A Look Back At 2020

On January 1, 2020, I wrote a re-cap of my calls over the course of 2019. I invite you to read it here. There were many prescient calls in 2019. We’re keeping with the same format for January 1, 2021. What follows is one Good Call, Bad Call, Interesting Call and TBD Call from each month in 2020. Enjoy.  

February 1, 2020

[Good Call] “We are firmly back in a bull market and the pieces are in place for this asset class to have an explosive 2020. After making a low on December 18th at $6425, Bitcoin put in a monstrous +30% in January and we believe it’s just getting started.”

[Bad Call] “There is a significant possibility we see a large pullback in price after the halving.”

[Interesting Call] “Many market participants have been asking the question -- is the Bitcoin halving priced in? That’s the wrong way to frame it. A small single digit percentage of the world currently owns Bitcoin. For those that currently own Bitcoin, a large portion of them understand that Bitcoin’s newly issued supply is cut in half every four years. This is likely a significant reason why they own it -- because of Bitcoin’s provable scarcity. For the many billions of people around the world that do not own Bitcoin, few understand this provable scarcity characteristic. So for those billions, it cannot be priced in. To the extent those billions of people discover Bitcoin in the future and decide to buy some, there will be less new available supply to satisfy that increased demand to purchase Bitcoin.”

[TBD Call] “10,000 Baby Boomers turn 65 every day. An estimated $59 trillion, with a T, of wealth will be transferred from Boomers to Millennials by 2061. This has been dubbed "The Great Wealth Transfer". The below table from Charles Schwab shows top self-directed 401k equity holdings by generation. The Grayscale Bitcoin Trust is the fifth most popular equity holding in Millennial 401k's. This is just GBTC holdings- excluding BTC owned in Coinbase, Cash App, Robin Hood, etc. I cannot overstate the importance of this demographic shift and Millennials’ understanding and demand for BTC to the coming years and decades.”

March 1, 2020

[Good Call] “Central bankers and politicians will be exceedingly accommodative with their monetary and fiscal policies to cushion the GDP growth decline resulting from Coronavirus because they are terrified to let any sort of recession take hold. They are acutely aware of how rickety the global financial system is, because they made it that way. So they’ll keep kicking the can by any means necessary in hopes that they can retire and cash out before the Jenga tower falls over. Eventually Coronavirus will likely be ok. A big GDP growth hiccup for sure, but it will likely be ok. The radical monetary and fiscal policies being put in place now and in the coming weeks will remain in place well after Coronavirus fears have abated.”

[Bad Call] “Eventually, the risks and sentiment around Coronavirus will stabilize and crypto-specific fundamentals will come back to center stage. Whether that is in the coming days, weeks or months remains to be seen.”

[Interesting Call] “While near-term uncertainty abounds, we are confident the next move for BTC will likely not be predicated on crypto-specific fundamentals or crypto-specific market regimes. Instead, the global macro environment will dictate BTC in the near term. Will crypto-specific quantitative data still be able to shine a light on the next move, even if that next move is dictated by 10yr yields and VIX’s? Perhaps. Not to talk our book, but this an environment where a systematic approach with a discretionary, top-down overlay can shine.”

[TBD Call] “What is clear, is that central bankers and politicians are terrified of losing control of financial markets. They have backed themselves into a corner they can’t get out of. Asset prices around the world have become entirely reliant on cheap money and massive deficits. Over the last 11 years, on the back of the financial crisis, the global financial system has become weakened and fragile. Like an astronaut landing back on earth after being in space for a year, the global economy can’t stand up on its own.”

April 1, 2020

[Good Call] “It is fair to say the investment case for Bitcoin changed materially in the last 30 days. The facts and circumstances one would consider when evaluating whether to own Bitcoin have rapidly changed.”

[Bad Call] “Again, not to be callus. This is how we view the world relative to our job managing other folks’ money. There is risk that NYC or another hotspot begins seeing looting, riots or other forms of social unrest. The US National Guard will respond if a situation like that becomes significant. Risk assets will really hate that.”

[Interesting Call] “In the same way that a subprime crisis metastasized into a short-term liquidity crisis in 2008, the Coronavirus stress, exacerbated by an oil market collapse, metastasized into a short-term liquidity crisis in March 2020. This acute liquidity crisis that reared its ugly head in March is just one part of a broader liquidity issue that’s been years in the making, dubbed “The Dollar Shortage”. Warning signs that The Dollar Shortage situation was deteriorating began sounding in April 2019 as Fed Funds flipped IOER (Interest Rate on Excess Reserves), which is never supposed to happen. Those alarm bells began ringing louder in September 2019 as the repo market blew out, rang louder still as repo market dysfunction worsened into year-end and reached a fever pitch this month as a short-term liquidity crunch threatened to collapse asset prices across the board. It was the severity of The Dollar Shortage that pushed the Fed to quickly inject unprecedented levels of liquidity through various existing and new facilities.”

