(ETH) Archives

Where Does Bitcoin Go From Here?

I first got involved with bitcoin in 2011, when a subscriber wanting to thank me for a spectacular investment performance GAVE me ten Bitcoin. They were then worth $1 each.

Then, I forgot about them. When they appreciated to $100 in 2013, I decided to sell them and take the family out to dinner at The French Laundry, the best restaurant in California’s Napa Valley. I thought I was a genius.

Back then, early in the life of Bitcoin, theft was rampant, and exchange regularly went bankrupt. So cashing in on my windfall wasn’t such an unreasonable thing to do.

That turned out to be the most expensive dinner of my life. If I had kept the ten Bitcoin, they would be worth today over $600,000. Maybe I’m not such a genius after all.

Unless you have been living in a cave for the past five years, you have probably heard of Bitcoin.

By now, you have decided that it is the greatest money-making opportunity of all time or the greatest scam since Carlo Ponzi amassed a fortune selling international postal coupons in 1922.

Some things are certain. Bitcoin will change the financial system beyond all recognition. It will revolutionize banking and investment. And it will vastly accelerate the digitization of the global economy to everyone’s benefit.

After reading this book, you may or may not want to invest in Bitcoin. However, a working knowledge of what it is and how it works will become essential for everyone as the 21st century unfolds.

For s start, Bitcoin, other cryptos, and future cryptos yet to be invented will save $1 trillion a year in transaction costs in the global economy. Who will be the beneficiary of this bounty? You, me, and all the companies we invest in.

It is certain that some form of current or future crypto will be a stepping stone to a global digital currency, not just for emerging nations like El Salvador, but all nations.

And here is the most interesting thing. The eventual impact of crypto on our lives hasn’t even been imagined yet.

Going back to my Defense Department days, I was one of a handful who was present at the birth of the Internet and the similarities are legion. A few clever people were aware of bits and corners of the Internet back in 1989, but nobody had a big picture.

Long term predictions might as well have been science fiction. Insiders were buying up domain names for a dollar each, such as Mcdonalds.com, whitehouse.com, and sex.com. The MacDonald’s site was later sold to the fast-food company for $10 million.

When the Internet began mass adoption in 1995, no one imagined that every taxi company in the world would be out of business in 15 years. New York City taxi medallions once worth $1 million became worthless, prompting many suicides.

Nor did prime downtown apartment owners all over the world expect they could rent their homes for astronomical daily rates through Airbnb (ABNB). They didn’t even expect that a small startup named Netflix (NFLX) would stream videos online, wiping out Blockbuster Video.

Bitcoin was created by Satoshi Nakamoto, a pseudonymous person or team who outlined the technology in a 2008 white paper. Nobody knows for sure. It might even be a US government agency that invented Bitcoin. It’s an appealingly simple concept: bitcoin is digital money that allows for secure, trustless, peer-to-peer transactions on the internet.

Unlike other payment services, like PayPal’s Venmo (PYPL), which rely on the traditional financial system for permission to transfer money and on existing debit/credit accounts, bitcoin is decentralized: any two people, anywhere in the world, can send bitcoin to each other without the involvement of a bank, government, or other institution.

Every transaction involving Bitcoin is tracked on the blockchain, which is like a bank’s ledger, or log of customers’ funds going in and out of the bank. In simple terms, it’s a record of every transaction ever made using bitcoin. Think of blockchain as a chain of blocks of code, each one of which contains millions of lines of code.

Unlike a bank’s ledger, the Bitcoin blockchain is distributed across the entire network. No company, country, or third party is in control of it; and anyone can become part of that network. The Mad Hedge Fund Trader is part of that network, otherwise known as a “node.”

There will only ever be 21 million Bitcoins. This is digital money that cannot be inflated or manipulated in any way.

It isn’t necessary to buy an entire bitcoin: you can buy just a fraction of one if that’s all you want or need. To open my own crypto wallet, I started with an initial buy of one ten thousand of a Bitcoin, or $10. Now, I’m trading in the millions.

Whatever the outcome of Bitcoin is, one thing is certain. None of our lives will be the same.

October 5, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
October 5, 2021
Fiat Lux

Featured Trade:

(ARE ALTCOINS RELEVANT?)
(BTC), (ETH)

September 30, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
September 30, 2021
Fiat Lux

Featured Trade:

(THE APPEAL OF ETHEREUM)
(BTC), (ETH)

September 9, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
September 9, 2021
Fiat Lux

Featured Trade:

(BEST WAY TO EARN PASSIVE INCOME IN CRYPTO)
(CELSIUS NETWORK), (BTC), (ETH), (SNX), (CEL), (LINK), (UNI), (AAVE)

The Best Way to Earn Passive Income in Crypto

Bitcoin Letter

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. But there is an elixir to the anathema.

