The Wolf Den #177 - Miami Is Bitcoin City
Bitcoin Thoughts And Analysis
Bitcoin is struggling hard to break above the recent all time high at around $48,200. It has been rejected there a number of times with significant selling pressure. This does not change my macros bullish bias AT ALL, it's just worth noting that this is a trouble area so longing into it is risky. The best strategy now is to buy a bit higher when it finally breaks convincingly. If there's a drop, consider buying the dip.
You can see that 5 candles have interacted with that line and been rejected, the last one hitting it almost to the dollar. Lots of supply waiting there, but each time it's tapped it should remove some sellers from the market.
There is also a bit of bearish divergence on multiple time frames. I don't love the shape of this div or the way RSI is slowly trailing away, but it does officially count and it's there up to the daily. That said, it looks very likely that any further drop would also make hidden bullish divergences likely, which would candle out the bear divs.
Altcoin Charts
Altcoins have looked amazing, but there are some questionable signals on Bitcoin, so if we see a move down, these could suffer. Be careful and don't get carried away.
WABI/BTC
I decided to throw the Ichimoku Cloud on this chart, which is an indicator I used to use heavily. As you can see, price has entered the daily cloud and flipped the bottom to support. That usually indicates an end to end move is coming, meaning that price should target the top of the cloud. Further, we have a bullish TK cross below the cloud, which is considered a sign to close shorts and look for longs. That's when the tenkan (blue line) crosses above the slower moving kijun (brown line).
Generally, this looks like it is bottoming, as it is rounding out nicely and heading up. You can use the Fibonacci levels I shared as targets.
YFII/BTC
This appears to have bottomed, with price exiting the trading range that signifies accumulation. Shown is the 4 hour chart, which is already retesting the range highs as support. To be even more sure, you could wait for a daily close above the range then try to catch a retest. The way things have been going with alts, the retests have been less frequent because they often head straight up. If this breaks support at the range high, I would watch the demand zone that is drawn for a wick down. Ultimately, I expect this to head up, even if if trades temporarily back in the range. Immediate targets are shown above.
This is a classic setup for a coin bottoming - it ranges then breaks out.
XTZ/BTC
This coin has been massively disappointing, but does appear to have bottomed. It really has not pumped yet, which is why I am looking at it. You can see that it broke the larger down trend when it crossed the blue line. Now it is breaking the local down trend by crossing the black line. I expect resistance in the supply zone above, then the bigger targets are shown as black lines. Let's hope this one is finally ready to move.
Bitcoin Stages - Where Are We Now?
By Adam Tarlowski:
For those that have been around awhile, an inside joke in the Bitcoin community is that crypto time passes far more quickly than time in the "real world." 6 months or a year can feel like an eternity, likely resulting from the rapid pace of development in the crypto space. In the brief 12 years that Bitcoin has existed, distinct eras have emerged with their own stories of parabolic price increases and ever-evolving narratives. A major contributor in distinguishing these stages is the programmed halving encoded into the Bitcoin block reward and its repeated catalyzation of a subsequent bull run. By understanding the past stages of Bitcoin, investors can have a better shot at predicting the future. Below is a brief history of Bitcoin.
A Tainted Past
The earliest days of Bitcoin were an exodus of coins leaving the hands of Satoshi and finding homes in the wallets of cypherpunks and cryptographic experts. Also, at this time, early contributors to the code stockpiled their own coins, creating some of the massive whales that we see in the market today. Not much happened from 2009-2011, until the explosion of the Silk Road. Bitcoin was the currency of choice for the underground platform, allowing users primarily to buy drugs. This was the first real use case for the currency, one that has tainted its reputation to this day but largely been wiped clean with passing time. The demand for Bitcoin, driven by a first real use case, shot the value up to $31 per coin. This was an astronomical rise considering the coin initially had a value of $0. In the very beginning, the minimal network and low interest meant people were giving away coins in the thousands, just to spread the supply of their thought experiment. There was even a Bitcoin faucet website in the early days that rewarded users 5 Bitcoin for solving one captcha. Bitcoin’s role in the Silk Road proved Bitcoin could be used as a currency and infused libertarian philosophies into the early narratives.
