Mad Hedge Bitcoin Letter
April 14, 2022
Fiat Lux
Featured Trade:
(GOING TO THE MOON WITH CRYPTO)
(GME), (AMC), (SAFEMOON)
Posts
One pocket of the asset world that has really taken off in the last few years are the meme assets.
Meme assets don’t just pertain to equities like GameStop (GME) and AMC (AMC).
Truth be told, these assets are incredibly speculative and it's frequent when stock prices don’t mesh nicely with the cash flow or PE multiple.
Crypto also has meme coins which can border on the edge of insanity to the edge of speculation.
These types of bets are for the strong-willed.
Enter SafeMoon.
Coined after the phrase that profits are “going to the moon”, yes, I kid you not, this meme coin has been drumming up quite a following on social media where many of these speculative ideas incubate.
What Is SafeMoon?
SafeMoon is a cryptocurrency token that launched in early 2021, using blockchain technology developed by Binance.
A feature unique to SafeMoon is that it charges a 10% fee whenever you sell the token, well, that was until an upgrade reduced this fee to 2%.
The high fee is explained as a fee that discourages selling, but I would argue that it creates more of a centralized feel to this meme coin and kills liquidity in a marginal coin.
Anybody knows that without ample liquidity, markets can dry up and become untradeable.
In fact, many retail traders I hear from refrain from going too deep into speculative crypto territory for fear that they won’t be able to fill an order upon exit.
For the developers of SafeMoon to force participants into high transaction fees screams scarcity mentality to me instead of focusing on creating a high-quality coin.
This ploy also breeds distrust in the incremental investor who won’t jump off the fence and into SafeMoon if they know they can’t cut losses easily.
SafeMoon takes the proceeds of all sales fees and gives 50% to current token holders in a distribution that is called a “reflection.” The other half of the fee goes into a liquidity pool that SafeMoon uses to maintain price stability.
Rerouting proceeds to existing coin holders are poor practice and a big red flag.
This practice, again, encourages the centralization of the coin which is in fact what many coin holders hate.
The structure is set up to reward only existing participants and clearly, the ones that gain the most are the founders and developers who have skin in the game from the start.
This doesn’t sound too fair to me.
I also noticed that since much of the SafeMoon community is based on social media platforms, members who decide to sell some of their coins are prone to harassment from other members of the social media groups.
Vilifying others for selling an asset is another large red flag.
In the world of buy low and sell high, sometimes traders must take profits, and to frame the selling of one SafeMoon coin as sabotaging the asset speaks volumes about who is involved in this.
I am not interested in being cyber stalked by an unruly SafeMoon mob and most others aren’t as well.
Such a poor mentality would in fact turn off many incremental buyers from pulling the trigger.
SafeMoon does not have any other special use case besides being a store of value. It doesn’t facilitate any automated contracts or decentralized applications, like Ethereum.
Another massive problem with SafeMoon is the challenge of simply investing in it.
Investors cannot buy SafeMoon with the US dollar or any other fiat currency.
The only way to pay for purchases of SafeMoon is with other cryptocurrencies.
To buy it, one must need to buy a coin on an exchange that supports SafeMoon, then use that other coin to buy into SafeMoon.
Ease of transaction is something SafeMoon glamorously fails at.
Another red flag is that no reputable exchanges like CoinBase and Kraken will touch the trading of SafeMoon. It’s also not available on apps like Robinhood or SoFi Invest.
There is no way I could in good faith recommend investing in something so abstract as SafeMoon. I get it that SafeMoon is trying to pour that pixie dust on themselves like Dogecoin, but I have unearthed too many negatives in this coin to ever even consider it aside for a good laugh.
It’s not surprising that the coin has crashed since its debut in 2021.
Mad Hedge Technology Letter
March 30, 2022
Fiat Lux
Featured Trade:
(HITTING THE LOTTERY WITH MEME MANIA)
(GME), (AMC), (HYMC)
Meme mania is back and warping the equity markets – many thought they were left for dead.
