Why Billionaires Are Buying Bitcoin and My Ethereum Plan #39
Market Meditations | November 11, 2020
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Stay one with the markets in as little as 10 minutes in this guided meditation.
We’ll begin with an Ethereum analysis, arguably one of the best opportunities in the market right now. We will move on to consider how the increased involvement of institutional investors reinforces the bullish Bitcoin trend. Next we will look at the market briefing, followed by an exclusive with the inspiring Roy Blackstone and ending on self improvement and reflection.
$476 – Key Resistance. Key resistance we need to overcome. Will look for a retest or breakout play here.
$439- Key Support. This level serves two purposes. Great opportunity to increase long exposure and doubles up as a bias invalidator. Currently we are heavily bullish, losing this level is our first sign of the trend weakening.
$415 – Invalidation Zone. As the name suggests. This invalidates our bullish bias.
Institutional Investors and Bullish Bitcoin Implications
Over to Bitcoin. Let’s explore the increased involvement of institutional investors in the space. Why should it matter? Well, with so much fresh demand from institutional investors, we could see sustained buying pressure for the foreseeable future. This would further reinforce the bullish outlook on Bitcoin.
Stanley Druckenmiller, a billionaire U.S. investor and hedge fund manager, is the latest addition to the list of prominent Wall Street veterans either endorsing or adding Bitcoin to their portfolio. It almost seems that we’ve reached a tipping point and Bitcoin has become an acceptable conversation topic amongst Wall Street institutions and investors. Are we at the forefront of more so-called institutional money entering the space, something crypto investors have been waiting on for years, or will names like Paul Tudor Jones and Stanley Druckenmiller remain outliers in seeing Bitcoin as a promising portfolio addition?
Digital Gold: Bitcoin as Inflation Hedge
Why now? Let’s start with a paragraph or two explaining why this year has been phenomenal for Bitcoin in terms of institutional adoption. Attempts by central banks around the world to save the economy from too much damage inflicted by the Covid-19 pandemic are one of the main drivers behind Bitcoin’s price action this year. By printing and injecting trillions of dollars into the system trying to pull the economy out of a deflationary spiral, investors became sceptical that the central bank approach wouldn’t lead to higher inflation. Central banks stimulating the economy by lowering interest rates and printing money by buying obligations isn’t a new phenomenon, and traditionally investors have looked at gold and other scarce assets as a store of value to protect themselves from seeing their money being inflated away.
Proponents of Bitcoin as ‘sound-money’ have always seen Bitcoin as digital gold because of the many similarities the two assets share. This year, Wall Street investors opened up to that perspective with Paul Tudor Jones calling Bitcoin ‘the fastest horse’ in the basket of inflation hedges. This week, Druckenmiller said on CNBC that his gold position is “many, many more times” larger than his Bitcoin “but frankly if the gold bet works, the Bitcoin bet probably works better.”
Removing Career Risk
Big names entering the space individually doesn’t have that much of an impact per se. An underrated aspect of legendary investors like PTJ and Stanley Druckenmiller being public about adding Bitcoin to their portfolio is that it removes career risk for other money managers as well. Bitcoin has been a very controversial subject since its inception and receiving a green light from investors with a long-standing reputation makes the topic debatable for other players in the industry as well.
After PTJ’s announced, Bitmex co-founder Arthur Hayes appropriately tweeted out: “Paul Tudor Jones just removed career risk from investing in Bitcoin. Expect a lot of beta fund managers to begin cooking some copy pasta” In reaction to this week’s news, Real Vision founder and Bitcoin proponent Raoul tweeted out his thoughts on the subject as well:
The Race is On
With publicly traded companies adding Bitcoin to their balance sheet and several multi-billion dollar hedge funds looking for Bitcoin exposure, the oldest cryptocurrency is quickly maturing from being a controversial asset unable to be valued by Wall Street to a technological and monetary innovation that can no longer be ignored. Even legendary value investor Bill Miller went live on CNBC last week saying that “if people do not have exposure to Bitcoin, I would strongly recommend it at current prices.”
The list of investors showing support for Bitcoin is rapidly getting bigger in a year where the daily supply available on the market was cut in half. Knowing that ~61% of all Bitcoin in circulation has not moved for over a year with a supply that became even smaller in May this year, it’s hard to not be bullish on Bitcoin over the next few years. Smart money is still accumulating with retail investors largely on the sidelines and market euphoria nowhere to be found. All available metrics point to Bitcoin being at the start of a new cycle in a year where it outperformed any traditional asset to a large degree. We’ll keep our readers updated with our views on the cycle as the market progresses over the next few months and even years.
Reading through news that can impact markets is time consuming, allow me to do it for you. My highlights and key headlines. Selected and summarised for traders.
