November Recap, The Herd is Coming, Bitcoin Supply Shock and Hodl Mentality

New Money: Issue #19

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

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For the month of November, Bitcoin was up 42.4%, continuing the ferocious rally from October and tapping all-time highs from December 2017. Bitcoin is up a whopping 79.9% over the past two months, making a new all-time high in terms of total market cap of $367bn in the process(there’s more Bitcoin today then there was 3 years ago). As it stands, Bitcoin is consolidating around $19k. The longer Bitcoin spends hovering below $20k, the more energy is coiling beneath it, making the inevitable move beyond $20k that much more explosive. If it wasn’t obvious to the casual observer, Bitcoin is no longer a fringe investment asset. It has crossed the chasm into mainstream adoption.

I wrote about Paul Tudor Jones earlier this year in “The Bitcoin Tipping Point”, describing his investment in Bitcoin as the tipping point for adoption by institutional investors. Paul Tudor Jones is an investing legend, his decision and rationale for investing in Bitcoin legitimized the asset class, removing the career risk and clearing the way for other large macro investors and Fund managers to invest in Bitcoin. Since then, a who’s who of legendary investors and wall street institutions have lined up, praising their love for Bitcoin while trying to one-up each other with their bullish targets. PTJ was recently interviewed and said the following:

I'm not an expert on Bitcoin by any stretch. It's just with a market cap of $500 billion. It's the wrong market cap in a world where you've got $90 trillion worth of equity market cap and God knows how many trillions of fiat currency, etc.

Bitcoin has thrived as government and central banks continue to act recklessly and individuals wake up to this reality. There’s a supply shortage of Bitcoin which I will address later in this letter. No one wants to sell. In fact, investors are tripping over themselves to get Bitcoin exposure with supply shortages making it difficult.

The great news for us is that the narrative is actually coming together. That’s why they’re all here. Bitcoin is not a fad. Bitcoin is the way.

The irony of Bitcoin at all-time highs and supporting a market cap of $367bn, is that its total market cap has surpassed that of JP Morgan at $356bn, which only 3 short years ago was called a fraud by the CEO of JP Morgan, Jamie Dimon. He later said he regretted calling bitcoin a fraud and even recently noted in a speech at the New York Times’ DealBook Conference that “very smart people” are buying into the cryptocurrency in the belief that it will outperform gold, the U.S. dollar, and U.S. Treasury bonds.

“Let them do that,” he said. “It’s just not my cup of tea.”

Well, I hate to break it to you Mr. Dimon, investors seem to love this cup of tea. Bitcoin and companies that have levered themselves and their busineesses to Bitcoin like Square, MicroStrategy and Silvergate Bank seem to be on to something and investors have noticed. All up well over 100% this year while JPM lags, down over 12%. It might make sense just to get some in case it catches on.

Despite the CEO’s thoughts on BTC, a team of analysts at J.P. Morgan’s Global Markets Strategy group, sent a note to investors last month pointing out the “potential long-term upside for Bitcoin is considerable”, touting Bitcoin’s emergence as an alternative to gold among millennials, suggesting a “doubling or tripling” in the price of the cryptocurrency if current trends continue

“The older cohorts prefer gold, while the younger cohorts prefer Bitcoin as an ‘alternative’ currency,” says the research note.

The analysts go on to observe that, if this trend continues, there could be a challenge to gold in the long term—with important price implications for Bitcoin. (Editor Note: if the market value of Bitcoin were to equal the market value of Gold, a single Bitcoin would be worth over $500k)

DAiM Launched the First ERISA Compliant Employer-sponsored 401k Plans w/ Bitcoin

In a bit of exciting news for Bryan and myself, we’ve launched the first ERISA compliant Employer-sponsored 401k plans with Bitcoin. This is a product that we’ve seen incredible demand and one that I’ve worked super hard to bring to market. American workers deserve to have the options to have Bitcoin in their retirement accounts and we’re finally going to be able to work with small, medium and large companies across the country and provide workers with a regulated and compliant way to buy Bitcoin directly in their 401k.

You can read the full press release here.

If you’re interested in learning more about our plans or know anyone that might be interested please fill out our application form here: DAiM Bitcoin 401k Plans

If you’re interested individually in investing in Bitcoin with DAiM through a taxable or tax-advantage IRA please contact us here. We’re experiencing record client growth and want to help you in an any way we can. If you just want to evaluate your options, we’d be happy to make time to chat.

