The Wolf Den #148 - Taking Profit
Bitcoin Thoughts And Analysis
So much has happened with Bitcoin since last Thursday, when I sent out my most recent newsletter. We have seen insane movement up, with price topping at around $34,750. Just wow. The weekend was incredible.
This crazy movement up was followed by an equally aggressive sell off, with Bitcoin dropping $6,000 in a short period of time, bottoming around $27,800. That amounted to a roughly 20% retrace in a matter of hours - larger than any retracement we have seen since March, even over days and weeks. 20% from the top is significant and certainly "enough" in a bull trend.
2.32B in longs were liquidated on this drop, reducing funding rates and clearing out overzealous and over leveraged traders. This always happens, but not necessarily in this fashion.
This drop was the largest in dollar terms in the HISTORY of Bitcoin in a single day. We spent much of 2020 trading at $6,000 - now that amounts to a day of price action.
We have come so far.
Notably, price immediately bounced and hard. It is currently trading around $32,000. What does that mean?
Strong demand. Like, really strong demand. Buyers are stepping in to absorb any dip, so this move likely amounts to whales selling off to liquidate retail leverage traders and grab liquidity below. Sell, set off cascade, buy again, get rich. That's right - the biggest players often sell because they want to buy more... sell the top, trigger a sell off, buy again.
Blomberg ran a headline: "Bitcoin's rally comes to a halt as price falls most since March."
They look stupid now.
MONTHLY CHART
I am always hesitant to post "moon boy" charts, but here is one of the highest order. We can see that price has been trading in an ascending channel since 2013, with three clean bounces from the bottom and 2 from the top, all alternating. Price just flipped the EQ (dashed centerline, equilibrium) of this channel back to support last month. Technically, that means we should now see a move to the top of the channel over time.
Use this information as you see fit.
4-HOUR CHART
Clean. I have added some fresh 4-Hour levels worth watching, but you can see that price dropped perfectly into demand and bounced, in confluence with a key level of fresh support. Further, the last candle closed with a very long wick down, showing extreme buying interest in the asset everywhere below.
And what happened before the drop? Let's look at the line chart, which eliminates the noise of candles.
We had a clear bearish divergence in overbought territory and a small head and shoulders. You measure the target of a head and shoulders based on the depth of the pattern. On the line chart, it hit perfectly before bouncing. Almost to the dollar. On a candle chart the wick went much deeper.
RSI bounced around 50, which is considered the bull/bear line.
The only thing that gives me pause is that RSI has now hit overbought 3 times without making the trip to oversold. This will eventually happen, but could be because of sideways price action and not a huge drop, or it could happen much higher. It will get there.
For now, everything looks bullish again.
Total Crypto Marketcap
The total crypto market cap (all coins) finally made a new all time high last week, breaking the previous high of 761B and reaching roughly 920B. We almost hit a trillion dollars!
As you can see, the market cap dropped with Bitcoin yesterday, but has retested the previous all time high as support and bounced. Hard. This is not tradable, the chart is not particularly important. What matters is that we have more money than ever in crypto and alt coins have barely begun to move. If they do, the market cap should explode.
Altcoin Charts
Altcoins are looking decent at the moment, following the huge move by Ethereum this weekend. Our SUSHI trade has now almost done a 2x and does not look like it's stopping. EGLD continues to rip. POLS hit a dollar and EUM is now over $4. LRC finally broke out yesterday and is up over 60% in that time. All of the setups I have posted are basically still valid, so worth revisiting. I will post new ones this week depending on what Bitcoin does, but here are a few to review and watch.
Let's dig in.
BITCOIN DOMINANCE
Bitcoin Dominance hit its highest level in 3 years before seeing a massive drop on the Ethereum rise and subsequent Bitcoin drop. Charting Dominance is a bit of a joke, but has worked in the past. It's not a tradable asset, so what is really important is whether it is trending up or down. At the moment we have a large drop, typical of positive alt movement and a potential alt season. Now we have to wait and see if it continues or bounces. The weekend was the clear time to be trading alts, but I am hopeful that can continue.
ETH/USD
Ethereum led the way this weekend, making one of its largest move in history, topping out at almost $1,200. Crazy, but NO surprise to anyone who has been a part of this newsletter. You should know by now how bullish I am on ETH and that I think it is going much higher. It has hit almost all relevant targets. The all time high and price discovery above are the only targets left. Let's aim for price discovery!
REN/BTC
The are two ways to approach this. The first is to set an alarm on the blue line and trade the break or retest. That's the safest, on a confirmation that the downtrend is over. The second is to catch this falling knife here in the blue demand or just above and hope that it's a bottom, with a stop below the blue area. That's riskier but has higher reward if it reverses from this area. Above the black line would be a really nice resistance to support flip, and would also signal a double bottom.
I'm not trading this, really not trading much at this point without Binance, but I would personally be watching the blue line. Could take a while.
YFL/USDT
Patience is paying off on this pair in spades. I have posted this setup a few times, and each time it has failed to break the descending blue line. Why is that good? Because it offered a lower entry on the break. The pink line confirmed a double bottom reversal, and price is presently broken through meaningful levels of resistance. You can use fibs as targets, but I am eventually looking for this to reach the highs again. Hopefully if you did not catch the blue line break, you caught the dip and retest of the pink area or black line. At this point, we want to see a clear break of the red line, so the next reasonable entry would be a retest of that as support.
