Jan 19, 2021 • 11M

Arrival of the Early Adopters

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Felix Hartmann
Monthly Analyses about the crypto markets from Managing Partner Felix Hartmann

Welcome to 2021! If you are like me and too busy to read the many newsletters you are subscribed to, I hope you enjoy the audio-track of this market update on your next drive or run.

To Investors and Colleagues,

2020 was a historic year. In all the worst of ways societally and politically, and in all the best of ways financially for anyone who was long assets and short currency.

2021 is off to yet another curious start, appearing to be the sequel that no one asked for. But like 2020, this year too is likely to offer incredible financial opportunities if identified correctly.

The balancing act of 2021 will be correctly assessing true levels of monetary devaluation. What started as year long warning cries from crypto natives and gold bugs about currency debasement has become the macro theme of 2020/1. It stands to reason that when a theme has become mainstream investment philosophy, it’s important to assess whether markets are accurately pricing in fears of debasement or are overstating them.

On one hand we saw the M2 Money Supply grow a staggering 25% in a single year validating the worst fears. On the other hand we saw companies like Tesla approach the $1 trillion mark, now standing at a frothy PE ratio of ~1,700. While I’m a big fan of Musk (in fact I bought my first TSLA shares 8 years ago at the post-split price of ~$28), these numbers should make even the greatest supporter raise an eyebrow.

Over the long term, we are likely to continue seeing the strongest store of values (Bitcoin & gold) and the most future oriented productive assets (DeFi & tech stocks) act like monetary black holes, sucking in liquidity, rising further and further as all the wealth in the world seeks a place to be parked in a time when bonds and cash are dead.

Along the road there will be shakeouts, motivated by over-leveraging (very likely), slowing or termination of monetary easing (unlikely in the near term), or regulatory intervention (whether on the digital asset front or on the taxation/capital gains front).

We find that the soundest returns will come from combining value driven investing with hyper growth assets. Such a description may be considered a unicorn, but that’s exactly what the Decentralized Finance space offers. Revenue generating decentralized networks with reasonable market caps, that are likely to unseat the largest incumbent financial institutions.

In this month’s market update we share with you the road ahead in 2021, and how the entrance of new players is likely going to affect the digital asset market in the near term.

I hope you have a happy and healthy start to 2021.


Felix Hartmann, Managing Partner

The 2021 Digital Asset Roadmap

Maneuvering the Dollar Trade

Images say more than a thousand words they say. Look no further than the performance of the Dollar Index (green) versus Bitcoin (orange).

It’s no longer a secret that the historic monetary easing by the Federal Reserve has sent the strength of the US dollar spiraling down in value for the 11th month now.

The thesis has become so easy, that average retail investors are using OTM call options as their daily strategy under the presumption that ‘stocks only go up’. And if enough people subscribe to this thesis, stocks do indeed only go up! Short sellers have been taught their lesson, sitting bloodied on the sidelines, while longs are starting to deploy more and more leverage due to what appears to be a fool-proof trade. In fact as of September 43% of retail investors have stated the use of leverage, a number that has surely only climbed since.

The irony is that long term, it is indeed very likely a fool-proof trade. However the catch-22 is that the very belief of it being fool-proof makes it no longer fool-proof. As leverage overextends we are likely to see enormous shakeouts and leverage blow ups from time to time which can instill short term fear phases.

The key is to do the opposite. Avoid leverage at times when the market appears to know no way but up, and deploy size during short lived periods of fear, knowing that the macro theme of USD devaluation is not going away anytime soon. It seems obvious, yet I dare you to survey just 10 retail investors and 10 institutional investors and you are likely to find little to no dry powder. The exuberant see no challenge to their folly, and the cautious are trying to make up for missing out on the fastest recovery we’ve ever seen. Ultimately both the apes and the laggards will get punished.

The road ahead in a democrat run United States has monetary easing written all over it. The blind spot few are paying attention to however is short term over-leveraging. We expect a long term down trend for the USD, but counting out a reversion to the mean in the interim is the same as using the most dangerous words in finance: ‘this time is different’.

The (digital) Gold Rush

As the dollar embarked on its roadtrip down the highway to hell, investors across the world were scavenging for places to park their money. While Bitcoin was an unlikely thesis we accurately predicted this early in 2020, “The first big players are accumulating, not tomorrow but today. And their foresight will likely pay off, and when it does, all the vanilla equity funds out there will copy the legends and follow suit. No one wants to be first. But also no one wants to be last.”

