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The Wolf Den #571 - HODLers Gonna HODL

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September 1 · Issue #571 · View online
The Wolf Den Crypto Newsletter
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In This Issue:
  1. HODLers Gonna HODL
  2. The Merge Arrives: Estimated Date And On-Chain Metrics - IntoTheBlock
  3. Legacy Markets
  4. Compound Finance Is Frozen
  5. Michael Saylor Is Being Sued
  6. Will Helium Migrate To Solana?
  7. Japan Gets It
  8. The Future Of Crypto, With Visionaries Matthew Roszak And Jeff Garzik
  9. My Recommended Platforms And Tools
HODLers Gonna HODL
Despite it feeling like crypto is struggling on life support, on-chain evidence from Glassnode suggests that there has been no meaningful reduction in the conviction of long term believers. For those that don’t know, Glassnode is a library full of interesting charts and data. For today’s intro, I am going to comment solely on their “Dormancy Metric.”
This metric tracks the average age of every Bitcoin that moves, determined by when it was mined. One of the ways to gauge the sentiment of long-term holders is to asses the average age of coins moving around the market. This is the “Dormancy Metric.”
A low value indicates a young age. These coins have not been dormant for long. A higher dormancy value indicates that the coins being traded have been around for a while hinting that long term holders have begun to “give up.”
According to Glassnode, the average age per BTC currently moving is at multi-year lows. The dormancy value is very low. Historically, dormancy values tend to decrease through bear markets and increase through bull markets. Whales hibernate in bear markets and do nothing. Bull markets occur when they wake up. The Dormancy Metric has been in a major bear market - which is good!
Although negative mainstream sentiment towards Bitcoin may make you think that falling prices have brought about increased selling of older coins, that simply isn’t the case.
Conviction of holders is stronger than ever.
From Glassnode:
It is quite clear that no widespread loss of HODLer conviction has taken place.
The decline in lifespan metrics actually bodes well for the longer-term, as it indicates old coins are stationary, and declining prices have little psychological impact on this cohort’s conviction.
If prices were climbing, this would be a very constructive signal, as it shows older coins are staying dormant. As it stands, however, this indicates the reverse, whereby prices are still struggling to hold the line even with older coins staying put in investor wallets.
This metric aggregates the total lifespan destroyed (in years) over the last 365-days, and similar to dormancy, low levels are usually constructive and typical of late-stage bear markets.
This is simply one metric, but an interesting one nonetheless.
The Merge Arrives: Estimated Date And On-Chain Metrics - IntoTheBlock
In this report, we bring to you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market.
This section is written in conjunction with IntoTheBlock (ITB).  ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data. 
The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market.
The Merge Arrives: Estimated Date And On-Chain Metrics 
The merge of the ethereum mainnet officially begins on September 6. All of the ethereum testnets have successfully completed the merge and only the mainnet remains. This will be a multi-step process with a few key events to keep in mind:
  • The first event of the merge will occur on September 6 when the Bellatrix upgrade happens on the Beacon chain
  • The second big event will be the official transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) and will occur between September 10-20
  • One estimate referenced by the Ethereum Foundation calculates the merge on September 15 at 12:00 UTC
Investors And Traders On The Move
With the merge potentially two weeks away, there has been a lot of activity in crypto markets as users prepare themselves based on their belief on whether the switch to the PoS Beacon Chain will be smooth or not. An on-chain indicator that can help gauge market sentiment is the netflows onto centralized exchanges. In the chart below, we see that the overall netflow for ethereum has been negative, meaning that more ethereum is leaving exchanges than entering. This could suggest a couple of narratives that crypto users are following: 
  • People are bullish on the merge as users believe that the merge will happen successfully and are loading up on ETH for potential price action
  • Traders are preparing for potential arbitrage opportunities created by the ETHPoW fork that will be created by a group of miners after the merge occurs
  • All ETH being held in wallets can claim ETHW at a 1:1 ratio, traders might be preparing themselves to claim the most ETHW possible
Diving deeper into the inflow/outflow data, we can divide the total volume moving in and out of exchanges by the total transactions to get the average transfer size of each inflow and outflow transaction. The chart below that shows the average size per transaction depicts a slightly different picture than the bullish chart above. 
