Mad Hedge Bitcoin Letter
August 18, 2022
Fiat Lux
Featured Trade:
(READY FOR LAUNCH)
(ETH)
Grab your cowboy hats and enjoy the event.
It’s here.
Ethereum (ETH), the second most important and largest crypto, just ran its final tests before the launch which could turn out to be the most important upgrade in crypto history.
The price of Ether could experience a “buy the rumor and sell the news” reaction, but traders wanting to get into ETH should wait for the dip to buy.
Since its inception, ETH has been mined via a proof-of-work model.
It involves complex math equations that massive numbers of computers race to solve, and it requires plenty of expensive electricity.
Now Ethereum will change to a new model for securing the network called proof of stake.
The method requires users to leverage their existing cache of ether as a means to verify transactions and mint tokens. It uses far less expensive electricity and is expected to translate into faster transactions.
The climate change brigade must be in heaven!
It couldn’t be a better time to change over as electricity bills have soared over 500% in places like London, England, and tripled in places like Munich, Germany.
Ethereum’s transition has been repeatedly stalled for the last several years and testing hasn’t been smooth.
Developers know within seconds whether a test was successful. But they’ll still be looking out for many potential technical issues in the hours and days ahead before the launch.
Another key issue relates to transactions. Ethereum processes transactions in groups known as blocks. One clear indicator that the test went well will be if the blocks have actual transactions in them, and aren’t empty.
The last major check is whether the network is finalizing, meaning that more than two-thirds of validators are online and agree to the same view of the chain history. It takes 15 minutes in normal network conditions.
Since December 2020, programmers have been testing out the proof-of-stake workflow on a chain called beacon, which runs alongside the existing proof-of-work chain. Beacon has solved some key problems.
The upgrade certainly is good news set against a backdrop of an awful last 10 months for the price of ETH.
The price of ETH has also rebounded by 80% recently as the US Central Bank has signaled rate cuts next year.
The transition to a proof-of-stake model means that this will be highly attractive to the incremental ETH miner moving forward.
When ETH miners are in a healthier position, the entire ETH infrastructure benefits and is fortified.
For those playing the long game, as we inch closer to next year’s rate cuts, one must believe that every dip in ETH is a buying opportunity.
We have received strong positive signal lately with meme stocks roaring back to action going to the moon which means liquidity is plentiful and loose.
Liquidity needs to be generous if cryptos are to skyrocket.
Fed Chair Jerome Powell who stated that 2.5% is “neutral” effectively means he is ready to subsidize meme stocks, crypto, and other speculative assets and as the headwinds turn to tailwinds next year, it could prove to be a banner 2023.
“The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence.” – Said German-American Writer Charles Bukowski
Mad Hedge Bitcoin Letter
August 16, 2022
Fiat Lux
Featured Trade:
(ADOPTION IN ARGENTINA)
($BTCUSD), (WMT)
Just a short time ago, the South American country Argentina began the 20th Century as one of the ten richest countries in the world.
Its ranking in the world wasn’t that bad, comparable to that of, say, Germany today.
It had a per capita income much higher than that of Japan and Belgium and comparable to that of France.
However, that was then, and this is now.
Argentina has turned into a banana republic where a government filled with incapable politicians has grounded the country.
How did this dramatic change come about?
Well, that’s for historians to debate and I’m not a historian, but let’s talk about the current, now, and present about the dire Argentinian financial situation.
Argentina’s annual inflation surged past 70% last month at one of the fastest rates in the world after renewed political turmoil fueled price spikes and a currency rout.
It even beat Turkey out in the inflation Olympics.
Consumer prices rose 71% in July from a year ago, the highest level in about 30 years, according to government data published Thursday.
Skyrocketing prices pushed Argentina’s central bank to lift rates earlier in the day by the most in three years, raising central bank rates by 9.5% to 69.5%.
It signaled a tougher monetary stance against inflation, following another large rate hike just two weeks ago. Policymakers had been only raising rates once a month previously.
