"Brains are the new tonsils. Thanks to the Internet, you don't have to know
anything anymore," said comedian Paul Riser.
Mad Hedge Bitcoin Letter
April 26, 2022
Fiat Lux
Featured Trade:
(THE DOGE EFFECT)
(DOGE), (TWTR), (TSLA), (ETH), (BTC)
One of the more outsized second order effects occurring in the risk markets right now is the boost Dogecoin (DOGE) is receiving from the carnival atmosphere that is Elon Musk buying Twitter (TWTR).
DOGE is up 30% in the past week but down 500% from last May when DOGE experienced a euphoric ride up only to come crashing down.
It’s no surprise that Musk, through his EV company Tesla (TSLA), owns Bitcoin on its balance sheet and he’s on record lately admitting that Bitcoin is the only cryptocurrency that Tesla owns, and they haven’t sold any.
Personally, he owns Ethereum (ETH) and Dogecoin (DOGE) and he specifically mentions the reason for owning Dogecoin is because he likes dogs.
On the surface, it sounds ridiculous that Musk would speculate on an altcoin just because he likes dogs, but people also thought it was crazy he would buy Twitter for $44 billion.
Musk explained he arrived at the conclusion to buy DOGE through a well-known principle called Occam's razor.
That is a philosophical principle that states the simplest variant is usually the best choice.
He then goes on to explain that he subscribes to a variant of Occam’s razor where the most entertaining variant is usually the best choice.
He is entertained by Shiba Inu dogs so he buys Shiba Inu Alt Coins represented as DOGE coin.
Either way, his association with Dogecoin and Bitcoin has done wonders for its short-term price action with Bitcoin and other cryptocurrencies surging.
Perhaps this could be the reason for the short-term stabilization of crypto.
Other factors that could be lifting crypto are U.S. dollar holders looking for alternative assets during the highest inflation in decades; some buying after the American mid-April tax deadline passing; the war in Ukraine and the U.S.’s OFAC sanctioning of Russian bitcoin miners and the ongoing uncertainty about whether the Securities and Exchange Commission (SEC) might approve spot Bitcoin ETFs in the U.S.
Musk also said last month that he wouldn’t sell his dogecoin, and would also continue to hold bitcoin and ether.
Earlier this year, Tesla began accepting dogecoin for merchandise purchases on its website. DOGE holders could be hoping that Twitter under Musk’s leadership may see more of the same — a use case for the token. Late last year Twitter unveiled a tipping function allowing users to send creators bitcoin.
The way DOGE achieves higher price discovery is for the potential for dogecoin to be given more utility on one of the biggest social media networks once Elon has official control of the company.
Every incremental bit helps.
Imagine DOGE freely mingling in and out of Twitter accounts that highly entertain or Musk floating the idea that for $3, every account can get a blue checkmark which has traditionally signaled a large and influential account.
Paying this $3 using DOGE could be the way that Musk integrates DOGE is onboarded onto the Twitter ecosystem.
Other use cases could also find their way into the DOGE coin ecosystem such as a $5 vanilla Twitter registration fee and with a total addressable market like Twitter and the chance to monetize the platform in a different way, I wouldn’t put it past Musk that he has some sort of plan for DOGE, BTC, or ETH.
Musk has been a huge proponent of free speech and during a Ted Talk interview he said buying Twitter “had nothing to do with economics.”
That thought right there could lead to a one-way avalanche of crypto payments embedded all over his new social media company.
Don’t write off DOGE, the richest man in the world might keep pushing it to the public and we already know that every associated Tweet about it results in a higher price.
Mad Hedge Bitcoin Letter
April 21, 2022
Fiat Lux
Featured Trade:
(SHOPIFY BOOSTS DIGITAL GOLD)
(BTC), (SHOP), (MCD), (WMT)
People aren’t going to wake up the next day and find that Bitcoin (BTC) is suddenly the de-facto global payment system.
There are steps that need to be taken for it to get to that point.
How I see it – the path to further adoption will go through the e-commerce systems in digitized form.
This makes sense on a lot of fronts.
It’s no secret that e-commerce is usurping the status quo of brick-and-mortar shops.
That process was accelerated by the health phenomenon over the past two years.
If Bitcoin get can the likes of Amazon to allow Bitcoin payment, then that would be considered a massive victory.
That needs to happen before government services or utility payments allow Bitcoin payments.
It also needs to happen before big government install regulations too onerous that it won’t come to fruition.
The short-term positive news is that payment network Strike has announced integrations with Shopify (SHOP), an alternative payment processor Blackhawk Network, which will make it easier for global merchants to accept Bitcoin payments.
Bitcoin Lightning Network, a second layer built on top of the Bitcoin blockchain, will convert BTC payments into dollars quickly, relieving merchants of complexities associated with actually holding Bitcoin.
I must admit, Shopify is no Amazon, but baby steps need to happen somewhere and Shopify is a reputable e-commerce company as it stands.
Yet Shopify’s $4.5 billion of annual sales is dwarfed by Amazon’s $450 billion in annual sales and that matters.
Scale is everything in tech and hitting singles doesn’t make quite the dent or simply will take too long for the results to become meaningful.
Shopify will be able to take advantage of previously untapped global markets and purchasing power, as well as save money with low-cost payment processing through accepting Bitcoin payments.
