The Wolf Den #630 - Bear Markets Create Diligent Investors
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In This Issue:
Bear Markets Create Diligent Investors
Bitcoin Thoughts And Analysis
Legacy Markets
Trading With RSI
Can ChatGPT Write This Newsletter?
Ripple Vs. SEC Case Nears End
Institutions Enter When Retail Exits
You Should Put 10,000 Hours Into Learning About Blockchain | Jerry Fragiskatos, IOHK
My Recommended Platforms And Tools
Bear Markets Create Diligent Investors
“Hard times create strong men. Strong men create good times. Good times create weak men. Weak men create hard times.” - G. Michael Hopf
The origin of this quote is the post-apocalyptic novel titled, “Those Who Remain.” It highlights the cyclical nature of adversity and strength.
When individuals are faced with difficult situations, they are forced to dig deep and draw upon inner strength to overcome them. This process of overcoming adversity can lead to personal growth and the development of strong character. In turn, these strong men (and women) are able to create good times for themselves and those around them.
However, when individuals become accustomed to good times, they may become complacent and lose the strength and resilience they gained during hard times. Without this inner strength, they may be unable to handle future challenges and adversity, leading to a return to hard times.
Thus, the quote suggests that adversity is a necessary component of personal growth and the development of strong character. Without experiencing hard times, individuals may not have the opportunity to become strong and create good times for themselves and those around them.
It's important to remember that while hard times can be difficult and challenging, they also provide opportunities for personal growth and the development of strength. Rather than avoiding or fearing adversity, we should embrace it as a necessary part of the journey towards becoming strong and capable individuals.
So that's what the quote means.
What if we replace the language in the quote, narrow the focus, maintain the underlying messaging, and make it about markets instead?
“Bear markets create diligent investors. Diligent investors create bull markets. Bull markets create careless investors. Careless investors create bear markets.” - Scott Melker
It is not as poetic as Hopf’s version, but it gets the job done.
Where are we in the cycle of this quote? Likely between “careless investors creating a bear market” and “bear market creating diligent investors.”
Celsius, Voyager, Luna, 3AC, FTX, BlockFi, and Genesis are just a few of the careless “investors” or actors that have perpetuated the already existing bear market. There are likely more to come in this cycle, including the retail investors who have been along for the unfortunate ride.
Who are the “diligent” investors?
Almost anyone that has survived without losing everything falls into the "diligent" category.
We are closer in the cycle to “bear markets create diligent investors” than it may appear. Yes, we are this deep into the bear market because of careless investors, but the fundamental development of the space always precedes price. Builders and honest actors will ultimately drive prices up.
And although it may seem like we are in the midst of “careless investors creating a bear market” we are mostly past the point of careless things being created. We are discovering who was careless, which weeds out the bad actors and creates diligent investors. The subpar projects and founders are being flushed out, and legitimate builders are tightening their belts to survive.
How does a diligent investor, forged in the fires of the bear market, approach the current situation? Some are waiting for the smoke to clear and for confirmation that the bull market has arrived. Others continue to dollar cost average into their favorite assets. Both are viable strategies and will determine who succeeds in the next bull market.
“Bear markets create diligent investors. Diligent investors create bull markets. Bull markets create careless investors. Careless investors create bear markets.”
Be diligent and remember these lessons when the next bear market comes.
Bitcoin Thoughts And Analysis
WEEKLY CHART
Bitcoin continues to trade relatively sideways, but the weekly chart has a number of bullish signals. Remember, these can take weeks/months to play out and price can still easily drop without invalidating these ideas.
This chart shows weekly MACD, which I have shared quite a few times. As you can see both moving averages are still pointing up, with the lower time frame average above the higher time frame average. This is considered bullish after the cross of the two MAs. Also, the histogram (grey shadows) continues to rise and are above the 0 line.
This looks really good.
