How Bitcoin Fits Into the 'Melt Up' Story

One NFL player is going 'all in' on bitcoin in 2021... It's not for everybody... The crypto train keeps gathering free publicity... Are we seeing a bitcoin 'top'?... How bitcoin fits into the 'Melt Up' story... Don't miss Steve's latest event tomorrow...

'Expenses in fiat. Savings in Bitcoin'...

Professional football player Sean Culkin certainly got our attention...

You see, the relatively unknown 27-year-old backup tight end for the Kansas City Chiefs recently decided that he will "convert" his entire $920,000 salary for the 2021 season into bitcoin, the world's first and most popular cryptocurrency.

We heard Culkin explain his rationale yesterday to Andrew Brandt of the Business of Sports podcast. And he later shared a video clip of the interview on Twitter with the message, "Expenses in fiat. Savings in Bitcoin. Oh and I'm never selling." As he said in the video...

I look at it as a generational play. The strategy is [pay] expenses in fiat in the currency that's depreciating against a currency or asset that is increasing at 200% a year...

As you might gather, Culkin doesn't fit the stereotype of today's pro football player...

In addition to playing college football at the University of Missouri, he majored in finance...

During his senior year, Culkin also worked as an equity analyst for an insurance firm and took the Level 1 Chartered Financial Analyst ("CFA") exam. (He failed, though... According to Culkin, it was because he didn't have enough time to study for the recommended 300 to 400 hours.)

When his playing career is over, Culkin said he wants to work in wealth management... And he's passionate about spreading the gospel of financial literacy through a view that should resonate with a lot of our subscribers.

As Culkin said on Twitter back in February...

I've always had some contrarianism in me, and a moderately high risk appetite. My dad was a big gold advocate, and would always share his ideology of the shortcomings that lie with current monetary policies (who in the hell posited Keynesian economics??).

Culkin acknowledges the decision to put all of his annual income into bitcoin might not be for everyone – and we agree.

There's a reason why Culkin is the first and only NFL player to do this so far...

(Former Seattle Seahawks lineman Russell Okung said last year he would "do half.")

First off, it's not so simple...

Most people don't realize that NFL players get semi-regular paychecks like the rest of us... They don't get millions of dollars in their checking account all in one day, outside of any signing bonuses they might receive.

Secondly, bitcoin is not that mainstream yet. Some headlines today might tell you that Culkin is getting paid in bitcoin, but that's actually not the case...

The Chiefs will still pay Culkin in U.S. dollars. Then, he will use an app called Strike to convert his dollars to bitcoin automatically every two weeks.

Essentially, he is "dollar-cost averaging" about $900,000 into bitcoin over the course of the year... It's not a bad strategy if you can afford to do it, even with a much smaller amount.

And we don't know Culkin's entire financial situation, of course... But it sounds like he should have his "financial house in order," as our Director of Research Austin Root likes to say, and hopefully isn't in significant debt.

If that's the case, unlike most people, he's in a good position to make this bet, as he describes it...

Considering its asymmetric returns (risk/reward profile) and future estimated growth, having 1% of your portfolio in crypto would amplify portfolio returns more than having 1% exposure to the riskiest stock, IMO – for less risk!

This actually squares with a lot of what you've heard in these pages over the past year...

As we've said over and over again... given the state of global monetary policy today, we believe everyone should own some bitcoin because of its inflation-proof qualities. But at the same time, you shouldn't put in any more money than you're fully comfortable losing altogether.

That has long been the guidance of Crypto Capital editor Eric Wade, who understands more about this space than anyone else we know – from the "blue chips" like bitcoin and Ethereum to the best among the roughly 6,500 investible cryptos in the world today.

Last year, we used the same terminology Culkin did – calling bitcoin the best "asymmetric bet" of 2020. By that, we mean even a small allocation of your portfolio to bitcoin could pay off big time.

That's exactly what has happened... so far, at least. The price of bitcoin is up roughly 600% over the past 12 months.

And the crypto train keeps gathering free momentum...

It's like what they say in the public relations industry. Any publicity is good publicity... even the free stuff. This NFL player turning his salary into bitcoin is another example.

