The Wolf Den #147 - Goodbye 2020!
Bitcoin Thoughts And Analysis
Bitcoin continues to consolidate near the recent highs with a seemingly endless push upwards. Today marks the close of the yearly Bitcoin candle. With a few hours left, it is truly a marvel. What a year it has been for Bitcoin. This is the best opportunity we will have to zoom out.
YEARLY CHART
It is always important to zoom out, both in trading and in life. When you take a look at the yearly chart for Bitcoin (which only dates back to 2011 on Bitstamp), it is clear just how incredibly bullish of an asset we are investing in.
Only 2011, 2014 and 2018 were down candles, and each looks like a small bump in the road when you look at the entire price history. Bitcoin, like the stock market when you zoom out, has done nothing but go up - parabolically.
You can see that the yearly candle, at the moment, has effectively no upper wick. There are few things more bullish than seeing a candle close at the session highs, which in this case are the yearly highs. In that regard, this is the most bullish candle we have ever seen in the history of Bitcoin.
Above is a logarithmic chart, where the candles represent the relative movement in terms of percentage rather than sheerly price. I always use logarithmic charts. For fun, here is the linear chart.
When viewed without the context of relative movement, this candle is comical. However, it does give a hint as to just how insane this year has been, with Bitcoin trading both below $4,000 and above $29,000. Who would have imagined that back in March, when people declared Bitcoin dead and screamed that the store of value narrative was disproven? Yet here we are.
MONTHLY CHART
We are presently wrapping up three of the most bullish months in history. The top line is insignificant, it could break before the candle even closes, but I added it in case it is a new resistance on this time frame - there are none other above to concern ourselves with. Looking back, this was such an incredibly easy asset to trade when zoomed out, and if you were with me I was somewhat relentless in my bullishness when each of these levels flipped to support. While it is not certain to happen, I will still be looking to add significantly around 20K if we see a drop to that area, retesting the long standing all time high as support. From a technical perspective, this "should" happen and would be incredibly bullish.
4-HOUR CHART
We are still seeing bear divs building on the 4-Hour chart, which I have been pointing out for a few days. As mentioned, these can continue to build with higher prices and are difficult to trade on such a bullish move. We already see hints of hidden bullish divergence forming, which could negate the effects of the bear div even though it is confirmed. We would really need a drop below the 26K area to invalidate any potential hidden bull div, so for now I don't see major cause for concern beyond these small pullbacks we have witnessed on the bear divs. Still, be aware that a larger retrace here is still always possible, based on this chart. I certainly would not short it.
HOURLY CHART
When you zoom into the hourly, this looks like a simple resistance to support flip. $28,377 has held a number of times now, with 3 wicks below and closes above. From this zoomed in perspective, Bitcoin looks ready to move up again.
Altcoin Charts
I am still not particularly interested in trading altcoins or anything else this week. It's a holiday! I charted quite a few in the video below, so that is worth watching. The only ones jumping out are COMP and DOT, which really had its entry yesterday. You can watch the video for my thoughts on most coins, including both of these.
COMP/USDT
I am not personally taking this trade, or any trades at the moment. That said, I outlined the blue range on the livestream yesterday and said that, if I was trading this, the entry I would be looking for was a retest of the range highs around $143.5. That just happened. This has the makings of a very nice resistance to support flip, and this is the first retest of that resistance as support. Remember, the more a horizontal line is tested, the weaker it becomes... so the first test is the ideal entry.
I would not stick around long if it heads much lower than the current candle. If your position is small, you can put stop down below the range or the EQ (that dashed mid line). But price "should" head up from here as a simple S/R flip. Targets are the black lines.
DOT/BTC
If you were watching the livestream yesterday, I opened this chart and immediately said that it looked like a buy. This was at .000250 sats. Price is currently up over 10% from there, after testing both the descending black line and the demand zone shown as support. Lots of confluence there, as I said on the stream. Hopefully many of you caught this yesterday before it made it's move up. That said, it is breaking through the 23.6% Fibonacci level now. A close above that area and a retest as support would be bullish and a logical entry.
Just looking at the chart on this pair, DOT should technically head up to the top of the descending black line with time. Rarely do patterns play out to their targets, but that is what the chart is saying. Resistance areas are shown by lines and fibs. DOT already recently made a new all time high on the USDT pair.
Chart Requests
Here is the livestream with all of your chart requests! This is a list of the coins I looked at, in alphabetical order.
