Mad Hedge Bitcoin Letter
June 16, 2022
Fiat Lux
Featured Trade:
(FED SUPPRESSES CRYPTO)
(BTC), (CBDC), (FED)
Posts
The unthinkable just happened when the US Central Bank pulled the trigger on a 75-basis point rate rise which highlights the severity of broad financial trouble at the macro level.
This also underscores the need to sell Bitcoin to pay the bills for the median Bitcoin holder whether it be to keep the lights on, fill up the tank, or go to the grocery store.
These issues can’t be downplayed and dismissed anymore as even rich people are suffering from sticker shock as well.
One might believe that the 1,000 plus professional Ivy-league trained economists employed by the Fed might waltz into a supermarket to check out the prices.
Apparently not and what we have is an echo chamber which the group has firmly enshrined as the go-to strategy for our federal bankers.
Unfortunately, the insane price hike we are seeing is really killing cryptocurrencies’ mojo and that is terrible news for this cryptocurrency newsletter.
Crypto prices go up when there is an excess level of capital sloshing around the system due to bursts of overload liquidity like what we saw with fiscal stimulus measures enacted for a once-in-a-century arbitrary lockdown-society situation.
Now that the Federal government is taking away the punch bowl, extreme volatility in the stock market and crypto markets is rearing its ugly head and it doesn’t look pretty.
Sadly, the situation for crypto will get worse.
As the looming recession is brought forward by aggressive rate hikes, it means crypto holders will lose their day job, triggering yet another wave of mass crypto selling.
If they own a house, they will sell it because they won’t be able to afford the mortgage payments without a job.
Even if they are lucky enough to rent out their house, then finding their own place to rent will be impossible.
Rents are primed to explode higher as former homeowners turn into a wave of new renters fighting for the little supply on the market.
This means they will be paying more for shelter in a recession relative to their payments on their old mortgage before the recession.
This doesn’t seem like a great model for ensuring your customers have money to throw at crypto.
Also, these workers who lose their jobs won’t be able to find a new one right away if we are in a deep recession triggered by large rate hikes.
Companies don’t hire in deep recessions because they cut costs.
Making matters worse is that the entire crypto ecosphere is illiquid right now because of systemic risk brought about by panic liquidation from institutions.
The loss of confidence has infiltrated every corner of the crypto industry.
One must be insane to put new money to work which will result in zero dip buyers.
Good luck getting any real spendable dollars out of this mess.
The only ones that will end up net positive are the investors who got in SUPER early, and I mean really early like Bitcoin at 40 cents.
These fortunes earned in crypto can handle a downdraft like this or they have already cashed out long before to ride into the sunset on their horse.
If systemic risk starts to ramp up to unbearable levels, then stakeholders will be forced to beg the government to regulate it to prevent it from happening again - it will be replaced by a central bank digital currency (CBDC), the wildcat banking era of internet money will be effectively over.
The silver lining in the technology is solid.
However, this inflation problem really killed the crypto bubble for those who aren’t rich, and there lies the problem.
It’s never a positive result to bankrupt most of one’s customers whether it be from lower crypto prices, lower stock prices, or a cost-of-living crisis.
Crypto will need to reinvent itself for the next iteration if it plans to go on another epic bull run like we saw in 2021.
Mad Hedge Bitcoin Letter
June 14, 2022
Fiat Lux
Featured Trade:
(FROM BAD TO WORSE)
(BTC), (CELSIUS)
Crypto winter is here.
My short-term forecast of one Bitcoin (BTC) priced at $20,000 is coming to fruition as BTC undergoes a nasty selloff that was triggered by panic liquidating.
The price was around $28,000 per BTC this weekend, only for the digital gold to sink to around $23,000 on Monday morning.
The dip that was around 17% won’t attract any dip buyers right now because as a whole, the entire industry is a no-fly zone.
A store of value during high inflation?
It’s playing out unfavorably for BTC as consumers and investors trade with their feet by preferring a can of tuna over an unregulated controversy.
