(BTC) Archives

Another Red Flag From Digital Gold

When good times roll then the digital gold does too.

More often than not, these good times occur when liquidity gates widen.

Simply put, there’s more cash for alternative assets like Bitcoin ($BTC) to speculate on and that’s what people do.

Bitcoin as a standalone asset possesses no intrinsic value and delivers investors zero cash flow which are serious drawbacks in times of pain.

I wouldn’t go so far as to say this is a time of pain right now, but we are inching closer to it as the US 10-year treasury (TLT) hits 4.35%.

Sometimes, investors need that extra little bit of cash flow from that 50-year-old studio tucked away deep inside their portfolio to survive.

Call it a rainy day fund if you will.

The drawdown in Bitcoin is an ominous sign for tech shares ($COMPQ) because the logic goes that if Bitcoin goes up, so does tech.

The narrative for some time has been that Bitcoin is akin to something like crappy tech so if crappy tech shares deliver, then the good tech companies that offer cash flow and software products will do even better.

Bitcoin has just been jolted by some negative price action as we find ourselves lower than last week, at around $26,000 per BTC.

Longer-term US Treasury yields are around multi-year highs, part of a global bond selloff that reflects the risk of a prolonged period of restrictive monetary settings to bring down inflation.

Such a backdrop portends constrained liquidity that would pose a challenge for riskier assets like tech stocks and crypto.

Higher interest rates mean that assets like Bitcoin don’t look so attractive on a relative basis.

Some of the technical signals followed by chart analysts paint a mixed picture. A gauge of momentum known as the 14-day relative strength index suggests Bitcoin is close to the most oversold level since mid-2022.

Other metrics point to a reluctance among retail and institutional investors to engage with crypto following last year’s rout, blowups like FTX, and an ever-shifting regulatory landscape.

For instance, average daily spot volumes on centralized digital-asset exchanges over the past four months were the lowest since October 2020 — when Bitcoin was at about $10,000.

The last 30 days have been brutal for the Nasdaq index and narrowing the goalposts means that BTC will be one of the first casualties to get heaved into the dumpster.

The price action for tech stocks has been highly disappointing lately and there is a strong chance that we could revert to sell the rallies in the short term.

Numerous times the Nasdaq has started the morning hot out of the gate only to suffer sharp sell-offs as the afternoons rolled around.

Shares trending lower to end the trading day have epitomized tech shares lately.

Momentum is lackluster.

The reason I believe that tech shares will endure a harsher period of consolidation is because the added kick in the nuts is China weakness.

Growth forecasts are starting to get ratcheted back as it appears that China has entered the Japan-style lost decade type of slowdown that is a symbol of economic stagnation.

The Nasdaq is really searching hard under each stone to find some type of tailwind to propel us into year-end, but the window is closing quickly. Let’s hope we find that rocket fuel to get us over the line.

March 22, 2023

Tech Letter

Mad Hedge Technology Letter
March 22, 2023
Fiat Lux

Featured Trade:

(IF BITCOIN THEN GROWTH TECH TOO)
(COIN), (MSTR), (BTC), (DOCU), (TDOC)

If Bitcoin Then Growth Tech Too

Tech Letter

We are closing in on $27,000 and that’s quite the performance for the digital gold Bitcoin (BTC).

It just was last year when Bitcoin was down in the dumps.

I am not here flogging crypto but tech investors should take heed of what is happening in the riskier parts of the asset markets.

Yes, tech growth is quite volatile, but bitcoin even more so.

The price of Bitcoin is already up 72% this year and that will beat most tech growth stocks including the Teledocs and DocuSigns of the world.

This last strong surge is correlated with global banking contagion with even very liberal-based CNBC stating that Switzerland has become a financial “banana republic.”

Bitcoin is often advertised as the alternative asset class to fiat banking precisely because fiat banking has a history of going to zero.

The blowups at Silicon Valley Bank, First Republic, and Credit Suisse offer credible evidence that the strength of the fiat money banking system is trending down rather than up.

Hence the monster rally and this will just make banking more expensive for the unbanked and give the big banks more power and more “too big to fail” status.

Narratives are more powerful in crypto in generating real price movements than any other asset class and no matter what your thoughts on how powerful that narrative is, people actually believe this.

Cryptocurrency initially attracted interest from a niche group of investors following bank failures and government rescues.

While its popularity has grown among speculative investors in the roughly decade-and-a-half since, it has retained a status among some as being an asset more removed from the banking system than stocks and government bonds.

If the Fed decides to slow down the pace of interest rate hikes this is highly bullish for the crypto and tech growth sector.

Crypto investors have been particularly sensitive to regulatory and interest-rate developments.

They tend to pull money from long-bitcoin funds while adding to short-bitcoin products after the Federal Reserve announces interest-rate increases and regulators take action against crypto companies.

Since regulators started to crack down on some of the biggest crypto players, investors have pulled about $424 million from global exchange-traded products.

It’s been a terrible year to short bitcoin as that trade was last year’s rich uncle.

An important part of investing is to avoid searching for that boat that has left the dock.

Investors betting against crypto exchange, Coinbase (COIN), and bitcoin-buying software intelligence firm, MicroStrategy (MSTR), were down 76% and 62%, respectively, this year.

Some investors remain cautiously optimistic about the trajectory of bitcoin’s price, especially as it has surged against the backdrop of a banking crisis.

Although there could be a vicious pullback from the epic surge so far this year, Bitcoin will likely do well along with tech growth stocks in a paused or lower rate interest environment.

