The Wolf Den #82 - Financial Literacy, Trades And More
The CFTC Chair Is Bullish On Blockchain
"The nation’s top commodities regulator, who recently marked his first anniversary at the CFTC, detailed his approach to cryptocurrency in a wide-ranging interview with CoinDesk. Tarbert noted that many of crypto’s unique attributes – namely borderlessness and decentralization — require a thoughtful approach.
“Our entire financial and economic system outside the current system, the non-crypto system basically evolved since, one could argue, the Renaissance in Italy,” he said. “Whereas what people are doing in the digital asset space is effectively building within a decade or less an entire economic system based on human incentives and trust … I just find that fascinating.”
Tarbert specified that he is interested in the way developers are incorporating “hundreds of years of accumulated knowledge about human behavior and economic incentives” as well as cryptographic methods originally used in national security applications to build these digital commerce systems."
Bullish!
Institutional Adoption? Crypto Funds Are Growing
Crypto hedge funds are growing by leaps in bounds both in quantity and assets under management. From a survey by PricewaterhouseCoopers:
“Our Q1 2020 research shows that there are around 150 active crypto hedge funds. Almost two thirds of these (63%) were launched in 2018 or 2019. The average AUM increased from US$21.9 million to US$44 million.”
PwC partner and global crypto leader Henri Arslanian was quoted by Bloomberg:
“I expect the crypto hedge fund industry to grow significantly over the coming years as investing in a crypto fund may be the easiest and most familiar entry point for many institutional investors looking at entering this space.”
The big money is not going to spot buy bitcoin on Coinbase - they are going to invest in hedge funds and let the "big boys" handle their money.
Every sign is on the wall that institutional money is here... and the flood gates are opening.
90% Of Purchased Ethereum Is In Profit
90% of the Ethereum that has ever been purchased is currently in a "state of profit." Think about that. The current price of Ethereum is under $400. It once traded at over $1,400. Most people would assume that there are a ton of traders and investors who are dramatically underwater on Ethereum. Not the case.
This displays the power of dollar cost averaging. Because Ethereum (and Bitcoin) spent so little time near their respective all time highs, almost everyone who has invested slowly over time is wildly in profit. I have always been a proponent of DCA, and therefore bought both ETH and BTC near the all time highs in 2017. It doesn't matter, because those were small purchases that barely affect my lower cost basis.
Unless you bought Ethereum once, near the end of 2017 or beginning of 2018, your investment is likely in profit.
On that note...
Tetras Capital, a crypto hedge fund known for shorting ether (ETH), is reportedly shutting down.
Is The Altcoin Cycle Just Starting?
Nik Patel, quite literally, wrote the book on altcoin trading (An Alt Trader's Handbook). While this tweet may sound like pure hopium, I tend to agree with the idea that altcoins are presently in the disbelief cycle of the classic Wall Street Psychology Cheat Sheet.
As I have mentioned countless times, retail is still largely disinterested in crypto. We have not seen increased google searches and anecdotal evidence points to the fact that average people are not buying. I believe that they will become more interested soon, lending credence to the idea that we are just at the beginning.
The Story Of Charles Ponzi
By Sahil Bloom:
In 1920, long before Bernie Madoff was born, an Italian immigrant named Charles Ponzi was concocting a scheme to make himself rich. Ponzi's eponymous scheme would inspire future generations of fraudsters (including Madoff). It is a truly amazing tale! Who's up for a story?
Charles Ponzi needed a new scheme. Since arriving in America from Italy, his life had been a series of flops. By 1918, when he moved to Boston, he had served time in prison in both Canada and the US. But his confidence never faded. Soon, he had hatched his next plan.
His plan involved a seemingly innocuous instrument - the Postal Reply Coupon ("PRC"). Postal Reply Coupons were redeemable for stamps. They were created by the postal authority to enable immigrants to more easily and cost effectively correspond with relatives back home.
Charles Ponzi noticed an arbitrage opportunity. You could use dollars to buy PRCs in Europe, come to America, and then redeem the PRCs in America for postage more valuable than what you paid for the PRCs in Europe. He just needed investors and capital to execute the plan!
