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| HEALTH, WEALTH, AND HAPPINESS |
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If you’re just joining us, we track three portfolios:
Non-Believers: A “plain vanilla” portfolio of stocks and bonds (no digital assets) Baby Believers: Same portfolio, but with a thin slice (2.5%) of bitcoin Big Believers: Same portfolio, but with a small mix (10%) of digital assets
By investing just a slice in bitcoin and cryptocurrencies – instead of betting the farm – we can enjoy the upside of digital assets while hedging our risk.
Since September 2018, when we rolled out this strategy in my book BLOCKCHAIN FOR EVERYONE, both our Believers portfolios have outperformed the Non-Believers, simply because the price of bitcoin has risen faster than the traditional markets. Here are the percentage returns: |
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That said, I want to urge you as an investor to not grow complacent. Here’s why.
Complacency is the Enemy
Right now, many people feel rich.
Governments are printing money and giving it away for free, in the form of coronavirus stimulus checks. The money is free, so more people are gambling it on high risk trading. Improbably, the stock market continues to rise, even though the pandemic continues its relentless march onward.
My expectation is that this will all come crashing down.
I’ve spent the last few weeks studying hyperinflation, where prices accelerate so quickly that the currency loses its value. It's terrible: people lose their life savings, and struggle to afford basic items, like food. Those who live through it say, we can't imagine what hyperinflation is like.
Hyperinflation occurs when: a) there is a continuing (and often accelerating) increase in the amount of money; b) that is not supported by a corresponding growth in the output of goods and services.
Does this describe the world today? Certainly we see a huge increase in the money supply, combined with high unemployment and low productivity. Even those who are working are not as productive: everyone's working from home, while trying to watch their kids, dealing with a dozen distractions a day.
I will once again reference the classic movie Diary of a Wimpy Kid to illustrate this point with “Mom Bucks.” |
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(Click to watch the video.)
“Mom Bucks” are essentially Monopoly money. Things go wrong with Mom Bucks when Rodrick (the older brother) finds another Monopoly game, then begins redeeming the now-inflated Mom Bucks for real dollars. There’s a huge increase in money supply, without an increase in the amount of goods and services.
Dollars are not wealth. When people have more dollars, they feel they have more wealth. But if those dollars buy less – if a pound of butter costs $3 today, and $6 next week – your real wealth has been cut in half!
Don’t grow complacent, because change is coming.
One early warning sign is that the price of gold, historically a “safe haven” in times of crisis, is currently nearing an all-time high: |
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If the economy grows shakier, more people will likely move into gold, driving up its price further. Investors will likely look for other assets that they feel will offer a better return -- including bitcoin, which (because of its limited supply) they will perceive as “digital gold.” And it's likely that as the price of bitcoin begins to rise, so will the entire digital asset market.
To be clear, I am not saying that this will all end in hyperinflation. No one knows what will happen next. But it is exactly that “not knowing” that should keep us vigilant and alert. Even if everyone looks like they’re on autopilot, even if your bank account looks fat and happy, resist complacency.
I am looking carefully at all my investments, to be sure I am as diversified as possible. This means:
Diversifying countries (not just U.S. stocks and bonds) Diversifying currencies (not just U.S. dollars) Diversifying asset classes (not just stocks, bonds, and digital)
Above all, I am continuing to invest in myself: reading, learning, and talking over ideas with other smart people. I invest in my education, and my kids' education. And I invest in our business. These are things within our control.
The Blockchain Believers Portfolio has worked because it’s diversified. In these unprecedented times, consider diversifying even more. And believe even harder. |
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| Health, wealth, and happiness, |
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| John Hargrave Publisher Bitcoin Market Journal |
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Hi Everyone,
Now, the question is not whether the U.S. will produce a central bank digital currency, but how.
So reads an email that I received this morning, along with an invitation to join a special webinar with a fantastic lineup. Crypto Dad Chris Giancarlo, Fidelity's Tom Jessop, Forbes contributor Jason Brett, and even a member of the Boston Federal Reserve will all be speaking.
This matter is quite close to the hearts of all crypto enthusiasts, of course. The idea that the almighty dollar will finally be converted into a native digital asset is tantalizing.
Even though this may or may not increase the usage of bitcoin or other cryptocurrencies, the dogma proposed by some forward thinkers dating back to 2011 that all financial assets will one day be digitized is now slowly becoming a reality.
Notice that our opening quote above was written in the email with a period and not a question mark?
It's a brave new world. ... |
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Short Shorts
Of all the phenomenal market moves of the last few days, none is more prominent than that of the Chinese stock Index, the China A50. Check this one out. ... |
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This is even more accentuated by the fact that most of the other global stock indices have been pretty flat, and the main moves has been restricted to individual tickers.
According to an analysis from ING this morning, the People's Bank of China is quite likely to put their printing presses on hold when they meet on August 4. ... |
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So less brrrrrr from China. According to the analysis anyway, the Chinese central bank is not interested in creating asset bubbles in the stocks and real estate market ... right.
We've definitely seen a few asset bubbles recently. I think the one in Tesla stock will be studied for years to come. At the moment, short interest on TSLA is nearing a record $20 billion. Ever the troll, Elon Musk, has now added a pair of red short shorts to the Tesla shop. |
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Mockery teasing is all fun and games, but you have to imagine that some of those red shorts will likely be liquidated at some point, possibly causing a short squeeze and sending the stock price to even more ridiculous levels.
Of course we know the culprits here are overzealous Robinhood traders, but how could things get this out of whack?
This is something that the ever brilliant Mohamed El-Erian explained in a Bloomberg interview this morning by making a distinction between relative value and absolute value.
Relatively speaking, tech stocks look a lot better than most sectors right now, as they're less affected by the pandemic and have momentum. This is a dynamic that can last for quite a while until for one reason or other, the market suddenly switches focus to absolute values. |
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Is this Altseason?
Whenever the altcoins start zooming, crypto traders inevitably ask the question, is this altseason?
Well, judging by today's action, I'd say no. A lot of the marvelous gains of the last few days have already been erased. The dogecoin TikTok pump and dump is already well into the dump, so maybe we'll call this "altweek."
Of course, there are many projects that still have promise and lots of money available for investments. However, the digital asset space is plagued with a lack of metrics to measure absolute value and instead must defer to relative value, or more often ... momentum, which is what got us to the situation this week.
Daily gains of 2% and 3% quickly turned into daily gains of 5% and 7%, which in turn became 25% and more, a move that must be quickly reinforced with new money or reversed.
Last night, I managed to get out of some of the more risky alts before any of the big drops, but looking at things today, I'm feeling pretty optimistic and have now added positions in stellar, cardano, and tezos for the weekend.
We'll see how it goes. Often times, these large pullbacks can be an excellent opportunity to get in on a massive trend without having to buy the top. Or, it could flop. Time will tell.
Wishing you and yours a fantastic weekend! |
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Mati Greenspan Analysis, Advisory, Money Management |
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