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 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…
Is Crypto Braced For the Lummis Congressional Bill?
As the markets brace for details of a long-awaited crypto bill put together by a bipartisan group of U.S. senators and led by the bitcoin-supporting senator Cynthia Lummis (R-WY).
“We’ve designed [the crypto bill] so it works within the customary framework for managing and regulating traditional assets,” Lummis told Axios earlier this month, adding during a speech at the American Enterprise Institute think tank last week that the bill’s details could become public as soon as this week and the formal bill introduced in Congress in June.
“We’re going to put it out in draft form for discussion purposes and you can spend 30 days to help us get this bill in as good of a form we possibly can before actually filing it,” Lummis said.
The bill is expected to define whether different cryptocurrencies are either securities or commodities and which agency will have oversight of them—either the Securities and Exchange Commission (SEC) or the Commodity Future Trading Commission (CFTC).
Other provisions will cover consumer protection and taxation, however, rules for blockchain-based non-fungible tokens (NFTs), which have become wildly popular over the last year after being embraced by the worlds of art, entertainment and sport, are not expected to be included.
In her speech last week, Lummis suggested the bill would put stablecoins, such as tether and the collapsed algorithmic stablecoin terraUSD (UST), in the securities category. (Forbes)
Bitcoin Is Apolitical?
Ted Cruz, the Republican U.S. senator for Texas, said he wants the Lone Star State to be an “oasis on planet Earth for bitcoin [BTC] and crypto.” He said that, reiterating previous support for the state’s mining industry, during a keynote address at a Heritage Foundation event.
The Block reported that several speakers harshly criticized “the left side of the political aisle,” at this “Bitcoin and the American Experiment” conference. Cruz singled out Massachusetts senator Elizabeth Warren, a Democrat:
“Why does bitcoin make Elizabeth Warren toss and turn and twitch at night? Because she wants her sticky little socialist fingers to be able to control every penny in every one of our bank accounts.” (Coindesk)
JPMorgan Says Bitcoin Is Undervalued By 28%
Despite the crypto slump, banking giant JPMorgan says bitcoin is massively undervalued. Maintaining its estimate of bitcoin’s fair value at $38,000, the bank today reiterated the assessment it gave the asset in February when the cryptocurrency was trading around $43,400. This price is approximately 28% higher than its current level of $29,757. (forbes.com)
Scott Minerd, is probably short Bitcoin!
Scott Minerd chief investment officer of Guggenheim Investments, probably is short Bitcoin. His recent prediction of $8,000 Bitcoin is not conveying predictions…he is subjectively and methodically using his influence in the financial forum, in an attempt to “persuade” investor to bet a certain way on Bitcoin…based on his long or short holdings, and those of his fellow elist’s. (Yahoo)
More Good Reads…
The Complete Guide to Crypto Tax-Loss Harvesting less than 30 minute read
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
Lets talk about the Ethereum’s emerging dominance.
Whilst Bitcoin remains the largest digital asset by market valuation, it exists within an ever evolving ecosystem of blockchains, coins, protocols, and tokens. Ethereum, being the second market leader for many years now, is often viewed as a bell-weather of market appetite for rest of the digital asset risk curve.
A popular tool for tracking this relative performance and sector rotation is ‘Bitcoin Dominance’. The dominance variant below considers only the relative performance of Bitcoin and Ethereum Market Caps. This attempts to distil this macro ‘sector rotation’ into very specific large-cap relative performance metric. From this we can make a few observations:
- Declining BTC Dominance Divergence (green arrows) is typical of early-mid stage bull markets, as investors start moving further out on the risk curve.
- Rising BTC Dominance Divergence (red arrows) is typical of earlier stage bear markets where risk appetite declines, and Bitcoin tends to outperform.
In the current market, and following the Nov ATH, we have seen a developing divergence in favour of BTC dominance. Given the negative attention drawn to the digital asset risk curve by the collapse of LUNA and UST, this trend may be one to keep track of. It should be noted that Ethereum dominance has remained higher for longer relative to the 2018 bear market, suggesting an improved market appreciation of ETH with age and maturity. (glassnode)
Moving over to the derivatives markets, we can see another coupling between BTC and ETH exists, this time in futures cash-and-carry yields. Throughout the 2020-22 cycle, an approximately equal 3M rolling yield could be obtained from both assets, with very few periods of divergence. This is another data-point suggesting traders are taking advantage of any and all yield available in the market, wherever liquidity and trade volume allow it.
At present, the 3M rolling basis yield is around 3.1% for both assets, which is historically very low. However, this is now higher than the US 10yr Treasury yield of 2.78%, which may start giving capital a reason to re-enter the space. (glassnode)
Summing it up!
An interesting week! Zuckerberg imposed a hiring freeze. The NFT’s space was clobbered in the TerraLuna Collapse. Glassnode coined the phrase “Ghost-towns” as an expression of fear of the lack of activity in the derivatives market. Then someone wanted sprinkles on their cake as we saw the Put/Call ratio rise from 50% to 70%, and weekly implied volatility run to 110%. In a close second, the six-month implied volatility ran to 75%. But, guess what? were not a $10K Bitcoin!
In short, futures and derivatives alike are expecting further downside. Currently, Elliott Wave sees a bottom near $20,900.00. So, my bias is that we hold onto $30,000.00 until we have one last capitulation and find a bottom near that $20K. Maybe by the end of June!
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 Major Pairs-Grayscale Trusts
XBT/USD (BTCUSD) It sure seems like we were pinned between $29 and $30K. I don’t think we take a run at the $31390 area again until after the bottom comes in at around $20,967.00.
GBTC (Bitcoin ETF)
Grayscale Bitcoin Trust (OTC GBTC) is an alternative for non-crypto account holders. See the prospectus.
ETH/USD The Bollinger Bands on the weekly have cleaned up a little. I’d still hold off on the resuming cost averaging back in just yet. I’d keep track of how many weeks you held off on cost-averaging in and plan to roll all of that back in around $1383-$1400 when we get there.
If you don’t have a crypto account, you can also buy Grayscale Ethereum Trust.
Grayscale Ethereum Trust (OTC ETHE) is an alternative for non-crypto account holders. See the perspectus.
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 continued to show some relative strength in this last drawdown. Continue to average in. More on Curve here!
ADA (Cardano) needs some time.
MARA I’ll start off with Next! As it turned out, my exit from my puts was early (how often do I say that? ). We are now in escalator mode with an unconfirmed RSI indicator. No man’s land! Yet, we keep trying to eke out a $10 price here. Anyhow, I need a push to $13.50 and rejection to justify another shot short or bottoming pattern, and I have neither at this point. I wanted my puts back twice, and I wanted to add to January’s calls nearly all week. Yet, I had no reason to do either. Some times, its best to sit on your hands!
Scott Henderson’s Risk Disclosure & Disclaimers
Follow me on Twitter @swingtradenotes for charts, quick thoughts and smart remarks.