The Wolf Den #205 - Tesla Goes All In
Bitcoin & Cardano Analysis 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.
Bitcoin Price Analysis
At the time of writing, Bitcoin bulls finally reclaimed the $56,000 level and it is currently sitting at $56,840. This upward action came after Elon Musk announced that you will be able to buy a Tesla with BTC.
The $56,000 price range has become a key level based on blockchain data. Using IntoTheBlock’s In/Out of the Money Around Price, we can observe the number of addresses and volume of Bitcoin previously purchased at a given price range. These addresses are then classified based on their profitability as in the money (making money) or out of the money.
As of Mar. 24, 2021 using IntoTheBlock’s Bitcoin financial indicators
These clusters of addresses provide valuable information about on-chain levels of support and resistance for Bitcoin’s price. For instance, the 1.08m addresses pictured above as out of the money are expected to create resistance between $55,000 and $56,000 as they may look to break-even on their positions at this range. On the other hand, the 735K addresses previously buying between $53,500 and $55,200 will provide support in order to avoid their positions turning into losses.
If this range fails to sustain, a dip back to $50,000 — the next level with a high number of on-chain positions — is likely to be tested. At the same time, if $58,000 is broken with conviction from buyers, new all-time highs are likely to follow.
This Week Analysis: A Deep Dive Into Cardano's Performance
Cardano has performed impressively well in 2021 with a YTD return of 516%. At the time of writing, ADA is trading at $1.16 USD with a market capitalization of $36.29 Billion dollars and a steady trading volume that has consolidated well in the top 5 ranking of most important cryptocurrencies after Bitcoin, Ethereum, and BNB. ADA has now raced up to fresh yearly highs, reaching 1.47 on March 16.
IntoTheBlock’s ADA Price Chart
The impressive price rally is likely due to the network being transformed into a multi-asset network, similar to Ethereum, and the Coinbase Pro Listing on March 16.
As the price of ADA increases, the fundamentals behind the network are getting stronger. Key on-chain and derivatives indicators have been flashing active signs indicating how Cardano investors are positioning themselves and what may come next.
One of the metrics we follow closely at IntoTheBlock is the number of addresses holding a particular crypto asset, in this case Cardano. While one address ≠ one user, the number of addresses with a balance offers an approximation of the adoption and number of holders of a crypto asset. Keep in mind that a user can have more than one wallet (and address), but at the same time centralized exchanges tend to group multiple users’ holdings within relatively few addresses.
IntoTheBlock’s ADA Addresses Stats
By taking a closer look at the total number of addresses with a balance for Cardano, it becomes apparent that the number of Cardano holders had also moved in tandem with the price action. As the price reached $1.47 on March 18, the number of ADA holders peaked at 1.22m addresses yesterday.
Moreover, the number of Daily Active Addresses (DAA) are a helpful metric to track network activity over time. In general, growing DAAs signal greater blockchain usage, while declining DAAs point to lower demand for the network. DAAs tend to be correlated with price activity.
IntoTheBlock’s ADA Addresses Stats
The number of daily active addresses has been following the price and reaching a new high of 119 thousand addresses. As the price increased by 516% YTD, the number of daily active addresses showed a similar pattern with 526%.
ADA's growing derivatives markets paint a similar picture to the one we are observing on-chain. Observing the dominant futures contracts for Q1, we can see that the market has gone from neutral to extremely bullish in the last few months.
Open interest aggregates all positions and gives traders an idea of the dollar amount that is at stake for a particular contract. For perpetual swaps the open interest can be held for an indefinite amount of time, whereas for futures contracts the open interest goes to zero by the point a contract expires and usually starts decreasing a few weeks prior to the settlement date.
IntoTheBlock’s ADA Derivatives Indicators
In the case of Cardano's token ADA, it recently broke the $1b barrier in Open Interest, a metric that just a few crypto-assets have been able to achieve before. Along with this aggressive price increase over the past few months, open interest also spiked, pointing to the likelihood of more long contracts being open.
Lastly, Cardano Holders must certainly be happy by the recent price surge as more than 60% of them are In The Money right now. IntoTheBlocks’s Historical In-Out of the Money indicator reveals a holistic view of how this asset is doing in two different perspectives, by addresses, and by volume.
IntoTheBlock’s ADA In/Out of the Money Indicators
As the price went from $0.033 USD in April of last year towards $1.16 USD as of today, we can see how an important number of holders started recovering and making money on their investment. In April of 2020, almost 85% of ADA holders were underwater. An incredible way to change things in just one year!
