Bitcoin Letter Archives

Bitcoin the Bellwether Shines Brightest

Caught up in the euphoria of crypto’s rise, all sorts of new altcoins were issuing their denominations as soon as they could figure out how to get to market.

Perhaps a moral hazard but certainly a sign of the speculative times of 2020.

Thousands of coins using thousands of celebrities came out of the woodwork to claim their coin was the best.

Of course, they weren’t.

Now, the crypto climate has drastically shifted to risk-off sentiment and the knock-on effect is hitting the obscure altcoins the most.

Sometimes, a clean palate is needed to really taste the quality of food and that’s what is happening in the crypto industry as we speak.

The “competitors” are falling by the wayside as the likes of Solana and Polkadot to Litecoin and Dogecoin promised to recapture the imagination of the crypto ecosystem.

Some even suggested an imminent rapid fragmentation of the crypto market into silos with different currencies dominating different areas like a Mongolian warlord in their prime.

But things haven’t worked out like that.

Bitcoin has cut its loss of market share this month and begun to regain ground, as baffled investors seek the relative safety of the biggest crypto coin while they grapple with an aggressive Fed and inflation shooting through the roof.

Bitcoin's share of the $1.68 trillion crypto market has risen to about 42%, from 39% two weeks ago - the first time it has registered an increase since dropping from a peak of 46% in mid-October, according to data from CoinMarketCap which tracks 17,225 cryptocurrencies across 458 exchanges.

Bitcoin has outperformed the industry at a time when the entire crypto market has fallen this month.

Nonetheless, the bellwether Bitcoin could continue to outperform its crypto rivals from the more hesitant investment climate.

The concept of the path of least resistance means that investors hideout in Bitcoin and spurn the Dogecoins and Shiba Inu coins of the world for now.

While most cryptocurrencies still take their price signaling from bitcoin, these currencies that were hyped up and marketed to the hills could find bids drying up quickly.

Pockets of strength will periodically emerge, and catching a few of those shifts will be incredibly important for performance this year.

Bitcoin has taken the bullets but hasn’t outright crashed and it shouldn’t, but I can’t say the same about these smaller coins.

Cryptocurrencies hyped for their blockchain application used to build decentralized finance applications have underperformed greatly to Bitcoin lately.

Solana, which jumped 100-fold in 2021, is down 47%, while Polkadot is down 41%.

The selloff that began in December has however been less volatile and seen lower volumes transacted than bitcoin's previous rout in May 2021, when it halved in nine days.

We are range-bound now and that’s a far cry from the crypto “winter” many have been calling for.

If another monster risk-off moment does come, the last place an investor wants to be exposed is the crypto minnows.

If Bitcoin does retrace 5%, it certainly will be felt more in the altcoins sub-genre.

Once we do recover and find some footing, we will look back at this moment and realize it was a time when we separated the wheat from the chaff in the crypto industry.

I believe that Bitcoin will continue to consolidate its position at the top of the crypto pecking order.

Quote of the Day - February 1, 2022

Bitcoin Letter

“Technology is a useful servant but a dangerous master.” – Said Norwegian Historian Christian Lous Lange

January 27, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
January 27, 2022
Fiat Lux

Featured Trade:

(AVOID SOLANA LIKE THE PLAGUE)
(BTC), (SOL), (ETH)

Avoid Solana Like the Plague

Bitcoin Letter

The eighth biggest crypto by market cap and once hyped to the stars, Solana’s (SOL) repeated run-ins with bots, outages, and frustrated traders during the recent market crash could turn off many potential investors.

Emerging crypto are suffering more than Bitcoin (BTC) and Ethereum (ETH) in the recent selloff while Bitcoin is down 50% over this period, many of these smaller cryptos are down 50% in a week.

Then adding gas on the fire, structural bottlenecks have arisen.

Solano suffered its sixth serious outage of more than eight hours this month over the weekend, which a notice on its website attributed to excessive duplicate transactions causing a high level of network congestion.

It’s not shocking that these smaller networks can’t handle the trade flow.

Many are cobbled together on a shoestring budget.

Solana Labs co-founder Anatoly Yakovenko also pointed to an explanation on Twitter that cited market volatility as causing downtime, as bots rushed to earn bounties on leveraged positions eligible for liquidation.

Citing volatility as to why your product is down is an excuse because other networks were going through the same headwinds and managed gracefully.

A 10% decline in the Nasdaq won’t shut it down and this doesn’t help the naysayers who say that crypto is a bush-league operation.

To an extent, many of the smaller currencies are amateur and heightened volatility in an ecosystem that is already flooded with high volatility cannot be used as a reason for failure.

To not be able to absorb the volatility in stride augurs poorly for Solano and I would tell investors to avoid these crypto’s who can’t crack the top 5 or can’t stay online!

