The Wolf Den #222 - Trade Less Assets, Make More Money
Bitcoin Thoughts And Analysis
Bitcoin has dropped a bit over the past few hours, retesting the 60K level as support. I am not particularly concerned, even though price is trading back in the range that we discussed, below the previous all time high. Hard to judge without seeing the next few daily candles.
DAILY CHART
Not ideal, but the daily candle is also far from closed. Price is currently back in the range that technically "should" be strong support. I would love to see a rally today and a close back above the range, but that could be wishful thinking. Still, this is testing support around the last cluster of price action.
4-HOUR CHART
I posted this idea on twitter this morning before it actually played out and tapped demand. The 60K area is psychological support and also lines up with 4-hour demand. Price still has not hit the higher targets from the previous bull flag, so we should eventually be turning up. As of now, demand was tapped almost to the dollar, which was a nice scalp opportunity for day traders at the very least. Here was the original setup.
We also have a bull flag forming on the 4 hour and a test of the 50 MA as support. Not too worried for the moment.
HOURLY CHART
RSI hit oversold on the hourly and bounced. If price drops again, I will be looking for a potential bullish divergence with RSI to signal a local bottom.
How To Create Your First Paper Wallet
Many people find the idea of being their own bank intimidating. Further, there's minimal education on best practices for securing and storing your Bitcoin. If you are a beginner, you may have never gone down the cold storage rabbit hole. Here's a quick guide to creating your first paper wallet.
The Story Of Archegos Capital Management & Bill Hwang
By Sahil Bloom
The story of the last few weeks in finance has been the secretive rise and rapid downfall of Archegos Capital Management.
First, let’s set the stage.
Archegos Capital Management is the family office of Bill Hwang, a former prodigy of hedge fund legend Julian Robertson.
Hwang previously built Tiger Asia Management - a so-called “Tiger Cub” fund due to its lineage from Robertson’s Tiger Management.
Bill Hwang grew Tiger Asia Management into a highly successful hedge fund, reaching ~$10 billion in assets under management in the 2000s.
He was a bit of an anomaly in the world of high finance - known as a devout Christian with simple tastes (seriously, he drives a Hyundai!).
After winding down Tiger Asia Management following a few bad bets and a run-in with regulators, Hwang opened Archegos (a Greek word for “one who leads the way”) in 2013 with ~$200 million in personal capital.
He began doing what he does best - trading and investing.
Going long innovation, he scored big wins on stocks like Netflix and Amazon.
Soon, Archegos’ capital had grown to $4 billion.
But Hwang, a private and deeply religious man, was not one for the spotlight. He just appears to have genuinely enjoyed his work.
Fortunately, there were features of the strategy that allowed the firm to remain anonymous.
As a family office, it was not required to disclose its holdings on a 13F filing (as with all hedge funds).
It used swap contracts to quietly amass large, leveraged positions.
The 13F loophole is self-explanatory: Archegos was a family office with a specific structure, so it did not have to file quarterly 13Fs disclosing its holdings.
Swap contracts (“swaps”) are a bit more complicated. Let’s simplify them here for everyone to understand...
In simple terms, a swap contract is an agreement between two parties to exchange (swap!) the values or cash flows of one asset for another.
Archegos entered swap contracts with banks to gain exposure to stocks without holding them.
This is not an uncommon practice for funds.
My banker buys $100 of Apple on my behalf but holds it on the bank B/S.
I post $20 as “margin” and agree to pay interest on the borrowed money ($80).
I “own” $100 of Apple, but only had to put up $20 and no one knows I own it.
At the end of every day, we settle up on the account.
If the value of the Apple stock in my account rises, my banker pays me in cash the value of that rise.
If the value of the Apple stock in my account falls, I have to post additional margin (to make my banker feel safe!).
Note: I am definitely simplifying the mechanics of a swap contract for illustrative purposes. There are many types and flavors of swaps, but most follow the basic structure laid out above.
Back to Archegos...
Bill Hwang used swaps to amass large long positions (again, not an uncommon practice for hedge funds!).
He built positions in stocks like ViacomCBS, Baidu, and GSX.
He had accounts with many banks, including Goldman, Morgan Stanley, and Credit Suisse.
As the stocks rose rapidly in early 2021, he used the cash his swap contracts were paying him to enter new swaps, increase his leverage, and buy even more.
It was a self-fulfilling prophecy: rising prices enabled more leverage and more buying, further accelerating the rise.
At its peak, Archegos had built a ~$100 billion portfolio and Bill Hwang was worth ~$30 billion.
Importantly, as the positions were held at banks and not disclosed on 13F filings, the extent of the positions and leverage was largely unknown.
But then it all came crashing down.
On March 22, ViacomCBS, which had seen its stock 3x in the prior months (perhaps from Archegos’ aggressive buying) announced a $3 billion stock sale.
Its share price tumbled 30% in the two days that followed the announcement.
Suddenly, Archegos’ levered bets were underwater.
This meant that the value of the stock being held on the bank balance sheets was lower than the amount that was loaned to buy the positions.
