A weekly news and trading piece by Scott “Shooter” Henderson covering crypto currencies. Read my Future Of Money Primer and Using Crypto Trade Shots for the basics to follow along.
It’s time to seriously consider what percentage of your portfolio should be held in the Cryptoverse. Crypto is still very speculative, but, the risks and rewards are unprecedented. Travel with me as I navigate crypto, NFTs, DeFi and the Metaverse.
Shooter’s & Kirk Spano’s 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.
We also agree that NFTs and the Metaverse will be have multitrillion dollar flows. That’s a total addressable market worth getting to know very well.
Crypto News Bytes
Here’s what caught our attention this week…
SEC Proposed Exchange Definition Update
The U.S. Securities and Exchange Commission (SEC) has proposed redefinition of the word “exchange” within the Securities Exchange Act.
II. Proposed Amendments Regarding the Definition of Exchange A. Exchange Regulatory Framework Exchange Act Section 3(a)(1) states that the term ‘‘exchange’’ means any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.
Personally, I think any group of people will only deepen the wealth gap and slow adoption. It’s no less than $5-10k a year for SEC support. The current SEC rules require your company to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the SEC on an ongoing basis. These reports require much of the same information about the company as is required in a registration statement for a public offering. Now, they are trying to include individuals within those same 10K requirements.
Grayscale Investments Spot Bitcoin Trust argument goes main stream
“So the fact that they’ve now evolved their thinking and approved a 33 Act product with Teucrium really invalidates that argument and talks to the linkage between the bitcoin futures and the underlying bitcoin spot markets that give the futures contracts their value.” (CNBC)
It’s important because owning GBTC if it becomes converted to a Spot ETF has a 20% upside.
Could Bitcoin Become a Reserve Currency?
There is a growing movement to make bitcoin a reserve digital currency. One cryptocurrency platform is hoping to own $10 billion worth of bitcoin to back its own “stablecoin.” Stablecoins are a growing group of cryptocurrencies that aim to lessen price changes and are usually backed by U.S. dollar reserves.
The platform is called Terraform Labs. It is based in Seoul, South Korea. So far, it has built up nearly 40,000 bitcoin worth $1.7 billion in a series of purchases through a non-profit called Luna Foundation Guard. You might recall we reported about them becoming a largest buyer last week. (VOANEWS)
More Good Reads…
Bitcoin Halving Cycle Resumes Less than 5 minute read
How Black Thursday Decimated Cryptocurrency Order Books Less than 10 minute read
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
Research: Supporting Evidence
Active Entities
Glassnode reported that as On-Chain activity languished, they observed the network user-base was recovering or growing strongly. The current active entity count is 296k/day and suggests that any higher expansion is constructive.
Number of Transactions
Transaction counts are also relatively lackluster, currently at around 225k transactions per day, which is similar in magnitude to what they were during the 2019 bear market. As with active entities, this metric has recovered from the lows of the collapse back in May-july 2021, but is a far cry from the hype cycle observed during bull markets (shown in green).
What is quite interesting to see is that, over the longer term macro time-scale, both of these on-chain activity metrics continue to climb, even during bear market trends. This signals a persistent growth in the HODLer user base. HODLers are those investors who are relatively price insensitive and are active Bitcoin users and accumulators irrespective of market conditions. (Glassnode)
SegWit Adoption
This past week saw growing adoption efficiency upgrade SegWit. So, it impacted the network congestion and total fees paid as whole as more wallets and exchanges implement the technology. You can read more on SegWit adoption here.
Mining Difficulty Reach and All-Time-High
Glassnode noted that Mining Competition Reached All-Time-Highs last week. Despite network transaction fees being near all time lows in (BTC denominated terms), the competition in the mining industry continues to set new all-time-highs. The protocol mining difficulty has now reached a new ATH, with each Bitcoin block requiring 122.78 Zettahashes to solve.
This would be equivalent to all 7.938 Billion people on earth each guessing a SHA256 hash 15.5 Trillion times, every 10mins to solve each Bitcoin block. Quite extraordinary.
