1/13/2021 11:00:00 PM

A Message from Mike: The Bitcoin Bubble

The crypto craze

Bitcoin reached its all-time high of over US$40,000 earlier this month, piquing the interest of many. I wanted to touch on Bitcoin briefly because I haven’t talked about it in this newsletter since the last peak at US$20,000 in December 2017 (after which it promptly collapsed to below US$5,000). So what’s changed and why is it now trading (at the time of writing) at around US$34,000? In the words of Eminem, here’s my ten cents, my two cents is free.

To me, Bitcoin is speculative mania and a pure bubble. It was created out of thin air, it’s not real money, and anyone buying it is just gambling on the prospect it will be worth more tomorrow. Of the people I know who are trading it, not one is actually going to use it, if they could, that is. It’s not even that easy to buy. Bitcoin or any of the other cryptocurrencies have been created using blockchain technology by those looking to create a way around government-backed fiat money. Perfect for terrorists and the like. Its value, however, thrives on the bigger fool theory.

If you believe in the complete collapse of the financial system, you like to have a punt, or you think I’m completely wrong, then go ahead. But remember for something to be considered money it must be accepted by the general public as a method or medium of exchange, be a unit of accounting, and a store of value. Bitcoin currently fulfils none of these. I can’t use it on Amazon, its price is quoted in USD not the other way around, and the value is extremely volatile.


Brexit finalised at last

December finished with a flourish as all our funds posted positive gains. The highlight being our UK & Europe fund which was up 12.4% in December and up 31.8% year-to-date, after lagging considerably for a number of years due to Brexit frustrations. An 11th hour Brexit deal was sealed and investors returned to that market snapping up bargains. With this significant uncertainty removed, we would expect valuations in the UK to normalise and capital and investment that has been diverted or deferred away from the UK to now be allocated, setting the scene for a strong rebound post Covid-19.


What’s in store for 2021?

If you thought that 2020 was going to cap off the end of global volatility, think again, because fundamentally nothing has changed except the date. So far this year we have had the attempted revolution by Donald Trump supporters storming the Capitol in Washington, Bitcoin has gone vertical, Tesla is now worth more than all of the world’s top car makers combined, and Covid-19 is still running rampant in the US and Europe. The Democrats are also back in control which means we can expect a much larger stimulus package than currently approved. Perhaps another
US$1 trillion.


10 key factors

So how do I think 2021 is shaping up? With the available data, it looks set to be a bonanza. How much of this is priced into markets remains to be seen. However, the following factors are still very supportive of equities:

  1. TINA (There Is No Alternative), well maybe Bitcoin
  2. Interest rates are still at record lows with Central Banks committed to keeping them low for at least another 2-3 years
  3. Brexit has been resolved
  4. The adults are back in charge of the White House
  5. Fiscal stimulus in the US will run into the trillions
  6. Pent-up demand will hit like a sledgehammer killing an ant from mid-2021 as lockdowns finish, vaccinations are well advanced and the northern hemisphere summer gets everyone back out and about
  7. Household savings increased dramatically in 2020 as people stayed at home and the governments handed out money
  8. Sentiment has turned positive
  9. Speculation is already evident in the market
  10. Buy value over growth. All the boring stuff. As growth names get more expensive, value looks cheaper and cheaper by comparison.

You will always make most of your money buying at the bottom. I hear you can’t give away apartments in NYC or London these days, but it feels like this equity bull has further to run.

As always, thank you for your support. If you have any questions please don’t hesitate to call me on (09) 486 1701, or email me, [email protected]

Mike Taylor, Founder and CEO


Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser.

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