A weekly newsletter on actionable digital asset market insights and practical observations with a smidgen of greentea 🍵 insights
🎥🔥 My Youtube Content 🎥🔥
📖 Book of the Month 📖
I am starting on this new book today. If you are interesting in understanding history to get a sense of where the world may be going, I think you will enjoy reading this book (or listening) along with me!
Listen to this book for free with Audible The Changing World Order
💸 Companies and Deals I am Watching Closely 💸
1. Sygnum Bank Raises $90 Million Series B (this is a strong team building real long term value in two leading financial hubs in Switzerland and Singapore that you should follow closely. They are innovating in ways US players wish they could on a very reasonable timeframe under solid jurisdictional legal frameworks) - Link
💭✍🏼 Food For Thought 💭 ✍🏼
BIS Quarterly Review Year End 2021 (Hint: this unelected supranational organization really, really wants to be your financial overlord)- Link
I may turn my thoughts below into a blog post but since you have taken the time to support me by subscribing I want to give you all this value first.
⌨️ Reflections on the first week of 2022 ⌨️
I have previously discussed with some of you in person and via this newsletter every single week starting with my December 5, 2021 letter where I started talking about M1 money supply (M2 can also be used as a metric for my curmudgeon economist "frens"). Let me make it crystal clear in this letter what I have drip feeding for over a month as I have observed various data points, the Federal Reserve in the US (and G7 central banks) had been increasing the "flow" of money into stocks, bonds and people's pockets since 2020 specifically (and really since the GFC in various ways) at a pace heretofore never before seen on earth--greater than the 2000 era, leading up to the Great Financial Crisis in 2008-- the greatest spending increase ever in recorded history absent total war (e.g. think UK and US spending in the middle of WW2).
How do central banks tend to execute on this? Answer: interest rates. By playing with interest rates, central banks act like Mr. Geppetto and we are all Pinocchio in this novel forced to respond accordingly. Interest rate impact everything from your mortgage to car loan or the valuation of that hot new VC investment or Crypto startup raising capital and definitely any high flying technology stock with no present day cash flow to include in an analysts financial model when the price of money is now being jawboned higher.
In Q4 2021, central banks and policy makers become aware that Fiscal + Monetary stimulus in humans bank accounts (as opposed to only in the accounts of companies and the already rich) leads to demand pull inflation and this leads to higher prices as too much money chases too few scare goods. See my YouTube video on Inflation vs Purchasing Power for the deep dive into this topic.
The global central bank response, while not known fully is looking probabilistically like they will remove the easy money punch bowl in the US and Europe (or at least start down the path--who knows if how much they will be able to do without crashing markets). This means, all investing is going to get much harder as a function of Bureaucratic actors (i.e. the Fed and Congress and the ECB) being much more important over the coming year. This means volatility (see my video on volatility discussing that point). In my opinion, this also means the risk of some bureaucrat making a policy mistake is going to be high in 2022. Moreover, "everything going up in value" like the last two years is basically over for all investors everywhere courtesy of the inflation you are noticing in all facets of your daily life which tends to breed socio-economic instability, very quickly I suspect you have noticed.
If you are reading this and just made a YOLO trade into crypto with a home equity line of credit--that was a mistake. In all seriousness, I say all of the above to say that having cash on hand is going to be more important as more and more people that thought "this time was different" and 2000 and 2008 is the past are going to learn in the coming quarters that past is prologue.
As an aside and as someone that has spent their entire professional life helping institutional investors and before that spent a lifetime preparing to help and work with institutional investors, the fact that "everyone" is an investor/VC/capital allocator today has my spider senses tingling circa 1999 and circa 2007.
