The Wolf Den #423 - How To Survive A Bear Market
Bitcoin Thoughts And Analysis
Bitcoin remains volatile and schizophrenic. The strong rise yesterday was stymied by the Fed meeting, with correlation once again returning short term in a moment of global panic. Bitcoin quickly returned to the same price where it was trading yesterday, and now is effectively flat.
We are back to watching and waiting for Bitcoin to offer a clear direction.
As you know, I was also long Bitcoin with leverage from $34,300. I took some profit on the move up and then employed a trailing stop, which I discussed in the newsletter and on my livestreams. I was stopped out on the remainder of my position just below $37,000 for a great trade.
I rarely share the thoughts of others in my Bitcoin analysis, but read this amazing tweet thread from Jurrien Timmer, investing legend who currently is a macro strategist at Fidelity. As you likely know, Fidelity is arguably the most crypto friend financial giant on the planet. The following article is worth a quick read to get some context for the Bitcoin move and what's to come in the future.
WEEKLY CHART
The weekly candle still looks good, albeit less clearly bullish than before. We still have 3 days to go, way too early to judge. We are basically sideways again, with price trading today at roughly the same point at the last weekly close, with wicks both up and down showing major indecision. Price is currently still trading well above the blue demand/support zone, but needs to flip $39,600 to support before we can even start discussing a bullish case. Really $42,000.
DAILY CHART
Yesterday's close was disappointing, failing once again to close above $37,354. This is a key resistance that looked likely to be broken. Nope. Right now, this is shaping up more like bearish consolidation after yesterday's ugly shooting star candle. Lots of indecision, hard to be confident in either direction.
Any push and close below $35,091 will likely give a meaningful bullish divergence with oversold RSI on the daily chart. RSI still has not even made it out of oversold. So one more decent drop could be the spring bulls need.
HOURLY CHART
The hourly cup and handle that I shared yesterday played out nicely, although without reaching it's full target. Every technical analyst knows that patterns rarely hit their targets exactly, but a move to $39,000 was close to the projected $39,600. That was the area where I was anticipating a bearish retest of previous support as resistance.
BOTTOM LINE:
Bitcoin is hard to read today, with whipsaw action up and down and no clear direction. $37,354 is the first key line for bulls, but really $39,600 and $42,000.
Right now this is a clear local bear market and bears are in control.
Altcoin Charts
I do NOT share signals in this section. I share setups and charts that I am watching, in an effort to help show you how I view a chart and what criteria would be necessary for me to consider taking a trade. NEVER blindly buy something because it is listed in a newsletter or posted on twitter. You need to have a plan when you enter a trade. These are just ideas, and are almost always “if, then” scenarios. If a certain set of things happen, then I would consider a trade.
I also do not push many charts when the market is looking shaky, which is how I would still describe it today. I am still very cautious at the moment, since there is the potential for further correction, or for altcoins to suffer if Bitcoin moves quickly to the upside. Either scenario could hurt alts. Here is a recent thread the summarizes the situation and is still applicable. We have already seen this play out since I posted it almost three weeks ago.
SAND/USDT
SAND is in an interesting spot, with 2 potential entries worth watching. The caveat is that you have to believe that Bitcoin is stable or likely to perform well. I am not looking to take this trade in this market, but the chart shows potential entries so I am sharing it. To be clear, there is NO CLEAR TRADE here at the moment. Price is below resistance not where you would want to buy.
I would be looking for a flip of $3.45 from resistance to support. This would give a target around $5.21.
If Bitcoin continues to correct, I would look for an entry around $2.03.
Legacy Markets
The global investing community gathered around their screens yesterday with bated breath to hear the words of Jerome Powell. This was hyped as the Super Bowl of markets and was the most anticipated Fed meeting since the Covid crisis began. Many pundits were ready to identify the meeting as a potential market top or bottom depending on the outcome. It turns out it was neither.
Markets hate uncertainty. There is an old saying on Wall Street that even bad certainty is better than uncertainty.
You would think that Jerome Powell would understand this and come forward with a clear and concise plan for reigning in inflation. Instead, in his remarks yesterday, he tap danced around questions and concrete ideas like a skilled performer. While it was entertaining to watch him live with my followers, the sad truth is that he offered very little specifics as to what the Fed will do. The "we will wait and see what happens" approach was unpopular and markets reacted negatively, even though there was arguably no bad news. It was essentially a continuation of all the ideas we have previously been exposed to without any sudden movements. Acknowledging our strong labor market and high inflation, Powell admitted that rate hikes will happen in the future at an unspecified time. Of course, the first reaction of markets was to rise when he alluded to 3 rate hikes, or at least sticking to the December plan, rather than 4-5. Whipsaw action as markets reacted irrationally to vague assertions.
Fun.
Global market are teetering on the edge of a cliff, and Powell failed to offer much to sway them in either direction. It will be interesting to see how the next few months play out as markets remain uncertain.
