Mad Hedge Bitcoin Letter
January 20, 2022
Fiat Lux
Featured Trade:
(PAY FOR YOUR HOUSE IN BITCOIN)
(BTC), (MILO)
Posts
Crypto continues to benefit from higher adoption rates and although it doesn’t filter down to the price of Bitcoin (BTC) immediately, it bodes well for the long term.
I am even surprised myself with how Bitcoin has transformed from a speculative asset into something more sustainable.
There have been several events that have also hastened the adoption of crypto and one of the transformational events was the advent of Bitcoin ETFs that are accessible for the average investor.
This was never the case before as people were highly confused about how to participate.
The next monumental shift on the verge of sweeping up another avalanche of new capital is the integration of crypto into the American property market.
Most Americans’ net wealth is tied to their home and, United Wholesale Mortgage – the second-largest US mortgage lender – announced a move to crypto payments last August.
However, despite widespread popular sentiment for the initiative from potential customers, the company gave up on the idea shortly afterward.
The regulatory uncertainty alongside market volatility was cited as the two main headwinds.
Nonetheless, the trend is moving in favor again as the first bitcoin mortgage offering was announced on Tuesday: confirming that while the regulators lack drafting a framework.
A real estate fintech company Milo announced the launch of the world’s first crypto mortgage: enabling borrowers to leverage their bitcoin holdings to buy real estate in the United States.
CEO of Milo Josip Rupera said that customers could obtain bitcoin-backed loans by using their bitcoin holdings as collateral for purchasing a property.
Customarily, first, customers needed to sell their crypto balance for a down payment by converting it into fiat currency.
However, Milo now allows US citizens and foreigners to qualify for a US-based mortgage based on their BTC holdings.
This is another indicator of BTC being massively valued as a form of alternative payment.
Milo offers crypto loans and has promised to expand their debt offerings to BTC holders.
Milo’s clients will be able to pledge their bitcoin to purchase property and finally qualify for a low-interest rate 30-year crypto mortgage.”
The company clarified earlier that ‘no dollar down payments’ would be required to finance the mortgage: making the procedure faster and more efficient. However, an obvious question pops up again: what about the sharp movements in the price of bitcoin acting as collateral?
Similar to other crypto loans, the crypto-mortgage would be launched with a margin-call component.
Milo would then underwrite the customer, evaluate the property, validate other aspects of creditworthiness, and ultimately facilitate a successful transaction.
If, however, the crypto drops in value, the borrower would be subject to the deficit amount if the assets are underwater.
Milo would allow the borrower to pay in fiat currency or pledge more crypto to adjust the margin account to its minimum maintenance margin.
Attaching itself to the coattails of the most stable asset in America could act as the panacea of crypto’s evils.
Expert bang on saying crypto is a poor store of value, well, if it's used to underpin an American house, then that argument goes out the window.
Making a path from Bitcoin to real estate debt is genius.
Milo has been planning this business since last year. The goal was to allow crypto holders to bypass the complex hassle with traditional banks and lenders, which barely consider crypto as an asset class. Instead, the company aimed to offer an alternative route to buy real estate.
Milo estimates that the crypto mortgage market could be worth tens of billions of dollars soon.
The marriage of mortgage lending and crypto would be the elixir to finally kill that volatility that many don’t like about this asset.
There’s nothing more stable about a physical home and the U.S. property market underpinning crypto is essentially the holy grail of the crypto industry into how this asset can really mainstream into every part of the U.S. economy.
Until then, accepting heightened volatility is part and parcel of crypto, and crypto settling in the $40,000 range shows that crazy fluctuations aren’t as common as they used to be.
To check out more about a crypto-backed mortgage or if you are thinking about taking out a crypto-backed mortgage, go to Milo’s homepage by clicking here.
Mad Hedge Bitcoin Letter
January 18, 2022
Fiat Lux
Featured Trade:
(SELL THE RALLIES)
(BTC)
The interest rate hangover continues to hammer the leveraged crypto markets as the price of bitcoin (BTC) is stuck in neutral.
The silver lining around this whole situation is that Bitcoin hasn’t crashed and is clinging onto that $40,000 level which appears to be the proverbial line in the sand.
I can’t say the same for tech stocks who have been shown no respect whatsoever in this sell-off and will continue to get shut down until investors feel an interest rate bottom can be formed.
Short-term bearish signals are running riot with retail investor sentiment on social media turning negative since late last year with the recent downward price momentum providing a self-fulfilling prophecy.
Taking a barometer of the social media forums shows us what’s bubbling under the trading surface because bitcoin traders coalesce around these forums to offer us insight into the real mentality of traders.
Bitcoin’s market capitalization has tracked the growth of the global money supply since late 2013.
