Parallels Between The 1930’s and Todays Market Crisis – Or ‘This Is The Time To Invest In Bitcoin’

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We have said this before, but rarely with anymore urgency…

“An intelligent asset allocation that is designed around your risk tolerance and is truly diversified is your best defense against coronavirus market volatility, and it will be your best defense against the next bout of market volatility as well.”

A.I.P.

The Macro case for bitcoin – Diversify and include cryptos

This might seem a surprising conclusion to be drawn from the 1930’s data – but read on and see why it makes excellent sense for the serious investor looking to protect their wealth.

The great depression of the 1930s is looking disturbingly like the market of 2020.

It was based then on the unwinding of a series of bubbles across both debt and equities. It led to the largest single debt deflation in our history and the signs are there that we could be about to witness something very similar unfold now. The data and timeline indicators are showing a very strong correspondence.

In 1920 there was a precursor to the ‘main event’ in 1929, reflecting perhaps what happened in our lifetimes in 2008. In 1920 there was a 45% fall in equities and a 7% fall in GNP. Throughout the following decade the dollar strenghened dramatically as the US accumualated gold reserves versus other countries and this, in turn, weakened other currencies like the GBP; and the UK was already experiencing deflation due to it’s huge war debts from WW1.

This led to a run on the GBP and the Federal reserve cut interest rates in an attempt to get gold to move from the USA into Europe. Does this remind you of 2015 when the dollar rose dramatically higher?

Then it compelled China, the largest debtor nation, and the ECB to cut rates in a stimulus bid. Both China and the ECB printed money and expanded their central bank balance sheets. Europe allowed a 25% fall in it’s currency, but China, being essentially ‘pegged’ to the dollar only managed a 15% devaluation. The result? The US stock market boomed, as capital fled to the States from the rest of the world.

S&P 500 – 1929     S&P 500 – Current

he 1930’s was the decade that defined the 20th century. The 2020’s will be the same for the 21st.

When that bubble popped in 1929 there was a mass liquidation event that is strikingly similar to what is happening today.

There are further parallels.
In 1929 the Fed undertook an emergency rate cut just as it did in March this year.
In ’29 they injected massive amounts of money into the banking system. Very similar to today.

What happened next back then? Stocks lost 50% of GDP in market cap. In 2020, as we speak, we are currently about the same.
In 1929, the market then bounced a little, and rallied for 6 months or so. Just like now?

Then in 1930 the whole world economy fell apart. Stocks crashed 85% from that peak in 1929. And as the whole global economy collapsed almost every country in the world defaulted on their debts. The UK in devalued in 1931, Germany in ’33 et al.

The amount of dollar debt now is comparable to then – around 60% of GDP. By the end of the thirties only 10% of that debt had been paid. And that is surely the fear now…

If the scenario today plays out as it did in that decade then country after country will default and be forced into devaluing their currency, including the big one, China, driving the dollar even higher. The US will eventually have to devalue the dollar and the dollar standards will be dead. Going into this current crisis, as in 1929, we are experiencing some of the largest macro imbalances the world has seen:

  • An equity bubble.
  • Largest wave of retirees of all time.
  • A corporoate credit bubble.
  • Student loan bubble.
  • ETF bubble.
  • Dollar standard bubble.
  • Monetary policy bubble.
  • EU banking crisis.

For the last few decades the central banks have been fighting a full scale debt deflation and solvency crisis, and a combination of all the above factors in combination with the drastic effects of the coronavirus crisis could lead us to a complete loss of confidence in the dollar standard, with frankly catastrophic results for the world economy – and for most institutions and peoples investment portfolios.

“OK! We know we are painting a worst case scenario picture for you here. The fact is nobody really knows as yet what the world will be like post pandemic. Every society in the world is asking ‘what is the new normal?’ But – the facts we have outlined above, it can be safe to say, are going to have major repercussions.
The only real question is a matter of degree – how destructive to your wealth?”

So what currency would replace the dollar if every currency becomes worthless in the next crisis?