Ponzi created a company - the Securities Exchange Company* - and began pitching investors on the opportunity of a lifetime. He would guarantee a 50% return in 45 days or a 100% return in 90 days. Their choice! Note: The irony of the SEC abbreviation is amazing.
In February 1920, soon after launch, with his smile and easy confidence, he had taken in $5K from investors. But executing the PRC arbitrage would be logistically challenging. So he didn't do it. Instead, he used new investor funds to show returns to the original investors.
Overjoyed by their "returns," early investors rolled their gains into new investments with the company. Then they told all of their friends about the incredible opportunity. The party was on for Charles Ponzi. Total managed $s exploded: March - $30K; May - $400K; July - $3M.
Money poured in from investors across New England. From policemen to factory workers to housewives, everyone wanted access to Mr. Ponzi's offering. At its peak in August 1920, Charles Ponzi's scheme had ~17,000 investors and had taken in ~$10M, equivalent to ~$135M today.
But the perfect facade soon began to crack. The Boston Post printed articles questioning the legitimacy of the returns. Investors rushed to withdraw funds. Ever the confidence man, Charles Ponzi famously served coffee and donuts to a line of investors awaiting withdrawals.
With no new money coming in to meet investor demands, Charles Ponzi was declared insolvent and arrested, his brazen fraud finally exposed. The entire episode lasted just ~8 months, but Ponzi had managed to take in millions. All without buying a single Postal Reply Coupon.
And so the "Ponzi Scheme" was born. Future fraudsters like Bernie Madoff would use this blueprint - using new money to provide returns to old money - but with ever increasing scale ($60B+ in Madoff's case!).
After serving his prison sentence in America, Charles Ponzi was deported back to Italy. His final words for reporters: "I went looking for trouble, and I got it." He died in 1949 at the age of 67, alone and penniless, but his eponymous scheme lives on in infamy.
Risk : Reward Anatomy
This is a spectacular read from Inmortal Technique, and summarizes a ton of information on properly managing risk and on handling a trade once your are already committed. I do not personally utilize "R" as much as many other trades, but for those that you do this is a thorough guide on how to approach every setup.
You should read the entire thing... then read it again.
The Wolf Of All Streets Podcast Ft. Anthony Pompliano
Anthony “Pomp” Pompliano is arguably the most well-known figure in the bitcoin community. He is the co-founder of Morgan Creek Digital and runs a massive media platform, anchored by his Twitter, Podcast, Newsletters, and YouTube account. From serving in the military to interviewing some of the world's wealthiest, smartest and most innovative people, Pomp cannot be "put in a box." He consistently stays ahead of the curve and competition.
Pomp and I further discuss Twitter as Tik-Tok for intellectuals, eating ice cream in the Iraqi desert, the intellectual dark web, truth over consensus, the great financial education awakening, mining ethereum at $10, bitcoin evolving from arcade money to hard currency, the death of paper money, beating the cards you were dealt, bitcoin’s multi-decade plan and so much more.
Bitcoin Thoughts And Analysis
We are buying dips, right? There is nothing overtly bearish about Bitcoin at the moment after breaking through key levels and holding them as support. Let's look.
MONTHLY CHART
July close in absolutely spectacular fashion, bounce hard from $9,243, breaking $10,540 and closing above $10,761 for only the second time in history (pink line). The monthly confirmed a macro higher high for the first time since the rise to the $14,000s on a massive bullish candle. August has already come back to retest the $10,540 area as support. It's so early in this candle, but seeing August close above that level should indicate that Bitcoin is ready to absolutely fly.
WEEKLY CHART
It was pretty straightforward, right? Long above the top blue line, short below the bottom blue line.
I have added key weekly levels over head, all of the way to the all time high. Let's hope those targets come into play! For now, we want to see price remaining above the red level, which was the line broken to make a higher high. If we see that break, I would kill to grab a long on a wick down to the upper blue line, which was never really tested as weekly support.
DAILY CHART
Not much to see here. What I want to note is the sizable drop that we saw 2 days ago - about $1500 in 15 minutes. That has a lot of people scared, and it should at least be on your radar. that said, it was on large volume, but not as large as the bullish candle days before. So we had a major move up on strong volume and now have decreasing volume from the top - usually viewed as bullish consolidation.
