Mad Hedge Bitcoin Letter
January 6, 2022
Fiat Lux
Featured Trade:
(THE US FED MOVES FRONT AND CENTER)
(BTC), (ETH)
Posts
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
December 30, 2021
Fiat Lux
Featured Trade:
(CRYPTO PASSIVE INCOME THE RIGHT WAY)
(CELSIUS NETWORK), (BTC), (ETH), (SNX), (CEL), (LINK), (UNI), (AAVE)
So global yields are in the toilet today?
Savings accounts don’t do what they used to do, do they?
How about we try out a certificate of deposit (CD) to harvest some cash?
Are there simply no other interest-bearing vehicles one can park capital in and gain a healthy return?
I would say you are right, but then I would be the fool here and I am certainly not in that line of work.
I will tell you — there is an elixir to the anathema!
Enter Celsius.
Celsius is a crypto-based financial service hoping to disrupt traditional financial services.
They offer cryptocurrency savings accounts that yield high annual interest rates up to 17% annually. They do this by lending cryptocurrency out to institutional and retail traders who seek to leverage their positions.
Since these platforms require collateral to receive a loan, investors can be sure that the loan will be paid back one way or another.
While these rates are floating interest rates, meaning they can change with the market, they’re relatively stable month-over-month.
These loans are over-collateralized, which means the risk of default is lower than it would be for a standard loan. To this day there has never been a default for any coin on this specific cryptocurrency lending platform.
How Do Celsius Make Money?
Celsius primarily generates revenue through its crypto lending service. The company lends assets to users at a higher interest rate than it pays them for storing their assets on the platform.
Celsius has more cryptocurrencies available for interest-bearing accounts, including BTC, ETH, SNX, CEL, LINK, UNI, and AAVE to name a few.
Payouts and Withdrawals
Celsius users can withdraw their funds at any time without incurring additional fees. Those who wish to withdraw over $50,000 with a single transaction need to wait 24 to 48 hours for it to process. The company makes its weekly interest payments on Mondays.
Let the compound interest payments pile up all while exposed to minimal market risk.
Celsius confirms its holdings of $20,366,621,718 in cryptocurrency assets as of August 13, 2021.
In less than one year, Celsius has grown its total asset holdings from $1 billion to over $20 billion.
Do you want to be part of this 20X growth story?
As part of its Proof of Community (POC) and rewards explorer, Celsius provides real-time data about its assets, loans, users, and rewards paid.
This asset growth trajectory is parabolic with Celsius confirming it is adding close to $1B a month in new assets, as the company trends towards the number one position in total asset holdings in the crypto industry.
For years the traditional banking business has conditioned us naïve folk to accept steep fees and no yield earnings on holdings as the status quo.
I will tell you right now that it’s a load of garbage and nobody should accept these pitiful offers from dinosaur banks.
There is so much more out there that we can access now because of crypto.
With that failing model ripe for disruption, Celsius was built to give consumers what banks never could — a community-oriented platform that provides income and financial independence and it delivers it with a bang.
At the start, Celsius had set a goal to bring the next 100 million people into crypto. Today, they have over 950,000 users worldwide.
Celsius has even just launched its crypto-backed lending service in California following regulatory approval.
The California expansion enables the firm to enlarge its footprint in one of the fintech capitals of the world — California.
The firm claims that it now is "one of the most accessible and affordable lenders in California."
The loans can be issued in both United States dollars and stable coins, the minimum loan value is $500, the process is instant, does not need proof of income or credit check.
You are not dreaming — this is the real deal.
Wake up to fresh crypto interest payment receivables on Monday morning easily convertible into fiat currency.
Participate in one of the most unique crypto deals in the world.
To check out this deal of a lifetime, click here to visit their website.
Mad Hedge Bitcoin Letter
December 7, 2021
Fiat Lux
Featured Trade:
(THE BITCOIN BULL STORY IS IN-TACT)
(BTC), (ADA), (ETH)
No, the Bitcoin bull market is not over, but we won’t get our Santa Claus rally this year.
The short-term reversal in prices has been encouraging, but I do expect further bouts of volatility to occur most likely in early January.
We received some great signaling that capital isn’t bolting out the back of the stable with Bitcoin returning to over $50,000 overnight inspired by one of the largest wallets to buy the equivalent of $137 million more Bitcoin.
This Bitcoin whale is loading up again here, even though so many people and fake bitcoin keyboard warriors are saying that we are now in a bear market.
I don't see any confirmation of the bear market yet as no key support has been lost.
This wallet holder upped the ante overnight with a single purchase of 2,700 BTC — taking their total to 118,017 BTC.
The buy crushes previous recent transactions and increases the holder’s balance to breathtaking record levels.
This is officially the highest number of BTC ever held in this wallet: 118,017 BTC, in total this big spender has poured $2.5B USD to buy BTC with an average cost basis of $21,160 per BTC.
