The Wolf Den #186 - Defining A Good Trade
Bitcoin Crashes While Speculation Rises - 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 Crashes While Speculation Rises
For the second time this year, we experienced a correction in the crypto markets of over 20%. Although we are in a bull market, history has proven before that Bitcoin is prone to massive corrections of 30% during the cycle. No one said this was going to be a smooth ride.
During the recent correction, the market cleaned out over leveraged traders, as they encountered over $6 billion in liquidations. Before the recent event happened, there were signs in the market pointing out highly speculative activity and over leveraged positions.
As of Feb. 25 through IntoTheBlock’s Bitcoin Perpetual Swaps Indicators
The Funding Rate refers to 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.
As can be seen in the graph above, the funding rate across several exchanges was above 0.1%, while the normal rate is 0.01%, meaning that highly speculative action was happening on the futures market.
As well, the number of addresses holding Bitcoin for under one month — classified by IntoTheBlock as traders — reached record highs in February. This metric points to high amounts of speculation and short-term trading taking place over the past few months based on blockchain data.
As of Feb. 25 through IntoTheBlock’s Bitcoin Ownership Indicators
The 40% increase in traders points out that new addresses were chasing the price of Bitcoin over the past 2 months. But is important to note that, even that the number of addresses increased, the volume dropped by 5% compared to the month of January, meaning that there were some recent outflows of capital.
And as the volatility and speculative action increased on Sunday, coinciding with the Bitcoin drop, there was a spike in the amount of BTC entering exchanges, which can potentially be interpreted as a sign of holders were looking to sell in centralized exchanges.
As of Feb. 25 through IntoTheBlock’s Bitcoin On-chain Flows Indicators
That day, from the 59.97k BTC deposited into centralized exchanges, 33.96k BTC went to Gemini. But more impressively, it was the second-largest deposit of Bitcoin into exchanges over a 13 month period. Someone big was selling on Gemini last Sunday.
Bitcoin Thoughts And Analysis
DAILY CHART
Bitcoin continues to hold support on the daily chart, closing 3 candle above $48,690, with the 4th daily candle of the correction bouncing exactly off of that level. I want to see this continue to hold on daily closes. We still have a target in the 63K region for the bull flag.
Bitcoin continues to hold support on the daily chart, closing 3 candle above $48,690, with the 4th daily candle
HOURLY CHART
Little has changed on lower time frames. Price is still struggling to break through the 50% level, which I have discussed a number of times as predictable resistance after any drop. A 50% impulsive bounce is normal on a move down, so we want price to start closing candles higher and show that this is likely a real reversal and not just a reaction to the big drop. That said. we still have the target of the double bottom shown above and the bull flag that price just broke out of. I am still cautiously optimistic.
Legacy Markets
DXY (DOLLAR INDEX)
In the famous words of the Wu-Tang Clan, Cash Rules Everything Around Me (C.R.E.A.M.). The DXY drives the price of nearly every major asset. When the dollar is strong, hedging assets like gold and silver tend to be down. Stocks as well. When the dollar is weak, everything else generally trends up.
Well, the dollar is weak. I have shared this more times than I can count, but it broke down from a decade long ascending channel. That should mean a LOT more downside. And they're printing it endlessly, which devalues the currency.
Updating the daily chart that I have shared a few times, we have a clear breakdown of the bear flag and now price is accelerating away after the slight bounce, where I drew that path. Many turned bullish, but not me. Always worth keeping this chart open if you are trading other assets.
XAG (SILVER)
The notion that Wall Street Bets was going to short squeeze silver was a bit absurd, but that does not change the chart, which I have been sharing and trading now here for well over a year. We recently had a break up from a bull flag and retest, almost a retest of the macro green range, and now we have a clear ascending triangle. Higher lows building towards resistance. Purple shows the targets of the bull flag, but I think we can go much higher with a break of $29.857. This is my favorite long term trade outside of crypto.