$ABML $COMP $CRV $DIS $DOT $EASY $EGLD $ETH $GRT $LINK $LTC $REN $RFI $SHARE $SXP $VET $YFL $ZIL
If you are new here, I accept requests from paid subscribers and chart them live on YouTube every Wednesday at 2 PM, EST. Enjoy!
Important Crypto Tax Information
I am only speaking about taxes in the United States. If you are in a different country, different rules will apply. I am using BlockPit now to handle my taxes.
The United States has become one of the least crypto-friendly countries in the world. The IRS views cryptocurrency as property, not as money, a stock, or a security (except for XRP). This is bad for people that actually use Bitcoin or other cryptos on a regular basis to transact because it means that every single time you use it you are “selling” Bitcoin and it is a taxable transaction. It is absurd, especially considering that much of the initial appeal of Bitcoin was that the tax laws were liberal or altogether undefined. If you're trying to navigate what you owe on your own, don't bother wasting your time. I’m always trying new crypto tax software and this year I am using Blockpit and they have been phenomenal. Now back to my tax rant, if you buy a cup of coffee with your Bitcoin, you are technically “selling” it, and have to calculate your cost basis of the purchase and pay taxes on the “profit.” This makes using crypto for transactions unattractive and effectively pointless. Further, when you buy an altcoin with Bitcoin, you are “selling” Bitcoin, which is taxable. You are taxed once again when you sell that altcoin back to Bitcoin, creating a seemingly endless series of taxable transactions to calculate . More importantly, you can lose Bitcoin on the altcoin trade, but still, owe taxes on the “profit” because of the price of Bitcoin Vs. USD. A friend of mine took a sizable loss trading crypto in 2018, but still found out that he owed tens of thousands of dollars in taxes. Insane. The hidden advantage which he missed (and this is up for debate) of Bitcoin being viewed as a property is that certain securities rules do not apply - namely the laws regarding wash sales.
From Investopedia:
The wash-sale rule is an Internal Revenue Service (IRS) regulation established to prevent a taxpayer from taking a tax deduction for a security sold in a wash sale. The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss and, within 30 days before or after this sale, buys a “substantially identical” stock or security, or acquires a contract or option to do so. A wash sale also results if an individual sells a security, and the individual’s spouse or a company controlled by the individual buys a substantially equivalent security.
It is illegal to sell a stock to take a tax write off and buy it back within 30 days. As of right now, this law does not apply to crypto. That means that you can sell a coin before January 1st at a loss as a tax write off, or hopefully to help offset the taxes on some of your gains. As of now, there is no law against buying this back on January 1st. Wash sale laws aside, if you have positions that are underwater you can exit them before the strike of midnight and potentially improve your tax situation. If you want to be extra safe and still want to own that coin, you can wait 30 days to buy it back. If you are not particularly married to the position, you can sell today, take the write off and move on to better investments or trades. There is no shame in selling your XRP for Bitcoin or Ethereum, and the best part is Blockpit will help you calculate that loss. At the most basic level, if you need a tax write off or to offset some gains, right now is the best time to do it.
Below is a great article with some year-end tax tips for crypto traders and investors. This further discusses the wash sale rule and other complex tax codes pertaining to crypto traders.
In this blogpost we will show you the most important tips for the tax year of 2020.
Here is a comprehensive and simple guide on taxes from Coinbase. This is worth giving a good read.
Here is a more complicated look at what traders in the US can potentially do to improve their tax situation.
The Bitcoin Report Card
Written By Adam Tarlowski:
Popular crypto community member Vijay Boyapati is responsible for the concept and ranking in the above chart. Altogether these are the foundational properties of money, which I plan to examine further below in my own thoughts.
Gold wins durability, fungibility, and established history. Bitcoin wins in portability, verifiability, divisibility, scarcity, and censorship-resistance. Fiat money wins in 0 of the categories. Taking the chart a step further, I decided to calculate a college GPA for each of Bitcoin, gold, and fiat-based on their grades on a 4.0 scale. Bitcoin scored a 3.2, gold a 2.81, and fiat a 1.9. That means Bitcoin is just above a B overall, gold is just above a C, and fiat isn't passing. Below are my thoughts on each of the categories.
Durability: Physically, gold crushes fiat money. Humans have been using gold since 700 B.C and you can collect coins today that have lasted through the rise and fall of empires. According to Vijay, “it is not their physical manifestation whose durability should be considered (since a tattered dollar bill may be exchanged for a new one), but the durability of the institution that issues them.” For Bitcoin, the durability lies within the network, which only grows stronger as the price continues to appreciate. No fiat money has lasted the test of time. If history repeats, we can expect too that one day the dollar will join the ranks of worthless paper.