Some say the only economic system that would survive such as an event is cryptocurrency.

Bitcoin is already the best performing asset in history.

$100 invested in bitcoin 9 years ago would now be worth $129,149.

It was born in the last financial crisis for exactly what is about to come in this one. This scenario is exactly what bitcoin was invented for.

Bitcoin is the call option on it all. An independent, trusted, secure financial accounting system that can never be created outside of it’s cryptographic algorithm. It could be the entire medium of exchange system and the future of money itself, the platform on which it all operates.

So you may want to get onboard…

 

The Fund bridges the gap between fiat and crypto-asset classes

Legitimising Bitcoin Investment with Crypto Access Products

Key investment criteria:

  • This Fund offers diverse and broad access to the blockchain technology and cryptocurrencies.
  • The Asset Management team includes experts with over 100 years of combined experience in the fund & asset management industry (Credit Suisse, Citibank, Societe General, UBS, Barclays & Lloyds).
  • The Fund bridges the gap between fiat and crypto-asset classes by applying proven risk management techniques and customizing them to the emerging crypto asset class. Via the Fund, investors gain diversified exposure to this dynamic new asset class by way of the fund’s unique six-prong investment approach.
    Maximum drawdowns can be reduced applying active Risk Management to a diversified portfolio of underlying Funds/ cryptocurrencies thus creating a smoother investment journey (less volatility).
  • The Fund has strict fund concentration, strategy allocation and liquidity rules limiting maximum exposure single manager, single fund, single exchange & single currency.
  • Management is registered as AIFM with the CSSF in Luxembourg.

Investment Strategy

  1. INDEX TRACKING
    Exposure to multiple crypto currencies offering capital appreciation.
  2. BLOCKCHAIN RELATED LISTED COMPANIES
    Global listed companies that are committing material resources seeking to transform practical business applications through the development and use of blockchain.
  3. TRADING
    Exposure to absolute return type strategies through cryptocurrency trading and exchange arbitrage.
  4. INFRASTRUCTURE
    Exposure to crypto infrastructure companies generating income.
  5. VENTURE CAPITAL & PRIVATE EQUITY
    Exposure to Blockchain Funds with exposure to Initial Coin Offerings and Security Token Offerings: exposure to Private Equity / Venture.
  6. LENDING
    Exposure to crypto and fiat loans markets across crypto exchanges offering high yields.

Key Fund Facts

  • Admin.: Banque de Patrimoines Privés
  • Bank: Banque de Patrimoines Privés
  • Auditor: Mazars Luxembourg
  • Legal: Eversheds Sutherland
  • Swiss Representative: OpenFunds
  • Dealing / Liquidity: Monthly
  • Currencies: USD / EUR
  • Registration: CSSF Luxembourg
  • Fund type: Open ended
  • Incorporation: Luxembourg

Model Portfolio

Market Report

The Fund ended 2019 with a +11.1% and +17.8% gain (USD & EUR share classes).

The fund’s performance last month was in line with the general market environment.

The Fund’s exposure on PE/VC and its diversification outside Bitcoin were the main factors behind a slight underperformance.

As a result of the short-term declining trend on cryptos, replicating strategies (delta one) were sold so as to increase the weight allocated to arbitrage & multi strategies. Cash was increased too.

The good news

Since launch, the Fund outperformed the Eurekahedge Crypto Currency Hedge Fund Index by 16%.

The Fund also managed to reduce risk (no assets stolen!) and outperform its peers with roughly half the volatility experienced by the index (34% volatility for the fund vs 60% volatility for the index).

While recent performance has been lacklustre, it might be a good time to recall that the recovery potential of the crypto asset class remains compelling.

On a longer-term horizon (several quarters), the current cycle continues to develop in line with previous long-term bull cycles. The current period of consolidation / sideways trading is expected to pave the way for a new wave upwards, that will then lead crypto assets back to the previous highs and beyond.

Therefore, current levels offer attractive long-term entry points for investors willing to build exposure on the crypto asset class, in our opinion.

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