The Wolf Den #934 - The Double Spend Problem
Bitcoin fixes this.
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In This Issue:
The Double Spend Problem
Bitcoin Thoughts And Analysis
Altcoin Charts
Legacy Markets
Not Everyone Is A Fan Of The MicroStrategy Strategy
Tokenized Treasuries Are On The Rise
Bitwise Joins The Race
SBF Sentenced, Up Only Resumes!
Larry Fink Will Send Bitcoin To A New All-Time High Soon (Here’s Why)
The Double Spend Problem
All is well in the crypto market; vibes are immaculate, criminals are being punished, Wall Street sees our vision, and Bitcoin is just hanging out, waiting for its next move.
As best as I can, I try to keep the newsletter both a reflection of the market and a balance of educational content, and figured today was a quiet enough day to give a short lesson on money.
Without further ado, ‘the double spend’ problem.
Let’s consider Bob, a loyal subscriber who regularly forwards the Wolf Den newsletter to his friends who haven't yet subscribed. After reading yesterday’s edition, Bob downloads the newsletter, drafts an email, and attaches the file to send to Alice.
Be like Bob.
When Bob sends the email with the attached file, he doesn't lose his subscription or the original file. The file doesn't leave Bob’s computer; it duplicates. Bob retains full access to the file, and now Alice has it too, basic stuff.
If digital currency operated similarly to how Bob sends my newsletter, Bob could duplicate his savings at will, send all of it to Alice, and still retain full control of what he originally had. This would effectively give Bob godlike power, essentially the same level of control as the Federal Reserve, this is why banks were created.
When Bob sends Alice $10, a bank is entrusted to remove the funds from Bob’s account and transfer them to Alice’s account to make sure the money isn't double spent. The problem is that banks can’t actually be trusted to honestly manage money without acting greedy.
This is where the double spend problem (DSP) comes into play. The DSP refers to the challenge of controlling or preventing the duplication of digital assets, particularly in the context of digital currency. This is what Satoshi set out to solve, and he chose each of us as the solution.
Satoshi realized that the key to instilling trust in a system was to ensure that all records were open, accessible, and available for everyone to collectively play the role of the 'banker.' This meant removing centralized control and distributing it across millions of people globally—a concept known as decentralization.
Bob, being the savvy subscriber he is, decides to send Alice .1 BTC as a generous gesture. He logs into his wallet, signs the transaction, and broadcasts it to miners for verification. Once confirmed, we can all verify its legitimacy, and the transaction is then included in a block. As future blocks are added to the chain, the transaction is confirmed. Alice now has full control over the .1 Bitcoin.
What Bob can’t do is try and pull some of the dirty tricks banks regularly use at their disposal. If Bob immediately tried to send another .1 BTC to duplicate his holdings, the bitcoin network would detect that Bob is attempting to double spend and would reject the second transaction. We (the miners) are rewarded for checking that the sender has sufficient funds to complete the transaction.
No fractional lending, interest rate manipulation, discriminatory practices, overdraft fees, or high-interest rate loans. Bitcoin is the purest solution to the double spend problem that we can all utilize for a more democratic and equitable digital monetary system.
In case you were wondering, there are indeed other digital assets that solve the DSP, but Bitcoin deserves the most credit for being the first and arguably the most robust solution.
I hope you all have a fantastic weekend! Despite the uncertainties surrounding the SEC, Ethereum, exchanges, and DeFi, the crypto community is growing stronger every day. I couldn't imagine being anywhere else but right here with all of you, enjoying the journey, sharing my thoughts, and connecting with the community.
Wolf, out.
Bitcoin Thoughts And Analysis
Once again, Bitcoin is chopping sideways and there is little to see. We will revisit on Monday.
Altcoin Charts
For those who are new here, I share SETUPS and not SIGNALS. These are ideas that I am watching - if a certain thing happens, then the trade triggers. I am not telling you what to buy or when. I am showing you how I am watching certain charts and what has to happen for me to take a trade.