Below are a few hot Twitter takes from the meeting:
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Stage 1: Bitcoin too small to react to Fed policy
Stage 2: Bitcoin big enough to react to Fed policy (you are here)
Stage 3: Bitcoin too big to react to Fed policy - Alex Gladstein.
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Global markets reacting to the words and tone of one man to see how much his agency is choosing to manipulate the market is the clown show of all clown shows.
Good thing we have another option. - Me.
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JPMorgan: "the Fed is likely to strike a more dovish tone relative to extreme investor expectation"
Also JPMorgan (via its CEO): "pretty good chance the Fed will hike 6 or 7 times" - Zero hedge.
The SPX chart shows just how uncertain and spooked markets remain. The index seemed ready to explode to the upside, pushing through the 200 MA on the initial Fed announcement. You can see what came next. A major sell off and then small bounce into the close. Charts are just visualizations of human emotions. Looking at the last few weeks here, you would imagine that the market is comprised solely of characters from "One Flew Over The Cuckoo's Nest."
Futures were down significantly over night, but are bouncing in the early morning, showing that dip buyers are still readily available. As you likely know, Monday was one of my biggest buying days in history. Not because I believe the bottom is necessarily in, but because I believe that the market will trade much higher in years to come, and I have a long time horizon.
I discussed the history of tightening cycles in a recent newsletter, but here is a brief tweet thread showing that 11/12 times markets have reacted positively through the cycle.
Chart Requests
Every week I take chart requests from paid subscribers to the newsletter and livestream myself taking a look at the charts. Yesterday's stream was quite entertaining, because we also watched Jerome Powell's meeting... your comments were the highlight of my day. The Wolf Pack is a hilarious group!
Analyzing Holder's Behavior - 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.
Analyzing Holder’s Behavior
It should be clear by now that a bear trend is in play. As we covered before, crypto-assets are moving short term in tandem with traditional assets as the fear of a more hawkish federal reserve.
As many analysts remain skeptical about the next moves, by looking at the on-chain data and supply dynamics we can paint a different picture of what the hodlers and speculators in Bitcoin are doing recently and how they have acted before in different stages of the halving cycle.
First, let’s analyze accumulation by long-term holders. IntoTheBlock's Balance by Time Held indicator examines the variation over time of the balance of coins that each group has been holding.
As of Jan 27 using IntoTheBlock’s Ownership Indicators
The graph above shows the balance of Bitcoin held by Hodlers - passive investors that have held the asset for more than 1 year. This tracks the accumulation patterns during the different stages of the Bitcoin cycle.
While the majority of the retail buyers got scared during the March 2020 crash, these addresses accumulated roughly 1 million BTC until October 2020, back when the rally started.
They slowly sold a small portion of their holdings during the early 2021 rally, and they have now started to accumulate again as Bitcoin started to drop in November.
In just 30 days, these addresses increased their BTC holdings by 4.55%
By looking at the same chart but analyzing what the short-term holders are doing - which IntoTheBlock calls Traders, the picture shows a completely different scenario.
As of Jan 27 using IntoTheBlock’s Ownership Indicators
The behavior of short-term traders shows the classic pattern of “buy high, sell low,” as these addresses tend to follow the price action of Bitcoin.
The two times Bitcoin surpassed the $60k barrier were also the times these addresses held the largest balance.
The balance held by these “traders” decreased by 36% over the past 30 days, and by going further into the profitability analysis, the majority of them sold at a loss.
Whales buy the downturn, retail sells. Tale as old as time.
The Fed Put 101
If you have been following the saga of the Fed and pundits like Jim Cramer, then you have heard constant chatter about the end of the Fed Put. My friend Sahil Bloom wrote a great piece on this.
By Sahil Bloom:
What is the “Fed put” and how does it work? Here’s “Fed Put” 101!
When people refer to the “Fed put” in the markets, they are making reference to a put option. As we covered in Options 101 (refresher here), a put option gives the buyer the right, but not the obligation, to sell an asset at a set price by a specific date.
In this context, the phrase “Fed put” is used to refer to the notion that stock buyers believe they have an ability to sell their assets to the Fed at a good price at any point in the future. The Fed has been clear it will support markets, so the notion isn’t without merit!
As Mark Cuban points out, this contributes to asset price inflation. Why? The Fed put acts as a hedge (downside protection!), allowing for more risk-taking to the upside. If you’re at the casino and your rich friend offers to cover your losses, you bet bigger!
The “Fed put” isn’t new. It was originally called the “Greenspan put” – a reference to former Fed chairman Alan Greenspan, who first engaged in expansive asset purchases during the 1987 market crash. I would argue it dates back further, to the “FEDerico put” of 1500s Italy!
Central bank market intervention is a controversial and highly-relevant topic. I hope this primer helps you feel more educated on the subject. With apologies to my Austrian economists, that was “Fed Put” 101! Please share and send any suggestions for future topics.
