The Wolf Den #295 - The Disposition Effect
Bitcoin Attempts To Break $40k Again - 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 attempts to break $40k again
In a week loaded with bullish news, it appears that Bitcoin (BTC) might be again on the path to look for new highs, as it is currently retesting the $40,000 resistance while the futures markets are heating up.
As new money flows into the market and the Hodler trend continues, we can analyze where Bitcoin is heading next. By analyzing the profitability of traders near the current price of BTC, we can understand the circumstances and price ranges expected to act as support and resistance now.
The IOMAP is useful for traders to understand the next price levels where addresses are expected to buy and sell based on users’ on-chain positions and unrealized profits or losses. As you can see in the chart below, the size of each cluster represents the volume of BTC previously bought at a specified price range.
As of July 28 via IntoTheBlock’s Bitcoin financial analytics
As Bitcoin approaches $40k, we see momentum shift to buyers with 73% of the holders near price profiting based on the IOMAP. On the other hand, large in the money clusters indicate key price ranges on-chain where a high amount of addresses (or volume of tokens) had previously been bought and would currently realize a profit if they sold today.
$40k represents the first key level of on-chain resistance for Bitcoin. Nearly 152,000 addresses had previously bought 100,000 Bitcoin around $40,363. As we have observed over the past few days, given the high amount of prior buying activity at this range, it is likely to play as a level of strong resistance where short-term traders may look to break-even on their positions.
Ultimately, the biggest level of resistance is located between $42.3K and $43.5K. The IOMAP shows that approximately 350k BTC are being held around that price bracket. Surpassing this level of resistance could push the price of Bitcoin towards $50k for the first time since May 15.
On the other hand, support is expected just above $36,000. Between $36.3k and $38.7k, 1.6 million addresses previously acquired 1.03 million BTC. Holders at this level may look to buy again given the strong amount of activity at this level. Were Bitcoin to drop below $36,000, a move towards $33,000 is to be expected.
The shift to a bullish sentiment has also been reflected in the futures market. More specifically, funding rates across several exchanges have stopped being negative for the first time in over a month.
As of July 28 via IntoTheBlock’s Bitcoin derivatives analytics
Positive funding rates point to the likelihood of more long positions being opened. Following a 5% rally in Bitcoin over the past 24 hours, the funding rate in large derivatives exchanges quickly rose. This is a result of traders pushing perpetual swaps prices higher than spot prices.
Bitcoin Thoughts And Analysis
DAILY CHART
Yesterday's candle finally closed above the resistance of this descending blue channel, with a nice spike in volume over the past few days. Believe it or not, this is currently Bitcoin's best run of 2021, with potentially 8 green daily candles in a row. That's saying a lot, considering price went to 65K this year.
I still want to see a close above 42K before I get excited. On multiple time frames, Bitcoin is at resistance and hard to want to jump into as a trader. Just as bears were euphoric at support around 30K, bulls are seemingly getting ahead of themselves here below resistance. I like the breakout, but I want to see more. A fake out here, based on some ideas below, would not surprise me.
4-HOUR CHART
Rejection again in the blue supply zone that I have pointed out countless times. We are at resistance, with clear bearish divergence on multiple time frames likely to confirm in the coming hours. This was inevitable, considering RSI was the highest it has been all year on the push up. I would expect to see some retracement as a result, before confirming hidden bull divs once again, which are almost inevitable. Price can drop quite far and still make a higher low with a lower low on RSI.
Bottom line - I am cautiously optimistic, but would not be surprised to see some retracement to the 36-37K area before another push up. The EQ of the channel has not been retested as support, and RSI hit overbought on every time frame under the daily.
Legacy Markets
DXY (DOLLAR INDEX)
The local ascending wedge on the dollar index appears to have broken down, with a retest of the ascending support as resistance. This should send the dollar back down to 91.513, which would be bullish for most other assets. Simple.
Binance Cuts Back Daily Withdrawal Limit
Due to heavy regulatory scrutiny, Binance is cutting back on the daily withdrawal limit from 2 BTC to .06 BTC for accounts that are not fully verified. The drop represents a 97% decrease in the daily withdrawal amount but realistically won’t impact most traders, considering owning .1 BTC puts you in the top 10% of global Bitcoin holders. The implementation is coming in one week, starting August 3rd and finishing August 27th. If you are fully verified, you have nothing to worry about, the 100 BTC daily withdrawal limit is not changing. The adjustment should put Binance in a better position regarding AML and KYC laws. If you are okay with sharing your personal information to be verified, I highly recommend you start the process now. This news on top of an impending bull market can add some ridiculous wait times to receive a fully verified account - liquidity is everything, don’t wait until it’s too late.
SEC Regulation Is On The Way
In a recent letter to the SEC, Senator Elizabeth Warren requested, “information regarding the SEC’s authority to properly regulate cryptocurrencies” and threatened a “Congress step in” if need be. She clearly does not have the good intentions. Below are some of the phrases included in the letter:
“Dangers in this highly opaque and volatile market”
“There’s really no protection around fraud or manipulation.”
“Many exchanges routinely fake their volumes to attract more coins and users.”
“Scams have surged on “decentralized finance” (DeFi) platforms in particular.”
And my personal favorite,
“News reports suggest that MicroStrategy, a business intelligence firm, may be serving as a “kind of pseudo Bitcoin ETF…enabling investors to get exposure to Bitcoin without owning it.”
Senator Warren isn't wrong to state that clarity and regulation are needed in the crypto space, but she clearly wants to shut it down based on false narratives. Some of her colleagues want legislation to foster innovation rather than suppress it, and to give a rational framework for people to interact with the crypto space. Today, July 28th was the deadline given to the SEC regarding a number of complex questions about the crypto space. It will certainly be interesting to see how Gary Gensler and the SEC respond.
You can read Warren's full letter here.
NYDIG CEO Reveals Long-Term Bitcoin Prediction
Mike Alfred, Co-Founder and CEO of NYDIG, has come out with a million-dollar Bitcoin prediction. “1 Bitcoin will be worth $1,000,000 in under 10 years.” Mega bullish predictions like Alfred’s aren’t crazy, as another reputable hedge fund executive Scott Minerd from Guggenheim Partners has come forward publicly and said, “Bitcoin should be worth $400,000.” Predictions like these are why long-term holders almost always win. There is no predicting the path that the asset will take to get there, but being left behind is costly.
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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.