The Wolf Den Crypto #34 - Investing, Venezuela, Long The Dollar, Charts
Bitcoin Analysis
I will make this short, since everything that I wrote about this on Tuesday is still completely valid. I am currently heavily in Bitcoin from $4,850 and am waiting to see what happens around $6,000 to decide whether to hold or exit this trade.
4-Hour chart shows us what we need to know. Price is currently at resistance, at the top of what looks likely to be an ascending triangle, which we discussed Tuesday. A break above and retest of support would be a very bullish move, and would target the low $8,000s. This is RESISTANCE, so a drop down and failure would not be a surprise. Traders do not take long positions right at resistance - better to pay a bit more on confirmation of a break, or enter lower after rejection.
It is far too early to celebrate, but for now the weekly candle looks very good! Nice long wick down and big green body developing.
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, which is where I am most heavily invested. This has obviously been painful of late, but over a long time frame it will still pay off.
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.
Long-term versus short-term investing
There is a significant difference between long-term and short-term investing. A lot of people, particularly millennials, don’t invest in stocks because they are afraid of losing money in the short term. If one is investing for the long term, then there is very little risk in legacy markets. Stocks can go down, but over any 10 year period in history they are always up at least 7% per year when the gains and losses are averaged out. With a longer term horizon, stocks have literally never been a bad investment.
I invest as much as possible in tax shelters like Roth and SEP IRAs to avoid paying taxes on the gains and to increase the amount that is compounding. I also trade commission-free on E-Trade and try to only invest in index funds that have the lowest possible fees. I also dollar cost average in each investment, meaning that I buy most of these investments on a fixed date, with a fixed amount regardless of price.
So where does crypto fit into an investor’s profile?
As a 42 year old with children and an expensive life, I am only comfortable allocating 10% or less of my net worth into cryptocurrency. This number has reduced in the past few weeks. A more risk averse investor would probably limit that to less than 5% and it’s likely that many in my age group would not be willing to put more than 1% to 2% of their money into such a risky asset class.
That said, most of the people investing in cryptocurrency are millennials and can tolerate far more risk than the me. I lost everything more than once in my 20s and was able to recover. For a younger investor that is passionate about the crypto space, a larger allocation of 25% could be justifiable. Obviously, one should never be all in on any asset or asset class.
So how does one actively invest in markets and maximize their potential earnings?
Compound, compound, compound!
As Albert Einstein once said:
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't pays it.”
The world’s most famous scientist issued this comment about compound interest and time has shown that Einstein was correct. As defined by Investopedia, “Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods. Compounding, therefore, differs from linear growth, where only the principal earns interest each period.”
As mentioned earlier, compounding one’s gains is the key to accumulating wealth, period.
There are three key rules to maximize the advantages of compounding:
— Reinvest dividends or interest into the asset.
— Add more to the investment whenever possible.
— Invest over a long period, the younger one starts, the more powerful compounding will be.
Compounding cryptocurrency investments is far more challenging than in legacy markets. However, there are tools that I personally use to make my money work for me in both places.
Acorns
My favorite tool for passively investing in legacy markets is Acorns. Even though I have accumulated wealth, I still use this tool to help get more money into the market. As described on their site, “Acorns automatically invests your spare change and lets you invest as little as $5 any time or on a recurring basis into a portfolio of ETFs.” This is a fantastic way for developing a diversified portfolio and the platform invests in more than 7,000 stocks and bonds. Acorns also auto rebalances the portfolio to stay within reasonable target allocations.
Acorns does the hard work of managing users’ portfolios based on their investing goals. Furthermore, the money that users invest is rounded up from their bank account transactions and credit card purchases, so it’s generally manageable and goes unnoticed. Personally, I use the 10x option to increase my investment.
https://www.acorns.com/invite/QSDMN7
RoundlyX
Think of this platform as the Acorns of crypto. Similar to their legacy market cousin, RoundlyX rounds up everyday credit card and bank transactions and invests them in cryptocurrencies. At present, users can choose from a number of options, which is effectively anything traded on Coinbase. The company is seeking additional offerings with lower fees to help maximize customer gains.
RoundlyX does not provide custody for assets, they simply facilitate the transaction through Coinbase. This is a brilliant platform and I use the 10x option. I should add that this platform is my primary tool for dollar cost averaging into Bitcoin.
Voyager
Voyager is an incredible exchange with a futuristic iOS app that offers US compliant commission-free trading on 20 tokens. Reducing commissions and fees is key to growing wealth and Voyager solves this problem by providing an easy to use interface to boot. They offer interest on all of your holdings, even while you trade. Really amazing.
Rewards Code: WOLF25
BlockFi
BlockFi allows cryptocurrency investors to earn interest on their Bitcoin, Ether, and select stable coins. This is where compounding gains come into play. The company offers up to 4.9% annual interest on Bitcoin balances smaller than 5 BTC and up to 8.6% on other digital assets.
Platform users also receive interest on their principal and interest. Over the long term, this will result in satisfying exponential gains. For Bitcoin holders, this is a great way to grow the total investment while waiting for Bitcoin to reach a desired target price.
