The Wolf Den #132 - Institutional Interest
Bitcoin Analysis And Institutional Support From IntoTheBlock
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 Analysis and Institutional Support
Bitcoin continues to outperform traditional markets. On Dec. 1, it reached a new all-time high of over $19,800 based on data from most exchanges. Even though many do not consider this an all-time high until it surpasses the $20,000 barrier, Bitcoin has managed to sustain above $18,000 for a longer time than it did in December 2017.
The price of Bitcoin is still hovering over $18,000, and the In/Out of the Money Around Price (IOMAP) indicator reveals that BTC is facing stiff resistance ahead. In order for Bitcoin to reach $19,100 again, it has go through over 1.65 million addresses that previously bought over 1 millionBTC.
IntoTheBlock’s BTC financial indicators
If Bitcoin breaks the $19,098 barrier, the most crucial resistance level sits at $19,182. Roughly 572 thousand addresses previously purchased approximately 170 thousand BTC at the range between $19,098.35 and $19,310.77.
Looking at the levels of support, over 416 thousand addresses had previously purchased a total of 241 thousand BTC between $17,746 and $18,287. This is expected to act as support as holders in this range will attempt to remain profitable on their positions and push prices above this level.
If Bitcoin breaks down that level of support, the next big level would be located at an average price of $17,400. Bitcoin could be experiencing a drop below $17,400 before bouncing again to new highs.
And who’s been Bitcoin recently? The Bitcoin rally in 2020 has been fueled by institutional players stepping in, along with the narrative of digital gold. This has been evidenced by support from large traditional finance players such as Blackrock, JPMorgan and Fidelity, fintech companies such as Square and PayPal, and renown macro investors such as Paul Tudor Jones and Stanley Druckenmiller. More recently, even S&P Dow Jones Indices announced they will be launching cryptocurrency indices in 2021, which are expected to keep fueling market participation from financial institutions.
Yesterday, Microstrategy announced that they intend to double down on their Bitcoin investments by raising $400 million in a debt securities auction. At the moment, they own roughly $750 million worth of BTC, but it looks like it is not enough. And of course, Grayscale, which owns a total of 551,235.71 BTC.
Through on-chain indicators, we can confirm that institutional interest has indeed been growing throughout 2020. Large Transactions, which IntoTheBlock categorizes as those of over $100,000, just hit a new yearly high on Dec. 1. Given the size of these transactions, the large transaction indicators provide a proxy to the activity of institutional players and whales.
IntoTheBlock’s BTC financial indicators
The number of transactions of over $100,000 recorded on the Bitcoin blockchain on a daily basis has more than doubled from a year earlier. Furthermore, the total volume transferred in these has experienced even larger growth.
IntoTheBlock’s BTC financial indicators
On Dec. 8, 2019, Bitcoin had an aggregate large transaction volume of $4.3 billion. One year later, large transaction volume has grown to over $28.67 billion, representing an increase of nearly six times the volume. Along with the high level of activity from institutional participation, Bitcoin has appreciated remarkably.
While it is still uncertain when Bitcoin will manage to surpass the coveted $20k mark, it is evident that this time support for the cryptocurrency is stemming from large players and not only retail speculators
Bitcoin Charts
Volatility has returned! Bitcoin finally saw some legitimate price action after chopping sideways for what felt like an eternity. While many are disappointed that the break was to the downside, it was somewhat expected and unimportant on larger time frames. Little has changed in the grand scheme of things. I want to look at the 4-Hour chart today, because there's quite a bit to unpack.
First, we had what appeared to be a bull pennant, the support of which is represented by the blue line. This broke down. There's no way you were surprised by this, because I have beaten the following point to death - pennant often lose support and become flags or channels. Right?
That is effectively what we have seen happen in the past day, although at the moment it would be a descending wedge because price has not dropped far enough to technically complete a channel. You will also notice that price is struggling at the EQ (Equilibrium, center dashed line) of this channel. While we rarely like to see price drop, I would actually love to see price close another lower low, creating a bullish divergence with RSI. You can see that this happened around Thanksgiving, and will remember that I predicted this in the days before it happened. If you were not here, this is the chart from November 26th:
RSI always travels from overbought to oversold and back. It hit oversold in the past few hours. We often see a bullish or bearish divergence to indicate when that process is beginning, but not always. We did not have a bearish divergence this time when RSI was overbought.