Portability: This is a no brainer win for Bitcoin. We live in a digital age where information can instantly be transported through a screen and should be transported through a screen. Transporting gold is a nightmare, which is why most of the world’s supply is buried underground - it's so cumbersome. Fiat today is mainly digital, but transporting large amounts across a fractioned financial system is difficult and still faster by a jet. Gold, like Bitcoin, can be represented digitally, but the downside is that you are dealing with the title of ownership, not the actual asset. That's one reason why Bitcoin dominates this category. With private keys, you are in possession of the coin.
Fungibility: This score from Vijay came as a surprise to me because at first impression I would have scored Bitcoin the same as gold - both an A. But Gold’s higher score makes sense because only gold can be melted down, erasing its past. It can be accurately measured and then swapped for equal gold. Because of the cryptographic nature of Bitcoin, some coins can be traced, and merchants may be reluctant to accept tainted coins. The fungibility of fiat is only as strong as the word of the government. It has occurred in the past where governments discontinue bills, removing fungibility. This could occur if the U.S. government decides to eradicate coins and, as a result, coins then trade at a discount relative to their face value.
Verifiability: I slightly disagree with Vijay here and would have given all of them a B. All three can be accurately verified, but Vijay detracts from Gold and fiat because counterfeiters have historically fooled people with these two assets. There have been cases in crypto where people have bought Bitcoin Cash thinking it was Bitcoin because they fell prey to false or poor advertising. All three have their own tests for verifiability that can give a correct answer with 100% certainty.
Divisibility: This is another simple win for Bitcoin. Bitcoin breaks down into units called Satoshis that represent 0.00000001 BTC, or one hundred millionth of a Bitcoin. Satoshis are much simpler to transact with than gold, which would need to be physically broken down for every day use. Fiat deserves its solid score, but up against the units of Bitcoin, no asset can compare.
Scarcity: I think Vijay was a little generous with gold here, I personally would have knocked it down to a B citing speculation that gold likely exist on asteroids and below the ocean floor. Gold’s supply has remained scarce historically due to the control of governments, but Bitcoin has a fixed supply of 21 million that is unlikely to change. As for Fiat, it deserves its failed ranking because the money printer really does go brrrrrrr!
Established History: Gold is the obvious winner here, since it has stood the test of time. Bitcoin has only been around since 2009, a fraction of the US dollar’s existence. Sahil Bloom just recently wrote about the Lindy Effect and how the longer Bitcoin stays around, the more likely it is to remain. Vijay cited this effect and said that if Bitcoin is around for another 20 years, its trusts will reach a universal level equivalent to the acceptance of the internet.
Censorship Resistant: This attribute is the earmark of Bitcoin. At a time where governments are crafting destructive monetary policy equating to socialism for the rich and capitalism for the poor, Bitcoin’s policy remains untouchable and intact. Basically, if the hand of the government or powerful can grab ahold of the money, then the asset isn't censorship-resistant. In the past gold has been confiscated and miners can increase the supply by ramping up mining efforts if they please. It is true that Bitcoin has lost some of its anonymity with improved tracing technology, but it has retained its permissionless status since its inception. By its very nature, it circumvents 3rd party intermediaries that facilitate transactions within traditional finance and lives on its own accord.
Overall, this was just a thought experiment and the rankings were just from one Bitcoin user. I’m sure many people would have strong counter views to what I said above, but I tried my best to be as fair and accurate as possible with my reasoning within each category. Hopefully, you learned something new. Here is more:
The Sandbox - CoinMarketCap and NFTs!
A few weeks ago, I noticed CoinMarketCap exploring the NFT space and my interest was peaked. Sandbox is combining all of my favorite hobbies and new passions including gaming, sandboxes, VR, blockchain, NFTs, and tokens. The Sandbox is ending 2020 with exciting programs for its community of creators, artists, and $SAND and LAND owners, pushing NFT adoption further. First, following the release of their Game Maker v0.4, they opened a Game Jam competition with 350,000 SAND in prizes. They also launched the Liquidity Mining Rewards program with 1,500,000 SAND if you stake LP tokens on the SAND/ETH Uniswap pool. For players, they announced the Pre-Season 0, opening pre-registration to be first to test play-to-earn and claim NFT and SAND rewards! I plan on trying the game out when it releases its pre-season event early 2021.
