The Wolf Den #175 - The Elon Effect
Bitcoin And The Elon Effect 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.
This report is written by Daniel Ferraro, Head of Marketing at IntoTheBlock.
Bitcoin and the Elon Effect
This has been one of the most exciting weeks for crypto. Ethereum CME Futures launched and Bitcoin's mainstream presence has exploded since Tesla purchased $1.5 billion of BTC. This announcement comes a few days after Elon Musk changed his Twitter bio to “Bitcoin”.
With the addition of Tesla’s $1.5b investment, there are now over $6 billion in Bitcoin held by publicly traded companies.
Tesla’s 1.5B investment drove the price of Bitcoin to new highs, and at the moment of writing, Bitcoin’s price is sitting at $45,777.13, rising by 36.4% over the last 7-days.
By analyzing the profitability of traders near the current price of BTC, we can understand the circumstances and price ranges expected to act as support and resistance now.
The IOMAP is useful for traders to know the next price levels where addresses are expected to buy and sell based on users’ on-chain positions and unrealized profits. As you can see in the chart below, the size of each cluster represents the volume of BTC previously bought at a specified price range.
See the IntoTheBlock In/Out of the Money Around Price Indicator
The IOMAP indicator reveals that the last significant level of on-chain resistance is located at a range between $46,444 and $46,630, where 360 thousand BTC had previously been acquired by over 479k addresses. Breaking above this zone could catapult BTC to retest the $47,000 level again or even jumpstart a new rally to $50,000.
On the downside, we observe two critical levels of support. The first level is located at a range between $41,687 to $43,086, where more than 775k addresses previously acquired 501k BTC. If this range is broken, there's an even bigger area with a concentration of buyers around $38,880 and $40,288. Here, approximately 440.7 thousand addresses had previously purchased roughly 298k BTC.
Bitcoin has become one of the best-performing assets of 2020 and 2021 and using some of the recently released IntoTheBlock’s Capital Markets indicators, we will compare Bitcoin against the best-performing stock of 2020, Tesla.
As of Feb. 10, 2021 through IntoTheBlock’s free capital markets insights
As can be seen in the graph above, both assets have seen outstanding returns. Although Tesla has slightly outperformed Bitcoin over the last year, the gap has been narrowing recently. Moreover, IntoTheBlock’s historical correlation shows how in January of 2021 both assets seem to move in tandem, but as Bitcoin entered into price discovery recently, their price correlation dropped to 0.07, indicating that there’s no statistical price correlation between both at the moment.
As of Feb. 10, 2021 through IntoTheBlock’s free capital markets insights
Lastly, the Sharpe and Sortino ratios are two of the best-establishes metrics in financial risk analysis. Conceptually, the Sharpe ratio indicates how well an equity investment is performing compared to a risk-free investment. Similarly, the Sortino ratio is a variation of the Sharpe ratio that only factors in downside risk.
As of Feb. 10, 2021 through IntoTheBlock’s free capital markets insights
Generally, the greater the value of the Sharpe and Sortino ratio, the more attractive the risk-adjusted return. This means that over the past 30-day period, a rational investor would prefer Bitcoin against Tesla because its investment would earn more return per unit of the bad risk that it takes on.
Bitcoin Thoughts And Analysis
DAILY CHART
Yesterday's daily candle was a long-legged doji. It could also be labeled as a spinning top, because the open and close were not exactly the same. Here is information on the patterns and how they are slightly different. In this case, I could see an argument for both, because the open and close are so close.
Many are quick to ID these candles as bearish, but they are more appropriately identified as a pause in the market and a sign of indecision. The following candles often give clues to what they mean, but they are difficult to trade on their own. A red candle today could mean that a bit more retracement is in order, but it's far from conclusive.
4-HOUR CHART
Bitcoin is currently experiencing a small dip and, once again, people on twitter are calling for a top. Anything is possible, but I see a bull flag (or descending wedge) forming well above support. The main support is obviously the previous all time high, at $41,986, but we have a nice demand zone (purple above that).
