The Wolf Den #594 - Just A Normal Day...
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In This Issue:
Just A Normal Day...
Analysis of Bitcoin’s Hash Rate And Its Effect on the Mining Industry - IntoTheBlock
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Fidelity Opens An Ethereum Fund
GBTC Discount Deepens
My Recommended Platforms And Tools
Just A Normal Day...
1989 was a hectic year for financial markets. On Friday, October 13th, "The Friday The 13th Mini-Crash" struck, causing the Dow to shed 6.9% in a day. This watershed moment was just two years after Black Monday, when the Dow lost 22.6%, the largest one-day stock market decline in history. Investors were rattled in 1987, and1989 brought with it unwanted PTSD.
From the chaos of the late 80s came my favorite comic, published in the Baltimore Sun and called, "just a normal day at the nation's most important financial institution..."
Take a look below.
This joke is perfect because it is self-explanatory and every investor can relate. The madness of markets is cyclical, because humans never learn. Flipping from fear to greed based on the simple words of other market participants, these idiot stockbrokers manage to flip-flop from buying to selling and fear to greed on the drop of a hat. And the deeper we consider the image, the more lessons it teaches.
Although these men are working on Wall Street and donning suits and ties, these are the type of guys that good investors counter-trade to make a fortune. The herd is rarely right - it is the shepherd who profits from that herd.
Sadly, the example does not just work for spastic Wall Street traders. It applies to all of us.
Doctors, dancers, lawyers, and lifeguards are all equally susceptible to herd mentality when they step into the market, a unique ecosystem that requires mastery like any other.
My simple suggestion? Think before you act, and question the "wisdom" of the crowd, especially in a down market. When everyone is panicking, keep a cool head and look for assets on sale. Don't sell just because everyone is screaming.
The greatest investors of all time agree.
"Some people get rich studying artificial intelligence. Me, I make my money studying natural stupidity" - Carl Icahn
"I love quality merchandise at a deep discount, whether it's stocks or socks." - Warren Buffet
Don't be a sheep.
Analysis of Bitcoin’s Hash Rate And Its Effect on the Mining Industry - 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.
Analysis of Bitcoin’s Hash Rate And Its Effect on the Mining Industry
Crypto markets have experienced highly volatile months and uncertainty, as the macroeconomics spectrum continues to drive the highly correlated market. During this last market cycle, the cryptocurrencies industry grew tremendously, boosting competition and lowering margins. This is directly reflected in the Bitcoin mining industry.
Via IntoTheBlock’s Bitcoin Mining Indicators
Hash rate serves to measure how strong a network’s security is, since the greater it is the more difficult it becomes for an attacker to try to overtake 51% of the mining control.
Hash rate has soared over the past few years, more recently setting a new all time high of 290 TH/s
As the hash rate increases competition for mining increases
The amount of Bitcoin issued is the same regardless of the number of miners, thus making the industry less profitable to existing miners
Via IntoTheBlock’s Bitcoin Mining Indicators
Miner Reserves track the balance of addresses belonging to mining pools. Low Bitcoin prices in direct relation to Hash Rate’s robust growth have affected the mining industry’s profitability.
Miner reserves have decreased, more recently reaching 1.91 million Bitcoin, a level not seen since 2010
Bitcoin’s decreasing price puts further pressure on miner margins
Due to these reasons it is likely that miners are decreasing their Bitcoin holdings in order to cover their short-term operational costs
As of October 4th, reserves still have a substantial value of $44.19 billion
Bitcoin Thoughts And Analysis
DAILY CHART
Bitcoin made a nice move to end the day, holding the 50 MA as support. Hard to get particularly excited about this, considering the last few attempts have looked similar and have ultimately failed. For now, the descending black resistance is more important, and would signal at least a nice relief bounce is likely.
Lower time frames look overextended already.
4-HOUR CHART
The area around $20,400 has been a major resistance for week. As you can see, it is also local resistance, and we have multiple wicks above and closes below. Those are called bearish SFPs, meaning that there's a lot of shorting interest and liquidity above this area. Strong resistance.
