The Wolf Den #258 - Miami
Bitcoin Thoughts And Analysis
Bitcoin looked to be turning bullish heading into the Bitcoin Conference in Miami, but Elon Musk decided to end that sentiment with a single tweet about a breakup. Since then, Bitcoin has effectively hugged the 36K area and has been about as boring as possible.
WEEKLY CHART
The weekly chart shows indecision. Nothing has really changed - it is still holding the 50% retracement level of the move from March 2020 as support. We also now have a second candle with a small body and long upper wick, which could be seen as inverted hammers. I discussed these last week. While they look like "bearish" candles because of the long wick up, they are actually considered potential bullish reversal signals at the bottom. But we would really need to see a significant green candle this week to confirm both.
Volume has diminished dramatically over the past two weeks after the selling climax a few candles ago. This can be viewed as a sign of consolidation, and is hard to read as either bullish or bearish. But things remain more bearish until we see real buying volume.
DAILY CHART
The symmetrical triangle that many have been watching has become effectively invalid. This was the most "important" pattern on the chart, and reminds us that technical analysis is just a risk management tool and fails to predict the future. It was a great idea.
Price was breaking out of the top when Musk tweeted, causing it to fall back into the pattern. Now we are so close to the apex of the triangle that the likelihood it is meaningful is decreased. Most triangles (and patterns) breakout around 60-70% of the way through completion. The closer you get to the apex, the less powerful the pattern.
That said, price is currently hugging and holding ascending support, continuing to make higher lows, which is at least encouraging. We need a higher high to get bullish.
42K is still the line that matters most.
4-HOUR CHART
This time frame shows just how boring and choppy this has been. Clearly price is ranging more than forming any clear pattern, which you can see in the red rectangle. Price is hugging the EQ (equilibrium, center dashed line) of the trading range, still searching for direction. Volume is nearly meaningless - few are trading Bitcoin at the moment.
Altcoin Charts
The altcoin market is seemingly as sideways as Bitcoin. Not much to see from my quick scan, other than Ethereum.
ETH/BTC
Bitcoin Dominance continues to drop, largely because Ethereum is doing well on the BTC pair as expected and discussed last week. Now that .073740 has been flipped to support, ETH, should be targeting the recent highs on this pair at .0824. Nothing is certain, as always, but this looks like a very strong continued move after the breakout through the descending resistance.
When you zoom out on the weekly, you can see that this looks like it's just getting started. There has only been one red (blue) week since price broke the descending resistance, which was the major crash. This continues to look extremely bullish.
VIX 101
By Sahil Bloom:
If you follow the financial news, you’ve probably heard a lot of talk recently about the VIX. But what is the VIX and how does it work?
The Volatility Index (“VIX”) was created by the Chicago Board Options Exchange as a real-time market index representing the market’s expectation of 30-day forward-looking volatility. It is often referred to as the “Fear Index” by investors. Let’s take a look at how it works.
Volatility measures the magnitude of price movements (up and down) over a set period of time. Historical volatility is based on actual historical price movements. Forward-looking volatility (“implied volatility”) is inferred based on option prices. The VIX infers its value by tracking the pricing of S&P 500 index options.
But what do S&P 500 options prices have to do with investor fear?
When investors expect stock prices to make a significant move (up or down), they typically purchase more options to protect themselves against those movements. Think about it as buying insurance to protect your home if you’re expecting an earthquake to hit soon. So in an environment where investors expect a big near-term price drop, it is reasonable to expect a surge in demand for put options. There is more uncertainty in the market, so investors seek protection via these options. Demand for them rises. If demand rises quickly, supply will not have a chance to catch up.
Econ 101 tells us that the price of the options must rise. Since we know the VIX tracks the pricing of S&P 500 index options, we can see the relationship form. S&P 500 put option prices spike = VIX spike.
To use a real example, the VIX spiked to a peak of >80 in mid-March, as fears of COVID-19 damage peaked. It has steadily declined since, as Central Banks worldwide have eased investor fears. Typically, VIX values <20 correspond to stable, low-stress periods in the markets.
