What caught my eye this week.
While the world potentially inched closer to World War 3 this week, Bitcoin fans had a more exciting horizon in mind. One where their love-hate digital asset finally boasted a six-figure price tag.
Some $133m spent in election lobbying says Donald Trump will be a crypto-friendly president. Bitcoin was already having one of its bursts of enthusiasm, but Trump’s reelection was a lift-off moment:
Similarly, the then-imminent approval in the US of Bitcoin ETFs in early 2024 we talked about in January got this rally started. But any snapshot of a super-volatile asset like Bitcoin only tells half the story.
For instance Bitcoin’s price has more than doubled since February 2021, when I made the case for even sensible investors holding 1-5% in a diversified portfolio.
Great – but not long after that article Bitcoin lost around three-quarters of its value in a peak-to-trough fall that bottomed out in early 2023.
Or go back further in the Monevator archives and you’ll find me suggesting Bitcoin was probably in a bubble in December 2017. By some fluke that post did roughly coincide with a peak. The Bitcoin price went on to again slump 75%, this time to under $4,000.
But of course the price is now up five-fold since that particular bubble-frenzy. So the smart – or strategically dumb – move was arguably to hold – I mean HODL – throughout.
Fortunately my 2017 article was very open-handed about where Bitcoin could go next. Amid much prevarication I wrote:
A price collapse wouldn’t necessarily mean the end of bitcoin or blockchain, any more than the bursting of the Dotcom boom halted the Internet.
Bitcoin could go on to be a household name for the rest of our lives, something we all might use. Perhaps it is the future of currencies?
Maybe it is a new store of value?
Seven years later I’d say almost the same thing.
True, as I’ve written before I think the longer Bitcoin lasts the longer it will last. There’s a self-reinforcing quality to every climb out of the dumpster. So I judge it to be in a much stronger position than 2017.
All the same, this latest mania looks bubbly once again.
Some coins are gonna make it more than others
MicroStrategy is a poster child for the current Bitcoin bullishness. Founder and Bitcoin evangalist Michael Saylor has basically turned his software company into a Bitcoin fund with a side hustle in writing code.
It’s been an incredibly profitable strategy. MicroStrategy shares are up nearly 2,700% over the last five years alone. Approximately none of that is due to it selling software licenses.
MicroStrategy now has about $33bn worth of Bitcoin on the balance sheet. But as I tweeted on Thursday, the trouble is the market prices MicroStrategy’s stash at nearer $300,000 than $100,000.
Commenting on Bluesky:
For once the world listened. Yes, the very next day Microstrategy shares had cratered to under $400!
Okay, or ‘perhaps’ it was actually an announcement by the infamous short-seller Citron Research that it was betting against the stock that sent the shares south.
Citron’s position is the same as mine – no argument in particular here with Bitcoin, but no sensible reason why MicroStrategy’s coins should be worth three-times everyone else’s.
Adding to the personal drama for me, I actually own a little bit of MicroStrategy! Indeed I began the year with a fairly decent chunk, as a proxy for betting on the post-ETF approval Bitcoin price. But I’ve sold it down as the price has climbed throughout 2024.
Which – to be clear for anyone who struggles with graphs – was not the way to maximise my gains.
Number goes up. Right?
Anyway, MicroStrategy fanboys have an explanation for the to-me crazy premium on the stock, which Jack Raines summarises on Sherwood as:
Think about it like this: if MicroStrategy holds ~$30 billion in bitcoin and the company’s worth ~$100 billion, by issuing $1 billion in convertible debt (or equity) to buy bitcoin, its bitcoin holdings increase by ~3% while equity is only diluted by ~1%.
Buying pressure sends the price of bitcoin higher, MicroStrategy’s stock continues to increase as bitcoin grows more valuable, and the cycle repeats.
The crypto bros are calling this a ‘money glitch’. You don’t have to search hard to find Tweets and even videos where they claim this ‘perpetual money machine’ could be the solution to everything from student debt to solving the government deficit.
I know…
Anyway, older hands like me call it a ‘roll-up’.
And there’s nothing new about selling your own highly rated equity to buy low-rated stuff that gets re-rated on your balance sheet.
Sometimes it works for a long time and the roller-upper is able to eventually transition into creating enduring value. (e.g. Think companies like Constellation or WPP or even Berkshire Hathaway at a push).
But very often it blows up. (Numerous UK small-caps over the years, or the Valeant roll-up that caught hedge fund manager Bill Ackman out.)