South Carolina Explores Bitcoin
The resistance highlighted above is in confluence with overbought bearish divergence with RSI on the 4-hour chart. As you know, my favorite signal for a long is oversold RSI with bullish divergence. This is the opposite, and almost always precedes a drop. I would watch for another leg down and for RSI to go oversold.
Nothing is certain, but this looks like a clear short for scalping traders.
Altcoin Charts
The news of South Carolina officials, including the state treasurer traveling to El Salvador, flew under the radar, so here it is. According to the report, $500,000 has been granted to conduct research on Bitcoin and then share it with the public. In an interview about the trip and research plans, the treasurer said the following, "my job is not to be a proponent or an opponent of bitcoin or digital assets. My job is to look at them all and try to see how the state wants to use the technology and then develop a financial literacy course for it." Maybe in the near future, South Carolina will declare Bitcoin legal tender.
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.
ETH/BTC
Ethereum looks poised to outperform Bitcoin in the short term. It is attacking local resistance, so now is not the time to buy before there's confirmation. We would want to see the black line break.
But we do see confirmed bullish divergence with RSI (not oversold). This could be short term, as we would still expect this pair to hit oversold at some point.
I have no crystal ball, but it appears to me that Bitcoin is poised for some short term downside, and that ETH will outperform that move... but that could be by "dropping less."
Legacy Markets
"US equity-index futures edged lower as more Americans than expected filed for unemployment support. Markets remained in the grip of volatility as the OPEC+ alliance’s plan to cut oil supply stoked inflation fears."
Key events this week:
US initial jobless claims, Thursday
Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
US unemployment, wholesale inventories, nonfarm payrolls, Friday
BOE Deputy Governor Dave Ramsden speaks at event, Friday
Fed’s John Williams speaks at event, Friday
Some of the main moves in markets:
Stocks
Futures on the S&P 500 fell 0.3% as of 8:22 a.m. New York time
Futures on the Nasdaq 100 fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.3%
The Stoxx Europe 600 fell 0.3%
The MSCI World index was little changed
Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.3% to $0.9858
The British pound fell 0.6% to $1.1256
The Japanese yen was little changed at 144.71 per dollar
Cryptocurrencies
Bitcoin rose 1.1% to $20,211.03
Ether rose 1.7% to $1,368.84
Bonds
The yield on 10-year Treasuries advanced one basis point to 3.77%
Germany’s 10-year yield was little changed at 2.03%
Britain’s 10-year yield advanced 13 basis points to 4.16%
Commodities
West Texas Intermediate crude was little changed
Gold futures rose 0.3% to $1,725.60 an ounce
Fidelity Opens An Ethereum Fund
Fidelity continues to separate itself from the crowd with its aggressive crypto maneuvers in the depths of the bear market. This week, Fidelity revealed an Ethereum index fund, not long after announcing their Bitcoin trading product and plans for the EDX exchange. The fund already has $5 million in Ethereum - which is tiny for Fidelity - and will be primarily offered to high-net-worth clients. The fund has a $50,000 minimum requirement. It might not seem significant right now, but when the markets do turn around, all of the groundwork being laid by Fidelity and other major asset managers will allow sidelined capital to flow in easily.
GBTC Discount Deepens
Staying on the topic of funds, I wanted to briefly discuss the GBTC discount that continues to record all-time lows. Right now, the fund’s discount sits at -34.75%. For those that don't know, the discount/premium is a percentage that the fund is trading at, above or below its net asset value. For GBTC, this means that a single share of the fund currently trades -34% below what that share represents in Bitcoin held by Grayscale.
Vijay Boyapati made this joke on Twitter: “without ETF approval, GBTC may go to -100% premium to NAV.” As the saying goes, there is a little bit of truth in every joke.
All crypto funds are getting hit hard, which is further compounded by weak markets. As I always say, you can never go wrong with spot Bitcoin exposure.
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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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