president of Ava Labs, came from a traditional background in finance, including extensive work in fintech and hedge fund investing. Upon discovering Bitcoin, he realized that he could only invest in it personally and not for his clients, due to his fiduciary duty and an inefficient financial system. So he built Ava Labs. John now directs an ambitious team that’s developing an entirely new blockchain infrastructure, set to disrupt both traditional finance and pre-existing blockchains.
John and I further discuss discovering Bitcoin in 2013, the untapped world of alternative assets, taxi medallions, the internet of assets, the DeFi Petri dish, NFT’s, political polarization, the danger of big companies, the schoolyard vs. the comment section, trillions of dollars locked in an inefficient system, the ‘08 crash and DeFi, Mad Men investors and more.
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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.