What you need to know about the stock market in 2021
Did you miss out on a Bitcoin investment last year? Are you hoping to make up for it in 2021? As you are probably aware, those who bought Bitcoin in Q4 2020 already made a profit of +160% by mid-February. So, a $20,000 investment would now be worth over $50,000.
There are some very useful pointers there I particularly liked the strategy of weighted average of progressive and automatic investing.
But what if you are set on investing in Crypto - what are the options?
There are different ways to gain access to crypto each with different fees and risks. You may set up your own wallet or invest in a closed end fund such as The Grayscale Bitcoin Trust (GBTC). Alternatively, you may wish to be invested in an active managed fund such as the one I have been overseeing now for the last four years.
Clearly doing it yourself presents problems in terms of keeping your passwords safe but also to pass on to next of kin and to diversify your credit risk to custodians. You can get around this issue by trading in a closed end passive fund. Many people have invested at an average premium of 16% retaining daily liquidity and more sophisticated have invested at parity in exchange for a 6 month lock up.
However, at some point all these closed end funds go out of favour and trade at a discount to reflect the costs in terms of a number of years of fees. For example, if you discount 2-5 years of fees then GBTC with 2% fees will trade at 4-18% discount at some point. Note that open ended funds (such as our Digital Currency Fund) always trade at net asset value (NAV).
However, the above strategies still have several flaws. For one, crypto trades continuously but you may not wish to spend every hour monitoring the news and price fluctuations. Worse still GBTC and futures contracts only trade on business days so only 69% of the year.
Secondly the extreme volatility means you need to have clear exit plans in mind to take profits or even for the long term holders you will need to rebalance as a portion of wealth. Having a co-investor such as ourselves suggesting profit taking levels is extremely helpful.
In the previous bubble in late 2017 we advised and took profits at an average price of $14,600. The price subsequently fell as low as $3,400 at which point in 2019 we suggested reloading in advance of the next halving event and potential rise. We advised clients to take profits recently at $40,000 just before a fall to $32,000. Clearly, however, the market is higher than that as I write today.
Many experts predicted that Bitcoin Cash, Litecoin, Ethereum, Ripple and others would be the dominant force. We also monitor the Blockchain space, which is very transparent, to spot any potential alternatives. Our analysis has been very critical of Bitcoin Cash, down 99% versus BTC I also have a mistrust of Ripple, down 70% last year when Bitcoin tripled. You need to ensure you have 365 day access, so you can have a helpful exit door and maintain exposure to the best crypto currency.
Finally, the most important reason for an active approach is that no one knows who the ultimate winner will be in the crypto space. Will it be Bitcoin or something else?
Not such a bad start to the second quarter of the year after all despite all the seemingly other impacting negative factors.
Last week many of you will have noticed there was an increased volatility in the digital currency markets – not an uncommon event!
But did you know how to take advantage of it? Rather than running shy from this, as many might have, it actually presented an opportunity for my crypto trading fund.
The opportunity presented itself as I saw short term holders selling, which together with liquidations in the futures markets drove prices down. Conversely, at the same time this volatility attracted long term buyers in to the market and accumulating.
At one point on Wednesday afternoon my portfolio was 92% lent out at a whopping 200% per annum gross. Whilst some of these exceptional rate loans have been re-financed, largely my portfolio still remains optimally lent out at very attractive average rates of over 50% per annum. Overall market leverage has steadily and not instantly reduced.
Again, as in previous instances of significant sell offs in the market, I still find that the margining systems worked exactly as expected and I experienced no defaults on any of my loans.
This is another good example of how the right strategy takes advantage of volatility and performs well in down as well as up market moves thus giving investors the option to earn periodic outsized returns on top of very appealing base returns.
So, as the saying goes, “you need to be in it to win it”.
Bitcoin does not work as a daily medium of exchange. It is the reserve asset of the crypto-sphere. When all else fails, there is bitcoin. This is because of its stock to flow ratio, as well as its portability.
I always say, truthfully, that I do not own bitcoin. But who knows? Perhaps I own Satoshi’s wallet of one million bitcoin. All I would need to move and to access it is a memorised list of 12 to 24 words.
I strongly recommend that you look at Saifedean Ammous’s “The Bitcoin Standard”, subtitled ‘The Decentralised Alternative to Central Banking’; a most enlightening read.
It’s one of, if not the best volume, that I have read on money since I walked out of an economics degree at University way back in the 1980s. I could not believe in Economic Man then but I know forsure that bitcoin is telling us something now.
