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In This Issue:
MicroStrategy’s Speculative Attack
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Watch This
Crucial Updates Regarding The ETH ETF
A Bitcoin A Day Keeps Inflation Away
ALPHA ALERT: This unheard of dog token is set for tail-wagging gains
MicroStrategy’s Speculative Attack
MicroStrategy's hyper-aggressive Bitcoin accumulation strategy has been a focal point in the current news cycle, sparking a range of opinions from both within and outside the industry. One compelling framework for understanding MicroStrategy's approach is to see it as a speculative attack on fiat currencies. Do note that this perspective is not mine to claim, there is a wealth of discussion and perspectives on the internet about this viewpoint. This intro is simply my personal take on discussing this position.
Do note, NOTHING in this letter constitutes investment advice and I don’t claim to be an expert on this topic.
For starters, I asked ChatGPT to explain what a ‘speculative attack’ is, and this is the answer I got: “In finance, a speculative attack refers to a situation where investors or traders aggressively sell off a currency or other asset that they believe is overvalued or at risk of losing value. This can lead to a rapid decline in the price of the asset or currency, as the selling pressure outweighs buying demand. Speculative attacks are often driven by expectations of future events or economic conditions that could negatively impact the asset's value.”
Some of the most notable speculative attacks in history include George Soros' attack on the British pound in 1992, the pressures faced by the Turkish lira and the Argentine peso, and even the GameStop Squeeze, which deviates somewhat from the traditional understanding. Before I begin on MicroStrategy, just note that speculative attacks can take various forms, and the boundaries of what falls under this concept are constantly evolving.
Let’s now begin.
It's difficult to pinpoint the exact moment when MicroStrategy transitioned from being a Bitcoin investor like the rest of us to being labeled as a company engaging in a speculative attack on the dollar, but that's not too important. What is crucial to note is that over time, MicroStrategy has evolved into a leveraged play on Bitcoin. This is because the company is taking on debt to acquire its position to the point where the value of its Bitcoin holdings is either greater than the value of its current business or on track to surpass it soon.
As per quick napkin math, 205,000 BTC x $68,000 = $13,940,000,000.
MicroStrategy as a whole is trading at a valuation of $30B, which is known to be a premium to the combined value of Bitcoin + the business/assets - liabilities.
Anyways, MicoStrategy has committed itself to acquiring as much Bitcoin as possible and never selling via the following strategy:
MSTR buys Bitcoin
Bitcoin rises
MSTR rises
MSTR dilutes the shares by selling equity (borrows dollars).
MSTR buys more Bitcoin
Rinse and repeat
This strategy is essentially a sophisticated approach to betting against the dollar while simultaneously betting on the rise of Bitcoin. Speculators and fans have been quick to refer to Saylor’s approach as 'unlimited' or 'limitless,' but I would contend it could be more accurately described as a speculative method that is far from reaching its endgame.
You can decide.
There are a few unique aspects to MicroStrategy's case. First, companies that decide to issue debt and raise capital do so to fund new business ventures, not to invest in scarce assets for a return, let alone to buy Bitcoin. This means MicroStrategy is the first of its kind, with a massive head start due to its first purchase dating back to 2020. What's also unique is that MicroStrategy (acting basically as an ETF) has maintained positive cash flow, adding another element to the mix.
Taking everything into account so far, MicroStrategy operates with the efficiency of a positive cash flow business, functions akin to a leveraged Bitcoin ETF, and strategizes with the mindset of a speculative attack on the dollar, pitting itself directly against anyone shorting their stock or Bitcoin or longing the dollar.
In the early stages, speculative attacks can create the impression that the music will soon stop playing. However, it's this same mentality that can lead to epic outcomes, as seen in the cases of GameStop, the British Pound, and others. It's important to note that speculative attacks don’t always end in fireworks; for every 10 hopeful attempts, only one might succeed. This is an important consideration to keep in mind moving forward.
Let’s now dig a foot deeper down the rabbit hole.
In a short span of time, MicroStrategy has rapidly met and exceeded the market capitalization requirements for inclusion in the S&P 500. While this doesn't guarantee immediate inclusion, achieving this milestone suggests that the company has cleared a significant hurdle, leading to speculation that it could be included in the index within the next year. The passive bidding of MicroStrategy's stock by index-tracking investors would further fuel its ability to acquire Bitcoin. This is where the situation could become increasingly gargantuan and unpredictable.
