Macro Dragon: Checking-in on Bitcoin... Legendary Trader Paul Tudor Jones, is in Love, with Bitcoin & Gold...
Global Macro Strategist, Saxo Bank Group
Summary: Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon: Checking-in on Bitcoin... Legendary Trader Paul Tudor Jones, is in Love with Bitcoin & Gold...
Top of Mind…
- Its been a while since we have checked in on Bitcoin, having spoken publicly about it since 2014 shortly after joining the sensational Saxo Squad – One Team, One Dream. To it being part of our 2017 Outrageous Predictions where we were saying it could do +3x, that ended up being conservative as Bitcoin clocked +14x for 2017. To us dropping a firm-wide embargo on public commentary on it publicly from Jan 2018 given the magnitude of insane speculation & potential for disaster for people who have no business buying something they don’t understand. Would make the robin hood junkies look conservative by comparison.
- Bitcoin hit a high of $19,511 according to Bloomberg on 18 Dec 17 (one can point out that that the high was more likely between c. $20,000 to $22,000 depending on which crypto exchange you had traded on), before going into a nuclear winter of about a year where it lost -84% of its value.
- Let’s restate that again, it did +14x, then it lost -84% of its value. This is not a 50% allocation of grandma’s income-oriented pension fund.
- Since then the low has been $3,136 in mid Dec 2018, followed by 4 big waves of which we currently seem to be in the fifth giving us percentage moves of +340%, -54%, +63%, -63% & were +128% as of May 13.
- Saxo don’t offer Bitcoin futures, as that’s dependent on our prime brokers who still don’t accept them from the exchanges. We do & have been one of the first to offer ETNs that track crypto assets such as Bitcoin & Ethereum – so proxies. They are listed on Swedish, US & Swiss stock exchange & trade during local hours – unlike Bitcoin that trades 24/7, with volumes at over +$40 billions.
- So why is the Dragon checking-in now on Bitcoin? – there is at least three key things. We have now had the latest halving (May 12th), we have also heard from PTJ (last wk) & lastly the need for an alternative asset for diversification away from the QE / Debt sirens of debasement & synthetic prices has never been so desperately needed across the globe.
- For those on the VIP mailing list, pls see attached the May 2020 Investor letter from legendary trader Paul Tudor Jones, who has been trading & thriving since 1980 – so yes, he has seen a cycle or two.
- For context - His initial claim to fame (publicly at least) was making a killing & famously predicting the 1987 crash before it happened, where he made a fortune. Since then he has grown Tudor into one of the most successful, respected & best track records in the hedge fund space through multiple regimes – this by itself is a fascinating aspect, i.e. if you got back to the first few market wizards books, a lot of those wizards ended up being one regime ponies – most either folded, washed out, blew up or simply faded into the background due to under-performance… very few of them continue to run money successfully over the last few decades. PTJ is also known as an avid philanthropist & conservationist, with his crown jewel the Robin Hood foundation (targeting youths in poverty in NY) having been run since 1988 – being a pioneer in looking for measurements around the effectiveness of charity & philanthropy (something still very much missing in this modern day).
- Net-net, whilst he may not be well known outside of the circles of finance, he is a pioneer & maverick, a head tall above the rest of the smart money crowd. Its not to say he does not get things wrong – we all do & he is notorious for being able to keep stopping out of tight stops repeatedly, as he attempts to catch the reversal of a big trend – its more the magnitude of the wins that he gets right.
- As of E1Q20, Tudor BVI Global had over $21.6bn of AUM. Why is this significant? Well, Jones is so enamored with asymmetrical potential for Bitcoin that they have adjusted the mandate of their funds to be able to trade in bitcoin futures, keeping their max allocation to low single digits which can still get us to a $1bn position. The investor letter is quite interesting in the fact that it talks about the dangers of QE unlimited, the exponential growth in debt, etc, whilst laying out the framework & rationale around the thesis of being long gold & long bitcoin.
- We will not go into too much detail on all the frameworks & rationale, as a lot of it is symmetrical & correlated to the arguments for our own prime conviction bullish views on gold which we covered here Dissecting Gold part II of III... The Bull, nor on PTJ also being a gold bull – because we sure as hell are as well on the Dragon, including our CIO Steen Jakobsen & as a formal house view. Yes, near-term gold price action is the gran’ mama of all consolidation, but the tighter the coil in the spring, the bigger the potential bounce. For now on gold, tactically its still about 1725 / 1680 for spot, with the key lvl to close above higher being 1750 & for the bears it’s a close 1635.
- What we will flag are three things:
- One – As you know KVP is big on context, because context gives perspective & 80% of the game is trying to figure out the correct context is & whether that is something that is going to change on an tradeable or investable horizon, or will stay the narrative for a while or its just too hard & unclear. So on the similar theme to what we were saying about gold:
- “Just for context, between Apr & Jun, there will be +$3 trillion printed by the Fed for the US Treasury. That’s a staggering number. That’s c. 15% of the US’s Jan 2020 GDP of $21 trillion, that c. 30% of the $10.9 trillion value of gold globally (based on 200,000 tons @ $1700). That’s 264% of the 1.84 trillion of US Dollars in circulation.”
