FED MADNESS: The Rise of the Day Traders (Episode Three)

“In 2010, the Securities and Exchange Commission (SEC) began looking at the practice of quote stuffing in relation to the Flash Crash. The agency started assessing whether the practice violated ‘existing rules against fraudulent or other improper behavior’ or caused a disadvantage through distorted stock prices. SEC chairman Mary Schapiro said the agency would assess whether traders must hold orders open for minimum periods of time and other changes to financial trading. No such regulations have been enacted (except in Italy).”

— Wikipedia page for Quote Stuffing under “regulatory changes and enforcement.”

Technology, Order-Preferencing Arrangements, and Robinhood

Technology can be exciting for how it can enhance and simplify our lives as well as horrifying for what can be done with it when it falls into the hands of bad actors seeking to exploit its power.

Much of the financial industry has been trending towards a digital future for decades with the disappearance of runners on the floors of stock and options exchanges with traders now on their mobile devices, tablets, and laptop terminals. Recent trends influenced by this years events have accelerated the need for execution, privacy, security, and quick payments for both individuals and institutions alike. Large retail brokerage firms offering discounted or even free trades are being exposed for negotiating and selling their order books to large securities dealers through order-preferencing arrangements, which were supposedly pioneered by Bernie Madoff.

Robinhood Markets Inc., the maker of the free trading app, has grown in popularity with an increasing customer base over the past year for a plethora of reasons. The app, “a pioneer of commission-free investing,” moved into crypto asset trading quickly in 2018 helping it grow its user base when major platforms were skeptical of buying and selling bitcoin, ether, and other digital assets on behalf of their customers. Aside from its crypto product, Robinhood has cash management, fractional shares, stocks of individual companies, bundles of investments (ETFs), and options offered through Robinhood Financial as well as a “Gold” package that starts at $5 per month that allows access to research reports, trading on margin, and the ability to make larger deposits with faster account funding. A 30-day trial is available for the latter product, but that is not where the company generates most of its revenue.

The retail investment platform has come under careful examination by the Financial Twitter community, “FinTwit,” after its practices known as payment-for-order-flow in financial arrangements with third-party market venues went viral following a series of tweets from a popular account called Zero Hedge (@zerohedge) months after being banned from the social media website. The tweets included details of such arrangements as well as the amounts received by Robinhood Financial and Robinhood Securities for routing trades to a handful of venues that happen to be the most dominant high-frequency trading firms notorious for “front-running” retail investors to make large sums of money off of the smallest fluctuations in prices from their algorithms by buying the shares before the Robinhood traders can get them and turning around to sell those shares that they wanted back them at a negligibly different price. These firms use the excuse that they are “providing liquidity” to the market to get away with selling the shares at marginally lower or higher prices that in turn accentuates the momentum behind the market for those shares while those firms make money either way it goes by being directed the equity order flows of retail trading clients telling them which way they want it to go.

Stealing from the Poor, and Giving to the Rich

These revelations are ironic.

They show the direct opposition Robinhood’s business model has with their namesake, the heroic outlaw who steals from the rich and gives to poor on top of being beloved for his deeds by the townspeople. Instead, the app steals from the poor to give their orders to the rich seeking to become richer at the disgust of FinTwit as well as niche trading communities on Reddit. It is showing there is a hidden cost to discounted trades or free brokerage firms while highlighting the need for greater transparency in our financial marketplaces because as billionaire investor and NBA Warriors team owner Chamath Palihapitiya (@chamath) who shared the Zero Hedge tweet also responding sharply to it stated, “And this will eventually fuck over the same retail traders on @RobinghoodApp who started it in the first place. This is shady AF…”

Retail traders in the traditional commission model use their trading applications and platforms to place orders that are taken by the broker and then routed to a market maker who executes the trade, but in the no-commission model without any fees on trades market makers pay a pre-set fee to the broker in the pay-for-order-flow model (Robinhood, for example, receives payments averaging less than a penny per share for order flows and/or each trade executed). This is the key business driver that enables the zero-commission stock brokerage industry thanks to those unsavory order-preferencing arrangements that are cropping up elsewhere too. Crypto asset exchanges such as Coinbase Pro have their order books practically front-and-center on their user interfaces to enhance the experience from having a visualization of changing prices and with varying increments of volume. Giving the trader a view into the market while also effectively democratizing it for everyone’s benefit by allowing anyone to see the order book, thus using it to their full advantage seeing the spread in buyers and sellers to find their own sweet spot among all of the open bids and asks.

According to SEC Rule 606 disclosures, the selling of order books and order routing practices also happens at the big retail brokers such as Charles Schwab, e*Trade, Fidelity, and TD Ameritrade among others. It seems that the retail brokers have put in place limits that cap how many trades are sent to specific market makers, typically seen in percentages, to mitigate risk and concentration concerns though it is not an enforced standard or even used by everyone in the industry. For not considering all execution quality factors, Robinhood was fined as well as paid $1.25 million in December 2019 without admitting or denying wrongdoing according to the FINRA announcement of “best execution violations related to its customers’ equity orders and related supervisory failures.” Not considering price improvement, for instance, is a major concern for financial authorities that want to prevent market makers from taking retail traders for a ride and creating undue momentum and volatility.

The Rise of Davey Day Trader Global

No suit is safe with the rise of Davey Day Trader Global, or DDTG for short.