Since the VIX is an index, you cannot trade it directly. But this is finance, so interested investors can speculate on movements in the VIX in a number of other ways: VIX futures, VIX options, VIX ETFs ($VIXY).
That was VIX 101! I hope it was helpful.
El Salvador Accepts Bitcoin As Legal Tender
This announcement was unexpected. Let's start with the definition of legal tender, as it may not be exactly what you expect. Legal tender is “coins or banknotes that must be accepted if offered in payment of a debt.” This does not mean that a citizen or business in El Salvador must accept Bitcoin as a general payment - legally they can accept any form of payment they wish and continue as normal without Bitcoin. But as stated in the definition, Bitcoin must now be accepted as repayment of any debt.
At this point, it is important to note that this isn't written into law yet, nor do we know exactly what the final law will entail. The president is fully on board with the legislation and allegedly controls all branches of the government, making the bill's passage almost a certainty for the country at this point. What isn't a certainty is how this will impact taxes, banking, or investments in the country, but we can speculate.
Right now, about 70% of El Salvador’s population is unbanked, a statistic common to developing nations. Furthermore, the wellbeing of their economy is deeply rooted in the health of ours - their main currency is the U.S. dollar. They are a developing nation leveraged on the status of a failing currency - a recipe for disaster. This move may sound trendy, but it's actually an attempt to de-risk from a foreign currency undergoing rampant inflation.
One of the most important Bitcoin narratives is that it is could become the world's reserve currency - this is officially the first tiny step in achieving this narrative. By no means is El Salvador a massive country. Critics quickly pointed out that Dogecoin is about twice the size of El Salvador’s GDP, but this comparison misses the mark. El Salvador is, in fact, the smallest country in Central America and is unfortunately economically poor. Now they may have potentially started a very powerful trend.
Few people knew or cared about MicroStrategy before they bought Bitcoin. Months later, Michael Saylor hosted a Bitcoin for Corporations conference for over 1,400 firms. Progress is slow, and requires the confidence of a trailblazer to carve out a path. If all goes well for El Salvador, there is 0 reason why other neighboring or distant countries facing hyperinflation, poverty, and corruption won't follow suit. One Bitcoiner even announced he is friends with two presidents of Latin American countries that are open to the idea. A couple more countries joining the party will make the Doge comments look even more foolish than they already do.
El Salvador is possibly the first domino to fall for Bitcoin becoming a world reserve currency. Every citizen and entity has something to benefit from this - investors, immigrants, banks, businesses, taxpayers, debt collectors, etc, and all while Bitcoin becomes that much stronger. If this isn't bullish, nothing is.
Here is a great thread on the implications of the decision.
Huawei Heavily Invested in Blockchain Technology
"Chinese telecommunication giant Huawei continues to produce blockchain-based services for government and enterprise, demonstrating key support in the burgeoning technology.
“Blockchain is a very important technology for the future, and we have invested heavily in the R&D of the Blockchain technology,” said Jason Cao, president of the global financial services business unit of Huawei Enterprise Business Group, at a press conference in Beijing last week.
Huawei was an early proponent of blockchain technology. In 2018, the company published the “Huawei Blockchain Whitepaper” and introduced its Blockchain Service (BCS), an enterprise blockchain cloud service product that combines the blockchain platform with Huawei’s hardware to provide a faster and safer end-to-end blockchain solution.
“We have applied blockchain technology to government services, financial services, and taxation,” Cao said. “We have also created apps based on blockchain for our own in-house teams to utilize.”
Regardless of your feelings on Bitcoin and cryptocurrencies, it is clear that the blockchain is the future of technology. Much like people rarely question how their phones and internet work, one day many key technologies will be powered by the underlying tech of the blockchain and nobody will bother to question how it works - it will be universal.
Corporations Hold At Least 11B In Bitcoin
A Crypto Treasuries Report states that over 325,032 BTC are held by 32 companies, with 169,279 ETH held by 11 companies, not including investments in ETFs or AUMs. This equates to nearly $12 billion in BTC, while 11 companies hold roughly $470 million in ETH.This gives us a fair idea of just how interested companies are in the asset, but also shows that we are very early in the race for corporate adoption.
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