Early Adopters
Silk Road was shut down in 2013, the same year that the first halving occurred. This marks the second stage of Bitcoin, which can be defined as adoption from the early Silicon Valley crowd. The Winklevoss twins learned about Bitcoin back in 2013 and began to connect with other movers and shakers like Charlie Shrem, Erik Voorhees, Chamath Palihapitiya, Roger Ver, Vitalik Buterin, and more. These men were the early investors in Bitcoin, facilitating its transition from an underground drug currency to an emerging asset on the forefront of a new financial system. It was at the top of this cycle bubble that Bitcoin underwent some of its toughest tests. Mt. Gox was hacked, which was the platform that handled about 70% of the total Bitcoin transactions, causing a +50% drop in price, China cracked down on the currency, and the U.S announced the introduction of capital gains taxes for traders. Through this devastating bear market that hit over the next couple of years, Bitcoin built tremendous resiliency and began to attract retail for the first time.
The Retail Movement
Before the retail bubble burst in late 2017 and early 2018, a war brewed in the Bitcoin community. Forking the blockchain became a hotly divisive conflict separating the community into different camps that remain divided today. With a growing user base, it rapidly became apparent that Bitcoin does not function akin to “cash” as the white paper described it. Accommodating the influx of retail meant forking the code into a scalable Bitcoin, one that the majority of the community to this day fundamentally disagrees with. As the war came to an end and Bitcoin underwent its first fork, the retail market was growing in full force, attracting speculators, traders, and investors around the world. This led up to an epic price pump to $20,000 on some exchanges. It was a combination of greed, misinformation, and late arrival that left primarily the retail market holding their bags for a devastating 2+ year bear market that we are now finally out of. Through this crypto winter, the largest breakthroughs in innovation occurred. DeFi began to pick up steam, exchanges popped up left and right, and overall accessibility to the markets drastically improved. Many retail bag holders held their bags so deep that they were practically already in the rabbit hole, growing the community over the terrible winter that took place until the market finally turned around.
The Institutions Are Coming
This is the story of today. For years people have talked of a day that institutional adoption would arrive. Historians will probably look back at MicroStrategy being the company that drew the line in the sand to carry us into the 4th era of Bitcoin. A no-name software company took the largest leap of faith ever recorded in the crypto community, with a $250M Bitcoin purchase to add to their balance sheet. Michael Saylor the CEO of MicroStrategy continued to buy more, becoming a thought leader and advocate for the space, paving the way for other companies to follow suit. Since his purchase, Square, Tesla, MassMutual and others have joined the movement, adding Bitcoin to their balance sheets. Simultaneously, PayPal, Venmo, and MasterCard are all heavily invested in mainstream adoption and Grayscale is continuing to out purchase all of the Bitcoin being mined. This is still the beginning, but we will likely see more than just a handful of large companies jumping on board. Following suit could be a do or die decision. Beyond the companies of the world lie the governments of the world, Bitcoin’s final boss to prove itself as the 21st-century store of value.
Government Adoption
This story is largely unwritten but is argued to be likely by believers with deep conviction. It seems inevitable that either governments add Bitcoin to their reserves or the currency fails. Stopping the trajectory of Bitcoin in the middle of the journey makes less sense than either achieving nation-state adoption or becoming a worthless digital asset. This era lies on the horizon for Bitcoin, but seems like the inevitable next step before Bitcoin swallows the world financial system.
The T+2 Settlement System Failure
By Sahil Bloom:
Robinhood and other brokerages came under fire last week for restricting trading in certain securities, including $GME and $AMC.
A thread simplifying the underlying mechanics of this drama and explaining why our archaic T+2 settlement system is mostly to blame...
First, if you're unfamiliar with the backdrop to this story, here are the basics. GameStop (and other "meme stocks") saw a massive price spike last week. There were fundamental and technical reasons for the rise.
On Thursday, several brokerages, including the popular Robinhood trading app, halted or restricted trading in many of these stocks. The public outcry was immediate (and very loud). Amazingly, it even had AOC and Ted Cruz agreeing on something.
There was speculation suggesting that Robinhood was involved in something nefarious. Many pointed to their relationship with Citadel - a buyer of Robinhood order flow and a part-owner of infamous $GME short Melvin Capital - as a potential driver of the trading halts.
But while this story made for headline-grabbing news, the real driver of the trading halts was much more mundane. It has to do with our financial system's archaic "T+2 settlement" infrastructure. It can get a bit complex, so let's simplify it here for everyone to understand.
"Settlement" is just the process of completing a trade. In the 1500s, if you went to the market, a trade was considered "settled" when you delivered your [chickens] to another trader and he delivered his [fabrics] to you.
