A BlockFi SEC Moment – Issue 9

A weekly news and trading piece by Scott “Shooter” Henderson covering crypto currencies.

Kirk & Shooters Crypto Thesis

The short story is that most cryptocurrencies are going to zero, but there will be survivors that rise to much higher price ranges. This is a journey of separating winners from losers.

We expect Bitcoin and Ethereum to be among the biggest, if not the biggest, winners. Along the way, we can trade the larger moves for added gains.

In the News

Here’s what caught our attention this week…

BlockFI SEC Moment

I don’t know about love in the air? JDSURA, reported that on Valentine’s Day the “SEC brought a first-of-its-kind enforcement action against a major cryptocurrency exchange, finding that the company’s crypto lending product, which was offered and sold to US investors, was a security requiring registration. The $50 million penalty assessed by the SEC (and another $50 million by state securities regulators) follows a string of recent cases against firms—both registered and unregistered—and individuals in the crypto industry, and the SEC’s issuance of a proposed rule that may impact decentralized finance (DeFi) trading platforms”.

Newly launched NFT ETF drops 11% in 48 hours

Defiance Digital Revolution ETF (NYSEARCA: NFTZ) the 1st NFT focused ETF got killed right out of the gate. On day one of launch, Silvergate Capital Corp. (NYSE:SI) was down 15%, and other holdings such as Marathon Digital Holdings (NASDAQ:MARA) -10.4%; PLBY Group (NASDAQ:PLBY) -7.5%, and Cloudflare (NYSE:NET) was down -5.6%. Sylvia Jablonski, Co-founder and Chief Investment Officer of Defiance ETF’s said, “NFTs, could be bigger than the internet.” I think we will focus on structural components for a bit.

Is a (P2E) paradigm shift in the works?

The Legend of Mir” a free-to-play fantasy online role-playing game based in an ancient oriental world in what is known as an MMORPG (Massively Multiplayer Online Role-Playing Game) that uses WeMix, a global blockchain gaming platform, to promote blockchain-based play-to-earn (P2E) games. WeMade’s (KOSDAQ:112040) blockchain-based P2E game, MIR4, is now available in 170 nations, not in South Korea, due to regulations. Ironically, that is their home country. Through cooperation with game developers, WeMade aims to introduce 100 blockchain games that use WeMix tokens as key currency by the end of 2022. WeMade, predicts a paradigm shift in the game industry with the introduction of blockchain, a decentralized service that shares replicated and synchronized data geographically spread across multiple servers operated by countries or organizations. I like the global reach into Asia! We will be adding a position soon.

SolChick is an NFT game on Solanart (TOP-NFT’s) in a battlefield environment to see who’s the strongest in capitalizing competitive teams in a multiplayer online battle arena (MOBA) style skirmish using the Solano network. One of the low cost of $0.00025 a transaction in the Cryptoverse. You can breed, train, and sell these NFTs on the open market. Considering the potential with an 8 week lock-out period, this staking project has huge potential risk reward after an 8% Solano drawdown! No position yet!

Is Tech’s the Next Great Migration

Well, according to Testra Ventures Miami is leading the pack, with blockchain deals surpassed all other industries. Yet, their own cryptocurrency MiamiCoin, is not fairing so well. If investments are the tell, that will change as investments are up 182% over last year. Fine Tech, Mobile and consumer deals were up over 85%, followed by media, advertising, and health tech, which came slightly lower around 75% in total. Suarez, the Mayor of Miami, is paid in cryptocurrencies. Suarez has promoted digital wallets and has pledged to pay government employees in Bitcoin. This will be an interesting use case moving forward.

Quantum Key Distribution (QKD)

JPMorgan Chase (NYSE: JPM), Toshiba (OTCMKTS: TOSYY) and Ciena (NYSE: CIEN) Build the First Quantum Key Distribution Network Used to Secure Mission-critical Blockchain Applications. Apparently, there is Quantum kind of space race according to pymnts.com. Apparently, a quantum algorithms was designed last year by Goldman Sachs and QC Ware researchers that outperform state-of-the-art classical algorithms for Monte Carlo simulations, according to FT, which is expected to be compatible with quantum hardware “available in 5 to 10 years.” Just imagine putting every Cryptocurrencies in a zip drive in one second. That’s how fast the next generation Quantum chips will be. Mind boggling!

Research (Supporting Evidence)

A March Rate Hike Weighs?

Glassnode noted that across all the exchanges they track futures term structure has flattened out through most of march. So, we should be quite into the fall?

Notable de-leveraging

They also saw notable de-leveraging as futures open interest declined last week from 2.0% to 1.76% based on market cap.

Put Option Dominance

We also can see an increasing Put Option Dominance symbolic of a new reign for investor sentiment.

Long Term Holder Want Protection

Long Term Holders have a preference for protection or that Glassnode’s take from the graph below. Holders have a clear desire for puts with $38k and $40k strike have more than the open interest as $48k or $50k call strikes.

