The Wolf Den #139 - Fidelity Addresses Criticisms
Bitcoin Thoughts And Analysis
Bitcoin is consolidating, chopping sideways after reaching new highs. Nothing looks bearish by any stretch, we are officially in price discovery. That said, I would expect to eventually retest the previous all time high around 20K as support at some point. That could be today, in 6 months or literally never! But it was such a key resistance that it would be nice to eventually see it tested. I will have standing orders just above 20K from now into the foreseeable future, just in case it does come back down there at some point.
Looking at the 4 hour chart, we can see a new clear descending resistance. It looked like a pennant was forming, then the support broke (as usual) and now it's hard to discern the support line. We need a bit more time to confidently do TA on Bitcoin again, but a break of that descending line should send price heading back up.
This drop looks like a simple RSI reset to me - it was at 90! Now it is back to almost being below overbought with more room to grow. What I will be watching for is for price to rise again and RSI to make a lower high, forming a bear div and then sending price eventually to oversold. The opposite of what we saw at the bottom. No big deal, would likely just be a healthy retrace. But that would be the top signal I am watching for locally. That would look something like this.
I am NOT saying this will happen. I am only saying this is what I look for to signal a top on the 4-hour and is the same way we traded the bottom over and over again. It would be very hard for price to rise hard enough from here to push RSI above 90, but it's possible.
Bitcoin Is Becoming More Valuable
While this statement seems obvious, breaking it down to better understand the word “value” can bring light to some interesting concepts. Value here is not the same as price.
The most important distinction between price and value is the fact that price is arbitrary and value is fundamental. For example, consider a person selling gold bars for $5 a piece. The price of those gold bars is, in this instance, $5. It's an arbitrary amount chosen by the seller for reasons known only to them. Yet, in spite of the fact that those gold bars are priced at $5, their value is so much more.
This happens a lot in the stock market. The examples may not be as immediately noticeable as $5 bars of gold, but they are often quite extreme in their own right. You see, the price of a stock is determined by a list of factors it would take years to even read through. Many of these factors are driven by human characteristics and emotions, such as fear and greed, market tendencies and events so distantly related that trying to unravel the correlation between those events and the stock's price would make your head spin. All of these things can and do affect the price of a stock, sometimes to a large degree but rarely do they significantly affect its value.
The good news for investors is that, at some point or another, an asset's price almost always levels back out with its value. This truth is the one that investors such as Warren Buffet have used to make billions.
The value of Bitcoin has always far exceeded its price for a variety of reasons, many of which are finally gaining traction in the mainstream narrative - digital gold, store of value, deflationary, hedge. To those who understand monetary policy and the dangers of Central Bank activity, Bitcoin has always held potential value far exceeding the current price. That's why Billionaires and corporations are seeking exposure - even if Bitcoin were to drop in price, it's potential value as the saving grace of an entire portfolio due to its idiosyncratic risk is dramatically understated and therefore worth the risk..
Bitcoin’s true value still has a long way to go before it is properly priced in. Even with the dramatic break of the previous all time highs, price has a long way to go to catch up to value.
Survivorship Bias
By Sahil Bloom:
History is written by the victors. But if we exclusively focus on these successes, we allow survivorship bias to distort our understanding of the world. But what is "survivorship bias" and how does it work? Here's Survivorship Bias 101!
First, a few definitions. Survivorship bias is the logical error of concentrating on survivors (successes) and ignoring casualties (failures). When we do so, we miss the true "base rates" of survival (the actual probability of success) and arrive at flawed conclusions.
When we completely ignore failures, we lose our ability to correctly identify the differences between successes and failures. Put simply, exclusively focusing on successes may actually inhibit our ability to identify (and replicate) the actions that led to such success.
Cicero wrote on the topic over 2,000 years ago. An atheist named Diagoras is shown portraits of people who prayed and were saved from death at sea as proof of God's existence. Diagoras replies, "I see those who were saved, but where are those painted who were shipwrecked?"
Cicero cuts right to the point - we cannot conclude that prayer led to being saved from the sea if we ignore those who prayed and then drowned. Survivorship bias can lead to a deeply-flawed understanding of cause-and-effect relationships. Let's look at some examples.