MicroStrategy’s stock has been trading at a premium to the underlying Bitcoin it owns because investors recognize that their position represents future acquisitions. Regardless of the size of this premium, if MicroStrategy’s stock is exposed to consistent passive boomer inflows (the S&P 500) that are forced to purchase the stock, Saylor can continue to buy more Bitcoin at a faster rate. This allows him to accelerate his dilution of shares, which already appreciate faster than the price of Bitcoin, buy more Bitcoin on debt, and crank up the leverage to an unfathomable degree.
As the shares of MSTR grow in number and value, there’s a chance that the other 499 companies have to be sold off slightly to keep up with MSTR’s pace and demands. I know this sounds complicated and it’s still very speculative (hence the name speculative attack), but this is the idea I have seen tossed around. Under the right circumstances, MicroStrategy pulls every lever it can to acquire more Bitcoin at whatever cost and a frenzy ensues as the stock’s rise ‘breaks the system.’
This is where things start to get really wild, with claims such as MicroStrategy becoming the largest stock, the Fed having to intervene to prevent the S&P 500 from breaking or the dollar collapsing. While I'm not particularly sold on these ideas, they are certainly fascinating to ponder and make you wonder how far Saylor’s experiment can push the boundaries. Speculative attacks have the potential to create significant disruptions that force more powerful players to budge and backstop the system.
However, I doubt that politicians and Wall Street will allow Bitcoin to reach such extremes without finding a way to intervene and halt the madness if it goes that far. But who’s to say Bitcoin doesn’t just plow right through them?
In my view, I own Bitcoin because I believe it challenges inherently flawed systems and has the potential to expose more vulnerabilities within them. I hope you enjoyed this idea, and I suspect it will gain traction as the bull market progresses. If Bitcoin continues to move parabolically, things could start to change very fast, and this niche idea could become a powerful narrative. Who knows?
As for today, ignore the dip; it's part of the process. There's a good chance that inflows could turn the market around today, if not by the middle of this week. If that isn't the case, I'll be expecting a lengthier dip, albeit one that eventually returns to all-time highs and smashes through them.
Bitcoin Thoughts And Analysis
Bitcoin had a rough week, closing below the previous all time high resistance. Bulls were looking for a definitive move above $69,000 to end the week, but it was not to be. The candle was a doji or spinning top, which usually indicates a pause in the trend, and can mean a reversal if the following candle confirms. As you can see, the candle had equal wicks up and down, which confirms this indecision.
We will be watching the candle this week closely.
As I continue to say, the bigger the dip right now, the better the buying opportunity.
Altcoin Charts
For those who are new here, I share SETUPS and not SIGNALS. These are ideas that I am watching - if a certain thing happens, then the trade triggers. I am not telling you what to buy or when. I am showing you how I am watching certain charts and what has to happen for me to take a trade.
Wow. The memecoin frenzy is absolutely sending SOL flying. For those who don’t understand, the bulk of the trending memes are on Solana, meaning that people are trading them using Solana as the base currency… so this drives a ton of interest and buying of Solana to get in on the madness.
SOL is currently at the last resistance on the chart, $207, before the all time high. What an absolute insane run.
New highs and beyond seem very likely.
Legacy Markets
Stocks are on the rise as investors await crucial information from the Federal Reserve, Japan's policy on its negative-rate, and other global financial indicators. The S&P 500 and Nasdaq 100 futures have seen an uplift, particularly after reports surfaced about Apple Inc. discussing the integration of Google’s Gemini AI engine into the iPhone, boosting Alphabet Inc.'s and Apple's premarket trading values. European stocks also experienced slight gains.
Investor focus is divided across several pivotal events: the possibility of Japan ending its negative-rate policy, the UK's upcoming policy decision and inflation data, and notably, the Federal Reserve's policy meeting. This meeting is highly anticipated, as it could significantly influence global stock market trends for the coming quarter.
Despite Federal Reserve Chairman Jerome Powell's hints at nearing confidence to reduce rates, bond traders seem resigned to a "higher-for-longer" interest rate environment, reflected in the recent rise of the 10-year Treasury yield. Meanwhile, the dollar has remained stable.
Speculations abound that the Bank of Japan might increase rates, influencing Japanese stocks and the yen. Additionally, the week is packed with other central bank decisions and economic data releases, including the Reserve Bank of Australia's meeting, the Bank of Indonesia, the Bank of England, Eurozone inflation figures, and Reddit Inc.'s IPO.
In commodities, oil prices have surged to a four-month high, fueled by positive macro-economic data from China and increased geopolitical risks following Ukrainian attacks on Russian refineries.
Overall, the global financial markets are in a state of keen anticipation, with upcoming policy decisions and data releases poised to shape investment strategies and economic outlooks.