The annual change in money supply hit a high-water mark in February 2021, while bitcoin’s annual growth rate reached a peak a month later in March and these two are very much correlated.
In the long run, cryptocurrency’s usage as a payment exchange of value is what will give us higher prices.
The problem I have right now is with how the market is starting to view crypto assets in the short term as a speculative type of technology asset even though that’s not entirely true.
To get down to the nuts and bolts, crypto and its nascent industry haven’t matured enough to shake that speculative label and now they are getting penalized for it with higher interest rates.
Truthfully, crypto still needs the perfect storm of variables to go its way to supercharge the price of crypto, and recently many of these variables have reversed.
The result is the incremental Bitcoin trader fleeing the asset like rats fleeing a sinking ship.
Recent data showed that bitcoin’s correlation with the M1 money supply has risen to 0.77, suggesting a strong statistical relationship between the two.
But with the Build Back Better legislation halted, where does the incremental free money come from?
There are still many long-term positive signals coming from the crypto industry like rampant hiring.
Crypto jobs pay well and offer high salaries — even more importantly, they are highly appealing to Generation Z which has a good 50 years of work in them ahead.
The positive trend in crypto careers will mean more innovation leading to a better product.
Crypto hiring outstripped price action in 2021, as crypto job searches soared by 395% in the United States alone, according to LinkedIn.
Critically, the crypto industry outpaced the wider tech industry, which also saw overwhelming hiring success, almost doubling its number of job listings. However, at 98% growth, the tech industry pales in comparison to crypto jobs, which gained a whopping 395%.
Also, I’d like to point out that tech jobs are starting to bleed over into crypto jobs as the early iterations of the metaverse are being hammered out.
This is occurring through the gaming industry which has been earmarked as the launching pad for the future internet 3.0 or metaverse.
Eventually, these two sectors will fuse together which is highly bullish for the price of crypto.
Some type of crypto offspring will be needed as a payment vehicle inside the metaverse.
Sure, we aren’t there yet but it’s coming soon.
The lions’ share of job postings was in software and finance, other industries are also seeing a rise in demand for crypto talent.
These include professional services like accounting and consulting, as well as the staffing and computer hardware sectors.
Platforms with the most generous crypto hiring - Coinbase has over 250 openings, Kraken over 300, and the world’s most active exchange, Binance, lists more than 600 job posts.
There are healthy signs under the surface but hiring will be killed if Bitcoin is cut in half.
At this level of $40,000ish, the price still justifies another wave of hiring which is why holding these levels is utmost critical to the short-term direction of Bitcoin.
From a trading point of view, I would sell any substantial rally short-term in Bitcoin until we get more visibility about monetary policy.
Mad Hedge Bitcoin Letter
January 13, 2022
Fiat Lux
Featured Trade:
(THE TURKISH LIRA AND THE DEATH CROSS COME INTO PLAY)
(BTC), (LIRA), (ETH), (USD)
The infamous Death Cross is just around the corner again staring us in the face as another potential liquidity event could drive us lower or higher.
Even if you don’t fancy dealing with this phenomenon, algorithms lap it up and these technical events signal short-term price momentum and the direction of it.
To get even more exact, the death cross is the situation in which an asset's average price over the last 50 days drops below that of its 200-day moving average, an indication that its momentum is toast.
And this event is even more scrutinized after Bitcoin’s disgusting start to the year that has left it languishing in the lower $40,000s.
Not exactly the start we wanted and lots of complaints about the dufus called Fed Chair Jerome Powell and his handling of monetary policy.
Now, we should zone in on the big whales — the ones that hold massive amounts of Bitcoin and by that, I don’t mean 1 BTC or 1.2333 BTC.
All eyes are on them, many have said they will hold until infinity, but that’s easier when you bought BTC 10 years ago and not at $60,000 per unit which is what many retail traders did last year.
As we inch towards the vaunted death cross, will this trigger a 10% escape hatch that deadens the asset?
So far in 2022, Bitcoin has outperformed for just a few days and has been under relentless selling pressure.
To make matters worse, Ethereum appears to be forming a death cross as well.
The macro turning putrid has had a meaningful effect on the drop of Bitcoin prices, and if BTC can get through this death cross quagmire by holding onto the $40,000 level, then that could signal greener pastures ahead in the mid-term.
Speculative investments like Bitcoin are being abandoned under such aggressive tightening. Reports show only 5% of the clients surveyed by JPMorgan Chase expect Bitcoin to reach $100,000 per piece by the end of 2022.
