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The Wolf Den #498 - How To Buy Fear

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May 12 · Issue #498 · View online
The Wolf Den Crypto Newsletter
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“There are two states of nature, either the world is going to end, or it’s not. If it ends, it won’t matter what we bought or sold. But if it doesn’t end and we didn’t buy, then we didn’t do our job” - Howard Marks, days after Lehman Brothers filed bankruptcy in 2008. 
I love this quote, but it cannot be sweepingly applied to all assets every single time there’s a panic.
As a follow-up to yesterday’s monster newsletter, it is imperative that I discuss “how to buy fear.“
Yesterday, I basically laid it all on the table, sharing my thoughts on the market. But what comes next? How can we be pragmatic and approach the situation with long-term profit in mind?
The obvious advice is to simply HODL or dollar cost average. But that is not necessarily enough if you are more aggressive and actually have dry powder waiting on the sidelines. Fortunes are made (and lost) by the bold when they take calculated risks in the depths of a bear market. I am in no way telling you to do so, I am just trying to sort what is a reasonable approach vs. what is simply throwing money into a flaming dumpster.
Let’s dive into the trenches. Hell, we are already here anyway, weary from battle with blood everywhere. We need to fight.
Consider this basic training on “how to buy fear.”
Investing gurus will tell you to “buy fear” and “sell greed.” There are a thousand cliches about it, most of them from the mind of Warren Buffet, but you remember from yesterday that he is already high on Coca-Cola at the thought of a crypto collapse.
This “conventional” advice is actually teaching you to be unconventional and counter-trade the herd, but stops short of teaching you exactly how to do it. On the surface, this advice is simply telling you to up the ante when there’s panic. Scary and not necessarily wise.
We all saw what happened yesterday. The “Lunatics” (devout Luna followers) took a final stand in a valiant attempt to save their dying asset, only to be slaughtered one-by-one like the Spartans at Thermopylae. Many of them were convinced that Luna couldn’t die and believed that they were executing a brilliant contrarian trade of epic proportions. In their mind, they weren’t saving Luna, Luna was offering financial freedom at a 99% discount…
You can still hear their echoes. “Luna is too big to fail. Do couldn’t steer us wrong. The hedge funds are coming to our rescue!
*Before I go any further, please don’t take any of this as financial advice. I’m neither long nor short Luna. Furthermore, this isn’t a ”get your popcorn and watch shit explode" type of moment. Real people have lost it all - I feel for you and am sorry.*
Now getting back to the Lunatics… you would be correct in labeling their behavior as contrarian or unconventional. But this was not the fear to buy. Their rationale was poor.
The Lunatics reasoned that buying Luna was a bargain because it was a contrarian play. My response to this is that there is a clear line in the sand between buying fear and irrational fear. The Warren Buffets and Benjamin Grahams of the world look for irrational fear, not rational fear. I believe in utilizing the same strategy.
Right now, Luna investors should rightfully be fearful - the threats the project are facing are serious and legitimate.
If you recall the sentiment of the March 2020 crash, the majority of fear plaguing stocks and crypto was irrational - good companies and projects fell with the entire market, even though they rationally were not worth 30% less than the day or week before. Of course, hindsight is 20/20 - this is hard to see at the time. This is my favorite trade - finding the baby that is thrown out with the bathwater and taking advantage of the discount.
Distinguishing rational from irrational fear is the difference between finding a good and bad investment at a significant discount. When an incontinent aged regulator calls crypto a scam, my brain identifies that event as irrational fear. If the price drops because of clear FUD, it is a buying opportunity. One of my favorite examples of all time is when Elon Musk smoked a little sticky icky on Joe Rogan and the price of Tesla dropped significantly. I bought the hell out of that irrational fear. I have done this with Tesla quite a few times over the years.
The Wolf Of All Streets
Bought $TSLA again for a few reasons.

