“I see Bitcoin as ultimately becoming a reserve currency for banks, playing much the same role as gold did in the early days of banking. Banks could issue digital cash with greater anonymity and lighter weight, more efficient transactions.” – Said Computer Scientist Hal Finney
Mad Hedge Bitcoin Letter
November 9, 2021
Fiat Lux
Featured Trade:
(THE METAVERSE IS THE ULTIMATE CRYPTO CATALYST)
(BTC), (ETH)
Lately, the chatter of the “metaverse” has run riot even some coining it as the “Internet 3.0.”
Partaking in this upgrade of the internet are ostensibly the prodigious firms of the West Coast which many of you already know.
Many of those stalwarts have nothing to do with crypto, but I must bring them up because there is an uncanny correlation between the future project of the metaverse that intersects with the fortunes of crypto.
The metaverse will deliver an augmented reality experience that is habitually billed as an experience exceeding physical reality.
In this realm, digital borders most likely won’t exist.
It will be absent of free-flowing US dollars and be replaced by a currency that doesn’t pertain to a sovereign nation.
A digital currency must embed in a way that facilitates the smooth functioning of the metaverse and it is highly likely that currency will be a cryptocurrency or various types of cryptocurrencies.
The rules of the realm aren’t written up yet, but I firmly visualize a deep intersection between cryptocurrencies and the business of the metaverse.
For example, instead of visiting the official NFL website and clicking on their official shop, I’ll be able to walk over to a 3D NFL shop in the metaverse and view the apparel myself then pay directly in crypto.
The goods will then be shipped to my physical address in the real world. No more flipping up a mobile or computer screen and entering www dot blah blah blah.
Another transformative issue, if you believed that personal data and the protection of it was a do or die issue now, then wait until the metaverse exists and we are represented in avatar form inside of it.
Virtual reality has gotten miles better in the last 10 years and it's all part and parcel of priming this technology to insert it into the metaverse.
For information to be secure and decentralized, we will need to harness the power of blockchain technology which cryptocurrencies run on.
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
There is no protection of personal or financial data on a virtual reality platform if there is no blockchain technology.
Engaging with other people in a virtual environment is going to open a can of worms and expose people to hackers and it’s the developer’s responsibility to create a secure environment.
People will not partake if it’s the status quo of modern-day data breaches and minimal punitive fines followed up by little legislation to prevent this from occurring again.
Blockchain enables not only instantaneously confirmed information but also enables these transactions to be cryptographically secured and protected.
Compared to the future of money, our antiquated system of wire transfers, paper checks, and “know your customer” forms seem idiotic when we have the technology for so much more.
Crypto transactions are the panacea to all these questions.
Even with price volatility that has been engulfed by bitcoin and other decentralized cryptocurrencies, the rise of stable coins and central bank digital currencies (CBDCs) means that the ability to conduct transactions via crypto has never been simpler.
I can easily envision some sort of metaverse stable coin partially pegged to a basket of fiat currencies.
Clearly, technology and cryptocurrency are at a fork in the road where major Silicon Valleys are going to move mountains to make this work as they see fit.
Moving mountains means pouring gobs of capital into improving the technology of cryptocurrency and the ecosystem that integrates with it.
The investments coincide with major capital earmarked for metaverse structural development with several companies spending $5 billion per year.
As we receive each incremental upgrade from Ethereum, Bitcoin, and the other alternative coins, it’s literally a fight to the top to see who will be the fittest to first deploy itself into the metaverse and carve out a massive role in the future of the digital money.
If you believe that these headliner cryptocurrencies are part of the metaverse formula, they are highly likely to appreciate 10X by the time the metaverse is ready to rock and roll.
“The Federal Reserve simply does not have authority to supervise or regulate Bitcoin in any way.” – Said the United States Secretary of the Treasury Janet Yellen
Mad Hedge Bitcoin Letter
November 4, 2021
Fiat Lux
Featured Trade:
(WELCOME THE CONCIERGE BANKER TO THE CRYPTO INDUSTRY)
(SI)
If you want to insulate yourself from the daily gyrations of cryptocurrency but still benefit off the massive phenomenon known as cryptocurrency, then I have the perfect stock for you that trades on the New York public markets.
You don’t even need to open a cold wallet on a crypto exchange to partake.
Silvergate (SI) provides fiat-money services for the world’s biggest cryptocurrency exchanges and financial institutions.
It’s been the personal banker for the digital currency industry for eight years already.
So I just want to remind readers that this isn’t just some flash in the pan type of operation and they possess an official bank charter.
Many people have been coming around to the conclusion that digital asset — this digital currency market is here to stay.
It's not going away.
What does that mean for Silvergate?
Well, first, the stock is up over 600% this year as the price of Bitcoin has exploded to the upside.
Second, SI customers are going to maintain deposits on Silvergate’s platform because of the health of the industry and the services SI provides in order to take advantage of the opportunities they hope to pursue.
It’s satisfying that a stronger balance sheet coincides with a net interest income up 24% compared to last quarter and up 99% compared to the same period last year.
SI’s moat is as strong as ever.
The Silvergate Exchange Network (SEN) is a division that facilitates USD transfer between cryptocurrency exchanges and institutional investors.
And if you look at the SEN activity in the third quarter, its conservative leverage and skyrocketing consumer demand make the stock an ideal buy.
Let’s peel back the layers a little.
