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The Wolf Den #617 - The Next Bid

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November 9 · Issue #617 · View online
The Wolf Den Crypto Newsletter
Welcome to The Wolf Den! This is where I share my ideas about the market, technical analysis, education and advice regarding trader psychology and emotional control. The newsletter is released every weekday and is completely FREE.
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In This Issue:
  1. The Next Bid
  2. Bitcoin Thoughts And Analysis
  3. Altcoin Thoughts
  4. Legacy Markets
  5. Binance Acquires FTX
  6. Coinbase And Kraken Feel The Effects 
  7. Dollar Milkshake Theory: What Will Happen To The World Economy And Your Money | Brent Johnson
  8. My Recommended Platforms And Tools
The Next Bid
That escalated quickly.
In yesterday’s newsletter, I attempted to separate fact from fiction and encouraged patience in waiting for more information to come to light.
It only took a few hours. It turns out that, once again, twitter was ahead of a monumental blowup, blowing the whistle in advance.
I am frankly still in shock. I absolutely did not believe that FTX was going to implode or that SBF was taking that level of risk.
I was wrong.
There have been some awful days in crypto. Yesterday strikes me as the worst, which is saying a lot. Perhaps it is recency bias, but this is a massive blowup on the biggest possible stage (or arena, in this case).
I assume that we will continue to see shockwaves. Some of the biggest players in the industry and TradFi were invested in FTX. This list reads like a who’s who of finance.
Conjecture is that their shares in FTX will be worth precisely 0 dollars, although that remains to be seen.
Let’s not forget the FTX Arena, Tom Brady, Mr. Wonderful, Shaq, Steph Curry, Larry David and more. FTX has become a household name.
As Arthur Hayes rightfully points out, FTX’s failure is similar for crypto to the banking collapse of 2008. This is bigger than Luna, 3AC, Celsius or Voyager. Maybe combined.
Arthur Hayes
FTX = Lehman

That wasn’t the bottom.

$SPX hit 666 in March of 2009.

Therefore $17,500 BTC is at risk.

How ‘bout dem puts now…
We will do a full post mortem at the appropriate time, but it seems quite clear that FTX was struggling and that CZ was able to provide the straw to break the came’s back, then strike at the perfect moment and sweep the floor with his largest competitor. We saw yet another example of death by leverage, in this case with FTX allegedly printing and then borrowing against its own token. This is a rather compelling thread as to how this may have happened. Once again, it is speculation.
Lucas Nuzzi
1/ I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them.

40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain.

A rabbit hole appeared 🧵👇 https://t.co/DtCyPspME0
There is endless conjecture as to how this all went down, which I will summarize to the best of my ability with time. But not today.
What this all means for our future is anyone’s guess. But for now, it’s hard to be overly optimistic. SBF was the crypto industry’s representative in Washington, and it is hard to imagine them engaging with Binance, a Chinese company, in the same manner. Further, this blow up was a wet dream for Gary Gensler. We have given them all of the ammo they need to attack.
Again.
Self inflicted wounds are the worst.
What lessons can we learn from this episode?
CZ took a few stabs at the barely dead body by offering this advice.
CZ 🔶 Binance
Two big lessons:

1: Never use a token you created as collateral.

2: Don’t borrow if you run a crypto business. Don't use capital "efficiently". Have a large reserve.

Binance has never used BNB for collateral, and we have never taken on debt.

