It’s that time of year again. Holiday stories and legends abound with Santa Claus being one of, if not the most predominant. Santa really began to get popularized in the early 1800s, but ultimately historians agree is based on a monk named St. Nicholas who is speculated to have lived around 300 A.D. That was a long time ago. Much more recently, 2005 to be exact, two American authors created the story “Elf on a Shelf” which speculates that Santa has elves sitting on shelves in the rooms of children all over the world, which then report back to Santa who is good and who is bad. Frankly, it’s a bit Orwellian for my taste, so I’m not going to comment on these little creatures watching us except to say that somehow this has become a tradition.
What I will comment on is the news of the season. The Bitcoin Spot ETF, which has been shelved ever since 2013 is about to be off the shelf. It’s pretty much all anyone in the world of digital assets is talking about. So, I’m going to leave this final blog of the year short and sweet. And, I’m going to do a bit of a departure from my general market musings and talk almost exclusively on the investment opportunity that is in front of all of us because it may never be this good ever again.
Santa’s ETFs
Forgive me if you’ve heard this story already but it’s just too important to ignore. The ETFs are coming, and they are truly imminent. They really started to catch fire when the courts ruled in favor of Grayscale back in August, noting that the SEC had wrongfully rejected Greyscale’s proposal to convert its bitcoin trust to an ETF. This ruling was then formalized in October. Since then, it’s been a feeding frenzy with 12 applications pending approval by the SEC. That it will be approved is a “fait accompli.” It’s inevitable and it is around the corner. It’s speculated that we will likely see approval in January, certainly Q1. (There is a chance, however, that we could see SEC chair Gary Gensler give us all an early present with approval before end of the year, so we forget the kind of shellacking he’s received this year.)
Once approved then the institutional money is expected to pour in. I discussed this a couple of blogs ago so will not repeat it here except to note that, as each ETF needs to be backed by bitcoin, there will be huge buy pressure. On the other side of the equation it seems that people aren’t selling. Long term holders are at an all-time high, with approximately 68% holding untouched for over one year. So, with that kind of ravenous demand coupled with that kind of supply hoarding…. It’s the poster child for supply and demand economics and it is expected to light this bull run on fire.
How high will price go? It’s hard to say, but couple this with the upcoming halving event and we have a supply squeeze coming up to boot. For those not clear on the halving here’s a pretty straightforward article, but the simple summary is that bitcoin, which has a limited supply of 21 million, gets moved into circulation as nodes on the network (miners) do work, about every 10 minutes or so. Every four years however, the amount that is moved into circulation each time work is done gets cut in half and, in 2024, this amount will drop from 6.25 to 3.125 bitcoin. The rate of supply replenishment is slowing down.
This having event, which alone is expected to drive price due to increased scarcity, is expected in mid-April 2024. Assuming the ETFs are approved in January, and that the ETFs take 90 days to launch after approval this means that ETFs will be available in…. mid-April. Serendipity? Perhaps. But perhaps not. The point is, at the end of the day, the stars are aligning, demand is growing, supply is shrinking, and the run is already running. This is going to be big. It also stands to be the next seminal event for anyone who wants to preserve and grow their wealth.
Wealth Preservation and Wealth Creation – A Blockchain Two-for-One!
So, let’s do a quick sidebar. How do the rich get richer? Well, they preserve the money they have. Then they use their money to create more… money. Blockchain technology opens the doors to both and creates this opportunity not just for the wealthy, but for everybody!
Gold is well known as the seminal safe-haven asset. Simply put, fiat currencies (dollars) devalue over time, and gold is one of the places investors go to keep their money from losing value. It is not debated that a dollar is roughly worth 1% of what it was, compared to gold 100 years ago. Bitcoin, a money use case modeled after gold, is now being hailed as the new safe-haven asset, with Jurrien Timmer, Director of Global Macro for Fidelity stating, “Bitcoin is a… hedge against monetary debasement… I think of it as exponential gold”, while AllianceBernstein noted, “Bitcoin is a safe haven more attractive than gold.” and Larry Fink, CEO of BlackRock, is on the record stating that the crypto markets are “a flight to quality”. So, if you want to preserve wealth, the top asset managers in the world are now touting what we were touting years ago. “Hold some bitcoin, it’s better than gold.” I agree.