- Chart looks ripe for a bounce. I placed orders slightly above that red line ages ago.
- I am hearing analysts say that Tesla is "going to 0." Arguably my favorite buy signal.
- I like to bet on greatness. I am forever on team @elonmusk. https://t.co/n7NzUBhq6F
When a coin that promises stability implodes, I run for the hills and my money comes sprinting with me. I am NOT saying that Luna and UST are guaranteed to go to 0 or that they can’t recover. It’s just clear to me that there are better and safer opportunities for investing in this market, one of which is simply doing nothing and waiting. Playing with fire is not for me.
Why even bother?
Before I wrap this lesson up, I wanted to defer to one of the greats whose philosophy on conventional and unconventional investments has greatly influenced my investing over the years. Howard Marks made his name by mastering the art of buying fear. I love this advice. I suggest you read it. Then read it again.
Extraordinary performance comes only from correct non-consensus forecasts, but nonconsensus forecasts are hard to make, hard to make correctly, and hard to act on. You can’t do the same things others do and expect to outperform…
Unconventionality shouldn’t be a goal in itself, but rather a way of thinking. In order to distinguish yourself from others, it helps to have ideas that are different and to process those ideas differently.
If your behavior is conventional, you’re likely to get conventional results - either good or bad. Only if your behavior is unconventional is your performance likely to be unconventional, and only if your judgments are superior is your performance likely to be above average.
Buy the fear when it is clearly irrational. When there’s good reason to be fearful, sit on your hands until they’re too numb to work and you can’t use them to make a stupid decision.
As an aside, I felt a bit sick writing this newsletter. A small part of me wants to curl up in a ball in the fetal position and capitulate. This market sucks right now and it’s IMPOSSIBLE to passively accept the losses, even if you rationally know that things will get better.
For me personally, if there is ever a sign we are close to a bottom this is it. But the newsletter doesn’t stop, I will keep writing as long as you are reading.
In This Issue:
  1. How To Buy Fear
  2. Bitcoin Thoughts And Analysis
  3. Altcoin Charts
  4. Understanding A 99% loss
  5. Could Coinbase Liquidate Us?
  6. Is Tron Next?
  7. All Stablecoins Are Not Created Equal
  8. The Wolf Of All Streets Podcast Ft. Zuby
  9. My Recommended Platforms And Tools
Bitcoin Thoughts And Analysis
WEEKLY CHART
Bitcoin has its highest weekly volume of the year by a large degree, and it is only Thursday! This selloff is brutal, as we enter our 7th consecutive week of down candles. That’s never happened before. And neither has 6.
As you can see, price has broken below the 2021 bear market lows at $28,800. Because the rise from 20K to 42K was so fast, there’s really no support on the chart between $28,800 (on Coinbase) and the 2017 bull market highs at $20,000. That is the next support, so let’s cheer for price to recapture the $28,800 level by the end of the week.
This DOES NOT MEAN that price has to go down to $20,000. Anything can happen, it’s just a chart. But that is the next viable support.
DAILY CHART
We are setting records. Every single day, volume continues to increase, dwarfing the day before which was at the time the highest of the year. Today has almost as much volume as yesterday, and it is barely 11 hours into the candle. Astounding.
You can see that on Bitstamp, the lows from the 2021 bear market are around $28,600. We want to see that recaptured as support.
That would also still give us potential bullish divergence, which is still more glaringly likely on lower time frames.
4-HOUR CHART
Volume spiked massively on the last 4-hour candle and buyers stepped in. Some cause for optimism. This is what a bottom “should” look like - a major volume increase and a long wick down, forming a hammer or long legged doji candle. I am not saying the bottom is in, but this is a good start, especially considering the massive bullish divergence that is still very much in play. As I said, price could still drop very far and still confirm, so it was not worth trading yet.
If this candle (line) closes like this at the next candle close, we will be well on our way to confirmation. We want a more definitive elbow on RSI than this, so a higher close is better. The 6-hour has a more definitive elbow. This div is in play on multiple time frames .
Bottom line: I think the bottom is likely in… for now. You should not make your own financial decisions based on my opinion. You should have a plan already in place.
The volume spike and bounce are good signs, the market is oversold, there are divergences forming everywhere and people are exhausted. My best guess is that price floats up for a few days and then we get more intel as to whether another drop is likely or not.
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.
There is VERY little reason to be looking at altcoin charts right now, unless you like watching horror movies. They all look the same - candles going straight down in succession. If you are a very long term investor and there are coins you love, I can see adding to some positions. I did, and those buys are already at a loss. That’s the nature of buying massive dips and not a concern for me long term. Otherwise, close it up and take a deep breath.
ETH/USD
Ethereum tapped the 2021 crash lows almost to the dollar on the dip today, right at $1700. If you want some hopium, that would be a really ideal bottom, but impossible to call it that for now. I am simply sharing this because it’s interesting from a chart perspective. I filled some bids on the way down, but again, I am an ETH investor. Bitcoin has broken that same line on it’s own chart in dramatic fashion.
The 4-hour chart shows a major selling climax on the last candle, with the highest volume of the year and certainly of the sell off. That’s what capitulation would look like, but that does not mean it’s over. What we do have is a hammer candle (or long legged doji) with a long wick down and serious volume. That’s what a bottom candle (at least temporary) should look like. There’s also quite a bit of potential bullish divergence on multiple time frames.
Understanding A 99% Loss
I have written about this idea a number of times, but can’t help briefly discuss it again. An asset can lose 99% of its value, and not be at the bottom. Luna dropping from $100 to $1 is a 99% loss. There is no rule that says Luna can’t drop another 99% to $.01. And again and again and again ad infinitum. If you want to gamble on $1 being the bottom, nobody is stopping you, but it’s important to realize that in markets, the only trued bottom is $0.
Could Coinbase Liquidate Us?
Brian Armstrong - barmstrong.eth
1/ There is some noise about a disclosure we made in our 10Q today about how we hold crypto assets. Tl;dr: Your funds are safe at Coinbase, just as they’ve always been.
Tucked away in Coinbase’s recent earnings report was a new disclosure regarding proceedings if bankruptcy were to occur. The alarming statement read, “because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors.”
If there weren’t already enough reasons to take your crypto off an exchange, then this should be added to the list. Following the statement, a FUD storm ensued. Brian Armstrong took to Twitter to apologize and address the situation. He makes a strong point that if bankruptcy were to occur, it’s very unlikely a court would consider a customer’s assets in bankruptcy proceedings. But there is no need to take anyone’s word, just take your crypto off of exchanges if you are not actively trading it.
Is Tron Next?!
Byzantine General
Looks like USDD/TRX have the exact same mint/burn dynamic as UST/LUNA.

