Update on Cryptoassets as of June 15, 2021 By, Van K. Tharp, PhD

Market Summary

Bitcoin hit a new all-time high of $64,863.10 three months ago on March 13th but it has been going down since. The recent low was on May 19th at $30,681 and since that time, it’s been in a channel between $30K and $40K. The following chart shows the channel quite clearly.

https://www.coindesk.com

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.
  • 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 December 15, 2018.
  • But then look 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 36.4% in 2021 after being up more than 1,000%.
  • In July 2020, VTI decided to put tuition money from new Super Traders into GBTC. We took all the risk but would credit them with 79% of any gains. Those who paid $10,000 for their tuition were able to cover all of their ST Foundation costs without paying any additional money because of the credit they earned from the gains in just six months. Those who paid $25,000 were able to use their gains to pay for the ST Foundation and in most cases, also pay for ST Awakening. The crypto price gains were impressive. There was actually a period from October through November last year when our crypto positions gained over $3 million in seven weeks.
  • Our most recent attempt to go long on cryptos and hold for six months failed. At one point, the positions had gains of almost 70% but when the May crash happened, we got back to break even. I wasn’t willing to go negative so we exited all positions. We could, however, easily re-enter shortly.
  • The Super Trader crypto-system BTC position was finally stopped out when it closed below $49,081 on May 15th. The system entered the BTC position at $9,156 on May 6th, 2020. It was in the position for 374 days and gave us a total gain of 411%. Last month at this time, however, our gain was 590%. Previously, the system’s longest-held position was for 344 days.
  • Interestingly, I wasn’t convinced that BTC was entering a bear market at the time and exiting BTC is often a strong signal to get out of all altcoin positions as well. I thought altcoins were in major bull market mode and there’s no way we should get out. 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 the drop and the main question now is whether we should we stay on the sideline, or are there more fast gains ahead of us?

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

  • BTC, 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 that nothing is up from last month and NEO, IOTA, and HOT are all down about 40-50%.
The chart below shows the Bloomberg Galaxy Crypto Index. Does that chart suggest that we are in a bear market to you or that cryptos are in danger? Around May 15th, the crypto market looked strong. Four days later on May 19th, a bloodbath (probably short-term) was clearly starting and the chart below shows the results on June 15th.

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.

Since last month, the crypto market cap is down $480B to just over $1.7 Trillion. We also have about $25B more of stablecoin cap.

*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 nearly 10,000 cryptocurrencies and the number keeps going up. BTC is down to 44% dominance and ETH is now up to 17.6%.

There are now 5,638 coins listed and CoinMarketCap.com says there are almost 10,000 coins. The site now lists 638 coins with a market cap of $25 million or more. One year ago, there were only 102 coins with a market cap above $25 million.

As I have mentioned previously, initial coin offerings (ICOs) 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 (DeFi) and this group includes these 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. From June 2020 to the present, however, 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.

We are now following 242 coins in our crypto model. A month ago, only 7 cryptos were in bear territory with another 23 being neutral. Now there are 72 crypto tokens in bear territory and 124 are neutral.

Here are the top 15 cryptos by their Market SQN® score (100 days) as well as the bottom 15. You might think, well I should just invest in MATIC. While it’s down 10.45% over the last 30 days, it’s still up over 80-fold in 2021.

The data below shows the top-performing cryptos of those we track. Top performing, in this case, means gaining over 1,000% since the start of 2021. The table below shows a comparison between this month and last month. I didn’t include DOGE last month because it’s a dangerous coin. Notice that some of the coins from last month are no longer up by 1,000%.

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

People talk about BTC being volatile and risky. Maybe, but where else can you find something that has made over 1,000% in 3 of the last 12 years, 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 equal performance – other cryptoassets. And despite the bloodbath on May 19th, cryptos are still up in 2021.

Gold was not a path to safety during the pandemic and is not one now either even with Biden 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. Even though cryptos are now worth about $1.7 trillion, gold still has about 10 times more market cap. If all of the money in gold went into BTC, BTC’s price would be about $370,000.

Finally, here is a chart showing the price of BTC since 2016. The year 2018 used to look like a huge gain but look how that runup compares with the current price.

Cryptocurrency News

  • Here are what some investing savvy people are saying now about cryptos and BTC.
      1. Elon Musk. Tesla has sold 10% of its BTC but will consider accepting BTC as payment when he knows there is confirmation of reasonable clean energy usage by miners (at least 50%).
      2. Paul Tudor Jones increased his BTC allocation from 2% to 5%.
      3. MicroStrategy plans to buy $488 million more BTC from the net proceeds of a bond sale. Its existing portfolio is 92,079 BTC or $3.7 billion worth.
      4. Ray Dalio said recently, “I’d rather have BTC than a bond.” When most people believe that, however, then the government will want to do something about BTC.
  • The top winners lately appear to be tokens of so-called ETH killers and layer 2 projects. A good example is MATIC, Polygon’s native token. It’s up over 8,000% in 2021. Others include other smart contract platforms, including Cardano (ADA) and Cosmos (ATOM).
  • The US keeps giving bailout money to everyone under a certain income level – including many people who are fully employed. The bailout in the spring of 2020 led to a huge number of deposits at crypto exchanges. A survey showed Americans might spend up to $40B from the stimulus package on BTC.
  • Many newsletters use fear and greed sales tactics and are 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 doing nothing relatively speaking. 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?
  • PayPal and Square are now buying enough BTC to account for all the newly mined BTC each month.
  • Part of the BTC decline is due to factors that didn’t use to influence the market. First, futures traders can short BTC and they have been doing that. Second, crypto options market makers are starting to influence BTC prices. They were selling spot futures markets to hedge their books.
  • Ransomware attackers are getting bolder and more dangerous. Ransomware-linked addresses have banked at least $81 million in crypto in 2021 and they did over $200 million last year. Colonial pipeline just paid $5 million to unlock the software to run its pipeline. The FBI was able to recover most of that money, however, because crypto transactions are traceable despite a popular perception that cryptos provide anonymity.
  • Ransomware attackers are now licensing out their software and sharing in their affiliate’s profits. Darkside generated the vast majority of this revenue. Most of this is coming from Russian affiliated cybercriminals (about 92%). Interestingly, most of the ransomware strains are hardcoded to avoid Russian-speaking victims.
  • Some of the BTC miners are looking to form public companies. If they do, then they will be keeping whatever coins they mine and that will limit supply even more.
  • Canada recently approved two ETFs for ETH in one day. Meanwhile, the US doesn’t even have one BTC ETF. The company that created those ETFs is Galaxy Digital. The company is listed on the Toronto stock exchange and can be traded over the counter in the US with the bulletin board symbol BRPHF. On the Toronto Exchange, it trades at GLCY.TO.

