Update on Cryptoassets as of August 18, 2021 By, Van K. Tharp, PhD

Market Summary

BTC hit a new all-time high of $64,863.10 on March 13. Since then, it has been much lower but recently it broke out of a channel and made some significant gains. The following chart shows that quite clearly. Will it test $50K again soon?

https://www.coindesk.com/price/bitcoin

In late 2017, I said that cryptoassets were the biggest institutional revolution since the Industrial Revolution and that they represented the investment of a lifetime. Institutions were not ready or capable of participating in that revolution so they “pooh-poohed” cryptos. Let me put what has been happening in the last few years into perspective:

In 2013, Michael Saylor, the President of MicroStrategy said that BTC’s days were numbered. MSTG and Saylor now own huge positions in BTC.
In 2018, the SEC decided that most altcoins were securities and that precipitated a huge bear market. Cryptos underwent an 85% decline into the last month of 2018 and BTC hit a low price of $3,236.76 on Dec. 15, 2018.
But then look at what has happened since the beginning of 2019 –
- - BTC was up 92.71% in 2019.
  - BTC was up 305.94% in 2020.
  - And now it’s up 54.17% in 2021 after being up more than 100%.
In July 2020, VTI decided to put tuition money from new Super Traders into GBTC. We took all the risk but would credit the students with 79% of any gains. Those who paid $10,000 or more for their tuition were able to cover all of their Super Trader Foundation costs without paying any additional tuition because of the credit from the gains in just six months. Those who paid $25,000 were able to use their gains to pay for Super Trader Foundation and in most cases, also pay for Super Trader Awakening. The crypto price gains were impressive. In fact, there was a period from October through November last year when our crypto positions gained over $3 million in seven weeks.
Our February attempt to go into cryptos and just hold for six months was not a great success. At one point we had gains of almost 70% but when the May crash happened, we exited at about break even. I wasn’t willing to go negative so we exited all positions. Most of the Super Traders participating in that program had about an 8% gain in their credit – which is actually quite good for six months.
The Super Trader BTC system that we talk about here held a BTC position which was finally stopped out on May 15th when it closed below $49,081. The system entered BTC at $9,156 on May 6th, 2020, and stayed in it for 374 days. Previously, the system’s longest-held position was for 344 days. The total gain was 411%.
The system entered a new BTC position on July 30th at $42,240.93 even though BTC was above its buy price of $41,337 the entire day. Actually, the full system should have entered a 10% position in June, another 10% position in July, and then another 80% at the close on July 30th. Due to the rule to buy if the close is above that price, the last position actually cost the system an extra $1,000/BTC. This is what happens when we use mechanical rules. Right now we’ve been in the trade for 18 days with about a 6% gain.
Interestingly, when the system stopped out the BTC position in May, I wasn’t convinced that BTC was really in a bear market – just a 50% correction. Exiting BTC is often a strong signal to get out of all altcoin positions as well. Again, I thought these coins were in major bull market mode, and there was no way we should get out but then most altcoins plunged about 50% in about 4-5 days.

On May 15th I said,

“I think that there are a number of altcoins that could go up 10 times or more during the rest of 2021. Now we might have a decline of 40% or more during the year, but it probably will be short-lived with a very quick recovery.”

Well, we’ve had that drop so now the question is 1) should you be on the sidelines or 2) are more fast gains ahead of us? The answer, as you’ll see in the rest of this report, is probably that nothing will happen until BTC takes off again. While BTC and some of the altcoins are moving, none are moving rapidly.

The table below tracks the price of five major cryptoassets across three generations of the technology, now along with Bloomberg’s index:

Bitcoin, a 1st generation cryptoasset,
ETH and NEO, 2nd generation cryptos,
Iota, a 3rd generation crypto,
Holo (HOT), and
BGCI Index – I’ve also started including BGCI prices in the table.

Date of the All-Time High Closes
*Apr 14, 2021 ** MAY 11, 2021 ***Feb 12, 2021 **** Jan 15, 2017 ***** Apr 5, 2021 # April 16, 2021

Notice the huge gains in everything over the last month.

The chart below shows the Bloomberg Galaxy Crypto Index. Does that chart suggest to you that we are in a bear market or that cryptos are in danger? Before May 15th the crypto market looked strong but four days later, the start of a bloodbath was clear – as you can see in the chart below. The chart also clearly shows that we are in a recovery.

The following table tracks the amount of money in stable coins in the top 100 or which have a market cap of over $100 million. The percentage of the total crypto market cap indicates one measure of health for the crypto market.

* Bitcoin was as high as 90% of the market cap of all cryptos at the beginning of 2017 to as low as 32% at the top of the market. Part of the difference is that there are now over 11,305 cryptos (but more than half are not on exchanges and don’t have a market cap) and the number keeps going up. BTC is up to 44% dominance and ETH is now up to 18.5%.

