“Bitcoin will do to banks what email did to the postal industry.” - Said Swedish information technology entrepreneur and founder of the Swedish Pirate Party Rick Falkvinge
Mad Hedge Bitcoin Letter
December 16, 2021
Fiat Lux
Featured Trade:
(ANOTHER WAVE OF CRYPTO ADOPTION IS COMING)
(BTC)
Wall Street is finally getting the message.
On the horizon is crypto becoming an investment-grade quality asset and many hedge funds and private equity funds aren’t risking missing the boat.
This translates into more attention given to digital assets from institutional managers than ever before.
Around 35% of hedge fund managers believe that crypto in one form or another is the “can’t miss” asset of the next 10 years.
This is a seismic shift in the attitude of privately managed funds, and it was only last year that crypto was deemed an “asset of interest.”
But with many things in life, people become conditioned and 2021 will prove to the mainstream that this asset is not going anywhere.
What can you expect from now on?
The unadulterated “professionalization” of crypto through and through.
The expertization of the cryptocurrency ecosystem will translate into a more robust infrastructure that will offer many types of new exchanges and DeFi technologies that will segue us into the internet 3.0 or better known as the metaverse.
We are still quite far from being a “traditional” asset, but every little bit helps.
There will also be widespread encouragement at the Federal and State level for a clearer understanding of how crypto will be regulated.
There is still a great deal of confusion, and I am not only talking about Congress whose members hardly understand what the digital gold is about.
But I can say with conviction that we are resolving bottlenecks and it’s true we won’t get fully scaled mainstream adoption next year, but at the conversational level, many are looking out for the next opportunity.
Whether they will jump into it guns blazing is the next issue we will need to consider.
This all stems from investors hoping to participate in the “first mover” effect which is often the path from rags to riches.
Many institutions are now forming new crypto divisions inside the money funds they manage.
Last year, Tudor Investment Corp. founder and Chief Investment Officer Paul Tudor Jones gained the attention of crypto enthusiasts after arguing in an investor memo that bitcoin can serve as an inflation hedge.
Access to digital custody solutions has been a catalyst to manager interest in crypto.
Internal control reports from these custodians, assessments that have been evaluated by independent parties, have helped firms better weigh regulatory, business, and other risks associated with crypto assets.
New regulations will create another wave of institutional money into crypto as a group of managers are on the fence and waiting for the next level of clarity.
The right regulatory framework would allow for even more investment opportunities.
In general, large institutional managers are the most geared towards crypto investments which I would classify as funds with over $10 billion.
There still is much headway to make as around 15% of hedge fund managers have allocated towards crypto and about 10% of private equity funds.
Of these funds that have participated in crypto, it’s highly common to see only 1-5% of their capital invested in the crypto space.
Naturally, this will grow as crypto starts to pose a more attractive financial profile than stocks or fixed income.
Among management firms detailing plans to participate in crypto, nearly half said they would invest directly into cryptocurrencies, and half expect to allocate to crypto derivatives.
Ultimately, the potential return on capital is the driving force behind the desire for institutional money diving into this newly established asset.
The maturation phase will continue into 2022 and missing out on this industry is a suicide mission for private money and these managers know that.
“I trust bitcoin more than I trust my bank.” — Said Founder and Managing Director of the Boost VC Accelerator Adam Draper
Mad Hedge Bitcoin Letter
December 14, 2021
Fiat Lux
Featured Trade:
(CRYPTO IS RESTING)
(BTC)
The more speculative assets won’t be able to reverse themselves in the short-term as the Fed has singlehandedly crashed the Santa Claus rally that was on the verge of breaking out at the beginning of the month.
Meme stocks, technology growth stocks, and yes, Bitcoin (BTC) have been main participants of the repricing occurring in the risk markets as we condition ourselves to a new narrative of rising rates.
Moving up the timeline of rate rises has in effect, crushed the performance of cryptocurrencies and the inflationary headlines have become worse in the past week.
This time is important because we will be able to understand how cryptocurrency behaves during a tightening cycle, and there isn’t much recent historical data to compare.
The last time the Federal Reserve initiated a path of tightening monetary policy, following a period of easing, in 2015, the price of Bitcoin was $465, or about a hundredth of its current price.
Disappointingly, Bitcoin hasn’t been the haven for investors in times of risk-off trading, boding ill for the short-term projection of higher Bitcoin prices.
It looks that we will need more time to drag out these hawkish headlines that will suppress the price of crypto before we go higher again.
Today did nothing to help Bitcoin with wholesale prices spiking 9.6% from a year ago, the highest level going back to November 2010.
Bitcoin’s place within financial markets has still not been fully decoded, but how it reacts in the coming days is likely to tell us much more.
As a reminder, the Fed Funds Rate is the rate that banks charge each other to borrow “reserves” overnight, and it is currently 0% – 0.25%.
In the 1970s, it took bold political maneuvering to endure that much economic damage when the Federal Reserve attempted to choke off inflation by repeatedly raising the Fed funds rate until it hit 21%.
It won’t be possible for the Fed to raise rates that fast or that much without triggering an economic recession.
In mid-June, the Fed talked about the possibility of raising rates almost 2 years from now, and stocks corrected.