What’s the bottom line?
Invest early and often! This is the true key to investing success. Also seek low fee investments and exchanges that waive commissions. Take advantage of tax shelters like 401Ks and IRAs. Put your money to work for you and don’t touch it unless you absolutely need it!
When you are young you can invest in almost any asset as younger investors should keep the long time-horizon in mind. Following these strategies is the surest way to leave you sitting financially pretty and you’ll have a nice stack when you need your money the most!
Venezuelan Banks Closes, Bitcoin Volume Rises
Venezuela is perhaps the Bitcoin maximalists ideal case for crypto. The country has been experiencing hyperinflation for years, with suitcases of cash required to buy simple items. Bitcoin has been a valuable asset amidst the turmoil, literally saving people's lives who are able to transact with it. Now, in an effort to fight coronavirus, all of the banks are completely shut down. It's no surprised that Bitcoin volume has risen in that time.
Many also conjecture that DASH, a popular crypto currency in Venezuela, is benefiting from the bank shut down and increased interest in crypto. You can see that it has moved significantly on the news.
Long The Dollar
Perhaps the most obvious trade in the world right now is to generally be long the United States Dollar. While this seems counterintuitive to many because of the endless printing and 0 benchmark interest rates, the dollar is presently in a deflationary environment. It is the ONLY TRUE SAFE HAVEN asset in the world at the moment and everyone, everywhere is rushing into cash. This is NOT A GOOD THING long term, but it is an opportunity for traders. I tweeted about this yesterday, and today saw a 20% drop of the AUD (Australian) against the dollar. Crazy, crazy stuff. Here is a decent (but slightly alarmist and drastic) thread from Raoul Pal on Twitter
And another thread from Pomp loosely discussing the idea.
Here is another article that has some takes on what is happening, from Barrons.
The bottom line - there is insane and endless demand at the moment for dollars.
Chart Requests
BIO (BIO RAD LABORATORIES)
This is an interesting chart. Price did nearly a perfect 50% retracement of this entire move up from late 2018. It temporarily broke below the 200 MA but recaptured it yesterday as support, which also coincides with a key horizontal level. The safest entry in my eyes would be a break through the descending blue line. This generally looks like it could be reversing. As always, equity charts are a bit fishy in the midst of a recession.
BNB/USDT
I have not opened this chart in many weeks, but everything actually remains the same. Key levels are marked. I still believe the blue box is the key resistance that needs to be flipped to support before this looks truly bullish. For now it's a nice relief bounce. Also, you have to believe that BTC will rise to assume that the USDT pair here will do particularly well. That box is in confluence with a lot of resistance, including the 78.6% fib level. For now, cautious optimism is fair.
CLX (CLOROX)
This one is obvious. It was requested by a member, but also something that I mentioned in the newsletter on Tuesday. A chart is not really necessary to know that a company like Clorox would do well in a world where we need cleaning products to fight a virus. I was a bit late to the party, entering around $180. I sold most of my position at $210, not because I don't believe it will go up, but because I was more than satisfied with that amount of profit, in this market while everything is dropping.
As for the chart, you can see why I was a bit late. After making an all time high, price formed a trading range shown in blue. This was in 2018. The proper way to trade this is to wait for a break of the top of the range and attempt to catch a retest of the top at support. That would have meant an entry around $168. You can see that price is currently in price discovery now for new all time highs, so it's difficult to predict on a chart.
It is also worth noting the location of the weekly 50 MA - it is in confluence with the EQ (equilibrium, dashed line which represents the center of the trading range) . This entire move launched from that area after it was retested as support. Really pretty chart.
CTSO (CYTOSORBENTS CORP)
This is a tough spot. The key thing to look at here is the clear rejection at the weekly 200 MA, which I circled. This is in confluence with a key level of resistance, shown as the black line. These things quite often line up on charts! You can see that volume appears to be dropping this week, although there are 2 more days of trading remaining. That is at least a small sign that sellers could be exhausting. This can change fast in the coming 48 hours. Like almost all equities, it's hard to see a convincing reason to buy this here.
DJI (DOW JONES)
Very little to add after Tuesday's full analysis. All I can say is that volume has leveled out the past few days as opposed to continuing to rise. This COULD (I doubt it) be a symbol that sellers are running out of steam a bit. Generally though, volume has risen as the "price" has dropped. The only new thing to look at is yesterday's candle, which does have a long lower wick, indicating potential buying pressure in the market. This is only bullish if today's candle is green.
ETH/USD
This was destroyed by the massive Bitcoin selloff, like most things. Actually an interesting chart on the daily. You can see that price came all of the way back down to retest the descending channel that made us so bullish and held it as support. I drew some new key levels worth watching.
The weekly is interesting. Price clearly broke below a key support line and is still trading below it. I would like to see price back above that line before being truly interested in this. It is VERY early in the week still, so hard to gauge this present candle. For now, it has a nice long lower wick and looks like a potential reversal. If this candle closes a bit higher, above that blue line, I would feel very bullish on this pair.
