Bitcoin Letter Archives

Understanding the Fog of War

One might postulate that the price of bitcoin and Chinese housing has no relevant correlation with each other.

Think again!

Granted, Chinese citizens aren’t denominating their mortgages in bitcoin to snap their ritzy Shanghai townhouses overlooking the Bund.

I don’t mean that.

But Bitcoin is an asset just like stocks, bonds, and commodities and is exposed to one-off events that shake out the financial system.

What’s brewing in the Middle Kingdom?

Chinese biggest property builder Evergrande teeters on the brink of financial devastation.

Add it up, Chinese bank deposits are $35 Trillion, more than 2x the US.

Would any Chinese financial crisis lead to an epic flight to fiat alternatives?

Does nobody recognize that this is a planned liquidity drain of the property market in China by the CCP?

All escape "exits" have already been shut. You can't even buy paper gold in China either - forget Bitcoin!

So I don’t believe that the potential disorderly selling of Chinese flats or the bust of a major property developer would end up boosting the price of Bitcoin because the Chinese government has made it abundantly clear that bitcoin is a red line for its citizens.

If there is a 20% dip in Chinese property prices — Chinese would believe that’s a once-in-a-century buy the dip type of event.

That doesn’t mean that some won’t try to sell on the down low and get their money out of China through hell or high water.

Some certainly will — China made it clear they didn’t want their citizens investing in overseas assets — I know of the odd millionaire spinning out a random credit card to put a down payment on a house in Vancouver.

What this does scream is policy error big time — an overtightening that could result in a hard landing that is ruinous for global growth.

That would be the worst-case scenario and I would put that at 10%.

Why is this company systemically important?

Evergrande was once China’s darling real estate developer. Now, it is gagging on debt.

It was founded in 1997 by Xu Jiayin. It has completed around 1,300 commercial, residential and infrastructure projects and supposedly employs upwards of 200,000 people.

The company’s success came because it was aligned perfectly for the parabolic boom in real estate that has been driven by the last two decades of staggering Chinese growth, a growth for a country that is unparalleled in all of modern human history.

The tragedy in all this is that 1.5 million Chinese have put deposits down on homes that haven’t been built and this is more often than not their entire life savings.

Most likely, it is them who will hold the bag and lose their deposit.

Better them than me.

For a soft landing to happen, the Chinese government must pull out all the bells and whistles.

Even though I categorize this as a quasi-gray swan, opposed to a solid black swan, it is highly likely that it won’t spill over into the broader market, and if we do get a large bitcoin dip, bitcoin buyers finally are gifted a cheaper price to enter bitcoin.

These opportunities are few and far between recently, at least in 2021, and I can guarantee that MicroStrategy CEO Michael Saylor is already ginning up his next bitcoin purchase usually done with his own companies’ corporate paper.

Limiting the fallout will be easily done if the Chinese government flood the right channels with liquidity, plugging the holes before they become unpluggable kinda like our own debt ceiling mess.

The larger issue is to ponder — is this the tip of the iceberg?

The silence and a lack of major actions from policymakers is making everyone nervous, but most likely they are sorting it out behind the scenes.

The response so far has been largely limited to the People’s Bank of China, which injected a net 90 billion yuan into the banking system. It added another 100 billion yuan on Saturday.

Evergrande has been mired in $300 billion worth of liabilities, more than any other property developer in the world. It’s a beast in China’s high-yield dollar bond market, accounting for about 16% of outstanding notes.

A lackluster response to an already expensive market could be costly, with real estate accounting for 40% of household assets in China. Data last week showed home sales by value slumped 20% in August from a year earlier, the biggest drop since the onset of the coronavirus early last year.

Isolating Evergrande is almost a point of emphasis for the Chinese Communist Party and the mission is to harangue them as a scapegoat for sky-high property prices.

They are the fall guy.

This is more of a political show than anything else — a show of power — letting the world know that this economic pain is nothing to even bat an eyelid about.

Bitcoin, perceived as a riskier asset along the risk curve, is not immune from a sell-off and a flight to safety has taken prices down around 10%.

I have full faith in the Chinese government and its authority to nip this in the bud, and around the $40,000 level, the price of Bitcoin should offer resistance.

If Bitcoin holds $40,000 and a resolution to this is announced, expect a 10% surge in Bitcoin prices.

This should not be treated as anything more than a standard 5% equity drop that is equivalent to a 10% crypto drop in prices.

Book some of those gaudy profits you made in the first half of the year to drop your cost basis while deploying capital at lower levels.

THE DEBT IS DUE!

