Market Lab Report / Dr. K's Crypto-Corner
by Dr. Chris Kacher
The (R)Evolution Will Not Be Centralized™
The Digital Misinformation Age
In the age of digital information, the depth of misinformation is staggering. As a person who has had to take positions in various bleeding edge tech as I'm sure many of you have had to as well, misinformation is standard. In politics, it's just as bad or worse. I wonder if what Stanford and Oxford Universities say is true: that the actual fatality rate is potentially equivalent to that of a bad flu. It has also been said the average age of an actual (not biased) COVID-19 death is greater than the average life expectancy, and that nearly half of deaths in the US occurred in old age homes, thus the economic lockdown which has and will continue to cause far more damaging second order effects may have been largely unnecessary, but instead perhaps a giant leap for control by various governments over various populations around the planet.
Meanwhile, it seems the world is becoming increasingly isolationist from fear. The Spanish Flu of 1917-18 came in 3 waves. There were no lockdowns. The economy recovered in 6 months, then it was off to the races in the post-war roaring 20's though today, there are more house of cards that have been built than back then.
1.7% of world's population died from Spanish Flu. Today, this is understandably unthinkable even though the actual fatality rate of COVID may be potentially orders of magnitude less than Spanish Flu. All the focus is placed on COVID fatalities while little focus is placed on the potentially devastating second order effects which include non-COVID related health consequences from stress, lost livelihoods, bankruptcies, mortgage foreclosures, spiking homelessness, as well as fatalities. It seems that cost/benefit analysis is no longer relevant because "one person dying is too many." Yet in recent years, an average of nearly 60 million people die from various causes.
The US is becoming increasingly isolationist which in the shorter term means Trump can try to strong arm China into more fair trade deals but in the longer term over the next generation, I see cooperation over competition, borderless over borders, decentralized over centralized... what bitcoin and p2p torrenting have done... what DAOs and DApps will do.
It's interesting to see how government controlled mainstream media shapes views, often towards less truth, as the now declassified U.S. documents show how carefully planned the Gulf of Tonkin and Bay of Pigs were to create hate against Cuba and Vietnam back then which was then used to justify action against Cuba and war against Vietnam. Wouldn't this then suggest that today's mainstream media does the same, or does anyone think reporting has become more truthful? That said, there are some alternative news media outlets that strive to report the truth. Gonzo-type journalists may go on location to countries such as Syria at their own peril to report their findings. Indeed, for the first time in history in 2015, more people started to trust alternative news sources over mainstream sources.
But in these times of news overload, one must spend much time analyzing an overwhelming amount of information to separate fact from fiction. Most dont have the time nor the inclination through no fault of their own. Roughly 3/4 of Americans and Brits live paycheck to paycheck with less than $1000 or £1000 in savings (various sources: GOBankingRates, Forbes, et al). Fortunately, we have ground breaking technologies growing at an exponential rate. The exponential power of expotech is always underestimated. As one of many examples, bitcoin's usage has doubled every year. After a decade, it finally stands at around 1%. From here, the doubling effect will become far more noticeable and impactful.
Bitcoin, Part of Internet DNA?
Speaking of which, the continued debasement and destruction of fiat currencies spurs demand for bitcoin. Blockchain which is the beating heart of bitcoin is the first and only technology that allows for the borderless transfer of value as well as a store of value (SOV) against depreciating fiat currencies. My prediction of $1 mil/bitcoin by the end of 2023 that I made for the 2017 WealthTech event in Geneva still stands. Numerous tailwinds will propel bitcoin to these levels: usage doubling every year, a substitute for gold, regions with negative interest rates such as Europe, Japan, and soon the US, countries with predatory governments such as Venezuela, China, Iran, and Turkey, the wealthy hedging against quantitative easing (QE), $30+ trillion in wealth being passed to the next generation who tend to prefer bitcoin over gold, and institutional investors discovering the best performing asset on a risk/reward basis over the last decade.
No government can stop it. It has become part of the internet's DNA. It is decentralized, private, secure, and hard-coded to 21 million units, so it cannot be inflated away by anyone or any government. So even though Roosevelt made everyone turn in their gold in 1934, no government can make people turn in their bitcoin even if governments made it illegal to hold. People would just cloak or move their accounts outside of the U.S. This is what happened when China and Russia tried to ban it. Bitcoin continued relentlessly higher despite massive corrections of as much as -94% twice since 2010.
It is currently in a long basing pattern which began when it reached a major climax top in December 2017. It is shaping up to be somewhat similar to the one it formed from 2014-2016, a 3 year base, with a major low of $150 hit in January 2015. It took just over 2 years to reach old highs of $1163 in late February 2017.
