The Wolf Den #897 - The Nuts
We Are Looking Down At Them
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In This Issue:
The Nuts
Bitcoin Thoughts And Analysis
Legacy Markets
Tether Crushed Q4
Bitget Did a Study on the Halving
Binance Releases Its Annual Report
Valkyrie Diversifies Its ETF Holdings
This Indicator Signals Huge Bitcoin Rally (Buy The Dip?)
The Nuts
As some of you may already know, I have a deep love for poker. Unfortunately, I don't get the opportunity to play as frequently as I'd prefer due to the lengthy nature of the games and the constant attention my kids require. However, when I do get the chance to play, I can easily go for hours at a time. Thank you, ADHD.
Poker to me is an invaluable game, not just because of the camaraderie, table talk, and bluffing, but also because it teaches lessons that directly translate to investing.
Long-time readers are familiar with the fact that poker was one of my favorite topics to write about in the early days of this newsletter. While I experienced burnout on the subject, a considerable amount of time has passed, and fresh ideas are now flowing.
Let's dive back into the felt.
Today's topic is pot odds, one of my absolute favorite concepts in poker.
Pot odds is a relatively simple concept to grasp in poker, far simpler than preflop charts, reverse implied odds, ICM implications, or post-flop equity calculations. Poker can turn very complicated very quickly.
Pot odds in poker refer to the ratio of the current size of the pot to the size of the bet you must call. It is expressed as a ratio or a percentage and is used by players to determine whether calling a bet is a mathematically sound decision.
The formula for pot odds is:
Pot Odds = Pot Size/Call Amount
If that previous paragraph was confusing, here’s the breakdown:
In poker, pot odds are a way of measuring risk and reward. Imagine there's a pot of money in the middle of the table, and someone makes a bet. Pot odds are the comparison between the amount of money in the pot, the amount you need to put in to stay in the game and the statistical odds of you winning the hand.
Players use pot odds to figure out if it makes sense, from a mathematical standpoint, to put more money into the pot and take the risk. If the potential reward is higher than the risk, it might be a good decision to call (stay in the hand); if not, it's probably better to fold and wait for a better opportunity.
Imagine we're in the midst of a poker game, and there's $100 in the pot. As your opponent, I make a river bet of $20. Now, you're faced with the decision of whether it's wise to invest that $20 to stay in the hand. Glancing at your hand, it seems decent enough, capable of winning about one out of three times. However, you're unsure if the bet is a logical choice. Calculating the pot odds by dividing the current pot size ($120) by the bet amount ($20) gives us $6. This means that for every $1 you put in, you stand to win $6, including your original $1.
Understanding the pot odds, calling the $20 bet is a good decision because even if you lose two out of three times, the risk/reward ratio is favorable.
The idea is similar to this: If I told you, it costs $10 to play a game where you have to guess the side a six-sided dice rolls on, and if you win, I'll pay you $70, you should quit your job and play that game until the end of time. You might experience some initial losses and occasional variance, but over the long run, thanks to favorable pot odds, you'll come out on top.
So, what's the connection to crypto and investing? Well, take Bitcoin, for instance; it exhibits incredible 'pot odds.' Since Bitcoin operates outside the realm of clearly defined rules, we can't assign a traditional 'hand value' to it. However, what we can determine is that the risk/reward ratio for Bitcoin is highly favorable.
Bitcoin is the nuts.
When you glance down and realize you have the nuts, your primary focus shifts to maximizing your potential winnings. In such a situation, a player doesn't need to question the value of their hand; instead, the strategy centers on extracting the maximum amount of money possible from opponents.
While there's no equivalent to 'true nuts' in investing, my conviction is that Bitcoin comes remarkably close and may be the closest we get for a considerable period.
The rest of the world might perceive a strong hand or an opportunity to bluff, but we've got it. The strategy from here is to remain patient and let the hand unfold. Wishing all of you a fantastic weekend, wolf out.
Bitcoin Thoughts And Analysis
When in doubt, zoom out.
The weekly chart is still looking good to me, with last week's huge hammer candle into support and a bit of follow through to the upside this week. We will need to see how the candle closes.
Nothing here looks particularly bad, so I continue to think that low time frames are choppy and that we are generally looking good.
Legacy Markets
US stock futures are showing signs of a rally, fueled by impressive earnings from tech giants Meta Platforms Inc. and Amazon.com Inc. S&P 500 futures are up by 0.6%, and Nasdaq 100 contracts have risen by 1%. Meta's stock soared by 17% in premarket trading, while Amazon witnessed a 7.1% increase, following their significant earnings beats. This positive trend also lifted other tech-related stocks like Snap Inc. and Shopify Inc. However, Apple Inc. experienced a dip due to weaker performance in China.
The energy sector is also buzzing, with Chevron Corp.'s stock rising after surpassing profit expectations. All eyes are now on Exxon Mobil Corp. for its upcoming earnings.
Investors are keenly awaiting the US jobs report, which is expected to show a slowdown in labor market growth, potentially influencing the Federal Reserve's stance on interest rate cuts. A potential rise in the unemployment rate to 3.8% from 3.7% could lead to adjustments in market predictions regarding the timing of Fed cuts.
In Europe, the Stoxx 600 index benefited from positive earnings, with significant gains in stocks like Mercedes-Benz Group AG and Danske Bank A/S. However, the mood was mixed in Asia, with Chinese benchmarks experiencing volatility.