Dave Portnoy, founder and president of Barstool Sports as well as owner of DDTG, who made his bones from his popular blog that has grown an avid almost cult-like following focusing on gambling, sports, and hot takes in this golden age of content successfully pivoted away from his usual shtick towards day trading and finance during the quarantine with the lockdown preventing much of the professional sporting events from taking place. Many of the loyal Barstool followers known as “stoolies” that would have been otherwise betting on sports are now transitioning towards investing in stocks and joining the trading platforms mentioned above, which are basically just another sort of casino with their own variety of games of chance that people can wager on (arguably, they are just as dangerous). While his exploits are gaining traction in the financial news making for an entertaining underdog story, odds are more likely than not that his story will end up being one that winds up being a cautionary tale of investing in this century.

Attention began with public announcements via social media that the Barstool Sports founder was skeptical of Dr. Anthony Fauci when the NIAID Director urged Americans to take health and social distancing guidelines seriously suggesting the precautions would help curtail the spread of coronavirus as well as recommended holding off on sporting events until further notice. Dave Portnoy, a specialist in being a contrarian and stirring controversy on the Internet, then doubled down on his stance that the shutdown from the pandemic should not be taken as seriously as the health experts and mainstream media suggest. The self-proclaimed “King of Content” soon began taking swipes at one of the greatest investors of all time, Warren Buffett, who credits traditional value investing and his long-term approach to his success.

“I’m sure Warren Buffett is a great guy but when it comes to stocks he’s washed up. I’m the captain now.”

— Dave Portnoy, Founder of Barstool Sports

Portnoy who believes in his and DDTG’s ability to outperform the entire market being weary of the “blue checkmarks” and “pin-stripped suits from Wall Street,” referencing the badges on Twitter of verified accounts and hedge fund managers that are often featured with talking heads on financial news networks proclaimed, “Warren Buffett is 90 and washed up!” From that point forward, he has started making the headlines after buying the airline and cruise stocks following the announcements that Berkshire Hathaway and the “Oracle of Omaha” dumped their shares. Live streaming his forays into day trading all along the way, the rise of Davey Day Trader Global began and quickly saw many of the loyal stoolies and gambling wannabe’s jumping on the day trading bandwagon becoming “retail bro’s” creating accounts on discounted and free brokerage firm’s platforms to trade side-by-side with Dave and DDTG.

A Level Playing Field? Not So Much…

Unbeknownst to many retail traders, the market is a not so level playing field.

Market makers have the power and resources to employ complex strategies and advanced tactics that skew the arena in their favor by manipulating and moving markets. Anyone suggesting that Dave Portnoy also known as “El Presidente,” a self-admitted novice that does not know what he doing and flying blind in his own trading cockpit, is trying the bend stocks towards his own will and good fortune is obviously ignoring that glaring truth above or just severely uninformed about of the magnitudes of difference that DDTG wields compared to the “Flash Boys“-like high-frequency trading firms on Wall Street. For the most part, Dave Portnoy and his retail supporters in the stock market are trying to compete against forces that are by far greater than they are that is making them out to be some of the biggest victims or martyrs at the hands of these questionable practices from the brokers and market making firms mentioned above. On its face, it appears to be an easy comparison and pun to say its another story resembling David and Goliath.

“The U.S. stock market now trades inside black boxes, in heavily guarded buildings in New Jersey and Chicago.”

― Michael Lewis, Flash Boys

Amplifying egos and deflating dreams in milliseconds or less, the high-frequency trading algorithms and firms using the stocks that Dave Portnoy shouts out of the comment section or pulls from scrabble pieces on his streams can wreak chaos on him and his unwavering DDTG gang of day traders trying to buy and sell those shares that these firms front-run while printing their own profits either way the market decides to go. It is actually making the case for index as well as value investing too as opposed to day trading and momentum investing because if Dave along with his faithful stoolies realized the significance of the saying that they love to repeat, “Stocks only go up.” If only they accepted that there are bigger and better equipped firms with their own inside stairwells leading to the black boxes dictating the direction of the stock market, they could see that simply buying the index fund for the entire market or exchange traded funds for specific sectors and calling it day, more often than not, is the best as well as most cost-effective game plan for capturing gains rather than just picking and trading random stocks without any sort of methodology or strategy.

It’s “big brain time” for El Pres and the gang of DDTG day traders as well as financial professionals supporting their brick-by-brick movement, and that means they need to devise a scheme that cuts back to Barstool’s core of being, “By the common man for the common man.” Returning to gambling on something that has a more fair and transparent market structure, bitcoin and crypto assets as alternatives that he and his followers can buy and speculate on as well as educate others about would greatly help limit the obstacles that newcomers encounter while exploring this new asset class and market as well as aid in pushing the them into the mainstream, not to mention, so they can directly benefit too from becoming early adopters with handsome gains from owning them ahead of the “suits” following his daily streams that are too about worried their client’s stock portfolios and reputations on Wall Street to make such a move. Portnoy wants a fight against the suits, and the best way to do so is by not playing into their games that they rigged for themselves and instead opting for new ones that they don’t hold authority over or cannot influence easily with their money printing machines.

A New Hope

A rebellion is underway against the same Empire of Blue Check Marks and Pin-Stripped Suits on Wall Street, bitcoin wants to restore freedom and transparency in global marketplaces while creating a new alliance of mathematics and money.

