The Wolf Den #92 - Bitcoin Dumps, Chart Requests And More
Bitcoin Thoughts And Analysis
It's Thursday, which means a Bitcoin drop while I am writing a newsletter. And what it drop it has been! I shorted Bitcoin on Tuesday after sending the newsletter, at $12,050. The bear divs played out clearly on the hourly (discussed below) and gave me the opportunity to take a small position as a hedge against my holdings. That's the only reason I short. I closed the at around $11,400 and went long, a position that I stopped out of after moving my stops up for a small loss. I should have stayed short, it would seem! So I had 2 successful longs, a successful short and a small loss on a long. Not bad. Here was the short
I have been talking about $10,500 - $10,800 for quite some time, saying that I thought it was likely and that I would buy. It was and I have.
$10,540 was the most important level on the chart - when it was broken as resistance, it represented a higher high and the end of the downtrend. You expect a level like that to be retested - which takes time on a higher time frame. It's scary, yes. Price is dropping, yes. But this is the spot that TA says to go long and I am not going to over think it.
Can we drop more? Of course. Anything can happen. We take our best shots. As a trader, it's risky. As an investor, I am quite confident these buys will be very solid in the coming months and years. That's where I am focused at the moment.
Note: RSI is oversold on every time frame from the 12 hour down.
CME GAPS
I do not trade this, but feel it's worth pointing out since it's the talk of the town. There is still a CME gap below in the 9ks, so it's a possibility that fills. It took a VERY long time to come up and fill the gap in the 11ks, but it did get there.
MONTHLY CHART
Quite a beginning to September, right!? Ugly monthly candle but it's only been 3 days, nothing to stress about. As I mentioned above, we have been looking for that retest of $10,540 for week and finally got it. Cool. Now it is in the hands of the crypto gods.
WEEKLY CHART
Want to see something cool? That's a trend line from the all time high to the 14K high that is being retested as support for the first time.
Wowzers.
4-HOUR CHART
We presently have a bullish SFP on the 4 hour, below the previous key swing low which is also right around the main $10,540 support that I have discussed. Lots of buying and liquidity here. Another bullish indicator. I know this is scary and it can drop more! But the charts say this is bottoming.
HOURLY
I shorted the red bear div that was overbought. Now there's a potential bull div with RSI oversold. It's only the hourly, so it's more of a scalp play, but if this confirms we should see a nice bounce. I would love to see a bull div on the 4 hour at some point, which would require a lower low on price.
Altcoin Charts
As I mentioned on Tuesday, altcoins looked really shaky and I did not want to trade them or share charts. One of the most successful skills a trader must have is knowing when NOT TO TRADE. I would never share trades with you guys when I don't think the market is ideal, even if I receive criticism and lose subscribers as a result. By not sharing a bunch of trades, hopefully I saved you some money. I did share ALGO, which was not a bad trade, even though it failed. Why? Because the premise of the trade was that it was likely to drop, but if it went up the reward outweighed the risk. Small loss with a chance of a big gain. I took the small loss, no big deal.
Today is no better, unfortunately. I will share trades as soon as I see something worthwhile - now they would all be risky knife catching scenarios. Always look at old trades and set alarms... I shared TRX a number of times near the dead bottom and that has continued to rise.
Quick look at BTC Dominance shows that it is still well below resistance. Nothing awful here from a long term perspective for alts. We just need to sit and wait now for BTC to settle and for some new TA to emerge after this big down candles.
Banking 101
By Sahil Bloom.
Banks are a critical feature of the modern economy. But most people don't understand how modern banking actually works. Spoiler Alert: It may shock you. Here's Banking 101!
First, a bit of history. Most historians believe the earliest forms of banking began to appear around ~2000 BC in ancient India, Assyria, and Sumeria. Ancient Greece and Rome expanded upon this legacy. But banking transitioned into its more modern form in Renaissance Italy.
In its most basic sense, the business of banking is very simple. Take money from depositors (deposits), pay them interest. Lend money to borrowers (using deposits), receive interest. As long as the interest received exceeds the interest paid, the bank is happy / profitable.
Historically, banks would maintain sufficient "reserves" (cash/metals) to give depositors their money back on request. This is prudent, but limits the ability to create credit and thus may stifle investment in an economy. So called "fractional reserve banking" changed that.
Fractional reserve banking allows banks to only maintain a fraction of deposits in their reserves. If the reserve requirement is 10%, a bank with $100 in deposits only has to maintain $10 in reserves. To illustrate the beauty (and the beast!) of this system, here's a story.
Imagine you arrive in a new town in California during the gold rush. You get off the train with $1,000 in your pocket (and boundless ambition!). You head over to the new CA Savings Bank and deposit the money into a bank account. You are happy.