Key events this week:
Eurozone CPI, Monday
Australia rate decision, Tuesday
Japan rate decision, Tuesday
Canada inflation, Tuesday
China loan prime rates, Wednesday
Indonesia rate decision, Wednesday
UK CPI, Wednesday
US rate decision, Wednesday
Brazil rate decision, Wednesday
ECB President Christine Lagarde speaks, Wednesday
New Zealand GDP, Thursday
Taiwan rate decision, Thursday
Switzerland rate decision, Thursday
Norway rate decision, Thursday
UK rate decision, Thursday
Mexico rate decision, Thursday
European Union summit in Brussels, Thursday
Japan CPI, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 was little changed as of 9:50 a.m. London time
S&P 500 futures rose 0.3%
Nasdaq 100 futures rose 0.7%
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index rose 0.9%
The MSCI Emerging Markets Index rose 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0899
The Japanese yen fell 0.1% to 149.20 per dollar
The offshore yuan was little changed at 7.2061 per dollar
The British pound was little changed at $1.2737
Cryptocurrencies
Bitcoin fell 0.5% to $67,957.01
Ether fell 1.7% to $3,571.05
Bonds
The yield on 10-year Treasuries was little changed at 4.30%
Germany’s 10-year yield advanced one basis point to 2.45%
Britain’s 10-year yield was little changed at 4.10%
Commodities
Brent crude rose 0.8% to $86.03 a barrel
Spot gold was little changed
Watch This
Peter Van Valkenburgh, the Director of Research at Coin Center, elegantly explains Bitcoin at a hearing of the US Committee on Banking, Housing, and Urban Affairs. But there's a catch—this took place in 2018. Despite the landscape drastically changing since then, everything Peter says about Bitcoin in this six-year-old video is still spot on. As the caption above says, this has to be one of the greatest explanations ever, if not the best.
Crucial Updates Regarding The ETH ETF
There are a few new developments regarding the Ethereum ETF, one of which went almost entirely unnoticed and felt like a game changer.
The first piece of news is about Grayscale filing an amendment 19b-4 filing, indicating their commitment to the approval process. It's likely that issuers are meeting with the SEC and having productive dialogues, which are bringing about these changes. With the Bitcoin ETF, the most obvious clue we had was the sheer number of amendments leading up to the approval date, indicating that the SEC was guiding the filers toward a framework they would approve. Unless all the kinks have been worked out already from lessons learned with the BTC ETF, we should probably expect more amendments to come.
The second piece of news takes a different turn, as two senators, one from California and another from Rhode Island, sent a letter to the SEC urging Gary Gensler to deny any further crypto ETFs. The letter is riddled with FUD, which I won't delve into here, but I will share one brief statement to illustrate the idiocy: "However vulnerable bitcoin may be to fraud and manipulation, markets for other cryptocurrencies are far more exposed to misconduct. We do not believe that other cryptocurrencies show the trading volumes or integrity to support associated ETPs." If more Senators join this development, it would be a bad sign, but thankfully, it's just two for now.
The final piece of news, which I am most excited to share, is a brief response from Paul Grewal to a question on X, as seen directly below. It's unclear whether Paul's statement is based on intuition or insider knowledge, but if a legal battle ensues, it appears highly likely that the SEC will eventually lose, similar to its legal defeat in the Bitcoin ETF case. The best-case scenario, if the ETH ETF is denied in May, is that a legal battle begins promptly thereafter.
I forgot one thing, Polymarket thinks the ETH ETF has a 34% chance of approval this coming decision period—that is all.
A Bitcoin A Day Keeps Inflation Away
Since November 2022, El Salvador has been purchasing one Bitcoin daily as part of its "1 Bitcoin a day program," mandated by President Bukele, who intends to continue until Bitcoin becomes unaffordable with fiat currency. In other Bitcoin news related to El Salvador, previous estimates of the country's Bitcoin treasury were found to be significantly underestimated. A stash of 5,689 Bitcoin was moved into cold storage, revealing that the country actually possessed more than the previously believed 3,000 Bitcoin. Bukele disclosed that the additional Bitcoin came from "selling passports, currency conversions for businesses, mining, and government services." What I admire about El Salvador is that the country is demonstrating its commitment by not merely taking a leap of faith and waiting, but instead, continuing to double down on its belief with true conviction.
ALPHA ALERT: This unheard of dog token is set for tail-wagging gains
Joe journeys into the unknown, diving deep into the so called "fastest trading L1" that's set for a serious tear.
What’s his pick of the litter that's launching straight to the top?
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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.