The Wolf Den #162 - The Dollar Is A Faith-Based Asset
Bitcoin Thoughts And Analysis
Well, this really played out as I was hoping! Let's take a look at the charts.
4-HOUR CHART
We once again had bullish divergence on the 4 hour chart after touching oversold. It has played out much like I drew it once again - this has been such a reliable indicator over time for Bitcoin that it's hard not to look for it. The bigger story is that the 4 hour still has not made the trip to overbought, which will inevitably happen at some point.
I shared this idea yesterday as well. As often happens, price went deeper than expected (I actually traded this, stopped out and then reentered lower), but the idea was impeccable. Price broke and swept the range lows with a wick, then closed back in the range and continued up. This is the bullish SFP that I was watching for yesterday and played out perfectly. There was also nice volume on that bottoming candle, which also made a nice dragonfly or hammer candle, a strong reversal sign. This should technically target at least the EQ (dashed center line) of the trading range, even if it is going to continue down.
The 200 MA had not failed as support on the 4 hour since October. It dove below yesterday and was a major concern for bulls that trade using MAs. The good news? It has been flipped back to support for the moment. Let's hope that it holds. It was actually just retested as I am writing this.
That is all of the good news - but let's not be biased.
This idea is still in my play, in my mind. While the channel is unconfirmed, the EQ is acting as resistance here and has been a clear resistance and support level regardless. I would really like to see price above that dashed line, personally, even if it's not meaningful to other traders.
You can also see that price has not even retraced 50% of the recent dump. As you know, any impulsive move down usually sees a reactionary bounce - up to 50%. Since we are not there yet, I have to remain cautious and believe this could be a bull trap.
Altcoin Charts
Alts look really good. Even with the Bitcoin dump, they largely were unaffected (against Bitcoin, not dollars). All of the trades that I have shared still look promising, most having bounced right off of support before heading up. DOT, BAND, REN, WAVES are all examples. INJ is still absolutely flying. Very encouraging considering the size of the Bitcoin drop.
Here is another one that I am watching.
SRM/BTC
I look at this recently on a live stream and showed the bull flag that was forming. The alarm went off on the breakout, which still looks good. At this point, I want to see 5395 flipped from resistance to support, which would be the safest entry with the highest chance of success. This is consolidating below resistance in a bull flag - usually leads to a large move to the upside.
When And How Should I Sell My Crypto?
Written By Adam Tarlowski:
If we can establish the fact that we are in a crypto bull market, the biggest question for investors becomes when and how should I sell my crypto? Even if you already had a plan in place, it's not a bad idea to reconsider where you plan on taking profits and in what manner you will do so. Below is a framework of personal and contextual variables that one should consider in their take profit plan for the best possible exit. If you are in the camp that someone should never sell their crypto then this segment isn't written for you, but be warned, everything that goes up must come down to some extent for some period of time.
Do You Have A Target In Mind?
If you plan to just “read” the market without a fixed set of take profit levels, you are likely to become a victim of your emotions when you should be selling. The reason why most investors failed to take profit in 2017 was that they held onto their portfolio, planning to time the top or squeeze out more money, only to realize that the run was over and prices were slipping. Many of the top reputable investors called $20,000 to be the cycle peak months in advance, but that didn't stop talking heads from changing the narrative to $100,000, enticing bag holders to stay in longer for another set of 5x returns. If you want to lock in profit, your strategy needs to include a set of levels where you plan to unload portions of your portfolio, with a bit at each stop.
How Do I Scale Out?
Assuming you scaled into the market and didn't buy a lump sum at one point, you would scale out the same way you came in. If you are thinking..., well I bought all at once and am doing well, so I should sell all at once… then ask yourself if you bought at the perfect time. The answer will be no, meaning you are better off moving out of your position in intervals just like an experienced investor enters the market. Start selling small amounts in a price zone that is below your final prediction. For example, if you own 10 Bitcoin, start by selling .5 when you think Bitcoin is at a quarter or half of its cycle top. Preferably you will sell this .5 on a really green day rather than a dip in order to keep your sell average as high as possible. As Bitcoin continues to climb toward its peak destination, this will be time to increase your offload to decrease your exposure. Your next sell might be at 60% for 1 Bitcoin, 75% for 5 Bitcoin, and so on. Timing the top is a fool’s errand, success is selling what you plan to sell at a value that's 75% of the top, which is very achievable if you scale out with a plan. You may now be thinking, but even if I scale-out, how can I guess where the top might be to do so responsibly? This leads to the next segment.
