What Mr. Wonderful's Bitcoin Reversal Tells Us

Why a 'shark' owns bitcoin... From a 'nothing burger' to a worthy investment... What Mr. Wonderful's bitcoin reversal tells us... No 'blood coin' and no 'air conditioning'... Why not?... Speaking of inflation concerns...

Our editor-at-large Daniela Cambone recently landed a fantastic interview...

You may have heard of her guest... He was the keynote speaker at our 2017 Stansberry Conference in Las Vegas. He's also one of the judges on the popular Shark Tank reality TV show. And he goes by the nickname, "Mr. Wonderful."

We're talking, of course, about Kevin O'Leary.

In case you're unfamiliar, the premise of Shark Tank is simple... Entrepreneurs seek investments from "shark" backers – like O'Leary and Dallas Mavericks owner Mark Cuban.

And regular watchers of the long-running pitch-show know that Mr. Wonderful loves a royalty in his investments... which now include bitcoin as well.

In an exclusive interview with Daniela from the set of Shark Tank in Miami last week, O'Leary – who also runs the O'Shares exchange-traded funds ("ETFs") – laid out all the reasons why he has been investing more in bitcoin.

Click here or on the image below to watch their conversation right now...

We can tell you that O'Leary's reasons for buying bitcoin reflect a lot of what we've discussed about the world's most popular cryptocurrency here in the Digest over the past year or so...

O'Leary says he likes bitcoin as a store of value and as an inflation hedge – much like gold, which he holds for the same reasons. He told Daniela that he has allocated 3% of his overall portfolio to bitcoin... and he plans to start mining it and owning bitcoin ETFs.

It's a similar approach to how O'Leary splits his gold investments (5% of his overall portfolio) between owning physical gold and gold ETFs.

O'Leary stops short of saying that bitcoin will ever become a true currency. But he thinks it will be more of a "property" asset like real estate, like how we've described it as a "hard" asset. As O'Leary explained in the interview...

I own an allocation of other currencies, U.S., Canadian, Swiss franc, Euro, British pound. I want diversity in the actual fiat currency I own and also at any one time, one currency is doing better vis-a-vis the other.

The concern... I have in the U.S. market is a $1.9 trillion basically free-money helicopter out of the sky into the economy. Many people are worried about that. You've seen the 10-year [Treasury action lately].

How do I hedge myself against that?... If the regulators are now opening up to allow me to allocate to crypto, why not? That's why I did it. I think a 3% allocation for me is reasonable.

It's an approach that a lot of institutional investors are considering today, O'Leary says...

This is a "mass adoption" trend we've reported on in various ways in the Digest over the past several months...

Executives from BlackRock (BLK), the world's largest asset manager, have said they're "dabbling" in bitcoin... Pension firms are looking into it... And grabbing the most attention, Tesla (TSLA) CEO Elon Musk added $1.5 billion worth of the world's most popular cryptocurrency to his company's balance sheet in January.

In the interview with Daniela – which is totally free, by the way – O'Leary gave all our listeners, watchers, and readers an inside look at discussions he hears institutional investors having today.

No 'blood coin' and no 'air conditioning'...

We've hit the inflation-hedge angle of bitcoin ad nauseum in the Digest for good reason...

For investors of any kind, it's a compelling argument – namely the cap on the amount of bitcoin that can be created (21 million) in comparison with the endless money-printing of central banks.

But as we've also said, buying bitcoin involves some risks, too...

O'Leary says institutional investors are considering those risks carefully – including one that you, our readers, have raised before about security and energy usage – when deciding whether to buy cryptos or not. O'Leary believes institutions will likely end up mining their own bitcoin, like he is planning to do...

I do not want to own bitcoins mined in China because I'm very unhappy with my relationship with the Chinese government regarding my investments there... I do not want to own "blood coin," not interested in that.

I have very specific metrics by which I am going to own coin. The most important to me is to mine it myself, so it's a virgin coin. Nobody can say to me that you mined this or found it from somewhere where they were wasting energy, or not carbon neutral, or came from a country that is under sanction.

This is a big deal for me and plenty of other shareholders, too. And everybody knows it takes a tremendous amount of electricity to mine coin. I'm talking to partners in places like Iceland, Denmark, and northern Canada, where they don't pay for air conditioning.

To get my head around doing this, I've been working for months... The point is, every coin I own, I want to know where it came from. I'm hearing that ringing in my ear from every institution around the world.

Now, anyone who pays close attention to the bitcoin space or O'Leary's track record (like us) knows that this is somewhat of a stunning reversal in bitcoin sentiment for him.

He previously called bitcoin a "garbage investment" and a "nothing burger" – much like he describes the investments he thinks are duds on TV. Of course, we've seen many people "convert" over the years when it comes to seeing bitcoin's potential.

It's not a total surprise to us – or frankly, a total change of heart either...

