A Modern-Day Attack on the Bank of England
Bitcoin $30,000... 'The tulips never bloomed twice'... Beating the Fed at its own game... A modern-day attack on the Bank of England... Where bitcoin's price goes next...
Happy New Year...
We spent parts of New Year's Eve watching the TV coverage from Times Square in New York City... which only featured a smattering of invited guests this time, instead of the million or so people normally standing shoulder to shoulder below confetti and the big crystal ball.
This year, of course, the folks in attendance wore facemasks along with the traditional party hats and those tchotchke-like 2021 glasses that can't be worn again.
The next morning, after we bid 2020 a merciful farewell, we started thinking more clearly about the year ahead... about the "regular" work week that started today... and about our quarterly checkup of long-term investments.
That's when we saw bitcoin's price above $30,000 for the first time ever...
If someone told you that bitcoin's price would be where it is at the start of 2021...
No matter when they did, it's very likely you may have found the assertion of "Bitcoin $30K" a bit grandiose... even crazy.
Ten years ago, one bitcoin cost 30 cents... Ten months ago, it was less than $9,000... Heck, just 10 days ago, bitcoin traded around $23,000.
If you look at bitcoin's all-time chart, it's in "parabolic" territory today. The cryptocurrency's value has roughly tripled since the end of September...
What in the world is going on?
We reported over the last several months of 2020 that institutional investors were starting to pile in to bitcoin... and we're talking about it again today.
Big money movers on Wall Street... hedge funds... digital-payments companies... even stakeholders in pension funds... are buying bitcoin in massive amounts, driving the price higher.
Names like BlackRock (BLK), the largest asset manager in the world... Guggenheim Partners... hedge-fund titan Paul Tudor Jones... insurance company MassMutual... PayPal (PYPL)... and Square (SQ)... have all either already said they've allocated parts of portfolios to bitcoin or are considering investing hundreds of millions of dollars in cryptocurrencies.
I (Corey McLaughlin) am not sure anyone could tell you with 100% certainty what the endgame of all this is, though we have ideas that we will explore today. But if nothing else, it shows the "going mainstream" premise that cryptocurrency proponents like Crypto Capital editor Eric Wade have been expecting is now really happening...
As we wrote last month, Wall Street's 'hearts and minds' have been taken by bitcoin...
And their bottom lines, too...
One of the biggest indicators is the amount of money flowing into the publicly traded Grayscale Bitcoin Trust (GBTC), a well-regulated exchange-traded fund that holds roughly 3% of the world's bitcoin supply. Its moves reflect bitcoin's value.
In December, as GBTC's price rose 35%, its daily volume was in the double-digit millions in 17 of the month's 31 days, including its highest-traded day of the year on December 17 (28.6 million shares).
The last time we saw this much activity in GBTC for this long was back during the bitcoin bubble of 2017, as newbies got in without knowing why and speculated... to the tune of 20 and 30 million shares traded each day.
This time, GBTC's volume is not as extreme, and it's more consistent... thanks to the institutional investors. In the third quarter of 2020, the so-called Wall Street "smart money" accounted for 81% of the $1 billion in inflows to GBTC.
As Eric put it in subscribers' monthly issue in December after bitcoin's price moved past its all-time high of $20,000...
Bitcoin reaching its old highs is validation for the industry. It's now harder to compare it to one-time bubbles like the Dutch tulip mania in the 1600s where prices hit higher highs and higher lows over many years. As the saying goes, "the tulips never bloomed twice."
In all of 2020, Wall Street firms pumped $5.57 billion into digital asset funds, up 660% from 2019, according to the latest crypto inflows report from CoinShares Research. Roughly 87% of this money went into the GBTC.
As Stansberry NewsWire analyst Nick Koziol wrote this morning, citing more bullish comments from accounting firm PwC's global crypto leader, institutional adoption of bitcoin was something that our colleague and Crypto Capital analyst Fred Marion highlighted all the way back in July...
The writing on the wall is clear. Smart money is buying bitcoin. They're accumulating a scarce asset, and they're doing it at historic levels. Bitcoin's price will eventually move higher. And when it does, it will move much faster than bigger asset classes.
Today, some 'big name' investors are making splashier public moves in bitcoin than others...
Take the story and "macro" bet of Michael Saylor, the CEO of Virginia-based software company MicroStrategy (MSTR)...
He has grabbed attention and headlines by putting more than $1.2 billion of MicroStrategy's funds into bitcoin – much of it in just the last month – and encouraging Tesla (TSLA) CEO Elon Musk on Twitter to go all-in on cryptos, too.