Stay #SAFU.🙏
That’s a great lesson for CEOs, but not particularly useful for the average crypto enthusiast who is tired of being hit by shrapnel from this endless barrage of whale grenades.
The whole market has been rattled to the core, with the brunt of the pain being concentrated on $FTT and $SOL. These are the two coins most aggressively championed by SBF.
The main lesson here is that only one thing really matters in crypto - the order book.
Here’s a quote for you.
Your investment is only as strong as the next bid.
We can tell ourselves the story that $FTT is useful for lowering fees, securing futures positions, or staking. At the end of the day, if there are no buyers, there is no value. On the flip side, if there are no sellers, then the asset price remains steady or rises. But without the bid, sellers have no reason to relent and can send price to Hades.
I am just using $FTT as an example, but the same can be said for $SOL and most other crypto assets. I am not picking on either, but rather using them as examples.
We can wax poetic all day about how $SOL is a useful layer one, a great platform for DApps and highly scalable. That is all potentially true. That is a narrative about the network, and not necessarily the token. If nobody wants to buy $SOL, then there’s only one way it can move.
And if Alameda was actually dumping $SOL to prop up $FTT, then that is the single determining factor of the current value of $SOL.
Not adoption. Not users. Not wallets.
The order book.
That is the harsh reality of the crypto market, where speculation and trading determine price.
The order book is our supreme ruler.
To be completely frank, any asset is susceptible to these types of headwinds to varying degrees. If you think Bitcoin is “safe” because it’s the largest or most secure of them all, then think again. It CANNOT go to zero like a shitcoin, but it can certainly drop aggressively simply do to the action in the order book.
Imagine what would happen if MicroStrategy was forced to unwind for some reason. Bitcoin being a “store of value” or “hedge against inflation” is not enough to override a flood of selling. No narrative currently has that power. Narratives are not a forcefield against an army of sellers and they cant resurrect an army of bidders.
The good news is, there’s seemingly always a buyer of last resort for Bitcoin.
But you get my point.
The order book dwarfs all other factors in determining the price of crypto assets. Of course, narratives are the reason that often lead a person to sit down and click “ask” or “bid,” but it’s order books that determine the value of the investments that we hold.
Your investment is only as strong as the next bid.
and
Your investment is only as weak as the next ask.
This situation is a bonafide dumpster fire, one which is likely to set us back once again. The “crypto” space may be reeling, but Bitcoin will always come out ahead… with time.
Now we wait.
Bitcoin Thoughts And Analysis
DAILY CHART
What is there to say? We have once again been struck by a black swan event, rendering charts across the board broken.
That said, Bitcoin is obviously trading in a key area. Yesterday’s candle swept both the June and September lows, closing back above both.
Not a surprise. There was a ton of guaranteed liquidity in that area so a bounce was expected. I can imagine a ton of people had standing orders at the lows. Now we are seeing follow through to the downside, and it is hard to imagine the selling pressure letting up. There are likely quite a few forced sellers, Alameda could be liquidating, and there’s panic everywhere.
I am going to do… nothing. Watch and wait.
BTC is massively oversold on lower time frames and will likely print some bullish divergence. But I am not willing to play those under these conditions.
Altcoin Thoughts
I have no charts to share here today. They all look horrible, obvoiusly. I will note that it is interesting to see Bitcoin put in a new low while a number of altcoins are not even close.
ETH is still at $1,200, far from $881 (could get there).
MATIC low was .31, it’s still 3X up from there.
Some alts look… worse.
Hard to draw conclusions, beyond the fact that there’s been a clear decoupling of stronger projects that are worth watching.
Legacy Markets
Stock Market Today: Dow, S&P Live Updates for Nov. 9 - Bloomberg
“US equity-index futures fell as midterm elections threw up a mixed verdict, challenging expectations for a Republican sweep and a Congress gridlock.
Equity and bond investors have been hoping for a Republican comeback in Congress, with the best outcome seen as GOP control of both the House of Representatives and Senate. Dollar bulls, on the other hand, sought Democratic control continuing in both chambers. Trends so far suggest a mixed verdict, leaving little room for a rally or decisive selloff.
