Talking all things Bitcoin and Crypto with Stormborn Partners
When it comes to investing, one of my favorite things to do is back test the predictions made by financial analysts, investors, and pundits. For example, the record is littered with predictions about the fall of Tesla. Critics were calling it an epic Ponzi scheme. Tesla has no future. Tesla is about to go bankrupt. Elon is nuts. I have to admit I was one of those who saw Musk as a little flaky and out over his skis with a company that was unsustainable without the hefty tax credits its customers get. In fact, the former CEO of Enservio, a company I founded in 2004 and sold in 2016, went to work for Tesla as their President of Global Sales. He saw the genius in Musk who recruited him after they met at a funeral of a common friend. In fact, I was kind of proud of the fact that a guy I hired, was also hired by Elon Musk. Sadly, 18 months later with Tesla in the depths of a liquidity crisis and Musk spending more time on SpaceX then Tesla, Jon had enough and left Tesla because of Musk’s lack of focus. That was in 2017 and now Tesla stock price is 1000% higher churning out vehicles, innovation and profits. I give my wife Kati a lot of credit as she was on the Tesla bandwagon long before me. Guess what? We are Tesla stockholders.
For years, really smart people sneered at Tesla and shorted its stock. Over the past 10 years, all Tesla has done is revolutionize the auto industry, deliver an 18,885 percent return for its shareholders, and make Elon Musk either the richest or second richest man in the world, depending on the day. Bitcoin is kind of like Tesla. Here’s what Bill Gates said on 2/27/2018 when Bitcoin was $10,755:
“The main feature of crypto currencies is their anonymity. I don't think this is a good thing. The Government’s ability to find money laundering and tax evasion and terrorist funding is a good thing. Right now, crypto currencies are used for buying fentanyl and other drugs so it is a rare technology that has caused deaths in a fairly direct way.”
Then there is no less an investing legend than Warren Buffet on May 5, 2018, summing up Bitcoin as “probably rat poison squared.” Gotta admit that is funny. Bitcoin was $8,723.
Finally, there’s the 11/6/2018 quote from Nouriel Roubini, a famous economist and talking head. Bitcoin was at $6,420 that day.
“Most Bitcoin/Shitcoin investors are retail suckers who are clueless/financially illiterate. That’s why we have laws that leave risky investments only for accredited investors who have a certain level of income/wealth. But millions of Bag Holders were illegally suckered into crap.”
Even Whitney Tilson, a smart successful investor who was on my show twice last year, believes Bitcoin is doomed. He called the top at $20,000 in his December 16,2017 newsletter.
“In the past week, I've been asked about Bitcoin by a parade of the least-knowledgeable investors imaginable – and the only times such foolishness has happened before in my 18-year career were at the peak of the Internet and housing bubbles, so I'm calling a top right now.”
To be fair, Whitney is still holding to his guns, though I bet he wished he owned it for the past 10 years. As of this writing, Bitcoin is at $52,314 and is the best performing asset class by far over the last decade, rising over 9 million percent. We are seeing an increasing amount of buying by large financial institutions and billionaire investors who see it as a hedge against our corrupt political class and profligate money printing by the Federal Reserve. Tesla just announced that it will convert $1.5 billion of the cash on its balance sheet to Bitcoin. Tesla follows other big-time investors like Paul Tudor Jones, Stanley Druckenmiller, Bill Miller and publicly-listed companies Square and MicroStrategy to putting some of the company’s cash into Bitcoin as a reserve asset. Mexico’s second richest billionaire, Ricardo Salinas Pliego stated that he put 10% of his liquid net worth into Bitcoin. I expect Apple to announce this year that it will convert several billion dollars of its massive cash hoard to Bitcoin.
This is a totally rational move given that our federal government has sent the monetary printing presses into overdrive. To illustrate the magnitude of the problem, here are some fun facts from the Phoenix Capital Research:
1. If you add up all of the money the U.S. has ever printed… over 40% of it was printed in 2020 alone.
2. In three months in 2020, the U.S. increased its deficit by more than it had during the past five recessions combined (’73, ’75, ’82, early ‘90s and Great Financial Crisis).
3. Under Jerome Powell, the Fed bought more Treasuries in SIX WEEKS than it did in 10 years under Ben Bernanke and Janet Yellen.
4. The Fed just printed another $100 BILLION last week alone.
5. At, $7.557 trillion, the Fed balance sheet is not only at a new all-time high, but it’s now the size of the economies of Japan and the United Kingdom, COMBINED.
All this money printing has ignited an inflationary storm. The Fed refuses to acknowledge it, but the reality is staring us all in the face. Put simply inflation is ripping through the financial system. It’s no mystery why Bitcoin is over $52,000 per coin.