  • The average inflow transaction size is generally larger than its outflow counterpart over the course of the last month
  • This could suggest that larger traders and institutional investors are more skeptical about the success of the merge than retail investors
  • However, the difference in transaction sizes are not large and should hold less weight than the negative netflows chart above
Source: IntoTheBlock
Legacy Markets
Stock Market Today: Dow, S&P Live Updates for Sept. 1 - Bloomberg
Here are some key events to watch this week:
  • ECB Governing Council members due to speak at event Tuesday through Sept. 2
  • US nonfarm payrolls, Friday
  • UK leadership ballot closes Friday. Winner announced Sept. 5
Some of the main moves in markets:
Stocks
  • The Stoxx Europe 600 fell 1.6% as of 9:35 a.m. London time
  • Futures on the S&P 500 fell 0.8%
  • Futures on the Nasdaq 100 fell 1.2%
  • Futures on the Dow Jones Industrial Average fell 0.6%
  • The MSCI Asia Pacific Index rose 0.2%
  • The MSCI Emerging Markets Index rose 0.1%
Currencies
  • The Bloomberg Dollar Spot Index rose 0.2%
  • The euro fell 0.2% to $1.0032
  • The Japanese yen fell 0.2% to 139.20 per dollar
  • The offshore yuan was little changed at 6.9026 per dollar
  • The British pound fell 0.2% to $1.1599
Bonds
  • The yield on 10-year Treasuries advanced one basis point to 3.20%
  • Germany’s 10-year yield advanced nine basis points to 1.63%
  • Britain’s 10-year yield advanced nine basis points to 2.89%
Commodities
  • Brent crude fell 1.5% to $94.16 a barrel
  • Spot gold fell 0.6% to $1,701.20 an ounce
Compound Finance Is Frozen
Compound Finance upgrade bug freezes $830M in crypto
There’s no need for panic, but Compound users are understandably frustrated. Funds on the platform will be locked for a few days. The current freezing of funds is the result of an unforeseen bug hidden in Compound’s most recent DeFi upgrade, which is effectively making the $806 million worth of cETH on the platform unusable until a change is implemented.
If you are wondering why Compound can’t make an immediate change to the protocol to revert back to the previous version, the answer is because of Compound’s decentralized governance process. Any and all proposed changes must face a two-day review, followed by a three-day voting period. From there, all proposals enter a two-day time lock for any possible errors to be discovered.
This isn’t the first time that Compound has dealt with a bug, and this one is less serious than the previous ones. That said, it is annoying and raises questions about the effectiveness of Compound’s governance. Luckily, depositors can still deposit Ethereum to the contract during the freeze to avoid liquidations while the platform waits to reopen.
Yet another indication that we are very early and that it’s important to limit your exposure to risky platforms.
Michael Saylor Is Being Sued
District of Columbia Suing MicroStrategy Founder Michael Saylor for Tax Fraud
Michael Saylor is being sued for fraud and tax evasion. MicroStrategy has been included in the suit for allegedly assisting in the tax avoidance.
According to the case filing, “Saylor lived in the District from 2005 through 2021 without paying income taxes by fraudulently claiming to be a resident of other, lower-tax jurisdictions while maintaining his domicile and place of abode in the District.” As for MicroStrategy, “the company conspired with Defendant Saylor to facilitate his tax avoidance scheme.
As many of you know, I am friendly with Michael Saylor and have visited his Florida home multiple times. This case is a head scratcher, because he certainly spend the bulk of his time in Miami - exactly what almost every wealthy person does to reap the benefits of no state taxes.
Saylor is yet to respond.
According to the Attorney General, “this is the 1st lawsuit brought under DC’s recently amended False Claims Act.” It’s never ideal to be first, especially when you are involved in crypto, but this has nothing to do with Bitcoin.
My hope is that this is a false claim or simply ends in a fine.
Will Helium Migrate To Solana?
Helium devs propose ditching its own blockchain for Solana
The Helium blockchain may migrate to Solana, pending a community vote starting on September 12th and finishing on September 18th. This would be one of the largest blockchain migrations ever and should mutually benefit the two entities.
Japan Gets It
Japan Proposes Tax Break for Crypto Investors
“The country’s financial regulator proposed a temporary easing of corporate tax rules for cryptocurrency assets as well as ruling for retail investors as part of a program to reinvigorate the economy, initiated by Prime Minister Fumio Kishida.
Companies that invested in the cryptocurrency market will avoid paying taxes for paper gains. The proposal has been made via an annual tax-code change request. Individual investors will also benefit from the new rulings thanks to the announced tax breaks.
Japan’s prime minister initiated a "New Capitalism” vision designed to boost the world’s third largest economy, which has faced trouble for the last few decades as its currency’s value reached an extreme low against the U.S. dollar. Kishida pledged to increase the wealth of households in the country and support the growth of the digital business.“
Nice to see a regulator letting off the gas instead of putting the pedal to the metal.
The Future Of Crypto, With Visionaries Matthew Roszak And Jeff Garzik
The Future Of Crypto, With Visionaries Matthew Roszak And Jeff Garzik
The Thursday podcasts are now recorded LIVE on YouTube at 9:30 AM EST, then posted to audio platform in the afternoon. Tune in!
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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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