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It has been a challenging few weeks and our sympathy goes out to those affected and deepest gratitude to those on the front lines fighting against this urgent pandemic. Thank you and stay safe!
March has been a wild ride, and it appears that there is a good probability suggesting that the worst may not be behind us yet. The Q1 data for this first quarter is likely to be only a glimpse of how bad Q2 of this year might be considering that January and February were mostly unphased by the news of a possible Chinese virus outbreak. As the country with the rest of the world began grinding to a halt in light of the spread of COVID-19, economists were sounding as if they are health experts and vis versa with the Federal Reserve ramping up their repurchase agreement (REPO) operations in addition to launching a slew of credit facilities to help buoy the markets and greater economy that went into turmoil as the epidemic turned into a full-blown pandemic. All in all, it means our central bank and Congress during this time is creating more money than ever before in a historic effort to dig our way out of a crisis with an unlimited supply of dollars. During a rare television appearance last week, Jerome Powell on NBC’s popular TODAY show morning news program speaking directly to an American audience reassured them about the lengths and measures that the government and Fed was willing to take in order to keep the credit and capital markets functioning as well as our economy as a whole.
HOW DID WE GET HERE?
This first quarter has been one of the most tumultuous in the history of the markets. Now, most of us are in the midst of the 2020 “coronavirus” disease pandemic (COVID-19) caused by the virus epidemic of severe acute respiratory corona virus 2 (SARS-CoV-2). The outbreak was originally found in the city of Wuhan within the Hubei province in China sometime in late 2019 and cases began surging earlier this year. As many people were largely unaware or unphased by the first inclinations that down played the seriousness that the virus carried, they went about their daily lives following their rituals and routines along with travel itineraries that would only further exacerbate the dilemma. This is culminating in public lockdowns and “stay-at-home” orders being issued across the United States to help prevent the spread through following social distancing and self-quarantining guidelines, which has taken the entire economy and capital markets to their knees with millions of people out of work or working from home while it plays out.
100 YEAR MARKET CORRECTION FROM PANDEMIC
It was a volatile move down this last month for the traditional “stocks and bonds” end of the spectrum even to the so-called safe havens “gold and bitcoin” end of it since none of them had a pandemic priced in. Starting it all was the treasuries whose yields began falling sharply since mid-February and really accelerated over the first weekend of March before bouncing and viciously falling back into the 60 to 50 basis point range down about 64.5% year-to-date. Across the board there was a sell off as Wall Street clamored for cash, equities saw their worst month since the 2008 financial crisis with the S&P 500 index falling 12.5% in March and the Dow Jones Industrial Average had its worst month since 1987 as the rest of the global stock indicies crashed and oil posted its worst quarter ever. Bitcoin was not immune to the decimation and had its own crash from $9000 to about $4000 before rallying back towards $7000. As the longest bull market for equities in history ended, bitcoin had its own “1987 moment” and came back stronger than ever as much of the levered and short positions were either liquidated or covered.
CORONA BY THE NUMBERS
The figure that stuck out most signalling to doctors and scientists early that it was serious was the R0, pronounced “R naught,” number that tells you the average number of people (without immunity from a vaccine or built up from having previously contracted the disease) who will catch a disease from one contagious person. As it turns out COVID-19 has an estimated R0 between 2 and 2.5 according to The New England Journal of Medicine, which is stronger than the H1N1 Flu (2009) comparable to the Seasonal Flu as well as previous diseases’ R0 numbers like SARS and Ebola (2014) yet not as voracious as Polio, Measles, or Smallpox. The scary part is not only the deadliness of the disease but the contagiousness of the people who are asymptomatic and feeling generally fine that may be unknowingly passing it along to the rest of the populace, so governors and officials in response state-by-state have issued social distancing orders and border lockdowns to help prevent its spread. This has delivered quite a shock to capital markets as hundreds of millions people are stuck quarantined in their homes instead of being at work, shopping, and dining out. Volatility spiked to levels not seen since 2008 as major indexes nose dived taking only a number of days over the past couple weeks to wipe out a three to four years worth of gains, quickly putting an end to the warnings that bitcoin fluctuated way too much compared to bonds or equities. In addition to how well it has already recovered in contrast to other capital markets without any sort of bailout or stimulus money, bitcoin has the smart money rethinking their stance towards not owning any of the finite digital currency after observing the tandem response from both our central bank and government to quickly enact policies that create exponentially more amounts of money to supply the financial institutions and markets with what the Treasury Secretary described essentially as “unlimited liquidity” to further encourage lending and investment to try and keep the markets afloat during the shutdown.
DO THE MATH!
Despite the market losing its footing, there was a momentous push by the Federal Reserve and other central banks around the world to keep their economies and markets afloat by injecting record amounts of cash into the markets. The amount of newly created currency proves that the world’s reserve currency, the US Dollar, can easily be printed “out of thin air” and has no real value backing it except for “the full faith and credit of the United States government” (who’s shown when push comes to shove they not only can but will just print more when the going gets tough). Money printing and bailouts were featured solutions to the last financial crisis, although this time round they will be accompanied with checks are being sent out or directly deposited into bank accounts of tax paying Americans to the tune of about $1200 per person. It should be noted that the stimulus package allowing this was passed and signed by President Donald J. Trump was for a total of $6 Trillion. If it were equally split among the 330 million American citizens, each person would have been sent $18,000 if it weren’t for corporations getting the lion share of funds that really should go towards protecting and supplying those on the front lines fighting to save lives, the people who have fallen ill with COVID-19 and recovering in quarantine, and those who are out of work as a result of this crisis. Since the breakout, there has been a growing trend of people who are exclusively using card payments and more merchants accepting alternative forms of digital money over physical cash due to the fears of it possibly being a form of transportation of potentially harmful bacteria and other germs.
A CESSATION & CRISIS UNLIKE ANY OTHER
As the human toll this pandemic has risen to proportions not seen since 9/11, it has also financially been the worst event since some time and appears to be on par for a massive correction that has long been due looking at about a hundred year regression for stocks as they has became highly overbought in the past decade with so much “easy money” sloshing around the economy. While many have been arguing that the Federal Reserve acts too slow to prevent crises and may be “running out of ammo,” they seemed to disagree taking no haste in cutting interest rates to nearly zero while printing money to alleviate the crisis and cessation of many “non-essential” businesses in the economy seeing the United States Dollar as theirs to destroy or manipulate as necessary given the circumstances. It is ironic this administration has taken this stance after labeling China as a “currency manipulator” while they just turned around and did the very thing they used to accuse them of doing while also adopting a failing model from Japan’s central bank that includes “infinite” quantitative easing. Imagine the power to magically edit the amount of money in your bank account, this is what our government can do which leads many to wonder why anyone even has to pay taxes if they can just print more of it off to pay what each citizen owes. Though the reactions may not be instant for all of this freshly created cash now floating around the economy, there will be long-term consequences to it that not only exaggerate the problem with our economy but quite likely will continue to push the wealth gap further.
VIRES IN NUMERIS
We are living through beautiful, dark and twisted times that seem almost too fantastical for reality especially as the world seemingly is being run by immature leaders who believe in an child-like thinking, “Everything would be great if only everyone had twelve hundred dollars.” It’s as if there’s nobody is asking where the root of all this money lies, where the source of its existence is to reveal its true nature which has been obfuscated to many because they would otherwise become privy to the real value of fiat currencies. Since 1971, the United States Dollar has no longer been pegged to the value of another asset like gold or silver and since become a free floating currency that practically became digital with most of its supply laying on a bank’s database as 0’s and 1’s rather than physically as cold-hard cash in their vaults. At the time, economists thought we were embarking into uncharted waters and now they are debasing our currency by creating it out of thin air putting us deeper into the murky waters. Our Founding Fathers would probably be appalled by officials, some of whom were never elected to their positions, making these decisions deciding the fate and value of the money that so many hardworking Americans and people around the world worked for with their own abilities, ideas, skills, sweat and/or talent. Sooner or later, we’ll realize for better or worse the actual significance of the saying, “less meaning more,” when it comes to the value of our money.
