The Wolf Den #35 - Digital Dollar, Bitcoin, Miner Sell Pressure And More
Bitcoin Analysis
Until yesterday, it felt like I was one of the last remaining Bitcoin bulls on the planet, at least in the short term. As you know from reading the newsletter, I have successfully longed Bitcoin from $4,000 to $5,870, $5,200 to $5,900, and now $4850 (and added at $5,950 or so) to the current price. I understand the bearishness - global markets continue to meltdown and it's hard to feel positive about any asset. But I have not waivered in my bullishness since the local bottom in the $3000s.
But you know my feelings about Bitcoin. While I have always viewed it as a risk off asset for retail (something people will sell when everything is dropping), I do NOT believe that retail moves the market. I have written on this extensively, but it is somewhat clear from on chain metrics and from common sense that a select few whales move the market at their whim, and choose to do so when it's easier based on the macro environment. I posited this theory over a week ago and still believe this to be true.
Everyone remembers the worst day in Bitcoin history. But don’t forget that after the bottom of that move came the largest percentage gain ever on a 12 hour candle on historic volume. That not remain the bottom, but it was clearly “a bottom.”
MONTHLY CHART
I wish the month would just end, because the present candle has a $3,000 wick! A close like this would look very bullish, showing a ridiculous amount of demand on the dip. As you can see, price is currently trading above 3 support levels that were breached on the drop. Let's hope that it can remain in this area.
WEEKLY CHART
The weekly chart is very encouraging. The key here is the 200 EMA (red line). Look at how it has managed to perfectly support the previous candles before the move up. While price managed to wick below, the candles closes are both sitting directly on it. Really pretty.
The descending wedge bottom also held on the candle closes, so price should theoretically be targeting the top of the wedge. There is plenty of resistance ahead (like a death cross of the 21 and 50 EMA, which is not really something I worry about), so let's see how this week ends before getting too excited.
DAILY CHART
The daily chart shows a key level, $5,873, that I have discussed a number of times. This is somewhat like "the line" at $9,090. This is where I closed my first position from $4,000 and where I have added to my recent position as support. I view this as the key daily level that needs to hold.
You can see that price is running into a TON of resistance here, with all EMAs heading directly down. Price is currently wrestling with the 21 EMA (purple line). Holding $6,540 here would be a great sign that price is likely to continue up.
4 HOUR CHART
Price broke the top of the ascending triangle and retested it as support (with a slight fake out below). You should remember that this is what I was looking for. I am still hoping to see price eventually reach 8100 as a result. On this time frame we have a golden cross of the 21 and 50 EMAs right at support on the top of the triangle.
Anytime an ascending triangle breaks up, you have to be careful - because it often forms an ascending channel or wedge. We have a clear ascending wedge here, which Bitcoin has a long history of breaking to the upside. Still, we want to see the bottom line of support hold.
You can also see the blue line, which shows that we had bullish consolidation before a breakout to the upside.
BOTTOM LINE
I currently remain in my position and have moved my stop well into profit. I am cautiously optimistic, but once again we find ourselves at an area with quite a bit of resistance after a sizable move up. Caution here, as I personally would not be opening a trade in this immediate area.
Democrats Want To Use Digital Currency For Stimulus
Whoa. This is far more forward thinking than I would have ever expected our government to be. Rationally, this is a great idea and would be a nearly frictionless way to distribute funds to citizens in need of help. Sending checks is a decades old strategy - it makes a ton of sense to simply send digital dollars to everyone via simple wallets. I would absolutely LOVE to see this happen. While the currency in question would not be Bitcoin, this would introduce every American to the idea of a digital wallet. Very bullish for crypto in general, in my opinion.
The Wolf Of All Street Podcast Ft. Ryan Selkis
This week's guest is Messari CEO Ryan Selkis. We discussed (with screaming kids in the background!) cutting through the BS and false information to get to the truth, what we can expect in the coming weeks with regards to COVID-19 and markets, helicopter money, FED stimulus, the potential end of American world dominance and the light at the end of the tunnel for Bitcoin.
