"That’s Our Two Satoshis"  — Bloomberg Calls for $20,000 Bitcoin (Just Buy Their Terminals)

Jeff Dorman, CFA
Jun 8, 2020
Thats Our 2 Satoshis LogoWhat happened this week in the Crypto markets?
Week-over-Week Price Changes (as of Sunday, 6/7/20)
Bloomberg Galaxy Crypto Index
S&P 500
Gold (XAU)
Oil (Brent)
Source: TradingView, CNBC, Bloomberg
Who Needs Bitcoin?
For only the second time in the past eight weeks, the broader Bloomberg Galaxy Crypto Index outperformed Bitcoin.  In fact, this was only the 5th time in the past 16 weeks that this has happened, and only the 10th time in 24 weeks YTD.   But it was the 2nd time in the last 3 weeks.
The idea of value investing in digital assets is often scoffed at, but this technique is beginning to take fold gradually, and we believe one day it will be common practice.  This past week, small and mid-cap digital assets outperformed Bitcoin (BTC) and Ethereum (ETH).  Many of these tokens are not “cryptocurrencies”, but rather utility tokens (those that can be utilized within a network), or quasi-equity tokens that accrue value as revenues and users grow.  From a thematic standpoint, “Decentralized Finance” (DeFi) tokens were well-bid as the overall ecosystem of trustless finance grows, and from an event standpoint, companies and projects were rewarded for partnership announcements and software upgrades. 
This rotation away from large-cap legacy cryptocurrencies to smaller, emerging digital assets is a welcome change.  The investable universe of digital assets continues to grow, and those coins and tokens that led the 2017 rally may become a tiny fraction of the growth in 2020 and beyond.  We are already seeing signs of greenshoots, with new entrants from the outside world like Atari, Reddit and Topps launching digital assets.  We expect this trend to continue.
Meanwhile, Bitcoin has become a pure macro-asset.  Bitcoin and gold have moved in lock step since the start of the great monetary inflation.
Bitcoin is now mainstream, but the rest of the digital assets universe is gaining traction too.
Gold vs Bitcoin


Trust is Gone Part II -- The Employment Data
Last week we discussed the complete lack of trust Americans and citizens around the world have in their governments, banks and financial leaders.  That certainly hasn’t changed much in the past seven days.
The S&P 500 rose just under 5% last week and had its best 50-day period in history (+40%). Last week’s strength was attributed to a jobs report that befuddled every single economist, and for good reason… it was inaccurate.
With yet another data point that questions our faith in government and stock markets, it’s not surprising that investors continue to look for alternatives that are less dependent.  Raise your hand if you predicted the following in your 2020 predictions:
  • A global pandemic followed by the shutdown of the economy
  • Riots worldwide sparked by an all too familiar tragedy that has been largely swept under the rug previously
  • Record unemployment and record re-employment
  • Record monetary and fiscal stimulus
  • A stock market that is now unchanged YTD
Everything happening right now is beyond comprehension from just a few months ago.  Yet, it is in fact happening.   For those that have completely dismissed digital assets as a legitimate and burgeoning asset class, this year has reminded us that the unexpected happens quite frequently.  It’s time to have an open mind racially, culturally and economically with regard to investment opportunities, including digital assets.
We now live in a world where anything and everything is possible.  A world renowned economist is now questioning whether citizens should pay taxes.   Republican leaders are endorsing a Democratic Presidential candidate.  A comedian took down Bill Cosby and a single tweet can take down any politician or celebrity.  Meanwhile, the largest US bank (JP Morgan) has racked up $34 billion in fines since 2000, was involved in both the LIBOR and EURIBOR rigging scandals and a metals rigging scandal, owned a ship seized with $1 billion of cocaine on it, and tried to underwrite a fraudulent WeWork IPO.   Would it be that surprising if a new system supplanted the old guard?
All of Old Wall Street May Be Dead
It’s not just banks that are under siege… traditional asset managers are as well.  So many prominent investors have been dead wrong since March --- Buffett, Drukenmiller, Gundlach, Dalio, Minerd, Icahn, Tepper, Cooperman, Howard Marks and many more completely missed this rally.  Buffett sold his airline positions at the lows; Icahn sold his Hertz position right before a massive rally.  How can so many incredible investors get it wrong while so many retail investors are getting it right?
Perhaps this is the new normal. 


The old guard has been talking about inflation for years, dusting off the same sleepy “buy gold” playbook from the past two decades.  Many of these top investors listed above have been implicitly endorsing Bitcoin but can’t make the leap yet to fully explicitly endorse it (though maybe that changes soon now that Paul Tudor Jones has broken the stigma). Perhaps they never will, and a new group of leaders (potentially Arca) will emerge instead. 
Once again, the events thus far in 2020 should be opening everyone’s eyes and expanding their playbooks.  For example, what happens now to the 60/40 portfolio? 

