Crypto Facts & Fantasies (2021 Thesis)

Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”

– Ferris Bueller’s Day Off

Having 2020 in the rear view mirror feels both comforting and disturbing with the rise of a global pandemic that still is looming over the year ahead. Central banks in tandem with their governments made swift financial interventions by printing record amounts of money through emergency lending powers as well as stimulus programs, which is only pushing the wealth gap further while contributing to the largest government deficit in the history of the United States of America. Thanks to Obama and Trump!

A new president of the United States was elected in the same year that the sitting one was impeached only to be acquitted later with the support of his party. Politics within the country has many Americans divided for years but most recently boiling over as the deadly events on Capitol Hill unraveled with protesters storming into the federal building standing as a sacred ground of democracy to completely blow up the legacy of the 45th Commander in Chief in the final hour of his presidency, which also may have fractured the Republican party irreparably. It cost him his social media accounts, where like a wizard he could cast spells to rally loyal his troops of followers sparking a heated debate over censorship in the 21st century as well as just how far we can allow companies and corporations go in opposition to leaders of the free world.

Efforts to delegitimize the office of the president may have pulled back the veil of illusion over the all powerful position of Commander in Chief, especially when trust in the government and its leadership needs it most. This is sending ripple effects that may have consequences going forward that leads more citizens and people around the world to experience a loss of faith as well as trust in the president’s competency and legitimacy. It’s beginning to look like people are beginning to believe more in algorithms, applications, and software more than they are in each other.

In a country already so divided any erosion of the public trust in the government as well as its systemically important financial institution’s ability to appropriately and responsibly manage themselves, the collective populace may reach a tipping point that rallies them around a third party that is socially progressive yet fiscally conservative who will open the discussion towards adopting new standards and systems. These candidates are only just beginning to enter the arena, but the dominant two party politics in America as it stands will continue to take the country deeper into debt and push the wealth gap further until the pressures become so extreme that it causes a dramatic paradigm shift towards one side of the spectrum to either tighten controls and surveillance while enhancing their own power or loosens the amount of interference in free markets while restoring privacy, not to mention, security to the United States of America’s interests in the short and long-terms.

It is apparent that the fabric of our society has become frayed. Seeing that our leaders haven proven themselves to be unreliable and untrustworthy, it has created an environment that has rapidly increased the need and practicality for strong decentralization as well as peer-to-peer technology. Bitcoin has been the beneficiary of many disillusioned investors and institutions with large cash positions viewing it a hedge against the current legacy financial infrastructure as well as as “schmuck insurance” for the inflation induced by bureaucrats and politicians willing to let those cash positions and savings melt in value over time.

The levels of money printing in 2020 have dwarfed the efforts made to save the entire financial system from collapsing in 2008 and 2009. Its effects will likely not be instant, but seeing that bitcoin alongside the stock market has rocketed to record highs may be an indication of Cantillon Effects and inflation. Trends are pointing to rising interest in bitcoin, which have historically been higher according to Google Trends and may be leading many people to speculate a larger parabolic move upward in price may still be coming.

Last year’s edition included my price call saying, “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.” It was awesome to see that it was not completely wrong with bitcoin closing last year at record highs before opening this year crushing above $30,000 and $40,000! I am confident in that original call still and believe it may even be too conservative given the coverage and reports coming from prominent individuals and institutions such as JPMorgan valuing its long-term potential over $146,000, Tim Draper projecting it could hit $250,000 by 2023, Chamath Palihapitiya declaring on CNBC that it is likely going to $300,000 eventually, Guggenheim Partners’ Scott Minerd predicting a $400,000 long-term price target, the Winklevoss twins saying it could be worth more than $500,000, and Hal Finney prophesizing practically a decade ago that it could reach $10,000,000 one day.

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 third edition of Crypto Facts & Fantasies. (Click to read the first and second editions, respectively, here and here.)