The Federal Reserve system is untrustworthy because of its lack of ability to identify or signal any actual trouble ahead of crises, yet many of the Wall Street gurus know better after accounting for its true fire power and hence follow the old saying, “Don’t fight the Fed.” Shorting the market though is no real solution either given the state of affairs as well as lack of clear data at the moment coming out of the countries hit the hardest, the economy with people getting locked out of filing for unemployment with its crashed and overloaded government systems, and, not to mention, the healthcare sector that is releasing many suspect figures about the severity of COVID-19 after first dispelling people’s fears about it telling them they don’t need masks to only reverse that stance later after receiving their own stash of personal protective equipment (PPE). Trustworthiness, or the lack there of, has become an inherent part of our legacy systems that provide little transparency into the actual goings on and inner workings of the dominions that they are given power over with a prime example being the senators this month who dumped millions of dollars in stocks after a private all-senator meeting discussing the novel coronavirus just before the markets turned sour. Now that we are collectively discovering that our world’s reserve currency can be created and printed at will to ensure the banks never default is straight from the “Monopoly” board game rules that allows the banker to issue “new” money on ordinary slips of paper until the bank has enough paper money to operate. The only thing that truly can be trusted these days is math, and lucky for bitcoin it is entirely based off of it.
“Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, “Account Overdrawn.”Ayn Rand, Atlas Shrugged (Francisco’s Money Speech)
As money gets easier, bitcoin becomes harder.
Due to its fixed supply of 21 million with no central governing authority, nobody could ever create or print more through any sort of “quantitative easing.”
The FED can print the dollar out of thin air, good luck trying that with bitcoin!
gold = ancient money
“the god’s money”
dollar = debt-based money
“the government’s money”
bitcoin = modern money
“the people’s money”
It’s a 2020, a new decade and dawn for bitcoin and crypto assets! Looking back at the last year, there were many great developments made and familiarity as well as knowledge grew regarding them too. Notably, bitcoin and crypto assets gained the spotlight as they were discussed and debated over by the most prominent leaders of the world. The markets all performed well too. Generally speaking it was a year that was hard not to have a successful strategy that wasn’t just sitting in cash, but bitcoin and the investment grade crypto market still shone out as the clear winners versus the traditional asset classes. Technically though, the traditional markets were given some extra juice in the tank with assistance as the Federal Reserve retreated from their 2018 tightening and instead cut rates while eventually pumping in additional liquidity by the end of last year.
So in the spirit of the new year, it seemed appropriate for a new and updated version my thesis from 2019’s Crypto Facts & Fantasies for 2020. My best hits were calling the bottom “around $3200” and it retesting those lows before staging a new bull market as well as “smart money” investors like banks, endowments, family offices, financial advisers, pensions, and other institutions taking their time before getting regulatory clarity or due to some limitations given the need for knowledgeable talent. One point that seems like a miss was the stance that an ETF not being all that important for the growth and development of the market, but the issuance of new products such as futures and options is certainly a welcomed consolation. Since the last edition of Crypto Facts & Fantasies though, bitcoin is alive and well continuously running in silence earning a reputation as a secure asset for low-cost transactions that are peer-to-peer (e.g. permission-less). Once again I am confident in restating that despite the investment grade crypto asset market being dwarfed by traditional asset classes, it will find itself being equally if not more valuable than all of them in this next decade.
Overall, last year was very positive for the space but there still was a fair share of setbacks along with improvements that led us to this point. A large blow dealt to the community was the animosity from the current US President and his administration regarding their legitimacy. Though, one could argue Donald Trump and his cabinet taking aim at bitcoin and crypto assets as well as the Libra project actually proved they are forces to reckoned with seeing that they took the time to acknowledge them. Not only were these arguments accepted into the public debate forum of Twitter, but it grew to see the floor of Congress this past summer. It should be proof that they will have an impact for better or worse on our current fiat reserve currency system in the years to come. Although it may not carry as much weight as it did at in the first edition, my price call with a time horizon ending 2020 (maybe being a year or so too soon) for bitcoin to reach $60,000 – $100,000 still presents an opportunity with tremendous upside down the line and may need to take some time before doing so with new all-time-highs as the main focus this year.
In a continued effort to publish more often and help demystify the crypto space to present more meaningful content that helps transparency as well as decision-making, I am publishing the second edition of Crypto Facts & Fantasies.
Without further ado….
|1. Despite being below it All-Time-High, it has performed better than traditional assets||1. Bitcoin is in a bear market|
|2. Bitcoin, and other crypto assets with fixed supplies, may fluctuate more than reserve currencies in their prices, but unlike the latter they cannot be created “out of thin air” or printed more than the set hard cap coded into the algorithm||2. “Winter is coming” again for bitcoin and crypto assets|
|3. Central banks are already working and testing out solutions to issue and manage their own central bank crypto currencies (or “CBCCs”)||3. The money of the future NOT being digital|
|4. The vested interests that control the current issuance and printing of all major reserve currencies will not allow any non-banking corporate entity get ahead of their ability to create a digital reserve asset without a fight||4. Libra or any stablecoin’s launch being a success|
|5. Similar to the current internet having many protocols, so will the “Internet of Money” that will have a variety of them to serving different purposes (i.e. BTC being digital gold, ETH as programmable money, and many more purposes). There’s also forked protocols that modified the core algorithm of another for specified purposes that hope to gain more adoption from their so-called “enhancements” and should be approached with caution and scrutiny||5. There is more than one bitcoin and it’s “better” than the original|
|6. Seeing how young the market is there is a benefit to having clear guidelines and guardrails for general purposes, but any restrictions may seriously hamper an opportunity for enhancing our current faulty infrastructure||6. Decentralized Finance (or “DeFi”) under strict regulation is good for the industry|
|7. Last year, JP Morgan created and issued their own stablecoin that would be native on the Ethereum blockchain for settlement since they have seen client interest in investing and trading these assets||7. Banks and other legacy finance institutions continue to miss out on potential returns and new revenue streams|
|8. As the bitcoin and crypto critic Warren Buffett once wisely said, “the best holding period is forever” and it applies to many assets but even more so the one’s with such upside potential as bitcoin||8. Trading bitcoin and crypto assets is better than just simply buying and “HODL”-ing|
|9. Bitcoin, ethereum, and other emerging investment grade crypto assets have grown with increased infrastructure, oversight, and ubiquity to receive a retail product following the creation of futures markets and availability on reputable crypto asset trading platforms||9. A bitcoin and other investment grade crypto assets not getting a respective ETF for investors based in the United States|
|10. It would be more costly and difficult for bitcoin to physically shutdown or become worthless than it would to be worth many multiples more than it is trading currently||10. Bitcoin is going to fail, hit zero, or collapse after being corrupted or suffering a network shutdown|
Similar to last year, I am excited to see how this round of facts and fantasies materialize, or don’t, eventually and how they impact my own theories, views, and strategies.
It feels as if there is something BIG coming. As the market found itself in a lull this past December, it looks to be like the bottom from its 2019 Summer high that may lead to another larger and powerful move with tremendous upside coming ahead. The recent bottom looks to be around $6450. Due to market developments as well as global turmoil with Iranian tensions, the price has move north of $8000 per bitcoin. It even tested a major resistance point of $8500 before fading back and some rallying more at the time of this writing. I wouldn’t be surprised if bitcoin found itself quickly over $10,000 leading up to the block reward halving coming up sometime this Spring or took its time bouncing back to retest its recent lows as everyone argues over whether or not it is priced-in. Either way, we will have to wait and see how it all works out.
Have a great 2020, and to the moon!
I. Open a TradingView account to use (*free lite-versions available)
II. Choose the “BTC” trading pair that corresponds to your fiat currency
III. Select the time frame to fits your analysis (*4HR+ is standard)
IV. Choose Indicators & Strategies to overlay on the chart
V. Customize the Settings to change the view to your preference
This short post is dedicated to creating the chart that I look at and view almost every day to watch bitcoin. Once you have your TradingView account set up and ready to go, let’s get started in recreating my chart and if you’d like can take it on your own from there. Click on “Chart” on the upper tab of the page to begin working on the layout.
Since I’m in the United States, the bitcoin to fiat pair that will be best for me is the United States Dollar or “BTCUSD” that has coverage from Bitfinex, Bitstamp, Bittrex, CEX.IO, Coinbase, Gemini, and more crypto exchanges providing trading data. My go-to for my view is Coinbase since they handle a large portion of the total volume and likely have the majority of American traders and funds on their platform. Once the desired pair is selected, the corresponding chart should open.