Time will tell with MicroStrategy. But I hope Saylor is being very careful with its debt, because the one thing we know about Bitcoin is that the price does not move in a straight line.
Who’s zooming who
Monevator favourite Cullen Roche did a good job of explaining why MicroStrategy’s, um, strategy is both brilliant – you can’t argue with Saylor’s returns – and something that will only work until it doesn’t:
To some degree it’s all very Ponzi-like. MSTR is selling bonds to fund purchases of BTC and those purchases help drive the price of BTC up which allows MSTR to finance more bonds.
It’s magnificently brilliant as long as the price of BTC keeps going up. As long as it keeps going up.
Many things can be true at once.
You can believe that Bitcoin has established itself as a long-term asset, and still think the price looks frothy.
You can salute MicroStrategy’s lucrative capital allocation policy while believing it’s sitting on a box of nitroglycerine.
And you can think Trump will be good for crypto while wondering whether he’ll (reliably) be this good.
Heck, you can think Bitcoin is a resource-burning scam for dupes while still profiting from trading it.
As Finumus wrote in his excellent Moguls piece this week:
I’ve learnt not to let my beliefs get in the way of a profit.
Alas UK regulators are letting their beliefs get in the way of UK investors making a profit.
I have mostly owned MicroStrategy because as a UK investor I can’t buy a Bitcoin ETF in my ISA due to what seems to me an arbitrary decision not to approve such ETFs for retail investors in the UK.
(And let’s face it, with capital gains tax going the way it has, Bitcoin holdings kept outside of ISAs are now pregnant with gains headed to HMRC…)
Yet the same UK regulators enable us to buy triple-levered ETFs – on MicroStrategy no less – on some platforms.
And of course we’re free to buy Bitcoin outside of tax shelters.
I fail to see a consistent logic.
Too hard to HODL
The total value of all Bitcoin is currently around $2 trillion. While I don’t entirely dismiss that figure ending up closer to zero, I also think it’s very plausible that – on the ‘store of value’ thesis – that Bitcoin’s total value could eventually match gold’s ‘market cap’, which is was around $17 trillion last time I looked.
If that happens then the UK’s current regulations could cost Britain hundreds of billions if we collectively under-own Bitcoin as a result.
Finally, to be clear, all the environmental worries about Bitcoin remain legitimate concerns, the crypto space still feels over-hyped and under-necessary, and nobody needs to own any Bitcoin if they don’t want to.
Many things can be true at once.
Have a great weekend.
From Monevator
Our updated list of low-cost UK index funds – Monevator
A speculative education [Members] – Monevator [Moguls]
From the archive-ator: Coping with the guilt of losing money – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Rising energy bills push UK inflation to a six-month high of 2.3% – BBC
British firms report first contraction since 2023, PMIs show – Reuters
FTX co-founder Gary Wang receives no prison time for crypto fraud – Guardian
Italian village offers $1 homes to Americans upset by Trump win – CNN via Yahoo
Duct-taped banana artwork sells for $6.2m in New York – BBC
Labour share of GDP. The UK is an outlier with…Russia and Brazil – Klement on Investing
Products and services
Moving home costs £14,000 and it’s about to get more expensive – Which
Average annual energy bill to rise to £1,738 in January – Guardian
I have been using Thriva to monitor my health for many years now. Try it via my link and we’ll both get £50 off! Terms apply – Thriva
Banks accused of ‘ripping off’ customers as mortgage costs rise while savings rates fall – iNews
Trade shares? The (dopey) PTM levy rises to £1.50 from 2nd December – LSE
Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Interest rates slashed on savings accounts after base rate cut – Which
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley. Terms apply – Charles Stanley
Homes for sale with electric car charges, in pictures – Guardian
Comment and opinion
The ‘linked benefits’ of index investing – FT
How millennials are rewriting the American Dream – Sherwood
The farmers’ furore shows why it’s so hard to reform taxes – Guardian
How does UK pension drawdown work? [Podcast] – Merryn Talks Money via Apple
Investors eye gilts as markets have ‘overreacted’ – This Is Money
Talking the 4% rule with creator Bill Bengen [Podcast] – Financial Samurai via Spotify
Six ways to cut inheritance tax on pensions – This Is Money
Investors obsession with round numbers – Optimistic Callie
Is the Australian pension system really better than ours? – This Is Money
