The Wolf Den #678 - SEC Ya Later
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In This Issue:
SEC Ya Later
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Important Live Stream Today!
Ordinals Are On The Rise
What’s A Bitcoin Embassy?
SEC Ya Later
It seems that Gary Gensler may have harbored a secret childhood desire to pursue an acting career, but instead ended up regulating securities. Another video, starring Gary, has been released by the SEC. Surprise! Crypto is the subject. In this segment, I am going to break down the SEC’s newest initiative and why it matters.
Yesterday morning, the SEC voted 4-1 in favor of updating the existing rules on what constitutes a "qualified custodian." This means that investment advisors who work with mutual funds, hedge funds, endowments, pensions, etc. are now required to properly custody assets with a "qualified custodian." While this update seems great, the issue is that there is once again a lack of clarity on how this applies to crypto.
Under the guise of "protection," the SEC is imposing yet another hurdle for crypto firms that want to offer their customers or funds direct exposure to crypto. The new rule change requires "independent audits, certain documentation requirements, and the segregation of properly labeled assets," which are reasonable tasks for custodians but will be difficult for crypto companies and DeFi in particular. It remains to be seen if the SEC will make it possible for crypto companies to become "qualified custodians."
I can already hear Jesse Powell, the CEO of Kraken (sarcastically) saying, “oh gosh, all we had to do was fill out a form, how dumb do I look.” Newsflash, there is no form. The SEC is draconic and wants crypto exiled.
This is what Gary said in his monologue in reference to crypto:
“The rules would apply to crypto assets with advisers as well. Thus, that adviser would be required to keep your crypto with a qualified custodian, not on any crypto trading platform based on how they currently operate, but with a qualified custodian. Crypto companies may claim they can take proper custody of your assets, but when these companies fail, something that we have seen time and again, investors' assets often have disappeared or become the property of the failed company. And you as an investor get stuck in line at the bankruptcy court. So beware, even if a crypto company claims custody of your assets, it’s not the same as qualified custody. Through our propped rule, investors would get time-tested protections and yes, qualified custodians they deserve.”
The new rule is not set in stone. It is now open to public comments for at least two months before staff drafts a final rule. However, it seems that this update is pushing crypto into an even smaller box. Coinbase's stock price rose following the news, since it is likely to be considered one of the "qualified custodians," but everyone else now has to scramble, do impossible guesswork, and dodge fines as usual. It is possible that the SEC is carving out a narrow path for who it wants to win.
Another related issue is the status of stablecoins, particularly USDC. However, it is hard to imagine USDC being targeted by the SEC, as it is audited by Deloitte, partnered with VISA, relies on BNY Mellon for custody, and has BlackRock managing its reserves.
Coinbase and Circle have both paid fines, but their treatment so far has been more favorable compared to others in the industry. While this is merely observation and speculation, it is plausible that the SEC is favoring these two companies and trying to eliminate competition to ensure their success. The alternative to picking winners is that the SEC risks becoming the most hated institution in the world by killing everything.
The SEC is doing everything in its power to be a main character in 2023, and it is up to the public to ensure that they do not ruin OUR show.
*Some additional and related news.
Commissioner Hester Pierce released a dissenting statement on the proposed rule set that needs to be considered. Commissioner Pierce argued that the (a) timing demands on public comments are unreasonable (b) the proposed rules would raise significant workability challenges (c) the available "qualified custodians" would shrink (d) the language would allow the broad labeling of crypto as securities, and finally, (e) the commission is attempting to regulate entities that the commission does not have jurisdiction over.
I will be publishing a podcast conversation with Commissioner Peirce on Sunday.
The second worthy dissenting statement is from Jake Chervinsky
To read his full thread, click here.
Bitcoin Thoughts And Analysis
Bitcoin just touched the weekly 50 MA for the first time in 315 days. As you know, MAs are lagging indicators, but still offer a good target for mean reversion trades. Now we have effectively reverted to the mean on the 50 MA and the 200 MA slightly above.
Weekly RSI bounced right above 50 and headed up, meaning that it has turned bullish and should target overbought. That would be amazing.
$25,212 still looms above as the key resistance. A break above makes a higher high and kills the bearish market structure.
