Listen up folks,
Most of us were here in 2017. After the crash in 2018, we dreamed of another bull run, but deep down many wondered when or if it would come. It was pretty clear that the dumb money who got burned by vaportokens and ICO's was not going to return with the same irrational exuberance from 2017. We knew the next bull run would need a different fuel.
2017 was the bull run where crypto pretended to be Silicon Valley. You saw a lot of ridiculous justifications on why certain businesses needed to be put on the blockchain. Even more absurd was that they needed their own blockchain and token. It felt very reminiscent of the 90's tech bubble, because you had this promising technology (blockchain) being used to hype up new projects. It became a frenzy and many of us participated while simultaneously realizing the entire ICO sector was a joke.
This new bull run is much different. It's not characterized by vaporware and anonymous Russian crypto tokens pretending to Silicon Valley 2.0. This bull run is the result of the growing belief that cryptocurrency is an investable asset class and warrants a consideration for allocation in every well-rounded portfolio.
It comes at a unique point in time, where interest rates are 0 and fiat currencies are being printed at truly unprecedented levels. 10Y Treasuries are yielding just above 1%.
https://fred.stlouisfed.org/series/M2
People are absolutely flush with *cash* but there's very little places to put that cash. The stock market, especially in the US, and especially the tech sector, is trading at record valuations & multiples.
https://www.macrotrends.net/stocks/charts/AAPL/apple/pe-ratio
https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart
Many call it a bubble and expect a crash on equities (and BTC). However, a crash means that people are desperately selling assets in return for fiat currency. Once they have that fiat currency, there is no way to earn income on it, because interest rates are 0. And the Fed/Treasury has shown it is more than willing to print money in any major downturn, diluting the value of fiat.
So why would investors take the major risk of holding cash in a downturn? They would be heavily incentivized to buy a dip in equities, because once again, there's hardly anywhere else to allocate investment. Sure, real estate is another option. Guess what, real estate is booming too. Home prices are up 8.4% over the past year, and are forecast to grow another 10.5% this year, according to Zillow:
https://www.zillow.com/home-values/
So both equities and real estate are at all time highs. How about metals? Shouldn't Gold and Silver be in a bull market? Interest rates are near 0, Fed is printing money. This is the shocker. Following the 2008 crash, gold and silver went on a magnificent run, under similar conditions to today. It seemed like it was happening again this summer, as gold hit an ATH and went past the $2000 mark. But then, something changed.
https://www.buybitcoinworldwide.com/bitcoin-price-in-gold/
Sometime in October 2020, BTC completely flipped the switch on Gold and went from 5.7 oz per BTC to 28.12 oz per BTC. It really is quite significant, because Gold & Silver would normally be a great hedge against the risks we see in today's markets. This chart is suggesting that BTC is the new and improved version of Gold.
https://goldprice.org/gold-price-history.html
In 2008, after the markets bottomed, gold went on a crazy run. It bottomed around 700/oz and topped out above 1800 in 2011. Nearly a 2.5X throughout the recovery from the Financial Crisis. Compare that to the recovery from the COVID March crash, where gold went from $1500 to $2000, roughly a 33% gain from its bottom, and it's now down to below $1800.
So how does this all relate to portfolio allocation and Bitcoin? Well, portfolio managers are looking for ways to provide return on capital. Traditional asset allocation would be a mix of:
- Stocks
- Bonds
- Treasuries
- Precious Metals
- Cash
- Real Estate
Stocks & Real Estate are at all time highs. Metals are apparently being "replaced" by cryptocurrencies. Cash is being diluted and devalued. Bonds and treasuries return very little due to low/zero interest rates. So you see the conundrum for asset managers. They have trillions of dollars to allocate. Worldwide wealth is estimated @ $360.6T. USA alone is estimated around $105.9T.
https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth
Wealth seeks investment. The majority of people's money does not get spent on yachts, cars, and private planes. It sits in a portfolio with the purpose of appreciation. Traditional portfolio allocations are being turned on their heads, because major asset classes provide returns below inflation (bonds & treasuries). Where the hell are people going to put all their money?
That is what is behind this recent cryptocurrency boom. And that is why *this time it's different™*. Cryptocurrency is a revolutionary new asset class which excels in periods of uncertainty, low interest rates, and the potential for high inflation. Bitcoin's market cap of $965.5B represents less than 0.26% of worldwide wealth, and less than 10% of Gold's market cap.
Currently, you are hearing many portfolio managers mentioning putting 1-2% of a portfolio into BTC. This is a breakthrough, because it signifies that institutions and large-scale portfolio managers are treating this like a real asset class worthy of allocation. As cryptocurrency becomes more accessible and cemented in portfolio management, it is conceivable for this allocation to move closer to 5%.
Imagine portfolio allocations of 5% on worldwide wealth. Suddenly you're talking about levels around $16.8T, or somewhere above $850K per BTC. Do I think it's going to happen anytime soon? No, that would be irrationally optimistic. But you can see the types of value we are looking at here. And none of these valuations or allocations depend on black swan events like the collapse of the USD.
TL;DR Bitcoin is becoming increasingly accepted as an asset class worthy of allocation in investment portfolios. This could drive price growth to levels that would initially seem inconceivable.
Disclaimer: I am long BTC
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