Mad Hedge Bitcoin Letter
September 7, 2021
Fiat Lux
Featured Trade:
(RECORD-BREAKING INFLOWS)
($BTCUSD), ($ETHUSD), (GLD)
When an investor like John Paulson buys gold and throws shade on Bitcoin, you know they know that bitcoin is in the process of disrupting gold and overtaking the store of value mantle.
And now, just last week, Bitcoin breached $50,000 for the second time in two weeks showing the resilience of a wild mongoose.
At what lengths will the old guard go to downplay this legitimate asset class?
Hedge fund manager John Paulson made $20 billion predicting the downfall of the US housing market in 2008.
So now he’s predicting cryptocurrencies will “go to zero” — just because he made hay in the financial crisis, will he look stupid if bitcoin goes to $100,000?
Talk is talk — nothing more than that.
“Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies.”
Bitcoin launched on January 3, 2009, he speaks like he has no idea about this, so does he mean the “exuberance” has been happening for the last 12 years and he’s still waiting for it to wear off?
Despite Paulson’s less than ideal stance on crypto, he said the short-term volatility of the digital asset makes it too risky for him to short, or place bets against.
Paulson continues to say, “Ultimately the price fluctuation has to do more with the relative supply of the coins.”
I would correct Paulson by noting that the supply situation is just only one of many drivers of higher bitcoin prices.
The more “experts” that chime in shouting down crypto assets, the worse they look, as new sets of millionaires and billionaires get minted daily.
Retail buyers are thirsting for percentage growth while bitcoin reigns supreme, it has relatively stable growth while there is exponential growth happening on Ethereum.
That’s what really hooks their eyeballs.
Paulson also neglects to say where retail traders can find yield in this world.
He might even recommend loss-making gold trades since he’s gotten it completely wrong the past year.
Paulson’s hard line against crypto stands in stark contrast to many of his hedge fund bros who have now embraced Bitcoin and shelved their relentless criticism of it.
The biggest takeaway from Paulson is that he is not willing to deploy capital against bitcoin, meaning he acknowledges that it can go up significantly from here and he is scared to lose money by shorting the asset.
I would not advocate holding this asset until death and even the early adopters trim their bitcoin positions on huge spikes — this is prudent risk management.
Readers need to remember that these “pros” like Warren Buffet and Paulson missed the boat on bitcoin, so they are incentivized to criticize the asset by delegitimizing its very existence.
This is a simple and garden variety manipulation tactic that is easy to call out.
Who knows…maybe in 10 years, all the crypto trillionaires will start to peddle out the reverse theory that stocks and fixed income are not assets as well!
I have seen crazier things in my life.
For some top trading shops, the volatility in the price of crypto is seen as a godsend in order to make a fortune from price arbitrage.
Steve Cohen’s Point72 Asset Management is working on launching crypto-focused trading funds. And Israel Englander’s Millennium Management has begun trading crypto derivatives. Traders like Paul Tudor Jones and Alan Howard have also taken stakes in cryptocurrencies.
Including Paulson, all of these traders made fortunes betting on other asset classes, therefore, it’s really not certain if they have spent more than two seconds looking into what crypto is about.
The recent data points are snowballing at the right time, such as Bitcoin IRA, an investment platform that aids retail investors in gaining crypto exposure in IRA retirement accounts.
This platform experienced “record-breaking inflows” of new accounts over the previous month.
Currently, Bitcoin IRA has close to 120,000 client accounts, with approximately $2 billion in assets on the platform.
The swell of retail investors opening new accounts — especially for tax-advantaged IRA accounts — is an indicator of how interested investors are as they use regulated markets to leverage bitcoin.
The median Bitcoin IRA account holder possesses 43% of their portfolio in bitcoin, 27% in Ethereum, and the remaining 30% in more remote cryptocurrencies.
The company will double its crypto offerings in the fall, and I can tell you that everyone I talk to, from brokers, market makers, and wealth management service providers, are doubling and tripling their cryptocurrency services this fall.
What you are seeing at Bitcoin IRA isn’t an anomaly.
It’s been in the price action that the gyrations of bitcoin have been smoother lately and we aren’t seeing 10% drawdowns in a day like we did before.
The longer the price action shows continuity, the more investors will feel comfortable placing large amounts into different coins as well as the bellwether bitcoin.
An avalanche of data points shows more efficacy, higher volume, and broad-based adoption as Bitcoin crested above $50,000.
Granted, it won’t be the last time that crypto is talked down, but the problem is every time these guys do it, they look out of touch by the day.
John Paulson made his fortune betting against subprime mortgages at the peak of the 2007 credit bubble and the evidence is out there that he simply doesn’t understand cryptocurrencies.
And that’s ok because, after his great call on subprime housing, he rapidly lost a large amount launching a gold fund in 2009.
Since that year, crypto has revealed itself as a better alternative to physical gold and Paulson simply doesn’t like that. Paulson is hellbent on making this gold trade work — it almost seems like it’s a fetish at this point.
People of that stature usually don’t like being wrong and throw money at the problem until the variables and price turn in their favor.
But honestly, sour grapes because missing the crypto boat won’t make the price of gold go up 10X, 100X, or 1000X, and that’s what crypto is about in the early innings of a 9-inning game.
“Bitcoin is a technological tour de force.” – Said Co-Founder of Microsoft Bill Gates
Mad Hedge Bitcoin Letter
September 2, 2021
Fiat Lux
Featured Trade:
(THE TRUTH ABOUT CRYPTOCURRENCIES AS AN ASSET CLASS)
(BLOK), (MSTR), (HUT)
It’s my responsibility to new readers of the Mad Hedge Bitcoin Letter to offer an imminent snapshot of where we are in the crypto universe at this point in time.
