#1 Foot Guns
#1 Foot Guns
Everyone is hyping what can go right. We'll help you see what can go wrong.
The Only Value Investing Crypto Newsletter | 100% hype free
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CHEAT SHEET
(You can print this out at work to follow along.)
Red = Bearish, Green = Bullish, Brown = Neutral since the date given in “Bias Since”. Support levels are where the price could bounce when falling and Resistance levels are where the price could stop if rising. You can find more details on how to read the cheat sheet here.
What We Are Watching
Red = Bearish, Green = Bullish, Brown = Neutral since the date given in “Bias Since”. Support levels are where the price could bounce when falling and Resistance levels are where the price could stop if rising. You can find more details on how to read the cheat sheet here.
We further breakdown our case for these cryptos here : What We Are Watching
News About What We Are Watching
SUSHI - The Uniswap DeFi Education fund has received harsh criticism on Crypto Twitter. SUSHI holders could benefit from this as Sushiswap proves itself to be the more Decentralized Autonomous Organization.
LUNA - UST will be listed on Binance.
MATIC - CreamPieSwap now allows users to move funds from Binance Smart Chain to Polygon.
AAVE - The Aave community has created a proposal to allow Axie Infinity tokens to be staked as collateral.
Note: We aim to only deliver the news on what we are watching. You can find endless news about crypto on Twitter, YouTube and Reddit. We’ll point you to some we think are credible if you are a news junkie.
TAKE ME TO (BTC) MAXI TOWN
You are new here so we’ll start with the big picture. In late May of this year (aka a century ago in crypto time), Boomer and Hal were back and forth on the phone, obsessively—like maybe in an unhealthy way—constantly discussing Bitcoin’s price. The conversation broke down a little like this:
Boomer: IDK. It’s crypto so it’s, you know, I wouldn’t short it because of the upside risk, but I see a large Head and Shoulders pattern forming on the Bitcoin chart (indicated in yellow above). Does—does technical analysis even apply to crypto though? I mean, I’m a light adopter of technicals, looking at price action but not buying into some of the “I see a cat in the clouds” type stuff, and using fundamentals plus technicals to make trades. The explosive price action is giving me a little FOMO, but that H/S pattern gives me room for pause.
Hal: Yeah, but, it’s BTC. There are on-chain metrics indicating we are still in a bull market.
Boomer: What are “on-chain metrics” and how does that figure in?
Hal: With BTC, a user has a public and a private key, meaning you don’t see the identity, but you do see the number of buyers and their trade size at a certain price.
Boomer: I see. A little like CFTC commitment of traders but juicier - that’s cool. Plus, I see it still in an up trend, and H/S patterns can be rear looking and still require you to guess when putting on a short.
Hal: Both are not definitive. As we say, nothing in trading is definitive except the last tick—price is truth and truth is price!
How Hal and Boomer traded it: The foot gun of the H/S saw Boomer sit out getting long, and Hal reduced his position, but still kept his core position (that was well below both the peak of BTC and where we are now), but refrained from increasing his size.
The current situation: Those on-chain metrics are still indicating large buyers are scooping up coins, and if the H/S top was meaningful to price, its done its thing and is no longer relevant. You can see the red rectangle drawn on the chart above shows the price being bought up quickly on drops near $30k.
How we’re trading it:
Boomer is worried about Bitcoin’s price in the short term, but likes the (relative to historical) price stability and is using it to scale into a long position, adding 2 unit size now to a targeted 10 unit size long, long term hold with a target of half the previous high, or around $46,000.
Hal, having an established very profitable long is HODL’ing, but not adding just yet, seeing more attractive opportunities in the use case in different cryptos.
Keep a look out for our first private podcast where Hal and Boomer discuss similar scenarios we’ve just described.
Price Action Summary
Leger Up! (the case for being Bullish):
On-chain metrics show $30k has strong buying support
Leger Down! (the case for being Bearish):
Price remains below 200 Day Moving Average
Recent News
Saquon Barkley announces he’s taking 100% of his endorsement money in Bitcoin.
The Foot Gun here: News like this pops up once a week (at a minimum). El Salvador adopting bitcoin as legal tender did…nothing.
Jerome Powell says Fed Digital Currency could undercut the need for Cryptocurrencies.
The Foot Gun here: Yes, that’s undoubtedly true that a Central Bank Digital Currency (CBDC) backed by the Federal Reserve Bank would probably be widely adopted in lieu of Tether or Binance’s stable coin. However, would a CBDC enable the creation of nearly 3,000 DApps currently being utilized on the Ethereum blockchain by millions of users? Would a CBDC receive worldwide adoption? A CBDC is still a fiat currency…it’s backed by the promise of the government. Worse is the technological requirements placed on the Federal Reserve to support the currency. Bitcoin is currently the largest computer network every created with 100 million terahertz of processing power securing investors deposits. To match this processing power with CPUs would cost trillions of dollars. The Bitcoin network has organically created highly optimized computer hardware that reduces the cost, but it would still be a monumental task for one nation to replicate the security of the network.
ETH SHY BOY ZONE
ETH has seen a wild ride this year. There is a potential Buy signal forming - Inverse Head and Shoulders (IHS). The purple line is the RSI, which has bounced at all three points defining the IHS. The last piece to the puzzle would be ETH retracing back above $2,100. This would be a good time to scale into a long position for the short to mid term (a month of two). We are still cautious as the entire crypto-market is still experiencing the pain of the early summer sell off.
