DAiM October 2020 Recap, Mid-November Update, Paypal Launches Bitcoin, Bull Bull Bull
New Money: Issue #18
NEW MONEY is a long-form discussion of trends and macro events related to Bitcoin, Money and Digital Assets, published by Adam Pokornicky of DAIM Digital, a Registered Investment Advisor for Bitcoin and Digital Assets. Opinions are my own. Twitter: @callmethebear
For the month of October Bitcoin was up 27.6%, briefly pulling back to start the month before going on an absolute tear to the $14k before consolidating at high time frame resistance at $13,780 to close the month. If there was a single word to describe Bitcoin price action throughout the month of October it would be “breathtaking”. Bitcoin has now spent a record 100 consecutive days above the $10,000 level. The monthly close of $13,800 is equal to the highest monthly close dating back to December 2017. As we write this October letter almost midway through November, we’ve not only punched through this high time frame resistance but we’ve smashed all the way to $16k, a level Bitcoin’s price has closed above for only 15 days in its entire history.
To put it simply, we are in unchartered territory. We’re in the early days of the next bull market cycle that Bitcoiners have been waiting for the past 2.5 years. The train is leaving the station and the next 12 months are going to be an incredible ride for Bitcoiners and absolutely unbearable for anyone who hasn’t gotten off zero.
Bitcoin Goes Mainstream
The biggest story for Bitcoin in October was the announcement by PayPal that it would begin supporting Bitcoin and Digital Assets. PayPal announced that it would launch support from Bitcoin this year, allowing its 200+ million U.S. users to buy and sell bitcoin. Sure enough, as I wrap up this October letter, Paypal has launched active buying and selling on their platform.
Notes on Paypal is such a big a deal
In its Q3 conference call, PayPal CEO Dan Schulman said that the initial demand for crypto services was 2-3X larger than the company’s expectations.
PayPal said it would also enable 26 million merchants to accept crypto for payments in 2021. Merchant acceptance is a major hurdle for the widespread use of crypto for day-to-day payments.
Paypal is one of the largest financial institutions in the world, with a market capitalization of $250 billion. Jumping into Bitcoin and Digital Assets and taking a vested interest in its regulatory treatment—is a major de-risking move that will without a doubt force other institutions into interacting with Bitcoin
Billionaire’s Investors Go Bitcoin
Billionaire U.S. investor Stanley Druckenmiller is now a Bitcoiner. In an appearance on CNBC, Druckenmiller disclosed a bitcoin position significantly smaller than his gold horde. However, he predicts bitcoin will outperform gold in the long run – largely due to millennial and Silicon Valley attraction to the crypto scene.
"Frankly, if the gold bet works the bitcoin bet will probably work better because it's thinner, more illiquid and has a lot more beta to it,” he said.
"It has a lot of attraction as a store of value to both millennials and the new West Coast money and, as you know, they have a lot of it."
Paul Tudor Jones, who we wrote about exclusively back in May in, The Bitcoin Tipping Point, shared in an interview on CNBC last month that he was more bullish on bitcoin than ever, noting the Bitcoin Rally Was Only in ‘First Inning’ and lauding the Bitcoin community at large.
“The intellectual capital” behind bitcoin deserves highlighting, as I haven’t heard it mentioned nearly enough. Few understand that bitcoin is more than an alternative asset – it is also an idea that draws from philosophy, economics, sociology, technology and history, pulling in the curious and the innovative who are asking the right questions and feeling their way towards answers that reflect some of the deepest conflicts known to man. The crypto industry is where the smartest minds of today are actively thinking about and building for tomorrow.
Bitcoin Data Points
Bitcoin’s Role as an Alternative Asset- Fidelity Digital Assets, the crypto-focused blockchain division of Fidelity Investments, focuses on the narrative that bitcoin is an uncorrelated asset that can serve a similar role as an alternative investment in improving a portfolio’s risk-adjusted returns. The report also looks at investors’ rationale for including alternative investments in a portfolio, the growth in appetite for alternative investments, and the characteristics of bitcoin that may make it a sustainable portfolio diversifier.
The report pulls many key data points and theses almost verbatim from DAiM’s “The Modern Portfolio - The Case for Allocating to Bitcoin”, that we originally began circulating this time last year and have been pounding the table on as the basis for our 1-6% allocation to Bitcoin. We’re happy to see other institutions adopt this framework and put their own spin on it, as we believe an allocation to Bitcoin in the Modern Portfolio will be a matter of how much, not if moving forward.