Throw in the bank contagion as a supercharger and 2023 is shaping up to be a great year to buy bitcoin and growth tech on the dips.

October 25, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
October 25, 2022
Fiat Lux

Featured Trade:

(SAVING CRYPTO)
(BTC), (KPMG)

Saving Crypto

Bitcoin Letter

One can’t help but be appalled to see the former driver of global growth China turn radically inward, preferring a deeply authoritarian economic model.

What they had in the Hu Jin Tao years between 2002 to 2012 was legendary and might not ever happen again.

Friends of mine who have managed to flee China all mention how it was easier to leave before 2020.

Good luck now navigating Chinese lockdowns.

Authorities have made it impossible to leave and they track everything including a digital yuan now.

China and its backward economy have a lot of problems, and the more problems that add up nudge the people to a crypto solution.

I am not saying that every Chinese person will invest in crypto, but for the wealthy ones that usually immigrate to Singapore or Hong Kong, the data backs up my thesis.

KPMG accounting firm has indicated a colossal interest in the crypto market from the wealthy elite of Singapore and Hong Kong.

58% reported investments in crypto game while a further 34% intend to allocate funds to bitcoin, stablecoins, and ether, as well as decentralized finance (DeFi) opportunities.

KPMG only gathered responses from investors whose assets under management ranged between US$10 to $500 million. Of the 58% already invested in crypto:

100% held bitcoin,

87% disclosed ether,

60% bought NFTs and other metaverse tokens,

47% had DeFi tokens.

KPMG found interest in crypto has mainly been driven by prospects of high returns, portfolio diversification, and increased confidence in the market following institutional uptake.

It wasn’t all bullish, though, with respondents stating the industry needs more mature methodologies for valuing crypto, the lack of which has given some investors pause.

Wealthy investors are keen on crypto’s “store of wealth” proposition alongside decentralized finance.

Not to mention, most already invested only allocated 5% of their portfolio to the digital asset class, a figure dampened by uncertainty around regulations and accounting standards.

The good news is that there is a pathway that links rich Chinese to the future of crypto, but it’s largely contingent on if crypto can get its act together or not.

China is ramping up its control over money supply by implementing a digital yuan that they can delete and add to wallets any time they want.

This is really 1984 in its purest form.

As the crypto winter continues, there are indeed some silver linings.

However, crypto needs to be careful that it doesn’t turn into just another centralized version of what the Chinese are running away from.

Decentralization is hard to pull off in the long term as the government will want its cut.

Rome wasn’t built in one day.

crypto

October 20, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
October 20, 2022
Fiat Lux

Featured Trade:

(LOOKING TO MAKE A DIFFERENCE)
(BTC), (NFT)

Looking to Make a Difference

Bitcoin Letter

A non-fungible token (NFT) is a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership.

Like cryptocurrencies, they are also digital tokens.

But compared to cryptocurrencies, which are fungible, or interchangeable, NFTs are singular and unique. Like cryptocurrencies, they exist on the blockchain as cryptographic assets.

The price direction of NFTs is a good way to take a barometer of a speculative technology market underpinning crypto.

I can tell you that the NFT marketplace is dead as a doornail and like how the price of Bitcoin has been engulfed in a crypto winter, it’s even worse in the NFT world.

How bad?

Multimillion-dollar NFT purchases marked down to $100 kind of bad.

In times when the crypto industry is bullish, NFT prices benefit from being a second derivative industry.

One might say that it’s just a 3X ETF of Bitcoin and for speculators, this can be either good or bad.

If you don’t believe me about the state of NFTs, let's roll through some of the data points.

In sectors from art to gaming, trading volume and prices for NFTs across all sectors have plunged about 95% since this time last year.

Since the start of September, NFT trading volumes have averaged $35 million per week.

The NFT capitulation is solid proof that NFTs are not stores of wealth and definitely aren’t inflation hedges.

I can also say that Bitcoin has pretty much failed every test of legitimacy as well during this crypto winter.

NFTs and Bitcoin are speculative assets that only do well during a time of increasing liquidity. The reverse holds true as liquidity tightens.

Many of those art NFTs are being bought and sold on OpenSea, the most prominent peer-to-peer marketplace.

Trading volume on the platform has plummeted from around $3 billion in September 2021 to $350 million in September 2022, an 88% drop.

Personally, I don’t believe in NFTs long term, I don’t get how a digital certificate will hold weight.

I rather have a real physical certificate that shows I own something like a real estate deed.

For those who might think NFTs could hold more utility in the future, then I am another hater you must convince.

Preaching to me about how long-term prospects are positive and investors should buy the dip is laughable.

Any serious asset doesn’t go down 95% in one year without a crisis and in the short-term survival of NFTs isn’t guaranteed.

This was a fad that caught on and rode the hysteria of Bitcoin to relevance and now is being dumped faster than one can imagine.

As we approach a Fed-induced recession, it’s hard to believe what Americans would be interested in buying an NFT when they get fired from their job.

Only 50% of Americans have even heard about NFTs, but most understand that securing shelter and food during unemployment is more important than throwing money down the toilet.

Avoid the NFT asset class, period.

October 18, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
October 18, 2022
Fiat Lux

Featured Trade:

(ANOTHER PATH GETS SHUT DOWN)
(BTC), (PORTUGAL)

Another Path Gets Shut Down

Bitcoin Letter

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.

October 6, 2022

Bitcoin Letter

Mad Hedge Bitcoin Letter
October 6, 2022
Fiat Lux

Featured Trade:

(MAX OUT CRYPTO)
(BTC), (MAXI)

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