“Two roads diverged in a wood, and I - I took the one less traveled by, And that has made all the difference.” - Robert Frost
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New article about consciousness in trading. Less practical than the others I've published, and more philosophical. Though hopefully some of you will still find it useful/interesting.
medium.com/@humacapital/cons…
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Shorts piling into the BTC dip.
Meanwhile the analogy with Oct 2023 is still intact, though with higher volatility:
- Price grinding upward
- BTC gave minimal dips after the move to 80k
- Disbelief that BTC has really started its next bull market
BTC has overcome multiple walls of worry over the past months (war, Fed hike, Clarity Act failing to pass). Macro risks will always remain, but believe the path of least resistance is for a move to 100k in Q4.
x.com/HumaCapital/status/209…
Recent BTC move gives more Oct '23 vibes than Jan '23:
Jan '23 marked the end of the bear market. After hovering around 16k for 2 months, BTC rallied and reclaimed 20k for the first time since the FTX blow-up. The rally was mainly a short squeeze; there was no real catalyst or fundamental change. BTC would chop between 20k and 30k until Q4.
Then, in Oct '23, we had the infamous CoinTelegraph fake ETF approval. Despite - or because of - the news being fake, it led to BTC starting its bull run due to one simple fact; everyone realized they were underallocated to a BTC spot ETF approval. We were reminded that it was the reaction to the news that mattered, not the news itself.
What we saw last week led to an immediate reaction in the two go-to assets for the debasement trade: gold and BTC. Both rallied on the news, with BTC's move amplified by several significant short squeezes.
The move is reminiscent of the fake BTC ETF approval; it showed everyone that they are underallocated to the debasement trade.
The main difference is speed: that the debasement narrative evolves much slower than the BTC ETF approval. The US isn't going bankrupt anytime soon, whereas the BTC ETF approval was a mere 3 months later in Jan '24. But I believe the psychology underlying the price action is the same.
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Good spot for gold to put in a higher low.
Its recent rally got killed by Warsh's hawkish Jackson Hole speech.
If it can put in a low around here it would be bullish and potentially mark the beginning of a next leg up. Either that or the gold bear market continues and we head below 4k.
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This is rational because the top AI/tech companies are becoming ever bigger monopolies thanks to AI.
Plus they have government bailout if things go south. US gov will do everything in their power to keep the AI boom going.
Only one sector showing strength relative to the broad market: Technology.
Most of the others are at or near multi-month lows in relative performance.
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After trading it short-term several times, have recently decided to buy a long-term bag in $BOT.
Robotics is one of the main big trends I'm bullish on, more so than other sectors like space or quantum.
Already had a small robotics portfolio consisting of some private names, but decided to add BOT to that portfolio over the past few weeks.
Yes it currently sits at ~2.5x mNAV, but this is a portfolio of private companies, not a treasury of liquid assets like BTC (MSTR) and ETH (BMNR). It is not unreasonable to believe that the Robostrategy portfolio is already worth around 1.5-2x the NAV, because the NAV is based on old prices. Then we can add to that:
- the in-house expertise they have, leading to better access to deals and better ability to pick the best companies;
- the fact that RoboStrategy is (so far) a one of a kind robotics treasury;
- the fact that, most likely, the trend of companies staying private for longer continues.
Taking all this together, I believe BOT is currently within a reasonable range of its fair value. Due to it being relatively illiquid there will be volatility along the way, but believe it will go to $100 and beyond within the coming 3 years.
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During a time of bond market distress, Bitcoin is decoupling from gold.
Since the beginning of the year, gold and Bitcoin were showing high correlation relative to previous years. But BTC has been decoupling over the past month.
This decoupling comes at a time when bond markets worldwide, even the US bond markets, are experiencing high stress in the form of increasing interest rates accompanied by, for some countries, falling currencies.
This presents a litmus test for Bitcoin; if it can hold its strength and continue to attract flows, then it will be fulfilling its destiny of a true store-of-value during a time in which neither bonds nor gold are able to fulfill that function.
Bitcoin has failed previous such tests multiple times, so the default assumption is that it will fail again. But if it succeeds, good times lie ahead.
