The Wolf Den #79 - BTC Vs. USD, Website Launch, Sunday Newsletter
Bitcoin - Institutional Money Vs. Retail
The 2017 Bitcoin bull run was fueled primarily by retail fomo - fear of missing out. At the end of the year, we saw bitcoin as a major headline in the mainstream media, average Joes were throwing their paychecks into Coinbase accounts and Thanksgiving dinner was an opportunity to shill coins to your family. This can be seen clearly by looking at the above chart - google searched of "bitcoin." There was a huge spike in 2017, proving that retail was interested in crypto. As you can see, we have barely seen a rise at all in 2020.
It was a true bubble, which burst in dramatic fashion at 2018.
One of the most famous quotes in trading is this - 'The four most dangerous words in investing are: 'this time it's different' - John Templeton.
Well, that's true, but I believe that this time IS different.
The signs are everywhere. The United States has moved to allow banks to custody crypto for their clients, VISA and Mastercard are forging a path towards making crypto more usable, the CASH app is doing billion in revenue selling Bitcoin, PayPal and Venmo are opening the door to crypto for 320m people and Grayscale is buying more Bitcoin and Ethereum than is being mined to repackage and sell on the US Stock Market. Bitcoin's strength is buoyed on institutional investment - not retail.
This time IS DIFFERENT.
And it is FAR better.
The Dollar (DXY) And Bitcoin Revisited
At the end of June, I made the case that the correlation between the stock market and bitcoin was dubious at best and that it was much more compelling to look at bitcoin vs. the dollar (DXY). Yesterday's bitcoin move was clearly untethered from anything happening in the stock market, once again proving my point that they sometimes move in tandem, but are not correlated.
This is what I said in June about bitcoin and the dollar:
"Inverse correlation on full display. As I said in the intro, these two assets have had huge gaps between them at their most pivotal moments. Bitcoin’s all time high coincides almost exactly with DXY’s multi year lows. DXYs local high in March was nearly the same day as bitcoin’s huge crash to the $3000s. This is circled in green on the top DXY chart and also coincides with a failed test by DXY of the EQ of the huge descending channel.
This is a FAR MORE COMPELLING comparison than looking at bitcoin Vs. the stock market. Keeping an eye on the dollar is likely to help us discern where bitcoin is headed."
The DXY chart remains compelling. You can see the rejection at the purple resistance and ascending channel EQ, circled in green. I circled this MONTHS ago and shared it here. There has been nothing but downside since, with the dollar breaking support yesterday and accelerating further down. Yesterday was one of the worst days for the dollar this year - and one of the best days for Bitcoin.
The dollar is coming into a pivotal area - the support of the ascending channel it has been traveling in since bottoming in the 2008 great recession. A break down from this channel would lead us to expect major downside for the dollar in the foreseeable future. Good for bitcoin, probably, if that happens. It's more likely that the dollar finds support there, so keep an eye on that moving forward. Below is a quick argument (besides a multi year channel support) for why the dollar may bounce here, at least for a bit.
It leads to an obvious question - are assets like stocks, gold, silver and bitcoin truly rising, or are we witnessing a massive downside move on the dollar, the currency to which their value is tethered? If everything stay relatively flat and the dollar move down with strength, every other asset will appear to rise.
I think it's a bit of both, but that the strength of these "hard" assets is largely a result of dollar weakness - something that the White House is actually pushing for.
My friend Alex shared much the same sentiment on Twitter. Bitcoin and stocks were temporarily moving together although uncorrelated for a decade, now bitcoin is becoming more like digital gold.
Cha-Cha Chats With CoinMarketCap
I was asked to be the first guest ever on the new CoinMarketCap series "Cha-Cha Chats." The premise is that they ask a trader to discuss a single coin and chart in depth. They asked me talk about LINK. This is actually the first time that I have been on a livestream going through my charting and trading process, so you may find it interesting and helpful. This is the kind of content that I will be focusing on on YouTube when we launch the channel!
Visa (And Mastercard) Advancing On Crypto
It's happening.
Major steps are being taken towards mainstream adoption, with news that we have discussed endlessly about Paypal and Venmo entering the crypto market, US banks being given permission to custody crypto assets, Cash app seeing record gains selling Bitcoin, Grayscale selling their products on the stock market and more. Add this to the list. Visa put out a manifesto of sorts, openly stating their commitment to building in crypto and their support for the space. Read the article above and tell me that you are bearish on a macro level. Go ahead.
VIX 101
By Sahil Bloom:
If you follow the financial news, you've probably heard a lot of talk recently about the VIX. But what is the VIX and how does it work?
The Volatility Index ("VIX") was created by the Chicago Board Options Exchange as a real-time market index representing the market's expectation of 30-day forward-looking volatility. It is often referred to as the "Fear Index" by investors. Let's take a look at how it works.
Volatility measures the magnitude of price movements (up and down) over a set period of time. Historical volatility is based on actual historical price movements. Forward-looking volatility ("implied volatility") is inferred based on option prices. The VIX infers its value by tracking the pricing of S&P 500 index options.
