Mad Hedge Bitcoin Letter
June 7, 2022
Fiat Lux
Featured Trade:
OVERSIGHT IS HERE)
(BTC), (FINRA), (CFTC), (DMO), (SEC)
Responsible Financial Innovation Act – that’s what they will call it.
Yeh, the Federal Government has seen enough of the sloppiness that masquerades as crypto infrastructure and they pulled the rug.
As many might know, there has been nothing responsible or innovative about fiscal matters at all lately with the Fed asleep at the wheel with hyperinflation.
Many of the talking heads like Transportation Secretary Pete Buttigieg continue to argue that more government spending doesn’t result in higher inflation.
So just imagine right now that crypto is about to go through the twilight zone of federal regulation where I am sure regulators will argue that layers upon layers of regulation are required to keep this asset safe and secure.
In short, this means higher costs and not just a few pennies.
Let’s get more into the weeds of the proposed crypto bill.
The bill is cornered by oversight from the Commodity Futures Trading Commission (CFTC).
The CFTC is overseen by The Division of Market Oversight (DMO) and I could easily see both of these regulators slapping two sets of their own unique fees for any crypto trade or account.
Next, it also gives “needed legal clarity” in how to handle customer holdings after the recent furor over customers’ tokens getting roped in with an exchange’s assets in the event the company goes bankrupt.
The administration has signaled it wants better custody arrangements in any crypto bills moving through Congress.
This won’t be free either.
Some sort of mechanism or escrow account will need to exist to make sure investors (in an uninsured asset class) doesn’t get dragged into a bankruptcy claim if an unregulated exchange goes under.
Also inserted, is language from a bill last year from Rep. Patrick Henry and others that sought to clarify the meaning of a crypto broker, especially hoping to protect wallet providers, software developers, and others from being snagged by certain tax reporting requirements.
This is the first step that will ultimately give regulatory access to the Financial Industry Regulatory Authority (FINRA) who forces all brokers to pass a series of tests to become licensed brokers.
It usually costs a few thousand dollars to go through these courses and these licenses must be issued by an official bank member and not some random LLC in the Cayman Islands.
There is specific language regarding oversight fees that would incur if the CFTC would monitor this asset class.
It’s anybody’s guess how exploitive these fees will be.
Lastly, comes the “innovation” part of the bill which to the Federal Government specifically means disclosure innovation.
Certain disclosures will be required to the SEC from companies raising funds through digital asset sales.
The approach also specifically gives SEC their chunk of change and a path to levy an SEC fee on the crypto industry.
As one might surmise, in totality, this will cost a lot and these proposals will need to meander through the congressional committees before it coagulates in its final form.
I will honestly say that the aggregation of debacles lately in crypto has shone a bright light on the gaps in the crypto industry.
They didn’t help themselves when they really needed to.
Crypto needs time the most, the time to develop itself as they see fit without 3rd party oversight. That chance has evaporated.
Just as disappointing, crypto has not participated in this latest bear market rally with high growth tech stocks and is down 5% this morning.
Disappointing all around for the crypto industry and this doesn’t help that we are staring at a crypto winter if crypto prices start to decouple with tech stocks.
There is a legitimate chance they might be left out of the recovery stage.
“I have millions of dollars, 20% of my portfolio is now in cryptocurrencies and blockchain.” – Said Canadian Businessman Kevin O’Leary
Mad Hedge Bitcoin Letter
June 2, 2022
Fiat Lux
Featured Trade:
(OFFLINE CRYPTO)
(BTC), (ETH), (SOL), (ADA), (XRP)
One of the first requirements to be anointed as a major cryptocurrency is to not be off.
This might seem highly intuitive, but many cryptocurrencies haven’t solved this one yet.
When a whole coin network is offline then the incremental investors look over to the greener pastures on the other side of the fence and ponder if it’s worth paying a higher premium for something that stays on.
Bitcoin can’t be turned off. Invest accordingly.
According to the Bitcoin Uptime Tracker, the Bitcoin network has been functional for 99.98742319836% of its lifetime.
I would consider that quite positive, even more so when I look at just what happened to altcoin Solana (SOL) which has been bundled routinely into the top 5 cryptocurrency conversation.
The Solana network has been plagued by a number of outages and it's been estimated that the proof-of-stake (PoS) blockchain has been down a total of eight times.