As I have mentioned, initial coin offerings were all the rage in 2017 until the SEC decided that cryptos were securities and ICOs were illegal. The new rage now is Decentralized Finance and this group includes the following new coins in the top 75: Wrapped BTC (WBTC), AAVE, UNI, DAI, YFI, COMP, SNX, UMA, CEL, LRC, and SUSHI. I’m sure some of these coins will become buzzwords in the near future.

I used to say that I only trusted those coins in the top 50-100, however, from June 2020 to the present, many coins fell out of the top 100. Some of them didn’t fall far but some of them even fell out of the top 500.

The data below shows the top-performing cryptos of those we track. Top performing, in this case, means gaining over 500% since the start of 2021. The table below shows a comparison between this month and last month. I consider DOGE to be a coin that will very likely fail. But now both Elon Musk and Mark Cuban are promoting it (I wonder what they get for doing that). So you could probably trade it but I wouldn’t buy and hold it.

This table gives the top coins, the Market Cap, the 7-day and 30-day gains, the 2021 year-to-date gains, and the 2020 and 2019 gains. There are 14 coins up over 1000% in 2021 and another 8 up over 500%.

The following table shows the BTC change per year since January 2010.

People talk about BTC being volatile and risky. But can you find something else that has gone up 1,000% in 3 of the last 12 years, gone up over 100% in 7 of those years, and had only two losing years? There is only one other asset class besides BTC with anywhere near an equal performance – other cryptoassets. Also, despite the bloodbath in May, BTC is still up in 2021.

Our Super Trader BTC system beats buy and hold and if you can tolerate 50% drawdowns or more, the overall returns are huge.

Gold was not a path to safety during the pandemic and is not one now either even with Biden as president and the probability of more massive government spending. The gold price certainly doesn’t reflect a big devaluation of the dollar as some newsletters are promoting. Many people cling to the belief that gold is the asset to hold to preserve value but that may no longer be the case now that the world has a new form of money/value. Thousands of years ago, some cultures used seashells as a representation of money/value.

Even though cryptos are now worth about $1.9 trillion, gold still has about 40 times higher market cap. If all the money in gold went into BTC, BTC’s price would be about $370,000.

Cryptocurrency News

Here are what some savvy crypto investors are saying now about cryptos and BTC.

Elon Musk. Tesla has sold 10% of its BTC but will consider accepting BTC as payment when he knows there is a conformation of reasonable clean energy usage by miners (at least 50%).
Paul Tudor Jones increases his BTC allocation from 2% to 5%.
MicroStrategy plans to buy $500 million more BTC from the net proceeds of a bond sale announced in June. Its existing portfolio is 92,079 BTC or $3.7 billion worth.
Ray Dalio – “I’d rather have BTC than a bond, however, when most people believe that, then the government will want to do something about BTC.”
George Soros, with $27 billion in AUM, has approved BTC for trading.
BlackRock, with nearly $9 trillion in assets under management, plans to develop a blockchain strategy for Aladdin, its flagship portfolio management system.
Morgan Stanley bought 28,289 shares of the Grayscale Bitcoin Trust (GBTC) for its Europe Opportunity Fund – with $1.3 million at the time of sale.
Goldman Sachs announced it will offer ETH options and futures to their clients.
Citigroup launched a new business unit called Digital Assets Group which is dedicated to cryptocurrencies and the blockchain.
Hedge Funds plan to hold about 7.2% of their assets in cryptos within the next five years. That means, an additional $312 billion across market cap for cryptos.
SkyBridge Capital has launched a private ETH fund and said they will also apply for an ETH ETF.
A multi-strategy hedge fund, Point72 Asset Management, manages $22.1 billion and plans to add significant institutional capital based upon crypto trading.
VanEck filed a prospectus for a BTC futures mutual fund with the SEC. It will invest in BTC futures contracts, exchanged traded products linked to BTC, and pooled investment vehicles. Some are giving this filing a high probability of being approved.
Many newsletters use fear and greed sales tactics saying that there will be a new world reserve currency starting soon which will devalue the US dollar officially by over 30%. Gold, however, is down from its most recent high one year back and has been relatively flat for months. Is that a sign that these newsletters are just hype or is it a sign that gold is no longer a disaster hedge? Perhaps it’s some of both?
Ricardo Pliego, Mexico’s 3rd richest man, recently said that all fiat currencies are fraud and that if he had to hold a single asset for the next 30 years, it would be BTC. He said every investor should own BTC. https://twitter.com/APompliano/status/1408964287918379012?s=20
Andreessen Horowitz launched a new $2.2 billion crypto fund, saying, “We’ve been investing in crypto assets since 2013 and we are more excited today about what comes next than ever before.”
BTC miners are moving out of China and many of them plan to set up shop in the US. In addition, some of them are looking to form public companies. If they do go public, they’ll probably keep the BTC they mine.
Despite opposition from the IMF, El Salvador declared BTC a legal currency and the country plans to mine it using volcanic power.
Canada approved two ETH ETFs in one day. Meanwhile, the US doesn’t even have one BTC ETF. Galaxy Digital has GLCY.TO on the Toronto stock exchange and it trades under the bulletin board symbol BRPHF on US exchanges.

