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The Institutional Investors Are Cheating On You With Bitcoin
Cascade Capital

 
 
00:00 / 00:16:30
 
1X
 

Investors,

A few big headlines struck my eye the other day.

The first was Fidelity Digital Assets to Custody Bitcoin in Kingdom Trust Retirement Accounts. The second was PayPal Letter Seems to Confirm Crypto Capability Rumors.

Without diving too deep into the articles, we are noticing and feeling a subtle shift in investors’ attitudes towards digital assets. Lately, it seems like there is a desperate desire to learn more and gain an advantage in the future. Wall Street and traditional finance companies are quickly and quietly trying to merge the two worlds. They are not ready to let the bull run yet until they have their share. For the first time in history, a normal person has more knowledge about an asset then wall street.

When I began this journey almost 4 years ago, never would I have imagined I would know more about an asset than Goldman Sachs and these traditional finance giants.

These companies are supposed to be bigger, faster, stronger, yet I am beating them to the finish line with just a phone-in hand and immense curiosity about the future of the internet.

I call boulshit though. I think these guys are saying one thing and doing another. The institutional and their financial advisors are shouting about Bitcoins’ volatility and criminal use case, all to benefit their business and keep the money in their hands. Yet, behind the scenes, they are buying bitcoin, they are learning, and they are curious. Bitcoin is like the man your wife told you not to worry about or vice versa. Once the sun goes down though, your wife is spending her time with a new, better version of you, Bitcoin. Yes, I am laughing at myself for this comparison, but your wife is cheating on you with bitcoin. The people working in traditional finance are cheating.

Bitcoin the taboo story.

Speaking of a cheating scandal. I recently was contacted by a Senior Vice President, Financial Advisor of a firm with $500+ million AUM. I won’t name names but they were very curious to learn more about this digital asset class and how to navigate it.

The main part of the email I was sent read:

I’m interested in learning more about Bitcoin and would like to sit down and chat with you sometime.  At X company, we aren’t able to buy it or discuss it in any serious way with clients but I’m looking forward and guessing there will be options for us to discuss with clients in the future.  In the meantime, I would love to know more.  I’m particularly interested in:

The ability for holders to earn interest from their holdings

Your thoughts on other cryptocurrencies

View on where the price can end up in the very long run

Security

Publicly Traded Companies that stand to benefit from providing services to the holders and miners.  (along the lines of the companies that provided supplies to miners during the gold rush)

Now there is a small part of me that wants to tell this person to kick rocks and do their own research. I don’t want to share my secrets and hard work. Yet that is a status game. In a status game, someone has to lose and someone wins. I am looking to play the wealth game and build a better world, together, with everyone. It’s going to take a village to create a just world. It is going to take optimism and humility.

So let’s answer these questions, shall we!

The ability for holders to earn interest from their holdings.

In a traditional finance world, a solid strategy for a conservative investor (usually someone later in age) is to invest in companies that pay back a healthy dividend. These dividends can serve as a source of income for someone in retirement.

Crypto doesn’t have dividends per se, but you can put your assets with a company and earn interest on your holdings. It is very similar to earning interest for putting your money in a bank. Except your bank is robbing you blind by barely paying interest anymore.

An excellent, reputable company paying customers for holding their assets on their platform is BlockFi. BlockFi can’t legally say they are a bank but instead relay that they, “provided the wealth management products crypto investors need, all powered by blockchain technology.”

If I transfer BTC, ETH, LTC to my BlockFi account, I can earn up to 6% APY on those holdings. Furthermore, I can take the cash in my bank account, purchase a stablecoin (pegged 1 to 1 with USD), and earn 8.6% APY.

Banks should be scared. BlockFi is giving its customers real value.

Your thoughts on other cryptocurrencies.

In its current state, bitcoin is a risk-on asset and should be treated as correlated to the S&P 500. I believe long term bitcoin will be a risk-off asset, similar to gold. When this shift happens, I am not sure.

