Bitcoin and Cryptocurrency: 2021 and Beyond PowerPoint Presentation – January 13, 2021 By UNM.NU, CPA, MBA, Audit Associate II
Who is UNM.NU? • I am an auditor with REDW, have degrees / concentrations in Mathematics, Economics, Management of Technology, Finance, and Accounting, have a CPA, MBA, and love of all things cryptocurrency. • Been involved with cryptocurrency since January 2018, just after the bull run of 2017. • Major learning experience, investing in new market during bear market of 2018 and 2019. • Through daily research, dollar-cost averaging, buying the dips, etc, have increased cryptocurrency portfolio over 300%. • Portfolio consists around 89% Bitcoin, 8% Ethereum, 1% XRP, 1% VET, and remaining 1% in 8 other cryptocurrencies.
Cryptocurrency Volatility • Two major experiences during time in cryptocurrency: • Late 2018: • Portfolio down roughly 60%, Bitcoin around $3k. • Despite poor results, my best investment time was this period, investing more than usual at cheap prices. • As Warren Buffett says, “Buy when there’s blood in the streets, even if the blood is your own.”
• March 12, 2020: • Cryptocurrency prices cut in half during 24-hour period (BTC below $8k to below $4k). • Bought BTC night of March 12, 2020, while a lot of other people were scared due to COVID and economic concerns.
• Easy to say buy the dips, but important to stick to it despite the psychological desire to be scared when losing value.
Cryptocurrency Comparison • Bitcoin • Largest market, store of value, currency through Lightning Network, proof of work. • https://www.youtube.com/watch?v=41JCpzvnn_0
• Ether (Ethereum) • 2nd largest market, smart contracts, proof of stake, many DeFi tokens built on Ethereum. • https://defipulse.com/blog/defi-on-ethereum/
• XRP (Ripple) • 3rd largest market, negotiating with banks and other international financial institutions, alternative to SWIFT / international payments. • https://dailyhodl.com/2020/11/21/london-based-think-tank-says-ripples-xrp-remittance-platform-can-minimize-intermediaries-and-boost-sp eed-of-international-payments/
• Others: Tether (pegged to USD), Litecoin (silver to BTC gold), Bitcoin Cash & SV (strong management, but questionable), Chainlink (off-chain data for Ethereum), Polkadot (newer coin, haven’t researched), Binance Coin (cheaper transactions with Binance exchange), Stellar (XRP competitor), EOS (Ethereum competitor), Monero (privacy), Wrapped Bitcoin (Bitcoin tied up in other blockchains), Tron (digital entertainment), Dash (similar to BTC / LTC), Neo (Chinese Ethereum), VeChain (supply chain management). • Similar to Dot-Com crash, over 99% of cryptocurrencies will probably die over next decade (currently over 8,000 cryptocurrencies listed at coinmarketcap.com), but the ones that survive will be the Facebooks, Amazons, Apples, Netflixes, and Googles (FAANG) of the crypto world.
