Mad Hedge Bitcoin Letter
October 6, 2022
Fiat Lux
Featured Trade:
(MAX OUT CRYPTO)
(BTC), (MAXI)
Tag Archive for: (BTC)
One of the big knocks on the digital gold or crypto is that it doesn’t generate some type of annuity-like payment.
That’s right, it doesn’t.
It’s not like a rental property that pumps out dollars every month.
That honestly turns off a lot of people.
I get it.
Getting those Benjamins to fill pockets for investors is a comforting feeling.
Instead, crypto holders are rewarded by the appreciation of the asset itself.
Speculative investors must wait for the price of crypto to elevate and sometimes it doesn’t so investors can’t cash out.
For the first time in the history of crypto products, the ETF Simplify Bitcoin Strategy PLUS Income ETF (MAXI) is designed to solve that challenge.
It combines investments in the bellwether coin crypto bitcoin with derivative-based income-producing products.
The Simplify Bitcoin Strategy PLUS Income ETF (MAXI US) is listed on Nasdaq with an expense ratio of about 1.00%.
The fund’s options sleeve is actively managed and consists of opportunistically selling short-dated put or call spreads on the most liquid global equity indices.
The management of MAXI described the portion of income-generating opportunities as “padding.”
However, that doesn’t adequately describe the large risk of what they are actually doing.
They are talking about this ETF as if the “income” is almost guaranteed.
But the risk here is that selling option calls and puts can be extremely loss-making and they fail to disclose that to investors.
This type of Frankenstein investment is definitely an interesting spin on crypto products by combining a derivative portion to the speculative crypto part.
There are many moving parts to this and due diligence is necessary.
In addition to the high risk, the management fee is a big turn-off.
The fee is to basically fund the operation, but it’s no guarantee that the derivative portion of the portfolio will be successful.
They claim they will generate income by writing short-dated option spreads on the “most liquid global equity indices,” yet as of 2025 the portfolio is still dominated by exposure to the iShares Bitcoin Trust (IBIT), along with a small sleeve of listed call options and index-based spreads.
The opaqueness doesn’t sit well with me and it shouldn’t with you.
The prospectus explains that the “options overlay strategy will invest up to 20% of fund’s assets,” which remains true in current filings.
Therefore, it could either be 0 or 20% of the ETF capital exposed to complete losses because the traders bet on the wrong short-dated strategy.
Essentially, investors have no idea what they are investing in.
What if there are no “income generating” profits and they are all losses?
Surely, they must be refunded to the customers, but I highly doubt it.
Adding speculation on top of speculation usually ends up badly and that is exactly what personifies MAXI.
Buy it for the asset appreciation or avoid it, but then might as well just buy Bitcoin itself.
This ETF needs to be avoided at all costs.
Mad Hedge Bitcoin Letter
October 4, 2022
Fiat Lux
Featured Trade:
(ANOTHER SLIP-UP)
(FSOC), (MAX), (BTC), (ETH)
Mad Hedge Bitcoin Letter
September 29, 2022
Fiat Lux
Featured Trade:
(WHERE DOES THE UTILITY COME FROM?)
(FOMO), (BTC)
Mad Hedge Bitcoin Letter
September 27, 2022
Fiat Lux
Featured Trade:
(AN INDUSTRY ON THE ROPES)
(LUNA), (BTC), (DAI)
Mad Hedge Bitcoin Letter
September 22, 2022
Fiat Lux
Featured Trade:
(THE UPGRADE THAT WASN’T AN UPGRADE)
(ETH), (BTC)
The Ethereum (ETH) merge was hyped up as some grand event, but its impact has been anti-climactic and anemic.
Originally referred to as Ethereum 2.0, the merge is an upgraded version of the Ethereum blockchain that uses a proof-of-stake consensus mechanism to verify transactions via staking.
I have been asked many questions about this Ethereum merge and the hoopla surrounding it.
I’ve been asked whether the price of Ether would surge on this or not and I’ll give you my hot take.
It would have to take something quite miraculously to change the negative sentiment around the broader crypto narrative and a shift in staking method is not enough.
It’ll most likely be a footnote in the story of Ethereum and it’s done nothing to entice traders to pour money in the asset.
I would say the opposite has occurred and I’ll explain why.
The way it will manufacture Ether coins will change, but that doesn’t mean that solid value is found just because of the change.
If McDonald’s suddenly switches the shredded cabbage it uses to produce a BigMac, most consumers aren’t going to rush out to buy 1000s of BigMacs for friends and family just because the cabbage is sourced differently.
There’s not much value added unless one is a climate change supporter who will highlight that energy use will decrease by 99.5% in this new form of staking Ether.
Basically, I am saying I would not even call this an “upgrade.”
How about the issues that real Ether buyers and sellers care about?
The merge didn’t fix Ethereum’s high fees or congestion.
Seriously, the developers need to fix this. It shouldn’t cost a fee between $50-$200 to buy into this coin and until something is improved on this front, it will remain less competitive than Bitcoin (BTC).
Laying the groundwork for the future is something that buyers and sellers of Ether simply don’t care about in the short-term and the price action reflects this sentiment.
In fact, I would strongly argue there are more outright negatives than positives that came out of this staking switch.
