The Wolf Den #83 - Bullish Bitcoin, Chart Requests, Trades
Cash App Should Be Renamed Bitcoin App
The Cash App saw a massive increased in Bitcoin revenue, jumping 600% in only 3 months. Bitcoin is basically driving their entire business! It's no wonder that PayPal and Venmo are getting ready to join the party. Check out the tweet below...
Gold Is "Boomer Bitcoin"
There are various narrative for what Bitcoin is - store of value, digital, cross border payment solution etc. The above report states the obvious - during this pandemic, older investors have run to gold as a store of value, while younger investors have increasing begun to buy Bitcoin. I jokingly named Gold "Boomer Bitcoin" on twitter, because that is somewhat how a younger generation would view it
As I have always claimed, there is room for both gold and Bitcoin in a portfolio, although I think Bitcoin has far more utility. Regardless, we know that a historic transfer of wealth will eventually occur, with Baby Boomers passing their wealth to a younger generation. It is becoming somewhat clear where their children will invest that newfound wealth.
Why Markets Ignore The Economy
Interesting take on the disconnect between the economy and the market, and not one that I had considered. I am still of the mind that the stock market is on meth and is detached from reality - but always interesting to see the other side of the argument, which seems valid.
From the article:
Market capitalization explains why.
Start with some of 2020’s worst-performing industries: Year-to-date (as of the end of July), these include department stores, down 62.6%; airlines, off 55%; travel services, down 51.4%; oil and gas equipment and services, down 50.5%; resorts and casinos, down 45.4%; and hotel and motel real estate investment trusts, off 41.9%. The next 15 industry sectors in the index are down between 30.5% and 41.7%. And that’s four months after the market rebounded from the lows of late March.
These are highly visible industries, with companies that are well-covered by the news media with household names known to many consumers. Retailers are everywhere we go. Gas stations, chain restaurants and hotels are ubiquitous in cities and suburbs across the country.
So although high visibility industries may be of considerable significance to the economy, they are not very significant to the capitalization-weighted stock market indexes.
Consider how little these beaten-up sectors mentioned above affect the indexes. Department stores may have fallen 62.3%, but on a market-cap basis they are a mere 0.01% of the S&P 500. Airlines are larger, but not much: They weigh in at 0.18% of the index. The story is the same for travel services, hotel and motel REITs, and resorts and casinos.
The market is telling us that these industries just don’t matter very much to stock market performance. And the sectors that do matter? Consider just four industry group -- internet content, software infrastructure, consumer electronics and internet retailers -- account for more than $8 trillion in market value, or almost a quarter of total U.S. stock market value of about $35 trillion. Take the 10 biggest technology companies in the S&P 500 and weight them equally, and they would be up more than 37% for the year. Do the same for the next 490 names in the index, and they are down about 7.7%. That shows just how much a few giants matter to the index.
On some level, it’s completely understandable why many people believe that markets are no longer tethered to reality because the performance doesn’t correspond to their personal experience, which is one of job loss, economic hardship and personal despair. But what’s important to understand is that indexes based on market-cap weighting can be -- as they are now -- driven by the gains of just a handful of companies.
We can argue about whether the way the market reacts is good or bad and never reach a satisfying conclusion. But one thing the market isn’t is irrational or disconnected from is the reality of market capitalization, and its impact on stock indexes.
Short Squeeze 101
By Sahil Bloom:
If you follow financial markets, or if you watch Billions, you've heard the term "short squeeze" quite frequently. But what is a "short squeeze" and how does it work? Here's Short Squeeze 101!
First, the basics. The "short" in "short squeeze" refers to the concept of short selling. Short selling is a way of betting against a stock - i.e. betting that its price will decline. "Short interest" is a measure of how heavily an asset is shorted by the market. It is the total number of shares that have been sold short (borrowed and sold), but have not yet been covered (bought and returned). It is usually measured as a % of the # of shares outstanding.
A "short squeeze" occurs when a heavily-shorted asset experiences a rapid upward price movement. When this happens, short sellers may be forced to close their short positions (i.e. buy the stock and return it to the broker), further accelerating the upward price movement.
Let's look at a simple example to show this in action. We will use Tesla, one of the most heavily-shorted stocks in the world. Imagine the stock price is $1,000 per share. This seems crazy. Ricky Rational decides to short the stock at this level.
Ricky borrows 1 share from his broker, agreeing to return the borrowed share in the future. He sells it short at $1,000. If the price declines, great. He is now able to buy a share at $800. Ricky returns that share to his broker and closes his short with a $200 profit!
If the price rises, not so great. His broker gets nervous about his ability to pay and forces him to replace the borrowed share. He buys a share at $1,200 and closes the short in a loss. In both cases, the "closing" of the short requires a purchase of shares of the stock.
Therein lies the makings of the short squeeze! If Tesla stock rapidly rises (which it does too often), Ricky and many others may all be forced to close their shorts at once. This creates a surge of buying (to return the borrowed shares) and drives the price up further.