Historic Adoption Rate is on the Horizon

Adoption rates of cryptocurrencies and the internet. As we dig into methodology on estimating adoption rates, all we need to do is look at history for some insight. Shooter feels the best way to calculate adoption rates is to use known internet users divided by the active crypto wallets. To date, this seems to be the most accurate method to project future cryptocurrencies adoption rates. At the current rate, future adoption rates should be at least 3x from here.

What is PTE (P2E)?

PTE (or “play-to-Earn“) The idea of earning money through video games’ in-game economies is not new. As long as game economies have existed, players have found ways to make money. 

What is Defi?

Decentralized finance (DeFi) is a sector term for financial services on the blockchains, primarily Ethereum. The idea of DeFi, is to create the ability to do most things that banks support and more — lend, borrow, earn interest, buy insurance, trade, etc. — it’s fast and doesn’t require paperwork to complete a transaction. Just like crypto as a whole, the DeFi concept is a global, operating on a peer-to-peer network, in an open to all decentralized concept.  The Mega caps are Ethereum, (ETHUSD), Wrapped Bitcoin (WBTCUSD), Chainlink (LINK) and Uniswap (UNIUSD). See a complete list DeFi cryptocurrencies here.

What is GameFI?

GamFi (GAFI) is an amalgam of gaming and DeFi. The notion of GameFi builds on the connection of blockchain technology, decentralized financial products, and gaming. Such as non-fungible tokens (NFTs), borrowing and lending, yield farming and stablecoins, among others. The largest market share resides in the rising stars AXSUSD, MANAUSD, SANDUSD. See a complete list GameFI cryptocurrencies here.

What are NFT’s?

NFT’s (or “non-fungible tokens”) are the latest crypto phenomenon that transform digital works of art and other collectibles into unique one-of-a-kind, verifiable assets that are easy to trade on the blockchain. Christie’s auction house sold the first-ever NFT artwork. Beeple sold a collage of images for a staggering $69.3 million and even Crypto Kitty has a collection. Our rising stars are Decentraland (MANAUSD), The Sandbox (SANDUSD), FLOW (FLOWUSD), Enjin Coin (ENJUSD), and ECOMI (OMIUSD). See a complete list NFT-related cryptocurrencies here. Top NFT’s here.

What is the Metaverse?

Metaverse is a digital world, where users interact with each other much like real life yet in a virtual environment. You use an avatar versus your person. One neat feature is that you get the best of both worlds, business, pleasure, social, and even gaming. Some Metaverse crypto and stocks are pure plays, that is, companies who do nothing but the metaverse. Others are hardware companies that already have successful businesses but we’ve found they will likely benefit from a new revenue stream. In many instances, the metaverse requires the use of augmented reality (AR) or virtual reality (VR) headsets. Software companies can also be metaverse stocks. Several growth stocks are poised to benefit from the metaverse trend, while other stocks are already members of the Tech universe with history and new technology. 

Shooter’s Not So Quiet Mind (Watchlist)

Note: INTC PYPL LINK and FLOW still looks ready. Or they are close! Once DeFi regulation comes in I think LINK starts to lead DeFi. Not sure yet, on Solona. But its growing on me! On another note, FLOW continue gain on both SAND and MANA on users. MANA/USD (Decentraland) needs some time and so doe’s ADA (Cardano). ENJ and OMI are on my radar in the NFT space but I’ve not added a position. I encourage you to go create a profile and explore Decentraland and explore FLOW on Twitter or if your a Baller VC check out Flowverse. Stay tuned for Bloktopia (BLOK) next week. It is still a micro while it held up very well in the most recent drawdowns.

Shooter’s Crypto Picks and Sector Stocks (Wave Counts)

It’s time to seriously consider what percentage of your portfolio should be held in the Cryptoverse. Crypto is still very speculative. However, the risk and rewards are unprecedented. Stay tuned as I jump into DeFi, Pay-to-Earn gaming, and other shining stars in the new year.

Make sure to adhere to a rules based approach to trading using technical indicators. And, we highly recommend trailing stops and/or stops at preset technical levels.

Follow along in chat if you are going to swing trade a portion of your account. We recommend starting with trading 5% or less of your total portfolio and no more than 20% even as you gain experience.

USER GUIDE

Continue to scale in small on all entries!

“Next Entry Window Long label” or “Set-up Long Label”.

Crypto Elliot Wave Counts / Set-ups / Next Entries Long or Short

MARA Added (small) Apr $25 & $30 calls (Shooter Proxy for BTC leverage).

XBT/USD (BTCUSD) The SEC just killed it. We opened the week higher at $42,226.69. Bitcoin seemed to catch a cold quicker than equities this week. Decent range again at $5350.89. That $45k was the spot as we reached $44,775.06 as the weeks high, and came off there again. Again, the ETFs show a little more strength because of the futures contracts they hold.

If you don’t have a Crypto account you can also buy Grayscale GBTC this is the prospectus.