One of the famous examples of survivorship bias comes from World War II. The U.S. wanted to add reinforcement armor to specific areas of its planes. Analysts plotted the bullet holes and damage on returning bombers, deciding the tail, body, and wings needed reinforcement.
But a young statistician named Abraham Wald noted that this would be a tragic mistake. By only plotting data on the planes that returned, they were systematically missing data on a critical, informative subset - the planes that were damaged and unable to return.
The "seen" planes had sustained damage that was survivable. The "unseen" planes had sustained damage that was not. Wald concluded that armor should be added to the unharmed regions of the survivors. Where the survivors were unharmed is where the planes were most vulnerable.
Based on his observation, the military reinforced the engine and other vulnerable parts, significantly improving the safety of the crews during combat. Wald had identified the survivorship bias and avoided its wrath. Where else do we see survivorship bias arise?
In business? We all love business success stories. We love to read about companies and people who have achieved incredible success and fame. We scan their backgrounds in desperate search of the actions or features that led to that success. But these conclusions are flawed.
For every entrepreneur who took out a second mortgage in a last-ditch attempt and succeeded, there may be 10 who did the same and went bankrupt. For every company that pursued a moonshot idea and is now worth billions, there may be 10 who did the same and collapsed.
In markets? Analysts may try to calculate the performance of funds or groups of stocks using only the survivors at the end of the period. By ignoring closed funds or stocks removed from an index, we bias the data and overstate returns. Flawed data Flawed decisions.
The point? By ignoring the companies or people who failed, we miss out on valuable data points from those cases. To actively fight this, we must study the features of both successes and failures. The "seen" and the "unseen" are equally important in guiding our decisions.
As Taleb wrote in his classic, Fooled by Randomness, "Heroes are heroes because they are heroic in behavior, not because they won or lost." So the next time you read a story of the hero who won, be sure to reflect on all of the heroes who lost, whose stories are not told.
So that was Survivorship Bias 101. As someone who shares many success stories on Twitter, I thought it was an important topic to address.
Coinbase Files For IPO
Just yesterday, the largest US cryptocurrency exchange announced their plans to IPO and are now awaiting SEC approval. They certainly timed the announcement well, as institutions from the legacy side of finance are now looking at crypto with peaked curiosity. If you can't access your crypto funds when their crypto exchange is down, at least you can access your shares of the company if you buy-in. All jokes aside, Coinbase has remained extremely dominant as the face of America’s crypto community and Brian Armstrong the CEO is wicked smart.
Threatening Rumors Continue Around Self Custody Freedom
Rumors have been circulating that crippling regulations are on the docket regarding how crypto holders can self-custody their coins. Some people have speculated that money on an exchange or platform will become much more challenging to move into a private wallet with the impending legislation. Brian Armstrong, the CEO of Coinbase, brought this to light two weeks ago, and now there are reports of a “mandate that crypto companies file a so-called ‘currency transaction report’ with FinCEN on individuals moving $10,000+ in cryptocurrency to or from a self-hosted crypto wallet in a single day." Rushed legislation can have a seriously negative impact depending on how misguided it is; this could also be a huge buy the dip moment if it somehow affects price. If you have been debating self-custody for a while, now is seriously the time to do it - it isn't as complicated as you may think.
Highlights From Interview with Elrond CEO Beniamin Mincu
I invited Beniamin Mincu onto a live stream to share all of the latest updates with Elrond, $EGLD, and Maiar. He was extremely transparent and even answered questions from the audience about their unreleased product Maiar, coming next year. I hold the coin and plan to continue holding it as their DeFi ecosystem develops. I went ahead and quoted a few of the most important things he said to share with you below.
“In the next 3-5 years, there will be a rapid transition of the financial system moving on top of the blockchain. It's only a matter of time.”
“Elrond will complement both Bitcoin and Ethereum in a way that hasn’t been done before.”
“We will see a multi-trillion-dollar market for Elrond.”
That's right, the CEO of Elrond believes the native asset will have a trillion-dollar market cap! WOW.
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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.