All the political turmoil added volatility to an already unstable outlook, with the black-market peso losing about 15% of its value in the month and local businesses jacking up prices 20% overnight.
To signal a tougher stance on inflation, the central bank committed to stop printing more money to finance government spending — a key factor driving inflation — for the rest of the year. However, other policies, such as removing subsidies on utility bills to improve the fiscal balance, stand to keep price increases high in the near term.
Consensus has it that inflation could break the threshold of 100% by the end of the year.
I’m not going to champion Bitcoin and crypto as the greatest thing since sliced bread.
It’s not and it’s a work in progress.
There is still a high chance that this iteration of crypto isn’t the final version of what goes mainstream.
There are just too many variables to know what will happen.
However, Argentina and its financial situation is a country that is screaming to adopt Bitcoin.
Nominally, consumers start to really suffer psychological damage when inflation and prices start climbing 25% per year.
Anything past 30% is a time when crypto really needs to be looked at by Argentinians and whoever is in a similar situation in whatever country they are in.
The chaos down south shows what could become of irresponsible financial policy down the road to rich, Western countries.
The hard cold truth is that 9.1% inflation in the United States isn’t that bad.
The Rubicon will not be crossed at these levels.
I would argue that American consumers could easily handle inflation at 20%.
Granted, the upper-middle class will start shopping at Walmart (WMT) and the Walmart shoppers will start shopping at the dollar store, but Americans can handle it.
In a broad sense, the use case for Bitcoin is really starting to become attractive in countries like Argentina, because when the government throws fiat currency under the bus like the Argentinian government, there really is no alternative but Bitcoin.
9.1% inflation is nowhere near risky when other sovereign nations are close to 100% year-over-year.
“What is not started will never get finished.”- Said German Poet Johann Wolfgang von Goethe
Mad Hedge Bitcoin Letter
August 11, 2022
Fiat Lux
Featured Trade:
(FINK AT IT AGAIN)
(BLK), ($BTCUSD), (GME), (AMC)
BlackRock (BLK) investment fund was the first asset manager to surpass $10 trillion in assets held as the US Central Bank fueled the largest asset bubble created in human civilization.
That was a great achievement.
This is also why the CEO of BLK Larry Fink, as of April 2022, is worth an estimated US$1 billion according to Forbes Magazine.
Not too shabby.
Fast forward to the end of 2nd quarter of 2022, BLK was the first to lose $1.7 trillion in assets in the first half of 2022 when the tech market nosedived.
The monumental loss has resulted in some unique unintended consequences that have now manifested in BlackRock migrating into crypto by teaming up with Coinbase on a product designed to help institutional investors trade bitcoin.
The propensity for BlackRock to entertain asset inflow by sliding them into passive funds is great on the way up, but volatility has really twisted the fork into that strategy as the deleveraging in the capital markets has made it harder to achieve alpha.
How will BLKs new partnership work?
The world’s largest asset manager will allow clients to use its Aladdin investment management system to buy, sell and monitor their cryptocurrency holdings via Coinbase’s exchange, the biggest in the US.
BlackRock said the partnership will be focused on bitcoin – at least “initially”.
The move is the latest sign that some of the biggest players in traditional finance – known as TradFi in crypto circles – are confident in the long-term prospects for cryptocurrencies.
This major nod of approval to crypto was a glimmer of good news among the bad as Coinbase, which has been mired in multiple investigations from the Federal government, is handcuffed in regulatory limbo.
The major crypto exchanges have also slashed jobs at a dizzying pace with 1,100 jobs in recent months, after admitting that it hired too quickly during the crypto bull run of 2021.
Institutions made up about three-quarters of Coinbase's $309 billion in trading volumes in the first quarter, the company said in May. Among others, its clients include asset managers, large corporate treasuries, and asset managers.
I believe this is BLK's buy-low approach to the crypto industry as many critical pieces to the crypto infrastructure have flamed out in bankruptcy lately.
BLK wants to cover its bases by being able to take part in the next crypto resurgence if and when that happens.
This also gives them a low-cost exit strategy if the sushi hits the fan.