Saylor says he considers bitcoin the company's "primary treasury reserve asset."
(Related, if BlackRock isn't already investing in bitcoin directly, it is indirectly. That's because Saylor says the investment firm, which has nearly $8 trillion in assets under management, is one of MicroStrategy's largest outside investors.)
But most notably in the grand scheme of the global economy, as this story in the New Republic explains, Saylor has boldly raised debt (thanks to the Federal Reserve's rock-bottom interest rate policy) for the sole purpose of buying bitcoin and beating the central bank at its own game, so to speak...
In a way, everyone who is buying bitcoin is making this bet today...
They're putting money in a scarce asset designed to have low inflation that was born 13 years ago out of the financial crisis with the idea of working completely outside the traditional financial system... It's the anti-central bank trade.
We've said this as far back as May, when bitcoin traded for around $9,000 and we noted that "this is crypto's time to shine"... given the latest and continued tactics of the Fed in response to the COVID-19 pandemic.
In an interview with our editor-at-large Daniela Cambone just before the end of 2020, noted crypto bull Max Keiser colorfully detailed this idea... And he compared Saylor's debt-raising-to-buy-bitcoin tactics to how George Soros (with his then protégé and now bitcoin bull Stanley Druckenmiller's help) "broke" the Bank of England in 1992.
Soros made a quick $1 billion betting against the British pound on "Black Wednesday," the day speculators forced the British government to pull the pound from the fixed-rate based European Exchange Rate Mechanism ("ERM").
Back then, the Bank of England was looking to cut rates but couldn't because it would have devalued the British pound. Soros stepped in and did the devaluing himself, selling pounds that he borrowed from banks and using the proceeds to buy German marks...
If all went right, he could buy back British pounds cheaper to return what he borrowed.
Soros started with a modest $1.5 billion short, but rates didn't budge.
Then, on September 16, 1992, the German Bundesbank president Helmut Schlesinger surprisingly made "unauthorized" comments in interviews with the Wall Street Journal and a German newspaper where he didn't rule out some currencies coming under pressure.
From the 2010 book, More Money Than God, a history of hedge funds, English journalist Sebastian Mallaby tells this "trade of the century"-type story...
Stan Druckenmiller, the chief portfolio manager at George Soros's Quantum Fund, read Schlesinger's comments on Tuesday afternoon in New York. He didn't care whether they were "authorized;" he reacted immediately.
Schlesinger had made it obvious that the Bundesbank was not going to help the pound cling onto its position inside the exchange-rate mechanism by cutting German interest rates. The devaluation of sterling was now all but inevitable.
Druckenmiller walked into Soros's office and told him it was time to move. He had held a $1.5 billion bet against the pound since August, but now the endgame was coming and he would build on the position steadily.
Soros listened and looked puzzled. "That doesn't make sense," he objected.
"What do you mean?" Druckenmiller asked.
Well, Soros responded, if the Schlesinger quotes were accurate, why just build steadily? "Go for the jugular," Soros advised him.
Druckenmiller built his short position to a massive $10 billion. With a flood of selling hitting the market, the British pound came under tremendous pressure... and the Bank of England was sent into complete chaos.
After first buying 27 billion pounds on the open market on September 17, 1992, that night Britain announced it would leave the ERM, allowing the devaluation of the British pound.
As Keiser put it in the interview with Daniela...
We're seeing a similar thing going on with bitcoin. What Michael Saylor figured out... and others... is that they have the Federal Reserve bank and other central banks in a very precarious position because those banks have artificially pushed interest rates down to these extraordinary levels of almost zero and $18.4 trillion [of debt is] now negative.
If they can borrow, as Saylor did, at 75 basis points, $650 million and buy bitcoin, they are in a position of a speculative attack on the Federal Reserve bank.
Make no mistake about this... Michael Saylor and the bitcoiners are attacking the Federal Reserve bank and the global central banking system, as Soros did to the Bank of England. That's kind of the template that's being used globally.
As a result, Keiser told Daniela he believes we could "very easily" see bitcoin trade for as much as $400,000 "pretty quickly" as more big money piles into this trade, which is the expression of a modern-day attack on the Fed and global central banks...
The central banks have left themselves open to this arbitrage, to this attack and it's on. The game is on now and no one is pretending that this is not happening anymore...
There's a vector out of the central bank collusion that is destroying the world... America is run by a clique of super billionaires and you have to understand what they're doing...