The truth is that our debt servicing responsibilities are so onerous that the Fed is trapped in a corner.
Total Federal Debt is about $28 trillion and growing, while State and Municipal debt is approaching $4 trillion.
The interest paid by the Fed for its debt this year will be just under $400 billion.
If rates returned to levels not seen in the 1990s, the Federal government will not be able to service the debt and will need to claim bankruptcy which would be the event of a lifetime forcing an avalanche of capital into Bitcoin.
There is about $11 trillion of corporate debt in the U.S., and this may be the biggest headache of all.
The heavy reliance on cheap capital and government help means that over 600 zombie firms aren’t growing but exist to payout employees and shareholders.
Investors know this too and that is why stocks drop every time the mere mention of higher rates surfaces in the press.
The Fed is most likely to find excuses as to why 2022 is not actually the ideal time for rapid interest rate rises but we will get the minimal rises required for the Fed to save face.
My overarching point is that Bitcoin will need to go through a sideways correction for speculative assets to absorb these 180-degree pivots in monetary policy.
The hawkish pivot is still playing itself out and we have had to minimize our trading portfolio with December looking like a washout.
I believe we must continue down the path of a Japanization to protect the health of the US economy. This will almost certainly contain bedrock policies as continued low rates, anemic growth, and massive government intervention.
These trends will underpin the rising price of crypto.
Hyperinflation is great for the price of Bitcoin, but when the Fed looks seriously about killing it, the crypto market gets spooked.
This will pass through.
“What value does cryptocurrency add? No one’s been able to answer that question to me.” — Said US Investor Steve Eisman
Mad Hedge Bitcoin Letter
December 9, 2021
Fiat Lux
Featured Trade:
(CRYPTO REGULATION IS FAR AWAY)
(BTC),
Indecision.
That’s what you get when Washington tries to wrap their brains around crypto regulation.
Cryptocurrency industry executives appeared before Congress to debate whether crypto technologies hold a use case for the future.
A Republican even brought up whether politicians “know enough about this technology to have a serious debate.”
So we are talking about really low levels of crypto comprehension here.
It almost reminds me of the Senate discussions on Facebook years ago when government officials failed to understand what digital advertising was or how Facebook made money.
It was something of that sort, but of course, with a different asset class altogether.
At least Facebook dealt in terminology that was closer to what Congress could understand.
Some Democrats at the hearing couldn’t make a decision about whether crypto is an inherent good or bad.
I feel that this could be the biggest threat where Democrats pit crypto against the US dollar and see it as a necessary evil to take down.
No wonder Bitcoin had a slightly down day in the crypto market as the net net of the talks was consensus that this is going to take a long time to get any meaningful victories and Congress barely knows what this is.
There is nothing smash and grab about this.
Everyone wants their piece of it.
It’s no coincidence that California has the highest income tax regime out of any state and let’s hope Democratic politicians don’t take that type of attitude to crypto.
We are not talking about technical questions here.
This is a $3 trillion market and it’s no joke.
A few Republicans were highly laissez-faire in nature during talks and proposed having minimal regulation realizing not to kill the goose that lays the golden eggs.
The argument revolved around making sure America was the heart and center of the future crypto industry.
Readers should remember that China banned crypto and expelled their crypto miners who had to flee to Texas and Kazakhstan.
China has made its decision that it won’t partake in any upside to the crypto industry.
A widely accepted principle of modern politics is that the American right loathes regulation and that Republicans will do everything in their power to get rid of as much government as possible.
Ever since the Reagan Presidency, Republicans have built this anti-government narrative, claiming that government crushes personal freedom, outsources jobs, and sabotages economic growth.
If Republicans flip the house in 2022 during the mid-term elections, crypto regulation will most likely be put on the backburner for good.
I don’t see any deal breakers coming our way, but certainly, the indecision during this meeting caused a dark shadow over the direction of crypto even if for a split second.
It was a reminder that crypto isn’t the panacea for all evils.
Even if nothing gets decided now, but down the road something does, it would be something more than insanity for Congress to kill a $5 trillion or $10 trillion industry by the time they can get around to destroying it.
The silver lining in the short-term is that investors will keep pouring capital into crypto-based and blockchain investments and technology like the metaverse will still get built with crypto tokens being the heart and central to a metaverse payment system.
None of that will get shut down for years and like many other industries in America, this just might get too big to fail, maybe gift in a few or several bailouts along the way as well ala the banking sector.
Remember, this still is America!
Maybe I am being a little too cynical, but remember that Facebook and its blatant and brazen theft of data business model just need to pay lip service to Congress during Senate hearings once in a while and they are good to go.
Crypto does nothing nearly as terrible as Facebook.
And Facebook is still the leader in creating the Metaverse after all of that.
Congress still hasn’t done squat and I can easily see crypto following the same type of game script.
Get ready for the same old story, crypto executives and politicians sitting within a 4-wall room agreeing that something needs to be done but without creating deadlines or any call to action.
Long term this is great for crypto and there will be no meaningful regulation for years.
Crypto CEO’s to Congress: Regulate us, but don't ‘shoehorn’old rules on new assets
