Mad Hedge Technology Letter
May 24, 2024
Fiat Lux
Featured Trade:
(CBDC BANNED BY THE HOUSE)
(CBDC), ($COMPQ)
Posts
The US House of Representatives passed a bill effectively banning the Federal Reserve from creating a digital version of the dollar.
Even though this action doesn’t specifically target the tech sector, the tech sector ($COMPQ) has a lot at stake in this bill.
First, the irony here is how polarized the US Central Bank has become in Washington to the point the Federal government wants to ban something from them.
It’s like taking away a dangerous toy from a baby.
It signals there has been a massive failure at the Fed with its blown “transitory inflation” call that has lasted over 4 years.
The Fed could equally screw up the onboarding of the digital dollar, if it ever happens, the U.S. financial system might never recover.
The vote passed but it still would need approval from the Senate and then signed by the President for it to become US law.
Still, as one of the chief opponents of the Bill, Rep. Maxine Waters, put it, "In fact, if this bill becomes law, we would be the only country in the world to ban a CBDC." Prohibiting "innovation" on the central bank digital currency front seems like a policy miss at first sight.
Waters has this backward.
The U.S. adopting a digital dollar would stifle tech innovation.
Money earmarked for innovation would likely go into capital that isn’t tightly controlled and tracked.
Innovation usually happens when big risk-takers deliver big ideas and the implementation of CBDCs would mean that tracking technology could shut down any “big idea” from the top.
China has tried the e-Yuan which has been a massive disaster with little uptake in the project.
Innovation thrives in an environment that offers freedom for the big picture thinkers, and a 3rd party tracking and monitoring apparatus isn’t good enough.
In fact, if CBDC were implemented, it would be the end of US-led tech innovation in modern history.
Few would take risks because it wouldn’t be worth innovating in this type of currency when there are others that would step over the line of privacy.
Scamming would be off the charts as well in this scenario.
Inserting unparalleled surveillance and individualized control would choke off free business and ideas become sterilized.
Anything new laid out would face a gauntlet of obstacles before getting anywhere near a consumer.
Think about all the middlemen on the way nickel and diming you the death as well. We already have that with the blown transitory inflation call by the Fed.
I am a believer that the less government, the better for tech business.
Europe is the poster boy for government-led innovation stifling.
There are no competitive tech companies in Europe that can compete with Silicon Valley because a tech innovator would be crazy to start and grow a company in Europe.
Europe is hostile to free business and tech innovation. They know how to tax and do it highly.
I could easily see how an integration of digital currency could end up in a dystopian situation if carried out by the wrong government.
Of course, the banning of CBDCs at the House level is a good sign that America is open for business, but it will need to become enshrined in law to have some bite.
If CBDCs are implemented by the Fed in the future, 90% of the Nasdaq market would fail leaving just 7 tech stocks.
It would in fact amplify the lack of competition that we are facing these days in the US tech sector.
I am bullish on the tech sector if integration of CBDCs by the Fed and Congress are banned.
Mad Hedge Bitcoin Letter
June 16, 2022
Fiat Lux
Featured Trade:
(FED SUPPRESSES CRYPTO)
(BTC), (CBDC), (FED)
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.
