The Wolf Den #144 - Focus On A Few Assets
Bitcoin Thoughts And Analysis
Bitcoin had one of its best weekends ever and continues to rise parabolically. Here is some really advanced technical analysis, showing the weekly chart.
Price has gone from $3,800 to $28,000 in 9 months. It is almost hard to comprehend the magnitude of this move, especially when you revisit the emotions and feelings from March, when it was nothing but doom, gloom and doubt.
All jokes aside, there are always things to look at on the charts, even as price heads into price discovery.
MONTHLY CHART
Good luck timing the top of this move. As you can see, we have 3 massive bullish candles in a row to close the year (a few days left). It's hard to feel at all bearish when you zoom out and look at this chart. Depending where this candle closes, we will likely be able to draw a new resistance line, although it will be untested and could break quickly on the next candle.
You may recall this idea that I shared a few times in the newsletter in the first half of December. Like the beginning of November, we had a candle close just below resistance and then a drop, making a lot of traders view it as rejection and the top. First, the monthly candle was not even close to closed at that point, so you could not do a proper analysis. Second, this is normal - stop at resistance, consolidate below and break. Same price action two months in a row in the first weeks.
DAILY CHART
Yesterday printed an ugly candle, known as a "shooting star." I have included more information just below, but this candle is considered bearish because it's clear that sellers have finally showed up and exerted their dominance. Price advances hard and is rejected, causing a small body and large wick.
So what does this mean?
Absolutely nothing - yet. Context and confirmation are everything for trader. That candle is ONLY bearish if the following candle is also bearish - at this point that is not the case. Any time you identify a candle, it is part of a pattern that includes the following day. If the current candle closes green and without a large upper wick, this shooting star will be invalid and irrelevant.
4-HOUR CHART
If you recall my analysis at the end of last week, I said that Bitcoin was ranging sideways and was bullish above the top black line and might retrace further if it closed below the bottom black line. Price broke the top line and gave a perfect opportunity for a long at 24K on the retest. Impeccable price action. You will also recall that I said the 50 MA had acted repeatedly as strong support so odds were in our favor that it would hold once again. You can see the price action on that blue ascending line.
Price looks like it is once again consolidating bullishly. You can draw a flag, pennant, descending broadening wedge. Does not really matter - what matter is if the top resistance is broken. I used the present candle which has not yet closed, so we will see if that ends up being a valid line, but my best is it will. A break of that blue line should send price up another leg, at least to the recent highs.
Always keep in mind that a retrace is not a matter of if, but when. I am still watching for a retest of the previous all time high at around 20K. It would terrify many people, but makes complete sense from a technical perspective. Not saying it will happen, but if it does I will be trading it heavily.
CME GAPS
I do not trade on CME gaps, nor do I believe that they are relevant. That said, I have had quite a few questions and will once again address them as I have done in the past.
The only reason that CME gaps exist is because Bitcoin trades 24/7/365 and the CME closes on weekends. Therefore, any divergence in price action for 48 hours is likely to leave a gap.
Well, we just had the largest gap in terms of percentage gain and price in the history of Bitcoin - effectively the best weekend since Bitcoin futures started trading on the CME (which is at the end of the last bull run).
I have laid out all of the gaps formed on the daily CME chart this year - do you think they "need to be filled?" The answer is obviously no.
I think that this meme is somewhat dead at this point, but it's always worth watching things that other traders are obsessed with.
Altcoin Charts
ETH/BTC
I was shouting from the highest mountaintop I could find that I was buying more ETH on the BTC pair this weekend. We had major bullish divergence continuing to build, the USD pair still looked good and it really "felt" like a bottom.
I added more today on the retest of .0260 as support, averaging up. I had that entry cued up for the newsletter but it happened way too quickly for me to share. Either way, I am still very bullish on ETH (always) and think that it is likely to perform well in the coming days/weeks/months/years.
ETH/USD
This chart is beautiful. Like Mona Lisa beautiful.
I have been posting it since October and nothing has changed. We had a clear range, higher highs and lows, a break of the EQ and then range top, both retested as support. The trend of higher highs and lows has never been broken, with the most recent higher low confirming with the current higher high (which is still going).
I don't even know what more I can say about my Ethereum bullishness. We are at half of the all time high and Bitcoin has already blown way past its previous highs. I truly believe ETH will catch up.
Near term I think $828 should happen.
Let's zoom out.
You can see that the double bottom I posted a number of times has finally hit its target based on the log chart. The last meaningful resistances on high time frames are $828 and $1,419, the previous highs.
This has been a text book bull move. Double bottom, descending resistance break, resistances retested as support. A perfect chart.
LINK/BTC
LINK appears to be bullishly consolidating on the hourly chart. I usually do not zoom in this far, but in this case it makes sense. At the moment we have a descending wedge, although the bottom almost looks like a descending triangle. While that is a "bearish" pattern, it breaks up in this situations over 60% of the time. RSI is in a clear bull flag, so a break out there could precede a breakout on price.
To trade this you wait for a break of the top blue line. That's it. Anything below is irrelevant and without confirmation.
LINK/USD
Same setup as the BTC pair. Watching for an RSI break or a break of the top blue line. Target based on the length of the flagpole, so it depends where the breakout occurs.
YFL/USDT
I am looking for another entry on YFL on a break of the blue line. For now there is no trade, because we are below resistance. I am using the Fibonacci levels as targets if it breaks. Really simple and straightforward. The red line is also a key resistance.
Legacy Markets
XAG (SILVER)
Just an update, as I have posted this chart a few times in the past couple weeks. We had the breakout and retest of the channel as support. Now it really looks like it's getting ready to fly. The target is around $44, but I think this can go much higher if the dollar continues to drop.