The dollar is on a downward trajectory for the week, while Treasuries remained stable, reflecting market anticipation of quicker Fed rate cuts due to renewed concerns about the health of US regional banks. The banking sector is under scrutiny, especially after New York Community Bancorp's significant losses linked to commercial real estate exposure.
In other markets, oil is on track for its most substantial weekly loss since November amid progress in peace talks related to the Israel-Hamas conflict. Gold, meanwhile, is set for its most significant weekly increase since early December, supported by lower Treasury yields and the banking sector concerns.
Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.6% as of 6:28 a.m. New York time
Nasdaq 100 futures rose 1%
Futures on the Dow Jones Industrial Average were little changed
The Stoxx Europe 600 rose 0.6%
The MSCI World index rose 0.3%
Currencies
The Bloomberg Dollar Spot Index fell 0.1%
The euro rose 0.1% to $1.0883
The British pound rose 0.1% to $1.2759
The Japanese yen was little changed at 146.53 per dollar
Cryptocurrencies
Bitcoin was little changed at $43,122.15
Ether rose 0.4% to $2,313.7
Bonds
The yield on 10-year Treasuries was little changed at 3.88%
Germany’s 10-year yield advanced one basis point to 2.16%
Britain’s 10-year yield advanced six basis points to 3.80%
Commodities
West Texas Intermediate crude rose 0.4% to $74.15 a barrel
Spot gold was little changed
Bitget Did a Study on the Halving
Bitget has recently released a plethora of insightful content on the halving, and I have several interesting points to share. Let's take it one at a time.
First up, Bitget did a report on investor sentiment related to the halving. The key findings are copied below:
“84% of participants anticipate in the next bull run BTC will surpass the previous bull market's all-time high of $69,000, and almost all other regions exceed 80%, except East Europe.
Globally, more than half of the respondents predict Bitcoin prices during the halving (around April 2024) to range between $30k and $60k, while 30% of them believe the price would break $60,000.
Approximately 70% of respondents express plans to increase crypto investments with higher proportions in MENA and East Europe indicating a stronger inclination to increase investments.”
84% is certainly on the higher side of what I personally find appealing, given my contrarian perspective. However, it's crucial to remember that this figure likely solely represents the opinions of us in the space. The actual percentage within the general population is impossible to determine precisely but is likely somewhere closer to 50% or even lower.
Moving forward, in another report, Bitget presented some graphics related to the halving. The first graphic below highlights key facts, but it's the second one where things get interesting.
There’s a lot to take in below, but what I want you to focus on is the ‘days from halving to post-halving high.’
We are still approximately 80 days away from the halving, followed by a considerably long waiting period until the market reaches its peak. If historical patterns repeat, we can expect the peak to occur in about 1.5 years. If your coin hasn't reached your desired position, consider slowing down, reassessing your investment, and adopting a patient approach. Sometimes, sitting on your hands and waiting is the best strategy. It's that simple.
Tether Crushed Q4
It's truly remarkable that the market consistently focuses on Tesla's Bitcoin position each quarter when Tether's quarterly attestation reports are infinitely more interesting. While Tesla holds $275 million of the asset, Tether boasts a substantial $2.8 billion along with other crypto investments. The desire for major players like Microsoft or Apple to announce Bitcoin purchases often overshadows Tether's continuous acquisition of Bitcoin for over-collateralization, diversification, and the overall health of the industry.
Even in the unlikely event of a significant lawsuit against Tether, the company appears exceptionally robust. Moreover, the competitive landscape seems to favor Tether, making it increasingly challenging for USDC to make a comeback, especially considering Tether's $4 billion gap needed to break a $100 billion market cap, while USDC struggles to maintain a position above $25 billion. The industry is still sleeping on Tether and what it will achieve over the next decade.
“In terms of financial performance, the fourth quarter witnessed a record-breaking net profit of $2.85 billion, of which ~$1 billion in net operating profits (were primarily interests from US Treasuries) with the remaining primarily from the appreciation of Gold and Bitcoin reserves.
Tether is proud to announce that it has achieved its goal of removing the risk of secured loans from the token reserves. While such secured loans are widely overcollateralized, Tether accumulated enough excess reserves to cover the entirety of the exposure.”
Binance Releases Its Annual Report
Despite the negativity surrounding Binance over the past year, the platform remains the world's largest exchange and should be regarded seriously. The 140-page report provides minimal opinions and reads more like a news report, which means it isn’t exactly exciting for highlighting specific points here. However, I recommend reading the research if you wish to catch up on a specific area of the space and seek a more unbiased, professional opinion. Consider this report akin to the Messari report without subjective opinions.
Valkyrie Diversifies Its ETF Holdings
Valkyrie has achieved an ETF milestone by departing from the conventional practice of exclusively entrusting Coinbase with the custody of its customers' assets. Instead, they have appointed BitGo as an additional custodian for their Bitcoin holdings. While diversification might become a trend among filers, I believe Coinbase will continue to dominate this category in the foreseeable future.
This Indicator Signals Huge Bitcoin Rally (Buy The Dip?)
Bitcoin has fallen after the Fed decided not to change the rate yesterday. Despite this fall, one indicator signals that Bitcoin may rally, the same pattern (Bollinger bands) was in 2010 and 2016. Will it happen now? In other new: FTX is planning to fully repay its customers, and Celsius is about to do the same and distribute $3bn to its customers. I am discussing this and more with my today's guests: Joshua Frank from The Tie and Dan from The Chart Guys.
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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.
The poker analogy and the Bitget piece were TOPS. Great werks!
As always, enjoying this newsletter filled with knowledge. Cheers.