BTC News

Despite the recent 50% decline in BTC, the most sophisticated whales did not sell (Soros, Dalio, Paul Tudor Jones, etc). Look at what the big investment banks are now doing in the crypto news section.

The Fed actually talked about crypto at the latest meeting. Neel Kashkari, head of the Minneapolis Fed, was quoted as saying, “Crypto is 95% fraud, hype, noise, and confusion.” Tell that to George Soros, Paul Tudor Jones and Ray Dalio. By the way, wouldn’t you say the same thing about any fiat currency like the US Dollar?

The Lightning Network might really improve the status of BTC. Right now, BTC is an inflation hedge as a depreciating asset (as fewer and few coins are minted) and an alternative currency outside of government control. Lightning is a blockchain network that sits on top of the BTC network and promises a much faster, more efficient way for people to transact BTC. Lightning Network channels are turned into a single transaction that are then settled on the Bitcoin Core Network. El Salvador, now that it has adopted BTC as an official currency, is looking for ways to adopt the Lightning Network. Lightning’s growth is going parabolic, growing 20% in the last 30 days across 56,000 channels.

BTC miners have approved the first BTC upgrade in four years called Taproot – but it won’t result in a split. By adding several new privacy functions and more efficiency to transactions, Taproot actually bundles three distinct upgrades. This upgrade promises that BTC will become more than just an alternative currency. Taproot will enable new applications and new businesses to be built on BTC’s blockchain both at the core protocol level and on the Lightning Network. The BTC community has agreed to a rollout but due to the amount of testing involved, the upgrade probably won’t happen until November of this year.

Over 50% of BTC miners were in China and most of them are being forced to move. Many miners had to sell BTC to fund their move which accounts for some of the decline. The new location for many of them was Texas but two bills have introduced a lot of unknown regulatory factors into the crypto space.

First, the Senate passed the Infrastructure Bill which placed an unfair burden on BTC miners, stakers, and other groups. The bill calls anyone who facilitates the transfer of crypto “a broker” and they have to report all of their transactions to the US Government. Currently, the House has amendments to revise that language but the bill may not even pass. In addition, the House has a bill to regulate crypto massively and who knows what happens when the government starts to regulate crypto. All of this creates massive uncertainty and thus does not facilitate an environment for big gains – at least not yet.

ETH News

In case you were not aware of it, there is an Enterprise Ethereum Alliance. The founding members include Accenture, Banco Santander, BlockApps, BNY Mellon, CME Group, ConsenSys, IC4, Intel, JP Morgan, Microsoft, and Nuco.

An upgrade just occurred in ETH that did not result in two coins. It was called EIP (Ethereum Improvement Protocol 1559) and it will change the fee structure of Ethereum by splitting ETH gas fees into two parts. Now, gas will include a tip from the sender to the miner and a base fee that will be burned (meaning the ETH in the new fork will start to shrink). I personally think this is a great upgrade because I have wanted to get out of some of my ERC-20 tokens on UniSwap but the gas fees were almost equal to the value of the coins. This hard fork, called the London Hard Fork, launched on August 5th and some predicted that ETH would go over $3,000 by the end of August. That actually happened in early August.

Ethereum is also shifting to ETH 2.0 in December and the change is major. ETH 2.0 will run on the Beacon chain which will introduce proof of stake to Ethereum. Right now, both ETH and BTC are based upon proof of work, with ETH miners solving a problem. Proof of stake eliminates miners. At first, ETH 2.0 will exist separately from the ETH main network but eventually, they will connect. ETH will still be the basis for smart contracts, that won’t change, but the change will result in a 99.95% decrease in energy needed for transactions. Beacon has been in testing for months.

I think there is a possibility that ETH could overtake BTC.

Overall Commentary

This is a free newsletter to the VTI community. It makes no recommendations about buying or selling anything. Instead, it’s about understanding cryptoassets and how money is made.

My beliefs are that ETH could reach a trillion in market cap after becoming a Proof of Stake token and transaction costs go down substantially. After all, it’s the backbone of the DeCentralized Finance Movement.

In addition, BTC will go through a major upgrade later this year which will turn it from a 1st generation cryptocurrency to a 2nd generation with the addition of smart contracts.

Both of those should be huge movements and both take place this year.

Until next month,

This is Van Tharp.

LET'S BE FRIENDS