CA Savings has a 10% reserve ratio, meaning it has to maintain 10% of your deposit in its reserves. It places $100 in its reserves and lends the remaining $900 to Judson Adam, who uses it to buy gold pans. The gold pan seller, Josiah Smith, deposits the $900 into CA Savings.
CA Savings places $90 (10% of $900) in reserves and lends the remaining $810 to Jeremiah Black, who uses it to buy wheelbarrows. The wheelbarrow seller, Johnson Campbell, decides to keep the cash in his pocket. Let's take a step back and look at what has happened here.
Your original deposit of $1,000 at CA Savings started this chain, but there is now $2,710 of "cash" in circulation. You: $1,000 at CA Savings Josiah: $900 at CA Savings Johnson: $810 in pocket The fractional reserve banking model enabled the creation of credit/dollars.
That is mostly a good thing. Judson and Jeremiah received loans that allowed them to spend, invest in equipment, start businesses, hire, etc. The fractional reserve system enabled credit creation, which in turn sparked growth. So that is the beauty. What about the beast?
Say there is an earthquake. You get nervous, so you ask CA Savings for your $1,000 back. Well, they only have $190 of it (10% reserves from the $1,900 in deposits received). They have to call in their loans (and halt any new lending) to meet your withdrawal. This is bad.
If the bank is unable to call its loans to meet withdrawals, it may be insolvent. Panic ensues. Credit contracts. The economy slumps. The system can quickly unravel. This is a highly simplified example - closed system, very few depositors and loans - but the basics hold.
So you see, the modern fractional reserve banking system is both beauty and beast. It enables the creation of credit, which may drive investment and growth. But it also opens the door to rapid contractions, which tend to be self-fulfilling as panic begets more panic.
So that was Banking 101! The intention of this was to hit on the VERY BASICS of modern banking. Stay tuned. One could write an entire book on the nuances of this topic (and many people have!).
A Negative Take On Yield Farming
This is a long thread and a bit esoteric, but really interesting... and anytime Sam from FTX speaks, it is worth listening.
Bitcoin Miners Selling Electricity
Bitcoin miner Layer1 is making big money selling electricity back to the grid in West Texas. This is the innovation we are here for - it solves so many of Bitcoin's electricity issues. Really, really cool.
China’s Digital Yuan Launches with Mixed Feedback
I have been closely monitoring the progress of CBDCs - Central Bank Digital Currencies - especially China’s digital Yuan. China, leagues ahead, is now testing and implementing their CBDC which resulted in almost immediate unsatisfactory reviews. Limits were placed on the typical usage of the CBDC, something cash obviously does not have. Other additional concerns quickly surfaced leaving observers to wonder if a Chinese CBDC would do more harm than good.
In conjunction with limits on usage, privacy wasn't considered in the user experience. No surprises here. Cellphone numbers were required to use digital Yuan. More information leaked revealing plans for a hot wallet or traceable hardware wallet, both of which avid privacy seekers intentionally avoid. The development of the digital Yuan will be interesting to watch, and may provide a road map for the US and other countries. I have grave concerns about the privacy implications, quickly being justified by what we are seeing so far in China.
Shyft Navigates Regulation With Crypto Heavyweights
Shyft Network, a company built around a public blockchain has continued to create cooperation within the space to further adoption. Continuing their work with VASPs, (virtual asset service providers) major players in the space including Bitfinex, Huobi, and Tether are now under the guidance of Shyft.
New rules from the FATF (financial action task force) regarding AML (anti-money laundering laws) have left players to navigate difficult challenges on top of their own development. Shyft has not only provided direction to these players, but they have also leveraged their Veriscope Network to safely connect VASPs to work with each other navigating unclear regulatory demands. Shyft lifting the regulatory burden furthers developmental progress, naturally leaving companies to continue doing what they do best.
YFL Getting Hype
I was one of the fortunate few to be offered the chance to be early on YFLINK, which opened trading at around $100, went up to $300, dropped to $13 only 2 weeks ago and then surpassed $2000 a coin in the past few days before retracing.
I made a ton of money on this coin and am still holding quite a bit, but I was LUCKY. I do believe that it could still see much higher prices, riding on the incredible FOMO in the DeFi space. As I alluded to in the last newsletter, it is very difficult to trade these coins technically. I am watching this one closely and will consider adding on dips, at the chance that it behaves in any manner like YFI. Regardless, YFLink is a fork of YFI and leverages the passion of the LINK community - which seems like a winning idea. I bought more on the dip today.
Be careful. These can go to 0 as easily as 5 figures.
