The Wolf Den #815 - What Would You Do If...
If you knew the future price, would you buy now or wait?
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In This Issue:
What Would You Do If…
Bitcoin Thoughts And Analysis
Markets Are Starting To Believe The Central Banks
Crypto vs. The U.S. Debt
Are Ethereum And Vitalik In Trouble?
Mt. Gox Delays… Maybe For The Better
Flash Crashes Aren’t What We Think
Market Mavericks Is Live
Bitcoin Bull Market Is Coming | Haseeb Qureshi
What Would You Do If…
It’s your lucky day. While you’re sipping on your coffee, reading this newsletter, a deity descends from the heavens and taps you on the shoulder. You turn around.
Squinting against HIS radiance, you realize you are face to face with God, whose commanding voice asserts the following: during this bull run, Bitcoin will rise to at least $100,000, and Ethereum will reach a minimum of $10,000. After delivering this proclamation, God warns you not to take on leverage, for the consequences would be catastrophic. And in an instant, he vanishes.
What do you do?
Not a moment after God's sudden disappearance, you swiftly turn back to your computer screen to check the prices of Bitcoin and Ethereum, which stand at approximately $26,500 and $1,600, respectively. In that instant, you calculate that, at a minimum, if you were to buy at that very moment, you would be looking at extraordinary returns of +277.358% and +525%. A 3.77x and 6.25x increase in prices.
Faced with this extraordinary knowledge, what should you do?
The wisest course of action would be to heed God's advice and avoid leverage. It would be a shame to see the price go down first and liquidate your position, only to later see the prophecy fulfilled. Additionally, you might consider focusing solely on Ethereum, as it appears to be the more promising of the two assets. However, for the sake of this newsletter, let's assume that our investor wishes to hold both assets, creating a dilemma.
When should our investor buy?
For the sake of simplicity, let's assume our investor has $42,500, which is just enough to purchase 1 Bitcoin and 10 Ethereum at their current prices. The investor won't have any more or less cash as time passes. This is his nest egg.
Doing some straightforward math, the investor calculates that buying 1 Bitcoin and 10 Ethereum for $42,500 would yield at least $200,000, resulting in a profit of $157,500. But what if there's a better deal out there?
Our investor has a hunch that Bitcoin might retest the psychological support around $20,000, and Ethereum might dip to $1,200. In this scenario, by spending a total of $32,000 (1 Bitcoin + 10 Ethereum), the investor can save $10,500 for a family vacation. It's certainly tempting.
However, let's analyze why this might not be a wise idea. While it's admirable that our investor wants to take his family on vacation, we must remember that the primary reason for investing is to grow wealth. Waiting for a lower price to save $10,500 is a poor investment strategy, I’ll explain in a moment. For now, let's consider an alternative approach.
Our investor still believes that Bitcoin might retest the $20,000 support and Ethereum could drop to $1,200. This time, he decided to use the entire allotment of capita when that happens (no guarantees it will), $42,500 for the purchases. Instead of buying just 1 Bitcoin for $26,500, he purchases 1.5 Bitcoin for $20,000. Likewise, instead of buying 10 Ethereum for $1,600, he purchases 10.41 Ethereum for $1,200.
With Bitcoin at $100,000 and Ethereum at $10,000, our investor now holds a portfolio worth $252,100, resulting in a profit of $209,600. Not bad at all.
Now, let's discuss. Firstly, there's a significant risk associated with the initial hunch. Our investor is holding a free ticket to make a profit of $157,500 with zero risk whatsoever. Executing this specific hunch turns a risk-free play into a potential $209,600 profit, but one that may never realized if price does not drop to his bids.
It ain’t worth it.
The key takeaway here is the importance of accumulation over timing. Time in the market > timing the market. Did you notice the relatively small profit difference when our investor chose not to accumulate more crypto and opted for the family vacation instead? While we appreciate the investor's family-oriented mindset, from an investment perspective, this decision was far from wise. Bitcoin experienced a 25% drop, yet our investor only gained an additional $10,500 from that massive dip.
While I don't think a supernatural being will grace the Earth to discuss asset prices, I do think we should all focus on accumulating as much as possible while taking on the least risk possible.
As always, let’s have a killer week and get after it.
Bitcoin Thoughts And Analysis
Bitcoin saw a small dip into the weekly close, taking price from $26,500 where it traded most of the week to juts above $26,000. That’s it, a $400 move!
It did leave an ugly weekly candle, with a long wick up and small bearish body. Not ideal, but clearly we are not getting major motivation from either side at the moment. Every push down is bought. Every push up is sold.
Sideways chop.
Rejected at the 50 MA. No surprises here. Lots of resistance ahead and not much volume to push through. Boring.
Markets Are Starting To Believe The Central Banks
Government bonds have slumped as traders increasingly believe that central banks around the world will keep interest rates elevated to curb rising inflation. This shift in sentiment has also resulted in losses for U.S. equity futures, particularly impacting the S&P and Nasdaq. The dollar has strengthened to its highest point since March, and Germany's 10-year yield rose to its highest level since 2011. Concurrently, concerns over China's property market are weighing down mining shares and natural resources, exemplified by Rio Tinto Plc's 5.2% fall. Oil prices are rallying again as hedge funds bet on tightening supplies, increasing the inflationary pressures that central banks are trying to manage.