The banks would be able to seize a portion of Archegos’ collateral in order to make themselves whole.
The banks allegedly asked Archegos to sell its positions and close the contracts.
This would mean Hwang would take a small loss but the banks would be whole.
The problem was that if the stocks dropped much more, Archegos would be wiped out and even the banks might take a loss.
The bankers from the different banks convened a meeting to discuss what to do.
Some believed the best path was to wait - the stocks would recover and everything would be fine.
Others weren’t so sure and began offloading large blocks of Archegos’ stock to mitigate their risk.
A classic deleveraging spiral was set in motion.
As the banks seized Archegos’ collateral and sold large blocks of the stock, the stock prices began to drop.
Seeing the further stock price drops, Archegos’ other bankers, who had been inclined to wait, began doing the same.
With the dust settled, it was time to assess the damage.
Archegos’ banks had offloaded ~$100 billion of stock.
Several (the late movers who had tried to wait) had lost billions in the process.
And Archegos had seen its estimated $20 billion capital base vanish into thin air...
The details of the Archegos saga are still unfolding.
It has many markers of a classic tale of Wall Street collapse, including excessive leverage, esoteric contracts, and epic losses.
But what may make the story more interesting is its lack of another classic marker: greed.
Bill Hwang does not appear to have been motivated by the accumulation of wealth or status.
His religious, charitable, frugal life is in direct conflict with the archetype of the Wall Street villain.
The complexity of his character adds to the mystique of this crazy story.
So that is the story of Archegos Capital Management, Bill Hwang, and how $20 billion was made and lost in the blink of an eye.
For more on Archegos and the dangers of leverage, check out this article from Bloomberg.
My Interview With Crypto Michaël van de Poppe
I interviewed crypto expert and friend, Crypto Michaël to ask him about the state of the crypto markets. We discussed the Coinbase listing, what is going on with altcoins, and his epic predictions for this cycle. I my two favorite questions from the interview below.
Q: Where are we at in this bull cycle?
A: We are in the phase of disbelief; every big event is being used as a narrative for bears to believe we are at the top. At the same time, metrics are showing we are only at the start, especially with institutions coming in. So that leaves us in the middle, Bitcoin had its first run and altcoins are just starting to face up. I think we will go way higher than what people are expecting.
Q: Where are we at in the Bitcoin run vs. altcoin run?
A: We are just now at the point where people are feeling comfortable holding Bitcoin, soon we will start to see altcoins outperforming Bitcoin. The combination of increased confidence in the market and innovation is starting to grow for altcoins quickly. Institutions are really only interested in Bitcoin, but retail likes altcoins, they want a 20x.
I also asked Michaël about his Bitcoin and Ethereum predictions and wasn't disappointed with his answers. Click the link above to hear where he thinks the market could go. It's MEGA bullish.
Jim Cramer Sold Half His Bitcoin
Jim Cramer’s decision to sell his Bitcoin seemed to stir up a lot of highly charged emotions in the crypto community. He said that he was selling “phony money for real money.” The bad comment aside, there is nothing wrong with taking profit at any point in this journey. He sold his Bitcoin and paid off a mortgage - that's amazing for him, although I don't quite understand the math of selling a deflationary asset to pay off an extremely low interest loan. Discussion for another day.
Even though I believe crypto will continue to rise, taking profit is entirely a personal choice and one that should be celebrated especially, when you are paying off debts. Not everyone has the conviction we do; doubt fuels these cycles and leaves room left for Bitcoin to rise. If everyone already believed in it, the cycle would be over.
Ben Askren Is Boxing Jake Paul Tomorrow
There has been a lot of hype leading up to this match, resulting in Ben Askren becoming a superstar-fan-favorite beyond just the crypto community. The beef has gone on for a few months now and it finally settles tomorrow. The young Jake Paul’s resume is short; he is a celebrity YouTuber, actor, and 3-year boxer, searching for a respectable professional win. Ben Askren is an Olympic wrestler, NCAA champ, and retired professional MMA fighter with an impressive record. The match is live tomorrow on Triller at 9 p.m. EST.
Deeper Network - Private, Secure And Fair Internet
At a time when the world is shifting to both high internet usage, and remote work, individual privacy has become more crucial than ever before. Rather than buy a VPN and worry about unstable connection, data leaks, or loss of service, maybe blockchain and a physical product will solve your issue.
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The way to get started is the Deeper Connect, which offers a decentralized private network that can fit in your pocket. DPN is a P2P decentralized bandwidth sharing network for bypassing censorship and ensuring privacy. The network is server-less and distributed; user data can never be logged, leaked, hacked, or subpoenaed.
Beyond the DPN feature, the Deeper Connect offers bandwidth sharing, privacy protection, secure gateway, and more. It's like buying a VPN on steroids minus the typical drawbacks of a VPN. It's plug-and-play with zero configuration, meaning it's great for non-technical people. If you want to learn more, CHECK OUT THEIR WEBSITE HERE and watch the video above.
My Recommended Platforms And Tools
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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.