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In This Issue:
Bitcoin Is The New Credit Default Swap
Bitcoin Thoughts And Analysis
Legacy Markets
ETH Staking Withdrawal Date Announced
Elizabeth Warren Wants To Ban Your Crypto Wallet
Safemoon Isn’t So Safe
Kraken To Sponsor Williams Racing
Amazon & Microsoft Will Fail | The Future Belongs To Decentralized Storage | Colin Evran, Filecoin
Bitcoin Is The New Credit Default Swap
Anyone who has perused a newspaper, tuned into a radio broadcast or television program, or accessed their smartphone is cognizant of the fact that a plethora of economists and financial experts have issued cautionary statements regarding an impending recession. Never in the history of markets has a recession been as telegraphed as the one that is supposed to be coming, yet it still isn't here.
What a time to be alive.
I hosted a Twitter space yesterday to make sense of the chaos, specifically what is happening with fiat debasement, inflation, QE, banking, and regulation. I'd like to delve into a topic we discussed, which is at the core of the global economic meltdown - the recent surge in credit default swaps (CDS).
So without further ado, let’s dive into the credit default swap.
CDS has a relatively brief history, as it only gained widespread usage in the late 1990s. Initially designed to help banks and financial institutions manage their credit risk exposure to specific companies or assets, particularly in the bond market, CDS contracts were once privately negotiated without any regulatory oversight. However, much has changed since then.
As CDSs gained traction, concerns emerged about the potential risks and complexities of these instruments. The 2008 global financial crisis, in particular, underscored the role CDSs can play when the system falters. Although CDSs didn't cause the 2008 collapse - that was the handiwork of regulators and bankers - they did contribute to sending deeper shockwaves throughout the global financial system.
With the historical context established, let's examine the fundamentals of a CDS. A credit default swap is a financial derivative that allows one party to transfer the credit risk associated with a particular financial asset, such as a bond or loan, to another party. In a CDS agreement, the buyer of the swap pays a periodic fee to the seller, who in return assumes the risk of default on the underlying asset. If the asset does default, the seller of the CDS compensates the buyer for the face value of the asset, allowing the buyer to offset their losses.
In 2008, as mortgage-backed securities began to falter, institutions increasingly turned to credit default swaps, but it was too late. In theory, this seemed prudent, but in practice, asset valuations were so low that CDS sellers could not fulfill their obligations. This led to a vicious cycle and widespread loss of confidence in the financial system - the backdrop against which Bitcoin emerged.
For nearly a decade, Bitcoin was primarily a currency for the internet's underworld and a speculative investment for doomsday preppers. However, today, there's a growing notion that Bitcoin shares loose similarities with a CDS. Both instruments seek to provide insurance against a systemic collapse, which is why Bitcoin's gains and the rising costs of CDSs are occurring concurrently.
Depending on your investment approach, both CDSs and Bitcoin may have a place in a portfolio. Nevertheless, I believe there's a clear front-runner. While CDSs remain deeply embedded in our flawed financial system, Bitcoin operates within its own decentralized, trustless network, free from the corruption of traditional fiat currencies. If banks do collapse, a CDS might enrich a few early investors, but it won't resolve the underlying issues.
Bitcoin is the only insurance designed to endure. Once the world recognizes this, it will mark the end for other alternatives. Ultimately, we stand to gain when that realization comes to fruition.
When that happens, it’s game over for everything else.
Then we win.
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Bitcoin Thoughts And Analysis
Bitcoin made a nice move up today, in the face of FUD and bad news all over the place.
Hidden bullish divergence (blue) has been confirmed, invalidating the bearish divergences. We will still eventually see RSI go to oversold, but that could take a while.
The story remains $28,600. Like $25,212 before, this is the key resistance where price is struggling - and where this entire move stopped today for the moment. Above that we can start talking about higher targets.
Volume is extremely low right now, so I am not convinced by this move today… yet.
Legacy Markets
Global stocks rose as a rally in Chinese tech shares boosted sentiment, and fears of contagion from banking turmoil continued to wane. European tech and banking stocks led gains, while US index futures and contracts on all three major gauges rose. Alibaba Group Holding's Hong Kong-listed shares surged 12% overnight, sparking a rally in Chinese tech shares. Investors are now looking at the trajectory of central-bank policy and assessing the risk of recession following the banking turmoil earlier this month. Meanwhile, oil prices rose, and the Australian dollar weakened after slower-than-forecast inflation data.
