Bitcoin Letter Archives

Rocking the Boat at MicroStrategy

If Bitcoin (BTC) drops to $21,000 hold tight for a tsunami of forced selling that will cause BTC to crash.

There is a high likelihood of that happening as the bitcoin proxy traded on the NYSE software company MicroStrategy told us about this stunning news during their earnings call.

MicroStrategy CFO Phong Le admitted the company will be forced to pony up more Bitcoin to back its loan with Silvergate Bank.

CEO Michael Saylor looked like a genius when BTC was roaring, but not so much now as investors head for cover as indiscriminate selling takes hold of all risk assets.

Shares of MSTR are down around 75% in the past 6 months.

Ironically, the company shares are underperforming BTC but that is the least of the company’s concerns as they head for uncharted territory and could be forced to tap the debt market at a time when borrowing costs have shot through the roof.

Part of the quagmire here is that the CFO has been financing these Bitcoin purchases with borrowed money and the CFO will need to calculate how much more debt they can handle while accommodating the interest payments for the debt already borrowed.

It's easy to see this going from bad to worse as high-interest debt on top of crushing debt is a recipe for disaster and lenders would have sniffed this out.

I mention this $205 million loan from Silvergate Bank to buy more Bitcoin because the loan was and still is INTEREST ONLY.

Saylor has greenlighted this highly risky strategy and if MSTR continues down this terrible vein of form, they might not have the money to pay back the principal at the end of the loan.

Le claimed that the company holds “quite a bit” of uncollateralized Bitcoin that it can use to support its loan should the need arise. He also noted that Bitcoin is highly unlikely to touch $21,000, a level that was last seen in late 2020.

In the first quarter of the year, Microstrategy purchased $215 million worth of Bitcoin at an average purchase price of $44,645 per coin, bringing its total holdings to 129,218 Bitcoins acquired at an average price of $30,700 per coin, or for $3.97 billion, according to SEC filings. At current rates, the company’s Bitcoin stash is worth over $4.2 billion.

Le likes to say we are nowhere near $21,000 but it's slowly muddling itself down as the macro conditions are the worst in a generation forcing investors to ditch speculative assets like Bitcoin.

Unfortunately, many of these events came too early for BTC and BTC needed time to develop.

Our unfavorable backdrop includes items such as 2 unforced policy errors by the US Central Bank, military conflict, hyperinflation, spiking energy costs, and supply chain problems.

None have been solved and any or all could get many times worse.

The big winner here has obviously been the US dollar, short Bond traders, and energy stocks.

At the end of the day, BTC only goes up when fiat is poured into its asset, and the challenges we face now make BTC not as attractive as it was when the Central Bank printed $10 trillion and a good chunk of that went into Bitcoin.

That’s why we saw Bitcoin at $65,000 in November 2021.

The intense tightening of liquidity we are experiencing now means those spigots have run dry and BTC is the main loser.

BTC is down to $31,000 and the drop from $10,000 was rapid, if that happens again, BTC will be at $21,000.

MSTR could be forced to dump their BTC which would take the digital gold to $15,000.

Quote of the Day - May 10, 2022

Bitcoin Letter

“Culture eats strategy for breakfast.” – Said CEO of Microsoft Satya Nadella

May 5, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
May 5, 2022
Fiat Lux

Featured Trade:

(COSTS SPIKE FOR NEW CRYPTO-SUPPORTED INTERNET)
(BTC), (NFT), (FB), (DAPP)

Costs Spike for New Crypto-Supported Internet

Bitcoin Letter

Advanced technologies such as cryptocurrencies and (non-fungible) tokens will play a leading role in Web 3.0, since they reflect a sense of ownership in decentralized blockchain networks.

Much of this is totally new and the programming and design behind it won’t be able to mesh well with what happened before.

Think of the latest hype of NFTs, or non-fungible tokens, which shifts the ownership of a certain form of money, which is the case with cryptocurrencies, to the ownership of many other digital assets, from artworks to memes and tweets.

Internet 2.0 programmers won’t be able to just seamlessly integrate into this new language and help develop this new world.

Web 3.0 enables the spread of cooperative governance frameworks for formerly centralized products.

There are few qualified Web 3.0 developers and they are able to ask for astronomical compensation for their service.

This won’t stop anytime soon as companies like Meta (FB), who have cash, are willing to throw money at this limited pool of developers.

There are many costs involved in being a Web 3.0 developer. The initial start-up cost is typically high, but this is offset by the increased flexibility it affords. As you build your portfolio of Web 3.0 projects, the costs will gradually decrease.

This technology would make the web more transparent and user-centric, while also opening the door for the blockchain. In the future, websites and apps could trade cryptocurrencies and other coins.

