Mad Hedge Bitcoin Letter
February 24, 2022
Fiat Lux
Featured Trade:
(MILITARY CONFLICT TANKS BITCOIN)
(BTC)
Posts
Readers should hold off on any new Bitcoin purchases.
Many investors were left wrongfooted as Russian leader Vladimir Putin pushed into Ukrainian territory from three directions sending missiles deep into the heart of Ukraine.
The Russian Ruble exploded with weakness to 87 to $1 USD signifying widespread panic stoking the forex markets.
In a climate with military tensions boiling at a generational high, it is a terrible time to buy the Bitcoin dip as Bitcoin has proved to be dumped by investors who are seeking a safer safe haven.
To answer how long Bitcoin will see this weakness means we need to answer the question of how long is Russia’s “peacekeeping mission”?
The markets didn’t have a full-scale takeover priced into the markets and if this kinetic war is dragged out, this could truly mean we are in for a sub-$30,000 for Bitcoin.
The only certainty right now is that the Ukrainian and Russian standard of living is about to fall off a cliff.
Fiat currency is still too dominant for these desperate citizens to pile into Bitcoin and every one of these people is looking to get their hands on the US dollar.
This proves that in times of desperation, military conflict, and geopolitical turmoil, investors are still not comfortable with migrating into Bitcoin.
This should be a wake-up call for Bitcoin engineers to improve the asset class in terms of safety, transactional process, and ease of use.
Another important variable into how Bitcoin prices will how will it react if Russia turns this into a genocide.
Do they wipe out every city-destroying infrastructure causing inflation to rip higher?
Bitcoin has already proven that hyperinflation in the short-term adversely affects Bitcoin prices as investors flee the digital gold and in turn purchase rental homes and buy commodities that are seen as a better short-term inflation hedge.
Hyperinflation is a vicious cycle that encourages hoarding which triggers more hoarding as the scarcity mindset sets in.
It will be fascinating to see how this conflict in Eastern Europe influences domestic dynamics in the American economy.
White House Press Secretary Jen Psaki reiterated that the US government is comfortable absorbing the cost by saying to the media, “defending freedom will have costs for us as well and here at home.”
The government plans to pass the cost to the American taxpayer in an already tight economic backdrop.
With the US government pushed into a corner, tensions are running high, and that climate is a poor one for crypto.
Investors are rating Bitcoin more as something they need to avoid for now and are being more pragmatic in searching for inflation hedges.
We are barreling towards yet another supply shock because of a more wide-ranging Russian agenda.
A possible supply shock sets up poorly for Bitcoin price action and with Putin holding all the cards, I would avoid Bitcoin until we get some sort of resolution on this which as it currently appears, might be a while.
Putin has behaved aggressively at every inflection point betting that he will meet minimal resistance and so far, he has been absolutely correct.
Time will tell if this emboldens him to overshoot more than initially planned or not.
Any relief rally in Bitcoin should be sold for the foreseeable future.
Mad Hedge Bitcoin Letter
February 22, 2022
Fiat Lux
Featured Trade:
(BTC FAILS THE ACID TEST)
(BTC), (ETH)
Sell Bitcoin (BTC) when it rallies.
The goalposts have narrowed lately for the digital gold and investors need to trade the market we have, not the market we want.
Even for long term, the crypto bull case is alive and kicking. In the short term, the flight to safety trade has shown that bitcoin is yet the safety asset believers want you to think it is.
Cash or treasuries are better options even with inflation running a hot 7.5%.
An ominous sign of late was when the co-founder of the Ethereum (ETH) blockchain Vitalik Buterin told us the digital-asset universe may actually benefit from a selloff in coin prices.
That’s bad news for prices if he says that.
“The people who are deep into crypto, and especially building things, a lot of them welcome a bear market,” Buterin said during an interview with Bloomberg.
“They welcome the bear market because when there are these long periods of prices moving up by huge amounts like it does — it does obviously make a lot of people happy — but it does also tend to invite a lot of very short-term speculative attention.”
