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Our fifth holding up for discussion: DASH. After being in our portfolio for 6 weeks it is up to you to decide if it should stay or go. If you are already following us on Twitter, then you should have seen the poll when it went live. If not, then you can find the link here.
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Crypto & Market Commentary
The breakup did not last long as Elon’s is back on the BTC train. He responded to a tweet from Cointelegraph that Tesla would resume accepting BTC as payment WHEN there is confirmation ~50% of miners utilize clean energy. He also stated that Tesla only sold 10% and still holds the remaining 90%. Additionally, BTC got a bump by billionaire Paul Tudor Jones, who said BTC is a good diversifier and has ~5% of his net-worth in it. On the flip side, billionaire Mark Cuban got the rug pulled on Titanium Token and is calling for more regulation. Let’s dig in.
Adopt, Monitor, Regulate…What Is Best:
Bitcoins astronomical rise, not only in price but also popularity, is leaving a lot of countries scratching their head. Should they outright ban it (can they?), adopt it (El Salvador), or just monitor it because there isn’t much else (Netherlands)? The mass adoption of cryptocurrency is forcing countries to make a decision, as they do not want to be behind when it shows up on their front door. Tanzania’s president is aware of it rising popularity and called for their central bank to begin work on development for this, while South Africa is also getting ahead of the curve by looking how to classify it and phase in regulation - also driven by the surge in retail activity. We also see that if governments are not willing to step in, banks are taking matters into their own hands as a number have offered various digital assets.
Given the decentralized and anonymous nature, there seems to be only two real choices. Do nothing and continue to monitor the situation or start developing regulations and prepare for the future. However academics and governments believe crypto should be outright banned due to their use in illicit activities and scams. The Bank of England’s Andrew Bailey stated “A cryptoasset is not money and has no intrinsic value because it has no backing.” He sees no use in BTC and the like, but does see potential in other crypto assets like stablecoins that can be pegged to fiat. Other Economists believe the adoption of cryptocurrency as legal tender will lead to economic collapse of the countries. Although so far the adoption of BTC looks to have lead to an increase in BTC remittances, but work still needs to be done on the infrastructure to help cash it out. El Salvador reached out to the IMF for support with the adoption of BTC as tender, but was rejected. They are also seeing debt holders requesting a premium after the adoption of BTC as well.
Back home in the US, the government is still critical of cryptocurrencies and do not seem to be warming up to them. However, it does look like regulation is coming which could be a positive signal for those who are waiting to dip their toe in. A Cryptocurrency Working Group is being formed to address concerns around it.
The FMA Opinion:
It seems that more developed countries are afraid of what crypto can do, while developing countries are more open to accepting them as an alternative currency given the widespread adoption. No country will convert solely to BTC, but we do see more moving to this duel currency situation - probably more third world countries. It is too early to see if this will lead to economic collapse that we are seeing in the headlines, as long as it retains its value we don’t think this will happen. However, it is interesting that this online “currency” is being adopted by places that lack the infrastructure necessary to fully support it, but first movers have advantages. A quick google search shows that just 33% (as of 2017) has access to the internet and also BTC transactions are not THAT much more cost effective than traditional remittance services. We will continue to keep our eye on this, but it’s definitely interesting to see where this goes.
Does Michael Saylor Need To Chill?:
I don’t think I have found anyone who loves BTC more than Michael Saylor. 99% of his tweets are about buying BTC. He went on a rant about taking out a mortgage to buy more BTC. He has some big BTC halo disc behind him in his videos. Do I need to say more? But who is Michael Saylor? He is the co-Founder, Chairman, and CEO of MicroStrategy. No this isn’t an investment firm, but a business software firm that holds A LOT of BTC. So much that it shows up in the company’s SEC filings as being a part of the strategy. Saylor isn’t done yet though, they are actually selling $500MM in bonds and plan to sell $1B in stock to buy even more BTC. He has acknowledged that BTC isn’t the end-all be-all of crypto and that different cryptocurrencies serve different purposes, but he does believe BTC will last forever.
The FMA Opinion:
So, does he need to chill? My biggest concern is when billionaires tell people to sell their house or take out mortgages to go all in on risky assets. It’s one think for someone who has over a billion dollars to dump $500M into a risky asset vs someone who has $10K in the bank and then borrows $200K to dump into a risky asset. However, if you believe that BTC will appreciate more than 6.125% annually then maybe it is worth it to take out a loan and go all in on it. Everything comes with risk and you should only put in what you can afford to lose. I think ALL blue checkmarks need to chill on twitter, because people tend to just listen to them without looking into it themselves.
What Is A Hashrate And Why Is It Dropping:
Do you know what a hashrate is? I bet you don’t, but that is why we are here! The hashrate is essentially the measurement of processing power used for Proof-of-Work blockchains. The higher the hashrate the more secure and faster the network. It is important to have a large hashrate because then transactions can happen faster. With BTC, before a new transaction can be added to the blockchain a complex mathematical problem must be solved. Each hash in BTC is a randomly generated line of 64 characters, for example the hash of Dog could be:
cd6357efdd966de8c0cb2f876cc89ec74ce35f0968e11743987084bd42fb8944
You think you can guess that in any reasonable time? The algorithm in place aims for these to be guessed every 10 minutes, if guesses are moving faster than 10 minutes it adjusts the difficulty upwards. Obviously this is a dumbed down version so find out more about it here, or here, or here. Anyway, the reason you are seeing this in the news is because China has kicked out miners and that is driving down the hashrate as they move out of the country:
So, hashrate drops -> transaction speed drops -> cost per transaction goes up?
