The Rake Review: March 2021
Welcome to the Stormrake Monthly Australian crypto market & education update.
For sophisticated investors who want to expand their crypto knowledge.
* Photo provided by AR & DK Pope on their trip through SE Australia
When it rains it pours: As if we haven't had enough disasters in 2021, the floods in NSW add one more. And while this craziness continues, two phenomena roll on. Every Central Bank creates more fiat at insane levels and Bitcoin keeps on rising.
Another month, another All-Time High for Bitcoin ($61,800 USD *Bittrex). That's a lazy 408% increase from 6 months ago. Interestingly, someone measured the velocity of this Bull run and worked out its lower than previous Bull runs. That's to be expected. Each Bull-run should be less insane, and each Bear Market should be better than the last as Bitcoin nears maturity and that Market Cap becomes significant. It also makes technical sense as each halving (every 4 years) has a reduced supply impact to the previous one.
There have been multiple Bull Runs in the past. Each one accentuated by a new wave of demand from a different sector of the economy. Bitcoin went live at the start of 2009 as the 2008 financial crisis showed that the economy was not bullet proof. Back then there were no exchanges, and it was very hard to know what the price of Bitcoin actually was. People traded directly with each other until the first exchange was set up. Price is a function of supply and demand just like anything else and supply is fixed with no more than 21Million Bitcoin to ever exist. Price then becomes a function of demand and demand has risen in waves ever since the first block was created.
By 2011 we had our first Bull Run with the price topping at a whopping $31 US on the back of Libertarians realising that Bitcoin could become a way to get around Banks and have more control of their own money leading to freedom of movement and privacy.
By 2013 we had a second Bull run with the All Time High (ATH) at over $1,000 USD for the first time. The peak was 37 times bigger than the last. Early Adopters had realised that for a small investment they could invest in something new that had no upper ceiling and while they might lose everything, they could also 10x their returns. The asymmetric risk was worth a small investment.
A lot of our clients will remember 2017, that's when demand shot up through a retail led craze. For the first time Crypto was easy enough for small investors. They could easily invest in something on the other side of the world and could choose whatever size of investment they were comfortable, and prices rose with Bitcoin hitting $20,000 USD before coming off 85% over the following year. Each time the highs were higher and the lows were higher. Bitcoin was growing at a breakneck speed along with significant volatility that kept the big end of town out............. That is, until now.
2021 might be the year of the fires, locusts, viruses and now floods but it's also the year that institutional investors and investment banks became part of the demand driving us to new highs. The very Banks that said Bitcoin was too volatile to touch 4 years prior are now trading it directly and accumulating for themselves and their clients.
So far the high is just over $60,000. But what will we see this year? Max Keiser (who we met in March) thinks its $220,000 USD. In January, JPMorgan predicted a $146,000 USD Bitcoin Price. Plan B who created the model we use in all of our newsletters has a price target of $100,000USD - $288,000 USD for this year.
2025 - What about 2025? Well my own price prediction for 4 years from now is based on Bitcoin hitting the next level of demand. Governments. In 4 years' time governments that are considering banning Bitcoin will have no choice but to either accumulate it or move to the Bitcoin standard. At that time the price could be $1-3Million US dollars (In line with Plan B and Raoul Pal predictions). So, If Bitcoin gets to $100,000 by May would you be brave enough to sell (and pay tax) in the hope of buying back cheap when you know the long-term target is magnitudes bigger? That's the question facing large investors. The corollary is that if you don't own Bitcoin how can you wait for a "cheaper" price when your upside of buying is so much more significant than your downside.
Let's get into the report:
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This month's VideoMany of the media comments about bitcoin these days, sounds just as silly as these comments on the internet in 1994/1995. |
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| Bonus Video Compare the silly comments on bitcoin "The whole bitcoin market is about a billion dollars - it's a novelty for the geek squad" The Market Cap of Bitcoin is now over 1,000 times larger then when that debate took place. This video shows another expert measuring something entirely new, against all of his entrenched biases. |
Markets
Bitcoin is currently trading around $54,500USD after posting an ATH above $61,000USD. Binance and Cardano (ADA) both spent time at #3 after appreciating heavily but USDT is now the #3 after more printing and a market correction in other currencies. Alts are markedly higher this month with the total Market Cap increasing to over $1.7TN USD with the majority of that in Alts. Uniswap also worth a mention with the largest decentralised exchange going beautifully now worth over 15 Billion.
