The Wolf Den #310 - Paper Trade Daily
Derivatives Market Remains Cautiously Bullish - 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.
Derivatives market remains cautiously bullish
Bitcoin derivatives traders quickly went from euphoria to desperation in the spring. This is reflected in perpetual swap funding rates across the major exchanges. For the uninitiated, perpetual swaps are a crypto-native derivative that acts like a futures contract without an expiration. In order to keep the contract’s price pegged to spot prices, they introduced the funding rate, which if prices are at a premium charges long holders to pay out fees to those going short and vice versa.
As perpetual swaps have outpaced spot volumes, the funding rate has become a predominant metric in crypto markets. This is the case as it provides valuable information of the market’s positioning. As prices were flying high in April, funding rates were strongly positive as bullish expectations in price meant long traders did not mind being charged funding fees.
This trend quickly reversed in May as prices crashed 50% and funding rate went deeply negative as traders were calling for a full 2018-like bear market. Over the past month funding rate reached positive rates across the largest three derivatives exchanges in terms of open interest.
As of August 18, 2021 through ITB’s Bitcoin derivatives indicators
As Bitcoin prices surpassed $40,000, the market became more confident in the up-trend, thus pushing funding rates further along. This trend, however, appears to be slowing down this week, with funding rates reverting towards zero, signaling a more neutral positioning from derivatives traders. That said, as Bitcoin recovered from last night lows, we are seeing positive funding rates once again today.
In terms of Open Interest, the total amount of outstanding positions has decreased over the past 3 days, coinciding with the recent downward trend.
As of August 18, 2021 through ITB’s Bitcoin derivatives indicators
This typically points to a decrease of confidence behind the recent price move. However, when considering the neutral funding rate, it appears that the derivatives market remains cautiously optimistic about the return of the bull market.
Miners take risk off the table
Just a few months ago, Bitcoin endured its largest mining migration in recorded history. As the Chinese government cracked down on crypto mining, miners had to reallocate internationally, having large implications on the Bitcoin blockchain.
This led to a drop of over 40% in the network’s Hash Rate in June, and to large outflows from miners’ addresses. Given the high costs of shipping and setting up mining infrastructure, it is likely that these outflows led to miners selling part of their positions to cover their expenses.
Throughout this period, mining activity redistributed internationally, with a significant portion setting up or expanding operations in Texas. Now that regulatory uncertainty is hitting U.S. miners, we are observing a similar pattern on-chain.
As of August 18, 2021 through ITB’s new mining indicators
The day after the notice of inclusion of crypto in the infrastructure bill, Miner Reserves had their largest one-day drop in years. While not all of the drop can be attributed to the regulatory situation, it does resemble a similar outcome, albeit at a much more sudden pace.
In China’s mining crackdown, the largest decrease in miner reserves also came at the beginning, prior to any official measures. As these measures became enforced, miner reserves steadily declined, decreasing by 100,000 Bitcoin in a month.
Bitcoin Thoughts And Analysis
DAILY CHART
Nothing is happening. Price is hugging the 200 MA, but there's been no meaningful movement in a few days. Price is still consolidating, waiting for the next move. I will share more charts tomorrow as things change
In the meantime, this is an incredibly comprehensive thread on the state of Bitcoin from numerous perspectives. Worth a read, whether you agree with the TA or not.
Altcoin Charts
EGLD/BTC
I looked at this pair in my video yesterday, and the setup seems to be playing our nicely. Price has broken resistance and appears to be popping up off of support, meaning that we should see a trip to the top of the range.
This would start to look less valid with a candle close today or in the coming days below support or below the dashed equilibrium. This area is a confluence of resistance, so this move through and a close above would be very bullish.
SUSHI/BTC
SUSHI/BTC
There are a few ways to view this, all bullish. First, you can view the black line at 2795 as the top of a trading range (not drawn). Second, you can view it as a triple bottom of sorts, with 2795 being the neckline, the swing high between all three bottoms.
Either way, this looks like price is leaving accumulation and preparing for a sizable move to the upside. The target of the triple bottom is shown, bassed on the depth of the pattern.
Elrond Goes Mainstream Through Worldwide Music Festival
I get a sense of nostalgia and childlike excitement when I hear about crypto and blockchain merging with music. One of my favorite projects has been Elrond Gold and they are doing just that. If you have been a long-time subscriber of the newsletter, then you may have been fortunate enough to have purchased some with me nearly a year ago for a huge return (and before that when it was ERD and not EGLD). Elrond has just announced that they are partnering with UNTOLD Mega-Festival for a creative NFT experience and EGLD payment option. This isn't just a small music get-together, as there will be hundreds of thousands of attendees including the world's most famous DJs such as David Guetta, Martin Garrix, Dimitri Vegas, and more. Attendees will have the chance to claim unique NFTs that capture the moments at the festival through Elrond’s Maiar NFT marketplace and learn about EGLD while attending. Another step towards mainstream adoption.
Audius Partners With Tik Tok
Another intersection of music and crypto. I should have taken Audius more seriously - it has been pitched to me a number of times as a soundcloud competitor, which as an expression I have heard a thousand times as a DJ. I even worked for competitive platforms.
Audius has gotten the last laugh, partnering with TikTok to make it as easy as a single click for creators to share their music on the platforms. This is arguably one of the largest steps for a blockchain company towards legitimate adoption.
Argo Blockchain Is Climate Positive
Argo Blockchain, one of the major U.S. miners, has released a statement claiming that they are now “climate positive,” after making adjustments to their operation. Although they aren't claiming to be 100% clean, and “climate positive” is a subjective phrase, their recent changes are a huge step in the right direction. For a mining company, there are 3 main “scopes” that output emissions that need to be monitored. Direct emissions, indirect emissions of purchased electricity, and other emissions from operations. Argo claims that all three scopes are now “climate positive,” meaning if they are outputting emissions, they are offsetting that output. Argo is currently working towards a carbon-neutral operation, setting a positive example for the rest of the major miners in the U.S.
Dogecoin Gets Serious
After the creation of Doge back in 2013, the two founders vanished from the project and just about every developer left with them. After years of silence, the Doge foundation is returning to life with a mission in mind - “focus on supporting the Dogecoin Ecosystem, Community and promoting the future of the Dogecoin Blockchain.” To this end, they will follow a set of four pillars to achieve their mission.
Being useful, we value utility over technical brilliance.
Being personable, we value individuals and interactions over profit-driven economics.
Being welcoming, we value collaboration and trust over competition and exclusivity.
Being reliable, we value working solutions over speed of delivery.
The announcement doubled as a call to all interested parties, be it developers, sponsors, and community members ready to contribute. Included in the strong list of board members overseeing the foundation is one of the original founders, Billy Markus, and also Vitalik Buterin. It will be interesting to see this develop and to watch the Doge community's reaction, since they haven’t taken themselves seriously in years. I suspect the move will be widely accepted and met with praise.
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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.