The Wolf Den #93 - Trades, Taxes And More
Bitcoin Thoughts And Analysis
Last week I was bullish when price arrived at $10,540, the key level that I had been watching for weeks. I bought there and price continued to drop. No big deal, I am happy with those purchases as investments. I stopped out of my leveraged longs there for a 1% portfolio losses, and entered fresh longs lower (cost basis around $9,910).
I was "wrong," but have no regrets. My analysis still makes sense and is further proof that none of us can predict the future. I was planning to buy $10,540 for weeks and did so when I had the chance.
Notably, we have bull divs and potential bull divs ALL OVER THE CHARTS. They confirmed on every time frame up to the 12 hour already, but most were followed by hidden bearish divergences, signaling some indecision. All were oversold, which is important. That said, I am watching the daily for a potential bull div. That would be confirmation running up the chain from 1 hour to daily, one after the other. I would consider that a major sign of a reversal.
Let's look at the charts.
MONTHLY CHART
We are not even a third of the way into the month, so not much to see here. The main thing to watch later in this candle is to see if it closes back above the pink line at $10,540. That's the line that made a higher high after the correction. Above is bullish, below is more bearish.
WEEKLY CHART
This is an important chart for perspective. I have drawn 2 sets of Fibonacci levels. One from the March lows, and one (red) that represents the most recent move up from $8815.
A few things to note. Looking at the red fibs, we have a 70.5% retrace, considered the OTE (optimal trade entry) by many institutional traders. This is a large retrace of that move and would be a very healthy spot to bounce and continue up.
We also have potential tweezer bottoms (although a bit apart) on the weekly, but that would require no further lows this week.
The 38.2% of the larger fibs is around $9100, in confluence with a very clear demand zone on the weekly. A move to this area would fill the CME gap that people are discussing and would be a very logical spot for a major bounce.
What's most important to note is that a 61.8% retrace or more is considered healthy in any market. If Bitcoin retraced the entire move from March to a few weeks ago by that much, we would be looking at prices in the low $7000s - this would still be technically bullish. Almost everyone would think BTC was dead at that point, when it would still be completely normal price action.
DAILY CHART
As I mentioned, we have seen confirmed divs all of the way up to the 12 hour. A daily close at current price (or lower) would likely give us a bull div on the daily, although we would need to see price rise tomorrow and make a definitive elbow. This would be a very strong signal of a bottom. I would like it better if it was oversold, but all of the other ones have been which is enough for me. Eyes on this into the daily close and tomorrow. This could also fail to confirm and still be potentially there for days to come.
4-HOUR CHART
I keep hearing mention of a bear flag all over twitter. That's technically untrue. A bear flag is an ASCENDING channel and the pattern here is clearly descending. That does not mean price cannot drop, it just means there is no bear flag. Patterns require context and have specific definitions.
At the moment, I see a descending channel, which is more likely to break up than down. This could be a bear pennant, which would be a triangle and would require an ascending line on the bottom. I could see that, but the channel starts "earlier" and is therefore more likely to me.
We also see a potential inverse head and shoulders - the neckline is the same as the top resistance of the descending channel. So basically, we need to see that broken to feel bullish. I really want to be back above $10,540 before feeling great.
As you can see, we have another likely bullish divergence on the 4-hour chart that is about to confirm.
Altcoin Charts
Altcoins are going to likely react strongly to whatever Bitcoin does next, so I am hesitant to even share trades. I traded them successfully on the bounce throughout the weekend, but believe that right now you need to exercise EXTREME caution. That means using stop losses and smaller than normal position sizing. If Bitcoin does well, I expect alts to show some good signs. But if it drops, these setups will probably be useless.
ALGO/BTC
I continue to watch ALGO, because there's a lot of positivity surrounding the project and I believe that it will thrive once again when alts begin to behave. For now I am watching a few things. One is a potential inverse head and shoulders, which would be confirmed on a break of the red neckline. If you want to trade this idea, you have to wait for that break!
We also saw clear bullish divergence with oversold RSI, which helped find the local bottom. That was followed by hidden bearish divergence, so not worth considering any more.
The bigger pattern is the blue descending wedge. It could take a while to happen, but statistically we should eventually see a break of that top blue line and a subsequent trip to the top of the pattern at 6469.