[TBD Call] “This opportunity set going forward will have as its backdrop, an acceleration of the largest monetary and fiscal policy experiment hitherto never seen. The sheer size of the monetary and fiscal stimulus already enacted and assuredly coming down the pipe pushes central bankers and governments out on a spectrum of radicalness that has never ended well. Bitcoin is a non-sovereign, hardcapped supply, global, immutable, decentralized, digital store of value. It is an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally. The world needs that insurance policy more today than they needed it yesterday. And they’ll need it more tomorrow than they do today.”

May 1, 2020

[Good Call] “We also believe Bitcoin is attracting new institutional investors in light of the increasingly exotic monetary and fiscal policies that have been deployed by central banks and governments globally over the last several months. We truly believe “the herd is coming” to a degree not previously experienced. That may very well prevent a post-halving pullback from going very deep or very long.”

[Bad Call] “With now more than $7 trillion of total stimulus announced in the United States, you very reasonably could have expected the USD to come under significant pressure relative to other currencies. And you would have been wrong.”

[Interesting Call] “The majority of the new Tether created appears to not be being used for crypto trading purposes but for something else. These non-trading use cases for Tether are difficult to glean clarity into, but from what we can tell USDT is intimately involved in The Dollar Shortage. The world needs a lot of dollars to satisfy USD-denominated liabilities and financial instruments. We believe the newly created Tether is being used for cross-border payments, international supply chain cash flow management, remittances and capital flight - primarily in Asia and specifically in China.”

[TBD Call] “Every ~10 minutes a computer solves a math problem. Solving that math problem verifies the accuracy and timeliness of Bitcoin being sent from one wallet to another. The computer that solved the math problem is given some Bitcoin, and then you start over again. The Bitcoin blockchain has been doing this exact same thing for 11+ years. It was doing it when there was no price for Bitcoin. When the price was $1 and $1,000, and $20,000 and back to $3,000 and up to $13,000 and back down to $4,000 and its still doing it today at $8,800. It. Just. Keeps. Doing. The. Same. Thing. All that price volatility, which has obviously been stunningly positive over the life if Bitcoin, is just the world trying to decide what this thing that we’ve never seen before is worth. Beautifully consistent in its operations amidst the chaos of price discovery.”

June 1, 2020

[Good Call] “I’m not going to talk about Bitcoin, crypto or macro this month. I can’t bring myself to do it. I thought about not writing a Monthly Update for June or pushing it back a week. But I wanted to at least pay a small tribute to the magnitude of the pain being felt in America right now, even if its just in a little newsletter that maybe a thousand folks read.”

[Bad Call] N/A

[Interesting Call] “There is a big question to be answered – “what long term changes are going to come about from Coronavirus?” There are many layers and vectors to that answer. I discussed some of them in detail on Pomp’s podcast May 22nd. That discussion focused on changes that may occur with regards to QE, MMT, UBI, strong dollar, inflation, China, generational divide, and politics. I believe courses of action have been set in place in the last three months on these various factors that will play out in the years and decades to come and will be some of the absolutely most important factors to shape our lives. Once these factors get moving in a direction, they become difficult or impossible to walk back.”

[TBD Call] “It would be a fair question to ask – “did Corona contribute to the protests and riots, and if so, how?” Was it simply because people have been cooped up and are on edge? Is it 40 million unemployed? Is it financial market bailouts while small businesses are systematically disadvantaged? Is it the government’s response to Coronavirus? It’s all that and more. People are angry because, for an increasingly wide swath of Americans, the system is not working. For a significant portion of the United States, the ends were not really meeting before anyone ever said Coronavirus. Many of these Americans have become disenfranchised with how things are going in this country and Coronavirus was the tipping point. Significant change may very well be demanded from the people.”

July 1, 2020

[Good Call] “It’s all one trade”

[Bad Call] “The $1200 checks have been spent. Additional federal unemployment is set to expire at the end of July. The economy is nowhere near ready to have that support removed, so it’s a good base case assumption we will see those measures extended, at least through the election.”

[Interesting Call] “Inflation/deflation. We’re talking 2021 in US CPI terms. Whether that number is 1.5%/2.5%/3.5%/4.5% matters a lot for BTC. There are smart guys saying inflation will be 4-5% in 2021. There are smart guys saying we currently face massive deflationary forces. You can broadly imagine what the state of the world might be in those various inflation scenarios. What the levels of monetary and fiscal stimulus might be. What the shape of the economic recovery might be. What US/China relations might be. As new information becomes available, you dial in your expectations for near-term inflation accordingly. 2022 and 2023 are worth thinking about as well. Longer-term inflation factors become pretty difficult to estimate, as so much is unknown at this time.

