Revenge of the Nerds

With modern PC-culture, many movies of the 1980’s are now maligned for their overt sexism, lack of sensitivity or cultural appropriation. OK, so the blackface premise of “SoulMan” was a bad idea anytime after the minstrel era, but some 1980’s movies (Dirty Dancing, The Karate Kid, War Games, Back to the Future) still look good a generation later.

We do not condone the behaviour of the actors, writers or directors who were involved in movies which exploited others or showed that bullying your bullies was an appropriate response. We believe that success is the best revenge.

Choose your weapon

Whilst bullies traditionally used violence or ridicule to lord it over those who were deemed less popular or less athletically gifted, the tool of the ‘nerd’ has usually been their brains. At times this brainpower may have been used in destructive ways (playing “pranks” on the bullies), but one cannot imagine this ‘tit for tat’ or ‘an eye for an eye’ working out well over the long haul.

At other times, brainpower may have been used in a way which showed the ‘nerd’ to be the better person, and created a benefit for everyone. One could imagine a nerdy teenage Bill Gates or Steve Jobs hiding behind their computers to avoid bullies in gym class, before finally coming up with inventions which would shape the world, and make them billionaires.

Whilst not all nerds had the capacity or resources to become the next Gates, Jobs or Zuckerberg, many hundreds of thousands of nerds may have had the wherewithal to get into bitcoin years before it was cool.

Revenge of the Nerds

Blockchain.com reveals that there were over one million bitcoin wallets in 2014, when the price of a single bitcoin was below $1000. By 2016, when the underground movement had begun to go exponential, with over ten million BTC wallets in existence, the price was still under $1000, almost as if the majority of users had failed to see the true long-term value in a digital scarce commodity.

By the time bitcoin was at its 2017 all-time-high (ATH) of almost $20 000, the number of wallets had doubled from the year before, but it was mainly retail investors and friends of friends who were buying the new asset class. Regular financial institutions were staying away, perhaps through fear or ignorance of the true nature of this new investment.

The ‘nerds’ who had created bitcoin and mined bitcoin on cheap laptops would have their day. Those who bought and swapped cryptocurrencies among their friends in the late noughties and early twenty-teens were sitting on goldmines, and although it would take years for ‘big business’ to discover them, it was worth the wait.

Dancing on the ceiling (and the floor)

Despite bitcoin having not yet (at the time of this writing) having exceeded its 2017 ATH, the creation or mining of new coins, plus the existence of 60 million wallets, has meant that the total BTC use is more widespread and the market cap is higher in dollar value than it has even been.

The good news is, during this rise, the price appears to be much more stable. Major financial institutions from around the world have invested over US$7 billion into bitcoin since September, with prices per coin averaging around US$15 000.

Although experts cannot agree on a ceiling price for bitcoin (nor gold, nor any investment), we had previously reported a floor price of bitcoin at around US$6000, due to “the halvening” (see BostonCoin update Sept-Oct 2019).

Throughout the tumultuous years after its 2017/2018 crash, years of embarrassing presidential gaffes, scandals, impeachments and more, bitcoin did not drop below US$3000. This $3000 was the approximate cost of mining one bitcoin, just in electricity, not including the cost of hardware. If the BTC price got close to $3000 in 2018 or 2019, either miners would stop selling, or savvy investors would jump on the opportunity to buy a bitcoin for below cost, and drive the price back up.

As we mentioned last year, the ‘halvening’ increased the difficulty and price of mining one bitcoin to around US$6000, so it would be extremely unlikely that this price would be breached. Early in 2020, bitcoin prices crashed alongside stocks, properties and national economies, as the fear of COVID19 took over. However, the price did not drop below our predicted $6000 floor, and bounced back soon afterwards.

We are now forecasting a new floor, around $12 000 to $15 000, without even waiting for the next halvening in 2024. (By then, the new floor will be at least $30 000, read on to find out why).

Enter the banks

It was long after the COVID19 bounce back and long after the bitcoin halvening that major institutions started to accumulate bitcoin. One could imagine that the discussion in executive boardrooms may have been going on for 12-18 months before the first million-dollar cheque was made out to “Mister Bitcoin”, but once one of the major players put their money where their mouth was, others would have to follow, or be left behind.

We first learned that major investment firm Greyscale had bought millions in BTC as a hedge against inflation around September 2020. Goldman Sachs also dived into the BTC pool, as did Paul Tudor Jones (Tudor Investment Corp), Jamie Dimon (JP Morgan) and Peter Schiff. MicroStrategy picked up over 38 000 bitcoins worth around half a billion dollars. Online merchant facilitator Square Inc hoovered in $50 million worth of bitcoin and (comparatively tiny by world standards) Aussie company DigitalX has over 400 bitcoin on its books.

