Mad Hedge Bitcoin Letter
May 12, 2022
Fiat Lux
Featured Trade:
(LUNA BLOWS UP)
(BTC), (ETH), (LUNA), (UST), (MSTR)
Altcoins won’t age well and 99% of them will vanish before our eyes. The way in which they exit also may or may not cause financial contagion.
We need to stop the arrogance already.
Let’s just default quickly to Occam's razor and back of the envelope math shows that we can’t have 1,000’s of these crappy digital currencies masquerading as real ones.
We need a few good ones and that’s it.
Sure, we have tried and tested Bitcoin (BTC) and Ethereum (ETC), but these other worthless pieces of code are hawked by mostly snake oil salesmen who are looking for a quick buck by preying on the naïve.
So don’t get greedy.
I hear many crypto enthusiasts tell me their strategy is to buy the cheapest and most obscure crypto possible and hope for a moonshot.
That’s a fools’ strategy and the money is better donated to cure world poverty.
So what am I really talking about?
The supposed stable coin UST and LUNA which was supposed to peg its value to the US dollar broke in a severe way as the algorithmic that was intended to uphold this balanced ratio went haywire.
10’s of billions of real dollars were wiped out from investors as the genius algorithms messed up in a big way.
This contagion has had the knock-on effect of dragging the price of Bitcoin and Ether down as many might assume a UST or LUNA holders might need to sell BTC to get some liquid currency.
It’s been a giant risk-off move for crypto in every nook of the asset class and even worse, a massive loss of confidence for the industry as a whole.
This was a gift to the detractors who say that crypto is run by a bunch of idiots or charlatans or something of that ilk.
The value of LUNA plunged on Wednesday as Terraform Labs creator Do Kwon laid out a plan to save its sister token, the stablecoin TerraUSD (UST).
In the last 24 hours, roughly $10 billion have been drained from LUNA. Its price has fallen 93% in that time from $32 to $2.25 per coin, with the price changing rapidly each minute. After skidding to a low of 30 cents per coin, UST has ratcheted up more than a quarter to 64 cents.
Down 30% in the last day after breaking its essential $1 peg over the weekend, UST trades at above 64 cents per coin while Terra’s LUNA token rebounded 61% to $2.25 after dipping below $1 at 9 a.m. New York time Wednesday.
In the first sniff of market turmoil, stablecoins have failed miserably and it also incentivizes government regulation to shut them down.
This of course gives ammunition to SEC Chairman Gary Gensler to move stablecoins under his jurisdiction.
He would kill the development in a second by pelting it with so many fees, bureaucracy, delays, hidden regulations, and obstructions that stablecoins will be swept into the dustbin of history.
The contagion has led to Bitcoin falling lower than $29,000 and we are getting dangerously closer to the $21,000 threshold where MicroStrategy (MSTR) will get a margin call.
Sell every and any rally in Bitcoin, this loss of confidence can’t be understated and crypto has failed miserably to attract the incremental buyer in a rising rate environment.
Don’t catch a falling knife.
“Most Americans agree that technology is going to eliminate many more jobs than it is going to create.” – Said American entrepreneur and former presidential candidate Andrew Yang
Mad Hedge Bitcoin Letter
May 10, 2022
Fiat Lux
Featured Trade:
(ROCKING THE BOAT AT MICROSTRATEGY)
(MSTR), (BTC)
If Bitcoin (BTC) drops to $21,000 hold tight for a tsunami of forced selling that will cause BTC to crash.
There is a high likelihood of that happening as the bitcoin proxy traded on the NYSE software company MicroStrategy told us about this stunning news during their earnings call.
MicroStrategy CFO Phong Le admitted the company will be forced to pony up more Bitcoin to back its loan with Silvergate Bank.
CEO Michael Saylor looked like a genius when BTC was roaring, but not so much now as investors head for cover as indiscriminate selling takes hold of all risk assets.
Shares of MSTR are down around 75% in the past 6 months.
Ironically, the company shares are underperforming BTC but that is the least of the company’s concerns as they head for uncharted territory and could be forced to tap the debt market at a time when borrowing costs have shot through the roof.
Part of the quagmire here is that the CFO has been financing these Bitcoin purchases with borrowed money and the CFO will need to calculate how much more debt they can handle while accommodating the interest payments for the debt already borrowed.
It's easy to see this going from bad to worse as high-interest debt on top of crushing debt is a recipe for disaster and lenders would have sniffed this out.
I mention this $205 million loan from Silvergate Bank to buy more Bitcoin because the loan was and still is INTEREST ONLY.
Saylor has greenlighted this highly risky strategy and if MSTR continues down this terrible vein of form, they might not have the money to pay back the principal at the end of the loan.
Le claimed that the company holds “quite a bit” of uncollateralized Bitcoin that it can use to support its loan should the need arise. He also noted that Bitcoin is highly unlikely to touch $21,000, a level that was last seen in late 2020.