Fitting the Screen to Time and Price
Next, I will immediately click on “log” and “auto” in the bottom right hand corner of the chart to put it on a logarithmic scale (because bitcoin has been know to move “super-linearly”) and so it will automatically fit the view for me. From there, you can click on the time frame directly the right of “BTCUSD” ticker box in the upper left hand corner of the chart to pick the time interval of your choice. On my chart, I like to choose the “4HR” interval since it roughly covers just more than a year when the chart is open in full-screen view and completely zoomed out which can be done by hovering the cursor over the chart and scrolling down on the wheel of the mouse.
Indicators & Strategies
From this point, it really comes down to personal preferences and as said before the layout is yours to customize as you please and it may be helpful refer to YouTube as a source for how to really make your charts look nice too. My chosen presets are to start with searching the “Lazy Bear” strategy (which now appears to premium preset) for a fancier weighted stochastic indicator of the volume. The ones that really matter most to me are the Volume (Vol), Linear Regression (Lin Reg), and Bollinger Bands (BB). You can read more about the way I set them up including their reasoning as well as statistical significance below.
It should be mentioned too that on my chart “Candles” are used with countdowns to the bar closing under the price label, so to have them on your chart click on the box next to the Time Interval set to “4HR” instead of using another plain-looking line that can easily get confused with other indicators. These box-and-whisker candles are great because they allow you to see where majority of the volume is (box) as well as the highs and lows for each candle (whiskers on each side). I also am a big fan of the “Dark” color theme to help save my eyes and pixels while having the chart up for an extended period of time.
Bonus: Pro Tips
My Strategies & Indicators are tuned specifically as follows for the resulting chart seen above and they are set to have the Volume at 1 (easy to tell actual volume), Linear Regression at 3.078 for the upper deviation and -1.282 for the lower deviation and the maximum count of 2000 (allowing the regression to have 1 degree of freedom at the top and infinite degrees of freedom at the bottom), and the Bollinger Bands are set for 200 length and 2.95 standard deviations (about a 33 days long with a 99% confidence interval). I choose to smooth out my Lazy Bear stochastic indicator if it means anything to you and have it set for a Channel Length of 20, Average Length 42, Over Bought Level 1 of 120, Overbought Level of 2 106, Over Sold Level 1 of -120, and Over Sold Level 2 of -106 for my preferred layout view. Finally, in my latest chart I used the Fibonacci retracement tool under the pitchfork menu (on the left-hand side of the page when not in Fullscreen mode) to plot the line as close to the approximate bottom all the way up to the approximate top (or vis-versa for a bear market) to display the corresponding resistance points that are between the most recent trough and peak. Also, the longer time frames like 1 day and 1 week with these settings adjusted accordingly usually produce very nice and intriguing charts.
Let me know if you have any comments or suggestions.
This post is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing should be construed as a recommendation to buy or sell nor a solicitation of any investment or to engage in any investment, strategy, or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. Nothing in this post may be considered as an offer or solicitation to purchase or sell securities or other services.
Source: Board of Governors of the Federal Reserve System (US), Nonfinancial corporate business; debt securities and loans; liability, Level [BCNSDODNS]; U.S. Bureau of Economic Analysis, Gross Domestic Product [GDP], retrieved from FRED, Federal Reserve Bank of St. Louis; October 31, 2019. Shaded areas indicate U.S. recessions.
Last month in mid-September, United States investment banks had liquidity needs that haven’t been so exaggerated to such an extent since the 2008 financial crisis. Using history as our guide to help shape our view of the future, it wouldn’t be prudent to overlook the significance of the securities repurchase, or “repo”, market developments over the past month without first giving consideration to their significance in the most recent financial panic. Prior to the massive Credit Crunch that caused the crisis in 2008, Bear Stearns went around Wall Street asking for such large sums of cash in the overnight lending markets from other banks (bank-to-bank) that the others simply did not have on them to lend out. Since Bear was turned away by the other banks, it made a notorious walk of shame that was frowned upon by investment banks to the “discount window” from the Federal Reserve for the overnight loans (central bank-to-bank) to cover their business operations plus expenses. One of the major downsides of doing this besides other banks being notified of this activity was that the lending rate comes at an interest rate typically about one percentage point above the Federal Funds Target rate.
Note: Figures show average daily discount window borrowing for the weeks ending on the dates shown. Average weekly borrowing exceeded $120 billion following the terrorist attack on September 11, 2001, during the financial crisis, and again recently this October. Shaded areas indicate U.S. recessions.
The news spread quickly that one of the largest and most systemically important financial institutions was having trouble with cash on hand for day-to-day operations, it led to poor credibility on Wall Street as it kept going back to the well in the overnight market to keep the lights on and gravy flowing so to speak. It quickly prompted all of the major investment banks then to head to the discount window to make sure they too had enough money for their business needs. In that scenario, it became so apparent that the valuations on the balance sheets of the investment banks were so mismanaged that the government had to get involved to bail them out. Similar to then, last month the banks scurried to the Federal Reserve discount window to ensure they had enough money. It became so dramatic that it drove the overnight interest rate over 10% from about 2% before taking a number of days last month to settle back down to normal levels.
Seeing the need to step in and help steer things this September, the Federal Reserve central bank has come to the rescue investment banks again. Quickly injecting $278B into the securities repurchase (or “repo”) market over a four day period in mid-September according to Bloomberg. Just as that news had time to break and surface to investors as well as Wall Street, the New York Federal Reserve Bank injected another $49.7B into the overnight repo markets. This surreptitiously came ahead of the announcement that there was going to be another 25 basis point cut in the Federal Funds rate from 2.00%-2.25% down to 1.75%-2.00% as part of a “not QE, mid-cycle adjustment” as to match the European Central Bank (ECB) and other central banks around the world. Officials from the Fed voted on lowering excess reserve requirements as well as opened up the possibility of another cut this year too.
Source: Board of Governors of the Federal Reserve System (US) for the Effective Federal Funds Rate https://fred.stlouisfed.org/series/FEDFUNDS and Yahoo Finance for the S&P 500 (^GSPC) Data; Shaded areas indicate U.S. recessions.
To illustrate the madness of this charade, investment banks quickly got $328B total in what is practically freshly printed cash while being required to hold less physically on hand and they are still asking for more. JP Morgan Chase, alone as the world’s largest investment bank, borrowed $52B in cash and new capital from the Federal Reserve (OR 22% of its own market capitalization). According to CoinMarketCap, the entire crypto asset market capitalization (over 3000 crypto assets) isn’t even $250B. The repo market operations resumed after years of being dormant this September and escalated this month as well as will continue rolling on through the end of the year into 2020. The late, great rapper, Notorious B.I.G., recorded a Billboard 100 top song entitled “Mo Money Mo Problems” that was released in the late 1990’s, which seems quite relevant to our financial system’s predicament today. It’s 2019 and the Fed wants to party like it’s 1999!
This recent financial alchemy looks very similar to the 1990’s when Alan Greenspan as Fed Chairman used the infamous “mid-cycle adjustment” to cut interest rates for added stimulus and liquidity with enough dry powder to sustain an epic bull market that raged into the late 2000’s. Now it appears that the Federal Reserve is following the same strategy and its governors are opposed to anymore rate hikes, so their plan is to act as necessary to facilitate their dual mandate while keeping asset prices inflated by practically giving away new cash to their member banks. Economically speaking, these institutions won’t be stimulating the economy as much as spending the money because they will mostly be investing it at prices that are already elevated and highly levered. Properly functioning markets do not have financial institutions conducting themselves with this type of behavior and mentality that they are now “Definitely Too Big to Fail” with the lenders of last resort injecting more and more temporary liquidity into the largest financial institutions of the United States and around the world. When you or I print money it’s considered counterfeiting, but when the Federal Reserve does it then it is deemed as “monetary policy” instead.