I doubt the Fed/Treasury will permit this number to go much lower for any meaningful amount of time before they start shooting against it to get it higher by any means necessary. But that may be easier said than done.”

[TBD Call] “What is unequivocally true and has become increasingly more true for 12+ years, is that financial markets are entirely beholden to monetary and fiscal policies from central banks and governments globally. The United States remains convincingly in the driver’s seat there. Capitalism, like you would ever read about in textbooks, has become deeply distorted. Distorted on multiple, interrelated layers. This has been ongoing for many years but has seen a significant acceleration since early March. As a reminder, that was 115 days ago, so we’re still real early on a lot of this.

Even though we’re early on a number of these monetary and fiscal policy factors, that doesn’t mean that much of what has already occurred can be walked back. Much of it can’t be walked back. The Fed’s balance sheet cannot contract any meaningful amount for years. We may never stop QE again. The Fed may be in the public debt markets forever. Increased unemployment benefits may be in-place for quarters to come and they may become a permanent feature. PPP & EIDL-type programs are set to extend and versions of them may become a permanent feature.”

August 1, 2020

[Good Call] “So where does that put us on ETH vs BTC at the moment? ETHBTC is currently ~80% off the lows of Sept 2019 but still 70% off the highs of Feb 2018. While ETHBTC appears to be forming a channel of higher lows and higher highs, it also currently sits at its most overbought level ever on the weekly RSI, which is to say, caution is warranted and near-term underperformance of ETH vs BTC may be in store.”

[Bad Call] “If you’ve been paying attention to Fed messaging this month, you know they’ve been priming the market through their mouthpiece. They’re “not even thinking about, thinking about, thinking about raising rates”. That’s likely explicit yield curve control coming, likely at the September meeting with some sort of preview at Jackson Hole in August.”

[Interesting Call] “Over the more medium-term, the fate of ETH likely rests in ETH 2.0, the long-awaited migration to PoS from PoW to facilitate scaling. ETH in its current form is wholly inadequate to support the throughput necessary to fulfill its promise as a “decentralized world computer.” The deadlines to get ETH 2.0 moving continue to suffer from pushback after pushback but at some point early next year the show should finally get on the road. At that point, ETH will be viewed less through the lens of a dream and more through the lens of what it can actually do.”

[TBD Call] “One piece that is a large but crucially important unknown is the degree to which society will continue to recoil from unchecked power failing at various levels. This is more on display today than it has been in many decades. The political process of the United States has rotted from the inside out and that rot has metastasized into banking and industry. Does this come as a shock to you? It shouldn’t. The Founding Fathers warned many times of this exact thing… And so we find ourselves, some 200+ years later, reaping what we’ve sewn from decades of unchecked power and fundamentally misaligned incentives. From the beginning, politicians were meant to represent the people, but that relationship has been distorted and corrupted to the point where politicians are incentivized to pull growth forward into the present at the expense of the future. They do this in many ways, at the behest of special interest groups wielding immense influence. It’s precisely what the Founding Fathers were warning about.

What are we, the people, to do about it? What will we do about it? That is unclear. Maybe we, the people, don’t do much about it at all right now. Maybe the unrest our country faces this very moment can be placated with democratic socialism and the can will be kicked another 5, 10, 20 years down the road. But eventually, inevitably, those chickens come home to roost. And then what?

I believe a non-sovereign money can be part of the solution. If the Founding Fathers were around today, I’m certain they would’ve felt the same way.”

September 1, 2020

[Good Call] “The market knows the Fed will be there. And if they need to get weird, they’ll get weird. If something they’re doing isn’t quite exotic enough, they’ll tweak it. If the rest of the world (ex China and Russia) needs help, they’ll help them… So what else does the market want from the Fed? The market knows the Fed can’t generate CPI inflation. Treasury and Congress can do that. All the Fed can do is generate asset price inflation. When I say “it’s all one trade”, that’s what I mean… Dollar weakness they have less control over, but rest assured they’re doing their part. Congress and Treasury need to do their part too. Is the DXY going a bit lower? Sure, maybe. Is it going a lot lower? Less likely, but maybe. But if it does, it will likely be because of a lot of fiscal stimulus.”

