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14 Oct, 17 tweets, 8 min read
Why We’re on the Precipice of Another Bitcoin Mania...

A thread.

Note: it has nothing to do with Bitcoin replacing fiat money anytime soon.
1- We can quibble all day about whether BTC is “the future of money”.

Briefly, I think not, since I fundamentally believe that any money must have “non-monetary use value” in the free market before it becomes money. (Yes, this would disqualify govt-issued paper money too.)
2- But I digress, as debating Bitcoin’s status as “money” is not the aim of this thread.

Rather, the aim here is to persuade you that *institutional buying* of Bitcoin will likely propel the third big Mania at some time in the not-so-distant future.
3- In the first Bitcoin Mania, overzealous retail buying drove the price from ~$1,000 in early ‘17 to its ultimate peak of ~$20,000 in late 2017.

The second Bitcoin Mania, also fuelled by retail, drove the price from ~$3,500 in early ‘19 to a high of almost $14,000 in June ‘19.
4- These meteoric rises in Bitcoin (20x in < 1yr in 2017 and 4x in < 6mos in 2019) will not be the last in Bitcoin’s history...

An even bigger Mania is coming, and this time the fuel for the fire will come from institutions cornering the already-tiny free float.

HT @hkuppy
5- Let’s run through some of the telltale signs that another Mania is on the horizon...

More than 10 public entities have invested in Bitcoin this year, led of course by $GBTC. Other notable entities are $MSTR and $SQ.

More big players will surely follow suit in due time.
6- These institutional buyers are chomping away at the free float which was relatively small to begin with.

At the same time, the buying from institutions seems to be dwarfing the number of Bitcoins being mined.

See below from @kerooke (7/29-8/12).
7- Another great chart from @kerooke shows eye-popping Q/Q growth in $SQ revenue from Bitcoin.

Note also that the percentage of $SQ revenues that come from Bitcoin transactions is skyrocketing.
8- As for $GBTC, this thing brings it all together. For one, it makes Bitcoin a lot more accessible to institutions, as it allows them to buy and sell Bitcoin as they would any stock.

Also, $GBTC shares outstanding are growing like mad. These guys are just devouring the float:
9- As of 9/27, $GBTC held ~450,000 BTC, meaning that “GBTC’s purse represents 2.43% out of the BTC currently in circulation”...

Link: news.bitcoin.com/grayscale-inve…
10- And their buying continues at remarkable rates...

In the week prior to 9/27, $GBTC bought more than 17,000 Bitcoin, which is almost US$200,000,000 at today’s prices.

There’s no indication that this aggressive buying has since slowed...
11- Now we get to the kicker. Just this week, Fidelity came out out with a “Bitcoin Investment Thesis”.

You guessed it: they’re recommending a 5% allocation to Bitcoin... I reckon they pump this as hard as they can and earn as much in fees as possible.

nasdaq.com/articles/fidel…
11A- You can find the full Fidelity presentation here:

Link: fidelitydigitalassets.com/bin-public/060…
12- In sum:

A) Float is being gobbled up and a significant portion has already been lost.

B) 10 public companies invested in Bitcoin this year. More to follow.

C) Fidelity is about to pump the “Bitcoin Investment Thesis”.

Or for a more succinct summary from @APompliano:
13- These factors set the stage for demand to dwarf supply and corner the market.

The missing ingredient to another Bitcoin Mania (which will likely be the biggest of them all) has always been institutional money.

Well, it looks like we’re getting close...
Full disclosure: I‘m not the originator of this thesis (in fact I have very few original ideas😅). I credit @hkuppy for bringing it to my attention.

@APompliano @novogratz @ncousyn @capitalistexp @JasonMutiny @PeterSchiff @SpencerKSchiff @coloradotravis

Feel free to Tag others!
11A- Correction: the original article headline from Nasdaq said that Fidelity was recommending a 5% allocation. Turns out this headline was incorrect.

I did not mean to mislead anyone. My apologies if I did.