The thing about the way bitcoin is designed and functions (powered by blockchain technology) is that the more people who hear about it and buy it, the better it is for everyone who owns it...

That might sound shady and hard to accept, but it's the reality of a network effect for a "decentralized" asset that many people are looking at as a "store of value" and alternative to the dollar and Federal Reserve policy. As Austin told us earlier this year about bitcoin...

Any store of value is a confidence game.

It's one of these self-fulfilling things that, the more people who believe in it and own it, it almost starts proving itself to be true. And then, the case is made even more.

What's more, the earlier you buy bitcoin – assuming the price of it goes higher in the future – the better off your inflation protection could be in the long run. That's far from a guarantee, of course... but that is the result crypto bulls like Culkin have in mind.

Because, unlike any other form of currency we know, there is a supply cap (21 million) built into bitcoin's code... and the number of bitcoin that can be created over any period of time was predetermined more than a decade ago by someone we don't know.

Today, Eric tells us that the bitcoin network pays "miners" – those who create the crypto with their computer power – 6.25 bitcoin every 10 minutes, good for about 900 new bitcoin per day... And 85% of bitcoin has already been mined.

It's essentially the opposite approach of the potentially endless, gratuitous money supply growth (like "M1" and "M2," which the Fed recently stopped publicly reporting!) dictated by the leaders of central banks.

It's the case that people like MicroStrategy (MSTR) CEO Michael Saylor have made for bitcoin (as you can see in his recent debate with Frank Giustra)... as well as Tesla (TSLA) CEO Elon Musk, whose company sold 10% of its bitcoin position at a $101 million gain during the first quarter of 2021. Tesla still holds about $900 million in unrealized bitcoin gains.

As Stansberry NewsWire analyst Nick Koziol reported earlier this week, on Tesla's post-earnings conference call, Chief Financial Officer Zachary Kirkhorn said the company still believes in the long-term value of bitcoin. From Nick's report...

He added that TSLA will continue to hold the remainder of its position. Interestingly, he said that the company will also hold the bitcoin it receives as payment for vehicles, instead of converting it back to dollars.

And more business leaders are getting into bitcoin in big ways...

Asian video-game maker Nexon just announced it bought $100 million in bitcoin...

The company explained that it felt the crypto was a better place for at least part of its "cash in the bank." From the news release...

In the current historically-low interest rate environment, these holdings generate almost no return, especially when compared with inflation. Even junk bonds – which carry higher risk and were formerly known as "high yield" – have become a source of "rewardless risk."

... We are not making a prediction on the future of interest rates. We are, however, fiduciaries of our shareholder's capital, and as such we need to think seriously about the future buying power of our cash in a world of potential currency debasement. So we watch our currencies very closely.

In this environment we see BTC as a form of cash likely to retain its value, even if it is not yet widely-recognized as such.

We could go on and on about positive bitcoin sentiment... But admittedly, we would start to sound like we're falling into the "cult" of bitcoin – a part of this story that Giustra validly pointed out in his debate with Saylor.

Many people don't seem to consider the downside risk in cryptos. So let's do that, when it comes to price action at least...

At this point, you might think this steady stream of bitcoin news is downright euphoric...

To a point, that's right... We won't argue with anyone who thinks that a pro football player saying he's going to put nearly $1 million into bitcoin is a sign of a "top."

Or maybe you might think bitcoin is in a "Melt Up" along with stocks today, like our colleague Dr. Steve Sjuggerud says. I've seen a few questions on this point in our mailbag recently...

Well, the answer to these questions is "yes and no." To be frank, bitcoin has only been around for 12 years... That isn't a long trading history, relatively speaking, if you like to look at history as an indicator of what could happen in the future, like we do.

Anyone who tells you exactly what the price of bitcoin is going to do in the future isn't giving you the full truth. But we can tell you what we see...

In the short term, bitcoin might already be in 'top' territory...

As DailyWealth Trader editors Ben Morris and Drew McConnell wrote in their issue on Monday, bitcoin's price recently dropped below its 50-day moving average following a sharp rally over the end of 2020 and into 2021. That's a significant behavior...