4 HOUR CHART
A few interesting notes on lower time frames. First, I view the blue trading range as the key for now, even though there was the deviation to the top. You can see that the massive drop candle had a small SFP at the bottom of this range - a wick below and close above. Liquidity was CLEARLY engineered there for longs. That would indicate that there's still some liquidity there if it drops, or that the liquidity has likely moved up a bit, below the area of the range EQ where the last wick bottomed out. I still think the best entry for now would be something like the blue circle - a test of ascending support, a slightly higher high from the big drop down and a range low test. I have heavy bids in that area.
Altcoin Charts
I have said a number of times that "alt season" comes in waves. There are always Bitcoin moves that affect price and then sustained periods where alts look shaky. We have been in one of those periods in the past week or two, although there have still been some opportunities for profit.
The best indicator of when that may change is arguably Bitcoin Dominance.
(I still like COMP, SXP (what a trade!) and PNT, among others that I have posted before).
BITCOIN DOMINANCE
Bitcoin Dominance bounced last week perfectly off of support at 61.71. This led to a major alt sell off as Bitcoin moved. That said, Bitcoin Dominance once again was rejected at the horizontal level of 64.17.
It is currently back at 61.71. The more a horizontal support is tested, the weaker it becomes. This is a critical moment for alt season continuation. If it bounces, alts will suffer. If it drops here and flips 61.71 to resistance (as you can see it did at past levels in the red circles), we should see another serious alt party. There's nothing but open air below.
ERD/BTC
Yes, I remain bullish on Elrond. Everyone is asking.
I have traded this like a madman with success and intend to continue doing so. They saw a predictable mainnet drop, which seems to happen on big news from almost any altcoin. At present, price appears to be in a large descending wedge. The trade I am looking for is a clear break of the top ascending white line. That would signal a likely move back to the all time high, so a target around 290 sats.
VET/BTC
VET has been in a sustained downtrend since topping out a month ago. That said, there's no reason for this not to continue back up after consolidating. Price seems to be once again breaking descending resistance, although we saw one failed attempt previously. 158 is an old and important horizontal level, so for me holding that as support is what is important here. You can use the black lines and blue fibs as targets as you see fit.
WRX/BTC
This has been a tough pair to figure out and we have traded it with mixed results. That said, it once again appears to be at a likely bottom. I view this blue zone as a very old bullish breaker - an are that should have acted as supply but was broken in a single large candle. Those become "bullish breakers" when successfully retested as support. The jury is still out as to whether this retest can be considered a success.
That said, we have oversold RSI with a bullish divergence and a retest of the blue resistance as support. I really like the R/R here. I would personally set stops slightly below the recent low at the bottom of that long wick. A safer entry now is a clear move above the blue zone and retest as support, if it happens. Initial targets are the white zone above and then the black lines drawn above if it really gets going.
Legacy Markets
CODX went crazy! Over a 70% gain in a couple of weeks, right after Tupperware did the same. We are having fun over here!
DXY (US DOLLAR INDEX)
I have presented my thesis a number of times regarding the inverse relationship between the dollar and Bitcoin. Dollar strength has generally coincided with Bitcoin weakness and vice versa.
This is arguably the most pivotal moment we have seen for the United States Dollar since it bottomed in 2008.
This ascending channel has been intact for over 10 years. If it breaks down, we should see sustained weakness in the dollar. If it bounces here (strong support), then this could be the bottom.
Keep in mind, a weak dollar is a core tenet of the White House's strategy to boost the stock market - they want it devalued.
This is the time to start paying attention to value of a dollar.
SMED (SHARP COMPLIANCE)
A few weeks ago, my internet friend John Serwach (follow him), mentioned that I should take a look at SMED. I did, and should have bought immediately! They make Sharps containers, which are the red plastic units you see in every doctors office for safe disposal of needles and medical waste. With a vaccine on the horizon that the ENTIRE WORLD will need, there will be a LOT of syringes etc. to dispose of.
Price has absolutely ripped the past few weeks, which makes it a tenuous buy. That said, it has formed a massive bull flag and is approaching a key level of horizontal resistance at the highs from earlier this year. A move above $8.19 and a flip of that level to weekly support should see this continuing further up.
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.
Rewards Code: Scott25
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.
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.
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.