Mad Hedge Bitcoin Letter
May 12, 2022
Fiat Lux
Featured Trade:
(LUNA BLOWS UP)
(BTC), (ETH), (LUNA), (UST), (MSTR)
Tag Archive for: (MSTR)
Altcoins won’t age well and 99% of them will vanish before our eyes. The way in which they exit also may or may not cause financial contagion.
We need to stop the arrogance already.
Let’s just default quickly to Occam's razor and back of the envelope math shows that we can’t have 1,000’s of these crappy digital currencies masquerading as real ones.
We need a few good ones and that’s it.
Sure, we have tried and tested Bitcoin (BTC) and Ethereum (ETC), but these other worthless pieces of code are hawked by mostly snake oil salesmen who are looking for a quick buck by preying on the naïve.
So don’t get greedy.
I hear many crypto enthusiasts tell me their strategy is to buy the cheapest and most obscure crypto possible and hope for a moonshot.
That’s a fools’ strategy and the money is better donated to cure world poverty.
So what am I really talking about?
The supposed stable coin UST and LUNA which was supposed to peg its value to the US dollar broke in a severe way as the algorithmic that was intended to uphold this balanced ratio went haywire.
10’s of billions of real dollars were wiped out from investors as the genius algorithms messed up in a big way.
This contagion has had the knock-on effect of dragging the price of Bitcoin and Ether down as many might assume a UST or LUNA holders might need to sell BTC to get some liquid currency.
It’s been a giant risk-off move for crypto in every nook of the asset class and even worse, a massive loss of confidence for the industry as a whole.
This was a gift to the detractors who say that crypto is run by a bunch of idiots or charlatans or something of that ilk.
The value of LUNA plunged on Wednesday as Terraform Labs creator Do Kwon laid out a plan to save its sister token, the stablecoin TerraUSD (UST).
In the last 24 hours, roughly $10 billion have been drained from LUNA. Its price has fallen 93% in that time from $32 to $2.25 per coin, with the price changing rapidly each minute. After skidding to a low of 30 cents per coin, UST has ratcheted up more than a quarter to 64 cents.
Down 30% in the last day after breaking its essential $1 peg over the weekend, UST trades at above 64 cents per coin while Terra’s LUNA token rebounded 61% to $2.25 after dipping below $1 at 9 a.m. New York time Wednesday.
In the first sniff of market turmoil, stablecoins have failed miserably and it also incentivizes government regulation to shut them down.
This of course gives ammunition to SEC Chairman Gary Gensler to move stablecoins under his jurisdiction.
He would kill the development in a second by pelting it with so many fees, bureaucracy, delays, hidden regulations, and obstructions that stablecoins will be swept into the dustbin of history.
The contagion has led to Bitcoin falling lower than $29,000 and we are getting dangerously closer to the $21,000 threshold where MicroStrategy (MSTR) will get a margin call.
Sell every and any rally in Bitcoin, this loss of confidence can’t be understated and crypto has failed miserably to attract the incremental buyer in a rising rate environment.
Don’t catch a falling knife.
Mad Hedge Bitcoin Letter
May 10, 2022
Fiat Lux
Featured Trade:
(ROCKING THE BOAT AT MICROSTRATEGY)
(MSTR), (BTC)
If Bitcoin (BTC) drops to $21,000 hold tight for a tsunami of forced selling that will cause BTC to crash.
There is a high likelihood of that happening as the bitcoin proxy traded on the NYSE software company MicroStrategy told us about this stunning news during their earnings call.
MicroStrategy CFO Phong Le admitted the company will be forced to pony up more Bitcoin to back its loan with Silvergate Bank.
CEO Michael Saylor looked like a genius when BTC was roaring, but not so much now as investors head for cover as indiscriminate selling takes hold of all risk assets.
Shares of MSTR are down around 75% in the past 6 months.
Ironically, the company shares are underperforming BTC but that is the least of the company’s concerns as they head for uncharted territory and could be forced to tap the debt market at a time when borrowing costs have shot through the roof.
Part of the quagmire here is that the CFO has been financing these Bitcoin purchases with borrowed money and the CFO will need to calculate how much more debt they can handle while accommodating the interest payments for the debt already borrowed.
It's easy to see this going from bad to worse as high-interest debt on top of crushing debt is a recipe for disaster and lenders would have sniffed this out.
I mention this $205 million loan from Silvergate Bank to buy more Bitcoin because the loan was and still is INTEREST ONLY.
Saylor has greenlighted this highly risky strategy and if MSTR continues down this terrible vein of form, they might not have the money to pay back the principal at the end of the loan.
