This used to be a reasonably easy question to answer for a financial adviser. Perhaps a mix of equity and bonds, perhaps some small leverage depending on your age. We’ll change the mix as you get older. Thanks, that will be $5,000 a year, oh and here’s some life insurance you didn’t ask for. See you next Christmas.

These days the situation is rather different, it’s a brave person who recommends bonds for example. With the 30 year bond bull run now pondering negative rates, the potential upside is low and the returns themselves have never been lower. Admittedly, you will get repaid if you lend to the government but their is no guarantee your purchasing power will be preserved, indeed in all likelihood it will not be. Here is Australia’s central bank Governor Philip Lowe earlier in June:

“At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points……

……The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band. “

We can interpret this in a number of ways, but one might be this. “If you lend to me I will pay you 0.25%. All the while you do so, I will do everything in my power (which is considerable) to devalue your principal by 2-3% per year”.Hard to get excited about bonds then. It’s also hard to classify them as ‘safe’.

How about equities? Let’s be generous and say they seem fully priced given all that is going on. Since the March low the S&P500 is now up 45%, the NASDAQ is at a record high and that’s with record unemployment, record government borrowing and almost zero international travel.No doubt there will be winners from all this but if your strategy is dump your money in an index tracker and go on holiday then you might pause for thought these days.

The good news is the central banker playbook is well known and they haven’t hidden it. They have debt burdens and unfunded liabilities to manage, they have to have inflation. We know what’s coming and it serves our funds very well. That’s why they are up over 40%.

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Bitcoin core is the main client implementation for users of bitcoin. It’s not the bitcoin code itself but the client that runs it, like windows for a home computer. The latest update is telling regarding the extent of the vision for the protocol. Few people know it but bitcoin is now being prepared for a world without the internet.

If one thing could kill bitcoin it would be the government turning off internet connections. Can’t happen? Well I can tell you in London on July 7 2005 it did happen. Phones, internet, everything off. The UK went totally dark, so we know there is a switch on someones desk somewhere for sure.

Satellites
Currently you can synchronise with bitcoin via satellite without an internet connection. So if individual countries go dark, the network can continue to operate in that country. The full details of the satellite are here. Roughly $300 in equipment to connect and you will never have to pay for bandwidth for bitcoin again. It’s actually amazing, complete with ground stations and six orbiting satellites, the majority of the inhabited globe is now covered.

Mesh Networks
Next we have mesh networks. GoTenna are at the forefront of this, their technology allows people to spend bitcoin without an internet connection. They use weak radio waves to connect people to each other via devices like mobile phones when the internet is down.

Bitcoin Core 2.0
The latest software update now includes code that protects bitcoin from attacks by nation states. The attack vector is highly complex and takes enormous computing power so only a state actor could do it. Known as an Erebus attack, the theory is enough nodes are launched to surround a particular node (say a specific miner) and trick them into thinking they are communicating with the wider network. Eventually this could cause a chain split, which isn’t the end but isn’t great either.

The new code makes sure that node connections are suitably diverse to prevent Erebus from occurring.

This is just one example of many about the work going into resilience of bitcoin, a process that has been ongoing for over a decade now.

Bitcoin is being built for the next 100 years. Many people think it’s an exotic toy for geeks and it might be, but by the time the majority of people are using it, they won’t even know it or question it.

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Bloomberg seem fully committed to bitcoin these days. Their monthly report is becoming more and more extensive. You can access the full thing here but to summarise:

• The severe price test in March and strong recovery shows the strong base bitcoin now has
• In 2017 bitcoin volatility was roughly 7x the NASDAQ, now it is just 2x and falling
• Futures volume is rising and implies a rising price trend, indeed the mere presence of a liquid futures market implies a maturing product

The volatility issue is a key one I think, it puts a lot of people off so great news that it is falling. Not only is bitcoin becoming less volatile, other assets are getting more volatile as a result of central bank interventions. The trend is with bitcoin.

The ECB and the eurocrats of Brussels live in a dream world. They have pumped their economy full of free money, they chase what they call ‘price stability’ by which they mean inflation and green dreams which are nothing to do with central banks. They have in the last three months proved me wrong, their currency is rising, Euro bond yields are converging. No crisis yet.

I am convinced though that the ECB is wrong.

I am convinced the Euro is defunct.

This is not investment advice but here is a ‘hypothetical trade’ we can periodically track.

• Borrowing 100,000 Euro and buying bitcoin.
• Floating interest rate.
• Date stamp 12 June 2020.

We’ll check in each month. Indeed, so convinced am I that we are considering launching a fund that is short Euro, long BTC. The BLES Fund (Bitcoin Long Euro Short), let me know if you are interested.