For example, the change spurred a hard fork, splitting the blockchain in two and giving rise to an offshoot chain called Ethereum PoW.
Some exchanges and platforms have shown support for the forked version, which still uses proof-of-work (PoW) verification, and at least 19 former ether mining pools are active on it.
Another Ether variant, Ethereum Classic has been another main beneficiary of the Merge, as its hash rate has doubled, with other graphics-processing-unit (GPU) compatible PoW blockchains such as Ravencoin and Ergo also witnessing big increases.
Like most products, it’s not smart to cut buyer capacity in half and then ditch the infrastructure behind for others to use.
Ethereum has now divided its product by leaving the old miners nowhere to go which gave way to a fork that now produces multiple types of variant Ether.
These miners followed the other side of the fork because the investment in mining equipment could be easily onboarded onto the forked Ether coins.
The move was idiotic, to say the least.
Another massive concern is Ether has become less decentralized because now just a few parties control the mining.
Wasn’t crypto supposed to nix the centralization aspect of currency which is why crypto enthusiasts hate fiat money?
The Merge is the first of five upgrades planned for the blockchain.
Therefore, dropping proof of work has uplifted the competition around them which is another terrible strategic decision.
This is survival of the fittest and turning your back on critical infrastructure that now is servicing infrastructure for another rival coin is outrageous.
All told, the Ethereum merge created more problems than solutions and at the end of the day, traders could care less that there is less energy used to mine Ethereum.
In fact, Ethereum miners are just using their equipment to mine other coins leading me to say that no energy savings were accrued in crypto whatsoever.
Either way, macro forces are still the leading driver of crypto prices as we lurch from one crisis to the next and we are still in the middle of crypto winter.
I am bearish Ether in the short term.
Mad Hedge Bitcoin Letter
September 15, 2022
Fiat Lux
Featured Trade:
(PICKING A FIGHT WITH GARY)
(BTC), (IRS), (SEC), (COIN)
Chairman of the SEC Gary Gensler is not hiring 87,000 new SEC agents who will form the backbone of the SEC and “carry a firearm and be willing to use deadly force, if necessary.”
No, that’s the Internal Revenue Service (IRS) but the SEC is starting to trend in that direction in regard to how it views the crypto industry.
We aren’t at the point of the SEC raiding crypto exchanges. That stuff only happens in places like Palm Beach, Florida.
Gensler’s recent message to crypto has essentially been to get with the program or face a tortuous existence.
His defiant message appears to be falling on deaf ears as the crypto industry has felt they should be entitled to a new set of lenient rules than conventional assets.
I can tell you this has worked out quite poorly for crypto companies who have willfully placed a bullseye squarely on their forehead.
In a recent speech, Gensler criticized the crypto industry, telling an audience of lawyers that the “vast majority” of the nearly 10,000 existing crypto tokens are securities, being issued to the public in violation of federal laws.
He argued that through statements and dozens of enforcement actions, the SEC has made clear how existing law applies to the industry and that no such rules are forthcoming.
Gensler said investors deserve disclosure to help them sort between investments that they think will either flourish or flounder.
The SEC has been adding to its enforcement staff dedicated to protecting investors in the crypto market, announcing in May that it was adding 20 new positions in the newly named Crypto Assets and Cyber Unit, nearly doubling its size.
Crypto infrastructure companies have knowingly avoided the law and SEC as securities exchanges and broker-dealers by failing to properly register while continuing business as usual.
They also believe the products sold aren’t “securities” in the way that the SEC believes they are.
In their world, tokens are like gaming chips or collector’s cards.
We have a word for what they are doing in the English language – illegal.
Coinbase Global Inc. (COIN), the largest publicly traded crypto exchange, said in its most recent quarterly report that the company is under investigation by the SEC, and has received a list of questions about how it chooses which digital assets to list and how it classifies them.
The SEC brought charges in July against a former Coinbase product manager for insider trading, identifying nine tokens it alleges are securities, which were listed on the exchange. Coinbase has said that it disagrees with the SEC’s classification.
In February, the crypto lending platform BlockFI agreed to pay a $100 million for failing to register with the agency.
Gensler said that the SEC will have to come up with new procedures for registering crypto exchanges because they also offer custodial and broker-dealer services, unlike typical stock market exchanges.
I understand that some of these crypto exchanges are a little different from what some of the retail stock exchange platforms are selling, but skirting the law now just means the penalties will be even harsher down the road.
This is not the era of Facebook when the internet police had no idea what was going on with them.
It took decades for sentiment to shift against big tech.
However, from inception, crypto has been unable to shake the stereotype of being a fly-by-night operation and large swaths of it sure appear to be sketchy and they are policed as such.
The brand damage is immense causing the incremental investor to abstain from crypto and the regulators to clamp down even further on crypto companies and products.
We are seeing this in real-time.
The regulation is a footnote on a bull run on the way up, but now crypto has shot itself in the foot and is having a hard time convincing new investors into the asset class precisely because of a loss of trust.
Mad Hedge Bitcoin Letter
September 13, 2022
Fiat Lux
Featured Trade:
(BITCOIN GETS DROPKICKED)
(BTC), (CPI)
