THE WORLD’S BEST TRADE - Real Vision...He is also the founder and CEO of Real Vision, which is a digital media group: . Previously he co-managed the GLG Global Macro Fund in London

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THE WORLD’S BEST TRADE

Raoul zeroes in on what he thinks is going to be the best performing trade in the world over the next eighteen months...


THE WORLD’S BEST TRADE

There are times when one opportunity is so big and has such a good risk reward that it has to be put at the forefront of my portfolio.

Last year and into March, that trade was bonds. It was a home run as everything stacked up perfectly and the anticipated scenario played out. Those kinds of trades don’t come around often but when they do, you need to be meaningfully involved.

This is why I am irresponsibly long bitcoin...

Without going through the core thesis for bitcoin overall, I’m going to give you a high-level understanding of why I’m so bullish right now.

A priceless reserve and collateral asset

In my opinion bitcoin is the best reserve asset and best collateral asset ever seen. It is the hardest asset ever produced, with an impossible to change formula for supply that gives it predictability like no other asset ever. It’s distributed nature also makes it one of the most anti-fragile systems ever created.

Nothing can change the supply of bitcoin that is mined. Nothing.

Debunk time

And no, power-outages aren’t a risk because the entire blockchain is stored on over 10,000 nodes, all unconnected, spread all across the world. The risk of destroying or changing the ledger is only that of total thermonuclear global war or a complete destruction of the planet i.e. the risk is super low and we’d have bigger problems on our hands... your gold ain’t worth shit in that world either...

Others talk about the risk of quantum computing breaking the cryptography. Well, that is at least a decade away and maybe many decades. It is also a ‘known’ risk, and many are working on anti-quantum protection. The cryptographic arms race is in play and there is too much money at stake to assume this risk is super high – the incentives are as high to solve this, as they are to break it. There is a higher risk of mining asteroids for gold.

The other key pushback on bitcoin is that governments will ban it.

Globally, this is impossible due to the distributed nature of the blockchain and because regulatory arbitrage will allow others to go against any ban for their gain. And let’s face it, no one is going to ban a $240bn asset. Talk to me when it’s a $10tn asset class and maybe we have to do some jurisdictional planning...


What I am focused on is the next twelve to eighteen months...

Not one of these risks even feature in that period. The only risk that I face is not anything existential but one where the price goes down due to some unforeseen reason. That is a risk I’m prepared to take because, let’s say it falls 70%, the upside potential in this cycle is probably 20x plus.

I simply don’t know another unlevered risk reward like it, and the timing is right.

Firstly, this year we had the halving, when bitcoin supply is halved by the algorithm. With increasing demand and less supply, prices tend to rise dramatically post-halving.

What happens is that the stock to flow of bitcoin keeps rising, meaning new supply is more marginal each time it happens and thus the asset is rarer over time. Plan B has done the heavy maths using the stock to flow around halvings, and he projects a price of $280,000 in this cycle into 2022...


I get a similar projection if we use the previous halving period and overlay it...

When I use a regression on the log chart and project to 2022 to one standard deviation overbought, I also get to near $250,000...


The price chart is one of the best wedge patterns ever seen and it’s broken out...

And on a log chart, it’s a thing of beauty and suggests even higher price targets than the stock to flow model...


In the shorter-term, it broke out of an inverse head-and-shoulders...

Bitcoin is currently correcting – and that is a good thing – it will be a pause that refreshes.

What is going to lead to this kind of bull run? Demand from institutions, and the beauty is that we can front run it.

The US has just approved more regulation towards bitcoin and it is now accepted as an asset across the world by regulators. It is no longer the payment method for drug dealers (the FBI proved that it is traceable so that ended that game). In the US, banks are now allowed to custody bitcoin and that means that prime brokers can offer prime broking and custody for bitcoin, leave the door wide open for every hedge fund.

Fidelity have built out a custody business too for family offices and endowments and are actively talking to pension funds.

ICAP the giant interdealer broker has set up a digital asset group to broke to hedge funds, banks and asset managers.

Bitwise is very close to getting approval on an ETF which will bring in every RIA into the space.

Silvergate, a US bank, offers a 24-hour cash/crypto exchange for brokers, market makers and asset managers where other banks wouldn’t touch it and now have billions of dollars flowing through each day.

All the brokerage platforms for retail brokers are adding bitcoin as quickly as possible.