- Bitcoin market cap as of wed 11 May 2020 is c. $165bn which with gold at $10.9 trillion, implies that Bitcoin is just 2% of Gold’s total current value.
- Basically the total value of gold is +66x the value of Bitcoin – so one can see the argument that you don’t even need Bitcoin to equal the total value of Gold for it to be a colossal return of investment. If it gets to half the value that +33x, if it’s to a quarter of the value that +17x… & that’s vs. gold… lets not even bring in the +$15trn of US government debt, or the over $250trn of global sovereign debt.
- The key theme here of owning gold, is the same for owning bitcoin: diversification from the unprecedented debasement of fiat (especially the USD), monetary experimentation (with zero accountability & skin in the game of the folks pushing the buttons) & perpetually growing debt (i.e. Fiscal stability measures, MMT & the ponzi scheme of the central banks “buying” from their treasury/finance counterparts) – all on the backdrop of what is 100% a global recession & potentially global depression (i.e. much more fiscal support will be needed, in fact as of today there is talks of an additional $3trn in US Fiscal spend that is being discussed)
- Two – its quite extraordinary for someone of PTJ’s caliber to go all out & make a broad statement on bitcoin… whilst obviously he is talking his book (as we all should by the way, no book, no talk), it still cascades to what KVP has echoed for years…. The tacit acceptance of institutions.. the institutionalization of Bitcoin… will accelerate…. Its clearly not reflected in the price – we are still well south of the highs at over -50%. Yet its incredible - even to have anticipated it - to still see it occur is mind blowing. And also make you wonder what do we need to see for Bitcoin to breakout to ATHs. Interestingly enough gold is also south of its ATH, albeit at $1700, gold is only -12% from its $1,921 high from 20 Sep 2011.
- Similar in theme to how MMT was so alien & a polarized concept just 3-6m ago & today we find ourselves in a world where MMT (love it or hate it) is in full blown effect. KP thinks the same thing will eventually happen to Bitcoin & the block-chain space. Despite massive improvement in the last 2yrs alone, there is still a lot of friction in the technology, education, security & trust of the block-chain & it surrounding eco-system… Yet, at some point you arrive at a tipping point, where the world not only never looks back, it literally can never go back to how it used to be. Think how impossible it would be to go back living without smartphones, streaming content on demand, delivery at the push of a button, remote working, cars that don’t run on fossil fuels, internet connectivity, etc.
- Three – we have just gone through the latest halving, which is structural part of bitcoin’s dna that is written in its code, whereby the supply mined is now half of what it used to be. This script happens every 4yrs until we get the maximum mined 21m bitcoins (still +100yr to go), so far there have been 18m bitcoins mined – so we have c. 10% left.
- Technically this is a part that everyone misses, even the biggest bitcoin enthusiasts… there is never going to be 21m bitcoins circulating in supply… it will be much less & one of the key reasons being there is likely hundreds of thousands if not a few million, private keys which have been lost (KVP can tell you some crypto war stories here… remind me about the 80x one if we ever do catch up in person)… those keys are never coming back… i.e. once a bitcoin is mined, one’s private key to that bitcoin is akin to ownership & the ability to move, sell & trade that bitcoin. If one’s private key is lost, the bitcoin network in essence loses that supply of bitcoin forever.
- This is exceptionally bullish, because its no longer just a store of value with a finite base (unlike gold & definitely unlike Fiat currencies), its actually a finite base that is going to be lower than what was initially programmed. So its like all of as sudden discovering that you had budgeted for $100 of earning, but its actually $125… implying that whatever valuation is out there, is actually undervalued.
- Going back to the halving, KVP recently checked in with some of those he considers as part of the best of breed in the space, which meant a call into the Spartan Group - think world class Blockchain & Crypto Boutique in Asia. Usually it would be to talk esoteric investments & 3rd order trade ideas with my man Casper, one of the Co-Founders, who alongside Melody sits on the advisory, token, corporates + M&A side of the business. Yet this time around, KVP needed to check in with Kelvin Koh – Co-Founder & CIO of Spartan Capital, who is responsible for the asset management side of the business, overseeing the allocation of Bitcoin & other crypto assets. The interesting part is Kelvin used to run research at a bulge bracket, before going onto gigs in the hedge fund & later VC side of things – personally KVP thinks it’s that combination that allowed him to see the long-term potential in the blockchain space. And yes, institutional investors only USD 100,000 min ticket – KVP as stated many times previously, would treat any allocations into Bitcoin & crypto as VC allocations, i.e. write them off, be they 0.5%, 1%, 3% or 5% of your total wealth – you are not trying to make +25% or even +50%, you are willing to lose your principle because you are looking to make +5x, +10x or +25x on you investment. As always nothing here or ever communicated by KVP is investment advice nor should be construed as such – just mitigating the usual suspect emails that KVP will get from some of our clients be they FO, HFs or UHNW.