Think about the possibilities if Portnoy of Barstool Sports with the backing of the Penn Nation Gaming company and his DDTG gang of day traders fully embraced bitcoin. Their relationship should be especially symbiotic to one another since gambling and prediction market’s websites commonly are known to accept and deal in bitcoin for its ability to make quick, secure payments online. It also levels the playing field for everybody involved from the ease of access and transparency inherent to Bitcoin compared to trading in the stock market these days.

Wouldn’t it be a commendable gamble if buying into bitcoin in protest against “the suits” paid off generously for DDTG? Barstool and Penn should combine efforts to increase its acceptance and educate people about it as well as teach them about responsible investing plus all of the risks associated with it. Although it is not a day trade and more of an insurance play for the long-term with the outlook that bitcoin becomes the next world reserve currency, there is an opportunity that owning even the smallest percentages (such as 1% of total assets) will have a positive impact on the performance of one’s portfolio and overall net worth as a hedge against debasing fiat currencies.

“You can’t win, Darth.”

― Obi-Wan Kenobi, Star Wars Episode IV: A New Hope

Let the suits take their swipe at you, Dave. It’s time to become one with the force and help make the next episode in my series of FED MADNESS be named A New Hope: Barstool & Bitcoin. You can’t beat the suits at their own game or fight the Fed without the resources they have at their disposal, but if you let them try to strike down DDTG then it could be your way of delivering a much more devastating blow to them in the future by forwarding an important message to the next generation of day traders about the dark side of finance.

Bitcoin Bends to No One’s Will, Not Even Wall Street

If bitcoin hit its all-time-highs from speculators, just imagine what DDTG and the stoolies would do for its price!

While possibly being instrumental in taking the orange coin and its entire asset class with it to new heights, the increasing value in annual lows for bitcoin is really driven by its “HODLers” or owners that refuse to sell despite where the price is going holding steady in the belief their “stack” will be worth much much more in the future. A number of applications and services are available today that allows people to buy and send as little as one one-millionth of a bitcoin, the smallest unit of account named a “satoshi” or “sat” for short, which allows them to accumulate small increments that they stack on top each other through the ebbs and flows of the market without taking on too much risk at one time. This translates to bitcoin being a better savings mechanism should its price continue to rise in value versus the dollar-cost-average basis of their initial investment allowing those people to create more wealth for themselves or give themselves more money to bet with if they so choose to take profits.

“When the state finds itself unable to meet its committed expenditure by raising tax revenues, it will resort to other, more desperate measures. Among them is printing money.”

― James Dale Davidson & Lord Rees-Mogg, The Sovereign Individual

“Taking profits is for losers,” Portnoy has gone on the record saying when speaking to financial pundits recently. From the sounds of it, he already likes the idea of “HODLing” and would fit right into the bitcoin and crypto asset communities. As a proponent for freedom and prosperity, Dave Portnoy with DDTG and Penn National have a tremendous opportunity with incredible upside if they chose to adopt and embrace bitcoin and crypto fully themselves as well as within their own respective companies to help them become more mainstream, understood, and widespread.

Not expecting that it will come easy to DDTG or that they will suddenly decide to jump head first into crypto, but it wouldn’t be that hard to change the “brick-by-brick” mentality to just apply it to bitcoin easily changing it to a “sat-by-sat” movement that he and all the stoolies can do together. They can still get in on the ground floor of a new currency and asset class with fabulous potential into the foreseeable future with demand for digital payments increasing in these modern times. As the Rise of the Day Trader takes place, they should know the facts before embarking on their investment journeys and equip themselves with the knowledge as well as tools necessary to level the playing field before defeating the suits once and for all.

The Smart Money vs. Schrute Bucks

Smart money has enter the chat, and they are putting their money where their mouth is by buying and holding bitcoin for a long-term payout.

Bitcoin, being a non-sovereign asset with a hard-capped supply backed by mathematics and secured from its strong encryption, will never be bent or broken by it ever being massively inflated similar to the “Schrute Buck“-like dollars that are being created at the behest of the Suit Empire. Having been born out of the financial crisis of 2008 that has recently been trumped by the level of stimulus of the 2020 crisis, bitcoin’s edge is its programmatic scarcity and verifiable transparency that Wall Street filled with its cheap tricks of financial engineering and imitation games offering shares in the next so-and-so company could never can truly offer. As the show goes on and the stakes becomes higher, I believe betting on bitcoin will turn out to be an incredible gamble with huge growth potential compared to bonds, stocks, or any other asset if economic trends continue to head in the direction and on the trajectories that they are heading at the moment.

The new breed of day traders without a fair fight unless they adapt to have more sophisticated trading setups can barely compete if they can even stand a chance against the much larger, faster participants that easily exploit them whether they know it or not. Not to discourage them from trying, but rather give them the edge and information needed to help level the playing field as well as protect some of their wealth while trillions of dollars are being added in bond buying programs for corporations additionally with mortgage-backed securities, repurchase agreements, swap lines, and temporary credit facilities from our Federal Reserve bank may end up culminating into a giant tidal wave of money that wipes out the entire economy as we know it after seeing a total loss in value of the underlying currency. As socialist policies and politicians are slowly normalizing themselves and play their infinity games with our dollar as our stock market rages back towards all-time-highs, it needs to be understood that they represent the descent of money and its value figuratively and literally by issuing more of it for innumerable causes they deem worthy, which will end up diluting the accumulated wealth of the nation as well as the savings of hardworking men and women earning enough to make it in the top tax brackets while they simultaneously try to increase their taxes on them.

