Crypto - Is it too late to invest already? 20240215

As the relentless march continues (BTC crushed through the $50k resistance and closing above it yesterday), those who are not fully allocated to crypto may start having the usual FOMO (fear of missing out). We will look at the issue in a little detail in this email, and ask whether it is still not too late to chase...

Recent ETF trigger may drive price up more

The recent spate of ETF launches did indeed have a meaningful price impact, as we already topped 70,000 BTCs bought by various funds as of 3 days ago:

Chart 1: Net Bitcoin ETF Flows

In fact, the increasing realisation that BTC is the new gold which is not easily stopped at customs check points is probably why the BTC inflows were funded by, amongst others, gold outflows:

Chart 2: ETF Aggregate Flows Since Bitcoin Spot ETFs

The run, however, is not just in BTC, but in the crypto complex at large - if you look at the top 15 coins (+ the 3 top stables), most were rising on the day, 7-day, and 30-day horizons, often at accelerating paces:

Table 1: Current crypto price

So how much is now owned by funds and how much by other entities? here is an estimate which suggests institutionalisation is only beginning, where funds ownership is just a tiny fraction (the green area most likely includes the GBTC trust already):

Figure 1: Bitcoin Mix

Another facet of institutionalisation is how off-ramping is now finally being implemented at a large scale, as Visa the credit card company has also started taking BTC and crediting holder card account - this will finally make spending BTC a reality (not solely an investment vehicle)! More details are in article 2 below.

Is Halving as potent as touted? We think not

Some maximalists keep touting the upcoming Bitcoin halving as a trigger of a next run, but is that indeed the case? Halving describes the protocol phenomenon where after a certain number of blocks, the reward to miners (ie maintainers of the blockchain) is halved, here is a visual representation of the last 3 incidents and the upcoming one as well:

Chart 3: BTC Daily Issuance, supply, and halvings

We believe the halving may have less to do with price rallies than the more important network effect - where more adoption increases the value of the network (of users) and thus the price of the commodity that is the subject matter of the network. In fact, as the number of coins in circulation increases and the halving reduces new supply, the proportional impact of each halving also falls, as shown in the table below - where the last halving over its 4-year period had a 8% impact on supply, but the upcoming halving sometime in mid-April will only have 4% cumulative effect:

Table 2: BTC halving

We reckon that the more important indicator for coming price action to be on how fast the network effect spreads, which is now indeed taking off given wider institutional adoption. Our technical estimates put likely BTC prices in 3 likely levels:

a) almost there already - $60k by March 2024 (mid blue dotted line);

b) in six months' time - $190k in Aug 2024 (top red dotted line); and

c) blue sky (?) next top - $1m sometime in Q3-Q4 2025.

These are shown here:

Chart 4: BTC price log-log chart

So perhaps you have our answer already - It is not too late to jump onboard this up cycle. In fact, just updating our usual Google search chart, you can see that the search frequency of key crypto terms remain well down from the previous two peaks in Jan 18, Apr 21 by >80%:

Chart 5: Google Search

We would argue that another trigger to prompt more people jumping on to crypto might be govt's desperate moves to join the game through their CBDCs (central bank digital currencies) - because only by forcing people to ditch their paper notes can they flush out the money under the mattress. But what this might do instead is people sell the bank notes and buy decentralised, permissionless, and open source private coins instead...

To end, we present an updated 2-year chart of our managed strategy:

Chart 6: Core performance since 2022

=====================Article 1====================

The Globalists Want CBDCs in 2024… What Really Comes Next Will Surprise Them

There’s an excellent chance governments worldwide will soon force their citizens to use central bank digital currencies (CBDCs).

CBDCs enable all sorts of horrible, totalitarian things.

They allow governments to track and control every penny you earn, save, and spend. They are a powerful tool for politicians to confiscate and redistribute wealth as they see fit.

CBDCs will allow central banks to impose deeply negative interest rates, which are just a euphemism for a tax on saving money

Governments could program CBDCs to have an expiration date—like some airline frequent flyer miles—forcing people to spend them, for example, before the end of the month when they’d become worthless.

CBDCs will enable devious social engineering by allowing governments to punish and reward people in ways they previously couldn’t.

...

CBDCs are, without a doubt, an instrument of enslavement. They represent a quantum leap backward in human freedom.

...

That’s where Bitcoin comes in.

Is Bitcoin the Antidote to CBDCs?

...

CBDCs are going to introduce and familiarize people with using digital currencies. Then, it’s only a matter of time before they discover Bitcoin.

CBDCs and Bitcoin share some characteristics. For example, they are both digital and facilitate fast payments from a mobile phone. But that is where the similarities end.

The reality is that CBDCs and Bitcoin are entirely different in the most fundamental ways.