GLPG (GALAPAGOS)
This is having quite a week. I know nothing about it fundamentally, so I cannot offer any insight as to why it has bounced so hard. I can say that price is currently sitting at a key weekly resistance. Above = good, below = more downside based on the chart. I like that it held above the 200 MA here on the weekly chart. Would be really nice to see the weekly volume close higher than the previous bearish volume candles. That would be a great sign that there's more buying interest than selling.
GDX
Interesting chart, to say the least. Price was trading in a clear range and was rejected almost to the dollar at the top before the epic drop. This is a weekly chart, so it lacks a bit of the nuance of the past few days, where price bounced hard from below the range bottom back to the EQ and back down again. A candle close below the red line would be a technical double top break down, but would literally target a price below 0. At this point, you really want to see the range bottom hold on this weekly candle, in my opinion. If that happens, a slow move back to the EQ or even top is possible.
HD (HOME DEPOT)
Like all retail, this has been hit hard by the coronavirus scare. I chose to look at the monthly chart here, because it's REALLY interesting. This entire move up starts at the bottom of the 2008 recession, coinciding with the largest bull market in the stock market as a whole. Price went from $17 to $247 in this time! Although it looks strange on a logarithmic chart, price has almost retraced 50% of that in this single monthly candle! You can see it with the fibs, as price is currently trading at $145. If you really feel like looking to buy this, there's nice confluence in the area of the 50% retracement and S2 pivot on the monthly - $132 to $137. I personally am not trying to catch knives right now.
LINK/USD
I love this chart. Price made a perfect double top, broke down from the white neckline and hit the target almost to the dollar, as measured by the depth of the double top. Really cool and perfect TA. Looking at fib levels is interesting here - you can see they are in confluence with the red line that were drawn manually. Price tapped a key area of resistance at 2.3. A break above and flip to support could be a nice entry. Otherwise a lower entry if price drops. The lower red line also shows 2 bullish SFPs, wicks below a key swing low and then closes above. Lots of liquidity and buying interest there.
LTC/USD
I chose to look at the 3D chart, because the daily was a bit too wide and the weekly
I chose to look at the 3D chart here to get a clear picture of what I think is happening. Price bounced nicely from a key demand/support area in the white zone at the bottom. It is presently finding resistance at a key level, 36.417. I would personally like to see that flipped to support convincingly before considering an entry now that it has already move up so much. That would make this look more like a real reversal than just an oversold relief bounce.
MATIC/BTC
I entered MATIC at 170, a bit higher than I would have liked. Clear bounce off of the black support and holding above 173 as a resistance flipped to support.
TSLA (TESLA)
My best stock trades in my career have come with Tesla. I rode it from effectively $38 to $360, bought again at $180 and sold "too early" around $600. I missed the top of the parabolic move, but shorted with a cost basis around $900. I closed those shorts this morning. Price was trading in a range for years, as shown by the black zone. You can see that price just revisited the top of that range, which is where I was originally looking to rebuy. I have not done so, because the market is so insane, but I did take this as a reason to close my shorts. For now (this is a monthly chart) price is holding the top of the range as support. If this is going to reverse (market still looks bad, so risky), this would be a logical place on the chart to do so.
You can also see that TESLA has retraced 78.6% - about the perfect amount after a breakdown on a parabolic advance.
WDI (WIRECARD)
Interesting spot here. The weekly is on the left, which shows the trading range that is key at the moment. Last week, price closed above the bottom of the range. Price is currently trading below, which to me means this weekly close is REALLY important. A close above that bottom line should technically indicate that the range bottom has held as support and price can return to the middle or top. All of this obviously depends on the global economy. The monthly chart on the right shows the fib levels all of the way from the dead bottom. This has almost been a perfect 61.8% retrace. A close in the range would really look good when keeping this in mind.
XRP/USD
Weekly chart is worth a look - price is in a descending wedge and currently holding the bottom as support with some nice long lower wicks. This could be a reversal if Bitcoin goes up. That's what this really depends on. You can see that price wicked below the ALL TIME LOW on Bitfinex. This is a major SFP, a lot of buying interest down there! I would say that if the market goes sideways or Bitcoin rises, this should do well. But it's risky to depend on that.
Crypto Sell Off Was Driven By Short Term Holders
From the first article:
"After a crazy week, the initial data from the aftermath is somewhat reassuring. Most of the sell-off appears to have been driven by relatively short-term holders, and longer-term holders seem to be holding strong, at least for now. BTC has also entered a historically attractive price zone, with an MVRV below one.
But the markets are still volatile, and it is unclear what lies ahead. We will continue to track events very closely through this unprecedented time, and will provide updates and new analysis over the upcoming weeks."
These are two great reads analyzing the recent Bitcoin drop. You should dig into both, because it is far more comprehensive than I can possibly relay in a short blurb. The key takeaways are that large long term holders had nothing to do with the drop - it was shorter term traders. Also, as I have said COUNTLESS times, it was primarily a few huge traders unloading on the market, and not primarily retail. Whale games, as always!
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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.