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Financial Nihilism: When Gambling Becomes Rational
humacapital.substack.com/p/f…
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Got nostalgic for the uni days of making models and writing articles so decided to spend some time and write one about financial nihilism. Obviously not at the same level as a proper paper but was fun to write.
Curious to hear others' thoughts and whether you have a different view on financial nihilism.
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Panic in the bond market. If this keeps going, something is going to break.
Short-term bearish SoV's like gold and BTC, long-term bullish as the only way out is to print more fiat and devalue the debt.
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Standard economic theory assumes a concave utility function, but that is inconsistent with today's rise in financial nihilism.
A concave utility function implies risk-aversion. Instead, we are witnessing increasingly higher and broader risk-seeking behavior, especially among young adults. Whether it be from high inflation, a shift in life goals due to social media, or the threat of AI taking jobs.
Instead, I believe the utility function of many young adults today follows an S-shape around a threshold T:
- Threshold T indicates the point of financial freedom or 'escaping the matrix'
- The function is convex below T, implying risk-seeking behavior
- The function is concave above T, implying risk-aversion: each additional unit of money contributes less to total utility/happiness
- We can also add a lower bound Umin, indicating a floor on overall utility/happiness due to the social welfare state (particularly in the Western world)
Such a utility function would more accurately describe the behaviors we are seeing today, and would suggest that financial nihilism is in fact rational.
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The traditional American Dream is no longer enough. The youth wants to 'escape the permanent underclass' and 'escape the matrix.'
Each day this gets harder due to inflation and the threat of AI replacing everyone in the future.
For someone with no particular talents (the vast majority of people), the opportunity set to 'make it' is collapsing towards one direction: financial nihilism.
The trends in increased speculation, gambling, trading, memecoins will continue because of this.
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This week's FOMC will be very important, no matter what the Fed does.
If they hold, it will be a big signal for the USD devaluation narrative: weaker DXY, new SP500 ATH, and continuation for gold and BTC, and likely a steepening yield curve.
But if they hike, it could cause a big shock wave through the markets. A hike is priced at 85% right now, but this does not at all reflect in the markets yet. A hike would force every market participant to rethink their assumptions: one hike opens the door to more hikes. And Warsh has been particularly vocal about disliking guidance, which only increases uncertainty.
A hike would be very bearish and likely mark the top for equities and crypto for a while.
Big week ahead.
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Bought some $AI as a hedge against this view being wrong.
Either markets go lower after hike and we get good buying opportunities across the board in coming weeks/months, or markets shrug it off and it becomes an inverse ‘buy the rumor, sell the news’ event, in which case I believe $AI (the memecoin) will outperform.
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Strong recovery across the board from equities, crypto, and gold.
Despite the Fed hike, another hike planned, $100 oil, and AI safety fud.
We've had a barrage of bad news but markets have cared little. Some bullish weeks ahead.
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Study incentives.
At current numbers, Robinhood Chain’s revenue accounts for 10-20% of total Robinhood revenue.
Since costs to run the chain are low, the profits represent even higher % of total profits.
So it is obvious where the incentives lie for Robinhood.
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Memecoins are quasi religions.
Strong religions (and memecoins) have a mission and a leader.
Think about every religion and memecoin you know, and you will find that each one has a mission and a leader.
Religions (and memecoins) offer a release from the burden of survival through the form of belief.
When our actions are unable to get us the things we want, we resort to belief. The traditional method of working and saving is not making anyone rich in today’s world, so people search for other methods. Being creative in changing one’s life is hard; belief is easy.
Belief provides an escape from daily life. We gain salvation through belief. Memecoins provide an escape from the matrix through belief.
Over the past years, we have seen many people trying to gamble their way to wealth. This has ended badly many times. Next we will see people hold onto their memecoins and believe in something.
The new fomo app is especially important in this. They allow everyone to see their favorite influencer’s portfolio in real time. As long as their favorite influencer (like a leader) keeps holding, it will be easier for them to keep holding.
A perfect example is @theunipcs. His conviction has a contagious effect on his followers, allowing them to believe and keep holding their bags.
All of this will fuel the next big wave of speculation in memecoins. As always, it will end with big losses for many. But prices will go much higher before that.
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