US ELECTION: Biden Confirms Crypto-Savvy Gary Gensler Will Lead Financial Policy Transition Team. Gary Gensler, a Washington and Wall Street veteran who is friendly towards cryptocurrencies will lead the financial policy team for projected U.S. President-elect Joe Biden. Gensler has testified before Congress about cryptocurrency and blockchain multiple times where he pushed back against comparisons between cryptocurrencies and Ponzi schemes.Read more.
RIPPLE AND XRP: Ripple Buys Back XRP for the First Time to Support ‘Healthy Markets’. Ripple bought $46 million worth of XRP in Q3 of 2020, despite already owning nearly half of the digital asset’s supply. In a market report, Ripple said that it “is purchasing – and may continue to purchase – XRP to support healthy markets”. Read more.
OIL DEMAND: Oil Pares Gain With Near Term Virus Threat Clouding Vaccine Hope. Oil pared gains as the risk of renewed lockdowns crimping demand in the near term took some of the wind out of a vaccine-driven rally. Futures surged in New York as much as 4.1% to a 2 month high and Brent topped $45 a barrel before easing the advance. OPEC once again cut estimates for the amount of crude it will need to provide in the coming year. Read more.
BINANCE: Binance Blocks U.S. Users From Accessing Its Exchange Platform. After the Bitmex lawsuit two weeks ago, The Block has now learned that Binance has started blocking U.S. users from accessing its platform. This comes more than a year after the most popular altcoin exchange first announced that it would stop serving customers from the U.S. Read more
DALIO AND BITCOIN: Bridgewater’s Dalio Sees Governments Banning Bitcoin Should It Become ‘Material’. Ray Dalio, the founder and co-chairman of Bridgewater Associates, the world’s largest hedge fund, said he sees three main problems with Bitcoin and other cryptocurrencies that will limit their future, including that governments will “outlaw” them should they start to become “material”. Read more.
Roy: Stoic Mindsets, Cryptocurrency Investing, 2 Hour Work Days
Roy Blackstone (@fillbeforeshill) is an author, entrepreneur, trader and successful investor. He started his journey in crypto as a trader but eventually realized that investing was more suitable to the lifestyle he wanted to live. He’s the current director of Special Projects at YF Link and author of the fantasy novel Bladeseeker.
In his episode, we talk about Roy’s journey into crypto and how he transitioned from being a trader to a long-term investor. We explore the importance of elevating your pain threshold, looking for setbacks in every opportunity and how to make yourself more effective during the day. Roy also shares his thoughts on Chainlink, his reading recommendations and we end with his story as an author writing his fantasy novel Bladeseeker.
Things I learned:
Be cold towards your investments. Mastering emotional management is an essential skill.
Unexpected life events will inevitably result in pain. Success is determined by whether or not you can push through that pain.
Practice gratitude. If you can support yourself, have family and friends, you have most of what you need.
Working for yourself is often glorified. It usually means working twice as long for half the reward.
Think Pareto when doing things you don’t like. Aim to get 80% of the benefits with 20% of your time.
There’s an abundance of opportunity in the market day traders, swing traders, quant traders, angel investors, long term investors and the list goes one… work to your strengths.
My Guide to New Traders: Common Mistakes and Remedies
I can remember being new to trading. So can many people. In this next section of today’s newsletter, I will share common trading mistakes and remedies. Do not repeat the mistakes of past traders. It is an exciting and fast paced environment but we must also remain prudent, here’s how.
Let’s begin with common mistakes:
Lack of a clear trading plan. The marketplace is dynamic, with limitless possibilities facing an active trader. Without a clearly defined trading plan as a reference point, a trader will react in a reactionary posture and struggle to stay on the market’s ‘lead lap’.
No defined money management strategy. If the fundamental principles of money management aren’t employed, you may jeopardize the solvency of the trading account.
Satisfying the desire to be right instead of making money. The realisation that one can be wrong about many things and still make money is a difficult idea to accept, but one that is a key part of trading.
And crucially, how to avoid these mistakes. Let’s begin with money management. Develop a money management strategy. A comprehensive money management strategy relates risk to reward and clearly defines the cost of a losing trade and the gain of a winning trade. Next, develop a view. You can do this by reading the market meditations and other news and forming a view before everyone else does and through technical analysis. I have a whole range of videos that will guide you through technical analysis. Use your view to develop a trading plan and during a volatile period, allow these to serve as a reference point and provide much needed context to the chaos. As for the final point, allow every mistake to be a lesson and learning opportunity. Establish what you didn’t get right and apply it to your thinking process when you form your new trading view and position. We most often become better traders through learning from our mistakes.
What were your common trading mistakes when you first got started? Got any advice for new joiners? Be sure to share them in the comments section either on substack or Twitter. Let’s work together to share our knowledge and all build richer lives.
Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.