Find Your Favorite Model
This is probably the most critical part of the sell equation. Yes, there are narratives that institutional money changes everything this cycle, and Bitcoin will push to $500,000 or $1M, but counting on the price to achieve these levels this year seems more unlikely than likely, especially if you believe in past data as a roadmap to future data. Currently, the most popular models are pinning Bitcoin’s top between $100,000 and $300,000. My top models are the Stock-to-Flow by PlanB, Top Cap Model by Willy Woo, and the Bitcoin “Rainbow” Chart by Blockchaincenter. Once you have 3 models/predictions from reputable crypto analysts, take the average of the 3. My average from my 3 models come to $241,000. This is a solid average considering the average of the top for 200 models was about $231,000. It isn't necessarily wrong if your average is far off from $231,000, but just bear in mind that your prediction is straying away from technicals and falling into the realm of fundamentals, which requires a different set of evidence beyond historical price data.
Pro Tip, Use Multiple Exchanges
Another reason why timing the top may be a challenge is that exchanges may begin to fail during peak euphoria. Exchanges were so overwhelmed in 2017 that new users had to wait months for access to the platform. Early in this cycle, we have already seen heavy volume days take a toll on exchanges, causing crashes and minor outages. As exchanges boost their infrastructure, they are fighting a constant battle of bigger days, and larger user bases. Don't be married to one exchange. In the moments you plan to sell, have a handful of options that you are comfortable using.
How Much Money Do You Desire?
This is the most personal aspect of the sell equation, but I can offer some guidance on how you should begin to answer the question. Now that you have a model in mind, the closer you try and time the top of the model or set of models, the more likely you are entering into higher risk territory. Setting a desired end profit goal is a responsible strategy. Factors to consider are age, money in the bank, crypto’s percentage of your portfolio, and your overall risk tolerance. If you are already well off, and crypto is a small part of your net worth, scaling out of your position closer to the cycle top is reasonable. If you are young with bills and over a third of your net worth is in crypto, it may be wise to begin scaling out early even against that voice in your head telling you to hold out longer. It is also wise to think of 3 net profit figures: one that will satisfy you, one that will please you, and one that is your wishful goal. Within the bounds of your selected models, work backward to write out the scenarios and how your 3 net profit figures can be achieved. This means you should end up with each coin in your portfolio having an average sell goal that is low, medium, and high.
An Example Of A Portfolio Scaling Out
Here is an example of a portfolio that holds 2 Bitcoin, 10 Ethereum, and 1,000 EGLD. The models above gave us an average Bitcoin top of $241,000. As discussed in the first segment, timing the top is a fool’s errand, securing 75% of the top is a success for the average retail investor. Starting with the Bitcoin position, when scaling out, your wishful goal should be to have your average at $241,000. Your middle sell average could be $180,000 (this is still a success) and your lower sell average around $150,000. To achieve these numbers, it would be wise to breakdown your total Bitcoin value and scale-out accordingly. Your first sell order could start at .1 Bitcoin then increase the value as the price appreciates. These periodic sales should be timed with market upswings, not corrections, and should take place, not in the final stage of the model approaching its peak. If your model predicts that Bitcoin will do a 5x from current numbers, then assuming your altcoins aren't shit coins, apply a similar multiplier to their current price to find a top. Then find a middle and lower sell average to shoot for as goals. The same 75% goal mentioned above should stick true to your entire crypto portfolio. Also, if history repeats, Bitcoin in 2017 topped out about 20-30 days prior to the rest of the market. Once Bitcoin begins to stagnate at high levels, the clock is ticking for altcoins to be sold. Keep in mind risk increases the more crypto you are holding towards your predicted top. This was only a hypothetical scale-out, you will need to answer the personal questions first to decide on your sell goals.
If You Aren’t A Perfect Buyer, You Aren’t A Perfect Seller
If you made it this far and you feel that the suggested strategies above don't apply to you because your plan is to sell at the top, do this one exercise. Since your first entry into Bitcoin or any coin, circle on the price chart every time you have bought. If your average purchase price was equal to or close to the lowest price in this time frame, then maybe you have a shot at timing the top. If the majority of your purchases were not on a dip and could have been better timed, this probably tells you that you were not perfect on the way up, so you won't be perfect on the way down. Next to nobody has perfect entries, so don't count on a perfect exit. Fear is a strong emotion, but greed is much more potent and likely to cloud your judgment. So, when the cycle peak is approaching and absolute euphoria kicks in, don't count on perfection, count on your plan.
Inflation 101
Written by Sahil Bloom:
Given all of the money printing that has taken place over the last several months, you have undoubtedly heard the term "inflation" thrown around a lot. But what is inflation and how does it work? Here's Inflation 101!
