The Wolf Den #412 - Cryptocurrencies Are Here To Stay
Buyers Remain Strong, Sellers Panic - 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.
Buyers Remain Strong, Sellers Panic
Whales Accumulating
As many will already know, blockchain data can be extremely valuable to get a better understanding of what is happening in crypto markets behind the scenes.
When it comes to Bitcoin, we have been keeping an eye on ownership metrics. One key trend that has developed throughout this quarter is the increase in the number of addresses holding at least 1000 Bitcoin.
As Bitcoin dropped below $50,000 addresses with over 1,000 BTC proceeded to increase their holdings.
Addresses with over 1,000 BTC ($41.5M) are evidently institutional players or whales in crypto parlance.
These addresses tend to lower their holdings following large rallies (as was the case in March and October) and patiently wait to buy at lower levels (like in May and over the past few weeks).
Potential Short Squeeze in Play
And as evidenced by the recent price activity in Bitcoin, looks like a potential short squeeze is in play. The ratio of Bitcoin’s open interest relative to its market cap has reached the highest level in over a year, suggesting that an excessive amount of traders are betting on the current price trend continuing.
A few key data points leading up to the potential short squeeze:
Open interest in Bitcoin perpetual swaps decreased by 7% since December 27, significantly less than BTC’s 16% price drop
The relatively smaller decrease in open interest suggest perpetual swaps are betting against Bitcoin, because if not OI would decrease proportionally with price (or even greater due to long liquidations)
By plotting the ratio of Bitcoin’s open interest to its market cap, this pattern becomes clearer
The last time the OI/MC ratio increased while Bitcoin’s price decreased was in July 2021, which marked the bottom.
Funding rates across major perpetual swaps exchanges have also turned negative for the most part, pointing to people willing to pay extra fees to short
These signs tend to be indicative of exhaustion of the current trend, though not always the case
Bitcoin Thoughts And Analysis
Bitcoin's price action has been encouraging over the past couple of days, but we are far from out of the woods. Don't get exuberant - one step at a time.
WEEKLY CHART
The weekly candle looks like an absolutely beautiful hammer reversal at the moment, with a long wick down and green body on top. The problem? It's only Wednesday. Let's check back in Sunday and see where we stand.
We still need to be back above 53K.
I remain in half of my long from $39,800, with my initial target being around $45,500. That's where we broke down from on the last run, the centerline of the Bollinger Bands, the middle of the old range etc.
DAILY CHART
Two days ago we had a beautiful daily hammer candle, and yesterday's candle confirmed the bullish reversal. Does that mean we go up for sure? No. But from a candle perspective, that appears to be a bottom. Volume was solid on both candles.
Looking at MACD, which failed us recently, we have bullish divergence with both the MAs (blue) and the histogram (green). Decent bottom signs.
A break of the descending blue line would give a lot more confidence of a reversal, but for now we are back in the range and above support. Good signs.
4-HOUR CHART
Key levels marked. We are testing one of them now!
Not shown, but RSI just flipped 50 to support, which usually means a trip to overbought. I assume that would take price to around $45K to $46K, which is where I would take a bit more off the table and start to look for signs that price will head to 53K.
Altcoin Charts
I am still VERY hesitant to share altcoin charts, because any slight sneeze from Bitcoin could send them far lower. That said, many hit key support areas and have bounced for now, so it's worth going through your charts to see which look decent. Stronger coins with larger market caps seem to be performing better than smaller coins for the moment, so focusing on those that have shown relative strength in the drop is a decent strategy.
AVAX/USDT
AVAX is attempting to put in a higher low, maintaining macro bullish market structure. That said, it is currently floating between two key levels, so we want confirmation of the reversal. There are a lot of ways to view this, for me the most obvious here would be a flip of $98.21 from resistance to support. That would offer some confidence that this is a real reversal. That flip would simply target the next level, $127.41.
To be clear, I see not reason to buy this at the current price, it's in the middle. I would rather buy a bit higher with confirmation and the ability to place a stop below that support if it fails.
NEAR/USDT
NEAR has been arguably the strongest altcoin in this correction, and just made a new all time high. I view this as RISKY here, because there is some potential bearish divergence (almost always happens on a new ATH) and if the market continues down, this may have the furthest to fall.
That said, technically we have a break of the all time high and retest as support, just like the one that I shared at the previous level below.
Proceed with caution. In a healthy market, I would be all over this, but I am highly skeptical.
The Fed Is Fighting Inflation
Corrective measures are long overdue, and Jerome Powell from the FED has made it explicitly clear that he is prepared to fix our economy’s most pressing issues. As expected, at yesterday's confirmation hearing, inflation was on the top of his agenda alongside unemployment rates. Jerome’s "honesty" and confidence in our “healing and growing economy” was well received by the markets. The hard part, as outlined during the meeting, was the fact that fighting inflation is counterproductive to correcting the job market, but a task ready to be tackled.
Powell’s job has clearly become more than just managing policy. It’s a balancing act of pleasing out-of-touch politicians and protecting our country's delicate economy and market. Furthermore, he has to be an impeccable actor, managing his emotions, tone, and vocabulary, knowing that everything he says is being carefully analyzed and scrutinized. Although his meeting was well-received, every politician always sounds their best at the beginning of their term - which is what we are seeing right now. Here are some of the most important parts of Powell’s speech.
“As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year. If we see inflation persisting at high levels longer than expected if we have to raise interest rates more over time, we will. At some point perhaps later this year we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy. If inflation does become too persistent, if these high levels of inflation get entrenched in our economy, and in people’s thinking, then inevitably that will lead to much tighter monetary policy from us, and it could lead to a recession, and that would be bad for workers.”
Bitcoin Moves To Argentina
Jack Mallers, the CEO of Strike, is once again advancing the Bitcoin mission, this time in Argentina. As described in the Tweet thread linked above, Argentina has been plagued by hyperinflation for decades. The citizens have fled their native currency and the country’s reserve has diminished at a rapid pace. Bitcoin isn’t perfect, but I truly believe it is a viable solution, and I commend the efforts of Strike to help rescue this struggling country. The lesser told story is that this will assist Argentinians and accessing and holding dollars in the form of stablecoins - something they are all trying to do via the black market on a daily basis.
With Strike, the Argentinian people can now hold a stable cash balance that can be spent both instantly and with no fees. Cheap, instant, cash final, global payments of any size, for anyone, to anywhere. No inflation. No restrictions. Financial freedom. This is a superior financial experience that legacy financial institutions and governments have failed to deliver to the people of Argentina. #Bitcoin is a superior monetary system that builds towards financial inclusion and helps re-instill basic human freedoms.
Spike In Exchange Outflows
Data suggests that almost 30,000 BTC left exchanges on Tuesday as Bitcoin buying appetite returns.
Good sign. Bitcoin just saw it's largest one day spike in coins leaving exchanges since September, usually a sign that large holders are moving to cold storage and have no intention to sell. Of course, this can reverse any time.
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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.