Enter the world of crypto-based yield, the place you end up when you realize the banks stopped trying years ago. There are no logos to worship and no slick pitches to fall for, only the tools that actually make your money move.

This is a landscape of financial mechanisms built on collateralized lending, decentralized liquidity pools, and blockchain driven demand, designed to offer yields traditional banks would not dare whisper about.

A Look Back: The Early 2020s

Back in the early 2020s, centralized crypto lenders promised stable, high-yield returns by lending digital assets to traders and institutions.

The model was clear on paper: depositors supplied assets, borrowers posted collateral, and interest payments cycled back to the depositors.

The appeal was obvious, too. Floating rates far above bank offerings, over-collateralized loans that ostensibly reduced default risk, and automated liquidation engines that protected lenders from sharp drawdowns.

But those years also revealed something deeper: crypto yield wasn’t magic; it was mechanics. And mechanics depend entirely on transparency.

Several major lenders that once rode parabolic growth arcs ultimately shut down or restructured following liquidity stress and market drawdowns.

These events carved a permanent lesson into the industry: when yields come from undisclosed leverage, black-box rehypothecation, or concentrated risk, the music eventually stops.

How Crypto Yield Works (When Done Responsibly)

Today’s more mature landscape emphasizes mechanisms rather than miracles:

Over-collateralized lending: Borrowers post more collateral than the value of the loan.
On-chain liquidity pools: Smart contracts handle matching between liquidity providers and traders.
Staking and validator incentives: Networks reward participants for securing blockchains.
Real-yield models: Revenue from actual usage (trading fees, borrowing demand, network operations) flows directly to providers.

These systems function best when transparency is verifiable, incentives are aligned, and custody risks are minimized.

They fail when promised APYs float on wishful thinking, opaque balance sheets, or dependence on perpetual bull markets.

The Modern Reality Reveals A Maturing Ecosystem

For years, the traditional banking business has conditioned us naive 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.

But as of 2025, the responsible path isn’t chasing a single platform but understanding the underlying engine.

Evaluating any crypto yield opportunity now requires asking questions like:

What is the source of the yield? (Fees? Borrowing demand? Emissions?)
How transparent is the collateralization and liquidation framework?
Is custody centralized or verifiably on-chain?
What are the failure modes in extreme market conditions?
How quickly can one withdraw funds?
Are audits and risk reports published and verifiable?

A Clearer Awakening

You’re not dreaming, crypto yield does exist. But in 2025, the real deal isn’t a single star player but in an entire ecosystem’s hard-earned maturity.

Wake up to a clearer understanding of how crypto yield works, easily convertible into better financial decisions.

Participate not by trusting a brand name, but by understanding the mechanics that make the entire machine run.

If the early 2020s were defined by explosive growth and painful lessons, the mid-2020s are defined by something far more sustainable: clarity.

These days, crypto yield is no longer a deal of a lifetime but a financial primitive. And like any powerful tool, it rewards those who learn how to use it responsibly.

June 7, 2021

Tech Letter

Mad Hedge Technology Letter
June 7, 2021
Fiat Lux

Featured Trade:

(THE CIRCUSIFICATION OF TEHC STOCKS)
(TSLA), (GME), (RH), (BTC), (ETH)

The Circusification of Tech Stocks

Tech Letter

The younger U.S. generations went from almost not knowing what the stock market was to overnight dominance of it.

They now make the rules.

Millions of new brokerage accounts have been wielded since the start of the pandemic.

Trillions in value transferred from taxpayers and the Federal Reserve into brokerage accounts at Robinhood and Coinbase.

More dollar bills are funneled into these accounts with every paycheck.

The stock market and the generations above it are still trying to figure out what just happened.

Leverage is another thing this generation Googled and figured out how to harness too during the pandemic.

This generation is truly fearless, or they haven’t been trading long enough to understand what it feels like to lose all your money.

It doesn’t matter because the only thing that matters is what they pay attention to and what’s irrelevant.

If they choose to prop up a 10-word Elon Musk tweet into bulletproof trading strategies, how will you stop them?

If they want Gamestop (GME) to go from $17 before the pandemic to $270 today with even this morning trading in it up 10%, how do you stop something like this?

The answer is you can’t.

How do you convince newly minted investors that diversification makes sense when the first stock they ever bought, Tesla (TSLA), rose 800% while everything else barely moved?

Generations before what is going on now, investors held a series of adages near and dear to them.

Every generation puts its own spin on trading, but what we are witnessing today is that rules are not important anymore when the pace of technology changes every industry to the point that these industries are now unrecognizable.

The new rules mean there are no rules anymore and that’s the beauty or hideous side of investing now, whether you like it or not.

It used to be that “serious” investors religiously followed value investing, which was pioneered by Benjamin Graham and the U.S. emerged from the Great Depression, and his two seminal books were investment bibles.

