Let it Flow.

Since late February 2024 we have seen a lot of sideways action in the price of Bitcoin as its price has ranged from roughly $51,000 to roughly $73,000. While that kind of volatility is high relative to many other asset classes, the trend for Bitcoin over time has exhibited declining volatility. This feature has generated interest from larger institutions to potentially begin making an allocation to Bitcoin. There are many folks out there (including me) arguing that Bitcoin’s holder count should grow significantly over time. However, in order for BTC’s price to rise in a meaningful way, we don’t necessarily have to rely on new user adoption.

Back to the volatility aspect: Because Bitcoin’s has been as much as 5-6x higher than the S&P 500, allocators and investors at large were only adding 1-5% weighting to portfolios (if at all), based on risk tolerance and other factors. Institutions, pensions and ERISA plans tend to shun investments that historically carry this much volatility.

Imagine if all current holders, as the asset’s risk declines over time, decide they are comfortable doubling the size of Bitcoin in their portfolios. After all, these are investors who already believe in the asset and are comfortable with the risk.

Under that scenario, another $1 trillion dollars could potentially flow into Bitcoin. However, just because $1 trillion of new capital comes in doesn’t mean the value of Bitcoin goes up by $1 trillion…..it goes up by many multiples of that.

Outsized buying pressure of an asset naturally pushes the price exponentially higher. You may have seen examples around a meme coin or even a meme stock like GameStop. However, whereas a company can issue & sell additional shares to benefit from a rising price, Bitcoin cannot. This fixed supply and the stock to flow phenomenon are tenants of the digital asset’s long term potential.

Again, this premise is only based on the expectation that current holders of Bitcoin decide to double the size of their current exposure. It doesn’t take into account banks, institutions, sovereigns, corporations and even clients of Morgan Stanley beginning to make Bitcoin allocations themselves.

Interesting times ahead for this asset class.

Finally, here is what’s on my radar:

lending & credit

Blackstone is hyper-bullish on the opportunities in private credit. They believe the opportunity for this space could reach $30 Trillion. As banks have pulled back from lending over the last several years, private equity and hedge funds have stepped in to fill the void. While liquidity can be an issue within private credit, many investors prefer the lower volatility (due to less frequent valuation marks) as well as the ability to get hard assets as collateral.

We do a good bit of private credit allocations for my families I work for, across the spectrum of risk. However, we have a tight view on both collateral and duration. Knowing in advance how we expect to see a return OF capital is often more important than the return ON capital.

macro

We are seeing a lot of commentary around the investment potential in Europe. Under normal circumstances the region would look like a value investor’s dream. But today’s backdrop has some unique differences. Here is an interesting take on how Europe could become the “next Japan” as productivity stalls and populations age. Germany has a particularly acute problem with an aging population. Add in rising inflation, disastrous immigration policies and a host of other challenges and it’s easy to see why some of the top macro investors (Felix Zulaf for example) are showing very little appetite for investing in Europe at the present.

bitcoin

Friends & acquaintances will sometimes ask what’s the best resource for understanding Bitcoin. For those who enjoy reading, I highly recommend starting with The Bitcoin Standard. For those who do NOT enjoy reading, there’s lots of great content on YouTube and Twitter (and lots of crap content too..).

If you have an hour, I definitely recommend this presentation from Michael Saylor, the MIT grad turned billionaire Chairman of Microstrategy Group. In the video he highlights the most common arguments and misconceptions against Bitcoin and offers up his rebuttal to each take. Along with that he touches on other interesting potential catalysts for the asset class and why he added it to Microstrategy’s balance sheet.

Clark Gaines focuses on alternative investment strategies at Almanack Investment Partners, and is based in Charleston, SC.

Please refer to our disclaimers below!

This communication has been prepared solely for informational purposes and is not an offer, or a solicitation of an offer, to buy or sell any securities or products or to participate in any product or trading strategy. No sale of securities will be made in any jurisdiction in which the offer, solicitation, or sale is not authorized or to any person to whom it is unlawful to make the offer, solicitation, or sale. If any such offer of securities or products is made, it will be made pursuant to a definitive confidential offering document or other documentation which contains material information not contained herein and to which prospective investors will be referred. Any decision to invest in such securities or products should be made solely in reliance upon such documentation and not this communication. .Information contained herein is based on data obtained from statistical services, company reports or communications, or other sources, believed reliable. However, we have not verified this information, and we make no representations whatsoever as to its accuracy or completeness.  The views and opinions expressed in this communication represent those of Clark Gaines and should not be construed otherwise.Investment Advisory products and services are being offered through Almanack Investment Partners, LLC an SEC registered investment advisor. For additional information about Almanack Investment Partners, LLC, please visit www.adviserinfo.sec.gov.

No part of this material may be duplicated in any form by any means or redistributed without Clark Gaines’s prior written consent.