Mad Hedge Bitcoin Letter
March 31, 2022
Fiat Lux
Featured Trade:
(EVEN CHARLIE WARMS TO BITCOIN)
(DOGE), (SHIB), (BTC)
Posts
One of the biggest promoters of the U.S. economy for the past 50 years has been vice chairman of Berkshire Hathaway Charlie Munger.
Lately, he has taken his privileged position to opine about almost everything under the sun.
At some stage, people like us like to infuse the generation behind us with the right tools to navigate the global economy, and sharpening these instruments goes a long way in determining who became the ultimate winners and losers.
Charlie came out with sharpened elbows today describing a world in which “it’s never been harder for young people to make and keep their money.”
He then begins to dive into the topic of inflation and the financial destruction beset on a young population who are not only asset scarce, but whose salaries are lower in real terms than the young person 40 years ago.
Essentially, Charlie is encouraging young people to avoid the traditional financial system that benefited him so much in order to look for greener pastures.
Sometimes it really is greener on the other side of the fence and the first generation of crypto Billionaires can attest to that.
Becoming a crypto whale usually entails getting in early before the rest pile in.
Munger also lamented the hardship of young people purchasing property in a “desirable neighborhood in a city like Los Angeles.”
Mortgages backed by the US dollar and Fanny Mae have been instrumental in helping millions of hardworking Americans realize the American dream of owning their own home.
Obviously, the US property market in many parts of the country these days is out of control and even though it’s not directly linked to cryptocurrency, it’s directly linked to the US dollar which Bitcoin is an absolute competitor.
Munger couldn’t be righter that young people will not be able to copy and paste what worked before and that the ones who don’t adapt will not be able to achieve a life in a desirable city.
In a roundabout way, Charlie is espousing the virtues of Bitcoin even though he doesn’t know it.
Part of the bias he presides over is in the way young people get rich and age doesn’t make you want to get rich all over again in crypto after getting rich through the US dollar and stocks.
Investing in alternative strategies has never been more attractive, but there is a smart way to do it and an irresponsible way to do it.
In the last few years, Bitcoin has proved itself to be a great store of value and it appears that no matter what you throw at it lately, it won’t go down that much.
But then there is the scarier side of crypto that isn’t Bitcoin and things get suspicious quickly like somebody following you down a narrow, shady alley.
Many have thrown their life savings in these coins that are fashionably new and low cap and obscure thinking that they can get rich quickly when all that will actually happen is they'll lose their money in these coins that either fail or get the rug pulled.
Seeing coins like SHIB, DOGE, which were altcoins that actually did build a substantial market cap in the past, has only encouraged these people in their thinking that they can make a lot of money off of these coins when the reality is that these were only 2 among thousands of coins that got lucky.
Investing should be done with a purpose, otherwise, it becomes pure gambling and you'll likely fail.
That purpose could be Bitcoin as a means of decentralization, as a means of inflation hedge, or just as a currency that's easy to transfer. As long as you know what you support in your coin, you have a purpose that you believe in which is what investing is about, not closing your eyes and picking a coin.
Not only that you won't get rich, but you'll also lose your money in these coins. The only people getting rich will be those controlling the coin with their bags that are ready to sell.
But of course, there still are those projects with a purpose that can change the market, but you'll need a lot of time on your hands to find those new ones.
Mad Hedge Bitcoin Letter
March 29, 2022
Fiat Lux
Featured Trade:
(ANOTHER WIN FOR BITCOIN)
(RUSSIA), (BTC)
Bitcoin is getting its time in the sun as chairman of the Russian State Duma Committee on Energy, Pavel Zavalny revealed that payment for oil in Bitcoin (BTC) would be greenlighted.
What a dropped bombshell this is for the digital gold.
It’s hard to wrap my mind around that statement because it was just a few years ago when Bitcoin was the global pariah and not the world’s gas station Russia.
Now Russia has become the global pariah and to maneuver around a tricky political landscape, they have decided to just move the goalposts completely.
This is important for the dollar and the euro which are competitors to Bitcoin.
Those were the currencies that Europeans and other foreigners were used to settle their oil purchases with the Russians in the past.
Not anymore.
US President Joe Biden freezing Russian reserves has had the reverse effect of the Saudis looking to do business in oil without the US dollar and Russia tapping digital gold as their new form of payment or the alternative option of demanding payment of oil in Russian Rubles.