Interest and demand in Bitcoin rose a lot in 2021 despite the volatility. More than half of current investors got in over the last 12 months, adding another positive data point to the Bitcoin narrative.
In a survey of 1,000 people, about a quarter said they already owned Bitcoin and of that 55% said they started investing this year.
The results highlight the explosive growth cryptocurrencies have seen this year as investors plowed money toward the volatile asset class amid growing mainstream adoption.
It is becoming increasingly difficult for investors to ignore Bitcoin as its price continues to rise.
Major altcoins have also reversed course with this relief rally.
Ether (ETH) rallied 11.4% Tuesday, outpacing BTC in a pattern mimicked by several other large-cap tokens.
Other altcoins like Cardano (ADA) and Litecoin are up over 9% validating my thesis of altcoins outgaining Bitcoin for the catch-up trade.
I don’t believe that this weekend's crash can partially be blamed on the US congress' upcoming questioning of top crypto executives. Nobody knows yet how badly this investigation will impact the market, but I wouldn’t say anything meaningful will happen.
In fact, much of the volatility has been caused by poor communication from the US Central Bank that peaked with US Fed Chair Jerome Powell signaling the Fed will move faster than expected to tame inflation.
The algorithms had a field day dumping positions in volume.
Consensus had it that interest rate expectations would largely be left alone this December, but the Fed signaling that they plan to move earlier to break off the inflation genie caused all risk assets into a short-term tailspin.
That being said, I don’t believe the Fed will do more damage the rest of this month, and we should experience a relief rally into the yearend.
I would double down and say the Fed could have waited until January, because everyone understands how bad inflation is running its course, and it was largely baked into the market.
To get ahead of the next CPI inflation number is definitely a knee-jerk reaction and if the Fed has more of these fast pivots in 2022, we will experience a 10-15% correction in Bitcoin each time.
Long term, the US financial system will not be able to stave off highly inflationary policies, it’s like a drug addiction that can’t be shaken off.
Triggering inflationary-backed economic growth is the only way to make a dent in the federal debt hole, it just means that home price and wages will be a lot higher in nominal terms every year.
I merely see this short-term swoon as one step backward before we push forward again with the wild inflation.
People in the know have acknowledged that many corporations are building up reserves for 30% increases for 2022 salary and that is not a typo.
Mad Hedge Bitcoin Letter
November 23, 2021
Fiat Lux
Featured Trade:
(THE STRONG BREADTH OF CRYPTO)
(BTC), (ETH), (ADA), (SOL), (UUP)
The price of Bitcoin (BTC) trending lower to $57,000 is still an extension of the taproot upgrade that saw traders take profits recently.
An 18% pullback has already happened two times earlier this year, but each time Bitcoin came roaring back.
A clear uptrend on the chart means the price of Bitcoin is making higher highs and higher lows reinforcing that Bitcoin is still forcing itself in an upward direction.
So this isn’t that big of a deal in the bigger scheme of things.
Bitcoin, by its very nature, is a highly volatile asset to begin with, so we will see wild upswings and cruel selloffs.
In fact, bullish corrections are indicative of healthy behavior.
Many need to understand that Bitcoin won’t just go up in a straight line even if they want it to.
What’s more interesting is that even though Bitcoin has had a tough time lately, altcoin capital flow has been highly encouraging.
Various altcoins have done well this year with Ethereum (ETH) returning 600%, Solano (SOL) up 9,300%, and Cardano (ADA) up 1,050%, and these are just a few.
Many more have had great degrees of success.
What we are seeing is bitcoin starting to somewhat mature even if it is still in the early innings.
However, many of these altcoins are still at the top of the 1st inning and the lunging growth can be found at the inception of its growth phase.
Broad-based strength of secondary coins was just a pipedream a few years ago, even Bitcoin was a suspicious word, yet the participation of a wider swath of cryptocurrencies means that money which would have been earmarked for Bitcoin a few years ago has now gone into more obscure coins looking for a quick 10X bagger.
I still do believe there will be major buyers in the upper $50,000 levels unless a black swan really tanks crypto.
Another reason for the retracement of Bitcoin is the US dollar (UUP) rally that has taken many by surprise.
Traditional markets indicate potential for a deeper drawdown. The reappointment of Jerome Powell as Chairman of the Federal will get a lot of Fed speak for controlling inflation even if rates won’t go up soon.
The US dollar has been on fire with it strengthening across all currencies and even though Bitcoin is a digital currency, it’s still fighting for the same capital flow as the US dollar.
It’s plausible that Bitcoin traders with big profits, are skimming off profits and reducing their crypto positions, and spinning them into US dollar funds to take advantage of the more than bullish momentum.
The pullbacks in parts of the emerging world have been quite stark with the Turkish Lira falling as much as 15%, even in safer financial waters of Poland, the Polish Zloty is down 5%.
The last bit that could incite negative sentiment for investors is fears that creditors of the defunct Mt Gox exchange could finally liquidate their payments – seven years after the cryptocurrency exchange collapsed.