We also have confirmed bullish divergence coming out of oversold RSI. I wrote more about RSI in the education section below. We had bullish divergence a few weeks ago, but it was followed by hidden bearish divergence. Now we have bullish divergence again, with RSI approaching the descending black resistance. A break of a pattern on RSI often precedes a break in resistance on price.
There's a lot to like here.
Last weeks candle closed right at the red line, which is local resistance and was the previous high after the FTX collapse. Price is currently above that line at $17,130 and look ready to attack the key resistance at $17,592. This is the more important line, as I continue to say.
Legacy Markets
"US futures slipped as bond yields rose on inflation risks and uncertainty about the path of American rate policy, stifling potential gains from China’s move to ease Covid restrictions.
A hotter-than-expected US jobs report last week along with a jump in average hourly earnings point to fresh inflation risks and more bond volatility. While dovish Fedspeak may be keeping yields anchored, they have some way to go to before they close the gap with terminal rate expectations.
“We still think Treasuries have no business in trading in the 3.5% area if the Fed is about to hike rates to almost 5%,” ING Groep NV strategists including Antoine Bouvet wrote in a note.
The S&P 500 is on course for its biggest fourth-quarter gain since 1999 amid hopes that US inflation has peaked and bond yields have stabilized.
Friday’s payrolls data boosted wagers on where US rates will top out in the current tightening cycle without undoing bets on the size of next week’s rate hike, which still call for 50 basis points of tightening.
Key events this week:
S&P Global PMI for the Euro zone, Monday
US factory orders, durable goods orders, ISM services index, Monday
ECB President Christine Lagarde speaks, Monday
Australia interest rate decision, Tuesday
US trade, Tuesday
EIA crude oil inventory report, Wednesday
Euro zone GDP, Wednesday
US MBA mortgage applications, Wednesday
ECB President Christine Lagarde speaks, Thursday
US initial jobless claims, Thursday
China PPI, aggregate financing, money supply, new yuan loans, Friday
US PPI, wholesale inventories, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
Futures on the S&P 500 fell 0.4% as of 5:58 a.m. New York time
Futures on the Nasdaq 100 fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.4%
The Stoxx Europe 600 fell 0.1%
The MSCI World index rose 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0536
The British pound fell 0.3% to $1.2247
The Japanese yen fell 0.8% to 135.35 per dollar
Cryptocurrencies
Bitcoin rose 1.1% to $17,302.5
Ether rose 1.6% to $1,296.63
Bonds
The yield on 10-year Treasuries advanced three basis points to 3.52%
Germany’s 10-year yield declined two basis points to 1.84%
Britain’s 10-year yield declined five basis points to 3.11%
Commodities
West Texas Intermediate crude rose 2.1% to $81.68 a barrel
Gold futures were little changed"
Trading With RSI
I often mention "RSI" when discussing charts. Here is a VERY basic primer on the indicator.
The Relative Strength Index (RSI) is a popular technical analysis tool used by traders to identify potential buying and selling opportunities in the market. The RSI is calculated using the average gains and losses of a security over a specified time period, and it is expressed as a value between 0 and 100.
Traders often use the RSI to identify overbought and oversold conditions in the market. When the RSI is above 70, it is considered overbought, which means that the security may be overvalued and potentially ripe for a sell-off. When the RSI is below 30, it is considered oversold, which means that the security may be undervalued and potentially a good candidate for buying.
However, it is important to note that the RSI should not be used in isolation, but rather as part of a broader trading strategy that includes other technical and fundamental analysis tools. For example, a trader may use the RSI in conjunction with support and resistance levels, trend lines, and other indicators to confirm potential trading signals.
My favorite, of course, is looking for bullish and bearish divergence. I wrote a primer on this strategy a while back.
One common strategy used by traders is to wait for the RSI to reach an overbought or oversold condition, and then enter a trade in the opposite direction. For example, if the RSI is overbought, the trader may enter a short position, betting that the security's price will fall. If the RSI is oversold, the trader may enter a long position, betting that the security's price will rise.
