Mad Hedge Bitcoin Letter
September 13, 2022
Fiat Lux
Featured Trade:
(BITCOIN GETS DROPKICKED)
(BTC), (CPI)
The proof is in the pudding, and this is yet more evidence that it’s impossible to extinguish a forest fire with a bottle of water.
That’s the analogy I would like to trot out as another white-hot inflation number pierces the hearts of team transitory.
Inflation staying at 8.3% year over year is highly negative for the price of Bitcoin, cryptos, and risk assets in general.
Crypto was supposed to be the savior of inflation, but at the time of this writing, the price of Bitcoin (BTC) is down 6% this morning and underperforming the broader Nasdaq market by two times.
Everyone knew that inflation would still come in high, but the 8.3% is highly disappointing as the inflation naysayers had already started to spread the deflation narrative or that inflation has “peaked.”
We are currently stuck in a vicious feedback loop where elevated inflation cannot be contained with the current Central Bank policies.
A low Fed Funds rate of 2.5% cannot crack inflation over 8% and it’s killing the price of crypto and literally destroying the digital coin industry.
At these accommodative rates, the job market is holding up quite well which is what the Fed doesn’t want. Job seekers who lately have gotten cut from technology firms are reappearing with higher paying jobs and better benefits in different parts of the economy.
There is no hope for Bitcoin until the US Central Bank finally tames inflation.
The consumer price index (CPI) rose 8.3% in August from a year earlier, a mild slowdown from the 8.5% reported for July.
Gas prices came down, but other sectors offset those price decreases and caused overall inflation to remain elevated. Health insurance, for example, rose a blistering 24.3% year-over-year, the largest increase ever.
Food at home and rent prices were also one of the main drivers this month, up 13.5% and 15.8%, and services inflation rose above 6%.
The result of all this is that a Bitcoin reversal will be delayed as crypto investors wait for inflation to decrease.
I can’t imagine Bitcoin getting over the $25,000 per coin hump until there is more progress on the inflation front.
This is also negative for crypto infrastructure that is holding on for dear life until the next bull market comes.
Anything bullish in crypto has been effectively pushed back.
The inflation report means that US consumers will deal with a cost-of-living crisis longer than expected which will supersede any crisis in terms of what currency they want to store wealth in.
The larger risk is that the US Central Bank risks losing control of inflation completely as the negative feedback loop can accelerate to the downside which might force the Fed to raise rates to unprecedented levels.
It sure appears that this is morphing into a whack-a-mole phenomenon.
It’s clear that the Fed is being way too generous to equity holders by casually increasing rates at a pedestrian pace. If they lose control of inflation, Bitcoin could go to $10,000 per coin.
The fact is that the US Federal government is the biggest beneficiary of low-interest debt which is now about to touch $31 trillion.
The Fed is doing everything it can to not raise rates more than is needed because it makes servicing the debt and those interest payments too onerous.
The Fed will need to raise rates to keep the Federal government solvent if the risk of hyperinflation increases.
Ultimately, this new inflation report means that inflation will persist longer than expected which will cause the Fed to raise short-term rates faster and higher than expected.
Today was a sucker punch to Bitcoin – the digital is down and out for the time being.
“In the end, a vision without the ability to execute it is probably a hallucination.” – Said Former CEO of AOL Steve Case
Mad Hedge Bitcoin Letter
September 8, 2022
Fiat Lux
Featured Trade:
(CRYPTO ARENA WAS THE PEAK)
(BTC)
Granted that crypto advertisement has no direct correlation with the price of Bitcoin, the amount of crypto advertisements is indicative of the ongoing health of the crypto industry.
In broad terms, when crypto prices are rising, the ad budgets of crypto companies swell.
The reverse is true in a down market.
It’s no surprise that November 2021 marked the high-water mark for crypto advertising spend as crypto.com signed a breakthrough deal for the naming rights to the home arena of the Los Angeles Lakers and ice hockey team LA Kings and called the venue Crypto.com Arena.
My sources told me the deal was a 20-year contract worth $700 million.
The price of Bitcoin has tumbled since then and the first shoe to drop were the numerous job cuts of reputable crypto companies like Coinbase.
The number of crypto exchanges that went bankrupt also has frightened investors as it highlights the unsecured and uninsured nature of digital investments on these platforms.
Individual accounts usually don’t receive their funds back if the exchange they use goes bankrupt, because these accounts aren’t insured.
As the textbook crypto investor has been busy getting impoverished, crypto companies have pulled back investment, wage, and advertisement spend signaling that the industry is in a “crypto winter.”
No industry is at its peak during a bout of extreme scarcity mentality.
This violent pullback of investment has hurt the image of the crypto industry while strengthening the case that fiat money still has validity.
