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…

Bank America

Chainlink could accelerate the adoption of next-generation blockchain use across finance, insurance, supply chain, gaming and gambling, Bank of America said in a research report following a fireside chat with Chainlink co-founder Sergey Nazarov. All I’m going to say is who knew???

Twitter Tips

The company announced on Thursday that its Tips feature has become a reality and will now roll out globally to all Apple iOS users this week and will become available for Android users in the coming weeks.

Safe haven Weakness

According to market tracker CoinMarketCap, the total crypto market lost $160 billion in value last week, plunging 10% since the Ukraine invasion began. Bitcoin crashed 8% and tagged a fresh low of $34,413.00. Ethereum, dropped 7% to $2,404.00. Even Solana, one of the more popular NFT platforms, crashed 10% to $83…even the meme coins like Doge and Shiba tanked 10%. Yet, they all bounced to some degree and Ethereum led the way out.

Short Positions see $143 million in liquidations

According to Coindesk traders betting against a rise in cryptocurrencies suffered losses of up to $143 million Thursday and Friday as global markets recovered. We caught a piece of that in MARA calls for quick 60%!

Block (formerly Square) nearly hit $2 Billion in Q4

Andrew Throuvalas from Decrypt reported that Cash App—the popular mobile payment service developed by Block (formerly Square)—has become a highly popular vehicle for purchasing Bitcoin. According to an earnings report, the company accrued $1.96 billion in Bitcoin revenue during the fourth quarter of 2021.

Research (Supporting Evidence)

Active Entity Softness

We have softness or are we just seeing the week hands being shook out? The Number of Active Entities are now testing the lower support channel on the 14d EMA.

Macro-Trend

The macro trend in new non-zero account balances creation has an upward trajectory; we also see a softening or flattening of the Non-Zero Address Count using the 30-day rate of change.

Losses grew for Short-Term Holder (STH’s)

According to Glassnode this pressures the sell-side because the cost basis is now above the current cash price. Most STH’s are acquired between $42 and $50k. I think that metric continues to be weighted during most of the 1st quarter.

I’m sighting Glassnode Conclusions in its entirety

Overall, the Bitcoin market has numerous bearish headwinds in play, ranging from very weak on-chain activity (a proxy for demand), to large volumes of supply held at a loss (potential sell-side). With a total of 4.70M BTC currently underwater, and 54.5% of it held by STHs whom are statistically more likely to spend it, the bulls certainly have their work cut out for them.

However, despite the prevailing drawdown that has been in play for over three months, the underlying supply dynamics remain markedly more constructive that previous bears. As was covered in the last three WoC editions (weeks 5, 6 and 7), Bitcoin investors appear far more likely to hold on for dear life (HODL), and use derivatives to hedge risk, rather than selling spot to reduce exposure.

It looks like a bear market. But do keep in mind, that longer term, the bear authors the bull that follows.

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.

In the Know (Secular Trends)

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)<<<

Notes: We came off a lot more than I expected on Ukraine…Note to self: Cover on an Invasion! Yet, it also showed us where there is strength. As a result, I added CORZ, BITF to my Bitcoin thesis, “$75k by 2023” and I will double my entry sizes in MARA plays. I liked the strength they showed and I like the math on their holdings at $75k BTC. I will also add a starter position Solona next week and I will use those coins to stake the SOLO Chicks project. My Granddaughter loves that game! I will add to AXS, LINK, FLOW, INTC, PYPL, and probably BLOK. MANA (Decentraland) needs some time and so doe’s ADA (Cardano) and now that CRV caved we can add that to the list. I encourage you to go create a profile and explore Decentraland and explore Twitter on Twitter or if your a Baller VC check out Flowverse.

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

Marathon Digital Holding, Inc. (NASDAQ: MARA) The Company last sold bitcoin on October 21, 2020, and since then, has been accumulating or “holding” all bitcoin generated. As a result, Marathon currently holds approximately 8,595 BTC, including the 4,813 BTC the Company purchased in January 2021 for an average price of $31,168 per BTC. On February 1, 2022, the fair market value of one bitcoin was approximately $38,464, implying that the approximate fair market value of Marathon’s current bitcoin holdings is approximately $330.6 million.

