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Share Bear

Bitcoin – A Letter to Investors – Part 2

Performance since part 1

In my previous article I outlined what Bitcoin is and why it is important. https://www.stockopedia.com/content/a-letter-to-investors-the-case-for-bitcoin-591998/

 I gave a summary comparison against other forms of money and suggested ways in which Bitcoin can be viewed above and beyond ‘money’. I also highlighted some common concerns and misconceptions.

The reaction was as expected, some positive comments mixed with overwhelming disbelief, distrust and criticism – most of which I had heard before.

Since then, the Bitcoin price has risen 285% to $31,500. This is not a typo. It has surpassed its previous all time of nearly $20k in December 2017 – continuing a price cycle that has played out several times in the course of it’s history.

A lot has happened within and around Bitcoin in the last 9 months ad in this article I’d like to share a few highlights. We’ve seen developing Capital markets with an increasing number of established funds and investment houses entering the space with significant offerings to clients as well as investments in Bitcoin itself.  Below are a handful of the most compelling and interesting from an investors point of view:

Fidelity (c. $3.3bn AUM) continuing to invest in cryptocurrency  https://www.bloomberg.com/news/articles/2020-08-26/fidelity-launches-inaugural-bitcoin-fund-for-wealthy-investors

UK based Ruffer Investment Company (£456m investment company) invests n Bitcoin https://citywire.co.uk/wealth-manager/news/ruffer-buys-bitcoin-with-gold-profits-as-insurance-policy/a1440053

169 year old MassMutual invests in Bitcoin https://markets.businessinsider.com/currencies/news/insurer-massmutual-scoops-up-100-million-worth-of-bitcoin-2020-12-1029885209

BlackRock CEO Larry Fink says Bitcoin has the potential to evolve into a “global market” and threaten the U.S. dollar’s status as a reserve currency https://www.investopedia.com/blackrock-ceo-larry-finks-views-on-bitcoin-evolve-5090073#:~:text=In%20an%20about%2Dface%20from,status%20as%20a%20reserve%20currency.&text=Developments%20in%20cryptocurrency%20markets%20and,a%20second%20look%20at%20cryptocurrencies.

Some notable investors getting interested:

Stan Druckenmiller buys Bitcoin https://www.forbes.com/sites/billybambrough/2020/11/12/a-legendary-hedge-fund-billionaire-just-flipped-to-bitcoin-calling-it-better-than-gold/

Paul Tudor Jones buys Bitcoin https://www.cnbc.com/2020/05/07/paul-tudor-jones-reportedly-buys-bitcoin-as-an-inflation-hedge-compares-crypto-to-70s-gold-trade.html

2nd wealthiest man in Mexico owns Bitcoin https://www.nasdaq.com/articles/mexican-billionaire-reveals-that-10-percent-of-entire-liquid-portfolio-is-in-bitcoin-2020#:~:text=Mexican%20Billionaire%20Reveals%20That%2010%20Percent%20Of%20Entire%20Liquid%20Portfolio%20Is%20In%20Bitcoin,-Publisher&text=Ricardo%20Salinas%20Pliego%2C%20Mexico’s%20second,is%20being%20held%20as%20bitcoin.

Ray Dalio, owner of worlds largest Hedge fund and Bitcoin critic admits he ‘might be missing something on Bitcoin’ https://www.marketwatch.com/story/dalio-says-he-might-be-missing-something-about-bitcoin-challenges-twitter-to-change-his-mind-11605637663

US Senator openly pro-Bitcoin https://news.bitcoin.com/us-senator-cynthia-lummis-congress-bitcoin-great-store-of-value/

And now financial institutions who previously criticised Bitcoin, seem to be joining in on the once ‘ridiculous’ price targets:

https://www.bloomberg.com/news/articles/2020-12-16/guggenheim-s-scott-minerd-says-bitcoin-should-be-worth-400-000

https://www.express.co.uk/finance/city/1377180/bitcoin-price-latest-tim-draper-jp-morgan-estimate-max-keiser

The above helps to demonstrate the growing trust in and understanding of Bitcoin as a financial asset. Larger names entering the space has accelerated in the last quarter and before long, given Bitcoins continued price rises, it will become quaint, or even financially ‘irresponsible’ to NOT have Bitcoin exposure.

From an institutional perspective, the start of well known Investing giants entering Bitcoin de-risks Bitcoin from a career perspective. Once you would have been shunned for suggesting Bitcoin. Soon enough the majority will be asking: if Stan Druckenmiller has an opinion and position in Bitcoin, then why don’t you?