I am not trading this year - I will likely take a break of the red line and then a much bigger position of the blue wedge is broken to the upside. Set alarms and see what happens.
BZRX/BTC
This is brand new to Binance and was really hyped. Then the crash. It's hard to judge this with the limited price history, and the descending line could easily be moved further left to signify multiple breakouts. That said, as drawn we haev a clear breakout and retest as support. If Bitcoin continues to rise, this has a great chance to climb and eventually make new highs. This is a swing trade, longer term play. Stops comfortably below the recent lows at 3801 in case of a wick down there.
LINK/BTC
Interesting spot here. Clearly has been downtrending, but could be showing an inverse head and shoulders, a bottoming pattern. This is still just an idea, and honestly the pattern is far from perfect because the neckline (not drawn) would be ascending and nearly impossible to break. That said, the concept remains the same and is there after holding key support. The real story would be a break of the descending blue line. That would be the trigger for a trade, in my opinion. No reason to buy yet. LINK tends to outperform when BTC recovers, so let's see what happens.
POLY/BTC
Pretty simple setup here. Price continues to hold at key level at 400 sats. That's really it! It retraced the entire move up to just past the 70.5% retracement level, often referred to as the OTE (Optimal Trade Entry) by institutional flow traders. Obviously this means it also retraced past the golden pocket between 61.8 and 65%. My stops are just below 370, because I took a smaller than normal position and a wider stop than usual.
Legacy Markets
DXY (DOLLAR INDEX)
If you have been following my analysis of the dollar index, then nothing that is happening should be a surprise. Lower time frames look decent, but I prefer to remain focused on the monthly. As you know, DXY was in an ascending channel for a decade, bottoming during the last global recession. I also stated that if it broke down (which it did), we would likely see a retest of the bottom of the channel as resistance - which would be temporarily bad for Bitcoin since they seem to consistently move inversely to one another. That retest is currently inches away from being complete, so we will see what happens. A macro retest of resistance here and drop would likely be very bullish for Bitcoin and other assets.
NIO INC.
NIO is a Chinese company focused on the electric car space - no wonder the stock has continued to rise. I have charted this a number of times for subscribers. At the moment, it continues to look bullish on solid volume. IN a perfect work, a drop to $16.44 would be a nice entry - a drop to $13.80 would be even better! That said, there's a lot of hype around this company, they are in a space that is guaranteed to continue to grow and the chart still looks very bullish, retesting all time high after all time high. If this holds above $16.44, it should head back into price discovery up.
UAL (UNITED AIRLINES)
I shorted airlines all of the way down through the crash and then took them completely off my radar. That said, the world seems to be slowly easing back towards a new normal. UAL is in the best shape of the American airline companies and the chart looks interesting. I had an alarm set at $36.74, which is what got me paying attention again. That was a key level that has been tested from both sides. Price is currently back above, so I took a small position. This is a small investment, less of a trade for me. So I do not currently have a stop loss.
WKHS (WORKHOURSE GROUP)
I am about a week late to this party, so proceeding with caution. Very clear breakout of a macro bull pennant on the weekly chart. Beautiful, honestly. The target is based on the length of the flagpole - it looks shorter because it is a log chart and is based on percentages, not just price. That target is around $38. Safest entry now is a flip of the pink line to support, so a break and then retest at $22.90.
If this drops, $11.70 was the previous all time high and was never retested. I would LOVE an entry there.
How To Invest
Two of the most frequent questions that I get from people in the crypto community are: what do you invest in and what are the best investing strategies? As a general rule, the best investment strategy focuses on maximizing gains while minimizing risk.
Historically, the best assets that fit this profile have been stocks, bonds, and real estate. A well balanced portfolio should have an allocation of all three.
That's not what we are all here for, right?
Over the past few years, I strictly maintained a maximum of 10% exposure to crypto, with small investments in gold and silver in addition to the 3 aforementioned assets. In light of the current global economic climate, I have allowed my crypto portfolio to become a significantly higher portion of my net worth - just over 30%. This did not happen over night, and was not planned. I did very well trading and investing in crypto, and then decided not to heavily rebalance to other assets.
Regardless, every investment strategy should always have a long-term horizon and investors that begin putting money away in their 20s have an exponential advantage over those who begin to save later. Furthermore, investing money that is not needed to cover expenses and leaving it in the market for as long as possible is the primary method for accruing wealth faster than any other single strategy. Ultimately, this is the secret to getting rich!