Investing in the infrastructure layer of a newer, more transparent macro economy by buying bitcoin and ether as well as the application layers being built on top of their technology gathering users from around the world will be how the younger generations in this decade create wealth that lasts them centuries. Crypto assets have greater property rights and protections that were not possible previously with traditional assets coming before them since they are bearer instruments that are digital as well as attached to distributed ledgers available to anyone around the globe possessing an internet connection for real-time auditing and verification. Bitcoin, emerging as the most sound electronic cash system in the world, preserves the highest ideals of Capitalism and addresses the problems that are plaguing fiat currencies around the world that are vulnerable to being debased by irresponsible bureaucrats and politicians.

All the best and to the moon,

JH

Drop the stocks and start stacking sat’s in bitcoin!

Bitcoin is money for smart people, you probably wouldn’t be interested.

FED MADNESS: The Money Printer Strikes Back (Episode Two)

“There is no intoxicant more dangerous than cheap money and excessive credit.”

– Benjamin M. Anderson, economist, 1929

SOURCES: Board of Governors of the Federal Reserve System, CoinMarketCap, & Yahoo Finance.
DISCLAIMER: Performance of an index is not illustrative of any particular investment, nor is it possible to invest directly in an index. Figures above may not account for expenses and fees.

It’s official: CoVid-19 is a financial, health, and social crisis.

“Big Brother” in Washington is back making another intervention in the economy fiscally and monetarily with backing and funding of $3 Trillion authorized by Congress up to this point. In an effort to fight the pandemic through using their full range of tools including emergency lending powers and near zero interest rates employed by the Federal Reserve to try and hit their maximum employment as well as price stability goals, a V-shaped recovery seems to be underway despite the possibility of a second wave of coronavirus threatening current predictions on the economy bouncing back fully as states optimistically begin to re-open their businesses in the coming weeks. The Federal Reserve also as part of their CARES Act setup a new broad-based bond buying program with purchases of government-backed and mortgage-backed securities that they hope will accommodate economic conditions with over 20 million people displaced from the labor market so far.

Markets around the world are still grappling with the changing realities and “New Normal” after getting blindsided by a massive correction in asset prices that triggered a rush to cash ensuing from the global pandemic of CoViD-19. The chart above shows the year-to-date performance of various assets and markets as well as uses publicly available statistics relating to the Federal Reserve’s total assets on its balance sheet by displaying its Wednesday level of weekly asset purchases (less eliminations from consolidation), which more or less demonstrates the effect that our central bank’s hardworking money printer has on each asset or index with bitcoin making quick strides to outperform the rest.

The money created to boost and stimulate businesses as well as individuals is largely resulting in a dislocation of risk assets from the actual economy with its own serious issues as we are about to witness serious inequalities in wealth because of toying with ideas like Modern Monetary Theory and Universal Basic Income that are trying to become a part of this “New Normal” campaign that may change our lives culturally, economically, ideologically, politically, and socially forever.

SOURCE: Board of Governors of the Federal Reserve System (US), M2 Money Stock [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from January 1, 1998 to present. Shaded areas indicate U.S. recessions.

These type of monetary trials our government is allowing would have been labeled as Socialist in prior decades, or put plainly as “un-American,” and considering the size and scope of the money printing to fund these recent government handouts it would have been joked about as a surefire way to wreck the economy. Plus, the cavalier attitude the Federal Reserve has for summoning money “out of thin air” by simply marking up each member bank’s account in their private database is concerning and should be perceived as financial black magic in particular when it is impossible for the public to audit them.

Furthermore, it is particularly worrying the Federal Reserve slashed the ratio of Required Reserves for Depository Institutions to hold on hand to zero. Meaning now instead of being able to loan out 20 some dollars for every 1 held in deposit, each depository institution now can legally loan out as much money as they wish without actually having any money in the bank’s vault so it is created digitally for their reserves perpetually making the money supply larger. Reinforcing the exclusive control over the creation of money that seems eerily similar to Rule #11 on the popular board game with imitation money literally named, “Monopoly.”

SOURCE: Board of Governors of the Federal Reserve System (US), Assets: Total Assets: Total Assets (Less Eliminations From Consolidation): Wednesday Level [WALCL], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from December 12, 2002 to present. Shaded areas indicate U.S. recessions.

Clever financial maneuvers allowing for the creation of more and more money provided as additional liquidity so that banks remain solvent and moreover keep the economy alive by providing businesses loans to give them enough cash flow to “keep the lights on” or post positive earnings numbers to “keep the music going” are a danger to our free market and common sense American Capitalism. Optimistically, these injections allow a positive effect to take place on the small-to-medium sized businesses as well as companies publicly listed on our stock market by keeping them afloat with “cheap money” to keep propping up the entire economy while saying nothing about keeping a historic bull market alive.

The truth is these central banks’ lending facilities and programs are not new mechanisms in financial engineering because much of them were employed during the previous crises to take the global markets off life support after collapsing from decades of too much easy money sloshing around the banking system. While interest rates were falling, the “easy money” flowing around the economy was inducing an irrational exuberance as well as rampant speculation in housing and stock markets which lead to the wanton lending eventually drying up when credit markets suddenly froze from news of government intervention as well as stiff regulations coming through the pipeline following a long series of predatory industry practices rife with moral hazard.

