Buy: An Allocation to DeFi

While this trend has been going on for the past few months, I think an allocation to several DeFi tokens will continue to outperform ETH and BTC over the next few months to a year. I’ve posted a few specific names already, but to recap, I think the best opportunities are:

Yearn.Finance (YFI), Meta (MTA), Aave (LEND), Synthetix (SNX), and Kyber Network (KNC). Other interesting projects include Compound (COMP) and Curve (CRV) which has not been released yet.

My strategy right now is overweight ETH. I’ve been looking to make more ETH through these investments, while also betting that ETH will outperform BTC over the same timeframe. While I’m currently underweight BTC in my crypto portfolio, I’ve been buying GBTC in my IRA to make up for a decrease in my spot holdings and to capture what I anticipate will be a greater premium than spot BTC as investors look to buy the easiest way to gain exposure to Bitcoin which for now is still through Grayscale’s Bitcoin Investment Trust.

Buy: Ethereum

I am a day late posting this, but ETH/BTC and ETH/USD look poised for a run up after an 18 month consolidation. I prefer holding ETH than BTC as DeFi has been exploding and it was only a matter of time before value accrued to ETH. I am long from 0.024, but for the sake of this post, the current price is 0.0282/$274. I still think this is an excellent entry and in no way “late.” I also like Tezos here as well.

Pre-Blog Investments/Ideas

Here are some trading ideas that I liked prior to starting this blog with a focus on four cryptocurrencies and 2020 pre-coronavirus stock ideas that I would have posted about:

Tezos (XTZ): “Tezos is a cryptocurrency and decentralized computing platform. Its features include proof of stake consensus, formal verification (which lets developers verify the correctness of their code), and the ability to let stakeholders vote on changes to the protocol. Tezos’s block creation process is called “baking” — Tezos holders who stake their tokens can receive Tezos tokens as a reward for creating and verifying blocks.” -Coinbase. I am invested in and staking XTZ tokens.

Chainlink (LINK): “Chainlink is an Ethereum token that powers the Chainlink decentralized oracle network. This network allows smart contracts on Ethereum to securely connect to external data sources, APIs, and payment systems.” -Coinbase.com. I have traded this multiple times, but currently do not have a position. Will look to buy if price falls to $3.10.

Ethereum (ETH): “Ethereum is both a cryptocurrency and a decentralized computing platform. Developers can use the platform to create decentralized applications and issue new crypto assets, known as Ethereum tokens.” -Coinbase.com. I am a invested in ETH tokens.

Ethereum Classic (ETC): “Ethereum Classic is a cryptocurrency with a special focus on immutability, popularly expressed as “code is law.” -Coinbase.com. I am invested in ETC tokens.

Essential, Inc (WTRG): “Essential is one of the largest publicly traded water, wastewater and natural gas providers in the U.S., serving approximately 5 million people across 10 states under the Aqua and Peoples brands.” -Essential.com. I am a former Aqua employee and I am a long term investor in WTRG. I recently added to the position at $31.88. Current price: $44.00.

Zoom (ZM): “Zoom is the leader in modern enterprise video communications, with an easy, reliable cloud platform for video and audio conferencing, chat, and webinars.” -zoom.us. I identified this company as a potential winner in light of the coronavirus back in February but missed the opportunity to buy. The price has since doubled. I would not buy now, given the uncertainty around Zoom’s ability to covert users to paid subscribers, as well as competition from Facebook and other existing platforms that can or already offer enterprise video communication within their existing product.

Netflix (NFLX) and Amazon (AMZN): Netlfix is a streaming services for movies, television and original content and Amazon is the largest e-commerce store in the world . These are very obvious choices but the thought was that people staying at home quarantined would use more of (or start using) these two products more than ever before which should lead to them outperforming other companies. So far this has played out.

Update: Gold and BTC

So far things are looking good. The macro backdrop of government printing trillions of dollars has acted as the primary catalyst for Gold which is currently priced at $1727 per oz, a +17% increase from the entry of $1470. It’s still nearly impossible to buy physical Gold bars and coins online as worldwide demand is through the roof. I think any dips are for buying. Due to 0% interest rates, I think holding gold will be better than holding a cash position in a portfolio. When stocks drop again in the future, sell Gold to buy stocks.

Bitcoin is currently $6950, a +30% increase from the entry of $5250. No change to the long term thesis, but price is moving in the right direction. Ideally, we will not see another test of the recent lows and price can reclaim $10,000 heading into the third block halving in May.

Will update this post with charts soon.

Buy: Disney (DIS)

DIS closed at $106.03. A lot has been made over COVID-19’s impact on the most well known part of Disney’s business, theme parks, but the most interesting part of their business today is their new streaming product Disney+.

As a parent of two young kids, I have quickly fallen in love with this product which is a significant improvement, though not necessarily a replacement for, the Disney movie club. Disney+ launched in November of 2019 and is currently available in only the United States, Canada and Netherlands. The service recently passed 50M subscriptions and is primarily responsible for keeping DIS stock price afloat.

Disney has a market cap today of 192B. Compare this to NFLX which has a market cap of 182B and and 170M subscribers. NFLX has years and years of first mover advantage, but is facing competition from Amazon’s Prime and Hulu, also owned by Disney, which has 30M subscribers. Add in ESPN+, also owned by Disney, and its best to think of the compliment of Disney+, Hulu and ESPN+ as the direct competitor to Netflix. Disney thinks so themselves, as they offer a bundle of these three services for $12.99. The idea here, and my belief, is that this bundle will grow to be as big as Netflix.