When this has happened in past years, it has marked significant tops. That's why Ben and Drew said "if you hold bitcoin, you need to see this chart"...

The 50-DMA is calculated using the prices of the past 50 days. So it turns lower only after bitcoin peaks. But those three blue arrows above point to periods when bitcoin dropped (peak to trough) 83%, 48%, and 53%.

Bitcoin's recent peak was $63,410. So a 50% drop would bring it back down to $31,705.

Perhaps not coincidentally, a drop like that would bring bitcoin's price pretty close to its 200-day moving average ("200-DMA"). That's a good technical measure of a long-term trend.

In this case, there's a fine line to dance around between managing risk and doing something to "lose your position," as Ben and Drew wrote yesterday, quoting an idea from a classic book, Reminiscences of a Stock Operator. As they said...

Whether or not bitcoin pulls back sharply in the short term, it could be five or 10 times higher in five years' time. And while we don't want you to be caught off-guard by a drop, we do want you to participate in this incredible bull market.

That's why in the past Ben and Drew have recommended "scaling in" and "scaling out" of bitcoin to manage risk and volatility. As they wrote yesterday about previous bitcoin positions...

We recommended opening a half position to reduce the risk in an extremely volatile asset. Then, when the position started to move in our favor, we recommended opening another half position.

You can use this same idea when exiting positions, too. We "scaled out" of bitcoin when we recommended selling a half position.

We're still bullish on bitcoin's price over the long term...

Like with anything, if its 200-DMA were to be breached anytime soon, then we're talking about a different story. But even if the short-term outlook is concerning, the long-term tailwinds remain in bitcoin's favor...

Why?

Many people don't realize it, but bitcoin is squarely part of the 'Melt Up' story...

And this force is as big as they come.

This is the thesis that our colleague and True Wealth editor Dr. Steve Sjuggerud has shared over the years. And as you might've heard, he's giving his latest update on the "Melt Up" tomorrow night, starting at 8 p.m. Eastern time.

Longtime subscribers know what the Melt Up is all about... how the concept was born out of the 2008 and 2009 financial crisis... and how Steve says it drives the stock market.

But we know a lot of new Digest readers might not be familiar. So here's the quick and dirty version. As Vic Lederman, an analyst on Steve's research team, wrote last year...

The idea behind [the Melt Up] was simple...

1. The world had just been through a major economic crisis.

2. The Federal Reserve and the U.S. government were taking massive action to end the crisis.

3. That meant interest rates would stay at rock-bottom levels for longer than anyone could possibly imagine.

4. And the net result would be an asset boom... one that could be larger than any of us would ever see again in our lifetimes.

In the wake of the COVID-19 pandemic, it was clear this was all playing out again...

Previously unimaginable stimulus efforts have pushed folks into stocks while low interest rates have a lot of people wondering where they can make the most of their dollars.

A good number of people have decided bitcoin is the good place to be...

Some have bought this "hard asset" in a more disciplined fashion than others.

For one, we're curious how Culkin – the NFL player – is going to manage his day-to-day "expenses in fiat" and if he'll be using the same strategy a year from now. As Eric – always level-headed when it comes to his research – told us today when we asked him about the "NFL guy" story...

The world we live in costs fiat, so Sean must have some plan for either cashing out a small amount of bitcoin to dollars... Or is he going to be building up a large stack of bitcoin and then borrowing against it to pay monthly bills?

The point being, in general, this is the type of thing that comes to mind when we hear Steve say he's seeing market "euphoria" play out at a scale that he hasn't seen since the dot-com bubble at the turn of the 21st century.

And the thing is, when Steve first started talking about the Melt Up, he was talking only about the effects on stocks. But today, he says folks should also consider how the concept could apply to bitcoin and other cryptocurrencies as the Melt Up enters its final surge.

As paid-up subscriber James W. wrote in just yesterday...

You have well documented what to expect with the stock market during the forthcoming Melt Up. I have the trailing notifications in place as part of my stock exit strategy when the Melt Down begins, but I also have a significant investment in cryptos. Any insight on what may happen to cryptos during the Melt Down?