We urge you to watch or listen to this fantastic interview from Daniela. Click here right now to watch the whole interview, including Keiser's thoughts on why this is important to every individual investor today.
Eric also gave his latest take on bitcoin's surge in an update to Crypto Capital subscribers on Friday...
And in short, he echoed what our colleague Dan Ferris urged in his year-end Digest essay of 2020... Prepare, don't predict.
You may agree with Keiser and think that bitcoin is headed to six-figures soon... and the big picture reasons are in place... but nobody knows for sure...
So as he always has throughout bitcoin's run higher, Eric laid out a great game plan for his subscribers invested in bitcoin today about what to expect in the months ahead... and what they can do about it.
A lot depends on your timeline... Based on bitcoin's price history, including the 2017 bubble, Eric says we should expect volatility in the short term following the recent parabolic run higher. From Eric's update...
We should be just as prepared to see $20,000 [bitcoin] as to see maybe $200,000... Be prepared... and think, "Am I buying more at $20,000? [Am I selling] at $50,000, $100,000, $200,000? [Am I selling] a few percent?"
We're preparing for volatility and sell-offs. We're preparing for people who made a name for themselves by buying bitcoin in 2020, maybe starting to sell off. Keep in mind, bitcoin can be and [can] do everything that we said it is and does – superior technology, low inflation, peer-to-peer – it can do all that and still sell off as you can see [in] 2017...
That should make January pretty exciting to look forward to for all of us.
Eric also takes a look back at Crypto Capital's January 2020 issue, where he and Fred, his lead researcher, laid out what to expect for the next decade in the cryptocurrency space, which goes well beyond bitcoin.
So far, the thesis is playing out exactly as predicted... And subscribers have enjoyed several triple-digit gains in smaller cryptocurrencies that aren't grabbing nearly the amount of headlines as bitcoin today.
That said, existing subscribers can catch Eric's latest take on bitcoin's new all-time highs right here. And if you don't already have a subscription to Crypto Capital, click here for more information on how you can get started with Eric's research today.
Crypto Trends to Watch in 2021
Eric Wade, editor of our Crypto Capital service, shares what investors should expect for cryptocurrencies in 2021, and the best strategies to take advantage of the trend...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 12/31/20): ABB (ABB), Analog Devices (ADI), Siren Nasdaq NexGen Economy Fund (BLCN), Comcast (CMCSA), Disney (DIS), New Oriental Education & Technology (EDU), KraneShares Bosera MSCI China A Fund (KBA), KraneShares MSCI All China Health Care Index Fund (KURE), Maxar Technologies (MAXR), New Pacific Metals (NUPMF), Starbucks (SBUX), Silvergate Capital (SI), ProShares Ultra S&P 500 Fund (SSO), Constellation Brands (STZ), Take-Two Interactive Software (TTWO), Visa (V), Vanguard S&P 500 Fund (VOO), and Zebra Technologies (ZBRA).
In today's mailbag, feedback on our "2020 in review" series – including yesterday's Digest on bitcoin and the battle for the "soul of money" and last Wednesday's Digest on the "Battle for America"... As we begin 2021, what's on your mind? Let us know at feedback@stansberryresearch.com.
"The PROBLEM is, what kind (type), or (moral value of 'Soul'), does the One or (Group) who will be in control or have authority over the 'Soul of Money' (our currency). That is the question. Will it be (good or bad), (free or not free), etc.? We have indications of this today by the way Congress acts." – Paid-up subscriber C.G.
"I have some [bitcoin], but am worried about it being so dependent upon a functioning internet. If it crashes as it has here in Nashville from ONE bomb, for days, what happens then to your ability to buy and sell. Even worse, the government could shut down the internet as it has done in other countries, to protect its monopoly. Not a good back up or primary currency in my estimation." – Paid-up subscriber D. Y.
"It has been said both unfettered capitalism and unfettered socialism will destroy themselves at the end. It took the 'socialist' actions of FDR to save capitalism from itself. The ultra-wealthy are clueless about one fact... A healthy thriving middle-class is the best safeguard for their wealth. If people overall are making it, have some job security, able to buy a home and provide for their families, have access to decent medical care, they don't care how much money you have. Allow conditions to become such that the populace perceives the table has been tilted away from them and toward the wealthy, the pitchforks and guillotine are just over the horizon." – Paid-up subscriber Don G.
All the best,
Corey McLaughlin
Naples, Florida
January 4, 2021