Key events this week:
Eurozone economic confidence, consumer confidence, Thursday
US GDP, initial jobless claims, Thursday
Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event. Treasury Secretary Janet Yellen also speaks, Thursday
China PMI, Friday
Eurozone CPI, unemployment, Friday
US consumer income, PCE deflator, University of Michigan consumer sentiment, Friday
ECB President Christine Lagarde speaks, Friday
New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.9% as of 10:36 a.m. London time
S&P 500 futures rose 0.9%
Nasdaq 100 futures rose 0.9%
Futures on the Dow Jones Industrial Average rose 0.8%
The MSCI Asia Pacific Index rose 0.8%
The MSCI Emerging Markets Index rose 0.8%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0849
The Japanese yen fell 0.6% to 131.69 per dollar
The offshore yuan fell 0.2% to 6.8892 per dollar
The British pound was unchanged at $1.2342
Cryptocurrencies
Bitcoin rose 4.1% to $28,441.85
Ether rose 2.5% to $1,819.25
Bonds
The yield on 10-year Treasuries declined three basis points to 3.54%
Germany’s 10-year yield declined one basis point to 2.28%
Britain’s 10-year yield declined two basis points to 3.44%
Commodities
Brent crude rose 0.3% to $78.91 a barrel
Spot gold fell 0.3% to $1,966.70 an ounce
ETH Staking Withdrawal Date Announced
Mark your calendars, the date and time has been set for 22:27:35 UTC on Apr. 12, 2023. That means that over the next two weeks, we can probably expect (a) increased Ethereum volatility and (b) a return to an Ethereum-focused narrative. If you are a staker or node operator, I suggest that you read this FAQ that covers withdrawals. As for everyone else, we get to sit back and enjoy. This upgrade will go down as Ethereum’s second-largest upgrade and de-risk the asset for bigger players to enter.
Elizabeth Warren Wants To Ban Your Crypto Wallet
Massachusetts Senator Elizabeth Warren's Digital Assets Anti-Money Laundering Act, which she vowed to reintroduce in February, could drive cryptocurrency businesses overseas and weaken consumer choice, according to an op-ed in MarketWatch. The proposed act, which requires self-hosted wallets and miners and validators to have anti-money laundering policies, lumps together all miners as money service businesses and ignores that blockchain and related technologies are not the same as cryptocurrency. The op-ed argues that the bill amounts to a smear campaign against the industry and would make Americans more dependent on traditional banks.
Another day, another round of FUD from the Senator.
Safemoon Isn’t So Safe
A hack that caused almost $9 million in losses for a BNB-based exchange may have been facilitated by a recent Safemoon update. The exploit was a "public burn bug," in which the attacker burns coins to artificially inflate the price and sells the tokens back to the protocol. While this method may seem outlandish, it was effective, highlighting the need to exercise caution when using anything in the crypto space.
Kraken To Sponsor Williams Racing
Williams Racing has signed a sponsorship deal with US-based crypto exchange Kraken, which will see the firm's logo appear on the Formula 1 team's cars. The agreement comes after Williams Racing lost one of its most prominent drivers, Nicholas Latifi, who reportedly brought in substantial sponsorship fees. While the crypto industry has faced ongoing regulatory scrutiny, Kraken has landed new partnerships, such as its deal with Williams Racing and last year's partnership with American football team the New York Giants.
This is the energy we need in the face of heightened regulation and scrutiny.
Amazon & Microsoft Will Fail | The Future Belongs To Decentralized Storage | Colin Evran, Filecoin
Are you familiar with cloud storage? You may have heard that the market is largely controlled by three major players: AWS, Google, and Microsoft. However, did you know that there is a growing movement towards decentralized storage solutions? In this episode, Colin Evran, the ecosystem lead at Filecoin & Protocol Labs, shares insights on the benefits of decentralized storage and how Filecoin offers its services at a significantly lower cost than centralized storage networks. He also delves into what is driving the remarkable growth of Filecoin and its potential to shape the future of cloud storage. Tune in to discover more about the advantages of decentralized storage and its potential to revolutionize the storage industry.
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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.