The timing was… unfortunate.
Our headline for yesterday’s Daily Cut was, “A Glimpse Into the Near Future.”
More accurately, it should have been, “A Look at the Recent Past.”
Between finishing the essay and it arriving in your inbox, the Securities & Exchange Commission (SEC) had made its Bitcoin announcement.
The SEC has approved the establishment of 11 Bitcoin exchange-traded funds (ETFs).
The result of this approval? At least we got that bit right – the price spiked higher before settling back.
More importantly, what else can this much-anticipated event tell us about the future of Bitcoin, and whether it even matters?
To get some clue, after yesterday’s decision, we got on the phone (old style) to talk to Legacy Research’s crypto expert Teeka Tiwari.
Today’s edition of the Daily Cut includes a summary of that conversation. Read on for details. But first, today’s market action…
Market Data
The S&P 500 closed down 0.1% to end the day at 4,780.24… the NASDAQ gained less than one point, to close at 14,970.18.
In commodities, West Texas Intermediate crude oil trades at $72.42 up $1.10…
Gold is $2,032.20 per troy ounce, up $4.80…
And Bitcoin is $46,213 up $28 from yesterday.
Now, back to our story…
All Without Wall Street’s Help
There were a number of standout “light-bulb moments” during your editor’s chat with Teeka.
When you speak to someone who you know advocates for an idea, you have to go into the conversation from a skeptical position.
Is this person saying something because they truly believe it… because it makes sense… and because it’s right? Or are they saying it because they’ve “got a bridge to sell”?
Our job is to dig and question, and make sure what they say makes sense… to look them in the eye (difficult on a phone call, but you get the drift) and check that the data backs up what they say.
The good thing about Teeka is that you don’t have to dig very far. The guy comes prepared.
We showed you the short answer that Teeka gave us yesterday when we asked him about the then-pending SEC decision:
All I can say is if it sells off it’s a buying opportunity.
Every sell-off this year will be a buying opportunity.
We were up against a deadline and couldn’t get his full take (hence the phone call last evening).
One of the first things Teeka said to us on the call was this:
Bitcoin is the ninth most valuable asset in the world by market capitalization, and it has done it without Wall Street’s help.
Think about that for a minute.
Because we doubt if more than one in a thousand people have ever even considered that. Bitcoin has a current market value of $910 billion.
If it were a listed stock, it would only have the likes of Microsoft (MSFT), Apple (AAPL), Saudi Aramco, and a few others above it.
But the valuation itself isn’t the main part of Teeka’s argument. The key is the second part. Bitcoin has achieved that valuation without any input from Wall Street.
You could argue it has achieved that valuation despite Wall Street’s best efforts to kill it off. Not to mention governments and regulators.
You certainly can’t say the same about any other stock investment. Without Wall Street’s help, Microsoft wouldn’t be where it is today. The same goes for Apple, Meta Platforms (META), and the rest.
And the same goes for other investments. The Treasury market is only the size it is because of Wall Street. The derivatives market is only the size it is because of Wall Street money.
And markets like foreign exchange, while London is the biggest market, it’s still “Wall Street” and “Wall Street money” that ensure volumes are big enough to make it viable.
So the fact that Bitcoin is a near trillion-dollar asset tells you something about its unique nature and the different path it has had to take to reach that level.
We guess you can legitimately say that Bitcoin has been – and still is – a grassroots investment story. It wasn’t a contrived investment product created by number crunchers on Wall Street.
The type of product where the sole purpose is to help Wall Street investment banks generate a fee.
Bitcoin was created as a result of folks looking for a way to create assets, wealth, and money that would operate outside of the traditional system.
(Editor’s note: Only time will tell if Wall Street’s new involvement with Bitcoin will have any impact on that. But it seems unlikely given the fact Wall Street can’t manipulate or change Bitcoin. It is what it is.)
This brings us directly to Teeka’s next point. It’s countering the most popular argument against Bitcoin – that it’s just a Ponzi scheme or a fraud.
Ponzi Schemes Don’t Crash and Come Back
Teeka’s answer? We’ll let him explain in his own words:
Ponzi schemes don’t come back. They don’t crash and come back. When you shine a light on a Ponzi scheme, the truth about the fraud is easily revealed. When you shine a light on Bitcoin, you can see that nothing is hidden. You can see every transaction on the blockchain. It’s totally transparent.
That was the other answer that struck a chord with your editor. When you think of Ponzi schemes, the most recent one that comes to mind is the fraudster Bernard Madoff.
That was an instance of Wall Street keeping him afloat for 40 years. Where the regulators received tip-offs but failed to act. And where as soon as someone was eventually able to “shine a light” on his operations, it all became clear that he was a fraud.
Folks have been shining a light on Bitcoin for at least the last seven years. It’s still here… not without a lot of volatility… but it’s still here.
And all the light-shining has done is to help more and more people understand it better. To the extent that even Wall Street has now embraced what, until recently, folks like JPMorgan Chase & Co (JPM) CEO Jamie Dimon called a “Ponzi scheme.”
And what Warren Buffett called, “rat poison squared.”
Teeka’s final point was, again, something we hadn’t previously considered. But the data backs it up.
When you hear most folks talk about Bitcoin, they’ll tell you it’s a dangerous speculation. That it’s just idiots gambling on something that doesn’t have any real value.
At first glance, even if you disagree with the premise, you may still agree with the idea that it’s a speculation.
However, the data perhaps suggests the opposite.
Would You Call the S&P 500 “Speculative”?
Teeka referred us to data from crypto data provider, Glassnode. He told us:
The amount of Bitcoin held for at least a year is 68%. The amount held for at least two years is 55%. And the amount held for at least three years is 40%.
