How to Trade Bitcoin During the Quarantine

Executive Summary: Don’t use Bitcoin to play a bounce in crypto, use Ethereum instead.

Cryptocurrency markets fell as much as 45% recently as investors looted their digital wallets to satisfy margin calls and capitalize on steep price declines equity market.  Bitcoin, which still represents 65% of the entire market, is down over 35% from where it had consolidated around $10,000 just 30 days ago.

Given the global liquidity spigots being turned on in response to the crisis one could be forgiven for thinking that higher prices may seem inevitable. Bitcoin and its “anti-fiat” cryptocurrency alternatives were, after all, spawned as a protest to the bailouts and money printing of the last financial crisis.  But there is reason to approach today’s market with caution.

Yes, crypto is cheap, but two popular coins of note – Bitcoin (BTC), Bitcoin Cash (BCH) – are likely to get cheaper and here is why. 

Each coin is only 8 days away from potentially seeing a major influx of supply as the bankruptcy trustee for the infamous Mt. Gox – the OG of crypto hacks, thrice delayed – finally returns to eager sellers 150,000+ Bitcoin and 200,000+ Bitcoin Cash tokens.  These coins have been held in escrow during excruciatingly-slow liquidation proceedings but will soon finally be returned to depositors who have been waiting for 5-long years (since Bitcoin $750) to be returned what was left of their holdings.  At today’s prices, the Bitcoin scheduled to be distributed on March 31st will have a current value of over $1 Billion USD.   

Let’s slow down and say that again:  In 8 days, $1 Billion dollars’ worth of Bitcoin could potentially enter the market.

Should only 25% of claimants decide to sell their Bitcoin – and we believe that more than that will – over $250 million of sell orders for Bitcoin will soon be hitting the market.  Bitcoin’s liquidity starved market cannot digest this volume of sell orders without a negative impact on the price. 

So, what’s an investor looking to capitalize on crypto market dislocation to do?  We suggest, instead of loading up on Bitcoin or an index fund (remember the index is 65% Bitcoin), that you use this opportunity to build a position in the often misunderstood and under-owned original smart contract coin: Ethereum (ETH).

Reasons to Long Ethereum:

Recently, and to little fanfare, the Enterprise Ethereum Alliance grew its already impressive roster of member companies by adding JP Morgan (who is folding in their digital currency project Quorum) and Ernst & Young. They join over 100 other well respected industry leaders such as Intel, BP, Microsoft, UBS, PWC, State Street, AMD, Broadridge, Marsh and McClellan and others who have gone public with their commitment to developing on the Ethereum blockchain.  No other cryptocurrency project has anywhere near this level of coordination and industry commitment.

Beyond the Enterprise Ethereum Alliance and its incredible roster, investors should also expect positive price moves from Ethereum as its development team grabs headlines in the coming months with the launch of Ethereum 2.0.  Ethereum 2.0 is a massive and much anticipated protocol upgrade that will position Ethereum back at the top of the cryptocurrency world in technological capabilities.  It is scheduled to launch in July of 2020, and is expected to put to rest any concerned about Ethereum’s scalability and capabilities.

As far as today’s price as a fair entry point, Ethereum has taken even more damage over the past month than Bitcoin.  During the panic selling of the past few weeks Ethereum has seen its price fall from a high of $280 in late February to around $135, down more than 50% from its recent high and represents bargain in our opinion, especially when compared with higher priced alternatives that face major supply concerns in the near term.

Love Bitcoin Later    

Yes, we still love Bitcoin. Yes, the “halvening” is happening in May and yes, it will be a major positive for the currency as it will reduce new Bitcoin supply to the market by 50%.  We also have every confidence that once the world moves on from COVID-19, central banks (starting with China) will resume the announcing of blockchain-backed digital currencies.  These CBDCs (central bank backed digital currencies) will, by necessity, rely on trading pairs with Bitcoin to facilitate trading compatibility on day one of their launches, taking advantage of the 180+ bitcoin-fiat currency pairs that are already existing worldwide.  The role of Bitcoin in the global economy is real and unchanged – we are not suggesting any love loss for the world’s leading digital asset, we are just suggesting that there is a lot of supply headed into the market and that for those wishing to play a bounce in cryptocurrencies, Ethereum appears to be the more attractive investment vehicle in the near term.

