Welcome to Bitcoin City!

30.11.21 12:46 AM By Stormrake

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

Summary:

If you are a busy investor that doesn't have time to read this whole newsletter here is a brief summary:

* Bitcoin hit another all time high in November prior to falling 22% from those highs and recovering much of that.
* Bitcoin City was announced. A brand new city with no Income Tax or CGT, where Bitcoin is legal tender.
* Inflation has reared its head in the US and Australia as a flow on effect from earlier money printing
* Equities were hit hard by news of another strong variant of Covid-19

or Read below for all the detail.

Inflation continues

Some of our readers may have noticed that petrol prices are higher. The September quarter numbers released by the ABS (Australian Bureau of Statistics) show that maximum unleaded prices rose to the highest level ever recorded due to "higher global oil prices amid economic recovery and supply disruptions". A closer look shows furniture prices are going through the roof in Australia as well as cars. If you haven't checked your car's value recently, you might be pleasantly surprised. However, don't sell your car to see how much you've made because you will struggle to buy another one at a descent price.

Let's have a look at what's happening in the US:

* Inflation annual

The US is experiencing high inflation only a year after everyone thought inflation wasn't possible while the economy was struggling.

The Fed came out to say this is nothing to worry about because inflation is just "Transitory". Here's the exact extract - "Inflation has risen, largely reflecting transitory factors". The Fed was trying to say that this is a temporary blip and prices will return to normal (it's just covid). No one at this office bought that line and the graph above shows inflation kept rising.

Now we are at the next stage of government narrative. Blame someone else:

Elizabeth Warren is a Senator in the US Congress. Here she blames corporations for gauging you but is that really the truth of the matter.

Let's have a look at money supply again:

Grey area shows an incredible increase in money supply (M2). This has never been rolled back. In fact, the printing has been increasing. The astute reader might notice the graph isn't up to date though. Well that's because the M2 supply statistics have been discontinued, meaning we can no longer see clearly exactly how much money is being minted. One thing is for sure however, this amount of money printing eventually leads to higher prices whether you are Turkey or the United States of America.

This all leads us to the final questions?

1. Why should I care?

Inflation can be the least understood and biggest "tax" you will ever pay. Pensioners relying on their nest eggs for retirement are currently getting killed by inflation after enduring years of getting almost nothing on their term deposits and fixed income. All those investors making 10% in equities might be saddened to find out that they still can't afford a new car especially considering the CGT they will be paying on the equities gains. First home buyers saving for their first home will never be able to afford one if they save in dollars.

2. What can I do about it?

Hold Assets

Wealthy people know that you don't store your money under the mattress in dollars. You have to hold assets that can't easily be printed like dollars can. The hardest of those assets is Bitcoin which not only has a finite supply but you know exactly what that supply is. There will never be any more than 21 Million Bitcoin and there's a decentralised network out there protecting that. By buying Bitcoin you become immune to the wealth destruction created by central bank money printing.

Bitcoin City

So, what is Bitcoin City? Well, the president of El Salvador is not content with just being the first to make Bitcoin legal tender. Now there are plans to build a physical Bitcoin City in El Salvador. Nestled on the coast, at the foot of a volcano, in an are close to Honduras and Nicaragua lies the site of a future city that will carry Bitcoins name. The city will be the worlds first to be free of income tax and Capital Gains Tax as well as Payroll Tax and Property Tax. The only levied tax will be GST and the infrastructure will be financed by Bitcoin backed Bonds that have a 6.5% coupon and a possible bitcoin bonus. I know, sounds a mix of insane and impossible but so far everything that president Bukele has promised has come true and in good time. He is leveraging the talent of some of the greatest minds in the crypto space for ideas and the ability to pull this off. The city incentivises people to move there from all over the world and it may just work because the economy will have Bitcoin at its centre - a currency that can't be manipulated.

Video of the Month

We've been posting some short video's in the last few months so here is one that takes a bit longer but might shake your whole world view. We met Saifedean at a conference in the USA prior to COVID19 and were immediately impressed. He had just released a groundbreaking book called the Bitcoin Standard and in 2021 has just published a follow up called the FIAT standard. In this discussion Saif covers why he published the book and what he found out while researching for it. Take some lazy time out and have a listen.

Markets

Bitcoin is currently trading around $58,000 USD down from the same time last month despite reaching another all time high of just under $70,000 USD in November. The recovery seems to be on with markets rising despite low levels of leverage. Solana has outperformed Cardano in November with SOL assuming the 5th spot by Market Cap. Bitcoin dominance has fallen under 40%.

* Top 8 Coins by Market Cap thanks to Coin Gecko

In the NEWS

1. B itcoin City Announcement

As we already mentioned, digital and decentralised is becoming physical bricks and mortar with a city being built for the sovereign citizen. At the very least I have to see this for myself.

2. Black Friday Crash

History has a way of repeating itself and this year we had more pain on and around Black Friday with equities, energy and crypto all having sell offs. The main reason for the crash was the new variant of Covid19 - Omicron. Crypto was affected because of liquidity issues in other markets. If you need cash and all the traditional markets are closed you might reach for your crypto (But it would be a big mistake).

3. Dorsey steps down as Twitter CEO

If you are stepping down from a giant like Twitter you must have something pretty important to do. Jack Dorsey will be concentrating on Bitcoin and running Square (famous for being the largest corporate owner of Bitcoin for a while). Square has some significant plans in the pipeline.

Warning bells

If your postman, taxi driver or yoga teacher is giving you tips on the next coin to pump then it means crypto is definitely mainstream but it should also trigger an alarm that at least part of the market could be overheated.

We're seeing some crazy gains but the amount of "street talk" is very reminiscent of the 2017/2018 alt-coin cycle. Therefore, as we approach the 5th quarter of this bull cycle, I'd like to take some time to examine the 2017 cycle and consider what lessons we can take away. Firstly,

Are you buying because you believe in the project or because you think the price will go up?
If you were forced to own the coin for 10 years, would you still make the purchase?
What market is the project trying to capture and what competition is there for that market?
If you are buying this for a short term pump, then who will buy it (bigger fool theory) and how will you time the sell?

The recent 20% "dip" in bitcoin received heavy buying action from whales & institutions moving to buy the dip and as we've written before, this sort of action seems to signal the likely break bitcoin away from the 4 year bull/bear cycle.

However, we don't expect many of the alts to fare so well. So if you're chasing the big alt-coin gains, ensure you have an exit strategy. Here are some of the darling alts from the 2017-18 run.

Ripple (XRP) suffered a 95% retreat from its 2017-18 highs and is still below

EOS.io (EOS) had a 90% pullback and has also failed to recover

Litecoin (LTC) fell 92% and despite some positive action, still sits below the 2017-18 highs

Meanwhile, Bitcoin is a boring 200% gain (3x) from its 2017 high.

Stock to Flow Valuation:

Back to the traditional stock to flow model this month made by Plan B. I've used this model because the pattern seems to be breaking down. What do you think? Do we have the model breaking down or is this the buying opportunity of the cycle? Either way we are in the zone which will make or break this model. Yellow is where all the action is.

Monthly Memes

* Please read the FIAT standard which is out now. Ask your broker for a copy.

Until next month, Happy Investing!

Stormrake Team

custody@stormrake.com

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