Merchants will be able to interact with the Bitcoin network, and users will be able to make purchases privately throughout the United States, taking advantage of the cheap, instant, and open access that Bitcoin offers.
More than 400,000 storefronts will now accept Bitcoin through the Lightning Network, and any merchant is welcome to join through SHOP.
What was once hard to imagine is now becoming a reality. The future looks like it will bring millions of storefronts across the US accepting Bitcoin in the near future. Other countries may follow suit after seeing the success of this nation-state Bitcoin usage.
Sadly, financial institutions have been woefully inadequate to meet the needs of an increasingly digital consumer, and it’s now evident they are generations behind.
If we really think about it, there has been no innovation in the payment systems since 1949.
The launch of the Bitcoin payment system has revolutionized and disrupted well-established traditional credit card networks like Visa and MasterCard, bringing a new financial world order.
Several examples show how crypto adoption boosted a nation's economy, including Argentina, which adopted Strike’s Lightning payments system and saw its GDP rise 10.3% in 2021, the highest rise since 2004. Another example is El Salvador, which adopted Bitcoin as legal tender with the help of Strike and saw its GDP grow by double digits for the first time recently.
I am eagerly awaiting McDonald’s (MCD) and Walmart’s (WMT) announcement that they will start accepting Bitcoin.
That will really move the needle.
If some of these big players come on board, Bitcoin will also benefit from reduced volatility as well inspire the incremental investor to hold Bitcoin as a store of value.
Yet the wait goes on as Bitcoin is slowly accepted around the world and the more sovereign nations and large corporations that come into the fold, there is no doubt in my mind that this will be a main driving force behind higher Bitcoin prices.
Mad Hedge Bitcoin Letter
April 19, 2022
Fiat Lux
Featured Trade:
(HASH RATE COLLAPSE)
(BTC)
It’s no secret that the price of Bitcoin is directly correlated to a growing hash rate.
These are truly one of the essential indicators of the underlying health of Bitcoin.
As buy and sell volume increases in the network, mining introduces more liquidity by delivering fresh coins, and the activity increases when more people buy and sell bitcoin.
This unwritten contract keeps supply and demand in check as the steady flow of newly minted coins lurches ever closer to the final tally of 21 million Bitcoin.
However, I never said there wouldn’t be bumps on the road on the way there.
It’s no coincidence that the price of bitcoin has been slowed down because of the exorbitant energy prices around the world.
Higher energy costs are having a ripple effect where crypto mining companies are adversely affecting by a slowing hash rate.
A developing and healthy mining infrastructure is critical to a higher bitcoin price and what I am seeing are short-term bottlenecks that can only be resolved with easing conditions.
What is hash rate?
Hash rate is the measure of computational power used to verify transactions and add blocks in a Proof-of-work (PoW) blockchain. Bitcoin, among others, utilizes mining to mint new coins and verify transactions.
Hash rate can represent the number of individuals or entities in the world participating in the process of mining. Therefore, the more people mining bitcoin, the higher is the hash rate.
Why is hash rate important in mining?
The mining process, which involves miners solving complex computational puzzles to add blocks to the blockchain, leads to a more secure network.
In addition, miners have an incentive to mine for higher prices.
This system of reward ensures that there will always be new coins added to the economy of bitcoin while keeping the integrity of the blockchain network.
Mining is a business and miners can’t successfully mine if expenses are high combined with a low bitcoin price.
Once a miner produces a coin, it’s common to sell that coin back into the marketplace to recoup the costs of running a mining operation.
Higher rewards lead to a virtuous loop of higher prices and higher revenue while the opposite results in a vicious feedback loop that turns into a downward spiral.
The hash rate has decreased by around 5% in the last few months.
The hash rate recovered well from last summer when China banned Bitcoin and miners fled abroad to restart operations.
These are the growing pains in order to stabilize a new asset class.
The infrastructure of a new asset class doesn’t get built in one day and hopefully, the hash rate can shrug off the latest pullback.
Yet we face an upcoming summer with spiking electricity prices across the world as one of the world's largest exporters of fossil fuels, Russia, is enthralled in a military conflict and global energy supply chains are being severed by sanctions.
Unfortunately, Kazakhstan, the 2nd largest Bitcoin mining country, is facing some more short-term squeezes as Kazakh authorities said they seized almost $200 million of equipment from crypto mining operations as they crack down on illicit mines.
Legally operating miners in Kazakhstan had their power cut off at the end of January, as the government grappled with energy shortages.
The withdrawal of capacity from Kazakhstan is currently limiting bitcoin's hash rate growth.
This might feel highly esoteric because these events happen thousands of miles away.
But it matters because Bitcoin is still vulnerable to supply shocks just like the global supply chains are.
Deteriorating hash rates could signal to traders to delay Bitcoin purchases and as Bitcoin is also fighting with other assets for fiat currency, the incremental trader could be inclined to pay for groceries, gas, and housing before they dip back into the crypto market.
If the hash rate starts to tick upwards as we head into the summer, this could be the genesis of a Bitcoin rally.
“I would trade all of my technology for an afternoon with Socrates.” – Said Co-Founder of Apple Steve Jobs
Mad Hedge Bitcoin Letter
April 14, 2022
Fiat Lux
Featured Trade:
(GOING TO THE MOON WITH CRYPTO)
(GME), (AMC), (SAFEMOON)
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.