JP Morgan in a note to clients published by its Global Quantitative and Derivatives Strategy team posits that bitcoin has proven itself to be a risk asset, not a safe have, with “considerable” potential upside. TAKEAWAY: The term “safe haven” has to be one of the most widely misconstrued in all of finance (along with “uncorrelated” and “fair value”). Short term, of course bitcoin is not “safe” – just look at the volatility. It is a hedge against fiat debasement, however, much like gold. The term “hedge” is often erroneously conflated with “safe haven” – gold is often referred to as a safe haven, for example, but at times it is more volatile than the S&P 500. And longer-term, hedges can become safe-havens. Meanwhile, positioning bitcoin as an either/or thesis does it a disservice. It can occupy many portfolio roles simultaneously. That aside, the note correctly focuses on the millennial generation’s looming influence on the global financial system, and their growing interest in bitcoin.
Meanwhile, Grayscale acquired an additional 15,114 Bitcoins this past week for the GBTC trust. Their total now sits at over 506K BTC as weak hands keep selling and they just keep scooping up cheap Bitcoin. That is the equivalent of 16.8 days of bitcoin production in one week. Supply. Demand.
Comparatively, Square’s Cash App Bitcoin volumes are up 11x yoy with over $1.6 billion in bitcoin purchases and sales in Q3 up from $875 million in Q2 2020 and $148 million in Q3 2019. Even more impressive, Square announced that it was holding $50 million in Bitcoin on its balance sheet in its shareholder letter as well.
Bitcoin balance on exchanges continues to decrease. This is noticeable as traders move Bitcoin to exchanges to sell and pull them from exchanges when they plan on HODLing/holding for a while. As of November 2020, over 62% of the Bitcoin supply hasn’t moved in over one year (all-time-high). Together, these are extremely bullish indicators that should not be overlooked as this behavior pushes the price higher as demand is exploding while supply is decreasing.
So who is buying ?
Retail wants in on Bitcoin
Institutional investors want in on Bitcoin.
Multi-billion dollar public companies want in on Bitcoin.
Banks want in on Bitcoin.
Governments want in on Bitcoin.
Demand is coming from everywhere and this time it’s real. When I first started buying Bitcoin in late 2012, mainstream adoption like this was something I could only dream of back then. Now I’m like pinch me, it’s hard to believe it’s a reality.
While the previous bull run in 2017 was driven mainly by retail investors, the “smart money” has been accumulating Bitcoin. Microstrategy, Square, and NYDig adding it their balance sheet, Paypal offering it to its users or Paul Tudor Jones and Stanley Drunkemiller clearing the roads for Hedge Funds and Asset Managers, most institutions sat on the sidelines due to a lack of institutional-grade onramps and custodians. Comparatively, retail interest has only increased slightly. Historically, retail floods into Bitcoin after breaking the previous all-time-highs as the media picks up the narrative and FOMOs investors into the party.
All I can say is buckle up folks, there is simply not enough supply to meet the insatiable demand for Bitcoin. If you are a proud owner of Bitcoin, just sit back and relax. Your Bitcoin is worth way more than five figures.
Bitcoin vs Macro Assets MTD & YTD
In October, Bitcoin had a strong month in terms of returns compared to the modest losses of gold, stocks, and bonds, which were down 0.3%, 2.8% and 3.5% respectively,
YTD, Bitcoin continues to blow gold, stocks, and bonds away. As of writing, it’s not even really a fair fight.
S&P 500: 10.97%
If you follow DAiM’s recommendation of a 6% allocation to Bitcoin, Bitcoin alone would be netting you an additional return equal to the 70% allocation to equities. Given Bitcoin’s similar volatility characteristics to equities and superior risk-adjusted returns, reducing equity exposure by 6% would double the return of your portfolio. Not only do we believe we are in the early stages of the next Bull market, but we see this performance divergence expanding dramatically, which suggests, an asset allocation adjustment should be considered immediately if you haven’t already.
That’s it for this week. I’m keeping it short. I’ll be back next weekend and every week after that moving forward, trying to keep up with the breathtaking speed at which Bitcoin and Digital Assets emerge into our collective conscience and mainstream adoption.
I’m leaving you with this hilariously precious Bitcoin Bull Bull Bull rap video made in honor of Michael Saylor, who’s purchase of 38k Bitcoin on the balance sheet of MicroStrategy has made him the unofficial new Bull of Bitcoin 🚀🚀🚀🚀(if you want to learn more about why he added $700mm of Bitcoin to their balance sheet)
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