Bitcoin Thoughts And Analysis
DAILY CHART
I like to take a look at the line chart to eliminate the noise. As you can see, the daily shows a descending wedge and a resistance on RSI. I like to draw patterns on RSI, because they often breakout before price. It gives us a hint as to what is to come. As you can see, price and RSI are both peeking through resistance. We want to see them close here at the end of the day.
4-HOUR CHART
Same idea on the 4 hour chart. As you can see, resistance is broken on RSI and could be coming back for a retest as support. This is a positive sign for price, which is more likely than not to follow. No guarantees.
As usual, sentiment around the community turned overtly bearish... right at support! Humans are predictable. As discussed yesterday, price swept the lows and headed back up. Now we are back at resistance - the EQ of the channel. If price can flip that dashed line to support, I would expect Bitcoin to retest the highs.
Price found support at the 200 MA, which had not been tested in quite a while. That would have been an unfortunate breakdown. Now it is finding resistance at the 50 MA. Easy TA here for traders that use moving averages. This lines up well with the trading range shown above.
Altcoin Charts
I am still feeling wishy washy at best about altcoins, unless you are looking to scalp bounces. They have largely been sideways in my mind as Bitcoin decides what to do. There are some great moves to catch, but hard to predict which coin will do well or poorly at the moment.
SOL/BTC
This is technically a very nice setup, with price breaking out of a bull flag or descending wedge after a nice move up. If we consider this a flag, the target is shown in grey based on the length of the flagpole from the recent lows before breaking the blue line. That was the monster trade here.
You can see that price is hanging just above strong demand and almost retested the descending line as support. It may drop to do both of those things, but this should be heading up sooner or later.
Remember, Bitcoin can rekt this setup very quickly, but if it behaves, I like the potential here.
I would place my stops below demand and even the blue line. I certainly would not want to be trading back below that descending support. The 50 MA is also in that area, which should hold.
Legacy Markets
DXY (DOLLAR INDEX)
The dollar has been showing strength of late after bouncing from monthly demand (support), and is potentially pushing through a key level of resistance (shown below). Bounces are normal - nothing goes up or down in a straight line. My bias for the dollar still remains down in light of stimulus and infinite QE, but that's just my opinion - anything can happen so it's worth paying attention. If we have learned anything in the past year, it is that markets are irrational!
If the dollar continues to rise, we will likely see a further correction in metals, stocks and even potentially Bitcoin to a lesser degree, since the inverse correlation for crypto is not as strong as it is for other assets.
A Crypto Exchange Will Name The Miami Heat's Arena
Sam Bankman-Fried, the man behind FTX who came on the podcast, has been hinting about buying the naming rights to Miami’s American Airlines Arena, home to the Miami Heat. Ultimately the city decides on the name, but the arena and FTX have come to an agreement to pay $135M for the naming rights, with the desired name to be “FTX Arena.” The deal looks close to being finished, but requires municipal approval which should be a no-brainer considering the offer and direction of the city. According to Miami’s official press release, “the venue is home to concerts, performances, cultural events and more, drawing nearly two million visitors per year.” This would be a huge plus for the city as it is becoming the next major fintech hub, focusing on blockchain and Bitcoin.
Coinbase Is Open To Listing CBDCs
According to Brian Armstrong, the CEO of Coinbase, “we are cryptocurrency agnostic, so we will support any cryptocurrency, including CBDCs and stablecoins and decentralized ones as long as they meet our listing standards.” Love or hate Coinbase, it is the most popular U.S. exchange and anything they do continues to set global standards. Looking back to the XRP delisting incident, once Coinbase announced discontinued support for the token, many exchanges quickly followed. Statements like the one above from Brian Armstrong carry a lot of weight around the crypto world as to what is and is not acceptable. It is my personal belief that CBDCs will bring a lot of awareness to the crypto space and be a net positive on the price of major assets.
Exchange Users Can’t Hide Their Crypto From The IRS
If you believe that hiding your crypto is a privacy right and you are protected from the IRS, you are probably wrong. A longstanding court battle between plaintiff James Harper and IRS commissioner Charles Rettig is finishing soon, likely in favor of the IRS. In short, Harper, an early Coinbase user, believed his finances on his account were private because the TOS stated it would protect users’ personal information from "loss, misuse, unauthorized access, disclosure, alteration, and destruction.”
What these listed words don’t protect from is the right of the IRS to enforce tax compliance. Harper sued, claiming the IRS was in violation of his fourth and fifth amendment rights, but that didn't matter - what the IRS wants, the IRS takes. Furthermore, “a federal judge has implied that an individual may not have the right to force the IRS, to expunge financial records it obtains from crypto exchanges.” There is no hiding from the IRS. If you put in personal information when signing up for your favorite exchange, that means the IRS has access to it, not just the employees at the exchange.
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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. 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.