Austin, A Bitcoin Citadel with Kyle Murphy - State of Bitcoin ep. 21 $BTC.X
State of Bitcoin: Countries Talk Bitcoin $BTC.X
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Top stories from the week:
- El Salvador Hosts 44 Countries To Discuss Bitcoin: On Sunday May 15th, President Nayib Buekele and El Salvador hosted 32 central banks and 12 financial authorities discuss “financial inclusion, digital economy, banking the unbanked, the Bitcoin rollout and its benefits in our country”. Over 20 of these countries are located in Africa. Africa, similarly to Latin America, has seen currency debasement and massive amounts of inflation and corruption. The Central African Republic has made Bitcoin legal tender, although Paco from my last podcast episode hinted CAR will create their own coin similar to Miamicoin, and it seems like other countries in Africa are curious to learn about the capabilities of Bitcoin. Big Balls Buekele is continuing to be a great voice for the Bitcoin space and is now orange pilling countries across the world while Bitcoin has been legal tender in El Salvador for less than a year.
- China Still Holds 21% of Hashrate Despite Ban: Last year the Chinese government banned Bitcoin mining and videos went viral of construction equipment running over Bitcoin miners. Turns out China is second with 21% of the hashrate behind the United States who holds 33.8%. China once held 75% of the hashrate prior to the ban and is now promptly in the second spot. China has always been at the forefront of the Bitcoin industry, but now it has its own CBDC. The Chinese citizens may be looking for a way out of the potential manipulation. Although China has banned Bitcoin mining, it has not been able to stop it completely. It will be interesting to see if the Chinese government responds to the publishing of this data.
- Block to create economic empowerment with Bitcoin: Block’s investor day was earlier this week and both CEO Jack Dorsey and Finance Lead Amrita Ahuja hammered home the point that Block wants to be the go to source for all transactions. Dorsey is a noted Bitcoiner and has continually gone on Twitter to rip on shitcoins and he is now diving into Bitcoin even more with Block. Block is developing Bitcoin miners and hinted at developing more Bitcoin hardware and Bitcoin wallets. Dorsey has continued to push the Bitcoin space forward and I look forward to seeing all that he continues to do in the space of payments (full disclosure I am a SQ shareholder so please do you own research as I am not a financial advisor and everything is strictly my opinion and should not be taken as financial advice).
- Coinsource partners with KwikTrip to put Bitcoin ATMs in stores: Coinsource is known for their Bitcoin ATM machines and now Coinsource will be partnering with KwikTrip who owns the Kwik brand gas stations and convenience stores around the country to put 800 Bitcoin ATMs into their convenience stores. From USD cash ATMs to Bitcoin ATMs seems like the transition is being made at gas stations, which in my opinion shows that consumers are using ATM machines less and less as time passes. This theory is due to the increasing use of online payments and acceptance of credit cards across the country. More and more consumers are finding ways to get Bitcoin and this is another way to achieve that. You can also get non-KYC BTC through the use of Bitcoin ATMs and that was explained in my podcast episode with Heady Wook, check it out here!
- NFL DE Alex Barrett takes full NFL Salary in Bitcoin: More and more athletes are jumping on the train of getting their salary in Bitcoin and another NFL star Alex Barrett is taking 100% of his salary in Bitcoin by partnering with Bitwage. Barrett was amongst the crowd in Bitcoin Miami 2022 and was amazed at the amount of people and met with the Bitwage team after hearing them via Twitter Spaces. The interesting part of this is Barrett is no superstar by any means. Last year Barrett played in 7 games for the SF 49ers and only had 5 assisted tackles. Granted it is extremely difficult to make it to the NFL, but I am saying this to point out that he is not a superstar like Aaron Rodgers, Tom Brady, Saquoun Barkley, and Odell Beckham Jr who have taken some of their massive amounts of earnings and put it into Bitcoin. I believe it is more of a statement for a player like Barrett to take payment than the others listed, so good on ya Alex and keep orange pilling the masses!
- Texas Land Owner to Mine Bitcoin: The state of Texas has been extremely friendly to Bitcoin and Bitcoin mining as a whole. The companies: Texas Pacific Land Corporation (Ticker: TPL), Mawson Infrastructure Group Inc. (Ticker: MIGI), and JAI Energy have joined forces to develop 60 megawatts of Bitcoin mining on TPL’s land in West Texas. This partnership is lined out as follows: Mawson will own and operate Bitcoin miners up to 2.0 Exahash while TPL and JAI will earn royalty interest and keep an option to acquire equity in Mawson. JAI energy is run by former oil and gas professionals of West Texas and the influence of the oil and gas industry has JAI bullish on the Bitcoin industry. I see Texas being one of, if not the, leader in all aspects of Bitcoin in the near future. Some might argue it is right now.