They have come back in the past week as GameStop (GME) and AMC (AMC) shares have doubled.
The doubling isn’t just because of the extremely oversold nature of the stock market.
It’s not only that.
Even more critical, meme companies are finally embracing who they are – highly speculative in nature and presenting it as a positive to their investor base.
Management has gotten the memo and is pushing the boundaries yet again by stirring up the pot.
Readers with strong stomachs should only consider GME and AMC if they are willing to lose 100% of their principal because these stocks are in no way long-term buy and hold material.
Many traders have already gotten rich by catching parabolic moves, and management’s behavior signals there will be more to come from these highly volatile stocks.
Earlier this month AMC announced it was buying a stake in gold and silver miner Hycroft Mining Holding Corp (HYMC).
Acquiring a major stake in a tiny gold and silver miner that has been on shaky financial ground from a distance appears somewhat bizarre.
CEO Adam Aron is now starting to think more outside the box and traversing industries could play to their alternative audience.
Aron doesn’t need to play to institutional money since it was them that created high amounts of short interest in the stock.
Retail traders are the target audience and third-party external M&A announcements going forward where AMC can reach for the stars could whip up this base of investors.
They are taking over a highly dysfunctional miner with past management problems.
Now Aron views this company as an upstart minnow waiting for a turnaround story at a time when commodities are red hot.
It’s yet to be seen whether this type of move will impact the narrative of AMC but getting AMC out of the movie theatre business should be paramount.
Netflix has effectively killed the movie theatre business during covid and getting into commodities in a high inflationary environment is more sensible.
GME CEO Billionaire Ryan Cohen's investment company bought 100,000 shares of GameStop Corp taking Cohen's stake marginally higher to 11.9%, with the total number of shares owned at 9.1 million.
An oversized reason for the spiking shares is that there is still loads of short interest in these stocks.
Institutional money is still betting on big down moves and when the reverse happens, they must buy back the stock at higher prices to close positions which drives the stock even higher.
Cohen is also hoping to diversify GME’s business from a retail video game store.
He co-founded online pet products retailer Chewy and earlier this month said he now owns nearly 10% of Bed Bath & Beyond and wants the home goods retailer to explore alternatives including a full sale of the company.
He also plans to modernize GMEs business by building a NFT marketplace.
The management at these companies has realized that they can’t stand pat with the current businesses they overlook because they are outdated and lack sustainability.
The spiking stock price has offered them financial gunpowder to go after industries they never even thought about before as well as giving them more financial slack.
Upgrading their business model could go a long way to suppressing volatility in these stocks and making them into appealing long-term buy and hold companies.
They are a long way off from that today, but everyone needs to start somewhere.
Mad Hedge Bitcoin Letter
January 11, 2022
Fiat Lux
Featured Trade:
(ANOTHER TECH COMPANY BETS THE RANCH ON BLOCKCHAIN)
(GME), (NFT)
GameStop Corp is getting into the nonfungible tokens industry and eyes the crypto industry to launch its new growth strategy.
What are Non-Fungible Tokens (NFT)?
NFTs are coded on the Ethereum blockchain. Ethereum is a cryptocurrency, but its blockchain also supports these NFTs. NFTs store extra information that programs a piece of code uniquely tying it to a specific item.
This unique and non-interchangeable unit of data is stored on a blockchain, a form of digital ledger. NFTs are usually associated with reproducible digital files such as photos, videos, and audio.
NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files.
GME intends to create a division in which a marketplace facilitates the buying, selling, and trading NFTs of virtual videogame goods such as avatar outfits and weapons.
They are also likely to sign partnerships with two crypto companies to share technology and co-invest in the development of games that use blockchain and NFT technology, as well as other NFT-related projects.
This could trigger another avalanche of capital into this new industry that has commanded hundreds of billions of new investments in just a few years.
Crypto is the predictable landing stop for GME as their retail gaming business has failed in the face of the pandemic and their stock was only saved by a Reddit Army bidding up the price of the stock in order to dissuade hedge fund managers to profit off its decline.
