The Wolf Den #155 - Positive News On Regulation
Bitcoin Fundamentals Are Stronger Than Ever - 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 Fundamentals Are Stronger than Ever
Bitcoin has exploded over 100 percent higher over the past four weeks, moving from $20,000 to highs around $42,000. After reaching the $42,000 ATH, Bitcoin price suffered an $11,000 retrace in just 32 hours.
This sudden retrace in the price raises the folowing question: what’s happening with Bitcoin? Could this rally be finished?
While the cryptocurrency is facing an ongoing retracement, the fundamentals behind Bitcoin are stronger than ever.
Analyzing IntoTheBlock data we are able to extract valuable insights to support the premise of Bitcoin strength.
The Bitcoin Network is extremely secure
The hash rate — which measures the aggregate power miners devote to solving Bitcoin’s proof of work algorithm — has managed to increase even more than Bitcoin’s price.
And why is that important? A blockchain ’s hash rate is often associated with its security. This is the case as more computing power allocated to validate transactions make it more expensive to attempt to attack the blockchain. Therefore, increases in hash rate can be interpreted as improvements in the underlying blockchain security.
See the Bitcoin Hash Rate Chart
As can be seen in the graph above, Bitcoin hash rate has been growing steadily over time. More specifically, it went from 13.66 TH/s in December of 2017 to a new high of 165.94 TH/s on January 6 of this year. Without question, the Bitcoin network is more secure during this bull run.
The prevalence of Bitcoin as a store of value
See the IntoTheBlock's Ownership by Time Held Stats
Bitcoin (BTC) as “digital gold" is a narrative that we have been hearing for several years now. Although Bitcoin has been known for its wild volatility, on-chain suggest that this thesis is stronger than ever.
The prevalence of long-term investing in Bitcoin manifests its transition into a store of value asset. At the time of writing, almost 63% of Bitcoin addresses have been holding it for over a year. The growth in the net number of Bitcoin holders along with the relative increase in the percentage of holders point to Bitcoin’s strengthening proposition as a store of value.
Institutional Adoption
We have mentioned this before, but feel compelled to discuss it every time we talk about Bitcoin.
Institutional investors have been driving up the demand for Bitcoin. Though this trend began a long time ago, Q4 of 2020 was the period when institutional adoption in Bitcoin finally took off.
For instance, from December 16 (when the price of Bitcoin reached $20,000) to today, the Grayscale Bitcoin Trust added a total of 41,007.63 new Bitcoins, which means they are buying at a rate of 1.906 times the amount of Bitcoin being mined on any given day.
See the IntoTheBlock's Large Transaction Stats
IntoTheBlock categorizes on-chain transfers of over $100,000 as Large Transactions. The aggregate volume in large transactions serves as a proxy to institutional investors’ and high net worth individuals’ transaction activity. As can be seen from the graph above, the aggregate volume in large transactions has grown exceptionally throughout the year.
Overall, as the demand for institutional investors continues to grow, the holders continue to strengthen their positions as long-term investors, and the Hash Rate continues to rise, it paints a bullish outlook for Bitcoin in 2021 meaning this retrace is likely only a minor step back.
Altcoin Charts
INJ made a sizable move. I hope that you were all able to take advantage of it! Here are a couple more that I have been watching. I am trying not to overwhelm you with ideas, especially while the market is indecisive. Again, these are IDEAS. I am NOT telling you to buy these and would definitely not do so at the current levels. I trade based on future thoughts - if something happens, THEN I will take the trade.
DOT/BTC
I pinned DOT yesterday as a chart to watch, as it looked likely to push through horizontal resistance. That happened in spectacular fashion, after also retesting the large descending black line as support. Now there are a few ways to approach a trade on this pair - none of which would be entering at this exact moment.
The top path would be a break of the blue descending resistance (you could enter on the break) and a retest as support for confirmation. This is the "safest" trade and the light blue path.
There are two potential entries if price drops, shown by pink. They would be a drop to retest horizontal support at 25044 for the first time, or a break of the descending blue line lower and retest as support.
Always have multiple plans if you are looking at a pair that you want to enter. Also, it should be noted that those paths are purely theoretical, they are not tied to any time. They could breakout and retest at a different point or not at all.
WAVES/BTC
This had a nice bounce out of daily (and weekly, not shown) demand, the blue support zone. That would have been a nice entry, but now I would like to see it recapture the former support around 1940. If it can flip that to support, this should be on its way up in spectacular fashion. So, a break of that line and close above, then retest as support is the safest approach.
WAVES/USDT
Anything above the pink line looks promising to me. We have a nice potential bull flag formed, so the safest entry would be a break of the top resistance. The first target is the recent highs at the top of the flag. Simple, right? If that breaks, it's in all time high discovery on the USDT pair.
Legacy Markets
SPWR (SUNPOWER CORP.)
This has done almost a 6x since it was shared in the newsletter in July - better than almost any asset in the crypto space in that time. We traded this on the inverse head and shoulders. I personally exited the majority of the position long ago, but believe that this has the potential to just keep heading up. At this point, I would like to trade it either on a break of the top line around $32, or a drop down to support at $24. This has climbed the stairs beautifully, so you keep trying until it doesn't work!
Brian Brooks Commented On Banks And DeFi
News, analysis and comment from the Financial Times, the worldʼs leading global business publication
Brian Brooks, the US acting comptroller of the currency wrote an insightful piece for the Financial Times about his thoughts on banking and DeFi. Brian compared the advancement of autonomous cars to the advancements DeFi is making in the banking world. Brian said, “self-driving banks are likely to be mainstream before self-driving cars start to fly.”
Furthermore, Brian stressed the fact that updates are needed to our antiquated system to allow the OCC the power to grant a national bank charter to open-source software that acts like a bank, namely DeFi. Brian’s comments here are fascinating. He finishes with a question to the readers, asking them what a world would look like in the future if “regulators, bankers, and policymakers were as bold as carmakers 10 years ago?” The movers and shakers are here, they just haven’t shoved their foot into the legacy door. The way I see it, either DeFi will render banks useless, or banks will pivot before DeFi beats them at what they do best.
With Dips Comes Gains
Panic has enveloped the crypto markets, with traders calling for targets in the $20,000s and the start of a new bear market. It is possible that these targets will hit, but current levels and lower levels are nothing to stress about. In the last bull market, from 2016 to the end of 2017, there was a total of 9 corrections ranging from 20-40%. After these corrections, Bitcoin underwent a series of massive gains averaging, out to 153% per correction.
The other positive aspect of the drop is that it inspires caution and fear in retail traders and new entrants. Dips like the one we are in now keep uniformed investors away because Bitcoin is too “volatile and risky.” The goal is to prolong mass retail entry, allowing price to slowly appreciate.
My Recommended Platforms And Tools
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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.