Mad Hedge Bitcoin Letter
October 18, 2022
Fiat Lux
Featured Trade:
(ANOTHER PATH GETS SHUT DOWN)
(BTC), (PORTUGAL)
The best-kept secret is that Portugal was one of the biggest beneficiaries of loose crypto restrictions for the past decade.
The bulk of the Mad Hedge Concierge client list is made up of numerous crypto investors that got into bitcoin at less than $100 to ride the wave up.
Yet, it is common knowledge that the United States treats digital currency as property and taxes it similarly to stocks or real estate.
Why have crypto holders been flocking to Portugal?
Crypto gains aren’t taxed like a capital gains tax or something of that nature on any cryptocurrency.
It made sense for any crypto success to apply for Portuguese residents and take proceeds of the crypto in Portugal without losing a dime.
Over the past decade, Portugal has become an appealing destination for international residents, who have flocked to the country due to its more flexible visa and immigration options and overall affordability.
The weather and food are amazing.
Why do I suddenly bring up Portugal now if it is such a crypto tax haven?
The Portuguese government has proposed a new cryptocurrency tax policy that would take effect as part of its 2023 national budget.
Within the nearly 450-page macroeconomic strategy and fiscal policy report, a small section states that the Portuguese government will impose a 28% capital gains tax on cryptocurrency gains made within one year.
However, gains realized after one year of holding the crypto assets will be exempt from such a tax.
The Portuguese government also intends to impose a 4% tax on any free crypto transfers and will also apply stamp duties where applicable.
The proposal intends to treat crypto as equal to other industries and to establish a clear framework for crypto taxation. 28% is the standard capital gains tax rate in the country.
If these new crypto taxes are implemented, it is nothing short of a disaster for crypto holders who trade short term even if the ones holding over one year are exempt.
Expect trading volume to plummet.
I can guarantee it will face a mass exodus, like India, as companies and investors flee to lower-tax nations.
At this point, it appears as if bad news is piling on top of bad news.
Governments around the world are strapped for cash as historical debt loads worry finance ministers.
There’s a massive hunt for the incremental tax dollar and crypto was the low-hanging fruit in Portugal.
I don’t recommend any Bitcoin investor to apply for Portuguese residence because it has lost its attractiveness overnight.
The interest in crypto is at a 10-year low with some of the biggest daily outflows occurring since June 17, when traders withdrew nearly 68,000 bitcoin from exchanges.
Moreover, over 121,000 bitcoin, or nearly $2.4 billion at current prices, has left exchanges in the past 30 days.
Investors have clearly lost interest in crypto which is why we are seeing sparse volatility.
Buyers and Sellers have both fled.
Now, cross Portugal off the list.
Moving forward, crypto investors must be nimble as the multiple crises around the world mean that governments will go after crypto dollars harder giving fewer places to take proceeds for minimal or no tax.
These events are all highly negative for the price and health of Bitcoin.
"The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge," said the late Professor Stephen Hawking.
Mad Hedge Bitcoin Letter
October 13, 2022
Fiat Lux
Featured Trade:
(LOOKING FOR A SAVIOR)
(BTC), (ETH), (CPI)
Bitcoin prices were volatile Thursday after a terrible CPI number.
The result means that a .75% rise in interest rates is 100% priced into the markets.
There was some fleeting hope that the US Central Bank wouldn’t have to raise it a full .75%, but those ideas were dashed as inflation has gone from terrible to abysmal in the United States.
Let me remind readers that the US Central Bank employs over 10,000 Ivy League-trained economists earning well over $150,000, yet they are following up a full-blown policy error with more questionable decisions.
The longer the Fed allows hyperinflation to gut the health of the US economy, it could be argued that we might be living in an America with only rich and poor people in the future.
How does this affect cryptocurrency?
In one word – devastating.
Crytpo is reliant on low rates to fuel overperformance.
High liquidity is necessary too.
However, we are diverging from those two pillars at an accelerating rate causing Bitcoin prices to falter.
Crypto like physical gold needs rates to be low to represent an attractive investment because of its speculative nature.
Even more pulsating, there is now the slight chance of a full 1% rise in the Fed Funds rates at the November 2nd meeting.
So what did the price of Bitcoin upon hearing this news?
Naturally, Bitcoin slid much lower by 4% initially to around $18,000 but rebounded later in the middle to a small loss as traders sniffed out that the .75% rate rise has been priced into the market.
Cryptocurrencies had been trading mostly sideways since the end of August, with bitcoin hovering within $19,000.
That’s been a key level and a clear move lower could lead to new lows below those hit in June when bitcoin fell below $17,800 and ether fell under $900.