Chart Requests
Here is yesterday's livestream with all of your chart requests! I looked at:
$INCH $ADA $AKT $ALGO $ATOM $BADGER $BNT $BONDLY $BTC $CKB $FET $GLXY.TO $HOT $LKYSF $LUNA $MATIC $NIO $SCRT $STX $UNI $UTK $ZIL
Matcha - Better Prices, Limit Orders
DeFi is where all the excitement is but participating in it for most people is a nightmare. Gas fees have been prohibitively expensive, most coins are not available on centralized exchanges, and the DEXs (decentralized exchanges) that are most popular only allow swaps and no limit orders.
I had a long call with the team at MATCHA a few weeks ago about sponsoring the podcast, but ended up being sold on the product as a user. I only accept sponsors when I actually will use the product and I have been using it instead of Uniswap. The best part is that it's cheaper than Uniswap and delivers the best prices on the market by aggregating all the available liquidity and routing to the best source. More importantly, MATCHA offers high-level trading features like limit orders, liquidity depth visualization, gas efficiency, and more.
Bottom line, it's easier to use, they often find better prices and gas fees can be lower, all while having limit orders available to catch the dips when you are not watching.
I am proud to say that they are sponsoring the podcast, but wanted to show my support for their amazing product in the newsletter as well.
How To Margin Trade Like The Pros
There’s trading, and then there’s margin trading. You might already know what trading is, and you might even know what margin trading is! But do you really know how to margin trade properly? I can guarantee you, that 90% of margin traders don’t use it properly and end up increasing their risk or worse!
Margin trading that is done correctly should:
Decrease your risk
Help you stick to your risk management strategy
Avoid losses from price drops
Take advantage of price gains
Provide the opportunity to short a coin even when you don’t own any
Before I go into that, let me give a quick explanation of what margin trading is. Margin trading is essentially borrowing more money to let you trade with more capital than you have. So if you have $1,000 capital, margin trading at 5x will allow you to borrow $4,000 more to bring your tradable capital up to $5,000, or 5 times your actual capital. You will pay interest each day on the borrowed amount, but you keep all the profits you make from trading the $5,000.
Something many traders don’t realize is that by putting $100,000 on a centralized exchange they are increasing their risk — risk of hacking, risk of exchange issues, risk of the exchange even just disappearing. These are the risks that get reduced when you margin trade correctly. Instead of putting all $100,000 on there, you only put $20,000 on the exchange and borrow the remaining $80,000. So you’re still only trading what you normally would trade, but you have reduced your counterparty risk by a large factor.
It’s not all about getting as much profit as you can in as short a period as possible, for that you’d be better off going into a casino! Read the full article linked above to learn more about margin trading.
Written by: Joshua Mapperson
MicroStrategy Bought More Bitcoin
This additional Bitcoin purchase wasn't a secret, MicroStrategy has publicly made a commitment to continue acquiring Bitcoin which aligns with their recent announcement to sell convertible debt to raise money for the purchase. We have been sharing this news. At this point, you can front run all of Michael Saylor’s trades just by following him on Twitter. What is interesting here is a few things:
First, MicroStrategy did not get a perfect entry. Their average purchase price this time was $52,765 per Bitcoin, not ideal considering just a couple of days ago the price per Bitcoin dropped down to the $44,000 range. But rather than dwell on timing the bottom - like a seasoned investor - Saylor celebrated his purchase because he realizes how early he is compared to his counterparts.
The second interesting thing to note is that Square, like MicroStrategy, is also buying more Bitcoin. Many companies will probably start small, but it's looking like there is a strong chance that a onetime purchase clearly isn't satisfying the need.
The last thing I wanted to share was an excerpt from MicroStrategy. According to Saylor, “the company remains focused on our two corporate strategies of growing our enterprise analytics software business and ACQUIRING AND HOLDING BITCOIN.” That's right, Bitcoin as an investment has created an entirely new focus for MicroStrategy - tt’s amazing what Bitcoin can do.