The truth is that GME’s business model has been crushed as the gaming industries have been uploaded to the cloud and consumers are opting to directly download titles they want straight from their Wi-Fi connection.
Waiting around malls for people to come and pay in-person is an outdated model and instead of joining the cloud and copying the rest of the industry, this drastic change signals they are ready for something vastly different.
They tried executing a few technical changes in order to stage a turnaround, but its loss widened compared with the same period a year earlier. The revenue growth came from sales of hardware and accessories, while revenue from game software slipped 2%.
GME is involving itself in blockchain and NFT technologies as a last-ditch effort to be relevant again.
Luckily for GME, blockchain and NFT is where all the action is and new venture capital is stacking its chips in the fledgling industry as well.
That doesn’t mean they are going to turn the ship around in one day but of course, you want to be where the pie is growing.
GME shares had plunged by more than 45% over the past six weeks signaling that internally, they are desperate for wholesale changes.
The meme mania has largely worn off and to rejuvenate the mediocre business model they are looking for the magic bullet.
It’s not just GME getting in early, a marketplace called OpenSea said it raised $300 million in venture capital and is now valued at $13.3 billion, greater than GMEs valuation of close to $10 billion.
The videogame industry is more than likely to be first mover in the adoption of cryptocurrency, NFTs, and blockchain technology.
Gamers are poised to be among the first to embrace the technologies because this environment feels like something they could make the next jump to conceptually.
In recent weeks, some of the industry’s biggest publicly traded videogame companies have launched or announced plans to sell NFTs, including Ubisoft Entertainment, Zynga, and Square Enix.
GME is among many that are hoping to front-run other investors before this industry explodes 10X which could easily happen.
They don’t want to miss the big thing and they clearly made errors by avoiding the cloud.
NFT is just one technology that has exploded from blockchain and there will be many iterations of useful software that will need to be decentralized in nature.
NFTs have caught on quite well with famous athletes, actors, and musicians who are looking to secure proof of ownership of a digital good representing their image and likeness.
The idea is genius, but some might question if a stash of code is really proof of ownership.
Naturally, there will be non-believers and believers, but if the stars of the world are convinced, which many have already sold items as NFTs, then I believe it will legitimize an industry moving forward and it will grow 100X in the next 10 years.
Or it could easily evolve into something more secure and complex with the next iteration of NFTs.
To grow a tech company, firms are starting to bet the ranch of decentralized apps and crypto.
This is only positive for the long-term sustainability of crypto as we inch towards the metaverse.
Global Market Comments
December 8, 2021
Fiat Lux
Featured Trade:
(ON EXECUTING MY TRADE ALERTS),
(TEN REASONS WHY STOCKS CAN’T SELL OFF BIG TIME),
(SPY), (INDU), ($COMPQ), (IWM), (TLT), (GME)
Mad Hedge Technology Letter
July 14, 2021
Fiat Lux
Featured Trade:
(WHAT’S THE DEAL WITH MEME MANIA?)
(GME), (AMC), (WISH), (CLOV), (BB)
Although poor long-term investments, meme mania captured the imaginations of short-term traders with its wicked price action.
The counterculture drumbeat of taking down the institutions was then usurped by the meme management who issued shares after any sort of short squeeze.
Onlookers had to know the energy would not last and it is finally dying down.
Euphoric moments minted traders who benefited from unusual price spikes when institutions were caught off guard and had to buy the stock back at outrageous prices.
It appears as if this stage of meme mania is at the dying embers, and a sell the rally pattern has emerged in the past month just as big tech has accelerated its lead over everyone else.
For short-term traders, executing directional bearish bets is still on the table and for long-term buyers, you never should hold any of these following companies.
This type of smash and grab philosophy was just too risky for the Mad Hedge Technology portfolio and we avoided it like the plague.
I saw this more as a byproduct of too much liquidity in the system than anything else.