Corporate Highlights as of February 1, 2022

• Produced 462.1 self-mined bitcoin during January 2022, an 816% increase from 50.4 self-mined bitcoin in January 2021
• Increased total bitcoin holdings to approximately 8,595 BTC with a fair market value of approximately $330.6 million
• Cash on hand was approximately $189.1 million and total liquidity, defined as cash and bitcoin holdings, was approximately $519.7 million
• Received approximately 21,000 top-tier ASIC miners from BITMAIN during the month of January
• Existing mining fleet consists of 32,710 active miners producing approximately 3.6 EH/s
• Deployments of miners into containers at new facilities are underway and expected to accelerate during the first quarter and throughout the rest of 2022

Currently, holding Apr $25 & $30 calls / Jan 2023 $40 calls (Shooter’s Proxy for BTC leverage). I’ve been rolling 25% of gains into those $40 leaps. As the bottom becomes more defined I’ll increase that %.

CORZ

Core Scientific, Inc. (NASDAQ: CORZ) 100% upside? Even though my count is ugly! BTIG analyst Gregory Lewis initiated coverage with a buy rating and $18 price target, or nearly double the current price of $9.38. According to Core Scientifics website it operates 75,000 bitcoin miners producing 7.5 EH/s that minted 1,077 bitcoins in January 2022, 1,044 bitcoins in December, 2,498 bitcoins in the fourth quarter, and 5,769 bitcoins in the full year, representing year-over-year increases of 313%, 235% and 350%, respectively. The Company held 5,296 bitcoins at year end and as of January month end they held 6,373 bitcoin produced from operations. As of December 31, 2021, Core Scientific provided infrastructure, technology and operating support for a diverse group of customers operating more than 80,000 ASICs, which represented 6.9 EH/s of the Bitcoin Network. In 2021, the Company entered into agreements with customers to provide approximately 430 megawatts of additional hosting capacity in 2022. With these metrics I’m having a hard time believing my own charts. Stay tuned, I will be adding a starter position shorty that is in line with my MARA thesis.

This next week I’m starting a new position in Core Scientific (NASDAQ: CORZ).

BITF

Bitfarms Ltd (NASDAQ: BITF // TSXV: BITF) (A low cost producer under $7k a BTC)

Mining Production (Paraguay is up and running)
⦁ 2.3 EH/s achieved effective January 23, 2022, up 100 petahash per second from December 2021.
⦁ 301 new BTC mined during January 2022, up 51% from January 2021.
⦁ 9.5+ BTC mined daily on average in January, equivalent to about US$365,900 per day and approximately US$11.4 million for the month based on a BTC price of US$38,000 on January 31, 2022.
⦁ 299 BTC from mining in January deposited into custody.
⦁ 4,600 BTC in custody at January 31, 2022, inclusive of 1,000 BTC purchased during the month, representing a total value of approximately US$175 million based on a BTC price of US$38,000.

I will add to my Bitfarms (NASDAQ: BITF) this week as well.

XBT/USD (BTCUSD) The Ukraine just killed it. We opened the week higher at $38,257.59. Decent range again at $5398.00. Our high was $39720.00 while the low was $34322.00. We always seem to find a bottom and top .00. We almost never see a bottom or a top print with change.

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

GBTC (Bitcoin ETF) Weekly Chart

GBTC (Bitcoin ETF) Daily Chart

GBTC (Bitcoin Trust) 90 Min Chart

ETH/USD Boy did I miss that entry! Good thing I held my ETHE. Well maybe not! We also hit a historic hash rate this past week. UPDATE – 9.6M ETH staked on the Ethereum Beacon chain w/ 300,000+ validators.

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

Grayscale Ethereum Trust (ETHE)

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 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.

LINK/USD Continue to cost average in. Once the Banking supervision is settled Bank of America will be allover these contracts.

CRV/USD Were back-testing my Speedline now. Count suggest it breaks. I will add when that prints. More on Curve here!

MANA/USD (Decentraland) Count is still manifesting, NEXT ENTRY LONG is still the $1.28557. I will continue to cost averaging in.

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 Its ready, looks like the bottom is in on and Intermediate Wave Degree and should start an uptrend shortly.

SAND/USD Looks ready! Continue to average in.

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

RBLX If this is an XABCD the bottom is in here otherwise it is a second drive of a 3 Drive. I’m holding and I’m just itching to add…

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.