Bitcoin as treasury asset

The most significant entrant in 2020 from my perspective is that of Microstrategy, a $3bn market cap US listed tech company headed by CEO Michael Saylor. Saylor has dived headlong into Bitcoin, studying and understanding it before announcing that his company were to convert their existing $450m cash pile into Bitcoin – to protect it from monetary inflation. In a precise and faultless explanation, Saylor described the process of identifying where to park his companies excess reserves, the various asset classes reviewed before settling on Bitcoin.

Here he gives an outline of his firms decision on Fox Business  https://youtu.be/dMtchC8hndk and he can be found explaining in more detail in plenty of interviews elsewhere.

Microstrategy has created an interesting webpage where you can view the return, volatility, sharpe asset of Bitcoin versus other assets at https://www.microstrategy.com/en/hyperintelligence/asset-vs-btc

Why Bitcoin is still a great investment

Many people will be asking why invest now considering the significant recent price rise.

Bitcoin is as compelling an investment now as compared to April 2020. It has the hallmarks of many asymmetric investment opportunities:

  1. Widespread misunderstanding of a subject – Bitcoin is novel and requires time an effort to grasp properly. At first glance, like many, I originally dismissed it.
  2. An emerging and new technology – challenging the status quo and accepted norms. This makes it not only confusing but uncomfortable for some.
  3. Overestimation of risks involved– There are some risks to investing in Bitcoin, but these are often misrepresented or exaggerated by most people – namely due to the first 2 points.

The global market for ‘Store of Value’ is many hundreds of trillions of USD. Bitcoin, currently at $500bn, is still only just getting started.

What can we expect of then next 12 months?

My expectations for the next 12 months include:

  1. More companies to adopt Bitcoin as a treasury asset. We’ve had Microstrategy, Square and a couple of other small names. Expect well-known names to follow.
  2. Bitcoin price appreciation above $100k. Bitcoin appears to be following previous bull market cycle trends and as such, given scarce supply and growing demand, should send the price well north of $100k, perhaps much higher.
  3. Continued unprecedented central bank intervention in monetary debasement, bond purchases and other asset purchases. Developed economies are saddled by debt, at the zero bound on interest rates, economies ravaged by Covid lockdowns. Monetary intervention will reach new levels previously thought impossible and furthermore I believe we see increased fiscal stimulation.

To Finish

Bitcoin continues to fascinate me. It presents the opportunity to participate in the monetisation of a completely new and entirely digital financial asset, profiting from this but also protecting myself from the spiralling decline of the existing fiat financial system.

I’m happy and willing to help anyone with guidance or Q&A regarding Bitcoin – I appreciate it can be complex upon first approach. I’m also on Twitter @shauniekent

Happy New Year

Shaun

BTW – I have entered the Stockopedia 2021 stock pick competition – with a number of companies who own or hold Bitcoin on their balance sheet. I will win the competition. See their performance here https://www.stockopedia.com/challenge/2021/entrant/36731/

Interesting Links

See previous article for beginner starting points to learn about Bitcoin.

https://casebitcoin.com/ is a new website displaying key Bitcoin news items alongside performance indicators BTC vs other financial assets.

Strategy.com shows Bitcoin performance metrics versus various financial assets.

Model Portfolios for 2021

January 3rd, 2021 | Posted by shauniekent in Uncategorized - (0 Comments)

2021 portfolios selected according to the rules are below. I feel fairly unenthusiastic about them – and found i had little choise when making my discretionary picks or that the companies available seemed uninteresting. We’ll see…

Mech NAPS Short 2021

Mech NAPS Long 2021

NAPS Discretionary Long 2021

NAPS Discretionary Short 2021

Below are the performances of my model portfolios in 2020.

See here for a reminder of their rules and make up.

Its interesting that i did not want to pick Hurricane Energy as a mechanical short, i liked the look of it. It fell over 90% during the year and the mechanical short proved correct!

Summary

A poor performance! In the discretionary portfolios i had the longs up 13.2% BUT the shorts were up 54.8%. The complete opposite of what i’d like! The picture is repeated for the mechanical with longs up 1.1% and shorts up 14.5%. Ftse350 was down 13% for the year so when the long and short scores are combined (at their two thirds and one third weighting), the overall discretionary was UP 3.5% ish against FTSE 350 benchmark, the purely mechanical scoring -4.1% for the year is also up against benchmark. So doesnt feel as bad when looking at the benchmark but itstill feels terrible.

Despite the shorts doing better than the longs, it’s interesting to look at the stock ranks even now at the end of the year – for the discretionary portfolios – the long portfolio is still much higher in SR than the short. Interesting.

Detailed Portfolio Returns

Mech NAPS Short 2020

Up 14.5%

Mech NAPS Long 2020

Up 1.1%

NAPS Discretionary Long 2020

Up 13.2%

NAPS Discretionary Short 2020

Portfolio is up 54.8% – a terrible performance! ITM power up over 700% with several others up close to or above 100%.