First, a few definitions. Inflation is a measure of the rate of increase of the price of a basket of selected goods and services. It is typically expressed as a % and serves as an indicator of the change in "purchasing power" (i.e. what your money can buy) of a currency.
The Consumer Price Index (CPI) and Wholesale Price Index (WPI) are the most common indexes for measuring inflation. While typically discussed on an economy-wide basis, we may see inflation in some areas of the economy (e.g. housing) and deflation (price declines) in others.
In very simple terms, inflation occurs when there is too much money chasing too few goods and services. In slightly more technical terms, inflation occurs when money supply growth outpaces economic growth. To illustrate how this works, let's use a simple story.
Imagine a primitive island society with 10 inhabitants. On this island, they use rare seashells as currency. There are only 1,000 seashells on the island. The islanders use the seashells to buy food, building materials for their homes, etc. Prices of these goods are stable.
A large storm, Hurricane FEDerico (sorry!), sweeps through the region. In the aftermath, the islanders see that another 1,000 of the rare seashells have washed up onshore. There are now 2,000 units of the currency, but the same amount of goods. What happens next?
So what we have is a 100% increase in money supply and no increase in the supply of goods. Now there is more money chasing the same amount of goods, so sellers of the goods raise their prices. Simple supply and demand. This is inflation in action.
The impact of this differs across the two types of islanders. Savers, who had stored seashells for later use, are punished as each stored seashell has become less valuable in its ability to purchase goods. Asset Holders rejoice as the value of their assets appreciates.
It doesn't sound so great, so why is maintaining steady, positive inflation a goal of central banks worldwide? Inflation incentivizes spending by disincentivizing saving. Central banks believe spending drives growth. So they seek inflation: Inflation Spending Growth
This Keynesian belief (more on this later), it should be said, is contested. Given the rapid increase in money printing in recent months, these debates have taken center stage. It is important for everyone to understand the basics.
This was a (very simple) primer on inflation. It is not intended to be exhaustive - there are certainly nuances to much of this. I plan to do threads on the basics of monetary policy to build upon this foundation. That was Inflation 101! I hope you found it useful.
Did Bitcoin Double Spend? Is This Doomsday?
In short, no and no. There were no additional coins added to the supply and there wasn't a lone trader who profited twice from his transaction. Bitcoin was designed to solve the double-spend problem. In fact, it was one of the first things Satoshi mentioned in the Bitcoin White Paper Abstract. Because mining is so competitive, a rare occurrence recently took place where a single transaction was recorded on two blocks. This happened because over a million miners around the world are competing to solve the same task, which means there exists a slim chance two miners could finish at the same time. Just because the same transaction was recorded on two blocks does not mean the transaction was verified on two separate blocks. Satoshi accounted for this exact occurrence, which is why the blockchain only recognizes the longest chain. One of the transactions became a dummy transaction and was not verified. The bigger story here is that whales can latch onto FUD stories like this one and the recent Yellen remarks and sell to create more panic. This reinforces the FUD and causes further panic in the market. The market was in extreme greed when it broke all-time highs and now we are 50% higher than $20,000 and sentiment is already in fear. Moments and stories like these are meant to shake you out, nothing has changed from a macro perspective. HODL on.
Yellen Doesn’t Hate Bitcoin After All
Just a couple of days ago, all the headlines were saying that Janet Yellen, the new Treasury Department Secretary thinks crypto is used for “illicit activity.” I even said in the newsletter that Janet Yellen “doesn’t understand Bitcoin” from her public remarks. Now the headlines have done a 180-degree turn stating that Yellen’s opinion is a lot more pragmatic, rather than problematic. This is almost entirely the media’s fault for a mischaracterization of her stance, because all of the claims about Yellen were solely based on one answer that she gave to one narrow question. Better research on my end and their end should have caught this. Ultimately, this is the result of one person inattentively watching the hearing with a misinformed opinion. It was in a written testimony released yesterday where she better explained her full opinion: “I think it important we consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system.” Further adding, “I think we need to look closely at how to encourage their use for legitimate activities while curtailing their use for malign and illegal activities. If confirmed, I intend to work closely with the Federal Reserve Board and the other federal banking and securities regulators on how to implement an effective regulatory framework for these and other fintech innovations.”
Michael Saylor Buys The Dip
CEO Michael Saylor bought the coins for an average price of $31,808.
If you sold the bottom, congratulations - Michael Saylor bought your bags. This is the real story - the people with conviction are buying, not selling.
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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.