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In This Issue:
Bitcoin Will Be the Currency of AIs.
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Can You Arbitrage Binance.US Prices Right Now?
Over $30 Billion Has Been Stolen
The Bitcoin Halving Is Soon!
Unlocking the Potential of Bitcoin: Building Lightspark with Christian Catalini
Bitcoin Will Be the Currency of AIs.
In the world of cryptocurrency, filtering out the 'noise' and focusing on the 'signal' can feel like an insurmountable task. Within this digital cacophony, a multitude of voices compete for attention, each promoting diverging ideas and perspectives. It is, therefore, no surprise that newcomers might quickly feel overwhelmed by this complex ecosystem and choose to abandon their crypto adventure prematurely.
Despite the pandemonium, a select few influential figures emerge whose opinions significantly influence the prevailing narrative in the cryptocurrency sphere. One such individual, a personal inspiration of mine, has maintained a somewhat clandestine status among the crypto ranks, despite his profound insights - Arthur Hayes.
For anyone with even the slightest interest in cryptocurrencies, neglecting to familiarize oneself with Arthur Hayes' work equates to a substantial missed opportunity. As a considerable amount of the information shared in this space draws from Hayes' insights, it seemed fitting to spotlight the master himself and delve into his latest piece, titled "Massa," published just recently.
For the uninitiated, Arthur Hayes is synonymous with Bitmex, a pioneering cryptocurrency exchange that embodied the adventurous spirit of early crypto with its daring derivative offerings. Bitmex was a haven for the most audacious investors - it was an all-or-nothing game of chance. After falling under heavy regulatory scrutiny in 2020, Hayes stepped away from Bitmex as it halted operations in the U.S. Thankfully, this was not the last we heard from him.
Beyond Bitmex, Hayes has built a reputation as a prolific writer and unwaveringly bullish analyst in the crypto space, long before it became mainstream. He excels at deconstructing current narratives and speculating on their future trajectories. What sets Hayes apart is his broad-minded approach; his analysis extends beyond Bitcoin to Ethereum and the occasional altcoin. Now, let's delve into "Massa."
"Massa," a term referring to a master or slave owner, headlines Hayes's essay and sets the stage for his primary query, "Will AI supplant feeble humans and become humanity's massa/slave master?" Essentially, in "Massa," Hayes explores the intersection of the emerging AI narrative with cryptocurrency, advising investors on how to position themselves to maximize benefits. His primary thesis is: "Bitcoin Will Be the Currency of AIs."
As is characteristic of Hayes, his arguments inevitably circle back to highly bullish forecasts and narratives.
According to Hayes, an AI payment system should possess the following characteristics to thrive:
100% digital
Clear, transparent rules
Absence of a single entity with the authority to arbitrarily change rules
Censorship-resistant
Always available
Fully automated
Does this list remind you of a certain cryptocurrency? Could it be Bitcoin?
You might consider gold as a contender, but digital gold, as it currently trades online, depends on a "Cartel of Trust" (i.e., banks and governments). How about digital systems like PayPal? Unfortunately, these centralized digital systems are also beholden to the banking system. And then there's fiat currency, which combines all the worst elements of every alternative to Bitcoin.
So, if Bitcoin becomes the currency of AI, and if AI is the revolutionary force we anticipate it to be, how will Bitcoin benefit? The answer to that question requires a bit of speculation and hyperbole. We must estimate the proportion of global GDP that the market expects to be driven by AI in the next decade. Hayes proposes that this figure could range anywhere from 5% to 50%.
With some intricate math factoring in future transaction volumes and the portion of GDP captured by AI, using this equation: BTC Price Estimate = (([Size of AI Economy %] * [2022 P / 365] * [Bitcoin Market Cap to Daily Transaction Value Multiple] * [100% The Velocity % of Payments]) / [Total BTC Supply]) + BTC/USD Spot Price, Hayes presents the matrix below. The potential outcomes may seem staggering, yet fascinating in their implications.
Does this seem preposterous? Undeniably, yet the core principle, as Hayes elucidates following the complex calculations, is simple: "remember - the market will overpay for Bitcoin network growth if it believes there is a possibility that my assumptions could be true in the future. The most money is made when the market price adjusts from 'can never happen' to 'maybe could happen.'"
Hayes's blog serves as an exciting exploration of Bitcoin's potential trajectory with AI. However, it's crucial to remember that Bitcoin's future cannot be reduced to AI and GDP or any other combination attempting to explain its price. No formula can accurately forecast price.
While the AI perspective is comprehensive, it overlooks several key factors such as institutional participation, nation-states accepting Bitcoin, governments incorporating it into their reserves, and the individual financial decisions of the 8 billion people populating our planet.
The future price of Bitcoin will forever be an enigma until the future manifests itself, adding to the exhilaration of investing in this asset. We are given the privilege of a front-row seat to witness in real-time the subversion of traditional financial structures by these small orange seeds. Predicting how fast or far Bitcoin will proliferate is pure speculation - the sky's the limit.
I highly encourage you to peruse Arthur Hayes' Blog, the source of inspiration for this newsletter. His insights into the world of cryptocurrency stand head and shoulders above any other available resource.
Bitcoin Thoughts And Analysis
I have been traveling for a week. And NOTHING has happened. Perfect. Go out, touch grass, learn a new language, get a hobby. Volatility will certainly return, but for now we have spent two straight weeks without any meaningful movement.
Legacy Markets
European stocks and US equity futures dropped at the start of the week due to concerns about inflation and interest rates following disappointing price data from China. Market participants are now focusing on US inflation figures due on Wednesday to understand the likely course of the Federal Reserve's policy and the potential risk of a recession. UK job data on Tuesday will also be key for the Bank of England's policy decision in August.
