Mad Hedge Bitcoin Letter
June 23, 2022
Fiat Lux
Featured Trade:
(EASIEST WAY TO SHORT BITCOIN)
(BTC), (BITI)
Tag Archive for: (BTC)
The ticker symbol is BITI – write it down in your journal.
What’s that?
That’s the new ProShares Short Bitcoin ETF that just started trading on the New York Stock Exchange 2 days ago.
It’s been a long time coming.
Crypto ETFs have had an arduous journey to finally join other assets trading publicly.
Handcuffed by regulation behind the scenes, crypto has been roadblocked.
The really underscored the enormity of situation and how difficult it is to get approved in America, much like building an oil refinery in the United States.
It only took eight months after first creating the initial U.S. bitcoin futures ETF.
What does this mean?
Instead of executing some type of exotic trade exposing an investor to a short Bitcoin position on some alternative market, investors can now just click and buy a product that bets against an appreciating price of Bitcoin.
In short, if Bitcoin goes down, profit is accrued.
This makes it even easier to hate crypto if the gateways to bet against it have enlarged.
Before this, the best way to really expose oneself in an insured marketplace was to sell short MicroStrategy (MSTR).
However, MSTR never correlated 1:1 with Bitcoin and it was something closer to 85% correction.
The fall to $17,000 for Bitcoin means that it has not participated in the latest bear market rally but only participated in the selloffs.
That’s never something you want to hear if you are interested in buying into an asset class.
Considering that traditional brokerage accounts can now bet against Bitcoin will result in more short sellers and not less.
BITI will be the first ETF of its kind in the U.S. Horizons ETFs has a short bitcoin ETF listed on the Toronto Stock Exchange.
ProShares said BITI is designed to deliver the opposite of the performance of the S&P CME Bitcoin Futures Index and that it seeks to obtain exposure through bitcoin futures contracts.
How well-timed the launch remains to be seen? Markets remain fraught with uncertainty, and I do believe Bitcoin will trend towards $12,000 per coin in the short-term.
I know there's a ton of people who had massive FOMO from missing the rise of Bitcoin and they have been even happier that they missed the elevator down as well.
I've taken calls from friends and even family asking if they should buy the dip and the answer is no.
Bitcoin is bereft of dip buyers as small and large buyers have gone AWOL for different reasons.
Much of the new incremental capital has gone into shorting interest rates and buying commodities.
Other institutional capital like Ray Dalio’s Bridgewater hedge fund just doubled their bet against Europeans stocks to $10.5 billion.
Bitcoin, as it exists in its current form, just isn’t attractive to the incremental buyer.
As Bitcoin gets cheaper, one might say it’s on sale, but sales can be lowered and that’s the path of least resistance unless something changes.
Mad Hedge Bitcoin Letter
June 21, 2022
Fiat Lux
Featured Trade:
(SYSTEMIC RISK ACCELERATES)
(BTC), (SOL)
The CEO of MicroStrategy and Bitcoin evangelist Michael Saylor has already lost $2 billion on his bitcoin investments signaling that all is not smooth for the wider crypto industry.
Much like in the fiat money world, once extremely unlikely events start to occur, we usually see a cascade of odd unintended consequences that push the network or system to the brink.
Many are calling crypto lender Celsius’ freezing of withdrawals a “Lehman” type moment.
We have entered a phase of crypto systematic risk rearing its ugly head.
Investors are waiting for the complete capitulation which could materialize into another potential ugly event on top of the mini disasters of late.
This bodes poorly for crypto in the short-term.
A large wallet at the center of the fiasco at Solana lending protocol Solend started to move millions of dollars of cryptocurrencies.
The move potentially averts the risk of contagion in case of a liquidation that could have caused up to a billion of dollars in losses.
The anonymous wallet had deposited 95% of Solend’s pool of SOL tokens and represented 88% of USDC borrowing, yet came close to a margin call last week as the SOL price dropped more than 40% to as low as $27.
The protocol would have automatically liquidated up to 20% of the big account’s collateral if SOL hit $22.30, and potentially lead to damage in the broader Solana ecosystem.
A governance vote was floated by protocol developers to take control of the account and take adequate risk management steps.
One of the hidden risks about crypto and particularly the smaller and more artisanal altcoin is that they are dominated by a few big accounts.
Before these secondary coins exploded, big accounts would get in at paltry prices and these are the accounts that currently corner the market.
Many algorithms had $20,000 marked as the line in the sand and once breached, look out below.
I personally know a few traders that have inputted orders to sell limit orders as psychologically sensitive levels.
The Solano debacle spiraling out of control leading to an internal stakeholder vote is a shocking turn of events.
This wrecks any notion that this network is decentralized and is the exact opposite of what crypto advertises itself as a non-centralized system.
For the developers to “takeover” a big account because it could take down the coin’s network is even worse than what’s happening in the fiat world.
This is another massive thumbs-down event for crypto infrastructure and another kick in the sternum for dip buyers.