[Bad Call] “The precious metals trade is primarily predicated on negative real yields. That requires the Fed and Congress to act exceedingly dovish in concert with their monetary and fiscal policy. Right now, it appears the market is pricing in that plenty of fiscal will be coming. If that doesn’t materialize, gold will likely pull back. BTC may very well pull back with it.”

[Interesting Call] “The attraction of new traditional capital into BTC via CME futures represents a step-change in market structure and should not be ignored. This capital acts fundamentally different than your local neighborhood degen on Mex. The cash and carry trade for BTC appears to be attracting large amounts of capital from traditional market participants when the annualized returns of that trade get attractive enough. That type of capital doesn’t run out of money, thus a steep enough contango curve can and likely will begin acting like gravity. It’s already starting to happen. Bitcoin is growing up. That is welcomed.”

[TBD Call] “Off on the side stage broadly labeled DeFi, there’s breakneck innovation. Truly fantastic mechanism designs. Turbocharged network effects. Interest levels are rabid, and returns are astronomical. It’s high risk to be sure, but the sheer excitement is something we haven’t seen in nearly three years. It remains unclear to us at the moment exactly what will come of DeFi that can stand the test of time, but the likelihood the answer is “nothing” is diminishing by the day.”

October 1, 2020

[Good Call] “One final note. I would be remiss to not mention the legal action taken against BitMEX this morning, October 1st, by the CFTC and DoJ. The CFTC alleges BitMEX offered U.S. customers illicit crypto trading services and the DoJ alleges violation of the Bank Secrecy Act concerning KYC/AML regulations. BitMEX Co-Founder Samuel Reed was arrested and is in custody… Most importantly, price dipped less than 4% on the news and has already bounced meaningfully, down only 2.3% compared to pre-announcement price levels. THIS IS VERY BULLISH PRICE ACTION. Two years ago, this announcement would have sent price down 25%. Bitcoin is growing up and that is welcomed.”

[Bad Call] “Fiscal stimulus is the single most important macro factor to financial markets at the moment. As it relates to fiscal stimulus, headlines are flying around as I type this. The bid-ask is $1.62tn - $2.2tn. The sticking points are bailout money for state and local governments and the amount of weekly federal unemployment payments. It’s REALLY hard to call definitively at this point, but a deal looks likely. There are plenty of outcomes where a deal doesn’t get done but at this point it would be easy to imagine Mnuchin and Pelosi meeting at $1.8tn and greenlighting the bill.”

[Interesting Call] “An important factor that effected financial markets broadly in September was the September 16th FOMC meeting. While stocks had already traded off and the USD had already strengthened going into that meeting, both of those moves accelerated on Jay Powell’s lack of explicit guidance around yield curve control and long-term commitment to large-scale QE. Jay “Plain Language” Powell presented a notably more cryptic/confusing/non-committal discussion than in prior FOMC meetings. His point was clear: The Fed was not going to do anything meaningful in either direction before the election, so as not to meddle in its outcome through the movement of asset prices. Well, we already knew there was no way he would be even remotely hawkish, so a “less incredibly dovish than expected” discussion was met with disappointment. The Fed played politics against Trump. If you’re surprised by that, read this.

That puts monetary policy on ice between now and the election but that’s already priced in at this point. The next FOMC meeting is two days after the election. Highly unlikely we’ll have a decision on the election by then. Fed will again not want to rock the boat, so unless markets are under significant stress (which is possible under certain outcomes which we’ll get to), the Fed will stay as neutral as possible at that meeting as well.

That said, the currently announced pace of QE across the four major central banks is unlikely to be sufficient to keep asset prices at current levels without significant fiscal stimulus alongside it. Said differently, if you want APPL P/E ratio to stay at 35x, we’re going to need checks in the mail and free money for zombie companies.”

[TBD Call] “These two crises – rotted democracy and rigged capitalism, are virtually assured to be the defining, overarching challenges of the coming decades in America. They will be challenges faced not by those whose actions caused them, but by their children and grandchildren. So it’s fair to assume the solutions brought to bear against those challenges will not be those of Boomers, but those of Gen X, Millennials and Gen Z. After all, we didn’t get to the moon by horse and buggy.

Distributed Ledger Technology (DLT) has the potential to be the platform on which to drive societal change for the good. At its core, DLT removes the requirement for trust. If the world were more trustworthy, removing the requirement for trust would be less necessary. That is not where we find ourselves today. This is the thesis for what we broadly refer to as the Trust Revolution. We, the people, have lost faith in our institutions because we have seen unchecked power fail time and time again at every level. The world feels that a little more strongly today than they did on Monday, because that failure was so acutely on display during the debate.

DLT has many use cases, but none more paramount than a non-sovereign money. A non-sovereign digital money puts pressure on administered capitalism and in turn on rotten democracy. Fix the money, fix the world. That’s why we’re here. That’s Ikigai.”