Le claimed that the company holds “quite a bit” of uncollateralized Bitcoin that it can use to support its loan should the need arise. He also noted that Bitcoin is highly unlikely to touch $21,000, a level that was last seen in late 2020.
In the first quarter of the year, Microstrategy purchased $215 million worth of Bitcoin at an average purchase price of $44,645 per coin, bringing its total holdings to 129,218 Bitcoins acquired at an average price of $30,700 per coin, or for $3.97 billion, according to SEC filings. At current rates, the company’s Bitcoin stash is worth over $4.2 billion.
Le likes to say we are nowhere near $21,000 but it's slowly muddling itself down as the macro conditions are the worst in a generation forcing investors to ditch speculative assets like Bitcoin.
Unfortunately, many of these events came too early for BTC and BTC needed time to develop.
Our unfavorable backdrop includes items such as 2 unforced policy errors by the US Central Bank, military conflict, hyperinflation, spiking energy costs, and supply chain problems.
None have been solved and any or all could get many times worse.
The big winner here has obviously been the US dollar, short Bond traders, and energy stocks.
At the end of the day, BTC only goes up when fiat is poured into its asset, and the challenges we face now make BTC not as attractive as it was when the Central Bank printed $10 trillion and a good chunk of that went into Bitcoin.
That’s why we saw Bitcoin at $65,000 in November 2021.
The intense tightening of liquidity we are experiencing now means those spigots have run dry and BTC is the main loser.
BTC is down to $31,000 and the drop from $10,000 was rapid, if that happens again, BTC will be at $21,000.
MSTR could be forced to dump their BTC which would take the digital gold to $15,000.
Mad Hedge Bitcoin Letter
January 4, 2022
Fiat Lux
Featured Trade:
(BITCOIN HOLDS STEADY)
(BTC), (MSTR)
After Bitcoin’s asymmetric rise to $65,000, the pullback to $45,000 has been hard on all of us.
The momentum sucked out of the asset shows how fortunes can turn on a dime, but that doesn’t mean the price of Bitcoin is dead, it’s just resting.
Without pussyfooting around, the truth is that Bitcoin is highly volatile which is why I do not encourage readers to bet the ranch on it at any moment in time or on any sort of cryptocurrency.
Even the use case of it is constantly attacked almost similar to when Tesla wasn’t Tesla yet and many emerging asset classes but go through teething pains before they mature.
The bottom line is that as volatility increases, the potential to make more money quickly also increases.
Conversely, the bad news is that higher volatility also means higher risk.
When elevated volatility consumes asset prices, the possibility for above-average profit is squarely on the table, but you also run the risk of losing a larger amount of capital in a relatively shorter period of time.
That being said, it’s salient to take measure of what’s going on beneath the surface in order to take a barometer of the health of the industry development.
We aren’t in the business of buying apartment buildings with tofu-like foundations.
This disciplined approach will help you successfully navigate higher volatility asset classes and manage volatility for your benefit—while minimizing risks.
Beneath the surface, the quantity of Bitcoin (BTC) held by private corporations increased significantly during 2021, improving on the 2020 signaling a maturing of the asset class.
Many fortune 500 companies and a smattering of other public companies have scooped up significant Bitcoin purchases and are highly exposed to Bitcoin on public equity markets.
They mainly do this by buying newly minted crypto ETF’s which there are an ever-growing number of choices even though some have chosen to buy directly from crypto brokers.
This isn’t the Bitcoin of 2 years ago, things have moved on quite drastically.
And I am not just talking about MicroStrategy (MSTR) who have been outspoken about their commitment to the digital gold.
MSTR has also been a huge supporter of online seminars aimed to explain the legal considerations for firms seeking to integrate Bitcoin into their businesses and reserves.
As you see, not all companies use Bitcoin the same way, and public corporations are increasingly viewing crypto as contained to only one part of their balance sheet.
For some, they have made it their entire balance sheet on the backs of corporate bond issuances.
This is of course never happened 2 years ago.
CEO of MSTR Michael Saylor’s is a leading business intelligence firm and is known for being particularly bullish on Bitcoin, owning almost $6 billion in crypto assets.
MSTR just bought another 1,914 Bitcoin worth $94 million. The company has gained more than $2.1 billion in profit since its initial Bitcoin purchase in August 2020.
The data shows that digital currency asset management company Grayscale, a de facto bitcoin ETF and proxy of Bitcoin, had gained the highest market share by a landslide at 645,199 Bitcoin by the end of 2021. This took up 71% of the wider market as holdings of all spot ETFs and corporations together totaled 903,988 Bitcoin according to the chart.
MicroStrategy is the largest corporate investor, holding 124,391 Bitcoin valued at around $5.8 billion, according to Bitcoin Treasuries. Second-placed Tesla holds around 43,200 Bitcoin worth roughly $2 billion at current prices.