I don’t agree with his statement and it’s an engineer talking about something important but at a technical level.
Investors don’t care what happens at that technical level in the short term.
Although there will always be speculators in every asset class, there is room for all sorts of investors long and short.
The speculators add liquidity to the market in an asset class where many coin creators are begging for more adoption.
For Buterin, to make this selloff about speculators is somewhat arrogant.
The truth is that he should be cheerleading anyone and everyone to get into crypto no matter where the funds come from.
On a micro level, Buterin should be more worried about competing against Bitcoin which is a tough ask.
Unfortunately, crypto has performed poorly against the flight to safety bid when a cornerstone premise had it that bitcoin and crypto were supposed to be part of that safety trade.
The currency is not mature enough and the weakness in prices tell the whole story.
Some highly publicized crypto hacks haven’t helped the case of the normal guy putting money into crypto either.
It continues to be a selective niche industry where it’s a hassle to go from fiat to crypto exchange and many can’t figure out the tax reporting rules.
Buterin has shifted his focus to scaling Ethereum in recent years. The popular blockchain has long suffered criticism because transactions on Ethereum can be slow and expensive.
Buterin should just worry about his own digital currency lasting the test of time instead of thinking he can pick and choose what type of investors goes into crypto.
Investors dumped Bitcoin after Russian President Vladimir Putin ordered troops into Ukraine.
Therefore, expect any geopolitical flareups to include huge bitcoin selloffs and a flight to the US dollar.
Any kinetic war means another leg down in bitcoin.
Volatility will play a huge role in the next move in bitcoin.
If there is a moderate solution to the Eastern European military hostility, then expect Bitcoin to jump back into the $40,000 area while an acceleration of aggressiveness will be met with a selloff down to $30,000.
So yes, guys like Buterin aren’t building the quality that needs to be built.
Clearly, they have been penalized and boxed up as if digital crypto is of inferior value to a normal equity stock.
The trust in the asset is not broad-based and it lends to the theory that readers shouldn’t double down in any crypto-related asset, but inch in and go from there.
Crypto has also performed poorly with rapidly advancing interest yields which is also worrying for readers looking for asset appreciation.
If bitcoin bounces back to over $40,000, I will sell that rally.
Mad Hedge Bitcoin Letter
February 17, 2022
Fiat Lux
Featured Trade:
(ANOTHER 130 MILLION PEOPLE JUMP ON THE CRYPTO WAGON)
(BTC), (AMZN), (GOOGL), (MSFT)
First Turkey and now Ukraine.
Yes, these are two sovereign currencies, the lira and the hryvnia, that have absolutely lost any credibility whatsoever.
We forget that there are many of these banana republics out there that might as well adopt some sort of alternative currency.
El Salvador anointed Bitcoin their national currency and now that isn’t as bizarre as it first seemed.
Americans sometimes forget that the pandemic ripped through emerging nations like a hot knife through butter and there were no stimuli or handouts, let alone handouts for corporations, and there has never been a longer queue for U.S. green cards.
Well, Russia is on Ukraine’s doorstep and the threat of it crowding the Ukraine border means that no 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 the European Union or if they can, the United States, United Kingdom, or Canada.
The Ukrainian hryvnia has lost 10% of its value in a few days and this could be a beginning of a much bigger collapse in purchasing power for Ukrainians who don’t leave.
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, pretty much every ex-Soviet republic not in the European Union of the likes of Georgia, Kazakhstan, Moldova, Azerbaijan, and Armenia of the South Caucasus.
When you add up the population of the likes of Uzbekistan and such, then that totals roughly 130 million people.
These 130 million people, like El Salvadoreans, would be foolish not to adopt Bitcoin if they can’t secure US dollars.
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.
So if the choices are Bitcoin or worthless paper, then between those two, the decision is rather straightforward.
Ukrainians are slowly coming to the realization that these are their options.
Don’t think that any one of these similar countries is immune to political strife or war either.
Georgia has already given up a sliver of their country to Russia already.