Today, we are seeing the opposite and will have too much lending that will end up saturating the monetary bases so much that it will create inflationary headwinds for fiat currencies and likely be the tailwind for risk assets predominately with fixed supplies such as bitcoin or gold.

SOURCE: U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. NASDAQ OMX Group, NASDAQ Composite Index [NASDAQCOM], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from January 1, 1998 to present. Shaded areas indicate U.S. recessions.

Despite the crumbling of our actual economy as unemployment reaches levels not seen since The Great Depression with claims reaching 2008’s peak in just two months time, stimulus programs are back with a vengeance doing their best to keep the market artificially inflated and stocks staging a recoveries back to all-time-highs with mountains of money being readily supplied by our central bank’s operations in hopes of stimulating life back into institutions that otherwise would have failed in a free market without the government.

According to Arbor Trading & Research and Bloomberg, there are nearly 2.2 million individuals – or about 2 percent of the total workforce – with a high concentration employed at energy, hospitality, industrial, leisure, technology, and restaurant companies that are still operating yet being unable to pay off their debt making them “zombie companies.” Much of the money in these bailouts and lending facilities is being used to prevent insolvencies as well as buoy the markets and financial system leading people to the realization that they are second-class citizens compared to the banks and “Walking Dead”-like corporations (just looking at the proportions of the CARES Act) making them wonder, “Does it need to come at the cost of good old fashioned free market American Capitalism?” It is detestable how these politicians keep encouraging the expansion of these programs to make sure stock market keeps going up while it benefits their private interests groups as well as own fortunes as they are simultaneously widening the wealth gap.

Democrat or Republican, both sides are conveniently ignoring the fact that these financial measures come at the expense of future generation’s wealth with their children, grandchildren, and so forth having to pay off all the interest and servicing all the debt of the older generations in office before them.

SOURCE: Federal Reserve Bank of St. Louis and U.S. Office of Management and Budget, Federal Debt: Total Public Debt as Percent of Gross Domestic Product [GFDEGDQ188S], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from January 1, 1998 to present. Shaded areas indicate U.S. recessions.

As the federal deficit widens further with the money being used to shore up and sustain a lackluster economic landscape, it is harming Americans in two ways: either a loss in purchasing power from monetary debasement from the incredible amount of money printing, OR they lose funding that would have otherwise been used to clean the environment, build new roads while fixing old ones, access to free public broadband WiFi, and help schools deliver a quality education among all of the other great things it could have been spent on alternatively.

The banknotes in the United States have the words “In God We Trust” printed onto the backs of them as if He had control over the value they carry besides the officials and politicians who are meeting in private behind closed doors of the boardrooms actually making those decisions. A core argument against bitcoin is the volatility associated with its price but it doesn’t get enough credit for its accessibility, auditability, divisibility, liquidity, portability, scarcity, security, and 99.98% network up time (higher than Amazon, Facebook, and Google) that should it ever become the backing of the United States Dollar should make us consider changing the famous phrasing on the back of them to instead say, “In Code We Trust.”

SOURCE: Board of Governors of the Federal Reserve System (US), Monetary Base; Total [BOGMBASEW], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from January 1, 1998 to present. Shaded areas indicate U.S. recessions.

Bitcoin’s demand is mainly driven by its verifiable trust in the creation of a finite 21 million total coins that are minted on a deflationary basis with a predetermined schedule over the next hundred years dictated by an algorithm rather than blindly trusting in an inflationary, unpredictable system with an infinite supply dictated by a cabal of bureaucrats who pass through the “revolving door” of Wall Street and Washington moving back-and-forth from high power banking positions to exclusive positions in government and politics. Bitcoin is a global network that is open 24 hours, 7 days a week with a market of buyers and sellers finding a price at market equilibrium with their own self-interests in mind at any given moment without any central body governing it, just a protocol.

Making it the freest market in the world by efficiently allowing peers that are unknown to each other the ability to barter as well as reach an agreement about bitcoin’s value without being confined by a cadre of intermediares, exchange trading hours, market circuit breakers, untimely back-office settlements, and rent-seeking middlemen charging superfluous fees.

SOURCE: Coinbase, Coinbase Bitcoin [CBBTCUSD], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from March 14, 2015 to present.

While the purchasing power of the dollar has gotten obliterated by debasement and inflation, it feels as if $20 today buys what $5 did a decade ago and could help explain why most older folk’s stories detail how cheap everything used to be “back in their day.” Judging from its limited history, bitcoin has the opposite effect where $5 in bitcoin a decade ago feels like should be worth much, much more than $20 today.

It is developing an interesting investment hypothesis where bitcoin is viewed as a store-of-value or method for savings as well as wealth creation over the long-term with a good probability of it earning more dollars potentially as the money supply will have gotten so large that it becomes detrimental to their purchasing power versus bitcoin’s since it will only become exceedingly more scarce thus more valuable compared to fiat currencies like United States Dollars if demand continues to rise for fixed, non-sovereign digital assets similar to bitcoin.

SOURCE: Federal Reserve Bank of St. Louis, Velocity of M2 Money Stock [M2V], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from January 1, 1998 to present. Shaded areas indicate U.S. recessions.

The velocity of money is dropping considerably in this new millennium suggesting people who are earning basically no interest on it in their savings accounts are under the impression they would acquire more value or preserve their wealth by investing it rather than truly spending and transacting with it in the economy. Fiat currency inflation is a tax on savers that makes the poor more poor and the rich more rich.