📈 Top 10 Market Movements by Market Cap over the last 7 days 📉:
📖 Quote of the Week 📖:
“In our reasonings concerning matter of fact, there are all imaginable degrees of assurance, from the highest certainty to the lowest species of moral evidence. A wise man, therefore, proportions his belief to the evidence.”― David Hume, An Enquiry Concerning Human Understanding
📰 This Weeks Most Interesting Digital Asset News 📰:
- The Boston Fed is hiring a new director for its central bank digital currency project. - Link
- The Khazakstan, Bitcoin Mining Hash Rate Connection (aka war and shutting off the internet is bad for BTC) - Link
- Chainalysis Crypto Crime Report for 2021 (note they log IP addresses if you are not on a VPN and crypto paranoid you have been warned) - Link
- The National Credit Union Administration (NCUA) has cleared its members to offer Crypto products & services to customers - Link
Bitcoin MVRV Z Score
The MVRV Z-Score above is used to assess when Bitcoin is over/undervalued relative to its "fair value". When market value is significantly higher than realized value, it has historically indicated a market top (red zone), while the opposite has indicated market bottoms (green zone). Technically, MVRV Z-Score is defined as the ratio between the difference of market cap and realized cap, and the standard deviation of market cap, i.e. (market cap – realized cap) / std(market cap).
I have not shown this chart since the early November time frame. I highlight that positive on chain data but this all has one new huge caveat. See my diatribe above regarding Fed policy as the elephant in the room. While I do not think the Fed can actually raise rates anywhere near the early 2000 levels let alone the 1980s, it does seem probably that they can talk a good game and this will definitely hit the most speculative assets with "high beta" as some of us talked about in person back in 2021. Crypto is high beta and high volatility. In simple terms, if we get bounces over the next month and you do not have the stomach for a major down moves--then you should take the opportunity to exit stage left on any crypto holdings you are not truly willing to hold as an investment over at least a two year time horizon. This does not change the long term case for Bitcoin. I simply point this out as a reality that Bitcoin (as a proxy for all Crypto) now has institutional adoption and this means it is subject to risk department rules of the legacy finance industry as I have noted in prior letters. Of course, none of this is investment advice and you must do what you feel comfortable with ultimatley based on your situation. I remain bullish long term but I do risk management positions an sizes for all liquid investments.
Bitcoin: Total Number of Addresses with Balance ≥ 0.01
The chart above shows that the number of unique addresses holding at least 0.01 coins has continued to increase which shows retail investors have been buying this dip.
Bitcoin: Balance on Exchanges - Coinbase
I have not shared this chart before mainly because Coinbase is so mainstream. However, I think it is good to give you a long term view from the founding of coinbase. We can see there is pretty large drop off in coins held on the exchange. One new development to keep in mind that I am seeing is the traditional concept of "netting transactions" typical amongst wall street banks and trading desks now coming into the crypto markets in the context of cold storage coins versus coins on exchange.
An example, Alice has 100 BTC in a cold storage wallet with coinbase custody, Bob also has 100 BTC in a cold storage wallet with coinbase custody. Under the terms of the netting agreement where Alice owes Bob an outstanding amount of sats or tokens they both agree to settle those amounts owed daily or weekly (most commonly). This means that when coins move---they are now moving between cold wallets all held at coinbase custody. Not a negative development but I point this out to highlight for readers that wall street and its practices have arrived--so expect the eventual shenanigans as well in the future.
Total Value Locked (USD) in DeFI
An update to last week's DeFI chart. I am doing some diligence in the space with more to come on this in probably a month. Stay tuned.
Ethereum Burned since the London Hard Fork (EIP 1559)
ETH burning continues, although I am hearing rumblings of impatient developers and market participants. I think ETH has until the end of this quarter to stave off the wolves with some status update on the merge. Absent, a major announcement I suspect other chains like Polkadot, Avalanche and Terra will continue to take market share. Just anecdotal data points, for now.
Products I Personally Use and Support
Green Tea Tidbits:
Okinawans (historically a separate people) call their tea shan-pien roughly translating to "tea with a bit of scent" and it combines green tea leaves, jasmine flowers and a bit of turmeric.
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