I say that even as the President of Russia Vladimir Putin said yesterday that the U.S. Dollar and European-based Euro have “lost their credibility as a basis of international settlement.”
That’s not necessarily true.
Yet, this does signal that things are about to get wild in the currency markets and the sad fact that interest in digital currencies has, at least for the moment, been put on the back burner as we duck and weave from crisis to crisis.
Unfortunately, the incremental investor still isn’t willing to jump into crypto headfirst and the price of Bitcoin reflects this sentiment.
Just last week, we then got news of the same Crypto.com reportedly pulling out of a five-year sponsorship deal with the UEFA Champions League.
This UEFA Champions League competition is the most prestigious non-World Cup soccer tournament in the world and dominates global eyeballs.
The deal would have been worth just over $100 million annually.
Valued at just over $100 million per year, the contract had been under discussion but never signed, according to my sources.
The move follows the exchange's official approval as an official FIFA World Cup sponsor in March and several other audacious marketing plays in the world of sport.
Several other sports marketing opportunities have also been permanently shelved underscoring how lean times are in the world of digital currencies.
The price of Bitcoin has participated in the price action to the downside while missing out on much of the upside.
There simply is a lack of trust in this speculative asset class as hyperinflationary times have forced people to migrate into hard assets like food, energy, and housing.
“Luck is a dividend of sweat. The more you sweat, the luckier you get.” — Said Ray Kroc, founder of McDonald's Corp.
Mad Hedge Bitcoin Letter
September 6, 2022
Fiat Lux
Featured Trade:
(ANOTHER ONE BITES THE DUST)
(BTC)
It’s important to keep close tabs on what’s happening overseas in crypto regulation as it increasingly matters.
Some or perhaps all of these sovereign nations’ experiments could be adopted in the United States.
The United States continues to be the flagbearer in terms of crypto as our openness to new technologies, overflow of employee talent, and zealous acceptance of financial alternatives attract the incremental crypto industrialist.
Just this very last week, another domino dropped in the crypto world, when in the heat of summer in the Middle East, the Taliban regime in Afghanistan arrested several dealers of cryptocurrency tokens who resisted instructions to halt selling digital assets after the country’s central bank this month placed a national ban on crypto.
As a free market entrepreneur, this makes my blood boil.
Also, I am not saying that Afghanistan is the center of the crypto world — hardly so. However, they are a financially closed system in which fiat doesn’t work where the use case for alternative assets is strong.
The local authorities didn’t turn a blind eye to what was happening in local private finance, and they weren’t going to let citizens get away with the non-regulation of money in Afghanistan.
Afghans had begun to store their personal wealth in cryptocurrency in order to protect it from the reach of the Taliban, and in doing so, the Taliban has caught on and followed the money and now is delivering a lethal blow to the Afghan crypto infrastructure.
Without crypto exchanges, it becomes a lot harder to maintain hot wallets even if there remain options of maintaining a cold wallet that is offline.
The central bank gave Afghans an order to stop all money changers, individuals, and businesspeople from trading digital currencies.
Thirteen people were detained, although the majority of them were later freed on bail, and more than twenty enterprises linked to cryptocurrencies were also closed down in the city of Herat, Afghanistan’s third-largest city and a center for dealing in digital tokens.
Since the nation is cut off from the global financial system because of the sanctions imposed on the group, the use of cryptocurrency as a means of transferring money into and out of the country has grown more common.
In the aftermath of a market crisis that wiped away almost $2 trillion of value and forced numerous high-profile enterprises into bankruptcy, governments ranging from South Korea to the United States are strengthening crypto regulations.
As much as it’s great to be an idealist and believe that every banana republic with a closed financial system will automatically opt for crypto, there is also the chance that powers at the top might shut it out full stop.
Why?
Control.
Many of the recent geopolitical events might or might not make sense but the underlying denominator tying them together is always about control and the unadulterated totality of it.
A sovereign nation banning crypto is an unequivocal minus for the asset class, and naturally the larger the GDP, the worse it is for crypto.
Shrinking the pie means less can feed from it.
This also sets the precedent, like in China, to blacklist crypto.
As long as the U.S. regulates but doesn’t ban crypto, the asset class is safe and won’t go to zero.
However, this is just another sign that it can be incredibly high-risk dabbling in this speculative currency which is why I do not recommend a reader to invest more than 3% of their net worth into digital currencies.
As we consolidate around the $20,000 mark for Bitcoin, the currency needs all the horses in the stable moving forward.
In the short term, I don’t see Bitcoin moving past a short-term ceiling of $25,000 per coin.
“If I had asked people what they wanted, they would have said faster horses.” – Said American Industrialist Henry Ford
Mad Hedge Bitcoin Letter
September 1, 2022
Fiat Lux
Featured Trade:
(THE CRYPTO SILVER LINING)
(BTC