If you're in this boat, you'll want to listen to Steve's event tomorrow night... We're excited to report that Eric will join Steve to give his thoughts about what to watch out for with bitcoin and other cryptos as the Melt Up enters its next stage.

In short, gains in this space could outstrip anyone's imagination. But importantly, you also want to know which cryptos to avoid if a buying frenzy were to hit a fever pitch.

Eric will share what anyone interested in buying or holding bitcoin should expect from cryptos during the final surge of the Melt Up... And for everyone who tunes in, he'll share the name of one little-known crypto he believes will hold up in the inevitable "Melt Down."

You don't want to miss it. And of course, it's all free... We just ask that you sign up right here in advance to make sure you don't miss a minute.

New 52-week highs (as of 4/27/21): Automatic Data Processing (ADP), American Financial (AFG), American Homes 4 Rent (AMH), American Express (AXP), Bunge (BG), Berkshire Hathaway (BRK-B), Brown & Brown (BRO), Colony Capital (CLNY), Corteva (CTVA), Comfort Systems USA (FIX), IQVIA (IQV), iShares U.S. Home Construction Fund (ITB), McDonald's (MCD), Mosaic (MOS), Microsoft (MSFT), MasTec (MTZ), Intellia Therapeutics (NTLA), Seagate Technology (STX), TFI International (TFII), United States Commodity Index Fund (USCI), Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), and Westlake Chemical Partners (WLKP).

In today's mailbag, feedback on Steve's "Masters Series" essay from Saturday... and an observation about the auto industry. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Steve Sjuggerud's article [in Saturday's Masters Series] about the euphoria in the stock market is excellent.

"During the 'Dot Com' bubble, millions of people became 'Day Traders' and thought they were invincible. After the bubble burst I met at least a few people that were honest enough to admit that they not only lost the large gains they made in day trading but the money base they started out with. It is going to be much worse with the crash that is coming this year.

"One driver of the behaviors we are seeing today that Steve didn't mention is the huge unimaginable amounts of dollars the U.S. government has been printing beginning with the war with Afghanistan in 2001 in retaliation against the bombing of the World Trade Centers. Then, President Bush lied to the American public about 'Weapons of Mass Destruction' in Iraq so he could start/justify a war against Iraq. These wars required trillions of dollars of debt and (hence) dollar printing that undermined the value of the U.S. dollar as the world's trade currency. Trillions of dollars have had to be printed to pay for these wars.

"The printing of dollars to deal with COVID-19 far overshadows the trillions of dollars printed from 2001 up to March 2020.

"In addition to increasing taxes to pay for all this debt, the U.S. government has been stealing money from all citizens through its program(s) with banks of zero-interest rates. Lies about the true rate of inflation in America and not being able to earn interest with the simple 5% nearly risk-free savings accounts we had for decades has resulted in a double whammy on the American public, especially the average lower and middle class citizens as savings get quickly eaten up by sitting in banks earning nothing then making withdrawals to pay for severely inflated goods and services.

"'Saving for a Rainy Day' has become a joke and at least one entire generation, if not two generations, have been 'taught' as a result of these policies to borrow and spend using credit to buy whatever they want. It makes no sense to save money.

"The morals and values associated with 'Saving for a Rainy Day' are gone. They've been replaced with the values Steve discusses in the article. Thank you for an excellent article." – Paid-up subscriber Michael U.

"Love my [Stansberry's Investment Advisory] and True Wealth subscriptions!

"Just want to share a 'tale from the trenches' from a friend who owns two auto dealerships in Ontario, Canada. Dealer lots here are already starved for inventory due to both demand and supply issues.

"This is made even worse as U.S. dealers, in the same boat but buffered by the 20% premium to CAD$ they enjoy, are paying ABOVE RETAIL at Canadian car auctions for inventory to take back state-side.

"It's always amazing the lengths businesses will go to in order to live another day!" – Paid-up subscriber Dave J.

All the best,

Corey McLaughlin
Baltimore, Maryland
April 28, 2021