The best quote from the episode? Ryan - "I can't shout this from the rooftops enough... nothing has changed about the Bitcoin narrative." Please subscribe and give a listen on either Apple or Spotify! I am going to be putting out at least 2 episodes a week moving forward.
2020 Halving - Miner Sell Pressure Report
Impact of the 2020 Halving on the Bitcoin Industry
From Matt D'Souza, CEO of Blockware Solutions, LLC:
Many analysts suggest there is a price floor in Bitcoin created by the breakeven price of a Bitcoin Miners’ cost of production. This assertion is inaccurate. In fact, selloffs in Bitcoin tend to accelerate as price gets closer to the miners’ cost of production. There is a consistent sell pressure on the price of Bitcoin, which stems from miners. Price support is actually established by miner capitulation and a net reduction in hash power on the network – favorable difficulty adjustments. Understanding game theory as it applies to the miners is critical.
Bitcoin Miners are the backbone of the network and arguably the most important market participant to understand. Miners are the primary source of sell pressure on the price of Bitcoin as they must sell BTC to fiat in order to fund their electricity expenses. 54,000 new Bitcoin are mined each month, a large percentage of which must be to cover OpEx. If BTC is $10,000, this equates to $540 million of potential sell pressure from miners each month.
Just as OPEC affects the Oil Market and US Shale producers have their breakeven “shut-off” price, Miners are the “suppliers” of the Bitcoin Commodity Complex. The difference between Bitcoin Mining and Oil Drilling is that the new supply of Bitcoin is always released every 10 minutes – this is dictated by code rather than by suppliers’ production levels. How the newly mined Bitcoin is managed by Miners significantly impacts price. Many mistakenly believe the trading volume in Bitcoin is what drives the price, but a majority of that volume is churn and short-term trading which exacerbates volatility. Intermediate and long-term trend is determined by net fiat inflows and outflows – not short-term churn volume.
The short-term trading volume creates volatility, but we are interested in understanding long-term trend. In order for Bitcoin Price to appreciate, fiat inflows from Hodlers and Investment Funds must counterbalance, and exceed the sell pressure created by miners. It is critical to understand the dynamic between the supply-side Miner Economics and demand-side Investor Sentiment.
We’ve examined the composition of every Layer of the Bitcoin Mining Network and modeled out the vulnerabilities in the Price of Bitcoin driven by Miners at various price points. A miner’s electricity rate and their model of mining rig being utilized determines their breakeven price (shut-off price). Miners with higher electricity rates must sell a greater proportion of earned Bitcoin to cover electricity costs.
What is critical to understand is that miners with $0.03kWh electricity rates running Old-Gen rigs (S9’s) now have a higher breakeven price than miners with $0.075kWh electricity rates running Next-Gen machines (S17’s).
Next Gen mining rigs are keeping miners with high electricity rates in the game (for now). This will continue to create a sustained bleed out on the price of Bitcoin. It is important to understand the game theory behind miner decision making and how radically different operational results are on paper vs results in the real world. This variance between expected operational results and real operational results creates friction for inefficient miners and accelerates selloffs in Bitcoin Price.
Hodlers, investors and efficient miners should welcome the 2020 Halving. There will undoubtedly be some short-intermediate term chaos, but it will set the stage for the next Bitcoin Bull Market. Inefficient miners will be wiped out, allowing efficient miners to accumulate a larger percentage of the newly issued Bitcoin – meaning a smaller percentage of the newly minted Bitcoin will need to be sold to cover electricity expenses. Just as there is friction with miners shutting off when Bitcoin sells off, there is friction with miners turning back on when Bitcoin rallies. Many miners may be a few months behind on electricity, hosting, or land lease payments and cannot turn back on without paying multiple missed months. This allows price to rally more easily, and as price rallies, a smaller percentage of the newly mined Bitcoin will need to be sold to cover electricity costs (which remain constant) as the miners that have survived have healthy margins.