I wrote an article about this topic of blockchain over bitcoin and I still believe it is accurate. In the article I wrote, “according to coinmarketcap.com, there are almost 5,500 digital currencies in circulation as of May 2020. 11 years ago, Bitcoin was created and the unknown Satoshi Nakomotos’ legendary code was out in the open. As the technology started to get recognized, many sought to copy its code. This proves to be a terrible strategy.”

My views are apparent in my recent tweet storm as well (Altcoins = every coin outside of bitcoin):

At the end of the day, I am not saying these other coins don’t have any value at all. Yet, bitcoin has the biggest market cap, the most liquidity, the most experience, the biggest hash rate. A rising tide raises all ships and bitcoin is the biggest ship. I would rather put my money in the number 1 company instead of the number 2, 3, or 4.

Chamath Palihapitiya, the CEO of Social Capital and chairman of Virgin Galactic, explains this best in this video:

I recommend watching it in full but skip to about the 20 min mark where explains his view on other coins and why you should buy bitcoin and never look at it again.

Let’s pull on the opposite end now. I am starting to grow a deep passion for Ethereum (ETH).

There were plenty of ‘bitcoin killers’ out there. I have noticed the trend shift to ethereum. I have seen several news headlines recently claiming this cryptocurrency was an ‘ethereum killer.’ Everyone was trying to copy bitcoin and it seems developers are trying to copy ETH. I like to see this for a few reasons. One, ethereum is showing its resilience and market penetration. Two, ethereum is showing it has different use cases than bitcoin. I see bitcoin as the next global reserve currency and ethereum building web 3.0.

Everyone is building on ethereum and the data shows where the money is flowing.

According to defipulse.com, there is $2.46 billion now locked up in DEFI applications. Ethereum is powering this new, decentralized finance machine.

So going back to the original question, my bet is bitcoin and ethereum. (Heavy BTC allocation – example 90% BTC / 10% ETH ). Depending on your risk tolerance and crypto knowledge, you could take an additional 5% from your BTC and play around with some of these altcoins but I don’t recommend it.

View on where the price can end up in the very long run.

Price predictions are extremely difficult and I try to keep my mind away from these fantasy lands. The only thing I can control is how many bitcoins have and my time preference.

Plan B is someone I follow and is considered an expert in the space, who has been trying to mathematically explain a possible price for BTC by 2024.

In his most recent article, he predicts the price of a single bitcoin to $288,000.

The S2FX model formula can be used to estimate the market value of the next BTC phase/cluster (BTC S2F will be 56 in 2020–2024):

Market value = exp(12.7598) * 56 ^ 4.1167 = $5.5T.

This translates into a BTC price (given 19M BTC in 2020–2024) of $288K.

I highly recommend you read his work and the counter-arguments to his work to develop your own opinion.

Bitcoin is a similar technology to Uber where it creates a whole new industry while at the same time taking all the value of the existing system. Bitcoin has the potential to not just suck the value from gold, but also real estate, art, diamonds, financial services, etc. The future and upside are exciting and this makes it hard not to daydream on price.

The best thing to do is to follow Chamath Palihapitiya advice: buy it. hold it. pick a long-term time horizon. And never look at the price again.

Security.

It’s funny that security is the 4th question I was asked by the financial advisor because this is also the 4th phase in my paper – Phase Transitions Of My Friend Moe ‘The Bitcoin Hater.’

I recommend reading/listening to the broken down article here.

However, I will include a section that I believe is important to highlight:

There is a saying in crypto “not your keys, not your coins.” With Bitcoin, you have a wallet that has two addresses. One of them is public-facing and the other is private. Think of it this way, the mailing address at your house is your public address. Anyone can send you something if they have your address. However, the keys to your house are yours and yours alone. If someone gets your keys, then they can do what they want with the stuff in your house. Your Bitcoin wallet is similar. Of course, the security functionality is far greater and more thoughtout than simply the keys to one’s house.

