Gud
There are going to be times this year when things get choppy. That’s just the nature of the sector, so before we get fully started in 2025, we should remind ourselves of a key component of our investment thesis.
“We know the supply curve”
Considering the core asset of this sector, there just are not that many bitcoins. This week BitFinex released this chart demonstrating just how much supply has been gobbled up in the last few months. Liquidity is very tight indeed. A situation perhaps not fully reflected yet in the price.
The known supply curve is the most underrated and misunderstood feature of the asset. A lot of people believe they understand it but in fact we have all spent our whole lives with assets that do the exact opposite. Currencies? The government is struggling so here’s some more bonds and some more money. Companies, share price high? Here’s a rights issue. Gold? The price is up…oh look some new mines have opened.
Nothing has ever had a known supply curve. It’s a point worth dwelling on.
There is something to be said for understanding something and then backing it as an investment strategy. Even if it is stupidly simple.
BlackRock
In 10 months, BlackRock’s Bitcoin Trust has absolutely blown its gold product out of the water. Keep in mind this is just the single IBIT product, not all the Bitcoin ETFs but the fact is the market is speaking loudly.
This directly addresses our view that Bitcoin will demonetise gold over time. The most scarce asset wins. It is winning. Not only is the demand there but the demographics favour the digital asset. Young people don’t hold gold and right now many of them don’t have the money to buy IBIT, but as their super funds grow with time they will.
AMP Bitcoin
Goodness me this caused some upset. AMP bought $27m of bitcoin in Q2, which was about 0.05% of the fund’s $57 billion in funds under management.
The controversy created more marketing value than the purchase cost. As the first meaningful super provided to do so, It kicked off a chorus of boos from the gallery:
Duncan Burns, the chief investment officer for Vanguard’s Asia-Pacific business, said the investment merits of bitcoin and other cryptocurrencies are “weak”.
Reserve Bank governor Michele Bullock has previously said bitcoin does not have a place in the Australian economy and which critics say does not belong in retirement portfolios because it does not produce yield.
An Australian Super spokesman said while it was “looking at blockchain technology as a potential investment opportunity, and has made some small investments in companies that use the underlying technology in other ways, AustralianSuper does not have any current plans to invest directly in cryptocurrencies”.
Why complicate it? Why “look at Blockchain technology”? I bet Australian Super has absolutely done its clacker on these ‘underlying technology investments’. Mostly though, the other Super Funds don’t like it because it forces their hand. They need a good explanation of ‘why not?’ and currently they don’t have one.
Full credit to AMP’s CIO Anna Shelley who signed off the purchase at about US$60,000 and is up 58% since. Meanwhile, Mr Burns’ Vanguard Diversified Conservative Index ETF has returned an annualised 3.9% since its inception in 2017 (to be fair, their high growth fund did 10% p.a. over the same period).
With full credit to their disclosures (which are very open) Vanguard provides this handy chart to let you know just how much your $10,000 has grown by since 2019. In 2029, you’ll be able to buy a new phone if all goes well.
Swiss Bitcoin Reserve
The last country in the world to come off the gold standard was Switzerland. Until May 2000, the Swiss Reserve Bank was required to hold 40% of its reserves in Gold Bullion. In so doing, the Swiss Franc pretty much outperformed every other currency across the world from 1970 onwards.
The story of Switzerland and Gold is retold in the excellent “Gold Wars” by Ferdinand Lips.
Much has changed since then, including the sad demise of the once mighty Credit Suisse. That collapse hugely damaged the reputation of Swiss Banking as well as of the currency. More than that, the rule of law which was thrown in the bin at the time too to ensure that UBS didn’t sink under the weight of the CS disaster. Still, all is not lost and there is a new proposal in Switzerland to require the bank to hold some bitcoin in reserve.
The initiative requires 100,000 signatures in the next 18 months in order to force a referendum. The Swiss do love a referendum too. In 2024 there were four rounds of referendums on 12 separate issues. We should not read too much into this then because a committed citizen could probably commandeer a referendum on almost anything in Switzerland.
It seems highly unlikely that this will get anywhere but those of you who have recently been to Switzerland will know it is wall to wall crypto. Intrinsically, it seems something is understood in Switzerland that is not prevalent elsewhere. For that reason, I give this a small chance of success, which might be enough.
Slowly but surely though the discussion is creeping in everywhere. The major candidates for adopting a bitcoin reserve probably sit in the Middle East. The Central American countries led by El Salvador continue to circle around the idea too. Not to forget Bhutan of course, whose extensive Bitcoin mines have seen their holdings surge through the $1billion mark.
Euro-Trash
To Spain then, where this lovely building is now home to the Spanish AI Regulator. Set among The Gardens of Méndez Núñez the fabulous office was constructed in the 1890s and is now home to 80 AI regulators. The department structure includes a president, a director, two subdirectors, a secretary general, and 10 departments.
The director earns €156,000. Which is more than Spain’s Prime Minister.
I suppose there are many questions here, like, did anyone in Spain ask for this? Was there one request from the citizenry for an AI department? My next question would be: if the EU is directly regulating AI and EU law trumps Spanish law, why regulate at all? 80 people?
This is not new either. The department started its good work in December of 2023. Only now have they got large enough to move into their historic accommodations. Despite their endeavours, Spain still has zero AI companies, zero IP in the area and approximately 10 people in the whole country making a living from it.
Elsewhere, the end of the year marked another European triumph. The mandating of the USB-C adaptor. “one Union, one Charger” declared the EU. The announcement itself is a work of art, there are links, guidance, labels to print for suppliers, FAQs. The directive itself is pages long, it is multilingual. It is insane.
It is of course massively annoying that every iteration of iPhone ever purchased had some new bedevilled way of charging. So the EU has put a stop to it. But, what if the new chargers were better? What if they allowed more data and less energy than their predecessors? I don’t know if any of that is true but the trick to getting consumers to buy and use the product is to make it unbelievably good and then they will tolerate any of the charger shenanigans.
It’s all a bit rich considering that European governments cannot align around plug sockets. USB-C or not, you still need 74 plug adapters when you travel across Europe. The rules are only enforced on foreign tech companies and not on European governments themselves.
Of course, they are reaping what they sow. The 2024 figures will make this look even worse but they aren’t stopping. In castles across Europe, regulators are tooling up to fight things they really do not understand. They were neck and neck with the US in 2008 and now they are half its size. Wow.