Placing guardrails on your portfolio – A Wealth of Common Sense
Return on Effort (ROE) is the key to a better life – Financial Samurai
The keys to financial success as a couple [Podcast] – The Human Side of Money
Naughty corner: Active antics
Which asset has the biggest bubble potential? – Behavioural Investment
How to deal with noisy markets – FT
Fees matter. Frequent fees matter more – Klement on Investing
Hargreaves Lansdown has sold at a low-ball price – UK Dividend Stocks
Shorting credit – Verdad
Kindle book bargains
I Will Teach You To Be Rich by Ramit Sethi – £0.99 on Kindle
Eat That Frog! Get More of the Important Things Done by Brian Tracy – £0.99 on Kindle
Growth: A Reckoning by Daniel Susskind – £0.99 on Kindle
A Confederacy of Dunces by John Kennedy Toole [A fav, not about money] – £0.99 on Kindle
Environmental factors
Heat pump grants offered to more UK homes – This Is Money
COP29’s $250bn climate fund proposal dismays developing nations – Sky
How to (eventually) remove a dam – Hakai
Why Vanguard is enabling shareholders to vote for profits over ESG – FT
Plagues, taxes, storms, and the Jet Stream – Nautilus
Robot overlord roundup
Humans are about to get smarter like never before – Raptitude
AI’s Holy War over scaling laws – The Generalist
ChatGPT can predict analyst forecast changes – Klement on Investing
Some of Substack’s biggest authors rely on AI writing tools – Wired
Bluesky mini-special
X Out – Hola Papi
The great migration to Bluesky – 404 Media
Come join us… – Monevator on Bluesky
…and watch it grow, live! [Counter] – BCounter
The Bluesky bubble – The Atlantic
Is it ‘federated’ enough, though? – Cory Doctorow
Off our beat
Plutarch and the ancient art of saying no… – Art of Manliness
…and how having money can help with that – Of Dollars and Data
The John Stonehouse affair [Podcast] – A Long Time In Finance
Could humans hibernate? – Aeon
The case for RFK Jr as US healthcare sec, vaccine issues aside… – Guardian
… [also, he’s another manifestation of] Down vs Up – The Honest Broker
Is being a mum bad for your career? Maybe not – Reason [h/t Abnormal Returns]
How to stay healthy in your 50s – Guardian
James Meek finds war-weariness in Ukraine – London Review of Books
Do people actually hate Forrest Gump? – Stat Significant
And finally…
“The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.”
– John Bogle, The Little Book of Common Sense Investing
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I will leave this link on the Farmer inheritance tax issue here as a link that gave me pause for thought. https://www.youtube.com/watch?v=s9J0GpnXNhY
JimJim
Bitcoins value is fake. There is so much manipulation by Tether, which claims to have 1:1 backing for $130 billion despite refusing to have a proper audit by a big 4 company for the last 10 years. It’s basically “trust me bro”, for a dodgy company based in the Bahamas.
Even if bitcoin wasn’t massively manipulated I could never bring myself to invest in something which is backed by a square on an excel spreadsheet and causes a massive waste of energy.
I suppose if bitcoin did become a global currency you could use anywhere as seamlessly as Applepay I would use it, but this is just never going to happen.
I’ll just have fun staying poor with my global equities. There’s probably some bitcoin in there somewhere, although I’d rather there wasn’t.
The other day I was looking at the market depth on Coinbase, and there was a $70M wall of asks at $100K waiting to be matched.
I have absolutely no doubt the price will top $100K now, but it’s certainly strange how it’s suddenly met resistance.
Given the absolutely insane momentum of the last few weeks there must be selling pressure to hold it away from that psychological price level that those with diamond hands will inevitably go nuts over, and half of r/bitcoin literally have champagne on ice for.
The $6mn banana sale signals the top on this cycle imho.
I simply don’t get it. Where is the underlying value of the assets here? To me this is the blackjack table on a Friday night.
The value of Bitcoin is in the code, the sunk energy cost, and the shared conviction.
One can say it’s not worth X or you think it is in a mania or the price delusional or whatnot, but by this point in 2024 we really shouldn’t still be arguing about whether it’s ‘fake’ IMHO.
With respect, if one still thinks a distributed blockchain = a spreadsheet cell then one hasn’t made the effort to understand it.
The two may be (are) functionally equivalent in some respects, but in other ways radically different.
Again this is not to say it’s ‘worth’ $100k or even $10! 🙂
As I’ve said before, most of the anger about Bitcoin is really anger about the price. If one Bitcoin was worth 10 cents it’d just be a cute novel bit of code.