One of the great things about the Silvergate Exchange Network, the platform that they have developed, is the network effect and the fact that, as they onboard customers and continue to add products and services, those customers just become stickier.
Since the accumulation of more customers, there is a natural kind of lag between adding a customer and when they get their funding and start using the SEN and other SI products.
Usually, it takes about 1 to 2 quarters to ramp up their product usage and so I do expect the next earnings to be great.
But the real story this past quarter is the continued growth of SEN Leverage.
And in a market that was, you look at the bitcoin price throughout the quarter and you look at the trading volumes which correlate to maintaining a high average deposit, and then start to deploy those deposits in SEN via higher leverage.
Obviously, when the price of crypto is higher than the previous quarters, there is more capital flowing through the SEN.
The cherry on top is the leverage which this bank can supercharge profits — rinse and repeat.
The company currently provides such services to 93 cryptocurrency exchanges and 771 institutional investors such as hedge funds.
Noteworthy clients include Binance.us, Coinbase, Fidelity Digital Assets, PayPal, and CME Group. It also has 360 customers engaged in activities such as crypto mining or building decentralized finance services.
Like any other bank, the company lends out money while only using a portion of its deposit as collateral in a process called fractional reserve banking.
With the rise of the $172.15 billion decentralized finance (DeFi) industry, there are now more opportunities than ever for investors to buy and hold cryptos and earn fixed income with them.
As a result, expect heightened demand for Silvergate’s fiat-crypto services as the crypto and DeFi industries develop.
The stock is a little long in the tooth, but it just demonstrates the belief in the industry and SI has a massive head start over traditional banks who are hesitant about diving deep into the crypto space and funding crypto.
Naturally, that is the caveat about this stock, and banking is not a monopoly which could easily see the JP Morgan’s and Morgan Stanley’s infringe on SI’s turf.
A wave of competition could see net interest income diminished, SEN damaged, and deposits lessened, but I don’t anticipate a full steam ahead type of pivot into crypto from the traditional banking system because their CEOs are not on board.
These CEOs have shown they are willing to go as far as “fintech” but don’t have the stomach for funding crypto.
Old habits die hard.
Use large dips of 10% to add to this unique banking name.
“Worse than tulip bulbs.” – Said CEO of JP Morgan Jamie Dimon when talking about Bitcoin
Mad Hedge Bitcoin Letter
November 2, 2021
Fiat Lux
Featured Trade:
(ISSUANCE CONSTRAINTS ELEVATE ETHER)
(BTC), (ETH)
We are at the point where sure Bitcoin will go higher and I fully expect it to be close to $100,000 next year, but Ether will outgain Bitcoin by percentage points.
And it’s no shocker that Ethereum (ETH) has already climbed above $4,000 for the 3rd time this year.
Talk about a 2-foot putt.
In the last five months, the supply of ETH has shrunk meaningfully from 22 million tokens to 18 million today.
Dwindling supply intersected with higher demand means higher prices no matter what asset you’re talking about.
The tape shows that retail and institutional money piling into ETH in the last few months means fewer sellers looking for short-term smash and grab type of profits.
I do believe this is a legitimate reason why we are seeing the volatility of crypto settling down the last month as nobody is willing to take profits when they know more profits are on the table for next year.
In total, the Ethereum network has seen its first consecutive week of negative supply issuance as frothy markets drive persistently high transaction fees.
The London upgrade introduced a burn mechanism into Ethereum’s fee market in early August, meaning a small quantity of Ether (ETH) has since been destroyed with every transaction executed on the network.
The Ethereum London Hard Fork upgrade is a set of five improvement proposals.
Unlike Bitcoin, there is no limit to mining Ether coins, which makes it an inflationary cryptocurrency which is why development understood installing a deflationary mechanism would do wonders for the price of ETH.
Miners are paid new coins for validating each block of information. They are compensated with transaction fees that are paid by users.
One of the biggest benefits of the London upgrade is that it has enabled the Ethereum network to handle a higher transaction load per second. It will help with scalability and tackle the high transaction fees — one of the biggest complaints of small investors or those who make frequent transactions.
Since the London upgrade, more than 724,400 ETH worth $3.1 billion has been permanently destroyed.
Truth be told, ETH has not experienced lower transaction fees, or gas price.
Yet, the upgrade has not increased gas prices but has made them more predictable and stable.
This has led to a smoother network overall during peak hours.
Transaction volumes are 400% higher since the same period last year and Ethereum needs to handle the higher workload to legitimize itself into a solid cryptocurrency.
The inability to function properly as a network could cause a massive sell-off that would spill into more mature Bitcoin.
ETH simply won’t be attractive relative to other crypto if they can’t put a lid on transaction costs.
The reason equities are so attractive is not only because they are fully insured by the federal government, but because liquidity and costs are minimal.
Thwarting this underlying issue of a bloated supply, six times larger than Bitcoin's, should act as a major catalyst in awakening the price action of ETH and that’s what we are currently seeing.
In total, there's been a 57% reduction in cumulative ETH issuance to date and it’s hard for me to envision a scenario in which ETH is not over $8,000 per unit next year.
Generally speaking, after the transition to proof of stake, the supply of ETH will decline 2% annually.
The scarcity value that will hit next year will easily cause the asset to double quickly.
I predict a rapid run-up in ETH prices leading up to the December debt ceiling triggering new all-time highs in BTC and ETH.
Jump on the bandwagon while it’s still rolling!
“Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” – Said Co-Founder of Ethereum Vitalik Buterin