Hindsight is 20/20 and effectively scaring away foreigners from using the US dollar is a giant and transformational victory for cryptocurrency itself.
Historians might look back at this moment in history as the day the dollar hit the high watermark because I highly doubt that China or Russia will ever go back to settling even half a barrel of oil in US dollars.
Throwing fuel on the fire are countries like Hungary whose leader Viktor Orban has refused to stop buying Russian energy doubling down against the West saying that the Hungarian people aren’t footing the bill for this conflict.
The net net of this all is that Russia has received a narrow form of a free pass in markets like that because of the certainty involved in sending equities soaring.
Bitcoin has benefited from the risk-on sentiment with Bitcoin back up to $48,000.
Diversifying into Bitcoin and other currencies will lessen the dependence on dollars and euros issued by “unfriendly states” like the U.S. and the EU—and in the process skirt the sanctions they placed on it.
So then one must deduce that the severity of the sanctions has been reduced and we have clearly seen that flow through the market with the Russian Ruble reversing by 40% to almost pre-conflict levels.
One of the knocks on Bitcoin is the lack of institutional capital that can trigger a war chest of capital.
Bitcoin is now on the receiving end of a dream development with the biggest energy-producing nation ready to conduct business in its currency.
If this isn’t legitimizing Bitcoin, then someone please help me to understand what is?
Simply switching to Bitcoin or Ether would not exempt actors obligated to observe existing EU sanctions, but what if nations convert fiat to Bitcoin only to never convert it back to fiat and just hold a Bitcoin balance continuously.
That wouldn’t rub up against sanctions.
The takeaway from this debacle is that there are so many holes in the western “alliance” that Russian and China are just picking and choosing how they want to pick it apart like dissecting a toad with tweezers.
What this does amount to is a giant tsunami of potential flows into the cryptocurrency system and this puts $100,000 Bitcoin fairly in play again after the interest rate rise killed bullish sentiment earlier this year.
Russia has already partitioned off countries into “friendly” and “unfriendly” which the latter will be required to pay in Bitcoin or rubles.
One must question, is the intelligence about Russia losing really that accurate or was this their plan all along?
Let’s look at the tailwinds behind Russia at the moment.
Europeans like Germans and Hungarians continue to fund the Russian military machine through energy purchases.
Russia is able to skirt financial and energy sanctions using crypto.
The exorbitant current price of oil means significantly higher revenue for Russia in 2022 resulting in a healthier fiscal position.
The Russian government has been able to nationalize factories and infrastructure left by foreign companies.
The Russian Ruble staging a breathtaking turnaround of 40% are all signs that it's business as usual for the Kremlin.
Either way, this paves the way for energy deals with the global gas station to be settled in Bitcoin which is a monumental victory for crypto diehards and could trigger another leg higher for Bitcoin.
Mad Hedge Bitcoin Letter
March 24, 2022
Fiat Lux
Featured Trade:
(KICK THE CRYPTO CAN DOWN THE ROAD)
(BTC), (FED)
Federal Reserve Chairman Jerome Powell on Wednesday said digital innovation in the financial sector is here to stay and with it, a raft of new regulations will need to be created.
It’s interesting that he delves into the matters of cryptocurrency so succinctly when one might really question if he has a grasp on the current fiat monetary policy in the United States.
Many have also gone on record saying that he has committed a vast policy error by allowing inflation to run too high for too long.
There are elements that are true to this and observing his overly cautious stance to raising interest rates makes me deduce that he most likely will bring the same type of attitude to Bitcoin and cryptocurrency.
I agree that new regulations need to be created and the lack of them is holding cryptocurrency back, but at least Powell didn’t take the hostile route which he easily could have with nobody batting an eye if he turned more conversative to the technology of money.
Powell described cryptocurrency as a “novel technology like distributed ledger and decentralized finance which has the potential to improve the efficiency of the payment system and encourage a more competitive financial landscape.”
When I hear Powell say the word “novel,” it basically means that nothing of substance will take place in the near-term future because he is too experienced to deal with an emerging asset class that could potentially ruin his legacy at the Federal Reserve.
He could have even said that cryptocurrency is “exotic” and still gotten away with it.
Every Central Bank governor wouldn’t mind a more “efficient” and “competitive” financial system and fortunately, the American financial system is still the gold standard of the world even if the gatekeepers of the Central Bank currently aren’t performing up to snuff.
