Beginning of Freedom – Issue #81

A lot has been going on over the past week, so let’s start with the macro before getting into more crypto-specific stuff in the Concluding notes. First of all, the US debt ceiling deal has finally been reached on Sunday night, and it will go through voting in the House and the Senate this week. There’s nothing surprising about the fact that it was reached—no one really expected the US to default—but the terms are interesting. Instead of raising the debt ceiling (i.e. the limit on how much debt the US Treasury can issue), the deal will have it completely suspended until 2025, which means the US government will continue to function, while kicking the can far enough down the road so that debt ceiling talks won’t reappear in what will already be a very heated climate during the 2024 presidential race.

As for the short-term implications for risk-on assets, the deal will obviously bring some much-needed optimism to the market, but long-term, the accelerating craziness of monetary policy could have much more of an impact on gold and crypto. Simply put, as more and more people realize that governments can borrow as many trillions as they want to, and that central banks will gladly help them cover their bills, they will want to put their capital into something that can’t be devalued by any politician. This process will take time, but I’m as confident as ever that it’s pretty much inevitable.

Meanwhile, the AI craze has made its way from the realm of crypto (where I discussed it earlier this year) to stocks. On Thursday, Nvidia ($NVDA) gapped up by over 25%, which doesn’t sound like much if you compare it to some of the memecoins that mooned recently, but NVDA isn’t exactly an illiquid altcoin. With last week’s pump, its market cap increased by over $200 billion, and it’s now very close to being a trillion-dollar asset. All in all, it goes to show that playing narratives is crucial in all markets, and not just crypto.

Bitcoin

Bitcoin Weekly

Bitcoin Daily

Bitcoin shows strength days before Hong Kong opens trading for retail.

The weekly 50 EMA has now been defended for the second time, resulting in a bounce above the recent range where Bitcoin has been trading for the past few weeks ($27,500 was the range high). A breakout this strong is typically followed by continuation. As discussed in previous letters, a breakdown that doesn’t lead to a big dump and quickly rebounds is usually a sign of strength. So, stay alert and keep your eyes on the charts. The one thing you don’t want to see is BTC dropping back into the range this week.

Looking at the daily, we see that the low at around $25,800 was retested, with bulls stepping in to defend it. However, we pumped straight into the trendline, raising the possibility of a third lower high formation.

Regardless, the safest strategy is to stick to swing trading principles and wait for the short-term EMA (20 EMA) to cross above the long-term MA (50 MA).

SPX, Gold and DXY

S&P 500

Gold

U.S. Dollar Index

Interesting price action on S&P 500 in the last week.

The S&P 500 was rejected at the weekly MA 100 (yet again), dropping back to the 4096 level before bouncing back up to the MA, giving some juicy opportunities to play those levels. Overall, the somewhat longer-term strategy remains the same: wait for the MA to be broken, then search for entries. There’s no need for reckless trading by entering under resistance.

Gold failed to hold the 1981 level. 

As we discussed last week, if the drop wasn’t a fakeout, we could expect to see the 1916 level, and that’s precisely what’s happening. We’re seeing another big red weekly candle moving towards that level, without any sign of resilience. I’m not planning on buying at any level until some signs of strength are evident.

The U.S. Dollar Index continues to show strength.

The 103.66 level was finally crossed, and the price continues to climb towards the next level, which is the zone around 105. If this zone is broken, we might see a rally in the U.S. Dollar Index and a potential slowdown in risk-on assets.

Ethereum

Ethereum Daily

Ethereum’s $1784 level has been defended again, even after a wick dipped below it.

Just like Bitcoin, Ethereum is wrestling with the trendline, although it remains above the daily MA 50. Again, to be on the safe side, wait for the red EMA to cross above the blue EMA before considering buying or going long.

If this level is successfully defended, we may well see a quick pump to the $2000 mark, which proved too formidable on the first attempt. However, if this rally doesn’t hold, we may be revisiting the $1874 level, and potentially the $1653 level in case the former is breached.

Blood’s content recap

How to build portfolio in 2023

“Fundamentals of Building a crypto portfolio in 2023

1. Separate Trading and Investment portfolios

2. 50% should always be in #BTC and #ETH

3. 20% in stables ( both $USDT and $USDC)

4. 25% for active trading

5. 5% for degen plays

Want my breakdown of my investment portfolio?“

How to improve in one month

“Task for Traders in order to improve trading within a month.

Look back at the week and ask:

– Did any strategy bring $$ this week?

– Which types of trades worked for you, and which didn’t?

– Were you too fast/slow at entering trades?

– Did you close too fast/slow?

– Could you risk more or should you risk less?

– Did you misplace S/L?

– Did you stick to your original plan while taking trades?

Final, important question:

– How could you improve the outcome?

Journal everything, every week for a month. I promise you will improve at trading.”

Concluding notes

As mentioned above, the key narrative driving crypto right now is once again China’s policy towards it. The whole “China bans/unbans crypto” thing has become quite the meme over the years, but this time we’re in for a very concrete change: in what some see as a “testing ground” for China, Hong Kong is set to allow crypto for retail traders from the start of June. There will be strict conditions on which assets will be given the green light (including having a long track record and a high market cap)—so don’t hold your breath for Hong Kong to pump your memecoins—but in any case, even just having BTC and ETH would be a big deal.

Hong Kong isn’t exactly huge in terms of population, with a bit more than 7 million people, but its GDP per capita is close to being in the global top 10. More importantly, this could well be a test run for a similar change in China itself, which would obviously have an incomparably bigger impact. This narrative picked up even more steam when the Hong Kong policy was presented on Chinese state media, in a report that was surprisingly positive on crypto. If they’re not holding back on discussing it there, then it’s likely that they’ve got plans for crypto in China as well.