We’re seeing this mentality now play out in full force. No one wanted to be first for the last 3 years during the bear market, and now all the sudden, asset manager, CEO’s, and wealth managers are scrambling to get allocations just to avoid being last.

While the force of this ‘rush’ may subside from time to time, just as we saw gold leveling off despite historic levels of inflation, the cat’s out of the bag in terms of global awareness when it comes to digital gold (Bitcoin). While many avoided even touching Bitcoin after the ICO bubble burst, you now have nearly every asset manager in the world at least studying up on it, from Dalio to Marks.

This avalanche of awareness has shifted Bitcoin out of the innovator stage and into the early adopter stage.

Globally there are estimated to be 100 million Bitcoin owners based on on-chain wallets. Off-chain we see that major exchanges like Coinbase have about 35 million users. So no matter how you slice it, domestically or globally, we are either just starting to enter the early adopter phase or halfway in it.

This is great news, as it shows that we are still extremely early, both by global standards (7.8 billion), G20 (4.6 billion), or even just NATO countries (1 billion).

So while present day parabolas and out of the blue fervor may raise an eyebrow and eventually break with typical corrections around 40%, the long term could not be more bullish. Today’s correction range of $20-24k/BTC was yesterday’s overheated selling zone. The truth is most people (7.7 billion to be exact) are still not allocated to Bitcoin, and will one day need and want to be.

In other words, we haven’t even gotten started.

Finance 2.0

Remember when China built a massive 1,000 bed hospital in eight days? If you can spare a minute here’s a video:

We are currently witnessing the cypherpunks pulling off the same feat on a global scale for the entire financial system.

Since the summer of 2020, Decentralized Finance has witnessed a Cambrian Explosion that appears to know no slowing. And rightly so. While we started as investors in DeFi in early 2019, we have since become super users of Decentralized Finance ourselves.

Decentralized Finance does to finance what Bitcoin did to money.

We’ve seen the sector grow from finance primitives such as exchanges, to now complex products like options, debt tranches, insurances, and more. In the span of perhaps no more than 12 months we saw nearly every single financial product get recreated on-chain in a decentralized and interoperable way.

We continue to believe that DeFi will be the biggest sector in the near term, and will be the ‘Zero to One’ innovation of the decade, continuing the trail that Bitcoin blazed in the last decade.

The Great: DeFi has orders of magnitude of growth still ahead of itself. 100x+ unicorns will be possible in this space.

The Challenging: DeFi moves at warp speed, with new innovations and projects launching daily, keeping a team of full-timers busy 16 hours a day (good thing we’re hiring ;) ).

New Territories

With the rise of Bitcoin, Ethereum and DeFi, and the recent increase in governmental and big tech authoritarianism, it stands to reason that push back may eventually be targeted at this asset class.

As a result, we are exploring more technologies that make this sector even more anti-fragile than it already is.

You cannot ban something that is immortal. While the backend of both BTC and ETH are already unstoppable, we are exploring more sectors within decentralization that will enable every part of the Web 3.0 experience to be fully decentralized.

This means that every piece of the user interface needs to be fully distributed to create an unbannable and unregulatable internet that will not bend its knee to anyone or anything. A free internet. This is the journey that Bitcoin started and that Ethereum long term seeks to secure with the countless Web 3 infrastructure protocols built on top of it.

Final Thoughts:

While its certainly wise to be hedged for a short term mean reversion of the US Dollar, there is no doubt that Decentralized Finance and Web 3.0 infrastructure will be the most potent investment of the coming decade. The early adopters are buying and the early majority is studying. The next wave will be the biggest, and most are under allocated. While many will try to time the markets, the best way ahead is to continue building your digital asset position for the long term as we are still in the early stages of what is going to be multi-decade trend.

TIMESTAMP 01/18/2021:

DJI - $30,814

S&P - $3,768

BTC - $36,400

For questions reply via email or write me on twitter @felixohartmann

BTC: 33nf4wqwxpS6i3Zwu3toUXxirVj2gWEzi8

ETH: 0x618Ac2930aBd91a486C672f42066190532cFE850


This is not an offering. This is not financial advice. Always do your own research.

Our discussion may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.