Large Coin Fund Makes BarclayHedge’s Top 5 Crypto Fund List

For Immediate Release: 

Sarson Funds is pleased to announce that BarclayHedge has named our Large Coin Fund, Blockchain Momentum LP, to its list of Top 5 performing cryptocurrency hedge funds for January 2020.

Please visit www.BarclayHedge.com for full list and rankings

ABOUT OUR LARGE COIN FUND – BLOCKCHAIN MOMENTUM LP

BLOCKCHAIN MOMENTUM, LP’S PROPRIETARY RULES-BASED INVESTMENT PROCESS IDENTIFIES POSITIVE PRICE MOMENTUM AND SPECIFIC PRICE TRENDS TO STRATEGICALLY ALLOCATE CAPITAL TO THE 10 LARGEST CRYPTOCURRENCIES.

LEARN MORE ABOUT BLOCKCHAIN MOMENTUM HERE.

March Crypto Market Update – 2020

What an exciting start to the year for investors in cryptocurrency and traditional assets alike. I am immediately reminded of the Chinese fortune that can be simultaneously interpreted as both a curse and a blessing: “May you live in interesting times.” Indeed!

Stumbling into spring like a drunken adolescent, Bitcoin and its fellow cryptocurrency troublemakers have kept us entertained and well fed so far in 2020 with our flagship fund Blockchain Momentum up as much as 60% at one point this year before pulling back in the last several days.

In Bitcoin’s case, January sparked a rally of over 40% for the world’s most popular cryptocurrency. Life rushed back into nearly all blockchain technology projects, with marquee protocols like Ethereum and Ripple doubling within a 5-week span. It seems safe to say, that after 26 long months, we can finally close the door on the crypto bear market of 2018-2019.

A View of Viral Volatility

Traditional and cryptocurrency markets witnessed disruption recently, with investors concerned about the impact on the global economy due to the Coronavirus. Bitcoin did not respond as a safe haven asset as some had hoped, falling 15% (about in line with global equity markets).

Bull Market Brewing

However, there are positive fundamental signs for the cryptocurrency markets that should be considered with active bitcoin wallets reaching all-time highs and global trend search interest in Bitcoin peaking this month at levels similar to those in June of 2019 when Bitcoin reached $13,890.

There are reasons to be optimistic as Bitcoin’s growth continues to boom around the world. Too many countries to count have now passed clear cryptocurrency regulations and are seeing their private sectors incorporate blockchain technology-powered cryptocurrency solutions into their business plans.  

A Step Toward Crypto Regulatory Clarity

This pro-active approach is still not visible in the United States, not yet anyway. However, it appears that the United States will deliver on cryptocurrency regulations in the not-too-distant future.

Cryptocurrency Act of 2020

While presidential hopefuls like Mike Bloomberg have outlined thoughtful cryptocurrency regulation, it seems that we might not need to wait for a new administration  for US cryptocurrency guidelines. Recently, several pieces of cryptocurrency regulation have been proposed to both houses of Congress, the most viable of which appears to be from Congressman Paul Gosar R-Arizona

Click to read the language of the “Crypto-Currency Act of 2020” bill or view our firm’s infographic.

We love that this proposed legislation does not create any new government, but instead assigns Tokens into three broad categories, assigning an existing regulatory body for oversight. The “business side” of the crypto community wholeheartedly embraces these regulatory proposals coming from Congress.

We are ready to shed crypto’s infamous “bad-boy” image and welcome in a new era of “Crypto Clarity”. #cryptoclarity #sarsonfunds 😊  We believe that 2020 has more positive moments ahead for crypto investors!

Warm regards,

John Sarson and the Sarson Funds Team

Bitcoin: An Emergent Long-Term Store of Value

Bitcoin Long Term Store of Value - Sarson Funds

A significant number of cryptocurrency investors view Bitcoin as both a long-term store of value as well as a digital currency – a view supported when taking long-term charts and patterns into consideration. While short and medium term volatility have become hallmarks of Bitcoin and other cryptocurrencies, investment managers can utilize cryptocurrencies to deliver non-correlated asset exposure to their clients’ portfolios.

