“Our basic thesis for bitcoin is that it is better than gold.” – Said American Investor Tyler Winklevoss
Mad Hedge Bitcoin Letter
February 15, 2022
Fiat Lux
Featured Trade:
(RUSSIA POWER-UPS DOMESTIC CRYPTO INDUSTRY)
(BTC), (ETH)
Russian war? Yawn.
Is it a ploy to raise energy prices? Perhaps.
They have been in the news lately for all the wrong reasons and a diminished superpower invading Ukraine and Europe would have been financially devastating for a country with an economy the same size as the state of Texas.
The more important news for us crypto fanatics is the bombshell that was dropped on February 8th – The Russian government approved the concept of regulating the cryptocurrency market in Russia.
According to the plan, all transactions with digital money will have to go through banks, and already existing wallets will have to be deanonymized.
Russian leader Vladimir Putin forced the State and Central Bank to come together to propose numerous measures that should bring digital currency transactions out of the gray zone, as well as the timing of the implementation of these plans.
Judging by the approved concept, in the future, all cryptocurrency transactions will go through the banking infrastructure.
In order to open a wallet, and then buy or sell cryptocurrency, a person will need to contact the bank and go prove identification there.
The government believes that a complete ban on the crypto industry (as originally proposed by the Central Bank) or the absence of its regulation will lead to an increase in the share of the shadow economy, an increase in fraud cases.
The plan is for Russians, who have opened more than 12 million cryptocurrency wallets, on which about 2 trillion rubles sit to be an official part of the financial system.
It is estimated that almost 12% of the Russian population (about 17 million people) owns cryptocurrency.
What will government regulation lead to?
The cryptocurrency market in Russia is growing, so it needs legalization.
Market participants will be more fluid if crypto isn’t illegal which means that investments will flow into the industry.
This includes large institutional money from the traditional financial market, which is accustomed to working in conditions of strict regulation and licensing by the Central Bank.
The structure of the market after the introduction of new rules may change.
“Not all of the big crypto exchanges will agree to work in the new conditions because of deanonymized aspects of it and the government oversight.
Now all the largest sites are not Russian, and this will change. This sets up nicely for a domestic exchange that will cater towards the Russian language and possess Russian characteristics.
The government understood that the ban would completely exclude the Russian economy from the emerging global digital space, with all the ensuing consequences.
The Russian authorities took heed from China’s experience with crypto, where they completely banned cryptocurrencies and mining and which could have devastating effects on their future economy and currency.
The Chinese have bet on the digital yuan, which they are now implementing at full steam, hoping that in the future it will become the world's reserve currency.
Quite laughable, but that’s what they think.
Because of this decision, miners and investors fled the country for Russia, Kazakhstan, and other crypto-friendly countries and regions.
What about mining?
There could be a separate bill that will be devoted to mining, which will define specific territories for the "mining" of digital currency (similar to gambling zones) and separate energy rules.
I believe that the legalization of mining will have a positive effect and encourage an emerging mining industry to grow inside of Russia.
The state will have the opportunity to optimize energy, for example, load idle power plants, giving the surplus of energy to miners.
Ultimately, Russia is setting into motion the rules to encourage a thriving crypto domestic industry and reduce the cost of electricity for the population.
Sure, this undermines the spirit of crypto being a decentralized good, but Russia’s totalitarian government simply won’t allow a free-flowing crypto environment without oversight.
I believe that proven crypto coins like Bitcoin and Ethereum will be given the green light by the Russian government, and this would never happen unless Russia gets its cut as well.
Russia, which did its best to kick out the US tech industry, is hesitant to repeat the same antics as the loss of revenue and high-paying jobs over the long haul came back to bite the government.
On a wider scale, this will fortify and legitimize crypto as a real global risk asset and in the short-term, price action should benefit and move higher from here.
Ironically, Bitcoin has stabilized in the $40,000s and could move higher in the next month or two.
