The Roaring Twenties
Crypto is a bubble and the Coinbase IPO (COIN) marks a new phase of the bubble. Let’s see where we are and how to fix it. First of all, a quick note on bubbles.
Transformative technology bubbles
Something can be transformative and bubble at the same time. The Dot-com bubble of the late 1990s is an obvious example. When Theglobe.com (TGLO) went public in 1998 and saw the biggest post-IPO price hike in history, it was a bubble. When Amazon (AMZN) hit $ 400 a share in 1998, it was also a bubble. The Dot-com bubble nevertheless spawned transformative technologies and industries. Most Dot-com companies, such as Theglobe.com, ended up being essentially worthless. A few, like Amazon, have become trillions of dollars + oligopolies.
Crypto is obviously in a bubble now, as evidenced by the Dogecoin meme currency spike this year, apparently fueled by nothing more than joking around Elon Musk’s tweets.
Let’s recap where we are, then talk about the next moves.
The rich get richer
Coinbase seed investors took victory rounds on Wednesday. Venture capitalist Gary Tan took a conspicuous bow.
Y-Combiner co-founder Paul Graham bowed more subtly.
The poor stay poor
Twitter reminded us that Dollar General (DG) is profitable for a reason.
The environment tightens
The Biden administration unveiled plans to flood-prone suburb with high density housing.
Neoliberals remain unfazed
Mass immigration advocate Alex Nowrasteh of the Cato Institute sees no major downside to the products of “cosmopolitan liberal world capitalism” that we have mentioned above.
Forgetting Nowrasteh was reminiscent of the excellent German show Babylon Berlin, which takes place in 1929.
Rising economic inequalities, rampant financial speculation… we have a feeling that things are going to get worse in Weimar, but don’t spoil us.
Related content: Benzinga’s Full Calendar of upcoming and recent IPOs
Where are we in the Roaring Twenties?
Coming back to investing, if the 2020s are analogous to the 1920s – and they are in a sense with new technology and a stock market boom – how close are we to our version of 1929? In a previous article (How the next crash happens), we mentioned our Twitter correspondent Anatoly Karlin’s prediction that bitcoin peaks at over $ 100,000, followed by a crypto bust analogous to the Dot-com bust.
If Karlin is right at the time, then this year would be analogous to 1929. Of course, his timing may be wrong, but his general prediction seems likely. And as we noted in our original article citing him, his predictions regarding COVID last year were premonitory.
Investing Thinking About 1929
Our general approach remains the same here: buy what looks promising over the next few months and protect yourself in case it goes south. Our system won’t start scanning Coinbase until it’s been made public for six months, but it has been bullish on a few Bitcoin proxies in recent months, including Microstrategy (MSTR). Each trading day, our system analyzes thousands of stocks and ETFs and ranks them based on its estimate of their potential returns over the next six months, net of hedging costs. Microstrategy reached the top ten names in this ranking on December 17 of last year.
Screenshot via Wallet armor on 12/17/2020.
MSTR has been up around 147% since then,
And it was one of our top ten names again on April 14th.
After the bubble blasts
The benefit of our buying and hedging approach during a bubble is pretty obvious: instead of being hit by huge spreads while accumulating precious metals, or losing short-term money in the market on the upside, you can make money while protecting your downside risk. This is all the more true since no one knows when the bubble will burst. But some of you may be wondering what we are thinking about after it explodes. The answer is the same buying and hedging approach, but probably with very different headlines. The universe of our system includes reverse ETFs and ETFs and ETNs that track fixed income securities, precious metals and other assets. There is always a bull market somewhere; we’ll find it and research the most interesting names to buy and cover.
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