One pattern of note to many investors is the so-called “golden cross.” A golden cross is a bullish candlestick indicator marked by a relatively short-term moving average crossing above a long-term moving average. Longer term patterns typically carry more weight, and thus a golden cross can indicate an emergent bull market which is reinforced by high trading volumes. Bitcoin, like other investable assets, is no stranger to trading pattern indicators which could present a golden cross scenario. In fact, Bitcoin has seen this scenario on more than one occasion. 

In July 2019, Bitcoin reported its first golden cross since February 2016, which was six months before its last halving. The 2016 golden cross led to a Bitcoin bull-run and an all-time high of $20,083 in December 2017. Just recently in December 2019, another golden cross was reported on the weekly average price chart – signaling a potential upcoming bull run for Bitcoin. Taken into account along with, Bitcoin’s anticipated halving in May 2020, many cryptocurrency investors are hopeful for an exponential rise in price for Bitcoin this year.

With long term charts looking bullish, Tim Draper of venture capital firm Draper Associates predicts in a Forbes article that, “We’re two years away from everyone using Bitcoin.” As international currencies like Argentina, China, and the U.S. have recently lost value due to international tensions and internal corruption, this prediction does not seem too far off.

Beyond individual technical trade patterns, a second way to view Bitcoin as a long term store of value is in comparing its growth chart to other established stores of value. Gold is a commonly referenced comparison. When long term indicators are taken into account, gold experienced its own share of early volatility before maturing to deliver price stability followed by acceptance and trust as a store of value asset.

Matt Hougan, a cryptocurrency and blockchain writer for Forbes, argues that any store of value rapidly appreciates initially and slows over time, including gold (source article). Looking at these longer term patterns, high volatility at the onset is a consistent characteristic of new currencies – with mature stabilization occurring over time. When looking at it from this macro point of view, Bitcoin is still in its infancy. Slowly but surely, Bitcoin seems well on its way to becoming digital gold, not just as a currency, but also a true long term store of value.

2019: What a Year in Crypto!

New Year’s greetings! Let’s celebrate what a great 2019 it was for crypto … Don’t let the fake news convince you otherwise. 😉

Yes, prices rose and fell violently. Some people made money, and some lost. Timing was very important. But Bitcoin is higher today than this time last year by 90%. Despite the gains Bitcoin continues to scare anyone looking to use it as a store of value… none of that is new.

What made it a great year for crypto was the explosive growth that cryptocurrency networks experienced in Asia, Europe, Africa and the United States.

The global Bitcoin network is growing in institutional circles at the fastest pace in its existence. The power of blockchain technology (and cryptocurrency, its first killer app) is catching on like wildfire all around the world.

With better regulator clarity, it shouldn’t be surprising that the pace of “crypto-normalization” is increasing. You can read our favorite highlights from 2019 below:

Growth is Booming in Asia

    • China now has nearly completed digitizing its currency and has recently enacted laws supporting Blockchain Technology and educating its citizens as to its benefits.
    • Japan’s largest bank, Mitsubishi bank offers cryptocurrency custody and trading services.
    • South Korea and Singapore are courting Cryptocurrency firms as are Malta and Liechtenstein.
    • “Blockchain” is the fastest growing job skill in Singapore, and among the top 3 in China, Japan, Taiwan, South Korea, Hong Kong and Vietnam, according to LinkedIn studies.

Growth is Booming in Europe

    • Germany trades cryptocurrencies alongside equities on exchanges.
    • In Switzerland and the UK, cryptocurrencies can now be banked for safekeeping with some of the country’s most iconic banks.
    • France is attracting Cryptocurrency focused firms with preferential tax laws.
    • The EU’s Financial Regulatory Authority FATF has issued clear anti-money laundering in the form of its “travel rule” which governs purchase and sale of “virtual assets” and requires reporting on crypto transactions greater than $1000.

Growth is Booming in the USA

    • Over 100 Fortune 500 companies announced projects related to Blockchain Technology and/or  Cryptocurrency.
    • Futures and Options on Bitcoin and other cryptocurrencies have launched and have seen rapid growth.
    •  JP Morgan Successfully launched a digital Currency.
    •  Fidelity Investments now offers Bitcoin custody and trading.
    •  A new regulatory framework is in front of congress Read about it here.