Clearly, there is a lot to worry about for readers who are heavy crypto traders.
The accelerating nature of sustained high inflation means that the US economy is highly susceptible to additional higher inflation that could smack us in winter.
My guess is that the upcoming high inflation data will show up in the form of elevated utility bills, particularly in natural gas.
The sabotage of pipelines and cutting off Ukrainian energy through strategic demolition of infrastructure means that US natural gas might be allocated to the Ukraine market instead of Europe.
Removing energy from the global market just means higher energy prices for the rest of us. OPEC reducing oil supply was also another negative event for Bitcoin.
The negative events are just piling on top of each other at this point.
I just don’t see how Bitcoin sustains itself above $20,000 per coin in the short-term.
If it does surpass $20,000 per coin because of a bear market rally, traders will take profits yet again, rinse and repeat.
Although equity markets are rallying through the day, this was yet another reminder of the strategic failure of this alternative asset that offered so much hope.
Crypto has turned into nothing more than an ultra-speculative asset that when in a time of tight liquidity goes on life support.
It is indeed a poor store of value and it has failed almost every acid test badly.
Sell any rally over $20,000 because it won’t last there long.
“If the Starbucks secret is a smile when you get your latte... ours is that the Web site adapts to the individual's taste.” – Said Founder of Netflix Reed Hastings
Mad Hedge Bitcoin Letter
October 11, 2022
Fiat Lux
Featured Trade:
(KOWTOWS TO THE INSTITUTIONS)
(BTC), (ETH), (COIN), (GOOGL)
Google allowing crypto payments to its cloud services from Coinbase (COIN) doesn’t move the needle.
COIN is the crypto exchange platform that has run into a litany of problems recently from mass firing of staff to payment problems.
The news is a footnote to the carnage that is really happening front and center in the crypto market.
Funnily enough, why would a customer choose to pay for Google’s cloud services through Coinbase when an extortionate fee is levied on the Coinbase transaction?
Crypto isn’t cheap and it doesn’t pretend to be.
Ether (ETH) is infamous for its commission which they call “gas fees.”
In 2021, they charged an average of $63 for one transaction which is why it lags behind other cryptos like Bitcoin.
ACH transfers are free and so are debit and credit card purchases in most cases.
Even though El Salvador claims to be a crypto-first economy, most transactions are completed in cash which are US dollars.
At least crypto will now be allowed to transact on Google’s platform which is a victory in itself, but I don’t believe this will catch on like wildfire.
Crypto is up against a Sisyphean task.
The Google Cloud Platform infrastructure service will initially accept cryptocurrency payments from a handful of customers.
Over time, Google will allow many more customers to make payments with cryptocurrency.
Coinbase will earn a percentage of transactions that go through it.
It is high risk to hold crypto on the balance sheet.
Coinbase announced a $377 million impairment charge tied to a decline in the value of its cryptocurrency holdings in August.
Therefore, I expect Google to charge a fee to convert the crypto back to dollars once they accept the payment.
From the outside, this really does look like a marketing gimmick.
Blockchain technologies such as nonfungible tokens, or NFTs, have become a bigger focus for Google’s cloud division.
Previously, Google has pushed for growth in major industries such as media and retail. This year it announced the formation of teams to drum up blockchain business and build tools that third-party developers can draw on to run blockchain applications.
However, I thought that crypto was going at its lone-wolf style hoping to create a parallel system to the fiat money system which they despise.
Apparently not.
Tying up with a mega tech corporate firm sounds like they are giving up to me.
Seems as if the founding investors are ready to cash out and leave the die-hard crypto believers for a more stable income stream.
Annuity like income stream is something many crypto firms lack and locating one is a hard sell.
Crypto was supposed to be “decentralized” but this appears to be a move that will offer Google the keys to Coinbase’s data while limiting them to lateral moves.
In short, this is a move that allows more centralization to the biggest crypto platform in the United States.
Growth was crypto’s calling card and that means parabolic growth possibilities are over.
Integrating with Google also means Google will have a deep insight into how they can use Coinbase to profit from digital currencies since Coinbase has agreed to onboard their data onto Google’s cloud infrastructure.
Honestly, this is a bonehead strategic move for Coinbase and my inclination would be to buy Google’s stock if one believes in crypto.
Desperation can trigger some unusual moves and we are seeing that in real-time, but analyzing the bleak short-term prospects for crypto, this might be a move for survival than anything else.
“Every technological revolution takes about 50 years.” – Said Founder of Alibaba Jack Ma
Mad Hedge Bitcoin Letter
October 6, 2022
Fiat Lux
Featured Trade:
(MAX OUT CRYPTO)
(BTC), (MAXI)
