The Wolf Den #714 - The Risks That Always Exist
Navigating the world of crypto is challenging...
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In This Issue:
The Risks That Always Exist
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
The Solana Phone Is Almost Here
First Derivatives, Then ETF?
Justin Sun Has Been Summoned
Ethereum Shanghai Upgrade Explained | Altcoins To Rally? David Duong, Tom Dunleavy, James Butterfill
The Risks That Always Exist
No matter your experience as an investor, navigating the intricate world of cryptocurrency can feel like traversing a treacherous labyrinth. You could take the simple route, akin to buying Bitcoin, storing it in cold storage, and locking it away, but many of us crave more excitement and the potential risks that come with it.
This desire often exposes us to unforeseen challenges: failing platforms, vanishing protocols, hacking incidents, and careless errors all pose genuine threats. If there were a cheat code or shortcut, I'd gladly share it, but the truth is that crypto investors are constantly adapting to survive. Even storing Bitcoin on a ledger carries risks; nobody is guaranteed success.
Given the numerous risks in crypto, and having spent a significant portion of this week discussing them—staking, scams, and poor reporting—I want to provide an overview of five broad, transferable risks that every crypto investor faces. As most of us actively manage our investments, it's crucial to consider permanent loss, downside risk, upside risk, loss of purchasing power, and personal goals. Let's dive in.
Permanent Loss
Imagine permanent loss as a catastrophic natural disaster. While advancements in technology have improved our understanding of hurricanes, blizzards, droughts, and dust storms, we can't always predict them with much notice. In investing, simply hoping to avoid a collapsed exchange, hack, or rug pull is insufficient. It's like hoping a hurricane won't hit while living on the Florida coast; you might get lucky, but preparation is always advised. The key to mitigating this risk lies in diversification, ongoing research, and caution.
Downside Risk
Downside risk became all too familiar in 2022, even for those with only Bitcoin exposure. In crypto, we may be comfortable with, and occasionally content with, 80% downside swings, but for most people, that would signify complete failure. Downside risk refers to the potential for losing more money than you can afford. This can occur if you invest in high-risk assets or lack a well-diversified portfolio. Excessive diversification in crypto can actually amplify downside risk. If you feel compelled to manage and trade NFTs, staking, airdrops, and yields, your downside risk will likely increase rapidly. Bitcoin can act as your safety net.
Upside Risk
Conversely, upside risk refers to the possibility of missing out on potential gains. This can happen if you are too conservative with your investments and don't take enough risk. The market might currently be overheating slightly, but a more significant issue is that many investors may be unprepared for the market's strength. I suggested that the bottom had been reached when FTX collapsed, and each passing day appears to support this theory. However, many believed FTX was just the beginning and sold their assets to double up on lower lows that never materialized, resulting in substantial upside risk. To avoid this risk, carefully consider crypto's long-term potential before making any major moves.
Loss of Purchasing Power
For many, the primary reason to invest in crypto is to protect and increase purchasing power over time. The unspoken caveat is that navigating crypto involves dodging bad actors who aim to strip you of your purchasing power through mechanisms like yield, staking, and delegation. Inflation—whether caused by politicians or developers—is a real risk that must be considered across all markets. Avoid hoarding cash and don't overcomplicate things; buy some Bitcoin and Ethereum, and if you want exposure to traditional markets, invest in major indexes. It's as straightforward as that.
Personal Goals
This category may come as a surprise, but I assure you it's likely the most important of the five. Depending on your age, income, mortgage, and responsibilities, we all have financial goals to meet, with retirement being a major one. If you wait until your later years to invest, you may miss out on decades of positive returns. Retirement planning should always be on your mind, as should your risk tolerance, so you can strike the right balance among all your responsibilities. The sooner you begin and define your goals, the more likely you are to achieve them. Investing isn't a game won quickly; it requires a lifetime of discipline and patience.
In the world of crypto, it's all too easy to become engrossed in the hype and lose sight of the fundamentals. Fortunately, we now have a roadmap to guide us through the maze. I hope you all have a fantastic weekend. There will be no newsletter on Monday, but I'll see you on Tuesday!
Bitcoin Thoughts And Analysis
Bitcoin continues to push upwards and look extremely strong on higher time frames. This weekly candle is not closed yet, but it appears to likely be a major move up off of key resistance at $28,600. We have confirmed higher lows and higher highs in the new trend (blue checks) and have broken the bear market structure from the red checks after the break of $25,212.
This is a new bull market. That does not mean price can’t go down or start a new bear market, but the structure says bull. I am looking to buy dips on retests of these key levels.
