The Wolf Den #94 - Bitcoin, Trades, Requests And More
Bitcoin Thoughts And Analysis
I remain long Bitcoin with a cost basis around $9,940 after adding to the position. The reality is is that Bitcoin is a bit sideways, looking to make a decision. Nothing has happened yet to convince me that it will make a strong move in either direction, but we know that it will. Price is still below the key $10,540 level, so it's hard to be particularly bullish short term until that is recaptured. Still, nothing scary here on a macro level in my opinion. We can drop quite a bit without the bias changing in the least.
WEEKLY CHART
Revisiting this from Tuesday. This candle is far from closed, so this is just an idea. That said, a weekly candle similar to the one we see now would be bullish. The consecutive long wicks down show demand and the weekly candles have almost perfect tweezer bottoms - a bottom signal. Here is more information on tweezer for reference. Also, as noted on Tuesday, the red fibs show a very healthy retrace.
How to use candlestick tweezer patterns for analyzing and trading financial markets.
DAILY CHART
Sweet. We have confirmed bullish divergences that have built from the 15 minute all of the way up to the daily. That is usually a crystal clear bottom signal... but we have potential hidden bear divs as well, which have shown on multiple time frames. I really want to see a daily close above the black line ($10,456) to invalidate a potential hidden bear div here on the daily. These can take days to confirm, so no stress. For now, we have a beautiful bull div.
4 HOUR CHART
Price broke out of the descending channel and tested it as support. That's good. As you can see, $9,895 was established as a bottom on the drop, and then was tested successfully twice, with wicks below indicating liquidity being engineered (local SFP).
Bottom line - we really want to see $10,540 as support before getting excited. Above is good, below means caution.
Altcoin Charts
All of Tuesday's trades have been profitable, so it's been a really great week! BZRX (hit the first target and continued up) and ALGO (just hit the first target) both went nuts and LINK and POLY have made nice moves as well. Bitcoin has remained somewhat sideways and Dominance has been dropping once again. So I am cautiously optimistic for alts right now, but very few are jumping out at me. A large Bitcoin move in either direction could hurt, and that will eventually come. So keep your eye on your trades if you choose to take any.
BQX/BTC (VGX)
Voyager has been bullish for many months and is seeing some healthy retracement. That said, it's in a clear descending channel and testing horizontal resistance. The trade here is a break out from the descending blue channel. Set an alarm at the top line. Key levels are shown.
SXP/BTC
SXP is traveling in a massive descending wedge, denoted by the red lines. The trigger on a trade like this is a break of the top red line. Targets are shown by resistance levels, with the ultimate target of a descending wedge being near the top of the pattern. Simple - set an alarm on the top red line.
TRB/BTC
This actually looks good here. Breaking the descending resistance on a nice green candle and working on a resistance flip to support of a key area, shown by the box across the chart. This could be a really nice entry. I like this anywhere above the blue ascending line, so a clear break down of that and the light blue box would signal potential weakness. I am not in this, I don't trade on Huobi, but I would set a stop below the ascending blue line and target the black lines, scaling out at each/
XTZ/BTC
Tezos has been a disappointment to most over the past few months, but that could be ready to change. Price has been trading in a range (green lines) since February. The range bottom is being tested and has held as support thus far - that means that technically it should travel once again to the equilibrium (EQ, dashed center line) of the range and ultimately the top. That is IF IT HOLDS the support. The thing I like about this is that you can close this trade for a small loss if a candle closes below the range. You can see there have been a lot of wicks down there, finding liquidity. Do not get faked out by a wick. The safer entry would be a break of the descending white line.
Interview With Cryptonites
I normally do not share my interviews, but I really enjoyed this one, and Alex asked amazing questions that really got to the core of my trading mentality and rules. This is a great watch if you want some insight into how I approach markets and managing risk. That's why I included it here in the "education" section.
Also, they have a really talented artist and the art is cool!
Risk-Free Rate 101
By Sahil Bloom
Chamath recently posted a great thread laying out the impact of the "risk-free rate" on public market valuations and investor behavior. It was, unsurprisingly, on point. But what is the risk-free rate and how does it work? Here's Risk-Free Rate 101!
First, a few definitions. The risk-free rate of return is the (theoretical) rate of return of an investment with zero risk. Typically, investors will look at a short-term US Treasury bill ("T-bill") discount rate or 10-year US government bond yield as the risk-free rate.
A quick "101" on T-bills. They are short-term and auctioned at a discount to par value. The investor is paid the par value at maturity. They have no interest rate risk. The default risk of the US government is believed to be zero, hence its use for the risk-free rate.
The risk-free rate is a key component in many theories of finance. The Capital Asset Pricing Model (CAPM), Black-Scholes model, and Modern Portfolio Theory (MPT) all use the risk-free rate. But I'm more interested in practice than theory, so let's focus our energy there.
Why does the risk-free rate matter? It's important because it establishes a baseline for the rate of return an investor would demand as they take incremental risk. You would not take on a bunch of new risk to make 6% if you could get 6% in a T-bill or government bond!
If the notion of getting 6% on a T-bill or 10-year bond made you laugh, I apologize. These rates are essentially approaching zero. 0.13% on a 1-year T-bill and 0.72% on a 10-year government bond. Real yields (nominal less inflation) are actually deeply-negative on the 10-yr.