Crypto hedge funds are in general up over 100% YTD and are attracting new assets at a rapid pace.

And finally, MicroStrategy, a US tech firm, just switched $250m of its treasury cash into bitcoin, paving the way for others to diversify their treasury cash into an inflation-proof, high-performance asset.

But right now it’s only a $240bn asset but, the more it goes up, the larger its market cap grows, the more institutions can’t ignore it. It’s a market that is essentially short calls or is convex in nature, and it will form a reflexive loop between asset managers, endowments and pension funds all driving up participation of hedge funds, RIA’s and retail investors, which drives up the market cap and thus sucks in more institutions. This could well be the bubble to end all bubbles...

About to outperform every single asset class

I’ve been bullish bitcoin for a while and have made some decent money, but why am I becoming frothing-at-the-mouth bullish? Well I decided to look at Bitcoin versus all other assets to see how well it might stack up over the next eighteen months. Risk is a function of reward, so is this the one true trade?

First, let’s look at bitcoin versus its main competitor in reserve asset terms – Gold.

Since inception, gold has collapsed in bitcoin terms (bitcoin massively outperformed) ...


On the weekly chart, gold is about to break key support versus bitcoin...

And on the daily chart, it broke a head-and-shoulders top...


The GDX is beginning to underperform bitcoin too and should break lower soon...

Bitcoin looks primed to massively outperform gold and gold equities again.

Ok, how about versus the Nasdaq, the best performing equity market?

Head-and-shoulders top on the daily chart...


And on the weekly chart, it looks like it’s going to break lower as soon and the head-and-shoulders top breaks...

Bonds are also breaking lower versus bitcoin...


And it’s the same in the longer-term...

Emerging market equities? Nope... they are underperforming...


High yield bonds? No chance...

The punters favourite, Uranium equities? (Cameco shown here.) Huge underperformer...


Surely Amazon must have outperformed? Yes, but not in the near-term. Amazon will underperform for a long while...

Central Bank balance sheets? Well, the G$4 central bank balance sheets have massively outperformed gold, even in recent months... gold didn’t really do its job...


Bitcoin, well, that’s another story... it’s starting to outperform again and will do so massively going forwards; while central banks are quantitatively easing, bitcoin is quantitatively tightening...

And the only asset in the world that is outperforming bitcoin (ignoring the smaller tokens etc. which are also on fire) is Ethereum...

I think Ethereum may outperform for a while longer, but bitcoin should prevail above all.

Time to be irresponsibly long.*

*Note: What I mean by that is non-levered, where you can suffer a 40% drawdown and not cry or have to sell your grandmother, in order to make a 10x or more potential return over 12 to 18 months. For me, it is my biggest position and I keep adding into

pullbacks. Same for Ethereum but I’m 66% BTC and 33% ETH currently.


Conclusion

Sometimes everything comes down to THE superior trade. I think that trade is bitcoin and the longer-term opportunity is one of the biggest I have ever seen. There are no guarantees in this world but the planets are very aligned...


Together with Julian Bridgen of MI2 partners, Raoul Pal launched Macro Insiders, institutional-quality research service but for the more experienced retail investor. Macro Insiders forms a core part of the Real Vision Pro membership.

Raoul also publishes Global Macro Investor (since January 2005) providing original, high quality, quantifiable and easily readable research for the global macro investment community hedge funds, family offices, pension funds and sovereign wealth funds. GMI draws on his considerable 29 years of experience in advising hedge funds and managing a global macro hedge fund. Global Macro Investor has one of the very best, proven track records of any newsletter in the industry, producing extremely positive returns since inception: www.globalmacroinvestor.com.

Raoul retired from managing client money at the age of 36 in 2004 and now lives in the tiny Caribbean island of Little Cayman in the Cayman Islands.

He is also the founder and CEO of Real Vision, which is a digital media group: www.realvision.com.

Previously he co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul moved to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe. In this role, Raoul established strong relationships with many of the world’s pre-eminent hedge funds, learning from their styles and experiences. Other stop-off points on the way were NatWest Markets and HSBC, although he began his career by training traders in technical analysis.

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http://www.globalmacroinvestor.comhttp://www.realvision.com

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THE WORLD’S BEST TRADE - Real Vision...He is also the founder and CEO of Real Vision, which is a digital media group: . Previously he co-managed the GLG Global Macro Fund in London