We are in one of the most glorious bull markets in the history of United States capital markets and everyone has their attention fixated on the bond and stock markets since much of their performance is deeply tied into their college savings plans, retirement portfolios, pension plans, and even ordinary income in some cases of our population. Despite global growth worries and China trade war tensions, the overall market has done quite well. Yet, investors have been so busy obsessing over the traditional market developments that for the most part they missed out Bitcoin and other investment grade crypto assets (the best performing investments over the past decade). While many are still just starting to learn about these developments and the financial engineering going on, students at top universities are being offered more and more classes about them in their academic curriculums or just in the workforce and being tasked with researching their benefits within established enterprises in the legacy finance and technology spaces. Those two industries, in particular, are threatened most by these peer-to-peer innovations within bitcoin and crypto donning more democratized market structures that reduce and/or eliminate excessive fees as well as provides a layer of privacy over users’ personal information. There are only a handful of the largest investment banks and technology firms who more or less oligopolized their respective businesses and markets while stifling the new competition along the way.
Knowing they would be leaving money on the table if they didn’t start to adopt (or at least announce) their exploration of blockchain technology, many firms not wanting to miss out anymore on the action have added to the hype around new initiatives focused on “blockchain, not bitcoin.” A slew of new ads and promos over the past year have come out slinging buzzwords like “enterprise blockchain” or “stablecoin” to masquerade centralized products and services labeled as decentralized. They are using fancy words to disguise the theatrical tales they are telling to appear to be on the cutting edge and seeming honest or noble, while still trying to sell you on their business and brand that they own and control. In reality, it is just another way for them to intermediate peoples’ lives and transactions while collecting data and fees. The bulge bracket banks of New York and internet giants in Silicon Valley do not want to loosen their grip on their hold over their respective industries and are directly going against the core principles of bitcoin and crypto assets by siloing this “proprietary” technology (as opposed to open source) within their four walls or in an industry consortium instead of truly distributing it among the public at large. The truth is they cannot compete with bitcoin and crypto assets because there is not another infrastructure or technology like them. Blockchain technology without bitcoin or crypto assets essentially is the equivalent of bringing a fish out of water, and if allowed to continue will be their ultimate demise where everyone loses out.
These so-called enterprise innovations in blockchain would be more exciting if they weren’t just hyped-up, overrated databases controlled by a centralized group of select “partners and validators.” Though we have seen highly funded projects and initiatives with fashionable members being dubbed as “fintech,” the right questions are being asked by highly-educated people involved and lawmakers using history as their guide to discern how secure and trustworthy these established Surveillance Capitalism companies truly are in this era of the Internet, especially given their history. Facebook’s founder and chief executive officer, Mark Zuckerburg, was grilled this month about his company’s plans and involvement with the Libra project. The project received a significant amount of scrutiny following its announcement this Summer from technologists, and even President Trump tweeted about it as well as bitcoin and crypto, specifically. The reason for doing so on his part was probably because they are a direct threat to the US government and the existing power structures that seek to continue to control the minting of the world’s reserve currency, the United States Dollar.
Aside from the fact that barely anyone has much trust left in Facebook, Congress wanted to speak directly about them possibly using their enormous 2.7 billion user-base to onboard them into the digital asset space as well as test out their own digital reserve asset and its digital wallet. If they let the project proceed, it would challenge the reigning fiat reserve currencies of the world as well as the central banks and governments that hold and oversee them. Every company wants to create a product that is “the next bitcoin” with comparable investment returns but the hard fact is that the next bitcoin, will be bitcoin because no company or organization today can do what it or Satoshi Nakamoto has successfully done. Congress cannot force he, she, or they to appear and answer to them since there is no leader to summon. Put plainly, it would be insane if anybody tried to kill it because Bitcoin could be the best shot at decentralizing as well as democratizing the web aside from it being the inspiration for this new Internet of Money movement that is not subjected by big banks, tech giants, or nation states.
With the emergence of the World Wide Web, the addressable market for companies went from being their local market (millions, maybe) to global (well into the billions). Although there was a catch, financial services got left out and locked out by currency and jurisdictional regulations. The promise of bitcoin and crypto assets, not just their blockchains acting as a public (not private) “Source of Truth,” is that they unleash new Internet protocols that open local markets into global markets for financial services. Since they are rooted around privacy and trust, the lack thereof for financial institutions and/or financial transactions over the Internet in these times of censorship and data privacy gives bitcoin and crypto users an option they otherwise might not have or need in extreme scenarios. As Andreas Antonopoulos said insightfully, “Bitcoin is not something you build companies on top of; Bitcoin is something you build economies on top of.” Bitcoin and crypto assets hold the potential to create a paradigm shift away centrally planned money as well as our warped version of Capitalism with its mix of socialism requiring almost half of successful peoples’ income to be taken and redistributed by the state and cronyism that provides political privilege granted to those in power (or adjacent to it).
The current scenario is exceptionally bullish for bitcoin and crypto assets taking into account the skirmishes between President Trump and the Federal Reserve and their negative effect on the traditional markets. He indicated that bitcoin and crypto assets weren’t a rival to the supremacy of the US Dollar that is backed by the full faith and credit of the Fed and our government, but he then quickly turned around to bash the Federal Reserve comparing it to an authoritarian regime running amok and claiming it is mismanaging the financial system. He has been pounding the table calling for massive interest rate cuts for months, which has historically been an emergency measure in the Federal Reserve’s financial toolbox to help an economy that is on the verge of stagnating or collapsing while at the same time cheerleading the stock market’s broad gains over the term his presidency. Following the testimony on Capitol Hill from Zuckerberg, China quickly embraced bitcoin and blockchain technology this month (giving the crypto market a much needed boost) after hearing the Facebook CEO state, “If America doesn’t innovate, our financial leadership is not guaranteed.” He warned that China, in particular, was moving quick to launch ideas similar to the Libra project in the coming months and possibly will launch the world’s first ever central bank-backed crypto asset. If you read my post “We choose to go to the Moon”, I took the opinion in March earlier this year saying that central banks, institutions, and investors alike who are exploring the space will realize sooner or later that all blockchains lead to Bitcoin and when they do it’s going to spark a buying bonanza that sends prices, “to the Moon!” Moreover, we are now in a 21st-century competition to see who achieves bitcoin and crypto asset adoption as well as dominance and hegemony on a multinational scale that will parallel the Space Race of last century.
Not only are the macro trends extremely bullish, but the fundamental and technical shifts like the mining block reward halving next May are too. Bitcoin does not require any central bank or government to manage it because it is distributed software set to on a fixed supply schedule that limits its issuance over time on a transparent timeline that is hard-coded into its algorithm. As such, the historical price action has followed a predictable stock-to-flow model (see @100trillionUSD’s above) that predicts these halving events to be extraordinarily positive in the past. In 2012, the original mining block reward fell from 50 bitcoins to 25 bitcoins after the discovery of 210,000 mined blocks or roughly every four years. The price of a bitcoin during the first and second halving’s were about $12 and $627, respectively. What will the third block reward halving have in store for us, and how much will it cost this time?
Compared to the stock-to-flow model for gold (see above for PlanB’s previous model charted by @digitalikNet), it not only presents that as hard assets they both are poised to be bullish but for bitcoin especially given its many advantages over physical gold. Taking the mantle as “digital gold,” bitcoin is superior to its physical counterpart for being counterfeit-resistant as well as censorship-resistant, decentralized, easily traced on the blockchain, highly secure, and more scarce as a deflationary asset as opposed to gold (like fiat money) being sneakily inflationary. The market for gold is mostly made up of central banks and investors who view it as “safe haven” asset that similarly with bitcoin is uncorrelated in relation to the rest of the traditional assets in their investment portfolios. The halving events, in particular for bitcoin, illustrates a scarcity-driven growth model that has historically shown an increase in scarcity directly induces an increase in price over the asset’s lifetime. Though past performance in not a guarantee of future results, a small bitcoin allocation from anywhere as low as 1% and as high as to 10% can greatly enhance the total return for investors’ traditional porfolio allocation mixes while only minimally impacting the cumulative volatility.
Source: Board of Governors of the Federal Reserve System (US), Currency in Circulation [CURRCIR], retrieved from FRED, Federal Reserve Bank of St. Louis; October 31, 2019. Shaded areas indicate U.S. recessions.