Bitcoin Price Projections 2021 • $0 – Nouriel Roubini (NYU Economics Professor) • https://cryptoslate.com/nouriel-dr-doom-roubini-lambasts-bitcoin-in-12-part-twitter-thread-it-is-worth-0/
• $50,000 – Robert Kiyosaki (Rich Dad Poor Dad) • https://www.ibtimes.com/bitcoin-price-prediction-50000-2021-rich-dad-poor-dad-author-suggests-3103416
• $100,000 – Anthony Pompliano (Morgan Creek Digital) • https://cointelegraph.com/news/anthony-pompliano-breaks-down-his-bitcoin-outlook-for-2021
• $288,000 – Dan Held (Kraken Executive) • https://cryptopotato.com/bitcoin-price-could-hit-288000-in-a-year-krakens-dan-held-exclusive-interview/
• $300,000 – Willy Woo (statistician) • https://cointelegraph.com/news/bitcoin-hitting-200k-by-december-2021-is-now-conservative-willy-woo
• $318,000 – Tom Fitzpatrick (Citibank Executive) • https://news.bitcoin.com/citibank-executive-says-bitcoin-will-trade-at-318000-by-end-of-2021/
• $400,000 – Scott Minerd (Guggenheim Investments CIO) • https://www.bloomberg.com/news/articles/2020-12-16/guggenheim-s-scott-minerd-says-bitcoin-should-be-worth-400-00 0
Who is investing in Bitcoin? • Thanks to The Modern Investor: https://www.youtube.com/watch?v=_dR8bgBbBBk • Probably lost forever – 4,000,000 – 6,000,000 Bitcoin • Bitcoin to be mined – 2,400,000 Bitcoin • Chamath Palihapitiya – 1,000,000 Bitcoin • Grayscale – 526,000 Bitcoin (want to own 10% of all Bitcoin) • Mike Novogratz – 500,000 Bitcoin • Cypherpunk Holdings – 276,474 Bitcoin • Winklevoss Twins – 200,000 Bitcoin • Huobi – 141,452 Bitcoin • Binance – 100,867 Bitcoin • Roger Ver – 100,000 Bitcoin • Bitmex – 66,946 Bitcoin • Bitfinex – 57,001 Bitcoin • Coinbase – 55,578 Bitcoin • Microstrategy – 38,250 Bitcoin • Coincheck – 33,516 Bitcoin • Tim Draper – 32,000 Bitcoin • North Korea – 30,000 Bitcoin • Guggenheim – 27,000 Bitcoin • Kraken – 22,219 Bitcoin • Jack Dorsey – 5,000 Bitcoin • PayPal & CashApp – 900 Bitcoin daily (amount of Bitcoin mined daily) • Raoul Pal – 777 Bitcoin (probably way more) • Blythe Masters, Dan Morehead, Brian Armstrong, Changpeng Zhao – unknown (probably hundreds of thousands) • Fidelity, NYSE (and Bakkt), NASDAQ, BlackRock, JP Morgan Chase, Citibank, 40 German banks – unknown
Cryptocurrency opportunities for institutions • Holding cryptocurrency (custody services) • Purchase cryptocurrency from exchange / OTC. • Use Ledger Nano S and 24-word mnemonic for cold storage of cryptocurrency. • Works for major cryptocurrencies, including Bitcoin. • Most secure method of storage.
• Staking cryptocurrency (dividend for holding) • Ethereum 2.0 just came out in December 2020 for proof of stake. • Use mnemonic (similar to Ledger Nano S) to secure staked Ether. • Eth from 1.0 chain is transferred to Beacon Chain to earn ~13% APR (decreasing over time as # of stakers increase), locked up for years potentially.
• Lending cryptocurrency (loans) • Have not personally tried this, appears safer due to DeFi advances, but still increased risk of losing cryptocurrency investment due to hacking / security flaws.
Informing others about cryptocurrency • Can be an intimidating market to enter • Coinbase makes entry a little easier, but with higher fees. • Much lower fees using Coinbase Pro and Binance.US as long as basic finance (stop orders, limit orders, chart reading) is understood. • Due to previous exchange hacks (Mt. Gox), not recommended to store cryptocurrency on exchanges, but in cold storage (Ledger Nano S). • Transferring cryptocurrency can be intimidating, as addresses are composed of letters and numbers and an incorrect character, or transfer to an incorrect address type (from Bitcoin to Ethereum) can result in permanently lost cryptocurrency. • As one of the most volatile markets in the world, recommended to have a long term holding strategy, as 85% declines from highs are expected based on historical trends.
Cryptocurrency investing • Easiest to describe cryptocurrency, especially Bitcoin, as digital gold. • Hedge against U.S. Dollar • U.S. Dollar experiences problems with inflation and money printing. • Bitcoin has a fixed supply ($21 million), other cryptocurrencies tend to follow Bitcoin price movements.
• Stock to flow ratio • Gold has a lot of value due to high stock to flow ratio (amount in existence versus amount added). • Bitcoin in May 2020 experienced another halving event (half amount mined), resulting in Bitcoin having a similar stock to flow ratio as gold. • https://www.forbes.com/sites/billybambrough/2020/09/30/serious-warning-issued-over-300000-bitcoin-stock-to-flow-price-model/?sh=1ead12766989
• Bitcoin halving events occur roughly every 4 years, Bitcoin is the first currency in human history to have a true mathematical limit, as the last Bitcoin is projected to be mined in the year 2140.