What really heaved fuel on the fire?
Another systemic risk flaming out of control.
Celsius, said Monday it was pausing all withdrawals, causing more pain in the fragile crypto market.
This could be crypto’s “Lehman moment.”
Freezing payment flows is the antithesis of a store of value which BTC and crypto experts claimed it was.
These events will stain the infrastructure of cryptocurrencies for quite a while until they can prove they aren’t such a half-baked operation.
Celsius mainly delt in lending crypto funds and just imagine the trajectory of the stock market if all banks froze withdrawals.
The stock market would open down 25% the next day.
We are having one of those moments in the crypto industry with no sight of help to save us.
Celsius is one of the largest participants in the burgeoning crypto lending space, with more than $8 billion lent out to clients and almost $12 billion in assets under management as of May.
Celsius, which offers users higher-than-average interest rates on their deposits, is essentially the crypto equivalent of a bank — but without the strict insurance requirements faced by traditional lenders.
It was just a few weeks ago when Celsius CEO Alex Mashinsky downplayed the company was having any trouble meeting withdrawal requests.
Either he was lying or the situation went from great to abysmal quickly.
I believe it was a combination of the two.
No later after Celsius froze funds, pandemonium came to the biggest crypto exchange Binance.
Binance said Monday that it is temporarily pausing bitcoin withdrawals “due to a stuck transaction causing a backlog.”
Crypto exchanges are brokers precisely, so trades don’t get “stuck.”
At first, Binance founder and CEO Changpeng Zhao said in a tweet that the issue would be fixed within 30 minutes. But he later amended that to say, “Likely this is going to take a bit longer to fix than my initial estimate.”
Crypto is going haywire and investors are pulling funds in droves, but the inferior infrastructure is overloaded by the withdrawal transaction volume.
Investors should stay away from crypto right now unless they desire to sell a rally through a Bitcoin proxy on the public markets.
Illiquid markets mean that slippage costs are high and trades might not get filled at all.
If an investor can’t pocket the proceeds, then all bets are off.
Investors might be waiting days if not weeks to receive their order.
The market mayhem has shown crypto to be an absolute inferior asset to that of any alternative.
Investors just assume tomorrow will be worse than today.
A massive loss of confidence is the last thing investors want to see happen to an unproven industry.
Lastly, this guarantees the pulling forward of heavy regulation from the Feds that will absolutely result in higher costs for not only the trader but every part of the crypto ecosystem.
Crypto has shown it isn’t able to self-govern and with that, a third-party organization will need to come in and determine the law of the land.
The price of Bitcoin will sink through $20,000 and I believe the next stop is $10,000.
Tighten your seat belts folks.
Mad Hedge Bitcoin Letter
June 9, 2022
Fiat Lux
Featured Trade:
(CRYPTO SACKS ITS WORKFORCE)
(BTC),
It’s a bad omen when crypto exchanges pull back from hiring and I am not talking about just a few people.
Drastic cuts are taking place as we speak in crypto land.
It was just a few years ago when no number of crypto hires could satisfy labor demand.
Yet, sadly, when an asset class has no cash flow, the effects to the downside can be quite nasty and often overshoot.
In an about-face that really shows investors the current dilemma in the crypto ranks, it will be a long time before crypto companies will feel the urge to ramp up labor capacity as they did when crypto surged to $65,000 per BTC.
Interest rates will need to be a lot lower as well since BTC has proven to perform well during a time of low inflation and cheap capital.
BTC has languished at around $30,000 during this bear market rally and it could signal that it won’t take part in the recovery.
Much of the capital has gone to safer pastures like the US dollar which has been a solid outperformer this year.
An even better outperformer would be energy stocks.
They have really set the pace for all asset classes in 2022 to the detriment of cryptocurrencies.
Gemini crypto exchange founders Cameron and Tyler Winklevoss are laying off 10% of the workforce at Gemini, a first for the U.S.-based cryptocurrency exchange and custodian.
