The Wolf Den #661 - Heat Check

Is The Market Too Hot For Its Own Good?

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In This Issue:

1. Heat Check

2. Bitcoin Thoughts And Analysis

3. Altcoin Charts

4. Legacy Markets

5. The US Government Is Playing With Fire - The Debt Ceiling

6. SWIFT Plans To Slow Down Crypto Adoption

7. Genesis Makes It Official

8. Jim Cramer Timed The Bottom

9. The Global Crypto Derivatives Landscape | Dan Gunsberg, Hxro Network

Heat Check

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"Heat check" is a term used in basketball to reference an outlier shot attempt that is used to determine if a player is figuratively "heating up" or “in the zone.” This term is typically used after a player hits multiple difficult shots from around the court. The "heat check" is useful for determining whether or not a player should continue pushing the limits or should put their ego and aggressiveness back in check.

Anyone who is my age has played the game NBA Jam and will forever remember it saying “he’s heating up” before a player literally can’t miss. Gugliotta!

Steph Curry, one of the greatest basketball players of our time, is known to “heat check” from 25-30 feet out after multiple consecutive successful three-pointers around the perimeter.

In the context of cryptocurrency, the term "heat check" can be applied to determine if the market is too hot for its own good, or in a sweet spot, ready to continue upward.

Let’s shoot or shot and see how hot the crypto market is, barring any unforeseen black swans.

Introducing the cryptocurrency heat check.

Fear & Greed Index

The Crypto Fear & Greed Index can be thought of as the go-to thermometer for crypto markets. This well-known tool is excellent for determining where the price stands on major moves. It does not overcomplicate the data and is accurate in the sense that the pendulum never stays on one extreme forever. Some traders solely rely on the Fear & Greed Index and are successful in doing so.

The current score is '53,' which is slightly warmer than a "neutral" reading. If the reading were '83' or '93,' it could be argued that greed is too high, but currently, there is no cause for concern. This year's score has been almost entirely "fear," so it is reasonable to expect the pendulum to swing back on a major price move. The price is far from true greed.

Google Trends

Google Trends is another insightful tool for determining what the world is searching for. At price "highs," Google search trends spike. However, it can be difficult to determine whether the trends precede the price or if the price precedes the trend. By analyzing the data, we can get an idea of what the mainstream is searching for.

When comparing data from the last 12 months, searches for "Bitcoin" are currently at a score of '28' out of 100. In the past 6 months, the score has ranged between 20-28, with the exception of November when FTX crashed and searches spiked. Similarly, searches for "cryptocurrency" reveal a similar pattern - searches have barely increased from their low point.

Mainstream interest is currently far from historical highs.

Historical Price Action

There is an idea circulating that the current price action and sentiment resemble the previous bear market's $3k to $12k recovery. However, the 300% increase during that period pales in comparison to Bitcoin's current 35% jump from its lows. Additionally, sentiment at those lows was far more fearful than the current lows. At the time, the idea was that Bitcoin was returning to triple digits, and there was a growing consensus that this time it was actually over.

Of course, it would be unrealistic to expect Bitcoin to jump 300% off the bottom, as that would take the price to previous all-time highs of around $70,000. However, it is reasonable to expect significant gains from the lows. Keep in mind that returns will continue to diminish over time compared to the extremes Bitcoin once underwent in price and sentiment. Nevertheless, there is a resemblance in the current price action to previous bottoms. And if the price continues to rally, even with a pullback, it can be said confidently that “the bottom is in.”

This rally is expected and only the beginning, even if there is a pullback.

Miscellaneous

Aside from the conventional methods used to determine the market's temperature, there are a few other notable factors that, when considered together, can provide insight. One of these factors is that Jim Cramer has yet to change his mind and suggest that the crypto market is back on track. This shift, which will eventually happen, should be a sign that the markets have reached critical mass in the short-term and are ready for some cooling off.

Another factor on the list of honorable mentions is texts and calls from friends and family. I have yet to see an influx of new entrants in my personal life with new or renewed interest in the crypto market. Aside from a couple of comments, I have not yet noticed tangible FOMO, which is usually a good sign. This is extremely anecdotal, but it works for me. Some people rely on astrology or hamsters. This is my method. What this tells me is that retail is still largely ignoring the price, and the rally is driven by insiders looking to scoop lows.

Of course, none of the above methods are an exact science, but that's always the case when speculating about price. As for the market's temperature, I would say it is barely warm. THIS DOES NOT MEAN THE PRICE WILL GO UP, but it does mean that at least we aren't overheated and shouldn't automatically be expecting a massive pullback. Some analysts are acting as though the market is overheated, and that simply isn't true. If the market proves them right, it will be strictly luck and nothing else.