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A recent article from David Leibowitz of Lebo Capital Management expanded further:
The elimination of fixed income as an investable asset class hastened the death of global macro investing, which has been dying since the introduction of negative interest rates by the ECB in 2014. Alpha is hard to come by and there simply aren’t enough assets to trade and arbitrage anymore. With the destruction of the fixed income markets, the search for investable alpha has already begun. Bitcoin is a bright light, perhaps a beacon of opportunity for traders and investors alike in what I expect to be the next decade’s debt-fueled, zero-interest-rate-led Roaring Twenties. 
Times like these do not require you to have all of the answers.  But it does force you to ask questions.
Bloomberg calls for $20,000 Bitcoin -- Err, Just Buy Their Terminals
By now, everyone you know in digital assets has sent you this article by Bloomberg calling for $20,000 Bitcoin.  Did anyone happen to notice what group at Bloomberg this came from?  This wasn’t their economics team, or finance team, this was their data team.
This report is nothing more than an advertisement for all of the new digital asset functions on the Bloomberg terminal.  And quite frankly, that’s way more important than a price prediction. In 2018 and 2019, not only did this Bloomberg digital assets data not exist, but the Bloomberg reps would flat out tell you “This isn’t something we are focused on”.  That directive came from the top.  Now, Bloomberg is offering data on GBTC, a variety of Indexes, Futures, Bitcoin addresses, Tether, and a whole slew of other functions under {CRYP} GO. 
Bloomberg is by far the most important, under-appreciated company in digital assets.  Without this data made available to over 300,000 Bloomberg Terminal users, most institutional investors have an excuse to ignore this asset class.  Not anymore.
So while the media focuses on yet another baseless and pointless price prediction, the real story is that over 300,000 institutional investors can now learn about digital assets simply by typing 4 letters.
Notable Movers and Shakers
The alternative digital asset market continues to be bid this week, with BTC.D falling 75bps while BTC finished the week up 3.5%. This strength is of no surprise, with fundamental news driving the price action for the leaders this week:
  • Numeraire (NMR) announced that they secured a $3M raise on Wednesday - Union Square Ventures (led round), Placeholder, CoinFund and Dragonfly Capital all participated (as well as Numerai Founder Richard Craib). The new funding will be used to develop and expand the reach of Erasure, their information staking protocol. The token traded higher on the news, finishing the week up 6%.
  • Maker (MKR) continued to trade higher on last week’s announcement that the asset will go live on Coinbase Pro for US customers on June 8th (which is today), with trading likely to begin the following day. Since 2019, Coinbase Pro listings have averaged 26% net gains, with 36% peak gains. This trend seems to be captivating the interest of the digital assets space, and in turn the token finished higher (11%) for the second week in a row.
What We’re Reading this Week
Two weeks ago, Goldman Sachs released a client presentation which purported some of the common myths about Bitcoin, including that it has no value and is used exclusively for illicit activity. In this report, Galaxy Digital, tackles ten common misconceptions about Bitcoin and its investability. Galaxy further reminds readers that in today’s world of expansionary fiscal policy, not broadening one’s horizons to include Bitcoin and digital assets in a portfolio can be dangerous.
Last week, Federal Reserve Chairman Jerome Powell answered in a statement whether the Fed would consider AMERIBOR as an alternative to LIBOR for interest rates. AMERIBOR is an alternative reference rate to LIBOR and uses a closed version of Ethereum as part of the process by which it determines rates.  After LIBOR’s potential manipulation scandal was discovered, the Federal Reserve has pushed to explore alternative short-term interest rate reference benchmarks. Although the statement does not outright state that the Fed will use AMERIBOR, it indicates they are considering it as a viable alternative.
Last week, Hester Peirce, fondly known as “Crypto Mom” for her crypto-friendly stance, was nominated for a second term by President Trump as her current term was set to end June 5. Peirce has gained notoriety within the digital assets community for her dissent from the other commissioners over the SEC’s rejection of the Bitcoin ETF filings. In addition, late last year she proposed a safe harbor period for digital assets startups so they would have more time to comply with the SEC. The Senate still has to confirm Peirce, but she may continue to serve for the next 18 months during that process.
Vodafone has joined forces with blockchain nonprofit Energy Web to track excess power from solar panels across the energy grid. Solar panels in some parts of Europe are generating more energy than the power grids know what to do with and Vodafone is creating a communications system using its SIM technology to track and redistribute this additional energy. SIM cards’ private key infrastructure allows devices to securely sign transactions on the Energy Web blockchain, a process which they hope will eventually create a “new digital energy marketplace”.

And That’s Our Two Satoshis! 
Thanks for reading everyone!   
Questions or comments, just let us know.  

The Arca Portfolio Management Team
Jeff Dorman, CFA - Chief Investment Officer
Katie Talati - Head of Research
Hassan Bassiri, CFA - PM / Analyst
Sasha Fleyshman -  Trader  
Wes Hansen -  Head of Trading & Operations
To learn more or talk to us about investing in digital assets and cryptocurrency
call us now at (424) 289-8068.




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