XAU (GOLD)
This is an update on gold. It has done well, bouncing nicely off of support around $1795 as discussed. It looks ready to take a shot at breaking out of the bull flag, so if you are interested in trading gold I would keep your eyes on this. You can basically simplify this at this point to - if it clears $1900 or so, it should head up well beyond the recent highs. Here it is zoomed in.
Second-Order Thinking
By Sahil Bloom:
We live in a world of complex systems that punish simple, linear thinking. The greatest minds consistently use second-order thinking to solve problems. But what is "second-order thinking" and how does it work? Here's Second-Order Thinking 101!
First, a few definitions. First-order thinking focuses exclusively on solving an immediate problem, without regard for any potential consequences. To paraphrase the words of the great Howard Marks, it is "simplistic and superficial, and just about everyone can do it."
Second-order thinking moves beyond the immediate problem and considers the multiple layers of implications and consequences of a given decision. In short, it looks past the simple first-order effects of a decision and deeply examines the second, third, and Nth-order effects.
But what does that really mean? A simple analogy is of a rock being thrown into a lake. The rock is your decision or action. It disturbs the calm and creates an impact. The first impact (or splash) is the first-order effect. But it doesn't stop there, it spreads outwards.
The chain of subsequent events (or ripples) are the second, third, and Nth-order effects. When you make a decision or take action, it is critical to consider those ripples, not just the initial splash. Failing to do so may lead to unintended consequences and new problems.
Second-order thinking is a mental tool that forces you to consider the unconsidered. It is a superpower that we all have within us - it just requires intentionality. Let's look at a few examples of where this might come into play and how you can implement it in your life.
In policymaking? If you want an example of the dangers of first-order thinking, read my thread on the Cobra Effect. Problem: too many cobras. Solution: offer a bounty for cobras. Initial Outcome: fewer cobras. Ultimate Outcome: more cobras!
Policymakers tend to be poor second-level thinkers. Some would suggest it is a function of the time horizons of re-election. Or perhaps it is the lack of "skin in the game" as it relates to the second, third, and N-th order effects of their actions.
One salient example: corporate bailouts. The first-order thinker may say bailouts are good - they save jobs (for now), maintain service, etc. But the second-order thinker looks further - what impact does a government backstop have on future executive risk appetite?
Another example: money printing and extraordinary Fed intervention. The first-order thinker may say this is good - it prevents economic suffering. But the second-order thinker looks further - what distributional impacts does this have on society?
The second-order thinker takes time to examine beyond the positive first-order effects to evaluate the action in the context of all of the later effects. To quote Shane Parrish, they diligently ask, "And then what?"
The examples used are not intended as indictments of these solutions. These are complex issues. The point is, when dealing with complex issues, you have to adopt second-order thinking in order to increase the probability of a good outcome.
Second-order thinking is like a cheat code for life. The best business operators are said to think five moves ahead - that is second-order thinking at work. The best investors are said to think on a more powerful level - that is second-order thinking at work.
So how do you become a second-order thinker? The Shane Parrish "and then what?" method is a great start. From there, keep asking questions. Drill down deeper. Go down the rabbit hole! As Howard Marks wrote, "Second-level thinking is deep, complex, and convoluted."
Becoming a second-order thinker will provide you with asymmetric opportunities for success. It is critical to achieving non-linear outcomes. Why? It is hard to do, so very few people will do it. Think on a higher level. The air is thinner up there.
A Bitcoin Supercycle?
Dan Held, the most recent guest on the WOAS Podcast, has publicly made the prediction that Bitcoin’s current cycle will eclipse what is conventionally expected. As I always repeat, the phrase “this time is different” is dangerous but I won't ignore supporting evidence that could indicate otherwise. According to Dan, the macro backdrop, institutional interest, and ease of use altogether have the power to supercharge Bitcoin beyond the normal bear/bull cycle. From my perspective, the best argument for this time being different is solely dependent on the difference institutional investors will make. Retail have come and gone throughout the history of Bitcoin, but previously unseen is the purchasing power that institutions carry. Only time will tell.
ETH Futures Incoming
Until, Bitcoin has been the only option for betting on the future price of crypto on a legacy platform. That is about to change - the CME group is supposed to offer Ethereum contracts starting on February 8th. Each contract will represent 50 ETH, meaning at the current value, the contract is around $35,000. As you know, I think Ethereum will perform well this cycle. I personally have been dollar cost averaging into Ethereum because its risk-reward ratio looks attractive with the advancement of 2.0, almost 2% of the supply staked, and over 7% of the supply locked in DeFi. Most attractive is that institutions investing in Bitcoin only have to make a small leap of faith to land on Ethereum and make an investment after taking the Bitcoin pill. Ethereum being the backbone of DeFi should be enough utility to spark a lot of future interest.
Prepare to start hearing about CME gaps on ETH.
BlackRock Is Looking For Crypto Experts
All the latests news on Crypto, Blockchain, Bitcoin, Ethereum, Tokens, ICOs, Fintech, and more.
The world’s largest asset manager is seeking a VP to lead their blockchain investments. The application specified that the required skills would be used to “evaluate the value of different crypto assets.” The qualifications for the job were rightfully extremely sophisticated considering the CEO, Larry Fink believes that Bitcoin can rival the dollar as a global reserve currency. As of late, BlackRock has been inundated with interest in Bitcoin and it seems that their CEO’s recent statements are a clear indication that the company is slowly but surely gearing up for a grand entrance into the crypto space.
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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.