But what about wealth creation? Time has proven that great wealth is created by investing in innovation. Rockefeller did it with oil, Carnegie with steel. I won’t begin to speculate the kind of politics and maneuvering it took for them to become these industry magnates, but they cornered markets and rose to the top of their industries, each as one of the chosen few. You don’t have to be one of the chosen few any longer. The ability to invest in innovation – in blockchain – is available to everyone. You don’t need to corner a market. You just need to get on the bus.
Now this does not mean be foolish. Do I think you should get in without any understanding? No, that’s how you get squished in these markets. Do I think you should go buy random crypto assets? No, I do not recommend that. Most will be worthless, and I want to stress that blindly buying crypto is like going to Vegas. However, there are sound technologies out there that are poised to stand the test of time, and investing in those will be game changing for those that see this pattern. This is what Jake, our CIO, has been talking about for years with his foundational thesis, the Age of Autonomy. It is a more conservative approach to be sure, because trying to guess the next “big winner” is fun! (It’s just rarely profitable.) Conversely, finding the real foundational players is where the long-term gains will come. Investing in innovation creates wealth. Blockchain is that innovation. We think it is the best game in town. And right now, we think it’s the best time ever. Let’s explore this further.
Alternative Alternatives
Bitcoin has always commanded the press and the fascination of everyone because, well, it’s money. It is also the first mover. I would argue though, that it is the least exciting thing in the blockchain world from an investment perspective. Consider that the noble grandfather of crypto is currently hovering about $42k and is expected to land at something like $125K at the end of this next cycle in 2025. Not bad. That’s about a 300% return in two years, which is nothing to sneeze at. However, consider that there are other blockchains in the marketplace that we believe could garner 10x, 20x, 30x and more over the same period. And, no, I’m not talking about some meme coin, bitcoin competitor or nonsense project designed to make the project founders wealthy but ultimately which serves no purpose. (Let’s remember that the vast majority of projects out there are redundant, nonsensical, or are just cash grabs.) There are valid and important technologies, however, and these are technologies that are garnering adoption by the biggest companies in the world. As an example, Citibank is now using blockchain technology for FX trading, Franklin Templeton is using blockchain to manage one of their money market funds, Walmart is using this technology for supply chain management, and the list goes on and on.
And it’s still so early. Let’s use our internet example. Let me take you back to the 90s when the internet became sort of useful. In that decade we saw the advent of an internet browser (Netscape Navigator, anyone?), which opened up a new world. During this decade access was almost uselessly slow, but eventually we graduated from 1200 bit/s modems to 2400 bit/s, ultimately in the reaching (wow!) 56,000 bit/s. That’s not remotely usable today, but way back when, with the “blang-boop-skreetch” of our dial up connection, we could connect to the internet and browse at *yawnfest* speeds. We could look up web pages which at the time generally nothing more than digital billboards, but that was about it. There was no Amazon, no iPhone, no online ordering of groceries. What was a breakthrough in the day would not be anything near fast enough to support the world we are in today. The concept of an ever-connected cell phone or, internet access on a plane or the ability to stream video anytime, anywhere on pretty much anything was unthinkable. But it got us started and look at the world today. It is downright unrecognizable. Yet here we are.
The internet was a technology that changed everything and blockchain is next. And it’s going to take some time to mature. The point is blockchain is here to stay. (Note: I know, we’re all distracted by Artificial Intelligence, but blockchain and AI will work together in this new future, along with other technologies, so I’m standing by blockchain.) And, we are ridiculously early in the blockchain adoption cycle. So, while all the excitement is on bitcoin, the real growth is going to be in the infrastructure – the technology. This is the real opportunity and is where next wave of wealth will be created.
In Closing
Everyone loves gifts. My gift? Just a gentile prodding to not sit this one out. Yes, do your homework. Yes, determine how it fits into your portfolio. Get away from the hype. Don’t (please don’t) jump in blindly. But also please don’t ignore what is happening.
One of the reasons that Jake and I wrote Crypto Decrypted (which I’m proud to say has just won another award, this time 2023 American Book Fest “Best Book” Award for Personal Finance/Investing) was so people would understand this space. It’s the same reason I write these blogs. I almost missed this whole thing entirely because I dismissed it many years ago and I don’t want anyone else to make that mistake.
So then, this would be my holiday gift to you. If what I’m saying makes sense at all then I hope you will find it a gift worth opening.
Until next time have joyous holidays and a Happy New Year. I’ll see you again in 2024 and keep Decrypting Crypto for you!
Disclaimer: Not investment advice. This information should not be construed as a recommendation, investment or tax advice, or an offer or solicitation to buy or sell any security. Past performance of a fund is no guarantee as to its performance in the future.