As 2020 Ends the Run Continues; Intro to Stablecoins

December 22, 2020

As the year comes to a close, I think that most would agree that 2020 (a year that brought us the pandemic, political strife and economic challenges) is a year that we’re glad to be done with.

One bright light through all of this is the world of crypto assets, and we believe that over time we’ll be able to look back and say, “2020 was the year that the world warmed to crypto.”  I’ve unpacked the many reasons why this is the case in previous updates, so I’ll not do so again.  I do, however, want to highlight a few of the notable events that have occurred most recently.

MicroStrategy Doubles Down Again, Now Holding over $1B in BTC

MicroStrategy, who shocked many by converting $250M of its cash treasury to bitcoin this fall, then converting another $175M shortly thereafter, just doubled down again.  Through a capital raise the enterprise purchased a whopping $650M in bitcoin at an average purchase price of ~$21,925 per coin. Wow. Just wow.  While some look at the recent gains and think this run is over, MicroStrategy certainly believes it’s just beginning.

Trading Gold for Bitcoin – and the World Beyond

It’s not just MicroStrategy. Over the past few months many naysayers have changed their tune and sentiment as Bloomberg noted that Wealthy Are Jumping into Bitcoin as Stigma Around Crypto Fades.  It’s not just high net worth individuals either, as the month of December found $51 billion global investment firm Jeffries selling gold for bitcoin, and conservative insurance company Massachusetts Mutual Life making a $100M investment in bitcoin.

It seems that bitcoin has shifted from the status of “black sheep” in the financial world to something more like “little darling.”  And now that institutional money is in the game, it is literally fuel on the bitcoin fire.  This is the first step and, importantly, as we’ve been sharing, there is an entire cryptoverse out there that is beyond bitcoin. We expect sentiment to warm toward other crypto assets in the coming years just as they have to bitcoin in 2020.  The Age of Autonomy is here.

Age of Autonomy in Print, on Podcasts

We’re proud to announce that Crypto Asset Investing in the Age of Autonomy is now in print and available for purchase.  This was a labor of love by our CIO Jake Ryan and unpacks fundamentals of the crypto marketplace, the Age of Autonomy thesis, and many of the tools and strategies that we use here at TRADECRAFT Capital.

Jake was also featured in this podcast with Tom Shaughnessy of Delphi Digital and, importantly, his latest article “Blockchain Can Unlock Enormous Economic Potential” was published in Real Clear Markets (and, now that the book is done, there will be regular, insightful articles again.)

Stablecoins

Finally, in a year that has been anything but stable, we’ll close our 2020 updates with a quick overview of an oft overlooked but very important crypto asset class, stablecoins.  As the name implies stablecoins are, well, stable.  They are pegged 1-to-1 to a fixed currency, the most common being the US Dollar.

Stablecoins serve a very important role in the cryptoverse.  The primary role is that they are used as a way to hold a consistent value, while still staying in the crypto marketplace.  If I want to convert, say, one bitcoin to “cash” at a price I like, I can initially convert it to a stablecoin such as USDT or USDC.  This allows me all of the benefits of a crypto asset while virtually eliminating short term volatility.

Another way stablecoins are used is as a means of exchange.  Anytime bitcoin (or another crypto asset) is exchanged it’s possible, and very likely, that there will be price fluctuation even over short periods of time.  This means that when using bitcoin to pay for goods and services, it’s hard to say exactly what that bitcoin will be worth a day, week or month later.  If a stablecoin is used that value is fixed, it does not fluctuate.  This allows transactions to be settled without any concern about payment value variance.

Stablecoins are also used to transfer value in some closed systems and also to hold consistent in yield-producing Decentralized Finance (“DeFi”) systems.  They share all of the great properties of crypto, including true digital ownership, ease of transmission and no counterparty risk, while eliminating one of the largest complaints about the world of crypto, which is value fluctuation.

In Closing

It has been a year and, what with the pandemic, not an entirely good one. In the world of crypto assets, however, it’s been a doozy. As we enter 2021, we’re expecting more great things from crypto and, as this run continues, it would not surprise me at all to see another nice boost after January 20, inauguration day, and continuing through Q1. We believe returns on crypto assets in 2021 will dwarf those in 2020.

I do hope that this update found you and your family safe and healthy and that this continues through your holidays. We’ll pick up this conversation in 2021 and until then, be well, stay safe, and we’ll continue to Decrypt: Crypto for you in the new year.

About the author James Diorio

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