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The Wolf Den #496 - Everyone Is An Idiot In A Bear Market

May 10 · Issue #496 · View online
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In early 2021, I wrote one of my favorite newsletter intros (The Wolf Den #172), titled “Everyone Is A Genius In A Bull Market.” The market was raging upwards, dragging even the most worthless of coins up to Valhalla. I wanted to poke a little fun at the abundance of “geniuses” and also show that maybe the “geniuses” weren’t so brilliant after all.
It cuts both ways.
Everyone Is A Genius In A Bull Market → Everyone Is An Idiot In A Bear Market
As Isaac Newton once famously said, “for every action, there is an equal and opposite reaction.
It turns out that Newton’s third law is good for more than just physics. It can also lend some insight into trading psychology and market sentiment.
Let’s look at my opener from that day - “anyone can be right and profitable in an upward trending market. Even a poorly timed buy order at a local top is likely to yield a profit assuming the trader is willing to sit on their trade for a little bit of time.
In a bull market, everyone appears "right” after almost every decision. The market makes the worst of us look intelligent, simply for being there and participating.
Let’s tweak that opener slightly to show how a bear market makes everyone look like an idiot, regardless of what they do. The words that I changed are in italics.
Anyone can be wrong and lose in a downward trending market. Even a well-timed buy order at a local bottom is likely to yield a loss assuming the trader is willing to sit on their trade for a little bit of time.
By slightly twisting the narrative, even a smart decision turns into a (temporary) loss in a bear market. The repeated losses of a bear market give the impression that everyone is stupid. HODLERs are mocked for holding when they “could have sold” and accumulators are ridiculed for buying assets at a discount. This thought process is as wrong as “everyone being a genius in a bull market.
Back when I first wrote this intro, I reasoned through the major options for traders and came to a pretty simple conclusion. Here it is.
Repeated small gains across rising assets are likely to give the false impression to new traders that they are consecutively profitable and skilled at trading. More than likely they are in the right place at the right time and are actually underperforming the market. For this reason, holding through a bull run is more profitable for a strong majority of people.
The trader I described above is like a swimmer fighting against what should be a helpful current. They will eventually arrive at their final destination, but instead of letting the tides of the market assist them, they worsen their outcome by working harder and not smarter. This trader/investor appears to be a genius but actually sucks.
Let’s use some reverse psychology, third law magic, and a little bit of IQ to tweak this conclusion for today’s bear market.
Repeated small losses across falling assets are likely to give the false impression to new traders that they are consecutively un-profitable and un-skilled at trading. More than likely they are actually in the right place at the right time and are over performing the market in the long run. For this reason, accumulating or holding through a bear market is more profitable for a strong majority of people.
This trader appears to be an idiot in real time, buying assets that continue to drop. The so-called “idiot” will actually be proven a genius once enough time passes.
Whether a bull or bear market, it is clear that the best strategy for most people is to simply hold and wait.
Not everyone is a genius in a bull market and not everyone is an idiot in a bear market. The goal is to find a sweet spot in the middle and focus on being profitable over the time frame that works best for you.
In This Issue:
  1. Everyone Is An Idiot In A Bear Market
  2. Bitcoin Thoughts And Analysis
  3. Altcoin Charts
  4. Legacy Markets
  5. Galaxy Digital Takes A Hit
  6. UST Implodes
  7. The Wolf Of All Streets Podcast Ft. Nick Percoco
  8. My Recommended Platforms And Tools
Bitcoin Thoughts And Analysis
Capitulation or relief?
Hard to tell, but I am an eternal optimist, so I am leaning towards the bottom being very close or in. There are quite a few reasons that I feel this way, but I also believe it is important to reiterate that I have a long term view and feel no compulsion to aggressively trade here. If the bottom is not close, it does not matter to me, so take that into consideration when viewing my analysis.
I like these prices long term, period. I believe that Bitcoin will be trading much higher in ten years, so I plug my nose and buy when I feel sick about it, which is what I did at both 33K and 30K yesterday, as discussed.
Think of it this way. Do you believe there is more potential from these prices to the upside or to the downside? What is your best case scenario if you sell or short here? Now what is your best case scenario if you buy and simply wait? The answer should be clear.
Let’s take a look at the charts.
