The Wolf Den #503 - Only The Smart Money Survives
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In This Issue:
Only The Smart Money Survives
Bitcoin Thoughts And Analysis
Legacy Markets
Is Vitalik Leaving Ethereum?
The Return Of Mike Novogratz
The Wolf Of All Streets Podcast Ft. John Salley
My Recommended Platforms And Tools
Only The Smart Money Survives
Markets are often described as a zero sum game, but that does not mean that there is one winner for one loser. In some cases, a few whales score a huge win, which requires a lot of people to lose. There are also times that the masses win at the expense of a few huge losers.
The stock market bottomed in March, 2020. Inspired by Davey Day Trader and powered by free money and endless free time at home, amateur retail traders start to win. Big. There were overnight Zoom millionaires, Hertz "geniuses" and GameStop gamblers raking in big victories. In crypto, just about anything that resembled a digital asset rode the wave to monster gains. During this time, we continued to hear how hedge funds (the “smart guys”) were being crushed by retail. Flip-flop-wearing Uber drivers were outperforming the Wall Street fund managers that they drove to work.
What a time to be alive.
Fast forward to today and Uber drivers are no longer glorified money managers. They are getting crushed. The pendulum has not necessarily swung back in favor of the hedge funds, many of which are underperforming as well, but it looks like we back to a time when only the smart money survives. Dumb money is washing out with the tide, while smart money is holding on to survive. Remember, the job of a true hedge fun is to "lose less" when the market goes bear. It's about capital preservation, not scoring wins.
Very few traders of any caliber are thriving right now. Until we see some seismic macro change, I expect it to stay like this.
I would tell you to buckle up, but you likely already have. Instead, I will tell you to keep your seat belt fastened.
Warren Buffet is the perfect example of smart money. He isn't the best because of his home runs. He is the best because, when the market tumbles, he can still reliably get on base. We make fun of him for missing out on all of the cool tech opportunities (you know, like the internet), but he can make fun of us for taking the beatings when the bubbles popped. Over his career, comparable investors would occasionally take big hits, 20% or 30% losses in the bad years, while Buffet would emerge down 2% or 3%.
This was the epitome of Buffet's success story.
He has been hoarding cash like Scrooge McDuck with his massive safe full of gold. He has waited patiently. Now he is deploying that cash as the market drops.
Patience + Defense = longevity in markets.
In bear markets, the goal is to keep your head above water and survive to invest another day. Investing is about staying true to your strategy, avoiding the big missteps, and taking the right risks at the right time.
Everyone has a different approach, but it is important to remember that those with dry powder and cash to buy are starting to take advantage of assets on super sale. This is why having cash is important and also why dollar cost averaging is the simplest and move effective strategy for most people. The buys that you are automatically making now will likely be the most profitable in the long run.
Keep your head up, keep going, live to fight another day.
Institutional Demand Is Declining - 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.
Institutional Demand Is Declining
Institutional adoption has been a recurring narrative for Bitcoin in 2020 and 2021 and one of the main drivers of the recent bull-run. This has been lead by Grayscale's GBTC fund, Microstrategy's continuous debt issuing to buy more BTC, and an increasing number of institutions looking into the asset class. Within the past year, institutional heavyweights such as BlackRock, JP Morgan, BNY Mellon, and Morgan Stanley have made major steps towards providing Bitcoin investing with their own and their client's funds.
Needless to say, the market has turned much more negative and institutional adoption seems to have slowed down considerably.
One way to track institutional adoption is by tracking the average transaction size recorded on the Bitcoin blockchain.
As of May 19, 2022 using IntoTheBlock’s Bitcoin Financial Indicators
The Average Transaction Size indicator provides an idea of what type of activity is happening on the blockchain and what type of users are transacting with this particular crypto-asset.
We observe that the average transaction size was remarkably high during the months of October and November, and has since dropped sharply. The average transaction size in Bitcoin recently recorded $330,000, the lowest since August of last year.
As well, IntoTheBlock’s large transactions volume indicator aggregates the total volume sent in transfers worth over $100,000. Given the magnitude of this amount, large transactions volume act as a proxy to the level of institutional activity taking place on-chain.
As of May 19, 2022 using IntoTheBlock’s Bitcoin Financial Indicators
The total value transacted in these large transactions has seen a decline of 61.7% compared to the recent highs set in November of last year. There was a spike in the month of May, which coincided with the recent sell-off and the Luna Foundation Guard activity trying to save the peg.
Looks like there aren't a lot of institutions joining the Microstrategy "buy the dip" narrative.
Bitcoin Thoughts And Analysis
Bitcoin continues to effectively trade sideways as markets burn in the periphery. I have to say that I am a bit surprised that Bitcoin is still holding the $29,000 area, considering stocks took their worst beating in years and continue to trade red in advance of the market open. As I have said repeatedly, after last week's drop, my expectation was that the bottom is in for now (still is a week later) and that we would see price chop around for quite a while.
I am not the only one who thinks so.
Bitcoin's biggest whale, who holds the third largest wallet after 2 exchanges, is on another buying spree. We often discuss his trades, which have generally been exceptionally good, especially when accumulating near the bottom.
DAILY CHART
Do (Kwon) things look great at the moment? Not really. Does that mean you should be panicking and selling? Not really.
Lines on charts "work" because they are a visualization of human emotion. Support and resistance are formed in areas where people are most likely to either panic or become greedy.