The financial sorcery at the moment suggests the market is on the verge of a practical correction or extending its powerful bull run that could only be explained by the famous economist John Maynard Keynes quote, “The market can remain irrational longer than you can remain solvent.” By cutting interest rates and pumping liquidity directly to further stimulate the private sector, the markets are looking to be in a precarious position as well as uncharted waters economically, socially, and politically. This is brewing a perfect storm for bitcoin and crypto assets that present more accessibility, equanimity, and transparency inherent to their market structures while being impervious to being debased by superfluous money printing as part of irresponsible monetary or fiscal policies enacted by any government or politicians (who probably do not even know any better). In the year ahead, I expect that we will see a continued full court press by the Federal Reserve to keep pumping in liquidity for “systemic stability” while cutting interest rates until they are at or below 0% to keep the bull market going or else they risk hesitating as they have before to not cut rates fast enough in order to do so. On top of these pressures, things look optimistic for the stock market in the near term at least with major brokerage houses also recently cutting the commission fees associated with retail stock trading to be free as part of a plan to keep trading volumes high. Remember there is no such thing as a “free lunch,” especially when you bear in mind that they gather clients’ trade orders in real-time and sell them to third parties who pay for access to them so the Flash Boys can front-run them and trade with or against the broker’s clients with their high-frequency-trading (HFT) algorithms. All of these aspects are bullish for bitcoin and crypto assets as well as will continue to push their demand over the coming years.
Source: BitcoinClock.com – Each halving event cuts the inflation rate of bitcoin (orange line) after 210,000 blocks mined, while the overall supply of bitcoin (blue line) approaches the total number of coins issued at 21 million.
As I have been confident about the future of bitcoin and the investment grade crypto asset market broadly since the bottom last December, the bull market has taken a needed breather from its run earlier this year after gaining the spotlight. President Trump, the Treasury Secretary, and the Congressional hearings this Summer added their input on the topics as well as helped by acknowledging their existence publicly while serving as a free promotion for them at the same time. While there may have been some overestimates on my end regarding the year end price target possibly reaching new all-time-highs for bitcoin, it doing so is still not out of the question although the probability is far less likely. Unless it makes some parabolic advances against some near term resistance points, bitcoin will likely still continue to chop sideways. Using a Fibonacci retracement tool on the chart below, the major resistance point at the bottom of the recent washout is the 61.8% point at about $7250 and since has seen prices rocket through the 50% (~$8500) and 38.2% (~$9800) resistance points and looks to be settling back down between the two levels. In the coming months, should there be a mean reversion towards the bull side that would need to break through the 23.6% (~$11,350) level as well as extend itself past the top resistance around $14,000 before seeing it return to or pass record highs. In the meantime, the bitcoin’s near term may continue to be choppy and probably retest the local lows around the 61.8% ($7250) resistance point prior to staging any sort of bullish reversal. There are no guarantees on the timelines or prices targets, but the factors like the hard-capped supply versus the ever-printed dollar remains to be in the favor of bitcoin as well as the investment grade crypto asset market when considering the big picture and their potential over the next year and coming decade.
To the Moon!
Today also marks the 11th birthday of the bitcoin whitepaper…
THANK YOU, SATOSHI.
DISCLAIMER: Information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any strategy or transactions in bitcoin or any crypto asset.
If bitcoin and crypto weren’t already gaining mainstream attraction with the increased coverage on popular financial news media following the price swings, the President and Treasury Secretary have also acknowledged their existence and provided some free publicity as well as their own commentary on the subject matter. It began with Donald Trump tweeting about bitcoin and crypto assets followed by a press conference by Steven Mnuchin regarding their anxiety surrounding them. It was all largely been sparked by Facebook announcing its plans on entering the space with a new type of stablecoin that would essentially be a digital reserve currency, Libra. Interestingly, the price action for bitcoin in the wake of Trump’s tweets as well as following Mnuchin’s press conference showing it staged small rallies in the hours afterward displaying its anti-fragile and apolitical nature. Libra likely is not going to be decentralized like bitcoin, which has raised concerns on Capitol Hill since Section 8 of the Unites States Constitution permits them to coin money and to regulate its value and Section 10 denies states the right to coin or print their own money. Posing the question whether the dollar will be the money of the state, Libra the money of the corporations, and bitcoin as the money of the people?
Donald J. Trump took to Twitter on July 11th tweeting out a thread stating, “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity…” continuing on to say, “…Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National…” and concluding, “…and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”
It’s not surprising that the leader of the Free World finds these new financial instruments as competition to the existing power structures at be which have fruitlessly been running their own monetary experiments. Not to mention, the President has arguably been more vocal of and involved with the Federal Reserve system than any other his predecessors. Its sole purpose was meant to be an independent central bank with their policy decisions not requiring his approval. Crypto assets like bitcoin in contrast to the Unites States Dollar are trustless, stateless, and borderless pieces of distributed software that have monetary policies written in their hard code. Bitcoin, the King of Crypto, notably will have its block reward halving next year cutting the inflation rate below the Federal Reserve’s target rate of 2%. The significance of this is because its a deflationary asset with hard cap of only 21 million bitcoins, but there is an unlimited supply of fiat money that can be printed. Naturally, this makes bitcoin scarce and hence more valuable should there be enough live demand to meet its price. Causing many people to debate over the question, which one’s value is actually based upon thin air?
On Monday the 15th, days after Trump’s tweets, Treasury Secretary Steven Mnuchin in a press conference began with covering Facebook’s proposed new stablecoin “cryptocurrency” and its potential nation security issues as well as worries regarding its use with money launderers and terrorist financiers. Mentioning that he’s not comfortable with them moving forward with launch of their new product. His comments were not limited to Libra as he said, “Cryptocurrencies such as bitcoin have been exploited to support billions of dollars of illicit activity…” The Treasury Secretary said that the worries are shared by him and the president citing “…legitimate concerns that we have been working on for a long time.” Mnuchin explained it has been made clear with bitcoin users as well as Facebook that they need to implement the same Anti-Money-Laundering (AML) and Know-Your-Customer (KYC) safeguards to be compliant with other financial institutions. As ominous as these statements might sound, it is actually a positive move for the industry that has already been moving for some time to meet these regulatory standards in efforts of bringing more legitimacy and “good actors” into the space.
The next morning House GOP Minority Leader, Kevin McCarthy, told CNBC that, “I like bitcoin,” as well as its decentralization and the secure nature of its blockchain technology. The powerful part of bitcoin is its distributed ledger technology, or blockchain, providing transparency through its pseudonymous nature. If widespread adoption were to happen, it would provide a ledger that broadcasts public and private transactions to the entire network in real-time. The same cannot be said for the United States Dollar that does not have a real-time payments system from our Federal Reserve yet. Bitcoin could be implemented show donations, payments, and governmental decision-making as well as verification on politicians’ claims. In other words, it would also expose corruption and ineptness providing accountability which is not exactly appealing to governments, politicians or their private interests.
In some ways, this was a major achievement for bitcoin highlighting its credibility for being politically neutral as an electronic payment system. The Libra hearings on Capitol Hill allowed lawmakers from the United States Senate and House of Representatives to listen to Facebook’s testimony regarding their new project and understand how it is radically different than bitcoin, ether, and other “true” crypto assets. They heard from David Marcus, former PayPal president and now Calibra chief, as well as expert panelists on payment systems and crypto assets. The refreshing part of the hearing was the knowledge and understanding the lawmakers had and sought clarity on around bitcoin and crypto. It was especially endearing that they saw decentralization as a positive and viewed centralized tech giants like Facebook with the scrutiny it deserves, not to mention, given its history with data privacy as well as the Cambridge Analytica scandal.
It was very beneficial during the hearing that lawmakers had a general understanding that Libra was going to be vastly different from bitcoin and other existing crypto assets. Some of best moments during the hearing came from the lawmakers statements and questions towards Mr. Marcus and Calibra, Facebook’s wallet provider for Libra. During the testimony on the 17th, Rep. Patrick McHenry expressed to his fellow lawmakers that efforts to stop Bitcoin was futile describing it as an “unstoppable force.” He gained a lot of attention for saying, “We should not attempt to deter this innovation; governments cannot stop this innovation, and those that have tried have already failed.” Signaling, legislation or not, that the Bitcoin network will prevail. Afterwards, interviews with various experts and ranking members of the Financial Services Committee discussing the various topics showed the importance of the United States occupying a place of preeminence over the adoption and regulation of this industry.