There will be growing pains and avoid them until they can figure out how to run a platform.

During these periods of network instability, crypto traders are often left unable to sell off their positions as transactions fail to complete on Solana’s network, yet another sign of how unreliable this emerging technology can be during times of stress.

When combined with a market-wide crash in crypto prices, investors rushed to offload their tokens are left to figure out other routes while their portfolios rapidly decline.

Remember that these networks don’t have a customer service number and you are sitting in your office chair pondering how to get access to your assets.

That’s exactly what you don’t want your investors to feel.

The founders of the currency attributed the structural issues to a “function of Solana’s success.”

However, I would say that the inability to anticipate higher data loads during selloffs doesn’t help these non-Bitcoin currencies.

Bitcoin certainly didn’t have problems handling the recent volatility.

Having so many transactions meaning it’s an attractive platform for developers and users isn’t the right way to look at it, because a certain level of functionality needs to happen otherwise this attractiveness reverses into a minus.

The bodes poorly for Solano to combat future problems because of the lack of vision at the management level.

An all-time peak of $259 recorded in November represented growth of almost 14,000% since the start of 2021—but following its continued issues, Solano retraced 4,800%.

Rival coins promising to reinvent the capabilities of blockchain technology are also targeting Solano. The value of Terraform Labs’ Luna token, which runs on the Terra protocol for algorithmic, fiat-pegged stable coins, has skyrocketed in the last year, rising more than 7,000% in value over the last 12 months.

I believe we will shortly see Solano developer activity and transaction activity significantly slowing with another haircut in price.

I don’t believe now is the time to call for a crypto “winter.”

Once crypto can elbow through a higher rate paradigm and that becomes priced into the asset class, the debasement of currency among other factors will take crypto higher.

Quote of the Day - January 27, 2022

Bitcoin Letter

“We have to stop optimizing for programmers and start optimizing for users.” – Said American Programmer Jeff Atwood

January 25, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
January 25, 2022
Fiat Lux

Featured Trade:

(SELL THE SHORT TERM RALLIES)
(BTC), (ETH), (SHIB), (DOGE), (ADA)

Sell the Short Term Rallies

Bitcoin Letter

Bitcoin must be treated as a sell-the-rally asset at this point.

I am not giving up on crypto, but I must acknowledge what is happening in the markets.

Suffering from a broad-based risk aversion move with investors dumping literally everything is something that happens when investors need to meet margin calls.

It’s not about Bitcoin at this point, it’s just caught up in the wash, as asset prices around the world readjust to the new Central Bank policies.

The market is looking through the tailwinds crypto possesses from store of value, inflation hedge, limited supply, and an alternative asset to the US dollar.

It doesn’t matter in the heat of the battle and when everything sells off.

Bitcoin hitting the very lower limit of $30,000 means that investors aren’t ready to ditch the dollar for this high-flying digital currency.

In fact, the US dollar has held up quite strongly in the face of trillions of debt issuance.

Look around the globe and the US dollar has absorbed the Fed’s action in stride reflecting little depreciation stemming from the decision to pump massive amounts of liquidity into the system.

The dollars’ strength means that the transition into digital currencies will take longer than first estimated.

Bitcoin won’t take over in one day, but it will experience a gradual adoption phase with the bruises to show for it.

With Russia's move to ban crypto assets lighting the fuse of the latest plunge, Bitcoin's price moves have become closely linked to technology shares, which have slumped on rate hike fears.

The culmination of Netflix warnings of sagging growth triggered another wave of risk aversion in the markets hitting crypto again to knock it down deep into the lower $30,000 range.

In the short term, traders need to play Bitcoin from the $40,000 level and sell rallies until conditions change.

Ethereum, one of the hottest digital coin trades that have soared in popularity thanks to the non-fungible token (NFT) boom, has halved down to the mid-$2,000 level.

Bitcoin, even with its massive underperformance, is still outperforming the minnows of cryptocurrency.

On the horizon, sadly, plans of 4 rates hikes is generally going to cause more pain for risk-on assets, and especially crypto as investors have been conditioned to sell crypto at the first sight of trouble.

On the derivatives side, about 200,000 positions were liquidated in the last 24 hours, totaling more than $800 million in losses and growing according to Coinglass.

Forced liquidations enhanced the selloff and there have been few dip buyers who are waiting out for healthier macro signaling.

For the past two weeks, most of the funding rates in crypto futures have leaned to the short-seller side according to data from The Block Research.

Many retail traders that got into Bitcoin at the peak are now rushing to sell everything and even institutional money are looking at raising cash through the sale of Bitcoin.

I do believe that Bitcoin is still in the midst of a secular bull market, but sentiment and conditions must settle before we reignite the bull case.