Even More Growth with Regulatory Clarity

We now have SO MUCH more clarity into the trajectory of institutional crypto adoption. We are brimming with confidence that we are on the right path. We subscribe to the adage that markets will behave like voting machines in the short-term, but like weighing machines in the long-term.

We aren’t letting the short-term price of Bitcoin or any other asset cause us to turn a blind eye to the paradigm shift that is happening right in front of us.  We foresaw many of the regulatory developments of 2019 and positioned our funds correctly (such as excluding “privacy coins” from our universe). Seeing the poor performance of the coins that we excluded has further validated our research and investment processes.

That is not to say it has been easy sledding. The MVIS CryptoCompare Digital Assets 10 Indexwhich tracks large cap cryptocurrencies (and to which we benchmark our flagship large-coin product Blockchain Momentum, LP), returned an underwhelming +9% for the year. The MVIS CryptoCompare Digital Assets 100 Small-Cap Index (the benchmark we use for our small-coin fund, Fifth Khagan, LP) fared even worse, ending down -33%.

We are happy to say that unlike our indices, both of our strategies remained positive for the year with net performance of around +45% and +15% respectively (unaudited and subject to change).

In 2019, our investment process added more than 25 percentage points of alpha on average verses our indexes. Our traders, analysts and “Blockchain Insider” group are delivering and deserve recognition. 

Other firm highlights for the year included meeting with the IMF in Washington DC, improving the client experience with Daily NAV reporting and online account access and getting a chance to sit down with our favorite financial news anchor, Maria Bartiromo to share our ideas about how blockchain technology will rebuild the world’s financial infrastructure and what has caused the United States to fall behind China in the race to shape the future of finance.

In 2019 our team welcomed one new baby, heated a pool with Bitcoin Miners, opened an office in Massachusetts and enjoyed traveling around the country sharing best practices for safe cryptocurrency investing.

We will look back fondly on 2019 but are excited for what lies ahead for cryptocurrency and blockchain in 2020. The future looks bright!

The 2010s Belonged to Bitcoin: So What’s in Store for the 2020s?

Bitcoin: Asset of the Decade

Bitcoin pessimism seemed in vogue at the end of 2019, as the largest cryptocurrency tumbled 30% from September 2 to December 31. However, at decade’s end, one thing is clear: The 2010s belonged to Bitcoin.

Bitcoin volatility deterred some investors, with alternating spikes and plummets of hundreds and even thousands of dollars within only a few hours. However, these types of price movements can be considered a maturation stage for emerging stores of value (see this Forbes article outlaying the Bitcoin-Gold comparison).

It’s helpful look past the day to day volatility to see the true success that Bitcoin has had in the last year and decade.

In January 2019, Sarson Funds’ John Sarson called bottom for the crypto winter as Bitcoin hovered around $3,600. Bitcoin finished the year strong, with a return on the year of nearly 100%, making it the highest returning investment of 2019, far beating the 31% return of tech stocks for the year.

While Bitcoin’s returns are impressive for 2019, however, they are minuscule when considering Bitcoin’s overall ROI.

Over the past decade, Bitcoin returned 8,900,000%. That’s right, if you invested 1 dollar in Bitcoin in 2010, you would have roughly $89,000 in your pocket right now. If that hasn’t caught your attention, why should you invest? Bitcoin is still in its infancy.

Looking forward, 2020 holds vast potential for Bitcoin. On May 13th 2020 is Bitcoin’s next scheduled halving. The halving of a coin is particularly important for price changes of a crypto (What is halving? Read about it in a Sarson Funds article here).

In short, a cryptocurrency halving event is when the mining rewards are cut in half, therefore decreasing the rate that the supply increases, making the coin more scarce. The halving of Bitcoin in 2020 is important because its last halving in 2016 began the historic bull run that put demand for Bitcoin at its all-time high of $20,089 in December 2017.

While it’s impossible to predict the halving’s effect on Bitcoin’s price, what is known is that 2020 will provide Bitcoin with a plenty of factors that could highly impact its price range in the coming years.

Based on what was seen after 2016, Sarson Funds is hopeful. 

Sarson Funds’ Second Bold Bitcoin Prediction Predicated on Rising Geo-Political Instability and Increased Regulatory Clarity

Cryptocurrency Manager John Sarson: As international political uncertainty casts ominous clouds over an otherwise positive economic narrative, one thing is certain about the state of digital assets – you will not see Bitcoin under $7,000 USD again.