Legacy Markets
DXY (DOLLAR INDEX)
I have shared this chart with you all more times than I care to admit, but the month just closed so it is worth quickly revisiting. I have been bearish on the dollar since the rejection at the EQ of that massive channel many months ago. I was one of the few who predicted that this massive channel starting in the Great Recession would break down. When it came back to retest the channel bottom as resistance people were bullish, calling for a reversal. I said it would likely fall after failing. Last month's candle was bearish and we are starting this month with further downside. Lots of time to go.
Why does this matter? Because when the dollar goes down, almost everything else goes up. Bitcoin, gold, silver, stocks. They are not all correlated to one another, but they do show inverse correlation to the dollar. I believe the drop has much further to go.
Here is the chart of Bitcoin Vs. DXY. Not sure I even need to say anything.
XAG (SILVER)
This is a simple update of the chart that I have been sharing for the past month. If you missed it, we had a clean break of the blue channel, retest as support and strong move away. Target is shown based on the length of the flagpole of this bull flag.
XAU (GOLD)
Boom. I shared this setup first at support at $1,795.80. Now it has clearly broken out of the bull flag. This should be the beginning of another leg up, especially if the dollar continues to drop. Anything above $1,920 looks very bullish.
Poolz - Cross-Chain Token Pools & Auctions
This is a project that I took a small investment (only because I was not offered more) in recently, so as always I wanted to share the details with you. Once again, this is not compelling you to buy it, especially not when there's FOMO and it has just launched (soon). I am just looking to share the projects that I think are interesting to put them on your radar for the future. Do your own research.
Poolz is a blockchain firm developing tools that help projects deploy cross-chain applications and tokens. Their first implementation is a cross-chain swapping protocol that allows blockchain startups to bootstrap the liquidity period the listing days on a decentralized infrastructure.
The platform allows various blockchain networks (Layer 2) to deploy to the Poolz platform and increase their ecosystem development.
Achievements so far:
• The product has already been integrated and live over the testnet with four different blockchains (Ethereum, Tomochain, Polkadot, Binance Smart Chain). *Binance not ann yet.
• Poolz is the second project of The Foundry, the first incubator to connect a decentralized fundraising model with the best influencers, founders, and exchanges.
• Signed agreement with Tomochain to be the second chain support for the core code and listing the Poolz token on TomoChain's exchange called: "TomoDex."
• Strategic Advisors: Lead developer from eToro, Lead Blockchain Consultant at Tomochain, Market Across, DuckDAO, and "The Foundry."
• Poolz Reports 25x Oversubscription for $1M Private Sale led by The Foundry, DuckDAO, FerrumNetwork among other leading blockchain VCs such as Genesis Block, 7X Ventures, GBV Capital, Phoenix Capital, and Alphabit.
Telegram: https://t.me/PoolzOfficialCommunity
Twitter: https://twitter.com/Poolz__
Privacy Coins To Be Delisted From Bittrex
Rather than waiting for the regulatory hammer to drop, Bittrex is getting ahead of government oversight and has committed to delisting controversial coins, Monero (XMR), Dash (DASH) and Zcash (ZEC) on January the 15th. Bittrex didn't give an official statement about the removal of the coins, but this action falls in line with a growing trend of exchanges moving to separate themselves from privacy coins. The first movers on this trend have been low/middle tier exchanges, but Bittrex’s decision to forgo profits signifies the growing seriousness of the controversy. As of recent with this cycle, fundamentals have become more influential on the future price of coins, and a delisting is one of the worse things that can happen to a coin. Monero is the only coin that has been performing decently of the three, but it still took a massive hit from the news. As I continue to say, regulation is coming in 2021 and investors should do everything they can to avoid financial pain as a result.
Congress Members Are Coming Together To Fight Harmful Crypto Regulation
Just weeks ago, FinCEN released strict new regulations around KYC rules for digital asset service providers to abide by. With the proposal, a 15-day period was offered for the crypto community to give feedback on the legislation. As if the timing of the announcement wasn't bad enough with the holidays, 15 days isn't even close to the normal length of 60 days typically offered for feedback. On the surface, the proposed regulation sounds beneficial because the U.S. Treasury is claiming the rules aim to prevent terrorism and money laundering with improved KYC. The downside is the functionality of self-hosted wallets. Private and public groups are of the belief that the proposed legislation will negatively impact how crypto users interact with wallets, potentially making them far more challenging to move money into and out of. It still isn't entirely clear how the proposed regulation will impact crypto users, which is exactly why almost 10 members of congress have banded together, demanding FinCEN slow down with its rushed proposal and failed attempt at public approval. I’ll make sure to revisit this once more news surfaces.
Bitcoin’s 12th Birthday
The first Bitcoin ever was mined 12 years ago on January 3rd, 2009. It was on the first block that Satoshi left a message for the Bitcoin community - “Chancellor on brink of second bailout for banks.” This note from Satoshi was a shortened version of the morning’s NY Times headline that was reporting on the United Kingdom’s consideration to pump billions into the economy to alleviate the crisis. And so it is engrained in the genesis of Bitcoin, a reminder that we can say “no” to a crippled dollar, endless printing, and failed monetary policy. And now 12 years later, the message becomes even more relevant with each passing day as the legacy system slowly but surely jumps ship to a newer and better system. Happy Birthday, Bitcoin!
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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.