I think the biggest news recently is that El Salvador has voted to make BTC the legal currency of the country – and that’s a first. BTC gains will not be subject to capital gains in that country.

  • El Salvador plans to mine BTC using volcanic power.
  • It will put an infrastructure in place to power Bitcoin payments using the lightning network for merchants.
  • Millions of citizens in El Salvador don’t have access to banking services and President Bukele stated this action could save its citizens billions of dollars.
  • The IMF said that the adoption of BTC as legal tender raises a number of macroeconomic, financial, and legal issues that require “careful analysis.”
  • In spite of the IMF’s comments, a number of other Central American countries may follow suit including Paraguay, Panama, and perhaps even Mexico.
  • For a country to add BTC as legal tender, it has to acquire BTC and hold it in reserves to help process and settle transactions and taxes.
  • I think BTC becoming legal tender in some countries guarantees BTCs long-term survival.
  • The US Federal Reserve Chairman said he sees cryptocurrencies replacing gold rather than replacing the US Dollar. El Salvador, however, just replaced the US Dollar with BTC.

An Update on Non-Fungible Tokens (NFTs)

Fungible means that something can be traded for itself. For example, you can trade one BTC for another BTC, you can trade a dollar for another dollar, and you can trade a one-ounce gold coin for another one-ounce gold coin.

Non-fungible means that you cannot trade something for itself. For example, Leonardo DaVinci’s Mona Lisa painting is non-fungible—you can’t trade it for another Mona Lisa.

NFTs or non-fungible tokens are blockchain-minted artworks with unique encryption codes which allow for verified authenticity and ownership. An NFT can represent anything from a digital art piece to a song or cartoon, sports card, or a whole album. Even fashion designers are getting in on the NFT craze.

More than 509,000 NFT artworks were sold in March 2021 alone, totaling more than $85 million in sales so it’s kind of a big deal. If you want, you could draw a stickman on a sticky note, take a picture of it and upload the jpeg as an NFT.

Image Credit: https://101blockchains.com/most-expensive-nfts/

The image shows some of the-top selling NFTs so far. The one in the background that looks like a lot of dots sold for almost $70 million. An artist named Beeble – who was a totally unknown person a year ago – created that piece.

Elon Musk’s girlfriend, Grimes, a Canadian musician, singer, songwriter, and record producer learned about NFTs recently. As a result, she promoted one on Twitter and then made $6 million selling it in about 20 minutes.

Here’s a list of 15 NFT developers who have sold over $5 million in NFTs (from https://gothammag.com/top-selling-nft-artists):

  1. Beeple (Mike Winkelmann)
  2. Trevor Jones
  3. 18-year-old FEWOCIOUS
  4. PAK who is anonymous but has produced digital work for two decades
  5. Mad Dog Jones (Michah Dowbak)
  6. SlimeSunday (Mike Parisella)
  7. Hackatao
  8. XCopy
  9. 3Lau (Justin Blau) – DJ, and fintech aficionado. All of his music is now being released as NFTs
  10. Grimes – singer, composer, and record producer (and Elon Musk’s girlfriend)
  11. WhIsbe – a street artist who has made gummy bears into NFTs
  12. SSX3Lau – (this title is for two people, a DJ, and an art director)
  13. Jose Delbo – at least a famous artist for such things as Wonder Woman and Little Lulu
  14. RTFKT Studios – a collective of artists that create digital skins that can be worn by digital characters in the metauniverse
  15. Bosslogic – (Kode Adoba) – a graphic designer from Australia

To make an NFT, you simply have to create something unique and upload it to a site such as Rarable, OpenSea, or Mintable. As I said, you could draw a stick man on a sticky note, take a photo of it and then upload the photo to one of these sites and you have your first NFT. But good luck selling it.

To me, NFTs sound crazy. I’d rather own a tulip bulb or a beanie baby, however, for those of you looking for infinite wealth, study the field a little bit and perhaps you can start selling NFTs for $5,000 each.

Overall Commentary

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

My beliefs are that ETH could reach a trillion in market cap as soon as it becomes a Proof of Stake token and the costs of moving it go down substantially. After all, it’s the backbone of the Decentralized Finance Movement.

In addition, BTC will be going 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. That should also be huge.

Both the BTC and ETH upgrades happen this year.

Until next month,

This is Van Tharp

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