Once you buy Bitcoin on an exchange like CoinbaseGeminiKraken, or cash app, that exchange creates a wallet for you with public and private keys. You are trusting the exchange with your private keys. You are trusting the exchange with the keys to your house.

To secure your private keys and coins, I recommend this company to take a look at:

Casa – provides secure storage solutions for digital wealth, namely Bitcoin. Their flagship product is Keymaster, a software + expert service system designed to provide the highest level of cryptographic key security and usability. 

There are a bunch of other ways to secure your bitcoin but Casa provides great UI/UX and a full trustworthy suite of products including a way to pass your bitcoin to your loved ones if you die.

Now, I realize not everyone wants to deal with the technical and sovereign implications of holding your own private keys. If you want to get exposure to BTC or other coins without actually purchasing the assets, I would check out Greyscale – a trusted authority on digital currency investing, Grayscale provides secure access and diversified exposure to the digital currency asset class.

According to their website:

Grayscale Bitcoin Trust enables investors to gain exposure to the price movement of bitcoin through a traditional investment vehicle, without the challenges of buying, storing, and safekeeping bitcoins.

*Publicly quoted on OTCQX® under the Alternative Reporting Standards

The downfall of using GBTC is you pay a premium from the price of bitcoin. As of today, you pay about a 6% premium.

Publicly Traded Companies that stand to benefit from providing services to the holders and miners.  (along the lines of the companies that provided supplies to miners during the gold rush)

I am happy that this question was brought to my attention because I haven’t thought too deeply about it. I have no exposure to equities at the moment. My sole focus is on crypto assets.

Square

The first company I would look at is Square (SQ). The CEO, Jack Dorsey, is extremely bullish on the technology and is helping build the foundation of this ecosystem. Square crypto provides numerous grants to Bitcoin developers. Check out this article explaining it here. Furthermore, Square developed the Cash App. Inside the app, you can create a wallet and buy bitcoin. The Cash App can also act as a way to send money, be your own bank, and invest in the stock market. I am extremely bullish on Square.

Lastly, this is Jack Dorsey’s Twitter bio:

Bitcoin is the currency of the internet and Jack is leading the way.

Fidelity (FNF)

Fidelity created Fidelity Digital Assets which has been making headline after headline. I would look to them to bring the traditional finance world into crypto in a safe regulated way.

Public Mining Companies

Mining is a very key component to the success of bitcoin and the ecosystem. Without mining, there would be no one to verify transactions and keep the network secure.

I would check out this list:

Hut 8 Mining (TSXV:HUT)

HIVE Blockchain (TSXV:HIVE)

DMG Blockchain (TSXV:DMGI)

Marathon Patent Group (NASDAQ:MARA)

Codebase Ventures  (CSE:CODE)

Riot Blockchain RIOT (NASDAQ) 

NVIDIA(NASDAQ:NVDA) – (leading manufacturer of graphics processing units )*

Coinbase

Coinbase is one of the largest spot market exchanges in the eco-system. According to a report by Techcrunch:

Coinbase is the latest mega-startup that may approach the public markets. The digital currency exchange company could follow Palantir, which is also nearing its IPO, after the secretive data-focused unicorn announced that it had filed privately.

Earlier today Reuters reported that Coinbase, a popular American-based cryptocurrency trading platform, could pursue a public debut later this year, or early next year. Plans remain fluid, according to the report, which went on to say that the crypto-focused fintech company “has been in talks to hire investment banks and law firms.”

CME Group(NASDAQ:CME) – only exchange that creates a market for bitcoin futures contracts.

This is not a final list but one that will be tweaked and updated in the coming years. Until then, I will keep learning, listening, and remaining optimistic. Buckle your seat belts people!

-molesy

As a reminder, this is not financial advice. Do your own research. 

Thank you for reading or listening. 

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