The Wolf Den #453 - Wealth = Time
Bitcoin Thoughts And Analysis
Bitcoin continues to troll traders on both sides of the spectrum, liquidating bulls and bears over and over again in choppy price action. A total of $211 million worth of longs were liquidated today across the crypto market as Bitcoin suddenly retraced the entire "Biden pump."
The trade that I exited a bit "too early" two days ago would now be underwater, showing just how volatile and insane the price action has been in this range. I will not be looking for any Bitcoin trades for the moment, although this has nothing to do with my investment strategy, which never changes (DCA and buy dips).
WEEKLY CHART
Brutal. Massive wicks all over the place, bouncing between levels and liquidating everyone with a pulse. Key levels for bulls are still 39.6k, 42K, 45.5K and 53K. These are all areas and not fixed lines, but you can see how much difficulty bulls are having breaking through any of them with conviction.
42K has been "home base" for about 14 months now, a magnet from both above and below.
DAILY CHART
Zooming into the daily chart shows us a few more areas of support and resistance, including the 50 MA which has acted like a sieve in both directions of late.
Good luck figuring out this chart. Every move completely retraces, back and forth in both directions.
Bulls are still hoping to see sustained higher lows on these drops, which we have for the moment. They do not want to see a breakdown of the blue channel.
Bottom line: Bitcoin is in a bear market and a sustained downtrend. At this point, we really want to see price over $45,500 to be convinced of a reversal.
Investors De-Risk Their Positions + Privacy Tokens - 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.
Investors De-Risk Their Positions
As the weakness in both traditional and crypto markets continues, the markets have priced down this uncertainty. Bitcoin has been trading sideways within a volatile “consolidation” the past week.
The latest upside movement resulted in a lack of support above $40,000, bringing over $200m in liquidations. It appears that the futures demand structure has flattened out, as investors prefer to close out their positions to protect themselves from the high volatility that the market is experiencing.
Bitcoin Perpetual Swaps Open Interest
Bitcoin perpetual swaps have remained relatively stable for the past 8 weeks, pointing to slow demand on the derivatives side, as most of the buys have come from on-chain spots.
With an average of $17.84b in open positions, the drawdown in these positions is around 25% from the highs experienced during Nov-Dec of 2021.
As well, the ratio of OI/Market Cap is now below 2%.
Privacy Tokens Have Benefited From The Current Macro Environment
The surge in the price of protocols like Monero and ZCash comes as a result of recurrent sanctions and increasing regulatory concerns in the market.
Appreciating by 21% over the last 7-days, ZCash has been one of the biggest winners in this market. As one of the pioneers in using zero-knowledge proof technology, it allows the users to perform transactions through shielded addresses, in which these transactions are verified without revealing the sender, receiver, or transaction amount.
ZEC accumulation - alongside the rise in price, we have spotted some clear patterns of accumulation.
Addresses holding between 100k-1m ZEC, increasing by 2.49% in the last month
Small holders are also increasing the usage of the protocol, as addresses holding 1-10 ZEC have been constantly accumulating since December of 2021.
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.
If you are investor looking to buy dips, I cannot blame you for doing so. That said, this is a really sub-optimal market for trading altcoins, unless you are placing stink bids at major support below price. For now, I still feel compelled to wait on sharing altcoin charts. Remember, sitting on your hands and doing nothing is a decision that can save you money, and is just as important of a position as buying or selling.
Legacy Markets
DXY (DOLLAR INDEX)
The dollar is in a supremely interesting spot, and it's strength relative to other currencies can have a significant impact on all markets. As you know, most assets are inversely correlated with the DXY - if the dollar rises in strength, this tends to put pressure on stocks and other assets.
Important to note, technical analysts believe that all news and fundamentals are priced into the chart. I am not of that mind, and think it's important to remember that macro events matter more than charts. The Fed is screwed and there's a war. Take this analysis with a grain of salt.
I have been sharing the monthly chart above for years. As you can see, price was in an ascending channel for over a decade, starting in the great recession. DXY was rejected at the EQ of the channel during the covid crash and saw sustained downward action, as the Fed printed money and stocks recovered. The channel broke down, retested as resistance and the DXY dropped.
Now the dollar has come back up to test the channel resistance once again. The idea that I drew above was a few weeks ago. As you can see, price wicked into the channel and is trading right at the lows. This is a make or break moment for the dollar. If it cannot trade squarely back in the channel, one would expect further downside, meaning stocks bounce and markets cease correcting.
The daily chart shows a different story - one that I have been tracking for months. I shared the descending blue channel, the breakout, the confirmed double bottom with the target all in the past. We knew that the dollar looked bullish shorter term. Now we have seen it hit the targets and potentially flip that area to support. It came down yesterday to test that support, so this is a critical area.
Eyes on the dollar.
Chart Requests
Every Wednesday, I take chart requests from paid newsletter subscribers and take a look at them on YouTube. The market has been rough, and so have the charts, but here's your look at yesterday's requests.
Cascading Liquidations Explained
This is an important concept to understand for any trader or investor. A major price move may start with a narrative or FUD, but it is the decisions by traders that often determines the volatility of the price action and the ferocity of a move.
The ability of whales or natural price action to cause a liquidation cascade depends on how many traders are leveraged, and where their orders lie. In the case of perpetual swaps, hints that this phenomenon is likely can come from looking at open interest, funding rates and other metrics, a topic for another day.