The FED Is Taking The Digital Dollar Seriously
Major companies like Tesla and BlackRock are also dipping their toes into crypto.
China has made considerable progress with its Digital Yuan, testing it across the country and processing millions of transactions to date. The U.S. has seemingly taken a watch, wait and learn strategy, letting China gain a further lead in the race. In a recent interview, FED chair Powell said that “we are looking carefully, very carefully, at the question of whether we should issue a digital dollar. The U.S. dollar serves as the world’s reserve currency, it’s more important to get the project right than it is for the United States central bank to be first to unveil a digital version of its currency.” Janet Yellen, the U.S. secretary of the treasury has also contributed to the conversation and said that, “too many Americans don’t have access to easy payments systems and banking accounts, and I think this is something that a digital dollar, a central bank digital currency, could help with.” I suspect it won't be long until a beta or testing phase is officially announced.
Fed Payments Systems Go Down (Bitcoin Never Goes Down)
The outage impacted multiple Fed services, including its pivotal automated clearinghouse system.
"The Federal Reserve’s system that allows financial institutions to send money back and forth electronically went down for several hours Wednesday, but appeared to be coming back online later in the afternoon.
The “operational error,” as the Fed described it, impacted multiple services, including its pivotal automated clearinghouse system, which connects depository and related institutions sending electronic credit and debt transfers.
There were no initial indications that foul play was suspected.
Along with the Fed ACH service, other systems impacted included Check 21, FedCash, Fedwire and the national settlement service."
Didn't Janet Yellen just warn that bitcoin was "extremely inefficient?"
Crypto currencies, most notably stable coins, are a much more efficient and cost effective way to send money and settle debts. This is the future.
The Wolf Of All Streets Podcast Ft. Alex Adelman
Earning cashback has always been boring - you earn pennies on the dollar in points that you may never use. Lolli transformed the rebate industry by offering Bitcoin as a reward, boosting global exposure and giving 10x the rewards that competitors offer with fiat. It is Lolli’s unique position between merchants and consumers that is pushing global adoption. The path to hyperbitcoinization is paved with free Bitcoin for people who have never held it before.
In this episode, Melker and Adelman discuss a range of topics including:
Democratization of commerce
Death of retail
Bitcoin as a payments rail
Omni channels and atomic swaps
The forefront of consumer and merchant adoption
Corporations selling Bitcoin
Central banks adding Bitcoin to the balance sheet
Hyperbitcoinization
Removing the middleman
Open minded maximalism
Phemex WOW Campaign
My friends at Phemex have launched a new giveaway campaign on Twitter, offering prizes up to $30,000 in value. If you are into gaming and crypto don’t miss this chance to win apparel such as laptops, monitors, gift cards, and $10000 in BTC. Check the full rules here:
https://gleam.io/Aa6rn/wowphemex
My Recommended Platforms And Tools
This is where I trade with leverage and can also trade spot with no fees.
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This is where I invest, commission-free. They now let you earn interest on your Bitcoin held in Voyager, so you can compound while trading. Not only that, you’ll get $25 in free BTC when you download & fund.
Rewards Code: Scott25
I use RoundlyX to buy small amounts of Bitcoin every single day. They automatically round up my credit card purchases (with 10x multiplier) and invest them in crypto. Absolutely brilliant. Passively invest money you don’t need without a thought. Further, they have integrated with Voyager (see above) to offer commission-free purchases.
Rewards Code: WOLF
The platform I am using for my taxes. My trades were automatically imported after setup and displayed nicely. The tax report was quick and easy to create in the app. I can also track the performance of my assets in the app. With Blockpit, I no longer have to worry about realizing profits or losses in time. 10% discount using the link above!
Binance is finally available in Florida!
Concierge Phone Service for Americans that protects your from SIM Swaps and other phone related hacks. I cannot stress enough how amazing this service is.
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
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. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.