Powell also divulged that the Fed will likely collaborate with other central banks on other areas of crypto and financial innovation, including stable coins.
A stable coin is a cryptocurrency pegged to a reserve asset like a fiat currency, commodity, or other cryptocurrencies. It is a tokenized version of the asset and can be introduced subtly into a blockchain ecosystem to facilitate seamless pass transactions, improved arbitrage, and value exchange.
It is sometimes referred to as a utility token because it allows you to quickly buy and sell on decentralized exchanges that do not accept fiat currencies.
Stable coins are also used in centralized exchanges. What makes them useful in an exchange of this kind is the fact that fiat currencies take a long time to process, but their tokenized counterparts are standard blockchain entities that move quickly.
Powell also dives into the need for crypto to close the “regulatory gaps” which for me means that he wants crypto to be centralized just like the US dollar wields an army of bureaucrats in the form of regulators safeguarding the American financial system.
That might rankle a few crypto diehards who are hellbent on crypto being a decentralized system and not to mention when crypto looks like a safer bet, all the Wall Street influence that will pile into the crypto ecosystem.
Ultimately, Powell’s speech was good and bad for crypto.
Acknowledging it effectively means he legitimizes it, yet he doesn’t want it to develop without parameters in which the government has zero influence.
It is yet to be seen if the federal government just kills assets like Ether and Bitcoin to create their own digital currency would be the digital version of the US dollar.
That’s a page right out of the Chinese communist party with their digital yuan.
If that happens, many investors will cry foul and would be left scrambling.
However, I don’t believe Powell has the intention to crush a whole trillion-dollar asset class that could trigger contagion throughout the whole market.
By keeping it at arms’ reach, Powell effectively gave a green light to develop parallel to the US financial system yet kicking the can down the road to whether this monster can be integrated seamlessly into the US financial system or not.
That’s the end game for the likes of Bitcoin and crypto, but that decision has been put off for the long-term giving more time to this emerging asset class to improve its foundations.
To live to breathe another day is not necessarily a bad thing in speculative markets.
THE MAN WITH GREAT POWER OVER THE FUTURE OF CRYPTO
Mad Hedge Bitcoin Letter
March 22, 2022
Fiat Lux
Featured Trade:
(GOLDMAN INCHES INTO CRYPTO)
(BTC), (GS), (OTC)
When it rains, it pours.
That will be the transformational effect if institutional money finally comes on board the crypto train.
They are still poking around the edges and sniffing it to see if it is something they really want to get into.
Don’t forget that many of these institutions are beholden by a rigid set of regulations that they must adhere to and joining the wild west of crypto is for some, a step too far.
There is no doubt in my mind that the industry of money is barreling towards a digitized and decentralized version of it and many of these institutions don’t want to be left behind.
It’s bad enough they didn’t participate in the meteoric rise of Bitcoin (BTC) from almost zero to above $60,000 almost as if a portfolio manager missed a 10-year bull market.
But inroads are being made nonetheless and one of the preeminent investment banks, Goldman Sachs, took a giant leap forward toward the possible wide adoption of bitcoin among institutional investors, such as hedge and pension funds.
A step that will comfort some big investors, many of whom are still on the fence to invest in cryptocurrencies and in particular in bitcoin, the first digital currency in terms of market share.
Goldman Sachs (GS) executed its first over-the-counter (OTC) crypto options trade.
The firm traded a bitcoin-linked instrument called a non-deliverable bitcoin option (NDO), which is a derivative tied to bitcoin’s price that pays out in cash.
Options are used by crypto investors to hedge risks or boost yields, and over-the-counter transactions are larger trades negotiated privately.
This transaction gets GS closer to the crypto industry with regards to having skin in the game.
At the very least, they recognize there is something there and a major revenue opportunity if they do this the right way.
This marks the first OTC crypto transaction by a major bank in the U.S., and as GS continues expanding its cryptocurrency offerings, demonstrating the continued maturation and adoption of digital assets by banking institutions.
Is Bitcoin legit?
This move is an important step in the development of the crypto market for large investors because OTCs mean that Goldman Sachs will act as a principal in the transaction.
Goldman Sachs' involvement also sends a signal to mainstream investors that cryptocurrency-related assets have matured.
We are pleased to continue to strengthen our relationship with Goldman and expect the transaction to open the door for other banks considering OTC as a conduit for trading digital assets.
