The Wolf Den #160 - Inauguration Day
ETH Breaks All Time High And The Market Correction 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.
ETH Breaks All Time High And The Market Correction
The long-awaited event finally happened. After hovering around the $1000 mark for a few weeks, Ether surpassed its previous ATH and went up to $1,430. Shortly after that it corrected by 16%. Although the market is still bullish and the price of Ethereum is likely to continue going higher, there were some signals yesterday indicating that this market correction was due to happen.
The Derivatives market was overheated.
The funding rate is a fee charged to perpetual swaps holders depending on the premium/discount and the positioning of contract holders. If the price of a perpetual swap is at a premium (price of perpetual swap > spot price), holders going long pay short holders this fee. The inverse is also true. By charging the funding rate, contract holders are incentivized to keep prices at a stable price relative to spot prices.
See the IntoTheBlock’s Perpetual Swaps Funding Rate Indicator
Yesterday, Ethereum Perpetual Swaps were extremely high, hovering around 0.11% across several exchanges and going as high as 0.5% on Bitmex, which is 50 times higher than the 0.01% average.
At the same time, Perpetual Swaps Open Interest hit a new ATH yesterday with over $4.67 billion in open positions. This makes the market very risky because there’s a higher risk of liquidations, which we saw yesterday as the OI decreased to $4.19b.
See the IntoTheBlock’s Perpetual Swaps Open Interest Indicator
A classic rule of thumb when trading derivatives is that falling prices along with declining open interest, suggests positions being closed.
This takes us to the second reason why the sudden drop in price happened, which is:
Large Inflows of Ether were deposited in exchanges yesterday.
It may come as no surprise, as many people that were holding ETH for a long time now saw a chance to take profits from their positions.
By analyzing the inflow volume in centralized exchanges, we were able to spot that during the last 30 days, the flows remained relatively steady, except on January 4th when a spike in inflows coincided with a local top in Ethereum’s price.
See the IntoTheBlock’s Exchanges Inflow Volume Indicator
As can be seen in the graph above, a similar pattern took place yesterday, as Ether climbed to a new high, over 1.29m ETH were deposited into centralized exchanges, coinciding with the recent pattern seen a few days before.
A positive aspect is that the amount of ETH available in exchanges has been decreasing consistently throughout the last weeks, which will translate into less selling pressure.
Short-term interest in Ethereum had been quite high
IntoTheBlock’s Traders indicator quantifies the number of buyers that have been holding for under a month. While some of these addresses will continue to hold for longer periods of time, changes in the number of traders point to the level of speculative activity taking place.
See the IntoTheBlock’s Ownership by Time Held Stats
For instance, in the graph above we can see that the number of traders for Ethereum increased by 26% since September. This coincides with a parabolic run-up in Ether’s price, pointing to a large number of traders rushing to buy and high fear of missing out.
Overall, even though we just experienced a minor correction, the bull case for Ethereum is still intact, and the fundamentals behind it are stronger than ever.
Bitcoin Thoughts And Analysis
I shared a chart yesterday with setups for both potential longs and shorts. The shorts played out beautifully. Again, this did not make me bearish. If you are a small time frame trader, you should be agnostic and ready for price action in either direction.
As you can see, price ultimately broke down from the ascending channel, retested it perfectly as resistance and fell. That was a textbook short.
The key here was the level at $37,402, the black line. There were 5 wicks through that line without a candle managing to close above. That's a sign of significant selling interest and pressure in that area. Eventually it becomes too much and price drops.
Taking a wider view on the hourly, we can get a better picture of market structure. As I said yesterday, we are yet to make a higher high (red checks) since the all time high. We need to still break the red line for that to happen, a massive long signal if it happens. With the channel break down, we now have a new potential local trend shown in blue. That would require the present higher low to hold.
Price appears to now be traveling in a descending channel, which is statistically like to break to the upside. So you could use a break of that channel resistance as a signal to go long for a scalp. This could also mean a likely reversal and end to the downtrend.