Clarity on the regulatory front will help bring institutional money on the sidelines that has been desperately waiting for permission to deploy it in bitcoin and crypto. Bitcoin still is trading in a range continuing to support the trends for a bull market this year and may be setting up another big move upwards. Given the macro events of falling interest rates, riskiest credit market in history, reserve currency devaluations, and widespread expectations of more “easy money,” Bitcoin will see continued momentum for being a deflationary asset with catalysts over the next year that will push demand further. While the short-term outlook has clouded somewhat with possible investor shakeouts, the long-term prospects still appear strong. One thing is certain, there needs to be a way to discern whether or not which crypto assets are investment-grade or junk. For that, there’s the systemic bliss crypto index and its ratings system [patent pending]!
It’s the first day of Summer, and June has been another momentous month for bitcoin and crypto assets. There’s plenty of room left the rest of this month and year for them to continue their current bull run. The prices have been led upwards by bitcoin rebounding off of the December 2018 bottom around $3200 that I called in this year’s thesis. According to data from CoinMarketCap, on June 30th the price a bitcoin was $640.59 in 2016, $2,492.60 in 2017, and $6,411.68 last year. The price of a bitcoin currently is $9,300 at the time of this writing and nearing the target everyone has their eyes on at the moment is $10,000. We may see it as soon as the end of the month. It is highly psychological number and Tyler Winklevoss, Co-Founder and CEO of Gemini, tweeted this week, “If bitcoin breaks 10k, you can bet it’s going to break 15k…” His reasoning was that it is a cheap asset until it disrupts the gold market, and bitcoin breaking $10,000 with both retail and institutional interest as well as money already invested in the market makes it feel more “real” to people and far less obscure. Knowing that it took less than three weeks for bitcoin to rise from $7,000 to $20,000, seeing prices rise back to new all-time-highs this year seems probable as well as conservative.
Forecasts for how the rest of this year plays out are looking very bright for bitcoin and crypto assets, but not so much for the traditional markets and asset classes. Bitcoin has truly shown that it was never dead and that “crypto winter” was a fad. The greater financial landscape right now is giving rise to a “Perfect Storm” scenario with bitcoin emerging as an insurance policy against monetary and fiscal policy irresponsibility by central banks and government interventions. It hasn’t necessarily become a “safe-haven” yet as it still performs as a risk asset, but recently bitcoin has displayed characteristics that suggests that possibility may be near in the future should its price approach a point that it stabilizes and becomes less volatile. Speculators are arguing whether or not it is a store-of-value though it should be noted that unlike gold which is known as the classical store-of-value, bitcoin isn’t held by central banks as part of their reserves. It is estimated that central banks hold one quarter of the world’s gold supply. Despite being made public that banks have colluded in manipulating and fixing gold prices in the past, surprisingly there is still a large consortium of investors thinking that it’s the better investment. Gold is basically a horse and carriage compared to bitcoin, which would most likely be a sport utility vehicle (SUV).
Bitcoin and gold each share the fundamental tenants of money each being durable, divisible, portable, uniform, accepted, and scarce. As a risk asset not held by central banks and yet with these aspects, Bitcoin is very likely to disrupt gold and outperform it over the short- and long-time horizons. The key to bitcoin’s success is that it is not widely adopted in comparison to gold. Over the remainder of the year and into 2020, the financial developments and global economic impacts will only give bitcoin more upside and push demand for it especially approaching the miner’s block reward halving. Speculation is one factor driving bitcoin and crypto’s growth, but it cannot be discounted when considering the all-time-highs of the 2017 were driven by it. This time around is different. The current crypto bull run still has retail hype and speculation, but what’s different is that the largest retailers are starting to accept it, the largest custodians beginning to store it, the largest firms trading it, the largest funds investing in it, the largest media outlets covering it, and the largest governments questioning their relationships with it. According to Google Trends for the term “bitcoin,” it also suggests this time around is different with far less traffic researching it. Posing the question, is this rally being institutionally driven?
The underpinning of Bitcoin is cryptography and math, whereas the U.S. dollar is backed by backed the “full faith and credit” of the U.S. government. It’s been an experiment starting in August 1971 that made Federal Reserve Notes the only form of money that for the first time created a currency without any gold or silver backing its value. President Nixon at the time labeled the move as “temporary,” and it’s been the same system ever since without any major enhancements or upgrades. Just remember that people lie, and math doesn’t. Bitcoin relative to gold is the more attractive asset for its immunity to central bank fiscal and monetary policies and their lack of any reserve holdings in it. To a certain extent central banks and their affiliates are the most incentivized, willing, and able to control the price of gold running away from the value of their fiat currency holdings. As controllers of the minting of new banknotes and coinage, they also hold the power to print more money that would decrease the overall buying power of the total currency base compared to fixed and deflationary assets like gold and bitcoin whose values would rise. While gold will still be a great safe haven, bitcoin as a risk asset not widely held yet with a unique combination of low correlations and potential asymmetrical returns in comparison to traditional asset classes makes it a far more attractive diversifying asset for long-term investors.
Donald Trump campaigned on raising interest rates and a stronger currency is now advocating for cutting interest rates as well as weakening the U.S. Dollar in an effort to prop up the markets, keep valuations high, and extend the current bull market for stocks, bonds, gold, oil, and real estate. The Federal Open Markets Committee (FOMC) chairman, Jerome Powell, had been rolling the balance sheet off and starting to raise interest rates to tighten up the economy in 2017 accelerating into 2018. This had been causing stress in the traditional asset class markets that was punctuated by a total runoff in the last quarter of 2018. Believing that a market was being mishandled as a dumpster fire began in traditional assets markets, Donald Trump called in Steve Mnuchin as head of the Working Group on Financial Markets (also known as the “Plunge Protection Team“) on December 24th, 2018. Jerome Powell making a public statement on the Fed’s balance sheet roll-off in attempt to quell fears used the term “auto-pilot,” which Trump took aim at via Twitter commenting about being irresponsible with an already irresponsible monetary policy. The market reacted negatively in response, except for bitcoin of course beginning its 2019 bull run. Extraordinarily in his own fashion of publicly chastising people into backing off, it worked in Trump’s favor. Then, the Fed began making accommodations by any means necessary to take a 180 degree turn by putting all tightening on hold and stopped raising interest rates.
President Trump’s influence over the Federal Reserve created a wave that caused the European Central Bank (ECB), Bank of Japan (BoJ), People’s Bank of China (PBoC), Bank of Candada (BoC), Reserve Bank of New Zealand and other central banks around the world to cut interest rates. The S&P as a measure of the market has performed relatively well being up about 18% year-to-date. This week the intimidation factor did not work with Jerome Powell who decided to leave rates unchanged after being challenged again by Trump again who quipped that the Federal Reserve raised interest rates far too fast adamantly pressing Powell to resume the interest rate cuts and resume quantitative easing to remain competitive with other world currencies and economies. He also went so far as publicly asserting that as President he could possibly demote or replace him, but Powell noting he had the law on his side as well as stating his plans to serve the entire four-year term to its entirety. In the recently released Fed minutes from their June meeting, they were filled with dovish statements reflecting a cautious attitude indicating that they are monitoring the overall financial landscape before hinting at possible interest rates in the future. Following the news of the chairman’s statements bitcoin leapt from around $9300 to as high as $9,900, the S&P 500 index closed at all-time-highs, the treasury yield curve fell causing bond prices to rise, gold rallied to $1,400/oz. a price it has not seen in over six years, and oil saw a boost. This also was propelled by political concerns and nervousness stemming from Donald Trump and Iran, China tariff/trade war strains, and the short-term economic outlook for traditional markets with plausible interest rate cuts ahead showing a willingness for more “easy money.”