Of course I understand we wouldn’t be talking about it here then, either! 😉
@all — Due to fat thumbs I accidentally deleted a few dozen spams without checking for real posts that had been mislabelled. If you commented and your comment vanished, apologies!
Thanks for your weekly posts as always TI.
I myself have always been very anti crypto in general. I think a lot of it stems from the crowd that mostly surrounds it and the beliefs a lot of them have. My gut more emotional reasons are as follows;
– It seems to be anti government, anti regulation, anti FIAT
– It seems to be pro Wild West type freedom of a world
– Fosters a get rich quick mentality from most
– I don’t understand how people think it can a currency and at the same time a route to riches unless it eventually becomes stable is the thought process. Is it a currency or digital type commodity?
– Crypto is often argued as being for the average Joe out there but to me it’s far more unequal in ownership than normal finances
– The use of it as an actual currency seems laughable in the sense of the wild price fluctuations, no ability to control it in a good sense centrally and it being backed to me simply by sentiment and the belief it will go higher. The image of walking around Tesco and waiting for the live prices to go to something you prefer as they change every minute or so.
– The lack of privacy if someone knows your address, the laughable transactions per second, the constantly rising size of the local databases of transactions, the environment concerns
My more rational calmer side just thinks the following:
– I don’t want to invest large sums in individual stocks or sectors as I think it’s too risky
– I don’t want to invest even 1-5% in this sector because it really goes against what I believe in
– I don’t invest in Gold or commodities as it stands anyway
– I can’t shield it in an ISA or a Pension in an easy way, I know you can invest in certain companies like Micro Strategy however but in general that point is true.
– The risk of losing all your money, having no real recourse or safety nets in the traditional ways is worrying
I really do hate the crypto space personally, it’s not about people getting rich from it, I don’t even mind people doing a YOLO and becoming millionaires on meme stocks or other things (good for them!) but crypto doing well really gets to me and I can only think it’s because it seems to be against so many other things I believe in.
I understand the original motivation behind it and what it’s now become is very different. I know some of the criticisms are made less impactful as people use centralised exchanges and don’t really send crypto to others in the original way it was intended. Most of it just seems like hype to me. Number goes up! Is not enough to get me to invest I am afraid. I will stay clear and pick up any of it naturally if it ends up more part of the world via my ownership in the world governments and companies I already invest in.
TFJ
@TFJ — Cheers for thoughts.
Just on this: “Is not enough to get me to invest I am afraid.”
I’m *never* trying to get anyone to invest in anything on this site, with the arguable exception of a global tracker fund.
But that goes triple for Bitcoin! 🙂
As I conclude in my intro, I don’t think anyone *needs* to own this. Sure there might be an opportunity cost, but as some of the crypto bros don’t seem to understand, even a Bitcoin price of $1m per coin doesn’t put bread on the table, fuel in jets, or TV shows on Netflix. (Though of course you’d rather own some BTC than not in such a world…)
I think it will never got to zero now or even particularly near to that, with the exception of a code hack/failure. But who knows what the real value is. Personally I’m pretty amenable to the gold equivalent, as I’ve said a few times. I don’t see why it can’t be a digital proxy for gold. Most of the complaints about it hold for gold too, one could even argue the environmental costs (which I don’t dismiss) over the history of gold mining.
I do think some people are a bit closed-minded though. Sure it might eventually go to zero and then they can take their victory laps, but personally I’ve allowed my position to evolve over the last decade or so, as the facts have changed and I’ve better understood what’s going on here.
Finally, to be clear people say ‘crypto’ but I have no conviction about any of the other traded coins apart from Bitcoin. I understand the intellectual case for, say, Ethereum or Solana or whatnot, the great flexibility, the code-on-chain etc. But I don’t think it’s necessary to get most or even all of the benefit (such as it is) that Bitcoin can deliver. (Basically a countable once-spendable decentralised digital token with finite supply). So I couldn’t pick between them.
I do happen to still have some Solana that I picked up somewhere that was worth very little in 2022 and is now a small four-figure sum. This is a crazy space. Anyway maybe that’s my tiny hedge against my Bitcoin maximalism.
I’m sure the very occasional posts we do on Bitcoin rub some up the wrong way, but it is a feature of the landscape currently, Bloomberg quotes the price next to USD and gold and oil, and retail investors occasionally go mad for it, so it’s going to stay in the discussion now and then for the foreseeable. 🙂