The stocks which skyrocketed were, in most cases, failed business models and only specific anomalies helped price action spin their way.
Since the volume has fallen off a cliff, the sell the rally would be the logical way to go for all the risk-takers who missed out on the meme mania phenomenon on the way up.
Here are the stocks involved.
Clover Health Investments, Corp. (CLOV) operates as a health insurer. It recently said it would be expanding insurance plans across nine states and more than 200 new counties in a bid to focus on underserved communities. The share price of the firm soared 8% after the announcement.
BlackBerry Limited (BB) provides intelligent security software and services to enterprises and governments worldwide. The company leverages artificial intelligence and machine learning to deliver solutions in the areas of cybersecurity, safety, and data privacy.
It is placed fourth a list of 10 Reddit’s WallStreetBets meme stocks hedge funds are piling into.
The company’s shares have returned 145% to investors in the past twelve months.
The company announced that the QNX software marketed by the firm was now installed in close to 200 million vehicles worldwide. This is an increase of 20 million compared to last year.
ContextLogic Inc. (WISH) is a California-based mobile ecommerce firm.
It is ranked third on a list of 10 Reddit’s WallStreetBets meme stocks hedge funds are piling into.
On July 6, the company announced that ContextLogic B.V, the Dutch arm of the business, had been granted a payment license for the European Union region. The share price of the firm jumped more than 5% after the announcement, which a company official said was the first step towards becoming a payment service provider in Europe.
GameStop (GME) rose from $4 to $325 and currently sits at $180.
The stock has continued to trend down from $320 after the latest short-squeeze and momentum is strongly biased towards the downside.
The retail company sells video games and has a terrible business model.
The last one is AMC Entertainment Holdings, Inc. (AMC) whose stock went from $2 to $60 and now is back down to $40.
AMC was a headliner disaster during the pandemic because movie theatres were closed and consumers were substituting their services for Netflix or other streaming services.
The Chinese property tycoon Wang Jianlian who bought into AMC before the pandemic was able to exit from his investment with a $675 million gain.
He acquired the company applying $1.9 billion of debt in 2012.
The Wanda Conglomerate was bailed out by the Reddit trading army after his vision of making AMC a “true global cinema operator” fizzled out big time.
The cinema chain reported a net loss of $4.6 billion for 2020, thus it’s stunning that Wang was able to spin such a disastrous investment for a tidy profit.
The AMC stake sale is the latest instance of Wanda offloading assets under pressure from Beijing, which wants Chinese to pare back its overseas holdings and debt.
The company was placed on a watch list by regulators in 2017 along with Anbang Group, Fosun Group, and HNA Group. These privately controlled Chinese conglomerates had accumulated some of the world’s largest debts after snapping up overseas trophy assets, often at premium prices, and were facing significant debt maturities.
Wang got lucky but the annual 2020 losses highlight the extent to how bad these business models are and how fortunate they were to have received a bailout from retail traders.
I believe these stocks are good for a short-term directional bearish bet with a controlled stop-loss strategy if things go sour fast.
None of these are worth owning, there are just too many other items on the menu that are tastier in a roaring U.S. economy.
From a wider-angle lens, the stock frenzy has fueled a record flow of money into the market from retail investors.
Only just last month, traders bought almost $28 billion of stocks and exchange-traded funds on a net basis, the largest amount in a single month since at least 2014.
This surely means that this new source of investment flows has gone into big tech with its huge surges higher.
At some point, capital will find itself in a different part of the equity market again and the Reddit army will be resuscitated basically because too many of them took profits and will be able to roll those profits into new positions.
Don’t get dragged into the mud looking for an easy buck.
Global Market Comments
June 18, 2021
Fiat Lux
Featured Trade:
(JUNE 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(MS), (XOM), (FXI), (MSFT), (AMZN), (FB), (GOOGL), FCX), (CAT),
(GLD), (DIS), (GME), (AMC), (UBER), (LYFT), (TLT), (VIX)