1934’s Security Analysis and 1949’s The Intelligent Investor laid the groundwork for a generation of contrarian investors who eschewed macroeconomic trends and market patterns, and instead focused on a company’s fundamentals, looking for cheap stocks that they would hold for 20 or even 30 years.

Legends such as Irving Kahn, John Templeton, and Warren Buffett have made value investing synonymous with successful investing for decades.

Now these people who held up these books as bibles can’t understand markets.

They have seen bull and bear markets or all sorts, but nothing like this before.

We locked everyone in their homes for a year and gave them a virtual life to live on their screens.

Why should we be surprised if younger generations treat money and investments like tokens in a video game?

If you had opened your first brokerage account in the spring of 2020, you would most likely have opened it at Robinhood.

You downloaded an app, transferred $500 in from your couch, and pressed some buttons and looked at the screen with some digital numbers that said you had a nice profit.

With a Robinhood account, your first exposure to cryptocurrencies does not frame them as an unproven alternative to stocks. The two stand on equal footing.

This is radically different from the experience of the Gen X and boomer investors logging in through Schwab, Fidelity, or Vanguard to check their balances or download a statement.

What we are seeing is that a new generation is creating the new conventions of the investing landscape and views stocks and crypto coins as interchangeable with equal credibility.

Now every prominent news site is leading with crypto news more often than not and ad platforms like Twitter have said that crypto ads are their highest growth product.

This phenomenon is here to stay because the same will go for any young investor that opens up the incremental brokerage account to trade from their phone tomorrow and the next day after that.

These people are taking profits from Tesla and rolling them into trades like Dogecoin, Ethereum (ETH), and Bitcoin (BTC).

This behavior is starting to become normalized and positive liquidity event in alternative assets will spawn more volume trading in these very assets that were called as “toxic” and a “scam.”

The laughable thing is just one of the 48 U.S.-listed stocks in Berkshire Hathaway portfolio, consumer discretionary RH (RH), topped the price gains of Bitcoin over the past 12 months.

Therefore, don’t ask this generation about the annual average returns of the “safe” 60/40 stock-and-bond portfolios touted by planners and advisers.

Don’t ask this generation to read the Intelligent Investor because it’s outdated. Assets aren’t trading on fundamentals anymore and the Fed printing money like it's their job is fueling a massive tidal wave of new capital into crypto like it's not even funny.

It doesn’t make sense anymore to the Warren Buffets and Charles Munger.

When asked about Bitcoin directly at the Berkshire Hathaway's annual shareholders meeting earlier this month in Los Angeles, he said “I'm going to dodge that question.”

And now, it’s expanded into the exurbs to include blank-check companies, venture-backed startups, tradable bits of computer code, and investable software protocols.

Your father’s stock market is never coming back and the one from before the pandemic isn’t coming either.

The stock market is still one of the only games in town which makes it hard to avoid for any American who prioritizes wealth accumulation.

The pandemic leveled the playing field for crypto and they used that new oxygen to mint many new millionaires and billionaires who now harness capital that has the potential to be reinvested into the asset landscape.

If it’s turned into a 3-ring circus because of a fusional 1-off event, then better figure out how this new circus works earlier than later.

October 25, 2018

Tech Letter

Mad Hedge Technology Letter
October 25, 2018
Fiat Lux

Featured Trade:

(HOW ENVIRONMENTALISTS MAY KILL OFF BITCOIN),
(BTC), (ETH), (TWTR), (SQ)

How Environmentalists May Kill Off Bitcoin

Tech Letter

If Jack Dorsey's proclamation that bitcoin will be anointed as the global "single currency," it could spawn a crescendo of pollution the world has never seen before.

In a candid interview with The Times of London, Dorsey, the workaholic CEO of Twitter (TWTR) and Square (SQ), offered a 10-year time horizon for his claim to come to fruition.

The originators of cryptocurrency derive from a Robin Hood-type mentality circumnavigating the costly fees and control associated with banks and central governments.

Unfolding before our eyes is a potential catastrophe that knows no limits.

Carbon emissions are on track to cut short 153 million lives as environmental issues start to spin out of control while the world's population explodes to 9.7 billion in 2050, from 8.5 billion people in 2030, up from the 7.3 billion today.

All these people will need to barter in bitcoin, according to Jack Dorsey.

Cryptocurrency is demoralizingly energy-intensive, and the recent institutional participation in crypto server farms will exacerbate the environmental knock-on effects by displacing communities, destroying wildlife, and climate-changing carbon emissions.

This seemingly controversial means to outmaneuver the modern financial system has transformed into a murky arms race among greedy cryptocurrency miners to use the cheapest energy sources and the most efficient equipment in a no-holds-barred money grab.

Bitcoin and Ethereum mining combined with energy consumption would place them as the 38th-largest energy consuming country in the world - if they were a country - one place ahead of Austria.