A quick look on chain:
Current price: $29,260
Market Cap: $557.1B
Spent Output Profit Ratio: 0.9994
Current block height: 736122
Mean block interval: 10min. 38sec.
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Austin, A Bitcoin Citadel with Kyle Murphy - State of Bitcoin $BTC.X ep. 21
ME vs THE MARKET*
Damn $BTC.X get ur shit together lol
*reflects performance since 8/23/2021, when I started my strategy.
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Nice, that’s exactly what I was looking for when I found CommonStock; a place to track all my portfolios to have a public record of portfolio performance.
Seeing Michael Saylor as a major fan of Bitcoin, I'd assume he'd be buying more Bitcoin as the price of it is below $30K. Since he has bought the majority of his Bitcoin above the $30K price range, I'd think he'd want to buy more at these lower prices.
Some would say that maybe he doesn't have the cash to buy the dip. If that's the case, he can buy more Bitcoin using debt. He already raised junk bonds and got a loan from $SI to buy more $BTC.X. According to the $MSTR bulls, the company has produced positive cash flow and because of it, the business isn't "burning cash" and can easily provide more collateral to avoid a margin call.
Could it be that he could be selling his Bitcoin in secret? Could it be that the company is so worried about getting a margin call on their leveraged Bitcoin purchases that they would prefer to keep the cash and use it as collateral when needed? Has the crypto bear market shaken his faith in Bitcoin?
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I mean they are already levered up their ass, aren't they? 30 times EBITDA/Debt.
BTC Bullet Point Thesis
- The value assigned to gold serves as proof of demand for a non-sovereign monetary store-of-value asset.
- Gold has merely been the best technology discovered/invented to fill that role, historically. Bitcoin is better technology than gold.
- I believe one cryptocurrency will be adopted as the dominant, global, digital, censorship-resistant, non-sovereign, monetary store-of-value asset, and that BTC currently has the highest probability of "winning" due to its immutable monetary policy, adoption, and security via decentralization and proof-of-work.
- IF you believe, like I do, that one (and only one) cryptocurrency will emerge as a dominant global store-of-value asset, then it becomes a question of assigning a value to that.
- H/t John Pfeffer @jlppfeffer for the valuation framework below (https://s3.eu-west-2.amazonaws.com/john-pfeffer/An+Investor's+Take+on+Cryptoassets+v6.pdf)
- Total current USD market cap of global above-ground gold stocks held as private investment and officially by central banks (i.e. excluding jewelry and industrial use cases) is $4.57 trillion.
- Because BTC is dramatically more accessible, portable, divisible and storable than gold bullion, and thus potentially more useful to private global citizens, assume a range of 1-3x the value of gold held by private citizens ultimately accruing to BTC.
- Assume a range of 0.25-1x the value of gold held by central banks accruing to BTC.
- Given these assumptions BTC market cap of ~$3-10 trillion from gold displacement.
- Fully diluted supply of 21m BTC minus permanently lost supply of 2.8m BTC = 18.2M BTC
- Base case (gold displacement): fully diluted BTC price target range = $169k-[$534k](/asset/534k_:equity)
- Total global central bank foreign reserves excl. gold = $13.3 trillion
- Assume range of 0.1-0.75 for BTC displacement of foreign reserves
- BTC market cap of ~$1-10 trillion from displacement of int'l reserves
- Bull case (gold+int'l reserves displacement): $242k - $1.08m
Call me crazy!
A philosophical summary of why I believe bitcoin is better money than we have today and why it will be adopted globally, if I may. H/t to Allen Farrington @allenf32 and Mike Green @profplum99 for the ideas that have jointly culminated in this (current!) view.
I believe structural inflation is inherently bad for efficient capital markets and the economy because it incentivizes the zombification of asset prices through the growth of "passive" (or index) investment strategies. Here's why.
Inflation makes it so that everyone needs to invest their savings to retain their purchasing power. There's no law of the universe that says this needs to be so.
We should not reasonably expect everyone to be an investor. Most of us have other interests and day jobs, after all.
Thus, a whole industry, asset management, has been created to fix the problem that not everyone wants to be or can be an investor. People pay other people to invest their money for them.
(Remember, if it wasn't for structural inflation, there would be no need for this. Your savings would retain their purchasing power over time.)
So you could be tempted to say that the asset management industry is a leech on people's savings (or "society's capital") due to structural inflation.
Active asset management (i.e. price discovery), however, does provide tremendous value to society. There is valuable information encoded in prices. Discerning investors pricing things in the capital markets leads to productive capital formation in the economy. Available capital finds its way to its highest and best use. This is really important and good for society.
