The Wolf Den #197 - Gold
Bitcoin Thoughts And Analysis
Bitcoin is in an interesting spot, rejected once again at the key supply area/resistance from the previous all time high. No surprises. The question is whether it has the strength to push through sooner than later, or if it needs to drop or consolidate a bit.
4-HOUR CHART
The 4-hour chart is still offering the most clear information to me. High time frames look incredible, with huge candles near all time highs.
As I mentioned, price is struggling to push through the top supply zone. 4 candles ago we had tweezer tops, which is a top signal and we have seen retracement since. $55,046 still remains a key support for me, although if it breaks I don't expect a huge drop. We also have an ascending channel (probably more of a rising wedge) that is testing the bottom support as we speak. This is a high risk/reward entry, actually, with price testing both horizontal and ascending support. That does not mean there's a high chance of profit. It means if price drops, you can have a tight stop and lose very little.
If we see a drop, the $52,000 area looks like a great place to potentially place bids, at the top of that old range.
We saw hidden bullish divergence yesterday, but have since had a clear overbought bear div. That's a signal for price to drop, which has happened to some degree. Be careful here.
That said, I showed POTENTIAL hidden bullish divergence forming with green arrows. A hidden bull div effectively cancels the bearish divergence, so really key to watch what happens here. If it fails to confirm, the bear div could signal more downside is likely in the coming days. We really need to see price hold above the $53,300 area, the start of the first hidden bull div. Confirmation of the hidden bull div would come with a clear elbow up on RSI and price after the next close.
Bonds And Yields 101
By Sahil Bloom:
The story of the last few weeks in finance has been the bond market volatility and its impact on equity markets.
A thread on the basics of bonds, yields, and the yield curve to help you make sense of it all...
First, a few quick definitions.
A bond is a loan given to a borrower (usually a company or government) from an investor.
The borrower is said to "issue” a bond, putting it up for sale. Investors “buy” the bond, providing the loan.
The bond has a "maturity date" on which the borrower must return the remaining principal balance to the investor.
It has a "coupon rate" - the interest rate the borrower has to pay the investor as compensation for taking the risk of loaning money.
Higher Risk = Higher Coupon.
The bond "yield" is the expected return the investor will earn by owning the bond.
The yield will increase with higher risk from:
Risk of default
Opportunity cost vs. holding something else
Expected future inflation
Bond yields are inversely correlated to bond prices.
As bond prices rise (from increased investor demand), yields go down.
As bond prices fall (from decreased investor demand), yields go up.
Now that we have covered the basics of bonds and yields, let's talk about the yield curve and why it matters.
A yield curve is just a line that plots the yields of bonds with the same credit quality but different maturity dates.
The US Treasury yield curve is the most commonly discussed yield curve - the benchmark.
As the name implies, this is a line that plots the yields of US Treasury bonds (bonds issued by the US government) with maturity dates from 1 month to 30 years.
But why is it important?
The shape of (and changes in) the US Treasury yield curve can provide important information about investor sentiment in the economy.
There are four key shapes to be aware of:
Normal
Steep
Inverted
Flat
Let's quickly cover each one and what it tells us...
The Normal Yield Curve
A normal yield curve is upward sloping - yields increase with longer maturities.
In normal times, investors demand more compensation for taking a longer-term risk. There is more risk within 30 years than within 3 months!
The Steep Yield Curve
A steep yield curve is also upward sloping, but yields rise faster and higher as maturities increase.
At the start of an economic expansion, investors may demand more compensation for long-term risk if they believe rates or inflation may rise.
The Inverted Yield Curve
An inverted yield curve is downward sloping - yields decrease with longer maturities.
At the start of an economic slowdown, investors may aggressively buy longer-term bonds to lock in rates before they drop further in a recession.
The Flat Yield Curve
The flat yield curve is...flat.
It is generally viewed as a predecessor to the inverted yield curve and historically has been seen before economic slowdowns.