ARK Is Mega Bullish On Ethereum
ARK Invest, led by Cathie Wood, released a research report stating that “Ether’s Market Cap Could Exceed $20 Trillion In The Next 10 Years.” Titled "Big Ideas 2022," ARK's annual report came in at 132 pages, covering a wide variety of topics beyond well crypto. Of the 14 areas of focus, Ethereum received its own investigation with 10 pages of interesting insights. One of the images showed Ethereum’s market cap expanding 75x to match the size of the current financial services industry. As I always say with regard to big predictions, they only need to be "a little bit right" for investors to recognize life changing returns.
Below is an excerpt of the commentary from ARK. You can read the report HERE.
“According to our research, Ethereum could displace many traditional financial services, and its native token, ether, could compete as global money. As financial services move on-chain, decentralized networks are likely to take share from existing financial intermediaries. The beneficiaries of this shift include Ethereum, the base protocol, and DeFi, the decentralized applications built on top of Ethereum. As the preferred collateral in DeFi and the unit of account in NFT marketplaces, ether (ETH) has the potential to capture a portion of the $123 trillion in global M2.”
Tesla Is Still HODLing
Sometimes no news is good news, which is the case regarding Tesla and their Bitcoin holdings. They neither sold or bought any coins in the final quarter of 2021. Musk's rocky love affair with crypto was the story of early 2021, and his decision to have Tesla stop taking Bitcoin payments was pointed to by many as a catalyst for the summer bear market. I disagree with this assertion, but it was very clear that he held major sway over the crypto market. This is no longer the case, but it is still nice to know that Tesla continues to HODL.
Biconomy
You often hear me talking about the idea of a multichain world. I have always taken issue with the concept of an "Ethereum Killer," because I believe that each Layer 1 and Layer 2 can play a role and are likely all necessary for blockchain adoption at scale. Block space is a scarce resource.
If we are going to live in a multichain world, then we need these chains to be interoperable, fast and cheap. That's where Biconomy comes in.
Biconomy is one of my few recent investments, and I believe they can be a major player in this niche. They not only allow for the incredibly fast bridging between chains, but allow for users to do it largely without gas.
At first glance, Biconomy is a multichain relayer protocol, but beneath the surface it is much more. There are already 95+ dApps that are using their APIs to improve the UX and scale their user base and community to levels that, up until now, haven’t existed outside of Web 2.0. With Biconomy, users get a simple multi-chain experience on any dApp, can instantly access their funds on any chain, and enjoy a completely seamless & gasless transaction experience. They’re a team of builders and have a packed agenda for the year, including the launch of their own blockchain.
The exciting news from Biconomy this week is the release of a new contest for Hyphen users, which is currently the fastest and cheapest bridge in the market (think seconds, not minutes).
They announced it in style, with a video featuring a Bored Ape.
To thank their community, Biconomy is giving top bridgers up to 100 BICO tokens for completing transfers with Hyphen until January 31st (12:00am UTC).
If you are not a power user, you are still eligible to win BICO in the draw. Rules of the contest here.
With support for Ethereum, Avalanche, Polygon and many more on the way, Hyphen is the most cost effective bridge for connecting a multi-chain Web3. Users can securely transfer between chains in seconds, not minutes, and their gas efficient contracts mean it’ll likely be cheaper than all alternatives. They have also published their recent work on self balancing liquidity pools using dynamic transfer fees, which will be implemented in Hyphen soon. This will help scale Hyphen and adding new chains and assets on Hyphen will become very easy. As per their roadmap, liquidity mining for Hyphen will also be implemented this quarter, enabling users to provide liquidity and earn transfer fees and rewards on Hyphen pools.
The Wolf Of All Streets Podcast Ft. Greg Isenberg
Many of the internet communities that you currently enjoy or rely upon were built by Greg Isenberg. Greg is an expert in designing, building, and perfecting many of the communities we know and love today, including Reddit, WeWork, Microsoft, Tik-Tok, FedEx, NASCAR, TechCrunch, and WordPress. Greg is now focused on building communities in Web3, a boon for all of us who are passionate about the space. Watch this episode to find out what it takes to make it in the vast new digital world.
In this episode with Greg, we discussed:
Video Games Build Great Entrepreneurs
Play-To-Earn Is The Future
Web3 Is A 4 Letter Word
Why Do People Have Fomo?
Are VCs Evil?
Identifying A Good Community
Passion Because Of Price Appreciation
What Is Late Checkout?
Big Brands In The Metaverse
Is A Paradigm Shift Happening For Big Brands?
Decentralized Social Media
A Web3 World In 5 Years
This episode is sponsored by: HBAR FOUNDATION and BULLISH.
My Recommended Platforms And Tools
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I use RoundlyX to buy small amounts of Bitcoin every single day. They automatically round up my credit card purchases (with 10x multiplier) and invest them in crypto. Absolutely brilliant. Passively invest money you don’t need without a thought. Further, they have integrated with Voyager (see above) to offer commission-free purchases.
Rewards Code: WOLF
Concierge Phone Service for Americans that protects your from SIM Swaps and other phone related hacks. I cannot stress enough how amazing this service is.
Subscribe to my YouTube channel for free daily content.
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
On-chain and fundamental analysis, research, predictions and indicators, all in one place. Highly recommend.
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.