EN #5: Investment Club Newsletter – Living on the Bitcoin standard

Hi investors. I want to start this issue with a small reminder that if you are new here and especially new to the stock market you will want to read the 1st, 2nd, 3rd and 4th issues of this newsletter to understand what the stock market is, how counterintuitive it is to buy when it drops as well as what kind of revolution Bitcoin is. You will also learn along the way how we deal with stock market crashes, why we invest in Tesla & Berkshire and why Bitcoin is an unprecedented revolution to the world of finance and inflation protection.

But first a small announcement: I recently found out that my fellow countrywoman 🇲🇩 named Olga Tapordei has begun her quest to summit Mount Everest. Big deal I thought at first. But it turns out it is a big deal. Over the last 3 days I took a well deserved break from 6 months of listening to Bitcoin podcasts and took the time to watch a couple of movies and documentaries on YouTube. What a life changing and deadly challenge climbing the Everest is. It requires elite level physical and mental strength – so I am cheering her on and so is everyone else and I hope a hero’s welcome awaits her at home. Godspeed.

Next let’s address the two changes I announced on Patreon where you can support me and in the #4.5 issue of this newsletter:

BlockFi, the platform I told you about in the 4th issue which offers 6% interest on Bitcoin deposits and a up to 250$ bonus on signup clearly states on their website that the Bitcoin you deposit with them is in principle at risk and not insured. They lent it out so naturally it’s not really as safe as your bank account. I think their user interface doesn’t communicate clearly enough the fact that the money is lent out and that it takes 3-5 days to withdraw your deposit. I chose to cut my deposit in half and withdrew Bitcoin so that I’m left with 0.8 BTC on BlockFi. That’s still over 250$ every month, in interest, from my Bitcoin deposit. I also earn about 180$ a month from another 25.000$ GUSD deposit at BlockFi(8.6% interest rate). So while I am happy with BlockFi I want them to prove to me that they are a mature and safe platform for now which I think they are.

Next, I advised everyone to sell their Square shares and will not be covering it anymore. I did this because ARK Invest’s model on the basis of which I started our $SQ investment suggests the company is overvalued at around 300$ a share (with only 50c per share in earnings) a price target that ARK invest had for 2025. Of course Tesla is in a similar boat – at 750$ a share with only 70c earnings per share you recover your investment in 1000 years. However I argue with Tesla earnings will increase as the company benefits from economies of scale and other costs come down (share based compensation) as well as new lines of business (FSD subscription) come online. So I can’t see Square growing earnings as fast as Tesla and I think the stock needs new catalysts which I intuitively know will come but am not sure about. If you have any doubts – there’s many opportunities out there, no need to live in doubt. I went through Square’s annual reports, looked at their acquisition of Tidal streaming service and decided I don’t have absolute confidence this is the winner in the space. I also advise portfolio followers to reinvest all the money obtained from Square in Bitcoin, Tesla & Berkshire in that order.

I think you noticed we’re still not discussing the topic of this issue: The Bitcoin Standard. Let’s get other announcements out the way first. I recently switched to Interactive Brokers (referral link) as my main broker and away from DeGiro. I did this in order to access options trading which are standardized contracts that give you the right to purchase or sell the stock at a predetermined price, for a fee. So for example if you think Tesla shares are undervalued and will massively grow by this January you can buy January 2021 call options to purchase the stock at today’s price, for a fee of, let’s say 50$ per share. Or if you, like us 3 months ago, believe that Tesla shares are overpriced but still like the shares at a lower price, you could sell cash secured put options which means you would be obligated to buy the shares from someone if they dropped under a specific price but you would collect a fee for this insurance. So options are a way to protect yourself against drops and gain exposure to the stock or limit downside and occasionally are a better deal than buying the stock itself.

Other than options, I like Interactive Brokers for features like premarket and after-hours trading (sometimes there are good opportunities before the market opens), Margin Loans at only 1.5%, sophisticated research and complex reporting and integrations with other platforms that I use daily(like atom.Finance). It’s also a very trusted broker with a long history and with very low fees (better than Degiro!). Only downside is that it has a very complex User Interface and I don’t recommend their mobile apps which are absolutely disastrous. But once you learn the Web Interface you will never go back. The Poor Swiss also moved to IB and his articles helped me understand the landscape well. If you happen to live in Switzerland you will love his blog 🇨🇭.