• Currency • Bitcoin, at its core level, has very slow transaction speeds (~7 transactions per second) and high transaction fees (~$6 per transaction), unreasonable for average daily transactions (Starbucks). • Adding layers to Bitcoin (Lightning Network) alleviates these issues with Bitcoin. • Some people have lived off of Bitcoin for years at a time, but in general, it is not easy to spend Bitcoin for general purposes for general individuals yet, but this is improving quickly, apps let individuals buy basic items converting owned Bitcoin by individuals to other fiat currencies for vendors for minimal fees.
• Tax issues • Still being modified by IRS, but in general, any transaction of cryptocurrency (other than fiat for cryptocurrency transactions) has a short term / long term capital gain / loss • Biden administration appears to be pro-Bitcoin based on (projected) appointments, hope is that basic purchases (under a dollar amount) won’t be subjected to taxable gain / loss events in the near future.
Portfolio Management • Everyone has their own risk tolerance, financial goals, etc, so cryptocurrency portfolio allocation should be personalized. • Recommended everyone has at least 1% of portfolio in Bitcoin. • If 1% goes to $0, should not seriously affect portfolio performance. • If Bitcoin increases 1000%+, the increase would be enough to enhance portfolio.
• Cryptocurrency has moderate correlation to the stock market and other investments. • As general economic conditions improve, Bitcoin improves as more savings are available to investors. • As other investments are less appealing, Bitcoin improves as investments flow from them to Bitcoin.
XRP lawsuit versus SEC (end of 2020 into 2021) • https://www.forbes.com/sites/roslynlayton/2021/12/29/sec-v-ripple-t he-cryptocurrency-trial-of-the-century/? sh=65a35ed45417 • Price of Ripple has decreased from above $0.60 to $0.20 in December 2020. • Many exchanges preventing trading of XRP until lawsuit with SEC is resolved or clarification is received on outlook for XRP. • Example of FUD (fear, uncertainty, doubt) and volatility of cryptocurrency markets, one event can cause major panic, important to keep a long-term goal, buy the dips, weather the storms.
Common Questions • Mining versus owning cryptocurrency • For most people, mining not profitable due to hardware, electrical, and other expenses. • For people interested in mining / income from cryptocurrency, staking with Ethereum 2.0 is highly recommended, due to minimal hardware / electrical costs and decent returns (~10% APR as of January 2021).
• Overwhelmed by large number of coins (> 8,000) • Recommended to start with Bitcoin. • Most popular, most likely to succeed, easiest to purchase and store.
• Ethereum recommended, especially if 32 Ethereum can be purchased for staking purposes. • XRP extremely risky, especially due to recent SEC issues, if XRP succeeds in lawsuit with SEC, high returns are expected. • VET one of lowest ranked (in terms of market capitalization) cryptocurrencies I invest in, large potential in supply chain management, used to be a top-10 coin, currently top-30, high risk due to competition in market, general cryptocurrency concerns, and difficulties in expanding adoption, but potential for high returns.
• Investors in cryptocurrency (especially Bitcoin) • As investors shift from individuals, tech enthusiasts, and other innovators to institutional investors, large cap companies, and investors more likely to hold onto Bitcoin for a longer period of time, bull market should thrive in 2021, with the potential for more stability after the bull market in 2021.
Bitcoin CoinMarketCap • As of January 2021: • • • •
Starting year at all-time high, $29k (1/1/21). Large rise to $41k (1/8/21). Large drop to $31k (1/11/21). Currently in the $35k range (1/13/21).
• BTC up 205% over past 3 months: • $11,350 on 10/14/20. • $34,600 on 1/13/21.
• Popular news (1/13/21): “ECB’s Lagarde calls for regulating Bitcoin’s ‘funny business’.” https:// www.reuters.com/article/us-crypto-currency-ecb/ecbs-lagarde-calls-for-regulatin g-bitcoins-funny-business-idUSKBN29I1B1
Questions? • Potential question topics: • • • •
Risk-reducing strategies (dollar-cost averaging)? Different cryptocurrencies (BTC, ETH, XRP, etc)? Price projections / investment expectations? Opportunities for REDW or other firms?
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