November Highlights (Nov was a big month 🤓)

If you are keeping score, that brings us to the following Financial institutions and trading legends that recognize Bitcoin is Gold 2.0:

  • Fidelity

  • JP Morgan

  • Bloomberg

  • Deutsche Bank

  • Citibank

  • Jeffries

  • Blackrock

  • Susquehanna

  • BTIG

  • NYDIG/Stone Ridge

  • Guggenheim

  • Alliance Bernstein

  • Jump Trading

  • Paul Tudor Jones

  • Stanley Druckenmiller

  • Bill Miller

  • Paypal

My former partner at Ikigai Fund, Travis Kling, perfectly summates what is happening in the institutional world with this tweet and graphic below.

Bitcoin Supply Shock

Over the month of November, Greyscale, the Asset Management company behind the Greyscale Bitcoin Trust(OTC equity ticker GBTC) saw record inflows of over 60,000 Bitcoin into their trust. Since September 21st, Grayscale has shoved 103,129 Bitcoin into the GBTC. That supply total is 1.6x the entire mining supply over that time. For those not familiar, GBTC is a proxy for owning Bitcoin and trades at a 30% premium to NAV. Institutional investors love it, because it’s an easy way to get exposure to but mainly because shares are issued to them at NAV, and if they hold them for 6 months, assuming the premium remains 30% they can sell GBTC and pocket the 30% “for free”. This has been dubbed the “GBTC NAV trade” and is at the expense of unsuspecting retail investors.

Advisor Note: For any individual who owns Bitcoin through GBTC, buyer beware. At the current price of $19,000, buying GBTC is like paying $25,000 for Bitcoin. In addition to the 30% premium you are paying, you’re also spending 4% in expense fees. It’s highly recommended that you give consideration to swapping that GBTC for investing in Bitcoin directly. Unless of course, you enjoy paying 30% more for things you don’t need to, you’ll end up owning 1.3x more Bitcoin in the process.

HODL Waves & UTXO’s

HODL Waves tell the story of Bitcoin’s accounting structure called UTXO’s or Unspent Transaction Outputs. Since all bitcoin in existence are contained in some UTXO, this means that all bitcoins have an agenot the age/time when that bitcoin was first mined, but when it was last used in a transaction. (if you want to learn some data science, read this)

If you look at the chart below, you can see that only 29% of all Bitcoin in existence has moved in the last six months(sum UTXO’s from 0-6 months). Long term investors are sitting tight on their Bitcoin not interested in moving their Bitcoin at any cost. This paints a picture of just how few Bitcoins are actually available to satisfy incremental demand.

With miners only able to create 900 BTC in a day, supply is drying up. Between coins being gobbled up by exchanges, institutions and individuals alike, both PayPal and Cash App recently disclosing that they have been buying every single freshly mined BTC on a daily basis along with Greyscale adding over 64k Bitcoin over the month of November, we’re in the early stages of a supply-side liquidity crisis. Meanwhile, liquidity on exchanges is vanishing, the opposite behavior from the prior bull run.

Whereas much of the 2017 bull run was a function of speculative FOMO, it appears the upcoming 2021 bull run will be a function of HODL FOMO. Bitcoin has matured and been significantly derisked in the past few years with widespread trust in Bitcoin emerging. The adoption of bitcoin as a Store-of-Value and Gold 2.0, has led to an intentional decision by individuals and most recently corporations, to view it as a reserve asset and hold it for the long term, aka HODL. The speculative capital chasing gains in USD fiat of 2017, has been replaced by HODLers attempting to prevent long term fiat loss through monetary debasement. This is an entirely different type of investor base that is owning it as a reserve asset for the long term.

HODL Mentality

With the bull market starting, I wanted to share some advice to subscribers to prepare for the upcoming run. It is imperative that your investment in Bitcoin be both low time preference with a high time frame horizon. Meaning you don’t have a need for the money today and you can sit in this investment for years to come.

The HODL attitude requires psychological & emotional work. During this bull market, price will go up a lot and pull back just as violently… 100% gains followed by 25-35% pullbacks. You are an investor, not a trader. Do not be urged to take money off the table early, do not get seduced by claims of the next Bitcoin, do not get tricked into parting ways with your precious coins for any reason. You are in this for the long run and the best thing you’ll be able to do for yourself is sit tight.