The growth of passive asset management, though, ultimately presents a problem for the usefulness of prices, and thus for society.
Passive investment strategies free load off of the work of active investors to provide useful prices. They present an excellent option for savers who are not investors but need to invest to retain their purchasing power, who get all the benefit of paying an active manager to invest their money, but at a fraction of the cost! It's really an unbeatable value proposition for the saver who is compelled to become an investor because of inflation.
But this is no panacea.
Since people can get the same service at a lower cost, the market incentives savings to flow from active investment strategies and into passive index strategies. There is no stopping this trend absent intervention - the market incentives are such that the flow from active to passive will continue unabated (unless and until stopped by financial regulation).
This continues to be the case over a long period of time until ultimately, price indiscriminate index funds are the dominant buyer and seller of financial assets. When that occurs (arguably already has today), the signal encoded in prices has been degraded and capital markets become less efficient.
Capital is no longer able to find its way to its highest and best use because prices no longer contain the information that allows it do so. Prices are distorted. This is bad for society and economy.
This whole cataclysm - completely rational and incentivized by the free market, mind you - is set in motion by inflation.
Inflation dictates that everyone must be an investor. Everyone must be an investor dictates the inevitable growth of passive index strategies. The growth of passive index strategies dictates a degradation of the information encoded in prices. Distorted prices dictate sub-optimal economic outcomes and, likely, more frequent and more severe boom-and-bust cycles as prices get less and less useful. Severe economic downturns cause societal unrest and strife.
Bitcoin fixes this.
(Ok, I couldn't resist. It doesn't fix it, but it makes it way better).
Without inflation, not everyone is compelled to be an investor. The normal person can simply be a saver, and their savings will retain their purchasing power over time.
The economy is still able to function and grow just fine. Some people can and will still choose to risk their capital in search of a good return. The difference is the cost of capital will be higher, which means capital will allocated more efficiently. The incentive to invest in productive business growth will be strengthened and the incentive to speculate unproductively will be diminished.
The economy will still be cyclical as fear and greed do their thing, but to a much lower degree and without the need for as much government intervention.
Bitcoin is simply a better mouse-trap than fiat as the base money in an economically productive society, because monetary policy is predictable and not dictated by the desire by everyone to have more.
Bitcoin may be the technological break through that, for the first time, allows for truly efficient capital markets.
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For me it's easier to choose Coinbase which gets me exposure to much more than random shitcoins
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I keep my coins on a Ledger so I can't link any brokerage or exchange here but I'll try to be transparent on my cryptocurrency transactions as well.
I've dabbled in many altcoins (never shitcoins) but in the interest of time, I recently re-allocated all crypto funds to Bitcoin and Ethereum (I used to have 25% in BTC, 25% in ETH, and the other 50% spread amongst 8-10 coins). Currently, Bitcoin is 0.41% of my overall portfolio and Ethereum is 0.26%. ETH was equal to bitcoin until I used some to buy an Animal Spirits NFT, of which all funds went to No Kid Hungry. Interested? Go buy one. It's a great cause. DM if you want the details. It's legit.
Yesterday, I increased my Bitcoin position by 4% and my Ethereum position by 4.6%. My goal is to get BTC and ETH to in total be ~3% of my overall portfolio. I add on the first day of each month, regardless of where either is trading. DCA!
Compound Collaboration, Month #21 — Texas Pacific Land
Every month I put aside some money into a portfolio aimed at long-term bets over the next 20 years. I will be gifting this portfolio to my future kids someday. I hope to use these memos as an educational tool to teach them about the world. With any luck, managing the portfolio will become a shared activity to collaborate on as they grow up.
It is one of the main reasons why I invest.
Performance from the first 20 months:
Month #18 Jan. 2022: Cash 0%
Total portfolio return: -1.02%
Return if every month I had just bought the S&P 500: +2.69%
Well this is humbling
For the first time, the total value of the portfolio has now gone negative— meaning if I needed to withdraw the money today, I would have been better off saving.
Fortunately, my kids aren't even born yet so I don't need the money today. Hopefully this memo will be a humorous stop along the journey. We shall see.
Many years from now, I hope my kids will get the chance to read this and take away the following lessons:
- After 20 months of building this portfolio, all the work that has gone into it has cost me 1.02%. This illustrates the argument for putting your money into an S&P 500 index and calling it a day. It's way less work, and you may just come out ahead in the long run.
- In the short term, you never know where the stock market is going to go, especially individual stocks.
- 1-2 years is considered "short term." Investing really is played on long time-horizons.
- Expect to be wrong a lot in investing. So far 12 of the 20 picks I've made have lost money. My hit rate at the moment is 35%.
