Beginning of Freedom – Issue #83

What do you do if you’re in charge of securities regulation in the US and you managed to embarrass yourself big time by being buddies with SBF while he ran the biggest fraud in crypto? Apparently, you get frustrated and you start throwing around lawsuits like punches in a Bruce Lee movie instead of saving what’s left of your reputation and resigning—at least if you’re Gary Gensler, that is. Last week, his SEC dropped two back-to-back lawsuits against Binance and Coinbase and, while Gary’s anti-crypto crusade is nothing new, the lawsuits contain some really interesting stuff, especially the one against Binance.

Every time that some company or individual becomes the main character in crypto, there’s always an (in)famous quote to remember them by: from “sell me all your SOL at $3” to “deploying more capital, steady lads.” This time the legendary expression comes from Samuel Lim, Binance’s Chief Compliance Officer in 2018, who apparently said to a colleague: “we are operating as a fking unlicensed securities exchange in the USA bro.” That one’s got to be pretty high up on the list of things that you don’t want your CCO to be saying if you’re serious about being properly regulated.

Unfortunately, that one epic sentence is far from everything that the SEC has got on Binance. At this point, we can only speculate on who it was that testified, but they’ve probably got quite a few people that were very high up on the Binance and Binance US organizational ladder. Apart from the stuff in the lawsuit that everyone was expecting—apparently Gensler just opened the homepage of CoinMarketCap and started listing alts along with reasons for why they’re securities—there’s also a lot about washtrading, improper custody of funds, knowingly circumventing KYC/AML policies etc. Long story short, this looks pretty bad, but it will take a long time, maybe years, to fully play out. Also, don’t be surprised if a Department of Justice case against Binance drops very soon.

In comparison, the Coinbase lawsuit looks pretty boring. There’s no fishy mishandling of funds and buying yachts, but just the very simple and not at all surprising claim that some assets on Coinbase are securities (again listing different alts similarly to the Binance case), that Coinbase’s staking service is a security, and that Coinbase failed to follow its own risk assessment protocols on whether an asset is a security when deciding on new listings. When it comes to the SEC’s demands, they’re also completely different: unlike with Binance, where Gensler wants them to freeze assets, cease operating etc., all he’s going for is for Coinbase to register with the SEC and pay some fines.

Overall, there’s been a lot going on lately, and we’ve also got the CPI and FOMC this week for good measure. I won’t be covering those events here due to the focus on the recent headlines, especially as I’ve already discussed them in previous newsletters.

Bitcoin

Bitcoin Weekly

Bitcoin Daily

Bitcoin continues its downtrend, closing in on the weekly level at $24,300.

At the time of writing Bitcoin is trading right on the weekly EMA 50, a line it has successfully defended three times so far. Last week, we discussed whether the third time would provide a bounce over $27k. That didn’t happen, and we’re back at the EMA, which appears increasingly fragile. It looks like it’s only a matter of time before it gives way.

Trading volume remains low, and I anticipate no significant shifts until the CPI and FOMC events later this week. Additionally, the RSI has reset, dropping to the 50 zone.

The daily timeframe shows a clear break of the daily support level at $26,500. On June 5, the day the SEC filed the lawsuit against Binance, Bitcoin broke below this level, setting a new low at $25,388. Despite a brief rally back into the range, we find ourselves revisiting these lows just a few days later.

Intraday traders might be tempted to long this low. However, as a swing trader, I’m more inclined to long the weekly support at $24,300. If you’ve been following my Twitter, where I shared the swing trading exercise using the 20 EMA and 50 EMA (represented by the red and orange lines on the chart), you’ll know that the strategy calls for waiting for the short-term EMA to cross above the 50 EMA before entering a swing trade.

SPX, Gold and DXY

S&P 500

Gold

U.S. Dollar Index

The S&P 500 continues its uptrend, hitting a snag at the 4325 level.

Both Bitcoin and stocks are likely to remain relatively stagnant ahead of the CPI and FOMC events, even though the market has already priced in a pause in the Fed’s rate hikes. Still, if this pause happens, we can expect to see some strength. Should the SPX retrace at this point, bulls will need to defend the weekly MA 100 to see continuation.

Gold is not letting go.

Over the past few weeks, gold has been in a downtrend, but the daily MA 100 has held firm. For now, the levels remain unchanged, with resistance at 1981 and support at 1916. The more a level (in this case, the 100 MA) is tested, the weaker it becomes. If this week’s events don’t yield bullish outcomes, we could see gold at 1916 by the end of the week.

The U.S. Dollar Index takes a breather from its uptrend.

After a huge move up that caught traders off guard (given the banking crisis and money printing), the DXY has finally plateaued. Currently, it’s trading below a crucial level at 103.66, a level it needs to maintain if the dollar wants to resume its uptrend.

Ethereum

Ethereum Daily

Ethereum has lost its key level at $1,784.

As discussed in multiple newsletters, Bitcoin’s $26,500 level is Ethereum’s $1,784, and both were lost a week ahead of the CPI and FOMC events. Ethereum has formed three lower highs, showing a clear downtrend, and with a new low printed over the weekend, there’s no sign of a slowdown.

The levels to watch now are $1,665 as support and $1,784 which has flipped into resistance. Additionally, the short-term EMA has crossed below the long-term EMA (after briefly being above), giving another bearish signal.

Blood’s content recap

My view on inflation numbers

“We will see lower inflation numbers in the upcoming months, here is why.

Base Effect.

Key datapoint in CPI is “Year-over-Year” number which is calculated by comparing CPI for latest month with the same month of previous year.

May and June 2022 had the highest inflation numbers, so comparing current inflation with previous year will obviously bring lower numbers now.

Following months will show lower inflation numbers, but is the optimism in stock growth justified?“

Be brave or you’ll be left behind

“If you are not entering when most call for #BTC $10k, you will buy higher and miss gains.

History shows that most retail enters close to the top and many sell near the bottom.

Retail is exit liquidity.

Be brave and you will prosper.”

Concluding notes

While Gary has been going on the offensive lately, it looks like the SEC has got some skeletons in its own closet. Another bombshell that dropped last week was the news that there were over 25 instances of severe mishandling of sensitive data by the SEC. In a nutshell, the part of the SEC that is responsible for enforcement had access to documents belonging to another part of the SEC, namely the one that advises on how to rule on the enforcement actions. This might sound complicated, but consider an analogy with a trial: it’s like the prosecution having access to all the judge’s notes and other internal court documents, obviously giving them an unfair advantage over the defense. So, what better way to distract from such blatant abuse than to file a bunch of high-profile lawsuits supposedly in the interest of “protecting investors”?

In any case, we can expect some more SEC-related news this week—for example, they have to respond to Coinbase’s request for regulatory guidance in crypto on Tuesday—so be prepared for any effects that this could have on the market. This kind of an environment is very hard to navigate from a trading perspective, so I can just say that I hope you followed the cautionary tone of previous newsletters. Right now, capital preservation is crucial, and that includes self-custody, as I keep repeating whenever there’s some controversy about a major exchange.