Mad Hedge Bitcoin Letter
September 20, 2022
Fiat Lux
Featured Trade:
(THE SAVIOR)
(BTC), (FTX), (SKYBRIDGE)
Posts
Enigmatic crypto investor Sam Bankman-Fried, founder of crypto exchange FTX, acquired a 30% stake in Anthony Scaramucci’s SkyBridge Capital, an alternative investment firm.
I believe this deal highlights the desperation the crypto industry currently faces.
I also don’t see the value in it.
Bankman-Fried is essentially the only prominent investor liquid enough to bank mediocre crypto infrastructure mostly because he has skin in the game and would potentially get shellacked with monstrous losses if crypto as an industry goes under.
Doing his best to prop up the mess is in his interests, otherwise, his brainchild FTX would suffer too.
As harrowing as this sounds, I don’t think crypto as an industry will go under, but the wounds get rawer by the day.
The deal was inked through SBF's venture-capital firm FTX Ventures and will support growth initiatives for SkyBridge.
SkyBridge will deploy the capital from FTX to buy $40 million in cryptocurrencies, which it will hold on its balance sheet.
SkyBridge investors are demanding redemptions from the fund ever since the price of Bitcoin has tanked causing anyone involved with the crypto industry a world of pain.
Many are anointing Bankman-Fried as the savior of crypto, but I would argue that this shows the inferiority of crypto as an industry.
It’s signaling that no other big names are coming to save crypto. No Marc Andreesen or anyone of that magnitude.
Crypto has shown it’s only viable when liquidity is in the process of loosening, and currently, the opposite is happening.
In fact, it appears as if liquidity will get even tighter heading into year-end.
And if that wasn’t bad enough, the integrity of the crypto industry has been under attack from all directions for quite some time.
Yet another explosive headline came out saying that a founder of a cryptocurrency investment research firm was accused by the SEC of promoting an initial coin offering without disclosing that he had been given incentives to do so.
Ian Balina, 33, promoted the SPRK token on social media platforms including YouTube and Telegram without revealing that he had been compensated by the company that offered it, the Securities and Exchange Commission said in a suit filed Monday in federal court in Austin, Texas.
It’s certainly a bad look that crypto is attracting such bad actors and the brand name downgrade just keeps getting clearer.
I believe crypto will weather this crypto winter but for the 10s of thousands of other crypto products, let’s call them collateral damage.
The next question is at what point does Bankman-Fried stop whipping his savior capital around and at what point does the crypto infrastructure get so bad there’s no way back?
Considering Bankman-Fried has wealth of around $24 billion, a $50-$70 million investment in some marginal crypto hedge fund is just a drop in the bucket for him.
SkyBridge doesn’t do that much, it just sells a crypto ETF, takes in fees for it, and markets it as a safer pair of hands to handle crypto for the investor. Investors can just go and buy crypto on Bankman-Fried’s FTX for a more direct way to invest in the same thing.
I do believe it’s worth it for Bankman-Fried to save these small companies now, to later unload them for a profit when Bitcoin recovers. He can afford the carry costs as he can pay in cash and avoid the high interest debt markets.
However, I do believe he will abstain from billion dollar purchases.
Even with him, there’s a limit.
As for the crypto infrastructure, just save one coin and that’s Bitcoin and the rest can go to hell. If this scenario takes place, crypto will survive and strengthen after the crypto winter ends.
Until then, it’s about survival for just about everyone in the crypto industry until the next crypto bull market initiates.
Mad Hedge Bitcoin Letter
August 23, 2022
Fiat Lux
Featured Trade:
(CRYPTO INFRASTRUCTURE TAKES ANOTHER HIT)
(FTX), (FDIC)
The scandals keep on rolling in for the crypto establishment and right on cue, the possibly most public figure in the crypto world is now facing the music.
FTX CEO Sam Bankman-Fried is in hot water as a prominent U.S. bank regulator Federal Deposit Insurance Corporation (FDIC) demanded crypto exchange FTX to halt what it called "false and misleading" claims the exchange had made about whether or not funds at the company are insured by the government.
Let’s be clear about this, crypto is not regulated and thus not insured as an asset.