The Wolf Of All Streets Podcast Ft. Humayun Sheikh
Humayun Sheikh is the CEO of Fetch.Ai, a company solving today’s challenges surrounding blockchain and artificial intelligence. Previously a professional commodities trader, Humayun leveraged his engineering background with his interest in blockchain to improve the way machines interact with each other. Humayun is now designing tomorrow's digital economy, creating what will look to many like a Hollywood Matrix-like reality.
Humayun and I further discuss artificial intelligence for dummies, combining commodity trading with blockchain development, the dangers of AI, how far we are from the Matrix, teaching machines to interact with each other, blockchain reducing the middleman, self-driving cars, DeFi’s innovation harming traditional banking, the use cases for blockchain outside of finance, DeepMind, and more.
Chart Requests
I CHARTED ALL OF THESE BEFORE THE LAST BITCOIN PUSH DOWN. KEEP THAT IN MIND.
ALGO/USDT
Dumping with Bitcoin, as you would expect on a USDT pair. It's at an interesting sport here, a key support. If you think the market is going to bounce, this would be your entry. Otherwise, look at the lines below.
BAT/BTC
Playing out exactly as I discussed last week. Hard rejection at the range highs and drop. This has continued down, as predicted. I would look to the blue zone or the range EQ (dashed line). A drop to the range bottom would not surprise me either. Safest entry is above the range.
CHZ/BTC
I would watch the daily close and see if it can hold 123 as support. Otherwise, it's a clean break down, could bounce back up there and test it as resistance. Watch that red support line. I would buy that if it gets there, good risk reward.
DOGE/BTC
Pains me to say it, but there's just nothing to see here. It's sideways and there's no reason to even think about bothering with it for now, unless it's a long term play. Last time it pumped was purely because of Elon Musk. The days of DOGE being the determining factor of alt season are gone. I am sure it will pump again, but there are better options if you are looking for something that will move soon.
ETH/USD
Bear divs everywhere, which I even pointed out on a live stream recently with CoinMarketCap. Not the biggest deal, just really easy to see that some healthy retracement was in the cards. It was also extremely overbought here on the daily.
It's at a key local support now, biggest support is the purple line at $363. I would buy heavily there if it drops, especially if it comes with a hidden bull div to cancel out those bear divs.
LINK/BTC
LINK broke the local support (black) a few days back and has dropped since. The local downtrend is represented by the blue line, so look for a break of that to signal likely movement up once again. Price is near a key support now. Major demand is the blue zone down below, and then the red level that has never been retested. This could go either way, just play it as it comes - break the blue line, should go up. Drop, look for an entry below.
NEO/USDT
Dropping like every USDT alt pair. This does look like it may have topped out for a bit after a really significant rise. No big deal, but it appears due for a retrace. you can use fibs to see the likely levels for a bounce. $21 is a really major area of resistance, no surprise it's struggling there. Watch the red ascending line for support.
RKT (ROCKET COMPANIES)
I have no idea! There's almost zero price history here, everything would be a guess. The only really clear line on this chart is the support at $26.81 - so look to see if that holds.
SYS/BTC
This chart is ridiculous, very hard to tell what is going on. There are a few key levels marked, and that red line is being tested as support. 598 could easily get tested if that breaks down.
SXP/BTC
This has not gone as planned! Really disappointed in the price action on this coin after having so much hype and bullish movement. It clearly broke local support at the red line. That said, it's at a key area of horizontal support now here, so if you think alts will bounce this is a decent entry with a tight stop. Not sure it's worth the risk at the moment. Above 19021 still looks decent.
TRX/BTC
Cool chart. I have had a small bag of TRX for ages and shared ideas months ago. The break of that descending line was one trade and price has never dropped below that breakout price. It made a clear exit of the range but then had a bearish SFP at the red line. It dropped, gathered strength and went full blast off on the news of TRX's involvement in DeFi (I assume). There's a lot of open air above, I think this could hit that top line in the 400s. If it drops, looks like a buy at 304 or 262.
For reference.
UBT/BTC
Hard to read this chart - low volume and tons of wicks. That said, it's clearly in a descending wedge (red) which should eventually break up. Price is also testing a key demand structure (blue) which should continue to offer support. Below that I would not be interested at all. Safest entry is a break of the top red line. Riskier is buying here and lower in the demand zone.
XTZ/USD
I don't know. USD pairs are tough when Bitcoin dumps. This obviously looks awful, but is at a nice support level. Maybe if the red line breaks I would consider it? Really a knife catch here, but a reasonable one if you believe Bitcoin will bounce.
ZEC/USD
Another ugly USDT pair that is near a key support. I really have no idea with some of these chart, they need to reset. Key levels are marked, both up and down.
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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.