The Wolf Den #359 - Banks May Custody Our Assets
Smart Contract Platform Momentum- 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.
Smart Contract Platform Momentum
Many crypto investors were surprised by the strong performance of other tokens following Bitcoin's new highs. This had not been the case last year when Bitcoin broke above $20k nor in October 2017 when it first surpassed $5,000.
This time around, it appears that traders are taking positions in smaller cap crypto-assets in anticipation of the high returns typically coming after a Bitcoin rally. Based on Coingecko, 23 out of the top 100 "alt-coins" recorded double-digit returns over the past seven days, highlighting the risk-on positioning from investors.
Smart contract platforms lead - among the best performing tokens over the past week are native assets to smart contract platforms.
Smart contract platforms have already been some of the best performing assets this year, suggesting that the recent action may be due to investors doubling down on their winners.
Looking into Polygon (MATIC), we observe a significant spike in volume as prices increased. The Ethereum side-chain and scalability hub has already been a top performer, appreciating 8,600% in 2021. It is seeing renewed interest.
As of October 27 through IntoTheBlock's Bitcoin derivatives indicators
As can be seen above, large transactions volume in MATIC reached a 3-month high with over $1.1B being transferred in amounts of over $100,000. This points to institutional capital being deployed into Polygon's native token.
Moreover, DraftKings, the largest American fantasy sports site, recently announced it will be using Polygon as the base layer for its NFT platform. In part, this contributed to MATIC's increase of over 20% this week.
As crypto transitions into a multi-chain universe, smart contract platforms have benefitted from increased traction, propelling them to higher valuations. One of the leading sectors within smart contract platforms has been decentralized finance (DeFi). Here the total value locked (TVL) within DeFi has grown over 10x from $21B to nearly $240B throughout 2021.
Currently 13 different blockchains have over $1 billion in TVL, as opposed to just Ethereum at the beginning of the year. As activity has spread to other chains and continued to grow in Ethereum, smart contract platforms are showing signs of real traction perhaps like no other blockchain products.
While it's unclear how long this trend will continue, the momentum smart contract platforms have built this year is undeniable.
Bitcoin Thoughts And Analysis
I am not convinced that Bitcoin will continue to drop, but there are quite a few signs (as I have pointed out before) that the 52K- 53K area would be very strong support before continued movement to the upside. I have already placed bids in this area, in case we see more downside.
Further, we just saw a $1000 drop in less than 5 minutes, liquidating 500M dollars. Tale as old as time - longs pile up, funding gets high, they get flushed. Price heads back up after the reset.
WEEKLY CHART
It is only Wednesday, so a lot can change on the weekly chart. If the week were to close today, it would look like a local top. Last week had the ugly shooting star candle, so we are looking for either bearish confirmation with a down candle, or invalidation in the form of a green candle.
Plenty of week left, so nothing to worry about - just something to watch.
As you can see, there is a key support at $52,944 that has been untested. A retest of a key resistance as support is expected and is bullish, but tends to be where traders panic. This is very similar to 42K, an area I said over and over was likely to be retested. It took weeks, but eventually happened. $52,944 was the line where Bitcoin officially broke bearish market structure by making a higher high. A retest would be a good thing.
DAILY CHART
As I mentioned previously, the upper resistance of the Bollinger Bands flattened out, giving us an early indication that this would be strong resistance and that the move to the upside was likely exhausted. Price is currently testing the center line as support, so this is a solid area for a bounce and recovery. That said, losing the centerline would target the bottom band, currently around $53K.
Do we see a trend forming here on where there is likely support?
The daily is currently testing (and losing for now) support at $59,603, but there is quite a bit of day left. Losing that line would target the same previous high that we are watching on the weekly - $52,956 in this case.
The 50 MA is rising just below that support, so a test of that area would also likely test the 50 MA, which is an obvious mean reversion. Price tends to come back to key MAs over time, so this could be more confluence for a drop to the 52K - 53K area.
4-HOUR CHART
I jokingly pointed out this potential head and shoulders on Monday to get ahead of the crowd.
It is not longer a joke. Price has broken down the neckline on increased volume, and the volume profile in the pattern is also accurate, with a spike on both the left shoulder and the head. A close below the red line would be confirmation (still time for a fake out and close above). The target is around 52K, a familiar area at this point, based on the measure move from the depth of the pattern.
These patterns rarely hit their targets and often fake out - not particularly reliable, honestly.
The 4 hour 200 MA is also below, slightly above the area we have been discussing.
Low time frame (hourly and down) RSI is already well oversold. The 4-hour is getting close, which we have expected since it went overbought multiple times. You know what I will be watching for - RSI to hit oversold on the 4-hour, then to form bullish divergence and head up.
Tom Brady Gives Fan Bitcoin
In Issue #325 I wrote the following: “The amazing part about FTX’s strategy is the genuine feeling behind each sponsorship. Tom Brady has become an accepted member of the crypto community, Kevin O’Leary has been active in the institutional trenches, and Stephen Curry has shown real interest in NFTs.”
Tom Brady completed his 600th touchdown pass last Sunday against the Bears. Receiver Mike Evans accidentally handed a lucky fan, Byron Kennedy, the ball - estimated to be worth about $500,000. Byron decided to do the selfless thing and give the ball to Brady because “I knew how much it meant to Tom.”
Tom Brady hooked the fan up with the ultimate Bucs package, including season tickets, jerseys, and signed items. Best of all, he gave the fan an entire Bitcoin. This Bitcoin didn't come from the Bucs - it came personally from Brady as an additional thank you for giving back the ball. Props to both of these men for doing the right thing.
I sat with a friend of Tom Brady's at a wedding this weekend. He told me that Tom is legitimately "all in" and talks about crypto non stop. It is not an act, and this genuine love for the space is what we need from more celebrities like Tom.
FTX Purchases Super Bowl Ad
There's no need to over report the epic moves being made by SBF and FTX in the sports space, a natural fit for attracting new crypto traders. Now, crypto will be advertised to the largest sporting audience in the world, with a commercial during the Super Bowl.
Valkyrie Files Leveraged Bitcoin Futures ETF
One of the only companies with an investable bitcoin ETF is now attempting to lever up.
It has been less than a week since Valkyrie’s Bitcoin ETF went live, and the fund is already setting up for a new investment vehicle to be approved by the SEC - a 1.25x leveraged Bitcoin Futures ETF. For bullish traders, this could be a very attractive product, considering the non-levered futures ETFs will have fees and potential bleed over time. Considering gold has a number of 3x leveraged ETFs for investors to pick from, a 1.25x ETF is not particularly risky.
Robinhood Crypto Revenue Drops 78%
Ouch. No surprises here. Robinhood was very open about the fact that they saw a massive spike in crypto trading activity in the second quarter, largely because of interest in DOGE. As I warned, this meant that a massive drop in revenue was inevitable, because there was no way that volume could be maintained.
This drop in crypto revenue dragged down the earnings of the entire third quarter and sent the stock below IPO price.
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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.