As always, our Friday letter is designed such that you are prepared for the weekend: low liquidity and known for volatile price action. ⚠️ So read carefully.
🔥 We share the latest crypto news, technical analysis and a very special personal finance segment.
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✈️ Next Flight to El Salvador?
BTC prices rose for a third straight day after El Salvador announced the date it would officiate the crypto as legal tender and give every citizen $30 via an e-wallet.
President Bukele told his country’s citizens they would be able to receive $30 in bitcoin once they sign up to the Chivo e-wallet using facial recognition. This is essentially a government airdrop. More on airdrops later in the letter👇
As for the controversial bitcoin law, it will come into effect on September 7th.
🕵️♀️ The finer details:
Influencers are speculating El Salvador’s government will need to purchase the required BTC it needs to distribute.
Potentially adding more than $100 million in buying pressure on markets.
Willy Woo tweeted that Bitcoin’s global user base will grow by 2.5% thanks to the influx of 4.5 million Salvadorians.
Now let’s see how BTC responded to the news 👇
Observe the lower highs and lower lows: that’s a clear bearish market structure.
How bearish? Well, if we lose the $30k level, there’s not much more support on the way down until around $24k. So this will be an important support level to monitor.
Key levels: we hit resistance at the $35.5k level. This was a previous structural level (roughly the mid point of the range we’ve been bound by in recent weeks). If we draw some Fibonacci levels, we see a 0.5 retracement (we’ve rebounded half of the move down).
Conclusion: bearish market structure continues. Choppy between 18th May all the way until 25th June. Sideways action that is trending downwards. We will be watching the $30k level.
🪂 Airdrops. Free Money?
El Salvador plans to reward users with $30 in bitcoin once they sign up to the Chivo e-wallet using facial recognition. Savvy and new at a governmental level, more common amongst crypto projects through a mechanism known as airdrops.
✅ Definition: The term airdrops refers to the distribution of digital assets to the public, either by virtue of holding a certain token or simply by virtue of being an active wallet address on a particular blockchain. There is no purchase required from the recipient, meaning that the assets are distributed for free.
What’s the incentive for projects to give free money? There are no free lunches, right?
Airdrops are often used as a marketing tool in order to raise awareness of the coin, token or project that is being advertised.
It can also be a method of diversifying the number of holders of that asset.
In the case of El Salvador, the idea is to promote bitcoin’s use in the economy and to give people an incentive to use the application.
💡 Tip: For those who are active in the crypto markets, it’s probably worth interacting with various protocols at least once in order to qualify for next potential airdrops somewhere in the future. To use trader’s jargon, it’s an asymmetric bet: Your only downside is the gas costs your pay, while the upside is potentially unlimited.
⚠️ Warning: Please note that there can sometimes be a minimum requirement in order to qualify for an order. You can thank sharks who have tried to game the system by creating hundreds of addresses that could potentially all qualify as a separate airdrop, amounting to almost +$100,000. Keep this in mind as you go and try out various protocols and try buying/selling at least $50 - $100 worth of an asset so you don’t end up below any minimum thresholds.
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🍽 Grab A Plate, Grab An Ethereum Hardfork
The long-awaited Ethereum London upgrade is nearing with the hardfork launching on testnet before its full deployment next month. The upgrade will herald the implementation of the highly anticipated EIP-1559 modification that will alter the Ethereum transaction fee calculation mechanism. In the early hours of June 24, lead developer Tim Beiko tweeted that the first block has been produced on the Ropsten testnet.
💡TIP: Hardforks are backward-incompatible software updates. Typically, these occur when nodes add new rules in a way that conflicts with the rules of old nodes. New nodes can only communicate with others that operate the new version. As a result, the blockchain splits, creating two separate networks: one with the old rules, and one with the new rules. So there are now two networks running in parallel.
Over to price action 👇
Market structure: really strong S/R flip (support and resistance flip) at the $2k level. What’s the story? Key psychological level that we clearly broke below, came back up, retested and now seeing a really harsh rejection. Suggests scope for further downside.
High risk buy zone: between the $1.4k - $1.6k levels. Consider this ‘Catching a Knife’. However, we can see strong bounces at these levels.
Next level of support: $1k level.
Woah, that was a lot of trading jargon… Let’s have some definitions.
S/R Flip. When a support level becomes a resistance level or when a resistance level becomes support. The idea behind the flip is that this method of setup is confirmed when price reclaims a level that was previously lost, then uses that now taken level as new support or resistance.
Catching a Knife. This term simply suggests that buying into a market with a lot of downward momentum can be extremely dangerous - just like trying to catch an actual falling knife. So why risk it? Well, the idea is that a falling knife could quickly rebound, in what’s known as a whipsaw. Or not.
🔮 Do You Make Your Own Decisions?
Humans are social creatures that have historically relied on cooperation to survive.1 Whilst we believe collaboration is essential for success, sometimes our desire to cooperate can have unintended and damaging consequences. One such consequence is our bias towards social proof. That is, when we feel uncertain, we tend to look to others to guide or validate our own actions.
This was originally shown in a study in the 1930s2 where the participants’ belief relating to the movement of a dot of light was heavily influenced by the thoughts of the wider group.
This study has been repeated in various forms over the years but the conclusion remains: human decisions are greatly impacted by those around us.
In an age where you are able to surround yourself with like-minded people this effect can be amplified as there is no overriding desire to behave differently from the crowd (one only has to look at the echo chamber of crypto twitter.)
This can be disastrous for us as traders and investors. Being successful in the markets strongly depends on our ability to build a system that gives us an edge. A specific decision may fit into one successful system but be contrainain to another, equally successful system. These systems may even have completely different goals! On top of that, building an edge requires you to think differently from those around you, after all if everyone held the same opinion, by definition, it would not be an edge.
🔮 So our bias towards social proof can lead us to poor investment decisions, especially when surrounded by individuals with similar opinions, but what can we do to avoid it?
Be skeptical. Check everything you see online with facts from data sources that you can verify.
Always play devil's advocate to your own beliefs. Regularly review our opinions and beliefs and test them
Question your motivation behind each action. Is it due to your own convictions or because you saw a twitter post that seemed to make sense?
Social proof is a driving force behind group think. Actively question your own motivations, take steps to verify any third party data and start making your own decisions.
Not financial or tax advice. The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision. See our important security disclaimers here.
Disclosure. Some of the links we’ve included are affiliate, they give you rewards and discounts and earn us a commission. Additionally, the Market Meditator writers hold crypto assets. See our investment disclosures here.
Muzafer Sherif, "A study of some social factors in perception: Chapter 2." Archives of Psychology, 1935, 27, No. 187, 17-22.