One thing that once again reminded me of how broken the current banking system is was when I sold my shares on Degiro to buy them back on IB and transferred the money between them using my bank. Now my bank suddenly wanted to know what it is that I am doing and why I’m using their bank to transfer money. Silly me, I thought that’s the purpose of a bank – money transfers. For a while I believed they would ban my account and started looking for alternatives like Neo-Banks (which aren’t any better, Transferwise and Revolut prohibit you from using crypto currency exchanges). In my research I stumbled upon dozens of people who’s bank account was closed for doing things the bank didn’t like even if those things were perfectly legal. I was reminded of all the times my bank didn’t allow me to withdraw more than X amount of money, or limited me in how much I can deposit. Are you buying a car or house worth more than our daily limit? Well then, you must split your transfer over multiple days. Or that one time when my friend from Switzerland sent me money and it arrived 3 days later with a 500E fee. Banks are truly, utterly outdated. They work well enough for our day to day use cases that we don’t notice just how broken they are – actually settling a money transfer between two banks takes ages.

Contrast that with Bitcoin where one can literally transfer millions of dollars in 30 minutes half way across the globe for a couple of dollars fee without anyone being able to stop you or ask for extra proof that the money is really yours. Or you can pay for listening to a podcast in Satoshis(one hundred millionth part of a Bitcoin) in real time per minute – check out the Breez Wallet app. Why be paid at the end of the month when you can be paid daily? That’s the experiment Jack Mallers did – where he streams Bitcoin payments to his employee in Ireland in real time. Jack Mallers and his company Strike also have an app which allows real-time remittances abroad and they are free – all using the lightning network which is built on top of Bitcoin. The internet needed a native digital currency that is instant, free, decentralized so a lot of innovation is going to come out on top of Bitcoin – a lot will change because the existing payment infrastructure is simply too slow and not digital. For example you can’t email someone a few dollars today. Yet with digitally native currencies you can simply embed money in an email and ship it across the internet where they access it instantly. Stream payments per minute instead of paying per month.

During this last month I also learned that I can purchase gift cards for most stores in my country with Bitcoin – essentially meaning I can buy anything(food, electronics) with Bitcoin without ever converting it to Euros – which banks still frown upon. I also learned that I can get loans against my Bitcoin – so for example I need money for a short term goal and if I don’t have the cash I can get a loan at 1% interest only by depositing bitcoin as collateral on Celsius (referral link) without ever talking to a bank. Loan approved in 24 hours. Celsius offers many of the same features BlockFi does so I invite you to explore this platform too and see if it can help you. So you can pay with Bitcoin, earn interest on Bitcoin, get loans against Bitcoin, pay rent with Bitcoin, buy houses with Bitcoin and take it with you across borders with 0 effort. Our minds in the investment club our continuously blown away by the magnitude of the transformation the world is about to go through. I hope yours is too as you discover these platforms.

So what does living on the Bitcoin Standard look like?

I love watching the What Bitcoin Did podcast because the host is as much a beginner in this world as I am. So when he invited the guy who sold his house and went all in on Bitcoin and lives with his family in a RV, I was curious because I heard about him in 2017 and I just thought, here’s one more Dutch person who is crazy (he still may be, you decide). Little did I know that DiDi understood how profound the change of Bitcoin is well ahead of everyone else and he likes to live his life free, anywhere he wants, with no bank coercing him – convincing everyone instead to accept Bitcoin payments – from the beach restaurant in Portugal to the landlord of the property in which they live. So a Bitcoin only life is in principle possible. He travels the world and his kids use online schools which is something I find very interesting – I did not enjoy spending 5 hours in a bench at school for 16 years of my life at all – in fact I hated every moment except Math and Physics.

So while a montessori school was on our list for our baby- I’m starting to think we can give our baby a better and less strict education, allowing him to explore his passions and encourage creativity and live anywhere on this planet. Because of it’s decentralized and permission less nature Bitcoin allows an individual to live anywhere and pay for anything he likes in Bitcoin – essentially making you a sovereign individual – also the title of a book which Bitcoiners love. So it’s not a surprise then that my view of the world has been altered by going down the Bitcoin rabbit hole (a term used by Bitcoiners to denote the act of learning about Bitcoin over the course of a few years). While we’re not selling our house and moving to Portugal any time soon – we are re-evaluating the life decisions we are making, where we live, how we pay, where we store our wealth and where our baby will go to school. In short it looks like we will be living in more than one country – with the Netherlands as our home base.