In the first quarter of the year, Microstrategy purchased $215 million worth of Bitcoin at an average purchase price of $44,645 per coin, bringing its total holdings to 129,218 Bitcoins acquired at an average price of $30,700 per coin, or for $3.97 billion, according to SEC filings. At current rates, the company’s Bitcoin stash is worth over $4.2 billion.
Le likes to say we are nowhere near $21,000 but it's slowly muddling itself down as the macro conditions are the worst in a generation forcing investors to ditch speculative assets like Bitcoin.
Unfortunately, many of these events came too early for BTC and BTC needed time to develop.
Our unfavorable backdrop includes items such as 2 unforced policy errors by the US Central Bank, military conflict, hyperinflation, spiking energy costs, and supply chain problems.
None have been solved and any or all could get many times worse.
The big winner here has obviously been the US dollar, short Bond traders, and energy stocks.
At the end of the day, BTC only goes up when fiat is poured into its asset, and the challenges we face now make BTC not as attractive as it was when the Central Bank printed $10 trillion and a good chunk of that went into Bitcoin.
That’s why we saw Bitcoin at $65,000 in November 2021.
The intense tightening of liquidity we are experiencing now means those spigots have run dry and BTC is the main loser.
BTC is down to $31,000 and the drop from $10,000 was rapid, if that happens again, BTC will be at $21,000.
MSTR could be forced to dump their BTC which would take the digital gold to $15,000.
“Culture eats strategy for breakfast.” – Said CEO of Microsoft Satya Nadella
Mad Hedge Bitcoin Letter
May 5, 2022
Fiat Lux
Featured Trade:
(COSTS SPIKE FOR NEW CRYPTO-SUPPORTED INTERNET)
(BTC), (NFT), (FB), (DAPP)
Advanced technologies such as cryptocurrencies and (non-fungible) tokens will play a leading role in Web 3.0, since they reflect a sense of ownership in decentralized blockchain networks.
Much of this is totally new and the programming and design behind it won’t be able to mesh well with what happened before.
Think of the latest hype of NFTs, or non-fungible tokens, which shifts the ownership of a certain form of money, which is the case with cryptocurrencies, to the ownership of many other digital assets, from artworks to memes and tweets.
Internet 2.0 programmers won’t be able to just seamlessly integrate into this new language and help develop this new world.
Web 3.0 enables the spread of cooperative governance frameworks for formerly centralized products.
There are few qualified Web 3.0 developers and they are able to ask for astronomical compensation for their service.
This won’t stop anytime soon as companies like Meta (FB), who have cash, are willing to throw money at this limited pool of developers.
There are many costs involved in being a Web 3.0 developer. The initial start-up cost is typically high, but this is offset by the increased flexibility it affords. As you build your portfolio of Web 3.0 projects, the costs will gradually decrease.
This technology would make the web more transparent and user-centric, while also opening the door for the blockchain. In the future, websites and apps could trade cryptocurrencies and other coins.
Becoming a Web 3.0 developer is not easy, but the rewards are well worth it. Those who have mastered the basics of the new framework can build an excellent website.
The cost of learning to become a Web 3.0 developer varies, but can be extremely high. After all, it takes a lot of time to build a successful business on this technology. There are also plenty of challenges involved with it.
The technology is not yet mainstream, but a handful of projects are attempting to build channels through the interoperability of blockchain networks.
You must have an understanding of web development, understand the trade-offs between different types of technologies, and be able to see trends and future directions in the industry.
A free course on Blockchain and cryptocurrencies can help you master the skills you need. Harvard University’s CS50 course will teach you the basics of computer programming, including data handling and Blockchain. Blockchain is crucial for Web3.0 developers because it is not only related to crypto coins, but can also run cutting-edge DApps and full backends.
The Web3.0 technology is a fast-growing field, and it is much like the dot-com era in the early 2000s.
A career as a Web3.0 developer is highly likely the best type of career to focus on for anyone getting into tech these days.
The risk-reward is skewed so much to the reward that many “full-time” developers are setting their workweeks at only a maximum of 24 hours per week or three days.
Not only that, web 3.0 developers are asking for starting salaries of $200,000 per year and if a company is interested in adding a 4th day of work, then that starting salary spikes to $300,000.
Remember these sums aren’t just it, these developers require a good amount of stock options.
Lastly, these web developers are refusing any job as “independent contractors” and won’t look at any offers that are anything other than a full-time employee with those implied rights.
Even under these terms, these web 3.0 developers have a line outside the door of companies willing to pay this type of compensation to get them in the door.
Web 3.0 is proposed to become the next iteration of the internet, but right now, the only people winning in this race are the people putting it together.
Until this new version of the internet comes online, companies won’t be able to fully monetize or onboard consumers.
This of course is important because crypto will be the medium of payment in this internet 3.0.
The lead up to that moment means that companies will need billions just to get a seat at the table.
“When we launch a product, we're already working on the next one. And possibly even the next, next one.” – Said Current CEO of Apple Tim Cook
Mad Hedge Bitcoin Letter
May 3, 2022
Fiat Lux
Featured Trade:
(MINERS CHOKE ON HIGHER ENERGY COSTS)
(MARA), (RIOT), (CAN)