Things may keep getting worse before they get better. The extremely long time horizon intended for this portfolio allows me to sit tight. It's not fun to be down vs. the S&P 500 or in general, but for now, it's one stop along the way.
This month's addition:
Texas Pacific Land
Market Cap: 10.66B
Should tip the hat to Horizon Kinetics who have been big believers in $TPL for a long time (decades).
Texas Pacific land started out as a railroad 1871. The idea for the railroad was to connect West Texas with the coast of California. A federal charter granted land to the company for every mile of railroad it built. The company earned three and a half million acres of West Texas land from building the railroad. But guess how many people lived in West Texas in 1871? Pretty much no one! So the railroad went out of business— but the company still owned all that sweet land. So the Texas Pacific Land Trust was formed to manage the land, which it would sell and then return the money to owners of the trust certificates. In 1920, they stopped selling the land because, you guessed it: they discovered oil. Texas Pacific sold over 75% of its original landholdings. But even after all that, it is still the largest landowner in Texas. The remaining land is in the Permian basin of west Texas, the most productive oil field in the world right now. Texas Pacific now leases its land to oil companies and collects royalties from them.
- The Dividend payout ratio is about 65%. Part of the thesis is that this will increase.
- The company doesn't have any debt. It doesn't need to take in capital to grow.
- It's all about the royalties. They are the biggest catalyst going forward for dividend growth. They don't have to drill the traditional oil. Companies lease land from Texas Pacific and pay them about a one 16th of royalty on the oil they extract, not to mention any water, right usage and other usages.
- Texas Pacific's gross margin is always close to 100% EBIT and EBITDA margins are usually around mid 90%.
- Free cashflow margins can run the high sixties, but in recent years this has dipped down into the low forties.
- Texas Pacific has great operational leverage to rising oil prices and with no need to retain cash, the company returns the bulk of it to us, the shareholders.
Another part of the thesis is that in January 2021 Texas Pacific Land went from being a Trust to a Corporation. The reason this is important is that as a trust, $TPL was not part of the 'investable universe' for a lot of funds and ETFs. Now that it's a corporation, many more entities have access to invest in it.
The Main Thesis:
Texas Pacific Land is a way to get exposure to the price of oil without all the operational execution risk of an oil company. If the price of oil goes up, more oil companies will want to drill on $TPL's land, and the more royalties they will be able to collect.
I think oil demand will stay strong for years, and even in a world where we move primarily to renewables, there will still be a lot of uses for oil in the making of solar and renewable energy infrastructure. Even if oil prices stay where they are now, Texas Pacific is going to be highly profitable and flush with a ton of cash to return to shareholders.
Texas Pacific's estimates that the breakeven oil price for the bulk of their reserves is about $40 per barrel. If the price of oil stays above $40, Texas Pacific should see increased drilling activity on their land and increased revenue growth.
Now, oil reserves are a declining asset. One day Texas Pacific's oil reserves will be gone, or at least only economically viable with a really high price of oil. Right now, Texas Pacific projects that they have 19 years of reserves at a $40 per barrel breakeven price.
- Oil Prices decline below $40 a barrel.
- $TPL's reserves are depleted quicker than the expected 19 years
Things that aren't as big of a risk as people think
- A fracking ban — fracking bans usually only apply to public land owned by the government. Texas Pacific land is private land. They own it and they can do what they want with it. And with their mineral rights, they would not be effected by a fracking ban. They'd actually be affected positively because other sites going offline means $TPL's resources are more valuable.
- Electric vehicles — The expectation is the electric vehicle will cause oil demand to fall off a cliff. Today EVs are an expensive niche product. They are a small percentage of total auto sells. If EV sales were to double, they'll still only account for less than 10% of all automobile cells. We need a step change in battery technology to bring the cost per vehicle down and to increase our range, to make it a daily driver for the average person. Personally, I hope this happens, but I think it will take longer than most people anticipate. I'm assuming that in the medium term oil demand will go up, and in the longer term (30 years) oil demand will remain relatively flat.
Here's my trade— bought at $1,390. Currently at $1,366.
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Noticing some other Commonstock users who hold Texas Pacific Land. Nick Rasmussen @nras00 has been holding for 564 days and Ram V @sirthroedness for 409 days, impressive! Would love to hear ya'lls thesis as well.
Same with @joryko — how long have you been holding $TPL and what's your main motivation for holding?
Commonstock is a social network that amplifies the knowledge of the best investors, verified by actual track records for signal over noise. Community members can link their existing brokerage accounts and share their real time portfolio, performance and trades (by percent only, dollar amounts never shared). Commonstock is not a brokerage, but a social layer on top of existing brokerages helping to create more engaged and informed investors.