In 2020, the amount of Bitcoin held by public companies surged 400% in 12 months to $3.6 billion and 2021 showed more inroads while 2022 is poised again to shatter records.
Internally, Bitcoin and cryptocurrencies as a whole are making the right moves to consolidate this asset class as a legitimate industry whether it be DeFi apps or the growing adoption rate.
I see more public companies participating in Bitcoin as a resounding vote of confidence for the currency and this will put the asset in good stead for the long term.
For the short term, the signaling of higher interest rates has really put the kibosh on the price of Bitcoin, but that should be priced into the equation at this point.
The Fed then moving not as fast to raise could offer crypto that narrow path to higher prices.
At the very minimum, the Fed has stolen crypto’s thunder and all attention has gravitated towards what they will do next, and we can see that in how Bitcoin prices have fluctuated because of that.
I expect a slow grind up from the mid-$40,000 if the Fed signals to investors that they will raise rates slower than first imagined.
Global Market Comments
December 17, 2021
Fiat Lux
Featured Trade:
(DECEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (FCI), (TLT), (TBT), (BITO), (AAPL), (AMZN), (T), (TSLA), (BABA), (BLOK), (MSTR), (COIN)
Below please find subscribers’ Q&A for the December 15 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: With interest rates going up, would it make sense to short heavily indebted companies as a class?
A: Yes it does; those would be old-line industrials and auto companies with very heavy debts. Technology companies essentially have no debt unless they’re startups. So yeah, that’s a good idea; unless of course inflation is peaking right now, which it may be if you solve these supply chain problems, and it becomes evident that retailers overordered to beat the supply chain problems and now have a ton of excess inventory they can’t meet—then the inflation plays will crash. So, not a low-risk environment right now. No matter where you look, you’re screwed if you do, you’re screwed if you don't. So that is an issue to keep in mind.
Q: What do you think of Freeport McMoRan (FCX) short-term?
A: Short term, (FCX) only sees the Chinese (FXI) real estate crisis, which is getting worse before it gets better and could bring a complete halt to all known construction in China. The government is forcing the real estate companies there to run at losses in order to bring the bottom part of their society into the middle class with houses in third and fourth-tier cities. Long term, as annual electric car production goes from a million cars a year to 25 million cars a year and each car needs 200 lbs. of copper, we have to triple world production practically overnight to accommodate that. That can’t happen, therefore that means much higher prices. If you’re willing to take some pain, picking up freeport McMoRan in the low $30s has to be the trade of the century.
Q: Do you see a Christmas rally or a bigger correction?
A: Rally first. Once we get the Fed out of the way today, we could get our Christmas rally resumed and go to new highs by the end of the year. But, January is starting to look a little bit scary with all the unknowns going forward and massive long positions. January could be okay as hedge funds put positions back on in tech that they’re dumping right now. If they don’t show up…Houston, we might have a problem.
Q: Thoughts on the iShares 20 Plus Year Treasury Bond ETF (TLT) Dec 2022 $150-$155 vertical bear put spread?
A: Since I'm in low-risk mode, I would go up $5 or $10 points and not be greedy. Not being greedy is going to be one of the principal themes of 2022 therefore I’m recommending that people do the $160-$165 or even the $165-$170, which still gives you a 30% return in a year, and I think next year this will be seen as a fabulous return.
Q: What about the $100,000 target for Bitcoin (BITO) by the end of the year?
A: That’s off the table thanks to the Fed tightening and Omicron triggering a massive “RISK OFF” and flight to safety move. Non-yielding instruments tend not to do well during periods of rising interest rates, so gold along with crypto is getting crushed.
Q: What will happen in the case of a black swan event in early 2022, like Russia invading Ukraine?
A: Market impact for that would be a bad couple of days, a buying opportunity, and then you’d want to pile into stocks. Every geopolitical event that’s happened in the last 20 years has been a buying opportunity for stocks. Of course, I would feel bad for the Ukrainians, but it’s kind of like Florida seceding from the US, then the US invading Florida to take it back, and the rest of the world not really caring. Plus, it doesn’t help that their heavily nationalist post-coup government has some fascist tendencies. However, we could get global economic sanctions against Russia like an import/export embargo, which would hurt them and destroy their economy.
Q: Will the European natural gas shortage continue?
A: Yes because the Europeans are at the mercy of the Russians, who have all the gas and none of the economy. Therefore, they can export as much or as little as they want, depending on how much political control they’re trying to exert in Europe.
Q: Apple Inc. (AAPL) price target?
A: Well, my price target for next year was $200; we could hit that by the end of the year if we get a rally after the Fed meeting.