- And what KVP loves about the Co-Founders – in addition to be very selective on their partnerships, playing the long-game & bringing a lot professionalism & humility is a space not really known for any of those aspects – they all have a lot of their own skin in the game in the business, they come from having great professional roles before this… walking away from a lot of money & status (i.e. these are not your classic keyboard basement warriors that have never held a job outside of college & only knows the words hodl , lambo, & moon!). Suppose the downside is they are all ex-GS, but hey no one is perfect! :) (inside joke between Casper & KVP)… with that said GS were one of the first few bulges to really embrace & see the scope + potential of bitcoin & blockchain. Some people do very well, most people do okay, another group do poorly… yet we all need someone to set the bell-curve & be the first pioneer through the door. And of course, part of being a pioneer & first through the door, is you get a lot of bullet wounds & scars… looking like a dart board on a good day.
- Note the exchange below with Kelvin was on Mon 11 May 2020, bitcoin had closed just south of the $10,000 mark the previous Fri 8 May 2020 – point here being when you have an asset class that can easily move up or down 25% in a single session, you need to time stamp any discussion around price levels & performance.
- KVP: “So Kelvin, I just don’t get the price action in Bitcoin. I mean, we have QE infinity – unprecedented amount of money printing, exponentially expanding levels of government debt, the failure of the social contract – these were/are all supposed to be the perfect storm for the justification of bitcoin as an alternative asset class, a digital gold, for the people by the people, an asset that cannot be debased overnight…etc.. or at least that has been the thesis prophesied by others & myself… so question is, why has the price action been so abysmal, especially considering the run up to the halving?”
- KK: “I wouldn’t call the price action abysmal. BTC is up +21% YTD, +25% over 1 year, +390% over 3 years, +35x over 5 years. That’s pretty decent returns. In terms of halving, the exponential move has always been post halving, not pre-halving. I am expecting BTC to hit $40K this year and $100K in 2021.”
- KVP: “Ok, fair point. And obviously a lot of events happening in the space, post the Bitcoin halving, what are some key events that you have on your calendar.
- KK: “Major one are: Polkadot launch in May/Jun, ETH 2.0 launch in July + 6 more phases in 2020-2023. ZCash halving in Dec, Libra (before year-end)”
- With the halving now behind us & the perfect debasement storm for fiat currencies – QE infinity, MMT, exponential debt explosion, global recession & in the US alone, +33m jobless in just 7wks) – it will be interesting to see what happens to the bitcoin, crypto & block-chain space.
- KVP’s long -term views on BTC & the block-chain space, from 2014 & all through 2017 are completely unchanged - since the dawn of human commerce & the use of fiat, there has been a need for an underlying asset class that cannot be controlled, manipulated & debased by an elite few, which history has repeatedly shown without fail is what happens. Different crypto assets will cater to different needs – some will be stores of value (such as Bitcoin), others will be for small transactions, others for contracts, others simply for privacy linked verification, others for proof of ownership & still others in ways we cannot even formulate today.
- The beauty of Bitcoin & crypto that so many people miss is that it takes out / to greatly mitigates the human elements of greed, fear & most importantly lack of skin in the game (accountability & incentives) that is such a huge structural issue in how countries, governments, companies, monies & global commerce flow. This is an issue that is encoded in our dna, once we are outside of a group of 150 people that we know very well & have co-beneficial habitation systems (read accountability, incentives & punishment), then our incentives to look for the collective interest of everybody falls off a cliff. This is why time & time again, the majority of citizens/employees - particularly in the US & EM markets - are stuck with the gamed coin of “tails, they lose & heads, someone else wins”
- At the end of the day, the Central Banker, the Chief Executive & the President/Prime Minister will almost always take the path of least embarrassment to themselves & their respective tribe, whilst not being aware or caring about the significance of collateral damage that it will cause in the future to others.
- The spirit of the template of Bitcoin, should be replicated so that we have a lot more optimal decision making being, if not decided outright in advance (i.e. algorithm), then at the very least transparently advising on the optimization of public utilities, spending, taxes, healthcare, benefits, etc (Yes, sometimes KVP wonders why aren’t there some billionaires building this out… c’mon Bezos!).
- The first nations, companies, institutions, non-profits & family offices to truly integrate this into their decision making & long-term strategies, will compound gains, synergies & resourcefulness that will seem the stuff of science fiction – China is likely best positioned to leverage this & among other things, is likely to be the biggest savior to the climate crisis.
- Bitcoin @ c. $8,000 is still only a little over 11yrs old, it makes you wonder where it will be in another 11yrs. The price does not do justice of capturing what’s been developing in the underlying block chain space.
- KVP can envisage a future where similar to looking back at an age where people used to treat smoking as if it was synonymous to breathing air, our great (great great?) grandkids will be like:
- “So let me get this straight grandpa android, back in the day… you had someone called a central bank & they could just print ‘money’ indefinitely with no consequences?”
- ”Yep, it’s not fake news!”
- “Oh come on, next thing your going to say is we used to eat meat from animals, dig things out of the ground & burn them for energy, have to transfer money at huge fees + costs + times, and that most of the world’s population could not even partake in this pool of transfers, we used to let segments of society fend for themselves in regards to healthcare/income/purpose & basic societal rights, all whilst choking the life out of mother nature by razing our rain forests & wiping out entire species – denying that the climate crisis was even real!?”
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