The Wolf Den #105 - Central Bank Digital Currencies Are Coming
Bitcoin Thoughts And Analysis
Bitcoin is bullish, nothing has changed, dips are for buying. This is the case until further notice, and if you have been following along it's been somewhat clear on a macro level for many months. I can't stress enough the importance of zooming out and trading on high time frames. It requires the patience of Job, but it's massively profitable.
MONTHLY CHART
The pink line at $10,540 remains the most important on the chart, as I have said countless times. This represented a macro higher high and a break of consolidation or the temporary bearish trend. We have 3 successful monthly tests of that line as support. If we clear the 12K area and retest as support (on the monthly, the line is around $12,300), we should be heading up to the $14k area.
WEEKLY CHART
Weekly levels are shown. If you have been here for a while, you know that the last major trade I shared on the weekly was the break of the range between the 2 blue lines. That has played out perfectly and price action has been nothing but bullish since.
DAILY CHART
I have been sharing this chart for weeks. The local trend really became bullish for me again at 2 points - $10,540 (of course) and above the light blue zone. That was tested twice as support before the move up.
Now we can see that price is pushing into supply (the blue channel). If it can clear that area and flip it to support, we should see a lot more upside. First we need to see it clear that area! There's still likely some supply over head as we push through resistance.
This chart has worked out pretty well!
4 HOUR CHART
I have seen people stating that Bitcoin is in a bear flag.
Technically, this is untrue. A bear flag does not extend beyond a 50% retrace. Also, the duration of the flag is arguably too long at this point.
Know your patterns, because context matters. As you can see, price is pushing through the top and further invalidating the idea.
The only potential signal that we could have a retrace coming for me is this potential bear div with overbought RSI. This is not worth worrying about for now - RSI would need a definitive lower high and elbow down. But let's keep an eye on it.
IntoTheBlock - Despite 98% Support Uniswap’s First Governance Vote Fails
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: Despite 98% support Uniswap’s first governance vote fails.
Announced on September 17, the new token of the biggest decentralized exchange in terms of volume shocked the market, becoming one of the most important events to occur in the DeFi space in 2020.
Uniswap proved this retroactive airdrop model can result in decentralized ownership, as every address who had used Uniswap prior to September received a minimum of 400 UNI tokens, with a value of over $1,100 at the moment of writing.
The first governance vote for decentralized exchange Uniswap has ended in failure, despite the proposal attracting overwhelming support of 98% of votes cast. The proposal aimed to reduce the number of tokens needed to submit and pass proposals.
Currently, to make a proposal you need 10 million UNI tokens, and Dharma recommended to lower the number of tokens to 3 million UNI. The proposal resulted in 1% short of the 40 million votes needed for approval.
The failure in the governance proposal had an immediate impact on the price of Uniswap’s token, UNI, as it fell more than 3% in a matter of minutes.
Using machine learning to identify the most relevant clusters of addresses’ positions, IntoTheBlock is able to determine the number of addresses and volume of tokens profiting (in the money) or losing money (out of the money) at a given price. Based on the aggregate of these positions, we can then determine support and resistance levels and determine the strength of these using on-chain data.
See the Uniswap’s In/Out of the Money Chart
As can be seen in the graph above, the In/Out of the Money Around Price (IOMAP) indicator detects a substantial resistance area between $2.97 and $3.06, where 6.87 million UNI tokens were bought by 4.92 thousand addresses.
Following this resistance, there is an even higher sell-side pressure expected between $3.15 and $3.24 where 59.18m UNI was previously bought. If UNI does manage to break-out from this level, the small clusters of previous buyers point to low resistance all the way up to $3.42.
Bitcoin strengthens its dominance and reaches a new record.
Along with Bitcoin’s growing macro proposition, one of its key fundamental metrics is at record levels. The total number of addresses holding Bitcoin hit a new all-time high, reaching 32 million for the first time in its history.
IntoTheBlock’s Bitcoin addresses stats
With an increasing number of holders, on-chain data suggests Bitcoiners are bullish on the top crypto-asset.
Altcoin Charts
I am glad that I have suggested and exercised caution in the altcoin market over the past few weeks. I have taken a few small wins and losses, but it's just not a good time to be trading alts. All of my longer term holdings are bleeding, like everyone else's.
Remember, sitting on the sidelines is a position for a trader.
BITCOIN DOMINANCE
I have been accurately tracking Bitcoin Dominance for months, most recently stating that it looked likely to reverse back to the upside after breaking and retesting this blue line. Unfortunately for alts, this has come true. For now, we need to wait for clear signs that this is dropping before considering any significant altcoin trading. You can see all of my thoughts on dominance since June in this thread.
Legacy Markets
The dollar continues to drop which is generally bullish for most other assets. That said, we are struggling to find great stock setups, as the market feels frothy and identifying specific opportunities is tough. In fact, the past few days have seen dollar weakness AND stock weakness, which is very rare. And Bitcoin has gone up... Let's take a look at the dollar.