Revenue per Exahash
Glassnode noted, that Despite both the immense competition, and the BTC denominated block reward being near all-time-lows, USD denominated miner revenue remains 150% higher than immediately following the most recent halving event in May 2020. Miners currently earn approximately $207k per Exahash they apply to the network. This is also 40% more revenue than during the final capitulation event of the 2018 bear market. As that time prices were trading between $3k and $4k and the BTC block subsidy was twice as large as it is today. This is why I like MARA, BITF, HIVE, BLOK, and CORZ. In another way, if Bitcoin (when) we reach $75k it will be a huge trade if we reach $500K will life changing.
We have a Daily Realized Gain
Glassnode noted that we can see the dominance of spent volume profitability moving toward a profit bias this week. They noted that 58% of the transaction volume realized a profit, which is a constructive change from the December 2021 number, when the bias was a realized loss.
Summing it up this week! We saw network profitability improve significantly. What was also notable, was that the low aggregate transaction fee paid to miners did not stifle competition; it actually increased as more miners put on new hardware. As Glassnode noted, the Bitcoin mining industry is setting new all-time-highs, with miner USD revenue up 150% since the halving, and hash-rate now 20% higher than the previous high in May 2021.
Shooter’s Crypto Picks And Sector Stocks
My conviction ideas on crypto and stocks with crypto exposure. Based on my AI assisted proprietary Elliott Wave technical analysis. Remember to follow along in chat if you are going to swing trade a portion of your account. I recommend trading no more than 20% of your account.
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.
Crypto Elliot Wave Counts / Set-ups / Next Entries Long or Short
XBT/USD (BTCUSD) We had a little follow through to the downside. Nice large flag on the weekly now. Next Entry: Long says $39.204.59, right at our low for the week. Last week I said, “Wait and see if that holds.” Or were we going to back-test that $39k? I think we know the outcome…
GBTC (Bitcoin ETF)
If you don’t have a Crypto account you can also buy Grayscale Bitcoin Trust (OTC GBTC) this is the prospectus.
ETH/USD It is holding up well, considering all the market sentiment. Next Entry: Long is $2951.00 now. Here, I still have a bit more conviction in Ethereum than in BTC here. But crypto as a whole acted like a risk asset last week.
If you don’t have a crypto account, you can also buy Grayscale ETHE This is the prospectus.
Grayscale Ethereum Trust (ETHE) One of the few negative counts. We need to stay above that Speedline or those lower counts are on the table.
Flowground: (FLOW) (revised profile March 6, 2022)
FLOW/USD weaker than what I’d like here, while the macro has not changed. Continue to average in.
LINK/USD (revised profile March 6, 2022) Continue to average in. I expect some type of banking supervision soon. Once that drops, Bank of America will be all over these contracts.
CRV/USD showed some relative strength in this last drawdown. Continue to average in. More on Curve here!
MANA/USD (Decentraland) The back-test needs to hold now! Continue to cost average in.
ADA/USD Its out! Count reset! Next Entry Long 1.06…
AXS/USD Its ready, continue to cost avg. in.
SAND/USD Still bassing! It still looks like it wants to get out. Continue to average in.
SOL/USD Not the euphoria I wanted with OpenSea supporting the chain, but constructive.
Crypto Stocks
Marathon Digital Holding, Inc. (NASDAQ: MARA) (revised earnings March 6, 2022)
MARA It is still holding onto the base, a good sign! We’ve now flipped back to 5 waves up… also good news. Sometimes in crypto, you just have to grab your cheeks and hold on for dear life. I don’t like that!
BLOK also holding the base…
HIVE Next Entry: Long is $1.75
CORZ still needs some time! (revised profile March 6, 2022)
Bitfarms (BITF) (A low cost producer under $7k a BTC) (revised profile March 6, 2022)
I will continue to cost avg. into Bitfarms (NASDAQ: BITF) now.
Metaverse Stocks
Roblex (RBLX) (revised profile March 6, 2022) —I’m leaving that alone still—
Scott Henderson’s Risk Disclosure & Disclaimers
Follow me on Twitter @swingtradenotes for charts, quick thoughts and smart remarks.