Although the "death cross" is a bearish indicator, Bitcoin's historical record surrounding the indicator remains unclear. When the metric appeared last June, Bitcoin’s performance was dismal. But when the metric appeared last March, Bitcoin’s performance was strong. The emergence of this indicator in November 2019 sent Bitcoin lower.
As the U.S. economy is grappling with rip-roaring inflationary prices searing through the consumer prices to home prices, emerging countries are doing so bad with inflation that some are already completely giving up their own fiat currency.
Sure, El Salvador sucked up all the headlines for nationalizing Bitcoin as the de-facto medium of exchange for their citizens, but Turkey and its massive population of 84 million straddling the European continent have comprehensively pivoted towards Bitcoin as hyperinflation wrecks the purchasing power of the Turkish Lira.
The situation in Turkey is what crypto fanatics want to happen in the United States and it also represents what could unfold if the US Federal Reserve neglect doing their job.
Luckily, we are nowhere near that yet.
The Turkish lira has become so unpredictable that bakeries are closing down by the thousands citing a local currency that has lost most of its value.
In Turkey, cryptocurrency trading volumes using the lira exploded to an average of $1.8 billion a day across three exchanges, according to blockchain analytics firm Chainalysis.
Turks favor stable coin tether, whose value is pegged to the dollar.
The rise of cryptocurrencies in recent years has presented a unique tool kit in which to store wealth, albeit far more volatile, and the shortage of US dollars circulating has forced the hand of the average Turk.
The Turkish lira has lost 40% of its value against the U.S. dollar in the past 5 months.
In the capital Istanbul, on the ground level, the local bazaars are accepting Bitcoin as standard currency over their own Turkish Lira.
This trend could mirror the future for some of these marginal economies that are run into the ground by renegade dictators.
Although the U.S. Federal Reserve has been irresponsible, the degree of policy mistake in Washington is nowhere near as atrocious as the events in Turkey.
There are numerous countries whose population could resort to crypto as a store of wealth including every ex-Soviet republic, big swaths of the Middle East, and major areas of Central and South America along with all of Africa.
My guess is that over time Bitcoin gets elevated as the de facto third currency behind the U.S. dollar and Euro. At this point, Bitcoin is too big to fail and too big to get rid of.
In a time of desperate need and no access to dollars and euros, Bitcoin is giving hope to large parts of the world as the pandemic and omicron inches closer to their shores.
Wait out this sideways correction then we march higher.
Mad Hedge Bitcoin Letter
January 6, 2022
Fiat Lux
Featured Trade:
(THE US FED MOVES FRONT AND CENTER)
(BTC), (ETH)
The US Central Bank has confirmed our biggest fears — they plan to move faster than expected to head off hyperinflation that is crushing the cost of living in the United States.
Bitcoin has never been through this type of scenario before and the bad news for us is that Bitcoin is negatively correlated with the yield of US 10-year interest rate.
The price of crypto isn’t looking past the secular drivers of inflation, mass adoption, and store of wealth at this point because the Fed has usurped the narrative and is front and center.
The Fed is the driving force now of every asset class in the world from fiat currency to housing prices to tech stocks, yes, they are that influential.
I don’t want to sound like a broken record but until there is some sort of solution or handoff creating an easing in the accelerating interest rate expectation, Bitcoin and other cryptocurrencies are capped to the upside and exposed to the capriciousness of rate fluctuations.
The price movement tells the story of the digital gold dropping to the lowest level since its December flash crash as the first month of trading appears to have generated the conditions for unimpressive performance.
I say that because in the world of cryptocurrencies, conditions can turn on a dime, but in the short term, cryptocurrencies of all flavors will have a hard time re-accelerating.
If you had to choose one crypto to hang out in, I would choose Ethereum (ETH) because it will outperform relative to bitcoin in the long run.
This weakness won’t be the case forever. We simply need an event to greenlight the movement into crypto and that will happen sooner than later.
Bitcoin has surged by about 500% since the end of 2019 in the wake of stimulus measures put in place during the Covid-19 pandemic.
Tokens of popular DeFi applications including Uniswap and Aave are also down.
Certainly, this won’t be a buy-and-hold type of year where the price goes in one direction.
The knee-jerk reaction came out of nowhere and buyers of crypto must reload their bullets for when the time comes.
The weakness has really been in all subsectors such as bitcoin mining stocks which took a beating as analysts reconsider their outlooks after a record-breaking year.
Bitcoin had climbed to a record of almost $69,000 in early November after U.S. regulators allowed Bitcoin futures-based exchange-traded funds.
A secondary reason for today’s weakness is the geopolitical flare-ups in Kazakhstan.
The internet shutdown all over the country due to protests against inflationary pricing meaning mining computers are down.
Why does this matter?