* Top 8 Coins by Market Cap thanks to Coin Gecko
In the NEWS
1. NFT's on everyone's lips
The NFT space is so hot that 99% of the population still has no idea what that acronym is. We see this as a new craze that may well end badly for some, but it will certainly be fun while it lasts. NFT (Non-Fungible Tokens) are blockchain based unique digital items. For example, it may be digital artwork that can be owned and transferred via a verifiable blockchain. Art and collectibles are selling for insane amounts. Here is one item that has sold for $125,000 USD that explains why NFTs are killing it.
2. Goldman's, Morgan Stanley and Deutsche Bank
Goldman Sachs, the worlds most renowned Investment Bank (ever since they hired me in 2005), has opened a cryptocurrency trading desk.
Deutsche Bank has admitted that Bitcoin is too big to ignore and that governments know they can't stop it.
Morgan Stanley has opened internal funds to Bitcoin investment and will be targeting its clients in a complete reversal of strategy on cryptocurrencies.
What do these institutions have in common? Well, they are all globally powerful investment banks that have gone from rubbishing Bitcoin for years to buying in and telling their clients to invest and its all related to my opening remarks. 2021 is the year that Banks finally jumped on the Bitcoin bandwagon.
3. South Korea passes comprehensive cryptocurrency regulation
Unlike India, who sought to ban crypto (apart from their own digital Rupiah project off course) South Korea, (a country where over a third of its workers trade cryptocurrencies) has sought to put in comprehensive regulations that allow crypto trading but prevent tax evasion. Read above.
4. Cardano (ADA) Massive Rally
Cardano hit #3 in market cap after Bitcoin and Ethereum this month. A huge 2000% increase in 12 months was required to achieve that on the back of really positive news on the scalability and corporate use of the Cardano network. While ETH struggles with scalability (until ETH2.0) Cardano is working hard to steal the mantle of best smart contract network.
Will Bitcoins largest holders become the Ultra-Rich of the future?
Bitcoin has risen so fast this year that people are starting to predict how high it might go. As I noted earlier this has happened many times in Bitcoin's history. If you've held for 4 years you might be doing really well. If you've owned it since 2015 you might have been buying BTC in parcels of 10's or 20's. If you've held it since 2012 or 2011 you may have been buying BTC in hundreds. Some have held so long that their return is astronomic.
So, the question is will Bitcoin cause a new class of mega-rich people that were fortunate or smart enough to buy early, and headstrong enough to hold on without selling.
Let's take a look.
Wallet addresses are public but pseudonymous. We know they exist but may not know who they belong to. There are 89 addresses holding over 10,000 BTC and 2 holding over 100,000. Some of those belong to large exchanges so represent multiple owners.
If someone held on to 10,000 BTC and the price in 2021 hits 100,000USD that wallet will be worth 1 Billion USD. That might get you to the rich list in Australia but not the USA.
What if the price reached 1 Million USD as Raoul Pal predicts? Well, that's a pretty easy calculation, you'd have $10 Billion US dollars and you'd be the 3rd richest person in Australia after Gina and Twiggy our mining magnates.
Bitcoin Dashboard
This month we again focus on just one part of the Dashboard: Corporate Treasuries.
Continuing our theme on 2021 being the year of institutional investors, we look at Bitcoin held by Corporate Treasuries.
This was recently added to the dashboard. A year ago, it was unheard of for corporations to hold BTC on the balance sheet. Then, along came Michael Saylor of Microstrategy and Square and various other corporates. Now we have a massive 7.32% of all Bitcoin held by corporate treasuries. Corporates have significant funds available for this type of investment and they are likely to hold long term unlike retail traders.
A portion of the above is held by investment companies on behalf of others which I consider to be a vastly different type of investment. More akin to a managed fund.
I think that the value held by corporate treasuries will be over 100Billion by the time we prepare the May report.
Stock to Flow Valuation:
Current Long-Term Stock to Flow (S2F) Price: $39,096 USD vs Current Price - $54,500 USD. Market price is now higher than the historical trend suggesting that Bitcoin is overvalued today. However, the S2F model also shows an increasing price every day for the next year to $103,000 USD. According to the efficient markets hypothesis, a rational investor would buy today and wait for the $103,000 USD price to materialise if you trusted the model. That’s why we rate Bitcoin as a BUY
Monthly Memes
NFT's are making some lucky people rich, and they may just quit their day jobs.
Lyn Alden reported this week that the Fed has confirmed they won't raise rates even if inflation rears its head meaning there will be a real chance of inflation overshooting.
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
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