Each of these 8 times, the network suffers a massive loss of trust and confidence.
When an investor can’t get in touch with its capital on a network, that’s when full stop panic mode occurs.
It dumps insult to injury as the price has already tanked from $260 to $40 today.
Solana’s blockchain lost operational activity for over seven hours.
Solana’s development team has formally acknowledged some of the issues it was dealing with and how it “degraded performance.”
The team blamed “high compute transactions, which is reducing network capacity to several thousand transactions per second.”
Like many of the cloud companies plan for higher data usage by integrating more cloud data centers, the developers at Solana aren’t pre-emptively planning for bottlenecks.
That screams amateurism.
An investor must ask if this is the type of coin or network you want to put significant amounts of money on, and the answer is clearly no.
Only a fool would touch Solana even with its lofty $14 billion market cap.
Of course, with Solana going down again, the backlash has been relentless.
Many have joked if this is another Terra/Luna bankruptcy debacle even if Solana isn’t a stable coin.
Meanwhile, this gives credence to why investors should look to other coins such as ETH, XRP, and cardano (ADA).
Then there is the pure asset depreciation from being offline and SOL lost 9.9% in value against the U.S. dollar.
Coinbase also reported on Solana’s latest outage and noted that the exchange had to disable send and receives on the network.
Following last month's outage, one of Solana's recent improvements was supposed to resolve the network's congestion difficulties.
It’s not a secret that instead of a significant network update, the inverse has happened, and the Solana network issues have gotten worse.
Even worse, the repeated solutions appear to be mere stopgap measures with a high possibility of happening again.
These are terrible optics for a beleaguered crypto coin at a time when the entire industry is on the back foot.
The bellwether crypto coin Bitcoin has lost over half of its value triggering talks of a crypto winter.
Then mix in various implosions, developer mistakes, and high energy costs making crypto unprofitable to miners and there is a lot of negativity coalescing inside the industry.
In short, stick with the strongest cryptocurrencies namely Bitcoin and Ethereum, and don’t stray much further than that unless you are prepared to take a zero.
Mad Hedge Bitcoin Letter
May 31, 2022
Fiat Lux
Featured Trade:
(FOSSIL FUEL FIRMS TO THE RESCUE)
(BTC), (XOM), (MRO)
The next real long-term inflection point in the development of Bitcoin is the question about energy or bitcoin infrastructure.
I can’t help but notice the elongating list of crypto mining companies and energy producers collaborating and the knock-on effects will follow through.
This is highly likely a long-term benefit for the price and stability of bitcoin.
Like many things in corporate America, everything gets professionalized, specialized, corporatized, and if they are lucky, financialized as a product and resold to investors.
The usual result is a higher-priced last-mile product and in this case, it would be the price of one Bitcoin.
In 2021, ExxonMobil reported annual revenue of more than $285 billion with global daily production and is also working with a bitcoin mining company in North Dakota to turn otherwise wasted gas into energy for mining operations.
In August 2021, Exxon was already selling some gas to miners.
ConocoPhillips is also supplying gas to bitcoin miners.
Marathon Oil, a multi-billion-dollar oil company based in Houston, also powers co-located bitcoin mining operations with its gas.
American companies aren’t the only ones making headlines for their bitcoin-and-oil deals though.
Russian oil giant Gazprom has been planning and building its own bitcoin mining venture on its oil drilling sites since late 2020.
Bitcoin mining as an industry gains mainstream legitimacy as more traditional energy companies work with bitcoin miners.
Historically, bitcoin mining hasn’t been developed with institutional money and is mainly mom and pop outfits.
That also means it’s less efficient and less dynamic but has room to grow.
Just a few years ago, the concept of heavyweight names inking contracts with mining companies would be impossible.
Bitcoin mining is an energy infrastructure.
A future where every major oil producer is also a bitcoin miner — or at least operates a bitcoin mining arm — is an idea that has longevity and could become reality soon.
Particularly for the oil and gas industry, bitcoin miners continue to make inroads with more reported deals between these two industries.
The achievements that these partnerships represent would jump-start the crypto winter that has engulfed the crypto industry with many altcoins getting flipped into the dumpster.