So in an environment where investors are forced to compare the potential return from equities against the risk-free rate (of essentially 0), we start to see why valuations may be pushing higher. This is where the TINA ("there is no alternative") mantra comes in.
Most investors with cash on hand are choosing between holding cash (exposing yourself to inflation), buying bonds (at historically low yields), or buying equities (at historically high valuations). The last option becomes more viable if it offers any potential return premium!
Now, to be sure, there are nuances here. Other asset classes (precious metals, Bitcoin) do exist as options, though most traditional institutions remain slow-moving in that regard (at their own peril, if you ask me!). There are also currency risks for foreign investors.
But the basics hold, and they (at least partially) explain some of the speculative buying and forward-looking metrics we see today. As Chamath pointed out, when the dot-com bubble burst, the risk-free rate was at 6%+, which made the choice more difficult for investors.
So to summarize... Risk-free rates are essential for investors to determine the required return for taking on risk. When investors compare potential equity returns against near zero risk-free rates, they may be inclined to look further out the risk spectrum for returns.
That was Risk-Free Rate 101! While there are a lot of complexities at play, these are the basics that are helpful to understand as a starting point.
Bitcoin And S&P More Correlated Than Ever... Still Not Particularly Correlated
I have always made the argument that Bitcoin and the stock market are not particularly correlated, which is historically accurate by any metric. We have seen them move similarly at times over the past few months, and they just reached their highest correlation ever... .4905 (before dropping immediately to .36). Even .4905 is defined as "moderate correlation" and is not usable as a strategy for trading.
Is Davey Day Trader Back in Crypto?
Dave Portnoy released a video to Twitter claiming crypto is, “where his heart is” and he has intentions to come back. It seems that Portnoy is taking a more calculated approach this time, rather than jumping in face first knowing absolutely nothing about the space. While it could spell a repeat disaster if he comes in with his old mentality, it could also be great to have him in the space. His influence is undeniable and with proper timing, stronger hands, and a little bit more know-how, having him as a catalyst could be a not positive. We all want to make money and are all a little crazy, which is right up Dave’s alley.
Can Quantum Computing Crack Bitcoin?
A joke on Twitter asking for a quantum computer from Google in order to crack the password of a wallet with 69,000 Bitcoins caused a stir in the crypto community. An unopened Bitcoin wallet currently holds almost 700 million dollars worth of BTC at the time of writing this segment. Nobody will know the password without quantum computing. The wallet has been passed around to hackers with no success at accessing the treasure.
If passwords did suddenly become hackable by quantum computing, Bitcoin wallets wouldn't be the only target for thieves, putting much more than the blockchain at risk. And if quantum computers could crack a password instantaneously, it isn't hard to imagine they could also protect passwords or keys by scrambling them at similar speeds. For the time being, our Bitcoin is not at risk.
The Wolf Of All Streets Podcast Ft. Matt Stover
Matt Stover is the CEO and founder of MGStover, a financial service company with over 130 crypto dedicated funds as clients. Matt began his professional career with a background in taxes and went on to develop a passion for finance and crypto. This passion buoys a firm that today services billions of dollars worth of combined client crypto investments. As crypto tracking and accounting have become increasingly difficult, MGStover has set out to make it simple and has even had regulators come to them for assistance in regulating crypto.
Matt and I further discuss, the major pitfalls of crypto hedge funds, how nobody is keeping up with the pace of crypto, the natural progression of a successful trader, every trader's dream to open a hedge fund, poker players backed by hedge funds, trading your money vs. your client’s money, offshore vehicle investments, giving the government their piece of the pie, the similarities of crypto and marijuana, the disappearance of the physical dollar, a digital world and more.
Chart Requests
BAND/BTC
We have had some incredible BAND trades over the past few months. At the moment it's a bit weird, because there were rumors of BAND involvement in the SUSHI debacle. That cause a bit of a dump and reset on the chart. For now, I would like to see price hold the ascending line as support, and would feel more comfortable if it can break the overhead resistance it is approaching now around 90905. That area should become support before getting too excited.
RSR/BTC
There's been a ton of bear divs, which all seem to have finally played out. I basically called the top of this one on a previous request. RSI looks reset and there's some hidden bullish divergence (not shown) over a longer time period than I like to utilize. They levels for me right now are shown - you can see that price was just rejected at resistance above. I can't really figure this one out now, seems to be between levels.
TRB/BTC
Please check the altcoin charts above for the TRB chart!
VET/USDT
This will likely follow BTC because it is a USDT pair. The safest entry now would be a break of that descending local black line. I like how well it held support over the past few candles. Key areas are marked.
XTZ/BTC
Please check the altcoin charts above for the XTZ chart!
YFII/BTC
We missed the real breakout on this one, when price crossed the descending line. That said, it is moving well and should eventually continue back to the highs. I would like to buy on a support test around .36 if possible, or a flip of the line above to support at .412.
My Recommended Platforms And Tools
This is where I invest, commission-free. They now let you earn interest on your Bitcoin held in Voyager, so you can compound while trading. Not only that, you’ll get $25 in free BTC when you download & fund.
Rewards Code: Scott25
This is where I trade with leverage and can also trade spot with no fees.
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.
Rewards Code: WOLF
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.
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.
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.