Q: 33% of the population is in collection status with personal debt, credit cards, etc—is that a harbinger of a 2008 crash?
A: No, it is a harbinger of excess liquidity, interest rates being too low, and lenders being too lax. However, we aren’t at the level where it could wipe out the entire economy like with defaulting on a third of all housing market debt in 2008.
Q: What should I do with my call spreads for Amazon.com, Inc. (AMZN)?
A: Well, November would have been a great sell. Down here, I’d be inclined to hold onto the spreads you have, looking for a yearend rally and a new year rally. But remember, with all these short-dated plays risk is rising, so keep that in mind.
Q: What do you think of AT&T Inc (T)?
A: The whole sector has just been treated horrifically; I don’t want to try to catch a falling knife here even though AT&T pays a 10% dividend.
Q: What about quad witching day?
A: Expect a battle by big hedge funds trying to push single stocks options just above or below strike prices. It’s totally unpredictable because of the rise of front-month trading, which is now 80% of all options trading with the participation of algorithms.
Q: Is the Alibaba Group Holding Limited (BABA) $230-$250 LEAP in June 2023 worth keeping?
A: I would say yes, I think the Chinese will come to their senses by then, and all the Chinese tech plays will double, but there’s no guarantee. That is still a high-risk trade.
Q: Does the US have an opportunity to export petroleum products?
A: The answer is yes, we are already a net energy exporter thanks to fracking. But, it is a multi-year infrastructure build-out to add foreign export destinations like Europe, which hasn’t bought our petroleum since WWII. Right now, almost all of our exports are going to Asia. No easy fixes here.
Q: Is Tesla Inc (TSLA) a buy at 935 down 300 in change?
A: Not yet; 45% seems to be the magic number for Tesla correction. We had one this year. And Elon Musk hasn’t quit selling yet, although I suspect he’ll end his selling by the end of the year because he’ll have met all his tax obligations for the year. He has to sell these options before they expire and are rendered useless. So that is what’s happening with Tesla, Elon Musk selling. And can you blame him? He almost worked himself to death making that company, time to spend some money and have a good time, like me.
Q: What if your Chinese company gets delisted?
A: Try to get out before it is delisted. Otherwise, the domicile moves to Hong Kong and you’ll have to sell equivalent shares there. I don’t know what the details of that are going to be, but the Chinese companies are trying to force companies to delist from the US and list in Hong Kong so they have complete control over what's going on. Also, I never liked these New York listings anyway because the disclosures were terrible, with Cayman Island PO Boxes and so on…
Q: Is the ProShares UltraShort 20+ Year Treasury (TBT) a good long-term position to hold?
A: It is to an extent—only if you expect any big moves up in interest rates, which I kind of am. This is because the cost of carry for (TBT) is quite high; you have to pay double the 10-year US Treasury rates, which is double 1.45% or about 2.90%, and then another management fee of 1%, so you have kind of a 4% a year headwind on that because of cost. Remember, if you’re short a bond, you’re short a coupon; if you’re double short a bond you’re short twice the coupon and you have to pay that and they take it out of the share price. But, if you’re expecting bonds to go down more than 4%, you’ll cover that and then some and I think bonds could drop 10-20% this year.
Q: What’s the difference between GBTC and BITO?
A: Nothing, both are Bitcoin plays that are tracking reasonably well. I prefer to go with the miners—the Bitcoin providers, that’s a selling-shovels-to-the-gold-miners play. They tend to have more volatility than the underlying Bitcoin, so that’s why I’m in (BLOK) and (MSTR) when I’m in it.
Q: What’s the best way to buy Crypto?
A: If you really want to buy Crypto directly, the really easy way is to go through one of the top crypto brokerage houses, and we’ve recommended several of those. Coinbase (COIN) is the one I’m in. It literally takes you five minutes to set up an account and you can instantly buy Bitcoin linked to your bank account.
Q: What are the fees like for Coinbase?
A: The fees at (COIN) are exorbitant only if you’re buying $10 worth of Bitcoin. If you’re buying like $1 million worth, they’re much, much smaller. But I recommend you start at $10 and work your way up as I did, and sooner or later you’ll be buying million-dollar chunks of Bitcoin which then double in three months, which happened to me this year.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 20, 2021
Fiat Lux
Featured Trade:
(THE HARD TRUTH BEHIND BUYING IN NOVEMBER)
(NOTICE TO MILITARY SUBSCRIBERS)
Global Market Comments
October 19, 2021
Fiat Lux
SPECIAL BITCOIN ISSUE
Featured Trade:
(WHERE DOES BITCOIN GO FROM HERE?)
($BTCUSD), (ETH), (CRPT), (BLOK), (MSTR)