Without further ado…

FactsFantasies
1. Bitcoin was the single greatest performing asset over the past decade versus bonds, stocks, and gold1. Asset prices are rising broadly because of sound fundamentals and not stimulus induced inflation
2. The crytpo and decentralized finance market share is growing relative to their competitors2. Bitcoin is entering a bear market, thus proving the digital gold thesis wrong finally once and for all
3. If you do not have the ability or availability to hold your own bitcoin or crypto, they are IOU’s3. Holding your own private keys is a danger to society and they need to be trusted with a custodian
4. You can now stake bitcoin with regulated custodians and on exchanges who offer annual interest and rewards4. Legacy banking institutions do not offer bitcoin and crypto asset custody solutions this year to lose out on the potential streams
5. Exchange and OTC Desk volumes are up huge in the past year with serious corporate as well as institutional interest growing for bitcoin 5. Corporate treasuries, hedge funds, private equity, and venture capitalists ignore the growth and interest by investing less in 2021 than 2020
6. The United States M2 money supply, accounting for all the coins and currency in circulation, rose by +25.2% meaning that more than a quarter of all USD that has ever existed was created and printed in 20206. There will be the creation of more than the 21,000,000 total supply cap of BTC put into circulation that is fixed and hard-coded into its software to issue limit inflation overtime until it is terminally zero
7. Government censorship is not possible with Bitcoin because it is not routed through a central bank, financial institution, or third-party7. Central-bank-crypto-currencies (CBDCs) will allow non-reversible payments for goods or services, thus making their permission and trust mandatory
8. As the bitcoin and crypto critic Warren Buffet once wisely said, “the best holding period is forever” and bitcoin offering decreasing inflation rates makes it a great savings account8. Spending and trading your bitcoin and crypto assets is better and easier than simply just hodl-ing (unless you are using any excess cash to add or buy more bitcoin to stack yourself)
9. Bitcoin, Ethereum, and DeFi are emerging investment assets solidifying into a full fledged crypto asset class that is growing due to their enhancing infrastructure, oversight, and ubiquity 9. Bitcoin and other investment grade crypto assets do not get a respective exchange-traded-fund (ETF) for investors based in the United States as demand and interest grows for gaining exposure to BTC, etc.
10. It’d be more costly and difficult for any single government or group of nation-states to try and kill bitcoin or make it become worthless than it would to cause it to multiply more than it is trading worth10. Bitcoin collapses, falls to zero, fails, shuts down, or vulnerable to a network hack that results in the miners and users to stop all together and give up on their collective dream of financial freedom

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.

Last year I said it felt like something “BIG” was coming, and oh boy was that right! The markets got rocked viscously from the spreading news of the coronavirus and COVID-19 that shook out many investors believing the end times were near just before bottoming out. Seeing asset prices on discount and the flood of money coming from the emergency lending powers employed by the Federal Reserve, a very large and powerful move developed for all of the markets to the upside. Bitcoin was born out of the banks printing money to take themselves off the brink and created in a direct response to them doing so by Satoshi Nakamoto. This past year proved that bitcoin was a worthy asset to own during and through any liquidity crisis or recession.

Due to market developments over the past year as well as global pandemic still on the horizon over the next year, the price of a bitcoin has moved north of $35,000 per coin at the time of this writing. It looks to be testing a major resistance around $32,000 for more downside if it breaks south of that point, but bitcoin could also very simply bounce off its 30-day moving average again to rally back towards the $42,000 highs. I would not be surprised to see bitcoin back in price discovery mode if it extends past $43,000. Passing that point could potentially accelerate it towards exit velocity in the $48,000 to $50,000 range range as it coils in another attempt by the bulls to shakeout weak hands before rocketing towards $60,000 and possibly beyond. Then again, it could also see a mean reversion that nobody saw coming going as low as the $18,000 to $26,000 range, but it does feel improbable with as much positive momentum and sentiment trending currently.

Either way, we will have to wait and see how it all works out as these are still the early innings.

There may come a future when you can no longer buy bitcoin, but can only work for it so keep it mind the quote at the top, “Life moves pretty fast. If you don’t stop to look around once in awhile, you could miss it.”

Have a safe and successful 2021, TO THE MOON!

– JH

DISCLAIMER

An investment in any asset or strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. Nothing written herein may be considered as an offer or solicitation to purchase or sell securities or other services. The trading and investing ideas and strategies discussed herein are not recommendations to buy or sell any security and are not intended to provide any investment advice and/or recommendations of any kind, but are made available solely for educational and informational purposes. Before acting on information from above, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

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Every day that goes by and Bitcoin hasn’t collapsed due to legal or technical problems, that brings new information to the market. It increases the chances of Bitcoin’s eventual success and justifies a higher price.

– Hal Finney, 2011