Quote of the Day - September 21, 2021

Bitcoin Letter

“Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.” — Said German-American billionaire entrepreneur and venture capitalist Peter Thiel

September 16, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
September 16, 2021
Fiat Lux

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Crypto is quite controversial — almost a concept that is too much for the average joe.

People argue about the very existence of it — whether it deserves to be a zero or deserves to be at $100,000 and everything in between.

Then there is the angry Gen Z and Millennial cohort who love to say:

“Well of course the economy is screwed because nobody wants to pay a decent salary, and nobody wants to work.”

They go on to say that “paper money is worthless if there is nothing to buy because nothing is produced.”

If one is to believe the economy is compromised, then it suggests that an alternative ideology must be embraced.

Crypto has entered that void.

The origins of these thoughts come from the U.S. outsourcing manufacturing to far-flung places around the globe and to compensate for that, the US central bank has undergone quantitative easing like there is no tomorrow.

Instead of paying high wages in the U.S., that bill is cut by taking advantage of offshore wages.

The Mad Hedge IT staff is mainly based in emerging markets so it’s not like I can say I am not dipping my toe in wage arbitrage either.

Many companies are doing it — it’s almost normal these days.

One of America’s dirty secrets is the growing contempt for the status quo as many young people feel like the world is against them.

Property cost 10x what their parents paid while real wages have decreased even if they have increased nominally.

The cost of living is becoming insane or rather is insane.

Even with a well-paying job, many find themselves living paycheck to paycheck and in credit card debt.

This has triggered many to invest in crypto while trying to manage student debt the best they can.

A 9-5 is never going to allow anyone to become "well off" like the case in past American generations which is why I brought up the alternative ideology.

It’s real and it’s happening as we speak.

Young people are searching for that launchpad that will take them to luxury and the most valid test case is increasingly becoming different types of crypto.

It’s that right now one can earn a few nickels from a savings account thanks to the brilliant 0.01% interest rates banks give.

Many earned more investing in crypto coins this year than the last 10, 20, 30 years of life in a savings account.

Granted, 401k gets about 10% a year but this is nowhere enough to retire with uncontrollable living costs.

Take a better case of a 30-year-old employed as a purchaser for a medium-sized company for 10 years and he or she managed to buy a condo but not a single-family house yet while being financially still well off.

It is possible to ride that corporate ladder, just not as fast and easy as it was 30 years ago and only in selective cities.

This is a more optimistic take on the current situation, yet I would bet crypto is still a legitimate option for someone with this financial profile because even with a better scenario, finances aren’t good enough if you extrapolate it far into the future relative to the economic challenges they face ahead.

We live in a culture of get-rich-quick that has been exacerbated by technology and platforms that have us chronicling our lives every millisecond.

Even if the grind has been largely positive for 10 years of working full time, many are still viewing crypto as the last resort to a timely retirement.

Time is of the essence, why?

The IRS could come in and make the asset unattractive.

At this point I do believe it is getting too big to fail and at $2 trillion market cap, is the IRS willing to wipe that off the books of mostly Gen Z and Millennials who mostly have marginal net worth?

That would be adding insult to injury, but don’t call me a snowflake for saying it.

But young people need a way to actually... own part of this world too whether it’s a digital code or something else.

This idea is increasingly rubbing up against the status quo of the asset smash and grab fest that fiat-based assets and low interest rates facilitated and many young people were just that, simply too young to participate in.

Don’t blame it on anyone.

The 99% are just trying to get by.

That goes to say that as a whole, the US has the best standard of living of anywhere in the world for average people in the population, the same can’t be said if one were to have been born in Bangladesh, India, or Sub-Saharan Africa.

And rich countries have no incentive to support crypto full stop because the U.S. has the U.S. dollar which is still the reserve currency of the world instead of a banana republic like El Salvador who has aggressively pivoted into crypto assets.

Many young people want the system to take a turn around and accommodate them, but that will not happen.

If crypto does lead to a huge transfer of wealth then it'll still be going to those with enough spare cash to take the risk of investing. Most people who really need the resources are not investing in crypto, they're paying for food and shelter, so they aren’t stuck on the street with no roof over their head.

The getting is good NOW, and growth rates will severely moderate if the government feels too left out of the bonanza.

No need to over or under-hype this phenomenon.

An asset with unbelievable growth rates now that are invested in by people who have liquid cash whether it be institutions, college kids, or the middle class.

Crypto is not a secret passport to extravagant dreams.

It’s simply a strengthening asset in the early innings of a growth cycle and the lack of regulation acts as a supercharger like it did to Facebook, Google, Apple, and Microsoft when they were in the early innings’ of their growth phase.