Short sellers are literally squeezed out of the market. You can track short interest in specific stocks to determine when one may be occurring. So next time you see a chart that shows a sharp rise, followed by another, even sharper rise, you may be seeing a short squeeze.
That was Short Squeeze 101! I hope it was helpful.
Coins For Nothing And Your Trips For Free
By John Serwach:
Scott Melker and I had a brief Twitter exchange the other day over coins – not crypto coins but physical money, quarters, dimes, nickels and pennies. With Covid raging across the country and Cokes now costing two bucks he was arguing for their elimination. I, being ever more the relic with each passing day responded that I liked coins and that no amount of Crypto would ever match the feeling of that first time you dropped a coin in a slot and music came out. I know, I know - OK BOOMER. But what if I told you I would sell you $100 worth of coin for $99.00 or even as low as $95.00, and I’ll sell you as much coin that way as you like? Would that get your attention? This is a short story about how the U. S. Mint did just that not too long ago.
Ten years ago the average paper dollar used to stay in circulation for about 17 months before it became too worn or damaged and had to be removed and destroyed. Many countries like Canada and England did away with their version of the paper dollar or one pound note and replaced them with coins to save the cost of printing money since arguably a coin can stay in circulation forever. Ultimately the United States Mint decided to follow suit and roll out a series of one dollar coins. The Mint had already issued a “Sacagawea” (she’s the Native American who served as a guide to Lewis and Clark when they mapped the Louisiana purchase) coin but it wasn’t being used much. The clever marketing people at the Mint came up with a new U.S. Presidents series of one dollar coins. Washington, Jefferson, Adams and Madison were the first and the plan was to introduce a new coin every 6 months or so with the next President. But the mint had a problem. They wanted the coins to replace the dollar and be widely circulated. To encourage people they decided to sell the coins thru the mint directly and to entice buyers they offered Free Shipping and best of all you could pay with a Credit Card with NO FEES.
Clever Americans did what they do best. They signed up for Credit Cards that offered huge bonuses if you met an initial spend requirement which they now could easily do by buying the coins direct from the Mint and then depositing the coins in their bank to pay the bill. Credit Cards were also paying rewards either in points, miles or cold cash. People in the know were buying $20,000 a month in one dollar coins and the UPS man would drop them on their front porch using a dolly (they were very heavy). I participated in the debauchery. A 2% return on $20,000 was an easy $400 a month profit. If you used the miles for travel you could earn the equivalent of 5% or more in some instances.
Credit card churners were acquiring points and miles and racking up free flights in First Class for the minor inconvenience of lugging around boxes of perfectly rolled coins form the U.S. Mint and depositing them in the bank. Many felt like heroes as they were “sticking it to the man”. One woman I know eventually had a SARS- “Suspicious Activity Report” filed by her bank manager and one day she got pulled into a conference room to be questioned by waiting Secret Service Agents. From her description it was to say the least an uncomfortable moment. They listened to her explanation, eventually chuckled and said “don’t do that anymore.” She complied.
Eventually, like all great deals the Mint program came to an end and others have come along to replace it. When the Obama administration came in they recognized the abuse of the program and put a stop to it. (Thanks, Obama). Nevertheless, I still love coins and I’ll always have good memories of my time with the Mint.
The Wolf Of All Streets Podcast Ft. Andrew Elliott
Andrew Elliot, CEO of RoundlyX, has changed the way that people buy Bitcoin. His unlikely introduction to Bitcoin began in between military intelligence patrols in Iraq and Afghanistan. As he witnessed a failing, poverty-stricken government, he realized that crypto could help bank the unbanked. His passion for the crypto space led to the founding of RoundlyX, the simplest and most accessible app to invest in crypto.
Andrew and I further discuss military intelligence and high-value targets, Iraq’s high-speed internet via satellite, fly-ridden meat and SIM cards for sale, the simplest tool for mainstream adoption, a digital cold war, Bitcoin only being the size of Comcast, poverty at the root of all issues, Peter Schiff’s emotional hatred toward Bitcoin, kids being inherently inflationary, a honeybee business, and so much more.
Bitcoin Thoughts And Analysis
Bitcoin remains bullish and effectively nothing has changed with regard to the chart. It did not drop to the area I was looking to reenter a leveraged position, but has continued up. We can zoom into the hourly chart to try to see something new, but there's not much!
Price broke out of the main trading range and continued its bullish momentum. It never saw the drop to ascending support that I was hoping for for an entry. Price made a new hyper local range which it has now broken above and tested as support. The red zone is fresh supply, I would expect resistance there, as a lot of sell orders were likely left behind on that huge drop. Breaking through this area and flipping it to support should send this past the local highs to higher targets on larger time frame charts shared on Tuesday.