Inflation influences people into spending more on investments too. Economic and social media trends tied into recent events are pointing out that money is not being used in the economy as much as it is being invested, and it majorly accelerated after the government issued stimulus checks to many anxious retail investors with little else to gamble on with the moratorium on most sporting events.

It also may be an indication of the loss of trust that people have for our government and financial institutions as their incompetence and irresponsibility has become quite apparent even in these modern times.

SOURCE: Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index [STLFSI2], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from January 1, 1998 to present. (The baseline, zero, is viewed as representing normal financial market conditions and negative values suggest below-average financial market stress while positive values suggest above-average financial market stress.) Shaded areas indicate U.S. recessions.

It is tough to blame people for being weary of our government and financial institutions judging their actions responding to past crises.

Given their past failings after seeing President Richard Nixon unhook the U.S. Dollar’s backing from gold and observing a so-called wealth management visionary and former NASDAQ chairman named Bernard “Bernie” Madoff with close ties to financial watchdogs mastermind the biggest Ponzi scheme in history to the tune of tens of billions, might make for a couple of convincing examples of why multiple generations might be losing faith in them. In the bailout boondoggle of 2008, the largest institutions in the world were bailed out while working class Americans lost their life savings in an utter betrayal ensuring that the wealthiest faction of the population kept receiving huge bonus checks and throwing lavish parties at the taxpayer’s expense.

Money by and large has lost its meaning since that time and become less tied into reality as it has become far more digital with its increasing issuance by the Federal Reserve. The long-term stability of the United States Dollar is especially concerning since there is not a reserve requirement currently capping the amount of money that any ordinary bank can conjure from nothing.

SOURCE: Board of Governors of the Federal Reserve System (US), Venezuela / U.S. Foreign Exchange Rate [DEXVZUS], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from December 31, 2018 to present.

The economics of expanding the currency base at a exponentially increasing rates is not good for its value, just ask any Venezuelan how they witnessed their country’s currency comparatively become worthless as a result of socioeconomic and political crises leading to hyperinflation. Bitcoin’s supply dynamics are unrivaled by fiat currency since it has programmatic scarcity built-in plus its advantage of an unknown pseudo-anonymous creator, Satoshi Nakamoto, who disappeared mysteriously online and holds no influence over the network other than a potential cache of a million coins that have yet to be moved.

At the pace the United States Dollar is heading, it may not be so farfetched to think that it is possible for the world’s reserve currency to experience hyperinflation too considering the current leadership looks upon corrupt dictatorships with a certain fondness presenting bitcoin an attractive, uncorrelated asset opportunity to hedge against inflation and political uncertainty.

SOURCE: Board of Governors of the Federal Reserve System (US), Currency in Circulation [CURRCIR], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, May 20, 2020. Chart date range from August 1, 1917 to present.

This month many bitcoin-ers celebrated Crypto de Mayo in full force with Bitcoin’s third halving event in its history with the mining reward dropping from 12.5 bitcoin per block to 6.25 bitcoin per block until it halves again in about 4 years time or another 210,000 blocks.

It was mostly a non-event besides the entertaining tidbit in the codebase of the block preceding the 630,000th including a New York Times headline from April 9th this year entitled, “With $2.3T Injection, Fed’s Plan Far Exceeds 2008 Rescue.” That headline being mentioned was significant because it’s an homage to Satoshi’s genesis block, the first block ever mined or 0 out of X blocks, on Bitcoin’s proof-of-work chain that originally included another headline in its codebase from The Times on January 3rd, 2009 saying, “Chancellor on brink of second bailout for banks.”

Simply, bitcoin is minted less and less over time until there is a total of 21 million coins released into circulation without any sort of bailouts, emergency lending powers, or quantitative easing. It is what it is.

SOURCE: Systemic Bliss Research

Despite having high hopes prices would skyrocket following the recent halving (admittedly having some of my own), it demonstrates how bitcoin is still a belief system much like any other currency that has their value derived from its supply and demand if it is not pegged to the value of another asset. Regardless of the deluge of new United States Dollars pouring into the system, bitcoin probably will not begin to really soar in price until the country gradually comes around to realize that they are drowning in liquidity.

The rising stock of the world reserve currencies causing inflation will drive demand for digital assets with controlled or fixed supplies such as bitcoin or hard assets for example like gold, silver, and real estate to a degree that all are presenting an opportunity for serious wealth preservation and protection in purchasing power relative to a basket of world reserve currencies.

SOURCE: Systemic Bliss Research

One major paradigm shift in the 21st century most probably will be the leap and transition away from debt-based money towards math-based money. Personal freedom and privacy to a large extent have been losing battles with encroaching efforts by nation states as well as monopolistic companies and corporations commodifying the personal data of citizens and users, which only makes matters worse as the banking industry has already been co-opted by our state to adopt practices that gives them unlimited and ultimate control over the personal finances of every American with the power of garnishing their funds, freezing accounts, or stopping transactions.

Bitcoin outshines gold and greenbacks due to the liberty inherent to it by design because users holding their own private keys have taken back control without the need of a “trusted” custodian or institution that may otherwise implement asset seizures, blocks on transactions, charge exorbitant fees, limit withdrawals, or subject people to strict regulatory measures in an attempt to stifle the adoption and growth for its application and use as a medium of exchange, store of value, and unit of account.