To show how this works in reality, let’s take a look at an easily achievable scenario. If a person invests $250 a month at an 8 percent average annual investment return the following retirement outcomes are achieved.
A person starting at age:
— 25 will accumulate $878,570 by age 65.
— 35 will accumulate $375,073 by age 65.
— 45 will accumulate $148,236 by age 65.
As you can see, an investor who begins putting money away at 25 will end up with roughly 7 times as much money at age 65 as an investor who begins at 45. This is a result of compound interest and the key to successful long term investing.
The same principals can now be applied to a crypto portfolio. Companies like Voyager, Celsius and BlockFi offer amazing interest rates on your crypto holdings, including stable coins. You can earn 9.5% compounding interest, just sitting in USDC instead of dollars in your useless bank account. There is some counterparty risk, of course, as your money is being used for sourcing loans - but that's exactly what is happening with your bank account as well. And those accounts offer almost no interest at all.
Welcome to DeFi.
Whatever you choose to invest in, the goal is to save early and often, don't touch the money and maintain a rational balance of assets.
And how do you actually buy? The easiest way is to dollar cost average. Just buy what you want when you have the available funds, or set a plan to put a certain amount of money in on a fixed day of the week, month or year.
That's it. You will accumulate wealth.
Calculating Crypto Taxes in The United States
I am trying to get an early start on calculating my taxes this year, because I (like most of you) will have thousands of transactions at the end of the year that need to be accounted for. In the United States, any trade that is sold in less than a year is subject to short term capital gains - taxed at your own income rate. If you wait a year, it is taxed at the long term capital gains rate of 15%.
Each fill on an order is considered a transaction - so if you market buy, it could be 20 transactions just for a single trade. Further, you owe on every single transaction between bitcoin and alt coins, which needs to be properly calculated in USD value. I attached a link above to ZenLedger, which is the software I am using to automatically calculate this.
Important note - you should make a habit of taking out an appropriate percentage of each trade's gains into USD. I have known people that have lost money trading and still owed a ton of taxes, because their portfolio dropped significantly and they never took money out.
For me, this means that I put aside 37% of every single trade in USD. Of course there will be some losses to write off against gains, but I still take money out to be sure.
I suggest getting far ahead of the trend and starting sooner than later.
The Inspirational Story Of Sriracha
By Sahil Bloom.
In 1980, a Vietnamese refugee arrived in Los Angeles and began crafting a new spicy sauce. 40 years later, his sauce has developed a cult following and grown into an $80 million business. His life is the embodiment of the American Dream. Who's up for a story?
David Tran was born in 1945 in Vietnam. Beginning around 1975, Tran started experimenting with making spicy sauces, using peppers from his brother's farm and selling the sauces in nearby villages. The family operation quickly scaled as the sauces gained in popularity.
But in 1978, the Vietnamese government began to crack down on the ethnic Chinese population in Vietnam. Tran and his family, being of Chinese origin, decided to flee the country. He soon found himself with thousands of other refugees on a freighter - The Huey Fong.
After a brief stay in Hong Kong, David Tran was granted asylum in the United States. At first, he was in Boston, but a conversation with his brother-in-law in Los Angeles would seal his fate. "Do they have red peppers in Los Angeles?" he asked. They did, so Tran flew to LA.
Within one month, David Tran had started his company, Huy Fong Foods (named after the freighter that took him out of Vietnam), and was making spicy sauce. His goal: to bring the flavors of his country and region to these new markets and his fellow immigrants in America.
He made several spicy sauces, but his signature sauce was inspired by a traditional condiment from a town in Thailand called Si Racha. The sauce had a simple list of ingredients: chilis, vinegar, salt, sugar, and garlic. He named it Sriracha after the town in Thailand.
David Tran began selling the sauce to local Asian restaurants and grocers, giving his pitch and taste tests out of the back of an old, beat up van. His first HQ was a small bottling facility in LA Chinatown, but the business quickly outgrew its humble beginnings.
By 1987, with demand soaring, the business relocated to a 68,000 square foot facility in Rosemead, California. In 2010, it moved into its current HQ, a sprawling 23 acre compound in Irwindale, California with office, production, and warehouse space.