O'Leary also said in a previous interview with Daniela in November that he liked bitcoin, but it was a regulatory headache for him. And he said in this most recent interview that he has actually owned some bitcoin and Ethereum since 2017...

But I [haven't] really been able to speak on it because regulators really frowned on it. This is a very controversial issue...

What changed my mind is I'm in the ETF business, and when I saw the Canadian regulator and the Swiss regulator in the last 60 days... have opened up to allow an ETF that holds one asset – bitcoin. That's a game-changer. That allows institutions and individuals alike to allocate.

Then, of course, in the last 30 days, we started to see S&P 500 companies like Tesla and others start to allocate.

O'Leary also specifically mentioned the potential of the decentralized finance ("DeFi") movement and earning yield from coins – a topic that Crypto Capital editor Eric Wade has written about on multiple occasions, most recently in the February 9 Digest.

Today, it seems most Wall Street firms have at least explored investing in cryptos at this point...

Analysts at Citigroup (C), as mainstream of a bank as you'll ever find, published a research report of more than 100 pages this month on bitcoin and the entire market...

Citi said it believes bitcoin could become the "currency of choice for international trade." From the report...

There are a host of risks and obstacles that stand in the way of bitcoin progress. But weighing these potential hurdles against the opportunities leads to the conclusion that bitcoin is at a tipping point and we could be at the start of massive transformation of cryptocurrency into the mainstream.

Chalk up Mr. Wonderful's bitcoin reversal as another step toward "mass adoption."

Again, you can click here to watch Daniela's full interview with O'Leary right now for free. For more great video content, be sure to subscribe to our Stansberry Research YouTube channel if you don't already.

And for the best actionable advice we've seen in the crypto space, be sure to check out Eric's Crypto Capital advisory if you're not already a subscriber. Earlier today, he told his subscribers to book yet another triple-digit returning partial position on a smaller crypto that most people have never heard of.

Eric's monthly issues, weekly updates, and everything in between – like today's trade alert – are chock-full of information and guidance you simply can't find anywhere else. Click here now to learn how you can get started with a subscription today.

Moving on to the stock market in general...

Speaking of that "$1.9 trillion... helicopter" drop of money, as O'Leary described it, the third COVID-19 relief bill passed through the Senate on Saturday. It will go back to the House of Representatives for a vote tomorrow before all but assuredly getting signed in the White House.

As we've written for about two months, it wasn't a matter of if this bill would be passed, but how soon and how large it would be. As it turns out... "fairly soon," before the current benefits expire this month, and "pretty darn big" are the answers.

In the long run, this means we'll be reporting about even greater debt-to-gross domestic product ("GDP") ratio numbers very soon... and that we'll likely hear more talk from the Federal Reserve about how now is not the right time to tighten monetary policy.

Let's take bets on when that time actually will be...

In the short run, it's more of the same as well...

The major U.S. indexes traded today in basically the same directions they have over the past few weeks.

The tech-heavy Nasdaq Composite Index – full of companies considered by many to be more inflation-prone than others – dipped roughly 2.4%. On the other hand, typically left-for-dead sectors – like financials and energy – popped again, pushing the Dow Jones Industrial Average to a new intraday record high. It closed the day up about 1%.

Meanwhile, the yield on the 10-year U.S. Treasury note continued its rise over the past several months. It's now up to around 1.6%, once again climbing higher than the 1.5% dividend yield on the benchmark S&P 500 Index.

This suggests that, on balance and at least today, investors concerned about inflation in the months ahead want little to do with bonds, whose prices trade inversely to yields... Instead, they continue to favor stocks.

As we've said...

For long-term investors, throughout this "Melt Up" era, it's not a bad call to own stocks – with a few very important qualifiers...

First, you might not want to buy them at today's eye-popping valuations. That's a broad outlook, of course... You can still find deals in the market if you know where to look.

That leads us to other qualifiers...

You want to own the right stocks – pieces of great businesses. You should also consider your position sizing (which most folks never do). And before you buy anything, make sure you have an actionable exit plan to get out of your positions without thinking twice.

For more on that last point, be sure to stay tuned for more here in the Digest over the next couple of weeks. You'll be hearing much more about it from our colleague and True Wealth editor Dr. Steve Sjuggerud and why it's a smart strategy for any market.

New 52-week highs (as of 3/5/21): American Financial (AFG), American Express (AXP), Berkshire Hathaway (BRK-B), Comcast (CMCSA), Enstar (ESGR), Forum Energy Technologies (FET), Comfort Systems USA (FIX), Ingersoll Rand (IR), Manchester United (MANU), Altria (MO), MasTec (MTZ), VanEck Vectors Oil Services Fund (OIH), Oshkosh (OSK), Invesco High Yield Equity Dividend Achievers Fund (PEY), Invesco Dynamic Oil & Gas Services Fund (PXJ), Suncor Energy (SU), Texas Pacific Land Trust (TPL), Travelers (TRV), Trane Technologies (TT), U.S. Concrete (USCR), and W.R. Berkley (WRB).