Captain’s Log, Star Date 4765. Bitcoin enters it’s record breaking 7th week of red candles, as the community loses hope and gives up entirely.
Sentiment is absolutely in the dumpster and bears are en route with a can full of gas and a handful of matches. Yes, that is an Eminem lyric.
The Fear and Greed index is now at 10, for proof that people are in a full panic.
Bulls want to see a weekly close on Sunday above 33K. That’s basically it at the moment. The levels have not changed.
It would be INCREDIBLE to see a major rally this week and for this candle to turn green with a long wick down. That would be a great bottom signal, but that’s hopium of the highest order at the moment.
Liquidity and demand below 33K proved to be nonexistent yesterday. Price dropped more than an additional 10% after finding very brief “support” at 33K.
That said, the quick dip below 30K saw tremendous buying, which I will show you on lower time frames.
Yesterday’s candle had the highest volume this year. The only time in recent memory we had this much volume was the early December drop, and that candle put in the low for roughly a month… but it also had an epic wick down and huge bounce, which we are lacking at the moment. Not the same situation.
Here’s the good news.
RSI went oversold on the daily and even hit about 12 on the 4-Hour.
Any meaningful dip now (below 30K) will almost certainly likely give us monster bullish divergence on every time frame.
Either temporary bottom is in or one more good dip to give us the spring we are looking for.
It is possible that the next dip could bring RSI lower, but playing the odds I think that it would give us a bull div.
Instead of using words, I will describe the current situation in the form of a musical classic.
M|A|R|R|S - Pump Up The Volume (Official Video)
Pump Up The Volume! Yesterday saw by far the highest volume of 2022. This was concerning. because we had the largest single volume candle and it was all selling. That was followed by another massive selling candle. The good news? Buyers stepped in around $30,000, a key psychological level, and nearly matched the selling volume. That’s what capitulation tends to look like and it is very encouraging to see the demand.
Now we have an epic battle of conviction between bulls and bears. I can’t predict who will win, but it’s nice to see bulls at least showing up to the game.
4-hour RSI hit roughly 11.76 on the drop.
That’s EXTREMELY oversold. The odds that RSI goes lower here, even with a major dip are very low. That’s why I think the next dip, if we get it, is the last for quite a while. Bullish divergence is nearly guaranteed if price drops again.
TO SUMMARIZE QUICKLY. I love these prices for the long term, regardless of what comes next. I am looking for the bottom to either be in, or for one more solid dip and close below 30K to give us bullish divergence on multiple time frames and for that to be at least a local bottom for a while.
Altcoin Charts
I do NOT share signals in this section. I share setups and charts that I am watching, in an effort to help show you how I view a chart and what criteria would be necessary for me to consider taking a trade. NEVER blindly buy something because it is listed in a newsletter or posted on twitter. You need to have a plan when you enter a trade. These are just ideas, and are almost always “if, then” scenarios. If a certain set of things happen, then I would consider a trade.
We are seeing nice bounces across the board, but I think it is still too early to celebrate and start aggressively plowing into altcoins. This is likely a reactionary bounce after immense downside. I want to let things settle and start looking for coins showing relative strength and flipping key levels of resistance to support.
But it’s always worth taking a look at Ethereum…
This is REALLY impressive. Ethereum continues to outperform Bitcoin, even in the darkest moments. Yesterday saw a huge drop right to horizontal support, before an epic bounce. As you can see, price not only bounced off of that support, but also ended up closing above both the 50 and 200 MAs before continuing up to test a breakout of the bull flag. For Ethereum vs. Bitcoin, there has been no dip or real correction.
Notably, yesterday’s candle had a huge wick showing a ton of demand and it happened on massive volume. Ethereum is looking good relative to the market.
Also worth noting, ETH/USD (not shown) maintained a higher low than the January drop, unlike Bitcoin which took out the lows.
Legacy Markets
I bought quite a bit of stock yesterday. Am I “too early?” Likely. Do I care? Certainly not.
I bought obvious names like Uber, Alphabet and Amazon. I averaged down massively in Coinbase, which to date is one of my worst investments ever. Again, I am playing long term here, so I relish this chance to buy in cheaper. I also bought some ARKK, just in case Cathie Wood can rise like a Phoenix.