Many fear Halving but if you understand the psychology of the miner and how game theory will drive behavior, Pre and Post Halving, Investors and the efficient miners should welcome it. Bitcoin naturally has a sell pressure from miners that chips away at Bitcoin’s price. Post Halving less new fiat will be required to counterbalance miner sell pressure. As a result, Investment Funds and Hodlers will be more capable of stabilizing the downward pressure by injecting enough new fiat into the system to achieve long-term price appreciation.
Altcoin Charts
I don't see any particular reason to be trading alts for the moment. That said, I am still in positions on MATIC (right at entry) and XTZ, so I figured I would share those charts. I am also watching COTI, but have not entered yet.
Part of being a good trader is knowing when not to trade - alts have not really looked promising for a bit now, and they did not really rise much with Bitcoin here. A Bitcoin move up or down at this point is more likely to hurt than help. If Bitcoin starts to move sideways and range here, alts could start to pick up.
COTI/BTC
COTI is sitting on a key support, so one could argue that there's a good entry here with a tight stop. The safest entry would be a break of the top descending line, with a target of the depth of the descending wedge from where price exits.
MATIC/BTC
I would let this go with a clear break of the black support. That's about it for now!
XTZ/BTC
Nothing has changed here. Still trading around horizontal support in a large bull flag.
COVID-19 Is Not A Bioweapon
Conspiracy theories are being throw around left and right, none more prolific than the idea that COVID-19 is a weaponized virus. This report dispels that myth with convincing evidence that the origin of the virus is natural. This is a good read.
Realities Of A Trader
This tweet, from legendary trader Peter Brandt, is absolutely spot on. Emotional control and a positive mental state are key to remaining successful as a trader, especially over a long period of time.
Do not let the market make you feel inadequate - remaining profitable, even slightly, is a grand accomplishment for a trader. Always remember - the first rule of trading is to preserve your capital. The second rule is to try to grow it. There's nothing wrong with being on the sidelines, exiting a trade "too early" or with losing when you follow your plan.
Fed Announces Major Plan To Support The Market
The Fed announced arguably the largest stimulus package in history to help support markets and corporations. The central bank signaled it would do practically anything—extending loans to big and small businesses, backstopping funds to municipalities and purchasing hundreds of billions of dollars of government debt—to help an American economy in a race against time.
“It has become clear that our economy will face severe disruptions,” the Fed said in its statement Monday morning. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”
The Fed has already moved much further and faster than it did in late 2008, when the failure of Lehman Brothers sparked a financial panic that aggravated an economy slowing under the weight of a bursting housing bubble. The actions announced Monday to backstop corporate debt and buoy small-business lending take the central bank well past the playbook it used in 2008, when it was focused primarily on preventing financial institutions from failing.
Here is the full press release and summary from the Fed.
Senators Selling Stock On Inside Information
This is complete BS! The Senators with knowledge of what was likely to come with COVID-19 sold stock (which they have no business owning in the first place) in advance of the market crash. Just a reminder that governments are corrupt and that they largely serve their own interests, and not those of the public they purportedly represent. If these were average citizens, they would have been locked away for Insider Trading - instead they are going about their day on Capitol Hill.
Security Tip - Avoid Public Wi-Fi
Wi-Fi can divert your browser to any page. This may sometimes be a mimic version of your exchange or wallet. They will also be able to gather the data transmitted through the network, in case it carries the password you had typed. If you are accessing your wallet from a public Wi-Fi, be sure to use a Virtual Private Network (VPN). It is a method used to add privacy and security to private and public networks, like the internet and Wi-Fi hotspots. VPN is mostly used by businesses to protect sensitive data.
This is easy for now while you are isolated!
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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.