Netflix has streaming, a DVD mail in business, and some success with original programing. The Disney bundle alone can get to where Netflix is, before we add in the strength of Disney’s existing brands: Disney princesses, Marvel, Star Wars and ESPN. Once Disney+ gets rolling and new shows like the Star War’s critically acclaimed (and more importantly, fan loved) spinoff The Mandalorian are developed, the target demographic for the product will expand greater than just parents with young kids, which is key to keeping subscribers once their kids grow older. Add in the core part of Disney’s business: theme parks, merchandise hotels, etc., and Disney is going to be a powerhouse moving forward.

I will add a chart to this post soon, but I like an entry here at $106 and all the way down to the recent lows of $85. This is a long term, ten year buy and hold. Price Target: $212 a 100% ROI.

The Virus: Panic Early

I have been following the coronavirus, COVID-19, since there were <500 cases worldwide. The majority of my Twitter feed has been discussing and trying to model this virus for months. I couldn’t have avoided reading about it if I wanted to, as I use Twitter for about 99% of my news. Retweeted links and opinions from my curated list of follows keeps me informed on a variety of topics almost always before they reach peak mainstream saturation.

From the get go, this virus has been most concerning due to its exponential growth. That is to say, it spreads in a non-linear fashion with a doubling rate of 2-3 days. A seemingly small number of infected cases can quickly turn into a large number of infected cases “overnight,” when in reality, the foundation for this growth was being staged for some time.

Well, the virus is here in the US, and likely has been now for some time. I am fortunate to be nearly completely out of the equities market, having sold the third week of February. I’ll write about trying to time the market in a future post.

We have about 3 months of food, thanks in large part to early preparation, a second refrigerator, and extra storage space. Why did we stock up on food weeks ago? Because there was no real cost to doing so, and in absence of any good data coupled with a non-zero chance of the virus impacting our way of life, it was an easy decision to take this risk into consideration and prep. To quote Nassim Taleb: “if you’re going to panic, panic early.” and “In the real world, one must reduce risk in the absence of reliable data.”

If wrong, we would have three months of food that we enjoy and would eat over time. If right, then we would be prepared and wouldn’t have to worry about empty shelves and battling our way through crowded stores with other people who may or may not have the virus and be contagious. Therefore, no downside to getting supplies.

We have continued to buy groceries and eat fresh food as long as possible. I ventured out this morning to see if I could get some last minute items and assess the situation first hand. What I found was a supermarket without any meat, pasta, pasta sauce, and toilet paper.

No meat, pasta, sauce or toilet paper at my local supermarket. Senior Citizens were allowed in an hour early. I went last night and this morning and found that the popular items were not stocked overnight.

We have a supply of all these items already, but it was alarming to see the store this picked over. At least for now, it seems that we made the right decision by “panicking early.”

Quick note: By far the best person to follow on Twitter for all things virus has been Balaji Srinivasan (@balajis). He has been publicly vocal about the risks this virus posed longer than anyone. He was a candidate to run the FDA a few years back. Clearly, he would have been a great choice.

Buy: Gold

While I don’t like Gold as much as I like Bitcoin as an asset or a trade, I think there is a buying opportunity at current prices. With governments around the world printing money at unprecedented levels, I think hard assets like Gold will outperform.

In 2008, Gold sold off 30% before rallying 180% over the next few years. As we are seeing today, when people need or want cash, there is no true safe haven asset other than cash. In the past few weeks, Gold is down 13% from the recent high of ~$1700. I think the current level is an excellent buying opportunity, down to about $1390 which is 5% lower. Should price get to that level, I expect it to hold and then move higher. From The current price of $1470, I think there is at least 30% upside to the all time high of $1895 set on September 5th, 2011.

I expect the horizontal green line to act as support for price now that price has broken through. This area has acted as resistance for years, and I expect buyers will step in and support this area should price continue to retrace. The target for this trade is the all time high price about 30% higher from the current price of $1470.

Orders of physical gold are experiencing very high trade volume and according to online precious metal dealer JM Bullion, “Due to extreme order volumes, please expect shipping delays of 15+ business days.“

Invalidation for this trade is if price begins closing below $1390 on a weekly basis.

Buy: Bitcoin

Current Price $5250. DJI is under 19,000 as I write. Bitcoin has fallen over 50% in recent weeks largely due to over-leveraged positions being liquidated on popular derivative platform BitMex. The case for Bitcoin has never been better, thanks to yet another round of stimulus packages and bailouts. In a time where the government is taking every measure to prop up the economy, Bitcoin is the freest market in the world, trading 24/7 with no intervention. A capped supply of 21,000,000 BTC hardcoded into the network insures that the currency will never be inflated away. Block reward halvings (another is on track for May) further reduce new supply. Being long Bitcoin is a hedge against an economic model that could be breaking.

Credit Suisse had this to say this morning:

Image

I continue to believe that this is the most undervalued and best investment opportunity open to the public due to its asymmetric risk-reward. It’s even more appealing to me now as an investment than it was when I made my first purchase in 2017. I felt “late” buying in 2017, but now I believe it is still early and the recent price decline offers a great buying opportunity.

While BTC is currently acting as a risk off asset/high beta SPX play, there will soon be a decoupling and BTC will make new highs, which from the current price, would be at approximately a 400% return in USD.

Prediction: BTC hits at least $14,000 USD (260% ROI from today) before the DJI returns to new highs.