Wall Street and The Halvening

May 12, 2020

I hope this update finds you safe, sane, and adjusting as much of the country begins to reopen in the midst of COVID-19.   While this virus certainly has center stage, I want to keep you informed on what is happening in the crypto markets as we are entering a watershed moment in time.

WALL STREET TITANS EMBRACING BITCOIN

Wall street is now embracing Bitcoin, which represents a major step for the world of traditional finance.  Earlier this year Renaissance Technologies jumped into the crypto world and filed with the SEC to allow trading of Bitcoin futures contracts. This is relevant as Renaissance has often been viewed as market makers.  Jim Simmons, their founder, is known as “the man who solved Wall Street” and one of the most successful investors in decades.

This is further underscored by Paul Tudor Jones of Tudor Investment Corp. who states in this Bloomberg article that Bitcoin “reminds him of buying gold in the 70s.”   This is another huge endorsement by an industry titan who is now one of the first traditional “mega” investors to publicly embrace Bitcoin. If you’ve been following Tradecraft Capital for a while you understand that we view Bitcoin as digital gold and more importantly a digital reserve asset. Indeed, it was specifically designed to have many of the same attributes that make gold such an attractive asset to own, especially after market crashes like the one we just experienced.  That Jones is now stating this publicly and investing in the asset is incredible.

This brings me to one of my favorite quotes by Mark Yusko of Morgan Creek Capital:

The greatest wealth is created by being an early investor in innovation.  Making that investment requires believing in something before the majority of people undrstand it.  You will be mocked, ridiculed & criticized for your non-consensus action.  It is absolutely worth it!

THE HALVENING

The Halvening (you may have heard of it referred to as the Halving – it’s the same event) happened yesterday, May 11, 2020.    I’ve been discussing it in prior updates but as a quick refresher, this event is where the amount of Bitcoin earned by Bitcoin miners was cut in half.  Said more simply, the mined supply of Bitcoin was reduced and Bitcoin now is harder to acquire via mining operations.  This creates scarcity, and scarcity drives value. This event has happened twice before, in 2012, and again in 2016 when Bitcoin mining rewards went from 50 to 25 BTC, and 25 to 12.5 BTC.   As of yesterday, the reward is now 6.25 BTC.  Each time this has happened previously, within a period of approximately 18 months, Bitcoin (and other crypto assets) jumped an order of magnitude in value.  Time will tell what happens this Halvening, however we agree with the experts who are now bullish on crypto and expect a bull run for the ages.

MANAGING VOLATILITY

One of the questions that I have been fielding a lot is about volatility as this is one of the reasons that individuals do not feel comfortable investing in the crypto markets.  Certainly, these markets are volatile, however I would suggest that one’s time horizon can provide incredible perspective on this topic.  It’s true, Bitcoin has had a low of $3,850 and a high of $10,050 so far this year, and the rapid rise of BTC from $7,500 to $9,000 in April, a 20% gain, shocked many people.

Consider, however, that this is only volatile based on a short-term view.  Let’s put this in perspective over a couple of years. If you were smart/lucky/fortunate enough to buy Bitcoin back in 2016 at $675/coin, you would be ecstatic right now regardless of price, be it $7,500, $4,000 or $9,000.   Moreover, if you had bought at that price and sold at market highs of ~$19,783 in late 2017, you would have realized a 2831% gain.

It’s easy to look back at a high and a low and create a spread that shows gains.  It’s very hard to get it right in reality.  That’s one of the main things that we focus on.  We dampen volatility which decreases risk.  Our proprietary systems allow us to deliver superior risk adjusted returns in an asset class that is delivering asymmetric returns.

IN CLOSING

I want to talk about provable scarcity, one of the important attributes of any asset that appreciates.  This is an important aspect going forward after the Halvening, and it’s something that will be more and more important in the coming months and years, however that’s a meaty topic so will save it for next update.

I’ll leave you with the concept that, though we talk a lot about Bitcoin we have seen that there are others that may outperform.   These are the assets that support a new technological age, the Age of Autonomy, which we are entering right now.

Most people don’t see it. Some that do don’t believe it.  A few, however, see it, believe it, and are going to capitalize on it.  We founded Tradecraft Capital to provide a vehicle for those few, and we believe this could be an excellent time to consider investment in crypto assets.

If you’re considering adding crypto to your portfolio as a true hedge, an outperforming asset class, or an opportunity to have a stake in the future, we would love to speak to you.

Until we do connect, stay safe and sane, and we will continue to keep you informed and Decrypt: Crypto for you.

About the author James Diorio

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