Ponzis Go Boom!!!
March 29, 2021
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All Good Things Must End…

I’ve been trading stocks for two decades now. As time goes on, I get more attuned to my own gut feel—a gut feel that has been honed from countless mistakes along the way. I don’t know why, but when I have trouble sleeping, it is always about some position of mine. I play the scenarios over in my mind, I think it through, but sometimes, something still nags at my soul. As a last resort, I reduce the position and usually sleep well that night. Then, a few days later, it starts all over again and I need to reduce the position even further. I don’t know why, but my gut has an uncanny ability to get it right where my brain often tries to focus on the facts. As a result, as I mature as an investor, I tend to trust my gut more often. For some reason, my gut can feel out when I have overstayed my welcome and the risks are increasing.

I bring this all up as my gut has grown increasingly uneasy about Bitcoin. I tossed half of my position last week, but I still cannot sleep well. I keep playing the scenarios in my mind and I don’t know what it is, but I am anxious. In investing, there are two primary reasons that I sell something; either the thesis changes or we get to fairly valued. In terms of Bitcoin, nothing has really changed in the thesis. Dozens of CUSIPS keep accumulating it, the quantity of coins on exchanges keeps shrinking and the Central Bankers show no desire to print less. In terms of valuation, I’ve been rather clear that Bitcoin is fundamentally worthless—this is a Ponzi Scheme and after it tops out, it is going to zero. If something is worthless, there is no potential of hitting “fair value.”

So, what has me uneasy? I don’t know. Maybe it’s the fact that something fundamentally worthless is up six-fold since I got involved (that’s five-fold for those of us with Grayscale Bitcoin Trust (GBTC – USA) where a solid premium to NAV has collapsed to a discount). When a position limit is up that much, it becomes overweight and I fixate on it, getting anxious. Besides, a $1 trillion market cap asset sounds rather fully valued. Sure, it can double or triple from here. Maybe it can even ten-bagger. Who knows? The Central Bankers sure are printing a lot. I just know that playing the six-fold surge from a big base was the easy trade. Betting on another big move from an over-extended run seems harder.

Maybe, I’m worried about all of the people who suddenly agree with me. Coinbase just issued financials and 56 million people have accounts. On one-hand, the growth of the network theoretically makes Bitcoin more valuable. On the other hand, no one is actually using Bitcoin for anything but speculating in Dollar terms. If 56 million (mostly Americans) have accounts, who’s left to still join in the Ponzi Scheme? Maybe, I’m worried that everyone seems convinced that this cycle follows the prior ones with a mania at the end for everyone to sell into. I myself believed that as recently as a few weeks ago. However, if everyone expects that, then maybe it will not happen. Maybe I’ve been around this game too long and know that when you have a massive IPO, one where insiders are cashing out like Coinbase, it tends to happen near the top. I can go on and on. Clearly something in my gut is uneasy.

I really don’t have a strong reason why I’m selling. I just know that it’s been a stupefyingly great run, I don’t want to give it back and quite frankly, there are far more attractive things to own. Over the past two weeks, I tossed all my GBTC with a high $40s average exit. I’m up roughly five-fold in 8 months. It’s not the insanity top that I had hoped for, but it’s good enough. Besides, there are things I’d much rather own from here and I need to fund them somehow.

Back to actual investing…

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