SpiderDAO And Future Router Giveaway
I wanted to take a moment to introduce SpiderDAO, a company that has graciously offered to do a router giveaway in one of the coming newsletters. I also was an investor in their presale. SpiderDAO's mission is simple. To bring a new standard of fairness to existing DAO frameworks by preventing a whale (wealthy individuals) from buying up authority. It does this by bringing a combination of hardware and software solutions to provide whale resistant governance.
The SpiderConnect Router is a best-in-class router that serves multiple roles as a high-speed VPN tunnel, a DAO voting ticket, and a node in a fully autonomous decentralized VPN which webs the Spider ecosystems together, offering access to the SpiderDashboard with a multitude of features leveraging the Polkadot Parachain. Now that I’ve given a short primer, keep an eye out for a router giveaway in the future! I am eagerly awaiting the arrival of mine as well.
You can join the SpiderDAO community here: http://discord.gg/freymYYspb
Is This Bitcoin Cycle Ahead Of Schedule?
Cory, from the Swan Bitcoin Show, asked a question on Twitter that never receive an adequate answer. He asked, “If we're 4-5 months ahead of schedule in this Bitcoin cycle, do we have a longer bull market, or does the peak come sooner?” Generally speaking, an entire cycle has historically lasted about 4 years, with the first bull market lasting 742 days and the second 1,067 days. This one is at 382 days so far. These numbers were calculated by counting the days from the cycle low to the cycle high. Capital inflow into Bitcoin right now is matching capital inflow from April 2017. April 2017 was roughly 731 days into the 1,067-day bull market, or 68.5%. By capital inflows, we are 68.5% of this bull market.
But if this bull market lasts 905 days which is the average of the other 2 bull cycles, we are only 42% complete. Many experts claim that each cycle lasts longer than the last, meaning we could be closer to 33% complete.
Cory’s question is tough to answer, but all calculations aside, it is true that Bitcoin is moving at a faster pace than many models have expected. My best guess is that this cycle does not complete sooner than expected, but rather is currently moving with stronger momentum. We have seen institutions begin to step into the crypto space, but that does not change the fact that the market is still small. Bitcoin isn’t even at 10% of gold’s marketcap, and it has only captured institutional inflow from a few large funds and companies. The past cycles existed solely on retail interest. This time the Bitcoin rally is being fueled by institutions. Thinking intuitively, it does not feel right for Bitcoin to just hit its predictive goal ahead of time and be finished. With a new narrative and big money behind it, I’m inclined to believe that Bitcoin will at least live complete a 905 day cycle, rather than just hitting the predictive highs and crashing.
VanEck Is Trying For A Bitcoin ETF - Again
Asset manager VanEck has tried 3 times now to receive approval from the SEC to open the very first Bitcoin ETF. For a long time, receiving SEC approval for a Bitcoin ETF was like finding the holy grail - it seemed impossible and carried the utmost importance. With companies like Grayscale offering their own trust and shares of GBTC, the average retail investor right now can easily invest in Bitcoin without the stress of managing the crypto. An SEC ETF approval will be huge news when it happens, but more so based on the fact that regulators are warming up to the asset rather than it being the huge price catalyst it was once believed to be. The ETF will make two main differences - Bitcoin will receive a lot of public attention and everyone waiting to access Grayscale’s trust can migrate over to the ETF with a better option. I believe that many people that want exposure to Bitcoin still don't know that they can go buy shares of GBTC from their legacy broker - the Bitcoin ETF will help solve this.
Man Is Suing Coinbase Because It Sold XRP
Yes, you read that correctly. A man is suing Coinbase for selling him an unregistered security. The complaint alleges that Coinbase knew it was selling an unregistered security and wasn't authorized to do so. While it’s true that Coinbase (or any exchange) isn't allowed to sell an unauthorized security, proving Coinbase knew they were selling an unregistered security will be tough. The issue here is that lawsuits could scare exchanges and make them think twice about what list. I’ve said all along - most cryptos will fail and lawsuits like these are a surefire way to speed up that process.
New Stimulus Law Passed
If you are in the United States, this is a basic outline of the new stimulus package and what you can expect.
Phemex Adding Interest
This is huge. Phemex is adding interest accounts as part of their new Crypto Asset Management products - up to 10% APY.
As you know, Phemex is where I trade with leverage and they are sponsors of this newsletter. They have supported me from day 1. If you are going to sign up, please use this link! https://phemex.com/a/ScottMelker
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The platform I am using for my taxes. My trades were automatically imported after setup and displayed nicely. The tax report was quick and easy to create in the app. I can also track the performance of my assets in the app. With Blockpit, I no longer have to worry about realizing profits or losses in time.
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.