But what do S&P 500 options prices have to do with investor fear?
When investors expect stock prices to make a significant move (up or down), they typically purchase more options to protect themselves against those movements. Think about it as buying insurance to protect your home if you’re expecting an earthquake to hit soon. So in an environment where investors expect a big near-term price drop, it is reasonable to expect a surge in demand for put options. There is more uncertainty in the market, so investors seek protection via these options. Demand for them rises. If demand rises quickly, supply will not have a chance to catch up.
Econ 101 tells us that the price of the options must rise. Since we know the VIX tracks the pricing of S&P 500 index options, we can see the relationship form. S&P 500 put option prices spike = VIX spike.
To use a real example, the VIX spiked to a peak of >80 in mid-March, as fears of COVID-19 damage peaked. It has steadily declined since, as Central Banks worldwide have eased investor fears. Typically, VIX values <20 correspond to stable, low-stress periods in the markets.
Since the VIX is an index, you cannot trade it directly. But this is finance, so interested investors can speculate on movements in the VIX in a number of other ways: VIX futures, VIX options, VIX ETFs ($VIXY).
That was VIX 101! I hope it was helpful.
Lessons Learned From Working With Jeff Bezos
This is a great thread from Dan Rose, who worked with Jeff Bezos on the Kindle. This gives a window into the mind of a genius and the way that innovation and evolutionary technological changes are made. Just give it a read.
Time Is Money and Money Is Time
Benjamin Franklin famously stated that “time is money.”
I think the opposite is more accurate.
Money is time. It takes time to make it, and while money can be found, made or borrowed – time cannot. What we all truly desire is more time.
Money matters less than the opportunities it provides. The true value of money is that it buys us more time to do the things that matter.
Don’t chase money for the sake of having money. Think about what’s important to you and how money can help you in that way.
The above article is exceptionally long and complex, but it discusses how Bitcoin can buy us more time - the asset we truly desire. Here is a long excerpt:
"Bitcoin belongs in a certain class of momentous innovations — like antiseptics, electricity, or the internet — that either extend our lifespans individually or enhance our productivity and, therefore, our time savings collectively. These innovations expand our relationship with time in one or more ways: extending life expectancies, lowering time preferences, or enhancing productivity. Bitcoin promises to contribute to all three by being the best self-sovereign savings technology in history: reducing death tolls and capital destruction from warfare by financially starving governments, incentivizing savings and investment in innovation, and accelerating our productivity gains by reducing artificial and arbitrary trade frictions.
Bitcoin has the potential to bend the grand arc of human history back towards a free market paradigm. Bitcoin is doing this in the market for money, and its underlying technology may one day be applied to other markets like equities, bonds, and real estate. Going forward, Bitcoin promises to further liberate us from the clutches of time scarcity, eliminate time theft via inflation, reinvigorate individual sovereignty, and, as a cumulative result, radically increase social scalability worldwide. As Alfred North Whitehead said:
“It is a profoundly erroneous truism repeated by all copy-books and by eminent people when they’re making speeches, that we should cultivate the habit of thinking about what we’re doing. The precise opposite is the case. Civilization advances by extending the number of important operations which we can perform without thinking about them.”
As we continue our endless contentions with time scarcity, government-authorized money monopolies remain a scourge on our humanity. Central banking, an institution of monetary socialism and systemized time theft, has repeatedly wounded our individual sovereignty, time preferences, and freedoms throughout history. We mortals must break the shackles of this oppressive institution and focus our energies on innovating against time scarcity — the immortal tyrant. In doing so, we will create a world in which our children, their children, and all future generations are born able to live totally self-sovereign lives — forever free from the chains of governmental tyranny."
The Wolf Of All Streets Podcast Ft. Zoran Kole
Zoran Kole, Founder of popular Telegram group ‘Crypto Insiders’ and trading course ‘Tools of the Trade’ is a professional derivatives crypto trader. During boring college classes, he picked up crypto trading and became a Bitmex all-star. With 99% of his net worth in Bitcoin and a goal to accumulate 100,000 coins, he lives the mantra 'go big or go home.'
Zoran and I further discuss Bitcoin as a Swiss Bank in your head, entering the market at the Mt. Gox top, aggressively revenge trading, meditation and journaling to improve trading, the Bitmex liquidity engine, Pepe memes and crypto twitter, how to hold 99% of your net worth in Bitcoin, teaching people how to trade, generational wealth transfer, and so much more
Bitcoin Thoughts And Analysis
Bitcoin finally made a significant move and gave traders a definitive sense of direction. It did it in spectacular style, blasting through key levels with significant volume. I am long, obviously, as I have shared my macro levels countless times in the past months. Let's dig into the charts.
MONTHLY CHART
Boom. Absolutely beautiful monthly candle in the works. $9,243 proved to, once again, be the most significant level on the chart. Every candle for the past year, with the exception of 1 has had an important interaction with that level, which acted as the springboard for this huge bullish move up. $10,540 was the key level for a macro higher high for the first time since the drop from the $14,000s. Price smashed that level in stupendous fashion and closed well above on the daily.