To be honest, there are no dip buyers in crypto and each day validates this thesis.
Trust in crypto, crypto momentum, crypto liquidity, and the supposed bullish crypto narrative as a store of value or inflation hedge are all trending towards generational lows with no end in sight.
The surge above $20,000 per Bitcoin is a dead cat bounce triggered by short coverers.
Investors are selling all the crypto they can before the next down leg takes us lower before the next area of system risk crops up.
Mad Hedge Bitcoin Letter
June 16, 2022
Fiat Lux
Featured Trade:
(FED SUPPRESSES CRYPTO)
(BTC), (CBDC), (FED)
The unthinkable just happened when the US Central Bank pulled the trigger on a 75-basis point rate rise which highlights the severity of broad financial trouble at the macro level.
This also underscores the need to sell Bitcoin to pay the bills for the median Bitcoin holder whether it be to keep the lights on, fill up the tank, or go to the grocery store.
These issues can’t be downplayed and dismissed anymore as even rich people are suffering from sticker shock as well.
One might believe that the 1,000 plus professional Ivy-league trained economists employed by the Fed might waltz into a supermarket to check out the prices.
Apparently not and what we have is an echo chamber which the group has firmly enshrined as the go-to strategy for our federal bankers.
Unfortunately, the insane price hike we are seeing is really killing cryptocurrencies’ mojo and that is terrible news for this cryptocurrency newsletter.
Crypto prices go up when there is an excess level of capital sloshing around the system due to bursts of overload liquidity like what we saw with fiscal stimulus measures enacted for a once-in-a-century arbitrary lockdown-society situation.
Now that the Federal government is taking away the punch bowl, extreme volatility in the stock market and crypto markets is rearing its ugly head and it doesn’t look pretty.
Sadly, the situation for crypto will get worse.
As the looming recession is brought forward by aggressive rate hikes, it means crypto holders will lose their day job, triggering yet another wave of mass crypto selling.
If they own a house, they will sell it because they won’t be able to afford the mortgage payments without a job.
Even if they are lucky enough to rent out their house, then finding their own place to rent will be impossible.
Rents are primed to explode higher as former homeowners turn into a wave of new renters fighting for the little supply on the market.
This means they will be paying more for shelter in a recession relative to their payments on their old mortgage before the recession.
This doesn’t seem like a great model for ensuring your customers have money to throw at crypto.
Also, these workers who lose their jobs won’t be able to find a new one right away if we are in a deep recession triggered by large rate hikes.
Companies don’t hire in deep recessions because they cut costs.
Making matters worse is that the entire crypto ecosphere is illiquid right now because of systemic risk brought about by panic liquidation from institutions.
The loss of confidence has infiltrated every corner of the crypto industry.
One must be insane to put new money to work which will result in zero dip buyers.
Good luck getting any real spendable dollars out of this mess.
The only ones that will end up net positive are the investors who got in SUPER early, and I mean really early like Bitcoin at 40 cents.
These fortunes earned in crypto can handle a downdraft like this or they have already cashed out long before to ride into the sunset on their horse.
If systemic risk starts to ramp up to unbearable levels, then stakeholders will be forced to beg the government to regulate it to prevent it from happening again - it will be replaced by a central bank digital currency (CBDC), the wildcat banking era of internet money will be effectively over.
The silver lining in the technology is solid.
However, this inflation problem really killed the crypto bubble for those who aren’t rich, and there lies the problem.
It’s never a positive result to bankrupt most of one’s customers whether it be from lower crypto prices, lower stock prices, or a cost-of-living crisis.
Crypto will need to reinvent itself for the next iteration if it plans to go on another epic bull run like we saw in 2021.
Mad Hedge Bitcoin Letter
June 14, 2022
Fiat Lux
Featured Trade:
(FROM BAD TO WORSE)
(BTC), (CELSIUS)
Crypto winter is here.
My short-term forecast of one Bitcoin (BTC) priced at $20,000 is coming to fruition as BTC undergoes a nasty selloff that was triggered by panic liquidating.
The price was around $28,000 per BTC this weekend, only for the digital gold to sink to around $23,000 on Monday morning.
The dip that was around 17% won’t attract any dip buyers right now because as a whole, the entire industry is a no-fly zone.
A store of value during high inflation?
It’s playing out unfavorably for BTC as consumers and investors trade with their feet by preferring a can of tuna over an unregulated controversy.
What really heaved fuel on the fire?
Another systemic risk flaming out of control.
Celsius, said Monday it was pausing all withdrawals, causing more pain in the fragile crypto market.
This could be crypto’s “Lehman moment.”
Freezing payment flows is the antithesis of a store of value which BTC and crypto experts claimed it was.
These events will stain the infrastructure of cryptocurrencies for quite a while until they can prove they aren’t such a half-baked operation.
Celsius mainly delt in lending crypto funds and just imagine the trajectory of the stock market if all banks froze withdrawals.
The stock market would open down 25% the next day.
We are having one of those moments in the crypto industry with no sight of help to save us.