The tell tale signs of bullish consolidation are a huge move up on volume (the Tesla pump) and then a slow drop in price on decreasing volume. If volume was increasing on the drop, there would be cause for concern because volume would confirm price. Descending volume with a reduction in price is usually price recharging for another run. That's why we form bull flag and pennants. For now, that's what I see and the bearish case seems emotional and unclear.
This can break the pattern and still drop down to support, totally fine.
Altcoin Charts
MATIC/BTC
I hope that you all caught MATIC! There were 3 potential entries that all hit and price just pulled almost a 3X in a few days from the bottom one!
WAVES/USDT
Just a quick update from yesterday. This dropped right to the proposed entry at $8.95, almost to the dollar. I hope you caught it, but if not this still looks good if it holds that level.
Matic Is Becoming Polygon
Matic Network, the #80 on CoinMarketCap, began in 2017 as a layer 2 solution designed to improve upon the Ethereum infrastructure. In the past 3 months, the coin has seen almost a 7x increase in value, potentially relating to the news that was released yesterday. Matic is becoming Polygon - “Ethereum’s internet of blockchains.” According to Polygon, “the new modular framework will extend the scope of the Matic platform and transforms it into a swiss army knife for Ethereum’s scaling and infrastructure development.” The upgrades undergone by Matic will further propel Ethereum into a blockchain and network that furthers Dapps worldwide scalability and accessibility. This is another bullet point on why I am bullish on Ethereum this year... and Matic.
Tesla’s Bitcoin Purchase Is Paying Off
Intrigued by this tweet I decided to look further into the stats to see how profitable it was for Tesla to buy Bitcoin. A month old post on Reddit from a Tesla insider claimed that the average purchase price was $33,142. There is no way to verify this claim, but if it's true, that means Tesla was buying Bitcoin a few days into January. Another possible rumor is that when Elon was tweeting about Doge, he was buying Bitcoin. Elon first began tweeting about Doge in late January, around the 28th at a Bitcoin price of $34,000. The entire month, Bitcoin ranged around $29K-$41K spending most of its time around the mid-30s. A very conservative upper estimate on Elon’s average price is $35,000. It is also possible that Elon accumulated Bitcoin back in December for much more favorable prices - sub $30,000. At the time of writing this, Bitcoin is at $46,800. $1.5B at an average cost of $35,000 per token would mean Tesla accumulated ≈ 42.85K Bitcoins. These Bitcoins now are worth about 2B, a 33% return on value or .5B. In quarter 3 it was reported that Tesla’s net income was $331 million on revenue of $8.77 billion. Even with the conservative estimate for Tesla’s average purchase price, Bitcoin has almost doubled net income for an entire quarter of the most valuable car company in the world.
Of course, one could make the counter-argument here that any investment from cash reserves by a top company will likely receive favorable media attention and offer a self-fulfilling prophecy, but is betting against the worlds most advanced car company run by the worlds richest and probably smartest man a risk you want to take? Is avoiding an asset with asymmetric risk in a world where fiat is being devalued by the day really a better strategy? Major companies are faced with this dilemma right now, probably leading to many more similar announcements right around the corner.
ETH 2.0 Surpasses 3,000,000 Ether Staked
Ethereum staking just passed a major milestone, with 3m coins staked, amounting to 5.4B dollars worth at a price of $1800. Notably, validators also have hit a level (84,273) that allows for an increased annual reward of 9.06%. I would not be against ETH in the coming months.
Jim Cramer Is Officially "One Of Us"
We have seen Jim Cramer evolve before our eyes, and it's been a beautiful site to behold. A year ago, he viewed Bitcoin as a bit of a joke, not something that he would have considered investing in. After the global economic meltdown, he, like many of us, came around to the importance of Bitcoin as a hedge. He now owns it and has stated that it's "almost irresponsible" for companies not to be exposed to 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.