And in an incredible set of events, 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.
The Ukraine’s government also approved the law on 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 determining 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 in 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 stable coins, 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 adoption into Bitcoin and other crypto 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 is well above $100,000.
Mad Hedge Bitcoin Letter
February 15, 2022
Fiat Lux
Featured Trade:
(RUSSIA POWER-UPS DOMESTIC CRYPTO INDUSTRY)
(BTC), (ETH)
Russian war? Yawn.
Is it a ploy to raise energy prices? Perhaps.
They have been in the news lately for all the wrong reasons and a diminished superpower invading Ukraine and Europe would have been financially devastating for a country with an economy the same size as the state of Texas.
The more important news for us crypto fanatics is the bombshell that was dropped on February 8th – The Russian government approved the concept of regulating the cryptocurrency market in Russia.
According to the plan, all transactions with digital money will have to go through banks, and already existing wallets will have to be deanonymized.
Russian leader Vladimir Putin forced the State and Central Bank to come together to propose numerous measures that should bring digital currency transactions out of the gray zone, as well as the timing of the implementation of these plans.
Judging by the approved concept, in the future, all cryptocurrency transactions will go through the banking infrastructure.
In order to open a wallet, and then buy or sell cryptocurrency, a person will need to contact the bank and go prove identification there.
The government believes that a complete ban on the crypto industry (as originally proposed by the Central Bank) or the absence of its regulation will lead to an increase in the share of the shadow economy, an increase in fraud cases.
The plan is for Russians, who have opened more than 12 million cryptocurrency wallets, on which about 2 trillion rubles sit to be an official part of the financial system.
It is estimated that almost 12% of the Russian population (about 17 million people) owns cryptocurrency.
What will government regulation lead to?
The cryptocurrency market in Russia is growing, so it needs legalization.
Market participants will be more fluid if crypto isn’t illegal which means that investments will flow into the industry.
This includes large institutional money from the traditional financial market, which is accustomed to working in conditions of strict regulation and licensing by the Central Bank.
The structure of the market after the introduction of new rules may change.
“Not all of the big crypto exchanges will agree to work in the new conditions because of deanonymized aspects of it and the government oversight.
Now all the largest sites are not Russian, and this will change. This sets up nicely for a domestic exchange that will cater towards the Russian language and possess Russian characteristics.
The government understood that the ban would completely exclude the Russian economy from the emerging global digital space, with all the ensuing consequences.
The Russian authorities took heed from China’s experience with crypto, where they completely banned cryptocurrencies and mining and which could have devastating effects on their future economy and currency.
The Chinese have bet on the digital yuan, which they are now implementing at full steam, hoping that in the future it will become the world's reserve currency.
Quite laughable, but that’s what they think.
Because of this decision, miners and investors fled the country for Russia, Kazakhstan, and other crypto-friendly countries and regions.
What about mining?
There could be a separate bill that will be devoted to mining, which will define specific territories for the "mining" of digital currency (similar to gambling zones) and separate energy rules.
I believe that the legalization of mining will have a positive effect and encourage an emerging mining industry to grow inside of Russia.
The state will have the opportunity to optimize energy, for example, load idle power plants, giving the surplus of energy to miners.
Ultimately, Russia is setting into motion the rules to encourage a thriving crypto domestic industry and reduce the cost of electricity for the population.
Sure, this undermines the spirit of crypto being a decentralized good, but Russia’s totalitarian government simply won’t allow a free-flowing crypto environment without oversight.
I believe that proven crypto coins like Bitcoin and Ethereum will be given the green light by the Russian government, and this would never happen unless Russia gets its cut as well.
Russia, which did its best to kick out the US tech industry, is hesitant to repeat the same antics as the loss of revenue and high-paying jobs over the long haul came back to bite the government.
On a wider scale, this will fortify and legitimize crypto as a real global risk asset and in the short-term, price action should benefit and move higher from here.
Ironically, Bitcoin has stabilized in the $40,000s and could move higher in the next month or two.