Here’s what another guest on my show, investment analyst Lyn Alden, says about Bitcoin:
“It’s a supply-and-demand problem. Cash App, Grayscale, and now Paypal are mega-scale buyers of Bitcoin for their clients, and this is sucking up a ton of the liquid amount of coins. The combo of Cash App and Paypal alone is now buying more coins than are generated per day. A big percentage of existing coins are held by long-term holders who only part with coins at higher prices, so as these new buying avenues keep coming in against limited supply on exchanges, we get a price increase due to scarcity of supply. And along with a price increase, we get more demand and interest from people hopping on after the breakout… I’m holding Bitcoin, not trading it. I haven’t sold any Bitcoin and don’t plan to yet.”
What is Bitcoin?
Bitcoin is the first and largest of a class of digital assets referred to broadly as “crypto currencies.” It was created in the midst of the Great Financial Crisis in 2008 by an anonymous computer scientist or group of them named Satoshi Nakamoto. In their nine-page whitepaper, they described an electronic ledger referred to as “the blockchain”, where Bitcoin is created and stored. Bitcoin allowed—for the first time ever—money to be transferred quickly and securely without a third party, (bank or government). The inventor’s fundamental belief is that a true currency must have a finite and capped supply.
More specifically, Bitcoin is transferable digital tokens created on the Bitcoin blockchain network through a process known as “mining,” which is similar to mining gold—except it is done through computing power, where production follows a pre-designed and predictable schedule. Miners are rewarded with bitcoins for successfully verifying transactions. How are Bitcoins mined? They are done so in “blocks,” with an average of 144 blocks mined each day. This equates to 900 Bitcoins created daily until the pre-determined limit of 21 million coins is mined by the year 2140.
About every four years, or following every 210,000 blocks mined, the release of new Bitcoins decreases by 50%— making Bitcoin increasingly scarce over time. The most recent “halving” occurred on May 11, 2020, reducing mining reward amounts to 6.25 Bitcoins per block from the previous 12.5 Bitcoins per block. The scheduled halvings are a brilliant feature of Bitcoin—maintaining Bitcoin’s integrity by continuously limiting new supply in a concept entirely foreign to central banks and government.
Here’s why Bitcoin is such a good store of value. It’s durable- not easily destroyed. It’s Portable. It’s fungible meaning you can buy stuff with it. It’s verifiable because it sits on the highly secure encrypted blockchain. It’s Divisible- Easy to subdivide. It’s Scarce- only 21 million will ever exist. Neither US currency nor gold check all these boxes.
Although Bitcoin (BTC) is the first and by far the largest at a $969 billion market cap, there are hundreds of other cryptos out there, many with their own utility and store of value characteristics. The most important of these is Ethereum (ETH) with a $221 billion market cap as of this writing. What makes ETH valuable is that it extends the utility of the blockchain from just a secure digital accounting ledger, to a development platform upon which other applications can be built. Central to this a feature called “Smart Contracts” which enable digital transactions to occur automatically. There are already numerous applications in the marketplace build on the ETH. Once example is real estate where smart contracts record property ownership. They optimize transaction speed and efficiency by reducing the need for lawyers or brokers. Sellers can take charge of the process. This allows for a more transparent and cheaper alternative to property title management. Title defects can get in the way of transfers which result in legal fees. However, smart contracts keep track of a property’s history, location, and all other important details that will be needed for title assessment. They help avoid fraud through encrypted codes which are tamper-proof.
Introducing Stormborn Partners
Many of the investment advisors I follow say that it makes sense for most people to have some exposure to crypto as a hedge against inflation and the continued degradation of the $US as the preeminent global reserve currency. That exposure should be thought of in a similar fashion as gold as a hedging instrument which means up to 5% of your net worth. A good to way to think of it is in terms of how likely you feel it is that we will have the kind of hyper-inflation that leads to a serious currency devaluation or collapse. If you feel 100% sure that won’t happen, you probably shouldn’t invest in crypto as a hedge. If you’re 98% sure, then consider investing 2% of your net worth into crypto. There are ways to invest in crypto directly including several well-established exchanges like Coinbase or Gemini. It’s easy to setup and account on-line. You can also invest in the publicly traded Grayscale Bitcoin Trust which is an entity that owns Bitcoin that you can own a piece of. It has a market cap of $27 billion as of this writing.
Personally, I have chosen to invest with a professional manager who specializes in crypto, aka not just Bitcoin. And with that, I would like to introduce my guest Putnam Kling of Stormborn Partners. Stormborn is a new fund that is growing fast but is limited to qualified investors which won’t be a fit for everyone, but if you fit into this category and are interested in learning more about Stormborn please reach out to me and I will connect you with Putnam.
Click here to listen to my interview with Putnam Kling of Stormborn Partners.