“If you like gold, there are many reasons you should like bitcoin.” — Said Founder of Gemini Cryptocurrency Exchange Cameron Winklevoss
Mad Hedge Bitcoin Letter
August 4, 2022
Fiat Lux
Featured Trade:
(ANOTHER CRYPTO HACK)
(SOL), (BTC), (ETH)
The price of Bitcoin is holding up quite well in the short-term as Robinhood fires 23% of its workforce, Bitcoin cheerleader and now former CEO of MicroStrategy quits his post, and another security debacle.
Security infrastructure in any unregulated market is paramount simply because the assets aren’t insured.
Once taken, might as well gift the robbers a card on the way out.
The stakes become higher when hackers know they are less likely to be chased after or quantified once they steal what they are looking for.
Regulated and insured industries are tied to government oversight and when that’s the case, congressional committees often look into industries they are directly tied to if things run amuck.
The optics couldn’t be worse for crypto as we bounce from consecutive security breakdown to the next.
It’s almost as if the last coin not getting hacked will be the last one standing.
It’s getting that bad as the crypto “winter” has triggered a wave of bankruptcies and encouraged smash-and-grab hacking schemes preying on crypto holders who are down and out.
This time it was Solano, which is the 4th biggest cryptocurrency, with a market cap only behind Cardano (ADA), Ethereum (ETH), and the bellwether Bitcoin (BTC).
Solana, known for its speedy transactions, has become the target of the crypto most recent hack after users reported that funds have been drained from internet-connected “hot” wallets.
An unknown actor drained funds from 7,767 wallets on the Solana network resulting in upwards of potentially $50-$100 million.
The attack – which has affected only “hot” wallets or wallets that are always connected to the internet, allowing people to store and send tokens easily – does not appear to be limited to Solana.
Users have reported that USDCs were emptied as well.
The attack has compromised other wallets including Phantom, Slope, Solflare, and TrustWallet. Wallets drained should be treated as compromised and abandoned, Solana warned as it encouraged users to switch to hardware or “cold” wallets.
Phantom, a fast-growing Solana-based wallet that hit $1.2 billion in valuation in January, said it’s “working closely with other teams to get to the bottom of a reported vulnerability in the Solana ecosystem.”
Developers still don’t know how the hack happened and might never figure it out.
The hackers are that far ahead of the game.
Solana spokesperson Chris Kraeuter said the company’s engineers “are currently working with multiple security researchers and ecosystem teams to identify the root cause of the exploit, which is unknown at this time.”
The Solana attack comes hot on the heels of hackers exploiting almost $200 million in digital assets from cross-chain messaging protocol Nomad.
The “free-for-all” attack, which saw more than 41 addresses drain $152 million — 80% of the stolen funds – was made possible by a recent update to one of Nomad’s smart contracts that made it easy for users to spoof transactions.
The word is out there and hackers are clued up, they are moving fast to take advantage of the green shoots nature of the security infrastructure.
An infrastructure not tested by time is prone to gaps in defense and that is what we are seeing.
I have the conviction that if the bellwether Bitcoin is taken down by hackers, that could be the beginning of the end for crypto for this iteration.
In that unlikely scenario, we will experience a precipitous drop from the $23,000 per coin today.
“Logic will get you from A to B. Imagination will take you everywhere.” – Said Theoretical Physicist Albert Einstein
Mad Hedge Bitcoin Letter
August 2, 2022
Fiat Lux
Featured Trade:
(POWELL BOOSTS CRYPTO)
(BTC), (ETH)
After Bitcoin’s nosedive from $31,000 to $19,000, the digital gold has transitioned into a phase of low volatility.
This lull has helped out stabilize the asset class.
At one point, $12,000 was on the table but now, as recessionary fears have started to creep back into the market psyche, an expectation of loosening the liquidity regime appears to be in the cards.
Or so that is what the market is pricing in and when we look at the Fed Funds rate, it shows a forecast of interest rate cuts starting after March 2023.
Interest rate cuts are highly bullish for cryptocurrency because lower interest rates mean easier access to borrowing money to pour into alternative assets like crypto.
The tighter the money policy, the more conservative investors become preferring to invest in real estate and energy assets.
This year certainly hasn’t been the year of Bitcoin, yet we roll into the last half of the year hoping that 2023 will deliver rate cuts to crypto traders.
Positive signs have been filtering through following the Federal Reserve's announcement to raise interest rates by 75 basis points, bitcoin climbed over $24,000.
Ethereum has more than doubled bitcoin’s gains over the same period, jumping as much as 57%.
The future expectation of rate cuts has been boosted because of US Central Bank Governor Jerome Powell’s weak testimony.
Signaling the bringing forward of rate cuts because a recession could come is bullish Bitcoin.
However, the current problem we have is 9.1% inflation devouring the 2.5% Fed Funds rate.
