The Rake Review: November 2020
Welcome to the Stormrake Monthly Australian crypto market & education update.
For sophisticated investors who want to expand their crypto knowledge.
The Breakout
Last month I tried my best to argue the negative on whether Bitcoin was really such a big deal. I played the devils advocate and talked about real issues facing the Bitcoin Blockchain. But it was to no avail, because Bitcoin had its best month since we started Stormrake.
We have been run off our feet with interest and demand as a result, and it's very hard to even find the time to write this newsletter. So, this newsletter will be as brief as possible while delivering you the major stories.
We saw an incredible break out with Bitcoin outperforming all the other major crypto currencies, increasing Bitcoin dominance moving from 57% to 67%, going above $18,000 USD, smashing through the $300 Billion Market Cap (Now $330 Billion) and breaking all sorts of price records.
Today, we are sitting on 7 consecutive green weekly candles with one more about to be printed. That is incredible momentum not seen since we came off the bottom in March 2019 (moving from circa $3500 - $5,300). Even the crazy, late 2017, Bull run saw 6 consecutive weekly candles (13 /14 though).
But if we compare to history the most relevant point might even be the May 2017 run of 8 consecutive weekly green candles where the price went from $1,000 to $3,000. As we know people who sold out at $3,000 having made a huge amount of money should've HODL'd as the price rose to 20,000 by the end of that year. Likewise clients should be careful selling out in the present environment. While, it is very possible that we have a pullback it is always dangerous trying to pick the market. Many have been burned before.
To make things clear, this is not normal trading. Something big is happening! To illustrate the point, prior to November 2020 there were only 5 days where the price of Bitcoin closed above $17,000 USD. So, the 20,000 all-time high is a bit of a furphy. It was a blip. We are effectively at all-time highs now.
The other key point is that we are nowhere near retail greed and craziness like late 2017. Bitcoin searches are down and the high price is not even deemed newsworthy for now. No, this run is completely different to 2017 and is being lead by institutional investors and corporates. This is a historic accumulation by the people who are already in the mainstream financial markets. This is Wall St taking a position because they cannot ignore Bitcoin anymore.
So, what to do from here? Well, we don't provide financial advice and as always, we prefer that our clients take the time to learn as much as possible and be in a position to make independent informed decisions. Having said that, if you don't currently have a Bitcoin position you need to have a hard think about the following thought from Dan Held. Also, if you are a twitter user, we are now firing away on twitter so come and give us a follow for faster updates.
Announcements for Stormrake Clients:
Website Launched
Our website is up and running. Please check it out if you have time. Most importantly there is a resources page where you can learn in your own time. There are links to key talks, debates and interviews as well as the Bitcoin Whitepaper and the most important books that are must reads. Please let us know if you know of any key content you think should be added.
Major Security Upgrade
We have spent the best part of 6 months planning and executing a significant security upgrade to protect our client funds. The new system is now fully operational, and we are confident that we are at industry best practice. While we can't discuss the specifics of how we secure funds due to obvious security concerns, we can say that we have worked out protection against wrench attack (physical), as well as protection against loss in the event of death or incapacitation of one or both of our directors. So this means we can now travel together. This upgrade has come at a cost that we have absorbed but it is possible we may have to start charging for custodial services in the future.
But enough about that, let's get into it:
Article of the month
"If a few percentage points of a portfolio are allocated to it, there is a limited risk of loss... On the other hand, it’s not out of the question for Bitcoin to triple, quadruple, or have a potential moonshot price action from current levels" - Lyn Alden
Lyn Alden is another mainstream investment giant that has converted her stance on Bitcoin from sceptic to believer. She has a wealth of experience in Finance and is able to explain why Bitcoin matters in a language that is accessible to everyone. This month we bring attention to the article she wrote back in August.
You can read the article here, or listen to it read to you on Bitcoin Audible podcast.
https://www.lynalden.com/invest-in-bitcoin/
https://pca.st/a4kfob7z
Markets
An incredible time in markets as we've already discussed. Bitcoin has gone up by more in a month than in the first 9 years of its life. Of course it helps that the Fed has printed Trillions but nevertheless, the movement is staggering. The total market cap of all crypto-currencies combined is now over half a Trillion. Litecoin wasn't in our top 8 last time but is now 5th.