As investors believe rate cuts will occur next June, that obviously brightens the prospects for crypto prices.
This by no means translates into BLK exposing clients to major crypto investments.
I hear that they are advising high net worth clients into an asset allocation of 1-3%.
I highly doubt there will be a comingling of assets like crypto and equities into one branded ETF.
BLK most likely will silo the crypto business and see if it takes off all while taking a measured approach to its prospects.
The BLK management are already smoothing over the normal talking points like paying lip service to the superior technology of blockchain and how it can be “incredibly innovation and disruptive.”
Buzz words are nice on the ear but usually short on substance.
The truth is that crypto has been an absolute failure since November 2021 and its latest rally has evolved from the backdrop of an expectation of sooner interest rate cuts.
Unfortunately, the crypto industry was one of the few industries in America that got hit by the deleveraging bubble because it is the most speculative.
One might also throw in meme stocks like Gamestop (GME) and AMC (AMC) as secondary losers to the central bank tightening.
Even zombie corporate companies are alive and kicking as the tightening cycle hasn’t been that tight.
We are setting up for a positive 2023 and crypto could really take off when interest rate cuts become the new normal.
Mad Hedge Bitcoin Letter
August 9, 2022
Fiat Lux
Featured Trade:
(CRYPTO KEYS 101)
(BTC), (ETH)
Cryptography transcends use cases from intelligence agencies — military writing — decoding confidential text messages.
Public and private keys are an important part of Bitcoin (BTC) and other cryptocurrencies.
They allow you to send and receive cryptocurrency without requiring a third party to verify the transactions.
The basic concept behind the two-key system is the following:
- the public key allows you to receive transactions, while the private key is necessary to send transactions.
- Using two different keys (a public and a private key) is called asymmetric cryptography.
What Is a Public Key?
A public key allows you to receive cryptocurrency transactions.
It’s a cryptographic code that’s connected to a private key.
While anyone can send transactions to the public key, one needs the private key to “unlock” it and prove ownership of the cryptocurrency received in the transaction.
Therefore, freely sharing a public key is without risk.
While anyone can send the public key safely, someone would need the private key to unlock and access these sent funds.
What Is a Private Key?
A private key offers the ability to prove ownership or spend the funds associated with a public address. A private key is unique and can take many forms:
- 256 character long binary code
- 64-digit hexadecimal code
- QR code
- Mnemonic phrase
What Does It Mean to “Digitally Sign” a Transaction?
For a transaction on the blockchain to be complete, it needs to be signed. The steps for someone to send a transaction are:
- A transaction is encrypted using a public key. The transaction can only be decrypted by the corresponding private key.
- The transaction is signed using the private key confirming the transaction hasn’t been modified.
- The digital signature is generated by combining the private key with the data being sent in the transaction.
- Lastly, the transaction is verified as authentic using the accompanying public key.
Digitally signing a transaction means to prove the owner of the sent funds. Nodes check and authenticate transactions automatically. Any unauthenticated transactions get rejected by the network.
Where Are My “Private Keys?”
Private keys are in a cryptocurrency wallet, which is usually on a smartphone, desktop software, or a specialized hardware device.
Private keys are not on the cryptocurrency blockchain network.
If crypto assets are held on an exchange, then the exchange is the custodian of these private keys.
How public and private keys work together is essential to understanding how cryptocurrency transacts.
Buying crypto is effectively owning a private key that proves ownership of that cryptocurrency.
Since the record is stored on the blockchain, anyone can verify the individual as the owner with a specific public key.
Just remember that deferring to crypto exchange to hold a private key means a crypt holder trusts them with the security of protecting their crypto assets.
There is always the choice of taking custody of one’s own crypto in a hot or cold wallet.
Depending on the degree of comfort, philosophy, risk-tolerance, and amount, readers can make that decision for themselves.
Private keys are something that should never be shared.
And if one eschews their own private wallet for a custodial solution like an exchange, seek out a time-honored, trusted, dealing in large volume, and highly functional exchange instead of a marginal, half-baked exchange.