Last week's central bank decisions have solidified the expectation of a "higher-for-longer" interest rate environment. Traders are worried that rising oil prices, along with other inflationary factors, will make it difficult for policymakers to reduce rates in the near future. Two Federal Reserve officials indicated that more rate hikes may be necessary to bring inflation back to the 2% target. All of these developments are taking place against a backdrop of concern about China's economic stability, particularly in its property sector, raising fears that the world's second-largest economy could become a drag on global growth. The overall sentiment suggests that high interest rates are likely to be a fixture for some time, affecting bonds, equities, and currencies alike.
Key events this week:
Minneapolis Fed President Neel Kashkari in Q&A, Monday
ECB’s Francois Villeroy de Galhau speaks on monetary policy, Monday
US new home sales, Conference Board consumer confidence, Tuesday
ECB’s Philip Lane speaks on monetary policy, Tuesday
China industrial profits, Wednesday
US durable goods, Wednesday
Eurozone economic confidence, consumer confidence, Thursday
US initial jobless claims, GDP, Thursday
Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
Eurozone CPI, Friday
Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
US consumer spending, wholesale inventories, 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 fell 0.6% as of 10:43 a.m. London time
S&P 500 futures fell 0.1%
Nasdaq 100 futures fell 0.2%
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index fell 0.5%
The MSCI Emerging Markets Index fell 0.6%
Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.2% to $1.0631
The Japanese yen fell 0.2% to 148.60 per dollar
The offshore yuan fell 0.2% to 7.3128 per dollar
The British pound fell 0.2% to $1.2220
Cryptocurrencies
Bitcoin fell 1.6% to $26,080.9
Ether fell 1% to $1,574.75
Bonds
The yield on 10-year Treasuries advanced six basis points to 4.49%
Germany’s 10-year yield advanced six basis points to 2.80%
Britain’s 10-year yield advanced six basis points to 4.30%
Commodities
Brent crude rose 0.4% to $93.60 a barrel
Spot gold fell 0.2% to $1,922.21 an ounce
Crypto vs. The U.S. Debt
Did you know that the U.S. debt is approximately 33 times the size of the entire crypto market capitalization? “This means that the United States government would need the equivalent of all the money in more than 30 crypto markets in order to repay all the investors that somehow are betting on the country’s financial health.”
So what do you think is a better bet, crypto or U.S. debt?
Are Ethereum And Vitalik In Trouble?
A former advisor who played a pivotal role in Ethereum's early days has initiated a legal offensive against Vitalik and Dimitry Buterin, the renowned father-son duo. The allegations include character assassination and other contentious matters dating back to the Ethereum ICO era. For those who might be unfamiliar, Nerayoff and his associate, Michael Hlady, were previously facing allegations of extorting a cryptocurrency startup several years ago but in a shocking twist, a district court dismissed the case opening up another can of worms.
The rabbit hole in this situation runs deep and I plan to cover this story in more detail on CryptoTownHall, but from my preliminary assessment, it is crucial to emphasize that this development does not, in any way, shape, or form, shake my confidence in Ethereum. Consider this: can you name an ICO that unfolded flawlessly? Furthermore, even if the issue of "character assassination" were to escalate into a courtroom battle, it is unlikely to exert a significant impact on the future trajectory of Ethereum. Vitalik's ample financial resources can readily absorb any associated legal expenses, so this story should not trigger undue alarm. Rather, it is emblematic of the typical dramas that accompany bear markets.
Mt. Gox Delays… Maybe For The Better
I empathize with all of the affected creditors who have been patiently waiting for nearly a decade for Mt. Gox to fulfill its promised reimbursement. However, perhaps investors having to endure an additional year of waiting isn't entirely negative. While it's undoubtedly crucial for investors to recover their owed funds, the reality of the situation is that many creditors are likely to sell their assets shortly after receiving their reimbursements.
If we consider the accuracy of the 4-year market cycle, waiting until later in 2024 might yield better prices than the current period, which could cause some creditors to miss out. Regardless, the new reimbursement date has been postponed from October 31, 2023, to October 31, 2024. Let's hope this extension ultimately works out for the better. After all, Mt. Gox creditors will likely go down as the most profitable cohort of traders in crypto history, even after receiving a fraction of the amount of crypto they once owned.
Flash Crashes Aren’t What We Think
Flash crashes are not as frequent as they used to be, and this shift may be attributed to the fact that they are often the consequences of human error rather than technical glitches. According to a former Alameda employee, on October 21, 2021, a decimal place mistake in a sell order led to a significant amount of Bitcoin being sold for pennies on the dollar. This mishap resulted in what is commonly referred to as a 'flash crash,' a phenomenon that even Binance.US acknowledged as being caused by a “bug in their trading algorithm.” The losses incurred by Alameda were devastating, amounting to tens of millions of dollars due to a simple misclick. The takeaway from this incident is that flash crashes are more likely to be traced back to human errors, such as the one described here, rather than being solely attributed to exchange 'glitches' or 'bugs.'
Market Mavericks Is Live
The inaugural show of Market Mavericks is live with Gareth Soloway and Mike McGlone! Market Mavericks is made for technical analysts; it’s 37 minutes of pure charting across all markets. The first episode was a ton of fun, I hope you all enjoy it as much as I did.
Bitcoin Bull Market Is Coming | Haseeb Qureshi
Haseeb Qureshi is among the leading minds in the crypto world. Our second meeting took place in Singapore during Token2049. Tune in to hear Haseeb's insights on the future trajectory of crypto, where he explores dominant narratives and shares where he's placing his investments.
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.