The cascading effect is caused by stop losses and liquidations. When someone holds a large, heavily leveraged position, small moves up or down in price that are normally insignificant for spot HODLERs can spell danger. The higher the leverage, the less room for error. If price action continues against the trader (i.e. a long position facing downward sell pressure), the account will quickly approach liquidation - the asset needs to be sold to avoid liquidation, or will be forced to close when the music stops. The position is wiped out. If the trader is long, this becomes a massive market sell order, causing further selling pressure into the order book and triggering further liquidations. Eventually the order books can become so thin that the liquidations cause massive swings.
In the video linked above, SBF explains that crypto derivatives traders often wait until a single percentage point away from liquidation levels before selling their position, most likely due to the extreme volatility of the asset class. There's minimal room for error. A few large accounts with predictable orders, perhaps near a popular technical resistance or psychological resistance, cause massive moves that would have been avoided in a spot-only market. Orders resting on top of each other cause a domino effect, as each one knocks down the next, sending retail into a panic.
Voilà, a cascade.
This phenomenon occurs in both directions, as seen with the GME short (technically gamma) squeeze. As the crypto market matures, volatile swings like we are seeing now should eventually weaken in either direction due to a larger total market cap.
Here is another thread from Sam Trabucco, also at Alameda, that also touches on this phenomenon.
Biden's Executive Order Is Bullish
Crypto is a major part of the international conversation. It has become so relevant that the President of the United States was prompted to issue an executive order about the asset class. Think about that.
Biden’s executive order was carefully crafted and considered. Nearly every government agency was called to action in the name of cooperation, collaboration, and coordination, with the main focus being on CBDCs (central bank digital currencies).
There was fear that malicious language would be included, especially in context of Russia and the idea that crypto could be used to circumvent sanctions. This was conjecture, and not the case, which is great news.
The order went above and beyond, mentioning mining, the underbanked population, and the importance of privacy.
“We must reinforce United States leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets. Many Americans are underbanked and the costs of cross-border money transfers and payments are high. The United States has a strong interest in promoting responsible innovation that expands equitable access to financial services, particularly for those Americans underserved by the traditional banking system.”
Here's a great thread from Ryan Selkis with his immediate takes.
As Ryan said, all things considered, it's about as good as it gets.
Could LimeWire Make An Epic Comeback?
LimeWire makes a comeback as a music-focused NFT marketplace.
LimeWire, the infamous early 2000s file sharing platform, is rising from the ashes of obscurity and entering the music-focused NFT industry. Relaunching as a music-focused NFT marketplace, the rebooted LimeWire will "allow users to buy and trade limited editions, unreleased demos, digital merchandise, among other rare items." It wouldn't be a true crypto story without a token, which is why the $LMWR (LimeWire token) will accompany the launch. I can't help but root for the platform and their comeback, as it was a fundamental part of my music discovery journey. I hope they succeed and are legitimate.
European Central Bank Rate Decision Today
Markets have scaled back bets of ECB tightening in the wake of the Russia-Ukraine war.
Today is a big day for the dog and pony show of global markets and central banks, where we wait with baited breath for them to supply us with the cooked data that they have created in thin air to calculate inflation and also to see how central bankers will react.
A rate raise this month by the Fed is inevitable, the question being whether it will be by .25 or .5. There is more mystery as to the reaction of the ECB today, so everyone is seemingly watching.
""At present, we already know that the Fed will raise interest rates, so no matter how the U.S. market changes, this thing will happen. The most considerable influence at the moment may be the hawkishness of the European Central Bank this week," said Griffin Ardern, a volatility trader from crypto-asset management company Blofin.
The ECB is scheduled to announce its decision on monetary policy on Thursday, March 10 at 12:45 GMT. ECB's President Christine Lagarde will hold a news conference at 13:30 UTC, or 45 minutes after the ECB's policy announcement.
The Wolf Of All Streets Podcast Ft. Dan Hannum
Tax season is quickly approaching, so Dan Hannum from ZenLedger came on the show to provide listeners with a crash course on how to properly pay crypto taxes. Did you know that every transaction in crypto is taxable and that you may owe more than you think? This episode is for anyone that has received crypto, bought crypto, traded crypto, earned crypto, or sold crypto. That’s 100% of you! Don’t fear, there is still time to get your taxes done right and this episode is your starting point.
In this episode with Dan Hannum, we discussed:
Taxes Is The Wild West
Taxing NFTs
Breaking Down FIFO
The Myths Of Crypto Taxes
Can Taxes Be Simplified?
The Buy And Hold Strategy
ZenLedger And The IRS
Is The IRS Understaffed?
Dan’s Impactful Story
Avoiding Prison By Luck
What About Someone Who Hasn’t Filed Taxes?
This episode is sponsored by: ARCULUS
My Recommended Platforms And Tools
This is where I trade with leverage and can also trade spot with no fees.
This is where I invest, commission-free. They now let you earn interest on your Bitcoin held in Voyager, so you can compound while trading. Not only that, you’ll get $25 in free BTC when you download & fund.
Rewards Code: WOLF25
Mining for everyone! You can buy an ASIC and have it set up at a destination of your choice by them, and you only pay the electricity cost. Absolutely awesome.
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.