SOURCE: Systemic Bliss Research

The image above provides a visual representation of the difference between what a one million dollar “coin” looks like between gold and bitcoin, and it helps illuminate the advantages and disadvantages for one over the other. Ironically, the giant gold coin pictured is one of six coins ever minted and was stolen out of a Berlin museum in March 2017 highlighting its vulnerability to physical theft.

Gold can be costly and expensive to store, not to mention, certificates on its reserves can be easily faked whereas bitcoin is relatively cheaper, simpler, and more verifiable as well as secure with practically anyone with just a computer or mobile phone being capable of seizing custody of their bitcoin’s private key using best practices such as cold storage and two-factor-authentication to create a strong security measures to protect their funds from hackers or thieves.

SOURCE: CNBC (Link to above for the full article.)

Circling back to Venezuela, according to court documents this month its central bank is entrenched in a dispute with the Bank of England over the return of $1B worth of gold that it is holding for them who wants to use the reserves to fund its pandemic response. Exemplifying concerns over the reliability and trust of central banks who are custodians as well as the “lenders of last resort” who are showing they do not always comply with their obligations or requests by foreign governments in the most challenging and uncertain times and it is making citizens around the world question where they stand as well as who the central banks are really defending.

How much longer can trust be maintained for financial institutions and a system that prioritizes banks and companies over people as well as fails to act in good faith along with track records of corruption, incompetence, and mismanagement?

SOURCE: Giphy

The pandemic has effectively pulled back the veil for many investors, seeing who was swimming naked “when the tides goes out.” Traders young and old are realizing even the most prophetic names on Wall Street were not as masterful and mighty as they might have otherwise been historically after their earnings calls and performance for the first quarter of this year. It has put a chilling effect on value investing with the likes of Warren Buffet going against his own advice and taking a bath on bad investments like airline stocks all while his stockpile of cash has never been bigger.

Traditionally, successful investors only needed to have two things: diversification and patience. Investing in stock market indexes was touted as the most practical strategy often by the “Oracle of Omaha” for anyone looking for a passive strategy rather than having to actively managing one’s own investments day-to-day. His methods have come under scrutiny as of late by even some unconventional critics like Dave Portnoy of Barstool Sports.

Younger and more inexperienced traders, arguably degenerate gamblers, are recognizing the opportunity to move into a market with money pouring in the system from the central bank after learning the sage advice of Wall Street saying, “Don’t fight the Fed.” It could be said there is also a fear of missing out on another potentially huge opportunity like buying stocks at the bottom in 2009. After the past couple of financial crises, older and more wealthy generations are less willing to take on such risk with their retirement money so it may jeopardize the future value and viability of passive investing and leave the hungry young stock market scions holding worthless portfolios in the end after being led to believe, “Stonks only go up.”

SOURCE: Giphy

Changes in demographic and economic trends are inspiring various funds as well as investors commonly referred to as “smart money” like a16z (Andreessen Horowitz), Renaissance Technologies flagship Medallion hedge fund, and Paul Tudor Jones to make headlines that they investing in bitcoin directly if not its derivatives.

Paul Tudor Jones even went so far to say in his investor letter The Great Monetary Inflation,

“Bitcoin reminds me of gold when I first got in the business in 1976…”

These public announcements of late are significant for an industry that is not always vocal about their decisions due to the career and reputation risk aside from being fearful of being in bad company by doing so. Considering the headwinds that the United States Dollar is facing with looming inflation, the smart money knows it produces a real opportunity for hard assets like bitcoin and the market for investment-grade crypto assets as a whole to outperform other asset classes into the foreseeable future if trajectories continue going upwards for the issuance of fiat currencies that threatens putting them all “up in smoke.”

SOURCE: Giphy

Economists and investors who are as savvy as they are sophisticated have begun rethinking their bias and resistance towards bitcoin and crypto assets because of the monetary and fiscal policies being enacted that are known to be destructive to the value and stability of our nation’s currency.

Our relationship with money has gotten so complicated due to the private interests of a small faction of the population holding such a high concentration of wealth with lobbyists and politicians eager to accept their campaign contributions as well as appoint officials willing to layout guidelines and guardrails so that it further enriches them and increases their own purchasing power by allowing more affluent and experienced investors to participate in early investing rounds with cheaper shares than when they go public in lieu of smaller investors boxing them out of the best investments respectively.

In addition, the acceptance and passage of legislation to continually create more dollar bills, digitally or physically, fosters a conflict of interest in our nation’s capitol that rewards poor decision making with lucrative jobs, material wealth, or influence which is why many around the world believe that bitcoin as a border-less, leader-less, and nation-less asset with a fixed supply has the only real shot at a Separation of Money and State.

SOURCE: Systemic Bliss Research using data from the Board of Governors of the Federal Reserve System (US), Recent Balance Sheet Trends, Link, May 20, 2020. Diagram date range from 1913 to present, each square represents roughly 100 Billion dollars that comes to a total of about $7 Trillion dollars.

Our central bank and government’s duplicity lies in their privatization of gains and socialization of losses, specifically financially engineering unethical schemes for the “Too Big To Fail” banks to pick winners and losers in corporate bailouts as well as producing economic stimulus efforts that puts the burden on ordinary citizens losing their jobs and/or the value of their hard earned life savings in the process. Money printing mania sweeping across the globe keeps asset values artificially inflated, which helps the wealthy stay disproportionately wealthy from simply holding diverse portfolios of scarce assets whose values rise in comparison to the fiat currencies with increasing monetary bases destroying their value and purchasing power relatively.