An attribute that bitcoin has that gold doesn’t is censorship-resistance. It’s a major pillar that should not be discounted because of the difference it can make for people living under regimes with tyrants and authoritarian governments that enforce capital controls or that outlaw various forms of peaceful trade. Bitcoin being open, public, neutral, borderless, and permission-less also shields owners from reckless fiscal and monetary decisions made by central banks and politicians. This month also saw the emergence of Libra, the cryptocurrency stablecoin project that Facebook is developing. Amazingly, the company who has come under scrutiny for data mining and duplicity is making the leap into the sector with the core aim of ending their reign over the Internet. Don’t mistake the naming of the project with the astrological significance of the zodiac sign being similar to the exchange Gemini’s. It is likely a shot over the bow by Mark Zuckerberg to the Winklevoss twins stemming back to their Harvard disagreement, and Zuckerberg understands network effects better than anybody with 2.38 billion monthly active users (MAUs) as of March 31, 2019. It is obvious he wants to onboard them into a new financial order that he, his company, and the Libra Foundation controls meaning it will be centralized and require trust that bitcoin fundamentally stands against being trust-less. It may serve as a helpful catalyst that leads many people into bitcoin and crypto assets, but there is a fear in the crypto community that its just a data grab that will come at the expense of users’ privacy while they may be making unsafe transactions or are locked out of their funds for violating any possible terms and service agreements. Libra is likely not going to be censorship-resistant quickly raising concerns that were brought to Jerome Powell and other’s attention like Rep. Maxine Waters.
As money gets easier around the world, Bitcoin and crypto assets will become harder and harder to own. We are seeing their first stages of a mainstream adoption being led by institutional money, retail interest, and speculators around the world betting that the current experiment will end. Libra’s arrival hopefully educates and emboldens people to adopt bitcoin and crypto assets but not being backed by cryptography or math makes it like the U.S. Dollar too requiring users to trust in the “full faith and credit” of Facebook and their ability to maintain the ledger dutifully. As a platform that has come under further examination on numerous occasions for security and privacy concerns, Facebook, Instagram, and Whatsapp have been known to go down while users are unable to connect with their servers, access their accounts, or send and receive data. It should be noted again that Bitcoin in its decade long history has not suffered an outage, shutdown, or gone down after the built-in Proof-of-Work consensus mechanisms failed to come into an agreement. In this year’s Crypto Facts and Fantasies, I noted that as a fact in my fourth point that, “Stablecoins are either 1:1 or algorithmically collateralized to be pegged to the US dollar’s value, even though they realistically should be pegged to the Consumer Price Index (CPI) that measures the average change over time of the prices paid by urban consumers for a market basket of consumer goods and services. Many are also subject to centralization, censorship, or privacy concerns that defeat many precepts of crypto assets.” While this was stated before Libra was announced its plans to be a basket currency, I also pointed out the fantasy of Stablecoins, “offering active investment qualities or any potential investor returns.” Bitcoin as well as various other investment grade crypto assets fundamentally will offer more opportunities for upside and protections being decentralized, censorship-resistant, as well as secured by cryptography and math.
Taking the global financial and political landscapes and the information above into consideration, the bull case for bitcoin to make another historic run to new all-time-highs is becoming increasingly predictable. Last year in March 2018, I was sure to call out analyst expectations of Bitcoin falling as low as $2,800. In January of this year I vocalized my confidence in my 2019 Thesis saying, “Once people realize how much value is possible and the money that is coming in, they will spark the next leg up and revive the poised bull market in crypto assets. The only target I have and will make publicly is for bitcoin’s price since it is the market I follow most closely and because it also has the longest track record. My price call is for it to be valued, conservatively, between $60,000 – $100,000 by the end of 2020 for my investment time horizon.” I still standby that statement and firmly believe it will come to fruition, sooner or later with less emphasis on it being on such a short time frame. The first target that bitcoin needs to take out is crossing $10,000, and after that as Tyler Winklevoss believes it will probably make a run at $15,000. It could happen as soon as Independence Day if things really took off with more news, political tension, as well as additional media coverage and positive views for its asymmetrical potential. I anticipate seeing prices rise over the next couple quarters, especially with new institutional entrants and people suffering from fear of missing out chasing the price up.
Notable Bits of News:
‘Bitcoin is easily going to take out its all-time highs’: Fundstrat’s Tom Lee – (CNBC) One of the most well known bitcoin bulls, Tom Lee, also shares in the belief that this year’s bull market is the setup for a much larger move. He also noted the Facebook announcement of its stablecoin plans will help bring more mainstream focus to bitcoin and crypto assets. Lee also believes in the notion that bitcoin may become a reserve currency down the line.
Blockchain: Is AI The Future Of Blockchain? – (CryptoDaily) The whole “blockchain, not bitcoin” narrative being driven mostly from corporate and enterprise interests who are losing control over the centralized Internet has really been blown out of proportion. It highlights a lack of understanding of the current developments and failure to see the future path for this technology. One thing is practically certain, bitcoin and crypto assets are going to be major part of the machine economy that instead of humans engaging in commerce will be artificial intelligence and algorithmic bots.
Hester Peirce, a commissioner with the U.S. SEC cautions against regulations stifling ETFs – (FxStreet) The Securities and Exchange Commission (SEC) commissioner, or “Crypto Mom” as she is known to many in the crypto community, spoke out about regulations inhibiting innovation. According to Peirce, the SEC will be releasing new ETF regulatory guidance that will help expedite new measures for bitcoin and crypto asset exchange-traded-fund products. The United States government has been playing it slow and steady thus far, but a rush to judgment could hamper growth and potential for cost-savings, profits, and efficiencies for America citizens and businesses.
Introducing Erasure Quant: Erasure’s first finance tournament – (Numerai) One of the most ambitious projects in the space has built a stock-picking tournament on their protocol. The plan is to crowdsource predictions to generate profitable strategies for their open-source hedge fund. It’s the first dApp on the Erasure protocol, and Quant is designed to be forked for users’ own tournaments calling for predictions on whatever asset or market they desire.
Best Blockchain & Crypto Podcasts of 2019 – (Riley Silbert’s Medium) Podcasts have become an easy and convenient form of media that is a great way to digest information about ideas, subjects, and topics you may otherwise not be exposed to normally. Having listened to many of them personally, I’d recommend his suggestions as well as refer you to the various episodes and podcasts in the systemic bliss crytpo learning library. They’re great while commuting, walking, or working on mindless tasks too.
Bitcoin Price Could Hit $50,000 as Options Traders Become Aggressive – (Wall Street Journal) Traders seeing the positive price action this year have become very bullish on bitcoin’s prospects. Some even wagering that the price for a coin will more than double its record prices in the 2017 bull run. The excitement behind the current rise in prices has spurred even more aggressive bets and strategies with risky options that may end up being worthless despite the underlying crypto assets still holding value (just below the strike prices).
– Research from Fidelity Investments
“Institutions are more aware of these [crypto market] developments now than they were six or twelve months ago. The people we talk with are actively scanning and observing what’s going on, and considering how this technology would impact their business, and — ultimately — financial markets.”
Bitcoin has officially bottomed out, and the bull case is currently being made as it has historically performed with incredible strength following washouts like 2018 typically sending prices to new all-time highs. While the past is neither an indicator of future performance or returns, Bitcoin and crypto assets as a whole have seen a powerful move upwards in the past couple of months. The asset class also is experiencing a lot of interest from many reputable individuals and traditional financial institutions that are starting to realize and understand their value, which was not the case during the last run up in prices that put them practically on everyone’s radar. People are increasingly coming around to the idea of buying into Gold 2.0, bitcoins are its digital manifestation as an asset with a store-of-value that is independent of any nation or government. It is fully possible that it’s poised to become a newly adopted reserve currency that’s held in significant quantities by governments and institutions as part of their foreign exchange reserves.
In general, the short-term performance of Bitcoin and the crypto asset market has been bolstered by worries of the U.S.-China trade war, interest rate and inflation tensions, the riskiest credit market in history, as well as other uncertainties globally that are presenting them as an anti-fragile, uncorrelated safe haven asset class. Prices broadly may have gotten some help too with Blockchain Week in New York City this month as many of the best and brightest in the sector were hosted at conferences, meetups, and summits discussing the technology and their roadmaps for the future. It still seems sort of odd that out of all the possible places that New York would be the gathering place of so many interested parties and investors despite the state’s regulators harsh enforcement history in this sector. If there was to be a logical choice for the Crypto Capital of the World, it would be Chicago. It’s a great option as a city with a deep pool of talent, rich commodity and trading history, as well as its physical location in the Midwest of the United States with an abundance of culture and diversity at the heart of both the East and West coasts (Wall Street and Silicon Valley) in one central spot.
