The Wolf Den #344 - Retail Is Wrong At The Worst Times
Diving Into The Ethereum Beacon Chain - 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 Ethereum Beacon Chain
Transitioning to proof of stake has been discussed by Vitalik and the Ethereum community since as early as 2014. This transition to proof of stake has already begun with the launch of the Beacon Chain and aims to bring three key improvements to Ethereum: a more environmentally sustainable, secure and scalable blockchain.
One of the main reasons behind moving from proof of work to proof of stake is the reduction in environmental footprint. The negative externalities arising from mining have been a key reason for Ethereum’s push to proof of stake since the beginning and are now more relevant than ever. Since staking replaces miners for validators, the environmental costs from mining are foregone, resulting in the Ethereum proof of stake blockchain projected to consume 99.95% less electricity.
The implementation of proof of stake also aims to increase the security of Ethereum. In order to attempt a 51% attack on proof of work, one would theoretically require more than half of the computing power of the blockchain. In a proof of stake blockchain an attacker would require over half of the amount being staked.
As of October 10, 2021 through IntoTheBlock’s Ether staking indicators
The Ethereum 2.0 staking contract has now become the largest holder - currently worth over $26 billion with nearly 8 million ETH on the Beacon Chain. This contract has been growing at a pace of over 23,000 ETH per day.
Since the launch of the Beacon Chain, a proof of stake blockchain has been operating in parallel to the ETH 1.0 network. Initially, only validators setting up their nodes or trusted staking services were able to participate in the Beacon chain. However, decentralized staking services such as Lido have opened up the doors of staking to many more users looking to remain in custody of their funds without having to lock them. Through stETH, users staking positions on the Beacon Chain are tokenized and made available for anyone to access. This has led to the rise of the number of depositors in the staking contract, which recently surpassed 51,000 addresses.
As of October 10, 2021 through IntoTheBlock’s Ether staking indicators
The increased number of depositors and ETH staked in the Beacon Chain is also a positive sign for Ethereum’s security. As previously mentioned, potential attackers require 51% of staked ETH in order to exploit the network; thus more ETH being staked makes the blockchain more costly to attack. Moreover, a higher number of addresses staking points to greater decentralization as a larger number of validators make the network more resilient. Although decentralization is more nuanced than simply a measure of addresses staking, the rising number of depositors does suggest greater network security.
With the Beacon Chain up and running for nearly ten months now, the full transition to proof of stake is getting closer. Prior to achieving greater scalability, Ethereum first needs to merge the Beacon Chain with the ETH 1.0 blockchain where dapps are currently hosted. Before that, however, Ethereum implemented one of its most anticipated upgrades, EIP-1559, in the recent London hard fork.
Bitcoin Thoughts And Analysis
The monthly and weekly Bitcoin charts remain exceptionally bullish - no reason to focus today on the larger time frames. Keep that in mind. Macro, things look great. Anything above 42K remains bullish in my mind, with 50K and 45K being key levels above that.
DAILY CHART
Price made the full trip from the lower to upper Bollinger Bands, as John Bollinger himself said was likely in a recent tweet where he went long. As expected, price is finding resistance at the upper band. The good news is, the bands are expanding, and when we see a move to the top like this, price often tracks the rise of upper band. This is also common on the downside. As long as we are trading in the upper half of the bands, things are looking very good with this indicator.
4-HOUR CHART
I marked key local support and resistance levels on the 4-hour chart, which you can use if you are trading this on smaller time frames. As you can see, we have a fresh support at $50,400, and can expect to see a battle between 50K and that level if price continues to drop. For now, $50,400 looks like a potential dip worth buying, because it's a perfect test of former resistance as support.
We also had some low time frame reversal candles here, shooting stars and dojis that indicated the move was likely exhausted.
I don't see anything to worry about as of yet - this just looks like a simple retrace after a sizable move to the upside. Even a retest of some of the lower levels as support would be fine.
As you can see, price pushed high enough to make a higher high and bring RSI with it, also confirming a higher high. Way overbought, but no bearish divergence. That's good news to me! When RSI goes this overbought, you expect some retracement and an eventual move to oversold - but that can take a long time and can happen with largely sideways price action.
For now, multiple time frames would likely print hidden bullish divergence if price closes in this area or any lower.
Altcoin Charts
As I have mentioned over the past few days, altcoins were starting to show series weakness on their Bitcoin pairs, even as the USDT pairs looked decent. This was a great indicator that Bitcoin was ready to make a move up. USDT pairs followed, but BTC pairs continued to suffer. Basically you were making money on alts, but less than if you were just in Bitcoin. And you were losing Bitcoin.
As Bitcoin has topped a bit locally, this trend has continued, but now both pairs are obviously dropping. This is a day for caution with alts, but obviously not panic. This is the normal cycle. Bitcoin goes up, alts suffer a bit, Bitcoin stops rising, alts catch up. For now, I am not proposing any immediate trades, as the alt/BTC pairs seem to be largely losing support.
BITCOIN DOMINANCE
Bitcoin dominance is not a traded asset, so charting it is a bit of a joke. Patterns, support and resistance are all determined by humans setting bids and asks. But we can still gain some insight, just take it with a grain of salt.
You can see that dominance is rising quickly at the moment, which means that money is generally flowing out of altcoins and into Bitcoin. "Alt seasons" are generally the huge drops in dominance. We just had a mini alt season, but now we have a bounce on dominance right out of a key support level. I discussed this on a stream last week. If this bounce gains strength, altcoins will continue to suffer mightily against Bitcoin.
The Crypto Safe Harbor Proposal Returns
The new bill looks to make a safe harbor for digital tokens à la Hester Peirce's proposal into law.
SEC commissioner Hester Peirce has repeatedly proposed a safe harbor plan for cryptocurrencies that remains in regulatory limbo. The plan is back on the slate, with additional backing in the form of a bill introduced by Peirce’s colleagues on the House Financial Services Committee. The bill is called the Clarity for Digital Tokens Act of 2021 and offers a clear path for token teams to follow to avoid harmful regulatory scrutiny. The bill, “establishes a three-year safe harbor for token development teams to offer those tokens for sale without full registration as a securities offering on the condition that the network decentralizes over the course of those three years.”
In short, token teams have to follow a set of guidelines, such as disclosing source code, development plans, and tokenomics to the SEC. They then have 3 years to work on being compliant with securities law.
This is a great deal for a lot of the projects that would probably die if they were labeled securities by the SEC. Fingers crosses that the proposal gains momentum on this go around.
U.S. Bank Offers Crypto Custody Service
U.S. Bank, the fifth-largest commercial bank in the United States, is launching an in-house crypto custody service for investment managers. The custody service will initially offer support for Bitcoin, Litecoin and Bitcoin Cash, with additional support for Ethereum and other altcoins on the way. The move towards cryptocurrency began when the vice-chair of the bank’s wealth management and investment services division surveyed clients about their thoughts on crypto and found that, “interest in crypto was broad and not limited to niche players, and that clients wanted the bank to move quickly.” For now, the bank's service is only for “institutional managers with private funds in the U.S. or Cayman islands, according to the bank.” This is a great opportunity for whales to forgo the headache of having to custody their own assets.
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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.