They described it as a “contraction phase” known as “crypto winter,” which has been “further compounded by the current macroeconomic and geopolitical turmoil.”
Fellow crypto exchange Coinbase recently reported that revenue had fallen 27% from a year ago.
The last so-called crypto winter ran from 2018 into the fall of 2020 as the value of cryptocurrencies plunged and layoffs were rife.
L.J Brock, chief people officer at Coinbase, announced that Coinbase will not only extend its hiring pause for the foreseeable future but also rescind accepted offers.
The 180 rescinded offers are a bad look for the crypto industry yet again.
The industry is confronted with a barrage of legitimization issues and a tendency of creating poor business practices.
At the start of 2022, Coinbase’s plan was to boost its staff by 2,000. The company added 1,218 employees in the first quarter of 2022 alone, bringing its total headcount to 4,948.
Other fintech start-ups such as Robinhood and BitMEX have recently cut staff.
As many as 80% of tech workers are considering looking for another job, and more than half have actually applied for one since March.
It’s not surprising that a speculative asset class will shed workers at a time when the price of crypto has gone nowhere.
Higher prices lure in the incremental crypto investor and when that disappears, times can be lean.
Many of the investors that came in at the peak are sitting on huge losses and it’s hard to see where the next incremental investor will come from.
The crypto industry finds itself in a transition stage where the narrative has switched from the price of its bellwether coin to the infrastructures health and future regulation.
Many investors looking for that jet fuel to take BTC to $100,000 have left the building after the conditions which set BTC on fire have been quickly extinguished.
Now we are set for this painful transition stage where a speculative asset treads water and attracting the next undecided crypto investors becomes harder and harder until the infrastructure and use case improve.
Mad Hedge Bitcoin Letter
June 7, 2022
Fiat Lux
Featured Trade:
OVERSIGHT IS HERE)
(BTC), (FINRA), (CFTC), (DMO), (SEC)
Responsible Financial Innovation Act – that’s what they will call it.
Yeh, the Federal Government has seen enough of the sloppiness that masquerades as crypto infrastructure and they pulled the rug.
As many might know, there has been nothing responsible or innovative about fiscal matters at all lately with the Fed asleep at the wheel with hyperinflation.
Many of the talking heads like Transportation Secretary Pete Buttigieg continue to argue that more government spending doesn’t result in higher inflation.
So just imagine right now that crypto is about to go through the twilight zone of federal regulation where I am sure regulators will argue that layers upon layers of regulation are required to keep this asset safe and secure.
In short, this means higher costs and not just a few pennies.
Let’s get more into the weeds of the proposed crypto bill.
The bill is cornered by oversight from the Commodity Futures Trading Commission (CFTC).
The CFTC is overseen by The Division of Market Oversight (DMO) and I could easily see both of these regulators slapping two sets of their own unique fees for any crypto trade or account.
Next, it also gives “needed legal clarity” in how to handle customer holdings after the recent furor over customers’ tokens getting roped in with an exchange’s assets in the event the company goes bankrupt.
The administration has signaled it wants better custody arrangements in any crypto bills moving through Congress.
This won’t be free either.
Some sort of mechanism or escrow account will need to exist to make sure investors (in an uninsured asset class) doesn’t get dragged into a bankruptcy claim if an unregulated exchange goes under.
Also inserted, is language from a bill last year from Rep. Patrick Henry and others that sought to clarify the meaning of a crypto broker, especially hoping to protect wallet providers, software developers, and others from being snagged by certain tax reporting requirements.
This is the first step that will ultimately give regulatory access to the Financial Industry Regulatory Authority (FINRA) who forces all brokers to pass a series of tests to become licensed brokers.
It usually costs a few thousand dollars to go through these courses and these licenses must be issued by an official bank member and not some random LLC in the Cayman Islands.
There is specific language regarding oversight fees that would incur if the CFTC would monitor this asset class.
It’s anybody’s guess how exploitive these fees will be.
