Mad Hedge Bitcoin Letter
May 12, 2022
Fiat Lux
Featured Trade:
(LUNA BLOWS UP)
(BTC), (ETH), (LUNA), (UST), (MSTR)
Posts
Altcoins won’t age well and 99% of them will vanish before our eyes. The way in which they exit also may or may not cause financial contagion.
We need to stop the arrogance already.
Let’s just default quickly to Occam's razor and back of the envelope math shows that we can’t have 1,000’s of these crappy digital currencies masquerading as real ones.
We need a few good ones and that’s it.
Sure, we have tried and tested Bitcoin (BTC) and Ethereum (ETC), but these other worthless pieces of code are hawked by mostly snake oil salesmen who are looking for a quick buck by preying on the naïve.
So don’t get greedy.
I hear many crypto enthusiasts tell me their strategy is to buy the cheapest and most obscure crypto possible and hope for a moonshot.
That’s a fools’ strategy and the money is better donated to cure world poverty.
So what am I really talking about?
The supposed stable coin UST and LUNA which was supposed to peg its value to the US dollar broke in a severe way as the algorithmic that was intended to uphold this balanced ratio went haywire.
10’s of billions of real dollars were wiped out from investors as the genius algorithms messed up in a big way.
This contagion has had the knock-on effect of dragging the price of Bitcoin and Ether down as many might assume a UST or LUNA holders might need to sell BTC to get some liquid currency.
It’s been a giant risk-off move for crypto in every nook of the asset class and even worse, a massive loss of confidence for the industry as a whole.
This was a gift to the detractors who say that crypto is run by a bunch of idiots or charlatans or something of that ilk.
The value of LUNA plunged on Wednesday as Terraform Labs creator Do Kwon laid out a plan to save its sister token, the stablecoin TerraUSD (UST).
In the last 24 hours, roughly $10 billion have been drained from LUNA. Its price has fallen 93% in that time from $32 to $2.25 per coin, with the price changing rapidly each minute. After skidding to a low of 30 cents per coin, UST has ratcheted up more than a quarter to 64 cents.
Down 30% in the last day after breaking its essential $1 peg over the weekend, UST trades at above 64 cents per coin while Terra’s LUNA token rebounded 61% to $2.25 after dipping below $1 at 9 a.m. New York time Wednesday.
In the first sniff of market turmoil, stablecoins have failed miserably and it also incentivizes government regulation to shut them down.
This of course gives ammunition to SEC Chairman Gary Gensler to move stablecoins under his jurisdiction.
He would kill the development in a second by pelting it with so many fees, bureaucracy, delays, hidden regulations, and obstructions that stablecoins will be swept into the dustbin of history.
The contagion has led to Bitcoin falling lower than $29,000 and we are getting dangerously closer to the $21,000 threshold where MicroStrategy (MSTR) will get a margin call.
Sell every and any rally in Bitcoin, this loss of confidence can’t be understated and crypto has failed miserably to attract the incremental buyer in a rising rate environment.
Don’t catch a falling knife.
Mad Hedge Bitcoin Letter
April 26, 2022
Fiat Lux
Featured Trade:
(THE DOGE EFFECT)
(DOGE), (TWTR), (TSLA), (ETH), (BTC)
One of the more outsized second order effects occurring in the risk markets right now is the boost Dogecoin (DOGE) is receiving from the carnival atmosphere that is Elon Musk buying Twitter (TWTR).
DOGE is up 30% in the past week but down 500% from last May when DOGE experienced a euphoric ride up only to come crashing down.
It’s no surprise that Musk, through his EV company Tesla (TSLA), owns Bitcoin on its balance sheet and he’s on record lately admitting that Bitcoin is the only cryptocurrency that Tesla owns, and they haven’t sold any.
Personally, he owns Ethereum (ETH) and Dogecoin (DOGE) and he specifically mentions the reason for owning Dogecoin is because he likes dogs.
On the surface, it sounds ridiculous that Musk would speculate on an altcoin just because he likes dogs, but people also thought it was crazy he would buy Twitter for $44 billion.
Musk explained he arrived at the conclusion to buy DOGE through a well-known principle called Occam's razor.
That is a philosophical principle that states the simplest variant is usually the best choice.
He then goes on to explain that he subscribes to a variant of Occam’s razor where the most entertaining variant is usually the best choice.
He is entertained by Shiba Inu dogs so he buys Shiba Inu Alt Coins represented as DOGE coin.
Either way, his association with Dogecoin and Bitcoin has done wonders for its short-term price action with Bitcoin and other cryptocurrencies surging.
Perhaps this could be the reason for the short-term stabilization of crypto.
