The Wolf Den #334 - Investors Beware: Gary Gensler Is Not Our Savior
Diving Into The Correction - 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.
Diving Into The Correction
As of September 22 using IntoTheBlock's Capital Markets Insights
Crypto markets experienced another severe correction on Tuesday, with prices dropping nearly 15% across the board. As shown above, Ether’s price dropped further, posting a 17% drop and falling below $2,900, a key level of support.
When it comes to catalysts for the drop, the reality is that there does not seem to be one specific reason for the drop. What seems to be the case, however, is that the market structure was set up in an overly bullish way and with high leverage, making the market vulnerable to such corrections.
As of September 22 using IntoTheBlock's Bitcoin Exchanges Flows
As experienced during the September 9 crash, markets were overleveraged and we spotted other signs that this correction was overdue. Netflows into centralized exchanges had been on the rise prior to the crash. In total, over $388 million worth of BTC was deposited into centralized exchanges over the past 4 days, potentially with intentions to sell. Miner's Bitcoin holdings also dropped significantly a few days earlier.
But despite the recent correction, Bitcoin seems to be holding strong above $40k, as the majority of the Bitcoin’s belong to addresses with a holding period above 1 year.
As of September 22 using IntoTheBlock's Bitcoin Ownership Indicators
Month after month, we have seen accumulation by these long-term holding players, posting new all-time highs every month, which eventually will lead to an illiquidity event for Bitcoin. It’s a matter of long-term investment conviction.
Bitcoin Thoughts And Analysis
WEEKLY CHART
The theme of the week is 42K. As you know, price lost 42K as support on the daily yesterday, but is still holding this key level on the weekly. This is what we should be watching into the close on Sunday.
42k was the key resistance from January to February, until Tesla bought Bitcoin. It was the key resistance from May to August after the crash.
That’s half the year that it was the key level.
Losing it on the daily is sub optimal. Losing it on the weekly would be worse.
DAILY CHART
The same story as the weekly. The struggle is at 42K now after closing below yesterday. For aggressive traders, this retest as resistance is actually a textbook short - when a key support breaks, you can short the retest. I am not interested in shorting Bitcoin, but just pointing that out for those of you who may be trading it both ways and for educational purposes. Regardless of your bias, the break of 42K is a big deal and technically indicates more downside is statistically likely. For now, the big bounce looks more like shorts covering (shorts taking profit) and the sitting orders in that area filling. We will see if there is follow through back above key levels. Anytime price pushes down this hard, we see bounces because of the spot limit orders and shorts covering.
The crowd wanted 42K, myself included. What do I always say? When the crowd wants a level, it almost always gets front run (bounces above) or price nukes right through as if it was meaningless.
Price is currently trading back in the range on the daily. Not what we wanted to see, obviously. The top of the range "should" have held as support, but that's the nature of technical analysis - it's just a risk management tool.
We really want to see follow through by bulls after the bounce.
4-HOUR CHART
Wow. 4-hour RSI was already at its lowest point in over a year yesterday, and it still pushed lower, failing to form a bullish divergence. Not only that, we now have potential hidden bearish divergence after the bounce, a sign of likely continuation to the downside. This could be invalidated by a further push up.
The lowest candle close on the 4-hour is $40,596. So a push back down below that level could likely give us that bullish divergence I have been watching for. It would be a hell of a feat for RSI to push lower again, but it is definitely possible. With each RSI bounce and reset, the odds of a bull div increase on the next drop.
Altcoin Charts
I am still proceeding with caution on altcoins for the moment. Once I have more confidence in Bitcoin, we can revisit more potential trades. If Bitcoin is reversing back up here, then every altcoin is a decent buy. If not, more downside.
FTM/USDT
Update from yesterday, for those of you who were watching. This tagged support and held nicely, which was one of the entries we discussed. The descending blue line is still the safest, but I like this reaction thus far to horizontal support.
Legacy Markets
XAG (SILVER)
Silver has been under pressure as the dollar has risen and has generally been underwhelming. That said, price is approaching the range lows, which could be a great chance to buy with good risk/reward. This level is around $21.66. I am long term still generally bullish on silver, although I think metals are losing their shine (pun intended) in favor of Bitcoin.
Bitcoin Is Proving A Success In El Salvador
The world crypto community collectively held its breath when El Salvador made Bitcoin legal tender. The greatest fear was that the people would reject Bitcoin and simply not use it, causing the experiment to fail. Over 25% of El Salvador’s population has downloaded the Chivo Bitcoin wallet. This figure represents 1.1m Salvadorans taking an active interest in Bitcoin, despite its recent drop. I imagine the number will rise as the asset recovers and breaks through all-time highs. Bitcoin is proving a success in El Salvador.
Extreme Fear Is Here
It is difficult to determine what causes extreme swings in investor sentiment. At the moment, it seems like whales are taking advantage of an influx of crappy news to push price down - Evergrande, securities threats, lawsuits, and insider NFT trading are just a few of the FUD stories floating around. I don't think any of these events are good reasons to sell Bitcoin, but some entities are behaving otherwise. I’m holding and buying this dip, simple as that. As Warren Buffet famously said, "be fearful when others are greedy and greedy when others are fearful."
Whales Are Buying
The 3rd largest whale has once again added to his massive Bitcoin holdings, after buying the dip just last week. He bought more at $40,500. As I always say, I would rather be on the same side of the trade as the big players, not trying to fight against them.
Coinbase Proposing Crypto Regulation
Rather than sit back and wait for the hammer to drop, Coinbase is getting ahead of regulation and proposing a framework to federal officials. The details have not been released, but we can assume that they will offer their own definitions of what qualifies as a security, and offer practical and middle of the road suggestions for overseeing the crypto space in the United States.
You have to appreciate the initiative. Hopefully regulators will be open to some of the more obvious ideas and definitions.
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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.