That's why we always seem to see the herd becoming bearish at support, which is what is happening now. Bitcoin is sitting (uncomfortably close) to the key support on the chart, between $28,800 and $28,600 depending on the exchange. Last I checked, traders are supposed to BUY SUPPORT and SELL RESISTANCE. I am not telling you to do so, the market looks shaky and the world is seemingly burning. But this is a textbook buy for those that trade using support and resistance. Why? Good risk/reward. If candles close below this level, there's little support between here and 25K. So you can take a small loss with epic upside if this is near the bottom.
Remember, trading is about probability. If you have more upside than down, you often take the trade, even if you think it is likely to be a loser. But that requires sold risk management, so never do it without a plan.
Did I mention that there is more potential bullish divergence with daily RSI exiting oversold territory? This would be confirmed with a clear elbow up on RSI to end the day, so I will be watching.
Legacy Markets
The hits just keep on coming. Yesterday saw the biggest daily drop in equities in almost two years as the panic reached a fever pitch and investors ran for the hills. There's always a narrative, which now remains a hawkish Fed (nothing new), inflation (nothing new) and profit margins (new). Companies aren't making as much money. That's a problem.
It turns out a ponzi stock market rising on free money and stock buy backs with everything trading at an irrational premium was eventually going to revert to the mean.
Shocker.
Massive drops have become the norm among tech stocks, but until the past few days we did not see the same moves in other areas. Walmart posted a loss for the first time in decades, Target dropped 20% in a day and other retail followed. It seems consumers aren't spending, and consumer spending was one of the main bullish talking points.
Meanwhile, Tesla was removed from the S&P 500 ESG Index, and Musk is pissed about it.
Not going that great around the markets... which usually means for contrarian investors that a bottom is at least near.
DXY (DOLLAR INDEX)
As you can see on the DXY chart above, the dollar is actually still struggling at the most important level on the chart. You would have expected a major move up from the dollar while stocks and other assets have dumped, but it has not materialized. Rejection here is effectively at the 20 year high, and RSI is overbought on the monthly for the first time since 2015. We should all be cheering for the dollar to weaken in this spot
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 1.8% as of 9:11 a.m. London time
Futures on the S&P 500 fell 0.9%
Futures on the Nasdaq 100 fell 1.2%
Futures on the Dow Jones Industrial Average fell 0.8%
The MSCI Asia Pacific Index fell 1.9%
The MSCI Emerging Markets Index fell 2.1%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.2% to $1.0487
The Japanese yen was little changed at 128.13 per dollar
The offshore yuan was little changed at 6.7840 per dollar
The British pound rose 0.3% to $1.2379
Bonds
The yield on 10-year Treasuries declined three basis points to 2.86%
Germany’s 10-year yield declined seven basis points to 0.96%
Britain’s 10-year yield declined four basis points to 1.82%
Commodities
Brent crude rose 0.7% to $109.84 a barrel
Spot gold fell 0.2% to $1,812.41 an ounce
Is Vitalik Leaving Ethereum?
On Tuesday I wrote a news segment discussing my thoughts on the rumors that SBF is leaving crypto. Now that those rumors have settled down, new ones have emerged - apparently Vitalik Buterin is leaving Ethereum for Bitcoin.
LOL.
In the linked thread above, Vitalik discussed some of the nuanced contradictions that he battles in the development of Ethereum. Here are a few.
“Contradiction between my desire to see Ethereum become a more Bitcoin-like system emphasizing long-term stability and stability, including culturally, and my realization that getting there requires quite a lot of active coordinated short-term change.”
“Contradiction between my desire to see Ethereum become an L1 that can survive truly extreme circumstances and my realization that many key apps on Ethereum already rely on far more fragile security assumptions than anything we consider acceptable in Ethereum protocol design.”
“Contradiction between my love for things like decentralization and democracy, and my realization that in practice I agree with intellectual elites more than "the people" on many (though definitely far from all) specific policy issues.”
If you think these thoughts mean he is looking to give up or leave Ethereum for Bitcoin, you have entirely missed his point.
The Return Of Mike Novogratz
After seemingly disappearing from twitter, Crypto billionaire Mike Novogratz has broken his silence regarding the Luna implosion. This was not an easy return for Mike, considering his belief in Luna ran so deep, that it was underneath his skin. Literally. He has a Luna tattoo.
Nonethless, he took it like a champ. Both Galaxy and Mike will be just fine. I picked out below my favorite part of his comeback speech, linked in the tweet above.
“With hindsight, things always look clearer. My tattoo will be a constant reminder that venture investing requires humility… This does not mean the crypto market will bottom and head straight back up. It will take restructuring, a redemption cycle, consolidation, and renewed confidence in crypto. Crypto moves in cycles, and we just witnessed a big one.”
The Wolf Of All Streets Podcast Ft. John Salley
Can blockchain improve financial equity? Former professional basketball player, John Salley, says it already is. John was an early adopter of crypto following his NBA career. Now he’s helping orange pill the masses with his new show: the John Salley Crypto Show. He joined us at Bitcoin Miami to discuss why he started his show, the stigma around NFT’s, the various paths into crypto, and predictions for the dollar.
In this episode with John, we discussed:
What to expect with legend John Salley
The NFT stigma
Orange pill everybody
Getting in early
Why John started a Crypto show
The crypto messaging problem
Will the dollar disappear?
Borrowing cheap money
Follow John’s show
Thanks for listening
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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.
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