Quote of the Day - September 16, 2021

Bitcoin Letter

“Bitcoin is like anything else: it's worth what people are willing to pay for it.” – Said Hedge Fund Manager Stanley Druckenmiller

September 14, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
September 14, 2021
Fiat Lux

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There is a conscious witch hunt by SEC chair Gary Gensler to point out to the Senate committee that many crypto exchanges could be operating as securities exchanges.

This is a ploy to secure the crypto exchanges and put them under his control.

I would go as far as saying that the very existence of crypto exchanges and him not regulating them makes Gensler look unimportant as they undermine his authority as the watchdog of the securities industry.

One might just brush it off as crypto isn’t that important, but these developments validate the crypto industry as something becoming too valuable to allow operation without the stamp of the SEC.

Don’t blame me for being cynical but boiling this down to money also cuts through many adjacent industries.

It’s just the way of life.

Crypto is becoming lucrative and Gensler doesn’t want to miss out on this golden goose.

Why do I say that?

The SEC basically earns money on any movement on regulated exchanges from buying and selling and everything in between.

Investing with Robinhood is commission-free, now and forever. They don’t charge you fees to open your account, maintain your account, or transfer funds to your account.

However, self-regulatory organizations (SROs) such as the Financial Industry Regulatory Authority (FINRA) charge them a small fee for sell orders.

They charge these fees for all sell orders, regardless of the brokerage. Robinhood passes these fees to customers and remits them to the applicable SROs.

FINRA is required to pay this fee to the Securities and Exchange Commission (SEC) by law. To generate the funds necessary to do so, FINRA passes the fee on to its members, and many of these members, including Robinhood, pass the fee on to customers.

The fee is ultimately intended to cover the costs incurred by the government, including the SEC, for supervising and regulating the securities markets and securities professionals.

The SEC fee is $5.10 per $1,000,000 of principal (sells only) and is rounded up to the nearest penny.

FINRA charges this fee to brokerage firms to recover the costs of supervising and regulating these firms and this fee is rounded up to the nearest penny and no greater than $5.95.

American Depositary Receipts (ADRs) are certificates that represent foreign stocks and can trade on American exchanges. The banks issuing these certificates may charge custodial fees that typically range from $0.01-$0.03 per share.

There are numerous fees involved in participating on official exchanges that are regulated by the SEC.

For Gensler giving his stamp of legitimacy to the crypto exchanges, in turn, he wants fees, plain and simple.

For lack of a better word, these fees allow regulators like FINRA and the SEC to rake in the cash and as we know in this business, money is power.

I only see it as a matter of time before SEC, FINRA, and Commodity Futures Trading Commission (CFTC) add crypto exchanges to its umbrella of fee collecting businesses they oversee.

And I am not blaming them, everyone is in the business of adding to their nest eggs, and SEC, FINRA, and CFTC are no different.

However, ultimately, this is what it’s about, a cash grab and just the knock-on effect of legitimizing crypto is something any asset class would love to boast about.

Just take sports for an example, football leagues are scrambling to become that minor league to the NFL, but the NFL isn’t interested in offering that stamp of approval.

They don’t care if college football and XFL battle it out away from the confines of professional football, and the costs of not having an NFL stamp of approval have been extortionate forcing start-up leagues to collapse.

If the SEC vouches and incorporates large elements of crypto infrastructure under the umbrella in which they oversee, this will start a chain reaction offering an olive branch to many wealthy investors that are on the fence about this whole crypto thing.

Consequently, they would come pouring in guns blazing with that green light with the heft of their capital and the strength of their financial connections.

Gensler announcing that cryptocurrency exchanges may need to register as securities exchanges makes this one step closer to reality.

Gensler stated that the current crypto industry is not operating within regulatory frameworks that protect investors and consumers from illicit activities and he only cares because it’s the SEC and FINRA that aren’t doing the protecting.

I want to remind readers that Gensler has the choice to allow crypto to flourish in a vacuum but then it could get too big to regulate and nickel and dime and he knows that.

He highlighted crypto as an “asset class is rife with fraud, scams, and abuse in certain applications.”

Gensler has no moral high ground on this topic.

The SEC is an organization that allows rampant fraud from Chinese companies listed as ADRs without even a care for protecting US investors.

They harbor these companies in an environment where they do not need to follow American GAAP accounting rules and are not subject to prosecution because employees are on Chinese soil which has no extradition agreement with the US.

Gensler also admitted that the SEC does not have the jurisdiction to regulate cryptocurrencies, he urged Congress to regulate digital asset exchanges.

It sounds like he is more nervous than anyone involved.

Regulation would be a huge win for the crypto universe, but this would infringe on the decentralized concept of the asset class.