Not sure about you, but that doesn’t sound like rampant and frenzied speculation. That sounds more like an investor class that believes in the long-term potential of an asset.
Regardless, we checked some other data to give us a comparison… and to further challenge the idea of it being purely a speculation.
Based on data from Coinmarketcap.com, in the last 24 hours, around 1.3 million Bitcoin have traded. That’s out of a total circulation of 19.6 million.
That means it takes 15 days to “turn over” the supply.
(To calculate the “turnover,” you divide the big number – 19.6 million – by the smaller number – 1.3 million. The result gives you the number of days to turn over the supply.)
Now compare that to the supposedly non-speculative, investment grade, safe-and-sound S&P 500, or rather, the ETF that mirrors the S&P 500, the SPDR S&P 500 Trust (SPY).
According to Bloomberg, there are just over one billion (1.017 billion) SPY shares on issue. The average daily trading volume is 80 million.
So, if we take the big number (1.017 billion) and divide that by the small number (80 million), you get 12.7. That means, the value of the non-speculative, investment grade, safe-and-sound S&P 500 ETF turns over the full value of that ETF every 12.7 days.
That’s a faster turnover rate than Bitcoin. In other words, to label Bitcoin as a speculative investment, you can reasonably argue (based on turnover) that the S&P 500 is a speculation as well.
We doubt if there’s a Wall Street analyst or banker alive who would agree to label the S&P that way.
Look, Teeka told us he’s studied the markets since he’s 18 (it wouldn’t be gentlemanly to say his age now… but he’s older than 18), and he says he, “has never seen an asset with the same characteristics as Bitcoin.”
And we’ll add, with the same outlook and potential.
Teeka covered much more on our call. These were just the highlights. As we mentioned earlier, it’s our job to quiz our experts. To make sure they’re doing the job they should be doing, and making sure their claims pass the “sniff test.”
We don’t claim to be an expert on Bitcoin. We leave that to those who are the experts. But we know when something does or doesn’t feel right.
In this case, we have no doubt Teeka has nailed it when it comes to Bitcoin. Remember his advice:
All I can say is if it sells off it’s a buying opportunity.
Every sell-off this year will be a buying opportunity.
It may just be the single best advice you’ll read all year.
Unconnected Dots
Our main task at the Daily Cut is to try to “connect the dots.” That is, we help you figure out what events are about, what makes them important, what their consequences are, and what it all means for you.
But sometimes, we see the individual “dots,” but can’t yet figure out how they connect to anything. Maybe they never will connect to anything.
Regardless, if those unconnected dots feel as though they could be important, we’ll mention them here. And we’ll let you draw your own conclusions.
Today’s unconnected dots…
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An interesting story from the Financial Times, headlined, “Can ‘water batteries’ solve the energy storage conundrum”:
The 230-tonne metal cylinder emits a roaring hum as it spins at 600 revolutions per minute, driving a pump buried underground that brings new meaning to the idea of pushing water up a hill.
Far from the analogy of an impossible task, it is the core of a Portuguese power plant aiming to show that pumping water 7km up a mountain can be an essential – and commercially viable – part of an energy system led by renewable power.
Built by Spanish company Iberdrola for €1.5bn, the facility in a rocky river valley in northern Portugal is known as a pumped storage plant.
But insiders have another name for the reservoir at the top of the mountain. It is a ‘water battery’ – rudimentary in concept, intricately engineered, and a highly effective way of storing energy.
The Tâmega plant takes excess electricity from the grid, mostly generated by wind and solar power, and uses it to pump water from a lower reservoir to an upper one.
Surveying its placid blue surface, Rafael Chacón Llorente, Iberdrola’s project director at the complex, said: ‘When the water level is at 885 metres above sea level, the battery is fully charged.’
Then in peak hours, when the grid requires more power, the system is reversed on demand. A gate opens and gravity brings millions of litres of water thundering back down a tunnel every minute. The pump becomes a turbine and it spins the metal cylinder the other way, generating electricity at zero cost.
Our initial reaction when we see anything around renewable energy is to assume it’s a “boondoggle”… a way for a government to help separate the population from their money via taxes.
We won’t claim to know anything about energy transmission or physics, so we cast a full opinion on this project’s viability. But it’s certainly interesting.
But when we look at the costs, there may be a ways to go yet. According to the FT report, in Portugal (the location of this project), wholesale energy costs range from 54 euros per MWh (off-peak) to 78 euros per MWh (peak).
That’s the equivalent of $59–$85.
Comparing that to the U.S. electricity market, in November, according to ICE Global Markets, the average wholesale electricity price in the New England region was $32 per MWh. Half the European cost.
Bottom line. An interesting technology. But still not competitive. For reference, according to ISO New England, 68% of that region’s electricity generation is from natural gas and nuclear. Renewables and hydro are at 18% combined.
More Markets
Today’s top gaining ETFs…
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KraneShares MSCI China Clean Technology ETF (KGRN) +2.2%
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VanEck ChiNext ETF (CNXT) +1.8%
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Invesco China Technology ETF (CQQQ) +1.8%
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Global X MSCI China Consumer Discretionary ETF (CHIQ) +1.6%
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Siren Nasdaq NexGen Economy ETF (BLCN) +1.1%
Today’s biggest losing ETFs…
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Amplify Transformational Data Sharing ETF (BLOK) -3.6%
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SPDR Kensho Clean Power ETF (CNRG) -2.5%
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Utilities Select Sector SPDR Fund (XLU) -2.4%
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SPDR S&P Telecom ETF (XTL) -2.3%
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Fidelity MSCI Utilities Index ETF (FUTY) -2.3%
Mailbag
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at [email protected] and just type “Daily Cut mailbag” in the subject line.
Cheers,
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Kris Sayce
Editor, The Daily Cut