Becoming a Web 3.0 developer is not easy, but the rewards are well worth it. Those who have mastered the basics of the new framework can build an excellent website.

The cost of learning to become a Web 3.0 developer varies, but can be extremely high. After all, it takes a lot of time to build a successful business on this technology. There are also plenty of challenges involved with it.

The technology is not yet mainstream, but a handful of projects are attempting to build channels through the interoperability of blockchain networks.

You must have an understanding of web development, understand the trade-offs between different types of technologies, and be able to see trends and future directions in the industry.

A free course on Blockchain and cryptocurrencies can help you master the skills you need. Harvard University’s CS50 course will teach you the basics of computer programming, including data handling and Blockchain. Blockchain is crucial for Web3.0 developers because it is not only related to crypto coins, but can also run cutting-edge DApps and full backends.

The Web3.0 technology is a fast-growing field, and it is much like the dot-com era in the early 2000s.

A career as a Web3.0 developer is highly likely the best type of career to focus on for anyone getting into tech these days.

The risk-reward is skewed so much to the reward that many “full-time” developers are setting their workweeks at only a maximum of 24 hours per week or three days.

Not only that, web 3.0 developers are asking for starting salaries of $200,000 per year and if a company is interested in adding a 4^th day of work, then that starting salary spikes to $300,000.

Remember these sums aren’t just it, these developers require a good amount of stock options.

Lastly, these web developers are refusing any job as “independent contractors” and won’t look at any offers that are anything other than a full-time employee with those implied rights.

Even under these terms, these web 3.0 developers have a line outside the door of companies willing to pay this type of compensation to get them in the door.

Web 3.0 is proposed to become the next iteration of the internet, but right now, the only people winning in this race are the people putting it together.

Until this new version of the internet comes online, companies won’t be able to fully monetize or onboard consumers.

This of course is important because crypto will be the medium of payment in this internet 3.0.

The lead up to that moment means that companies will need billions just to get a seat at the table.

Quote of the Day - May 5, 2022

Bitcoin Letter

“When we launch a product, we're already working on the next one. And possibly even the next, next one.” – Said Current CEO of Apple Tim Cook

May 3, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
May 3, 2022
Fiat Lux

Featured Trade:

(MINERS CHOKE ON HIGHER ENERGY COSTS)
(MARA), (RIOT), (CAN)

Miners Choke on Higher Energy Costs

Bitcoin Letter

It represents strength that Bitcoin is holding the $38,000 level considering that energy costs have spiraled out of control.

I would consider this a relative victory for Bitcoin.

Like many other businesses, the cost of producing products is important and when the cost of oil is low, crypto miners laugh all the way to the bank.

That hasn’t been the case lately.

It was only just at the end of 2019 that the price of Brent crude was $20 and fast forward to 2022, the price touched $130 and has now settled around the $105 per barrel mark today.

It was no coincidence that Bitcoin’s most recent meteoric rise took place when the nominal cost of energy was half of what it is today.

The most glaring unintended consequence is the distressed nature of Bitcoin miners whom many have gone out of business because they simply aren’t profitable amid uncontrollable energy prices.

To dig deeper in the weeds, electricity comprises 90-95% of Bitcoin mining costs.

There was further news this week that a Russian Bitcoin miner had been included in the latest round of US sanctions. The Swiss-based Bitriver AG had moved its assets to Switzerland last year but found itself in the crosshairs, alongside 10 of its subsidiaries.

Bitriver claims to be the world's largest hosting provider for climate-friendly crypto mining (using renewable energy), and boasts a 100-megawatt data center in the Siberian city of Bratsk which it outsources to foreign miners from the United States and other Western nations.

HIVE (HIVE) is a Canadian miner which produced 278 BTC in March of 2022. The company also mines Ethereum with 2,549 produced, so that can diversify the company away from BTC. However, the company draws down on its ETH holdings to fund its strategic deal with Intel (INTC). The company sold 10,000 ETH to fund BTC rigs.

Ironically, the company has an ETH mining operation in Sweden which is the very nation leading the charge against Bitcoin operations in Europe.

Hive has access to 50MW of power and has an operating margin of 74% at present.

Marathon Digital (MARA) is focused on North American operations, which would shield it from European legislation. Marathon produced a Record 1,259 BTC in Q1 2022, up 556% Year-Over-Year and its total Bitcoin holdings increased to 9,374 BTC.

Like almost everything else that touches money in Europe, European regulation wants to tax and regulate galore which is what countries do when they are highly uncompetitive.

Europe has never produced an influential tech company from scratch and this is one of the biggest reasons why.