Notably, the trip from oversold to overbought was nearly $4000. The trip back to oversold was $2200.
Buying pressure. Less price movement on equivalent RSI movement.
It is quite possible that price has already reversed and will head up from here. The bottoming candle on the 4-hour had more volume than any of the candles before it during the dip. This is an indication of strong demand. However, with my trading style, I want to see that bullish divergence form and that channel completed.
I am looking to potentially buy between $17,100 (daily level from 2018 that I have discussed a number of times) and $17,300, roughly. I have orders spread in there as INVESTMENTS, but not as trades. I will judge later if I want to take a leveraged position. Here is that daily chart, if you do not remember. Purple line.
Altcoin Charts
EGLD/BTC
I know that many of you (myself included) are in this trade already from much lower. I am updating it, because price is testing a key resistance and flip of that level to support would very bullish and would signal likely continuation. We want to see a close above 792 and ideally a retest of that level as support. The next resistance after that (target ) is 1000.
This continues to confirm higher low and higher highs. nothing bearish in this chart in my opinion.
Elrond also continues to have news events and partnerships announced on a daily basis. Just a really bullish asset with a great team and real progress. It's no secret that I am a huge fan and longterm investor. Here's today's big news:
LRC/BTC
I set an alarm on LRC during last week's livestream and it just went off, alerting me to open the chart and take a look. As you can see, price is attempting a break through descending resistance. The safest entry would be to wait for a confirmation of a close above on the daily, then to attempt to buy a dip to retest that line - but that may never come. More aggressive traders would buy now on the breakout, it's just a matter of your style. I would personally put stops a bit below that blue demand zone. Targets are the blue lines, although the top would require quite an alt season to be hit.
Yachty Coin
Famous rapper Lil Yachty aka Lil Boat has stepped into the cryptocurrency market with his own token. Working with Fyooz (who I profiled months ago in the newsletter), the tokens will allow holders to connect with the artist using cryptocurrencies as a bridge.
Whether you are a fan of Yachty or not, the utility of the token for him and other creators and celebrities (when they create their own) is compelling. This is not the same as celebrities endorsing ICOs in 2017. Rather, this is a commitment by an artist to engage with their fans in a unique manner, adding value along the way. During the global pandemic, artists at every level have suffered from the lack of live shows and in person opportunities that are the bread and butter of their careers. This obviously resonates with me, having retired from a 20 year DJ and music career only a few years ago. I cannot imagine going through 2020 depending on income from music.
Unfortunately, the platform isn't legal in the US. Lil Yachty is the largest name so far to participate in this sale, so it will be interesting to see if other rappers/famous people tokenize themselves. The potential is endless for these creators.
If you are outside the US, the sale is in one day.
More Bitcoin Metrics Pointing To All-Time Highs
Yesterday I shared some popular models discussing Bitcoin price predictions. In the same spirit, I wanted to share some predictions based on on-chain indicators. I found an excellent thread with 6 separate predictions, each based on their own metrics. All but one of the predictions predicted that Bitcoin would multiply more than 10x from current levels. The average of these 6 predictions came out to $251,000 per Bitcoin. The average of these indicators and yesterday’s models puts Bitcoin at $243,000 per Bitcoin. The takeaway is not to fomo into Bitcoin, but rather that both models and indicators are indicating that we are early in the cycle. I won’t bother making a prediction because it's a fool’s errand, but I will stand behind my belief that the historical evidence strongly suggests that we are early and that there is a lot of room to grow.
Gold Suffering Outflows As Bitcoin And Ethereum Gain From Inflows
CoinShares shared an interesting report on the market this week, citing that their fund is witnessing outflows from gold and strong inflows into Bitcoin and Ethereum. Ethereum makes up 14% of their holdings, but realized 20% of the inflows this week. We have continued to note that investors are beginning to look to Ethereum for stronger gains because of its staying power and momentum around 2.0. CoinShares is about 7% of the size of Grayscale, but their data is consistent with Grayscale's. Grayscale’s CEO just said in an interview that institutions are looking to Ethereum more seriously now than ever before. Download the PDF if you want to see the numbers.
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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.