The Tron DAO just bought a ton of BTC reserves by the way.

Oh boy. https://t.co/iS0Bh6FVAy
Consider yourself warned. UST is not the only algorithmic stablecoin on the market. Just last week, Tron launched their own version of UST on the Tron blockchain and named it USDD. Most of what I have seen and heard about USDD is that it is a carbon copy of UST. Not good. Sun’s goal was to acquire a reserve of $10B in Bitcoin, but it’s hard to see this ending well. I have no idea what the fate of USDD will be, but I would stay far away.
All Stablecoins Are Not Created Equal
SBF
1) A good point someone brough up recently:

really 'stablecoin' is used to mean multiple different things.

https://t.co/EZvno5xFIM
A quick thread from SBF about the differences between stablecoins. As the FUD storm commences, it is important to note what is truly a stablecoins and what is not.
The Wolf Of All Streets Podcast Ft. Zuby
Podcast - The Wolf of All Streets
Our guest today is REALLY good at making predictions for the future. How does he do it? Hear from Zuby himself on critical thinking, paying attention, and challenging the status quo. We also talk about the atomic bomb combination of smartphones and social media, history, and why we are grateful to be living in these times.
In this episode with Zuby, we discussed:
  • About our guest, Zuby
  • 2nd, 3rd, and 4th order thinking
  • Are you a conspiracy theorist or are you just paying attention?
  • The importance of telling the truth
  • The combination of smartphones and social media: an atomic bomb
  • History and confirming to social norms 15:38
  • Most people are good
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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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