Mad Hedge Bitcoin Letter
August 9, 2022
Fiat Lux
Featured Trade:
(CRYPTO KEYS 101)
(BTC), (ETH)
Cryptography transcends use cases from intelligence agencies — military writing — decoding confidential text messages.
Public and private keys are an important part of Bitcoin (BTC) and other cryptocurrencies.
They allow you to send and receive cryptocurrency without requiring a third party to verify the transactions.
The basic concept behind the two-key system is the following:
- the public key allows you to receive transactions, while the private key is necessary to send transactions.
- Using two different keys (a public and a private key) is called asymmetric cryptography.
What Is a Public Key?
A public key allows you to receive cryptocurrency transactions.
It’s a cryptographic code that’s connected to a private key.
While anyone can send transactions to the public key, one needs the private key to “unlock” it and prove ownership of the cryptocurrency received in the transaction.
Therefore, freely sharing a public key is without risk.
While anyone can send the public key safely, someone would need the private key to unlock and access these sent funds.
What Is a Private Key?
A private key offers the ability to prove ownership or spend the funds associated with a public address. A private key is unique and can take many forms:
- 256 character long binary code
- 64-digit hexadecimal code
- QR code
- Mnemonic phrase
What Does It Mean to “Digitally Sign” a Transaction?
For a transaction on the blockchain to be complete, it needs to be signed. The steps for someone to send a transaction are:
- A transaction is encrypted using a public key. The transaction can only be decrypted by the corresponding private key.
- The transaction is signed using the private key confirming the transaction hasn’t been modified.
- The digital signature is generated by combining the private key with the data being sent in the transaction.
- Lastly, the transaction is verified as authentic using the accompanying public key.
Digitally signing a transaction means to prove the owner of the sent funds. Nodes check and authenticate transactions automatically. Any unauthenticated transactions get rejected by the network.
Where Are My “Private Keys?”
Private keys are in a cryptocurrency wallet, which is usually on a smartphone, desktop software, or a specialized hardware device.
Private keys are not on the cryptocurrency blockchain network.
If crypto assets are held on an exchange, then the exchange is the custodian of these private keys.
How public and private keys work together is essential to understanding how cryptocurrency transacts.
Buying crypto is effectively owning a private key that proves ownership of that cryptocurrency.
Since the record is stored on the blockchain, anyone can verify the individual as the owner with a specific public key.
Just remember that deferring to crypto exchange to hold a private key means a crypt holder trusts them with the security of protecting their crypto assets.
There is always the choice of taking custody of one’s own crypto in a hot or cold wallet.
Depending on the degree of comfort, philosophy, risk-tolerance, and amount, readers can make that decision for themselves.
Private keys are something that should never be shared.
And if one eschews their own private wallet for a custodial solution like an exchange, seek out a time-honored, trusted, dealing in large volume, and highly functional exchange instead of a marginal, half-baked exchange.
“If you like gold, there are many reasons you should like bitcoin.” — Said Founder of Gemini Cryptocurrency Exchange Cameron Winklevoss
Mad Hedge Bitcoin Letter
August 4, 2022
Fiat Lux
Featured Trade:
(ANOTHER CRYPTO HACK)
(SOL), (BTC), (ETH)
The price of Bitcoin is holding up quite well in the short-term as Robinhood fires 23% of its workforce, Bitcoin cheerleader and now former CEO of MicroStrategy quits his post, and another security debacle.
Security infrastructure in any unregulated market is paramount simply because the assets aren’t insured.
Once taken, might as well gift the robbers a card on the way out.
The stakes become higher when hackers know they are less likely to be chased after or quantified once they steal what they are looking for.
Regulated and insured industries are tied to government oversight and when that’s the case, congressional committees often look into industries they are directly tied to if things run amuck.
The optics couldn’t be worse for crypto as we bounce from consecutive security breakdown to the next.
It’s almost as if the last coin not getting hacked will be the last one standing.
It’s getting that bad as the crypto “winter” has triggered a wave of bankruptcies and encouraged smash-and-grab hacking schemes preying on crypto holders who are down and out.
This time it was Solano, which is the 4th biggest cryptocurrency, with a market cap only behind Cardano (ADA), Ethereum (ETH), and the bellwether Bitcoin (BTC).
Solana, known for its speedy transactions, has become the target of the crypto most recent hack after users reported that funds have been drained from internet-connected “hot” wallets.
An unknown actor drained funds from 7,767 wallets on the Solana network resulting in upwards of potentially $50-$100 million.
The attack – which has affected only “hot” wallets or wallets that are always connected to the internet, allowing people to store and send tokens easily – does not appear to be limited to Solana.
Users have reported that USDCs were emptied as well.