Mad Hedge Bitcoin Letter
February 10, 2022
Fiat Lux
Featured Trade:
(BITCOIN SECURITY ON THE UP)
(BTC)
Crypto and Bitcoin aren’t a perfect asset class, and it doesn’t pretend to be.
It’s still an emerging currency that still has holes to caulk.
One major item on the list that needs to be taken care of is security.
Bitcoin (BTC) itself is secure, but the exchanges that do business with you and I aren’t and that’s the underlying problem here.
When exchanges aren’t secure, they are ripe for hackers to raid and that is what happened to Bitfinex and Mt. Gox in Japan.
This is why I pound on the table to urge readers to get into the most secure crypto exchanges out there.
The exchange you do business on could go a long way in determining if you keep your crypto fortune in the future.
Just as crypto has boomed in popularity, the Feds have backed up the boom by acting like a good cop and tracking down the bad guys.
The Justice Department announced it seized more than $3.6 billion in allegedly stolen cryptocurrency linked to the 2016 hack of Bitfinex.
As part of the operation, authorities detained a New York couple on allegations they planned to launder the digital goods.
It has been recorded as the largest financial seizure ever by authorities.
The second largest theft came from the Japanese exchange Mt. Gox that got swindled in February 2014.
The exchange lost 850,000 bitcoins, worth about $474 million, but later found 200,000 of those bitcoins.
It still is a mystery as to who stole the coins at Mt. Gox and the exchange is in liquidation proceedings.
Let me also chime in by saying that the easiest way for theft to occur is an inside job in many of these cases as these web engineers know the system inside and out.
Despite the bad press and billions lost, crypto has continued its rise and adoption as a real alternative to the U.S. dollar and equities.
But security breaches are a reminder of the vulnerabilities of cryptocurrency technologies.
Every hack is also an opportunity to learn and grow resilient.
A bitcoin is actually just a secret number or piece of code. To transfer a bitcoin, a person must verify a planned transaction with a private encryption key. But if the private key is stolen, the attacker can steal the bitcoin.
Because all bitcoin transactions are recorded in the public blockchain, it is possible to follow the movement of stolen coins.
Bitcoins are transferred between 34-character alphanumeric addresses, which appear in the blockchain.
Bitcoin addresses don't reveal information about who controls the funds. But stolen funds are often difficult to convert to fiat currency. Exchanges usually have strict identification requirements for account holders to comply with anti-money laundering regulations.
Suddenly cashing out a large quantity of stolen bitcoins at a reputable exchange from a closely watched bitcoin address is unfeasible.
Even though the billions were stolen, the perpetrators' fingerprints were all over this crime as mentioned above, it’s hard to cash out stolen crypto because it can be tracked.
The couple who stole the Bitfinex funds found out this the hard way as Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31 were arrested.
Authorities accuse the pair of trying to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex’s platform after a hacker breached Bitfinex’s systems and initiated more than 2,000 unauthorized transactions.
Prosecutors allege that the transactions sent the stolen bitcoin to Lichtenstein’s digital wallet.
He should have just given them back since the authorities knew where the coins were sent.
Officials said they were able to seize more than 94,000 bitcoin, which was valued at around $3.6 billion at the time of seizure. In all, the total stolen bitcoin is presently valued at approximately $4.5 billion, according to the agency.
The arrest should deter future hacks because of the unlikelihood of cashing out once the secret bitcoin number is tracked to an individual wallet.
It will be years until hackers can get around this ID problem and as long as the Feds show they are serious about rampant crypto theft, then it should keep the crypto markets in check.
This is an unmitigated win for crypto and the security of it.
The playbook for crypto traders and investors should be to move to higher ground and only buy and sell on the biggest and best exchanges.
Some of the exchanges I might recommend are Coinbase, Kraken, Binance, Robinhood and Webull.
I probably wouldn’t deviate too much from these strong American exchanges that have the rubber stamp of approval from the overall consensus.
Caveat Emptor!