Well if we look at that first major dip inApril, around news of China banning miners, we see transaction fees spike to $60. Now, this could be from Chinese miners liquidating out of fear of an outright ban (high demand). Since then it fell back to ~$5. So, why is it still dropping? Over half of the worlds BTC miners are located in China and they all were told to get out ASAP. Where are they going? Where there is clean and cheap energy. There seems to be an increase in BTC mining firms in the US and a lot of talk is that the Chinese miners are look at Texas (even though it is having a tough time with its energy).
The FMA Opinion:
Should we be worried? The blockchain is still healthy and we are currently just witnessing a shift in where the mining occurs, so no. Crypto traders are aware that a spotlight is being shined on the energy consumption and thus countries who are looking to meet climate goals are not afraid to kick out an industry that is looking to disrupt their controls (DeFi). On the flip side, there are countries who are seeing this as an opportunity to boost their GDP and become first movers in a space who will help them set up shop (El Salvador with its thermal energy). If they do not start mining again, then we would have a problem.
What else we are reading:
Morgan Stanley Says Digital Euro Could Deplete Bank Deposits by 8% (coindesk)
IRS Is Targeting Illicit Bitcoin Trading on Telegram (decrypt)
South Koreans Can Pay With Bitcoin in Stacks, Paycoin Integration (coindesk)
Wall Street Asks If Bitcoin Can Ever Replace Fiat Currencies (bloomberg)
Canadian Bitcoin ETF adds to its holdings despite steep market correction (cointelegraph)
Index publisher MSCI looking at launch of crypto indexes (reuters)
The end of privacy? Central banks plan to launch digital coins (ft)
Republican Campaign Arm Accepts Crypto Assets (bitcoin)
Bitcoin on the Balance Sheet Is an Accounting Headache for Tesla, Others (WSJ)
El Salvador enacts bitcoin law (forbes)
Goldman Expands in Crypto Trading With Plans for Ether Options (bloomberg)
Hedge Funds See 7.2% of Assets in Crypto by 2026 (coinbase)
Morgan Stanley Set to Expand Bitcoin Fund Options (decrypt)
SEC Again Delays VanEck Bitcoin ETF Decision (coindesk)
Wisdom of the Crowds:
Please note, the responses are not apples-to-apples with prior polls and we have no means to verify accuracy of the responses.
We are going to look at the 4 week change in sentiment this week. Crypto markets are back up and with that so are people’s optimism in the space, 57% Bullish this week compared to 50% last week. Crypto ownership is up 4% in the polls along with more people voting they are buying this week compared to last. Looking at the Buy vs Sell on portfolio positions, almost across the board we have higher Buy ratings than last week. Next week we will add a “hold” option too.
Looking at the data in the chart below, it is interesting that only BTC and ETH show noticeable changes in sentiment. Except for ADA, the rest seem flat. Does this mean followers only have faith in BTC and ETH and see all others as noise? The change between this week and last week I believe comes from Elon Musk’s about face on accepting BTC and probably El Salvador’s move to make it legal and that companies must accept it as a form of payment.
FMA People’s Crypto Portfolio:
If you would like to see a live view of the portfolio, you can do that on CryptoCompare.
Welcome back to another week of guess which way Crypto is going to move in relation to the broad market. We are again questioning our lives and investment choices since we thought Crypto could only go up…however, apparently that isn’t the case. Good thing we’re long-term investors. The portfolio is down 7.5% since inception as the broad market (S&P 500) remains flat. Cardano is our only positive contributor to the portfolio as LINK and DASH have moved down to -57% and -58%, respectively. It’s hard to believe that only a month ago we were up 61% in the portfolio. In any event, we’re still doing better than Bitcoin’s -35% run since our portfolio inception. Sentiment remains pretty consistent surprisingly even though crypto has taken a huge hit lately. As always, we show our performance net of all transaction fees ($40 or 4% of the portfolio so far if you’re keeping track).
Looking into our crystal ball:
We will pose the same question as we did in the prior section: should we be worried? Again, we don’t really think so. Crypto is volatile as we’ve mentioned and as long as the ebs and flows trend in the upward direction, we’re happy. The portfolio is (hopefully) at a low point and we’re hopeful that as positive economic data comes in, the rising tide will lift all boats. Folks are going back to the office, bars, and restaurants and we think that increased activity will only be a positive for the asset class. If we are in this same position in six months at the end of the year, maybe it will be time to panic. All in all, we’re looking forward to a few mild weeks before 2Q data is reported and everyone starts to freak out again. Until then, our incredibly inaccurate crystal ball says HODL.
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We look forward to doing this all again next week, take care!