Are We There Yet?

July 9, 2021

Road trips. You either love them or hate them, but as a kid, when you were told to get in the car you did just that. When taking long trips almost every child, strapped to back seat by an unwieldy seatbelt, asks the inevitable question “are we there yet?”, only to be met with the inevitable response “we get there when we get there!”  The same could be said of the next phase of this bull run.

I’ve spent the last two blogs discussing the state of the markets, why we’re still in a bull market and why we are anticipating huge gains in the back half of the year. Obviously “we get there when we get there” and, while we can’t predict the future, we have strong indicators that we’re heating up again and ready to take the next upward leg not the least of which is that we’ve had significant institutional inflow into all digital assets in July.

I won’t beat this drum further in this blog. Instead, while we continue this road trip to $100,000 bitcoin and beyond (remember the stock-to-flow model), I want to highlight some points of note because quite a lot has been happening in the world of crypto assets.

Bitcoin is good for the Environment?

There has been (and will continue to be) much debate about how bitcoin impacts the environment and, it’s true, it does take a lot of energy to solve the puzzle of mining.  Let’s not forget, however, that necessity is the mother of invention and, just like Elon Musk and Michael Saylor spearheaded the Bitcoin Mining Counsel, the need to have clean energy crypto may be just the thing that propels a transformation in that area.  This topic is getting national attention and Newsweek picked up our own CIO Jake Ryan’s recent article  Can Crypto Boost Clean Energy?  In this article Jake specifically addresses this topic head on noting that bitcoin mining takes significantly less energy consumption than gold and traditional banking infrastructure and, importantly, that a real percentage of bitcoin mining is carbon neutral and bitcoin could spark more interest in renewables because of its revenue incentive. (Bravo Jake!)  Does this mean we shouldn’t strive for reduced energy consumption? Of course, we should, and that’s what is happening.  If we stopped every new technology when we first hit a roadblock we’d still be in caves.

Before this is passed off as crypto bull bias (Jake does manage our investments at our Tradecraft Autonomy Fund), I want to note that the UN jumped on this bandwagon as well and publicly stated, “the UN believes that blockchain, the technology lying behind these online currencies, could be of great benefit to those fighting the climate crisis, and help bring about a more sustainable global economy.  Let’s underscore: “could be of great benefit to those fighting the climate crisis”. Wow. They go on to say that the “impact on the climate is far less than that of heavy hitters such as the agriculture, construction, energy, and transport sectors”, continuing to note that the many benefits of blockchain can be transformative to do good in the world. Importantly they point out that the aim of the Crypto Climate Accord is to “decarbonize the industry in record time” and achieve net-zero emissions in the global crypto industry by 2030.

There are many ways this can happen but it’s going to take a minute. In the meantime, it would be silly to throw the baby out with the bathwater. We just need to draw a new bath that’s more energy efficient and, in the perspective of the UN, crypto could well be the nudge we need to make that happen and take energy efficiency to the next level worldwide.

Signal to Noise Ratio

It’s hard to make heads or tails of what is happening in this new world of crypto asset classes. Media is often the opposite of helpful as headlines change daily; opinions are strong, widespread, and occasionally they are based in fact.  The question of what to believe is one that many wrestle with.  As perspective, it is worth remembering that mainstream media creates a lot of noise, because fear, uncertainty and doubt (FUD) gets clicks.  Media wants you to be uncertain and focuses on hype to get your attention. So where should we look?

I think there is merit at looking at what the big boys and girls are doing. This cuts through the noise.  On that point, according to a recent survey, 82% of all institutions will be increasing their crypto exposure over the next two years.  It seems that the way one thinks about the asset is key to this as is illustrated in this Nasdaq article, Institutions Investing In Bitcoin Isn’t About Money — It’s About The Mindset, noting that originally institutions didn’t want to invest in bitcoin, they had to invest or be left in the proverbial dust. It is difficult though, because bitcoin – being a technology – challenges many conventional economic theories.

Perhaps that’s why Warren Buffet, who is well known for not investing in technology companies, compared Bitcoin to rat poison in 2018.  Technology isn’t his go to however and times do change, as evidenced by Berkshire Hathaway famously taking a big slice of Apple over the recent years, a move that bucked convention.  In that vein it would seem that even Mr. Buffet is warming up to the inevitability of the new paradigm of crypto as, noted by Markets Insider, Berkshire Hathaway Invests $500M In Brazilian Digital Bank Nubank.  This is another about face (or at least a left turn) because Nubank offers a Bitcoin ETF.  Yes, that’s right.  Buffet’s Berkshire Hathaway just placed half a billion dollars in a digitally based bank that proffers the very asset he so disdained. That is, indeed, interesting and points to a much larger horizon.

In this case as in so many others, I think macro-based actions speak much louder than words.

In Closing

If there is just one point I would encourage you to take away from this blog it’s that institutions are in because they had to get in.  Just like the internet, electric cars and streaming video,  technologies gain steam and then suddenly are ubiquitous. At some point Bitcoin and crypto assets will be ubiquitous. I encourage all investors and those who are “crypto-curious” to be conscious of the fact that technology changes seem to happen overnight when in reality they were occurring in plain sight.  Of course, keep learning, do your own homework and look at the big picture, because one thing I am sure of is that nobody wants is to be Blockbuster in a Netflix world.

That’s all for now. Be well, stay safe, and we’ll continue to Decrypt: Crypto for you!

About the author James Diorio

James is a Principal and Chief Executive Officer of Tradecraft Capital.