Peter Brandt said to me once that he tells his kids to buy good companies and hope that they go down 50% so that he can buy more. I truly believe that is good advice.
I invest with a low time preference, meaning that my focus is in the distant future. Yesterday felt like the beginnings of capitulation to me, an overreaction to the Fed concerns that climaxed in an epic selling frenzy and panic. These are the days that I like to buy - when there is blood in the streets and seemingly everyone believes that the party is over and the sky is falling forever.
Maybe they are right, but I am quite sure that the market will eventually rise and make new highs, as it has after every past crash in history. Literally.
Some of these stocks, including Amazon, are now trading BELOW the market lows from March of 2020 when everything crashed because of Covid.
Take a look at Netflix - I find this astounding.
They say the pandemic pulled forward Netflix $NFLX user growth. The stock is now 42% BELOW its Covid Crash low on 3/16/20.
Netflix closed the day 42% BELOW THE COVID LOWS. This was a darling of the pandemic, with everyone staying home in isolation watching poorly made romances on repeat. I can understand a retrace back to the pandemic lows, but an additional 42% shows you just how unhealthy the market is.
While the market (SPX) is only down around 17% from the highs, you can likely dig in deeper to various sectors, like tech, and find a much more brutal tale. This sell off has been NASTY.
Galaxy Digital Takes A Hit
Galaxy Digital reports $112M Q1 loss, citing crypto price volatility
VCs, angels, funds, private equity, and, well, basically anyone else with exposure to crypto, are taking a pretty serious beating right now. In 2021, Web 3, DeFi, and the metaverse were an extremely lucrative play for institutional capital. In 2022? Not so much.
This article happens to be about Galaxy Digital, but it’s safe to assume that their story can be echoed by most institutional players. “Galaxy Digital reported a net comprehensive loss of $111.7 million in the quarter ending March 31, compared to a gain of $858.2 million in the same quarter of 2021, the company announced Monday. Assets under management held by Galaxy Digital Asset Management declined 5% during the quarter to $2.7 billion.” 
A 5% loss in AUM isn’t particularly concerning, but this article doesn’t tell us how much capital was raised to keep the fund afloat. In tough times, only the strong survive, meaning many of the pop-up funds are on the brink of collapse.
UST Implodes
An $18 billion stablecoin is losing its dollar peg with all the magical chaos of algorithmic stables, with a dash of Bitcoin systemic risk drama.

Here's everything you need to know.

The $UST Depeg Thread:

To be blunt… UST has failed. Can it correct and regain its peg? Sure. But UST is no longer a “stable” coin. The Luna Foundation had not even completed filling the reserve with Bitcoin and now the reserve is likely being dumped to defend the coin. At the time of writing, the coin sits around $.90 and hit a low of $.65 yesterday. A huge portion of yesterday’s Bitcoin dump can likely be attributed to this train wreck. Macro concerns caused a Bitcoin drop, this drop put pressure on the UST peg, Luna has to sell Bitcoin as a result to try to maintain the peg.
Not an ideal system!
Stories are still coming out to better understand what is going on, but the above thread is the most comprehensive outline so far. Stay safe out there.
Here is the UST Vs USDT chart, for reference.
As I joked on twitter… UST is an ideal stablecoin, because the value dropped temporarily as low as 60 cents. Why is this ideal?
Because that’s the future value of your dollar with inflation.
The Wolf Of All Streets Podcast Ft. Nick Percoco
Podcast - The Wolf of All Streets
Over $1 billion has already been hacked in crypto in 2022. Today we are joined by Nick Percoco who is the Chief Security Office at Kraken. While sometimes overlooked, security is a critical piece in crypto markets and something all traders should take very seriously. Today we discuss Nick’s mantra on security, how you can protect your own assets, why having a succession plan is critical, and so much more.
In this episode with Nick Percoco, we discussed:
  • How to set up security in the crypto space
  • What’s the endgame in the security space
  • Most hacks in the world are as simple as they come
  • Scott getting hacked back in college
  • A bit more about Kraken
  • Nick’s mantra on security
  • What you should do to secure your crypto assets
  • Why you should have your own hardware wallet
  • Have your own succession plan
  • Will the future still have passwords?
  • What if crypto was insured?
  • What does security look like at scale?
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to “Buy,” “Sell,” or “Hold” an investment.
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