A weekly news and trading piece by Scott “Shooter” Henderson covering crypto currencies.
Kirk & Shooter’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.
In the News
Here’s what caught our attention this week…
Internal Revenue Service (IRS) and Staking
Proof-of-stake protocols are now considered to be property and will not be taxed until they are sold. According to Blockworks, in May 2021, Joshua and Jessica Jerrett requested a refund of $3,293 of income tax paid in 2019 for the receipt of 8,876 Tezos tokens, according to a legal complaint filed on May 26, 2021, with the US District Court for the Middle District of Tennessee. The couple also sought a $500 increase in tax credits for lost income. Tokens attained through proof-of-stake protocols are taxpayer-created property and should not be taxed until sold or exchanged, the Jerretts argued. The complaint claims that nothing under United States law or IRS code and regulations allows for taxpayer-created property to be taxed as income. The decision has potentially large implications for how proof-of-stake miners and stakers are taxed in the future.
SEC Expands Alternative Trading Systems
The SEC released a 654 page plan targeting alternative trading systems (ATS). The regulation is intended to close ‘regulatory gaps’ arising from trading platforms like exchanges or brokerages not required to register with the SEC. They also include platforms that trade Treasuries previously excluded from registration. The expanded language is the definition being proposed for exchanges will cover a lot of platforms who were not targeted in prior SEC comments. It takes a much tighter stance on DeFi oversight, potentially raining in many and potentially excluding those who can’t qualify for some forms of platforms.
For Government Securities ATSs:
- File a public Form ATS-N through EDGAR that would disclose information about their manner of operations and the ATS-related activities of the registered broker-dealer or government securities broker or dealer that operates the ATS and its affiliates.
- For those currently operating pursuant to the exemption for certain government securities ATSs, comply with the other applicable provisions of Regulation ATS.
For Existing NMS Stock ATSs:
- File an amendment to their existing disclosures in accordance with a revised Form ATS-N, which includes questions about the ATS’s interaction with related markets, liquidity providers, and activities the ATS undertakes to surveil and monitor its market.
- Report changes to fee disclosures on Form ATS-N no later than the date they make a fee change.
For ATSs that trade all types of securities:
- Modernize both Form ATS and ATS-R and electronically file them with the SEC through EDGAR.
- If subject to the Fair Access Rule, ensure that they meet the minimum requirements for the reasonable written standards for granting, limiting, and denying access to ATS services that must be established, and applied, and among other things, justify why each standard is fair and not unreasonably discriminatory.
Here comes the Shrimps!
Assessing Demand: According to Glassnode, volume in futures has been in a macro decline; by March 2021 it fell below $80B a day, and last month (January 2022) it fell to $40B a day. Not unusual, during drawdowns, we saw dip buyer push future volume right back up to $60B a day once the selling waned.
One simple metric in assessing On-Chain Demand is to review Non-Zero Balances. Essentially, the expansion or contraction of these wallets growth and accumulation defines distribution trends. So, flow in and out of exchanges creates this settlement layer that gauges ‘Fair value’. So, looking at the # of zero wallet balances, the ‘purge rate’ is substantially less than the most prominent drawdown in 2017. When you compare that ‘purge rate’ to the Non-Zero Balances, you begin to see that many buyers are unfazed by the last couple months of declining volume in the futures market.
On a surprising note was how much< 1BTC shrimps increased last week as we continue to see growing stackers. I was expecting one more ‘Get My Money Back’ event. Maybe that’s not the case!
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?
PTE (or “pay-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?
DeFi (or “decentralized finance”) 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.
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.
What is the Metaverse?
The 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 / Watch List
Note: FLOW was added this week. Looks ready now! MANA/USD (Decentraland) still needs some time and so doe’s ADA (Cardano). I encourage you to go create a profile and explorer Decentraland and explore FLOW on Twitter or if your a Baller VC check out Flowverse.
Shooter’s Crypto Picks
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.
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
XBT/USD (BTCUSD) Bitcoin opened the week at $37,756.27. We continued to see risk off Crypto with equites. Crypto lead the way out as soon as AMZN printed EPS. I don’t know if I like this correlation. I’ve spent the last two year being able to trade Crypto as a separate asset. This week I see a huge range, maybe as much as $7k. $45k has a lot of resistance. I suspect we come off there to find a new higher low around $39,318k range.
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 Counts are distorted! NEXT ENTRY LONG at $2,837.60. I don’t know if that prints? I’m getting two different counts now between the 90 min & weekly. One around $3237 area and one around $3604 as the counter trend lower high. Count suggest its puts a higher low just above the last Primary Wave Long around $1701. So, maybe $1730. However, with this much noise I don’t a lot conviction on anything exception tightening up my stop around $3200.
If you don’t have a Crypto account you can also buy Grayscale ETHE this is the prospectus.
FLOW/USD Flow is a fast, 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. The chart speaks for itself.
CRV/USD Euphoric pushes are good unless they left you behind. We came right out of that bear flag on AMZN EPS. I’d say add on any back-test toward $3 because this looks ready to go.
MANA/USD (Decentraland) Target raised for (B) $4.13942 on that user data news. This clearly has a bright future if you just consider the value proposition. I don’t know that I believe the NEXT ENTRY LONG at $1.29557. But, I’ll buy it when it prints. I’ve been cost averaging in since the ramp in 2021 and will continue to do so.
ADA/USD is the best looking chart of the bunch and you know I will continue to cost averaging into this again when it prints that 0.702222.
AXS/USD Next Entry Window Long is now $32.404. The Stop is $14.537. This also reset the levels to the upside. Again, use cost avg. to build a position once we reach $32.
SAND/USD Next Entry Window Long is now $1.9798. Were nearing that $5.1582 and then we retrace to put in a (C) around that $1.9798. The Stop is $0.5811. Should be able to chase up to $5.1582. Again, use cost avg. to build a position once we reach $1.9798.
Roblox GTA V advanced to third spot of the top 10 streaming Games this past week. Just imagine when Play-to-Earn manifests in the Metaverse with games like Grand Theft Auto and Battle Royale. More about RBLX games here.
According to Stream Hatchet Battle Royale Games reached 539 million hours in Feb 2021.
Roblox (RBLX) Hold! I’m chomping at the bit to add. This past weeks run to $69.25 just support the count and its accuracy.
What is Cryptocurrency Less than 10 minute read
The Future if Crypto Banking Less than 10 minute read
Avoiding FOMO & FUD Less than 5 minute read