“Competition brings out the best in products and the worst in people.” — Said American Businessman David Sarnoff
Mad Hedge Bitcoin Letter
August 30, 2022
Fiat Lux
Featured Trade:
(BACK IN THE BOND MARKET GUTTER)
(BTC)
After a generous reversion to the mean bounce for the price of Bitcoin, Bitcoin has again sold off proving that the biggest talking point out there for crypto enthusiasts is interest rate.
They are too high for Bitcoin to thrive.
Bitcoin was supposed to be the cure for high inflation, but ironically enough, it has been anything but a cure for high inflation.
As inflation has gone from bad to worse, the incremental investor has decided with their wallet to spend not on the beautiful digital gold, but on food, housing, and electricity.
Stagflation elements translate into the consumer being more practical with their hard-earned money. Retail investors aren’t strolling down the street waving fistfuls of Benjamin’s in the air.
As Bitcoin has proven to be one of the most sensitive asset classes to the short-term movement of U.S. interest rates, analysts have been forced to rejig their models for a lower bitcoin price.
The expectation of higher US interest rates will in effect mean lower Bitcoin prices and the reverse is true if expectations of lower interest rates materialize.
Bitcoin cratered again by 5% to hit $19,000 and other major digital tokens also sold off, with ether falling to $1,400.
US Fed Chairman Jerome Powell delivered a hawkish speech to undercut the nascent bitcoin rally.
It’s still plausible that even if inflation has peaked from the 9.1%, it could stay stubbornly high as many of the Fed estimates for next year show a 6% estimate.
An inflation with a 6 at the beginning is still a painful data point and not ideal for the prospects of crypto.
Crypto is 3-4 times more sensitive compared to vanilla S&P stocks meaning it overshoots to the downside during selloffs and overshoots to the upside during rallies.
The crypto market has been plagued by a number of issues including the collapse of stablecoins, which triggered a chain of events that led to the bankruptcy of lending platform Celsius and hedge fund Three Arrows Capital.
It's important for Bitcoin to hang in there and even though this short-term selling pressure is heating up the temperature in the kitchen for Bitcoin investors, investors must think longer term.
Why?
Because the Fed will pivot, they always do.
When the Fed pivots, regulators will then turn to expected interest rate cuts in 2023, which would give crypto investors a lifeline.
That loosening cycle will most likely boost crypto back past that $45,000 level.
If crypto does rebound in 2023 because of lower rates, then this would give incentives for crypto participants to mend the inferior infrastructure that has been so badly exposed in 2022.
The security, trust, and management of the exchanges and intermediaries' needs vast improvement.
If adults can enter the room and start dotting the I’s and crossing the T’s at the back end, the next bull market in crypto might be a little less scandalous and controversial than the last one.
Either case, don’t quit your day job to day trade crypto because the asset class is still unproven and that means going from hero to zero in 5 seconds.
Better days are ahead for crypto as the clock ticks down to the Fed pivot where dovish policies will supercharge the price of Bitcoin and make up for its recent laggard performance.
“The politicians say 'we' can't afford a tax cut. Maybe we can't afford the politicians.” – Said CEO of Forbes Media LLC Steve Forbes
Mad Hedge Bitcoin Letter
August 25, 2022
Fiat Lux
Featured Trade:
(A THORN IN THE SIDE OF CRYPTO)
(BTC)
Many emerging countries have suffered asymmetric depreciation relative to stronger western currencies.
It’s a tough act for these guys and in some cases, they have been penalized by the larger nations for external risks out of their control.
India is said to be the new China and that’s not something to downplay.
They boast a young and highly educated demographic that is hellbent on improving their standard of life.
However, lately, the lust for crypto in India has been met with an iron fist by the Indian government which presented an exorbitant tax move as an opportunity to “professionalize” the asset class.
It also made crypto trading prohibitively expensive.
The decision comes amid an onslaught of criticism of the industry by government officials and regulators.
Some of the most brutal attacks have come from India’s central bank as it prepares to launch a national digital currency.
In short, since April 1, any gains on the transfer of crypto assets are taxed at 30%, a higher rate than many other jurisdictions including the US and the UK.
Trading losses can’t be offset against income as well.
Trading on three exchanges ZebPay, WazirX, and CoinDCX crashed between 60% and 87% after the tax took effect.
Under the banner of protecting against terrorist financing, fraud, and other illicit activities, the Indian government has tried to reign in the crypto industry and put it under its control.
Some of this is about avoiding conservative Indians that might throw their savings down the drain into a highly volatile and uncertain asset.
Central Banks tend to be risk-averse and most bank members have never had a real job in their life and come from academia.
There is still a stigma that crypto is high risk and might crash.
Indians have now been forced to migrate to foreign trading platforms or physically immigrate abroad to countries more favorable to crypto operations.