This is the best way I can put it: think of this rally as a few matches starting to melt away an iceberg. The market has been freezing cold for a long time, there is no sense in panicking because there is a spark. Just prepare accordingly.

Bitcoin Thoughts And Analysis

WEEKLY CHART

While it appears that price has finally followed the RSI breakout with a breakout of it’s own, I am viewing this as too early to celebrate. The line chart shows that the weekly closed right at the descending resistance. As you know, this entire move was preceded by a multi-week oversold bullish divergence. We also know that RSI has only been oversold on the BTC weekly 3 times in history, and the previous 2 were cycle bottoms. I have been sharing this idea for months.

That said, in the short term I would precede with caution. Price has BARELY “broken out” and a move down from here turning that line into resistance would not be a surprise.

DAILY CHART

The daily chart is still extremely overbought after hitting 90, which is about as high as it tends to go on a big move. As I discussed before, this meant that bearish divergence with RSI was very likely, which we now have. Price can push through these temporarily, but they almost always play out in a correction or top of some sort.

I am still anticipating a pull back from the current levels, although Bitcoin can surprise everyone in a bull run. Key support levels to watch are $21,473 and the 200 MA around $19,600.

Anything can happen, but I am leaning towards the pullback before heading up further.

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 only post charts when I feel the market in general is “safe” for tradng, and even then I keep them at a minimum. If you were able to catch APT, GMT or NEAR, which are the three that I have shared, then you have likely done quite well. MATIC is heating up as well.

ETH/USDT

Like Bitcoin, Ethereum is showing bearish divergence with overbought RSI on the daily chart… and lower time frames. While I do not trade often, I actually took a low time frame short scalp on this yesterday at ~$1,652. That does NOT MEAN I THINK THIS IS THE TOP. It just means that I am expecting a pullback. I will consider myself wrong if price goes significantly above $1,700.

I am massively spot long Ethereum, so this is just a hedge in case we get the drop that I think could come.

I am proceeding with caution this week, knowing that ETH and BTC are overbought on the daily with bearish divergence. This could give everyone the dip they are waiting for.

GMT/USDT

I have been posting GMT charts for the past week. I shared the idea of a bull flag on the 16th, which has played out exactly as predicted. I did not expect price to follow the line perfectly, but sometimes that happens.

Price is currently at a key resistance at .6379. This would be a target for many traders, although the targets of the two bull flags, depending on where you draw the flag pole, are quite a bit higher.

If you took this trade, you can consider taking a bit off the table here as the market continues to be overbought in the short term. Totally up to you. Never a bad idea to scale out in profit.

If you are not in, then I personally would not consider a trade unless it convincingly flip .6379 and tests it as support. The main trade was below, so no reason to FOMO in. If the market is heating up, we will have plenty of opportunities.

Legacy Markets

• Dollar, US Stocks Slip as Europe Gains Momentum: Markets Wrap

The dollar has weakened against the euro and most other currencies, as a number of Federal Reserve officials outlined the case for a reduction in the US central bank's rate-tightening campaign. This contrasts with the hawkish stance of European policymakers. Concerns for the US economy, which is widely expected to enter a recession later in 2023, ongoing debates in Congress over the debt ceiling, and signals from companies are also weighing on US equity sentiment. European stocks are up close to 7% this year, almost double the S&P 500's gain, and the euro has strengthened to its highest level since April 2022.

Key events this week:

• Earnings for the week include: Abbott Laboratories, American Airlines, American Express, AT&T, Blackstone, Boeing, Colgate-Palmolive, Freeport-McMoRan, General Electric, Intel, International Business Machines, Johnson & Johnson, LVMH Moet Hennessy Louis Vuitton, Mastercard, Nokia, SAP, Southwest Airlines, Texas Instruments, Verizon Communications, Visa

• Euro area consumer confidence, Monday

• US Conference Board leading index, Monday

• ECB President Christine Lagarde speaks, Monday

• PMIs for US, euro area, UK, Japan, Tuesday

• Richmond Fed Manufacturing, Tuesday

• ECB President Christine Lagarde speaks, Tuesday

• US MBA mortgage applications, Philadelphia Fed non-manufacturing activity, Wednesday

• US fourth-quarter GDP, new home sales, initial jobless claims, good trade balance, durable goods, wholesale inventories, retail inventories, Thursday

• Japan Tokyo CPI, Friday

• US personal income/spending, University of Michigan consumer sentiment, pending home sales, Friday

Here are some of the main market moves:

