Episode description
Some have asked our view on crypto.
Crypto market cap, minus BTC and ETH, is -60% since cycle peak in Nov 2021.
BTC still trades like a high-beta asset.
(Comments on Bitcoin further below, if you want to TL;DR and jump ahead)
🔹 I would not feel comfortable in a fiduciary role commenting on crypto, positive or negative, beyond what I've posted and put into a podcast to say that we're not in.
🔹 The amount of additional analysis needed at this point, not just to understand:
1. what it is that is being traded, but how it's trading
while having to...
2. add "CYA" (Cover Your *ss) provisions
and being able to document prove...
3. plenty of "KYC" (Know Your Customer),
not to mention...
5. the regulatory actions currently being taken (and proposed/anticipated)
and...
6. lack of trust in trading platforms, several of which have imploded in dramatic fashion
🔸 Makes it time, cost, energy, and risk prohibitive for us. That's a 6x-no, when the daily focus is on actively risk-managing your hard-earned assets, most often employing investment vehicles where transparency and liquidity are key.
That said, in regards to Bitcoin...
We have at times engaged Bitcoin as a trade. Here is the thinking...
Bitcoin has traded like a high-risk, high-beta asset, further out on the risk spectrum than emerging markets. It's important to view it through this lens, b/c you want to understand how institutional money would view it. When institutional money moves, it can create large waves.
Based on 120-day BTC correlations:
🔸 Correlation to gold is high. That’s fine.
🔸 Negative corr to USD. That’s fine.
🔸 Nil/zero corr to 10Y breakeven. Ok.
🔸 An interestingly negative corr to VIX.
⛔ But… waiting to see if corr to Nasdaq will ⬇️ over time.
(Corr to S&P is also high, but corr to Nasdaq is even higher.)
That’s the issue.
Until then, it’s a trade. 🤷🏻♂️
I see it as investing in a growth opp. So a % has to be taken from other growth opps for it to make sense. It's an opportunity cost.
➡ If and when correlation to stocks starts to decline.
➡ And if it holds value and doesn’t dip wildly.
➡ And if use-cases grow...
Then I would revisit the story.
⛔ But if it starts to trade with high volatility again, I’d pause.
If BTC is truly what its proponents say, it would, in theory, be in such high demand that the price will be high enough that these current levels won’t matter.
🔑 The key (for us, b/c of how portfolio mgt is approached) will be correlation. That is when institutional money would start treating it differently. If that doesn’t happen, you may not be missing out on anything.
If it does happen, you’ll still have time, because of demand due to it proving itself.
Think of it in terms of asymmetric risk/reward. How much downside risk are you taking (given that it could go to zero/become irrelevant), versus the upside potential of a similar risk-profile idea. Put it out on a risk spectrum and determine what you are comfortable with owning in terms of that risk.
As always, we're open to ideas and opinions that completely flip this thinking upside down.