How we’re trading it: Boomer has a tiny (less than 1%) position in ETH, and Hal does not hold any ETH.
Leger Up!
RSI points to oversold
RSI points to potential Inverse Head and Shoulders
Leger Down!
Price still below major support at $2,100
Recent News
In Q2 2021 Ethereum settled $2.5 trillion in transactions.
Brazil approves Latin America’s first ETH ETF.
Congratulations you bought it! Here’s what you bought actually does.
Ethereum vs Ethereum Classic
So, why are there two Ethereums? And who had enough flex to call theirs’ Classic?
There are 2,738 total applications built on Ethereum, while only 36 currently operate on Ethereum Classic according to State of the DApps.
Even though they have similar names, their market caps are very different. Ethereum has a market cap of $283B, while Ethereum Classic has a much smaller market cap of $7B.
But again… why two and why such a large difference in usage? Here’s the beff.
The Beff
On June 17, 2016, an exploit (bad!) was discovered (good!) in code built on top of the Ethereum blockchain. A hacker (or your mom - we don’t know) was able to steal ETH, worth millions of dollars, from users building a new organization called a DAO (Decentralized Autonomous Organization) on the Ethereum blockchain.
The community (living in their parents’ basement at the time, now renting their parents’ yacht) made the controversial decision to fork Ethereum making a new chain in order to return the stolen funds. There was a heated debate around the issue with one side arguing blockchains should remain immutable and the other wanting to prevent future exploits and return the stolen funds. In cryptocurrency communities if you can’t come to a compromise then you just fork the code and go your own way, ‘screw you guys I’m going home’. From the inability for the community to come to a compromise two chains were born: Ethereum classic (the chain with the exploit and stolen funds) and Ethereum (the chain with the bug fix and returned funds).
Our take
It’s pretty fucked up and a little bit like ‘Mr. Steal Yo Girl’ getting to be called “Classic.” Who the fuck does that??? But, ETC is still a tradable coin… that has value to Coinbase stock HODLers (read: current losers)
And now you know!
Unfortunately, these two products now have similar names and symbols so many investors buy one thinking they are buying the other. Be careful what you buy and always do your own research. Remember those 51% attacks we talked about on the podcast? Because of the small market cap, Ethereum Classic has been successfully 51% attacked multiple times and yet people continue to buy it. That’s like putting your money in a bank that gets robbed once a year with no FDIC insurance. There are more fun ways to get rid of money. If you want to dig deeper you can find out more about ETH vs ETC here.
The REFI
What to ignore is as important as what to pay attention to. Every other day we find a hype beast or lazy financial journalist to savage.
The headline reads: “Prominent Crypto Analyst Says XRP Price could Soon Outperform Bitcoin.” Right, so maybe that’s JPM, or a well known or even perhaps obscure crypto research or analytics firm. Maybe it's good faith actor Will Clemente describing on Twitter what he’s seeing with order flow “on chain.” Or Teen Executive on TikTok grinding to be a multimillionaire by 24. Or maybe it's someone even more obscure—there are plenty of great crypto thinkers scattered across the interwebs. Lots. It’s almost impossible to separate them out from the hype beasts at times though.
If, as we discussed on EP 2 of our Foot Guns podcast, crypto can at times be like a religion, it is most certainly not a cult. If we include as one of our organizing principles of a cult, a charismatic leader whose pseudo-scientific conclusions help explain the world in a way that established religion or conventional science cannot. People always seek an explanation and a search for meaning in what might be random events.
Whereas the world's most established religions are the belief system as expressed through a prophet, not just crypto but all of speculative finance is a kind of religion in search of prophets.
So. This “Prominent Crypto Analyst” is… “CrediBULL.” Yeah. Like truly objective thoughts usually come from a source who has in its name a bias to the upside. Be sure to like and subscribe to their Youtube, follow their Tweeters, and heart those TikToks. Trade his every thought. On Ripple.
Which brings us to our second foot gun: Ripple (Note we are talking about XRP the token called Ripple, not Ripple the company that created XRP. Hal69k Had to teach me there’s a difference). Touted once, like so many “also ran” coins as some form of bitcoin replacement, it largely got bid up because it looked cheap compared to bitcoin. It was fashionable when the first round of “I don’t know what this is but I have a little extra money (ie yolo money) so I will place a small bet on it,” happened. Nowadays, the crypto space is like the selection of Oreos has become at your grocery store—filled with seemingly unlimited flavor combinations, which, in trading is a seemingly unlimited way to express a gazillion different views. You can short DOGE against Bitcoin because its based on a meme and the latter the worlds first fixed supply store of value and potentially gain in relative value.
Ripple (XRP), however, is a currency and the creators (Ripple, the company) are in the midst of high pitched and high profile litigation with the SEC. Why choose Ripple in the first place? Could it go up? Sure. Is the lawsuit somewhat bogus? Possibly. But there’s so many flavors of Oreo to choose from, why add Chips-a-hoy to that list.
Have a great day trading and watch out for the foot guns!
SPY down 1.5%, Bitcoin down 3%. Sweat is in the air in the homes of Bitcoin HODLrs. $30k is the key level for Bitcoin to hold this week. $28.5k would be the next level of support if $30k breaks.