Sweden is in the process of regulating HIVEs ETH mining operations out of business in the name of climate change.

The obsession with climate change in Europe leading to the Stockholm syndrome attachment to green energy is just in its early innings.

It’s crystal clear to me that Europe will kick out all of its crypto miners and now there will be a sense of urgency since there is an energy crisis occurring within the European zone.

This all means that crypto miners will migrate to Russia and America with higher margins in Russia because the cost of energy is so low.

Although that is the long-term prognosis of the mining industry, in the short-term, cost challenges handcuff the best of them and the share prices of stocks like Marathon, Canaan (CAN), Riot, and Marathon are down in the dumps.

When the cost of oil retraces nearer to $70, I believe that will be the elixir for higher crypto mining share prices. Until then, rising interest rates and higher energy are something that miners must navigate or go bust.

Quote of the Day - May 3, 2022

Bitcoin Letter

“This is the perfect means of transportation, something that can take off and land everywhere.” – Said Co-Founder and CEO of Lilium Daniel Wiegand

April 28, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
April 28, 2022
Fiat Lux

Featured Trade:

(AFRICA ADOPTS)
(BTC)

Africa Adopts

Bitcoin Letter

The Central African Republic has adopted bitcoin as legal tender which makes it the second country to absorb it as the official state currency after Central American country El Salvador.

Lawmakers unanimously adopted a bill that made bitcoin legal tender alongside the CFA franc and legalized the use of cryptocurrencies.

This makes The CAR the first African nation to use Bitcoin as their national currency.

Many Bitcoin deniers proclaimed insanity when El Salvador adopted Bitcoin as the national currency and to be frank, the experiment hasn’t gone as smoothly as it could have.

Many merchants still prefer hard US dollar bills to Bitcoin, but I would argue, that there are growing pains to go along with it.

There is honestly no playbook for this type of visionary legislation.

The landlocked state is one of the planet's poorest and most troubled nations, with an economy that is heavily dependent on mining.

The introduction was heavily criticized by the International Monetary Fund (IMF).

It warned of "large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection" and with issuing bitcoin-backed bonds.

CAR has made this drastic decision in an aggressive way to attract venture capitalists and hedge funds.

For all those investors who have the privilege of spending dollars and euros, not everyone is from a country where they trust their own currency.

Just look at the Turkish lira.

I have some friends who bought luxury seaside villas in Ankara, Turkey because they thought that it was a guaranteed asset appreciation tool along with the added benefit of being able to take vacations to a gorgeous seaside resort.

In hindsight, the investment has been an utter failure.

Since they bought the property, the local currency has depreciated by 400% meaning they could have waited today and used only 25% of what they paid a few years ago.

I don’t want to sound arrogant, but much of the world still measures their wealth in US dollars and if a country has no access to US dollars in real-time, then why not adopt Bitcoin as an alternative?

Bitcoin is a guaranteed better store of value than the Central African Republic Franc and it is not even close.

Some of the emerging currencies have depreciated by 500% or 600% like the Turkish Lira or the Kazakh Tenge.

Bitcoin will definitely outperform the bulk of these marginal fiat regimes.

In fact, most people have never even heard of these sub-Saharan African republics.

Many are landlocked and are limited economically.

So I would argue that from a risk reward basis, it’s a great bet to make considering their local currency is worth less than the money it is printed on.

Not only that, I would fully expect other poor African countries like Botswana, Eritrea, South Sudan, and Chad to ship on the Bitcoin wagon as well.

The Central African Republic, which has gold and diamond reserves, is one of the world’s poorest nations. Years of violent conflict and a political crisis in the lead-up to presidential elections in December 2020 have had a severe impact on the economy and damaged relations with its international partners, leading to delays in the distribution of aid and some partners suspending budget support.

For many of these countries wrenched by years of war and strife, one might argue that Bitcoin could represent a beacon of financial stability along with a massive incentive to join the internet which only 11% of CAR citizens can claim.

Why not hit 2 birds with one stone.

Like Chinese citizens jumped from cash, bypassed plastic credit cards, to deploy a digital payment system on their smartphone called Wepay.

Why not go from the CAR Franc and skip any sort of solid fiat currency and go straight to Bitcoin.

Many sovereign countries without access to strong fiat currencies are coming to the same conclusion that it’s foundational to go the Bitcoin route than presiding over a currency that nobody in the world has ever heard about and wouldn’t touch with a 10-foot pole.

Welcome CAR to the Bitcoin club.

In 10 years, there will be a paradigm shift in which the consolidation of currencies will most likely leave us with a handful of Western currencies, the Chinese yuan, Russian Ruble, and crypto.