In today's mailbag, feedback on Dan's latest Friday Digest. Do you have a comment or question? As always, send it to feedback@stansberryresearch.com.

"One of the biggest macro questions I grapple with is whether the Fed's version of inflation is even possible. The Fed has intervened time and again in an effort to support a failing economy. They tinker with lending rates (the yield purchasing power of money) and fill the punch bowl with all their various versions of [quantitative easing] while pretending it's a different ingredient.

"All this in an attempt to stimulate (that is, to encourage trade). The problem? One of the main measurements of trade, the velocity of money, has been decreasing/slowing with each passing business cycle. Intuitively, this makes sense. Why would I want to trade with an asset called the dollar while it is continually debased? Likewise, why would I want to lend when my return won't allow for the possible risks of loss? By this logic, it would seem that all the Fed's tinkering only suppresses possible economic recovery and prolongs a depression (sub-par growth rates).

"So, we return to the topic at hand. What about inflation? Mises would say, if the dollar becomes too worthless, the result is eventually price inflation of goods and services, but that won't be due to a healthy economy. It will be due to the idea of people wanting to exit the dollar. They will buy anything as long as it gives them a greater return than the depreciating value of the dollar they hold. And they will be willing to pay larger and larger sums of dollars for such things. The Fed will finally get its velocity.

"However, we now have choices on what to trade. What if people start accepting alternate forms of value aside from fiat currency? Gold-backed crypto comes to mind. The dollar won't go away as long [as] the government has lending and taxing powers. But the dollar index may have to eventually grapple with the one idea that has supported its value in the world thus far.

"TINA: There Is No Alternative. Alternatives are presenting themselves more readily now. The creative minds that brought us the highly productive leveraging capabilities of software design are presently hard at work in an attempt to gain public confidence in their solutions. The most promising in my mind is the defi space (Decentralized Finance). There are new banking institutions being created and value being lent/traded with both fiat-backed stable coins and other forms of value (Bitcoin, PAXG, etc.).

"Once the confidence from the masses shifts to other forms of trade, it may be difficult to keep traders within the confines of a fiat-based world.

"Will this be pain free? Sadly, I don't think so. People's behaviors tend to change most when forced. Behavioral psychology (along with the recent studies into behavioral finance) have increasingly been supporting this theory. People do what 'works' until it no longer 'works', and then scramble to find what else works. They do this in a reactive function and not a proactive one.

"So yes, the dollar will likely continue to lose its value as a trading vehicle. However, I'm not certain that will ultimately show in the Fed's numbers. We may eventually just find good alternatives to compete with the dollar and allow the economy to once again flourish.

"I would love to hear more of your macro thoughts." – Paid-up subscriber Bret R.

"Dan, enjoyed your piece on ARK and the bond market... If you had grown up in Europe like I did, the thing you worry about most is exchange rates not inflation (this has fallen by the wayside with the creation of the Euro).

"Americans tend to ignore exchange rates, believing a dollar is a dollar. Germany between 1918 and after 1945 had huge unemployment, but hyperinflation. The same goes today for Argentina, Venezuela and Zimbabwe.

"With the dollar in a downward spiral because of all the money printing, you will get inflation. It may take a while because Europe and Japan are also printing money. But the Chinese have stopped doing so and they have real interest rates of about 3%.

"Foreign money is going less to the U.S. and more into China. I believe the U.S. is on the road to hyperinflation. Bonds are toxic." – Stansberry Alliance member Gernot R.

"You write: 'If the bond market has topped out and is heading into troubling territory, we'll have to wait longer to know for sure.'

"I agree it may be premature to know. But I strongly disagree that it would be heading into troubling territory.

"The exact opposite. It would be wonderful to have real rates about 5-7%. Savers would be rewarded appropriately. Lenders would be more cautious, requiring achievable results by borrowers. And we would drive all the zombie borrowers into default and redeploy labor and residual capital to real growth. And all those lazy investors who deployed funding for 20 years to federal debt instead of productive capital investment will also have to take risks and redeploy capital or face capital losses." – Paid-up subscriber Kendrick M.

"Dan, you are stellar, as always. I only point out one thing: Bad analogy in the title of the piece.

"Those of us who are certified as aircraft pilots holding an Instrument Rating, do it all the time (e.g. flying with absolutely NOTHING to see through the windshield). The difference between us and the Wizards of Wall Street is that we have reliable instruments to depend on. I'm afraid the truth of the matter is, they don't.

"Keep up your good work. Stay contrarian." – Paid-up subscriber Chuck B.

All the best,

Corey McLaughlin
Baltimore, Maryland
March 8, 2021