The attack has compromised other wallets including Phantom, Slope, Solflare, and TrustWallet. Wallets drained should be treated as compromised and abandoned, Solana warned as it encouraged users to switch to hardware or “cold” wallets.
Phantom, a fast-growing Solana-based wallet that hit $1.2 billion in valuation in January, said it’s “working closely with other teams to get to the bottom of a reported vulnerability in the Solana ecosystem.”
Developers still don’t know how the hack happened and might never figure it out.
The hackers are that far ahead of the game.
Solana spokesperson Chris Kraeuter said the company’s engineers “are currently working with multiple security researchers and ecosystem teams to identify the root cause of the exploit, which is unknown at this time.”
The Solana attack comes hot on the heels of hackers exploiting almost $200 million in digital assets from cross-chain messaging protocol Nomad.
The “free-for-all” attack, which saw more than 41 addresses drain $152 million — 80% of the stolen funds – was made possible by a recent update to one of Nomad’s smart contracts that made it easy for users to spoof transactions.
The word is out there and hackers are clued up, they are moving fast to take advantage of the green shoots nature of the security infrastructure.
An infrastructure not tested by time is prone to gaps in defense and that is what we are seeing.
I have the conviction that if the bellwether Bitcoin is taken down by hackers, that could be the beginning of the end for crypto for this iteration.
In that unlikely scenario, we will experience a precipitous drop from the $23,000 per coin today.
“Logic will get you from A to B. Imagination will take you everywhere.” – Said Theoretical Physicist Albert Einstein
Mad Hedge Bitcoin Letter
August 2, 2022
Fiat Lux
Featured Trade:
(POWELL BOOSTS CRYPTO)
(BTC), (ETH)
After Bitcoin’s nosedive from $31,000 to $19,000, the digital gold has transitioned into a phase of low volatility.
This lull has helped out stabilize the asset class.
At one point, $12,000 was on the table but now, as recessionary fears have started to creep back into the market psyche, an expectation of loosening the liquidity regime appears to be in the cards.
Or so that is what the market is pricing in and when we look at the Fed Funds rate, it shows a forecast of interest rate cuts starting after March 2023.
Interest rate cuts are highly bullish for cryptocurrency because lower interest rates mean easier access to borrowing money to pour into alternative assets like crypto.
The tighter the money policy, the more conservative investors become preferring to invest in real estate and energy assets.
This year certainly hasn’t been the year of Bitcoin, yet we roll into the last half of the year hoping that 2023 will deliver rate cuts to crypto traders.
Positive signs have been filtering through following the Federal Reserve's announcement to raise interest rates by 75 basis points, bitcoin climbed over $24,000.
Ethereum has more than doubled bitcoin’s gains over the same period, jumping as much as 57%.
The future expectation of rate cuts has been boosted because of US Central Bank Governor Jerome Powell’s weak testimony.
Signaling the bringing forward of rate cuts because a recession could come is bullish Bitcoin.
However, the current problem we have is 9.1% inflation devouring the 2.5% Fed Funds rate.
The probable result is when the Fed finally does pivot to a more dovish stance, it will do so while admitting defeat to inflation.
In the most recent Cleveland Fed inflation expectations, July is estimated to be 8.8%.
To be sure, the total market capitalization for all crypto assets is still down roughly 60% from its peak reached in November 2021. But cryptocurrency prices have rebounded over the first half of July with fresh buying having sent the sector's total market cap back above $1 trillion.
The 200-day moving average (DMA), which traders use as a technical gauge for whether an asset's trend is broadly higher or lower, still sits far above current levels and is declining for both bitcoin and ether.
As far as crypto fundamentals go, Ethereum's merger is a potential positive for markets through the summer. Core developers of the Ethereum blockchain have slated its software upgrade from proof-of-work to proof-of-stake, the so-called "Merge," for as early as the week of September 19.
People like hearing hard dates and we are still waiting for one from Ethereum.
Ultimately, what is abundantly clear is that the lack of appetite to raise rates is good news for all risk assets as we move forward into 2023.
This means we won’t see a repeat of a disastrous sell-off that occurred the past year in crypto.
Since the middle of June, the bitcoin dip has been bought and I can easily see a scenario where crypto continues to inch up if inflation comes down to a 5-7% range which is entirely possible.
Crypto, the industry itself, has a lot of work to do, but the macro picture is what is powering the price right now.
“The function of leadership is to produce more leaders, not more followers.” – Said American Political Activist Ralph Nader
Mad Hedge Bitcoin Letter
July 28, 2022
Fiat Lux
Featured Trade:
(ANOTHER 130 MILLION)
(BTC), (AMZN), (MSFT), (GOOGL)