Investment funds, pension funds and merchant banks around the world are facing pressure to add bitcoin to their balance sheets, especially as government and corporate bond yields head to zero or below. Even the most traditionally suited gold-bug investment manager cannot deny the statistics: bitcoin has been the best performing asset class in the world since its inception in 2013, and adding even a 2% bitcoin allocation to traditional stock and bond portfolios would have enhanced performance whilst reducing volatility.

As the majority of the financial institutions picked up their share of bitcoin when the price was around $13 000 to $15 000, we cannot see the BTC price going below $13 000 ever again. If BTC ever dropped down near these levels, savvy investment managers would relish the opportunity to purchase a bitcoin for less than Greyscale, and price would be pushed back up.

Nobody knows the ceiling of BTC (nor the top price of gold, a stock or a bond). Estimates for BTC from seven-figure-salaried Armani-suited investment managers are modelling anywhere from $100k to $320k over the next 3-4 years. We are not that optimistic to foresee $320k in the near future, however, we do not have the resources of JP Morgan, so what the heck do we know?

All we can do is to guess that the previous floor of $6k is now defunct. We can guess that the new floor is over $12 000 and in four years’ time, with the next halvening, you will not be able to buy a bitcoin for under $25 000, even during a crisis, war or pandemic. Considering that BTC hit a $20 000 ceiling in 2017 with a floor of just $3000, it is possible that the ceiling may be 3-4 times the floor; and the new floor will be over $12 000.

On second thought, maybe that peak of $100k in 2024 is seeming more likely Once bitcoin hits six figures, nobody will be able to deny that the nerds have had the most successful and prosperous revenge.

What else is news?

Bitcoin has been demanding the majority of the attention in world headlines, and pushing most of the price increase; at the time of writing, only just exceeding its 2017 ATH. The majority of the altcoins have come along on the coattails of BTC, but most are still a long way behind.

Ethereum is 60% down from its peak price and XRP (Ripple) is down 80% from what it used to be. Dash is down 90% from its old peak, as is IOTA, Zcash, Nano and Siacoin. If part of your portfolio shows losses of 90% after three years, it may be wise to speak to a financial adviser or crypto guru, as, unless you have inside information of the next big boom, it could be an opportune time to crystallise losses to offset future capital gains. (Obviously, this newsletter is general advice and we do not know your circumstances, so seek tailored advice from an expert)

Just as the 2017/2018 altcoins seemed to emerge from nowhere and shoot for the moon (only for many to crash within a year), there have been many new offerings which have capitalised on the newfound passion for bitcoin. Some of them have even been good projects with a solid future; many have not.

Long-term readers will know that we spoke about decentralised finance (‘De-Fi’) over a year ago, and even posted a video interview with the “unbank”, Celsius. Our early investment in Celsius has generated thousands of percent returns, and continues to do so.

With solid DeFi platforms and clear disclosure, we can even extrapolate future earnings and price predictions. For example, with Celsius (which we bought under $0.10), management must keep buying new CEL every week to pay interest. Last week, Celsius disclosed that they paid $2.05 for each token, to pay interest on funds under management (FUM) of $3.3 Billion.

As more people seek interest yields of 5% to 16% instead of the 0.1% from standard banks, Celsius and other DeFi projects will most likely increase FUM and increase the price of their tokens, using solid purchases, not just hype. Alex Mashinsky from Celsius will have to buy at least $4M worth of CEL every week for the foreseeable future, regardless of its market price, so you can guess that any CEL price drops will be small and will be over very quickly.

How did we go this month?

• PolkaDOT 116%

• WANchain 122%

• LEND/AAVE 137%

• Bitcoin 167%

• ChainLINK 1 032%

• Celsius 4 839%

BOS NAV 30/11/2020

54.8016544

BostonCoin Price 60.2818198

We still have faith that Celsius and ChainLINK have a long way to rise, as the projects are solid and pass our “C.O.I.N.” four-step protocol. However, part of our diversification strategy is to rebalance the BOS portfolio after some excellent gains, so we will sell off some of these holdings to rebalance into other coins, whilst still maintaining smaller holdings in LINK and CEL. Stay tuned to see what else we buy.

BostonCoin price has increased by 34% since last month, and is up 236% since this time last year. Tell your friends. Use the hashtag #BostonCoin on social media for a chance to win great prizes. See you next month.

JB