The long-term outlook on Bitcoin and the crypto asset market is solid too with plenty of opportunity for continued growth and expansion into a broader, more mature asset class that can be taken serious and regulated appropriately as such. One of the primary concerns in the previous year that was raised from large capital allocators hesitant to enter the arena was custody, and there’s never been better infrastructure and solutions than ever before available to individuals as well as institutions. Next, payments with Bitcoin and crypto assets were deemed as suspect by many serious investors on the fence about them after hitting all-time highs and just this month the rollout of SPEND™ proving their write-offs on the technology’s potential wrong again. The only places that have been left out of the crypto love are asset management and banking, and it’s conceivable that the tech and its advancements will become very vogue and sought after over next the couple years as customers and clients want to get in on the action and cost savings. For these reasons and more to be explained, Bitcoin (in particular, with its block reward halving in less than a year) and the crypto asset market as a whole are primed to garner increased demand and reach new heights along the way.
Bitcoin virtually represents digital gold as a store of value, and it presents an amazing value opportunity considering the market value of $150 Billion for bitcoin relative to the market for gold at $8 Trillion. If the market capitalization’s were to find parity at $8 Trillion dollars, the value of a bitcoin would be roughly worth $450,000 using current prices. It doesn’t seem all that unrealistic either if you take into account bitcoin’s performance over the past decade, and the fact that it offers superior aspects like portability, a controlled supply (it’s been proven mathematically there will never be more than 21 million bitcoin in existence), and inflation predictability. To illustrate that last point, there will be 656,250 bitcoins mined as well as added onto the blockchain next year in 2020 and 328,125 bitcoins will be mined as well as added to the ultimate total supply in 2021, and Bitcoin will continue on a predetermined inflation schedule (you couldn’t possibly predict gold’s inflation with such accuracy). Bitcoin will be the superior store of value relative to gold for that reason as well as its ease of transport and protections against censorship and seizure. Plus, despite Luddites arguing that the yellow metal offers higher durability during an event that may shut down the Internet the fact is that bitcoin satellites exist (meaning Internet isn’t necessary to use Bitcoin’s network and the public-ledger or blockchain stays up-to-date for everyone around the globe regardless of a connection).
The crypto asset market is having a great month! Bitcoin’s strong performance has been leading it upwards starting May around $5,300 and almost hitting $9,000 before fading back to around $8,700 at the time of this writing. Month-to-date that puts Bitcoin’s return on investment over 60 percent, not to mention, it’s up over 130 percent year-to-date. The uptrend that I spoke of last month is still very much intact, and I’m very confident in the bull case for bitcoin in both the short and long-term time frames. Three basic scenarios that can imaginably play out over the next month in order of likelihood would be: (A) The rally continues to play itself out with institutional and retail FOMO sends Bitcoin over $10,000 before mid-June; (B) Prices capitulate back to a support between $8400 and $7700 before moving higher and pushing across $9,000 to test $10,000 in late June; (C) The worst-case scenario breaking the trend with a drop in prices that sink well below $7000. The logarithmic chart used to generate these predictions can be seen below with the same presets as last month for the bollinger bands and linear regression (R-squared = 0.93102207). The bull case for bitcoin’s long-term value proposition is rooted in its fundamentals, institutional interest, and increasing demand ahead of the block reward halving next year.
Notable Bits of News:
AT&T is the First Mobile Carrier to Accept Payment in Cryptocurrency – (AT&T) The world’s largest provider of mobile telephone services, and the largest provider of fixed telephone services in the Unites States will now accept crypto assets through a payment process for cryptocurrency, BitPay. It sparks the question if this will be a major tipping point that pushes other corporations into FOMO adoption of crypto. The company has limited the acceptance to bill payments only and has not specified whether customers will be able to purchase smartphones and other accessories online or in AT&T’s brick and mortar stores.
Bitcoin Price Up Nearly 50% Since US Congressman Urged To ‘Ban Bitcoin’ – (Bitcoinist) This also comes with news of famed Nobel Prize winning economist, Joseph Stiglitz, saying in an interview that he “thinks we should shut down the cryptocurrencies.” It’s unclear if Congress is the subject who he’s referring to as “we,” but like Stiglitz in an infamous speech given on May 9th Brad Sherman called for a ban on the purchase and mining of bitcoin by US citizens. The market showed that their calls held little water because the truth is they may be impossible to stop or shutdown, and the price action continued to be bullish despite the negative statements.
Bitcoin is a Demographic Mega-Trend: Data Analysis – (Blockchain Capital Blog) In a blog post published by Spencer Bogart, Partner at venture capital firm Blockchain Capital, according to a new survey conducted by Harris Poll, 11% of Americans own bitcoin marking a major awareness increase since 2017. They used a statistically significant sample of the American population (conducted between April 23, 2019 and April 25, 2019), and the findings showed that they had gained more knowledge about bitcoin in terms of awareness, familiarity, perception, conviction, propensity to purchase, and ownership. Compared to another survey they conducted in October 2017, the results outline that bitcoin is a “mega-trend” that is being led by the younger generation in the 18-34 year age range. Interestingly, the older demographics showed they had heard of bitcoin but failed to match the other aspects where the younger age groups excelled.
Robinhood’s Free Crypto Trades Powered by Chicago’s Jump Trading – (Bloomberg) One Chicago trading firm that’s made headlines as an early mover in the space and known for having a profitable shop, Jump Trading, LLC, is helping Robinhood Market Inc.’s trading application for crypto. Robinhood saw its customer base double after adding crypto asset trading last year. It’s a promising sign of faith from respected, traditional financial players especially given that the offering is still not provided in every state because it is so new.
HODL Bitcoin Proves Itself (Unlike Altcoins): This Man Had Lost Almost 50 BTC From Investing in 50 Different Altcoins In 2017 – (CryptoPotato) If only he took the practical advice of just HODL-ing bitcoin and using DCA (“dollar-cost averaging“) strategies, but this one investor highlighted his views that newer coins only have one good cycle where investor’s timing is critical for a successful exit. For this individual, specifically, altcoin diversification from his original bitcoin holdings was not a prudent strategy for which he paid for dearly even though he believed they had “great” technology. The truth is many of them have seen very low volumes, have been delisted from major crypto asset exchanges, or barely shown any signs of life if any at all.
Bitcoin ETFs: Wait May Continue Even Longer – (ETF Trends) In a document that was released on the morning of May 20th, 2019, the SEC expressed its decision to exercise its right to delay (yet again) its decision by another 90 days. This sets the deadline back to August 19th, despite recent research suggesting that an ETF in the U.S. would be the preferred vehicle for 58% of American investors to access the world’s largest cryptocurrency. It is certainly obvious that the SEC is in no hurry to make any decisions too quickly, and they are doing their best job possible to understand the market and gather as much knowledge and information available to them.
New Research: Institutional Investments Likely to Increase over Next 5 Years – (Fidelity Digital Assets Blog) In a blog post before a report earlier this month by Bloomberg announcing Fidelity’s intentions to trade crypto for institutional clients “within a few weeks,” it made noteworthy news because it meant they would go beyond their custody business that’s live and enter the market of crypto trading businesses for institutions (though they emphasized they would be essentially serving as an agent). Seven out of ten respondents found some aspect of digital assets attractive and there was such positive feedback from institutional investors, the company said they are seeing interest from crypto funds and other early movers as well as family offices, endowments, pensions, and foundations. That’s almost as powerful as their survey conducted by Greenwich Associates between November 26, 2018 and February 8, 2019 correspondingly saying that 22% of institutional investors have some exposure to digital assets and almost half surveyed (47%) viewed digital assets as “having a place in their portfolios.”
Grayscale to Investors: Drop Gold – (Greyscale Investments Blog) In their new campaign promoting the emergence of Bitcoin and crypto assets as a viable digital asset class that will serve as the future of money, a strong call to action tells investors they should reassess their gold holdings in their portfolio and reallocate that capital by investing in Bitcoin to reap the benefits of a diversified investment strategy. It, at the very least, provided some comedy and debate around the “Bitcoin vs. Gold” contest. The campaign is more than a commercial and hashtag because they are also educating people and potential investors about their flagship product, Greyscale Bitcoin Trust, at DropGold.com.