“Technology is the knack of so arranging the world that we don't have to experience it.” - Said Swiss Novelist Max Frisch
Mad Hedge Bitcoin Letter
February 10, 2022
Fiat Lux
Featured Trade:
(BITCOIN SECURITY ON THE UP)
(BTC)
Crypto and Bitcoin aren’t a perfect asset class, and it doesn’t pretend to be.
It’s still an emerging currency that still has holes to caulk.
One major item on the list that needs to be taken care of is security.
Bitcoin (BTC) itself is secure, but the exchanges that do business with you and I aren’t and that’s the underlying problem here.
When exchanges aren’t secure, they are ripe for hackers to raid and that is what happened to Bitfinex and Mt. Gox in Japan.
This is why I pound on the table to urge readers to get into the most secure crypto exchanges out there.
The exchange you do business on could go a long way in determining if you keep your crypto fortune in the future.
Just as crypto has boomed in popularity, the Feds have backed up the boom by acting like a good cop and tracking down the bad guys.
The Justice Department announced it seized more than $3.6 billion in allegedly stolen cryptocurrency linked to the 2016 hack of Bitfinex.
As part of the operation, authorities detained a New York couple on allegations they planned to launder the digital goods.
It has been recorded as the largest financial seizure ever by authorities.
The second largest theft came from the Japanese exchange Mt. Gox that got swindled in February 2014.
The exchange lost 850,000 bitcoins, worth about $474 million, but later found 200,000 of those bitcoins.
It still is a mystery as to who stole the coins at Mt. Gox and the exchange is in liquidation proceedings.
Let me also chime in by saying that the easiest way for theft to occur is an inside job in many of these cases as these web engineers know the system inside and out.
Despite the bad press and billions lost, crypto has continued its rise and adoption as a real alternative to the U.S. dollar and equities.
But security breaches are a reminder of the vulnerabilities of cryptocurrency technologies.
Every hack is also an opportunity to learn and grow resilient.
A bitcoin is actually just a secret number or piece of code. To transfer a bitcoin, a person must verify a planned transaction with a private encryption key. But if the private key is stolen, the attacker can steal the bitcoin.
Because all bitcoin transactions are recorded in the public blockchain, it is possible to follow the movement of stolen coins.
Bitcoins are transferred between 34-character alphanumeric addresses, which appear in the blockchain.
Bitcoin addresses don't reveal information about who controls the funds. But stolen funds are often difficult to convert to fiat currency. Exchanges usually have strict identification requirements for account holders to comply with anti-money laundering regulations.
Suddenly cashing out a large quantity of stolen bitcoins at a reputable exchange from a closely watched bitcoin address is unfeasible.
Even though the billions were stolen, the perpetrators' fingerprints were all over this crime as mentioned above, it’s hard to cash out stolen crypto because it can be tracked.
The couple who stole the Bitfinex funds found out this the hard way as Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31 were arrested.
Authorities accuse the pair of trying to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex’s platform after a hacker breached Bitfinex’s systems and initiated more than 2,000 unauthorized transactions.
Prosecutors allege that the transactions sent the stolen bitcoin to Lichtenstein’s digital wallet.
He should have just given them back since the authorities knew where the coins were sent.
Officials said they were able to seize more than 94,000 bitcoin, which was valued at around $3.6 billion at the time of seizure. In all, the total stolen bitcoin is presently valued at approximately $4.5 billion, according to the agency.
The arrest should deter future hacks because of the unlikelihood of cashing out once the secret bitcoin number is tracked to an individual wallet.
It will be years until hackers can get around this ID problem and as long as the Feds show they are serious about rampant crypto theft, then it should keep the crypto markets in check.
This is an unmitigated win for crypto and the security of it.
The playbook for crypto traders and investors should be to move to higher ground and only buy and sell on the biggest and best exchanges.
Some of the exchanges I might recommend are Coinbase, Kraken, Binance, Robinhood and Webull.