Inflation is still a secular tailwind for Bitcoin and other crypto’s, but not in an environment of a panicking Fed who has made a policy misstep.

The altcoin picture is gloomy with Ethereum sidechain Polygon’s (MATIC) token down 36% and Cardano’s (ADA) token is down 61% since their all-time highs in September, when the latter project announced the launch of their smart contracts.

Altcoins suffered drawdowns as steep as 90-99% during the 2017-2018 crypto cycle and the same could happen as investors rush to safer assets.

Naturally, the biggest category of altcoin losers is meme coins.

Dogecoin (DOGE) is now nearly 80% down from its all-time high last May, despite a recent tweet from Tesla CEO Elon Musk that temporarily sent DOGE up as much as 33%.

Shiba Inu (SHIB), another dog-themed coin that gained 1,607% last year, is down 71% from its all-time high.

Sell the rallies at $40,000.

Quote of the Day - January 25, 2022

Bitcoin Letter

“Once a new technology rolls over you, if you're not part of the steamroller, you're part of the road.” – Said American Writer Stewart Brand

January 20, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
January 20, 2022
Fiat Lux

Featured Trade:

(PAY FOR YOUR HOUSE IN BITCOIN)
(BTC), (MILO)

Pay for Your House in Bitcoin

Bitcoin Letter

Crypto continues to benefit from higher adoption rates and although it doesn’t filter down to the price of Bitcoin (BTC) immediately, it bodes well for the long term.

I am even surprised myself with how Bitcoin has transformed from a speculative asset into something more sustainable.

There have been several events that have also hastened the adoption of crypto and one of the transformational events was the advent of Bitcoin ETFs that are accessible for the average investor.

This was never the case before as people were highly confused about how to participate.

The next monumental shift on the verge of sweeping up another avalanche of new capital is the integration of crypto into the American property market.

Most Americans’ net wealth is tied to their home and, United Wholesale Mortgage – the second-largest US mortgage lender – announced a move to crypto payments last August.

However, despite widespread popular sentiment for the initiative from potential customers, the company gave up on the idea shortly afterward.

The regulatory uncertainty alongside market volatility was cited as the two main headwinds.

Nonetheless, the trend is moving in favor again as the first bitcoin mortgage offering was announced on Tuesday: confirming that while the regulators lack drafting a framework.

A real estate fintech company Milo announced the launch of the world’s first crypto mortgage: enabling borrowers to leverage their bitcoin holdings to buy real estate in the United States.

CEO of Milo Josip Rupera said that customers could obtain bitcoin-backed loans by using their bitcoin holdings as collateral for purchasing a property.

Customarily, first, customers needed to sell their crypto balance for a down payment by converting it into fiat currency.

However, Milo now allows US citizens and foreigners to qualify for a US-based mortgage based on their BTC holdings.

This is another indicator of BTC being massively valued as a form of alternative payment.

Milo offers crypto loans and has promised to expand their debt offerings to BTC holders.

Milo’s clients will be able to pledge their bitcoin to purchase property and finally qualify for a low-interest rate 30-year crypto mortgage.”

The company clarified earlier that ‘no dollar down payments’ would be required to finance the mortgage: making the procedure faster and more efficient. However, an obvious question pops up again: what about the sharp movements in the price of bitcoin acting as collateral?

Similar to other crypto loans, the crypto-mortgage would be launched with a margin-call component.

Milo would then underwrite the customer, evaluate the property, validate other aspects of creditworthiness, and ultimately facilitate a successful transaction.

If, however, the crypto drops in value, the borrower would be subject to the deficit amount if the assets are underwater.

Milo would allow the borrower to pay in fiat currency or pledge more crypto to adjust the margin account to its minimum maintenance margin.

Attaching itself to the coattails of the most stable asset in America could act as the panacea of crypto’s evils.

Expert bang on saying crypto is a poor store of value, well, if it's used to underpin an American house, then that argument goes out the window.

Making a path from Bitcoin to real estate debt is genius.

Milo has been planning this business since last year. The goal was to allow crypto holders to bypass the complex hassle with traditional banks and lenders, which barely consider crypto as an asset class. Instead, the company aimed to offer an alternative route to buy real estate.

Milo estimates that the crypto mortgage market could be worth tens of billions of dollars soon.

The marriage of mortgage lending and crypto would be the elixir to finally kill that volatility that many don’t like about this asset.

There’s nothing more stable about a physical home and the U.S. property market underpinning crypto is essentially the holy grail of the crypto industry into how this asset can really mainstream into every part of the U.S. economy.

Until then, accepting heightened volatility is part and parcel of crypto, and crypto settling in the $40,000 range shows that crazy fluctuations aren’t as common as they used to be.

To check out more about a crypto-backed mortgage or if you are thinking about taking out a crypto-backed mortgage, go to Milo’s homepage by clicking here.