From the perspective of our funds, $10,000 is totally irrelevant. It is helpful only in that we are able to put the “Tulip bubble” and “South Sea Bubble” stories to rest. Both are raised by potential investors often, even though they lasted about 6 months and never ever recovered. Bitcoin is now into it’s 11th year of uninterrupted operation, it commands decentralised computing power that would swamp Amazon and Google combined. In 2019 $727 billion was transferred on the bitcoin blockchain, roughly 10% of visas transaction value. Bitcoin is easy to assay, easy to transact with, it is useful and it is scarce and that’s why it has gone up in value since 2009.
We aren’t here for a number, our investment thesis is simply that the longer you hold bitcoin the stronger it will become and the more valuable it will become.
It’s no more complex than that.
Unfortunately in cryptocurrency, good data is hard to come by. You can get prices from Bloomberg terminals these days but that’s about it. Institutions are only just beginning to buy these assets so they still don’t have research departments for crypto. Even so, there are some excellent sources on the internet and one of the best is Willy Woo (yes it’s his real name) from New Zealand. Would you take financial advice from someone called Willy Woo? Probably not, but he is very good.
As we have discussed before, the bitcoin blockchain reveals how long investors have held their assets, and action on specific addresses can reveal when those investors are accumulating or selling. In essence, the chart below is showing that there is strong activity among longer term participants who are now accumulating bitcoin. This applies across all ageing categories (how long they have been involved). So this implies the recent price drive is not driven by retail newcomers and seems more stable than in the past, indeed the daily price movements are more modest than in the past. That correlates with cryptocurrency exchange activity which is still relatively subdued.
The chart says “no chance this is a top”. That is not financial advice, and take the internet analysts with a pinch of salt. His full site of charts is here. In particular the HODL waves chart is telling, the only real selling is coming from the cohort of 2017 who experienced highly volatile conditions including an 80% drop. A scarring experience and they will look to get out unscathed. They will likely miss out again as a result.
Timing matters in bitcoin but patience matters more.
The Bank of England has proudly announced the release of its new polymer £20 note. The last note was released in 2007, shortly before the global financial crisis. Since then, you will have read in the press that central banks have really struggled to hit their inflation target. That is despite money printing on an unprecedented scale.
The facts are rather different though. Using the UK’s published Consumer Price Index, we can see that the index has risen from 100 in 2007 to 135.1 in 2020, when the new note was released.
So your £20 is now worth £14.80. That’s a big haircut when there is “no inflation”.
Four decades of rising prices. Ever since Paul Volcker became Chairman of Federal Reserve in the late 1970s, bond yields have fallen and bond prices have risen. When Volcker took over at the Fed the 10 year yield was 9% rising to 15% in 1981. Today, that yield is 1.6%
The Wall Street Journal makes clear that people continue to pour money into bonds, relatively more than equities (full article here). As a collective mind, people are not stupid. Their behaviour suggests that investors anticipate falling economic growth. So earnings will fall and stock prices will fall (relatively). If economic growth went into negative territory bonds would be terrific. Your principal is protected and given you are only earning 1.6% anyway, you aren’t there for the interest.
The missing piece of the jigsaw is that governments will not stand back and allow this to happen without taking action. Their monetary policy tools are now very few. They will print money, they will announce massive infrastructure projects like “Renewing America” and “The Even Newer Deal”. It’s coming. The guise will be climate change, the infrastructure spending will be climate focused, you are being mentally prepared for it by central banks who are talking about the climate a lot.
In this decade there will be a Bretton Woods style get together which will announce massive spending on climate renewal. Some bankrupt countries (one’s with oil) will have their debt cancelled. Student debt will be cancelled because the millennial voters will start to dominate. There will be cheering from the stands.
…..and your bonds? Oh yes, your bonds. They’ll be redeemable in full for “New Deal Dollars”, widely accepted at all participating countries.
I know I bore on about bonds but there is a reason. It is the largest and most liquid market in the world, so what happens in the bond market is inescapably relevant to almost everyone. It’s where the money is and it tells us something. In Greece, the news has been terrific of late because their 10 year bond yields have fallen below 1% for the first time ever. 180% debt to GDP ratio, real demographic issues and they can borrow for 1%.
Even the Bank of England have noticed something, recently publishing data about interest rates for the last 5000 years. Guess what, they’ve never been lower. The Pharaohs were financing their pyramids at something close to 20% interest in 3000BC and those pyramids still stand. Here in Sydney, developers borrow at 1% and within 12 months of moving in, the buildings fall apart and the residents are evacuated, demanding bail outs from the government.
The interest rate is telling us something, money doesn’t matter any more. It’s becoming worthless and the things being built with it are often worthless too.