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.
Major Allocation Shift to Growth
I've had about 15% invested in Dividend style companies that have been relatively protected from the recent volatility.
Anyone else making allocation adjustments to/away from growth? What's your rationale?
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I’ve been tempted, but I’ve decided to keep my weight untouched at about 50 DRIP - 50 growth. My RE portfolio grows by itself at this point so no need to add. Also my 401k and IRAs are dividend driven also.
At 48, health permitting, I plan to keep adding new money to both for at least 5 to 8 years (love my job!) and then leverage dividends to reinvest.
YCharts Q&A "Never Short a Cult"
Hey everyone, recently I was honored to do a Q&A with my favorite finance software tool YCharts where I go over my overall thoughts on the market and dive into my fictional $CULT ETF that I created for fun. I am going to post the link and Q&A below!
Q: Give us an overview of your background in the markets. What is your investing philosophy?
A: I started investing over six years ago during my senior year of high school. I didn’t have a job and had only a little money to play with, so I started day trading and swing trading highly volatile small cap stocks. During those early years the growth in my account was mostly a wash, but my skills and experience steadily climbed. My investment philosophy started to take true shape once I went to college. I attended a federal military service academy (USMMA) and, needless to say, we weren’t allowed off campus very often. Instead of playing video games until my eyes fell out (like some other midshipmen), I watched every finance Youtube video I could get my hands on while picking up books like The Intelligent Investor, The Richest Man in Babylon, and others. I even read study guides for the Series 7 even though I had no intention of taking the test at the time.
Fast forward to today, I work for a data analytics company named Tesseract Investments at which we use sophisticated machine learning methods to better estimate the fundamental factors driving the market across all equity indices. I started tweeting my personal thoughts about the market a year ago and that’s when I created my Rebel Market’s Newsletter covering financial education topics and stocks that I own in my personal portfolio. Currently, my overall personal investing philosophy revolves around finding companies that are high growth, easy to understand, have an observational/viral factor, and seek to change the future. Although I consider myself a fundamental investor, I have a passion for all things electronic so I find myself investing in high growth tech companies more often than not. Along with the points made above, I also tune into companies that have an asymmetric risk/reward potential, a strong customer base, are on course to disrupt an industry, have a very active CEO, and if possible are “undervalued” or fairly valued in this ultra-high valuation market.
Q: Can you tell us about the origins of $CULT ETF and your philosophy on the increasingly popular #FinTwit?
A: Investing is incredibly fun for me, and I try to constantly keep my content on Twitter unique and exciting to match that. As much as it’s interesting to read summarized 10ks, I like to shake things up a bit and discuss off the wall ideas. It all started with my semi-serious, semi-satirical thread covering how Peloton (PTON) has turned into a “cult-like brand”. As a shareholder of $PTON, my thread covered how I think it is a unique investment not only because of its incredible revenue and subscriber growth but because of its catchy branding, status symbol qualities, competitive “gamifying” aspects, and push into the music industry. The thread had great reception and a lightbulb went off in my head to make a fictional ETF using YCharts named “$CULT” that holds similar qualities. Whether it be a crazy fan base, status symbol, catchy brand, larger-than-life CEO, or sleek product design, every stock inside of $CULT has a similar theme. I wanted to explore this phenomenon and track the performance of these companies and YCharts’ Dynamic Model Portfolio tool offered the best solution.
Right now, FinTwit is a space that is exploding like never before. I believe that every investor has an entrepreneurship backbone and, likewise, entrepreneurs seem to like engaging with investors in the equities market. FinTwit in some aspects is a niche part of twitter but it is highly valuable because it lives in an ecosystem of all types of investors, financial institutions, venture capitalists, marketers, and now even big name brands. The reason that some finance newsletters and podcasts bring in top dollar advertising and brand promotion is that their message reaches the full ecosystem — not just traders. I love FinTwit because I am constantly learning about not only other people’s due diligence on companies they have researched but also feeding off of ideas from the other content listed above. Both of these make me a well rounded investor and business person. On Twitter, you can receive business and stock news faster than any other social platform, and tweets from specific people can and do move markets.[
Q: What stocks does $CULT hold? How often are holdings rebalanced or replaced?
A: $CULT holds (in no particular order): Apple $AAPL, Lululemon $LULU, Penn National Gaming $PENN, Tesla $TSLA, Grayscale Bitcoin Trust $GBTC, Virgin Galactic Holdings $SPCE, Nio $NIO, and Peloton $PTON. I created a thread that covers exactly why I chose each company for this made-up ETF. Originally, my plan was to rebalance or replace holdings quarterly but due to the superior performance of the stocks inside of the portfolio, I’ve refrained from making any changes. All weightings started off equal but in an effort to hold firm onto my winners I haven’t changed anything. The old saying “if it isn’t broke don’t fix it,” always comes to mind. Incredibly, as of 4/20/21, the one-year performance of $CULT is around 330%, and the 3-year performance sits at 536%!
Q: When you put together the $CULT ETF, what were you trying to understand or communicate?
A: Although $CULT was originally created out of satire, in reality I was trying to communicate to my followers and other investors how much “virality” and social media has taken the market by storm. I specifically picked stocks that had a large social media presence whether it be via Twitter mentions, notoriety on Reddit forums, chat rooms, Instagram, and even TikTok. We are living in a social media era and it behooves you as an intelligent investor to use all data available to make conscious decisions. Make no mistake about it, hedge funds are now combing through these sites daily to follow the trends of retail investors. In the same way that a video, meme, or product can go “viral”, I truly believe a stock ticker can as well. A stock position should not be made merely off of virality but it definitely should be one part of investors’ due diligence moving forward. I truly believe social media, and Twitter especially, has greatly shifted the market. As we all know, stocks can’t move if nobody buys them.
Q: What have you noticed about how your followers respond to your tweets when you include a visual element, such as a chart, GIF, or video?
A: One of the first things that made me interested in using YCharts was how beautifully displayed data is not just within the platform but also when it is shared on newsletters, Twitter, and other mediums. Simply tweeting “Tesla is overvalued” doesn’t have as much impact as sharing a YCharts visual of all automobile manufacturers’ market cap compared to Tesla’s market cap, and accompanied by other financial metrics such as revenue, net income, et cetera. Having a visual component can give followers a better point of reference and, in turn, your message is better received. Before anyone gets up in arms, I am a $TSLA shareholder so I guess I have a pass on using it as an example :).
Q: In what ways does YCharts help you decide components of the $CULT ETF?
A: YCharts helped decide components of the $CULT ETF because of their handy Stock Screener—with which you can add and modify hundreds of financial metrics to screen for stocks that fit your personal parameters. I was able to find “viral” stocks using the screener and metrics such as “short interest”, “30 day average moving volume”, and more.
Q: Is there a secret tip or shortcut that you’d like to share with other YCharts users or someone considering trying out the platform?
A: Something that is huge for me on YCharts are the three Email Reports that I’ve set up to hit my inbox daily. Each morning I get an accurate picture of stocks on my watchlist, trending industries, and daily U.S. economic data. You can set up your own Custom Email Reports or subscribe to pre-built versions by clicking “Tools” then “Email Reports” in YCharts. It’s pretty incredible how much info and data these emails hold, and they are not only the backbone of a lot of my content on FinTwit but have also kept me incredibly up to date on the pulse of the market.
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Check out any leaderboard 🤷♀️
People I follow, top investors, global. Cool data 😊
Any bias here to think about? 🤔
(I’m buying too, not recently enough to link trade on mobile, but managed to pull up a $GBTC one ;)
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