Yesterday’s daily candle bullishly engulfed almost a MONTH worth of price action and gave us the highest daily close of the year. RSI is just coming back to overbought, but is very overbought on lower time frames, where we had oversold bullish divergences. This move up was highly predictable.
Now we come to the main resistance, which I expect to eventually break. I am targeting the red zone above for this move over the next few weeks and month - 28K and beyond.
But that’s all a dream until we clear $25,212 with volume.
Altcoin Charts
Revisiting this chart, which I have posted a few times. This continues to be my largest Altcoin holding - I have not sold any since around $2.50, and I have bought more through the bear market, most recently at just under $1.
I shared that setup here, when price broke above the .95 resistance and the 50 MA. We are up about 40% from there, and now the bigger test is here. 1.307 is the key resistance that I have been discussing for a few weeks. Price is pushing through on the weekly chart, shown above. We want to see a close above and not a rejection like last week (which was predictable at the first resistance test).
The daily chart gives us even more information. As you can see, yesterday was the first daily close above 1.307, after being rejected almost to the penny a few days back. This looks ready to roll.
Targets above are shown as resistance lines - 1.69, 2.10 and 2.92.
You can also see that price has JUST hit the target from the inverse head and shoulders that I shared last summer.
I have not been watching many coins of late. I find it easier to focus on a few winners, which is what I have been doing here with MATIC.
Legacy Markets
European stocks rose for the fourth day, while US equity futures remained steady, as investors reacted positively to strong earnings reports and showed an appetite for riskier assets. Europe’s Stoxx 600 Index climbed, led by media and telecoms stocks, with Standard Chartered and British Gas owner Centrica among the top gainers. The US benchmarks, S&P 500 and Nasdaq 100, were almost flat, with Shopify dropping almost 10% after a weak Q1 revenue forecast and Cisco Systems gaining after raising its full-year forecast. The greenback fell against all G-10 currencies, and Treasuries rose. The market remains cautious about inflation, even though the data is showing signs of receding.
Key events:
US jobless claims, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
France CPI, Russia GDP Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.6% as of 10:30 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index rose 0.9%
The MSCI Emerging Markets Index rose 0.6%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.2% to $1.0710
The Japanese yen rose 0.2% to 133.83 per dollar
The offshore yuan was little changed at 6.8637 per dollar
The British pound rose 0.3% to $1.2064
Cryptocurrencies
Bitcoin rose 1.9% to $24,642.1
Ether rose 1.5% to $1,690.27
Bonds
The yield on 10-year Treasuries declined two basis points to 3.78%
Germany’s 10-year yield was little changed at 2.47%
Britain’s 10-year yield declined one basis point to 3.48%
Commodities
Brent crude fell 0.7% to $84.81 a barrel
Spot gold rose 0.1% to $1,837.92 an ounce
Important Live Stream Today!
Do NOT MISS THIS! I am speaking with Caitlin Long, Staci Warden and Simon Dixon about the state of crypto and regulation in the United States. Caitlin is the head of Custodia Bank and warned me 10 months ago that the government could attempt to cut the crypto industry off from the banking system. Simon has been deeply involved in the Celsius bankruptcy proceedings and was the brilliant mind behind the Bitfinex recovery years ago. Staci leads Algorand, and has tremendous insight on operating an institutional grade platform in the US.
9:30 AM EST!
Ordinals Are On The Rise
Ordinals have already generated over $1 million in fees and crossed the quarter-million mark for inscriptions. As shown in the charts above, there were only a handful of inscriptions until around January 29th, after which everything went parabolic. Image-based Ordinals are the most popular, followed by text and video. Dismissing Ordinals as a fad would be a costly mistake. Instead, this could be the catalyst for another NFT explosion. The question now is whether NFT creators will choose Bitcoin or Ethereum once the hype wears off.
What Is A Bitcoin Embassy?
To be frank, this seems like a PR stunt, but regardless, it's great to see people taking action. El Salvador and the Texas government are teaming up to establish a representative office called a "Bitcoin Embassy." The intergovernmental collaboration will focus on joint projects to promote Bitcoin adoption, making it the second of its kind, with the first being in Lugano, a small southern city in Switzerland. While this move is an important step for nations and cities to adopt Bitcoin, it is not necessarily a sign that widespread adoption is imminent. There is still much ground left to cover before embassies are truly necessary.
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.