The question, of course, is where does price go next. The simple answer is - I don't know. This is a moment for caution as Bitcoin awaits a decision either way.
Altcoin Charts
As a result of the Bitcoin dip, almost every setup that I have shared has offered an entry on a retest of former resistance as support. While I was not willing to share ideas yesterday (good decision), today you can revisit most of them and find potentially great entries. The caveat is that Bitcoin needs to hold up or they will break support. Coins like BAND, DOT, REN, WAVES, EGLD and SUSHI are all doing exactly what we were watching for. You can revisit past newsletters and I will share some here below. You should be tracking these trades on your own at this point once I share them.
DOT/BTC
Still following the most recent path in green. As long as it holds support, this idea is still valid. Otherwise, as mentioned before, we look for lower levels to hold as support. I bought some DOT today.
DOT/USDT
I bought some DOT on Voyager as well as took a small leveraged position (hard to go very big with the lack of volume) on Phemex. Simple - I don't necessarily expect price to rise, but there's really solid risk/reward here at support. That's it. The spot buy I view as a much longer term play, adding to my bag. No stop loss on that for now. You can use these lines moving forward as important levels.
SUSHI/BTC
Beautiful retest of former resistance as support. This is a key level to hold. Again, this could go down but the risk/reward for a position here if Bitcoin remains stable is very good. The USDT pair looks similar.
WAVES/BTC
I shared this idea a week ago, before WAVES broke resistance. It did so with a nice big candle and has now come back to test that area as support. You can see the idea from last week, we are now at the green box and retest on the pink line. Again, this is dependent on BTC. If BTC remains stable or rises slowly, I expect this to do very well.
Janet Yellen Does Not Understand Bitcoin
Yellen made the remark during her Senate confirmation hearing Tuesday.
Under the new Biden administration, Janet Yellen is expected to become the Treasury Department Secretary, and will play a large role in the regulation of crypto in the U.S. On a macro level, her transition will likely be bullish for the legacy market, as experts have claimed she will be doing a lot of spending. On the flip side, she just recently said, “I think many [cryptocurrencies] are used, at least in a transaction sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels.” It is unclear whether her misunderstanding stems from early skepticism, Bitcoin trolls, old age, or a combination of the 3. As I always say, the dollar is used for illicit activity far more than Bitcoin, and it ain't even close. If she does crank the money printer, this will be overall good for Bitcoin, assuming her desire for printing outweighs her hate for Bitcoin. At the end of the day, good or bad, one person no longer has a strong impact on this market.
Ethereum Hit An All-Time High Against USD
When Bitcoin was around its all-time high levels back in November 2020, it spent a couple of weeks in that area before a definitive 15% break above its 2017 peak. What isn't close to an all-time high is Ethereum’s value relative to Bitcoin. Ethereum is currently 26% of the value that it was once vs. BTC. If Ethereum’s price rises and Bitcoin stays flat or decreases, this percentage will likely once again slowly return to the highs. Add this to your list of reasons why Ethereum has a lot of room left to grow in 2021.
$100,000 Is Too Conservative
Willy Woo, a popular crypto Twitter technical analyst has come out and publicly said that “$100,000 is too conservative and BTC is instead on track for $200k minimum.” Considering that the average of all popular models pins Bitcoin at around $235,000, Willy’s model is on par with the majority of the predictions. The Top Cap model, as it is called, has done historically well-matching market capitalization tops with its predictions. Beyond success with market tops, the model includes an indicator that has correctly predicted market bottoms, at practically 100% accuracy. As a rule of thumb, no single model should be your basis for when you sell, but rather a collection of different models and an average from the lot. I wanted to share this model because it is a really good mean representation of all popular and current models circulating the internet.
His model aside, I tend to agree with the sentiment and tweeted something similar yesterday. 100K is a mere 3x from current price, and I think that is a very conservative estimate for what we will see this year.
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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.