Weekly RSI is just touching overbought now, which is really the power zone on high time frames. It can stay there for months. On the first run up to $65,000, weekly RSI was overbought from October to April!
Lower time frames are still showing bearish divergences, so I am watching for dips.
Altcoin Charts
Yes, I am sharing the dominance chart again. It appears to be falling off a cliff, as I was looking for. If this continues, just look for any coins that are breaking through diagonal resistance like the ones I shared and enjoy the ride.
It never lasts too long.
Legacy Markets
US equity futures were mixed on Friday as the bank earnings season started and traders considered the possibility of the Federal Reserve nearing the end of its rate-hiking cycle. Nasdaq 100 contracts declined 0.5%, while S&P 500 futures remained steady. JPMorgan Chase and Wells Fargo announced their earnings, with JPMorgan rising 8% in premarket trading after reporting an unexpected increase in Q1 deposits. Wells Fargo shares fell about 1% due to increased provisions for credit losses in commercial real estate loans. Bond traders anticipate the Federal Reserve cutting interest rates by the end of 2023, while the dollar index steadies after reaching a 12-month low. Boeing Co. shares dropped up to 5% in premarket trading due to the company pausing deliveries of some 737 Max jets. In commodities, crude oil is heading for a fourth week of gains.
Key events this week:
US retail sales, business inventories, industrial production, University of Michigan consumer sentiment, Friday
Major US banks JPMorgan Chase, Wells Fargo and Citigroup report earnings, Friday
Some of the main market moves:
Stocks
S&P 500 futures were little changed as of 7:12 a.m. New York time
Nasdaq 100 futures fell 0.5%
Futures on the Dow Jones Industrial Average rose 0.1%
The Stoxx Europe 600 rose 0.6%
The MSCI World index rose 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.1051
The British pound fell 0.2% to $1.2501
The Japanese yen fell 0.1% to 132.74 per dollar
Cryptocurrencies
Bitcoin rose 1.8% to $30,818.88
Ether rose 5.4% to $2,116.39
Bonds
The yield on 10-year Treasuries advanced one basis point to 3.45%
Germany’s 10-year yield was little changed at 2.37%
Britain’s 10-year yield was little changed at 3.58%
Commodities
West Texas Intermediate crude rose 0.4% to $82.47 a barrel
Gold futures fell 0.2% to $2,052 an ounce
I drew this idea a few months ago and shared it in the newsletter, long before we had a right shoulder forming.
While this is just an idea for now, if the neckline of this head and shoulders breaks we should see major further declines from the dollar. That usually means that nearly everything else goes up.
The Solana Phone Is Almost Here
On May 8th, for $1,000, you can own a piece of crypto history—Saga, a cellphone from Solana Mobile. Equipped with a custom dApp store, this phone will function as a Solana hub, running on an Android operating system. I must admit, the phone seems quite distinct from anything we've seen before (details below). However, my intuition suggests that the product may be ahead of its time, and opting for an iPhone or Android might still be the more sensible choice.
“What makes the Saga different, according to Solana, is the “Solana Mobile Stack” (SMS), a lineup of custom add-ons that integrate crypto usefulness into the phone’s hardware and software. SMS has ingrained security features to provide for sending, receiving, trading, and storing crypto on the device.”
“Saga’s secure element – the hack-resistant part of the smartphone where confidential information lives – is customized with a “seed vault” that stores a crypto user’s private keys. Keeping keys separate from the rest of the phone’s data makes them more secure, Solana says.”
First Derivatives, Then Spot ETF?
Wouldn't it be fascinating if, after Bitcoin derivatives gain widespread acceptance globally, the focus shifts back to a Bitcoin ETF taking precedence? Or perhaps the two could coexist? Regardless, having something is better than nothing, even if it's just derivatives. The news is that the London Stock Exchange Group's LCH division will offer Bitcoin futures and options in Q4 through a partnership with GFO-X, a startup specializing in digital asset derivatives. While a spot ETF would be a superior option for exposure, this development is still a positive step, as it represents a fully regulated vehicle.
Justin Sun Has Been Summoned
The clock is ticking for Justin Sun as he faces the SEC's legal action. Having received a summons from a U.S. district court, he now has 20 days to respond. It remains to be seen whether Sun will accept the charges, enter a plea, or contest the case in court. Each option puts the future of TRX and BTT at risk.
Ethereum Shanghai Upgrade Explained | Altcoins To Rally? David Duong, Tom Dunleavy, James Butterfill
Today's guests: David Duong (Head Of Instituitional Research at Coinbase), Tom Dunleavy (Former Senior Analyst at Messari), James Butterfill (Head Of Research at CoinShares).
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.