The Wolf Den #241 - Elon Musk
Bitcoin Thoughts And Analysis
Volatility has returned and we can finally analyze Bitcoin once again. It is unfortunate that the action returned with a move down, but no real surprises here. Price was struggling at key levels with bear divs, which is why I have been hesitant to share any setups. This was a significant move, so it is important to realize that more downside could be in the cards. That said, nothing looks terrible to me.
DAILY CHART
Price continued to struggle at 59K, with bearish SFP after bearish SFP through that level. This was a very clear sign of selling interest and was the reason that I was vocally staying away from any Bitcoin trades.
That said, yesterday's drop perfectly tapped the daily demand zone (red) that I have had on the chart for ages. That is a very strong area of support, so even a push deeper into that zone would not be a big deal.
We potentially have a nice long wick down on this candle, which indicates demand, but also a long wick up indicating that the reactionary bounce was sold into quickly. We need to wait and see how the daily candle closes to determine what it truly means.
For now, we have a nice bounce from support.
If the red demand fails, the next area of interest is the blue zone below. I have bids there waiting, just in case.
4-HOUR CHART
We can glean quite a bit of information from the 4 hour chart. First, Bitcoin has been ranging and actually lost the range EQ as support (the dashed center line) BEFORE the Musk tweet and drop. That was a signal that price could visit the range lows. As you can see, we got the normal 50% bounce from the lows after the drop, the reactionary retracement that I talk about all of the time. It actually went a bit higher.
Notably, volume was significantly lower on this sell off than the one we saw from the all time highs. I have pointed at the volume candles with blue arrows to show this. The selling was far heavier in April, so far. That is encouraging, because it means there was less conviction on this move. Again, so far.
Also, the biggest volume candle was buying, not selling. That is the big grey candle at the end of the sell off.
What I like here is that price swept the range lows with a long wick and closed above. For now, that is a bullish SFP and also a signal that quite a bit of buying interest exists at the range lows and that liquidity was engineered in this area. If price holds the range, there is little to worry about. If it loses the range and flips support to resistance, we will start to look at lower areas shown on the daily chart.
You should already know what I am watching for! Every time the 4 hour hits oversold, I look for a bullish divergence with RSI, the most reliable reversal signal that I have ever found. You can see the bear divs before, one of which hit overbought. That was a short signal and we expect RSI to make the trip from overbought to oversold. Now we are there. We do not NEED this to happen to go up, but it has happened at almost every bottom. Here are the 4 hour oversold bull divs since September. Only one didn't form. You can pull this chart back for years and find the same phenomenon.
HOURLY CHART
Bullish divergence with oversold RSI confirmed on the hourly. This is not a major signal, but can be a harbinger of divs to come on higher time frames. I prefer to see them build. Hourly, followed by 4 hour, followed by 6 hour, 12 hour daily etc.
This could be a start.
Note that hidden bearish divergence is likely, canceling the div. But still a signal. I would watch for more bull divs if that confirms, compounding the effects and building to higher time frames.
FEAR AND GREED
We went from "Greed" to "Fear" in a day. 68-31 on this index. This shows a legitimate change in sentiment. More fear means a better chance we are close to the bottom.
Trading Tip: Close Your Chart After A Trade
The market always tends to humble us right when things are going best. Why did the market dump so hard? It’s difficult to speculate, but hard not to point to the Tesla news as the likely straw to break the camel’s back. More likely, someone saw an opportunity to use this news to make an insane amount of money.
Many of you know that I used to have a rule about trading - after closing any trade, win or lose, I would also close the chart for 24 hours. The worst losses tend to come right after a trade is closed. If the trade closes in profit, a trader has the tendency to FOMO back in if price continues up, regretting the potential profit that they missed. This is a sure way to give back what you made, because you are no longer following your original plan.
This rule also prevented me from a worse habit - revenge trading. Almost every trader I know has to fight the urge to quickly reenter a trade after losing, trying to "get back what they lost" immediately on the same asset.
If you were caught offsides by this recent drop, now is a good time to shut down for 24 hours and make a new plan.