Money Printing, Inflation and Time theft

This brings me to my final thoughts on money printing, inflation and time theft. I wrote a lot about money and central banks in March, April and May and I think it’s important that I reiterate the core message about why money printing, inflation and debt are so important.

21% of total US Dollars ever created have been printed in 2020, or $4.5 Trillion. This is more than the amount of money created in the previous 5 years, yet only 5% of it is new cash in circulation.

The Federal Reserve is killing capitalism by printing money, suppressing volatility, masking market signals, and creating noise to bail out Wall Street and mega-corporations. They’ll keep printing more and more money, looting the American people, and stealing from our future as much as we let them. Every major central bank and government official globally is going to ride the money printing train as long as they can and we’re gonna get stuck with the mess. This is what makes Bitcoin so important in this moment.

When it comes to our government and politicians, both sides are addicted and committed to money printing and debt. Up until the financial crisis, Republicans used to care about debt and deficits but are just as gung-ho about adding trillions of dollars in debt as long as it benefits their side of the argument. The Democratic Party makes a lot more sense if you imagine its agenda as that of a corporate HR compliance department. It doesn’t matter who’s in office and who has control, they ain’t working for you or me.

Speaking of corporations, because the Fed is holding rates near zero and monetizing debt on their balance sheet, corporate bonds now yield less than inflation expectation for the first time in history. Think about that, the yields on corporate bonds are paying you less than the governments fake measusr of inflation. This means you’re getting a negative real rate of return.

This forces investors desperate for yield out of the risk curve. As we get closer to 0% yield, the structural mechanism of capitalism disintegrates & morphs into pure speculation. Just look at the stock market. The current S&P 500 PE Ratio is 37.44 vs historical average of 15.86. You are paying an average of 37x every dollar of earnings. With 90% of Americans own less than 12% of the stock market, the average US worker must now work a record 141 hours to buy 1 share of the S&P 500. In the 1980s, it took less than 20 hours. You know what’s not expensive for the average American? Bitcoin. While it’s sticker price seems high, the value it represents is actually very low, which makes Bitcoin an attractive asset from a risk/reward scenario.

Yes, I know what you are gonna say. If millennials would just have invested in the S&P 500 in the 80s instead of dumping in their diapers they'd have nothing to complain about now. Alas, individuals are literally having time and money stolen from them through monetary and asset price inflation. Fiat currency has become nothing more than a political tool, facilitating the “institutionalized system of time-theft through an agenda of expansionary monetary policy which is perpetrated by central banks globally. Inflation, a consequence of these policies, is intrapersonal time theft — a legally enforced injustice.” (h/t Robert Breedlove)

If you want to go down a rabbit hole of understanding the linkage between money, inflation, and time theft, I highly recommend reading the four posts below by Robert Breedlove who dives deeper on the point above. They’re super long reads but well worth the knowledge drop.

Bitcoin is the Way.

The Want to get a sense of just how sociopathic the ruling class of this country is. Click in and read the following tweet thread(and the rebuttal below by one of my favorite Bitcoiners Robert Breedlove). Her below take is one of the most idiotic and dishonest explanations to support the government narrative and propaganda that MMT (Modern Monetary Theory), where debt, deficits, and money printing are good for us.

News flash, it’s not. She’s paid to create a narrative that prioritizes the state and the elites that control this country over the individual. Any time you come across anyone pushing MMT and money printing propaganda, ignore and reject them at all costs.

Sound money is required to repair wealth and income inequality. It’s time for regular folks to vote with their money and stand their ground. Bitcoin is your way out.

What you should Listen to

We Study Billionaires: The Investor’s Podcast Network, Ep BTC001: Bitcoin Common Misconceptions w/ Robert Breedlove (Bitcoin Podcast) - Nov 24, 2020

  • In this podcast, Robert Breedlove talks with Preston Pysh about all the common misconceptions that new investors to Bitcoin face. It’s a great discussion for anyone skeptical of Bitcoin to listen to and you’ll learn more in 2 hours listening to this than 4 years of higher learning.

  • This should be REQUIRED listening for all of humanity and is one of the best Bitcoin podcasts you’ll ever listen to.

Allright that it! I hope you enjoyed the latest issue of New Money.. until next time!

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