“The Republican aim of controlling both houses hangs by a thread,” Chris Beauchamp, the chief markets analyst at IG Group in London, wrote in a note. “A divided House might mean the partisan battles over spending and the debt ceiling are not quite as dramatic or vitriolic, but this is unlikely to brighten the policy outlook markedly. Instead, the focus will likely return to the Federal Reserve and the US economy.”
Key events this week:
  • EIA oil inventory report, Wednesday
  • US wholesale inventories, MBA mortgage applications, Wednesday
  • Fed officials John Williams, Tom Barkin speak at events, Wednesday
  • US CPI, US initial jobless claims, Thursday
  • Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday
  • US University of Michigan consumer sentiment, Friday
MLIV PULSE SURVEYWhat’s the biggest risk for China assets in 2023? Are you bullish or bearish on China? Click here to share your views.
Some of the main moves in markets:
Stocks
  • The Stoxx Europe 600 fell 0.7% as of 9:52 a.m. London time
  • Futures on the S&P 500 fell 0.4%
  • Futures on the Nasdaq 100 fell 0.3%
  • Futures on the Dow Jones Industrial Average fell 0.4%
  • The MSCI Asia Pacific Index was little changed
  • The MSCI Emerging Markets Index rose 0.4%
Currencies
  • The Bloomberg Dollar Spot Index was little changed
  • The euro fell 0.1% to $1.0063
  • The Japanese yen was little changed at 145.70 per dollar
  • The offshore yuan fell 0.2% to 7.2478 per dollar
  • The British pound fell 0.6% to $1.1470
Cryptocurrencies
  • Bitcoin fell 5.5% to $17,664.44
  • Ether fell 9.6% to $1,208.05
Bonds
  • The yield on 10-year Treasuries advanced two basis points to 4.14%
  • Germany’s 10-year yield declined three basis points to 2.25%
  • Britain’s 10-year yield advanced one basis point to 3.57%
Commodities
  • Brent crude fell 0.5% to $94.88 a barrel
  • Spot gold fell 0.1% to $1,710.08 an ounce”
Binance Acquires FTX
FTX Agrees to Sell Itself to Rival Binance Amid Liquidity Scare at Crypto Exchange
There are endless details that will eventually surface. I will share a few thoughts and facts.
First, despite pauses in withdrawals, FTX assets are hopefully safe. There is always a possibility that the deal falls through or that there is more under the hood than we understand, but CZ’s best move is to make customers whole and consume FTX’s customer base. SBF has stated that customer assets will be refunded 1:1.
There is a confirmed liquidity crunch. I am still shocked that the worst case scenario was the actual situation. That said, I am impressed that SBF swallowed his pride and was willing to kiss the ring. CZ can certainly fill the gap and help get through the backlog of transactions.
Finally, the deal is not official as of yet, but is likely to happen. The two parties have signed a non-binding LOI (letter of intent), pending due diligence. Assuming FTX is not a complete ponzi scheme, then this deal should go through. Again, there is always a chance it does not.
It is important to note that this could very well end with a good outcome for customers. If they are made whole and another irresponsible player is eliminated from the market, then we will be better for it down the road.
Glass half full, I know.
Coinbase And Kraken Feel The Effects
Coinbase and Kraken experience limited services amid markets turbulence
As always tends to be the case, Coinbase and Kraken struggled with higher volume and volatility. That said, Brian Armstrong has already gone on the record to say they have no material exposure to FTX, $FTT or Alameda which is good.
But we have no idea who does.
I will stress this once again, as I did after Voyager and Celsius failed and for years before… get most of your coins off of exchanges and into cold storage.
Nobody thought FTX was unsafe a month ago, yet in the past 72 hours, the entire house of cards collapsed. In this space, you could literally go on a vacation or fall asleep and find yourself insolvent. That’s how fast things change, which is why safety is paramount.
For now, Coinbase and Kraken users have nothing to worry about.
Dollar Milkshake Theory: What Will Happen To The World Economy And Your Money | Brent Johnson
Podcast - The Wolf of All Streets
Dollar Milkshake Theory: What Will Happen To The World Economy And Your Money | Brent Johnson
Brent Johnson is the CEO of Santiago Capital and an author of a popular Dollar Milkshake Theory. In this episode, Brent explains his theory of why we inevitably will see a strong dollar, shares his opinion on the role of Bitcoin, and provides some personal finance tips on what to do during an upcoming crisis.
In this episode with brent, we discussed:
  • What can stop the dollar?
  • Bitget
  • Advantages of a strong dollar
  • The role of politics
  • Dollar Milkshake Theory
  • The role of Bitcoin
  • Hard money
  • Japan and yen
  • Where the Fed will pivot
  • What if inflation does not go down
  • Best case scenario
  • Why Janet Yellen sees no recession?
  • What system would work better than the current one?
  • How to protect from the upcoming crisis
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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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