I bought a bunch of this token last cycle, traded around the position, held a bag all of the way to the bottom.
Well done.
That said, dog memes are running, this one has both "DOGE" and "ELON" in the name, a very sophisticated reason to purchase a token.
This is fully gambling on memes, not something I generally recommend, but I tend to share my trades.
I just doubled my old bag up here. Why?
1) Memes are running, even though this is ancient.
2) DOGE + ELON
3) I have been struggling to find any tokens using Trading Alpha that have not already left the station. This is a WEEKLY chart with a green arrow, green dots and a break above the track line.
The daily is also turning to green dots and breaking above the track line and the 4-hour has given a green buy arrow.
*I own this token already, I reserve the right to buy and sell it as I see fit (no intention of selling soon), this is not financial advice, you should do you own research. You are responsible for your own financial decisions, both good and bad. God speed, degenerates.
Legacy Markets
Asian stocks rose, anticipating key U.S. inflation data, following a robust first quarter for U.S. stocks, including the S&P 500's 22nd record close of the year. The optimism in Asia, influenced by positive U.S. market performance and domestic factors, came despite several regional markets being closed for a public holiday. The focus is on the Federal Reserve's preferred consumer price reading, which could hint at future policy directions. In Japan, the yen stabilized after official warnings against its decline, with discussions on currency intervention if excessive swings occur. Tokyo's consumer price growth remained high, suggesting potential for further rate increases. Corporate news from China included a major property firm delaying its earnings report and another reporting a significant profit decline. Market watchers are also awaiting a speech by Fed Chairman Jerome Powell, with U.S. government measures showing strong economic activity. Gold reached a new high, while oil marked a 16% quarterly gain. Bitcoin experienced a slight drop after a recent surge, and FTX co-founder Sam Bankman-Fried was sentenced to 25 years in prison.
Key events this week:
Good Friday. Exchanges closed in US and many other countries in observance of holiday. US federal government is open
US personal income and spending, PCE deflator, Friday
San Francisco Fed President Mary Daly speaks, Friday
Fed Chair Jerome Powell speaks, Friday
Some of the main moves in markets:
Stocks
Japan’s Topix rose 0.7% at the close
The Shanghai Composite rose 1%
The S&P 500 rose 0.1%
The Nasdaq 100 fell 0.1%
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.1% to $1.0776
The Japanese yen was little changed at 151.41 per dollar
The offshore yuan was little changed at 7.2554 per dollar
Cryptocurrencies
Bitcoin fell 0.4% to $70,444.16
Ether rose 0.3% to $3,572.85
Not Everyone Is A Fan Of The MicroStrategy Strategy
MicroStrategy Slumps 14% After Short Seller Says Stock Trades at an Unjustifiable Premium to Bitcoin
If you've been keeping an eye on MicroStrategy's recent price surge and find yourself puzzled, you're not alone. I recently penned a detailed article on MicroStrategy just over a week ago, discussing the company's potential involvement in what some are calling a 'speculative attack.' However, I emphasized that for every ten potential attacks, only one might succeed.
My argument for MicroStrategy's premium was based on the idea that, under specific conditions such as a weakening dollar, rising Bitcoin value, and widespread mainstream distrust, MicroStrategy could indeed pose a threat to the stock market and the dollar, especially if it were included in the S&P500. The company's decision to publicly issue debt to acquire more of a finite asset, Bitcoin, is unprecedented and appears to be effective. However, I also noted that MicroStrategy is exposing itself to significant risk with such a bloated premium.
Kerrisdale Capital, a prominent investment management firm known for its bold short-selling strategies, released a public note outlining why it is short on MicroStrategy and long on Bitcoin. Their argument essentially boils down to the belief that MicroStrategy's premium is unjustified, even with leverage and a rising Bitcoin price. The main thesis is copied below.