DXY (DOLLAR INDEX)
In the words of Puff Daddy, "It's All About The Benjamins, Baby." I have been drilling this narrative for months now and the chart is following. The dollar broke down a 10 year channel from the Great Recession, pumped back up to retest it as resistance and has dropped away continuously this month. I don't see where bullishness on the dollar is coming from, but it makes little sense to me. When the dollar drops, other markets rise, which is what our government wants for the time being.
Remember when everyone was bullish on the dollar and I drew this squiggly line to show where I thought it would go on the daily?
It did exactly what was expected. I don't see much upside for the dollar at the moment.
Supply And Demand Trading
This is a really solid foundational article on trading with supply and demand. Rather than write one myself and reinvent the wheel, I figured it was best to use this great guide that is already written. There are a ton of ideas here, so give it a few reads and incorporate the information that you find useful into your system.
Fiscal Policy 101
From Sahil Bloom:
In the wake of the COVID-19 economic crisis, you have undoubtedly heard the term "fiscal policy" thrown around a lot. But what is fiscal policy and how does it work? Here's Fiscal Policy 101!
First, a few definitions. Fiscal policy is the means through which an individual government adjusts its cash inflows and outflows to impact the country's economy. Inflows typically relate to tax revenues. Outflows typically relate to government spending.
The fiscal balance is the difference between a government's revenues and expenditures. Deficit = Spending > Revenues; Surplus = Revenues > Spending (Note: Please refrain from laughing at the idea of a government running a surplus right now)
Fiscal policy is often talked about in conjunction with its sister - monetary policy - which will be covered in a future thread. Fiscal and monetary policy are the primary levers governments and central banks use to steer a country toward its economic targets and goals.
Prior to the Great Depression, governments had taken a more "laissez-faire" (read: non-interventionist) approach to the economy. But in its aftermath, the idea of a government flexing its spending and taxation muscle to impact economic outcomes gained mainstream support.
Fiscal policy is grounded in Keynesian economics. These theories - from British economist John Maynard Keynes - stated that macroeconomic productivity can be influenced by governments. His theories suggested spending and taxation can be fine-tuned for desirable outcomes.
There are two broad characterizations of fiscal policy. Expansionary = Spending Up, Taxes Down; Contractionary = Spending Down, Taxes Up The former is thought to be stimulative for the economy; the latter sedative.
The basic theory with expansionary fiscal policy is that it can stoke the economic fire. More spending and lower taxes means more money searching for productive uses, so production, jobs, and wage growth follow. The risk, of course, is inflation...
Presently, governments are engaged in expansionary fiscal policy, increasing spending rapidly to try to plug the economic hole created by COVID-19. In many ways, it is like dancing on a knife edge, as unchecked expansionary fiscal policy *may* trigger rising inflation.
More broadly, the role and importance (or lack thereof) of government deficits - i.e. when a government spends more than it makes - is being debated in the public sphere. We have already seen this debate beginning to rage as Congress squabbles over the next stimulus package.
Proponents of Modern Monetary Theory, led by Stephanie Kelton (of Deficit Myth fame), contend that deficits are not necessarily a bad thing when you are a currency issuer. Deficit spending can be used for good. Proponents of Austrian economics (Deficit Hawks!) beg to differ!
The debate on the role of fiscal policy is just beginning. Modern Monetary Theorists and Deficit Hawks will be duking it out in the intellectual octagon for popular support. The result will have broad consequences, so it is very important that you understand the basics. So that was Fiscal Policy 101. I hope you found it useful!
CBDCs - What Are The Implications?
This is an incredible thread about the possible benefits and dangers of Central Bank Digital Currencies. I won't bother to summarize, because it's an essential read.
FinCEN Fines First Cryptocurrency Mixing Service
The U.S. Treasury's Financial Crimes Enforcement Network, better known as FinCEN, has dealt a $60 million dollar fine to Larry Dean Harmon the founder of Helix. Helix, a crypto mixing service, allowed users to anonymously mix their coins into a large pool of other users’ coins in order to retain the privacy of their coins. The IRS has already publicly stated they are working to crack the privacy of cryptocurrencies. Be smart about your privacy and remember that cryptocurrency is still on the cutting edge, meaning it is under close watch from big brother.
Phemex Trading Competition
Phemex is about to launch a global competition with a prize pool of up to 100 BTC. If you enjoy these competitive events, you can lead your own team and aim for the first place, or join an existing team. I intended to participate but was just too busy! Sign up for Phemex HERE.
The Wolf Of All Streets Podcast Ft. Brock Pierce
Brock Pierce is running for president. As a child actor in some of Hollywood’s most recognizable 90s films, Brock learned how to work a room like a star and engage with adults in a meaningful way. After an endless string of successful tech ventures, Brock has focused on how he can best serve the American people - by building a new political party.
Brock and I further discuss painting the White House, the life of a child movie star, why he's running for president, the polarization of our nation, stepping into the political ring of fire, breaking free of left and right politics, a developing political evolution, being bullish on crypto, going face to face with the media giants, financing a presidential campaign, universal earned income, criminal justice reform, life, liberty, and the pursuit of happiness and more.
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.
Rewards Code: Scott25
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.