Over the weekend, US Treasury Secretary Janet Yellen did not discount the possibility of a US recession, stating that it is "appropriate and normal" for growth to slow down, and that inflation remains too high. The Stoxx Europe 600 index experienced a slight drop, with mining companies facing significant declines. US futures also reported losses after American equities fell on Friday due to persistent inflation threats.
Asian equities declined for the fourth consecutive day, hitting the lowest in over a month. In China, shares dropped after data revealed a further decrease in factory-gate prices and a slowdown in core inflation. Traders are now expecting fiscal stimulus ahead of China's July Politburo meeting due to the country's current excess supply issue.
Key events this week:
US wholesale inventories, Monday
Federal Reserve speakers include Mary Daly, Loretta Mester, Raphael Bostic and Michael Barr, Monday
Bank of England Governor Andrew Bailey delivers speech, Monday
St. Louis Fed President James Bullard speaks, Tuesday
Canada rate decision, Wednesday
US CPI, Wednesday
Federal Reserve issues Beige Book, Wednesday
Federal Reserve speakers include Neel Kashkari, Loretta Mester, Raphael Bostic, Wednesday
Bank of England Governor Andrew Bailey speaks, Wednesday
China trade, Thursday
Eurozone industrial production, Thursday
US initial jobless claims, PPI, Thursday
US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.2% as of 8:16 a.m. London time
S&P 500 futures fell 0.4%
Nasdaq 100 futures fell 0.5%
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index fell 0.2%
The MSCI Emerging Markets Index rose 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0959
The Japanese yen fell 0.1% to 142.37 per dollar
The offshore yuan fell 0.1% to 7.2408 per dollar
The British pound fell 0.2% to $1.2818
Cryptocurrencies
Bitcoin fell 0.3% to $30,118.24
Ether fell 0.6% to $1,857.91
Bonds
The yield on 10-year Treasuries was little changed at 4.06%
Germany’s 10-year yield was little changed at 2.64%
Britain’s 10-year yield advanced one basis point to 4.66%
Commodities
Brent crude fell 0.5% to $78.09 a barrel
Spot gold was little changed
Can You Arbitrage Binance.US Prices Right Now?
The succinct answer to the aforementioned question is indeed "yes." However, this venture is not without its own set of risks and hurdles. Primarily, as of June 13, 2023, Binance.US suspended all US dollar deposits and halted conversions between USD and USDT. Investors with USD already on the exchange could have purchased Bitcoin at a lower rate and subsequently sold it on a different platform, but this process was non-repeatable. Users may deposit cryptocurrency onto the exchange in anticipation of a potential arbitrage opportunity, but this strategy entails significant risk. Arbitrage opportunities frequently arise from some form of system failure. So, the question becomes, is it truly worth risking your investment to glean some additional currency from a fleeting spread? Proceed down this path with extreme caution. Binance.US is effectively dead.
Over $30 Billion Has Been Stolen
Crypto security firm SlowMist reports that losses within the industry have now exceeded $30 billion. Hacks come in various forms, and they can affect anyone, regardless of expertise or standing in the field. Recall the incident involving Luke Dashjr? One of the original core developers for Bitcoin, Dashjr fell victim to a hack that saw his BTC wallet completely emptied, costing him $3.6 million. This serves as a stark reminder: if Luke Dashjr can be hacked, anyone can be.
To mitigate the risk of hacks, consider the following strategies:
Use complex, randomized passwords (avoid obvious choices like names of your children).
Utilize cold storage to secure your crypto assets.
Avoid bridge services, as these can be vulnerable points of attack.
Do not keep your wallet constantly synced or connected online.
Triple-check all links before clicking on them.
Keep your ownership of crypto assets private. There is no need to broadcast your investments or the platforms you use to the world.
Admittedly, I have broken the last rule myself, but to offset my risk, I use Efani - a high-end mobile service specifically designed to combat SIM swaps. Please note, I'm not paid to promote Efani - it's simply a service I have confidence in and would readily recommend, particularly for public figures requiring enhanced protection.
The Bitcoin Halving Is Soon!
In the lead-up to each halving, fear, uncertainty, and doubt (FUD) related to mining routinely takes center stage, as predictable as the halving event itself. The article linked above provides a prime example. We're now just 248 days away from a pre-scheduled reduction in the rate at which new Bitcoins are created, an event known as "the halving." The Bitcoin rewards for miners will be slashed from 6.25 BTC to 3.125 BTC. As this event approaches, be prepared to encounter FUD claiming that miners are on the brink of incurring losses - it's best to disregard such rhetoric.
The halving will undoubtedly render some mining operations unviable due to increased costs. However, those miners who are well-situated will exploit this event to strengthen their standing even further. Consider the halving as a quadrennial detoxification process for the mining industry where only the fittest survive. The potential reward for this survival is a significant increase in Bitcoin's price, which can offset the reduction in supply. Please remain skeptical of articles propagating FUD about the halving - it's a fundamentally bullish event.
Unlocking the Potential of Bitcoin: Building Lightspark with Christian Catalini
Join Christian Catalini, co-founder of Facebook's Diem (formerly Libra) and MIT Crypto Economics Lab, as he introduces Lightspark, his groundbreaking project, to revolutionize the payments industry using the Lightning network on Bitcoin’s blockchain.
In this episode with Christian, we discussed:
The story of Libra
Competing with Visa & Mastercard
Cheap, fast & secure
Lightspark
Ordinals
Competing with other blockchains
Crypto geography
Banking the unbanked
Bitcoin-based stablecoins
Interoperability
Intersection of crypto & AI
The role of Bitcoin
How Christian Catalini discovered Bitcoin
Connect with Christian Catalini
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.