Bitcoin / US Dollar Pair Monthly Chart
Bitcoin / US Dollar Pair Weekly Chart
Bitcoin / US Dollar Pair Daily Chart
Bitcoin / US Dollar Pair 90 minute Chart

GBTC (Bitcoin ETF) Weekly Chart

GBTC (Bitcoin ETF) Daily Chart

GBTC (Bitcoin Trust) 90 Min Chart

ETH/USD It sure looks like it resolves to the downside. I’ll post my entries in chat as they come.

If you don’t have a Crypto account you can also buy Grayscale ETHE this is the prospectus.

Ethereum / US Dollar Pair Monthly Chart
Ethereum / US Dollar Pair Weekly Chart
Ethereum / US Dollar Pair Daily Chart
Ethereum / US Dollar Pair 90 Min Chart

Grayscale Ethereum Trust (ETHE)

Grayscale Ethereum Trust Weekly Chart
Grayscale Ethereum Trust Daily Chart
Grayscale Ethereum Trust 90 Min Chart

Flowground: (FLOW) is not only fast, its seems resilient, decentralized, and developer-friendly blockchain, designed as the foundation for a new generation of games, apps, and the digital assets that power them. It is based on a unique, multi-role architecture, and designed to scale without sharding, allowing for massive improvements in speed and throughput while preserving a developer-friendly, ACID-compliant environment.

FLOW/USD Held up very well, considering. Continue to cost average in.

Chainlink: Is a securely connect smart contracts with off-chain data and services. Chainlink decentralized oracle networks provide tamper-proof inputs, outputs, and computations to support advanced smart contracts on any blockchain. What has gained a lot of traction and my attention is the CCIP bridge which is intent on connecting all Crypto platforms to the hub, LINK. A unified Decentralized Contract Hub so to speak! Not only, does Oracle have a sound history in Banking, they are well established as a secure government provider. So, its my belief that when Banking goes blockchain they become  the top tier provider in Decentralized financial contracts. If not more! All were waiting for supervision by the bank regulator, the Comptroller of Currencies, and were off to the races.

This week, 16 projects adopted 5 #Chainlink oracle services across 4 different chains, including #BNBChain, #Ethereum, #Optimism, and #Polygon.

LINK/USD continues to work on the base. I’d say constructive! Continue to cost average in. Once the Banking supervision is settled Bank of America will be allover these contracts.

CRV/USD Were back-testing the floor so lets make sure that holds. We’ve had a lot of broken counts again. Then continue to cost average into this one as well. More on Curve here!

Curve DAO Token / US Dollar Pair Weekly Chart
Curve DAO Token / US Dollar Pair Daily Chart

MANA/USD (Decentraland) Count is still manifesting, NEXT ENTRY LONG is still the $1.29557. I will continue to cost averaging in.

MANA (Decentraland) Weekly Chart
MANA (Decentraland) Daily Chart
MANA (Decentraland) 90 Min Chart

ADA/USD The best money I’ve ever made in crypto was sitting on my hands and waiting! As soon as that three print I’ll start cost averaging in again. I can feel it!

AXS/USD Unphased by the Ukraine. As long as that stop hold I think the low is in.

AXES US Dollar Pair Daily Chart
AXES US Dollar Pair Daily Chart
AXES US Dollar Pair 90 Min Chart

SAND/USD Next Entry Window Long is now $3.261. Count has now reset to the upside. Cost average in based on your own risk model.

SANDBOX / US Dollar Pair Weekly Chart
SANDBOX / US Dollar Pair Daily Chart
SANDBOX / US Dollar Pair 90 Min Chart

Metaverse Contenders

Roblox GTA V advanced to third spot of the top 10 streaming Games this past month. Just imagine when Play-to-Earn manifests in the Metaverse with games like Grand Theft Auto and Battle Royale. More about RBLX games here.

Roblox (RBLX) I added an 1/8 position size on Cathy Woods buying 30 million shares. Earnings Report!

Fourth Quarter 2021 Financial Highlights

  • Revenue increased 83% over Q4 2020 to $568.8 million
  • Net cash provided by operating activities of $122.2 million; Free cash flow was $77.3 million
  • Bookings increased 20% over Q4 2020 to $770.1 million
  • Average Daily Active Users (DAUs) were 49.5 million, an increase of 33% year over year
  • Hours Engaged were 10.8 billion, an increase of 28% year over year
  • Average Bookings per DAU (ABPDAU) was $15.57
ROBLOX Corp Daily Chart

Good Reads

What is Cryptocurrency Less than 10 minute read

Digital Assets / Investor.gov Less than 1 hour read (The Fed’s Opinion on Risk)

SEC Expands Alternative Trading Systems Definition (25 day to a vote) Less than 15 minutes

Internal Revenue Service (IRS) and Staking Less than 5 minute read

The Future of Crypto Banking Less than 10 minute read

Avoiding FOMO & FUD Less than 5 minute read

Regulation of Exchanges and Alternative Trading Systems Less than 1 hour read

CTS Article Archive

Scott Henderson’s Risk Disclosure & Disclaimers

Follow Shooter on Twitter @swingtradenotes for his quick thoughts.