The Wolf Den #364 - Portfolio Structure
Crypto's Metaverse - 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.
Crypto's Metaverse
As most will know by now, Facebook rebranded to Meta emphasizing its metaverse aspirations. Though certainly ambitious, Facebook's plan is subject to some of the inherent limitations of the web 2.0 model. Overall, this is expected to result in an opaque and less secure network, where value created does not accrue to its users as would be the case on a decentralized platform like Ethereum.
As Facebook has expanded, the relationship with its users has become more and more extractive. It's become a cliché but users are the product, fueling advertising revenue. This leads them to benefit at the expense of their users' time and information.
Companies building on top of Facebook's metaverse also risk competing against them if they decide to launch their own applications. Here, too, the relationship is suboptimal.
Web 3.0 offers the potential to fix these issues by aligning user and platform interests. This is the case as platform users, builders and owners can be one and the same in the decentralized web.
Tokens can serve as incentive mechanisms to attract users and builders and can then be used to vote on decisions about the metaverse. While this does not guarantee everyone will be happy with results, it does allow participants to have an impact on where the platform is going.
Users and builders don't have to trust an entity to act on their best interests. Through the blockchain, people can openly validate activity taking place and if they don't like what is going on they could simply fork the network.
The simplicity to spin off a competitor also creates pressure for these platforms to develop avid communities. Users and builders would also have incentives to be vocal about the metaverse(s) they support in the form of tokens. This intensifies network effects as participants are incentivized to bring more users.
As of November 3 through IntoTheBlock's Ethereum network indicators
Crypto's strong network effects lead to periods of exponential growth, as can be seen with Ethereum's transaction volume. These could lead crypto to having a more bottom-up adoption of a metaverse than the traditional ad-focused approach.
Another factor worth considering in a crypto metaverse is security. The recent Facebook outage is testament to the potential issues of having a central point of failure.
In crypto, security is distributed throughout a network of nodes working with each other. Most smart contract platforms, which would serve as the natural base for a decentralized metaverse, currently rely (or are planning to) on proof of stake to reach consensus and secure the blockchain. In Ethereum's case, stakers have deposited over $33 billion worth of ETH to secure the network.
As of November 3 through IntoTheBlock's Ethereum staking indicators
Anyone attempting to attack the network would need at least one third of the amount at stake to influence consensus. Moreover, since there are penalties for bad actors, attackers risk losing their assets if they jeopardize the network's security.
Overall, there is a stark contrast between what a web 2 and web 3 metaverse could look like. While it is yet to be seen how these develop, a crypto metaverse promises a more inclusive, aligned and secure network.
Bitcoin Thoughts And Analysis
DAILY CHART
Very little has changed on the Bitcoin chart - high time frames continue to looks exceptionally bullish.
As you can see on the daily, the Bollinger Bands are tightening to levels not seen this entire year. The tighter they get, the larger the move and the more volatility we tend to see. As of now, price is in the upper half and pushing towards the upper band, indicating that the move would more likely be to the upside.
4-HOUR CHART
It was much ado about nothing on the head and shoulders that formed, "broke down" and then ended up being a fake out. I showed you that pattern last week.
Now we have the opposite - an inverse head and shoulders. Keep in mind, these are reversal patterns are not valid as continuation, so there is some debate as to the placement and validity of this pattern. In this case, we do have a clear move down into it and it's on a lower time frame, so it seems relevant to me. I have drawn it in red. We had a breakout, so the target is just above the all time high based on the depth of the pattern
Altcoin Charts
The market is hot once again, and there are a few "dinosaur" coins that look extremely bottomed out. This makes them risky, but the gains could be significant.
ADA/BTC
ADA had an irrational move to the upside based almost purely on hype and community involvement. Without delivering much fundamentally, the coin reached number 3 by market cap. The bigger they are, the harder they fall.
I have nothing against Cardano and am hopeful they can deliver. I see this fall as a potential opportunity. As you can see, the Bitcoin pair is at the last meaningful level of support before another huge fall would likely be on the menu. This offers great risk/reward for a trade with small downside and massive upside. If support breaks and a candle closes below, exit.
As I was watching for an mentioned on a stream last week, we now have massive potential bullish divergence with RSI on the daily, which was extremely oversold. I love this setup in general.
Hidden bearish divergence is also possible, so keep an eye out for that.
ETH/USD
Ethereum made yet another fresh all time high yesterday, much to the joy of those of us who are bullish on this asset. Price is officially back in discovery for new highs, so this is a clear "buy the dip" situation." $4,461 is the recent all time high, which is yet to be retested as support. That is the first place I would look for a potential entry.
As you know, I believe that ETH is going to 10K and beyond, so this is a longer term investment for me.
LTC/BTC
Like ADA, Litecoin is sitting on major support with numerous bullish divergences with RSI. The difference is that this is not oversold. I drew one long line, but there are a few divs in that area. The long line does not itself qualify, I am just showing the general trend.
This support is the all time low on Binance, really a meaningful level. Sky is the limit if these coins make a major move to the upside. Easy to let go for a small loss if support breaks.
Coinbase Offering Loans
Coinbase is a secure online platform for buying, selling, transferring, and storing cryptocurrency.
This is huge. Coinbase is offering loans, up to $1,000,000 with 8% interest and no risk. They are not lending the coins or moving them in any manner - they are simply holding them in custody.
Eligible borrowers need to lock $2.5M worth of coins to take the $1M loan - you can take 40% of your holdings.
This is effectively a line of credit, and will allow people who never want to sell to take loans against their holdings. This is what billionaires have been doing for ages.
Keep in mind, many other similar products exist and have been successful for a long time. This is just the biggest, and allegedly has the least risk.
El Salvador Is Putting Its Bitcoin Profits To Good Use
President Bukele’s investment in Bitcoin is paying dividends. The president announced a plan to construct 20 schools and the country's first public veterinary hospital, all funded by profit from their Bitcoin investment. Let’s take a quick peek at what the IMF said when El Salvador first announced their plan to adopt Bitcoin as legal tender.
“If goods and services were priced in both a real currency and a cryptoasset, households and businesses would spend significant time and resources choosing which money to hold as opposed to engaging in productive activities.
The ecological implications of adopting these cryptoassets as a national currency could be dire.
As national currency, cryptoassets—including Bitcoin—come with substantial risks to macro-financial stability, financial integrity, consumer protection, and the environment.”
The reality? Half of the population has adopted the currency and measurable social improvements are being made to the country. Take that, IMF.
Athletes And Politicians Want Bitcoin
Aaron Rodgers is getting in on the Bitcoin game.
The list of high-profile people getting into crypto is rapidly growing. Just this week, Green Bay Packers quarterback Aaron Rodgers announced a partnership with Cash App to take part of his salary in Bitcoin. Alongside Rodgers, the mayor of Miami, Francis Suarez announced he would take his next paycheck entirely in Bitcoin, a first in the political realm. Almost every celebrity who has entered crypto has chosen Bitcoin as their preferred coin. This is a lesson - even if you are bullish on altcoins, it's prudent to always have a stash of Bitcoin as well.
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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.