Bitcoin Dominance
As discussed on Tuesday, BTC Dominance found support on the pink line, really a key level. We were looking for a break down to signal a potential alt season continuation, but as of yet that is not to be. It has found a little resistance at a local level, but I am once again watching to see this drop before getting excited about alts.
Altcoin Charts
As I mentioned, altcoin charts are a bit of a mess. Bitcoin made a move, so altcoins are somewhat resetting. I am personally still waiting to see what kind of patterns form. I am still in COMP, WRX etc. I exited SXP on the news of the delayed airdrop. Otherwise nothing has changed. VET hit its first target, dropped for another entry and hit the target again. Fun.
ALGO/BTC
ALGO looks decent here. It flipped the 4 hour 200 MA from resistance to support, which is often a nice entry on altcoins. What I am watching now is for a potential double bottom to confirm, which would require a clear break of the blue line. The target is shown based on the depth of the potential double bottom. So at this point, I want to see the blue line as support.
BQX/BTC
I love Voyager, and their coin is forming a giant bull flag. A break of the top should send price flying, with the upper black line my immediate target.
That's it, it's that simple. I will not buy until I see that flag broken, and may not until 1866 is flipped to support. So this may never trigger.
Legacy Markets
SRNE (SORRENTO THERAPEUTICS)
Unfortunately the newsletter did not come out yesterday when I was looking at this. It's another COVID play - they are developing a rapid test. If you are not in, I would look for a retest of the recent resistance that was broken at $10.71 or so. I think this will target the mid 20s if not higher. Wall Street has also adjusted their targets up on the good news.
My Recommended Platforms And Tools
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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.
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
Chart Requests
BNB/BTC
Binance Coin looks decent on a macro level, but is presently floating between key levels and therefore does not look good for an immediate trade. Bulls want to see the pink line 188 hold as support, but really want to see 20859 flipped from resistance to support at this point. Hard to know what to do with this until BTC stops making its moves.
ETH/BTC
I am generally bullish on ETH, but this does look a bit topped out here. It ran into resistance and was rejected, at the same time printing clear bearish divergence with overbought RSI. I would start looking for entries at the lower levels drawn, but you would "expect" a retracement here. Doesn't always go as we expect!
FET/BTC
Looks great, but I am concerned a bit about the potential bearish divergence. RSI could just continue up and invalidate. Key areas are marked, with one just above. If you are already in, this looks good. Not sure I would buy it here.
HBAR/BTC
This does not look great at the moment, but it is presently above the key support at 359. If we see that fail, I would expect quite a drop from this pair. That said, it really all depends on BTC. If BTC chills out, this should stop dropping. If you are bullish on this pair, you can punt at long here and set your stops a few percent below 359 to allow for a wick, but that is not a trade I would personally take.
LTC/BTC
Key level here at 4982. Bulls want that to hold as support. There was clear bearish divergence with RSI, but now we have potential hidden bullish divergence. This would require today to close higher, making a definitive elbow on RSI. That would signal that further continuation up is likely. At this point, we want to see the top black line flipped to support to be safe.
NIO INC.
This has had a meteoric rise since the market bottomed. It appears to be bullishly consolidating at the original all time high. Area of interest are marked. A break through the descending black line would likely send this into price discovery. Targets impossible to gather.
REN/BTC
I have shared quite a few trade on this pair, most recently at the green zone shown, which turned out very well. Right now, I am not sure. The real trade on this was a few days ago, with the first clean retest of the previous all time high and of the ascending channel. That was a massive area of support and came with a daily bull div with RSI. I was not watching, but that was an epic long opportunity. Now it's consolidating and moving a bit sideways. You really want a break and retest of the all time high here, or to buy in lower if it drops.
RSR/BTC
Once again, a bearish divergence with overbought RSI signaled a clear top. Price went off a cliff from there, but seems to have bottomed after the drop. Hard to tell if it is a reversal or a relief bounce, but price is sitting at a key level now.
SPCE (VIRGIN GALACTIC)
Went to space, came back down to earth. Presently seems to be breaking support. For now, I would simply look for a break of that descending black line and enter there. This has clearly started a local downtrend. Could be consolidation before another move up, but not convinced.
STAKE/USDT
This has almost no volume, no price history and is only trading on Poloniex on the USDT pair. Hard to read. That said, it's in a symmetrical triangle and a range, so direction will be decided by which way it breaks through the blue lines. A break of the top blue line should at least target the top of that descending pattern.
SXP/BTC
I exited my trade on this when it started to drop on the announcement that their airdrop was delayed. That said, the drop was not that dramatic and it does not look too awful. Hard to tell what direction it will go from here, so I will personally get an alarm on that descending blue line and look again if it breaks.
THETA/BTC
Another strange altcoin chart. Hard to gauge this one after the huge pump a few months ago. Seems to be ranging sideways between levels. I honestly have no idea what to do with this one - sometimes the chart is just unclear and price is floating in an area where there's little reason to watch.
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.