Stocks

• S&P 500 futures fell 0.1% as of 5:28 a.m. New York time

• Nasdaq 100 futures fell 0.1%

• Futures on the Dow Jones Industrial Average were little changed

• The Stoxx Europe 600 was little changed

• The MSCI World index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.5% to $1.0907

• The British pound was little changed at $1.2392

• The Japanese yen fell 0.2% to 129.90 per dollar

Cryptocurrencies

• Bitcoin rose 1.4% to $22,897.54

• Ether rose 0.6% to $1,637.23

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.49%

• Germany’s 10-year yield advanced two basis points to 2.20%

• Britain’s 10-year yield advanced two basis points to 3.40%

Commodities

• West Texas Intermediate crude rose 0.5% to $82.03 a barrel

• Gold futures were little changed

The US Government Is Playing With Fire - The Debt Ceiling

• The debt-ceiling standoff in Congress risks creating a ‘self-imposed calamity’ for the global economy, warns Janet Yellen

In an interview with the Associated Press, US Treasury Secretary Janet Yellen stated that she believes Congress will ultimately vote to raise the country's debt limit. However, she criticized the demands of House Republicans for spending cuts in exchange for supporting an increase, calling it "a very irresponsible thing to do" and a risk to creating a "self-imposed calamity" for the global economy. The Biden administration and Republican lawmakers are currently in disagreement over how to increase the government's legal borrowing capacity. Yellen argued that such a stance could have serious consequences and that it is possible for markets to become concerned about whether or not the US will pay its bills. She also warned of the potential for a default, which would cause severe damage to both the US and global economy. Despite these dire warnings, Yellen expressed her belief that the situation will ultimately be resolved as lawmakers will understand the escalating danger if the federal government is unable to pay all of its bills.

The United States government continues to play politics with our financial standing on the line.

SWIFT Plans To Slow Down Crypto Adoption

• Exclusive: SWIFT payments network access cut to crypto exchanges

SWIFT, short for the Society for Worldwide Interbank Financial Telecommunications, has made a decision that is inconvenient for its users looking to gain cryptocurrency exposure via SWIFT. Starting February 1st of this year, anyone using Signature Bank will not be supported in transferring fiat for any amount under $100,000. Binance was the first to notify customers, which resulted in more Binance FUD (fear, uncertainty, and doubt), but the news pertains to any crypto giant that Signature Bank has partnered with. Just last week, Signature Bank announced its decision to reduce crypto exposure and now they are following through. Binance is also actively seeking a new SWIFT (USD) partner to remove future disruptions. This news is expected to blow over.

Genesis Makes It Official

• Genesis Owes Over $3.5B to Top 50 Creditors

We knew that this news was coming, which is why the price did not fluctuate on the official announcement. However, now we know the details of the bankruptcy, and they are not pretty. This time around, there are 100,000 creditors and aggregate liabilities ranging between $1.2 billion to $11 billion dollars. The top creditors are Gemini ($766m), Mirana ($151.5m), MoonAlpha Finance ($150m), Coincident Cap ($110m), Decentraland ($55m), VanEck ($53m), Abra ($30m), Cumberland ($18m), and Stellar Foundation ($13m). You probably recognize quite a few of the names on the list. Additionally, there are a couple of names that have been redacted from the list, who are owed $462.2m and $230m respectively. The good news is that the market has already priced in this news. Remember when I said that bearish could be the new bullish? This is an example of what I meant.

Jim Cramer Timed The Bottom

• Jim Cramer urges investors to exit crypto – ‘it’s never too late to sell’

It's Monday, December 5th, Bitcoin is trading at about $17,000, and Jim Cramer said the following, “You can’t just beat yourself up and say, ‘Hey, it’s too late to sell.’ The truth is, it’s never too late to sell an awful position, and that’s what you have if you own these so-called digital assets.” Since his advice, Bitcoin has increased by 35%, Ethereum by 31%, and altcoins by even more. The issue here is that the advice doesn’t apply to crypto. Jim is right to suggest investors should sell bad positions, but crypto isn’t one of them. Time will prove it to be dangerous to ignore the crypto market. Being a contrarian is pointless when your thesis is wrong.

The Global Crypto Derivatives Landscape | Dan Gunsberg, Hxro Network

What are crypto derivatives and how will they evolve in the future? How is regulation defining this new industry? Join a fireside chat with Dan Gunsberg, the co-founder of Hxro, and arguably the best person to talk about crypto derivatives.

In this episode with Dan, we discussed:

• Why do derivatives matter

• Building crypto infrastructure

• Why build in DeFi

• Lack of transparency

• Managing the risks of hacks

• Market maker protection

• Evolution of trading derivatives

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.