Celsius is one of the largest participants in the burgeoning crypto lending space, with more than $8 billion lent out to clients and almost $12 billion in assets under management as of May.
Celsius, which offers users higher-than-average interest rates on their deposits, is essentially the crypto equivalent of a bank — but without the strict insurance requirements faced by traditional lenders.
It was just a few weeks ago when Celsius CEO Alex Mashinsky downplayed the company was having any trouble meeting withdrawal requests.
Either he was lying or the situation went from great to abysmal quickly.
I believe it was a combination of the two.
No later after Celsius froze funds, pandemonium came to the biggest crypto exchange Binance.
Binance said Monday that it is temporarily pausing bitcoin withdrawals “due to a stuck transaction causing a backlog.”
Crypto exchanges are brokers precisely, so trades don’t get “stuck.”
At first, Binance founder and CEO Changpeng Zhao said in a tweet that the issue would be fixed within 30 minutes. But he later amended that to say, “Likely this is going to take a bit longer to fix than my initial estimate.”
Crypto is going haywire and investors are pulling funds in droves, but the inferior infrastructure is overloaded by the withdrawal transaction volume.
Investors should stay away from crypto right now unless they desire to sell a rally through a Bitcoin proxy on the public markets.
Illiquid markets mean that slippage costs are high and trades might not get filled at all.
If an investor can’t pocket the proceeds, then all bets are off.
Investors might be waiting days if not weeks to receive their order.
The market mayhem has shown crypto to be an absolute inferior asset to that of any alternative.
Investors just assume tomorrow will be worse than today.
A massive loss of confidence is the last thing investors want to see happen to an unproven industry.
Lastly, this guarantees the pulling forward of heavy regulation from the Feds that will absolutely result in higher costs for not only the trader but every part of the crypto ecosystem.
Crypto has shown it isn’t able to self-govern and with that, a third-party organization will need to come in and determine the law of the land.
The price of Bitcoin will sink through $20,000 and I believe the next stop is $10,000.
Tighten your seat belts folks.
Mad Hedge Bitcoin Letter
June 9, 2022
Fiat Lux
Featured Trade:
(CRYPTO SACKS ITS WORKFORCE)
(BTC),
It’s a bad omen when crypto exchanges pull back from hiring and I am not talking about just a few people.
Drastic cuts are taking place as we speak in crypto land.
It was just a few years ago when no number of crypto hires could satisfy labor demand.
Yet, sadly, when an asset class has no cash flow, the effects to the downside can be quite nasty and often overshoot.
In an about-face that really shows investors the current dilemma in the crypto ranks, it will be a long time before crypto companies will feel the urge to ramp up labor capacity as they did when crypto surged to $65,000 per BTC.
Interest rates will need to be a lot lower as well since BTC has proven to perform well during a time of low inflation and cheap capital.
BTC has languished at around $30,000 during this bear market rally and it could signal that it won’t take part in the recovery.
Much of the capital has gone to safer pastures like the US dollar which has been a solid outperformer this year.
An even better outperformer would be energy stocks.
They have really set the pace for all asset classes in 2022 to the detriment of cryptocurrencies.
Gemini crypto exchange founders Cameron and Tyler Winklevoss are laying off 10% of the workforce at Gemini, a first for the U.S.-based cryptocurrency exchange and custodian.
They described it as a “contraction phase” known as “crypto winter,” which has been “further compounded by the current macroeconomic and geopolitical turmoil.”
Fellow crypto exchange Coinbase recently reported that revenue had fallen 27% from a year ago.
The last so-called crypto winter ran from 2018 into the fall of 2020 as the value of cryptocurrencies plunged and layoffs were rife.
L.J Brock, chief people officer at Coinbase, announced that Coinbase will not only extend its hiring pause for the foreseeable future but also rescind accepted offers.
The 180 rescinded offers are a bad look for the crypto industry yet again.
The industry is confronted with a barrage of legitimization issues and a tendency of creating poor business practices.
At the start of 2022, Coinbase’s plan was to boost its staff by 2,000. The company added 1,218 employees in the first quarter of 2022 alone, bringing its total headcount to 4,948.
Other fintech start-ups such as Robinhood and BitMEX have recently cut staff.
As many as 80% of tech workers are considering looking for another job, and more than half have actually applied for one since March.
It’s not surprising that a speculative asset class will shed workers at a time when the price of crypto has gone nowhere.
Higher prices lure in the incremental crypto investor and when that disappears, times can be lean.
Many of the investors that came in at the peak are sitting on huge losses and it’s hard to see where the next incremental investor will come from.
The crypto industry finds itself in a transition stage where the narrative has switched from the price of its bellwether coin to the infrastructures health and future regulation.
Many investors looking for that jet fuel to take BTC to $100,000 have left the building after the conditions which set BTC on fire have been quickly extinguished.
Now we are set for this painful transition stage where a speculative asset treads water and attracting the next undecided crypto investors becomes harder and harder until the infrastructure and use case improve.