A huge revenue gap will take effect moving forward as in the past, investments in crypto in India grew from about $923 million in April 2020 to nearly $6.6 billion in May 2021.
The country’s population of 1.4 billion people trends young, with a growing, well-educated middle class.
After Vietnam, India achieved the second highest rate of crypto adoption.
While China has banned crypto transactions entirely because of many of the same reasons, India is yet to introduce a bill defining digital assets and decide how to regulate them.
Indian Finance Minister Nirmala Sitharaman has said any legislation can be effective only with international cooperation to prevent so-called regulatory arbitrage, whereby companies shop for the most lenient jurisdiction to do business.
The uncertainty is sending a chill through the clusters of Indian startups developing products based on blockchains, from decentralized finance applications to nonfungible tokens.
Reading the tea leaves, crypto’s assent clashes with India’s central bank and the central bank rather introduce a central bank digital currency than allow crypto to operate like a wild western.
It’s not surprising that those poorer countries lust for financialized centralization and crypto is the scapegoat.
Scarily, other countries like China have been developing these central bank digital currencies for years like the digital yuan and there is a low risk they could wipe out the existing crypto out there.
This is why many banana republics can never innovate, develop, or thrive. They simply won’t open up enough let alone open up to foreigners. Money and technology are both met with suspicion.
I would go even so far as to say that the future of crypto will either exist in the United States or not at all.
When bureaucrats are only willing to frame any financial conversation by the amount of control they can secure, then developing an alternative financial system like crypto is a non-starter.
America is the best country to nurture emerging technology because leaders understand its power and trajectory of it and even better, do not turn a blind eye to its potency.
This is what happened with inventions like the internet, personal computer, and the smartphone.
It will most likely happen with crypto as well.
Mad Hedge Bitcoin Letter
August 23, 2022
Fiat Lux
Featured Trade:
(CRYPTO INFRASTRUCTURE TAKES ANOTHER HIT)
(FTX), (FDIC)
The scandals keep on rolling in for the crypto establishment and right on cue, the possibly most public figure in the crypto world is now facing the music.
FTX CEO Sam Bankman-Fried is in hot water as a prominent U.S. bank regulator Federal Deposit Insurance Corporation (FDIC) demanded crypto exchange FTX to halt what it called "false and misleading" claims the exchange had made about whether or not funds at the company are insured by the government.
Let’s be clear about this, crypto is not regulated and thus not insured as an asset.
The money an investor loses on a crypto exchange because of an exchange bankruptcy usually means the investors won’t get their funds back.
This is a serious risk that an investor must grapple with when pouring money into the digital gold.
This is also part of the reason why the asset class is so maligned, volatile, untrusted, and unpredictable.
The asset class also attracts scam artists who promise 1,000% returns in 7 days.
The lack of backstop in this industry deters many conservative investors and thus many crypto investors are fresh-faced with nothing to lose.
Trading with fearless abandon isn’t a great idea and is almost like hoping to win the lottery.
I have never recommended betting the family ranch on crypto and I have always advocated putting a small portion of one’s portfolio, perhaps 1-3%, into crypto.
And since November 2021, we have seen a precipitous decline in the digital asset as well as many exchanges disappearing.
There are so many concurrent federal investigations happening that I can’t keep track of them.
This is the reality of an emerging and unproven asset class.
Here’s just what happened.
The FDIC issued a cease and desist letter to FTX US that those statements implied that FDIC insurance was available for cryptocurrency and stock holdings and that the agency does not insure brokerage accounts.
In a tweet, FTX CEO Sam Bankman-Fried emphasized FTX is not FDIC-insured, and apologized if anyone misinterpreted previous comments.
The letter was not only sent to FTX as 4 others got the same letter, so this is a widespread problem in the crypto industry.
The bank regulator issued a similar cease and desist letter to bankrupt crypto firm Voyager Digital, arguing that the company had misled customers by claiming their funds with Voyager would be covered by the FDIC.
Later, the FDIC issued an advisory urging banks dealing with crypto companies to ensure that customers are aware of what types of assets are government-insured, particularly in cases where firms offer a mix of uninsured crypto products alongside insured bank deposit products.
Stocks are insured and to imply by word association that crypto is also insured shows that these exchanges are playing a dirty game.
I don’t want to paint the whole industry with one brush, but the crypto establishment isn’t doing itself any favors and their business practices smack of desperation.
No doubt that in 2022, sales have fallen off a cliff, and just look at FTX which did over $1 billion in sales last year and 2022 will end up just a fraction of that.
They are hoping to cling on to any revenue foothold even if it means misleading customers.
Crypto has a mountain to climb and this is yet another setback.
“I have not failed. I’ve just found 10,000 ways that won’t work.” – Said American Inventor Thomas Edison
Mad Hedge Bitcoin Letter
August 18, 2022
Fiat Lux
Featured Trade:
(READY FOR LAUNCH)
(ETH)