A 50% move in either direction is a tiny blip relative to its price chart (see blue line below). Bitcoin is exponential while stocks, bonds, real estate, gold are linear. In could be argued that bitcoin represents the future store of value. The key is proportionality. Bitcoin held more of its relative value compared to stocks and real estate in March when everything corrected sharply.
Fiat currencies are a sinking titanic. But with bitcoin in the picture, bitcoin may become the eventual standard of value, with gold as a far less likely possibility even though the dollar was tied to gold prior to 1971. The restructuring of record levels of debt are an inevitability as discussed in Ray Dalio's articles published in early 2020. The world sits at a major long-term debt tipping point. This eventual restructuring of debt will mean the reassigning of values. In 1934, gold was repriced to $35 from $20.67, or a 41% overnight tax on all Americans.
But how times have changed. Back in 2008, The London Times ran a front page story on how, “A second bank rescue package totaling at least £50 billion was announced by the British government on 12 January 2009, as a response to the ongoing global financial crisis.”
And so bitcoin was born as Satoshi Nakamoto's answer to this controlled catastrophe spawned by wrongheaded legislation and central banks.
Today, the U.S. government alone is now printing $50 bil every four days. In a recent 60 Minutes interview, the Chair of the Federal Reserve Jerome Powell was abundantly clear that there is literally no limit to the quantity of money they are willing to create:
“Well, there's a lot more we can do. We've done what we can as we go. But I will say that we're not out of ammunition by a long shot. No, there's really no limit to what we can do with these lending programs that we have . . .
This economy will recover; it may take a while. It may take a period of time, it could stretch through the end of next year, we really don't know. "Well, it seems based on data that the present day lockdown is more deeply scarring than the financial collapse of 2008. Back in 2008, it took 3 years to recover to pre-crash GDP levels. It is likely to take at least that long. So when Powell implies it could take until the end of 2021, that may prove too optimistic a projection which suggests more QE ahead.
So the straight up from bottom stock market is understandable. These days, fighting the Fed really means fighting the Global Fed as so far this year, all 81 central banks have cut rates further.
Meanwhile, bitcoin whales, or the smart money, showed they have been quietly accumulating bitcoin pushing the number of addresses with balances over 10,000 BTC, equal to nearly $100 mil, into an uptrend.
This is underscored by the uptrend in the number of bitcoin holders who buy when bitcoin is still basing before it breaks out to new highs. Buying among bitcoin holders has been on a strong uptrend since mid-2018.
On Trading: Position Sizing Cryptos
Inevitably, bitcoin will reach old highs of just under $20,000 most likely later this year, then with blue skies ahead, and given the numerous tailwinds I’ve cited in various reports, it should have at least a 10-fold move if history repeats. Already, the best performing cryptocurrencies have made more than 10-fold moves from earlier lows. As my PwC audit will show (though quite clear from just eyeballing my trades), I have been able to identify and buy the few that well outperformed bitcoin in each bull market cycle. Money management and position sizing is key. I let my winners run, maybe even pyramiding the position, while cutting my losers short. Final profit/loss means little. Actual $ made or loss is what counts. This performance table showing my picks illustrates how position sizing determines performance. Make the winners count while cutting losses, or if the initial position is a tiny portion against skyrocketing larger positions, one can hold that tiny initial position for a larger % loss if one believes in the technology. Such a large % loss would still mean a small $ loss to the overall portfolio, thus the big gains made in the winners would more than outweigh the small losses by at least an order of magnitude.
Alt-Currency Stocks to Benefit
As for alt-currency stocks, all stand to benefit from the various megatrends at hand including AI and VR, spurred further by the post-COVID environment. AMZN has shown a roughly 70-fold increase in price since the major low it had in early 2009. You could draw a straight line through a weekly log plot going back to 2009.
AAPL has also had a strong rise at a 30-fold gain over the same timeframe, though it has had deeper, prolonged corrections over the years.
GOOGL has been somewhat slower at a roughly 11-fold gain since its major low in early 2009.
But the all-time winning FAANG, alt-currency stock in terms of price appreciation is NFLX at a roughly 160-fold gain since its major low in early 2009, but it had to endure a more than -80% correction that took just over 2 years to recover back to new highs.
On a risk/reward basis, AMZN is the clear winner as its worst corrections were smaller than the others at typically around -33% while still achieving second best upside returns.
We have already sent members alerts on three of the five FAANG stocks. One can use our various entry strategies to buy AMZN (or any of the others) or add to their existing positions, then use various shorter term sell stops to keep risk to a minimum, or for those who are longer term position traders, they can use my 7-week rule (see FAQs) which has worked well for AMZN since 2015, but one does not always have to wait for a violation of the 50-day to sell. One can sell sooner if the market looks prone, then use our re-entry techniques, especially if sitting on strong profits.