The money an investor loses on a crypto exchange because of an exchange bankruptcy usually means the investors won’t get their funds back.
This is a serious risk that an investor must grapple with when pouring money into the digital gold.
This is also part of the reason why the asset class is so maligned, volatile, untrusted, and unpredictable.
The asset class also attracts scam artists who promise 1,000% returns in 7 days.
The lack of backstop in this industry deters many conservative investors and thus many crypto investors are fresh-faced with nothing to lose.
Trading with fearless abandon isn’t a great idea and is almost like hoping to win the lottery.
I have never recommended betting the family ranch on crypto and I have always advocated putting a small portion of one’s portfolio, perhaps 1-3%, into crypto.
And since November 2021, we have seen a precipitous decline in the digital asset as well as many exchanges disappearing.
There are so many concurrent federal investigations happening that I can’t keep track of them.
This is the reality of an emerging and unproven asset class.
Here’s just what happened.
The FDIC issued a cease and desist letter to FTX US that those statements implied that FDIC insurance was available for cryptocurrency and stock holdings and that the agency does not insure brokerage accounts.
In a tweet, FTX CEO Sam Bankman-Fried emphasized FTX is not FDIC-insured, and apologized if anyone misinterpreted previous comments.
The letter was not only sent to FTX as 4 others got the same letter, so this is a widespread problem in the crypto industry.
The bank regulator issued a similar cease and desist letter to bankrupt crypto firm Voyager Digital, arguing that the company had misled customers by claiming their funds with Voyager would be covered by the FDIC.
Later, the FDIC issued an advisory urging banks dealing with crypto companies to ensure that customers are aware of what types of assets are government-insured, particularly in cases where firms offer a mix of uninsured crypto products alongside insured bank deposit products.
Stocks are insured and to imply by word association that crypto is also insured shows that these exchanges are playing a dirty game.
I don’t want to paint the whole industry with one brush, but the crypto establishment isn’t doing itself any favors and their business practices smack of desperation.
No doubt that in 2022, sales have fallen off a cliff, and just look at FTX which did over $1 billion in sales last year and 2022 will end up just a fraction of that.
They are hoping to cling on to any revenue foothold even if it means misleading customers.
Crypto has a mountain to climb and this is yet another setback.
Mad Hedge Bitcoin Letter
July 7, 2022
Fiat Lux
Featured Trade:
(ANOTHER ONE BITES THE DUST)
(BTC), (VYGVF), (FTX)
FTX cryptocurrency exchange CEO Sam Bankman-Fried said he has more than $2 billion to backstop crypto industry if needed.
That’s a scary statement to issue that most likely assumes the worst scenarios are coming true for his beloved digital gold.
By the way, $2 billion is peanuts considering this industry used to be worth over $1 trillion just a little bit ago.
Not sure if his token $2 billion would make a dent at all, however, it might save a company or 2 if that is what Bankman-Fried is aiming for.
This small sum will do nothing if systemic risk goes from bad to worse and the industry falls apart which would happen if bitcoin dropped to $2,000 per coin.
Perhaps if he could scrounge up an extra $1 trillion or so to buy out the whole crypto industry then we would be in business – literally.
We need to look at the situation with more critical thinking than wishful.
The FTX CEO also said the worst appears to be over for the liquidity crunch in the cryptocurrency industry.
That could possibly be a sneaky way to say that the worst is yet to come.
Why would Bankman-Fried think the liquidity crunch will stop on a dime?
Isn’t that odd?
Well, of course, he has skin in the game, so his words are empty. It’s like a real estate agent telling someone they should buy a house.
Last time I checked, crypto was supposed to be a great hedge to hyperinflation and that has failed miserably.
Little did he know, Central Bank Governor Jerome Powell, in the Fed minutes revealed yesterday, say that the Fed is prepared to act more aggressively to tame inflation with bold rate rises.
If there are more rate rises which the Fed forecast implies, the Fed Fund’s rate is going to 3.75% by 2023, then crypto will be worth even less than it is today if the same dynamics and price behavior hold true.
The dynamics that were working for crypto during the bull cycle and are now working against them.