* Top 8 Coins by Market Cap thanks to Coin Gecko
In the NEWS
ETH 2.0 Staking
Ethereum 2.0 made a large step this month by activating the smart contract used to stake ether as part of the upcoming transition to “Proof of Stake”.
Similar to Bitcoin, Ethereum 1 uses “Proof of Work (PoW)” to secure the network, with validators (miners) having to provably spend/burn electricity to validate the chain. Miners are incentivised to be honest because only honest miners are rewarded for this energy expenditure.
By switching to proof of stake, Ethereum will require validators (miners) to put up 32 ether as collateral, with honest validators rewarded with a return and dishonest behaviour punished by “slashing” some of the staked funds. Thus far, 106,000 ether (worth $71m AUD) have been staked, which is about 20% of the required amount for Ethereum 2.0 to launch.
Stormrake are investigating the potential to offer staking as a service. Watch this space but if you are interested feel free to reach out.
BCH Hard Fork
BCH (Bitcoin Cash) has had a hard fork. There was a proposal by the main developer pool (ABC) to split the mining reward and give a portion to developers. The Hard fork was resoundingly won by BCHN however. So, BCHN will be known as BCH and the new smaller fork BCHABC will be known as BCHA. Confused? Don't be, all holders of BCH in Stormrake Custody will continue holding BCH. The take out though is all the forks of BTC are struggling to be united which dilutes their value due to loss of Network effect value.
More Wall St Heavyweights throw their weight behind Bitcoin
We've been focused on all the big names getting behind Bitcoin for some time. One by one the domino's are falling as Wall St gets on board with crypto. This month there are two more names to add to the list.
Stan Druckenmillar deserves to be on any list just because of his awesome name but this month we note that he has come out saying that he is a Bitcoin holder. For background Stan is an American investor, hedge fund manager and philanthropist. He is famous for closing his fund in 2010 saying there's nothing left to invest in that's worthwhile. It turns out he's found something.
An even bigger name is Ray Dalio who we have previously referenced in his work explaining the long term debt cycle. Ray is a respected billionaire hedge fund manager and philanthropist himself. This week he came out on twitter saying he "might be missing something about Bitcoin". That tweet has started a very important conversation and seems like the start of Ray's new enlightenment.
More on the Price Action
Analysis by half
As we have discussed in this forum many times, Bitcoins supply has a permanant hard cap of 21 Million coins. Every 4 years the reward for mining halves which is the mechanism for achieving decresasing inflation over time. Every time bitcoin reward halves price action tends to follow because of sheer economics. Less supply means price must rise cetiris paribus.
Here is the pricing data we have of the first 4 year cycle:
Price was hard to bed down due to lack of liquidity and lack of actively traded markets. Bitcoin was undergoing price discovery. This was the beginning stage.
Here is the first halving and the next 4 years:
The price skyrocketed to a point that the preceding 4 years look completely dwarfed. Price rallied exponentially straight after the halving and then had a second run to $1000 USD.
(Note the first 4 year cycle is still shown for scale)
Here is the 3rd 4 year period:
Again there was an almighty rally which some of you are all too well aware of. The 2017 Bull market saw the price reach 20,000 USD and then correct. Again the pattern holds true though. Halving seems to have created the conditions for Bitcoin's price appreciation.
Now we are seeing it all again after May's halving. Here are all the graphs together. What do you think will happen now?
Stock to Flow Valuation:
Current Long-Term Stock to Flow (StF) Price: $20,411 USD vs Current Price - $18,000 USD. Market price is lower than the historical trend suggesting that Bitcoin is undervalued today. However, the StF model also shows an increasing price every day for the next year to $100,000 USD. According to the efficient markets hypothesis, a rational investor would buy today and wait for the $100,000 USD price to materialise if you trusted the model. That’s why we rate Bitcoin as a Strong BUY
Monthly Memes
It's often hard to visualise the relative value of currencies. Below is $100 US, $100 worth of Gold and $100 worth of Bitcoin (Barcode) at 1st Jan 2020.
What do you think each of those is worth today in USD?
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