Digital Asset Space
July was a pretty historic month for Bitcoin and digital asset space in general. While the price of Bitcoin started the month at $10,800 and closed at $10,085, ending down 7% and recording first down month since January, volatility was rampant, hitting inter month highs of $13,100 and lows of $9,150. Bitcoin, Libra and cryptocurrency space, in general, were the topic of discussion both in congress and across every major news outlet and publication. From pundits to politicians to market participants and even our President, everyone seemed to have an opinion and reaction ranging from Bullish to Bearish to uncertain to the state of
Bitcoin and cryptocurrencies.
If there is any doubt that Bitcoin has achieved validation and established itself as here to stay and force to reckon with, consider that over a single week in July 2019, Bitcoin was on the lips of the most powerful leaders in America:
Jerome Powell, Chairman of the Federal Reserve testified to Congress about it, calling it a Store of Value
President Donald Trump tweeted about it calling it “thin air”
Steve Mnuchin, the Treasury Secretary gave a formal press conference reiterating the President’s concerns, while highlighting his biggest concern was preventing illicit activity occurring (failing to mention banks have been fined $248bn since 2008 vs Bitcoin’s market cap of $187bn)
Congress had a two day hearing on Facebook’s Libra, questioning a FB executive and other crypto ecosystem participants
Rep. Brad Sherman compared crypto to 9/11
Rep. Patrick McHenry called Bitcoin an unstoppable force
Rep. Warren Davidson differentiated between Bitcoin and shitcoins, (entering the famous cryptoslang term for alternative coins forever into our lexicon)
What does Libra mean for Bitcoin?
The question on a lot of people’s mind is what does Facebook’s Libra mean for Bitcoin. We believe a large part of the advance in price from $8,700 to $13,200 was a result of positive reactions to the Libra project back in late June. It is our contention that Libra is a positive development for Bitcoin, as the potential on-boarding by Facebook and its 2bn users will be a catalyst for mass adoption. To be clear, Libra is not a cryptocurrency and we do not see it as a threat to Bitcoin’s value proposition as a store of value and decentralized non-sovereign form of money.
The congressional hearings in July showed that politicians largely understand the difference between Libra and Bitcoin and are more concerned about how Facebook’s Libra would compromise data privacy, monetary policy, and national security. To the extent that Libra is good for Bitcoin and July congressional hearings revealed political backlash against Libra, should the project get delayed or never launch at all, it would be a negative to Bitcoin on the margin.
It should be mentioned that regulators and enforcement agencies are stepping up their pursuit of bad actors and non-compliant activities. Currently, the following issues are being pursued:
The NYAG is investigating Bitfinex/Tether: while the investigation centers around Bitfinex illegally onboarding US residents, its no secret the real purpose of the investigation is for the NYAG to gain full access to Bitfinex records to uncover the fraud and money laundering activities associated with Bitfinex and Tether, which we have written about several times in the past.
CFTC investigates Bitmex for US customers: Similar to NYAG probe, while the investigation centers allowing US customers to illegally using the exchange, much of the investigation is to put pressure on Bitmex and reel in manipulative behavior that has plagued this exchange for years
The SEC goes to war with Kin/Kik over the issuance of an illegal security
The IRS sent out warning letters to early crypto investors who they suspect of not paying taxes
While the intersection of crypto and law is a short term negative for Bitcoin and could result in continued downward pressure in the medium term, we see these events as necessary housekeeping that will help remove bad actors and allow the market to develop orderly and mature.
On a positive, Bitcoin continues to benefit fundamentally as a perceived new store of value from the reckless actions of Central Bankers, trade wars and government debt. On July 31st, the Federal Reserve cut rates by 25bps, signaling the first rate cut since 2008. In Bitcoin’s 10yr history, it has never existed in a rate cut cycle. As Central Banks around the world continue to cut rates and push for additional rounds of QE, the global race to debase offers Bitcoin a wildly bullish proposition as a safe haven asset and a non-sovereign, fixed supply, global, immutable, decentralized, digital store of value.
We’d like to issue a warning with respect to Greyscale Trusts that offer investors closed-end funds with exposure to Bitcoin and Ethereum. The GBTC and ETHE trust both trade at premiums to NAV of 44% and 101% respectively. While these inflated premiums have existed for quite some time, it means investors are paying almost twice as much for exposure to these assets in addition to 4% expense and management fees than buying the underlying directly. While all of our clients have direct exposure to Bitcoin and digital assets, we encourage you in conversations with friends, family members, and colleagues when the topic of Bitcoin comes up to warn them of the inflated premiums and how they can gain more exposure, while reducing risk by owning the underlying asset directly.
Our measure of success is how many people tell their friends about us.If you know of anyone who could use help investing in digital assets in a brokerage or IRA let them know they can call me. Here is my personal number 561-523-5955. Thank you!
Digital Asset Investment Management is a licensed Registered Investment Adviser specializing in Bitcoin for 401k's, IRA's and Traditional Brokerage accounts. Learn more at www.daim.io