Vitalik Pulled The Rug On Dog Coins
It’s never a good position to be in if your one shot at making money is hoping a useless dog coin isn’t rug pulled by one holder with half the supply. For anyone who has lost money holding SHIB or any of the other meme coins, I am sorry that happened. I have continued to express concerns over the tokenomics of these coins, with the fate of investors at the mercy of one man. The worst case scenario came true.
Below is a quote from the SHIB white paper, “we sent over 50% of the TOTAL supply to Vitalik. There is no greatness without a vulnerable point as a long as VB does not rug us, then SHIBA will grow and survive.” Murphy’s law. Vitalik offloaded not just SHIB, but two other Dog-themed coins earlier yesterday, causing sharp dips from the sell-off and fear.
It was reported that by selling his holdings, Vitalik’s net worth dropped by about half, from $20b to $10b. These dog coins were built on top of Ethereum, leaving some analysts to speculate that Vitalik sold to offload some of the pressure SHIB was putting on the network, perhaps scaring newcomers away. Vitalik has yet to release a statement but has donated the proceeds to COVID relief - which means all liquidated SHIB holders indirectly donated to charity. Nonetheless, this serves as a warning on what can happen in crypto when you play with fire. Most people can and will lose money.
103,124 ETH Deposited Minutes Before Crash
On chain metrics can be used to determine price action, much like technical analysis. 410 million dollars in ETH was sent to exchanges just 10 minutes before price took a significant hit.
Bitcoin's Largest Difficulty Adjustment Since 2014
I am not a miner and discussing the relationship between Bitcoin price and difficulty is not in my wheelhouse. I will not make any predictions based on this news, but rather will just share it as it's an important update on the Bitcoin network. You can read the article in the block above, or this one from Coindesk:
Tether Releases Breakdown Of Reserves
Tether released a report detailing the breakdown of their reserves. The new composition report is part of Tether’s efforts to stay in compliance with a settlement with the New York Attorney General.
Above is a thorough review of Tether's report, with the actual report linked in the tweet. It is my feeling that if the NY Attorney General is content, then so am I. New York has the strictest regulators in the United States.
The Wolf Of All Streets Podcast Ft. Sean Culkin
Finance and football don’t normally go together, but Sean Culkin's passion for finance matches his love for football. While grinding through college, Sean spent his spare time behind a Bloomberg terminal learning about the failing financial system. Upon discovering Bitcoin, Sean Culkin joined the select ranks of athletes who have opted to receive their salary in bitcoin, strengthening the emerging trend that professionals around the world are beginning to follow.
Follow Sean Culkin: https://twitter.com/culkin22
This episode explores:
Converting almost $1m to Bitcoin
Back-loaded interest
7 out of 10 athletes going broke
Playing college football and studying finance
Buying cash flow assets
Playing for the Kansas City Chiefs
Teaching athletes about investing
TikTok meme stocks
Elon Musk and Bitcoin
Government money printing
The Doge gateway drug
Opting out of the fiat system
PODCAST SPONSORS:
Try Nexo’s full-suite, instant crypto banking service, featuring: savings accounts with up to 12% interest on crypto, stablecoins & fiat; flexible crypto-backed credit lines at just 5.9% APR; an exchange with 75+ crypto and fiat pairs and best-price guarantee. All this and more wrapped up in a single Nexo Wallet.
Start banking at https://thewolfofallstreets.link/nexo or download the app on Google Play or the App Store.
---
Visit https://thewolfofallstreets.link/cosmos to learn about the Cosmos Hub and how the $ATOM can connect every blockchain. Cosmos is the port city connecting chains like Bitcoin and Ethereum to ensure your liquidity on any chain can be used anywhere.
Find new staking opportunities, applications, or build your own parachain at https://thewolfofallstreets.link/cosmos
My Recommended Platforms And Tools
This is where I trade with leverage and can also trade spot with no fees.
This is where I spend my days teaching and learning! Our Discord group is a one stop shop for everything you need to learn to trade and control your emotions. Feel free to DM me on Twitter or respond to this email for questions. Code Wolfsden50%off for a 50% discount on the first month.
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: WOLF25
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
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.