The probable result is when the Fed finally does pivot to a more dovish stance, it will do so while admitting defeat to inflation.
In the most recent Cleveland Fed inflation expectations, July is estimated to be 8.8%.
To be sure, the total market capitalization for all crypto assets is still down roughly 60% from its peak reached in November 2021. But cryptocurrency prices have rebounded over the first half of July with fresh buying having sent the sector's total market cap back above $1 trillion.
The 200-day moving average (DMA), which traders use as a technical gauge for whether an asset's trend is broadly higher or lower, still sits far above current levels and is declining for both bitcoin and ether.
As far as crypto fundamentals go, Ethereum's merger is a potential positive for markets through the summer. Core developers of the Ethereum blockchain have slated its software upgrade from proof-of-work to proof-of-stake, the so-called "Merge," for as early as the week of September 19.
People like hearing hard dates and we are still waiting for one from Ethereum.
Ultimately, what is abundantly clear is that the lack of appetite to raise rates is good news for all risk assets as we move forward into 2023.
This means we won’t see a repeat of a disastrous sell-off that occurred the past year in crypto.
Since the middle of June, the bitcoin dip has been bought and I can easily see a scenario where crypto continues to inch up if inflation comes down to a 5-7% range which is entirely possible.
Crypto, the industry itself, has a lot of work to do, but the macro picture is what is powering the price right now.
“The function of leadership is to produce more leaders, not more followers.” – Said American Political Activist Ralph Nader
Mad Hedge Bitcoin Letter
July 28, 2022
Fiat Lux
Featured Trade:
(ANOTHER 130 MILLION)
(BTC), (AMZN), (MSFT), (GOOGL)
No private foreign capital or investment will penetrate Ukraine for the foreseeable future.
Every Ukrainian under 40 years old is now making a mad dash for higher ground to put their money in safer places.
The Ukrainian hryvnia has lost 25% of its value while artificially suppressed and this is just the beginning.
It could trigger a vicious cycle all the way to zero where like a hot potato, Ukrainian citizens try to rid themselves of local currency as fast as possible.
Like I said, there are others out there with similarly non-influential currencies, pretty much every ex-Soviet republic not in the European Union in the likes of Georgia, Kazakhstan, Moldova, Azerbaijan, and Armenia of the South Caucasus.
When you add up the population in the likes of Uzbekistan and such, then that totals roughly 130 million people.
These 130 million people, like El Salvadoreans, need to target securing alternative currencies.
For people who haven’t traveled to these esoteric places, US dollars are in high demand and hard to find and families hold on to them for dear life like a newborn child.
So, if the choices are Bitcoin or worthless paper, then between these two, the decision is rather straightforward.
Ukrainians are slowly coming to the realization that these are their options.
Recently, the Government of Ukraine has passed a law that legalizes Bitcoin and other cryptocurrencies.
The law grants legal status to virtual assets. The law not only grants users the right to operate cryptocurrencies but also defines the clear rights and duties of all market participants.
Ukraine’s government also approved the law regarding cloud services as a whole.
The bill’s goal is to create conditions for the processing and protection of data when using cloud computing technology, as well as providing cloud services and determine the specifics of public authorities’ use of cloud services, as well as more efficient use of public resources through the introduction of new technologies.
The new law will expedite the entry into Ukraine of the world’s top cloud service providers – Microsoft (MSFT), Amazon Web Services (AMZN), and Google (GOOGL) Cloud – and encourage the construction of data centers.
The Ministry of Digital Development has previously said that it planned to expand the market for “virtual assets.”
Virtual assets are divided into two categories in the draught law: secured and unsecured virtual assets.
A secured VA is an asset that verifies property or non-property rights, such as the right of claim on other objects like stablecoins, and is secured by fiat currency, securities, or any sort of offline asset.
All other sorts of cryptocurrencies and crypto-based assets, such as non-stable coins like Bitcoin, non-fungible tokens, and so on, are classified as unsecured VAs.
Therefore, it’s not surprising to find out in the latest data that the adoption of Bitcoin and other cryptos in Ukraine has skyrocketed.
Non-profit donors looking for donations are also being paid via Bitcoin.
The rapid legislation of course would not have occurred if not for the Russian situation, but either way, adoption is adoption and add another 50 million or so Ukrainians to Bitcoin’s growth story.
Eventually, Africa and South America will join the adoption phase as they also preside over rapidly depreciating fiat currency.
I’m shocked that Argentina hasn’t ventured this way yet, put them down for the next country in the crypto queue.
Even if Bitcoin is suffering a bout of weakness due to exogenous shocks, the long-term price trajectory should find a floor because of the demand for these 3rd world countries.
“Our basic thesis for bitcoin is that it is better than gold.” – Said American Investor Tyler Winklevoss