You need the government’s permission and blessing to use a CBDC. With Bitcoin, nobody can be prevented from using it.

Governments can (and will) create as many CBDC currency units as they want. Bitcoin is totally resistance to debasement. There can never be more than 21 million BTC.

CBDCs are centralized. Bitcoin is decentralized

...

In short, CBDCs are a pathetic attempt to compete with Bitcoin. They are a desperate, last-ditch effort to keep the fiat currency scam going—a Hail Mary.

CBDCs make an inferior form of money even worse, but at the same time, they are an excellent Trojan Horse for Bitcoin.

...

That’s how, contrary to conventional wisdom, CBDCs could be an enormous catalyst for Bitcoin adoption.

Historically, Bitcoin’s biggest moves to the upside happen very quickly… and the next big move could happen imminently.

...

=====================Article 2====================

Visa enables crypto withdrawals on debit cards in 145 countries

MetaMask users can now sell crypto directly to a Visa card, which eliminates the need to use centralized exchanges.

Global payment giant Visa is doubling down on cryptocurrency adoption by enabling another method to exchange crypto to fiat currencies without using a centralized exchange.

Visa has partnered with the Web3 infrastructure provider Transak to introduce cryptocurrency withdrawals and payments through the Visa Direct solution, the firms announced on Jan. 30.

The new integration allows users to withdraw cryptocurrencies like Bitcoin directly from a wallet like MetaMask to a Visa debit card. Available immediately, the integration enables one to exchange crypto to fiat and pay at 130 million merchant locations where Visa is accepted.

...

The partnership allows users from 145 countries to directly convert at least 40 cryptocurrencies to fiat without relying on centralized exchanges. Some of the supported countries include jurisdictions like Cyprus, Malta, Singapore, Turkey, Portugal and the United Arab Emirates, according to Transak's global coverage page.

...

One of the world’s largest companies in the payments industry, Visa has been actively exploring the use cases of cryptocurrency in recent years. In 2020, Visa made a major move into crypto, by partnering with the blockchain firm Circle to support the USDC stablecoin on certain Visa cards. In September 2023, Visa rolled out support for USDC payments settled on the Solana blockchain as it continued to expand the support of the stablecoin.

Is bear market confirmed for HK? 20221031

The observation that HK housing is in a downcycle has become consensus of late, after the CCL reaches a new low last week from the triple top dating as far back as 2019 (see green line in Chart 1). Cumulatively the index is now down 12% from the Aug 2021 high:

Chart 1: Home prices denominated in various currencies

But across the world, investors will always think about returns in their own currencies, and therefore, an 'objective consensus' of a true bear market in any asset price is only formed when the bulk of observers around the world see the same down trend that the base currency investors also sees.

So in order to find out whether the HK home prices are truly in a bear market by consensus (Chart 1 does not seem to suggest that is the case), let's take a look at the index as denominated in a few main jurisdictions:

a) the collective non-USD community (as proxied by DXY);

b) the EU community (as proxied by Euro);

c) the Brits (as proxied by GBP); and

d) gold bugs (as proxied by the price of gold).

HK still in bull market to world at large

From the point of view of the developed world population (as the USD index is represented by six liquid currencies, see Chart 3), however, the drop in HKD (blue line in Chart 2) terms is not corroborated by the price as measured by DXY the USD index:

Chart 2: Home price in non-USD terms still trending up

In fact, the non-USD price index is still very much heading up, from the longer term view (green dotted lines) to medium term view (red dotted lines), to even the shorter term time horizon (blue dotted lines)! What this suggests is that for the average OECD investor, HK property is still a rising asset.

Chart 3: make up of the DXY - 6 currencies

Home prices even more bullish for Europeans

For the average person based in Euro, the upward momentum seems even stronger compared to DXY, and HK prices, thanks to the collapse in Euros in the last few months, seem to be accelerating upwards within the red channel:

Chart 4: Euro investors may see HK prices accelerating upwards

Brits also feel the upturn?

Similarly, with the recent precipitous drop in the value of the Pound, the HK home price index will appear to the average Blighty investor to be positively surging even, after HK first started pulling away from a very correlated pairing between the HKD and GBP denominated indices which pretty much shadowed each other since our data started in 1981:

Chart 5: HK prices look strong to the British Pound investor

The much weaker pound post Boris's premiership (botched Brexit plus zealous lockdowns?) ensures that the weak pound has provided a strong platform for HK assets to appear to go from strength to strength.

Gold the only currency beating HK property?

For those who believe in gold, there is good news - In Gold terms, the 1997 peak remains the unsurprised top for HK home prices, meaning that we may still be in a bear market when measured from the perspective of the precious metal:

Chart 6: Gold strong vs HK, but mini breakout underway?