No doubt Bankman-Fried’s comments had to do with the timing of the newest bankruptcy in the industry of crypto brokerage Voyager Digital (VYGVF).
The trust in crypto infrastructure sinks yet again.
Account holders at now-bankrupt Voyager Digital shouldn’t expect to get all their crypto back as the company restructures.
The crypto brokerage and lender filed for Chapter 11 bankruptcy, creating unresolved legal questions about how digital assets will interact with US insolvency law.
Voyager appears to plan to just walk away from their obligation to return capital to account users.
The company’s plan to exit bankruptcy plainly says it expects account holders to be “impaired” by the Chapter 11 process, meaning they won’t be getting back exactly what they’re owed.
This could be the straw that breaks the camel’s back.
Legally, decentralization could be a farce and if Voyager is able to walk, it means Voyager and its platform is even more centralized than crypto industry’s criticism of fiat currency.
At least fiat currency on exchanges is insured and account holders get their money back in full upon bankruptcy.
Sure, the price of bitcoin is up incrementally today, but the industries’ health couldn’t be at a lower ebb.
There is a high probability that bitcoin will touch $12,000 first before it goes back to $30,000.
Mad Hedge Bitcoin Letter
May 17, 2022
Fiat Lux
Featured Trade:
(SAM DROPS A BOMB)
(BTC), (FTX)
One of the leading lights of the crypto industry CEO of crypto exchange FTX Sam Bankman-Fried dropped a bomb on the crypto industry and you are going to want to hear what he said.
Many crypto fanatics want to believe that crypto will one day replace the precious American dollar as the global reserve currency.
Walk down the street for a Starbucks latte and dish out some crypto.
Take an Uber to a friend’s house, and dish out some more crypto.
Bill, please!
Well, Bankman-Fried filled us in and out of any person in the world, he understands what’s going on.
Bitcoin will not be the future payment network.
That’s not its use case.
Bankman-Fried cited the inefficiency and high environmental costs as a prohibitive step to adopting crypto as the de facto payment network for the world.
He later says that crypto has scaling problems.
His opinion is highly incongruous with the hopes and dreams of what crypto set out to be and even though it doesn’t change anything in one day, it could adversely affect the incremental investors at a time when crypto prices and system risk have been going in reverse.
Countries such as El Salvador and the Central African Republic have adopted Bitcoin as a legal tender. But recent research by academics in the US found that Bitcoin has scarcely been used for daily payments in El Salvador, despite the rollout of bitcoin ATMs and other measures to encourage its use.
The 30-year-old billionaire, who has expanded FTX into one of the world’s largest virtual asset exchanges, said an alternative type of blockchain known as proof of stake, or other technological innovations, would be required to create a functional crypto payments network.
Ethereum has been working to move to a proof of stake system, which is intended to be less energy-intensive.
This is the only way it will work if the are billions of payments every millisecond and the network will need to digest this right through.
Crypto, in its current form, is woefully unprepared to operate at that capacity.
Other sharp criticisms of Bitcoin stem from the serious environmental concerns about the amount of energy needed to run proof of work cryptosystems.
Crypto regulators around Europe have been sniffing blood in a region that taxes everything to smithereens.
Mining bitcoin consumes more energy than many countries, including Norway and Sweden, according to Cambridge university’s Bitcoin Electricity Consumption Index.
If crypto networks attempted to scale up to these billions of transactions per millisecond, costs would be uncappable and it could crash the network in one day.
Even if Bankman-Fried gave many investors the sour juice we didn’t want to drink, it’s highly positive to be real about what we are dabbling in.
Crypto isn’t the panacea investors are looking for and for the diehards, it won’t replace the US dollar and it won’t have a glorious network of daily payments.
Bankman-Fried alluded to the hope that Bitcoin could represent a safe store of value, but even saying that, look at what’s going in with stable coins and their values dropping by 99%.
There is a lot to sort out in the crypto world and the first six months have doled out a few crushing uppercuts.
I am highly bearish in the short-term on crypt assets and the altcoins is something nobody should touch as the stable coin fiasco could spill its other marginal coins.
BILLIONAIRE CRYPTO ENTREPRENEUR SAM BANKMAN-FRIED