I probably wouldn’t deviate too much from these strong American exchanges that have the rubber stamp of approval from the overall consensus.
Caveat Emptor!
“Intelligence is the source of technology. If we can use technology to improve intelligence, that closes the loop and potentially creates a positive feedback cycle.” – Said American Writer Eliezer Yudkowsky
Mad Hedge Bitcoin Letter
February 8, 2022
Fiat Lux
Featured Trade:
(BITCOIN MOMENTUM PICKS UP)
(BTC), (ETH), (TSLA)
One might pontificate that the recent bullish price action in Bitcoin is because Bitcoin and other cryptocurrencies are finally starting to decouple from equities.
I don’t agree.
For the past few months, Bitcoin has been relegated to a status of just another lousy tech stock as the price movement mimicked the Nasdaq index but in a more exaggerated form.
I would argue that the decoupling moment hasn’t materialized yet and the industry needs to mature to exhibit more idiosyncratic characteristics.
Once they shake off that convenient moniker, it will allow the incremental investor to define it by its merit.
Defining it through the prism of its current strategic position relative to an entirely different industry just doesn’t make a whole lot of sense.
Bitcoin has roared back from the dead and it’s about time.
The bears can’t hold down the secular drivers underpinning the asset forever.
I believe the outperformance of late that has seen Bitcoin elevate into the mid-$40,000s is more of a result of interest rate expectations being pushed to the upper limit in the short-term and investors expecting a small reversion to the mean.
The U.S. 10-year Treasury yield is now a smidge below 2% after a pulsating move from 1.3% in the past 3 months.
The 35% move down had a funny way of distorting pretty much every asset class as consumers rushed into real estate, sold off technology stocks as fast as they could, and triggered a flight to safety.
No doubt that interest rates will most likely blow past the 2% threshold, but the reversal in bitcoin is signaling that the ensuing pace of yield appreciation will be orderly and smoother than what we just witnessed the past few months as the Fed tries to catch up.
If the Fed can wrestle back the narrative and actually do their jobs, Bitcoin is sitting pretty as we move forward.
The Fed has finally indicated they will finally act and that shakeout penalized crypto as the goalposts narrowed.
The sad fact is that in times of panic, high-risk assets are usually the first to be sold to supplement the losers or a cascade of stop-loss orders being dismantled can cause contagion that overflows into other areas.
As Bitcoin stabilizes and marks a short-term floor of $40,000, we could experience another buying wave as calm waters mean it's time to set sail aboard the crypto speed boat.
There are more green shoots occurring beneath the surface as more organizations are embracing bitcoin.
Earlier today, KPMG Canada, the Toronto-based branch of professional services firm KPMG, announced that it had purchased some Bitcoin and Ethereum.
Even more important, automaker Tesla (TSLA) revealed in a recently filed 10-K that it held almost $2 billion in bitcoin at the end of last year.
Tesla’s 10K SEC filing update was released yesterday, reaffirming notions that Tesla held onto their Bitcoin holdings amidst declines in Bitcoin’s price to the lower $30,000.
Combined with the news of KPMG Canada adding Bitcoin onto its balance sheet, encouraged a sharp rise in positive Bitcoin price sentiment.
These events mean that market confidence is coming back quickly, and people are realizing that we have finally arrived at an entry point.
These events are simply the latest sign of progress for cryptocurrencies.
On the legal front, I believe a huge source of momentum comes from Congress, with many members of the U.S. Senate speaking favorably on Bitcoin.
On Friday, Texas Sen. Ted Cruz disclosed that he invested in $50K worth of bitcoin during its dip back last month and spoke positively about Texas being the next bitcoin mining hub.
Sentiment has climbed back from the dead and we could experience short-term rapid upside price action in this highly volatile asset class.
“Stone Age. Bronze Age. Iron Age. We define entire epics of humanity by the technology they use.” – Said Co-Founder and CEO of Netflix Reed Hastings