Even though the price index has broken above a near term trading channel, as indicated by the red arrow in Chart 6, if war does flare up more next year, we think gold might reassert its dominance and the break up could reverse. Time will tell.

Strong currency imports deflation, which is not a bad thing now!

In normal disinflationary times such as most of the past 40+ years, being pegged to the USD is good for HK assets during times of weak USD, as Chart 7 illustrates - weakening or weak USD is generally accompanied by bouts of strong home price increases, and the reverse held true (mostly in the mid/late 90s):

Chart 7: weak USD good for home prices, and vice versa - will it be different this time?

However, could we be in a period similar to the early 70s or early 80s, when strong USD will suck liquidity away from HK and produce deflation? How does this contrast the current super high inflationary environment? Is the strong USD a blessing as it reduces the 'cost of living' crisis that would otherwise hit these shores?

A very interesting dynamic, not seen before in our brief monetary history for sure... The above study shows that, whilst we remain somewhat bearish on the outlook of the HK market, more needs to happen in the global currency markets before it is a true foregone conclusion...

The author would like to thank Lee Man Hin Carson from The University of Hong Kong majoring in Accounting and Finance for assisting in data collection, analysis, and drafting of this article.

‘We never lost interest’: Asian family offices buy into crypto 20221027

Your author in media : [FT - ‘We never lost interest’: Asian family offices buy into crypto]

William Langley and Chan Ho-him in Hong Kong, 26 Oct 2022

Family offices in Asia are buying into cryptocurrencies, despite months of market turmoil, as weak returns from their traditional portfolios make digital assets attractive.

The interest from investment managers suggests there are still new buyers of cryptocurrencies such as bitcoin and ether, after a boom in digital asset prices during 2020 and 2021 turned to a bust.

Several family offices and wealthy individuals in Hong Kong said this year’s decline in digital asset prices had to be set against the poor performance of local equity and property markets.

After experiencing volatility in the first half of the year, cryptocurrency prices have recently plateaued, prompting speculation about whether they have bottomed out. Investors said the assets remained an appealing hedge against wider market ructions.

“We never lost interest in [crypto],” said Keith Wong, chief executive of Winland Wealth Management, a Hong Kong-based multifamily office. “We see it as diversification and a separate asset class.”

A survey of 30 family offices and wealthy investors in Hong Kong and Singapore, published by KPMG China and crypto group Aspen Digital on Monday, found that 92 per cent of respondents were interested in digital assets, with 58 per cent already invested and 34 per cent planning to do so.

More than 60 per cent of the respondents were family offices or individuals managing assets worth between $10mn and $500mn, said the report.

Bitcoin, the world’s largest cryptocurrency, has dropped about 70 per cent from its peak in November 2021 and has been trading between $18,000 and $25,000 since June. Ether, the next largest coin by market capitalisation, is down about 60 per cent per cent year to date.

However, Hong Kong’s traditional asset classes have also suffered this year, with the city’s equities underperforming US and European stocks. The benchmark Hang Seng index is down more than 30 per cent this year, hit by geopolitical tensions and repeated Covid-19 lockdowns in mainland China.

The city’s housing market has slumped to its lowest level since the 2008 financial crisis following years of coronavirus restrictions and successive interest rate rises.

“All [my] friends with family offices are saying they have shifted . . . into other things like having an art portfolio . . . and cryptocurrencies as well,” said a wealthy investor in Hong Kong, adding that the property sector had been “really stagnant”.

The focus on family offices comes as crypto companies in Hong Kong are lobbying regulators on licensing requirements that will come into effect in March. The industry fears the rules will preclude access to retail investors.

“For the average high-net-worth individual . . . whatever people recommended in gold, you can chop it in half and allocate half of your precious metal to crypto, because that’s an easy way to hedge,” said Eric Wong, managing director of Bricks and Mortar Management, a Hong Kong-based multifamily office.

Hong Kong-based Raffles Family Office has set up a joint venture with crypto company Huobi Tech to service the “unmet” needs of ultra-wealthy families seeking to invest in digital assets. C Capital, the asset manager founded by Hong Kong tycoon Adrian Cheng, plans to raise about $200mn to invest in blockchain assets over the next 18 months.

Digital assets face a generational divide, advisers said, with crypto companies keen to tap into “old money” from individuals who are more resistant to the new asset class.

“For example . . . the other day I was sitting with a family . . . the parents know nothing about crypto and the kids are asking about it,” said Winland Wealth’s Wong.

In the long run, this intergenerational dynamic will bring more crypto buyers “from the elderly side of the population pyramid”, said Bricks and Mortar’s Wong.

https://www.ft.com/content/5646ce04-ff09-4230-a35b-e46529545a4f

General Disclaimer - where quoted in media reports, your correspondent does not exercise control on editorial policy and therefore what appears in the publication may not coincide, or even rarely, contradict your correspondent's views...