Along the way, Sriracha sauce became an icon with a cult following. People dressed up as Sriracha for Halloween. Lexus made a Sriracha car. People tattooed pictures of Sriracha bottles on their bodies. And in 2009, Bon Appetit Magazine named it its ingredient of the year.
Today, Huy Fong Foods generates over $80 million in annual revenue. It remains family-owned, run primarily by eight members of David Tran's family. Imitators have come and gone (Tran never trademarked the Sriracha name), but everyone knows the original when they taste it.
David Tran's story is, in many ways, the embodiment of the American Dream. A refugee who came to America and built an amazing business through sheer effort and creativity. So next time you put Sriracha on your food, tip the hat to David Tran and his incredible story.
Kazakhstan Makes Huge Investment In Mining
Another nation is making a huge investment in Bitcoin, investing over 700 million dollars in mining. Absolutely massive.
Gold Boomer Peter Schiff Births Bitcoin Son
Peter Schiff - the gold bug boomer - put out a survey to gauge the Twitter world’s preference for advice. To nobody's surprise, over 80% of answers preferred 17-year-old Spencer Schiff’s (the son) action of buying Bitcoin over Peter Schiff’s “expert” advice to buy gold. Crypto Twitter is alive and well and it will be interesting to see who gets the last laugh.
So far it is looking like Spencer Schiff is the Not-So-Prodigal-Son.
Sushi Is On The Menu
Another week, another reckless DeFi coin, and this time it was Uniswap’s Sushi Token. After a sudden rise from sub $1.00 to over $10.00, the market took a turn for the worse when, amidst a correction, community leader and coin creator, Chef Nomi, swapped his sushi for roughly 20,000 Ethereum. Chef Nomi took to Twitter to defend himself from the label of “exit scammer” citing he did what was best for the community. But was this really what's best for Sushi holders?
Many found the move to be reprehensible, calling it a money grab scheme. Some defended the actions claiming that selling early would further the development of the token and increase the creator’s focus for the project. Comparisons of Chef Nomi to Charlie Lee, the founder of Litecoin, were drawn, as the latter sold almost all his Litecoin in late 2017 at the peak price. In a community as tribal and passionate as the crypto space, it is hard to imagine favorable support for any founder selling the token they created. Regardless of both Litecoin and Sushi making new all-time highs, moves like these will always push away a portion of supporters and leave doubts looming across the community.
Tokenizing Gas May Solve Expensive ETH Gas Fees
Ethereum developers are exploring a new strategy to keep gas fees lower, but some are arguing it may perpetually cost more.
In order to execute an Ethereum smart contract or transact in Ethereum, fees are collected to keep the network running, called gas fees, or gas for short. The DeFi boom has caused an exponential rise in the fees raising concerns from both traders and developers. In a space where tokenizing everything is the preferred solution, this is may actually help.
A proposed solution to tokenize gas would allow participants interested in saving money to buy and sell transaction fees in order to avoid expensive price fluctuations. That way developers can buy fees when they are cheap and use them when they are expensive. This gas token is also designed to clean the network of old data which then rewards the user with a subsidized gas price when gas fees are high. It wouldn't be surprising to see a token as the solution to high fees, but if any lesson is taken away from DeFi, it is that this market can spin and twist any token’s price if left ungoverned and uncontrolled.
The Wolf Of All Streets Podcast Ft. Jonas Simanavicius
Jonas Simanavicius is the Co-founder and CTO of NOIA Network, a company bringing modern technology to an outdated and flawed internet. Jonas developed his skills in software development for traditional banking and then began his entrepreneurial journey. His discovery of blockchain mixed with his passion for improving the outdated, day to day technology we take for granted, resulted in the creation of NOIA. Now he sees the company and its role at a major inflection point, poised to make vast improvements to the internet in the near future.
Jonas and I further discuss the private vs. the public internet, a new 2.0 layer of the internet, NOIA token economics, Ethereum 2.0 gas fees, smart contracts and the world computer, the DeFi craze vs. the ICO craze, virtual reality vs. quantum computing, the dot-com boom, Bitcoin as the only true decentralized model, DeFi disruption and more.
My Recommended Platforms And Tools
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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.
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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.
My preferred crypto tax software.
Binance is finally available in Florida!
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.
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.