November 1, 2020

[Good Call] “Last month, we discussed a range of potential outcomes for asset prices going into year-end based on various outcomes with the election, fiscal stimulus, vaccine, economic data and Covid cases. Currently, varying degrees of risk remain present around each of those factors. Current asset price levels have baked in some amount of expectations on each of those factors. Those expectations may be off by a little, or a lot or just wrong entirely.”

[Bad Call] “ETH is up 198% YTD vs BTC +92%. That’s massive outperformance. The reason behind that outperformance is clear – DeFi. DeFi is still deflating. Unclear where this bottom, but from a purely time perspective, we likely need more time.”

[Interesting Call] “The macro backdrop in October was hardly the backdrop you’d expect for BTC to move up 28% in a month, and yet here we are. For six months now, we’ve been talking about how it’s “all one trade”, and how BTC was very much wrapped up in this. Well it gives me great pleasure to announce that, at least for BTC, it is no longer “all one trade” as of now.”

[TBD Call] “There is alignment between the change Bitcoin is on the precipice of and the change the world is on the precipice of. It’s becomingly increasingly clear the world will never go back to the way it was pre-Covid. That’s true for work from home. That’s true for movie theaters. That’s true for brick-and-mortar shopping. That’s true for monetary and fiscal policies.

Bitcoin is poised to be a central part of the broad change that is occurring in this world. I’m biased, but I try hard to keep an objective viewpoint. It’s a big part of my job to do so. Bitcoin is extremely well-positioned for the change we are faced with in this world. You need to do the work to decide Bitcoin is good at storing value. I’ve done that work and I’ve concluded that it is. Then you need to do the work to decide the world is going to need good stores of value in the future more than they’ll need them today. I’ve done that work too.

More and more people are doing that work and arriving at the same conclusion. Signs of increased adoption are everywhere. Signs of maturation are everywhere. We’re nearing three years since the prior all-time high. Bitcoin is poised.”

December 1, 2020

[Good Call] “Reflexivity coupled with the “sellside liquidity crisis” makes for a potent combination, and it doesn’t appear to be done here. If you thought it was a green grass from $14k to $20k, then it’s Dixie Chicks-style “wide open spaces” above $20k.”

[Bad Call] TBD

[Interesting Call] “I believe I can speak on behalf of the entire crypto industry when I say it has been a WILD ride. The ups and the downs over the last three years have been unlike anything I’ve ever experienced in my career. The December 2017 blowoff top. The series of lower highs throughout 2018. The November 14, 2018 price crash. The April 1, 2019 pump. The Q2-19 insane run. The September 24, 2019 price crash. The October 25, 2019 President Xi pump. The brutal subsequent fade. Black Thursday. The October 2020 “decoupling”. And finally, a new ATH. Craziest part about it is, we’re just getting started.

I left Point72 on December 1, 2017 to pursue crypto investing full time. We launched Ikigai Asset Management on December 1, 2018. The first nine months of our fund’s history, we underperformed BTC. But we kept pushing. Evolving our investment strategy. Trying to figure out how to consistently generate attractive risk-adjusted returns in this wild market. In September 2019, we launched the strategy Programmatic Discretionary – systematic, models-driven exposure to BTC with the purpose of outperforming BTC through-cycle on a risk-adjusted basis. And, since that time, we’ve done just that almost exclusively trading BTC and we’ve done it with very limited leverage. I can’t tell you how proud of that I am.

Again, craziest part about it is, we’re just getting started. We’re just now at the end of the beginning. It took this space a full three years to get the pieces in place to get back to $19.7k and now that we’re here again, NO ONE WANTS TO SELL. Far from it, in fact. Folks are tripping over themselves to get Bitcoin exposure. Things change on a dime in crypto, but something big is going to have to change to knock this bid off.”

[TBD Call] “Now that we’re back at $19.7k again nearly three years later, the macro setup is quite different than last time. It’s clear there is no plan to end the largest monetary experiment in human history. In fact, it’s abundantly clear the opposite is true. We’re going to print much, much more. Every major central bank and government official globally is going to ride that train till the wheels fall off, then they’re going to hand the mess off to their successors to let them deal with it. It’s not going to be Jay Powell’s problem. Or Janet Yellen’s problem. It’s going to be our problem.

The best solution we have to that problem is Bitcoin. Bitcoin is a non-sovereign, hardcapped supply, global, immutable, decentralized, digital store of value. It is an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally. The world is going to need that store of value tomorrow more than they’re going to need it today, and it appears the world is starting to actually realize that.”