Lastly, comes the “innovation” part of the bill which to the Federal Government specifically means disclosure innovation.
Certain disclosures will be required to the SEC from companies raising funds through digital asset sales.
The approach also specifically gives SEC their chunk of change and a path to levy an SEC fee on the crypto industry.
As one might surmise, in totality, this will cost a lot and these proposals will need to meander through the congressional committees before it coagulates in its final form.
I will honestly say that the aggregation of debacles lately in crypto has shone a bright light on the gaps in the crypto industry.
They didn’t help themselves when they really needed to.
Crypto needs time the most, the time to develop itself as they see fit without 3rd party oversight. That chance has evaporated.
Just as disappointing, crypto has not participated in this latest bear market rally with high growth tech stocks and is down 5% this morning.
Disappointing all around for the crypto industry and this doesn’t help that we are staring at a crypto winter if crypto prices start to decouple with tech stocks.
There is a legitimate chance they might be left out of the recovery stage.
Mad Hedge Bitcoin Letter
June 2, 2022
Fiat Lux
Featured Trade:
(OFFLINE CRYPTO)
(BTC), (ETH), (SOL), (ADA), (XRP)
One of the first requirements to be anointed as a major cryptocurrency is to not be off.
This might seem highly intuitive, but many cryptocurrencies haven’t solved this one yet.
When a whole coin network is offline then the incremental investors look over to the greener pastures on the other side of the fence and ponder if it’s worth paying a higher premium for something that stays on.
Bitcoin can’t be turned off. Invest accordingly.
According to the Bitcoin Uptime Tracker, the Bitcoin network has been functional for 99.98742319836% of its lifetime.
I would consider that quite positive, even more so when I look at just what happened to altcoin Solana (SOL) which has been bundled routinely into the top 5 cryptocurrency conversation.
The Solana network has been plagued by a number of outages and it's been estimated that the proof-of-stake (PoS) blockchain has been down a total of eight times.
Each of these 8 times, the network suffers a massive loss of trust and confidence.
When an investor can’t get in touch with its capital on a network, that’s when full stop panic mode occurs.
It dumps insult to injury as the price has already tanked from $260 to $40 today.
Solana’s blockchain lost operational activity for over seven hours.
Solana’s development team has formally acknowledged some of the issues it was dealing with and how it “degraded performance.”
The team blamed “high compute transactions, which is reducing network capacity to several thousand transactions per second.”
Like many of the cloud companies plan for higher data usage by integrating more cloud data centers, the developers at Solana aren’t pre-emptively planning for bottlenecks.
That screams amateurism.
An investor must ask if this is the type of coin or network you want to put significant amounts of money on, and the answer is clearly no.
Only a fool would touch Solana even with its lofty $14 billion market cap.
Of course, with Solana going down again, the backlash has been relentless.
Many have joked if this is another Terra/Luna bankruptcy debacle even if Solana isn’t a stable coin.
Meanwhile, this gives credence to why investors should look to other coins such as ETH, XRP, and cardano (ADA).
Then there is the pure asset depreciation from being offline and SOL lost 9.9% in value against the U.S. dollar.
Coinbase also reported on Solana’s latest outage and noted that the exchange had to disable send and receives on the network.
Following last month's outage, one of Solana's recent improvements was supposed to resolve the network's congestion difficulties.
It’s not a secret that instead of a significant network update, the inverse has happened, and the Solana network issues have gotten worse.
Even worse, the repeated solutions appear to be mere stopgap measures with a high possibility of happening again.
These are terrible optics for a beleaguered crypto coin at a time when the entire industry is on the back foot.
The bellwether crypto coin Bitcoin has lost over half of its value triggering talks of a crypto winter.
Then mix in various implosions, developer mistakes, and high energy costs making crypto unprofitable to miners and there is a lot of negativity coalescing inside the industry.
In short, stick with the strongest cryptocurrencies namely Bitcoin and Ethereum, and don’t stray much further than that unless you are prepared to take a zero.