So now let's come back to the present.
The Treasury yield curve has been steepening dramatically in 2021.
The vaccine rollout is going well and the "return to normal" is near.
Investors are selling longer-term bonds, sending yields skyward.
But why does this matter?
Remember that bond yields are an indicator of the cost of borrowing money.
When the Fed lowers rates (as in 2020 in response to COVID-19), it is stimulative to the economy, because companies and people can borrow at low rates and put that money to productive uses.
Many companies - especially the tech darlings who were already "winners" of the pandemic - benefitted tremendously from exceptionally low rates.
They also benefitted from near-zero risk-free rates.
So when the equity investor sees the bond investor selling longer bonds, there are a few implications:
The cost of borrowing money is increasing - it's now more expensive to borrow money and drive growth.
Higher risk-free rates mean more discounting of future cash flows.
As a result of this dynamic, when bond yields spiked in February and early March, the Nasdaq experienced its own sharp selloff.
Nothing had fundamentally changed about the companies themselves, but the perception of the macro situation did. This impacted their value.
Everyone looked to Fed Chair Jay Powell for assurance that they would take action to lower rates, but he was surprisingly silent.
The Fed does have additional tools at its disposal (Yield Curve Control anyone?!), but I will save that for a future thread... So as you hear about the yield curve and its impact on equity markets, I hope this helped you feel more well-informed.
An NFT Sold For $69m
I am blown away every day by what is happening in the NFT space. Yesterday a single NFT sold for the price of $69 million - UNFATHOMABLE. The piece was designed by the digital artist Beeple and was a collage of his digital creations from all the art he has put online since 2007, an epic archive mashed into one massive JPG file.
I am extremely lucky to have interviewed Mike Winklemann (Beeple) last week on the podcast which will be released next week. The auction appeared to close at a price of $30m, but a wave of last-minute bids ended up doubling the price, with Justin Sun reportedly winning the auction, although there has been debate as to whether he was actually outbid at the last minute. I did a quick Google search for the highest amounts ever paid for art, and this sale puts Mike’s NFT above prices paid for work by Picasso, Van Gogh, and Warhol. He is now one of the top 3 living artists with regards to the price of his work. Regardless of hype or inflated prices, this is truly historic and a major step in the evolution of art.
Ethereum May Scale By 100x Soon
The competition to develop on Ethereum has left developers fighting over minimal network space, resulting in skyrocketing fees. ETH 2.0 is designed to solve this, but its future deployment is still many months away, forcing the network to implement an interim solution.
On a recent podcast, when asked about the subject, Vitalik said, “Rollups are coming very soon… in around a month or so. Rollups have already been running stably for about a year — so rollups aren’t even theory. They’ve been a practical part of [the] scalability of Ethereum for a few users for almost a year.”
A rollup is a separate blockchain designed to process the many transactions Ethereum is undergoing and bundle batches of transactions back onto Ethereum’s mainnet. This is like a data administrator saving old digital files to flash drives to unclog the main database. These flash drives are then reprocessed in and bundled back onto the main database.
This would be a huge improvement to Ethereum if the rollups are approved and implemented. This would seemingly kill a lot of the negativity surrounding the Ethereum narrative that it’s “too slow, too expensive, and unscalable.” I wouldn't be surprised to see this start to price in as more news surfaces about adding rollups.
Gerber Kawasaki Purchasing Digital Assets For Clients
Due to increased demand from clients, a major wealth management firm will start purchasing digital assets from Gemini and managing them.
“Clients kept coming to us asking for help with digital assets,” said Ross Gerber, president and CEO of Gerber Kawasaki. “It became clear that there was an opportunity with somebody who we trusted would not only build a platform that was solid and secure, but also one that really catered to firms versus individuals.”
Registered investment advisors (RIAs) will manage client Gemini accounts like any other brokerage account, giving investors peace of mind.
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