It should also be no surprise that Bitcoin maximalists, after seeing the Stock-To-Flow model of PlanB about which we spoke in issue #4 which predicts a 100.000$ bitcoin in 2021 and over 1.000.000$ Bitcoin in 2025 based on the scarcity of Bitcoin and learning that it’s possible to live a Bitcoin only life are moving to places like Portugal and El Salvador, selling all their stocks and assets and putting everything they own in Bitcoin. For me that’s too radical of a change and too risky – I think it’s straight up crazy – like the first humans that climbed Everest. I started out with allocating 10% of my net wealth to Bitcoin, and it rapidly grew to 30%. I believe by the end of the year it will grow to be 80% of my wealth and I will have the option to live anywhere while still keeping my main home, investment portfolio and the option to lead a regular life if we were to choose to do so.

Let’s also address what happened recently with Tesla and the stock market:

Tesla announced absolutely mind bending deliveries in the worst quarter for car sales of 184.800 cars. That’s more than double when compared to Q1 2020 and the car industry is in shambles. Even Toyota, the absolute laggard in electric cars who lied for years about making “hydrogen cars” a reality, has announced they will produce electric cars in 2025. So at this stage Tesla’s mission statement is partially complete: “To accelerate the world’s transition to sustainable energy” but not yet. There’s still batteries to put in every house, trucks and planes to electrify, full self driving to solve and deploy at scale. Tesla is a monster of a company. So I’ve doubled my investment over the past months given the simple fact that Tesla is set to deliver close to 1 million cars in 2021 , double of what it did in 2020. Show me another company growing 50-100% year over year and changing the world while doing so. Tesla is set to announce Q1 2021 financial results on 26th of April 2021 and it has the potential to be legendary and set the tone for a tripling of Tesla’s profitability this year.

Bitcoin reached all time highs, and as it does in bull markets, one year after halving, retraced 15-20% from time to time and it consolidates. People like to explain such moves in the financial markets with Vodoo and miners going down and other magic explanations but the reality is bull markets have corrections and it is normal. I am a firm believer that inflation caused by infinite money printing will absolutely devalue the purchasing power of currencies so I convince everyone I know to own a percentage of Bitcoin – including close relatives. I believe based on what I wrote above that it is going to absorb a lot of the world’s wealth and as PlanB says: Owning Bitcoin will be like owning a plot of land – you can use it to earn yield, you can use it to borrow money as collateral. I want those I care for to not risk their life savings in currencies whose value is being debased. If you started buying it when I first recommended it, in November 2020, you tripled your money. But there is still a lot more upside in this cycle as described in issue #4.

Now, as it happens in Bitcoin bull markets, Altcoins and as they are called by Bitcoin maximalists, shitcoins, experience incredible rises. To beginners Bitcoin seems expensive so they go to so called “cheap” crypto currencies. This happened in the 2017 cycle and it is happening in the 2021 cycle again. The value of these Altcoins was absolutely decimated when compared to Bitcoin and you underperformed Bitcoin by thousands of percent if you invested in Altcoins in 2017. Take even the most well known Altcoin, Etherium. To this day, if you bought it in the 2017 peak, it is up only 60% versus Bitcoin which is up 215%.

Similarily, copycat stocks like NIO are still negative for the year, when Tesla is positive. There is a price you pay for using the “This is expensive let me use something similar which is still cheap” strategy in hope to get similar results. You get horrendous results by investing in copies of the original. It is similar to a fallacy Peter Lynch described : “This stock dropped so much, how much lower can it go?”. Zero, it can go to zero. Now I don’t want to tell you what to invest in – but I want to warn you that we’ve seen this Altcoin rush before and history tends to rhyme – Altcoins go crazy at the end of the Bitcoin bull market as people seek cheap alternatives. Ray Dalio – the famous macro-economic investor said something that is stuck in my head to this day: “So you think you’re smart, tough guy? Prove it. Prove it in the markets”. The idea is that financial markets are the ultimate arbiter of truth. Are you right? You create a lot of wealth. Are you wrong? You lose everything you have. Talk is cheap he says. Prove it in the stock market.

This quote is not meant to encourage anyone to prove me wrong by buying Altcoins and alt-stocks. Quite the contrary: If you know you’re right and you know what you are doing- the market will prove you right or wrong. You don’t have to spend endless hours debating it. I’m here to share some of the history and warn for dangers ahead. To the🌗.

PS: I am very happy to report that profits from the Original(TM) and extended investment club are nearing a million dollars.