The concern that offering financial services related to cryptocurrencies might increase that burden of regulation is substantial.
But the change is also a cultural switch.
Legacy banks cringe that there is still too much uncertainty surrounding the regulation of the crypto industry.
However, there have been notable changes in recent months.
Famous investors like Ray Dalio and Bill Gross have thrown their support behind cryptocurrencies, a sign that the lines are moving at hedge funds, which bodes well for bitcoin.
GS is also offering exchange-listed options and futures trading in bitcoin and ethereum.
This is the first step of a bigger pivot to crypto as GS and other banks plan to build businesses out of it.
It is yet to be determined whether they push aggressively into it, but my hunch is that they move incrementally reflecting the extreme uncertainty of the rules of the road.
Intent is one thing, and it is true that development will take time to materialize, but a development of digital currencies doesn’t take place in one day.
Either way, this is another victory in the long-term prospects of Bitcoin and crypto.
Mad Hedge Bitcoin Letter
March 17, 2022
Fiat Lux
Featured Trade:
(BITCOIN SET UP WELL FOR THE LONG TERM)
(BTC), (VASP)
Whether you are in it for the money or in it for the tech, many have earmarked asset appreciation as a pillar of their current and future growth.
Step one is just owning crypto.
Speaking for many Americans on the grind and eking out an existence, you guessed it right, many are in the same boat.
If faced with a crisis, financially many would say they are royally screwed.
Bank rates aren’t up to snuff, and it just seems the government is giving the people a raw deal constantly.
Then look across the Atlantic and the climate doesn’t look all that fantastic either.
I could easily argue that the latest military action in the east of Europe has triggered alarm bells not just here at home but in rich and poor countries around the world as well.
Foreign investors look at the confiscation of US dollar reserves and freezing of assets in Europe and ask themselves, am I next?
I understand that the Western government feels the urge to go after illicit money, but then what about the rest of the foreign assets that aren’t necessarily all that clean either, do they get wiped out as well?
The reaction to foreign assets and their protection could trigger a massive pivot to cryptocurrency and bitcoin because unprecedented action by fiscal authorities could have a long-lasting impact on foreign capital and its direction.
We already have a young generation who is holding hope that crypto can be a lifeline to get out of this endless loop of personal financial tumult.
But crypto is not secure. We all know this. For investors with a budget already, it’s difficult to justify investing into a speculative asset class that failed recent acid tests.
I don’t blame marginal investors if they believe cryptocurrency is still very scammy and hasn’t matured enough to graduate from being priced with a low-quality growth stock.
What’s the solution?
How about donating plasma? Just kidding. But on a serious note, the macro events abroad signal that cryptocurrency absolutely has a role in many people’s lives.
The quality of global governance has gone from bad to worse.
The consequence is widespread panic and chaos that are spilling over into NATO borders.
Granted, refugees don’t have a lot of money to invest right now, but I could easily see young Russians and Ukrainians avoiding fiat currency altogether and preferring to go with crypto once they start earning fiat abroad.
Even fiat can go to zero which each one has over time.
Ask the Romans, their fiat went to zero as well.
Then at a structural level, crypto is starting to establish itself not only in America but in other outposts. For instance when cryptocurrency exchange Binance just announced that it had been granted a license to operate in Dubai, United Arab Emirates. The company’s presence in the Middle East has been building up lately, with a crypto service provider license in another Gulf market, Bahrain, coming in earlier this week.
Under the Dubai virtual asset provider (VASP) license, Binance will be allowed to set up an office in the emirate and provide digital asset exchange services to pre-qualified investors and financial firms under the newly adopted regulatory guidelines.
Both Bahrain and UAE embrace an innovation-friendly approach and compete for the status of the region’s most crypto-supportive jurisdiction.
As much as it’s painful to see one’s local currency blow up in one fell swoop like the Russian Ruble and all the other post-Soviet currencies, the people of these countries must question if they really want to go on the same ride with other Western countries’ fiat when they are debasing the hell out of their currencies every year.
Russians can’t even use their bank cards because MasterCard and Visa cut off service. Will they ever trust these services again?
Over 25% of the current US dollars in existence were printed in the past 2 years and that isn’t necessarily the best vote of confidence for a Russian whose savings dissipated into thin air.
And who wants Chinese yuan?
Not me and the next guy shouldn’t want it either.