Trustee Nobuaki Kobayashi confirmed last week that 141,000 BTC ($8 billion) under custody would soon be distributed among those impacted by the Mt Gox fiasco.
Mt Gox coins represent more than 3% of the 4.2m bitcoins in constant circulation. If all of them were to be cashed in at once it would cause the price to crash, at least over the short term.
If these losses are to happen, it wouldn’t translate into a longer-term bear market, but it will deepen the current correction and delay the dip-buying.
I am still encouraged about bitcoin’s direction and the continued spread of adoption has been a massive feather in the cap for this asset.
Major corporations like Tesla and MicroStrategy continue to pour cash reserves into bitcoin, while several countries look set to join El Salvador by introducing bitcoin as legal tender.
I do believe that 2022 will generate a bountiful array of bitcoin and crypto bullish events in a year where stocks will have a hard time replicating the same gains as this year.
Mad Hedge Bitcoin Letter
November 16, 2021
Fiat Lux
Featured Trade:
(TRADERS TAKE TAPROOT PROFITS)
(BTC), (ETH)
Bitcoin (BTC) has rolled out another upgrade called Taproot — the first since 2017.
At a technical level, engineers should be in a celebratory mood because the latest upgrades always make crypto more efficient and with smoother transactions.
At the investor level, this usually serves as a liquidity event in so far as investors buy the digital gold until the upgrade and sell once the upgrade has been announced because we essentially remove the psychology of the anticipation of the new upgrade.
Removing that anticipation makes Bitcoin unattractive in the short-term, but it does no value damage to the long-term narrative.
Taproot’s new tech is coined as Schnorr signatures.
These signatures will mean transacting in Bitcoin has become more secure, efficient, and less expensive.
Most importantly, the upgrade will better enable bitcoin to execute smart contracts on the blockchain.
A critical change from Taproot is the potential for smart contracts.
Smart contracts are digital agreements written in code and stored on the blockchain.
They’re essential in powering decentralized finance, or DeFi, applications and nonfungible tokens, or NFTs.
Compared to Ethereum, Bitcoin has historically been much more limited in accommodating smart contracts.
This will likely lead to more day-to-day applications for bitcoin.
Taprooted Bitcoin will wield better security by enabling multi-signature transactions, or those that involve multiple addresses, to appear as a standard, single transaction.
Multi-signature transactions are often used to enable smart contracts.
As a result, multi-signature transactions will be indistinguishable from simple transactions translating into, meaning greater anonymity.
Schnorr signatures will limit the amount of data required for multi-signature transactions, which are more complicated to process than standard ones.
With less data involved, transactions will become more energy and time-efficient.
Consequently, transactions will be cheaper to process, leading to lower cost of transaction fees.
Taproot will effectively make the digital currency into a better all-around currency and encourage higher adoption rates.
The last major upgrade in 2017, the Lightning Network, helped facilitate much faster and cheaper bitcoin payments than before.
Clearly, the increased Bitcoin volume will take time to materialize, but the positive results from the Lightning Network is one of the main catalysts to higher Bitcoin prices that elevated to north of $60,000.
If developers can keep churning out a major upgrade every 4-5 years, it’s just a matter of time before the currency becomes frictionless, feeless, ubiquitous, and positive for the environment.
At a broader level, Bitcoin is still in the teething stages of its evolution, but it’s safe to say, it’s come a long way since its inception.
Making it more palatable for developers to create apps on will also suck away value and volume from Ether.
On the negative side of the ledger, there are a few potential drawbacks to the upgrade, but they’re minimal in the face of the benefits and only reveal themselves sometimes because Taproot is only partially adopted by network participants (only 54% of Bitcoin nodes enforce Taproot right now, a number which has ticked up in recent days).
The second negative is that it’s not entirely certain how the smart contracts and the functioning for decentralized apps (dApps) will work itself out.
Ethereum is well established on this front, and a few developers have told me that this new upgrade for the dApps and smart contract angle of it, is somewhat misleading.
It will take time to work out the kinks and not all upgrades go without issues.
As we barrel towards the launch of the Metaverse, it’s still a few years out, cryptocurrencies are basically fighting against each other to be the first of the bunch to be adopted as the payment of choice for the Metaverse.
That’s why these upgrades are highly necessary for a de facto digital arms race.
Being able to build apps on top of the crypto leads to what the Metaverse will be about.
Imagine your avatar entering the Metaverse and buying a Metaverse real estate property in Ether or Bitcoin and that transaction goes through instantaneously in real-time and 100% secure.
That is the world we are trending towards, even if we are a long way off now, and many of these developers for Ethereum and Bitcoin are skating towards where they think the puck will be in 5 or 10 years.
I believe we will hold the $58,000 support level after this dip, and we will take a run past the new all-time highs.
It’s only a matter of time before we close in on $100,000 even if traders took profits from the Taproot upgrade.
