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The Tightrope

A couple of weeks ago on Saturday Night Live, Shane Gillis made an amazing comeback.  Gillis was fired from SNL in 2019 for making racist and homophobic jokes, so what did he do?  He worked the words “gay,” “retarded” and “cracker” into his opening monologue.


Then, this weekend’s SNL “Weekend Update” went equally ballistic with jokes about Nikki Haley needing to leave the campaign trail because her “dishes are piling up,”  LGBTQ culture on Staten Island, and Women’s History Month:




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In California, polls show Republican Steve Garvey leading Democrat Adam Schiff.  Garvey appears to be on the cusp of winning one of the top two spots in the nonpartisan primary and advancing to the general election.


This would be absolutely nuts.  A Republican Senator in California?  That hasn’t happened in more than thirty years.  That it’s even close is stunning.

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SuperMicro (SMCI) is trading over $1,000 a share today; it’s up more than 1,000% since the beginning of 2023. It’s now trading with a one month Relative Strength Index (RSI) of 93; any RSI over 70 is considered to be overbought.  It has a price:earnings ratio of 72; that means that if its earnings were to remain stable, you’d have to own it for 72 years to break even on an earnings basis. 


I’m not saying anybody should buy it or not buy it.  I’m just saying that it’s about as whacko as SNL going full-on anti-woke or a Republican getting elected to the Senate in California.

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"We find that the retail impulse (italics my own) into crypto rebounded in February, thus likely responsible for this month’s strong crypto market rally."


This, from the crackerjack strategists at JP Morgan last week.  …Good to see that nothing gets by Jamie Dimon’s army of super-savvy analysts.


Of course, no conversation of whacko would be complete with addressing Bitcoin.  There were more individual trades on February 27th in the bitcoin ETFs than there were in the SPDR S&P 500 ETF Trust (SPY) or Invesco QQQ Trust (QQQ)-- and this is still before options are available on most advisory platforms. Given the size of the trades, there was definitely a huge retail component to the buying, which at this point begs the question, do you want to buy what your neighbor is buying or what Steve Cohen is buying? 



As of this writing, Bitcoin’s relative strength index (RSI) is at 89. (As a reminder, an RSI over 70 is considered to be overbought.)  Bitcoin’s RSI hasn’t ever been this overbought while simultaneously trading at these crazy levels.  Ever.  Ergo, we suggest that chasing it here looks like a very late trade.  BTC is trading some 70% above its 200 day moving average--  which is more than a little extreme.  Nevertheless, we saw more extreme dislocations twice during the 2021 melt-up, so I guess you never know…  Just seems like Bitcoin traders are currently walking on a bit of a tightrope.

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There are some interesting agreements to be found when it comes to Bitcoin:


  • Bank of England governor Andrew Bailey has warned, “If you want to buy bitcoin, fine, but understand it has no intrinsic value. It may have extrinsic value, but there is no intrinsic value.”

  • Donald Trump has said:  “I am not a fan of bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.”

  • The late Charlie Munger put it this way:  “Bitcoin reminds me of Oscar Wilde’s definition of fox hunting: ‘The pursuit of the uneatable by the unspeakable.’"


However, there’s a take-away here that belies their rationale.  Something’s intrinsic value comes not only from what you can do with it but also from what you cannot do with it, and one thing you cannot do with bitcoin is confiscate it.  That’s the one and only case to made as far as intrinsic value for Bitcoin.


A government could ban bitcoin, but this would not be confiscation. So long as there’s a critical mass of Bitcoin users globally, your wealth remains yours.  You might have to move to Costa Rica in order to spend it, but it would still be yours.


And of course, the bitcoin market in its current form is subject to fraud, just like any asset. If you pay someone to buy bitcoin on your behalf and they pocket the cash, then this is just old-fashioned fraud, just like what we saw at FTX.


But once you have a bitcoin in your own digital wallet, it is almost impossible for it to be confiscated, whether it’s by a central bank to confiscate it through inflation, or through bank failures, or through outright expropriation. This “non-confiscatablity” is what gives Bitcoin its intrinsic value.


OK, so what?  Most of gold’s value also comes from non-confiscatability, but it’s not like anybody has made any money owning gold over the last fifty years, at least not without actively trading it. 


Ahhhh, trading.  That brings us to an interesting point.  Seems like we’re due for a near-term countertrend move, but the structural uptrend that started in November 2022 is probably still intact, and well, there’s a massive short squeeze happening just this very morning.  However, as with the entire stock market currently, any asset class can become overbought, and that just happens to be where I think we are.

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I recently constructed a structured note with Coinbase (COIN) and Draftkings (DKNG) as the underliers.  It made sense to me from an asset allocation perspective because I see both COIN and DKNG as basically just brokerage platforms for speculators.  Maybe I’m just old; I have generally stayed away from the mania that is Bitcoin and have looked for ways to participate that are more or less hedged.


But there’s a reality that cannot be ignored even by oldtimers like myself, and that is that Bitcoin becomes more and more valuable as more and more people use it--  and it doesn’t look like it’s going away anytime soon.  There continues to be a higher incentive for the next user to start using the technology; it’s a network effect similar to that of the telephone system, the internet and Facebook.


The recent proliferation of Bitcoin exchange traded funds has made it easy to invest in cryptocurrencies.  You still have to sell your ETF in order to get your money, but it has made broad ownership of the currency easier.  Since I don’t know too many places besides El Salvador where you can buy groceries with Bitcoin and since the ETF’s are more liquid than holdings in actual Bitcoin, they seem to be a reasonable way to go about accessing the technology for what should still be simply seen as a speculative portion of one’s portfolio as opposed to a core holding.








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