It is also important to use the appropriate time period when calculating the RSI. A shorter time period will be more sensitive to short-term price fluctuations, while a longer time period will be less sensitive and may provide a more stable measure of the security's relative strength.
The RSI is a useful tool for traders looking to identify potential buying and selling opportunities in the market. However, it should be used in conjunction with other technical and fundamental analysis tools, and the appropriate time period should be selected to suit the trader's goals and market conditions.
Can ChatGPT Write This Newsletter?
OpenAI recently released ChatGPT, a free-to-use dialogue-based AI that caught the internet by storm. The ChatGPT AI has proven to be a ton of fun and is groundbreaking for the AI community. It codes at a high level and can tackle incredibly complex tasks with the command of a single sentence.
That being said, it’s not ready to replace this newsletter or other complex forms of writing. If you’re a 5th grader that needs to write a basic essay on the Civil War or the Qing Dynasty, this tool is suitable. But there are still a lot of flaws. As you can see above, I asked the AI to write about SBF and it clearly missed the obvious point that he is a criminal. In a few years, maybe I will be out of a job, but for now I think I am safe.
Ripple Vs. SEC Case Nears End
Ripple proud of its defense as final submission for summary judgment is made
Ripple has been in a legal battle with the US Securities and Exchange Commission (SEC) since December 2020. The SEC alleges that Ripple violated federal securities laws by selling unregistered securities in the form of its XRP tokens to investors.
Ripple, on the other hand, has maintained that XRP is a currency, not a security, and therefore should not be subject to securities regulations. The company argues that it has always been clear about the nature of XRP and that it has been used for utility purposes, such as facilitating cross-border payments, rather than as an investment.
The case has significant implications for the broader cryptocurrency industry, as it could set a precedent for how regulators approach the classification of digital assets. If the SEC is successful in its case against Ripple, it could potentially lead to stricter regulation of cryptocurrencies and could impact the future development of the industry.
After two years of legal battles, Ripple has officially submitted its final defense to the court. Now it's up to the judge. Judge Torres, the presiding judge, has a history of ruling quickly before either side can respond to sealed documents that become unsealed during the decision. Regardless of your feelings about Ripple, a win for the company would be a massive boon for the crypto industry and regulation. Nobody wants the SEC to gain more power.
Institutions Enter When Retail Exits
I found some commentary from a VP at Franklin Templeton I felt was worthy of sharing. Here is the most valuable part.
“We’re hearing increasingly, and seeing, institutions replacing the retail money that’s being withdrawn, and institutional money starting to account for larger and larger shares of digital asset holdings. Institutions are long-term holders. They wait for these kinds of wipeouts to come in and establish positions, and they will wait for the market to turn. To be very clear, it’s usually the most market-leading institutions that are really looking to be very creative in their portfolios and who have really shifted to this factor-driven model and realized that this digital asset space is bringing in a whole new set of what we’re calling crowd factors.”
No surprises here. Smart money (and big money) tends to be more patient than retail.
You Should Put 10,000 Hours Into Learning About Blockchain | Jerry Fragiskatos, IOHK
I had the pleasure of talking to Jerry Fragiskatos, Chief Commercial Officer Of IOHK, at Mainnet in September. Although it’s been almost 3 months since we had this conversation, it is still relevant. We discussed timeless topics: principles that IOHK, the tech company behind Cardano, is applying for building the ecosystem and value, how the price of Cardano influences the business, why blockchain is civilization-altering technology and why you should put 10,000 hours into learning about blockchain.
In this episode with Jerry, we discussed:
Cascading disruption
Input Output & Cardano
Building ecosystem & value
Building relationships in crypto
How the price of Cardano influences the business
Narratives change
Putting 10,000 hours into learning blockchain
Blockchain is a civilization-altering technology
We are still too early
Charles Hoskinson is here to build
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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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