It would be negligent if I didn’t.
To say that Bitcoin is the only investment in the crypto sphere is also not true — sure, Bitcoin is the biggest, most trusted crypto network, and many have become grotesquely wealthy because of it — yet there are other altcoins out there.
Knowing what to digest and what to avoid like the plague is where I come in.
Don’t get me wrong — I am still highly bullish on Bitcoin as an asset, but we do not operate in a vacuum.
Many altcoins have been doing just as well as Bitcoin in the past month — Bitcoin is up 20%, and another 5% to $50,000 on Thursday.
Ethereum, for instance, had dropped below $3,200 on Monday. However, the second-largest crypto added more than $500 since then and up another 10% on Wednesday.
It hasn’t been this high since May and I can easily see it blowing by the May high of $4,200 before December.
As one might have assumed, lesser coins with cheaper pricing benefit/suffer from the law of small numbers with wider gaps in percentage change on up and down days.
It’s just the nature of the beast.
Overall, the second largest cryptocurrency by valuation performing well is a highly bullish signal for Bitcoin itself.
It also signals increasing adoption which is positive for the security and regulation of the broader asset class.
I subscribe to the “rising tide lifts all boats” theory in cryptocurrencies as it does more to legitimize the top asset than pull capital away from it.
The most poignant takeaway is that readers cannot just overlook other cryptocurrencies just because Bitcoin is the apex warrior.
Returning to the foundations, cryptocurrencies have a reputation for being difficult to understand, so don’t be embarrassed if you’re befuddled — I felt the same way the first day I tried to understand this stuff.
The Harris Poll earlier this year found that 61% of people who had heard of cryptocurrencies still had little or no understanding of how they work.
How Do I Buy Bitcoin?
Conventional wisdom has it that the most likely route is a Bitcoin online exchange.
Create an account — enter a payment method.
Reputable exchanges will require information such as bank account details or a debit or credit card.
Then proof of identity is required such as a driver’s license, ID, or passport.
After verification, purchase Bitcoin by transferring it to a personal hot wallet and buy and sell the asset!
Remember that these accounts coming directly from bitcoin brokers aren’t insured and aren’t secure.
Therefore, a better way to mitigate risk is by going through a Bitcoin ETF on the U.S. public markets with an official broker registered with the Security and Exchange Commission (SEC).
Not only do public stocks provide additional security as a bitcoin trading vehicle, but ETFs are an aggregation of crypto-asset tracking data points reducing the volatility even more.
Unregulated crypto exchanges come with a higher understanding of operational and systemic risk and not everyone wants to venture into the arid Wild West without a horse or water.
If you trade with an official brokerage registered with the SEC, you are covered by Federal Deposit and Insurance Corporation (FDIC) insurance up to $250,000 per account holder in a financial institution.
If there are joint owners, then the account is insured up to $500,000 ($250,000 for each owner).
The FDIC is a U.S. government agency so, in effect, these accounts are federally insured.
There is also another layer to this — you are covered by Securities Investor Protection Corporation (SIPC).
SIPC is a U.S. government creation but not an agency of the U.S. and insures all brokerage accounts up to $500,000, but only up to $250,000 for cash in such accounts that are intended to be used for securities transactions.
Cash in brokerage accounts only for the purpose of earning interest are not protected. While SIPC has been established by Congress, it is funded by all of its member broker/dealers.
In many cases, SIPC protects against unauthorized trading or theft in the account.
My favorite crypto ETF is Amplify Transformational Data Sharing ETF (BLOK) which has morphed into one of the best crypto ETFs on the market since its inception.
BLOK is an actively managed ETF that seeks to provide total return by investing at least 80% of its net assets in equity securities of companies actively involved in the development and utilization of blockchain technologies.
BLOK’s biggest two positions are Bitcoin proxy MicroStrategy (MSTR) and a Canadian crypto mining company called Hut 8 Mining Corp (HUT).
I have already shot out a MicroStrategy trade alert to new readers and am incredibly bullish on the company.
However, this ETF encompasses more than MSTR offering broader exposure to firms related to Bitcoin, crypto miners, and software companies that are heavily into crypto.
Hut 8 engages in industrial-scale bitcoin mining operations. It also owns and operates 38 BlockBoxes in Drumheller, Alberta, and 56 BlockBoxes in Medicine Hat, Alberta.
BlockBoxes are one of the most powerful and cost-effective bitcoin mining units available on the market.
BLOK doesn’t track bitcoin 1:1, but it does mimic the price action relatively closely albeit with less extreme swings.
Controlling excess volatility is something you should be happy about.
BLOK also has an expense ratio of 0.71% which isn’t too expensive for those who want to buy and hold the ETF and not trade the derivative.
Buying BLOK is most likely the best way to ensure safe trading under the framework of the SEC, but I understand others have a higher risk profile which is also welcome.
To understand more about the ETF BLOK, click here.
The crypto revolution is in its early stages and the possibilities are endless considering the adoption is just beginning.
However, we cannot just assume bitcoin will always lead the charge and taking note of what is happening in the rest of the industry offers us an even deeper insight into how the bellwether (bitcoin) is performing and reacting to the future challenges as top dog.
The truth is that there will be several winners from higher crypto prices and not just bitcoin. As a technology, blockchain will also be a massive winner from higher crypto prices.
Even if one does not want to profit from crypto, this will be the intellectual challenge of a lifetime.
Lastly, I’d like to reiterate my call for the price of Bitcoin at $66,000 by end of 2021 where it will test a double top.
BLOK ETF INDUSTRY ALLOCATION
“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