Gensler and the establishment like to preach about how unsafe crypto is, but he is part of a system that destroys the value of fiat currency with insane amount of quantitative easing and unchecked inflation.

Thus, does Gensler believe destroying the value of the dollar is something that can be called safe?

GENSLER WANTS A TALK WITH THE CRYPTO EXCHANGES

Quote of the Day - September 14, 2021

Bitcoin Letter

“Mortality is the single best invention in life.” – Said Co-Founder of Apple Steve Jobs

September 9, 2021

Bitcoin Letter

Mad Hedge Bitcoin Letter
September 9, 2021
Fiat Lux

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Bitcoin Letter

So global yields are in the toilet today?

Savings accounts don’t do what they used to do, do they?

How about we try out a certificate of deposit (CD) to harvest some cash?

Are there simply no other interest-bearing vehicles one can park capital in and gain a healthy return?

I would say you are right, but then I would be the fool here and I am certainly not in that line of work.

I will tell you — there is an elixir to the anathema!

Enter Celsius.

Celsius is a crypto-based financial service hoping to disrupt traditional financial services.

They offer cryptocurrency savings accounts that yield high annual interest rates up to 17% annually. They do this by lending cryptocurrency out to institutional and retail traders who seek to leverage their positions.

Since these platforms require collateral to receive a loan, investors can be sure that the loan will be paid back one way or another.

While these rates are floating interest rates, meaning they can change with the market, they’re relatively stable month-over-month.

These loans are over-collateralized, which means the risk of default is lower than it would be for a standard loan. To this day, there has never been a default for any coin on this specific cryptocurrency lending platform.

How Do Celsius Make Money?

Celsius primarily generates revenue through its crypto lending service. The company lends assets to users at a higher interest rate than it pays them for storing their assets on the platform.

Celsius has more cryptocurrencies available for interest-bearing accounts, including BTC, ETH, SNX, CEL, LINK, UNI, and AAVE to name a few.

Payouts and Withdrawals

Celsius users can withdraw their funds at any time without incurring additional fees. Those who wish to withdraw over $50,000 with a single transaction need to wait 24 to 48 hours for it to process. The company makes its weekly interest payments on Mondays.

Let the compound interest payments pile up all while exposed to minimal market risk.

Celsius confirms its holdings of $20,366,621,718 in cryptocurrency assets as of August 13, 2021.

In less than one year, Celsius has grown its total asset holdings from $1 billion to over $20 billion.

Do you want to be part of this 20X growth story?

As part of its Proof of Community (POC) and rewards explorer, Celsius provides real-time data about its assets, loans, users, and rewards paid.

This asset growth trajectory is parabolic with Celsius confirming it is adding close to $1B a month in new assets, as the company trends towards the number one position in total asset holdings in the crypto industry.

For years the traditional banking business has conditioned us naïve folk to accept steep fees and no yield earnings on holdings as the status quo.

I will tell you right now that it’s a load of garbage and nobody should accept these pitiful offers from dinosaur banks.

There is so much more out there that we can access now because of crypto.

With that failing model ripe for disruption, Celsius was built to give consumers what banks never could — a community-oriented platform that provides income and financial independence and it delivers it with a bang.

At the start, Celsius had set a goal to bring the next 100 million people into crypto. Today, they have over 950,000 users worldwide.

Celsius has even just launched its crypto-backed lending service in California following regulatory approval.

The California expansion enables the firm to enlarge its footprint in one of the fintech capitals of the world — California.

The firm claims that it is now "one of the most accessible and affordable lenders in California."

The loans can be issued in both United States dollars and stable coin, the minimum loan value is $500, the process is instant, does not need proof of income or credit check.

They even have a real-time customer service desk — one can call 201-824-2888 for customer support.

I heard the fastest way to get a response is through the platform’s social media pages on Reddit or Twitter.

Another option is to contact support via email at newjersey@celsius.network.

You are not dreaming — this is the real deal.

Wake up to fresh crypto interest payments on Monday morning easily convertible into fiat currency.

Participate in one of the most unique crypto deals in the world.

To top it off, Celsius has poached JP Morgan executives from Rodney Sunada-Wong as Chief Risk Officer and Vijay Konduru as Chief Marketing Officer and Head of Analytics.

This is a de-facto co-signing of this operation from a proper Wall Street Bank and that pipeline of c-suite hires continues to be strong.

I know some people are shy with heart palpitations growing strong with every 10% daily move in crypto.

This does a lot to ensure a stable annuity-like income stream by just parking cash in an account and receiving generous rewards in the form of US dollars every Monday morning.

To check out this deal of a lifetime, click here to visit their website.