That same concept applies to financial markets. In the early days of Wall Street, similar to the market in the 1500s, "settlement" of trades actually involved delivery of physical stock certificates from seller to buyer. It may have taken several days for the stock certificates to be delivered and the trade to be settled.
Today, all of this is largely done electronically. No one delivers you physical stock certificates, or if they do, it is very rare (and maybe worth framing!). Today, stock ownership is digital. Numbers on a screen.
Despite that fact, most of our financial system still operates on a "T+2 settlement" system. This means there are 2 business days between the trade and the settlement of that trade. If I buy a stock on Monday, I don't technically own (or pay for) that stock until Wednesday.
In its most basic sense, the T+2 system adds risk. It adds a 2-day window where something can go wrong. If that something makes buyer or seller unable to close the trade, that's a problem. If I buy on Monday and go bankrupt Tuesday, I may not want to settle on Wednesday!
If trades are placed but not settled, it starts to disrupt trust in the financial system. Sellers mistrusting buyers and buyers mistrusting sellers is not good for business! We handle this risk by having a central clearinghouse to process and settle all trades.
The Depository Trust and Clearing Corporation (DTCC) is the clearinghouse that settles the vast majority of all securities transactions in U.S. markets. Simply put, the DTCC is the central hub for all of the brokerages to process and settle all of their trades.
Here is an (overly simplified) example of how it works. I click buy for 10,000 shares of $GME on Robinhood. That buy order is matched with a sell order from another brokerage. We have a deal. It gets sent to the DTCC for processing and settlement. The DTCC provides Robinhood and the other brokerage a report - this includes detail on the securities to be exchanged and the money due to settle the trade. The DTCC provides a guarantee of the settlement of the transaction. Both buyer and seller trust this fact.
But the DTCC is taking a risk here by guaranteeing this trade will settle in 2 days! Accordingly, the DTCC requires Robinhood and the other brokerage to post money (deposits) with them to mitigate this risk. When market volatility rises, so do DTCC deposit requirements.
So with these (highly-simplified) plumbing mechanics in mind, we come back to the drama of last week...With the crazy volatility in $GME and the other "meme stocks," the DTCC and other clearinghouses demanded much higher deposits to cover the implied risks on the trades. By all accounts, the increased capital need was significant. A DTCC spokesman said its overall collateral requirements rose from $26 billion to $34 billion on the day (~30%). This forced Robinhood and other brokerages (as well as intermediary clearing brokers) to scramble. Unable to meet significantly heightened capital requirements from the DTCC on short notice, Robinhood and others were forced to temporarily halt trading in certain, high volatility securities. Robinhood even raised $3.4 billion from investors to bolster its cash position.
In many ways, this entire saga was a result of the archaic T+2 system. It adds risk to the financial system and appears to be an artifact of a pre-digital world we no longer live in. So that is the (admittedly simplified) version of the underlying mechanics of the Robinhood trading halt saga and why an archaic settlement system is largely to blame.
Canada Approves First Bitcoin ETF
A Bitcoin ETF for Accelerate Financial has been approved by the Ontario Securities Commission.
The first North American ETF has finally been approved! Accepted by the Ontario Securities Commission, Canada's SEC equivalent, the ETF was green-lighted for “British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon, and Nunavut.” The management fee reported by the ETF is said to be .7%, less than half the fee of Grayscale’s GBTC. This is certainly a warning shot to to Grayscale, as an ETF seems somewhat inevitable in the near future in the United States.
Leaders On Both Sides Of The Aisle Believe In Bitcoin
Miami Mayor Francis Suarez (R) isn't the only politician discussing Bitcoin adoption for a major city. Andrew Yang (D), a recent presidential candidate who is now running for mayor of NYC, has vowed to transform NYC into a Bitcoin hub if elected. While these two politicians sit on opposite sides of the aisle, it's clear that they both understand the future and how to get ahead of the curve.
It would be a major challenge for Yang to accomplish this feat in New York, arguably the worst single place on the entire planet for Bitcoin regulation. Perhaps he's the man to do it, but seems more like wishful thinking than a likely reality. It's still great to see Bitcoin in the conversation.
Local Bank Allows BTC Transactions At ATM
A bank in Virginia is the first to let users buy and redeem Bitcoin at their ATMs. This is a very small step, but definitely one worth noting. Imagine if major banks start incorporating Bitcoin into their existing ATMs.
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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.