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More from @BvddyCorleone

BVDDY Profile picture
12 Oct
Some thoughts after reading @coloradotravis’s provocative thread.

In preview, I disagree with Travis that inflation is not what comes next.

If you think I’m missing something, or I’m flat out wrong, please say so.
1- I submit that the sole purpose of QE, contrary to what Travis implies, is not to provide additional collateral to banks.

If that were the sole purpose, then banks would not already have a zero- collateral requirement.
1A- Which they do, thanks to a rule change by the Fed, made effective on March 26th:

"...the Board reduced reserve requirement ratios to zero percent... This action eliminated reserve requirements for all depository institutions."

Link: federalreserve.gov/monetarypolicy…
Read 16 tweets
BVDDY Profile picture
12 Oct
1- Great chart. Deflationary downdrafts will not be extinguished, but throughout history, inflation is quite consistent.

Note also that each low on the chart is higher than the previous, and so is each high. Image
2- Inflation persists throughout history for a number reasons. One important reason is that the structure of democracy is conducive to it, esp. as people figure out they can ‘vote themselves money’ and the inflation tax becomes a transfer mechanism for public demands.

HT @hkuppy
3- Inflation is also the political path of least resistance, especially when governments around the world are saddled with gargantuan deficits and even larger debt-piles.

Think about it. Much easier to conjure endless trillions from thin air than to default on social security...
Read 10 tweets
BVDDY Profile picture
11 Oct
I’m getting this question a lot. Where will inflation come from? What will cause it to rise?

I know the opinions on inflation are many and varied, but here’s my take.

A thread.
1- We’re seeing a massive and unprecedented expansion of the money supply, and at at alarming rates. I don’t care what you think about M2, this sort of growth should not be dismissed.

Longer term, this will shape up to be ‘Project Zimbabwe’, as @hkuppy has coined it.
2- While this sort of monetary inflation first manifests in the capital markets (most noticeably as a boom in stocks), it eventually raises the prices of goods & services too (imperfectly proxied by CPI).

For this to happen, we need higher money velocity, now at an all-time low:
Read 9 tweets
BVDDY Profile picture
10 Oct
Why the Biggest Risk in Finance is Inflation (and a rising 10Y Treasury Yield).

A thread.

Hint: it has to do with the ubiquitous Risk Parity framework.
1- We’ve already established that:

i.) inflation causes long term rates to rise (Points 1 & 1A in linked thread below);

ii.) long term rates rising could cause Growth to underperform Value (Points 2-2B).

But there’s a lot more to it than a sector rotation, as I’ll explain.
2- The real danger of rising long term rates is that they can give rise to a simultaneous drop in stocks & bonds.

Needless to say, that would be the death knell for Risk Parity and the trillions of dollars in highly levered assets that are presently tied to it.
Read 8 tweets
BVDDY Profile picture
9 Oct
1- The Fed is fighting deflationary forces because nature is trying to collapse unprofitable zombie companies that specialize in capital destruction. Since our monetary system is debt-based, a collapse of zombie companies creates a collapse in the money supply, i.e. deflation.
2- Deflation can feed on itself because it causes asset prices to fall. When asset prices fall, the asset side of companies’ balance sheets fall. But the liabilities side does not. So equities are wiped out.
3- The Fed is deathly frightened of deflation, which they think are falling prices, because they associate that with the Great Depression of the 1930’s. To offset falling prices they print massive amounts of currency and use it to buy everything in sight to lift asset prices.
Read 7 tweets
BVDDY Profile picture
8 Oct
1- For the record, I’m most convinced that the 2 primary drivers of this sector rotation will be i) fund flows and ii) the shift to fiscal stimulus.
2- On fund flows, as @profplum99 noted earlier today:

“One of the problems with Value investing currently is that the funds themselves are being redeemed, ie the holders become forced sellers.”

This needs to change for a full rotation to truly materialize.
3- Perhaps the catalyst for the change in fund flows will relate to the second driver of the rotation: the shift to fiscal stimulus...
Read 8 tweets

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