Mining a bitcoin adjacent to a hydropower dam is not a coincidence. In fact, these locales are ground zero for the mining movement. The common denominator is the access to cheap energy usually five times cheaper than standard prices.

Big institutions that mine cryptocurrency install thousands of machines packed like a can of sardines into cavernous warehouses.

In 2015, a documentary detailed a large-scale foreign mining operation with an electricity outlay of $100,000 per month creating 4,000 bitcoins. These are popping up all over the world.

An additional white paper from a Cambridge University study uncovered that 58% of bitcoin mining comes from China.

Cheap power equals dirty power. Chinese mining outfits have bet the ranch on low-cost coal and hydroelectric generators. The carbon footprint measured at one mine per day emitted carbon dioxide at the same rate as five Boeing 747 planes.

The Chinese mining ban in January set off a domino effect with the Chinese mining operations relocating to mainly Canada, Iceland, and the United States.

Effectively, China has just exported a tidal wave of new pollution and carbon emissions.

Bitcoin is mined every second of every day and currently has a supply of approximately 17 million today, up from 11 million in 2013.

Bitcoin's electricity consumption has been elevated compared to alternative digital payment currencies because the dollar price of bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it.

To add more granularity, miners buy more servers to maintain profitability then upgrade to more powerful servers. However, the new calculating power simply boosted the solution complexity even faster.

Mines are practically outdated upon launch and profitability could only occur by massively scaling up.

Consumer grade personal computers are useless now because the math problems are so advanced and complicated.

Specialized hardware called Application-Specific Integrated Circuit (ASIC) is required. These mining machines are massive, hot, and guzzle electricity.

Bitcoin disciples would counter, describing the finite number of bitcoins - 21 million. This was part of the groundwork laid down by Satoshi Nakamoto (a pseudonym), the anonymous creator of bitcoin when he (or they) constructed the digital form of money.

Nakamoto could not have predicted his digital experiment backfiring in his face.

The bottom line is most people use bitcoins to literally create money out of thin air in digital form, rather than using it as a monetary instrument to purchase a good or service.

That is why people mine cryptocurrency, period.

Now, excuse me while I go into the weeds for a moment.

Enter hard fork.

A finite 21 million coins is a misnomer.

A hard fork is a way for developers to alter bitcoin's software code. Once bitcoin reaches a certain block height, miners switch from bitcoin's core software to the fork's version. Miners begin mining the new currency's blocks after the bifurcation creating a new chain entirely and a brand-spanking new currency.

Theoretically, bitcoin could hard fork into infinite new machinations, and that is exactly what is happening.

Bitcoin Cash was the inaugural hard fork derived from the bitcoin's blockchain, followed by Bitcoin Gold and Bitcoin Diamond.

Recently, the market of hard fork derivations includes Super Bitcoin, Lightning Bitcoin, Bitcoin God, Bitcoin Uranium, Bitcoin Cash Plus, BitcoinSilver, and Bitcoin Atom.

All will be mined.

The hard fork phenomenon could generate millions of upstart cryptocurrency server farms universally planning to infuse market share because new currencies will be forced to build up a fresh supply of coins.

If Peter Thiel's prognostication of a 20% to 50% chance of bitcoin's price rising in the future is true, it could set off a cryptocurrency server farm mania.

By the way, Thiel also believes that there is a 30% chance that Bitcoin could go to zero.

A surge in the price of bitcoin results in mining cryptocurrency operations everywhere by any type of electricity, especially if the surge maintains price stability. Even mining in Denmark, where one finds the world's costliest electricity at $14,275 per bitcoin, would make sense.

Recently, miners' appetite for power is causing local governments to implement surcharges for extra infrastructure and moratoriums on new mines. Even these mines built adjacent to hydro projects are crimping the supply lines, and consumers are forced to buy power from outside suppliers. Miners are often required to pay utility bills months in advance.

By July 2019, mining will possibly need more electricity than the entire United States consumes. And by February 2020, bitcoin mining will need as much electricity as the entire world does today, according to Grist, an environmental news website.

Geographically, most locations around the world were profitable based on May's bitcoin price of $10,000.

However, the sudden slide down to $6,400 reaffirms why the Mad Hedge Technology Letter avoids this asset class like the plague.

The most unrealistic operational locations are distant, tropical islands, such as the Cook Islands at $15,861, to mine one bitcoin.

If you'd like to drop your life and make a fortune mining bitcoin, then Venezuela is the most lucrative at $531 per bitcoin.

As bitcoin's nosedive perpetuates, Venezuela might be the last place on earth with mining farms.

Who doesn't like free money? Set up a few devices, crank up the power, collect the coins, pay off the electricity bill, pocket the difference and hopefully the world - or Venezuela - hasn't keeled over by then.