The Separation of Money and State is the only logical solution to adopt and prevent class warfare because a decentralized financial system could effectively address the problems undermining the integrity of our current global financial system as well as would advance our capabilities as citizens, humans, and nations by embracing bitcoin as the reserve currency of the world since it’s the hardest and most honest as well as transparent form of money there is in the entire world.

“We’re not out of ammunition by a long shot.”

– Jerome Powell (Appearing on CBS’s 60 Minutes airing May 17, 2020)

Easy money benefits the banks and bankers, they borrow from the Federal Reserve at 0.5% to then turn around and generate 3.5% on that money through Treasuries (at least until rates begin to rise) generating more money for themselves “risk-free” while you must borrow at higher rates and take on additional risk to achieve the same return. Hard money on the contrary benefits society and the people by not allowing an aristocratic group to enrich themselves through coercing their cronies to use the nation’s money printer to do so.

It’s time to make the hard decision of turning our easy money problem into our advantage by using it to solve for the hard money solution, or “Plan B” rather, and start backing our newly minted currencies with bitcoin that is held in reserve for the wealth of all nations and peoples in a new free, global, and transparent macro economy.

If we have learned anything from this ensuing debacle this year, it has been to not trust in any institution public or private with too much fidelity since they have not been as forthcoming with us as we may have hoped.

After assessing the tweet above and its following thread, the current president and his administration are either ignorant to the truth that the United States Dollar the currency of choice for drug trafficking, money launders, and criminals in general because there is no public ledger of any transaction that would be available to anyone around global like Bitcoin, OR, the more likely scenario being he and his colleagues in the nation’s capitol know its superiority and fear its disruptive power to many of their biggest donors and political contributors plus own influence as well as sway in spite of the Federal Reserve claiming independence.

Hence, it is only appropriate that people reassess their biases against bitcoin and do their homework on reclaiming their sovereignty and peacefully protesting against the dog and pony show in Washington D.C. by adopting bitcoin as well as its principles including decentralization and taking the necessary steps to “becoming your own bank” by securely backing up and storing your private keys for safekeeping in cold-storage wallets.

Governments have authorized the seizure of citizen’s gold before to back their failing currency with it, so don’t think that it won’t do the same with bitcoin when the time comes that the dollar loses its world reserve status.

The question remains, “Will you continue to trust in corruptible intermediaries, institutions, or third-parties with the safekeeping of your money as well as the preservation of its value who have been debasing it for a long time coming, or, will you seize back control over it by protecting it with allocating a small portion that you’re willing to lose in bitcoin and other crypto assets?”

It may be more harmful NOT holding any than it might be to forgo it, think about just dipping in toe before taking the full dive.

To the moon, and all the best!

JH

“A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of men.”

– President Woodrow Wilson (Quoted in “National Economy and the Banking System,” Senate Documents Co. 3, No. 23, 76th Congress, 1st session, 1939.)


INTERVIEW TRANSCRIPT
SCHUSTER: You simply flooded the system with money?
POWELL: Yes, we did. That’s another way to think about it, we did.
SCHUSTER: Where does it come from, do you just print it?
POWELL: We print it digitally. So we, uh, you know, as a central bank have the ability to create money digitally, and we do that by buying Treasury Bills, or Bonds, or other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.

Chair Powell’s full 60-minute interview transcript available here.


The Corona Correction


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!


Jerome “Jay” Powell, the 16th Chair of the Federal Reserve, serving in that office since February 2018 pictured above on his exclusive interview on NBC’s TODAY. He was confirmed by the United States Senate after being nominated to the Fed Chair position by President Donald Trump.

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.

Source: Yahoo Finance S&P 500 (^GSPC) data displayed on logarithmic scale

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.

Bitcoin volatility and average volatility, S&P 500 index volatility (charted vs. time)

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) that’s 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 relative to other usual causes of death this year going by the numbers, but the real concern lies in the contagiousness of the people who are asymptomatic and generally feeling fine who may be unknowingly passing it along to the rest of the populace. Governors and political 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.

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 in September 2019 before accelerating March of this year. 
Shaded areas indicate U.S. recessions. (Source)

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.

Source: Board of Governors of the Federal Reserve System (US), Currency in Circulation [CURRCIR], retrieved from FRED, Federal Reserve Bank of St. Louis; March 31, 2020. Shaded areas indicate U.S. recessions.

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”


Crypto Facts & Fantasies (2020 Thesis)

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….

FactsFantasies
1. Despite being below it All-Time-High, it has performed better than traditional assets1. 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 fight4. 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 scrutiny5. 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 bitcoin8. 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 platforms9. 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!

– JH

My TradingView Bitcoin Chart and Model

Overview
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

First Steps
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.

Currency Pairs
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.

Finishing Touches
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.

Happy charting!


DISCLAIMER
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.

FED MADNESS: The Revenge of the Repos (Episode One)

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!

Happy Halloween!

&

Today also marks the 11th birthday of the bitcoin whitepaper

THANK YOU, SATOSHI.

The Decentralized Web Is Coming
by ReasonTV

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.

Bitcoin & Crypto on Capitol Hill!

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]!

2019 Halftime Report

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).