Kazakhstan is the second-largest country for Bitcoin mining, with 18% of Bitcoin’s computing power, so the internet shutdown caused a 12% drop in Bitcoin’s hash rate within a few hours.
The hash rate is not directly correlated to the price of Bitcoin, but it gives an indication of the network’s security, a drop might scare investors in the short term.
Kazakh miners are still offline and it’s yet to see how the situation shakes out in the small Central Asian country.
The reason for these protests were inflationary prices which is a common theme all over the world and particularly higher energy prices will hurt the Kazakh bitcoin mining sector in the long run and could shift them to other jurisdictions.
Mad Hedge Bitcoin Letter
January 4, 2022
Fiat Lux
Featured Trade:
(BITCOIN HOLDS STEADY)
(BTC), (MSTR)
After Bitcoin’s asymmetric rise to $65,000, the pullback to $45,000 has been hard on all of us.
The momentum sucked out of the asset shows how fortunes can turn on a dime, but that doesn’t mean the price of Bitcoin is dead, it’s just resting.
Without pussyfooting around, the truth is that Bitcoin is highly volatile which is why I do not encourage readers to bet the ranch on it at any moment in time or on any sort of cryptocurrency.
Even the use case of it is constantly attacked almost similar to when Tesla wasn’t Tesla yet and many emerging asset classes but go through teething pains before they mature.
The bottom line is that as volatility increases, the potential to make more money quickly also increases.
Conversely, the bad news is that higher volatility also means higher risk.
When elevated volatility consumes asset prices, the possibility for above-average profit is squarely on the table, but you also run the risk of losing a larger amount of capital in a relatively shorter period of time.
That being said, it’s salient to take measure of what’s going on beneath the surface in order to take a barometer of the health of the industry development.
We aren’t in the business of buying apartment buildings with tofu-like foundations.
This disciplined approach will help you successfully navigate higher volatility asset classes and manage volatility for your benefit—while minimizing risks.
Beneath the surface, the quantity of Bitcoin (BTC) held by private corporations increased significantly during 2021, improving on the 2020 signaling a maturing of the asset class.
Many fortune 500 companies and a smattering of other public companies have scooped up significant Bitcoin purchases and are highly exposed to Bitcoin on public equity markets.
They mainly do this by buying newly minted crypto ETF’s which there are an ever-growing number of choices even though some have chosen to buy directly from crypto brokers.
This isn’t the Bitcoin of 2 years ago, things have moved on quite drastically.
And I am not just talking about MicroStrategy (MSTR) who have been outspoken about their commitment to the digital gold.
MSTR has also been a huge supporter of online seminars aimed to explain the legal considerations for firms seeking to integrate Bitcoin into their businesses and reserves.
As you see, not all companies use Bitcoin the same way, and public corporations are increasingly viewing crypto as contained to only one part of their balance sheet.
For some, they have made it their entire balance sheet on the backs of corporate bond issuances.
This is of course never happened 2 years ago.
CEO of MSTR Michael Saylor’s is a leading business intelligence firm and is known for being particularly bullish on Bitcoin, owning almost $6 billion in crypto assets.
MSTR just bought another 1,914 Bitcoin worth $94 million. The company has gained more than $2.1 billion in profit since its initial Bitcoin purchase in August 2020.
The data shows that digital currency asset management company Grayscale, a de facto bitcoin ETF and proxy of Bitcoin, had gained the highest market share by a landslide at 645,199 Bitcoin by the end of 2021. This took up 71% of the wider market as holdings of all spot ETFs and corporations together totaled 903,988 Bitcoin according to the chart.
MicroStrategy is the largest corporate investor, holding 124,391 Bitcoin valued at around $5.8 billion, according to Bitcoin Treasuries. Second-placed Tesla holds around 43,200 Bitcoin worth roughly $2 billion at current prices.
In 2020, the amount of Bitcoin held by public companies surged 400% in 12 months to $3.6 billion and 2021 showed more inroads while 2022 is poised again to shatter records.
Internally, Bitcoin and cryptocurrencies as a whole are making the right moves to consolidate this asset class as a legitimate industry whether it be DeFi apps or the growing adoption rate.
I see more public companies participating in Bitcoin as a resounding vote of confidence for the currency and this will put the asset in good stead for the long term.
For the short term, the signaling of higher interest rates has really put the kibosh on the price of Bitcoin, but that should be priced into the equation at this point.
The Fed then moving not as fast to raise could offer crypto that narrow path to higher prices.
At the very minimum, the Fed has stolen crypto’s thunder and all attention has gravitated towards what they will do next, and we can see that in how Bitcoin prices have fluctuated because of that.
I expect a slow grind up from the mid-$40,000 if the Fed signals to investors that they will raise rates slower than first imagined.
