Welcome to the Stormrake Monthly Australian crypto market & education update.
For sophisticated investors who want to expand their crypto knowledge.

How Brave Will You Be in 2022?

We are always hopeful on New Year's Eve that the year ahead will be a panacea for all our problems. But alas, it's never that easy. Successful people know that nothing is given and everything should be earned. In that spirit, January has turned out to be a shocker with most investors seeing red reports as their crypto slid on the back of tapering talk in the USA.
 

What is Tapering?

As we've covered in many reports the US and the rest of the developed world has spent 20 years propping up their economies artificially through manipulating interest rates, bond prices and money supply. The pace of this intervention has stepped up over the years and especially in the Covid-19 years and has directly caused inflation. Inflation is running hot and the only way to reduce it is "tapering". Tapering involves removing some of the stimulus that's been provided. That may take the form of rolling back bond buying and direct QE (Quantitative Easing). 

Why tapering may not last?

Tapering is going to hurt. The Fed is stuck between a metaphorical rock and a hard place. The "Rock" is inflation. The "Hard Place" is a market and economic collapse. Right now the Fed thinks that inflation (which is 7% and climbing) needs to be controlled so they start tapering. Once they start markets will fall (equities, property), confidence will take a hit and businesses will fail. At that point the Fed might decide that tapering is too hard and opt for a break. If the economic problems are too dire the Fed may reverse course completely and opt for more easing - meaning they will again flood the economy with cheap money. This will further reduce the value of a dollar and will increase the ratio of dollars to bitcoins. 

Why Bitcoin doesn't care.

Either way Bitcoin is a safe haven. If the Fed's tapering fails and easing comes back bitcoin will appreciate as there will still be the same bitcoin supply but a much larger dollar supply. If the Fed increases rates and the economy struggles, bitcoin will still outperform other assets which got inflated by previous money printing. 

Why the Whales are buying?

Either way, whales have been spotted in on-chain data. Whales are the large investors who have massive holdings. They tend to sell down part of their holdings when there is boom and they tend to top up when prices are low. Guess what? They seem to have smelled a bargain (a chance to buy Bitcoin at half of its all time high). Generally, the accepted rule is follow the whales, not the retail investors. We've put together this meme to show that the retail crowd tends to hang in large groups. In 2018, they disappeared, expecting bitcoin to die. They sold up their bags instead of buying at the $3,100 level. Just 2 short months ago every retail investor thought they would be rich and fomo'd in at $69,000. Now the same exact bitcoin is available under $40,000 and the line is empty. Empty, apart from a few whales getting their fill. Don't follow the crowd, follow the whales.
 

Why has Bitcoin outperformed all asset classes?

Quite a few people have asked me "why bitcoin is so low". Not why it's fallen but specifically why it's so low. Yes, it has fallen off its all time high but its certainly not low. For the whales that bought at $3,100 the current price represents more than a 1000% gain. For the ones that bought in 2015 it's a hell of a lot more. Bitcoin is the best asset in the world 10 of the last 12 years. That is simply staggering.

It outperforms because supply is fixed and adoption (demand) is constantly growing. Success comes with volatility though. You can't grow from zero to 1 Trillion in 12 years and not be volatile. 
 

Buy Low Sell High

That brings me to the last point which is the simplest, age old, adage that has always served me well. BUY LOW SELL HIGH. Or if you are into property - "when there's blood in the streets, buy real estate" - Baron Rothschild. 

Or in the original
"Buy when there's blood in the streets, even if the blood is your own." 

The point is the same. When it's hardest, and the end seems close you should be buying, and when every taxi driver agrees that bitcoin is going to a million, remember to take profits. You have to be brave but it will be worth it!

Until next month, Happy Investing!

Stormrake Team

custody@stormrake.com

General Advice Warning 

The information provided in this newsletter is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information contained here you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Therefore, before you decide to buy any product or keep or cancel a similar product that you already hold, it is important that you read and consider the relevant Product Disclosure Statement (PDS) of the product provider to make sure that the product is appropriate for you. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice. You can get a copy of relevant PDSs from Stormrake by email custody@stormrake.com. 
 

Disclaimer 

All statements made in this newsletter are made in good faith and we believe they are accurate and reliable. Stormrake does not give any warranty as to the accuracy, reliability or completeness of information that is contained here, except insofar as any liability under statute cannot be excluded. Stormrake, its directors, employees and their representatives do not accept any liability for any error or omission in this newsletter or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided in this newsletter is owned by Stormrake. You may not alter or modify this information in any way, including the removal of this copyright notice.

Copyright © 2022 Stormrake Pty Ltd, All rights reserved