Other factors that could be lifting crypto are U.S. dollar holders looking for alternative assets during the highest inflation in decades; some buying after the American mid-April tax deadline passing; the war in Ukraine and the U.S.’s OFAC sanctioning of Russian bitcoin miners and the ongoing uncertainty about whether the Securities and Exchange Commission (SEC) might approve spot Bitcoin ETFs in the U.S.
Musk also said last month that he wouldn’t sell his dogecoin, and would also continue to hold bitcoin and ether.
Earlier this year, Tesla began accepting dogecoin for merchandise purchases on its website. DOGE holders could be hoping that Twitter under Musk’s leadership may see more of the same — a use case for the token. Late last year Twitter unveiled a tipping function allowing users to send creators bitcoin.
The way DOGE achieves higher price discovery is for the potential for dogecoin to be given more utility on one of the biggest social media networks once Elon has official control of the company.
Every incremental bit helps.
Imagine DOGE freely mingling in and out of Twitter accounts that highly entertain or Musk floating the idea that for $3, every account can get a blue checkmark which has traditionally signaled a large and influential account.
Paying this $3 using DOGE could be the way that Musk integrates DOGE is onboarded onto the Twitter ecosystem.
Other use cases could also find their way into the DOGE coin ecosystem such as a $5 vanilla Twitter registration fee and with a total addressable market like Twitter and the chance to monetize the platform in a different way, I wouldn’t put it past Musk that he has some sort of plan for DOGE, BTC, or ETH.
Musk has been a huge proponent of free speech and during a Ted Talk interview he said buying Twitter “had nothing to do with economics.”
That thought right there could lead to a one-way avalanche of crypto payments embedded all over his new social media company.
Don’t write off DOGE, the richest man in the world might keep pushing it to the public and we already know that every associated Tweet about it results in a higher price.
Mad Hedge Bitcoin Letter
April 5, 2022
Fiat Lux
Featured Trade:
(ETHEREUM’S WILD RIDE)
(ETH), (BTC)
The price of Ethereum has doubled from $1,800 last July to $3,500 today.
Throughout this newsletter, I have been preaching to readers that price appreciation will be higher in Ether than it is in Bitcoin.
Ethereum simply has better technology and is a better bet in the long run and sadly for Bitcoin, they are further along in their maturation cycle therefore the explosive up moves are confined by the law of large numbers.
It was simply almost a given that Ethereum would go from $1,000 to $3,500 and it’s really only a matter of time until they break $5,000 and then $10,000.
This is the second most popular cryptocurrency and although not a great store of value yet like Bitcoin, its fan base is growing by the day.
Here are a few answers for Ether fanatics from typical Ether questions.
Crypto investors always need more fine-tuning and know-how about cryptocurrency.
ETH is a great buy-the-dip opportunity for crypto diehards, and I believe there is clear sailing until $10,000.
Frequently Asked Ethereum Questions
Where's the best place to buy ETH?
There are many centralized exchanges that support Ethereum. If you live in the US, the most frequented exchanges are Coinbase, Gemini, and Kraken. Coinbase users can use Coinbase Pro for lower fees.
When is Eth2 launching?
Eth2 is a marketing term used to represent a number of updates to Ethereum. The Eth2 proof-of-stake chain was first launched in December 2020. "The Merge", which is the event that will fully switch Ethereum's consensus to proof-of-stake, is estimated to be ready in early 2022, although there is no exact timeline. Other updates, such as data shards, will follow that update.
Do I need to do anything to update to Eth2? Will Eth2 create a new token?
No, ETH holders never need to take any action to keep holding ETH. Ethereum users will be unaffected by the Eth2 upgrade. And the Eth2 updates will not create any new tokens.
How can I stake my ETH?
There are two ways that you can stake your ETH: by either running your own validator or providing your ETH to a staking pool.
Running your own validator requires a modern computer and 32 ETH.
Staking pools accept any amount of ETH. I recommend Lido or StakeWise.
Why are Ethereum transaction fees so high?
Like most blockchains, Ethereum fees are determined by supply and demand. The large demand to use Ethereum has pushed transaction fees quite high (however, fees were just a few cents only 2 years ago). Fees are especially high during market volatility, and during NFT drops.
What is being done to lower Ethereum transaction fees?
Ethereum fees are reduced by using layer-2 rollups. Rollups are scaling solutions that allow for significantly cheaper transactions, while still maintaining Ethereum's security.
Additionally, Eth2's data shards will make rollups even cheaper.
While rollups are cutting-edge technology being actively developed, a number of them are already live on the Ethereum mainnet.
What's the best wallet for Ethereum?
The most popular tool for using decentralized applications is Metamask. However, for security reasons, I recommend using a hardware wallet such as a Trezor or Ledger.
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 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.
