The Wolf Den #223 - Coinbase Fake News
Bitcoin Thoughts And Analysis
What a weekend. Bitcoin suffered a flash crash, dropping roughly $9000 in 4 hours. First, it's incredible that now we can see $9000 candles, when we once celebrate the price of Bitcoin being $9000. We have come so far! There are a number of narratives for the dump - Chinese blackouts and hash rate dropping (addressed in the news), FUD about the US Treasury, a single Chinese whale, false rumors about the US and Russia. The most plausible explanation is the absolute destruction of leveraged longs - almost 10B last I read in a matter of hours, setting records for liquidations by many multiples.
That is a reminder not to use high leverage. Even lower leverage traders were rinsed on that move. Funding was exceptionally high, longs were piling on - perfect time for a long squeeze. Liquidating the highest leverage longs causes a cascade down of further liquidations.
None of it matters. The fact is, a lot of Bitcoin was sold and it's time to take a closer look.
A lot of people were screaming to buy the dip. While I applaud their enthusiasm, I have little interest in touching this market until the dust settles and I get a better idea for what's happening. If I miss the bottom, so be it. I think it could go either way from here and that dumping was significant.
WEEKLY CHART
Yes, the daily had managed to exit the range and make new highs. It was not to be on the weekly, which left us a savage "Darth Maul" candle, with wicks up and down to destroy leverage traders on both sides. Now price is back near the EQ of the range and we have 6 days to wait for clarity.
DAILY CHART
The dump represented roughly a 20% drop from the top. We all know that 20-30% retracements are very common in a Bitcoin bull market. A 30% drop would be to around 45K, which lines up perfectly with a major area of demand and support. Totally possible and not bearish.
The ascending wedge eventually broke down in spectacular fashion. Technically the target is the line below, around $42,000 but these patterns almost never come anywhere close to their targets. We are seeing real selling volume on the daily, so now is a time for caution.
If the daily rises and closes a bit higher than current price, we could see hidden bullish divergence. This would require a clear elbow up on price and RSI, which does not exist now. Also, hidden divs have been weak signals. Technically, a hidden bull div signals continuation to the upside.
4-HOUR CHART
As I always mention, we normally see a 50% bounce after any major impulsive move, which is exactly what happened yesterday off the lows. That's a fun trade almost every time. Ultimately price retraced a bit further up, but is now dropping again. Very hard to figure out what comes next, hence why I am watching and waiting. Very risky to trade BTC right now.
Altcoin Charts
Alts dumped hard with Bitcoin, but recovered well, which was encouraging. Still, this is a rough time to look for trades after those crazy wicks and candles from yesterday. I would prefer to see the market settle before sharing any ideas, as we all know it could dump again at any moment.
ETH/BTC
The ETH weekly chart is a marvel. Price closed with a clean break of the descending resistance and now may be coming back down for a retest as support. The only issue is - it did the same thing just months ago and failed. Still, we have the potential inverse head and shoulders that could break out and a potential retest of resistance from the all time high as support.
I am still feeling quite bullish on ETH performing better than BTC in the coming months.
YFI/BTC
If you are looking for trades, you could do worse. As I said, last week, this looks a lot like Solana with the retest of descending resistance as support, the test of demand and the 50 MA in the same spot. This also held well against the market wide dump. At this point if you missed the entry below, I would watch for a retest of .849.
This is RISKY. If the market drops hard again, this could dump right through. I am not personally looking to trade right now.
Legacy Markets
DXY (DOLLAR INDEX)
The dollar continues to suffer, after having a decent few months that many were calling a bottom. That is still possible, but looks far more like a reactionary dead cat bounce to me before continuation down. The monthly chart seems clear (if the chart is to be believed) - massive breakdown of a decade long ascending channel, which should target the channel bottom.
If this happens, stocks, metals and even Bitcoin should continue to thrive.
Remember, most of these assets are not actually rising. They are simply being denominated in a dollar that is losing value every day.
Does Hash Rate Follow Price Or Does Price Follow Hash Rate?
Bitcoin hash rate crashed alongside price this weekend, largely because of blackouts in China.
The flash crash has everyone talking about Bitcoin’s hash rate and its connection to price. There is a longstanding debate in the Bitcoin community on the cause-and-effect order of Bitcoin’s price and hash rate, so I figured I would break it down more. First off, hash rate is the total computational power used to mine Bitcoin and it is a really big number (153m TH/s) that has been growing since Bitcoin’s inception.
The hash rate is a very popular metric closely followed by many stakeholders in the community. Investors watch it as a metric of health, miners monitor it to calculate competition, and traders can theoretically watch it for moments like this weekend. It could easily be deduced that an increasing hash rate implies growing confidence in the future price of Bitcoin. Miners wouldn't want to continue upping the ante by buying more machines if Bitcoin’s price was going to remain stagnant or steadily decrease. So, by buying more machines the hash rate leads Bitcoin by pricing it based on an assumption of future price appreciation. An increasing hash rate could also be understood as a sign of a growing community, stronger network, and greater overall health, so why wouldn't price follow this strengthening foundation? Well, there is also good reason to believe that hash rate follows price.
Advocates for the hash rate follows price camp argue that it's the inner workings of the Bitcoin systems that direct the causal arrow. Miners need time to obtain new machines and install them. This lag usually results in Bitcoin’s price rising before an increase in hash rate. A clearer argument is that, as the value of one coin increases, there is more incentive for miners to join the network and trail the hash rate with higher value rewards.
The debate won't be settled any time soon. It’s predicted that analysts need another 10 years of data before they can understand the relationship and form a meaningful opinion. Furthermore, if the two have been steadily charging upwards, it seems likely that if one drops the other will and vice versa. Like most things in crypto, all boats rise with the tide and metrics tend to behave in tandem. As the mining power continues to come back online and price rebounds, I remain equally bullish as I was before, during, and after the crash. Furthermore, as a long-term investor, it’s always better to see a quick Bitcoin dip straight down than straight back up vs. a slow bleed-out and slow recovery. Dip buyers were extremely aggressive through the massive drop in hash rate and cascade of liquidations.
Willy Woo Reveals His Bitcoin Price Prediction
Popular crypto analyst, Willy Woo gave some insight into where he thinks Bitcoin will land this cycle. In his prediction, he said a couple of things I can't help but agree with. First off, he said, “the longer this bull market runs the higher the target goes.” This has been my belief for a long time and something I bring up on the live streams when showing the monthly Bitcoin chart. He also added that right now, we are near the middle of the bull run. This seems likely especially, since many have been saying we are in the first inning for a long time. This means we have probably moved past that. Plus, the Coinbase listing is a great indicator that we have transitioned to a new phase.
To get to what is most exciting, Woo said the following - “right now it’s on track to go above $300,000, It’s a moving target. Even that $288,000 Plan B target, you’ll see that it overshoots. It always overshoots… If it’s $288,000, it goes to $300,000, $400,000, even $500,000.” All of his numbers are in the realm of possibilities, but right now it's just a guessing game. Bitcoin tends to move in both directions higher and lower than you expect, which is what Woo is getting at. Nobody was expecting a crypto flash crash and DOGE to almost hit $.50 in the same week, but crypto remains crypto!
CBDCs Still A Work In Progress
The future of money is digital and we can assume that almost every Central Bank in the world will eventually move to a digital currency. That said, most of they are either in the initial explanation phase or starting pilot programs, and still likely years away from implementation. We are still very early.
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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.