The top fossil fuel producers, even if it seems like they are ridiculed by the climate change brigade every second, are incredibly powerful companies and if energy and bitcoin energy infrastructure are inextricably linked, it means bitcoin has staying power.
As many have noticed, fossil fuel companies are masters at milking an industry as they initiate buybacks and dividends in the face of “Putin’s” hyperinflation.
If Bitcoin energy infrastructure is embedded into the industry of the likes of Exxon and company, I believe the price of Bitcoin will be an outsized winner even if the price of oil goes to $200 first.
The overspill of profits could finally find its way into a new business of developing more efficient mining systems and embedding itself as the bulwark of crypto coin creation.
That will mean that fossil fuel companies will be able to throw more capital at developing Bitcoin’s infrastructure as a new standalone business as oil, at some point, retraces from its highs.
“Bitcoin mining is going to save the world.” – Said Canadian Entrepreneur Kevin O’Leary
Mad Hedge Bitcoin Letter
May 26, 2022
Fiat Lux
Featured Trade:
(HOW TO IDENTIFY CRYPTO SCAMS)
(BTC), (ICO)
Awareness of safety is definitely a must with crypto — that’s not a shocker with it being a brand-new asset that many have a hard time contemplating.
It’s true that it’s a lot to wrap your head around.
Cryptocurrencies are speculative by nature. They lack traditional fundamentals, and a certain leap of faith is needed to invest in it.
It’s not easy for investors to analyze and assign a value to, and that’s where I come in to try to make sense of it.
Crypto markets are also less regulated in general, so it's easier to get ripped off.
Market manipulation is the intentional effort to artificially influence or interfere with asset prices.
Typically, scammers manipulate markets to tip the scales in order to accrue an unfair advantage.
Let’s go through the list of tricks that could be played on you.
Spoofing is done by placing fake buy or sell orders, which are canceled before they're filled.
Scammers use fake accounts and bots to place large trades, giving other investors the impression that demand is either increasing or decreasing.
Front-running is transacting based on knowledge of future transactions.
For instance, miners or node operators can have insight into pending trades. They could then leverage their inside access to make profitable trades ahead of major price swings.
It’s critical that investors migrate to voluminous, reputable, and transparent crypto exchanges and not try to get fancy with the middleman.
This makes a massive difference.
Another scheme is the pump and dump where fraudsters convince people to buy in, crypto schemers spread misleading information about minimally traded coins through social media.
They signal that a 10-fold increase in shares is imminent triggering hot new money then comes the dump.
As momentum builds, other investors cash in and drive the price up, while the schemers cash out and make a run for the exit.
Another deviant scheme is when crypto developers abandon a project but keep the funds raised from investors.
Bad actors can list a new token on a decentralized exchange, pair it with a legitimate cryptocurrency, and drum up interest on social media to lure in investors.
They often pay for known celebrities to pass it off as a legitimate asset.
The whitewashing of the asset fools a bunch.
Traditional hacking and theft targeting crypto wallets can be a digital or physical device.
These wallets have keys — both public and private. The former is a public address that allows crypto to be deposited into the wallet, similar to how routing and bank account numbers enable direct deposits.
The latter is like the password to an online banking platform. Whoever has access to that password can control the funds within the account.
Just as you wouldn't share your credit card number with a stranger, keep your private keys somewhere safe. Scammers can hack accounts and withdraw funds — and they'll employ various methods to get investors to reveal their private information.
Lastly, being scammed via initial coin offering (ICO) is happening less and less as many cryptocurrencies do a better job establishing their credibility.
This is the crypto equivalent of an initial public offering (IPO) for a stock.
Through an ICO, companies can raise money to fund a crypto development, such as a token, app, or relevant service. In exchange for pledging funds, the investor receives an issuance of newly minted coins.
Similar to rug pull, ICO scams collect the funds of early investors only to abandon the project shortly after.
An easy way to recognize an ICO scam is to review the company's whitepaper. This document details the specifications behind the project, including strategy, goals, and market analysis.
If the company doesn't provide a whitepaper, that's a red flag.
Decentralized assets are not all unicorns and parabolic trading.
There is an ugly side to it devoid of standardized oversight and investors must stay on the lookout for these easily avoidable pitfalls.
Always double-check the broker, asset, and environment in which trading occurs. Never take anything for granted and err on the side of caution.