Take note of the pink line at $10,761. Bitcoin has only closed 1 MONTHLY CANDLE (shown by red arrow) above that line... ever. It would be huge to see this candle close above that level, but we still have a few days left to wait and see. The one candle that did close above that level wicked all of the way up to the all time high around 20K. No monthly candle has EVER closed above $13,863, which is the next macro target if price closes above the pink line this month.
Remember this chart? I posted it a month ago, showing that MACD was confirmed a bullish cross and that price was breaking resistance on the monthly chart. This candle launched EXACTLY from that line, with a retest as support. With MACD confirmed that bullish cross, we should see continuation up (if you are a MACD trader).
The only small concern is the monthly volume - it's not significant at all and is the lowest of any recent month. That said, it's a result of being sideways for weeks. The volume the past few days has been massive. We want to see August have a large volume bar.
WEEKLY CHART
I did not catch the immediate breakout past the upper blue line, but did enter a long around $9,900 when the weekly candle closed above. We have been watching those 2 blue lines for MONTHS now and I said countless times that I would go long if the upper one broke, or short if the lower one broke. Well, bitcoin decided for me.
I mentioned volume on the monthly chart was low... but look at the volume here. We are only two days into the week and this week's volume is almost equivalent to last week's. Crazy, crazy buying.
We really want to see the weekly candle close above the red line to further confirm that breakout and the new higher high. It is already confirmed on the daily.
Price can always drop, anything can happen. But from the perspective of market structure, we have made a higher high and the "bear market" or down trend is eliminated. Now you buy dips until proven otherwise.
DAILY CHART
Key levels are shown. Bitcoin has gone parabolic on the daily chart and below. When there’s a bus coming and you’re standing in the middle of the road, it’s generally best to get out of the way. That's bitcoin for the moment. I am buying dips.
4 HOUR CHART
This is an update of the chart that I shared a few days ago. As you can see by the blue check, bitcoin first made the local higher high, signaling a bullish break in local market structure, dating back to the $10,400 high in June. Nothing but bullish from there. Hard to see any reason here to jump into a short, unless you are just looking to scalp a quick retrace, which should happen at some point.
Altcoin Charts
DUSK/BTC
I took a shot on this at 465 yesterday on the drop when I saw price bounce and come back to that level. I sold 50% of the position already at 520 - a great scalp. My stops now are below the lower line, around 386.
Legacy Markets
I am still in all of the stock trades discussed - APT, CODX, CRON, DYNT and NBY
I am still in all of the stock trades discussed - APT, CODX, CRON, DYNT and NBY. No reason to reinvent the wheel here, they all look fine.
I am still in all of the stock trades discussed - APT, CODX, CRON, DYNT and NBY. No reason to reinvent the wheel here, they all look fine
I am still in all of the stock trades discussed - APT, CODX, CRON, DYNT and NBY.
XAG (SILVER)
I am out of most of my silver trade now, as it hit my main targets. I always have some silver as an investment, but I did not expect to do almost a 2x in a matter of months on this asset. Incredible. This monthly candle went EXACTLY level to level between the 2 lines of resistance and support that I drew, which were my 2 targets for the trade. Crazy.
XAU (GOLD)
Peter Schiff is euphoric, as gold managed an all time high before bitcoin. I am still in gold. I want to see a close above the all time high here on the monthly. From there, I would expect a retest as support and then price discovery.
My Recommended Platforms And Tools
This is where I invest, commission-free. They now let you earn interest on your Bitcoin held in Voyager, so you can compound while trading. Not only that, you’ll get $25 in free BTC when you download & fund.
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This is where I trade with leverage and can also trade spot with no fees.
I use RoundlyX to buy small amounts of Bitcoin every single day. They automatically round up my credit card purchases (with 10x multiplier) and invest them in crypto. Absolutely brilliant. Passively invest money you don’t need without a thought. Further, they have integrated with Voyager (see above) to offer commission-free purchases.
Rewards Code: WOLF
This is where I spend my days teaching and learning! Our Discord group is a one stop shop for everything you need to learn to trade and control your emotions. Feel free to DM me on Twitter or respond to this email for questions.
Self-Directed IRA for Americans - allows you to invest in Bitcoin and any other asset for your retirement, with all of the tax benefits of a normal IRA.
Concierge Phone Service for Americans that protects your from SIM Swaps and other phone related hacks. I cannot stress enough how amazing this service is.
A new crypto rewards debit card that I have been testing and loving. I use both the virtual card online and the physical black card at actual retail (I will do this more after COVID!). They offer 6.38% cash back in crypto, which is really astounding.
Bitcoin Thoughts And Analysis
BlockFI is where I personally store part of my long holdings. They offer up to 8.6% annually, compounding, depending on the asset (BTC, ETH or GUSD), which is much better than any legacy savings account or investment.
They are currently offering 2X interest for a month, which is a huge benefit. https://blockfi.mxuy67.net/c/2059835/849632/10568
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
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.