Bitcoin Price Gains Far from Guaranteed as Trump-Crypto Love Affair Won't Last

Let’s start with Bitcoin.

Bitcoin broke $100,000 last week. Despite a plunge of 10% in a matter of minutes (wild ride) it managed to reclaim $100,000 and is trading right around that level as we produce this T-Report. I’m highly confident that by the time you read this report it will be somewhere between $90,000 and $110,000 (which is a pretty wide range, almost laughable, yet the sort of range we all are forced to accept when we get the monthly jobs data foisted on us — see Friday’s NFP update).

The move in bitcoin is largely understandable (so far) and I wouldn’t fight it, yet. The president elect and his crypto entourage ("entourage" feels more appropriate than "administration" when looking at crypto) are clearly going to provide more clarity (and ease of access) around crypto than it was getting of late (despite approvals of “spot” ETFs, etc.). His team has a lot of people really fixated on crypto and it certainly seems as though that community put a lot of money into the election (not for the first time, as Sam Bankman-Fried in particular seemed to have been a major contributor during the prior election).

There is chatter about the U.S. holding onto the bitcoin it already has (mostly captured, “shockingly,” through raids on criminals). Typically, the U.S. sells these holdings over time, but there is a big push for the government to hold them. That at least makes some sense to me, as behavior around “free” or “found” money tends to be different than money that is earned (one main explanation for all the luxury stores in Las Vegas).

There is a loud and vocal group (everything about crypto tends to be loud and vocal) that wants the government to buy bitcoin, to effectively issue debt and buy bitcoin. The assumption (or presumption, or just wild fantasy) is that the increased value of bitcoin down the road will pay off that debt. You could argue that it is being done on a personal level and maybe even corporate level, so why not at the government level? And when I say “maybe” at the corporate level, I’m just trying to not have to jump through a bunch of compliance hoops. This concept I completely disagree with:

• The future price of any asset, let alone about of digital ones and zeroes, is not certain — despite what the crypto hype will currently tell you. I’d much rather have seen the U.S. buy stocks years ago as they have a long track record of working over time and generally supporting the U.S. economy. I don’t see those with crypto (despite bitcoin having had incredibly strong annual and decade long performance). The fact that I’m even compelled to write the opening sentence is bizarre, but it seems necessary (or maybe I just spent too much time on Twitter when on the road?). Even the compete rug pull of the "hawk tuah" meme has done little to shake the conviction of many that crypto and the meme coins are the easiest path to becoming rich going forward.
• Despite Trump sending a “you are welcome” congratulatory social media post to the crypto community when bitcoin crossed $100,000 for the first time, I find it difficult to believe his love affair with crypto will last. He likes “control” and by definition, no one controls crypto (though the reality is different — from just a few holders owning a disproportionately large portion of bitcoin, to influencers who seem to be allowed to say and do anything to pump the price, and therefore say and do anything, it remains the wild west). My first “rule of crypto” remains true: that there are not rules in crypto. The love affair is still in early stages, and Trump does have loyalty to those who helped fund his campaign, but I don’t see this as a lasting relationship, especially as he will likely get a lot of pressure from the national security element of D.C. to be cautious on helping crypto too much.

While not directly linked to Bitcoin, the rapid growth of MSTX concerns me. I do not like leveraged single stock ETFs in general, as the returns are path dependent (daily rebalancing requires, at the close, selling on down days and buying on up days to rebalance for the next day). But MSTX rapidly getting to $2 billion of assets under management seems “bubblish” and dangerous to me. I have no comment on MSTR valuations, but “playing” it (and it really is playing it) through MSTX adds unnecessary risks.

Top of Mind

Trump likes “chaos.” He likes his starting positions in negotiations to be “extreme.” As consensus has now accepted his current positions as “normal,” look for him to ratchet up his rhetoric to reset the negotiation starting points even further away.

Quick Update on Rates and Stocks

I do not like treasury yields here. Friday’s reaction to jobs was too optimistic for cuts and I expect that yields will push higher in the coming weeks. Not much higher (4.4% on 10s would be a buying opportunity), but the squeeze, and the overly pessimistic views on inflation prospects, have been largely taken out of the market.

Doing more work on positioning of risk assets and if crypto and leveraged single-stock ETFs are any indication, I’m not going to like my conclusion on what is next for risky assets (even the sectors that I’ve liked). I was a bit surprised that the S&P 500 is up “only” 1.6% in the past 30 days. With last week’s gain of just under 1% and all the hype and daily “all-time high” headlines, I would have thought it was up a lot more than for the past 30 days (the Nasdaq 100 was up 3.3% last week, but only 3% in the past 30 days).

Maybe, since my work is likely to make me bearish, I’m delaying the work because December is a tough month to turn bearish in. Seasonality tends to be real and powerful. It also tends to be a month where trends are followed rather than broken, which again points to strength.

At the time of publication, Tchir had no positions in any securities mentioned.