Investing

From Abra’s CEO – This Week in Crypto (5/21)

Here it is! The second of my three part interview with “The Bitcoin Standard” author Saifedean Ammous, was just released and it’s also fantastic. Look for part three to be released next week.

Everyone was elated with excitement this week when about $400k worth of bitcoin was moved from what appeared to be the wallet of an original bitcoin miner from the month after bitcoin was first released, possibly even owned by Satoshi. Ultimately no one knows who moved the bitcoin but it does appear unlikely that it was Satoshi. There were probably less than ten people involved in the project, besides Satoshi, at that point in time when these bitcoin were mined, which means that the speculation will continue. Satoshi is believed to have owned at least 700,000 to 1 million bitcoin but no one knows for sure if Satoshi still has control over them or if those keys are lost forever.

As expected the Bitcoin hashrate has fallen by about 40% from its pre-halving high. Hash rate refers to the amount of computing power being used to mine bitcoin. The Bitcoin network adjusts itself every few hours to make it harder or easier to mine Bitcoiin depending on how many blocks were created since the previous adjustment. Lowering the hashrate usually means less blocks will be mined until the difficulty is adjusted downwards to compensate. This process combined with future halvings is what allows Bitcoin to be created at a predictable rate forever. The fact that the bitcoin price did not fall dramatically as this Bitcoin hashrate fell is a bullish sign for both the intrinsic value and the resiliency of the Bitcoin network.

Did you happen to see the back and forth between JK Rowling and the “Bitcoin-faithful” on Twitter? It was quite amusing as Vitalik, Elon, and many others got in on the action. These Bitcoin faithful will generally not waste a single moment in trying to convert people of influence and fame into the Bitcoin initiated. The reality is that everyone has their “aha moment” at a different time for a different reason. I personally am patient and will continue to stack Sats while I wait for the unfaithful to become faithful.

People are still reeling over last week’s news that legendary investor Paul Tudor Jones purchased bitcoin for his hedge fund, Tudor Investment Corp. As I mentioned in last week’s update this may represent a watershed moment for the institutional adoption of bitcoin. I still highly recommend reading his letter to investors in which Tudor Jones compared bitcoin’s role in a portfolio today to that of gold in the 1970s and his bet that bitcoin would be the best-performing hedge against the current Great Monetary Inflation. Tudor Jones now holds 1% to 2% of his assets in bitcoin. Clearly he sees bitcoin as a hedge against a possible decline in the value of the US dollar.

Bitcoin outlook

Bitcoin is currently trading at about $9,000 as of this writing.  

I get two questions every single day right now. First, do I believe that the rise in equities is justified? Second, is this a good time to buy bitcoin or should I wait? I’ll give you my (non investment advice) opinion on both questions.

Is the rise in equity prices justified? The highest price someone is willing to pay for anything at any given time is simply the price of that asset at that time. So debating whether equities were worth price $X yesterday is pointless if someone paid price $X for equities yesterday. The question is whether equities will still be worth price $X (or higher) tomorrow or the week after or the month after. Right now the equity markets are clearly pricing in three things: 1. A V shaped recovery which means businesses get back to normal very quickly, post COVID-19, in many sectors; 2. The massive amounts of money the FED is printing by buying assets combined with short term government stimulus is clearly creating both demand as well as perceived demand for equities; and 3. A bet that additional government stimulus is forthcoming.

There is no arguing with point 2 as the FED and government have pumped massive amounts of liquidity into our economy. Is a V shaped recovery likely? Is more government stimulus coming? I think the answer to both questions is likely to be yes. There are two clues that make a V shaped recovery highly likely. First, China has already experienced a V shaped recovery in their economy.  Industrial production in China bounced back hard in April and May. According to Business Insider, even automotive production “rose in April by an adjusted 37% month-on-month, recovering a substantial amount of the decline in the first quarter.” I see more reasons for western economies to experience a similar recovery given the strong state of our pre COVID-19 economy. So my bet, right now, is on a V shaped recovery in North America, Europe and most of Asia. It’s unclear if the rest of the world will be as resilient but time will tell.

What does this mean for equities?  It means that while we’re clearly in a recession right now if the economy recovers as quickly as China’s has been that bodes very well for equities. (Did I mention that this blog post is not investment advice?)

The second question, is this a good time to buy bitcoin or should I wait? As I showed you last week, there is no denying that bitcoin is an upward trend that began in February. However, bitcoin now sits at the bottom of that upward channel. 9,000 may be the key technical level for the next week or so.  If 9,000 holds then the next stop could be 11,500. If it doesn’t hold a retrace to 8,000 and then 7,000 would be a fantastic buying opportunity. Gold and Silver are now posting multi-year highs. Europe is starting to open up and we’re seeing signs that the US is about to do the same. This all bodes well for maintaining the upward trend. We shall see. Regardless I’m more bullish now than ever for the mid term prospects for Bitcoin and will be adding to my Bitcoin position in the coming days and weeks. (Did I mention that this blog post is not investment advice?)

 

Disclaimer: Any opinions, news, research, analyses, prices, or other information provided here is a general market commentary, and does not constitute investment advice. Abra does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions. Abra will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

 

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