“Leverage cuts both ways and while MicroStrategy has succeeded in increasing the amount of bitcoin held, the impact of massive dilution has also kept the amount of bitcoin per share virtually unchanged in recent years. Shareholder value creation has been overwhelmingly driven by simple bitcoin price appreciation – much as it would from owning bitcoin outright.
At 2.6x, MicroStrategy’s equity premium is exceptionally high. Since the beginning of 2021, the premium has been 2.0x or below on 94% of trading days. The historical average is 1.3x. Our thesis is not predicated on a bearish view of bitcoin or MicroStrategy, but rather a belief that the relationship between the two has grown distorted. Assuming the premium to NAV reverts to more historically consistent averages implies a 50% return.
$38bn is a substantial 2.6x premium to the actual current value of MicroStrategy’s bitcoin holdings at spot prices. In effect, MicroStrategy shareholders are now paying $177k per bitcoin when they could instead gain exposure to the asset through any of a growing number of ETPs, brokerages, payment platforms, and exchanges for less than half that.
At the current MicroStrategy stock price, assigning $1.25bn for the value of the software business, and assuming the full dilutive impact of all currently in-the-money convertible notes, we estimate every 10% change in BTC drives an initial ~9% change in MicroStrategy’s implied equity value per share. Assuming the current premium of 2.6x contracts to a more historically consistent 1.3x represents 50% downside in MSTR relative to bitcoin.”
*In case you were wondering - the 17% drop in Bitcoin last week was blamed by many “in the know” at institutions this very trade. Rumor has it that a huge hedge fund was short MS and long BTC. When MS ripped up, they were forced to cover, which mean buying MS and SELLING BTC.
Tokenized Treasuries Are On The Rise
I have discussed tokenized treasuries a number of times on YouTube, mostly with Sid Powell from Maple Finance and Sandy Kaul from Franklin Templeton. The world seems to be catching up on this narrative.
Franklin Templeton was one of the first to enter the tokenized treasury market, launching its tokenized fund in 2021, Franklin OnChain U.S. Government Money Fund (FOBXX), represented by the BENJI token, which has $360.2 million in deposits. BUIDL, of course, is poised to quickly surpass this, having already amassed over $250 million in a week.
BENJI token is built on Polygon and Stellar and is one of many other competitors built across various chains.
Bitwise Joins The Fight
Bitwise isn’t the largest Bitcoin ETF issuer, (5th in AUM) but they might be my favorite and they are now officially in the race to issue a spot Ethereum ETF. What's even better about the announcement is that Bitwise, along with its 19b-4 application, released a public notice outlining a statistical correlation analysis. This analysis demonstrates to the SEC, using its own logic, a level of substantial similarity between the ETH spot market and the CME ETH futures market. Bitwise is effectively making it really difficult for the SEC to deny based on correlation terms. This means the SEC might be forced to reach into its bag of tricks and pull out some easily refutable crap to deny the ETF. Get your popcorn ready for May!
Also, considering Bitcoin's surprising interest to the upside, it's probably safe to say that Ethereum will surpass our old expectations and perform decently well when it is given its ETF chance.
SBF Sentenced, Up Only Resumes!
At this stage of the SBF saga, little remains to be discussed beyond the political opinions regarding whether SBF received a fair sentence. I will say that it is disappointing that SBF received a 25-year sentence while Ross Ulbricht was given a life sentence, but it is what it is. On a positive note, one less bad actor now operates in the crypto landscape, and FTX creditors appear optimistic, with a substantial portion of the funds expected to be returned, if not in full—a development that could be deemed miraculous.
Larry Fink Will Send Bitcoin To A New All-Time High Soon (Here’s Why)
Join Edan Yago, one of the most bullish people in Bitcoin, as we discuss why Bitcoin is conquering Wall Street and why people like BlackRock's Larry Fink are becoming orange-pilled. In the second part of the show Dan from The Chart Guys will share his market analysis and some trades.
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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.
Please do a debate show with a MSTR bull like @PunterJeff or Preston P vs any bear of your choice
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