John Sarson, the Managing Partner of Sarson Funds, went on record with his 2020 Bitcoin prediction in a Tweet over the weekend. According to Sarson, as international political uncertainty casts ominous clouds over an otherwise positive economic narrative, one thing is certain about the state of digital assets – you will not see Bitcoin under $7,000 USD again.

In a memo to investors last Friday, Sarson noted that the combination of improved regulatory clarity at home and political instability abroad are creating a supportive environment for the world’s largest digital asset. “We [now] have so much more clarity into the trajectory of institutional crypto adoption with firms like JP Morgan issuing their own digital currencies and Fidelity offering Bitcoin custody and trading,” Sarson said.

Looking ahead to 2020, one significant sign of encouragement, according to Sarson Funds, is developments on Capitol Hill, particularly the proposed Crypto-Currency Act of 2020, a draft House bill sponsored by Rep. Paul Gosar (R-AZ), which Sarson claims has broad support among financial firms looking to keep pace with Asian and European rivals.

Sarson Funds Chief Marketing Officer, Jahon Jamali cites US digital asset leadership as “of vital national strategic interest.” Jamali cautioned that beyond escalating tensions in the Middle East, it is China’s national blockchain technology initiatives that most directly threaten America’s global financial leadership saying, “Washington needs to step up and lead – the US must not lose the Blockchain Wars.” Comments that gain urgency and validity when considered with respect to Jamali’s background as former US intelligence officer.

This is not the first time Sarson Funds came out with bold New Year guidance for cryptocurrency investors. One year ago, while Bitcoin’s price hovered around $3600, Sarson publicly went on record with a press release stating that the price bottom was in for Bitcoin and that 2019 would herald renewed investor interest and growth for the digital currency.

Fast forward a year, and Bitcoin is up nearly 100%. During that time the Indianapolis and Boston based-firm focused on its core mission: educating Wall Street about blockchain technology and cryptocurrency investment strategies. From a nationwide speaking tour, presenting to investor groups and CFA Societies connecting thousands of financial advisors with transparent cryptocurrency educational resources, Sarson Funds believes increased regulatory advances will yield even further accelerated growth for digital assets in the new decade. Time will tell if Sarson’s predictions hold true again, with Bitcoin’s price trading just 3% above Sarson’s $7000 floor at the time of the announcement we may have our answer fairly quickly.

See the Press Release here.

A Breakdown of the Crypto-Currency Act of 2020: What Investors Need to Know

Introduced in draft form to the House of Representatives on Friday, December 20, 2019, the much anticipated Crypto-Currency Act of 2020 makes significant progress towards clarifying the regulatory framework surrounding Digital Assets.

You can read the entire bill here and find our analysis below.

Click here to download the Sarson Funds Crypto-Currency Act of 2020 Investor Infographic (above).

Crypto-Currency Act of 2020 Summary:

The legislation does not create any new regulatory agencies.  It separates Digital Assets into three broad categories and assigns an existing regulatory body to each of the below categories:

Crypto-currencies: These tokens are defined as representations of US currency and are “reserve-backed digital assets” such as “stablecoins” that are collateralized by synthetic or physical assets held in a “correspondent banking account.” This category would be the smallest of the three categories.

Regulator: Financial Crimes Enforcement Network (FinCEN)

Coins Included:  TrueUSD (TUSD), USD Tether (USDT), Paxos Standard, (PAX),  USD Coin, (USDC)

Crypto-commodities: These tokens are based on commodities or other “economic goods or services.”  This category encompasses the majority of existing cryptocurrencies and would include smart contract platforms such as Ethereum, EOS, Tron as well as “value transfer” cryptocurrencies like Bitcoin, Ripple’s XRP & Litecoin.

RegulatorCommodity Futures Trading Commission (CFTC)

Coins Included: Bitcoin, Ethereum, Litecoin, and Bitcoin Cash

Crypto-securities: These tokens represent “debt, equity, & derivative instruments that rest on a blockchain,” including those governed by “smart contracts and collateralized by other [digital assets].”  This includes securities, real estate, investment funds or other capital assets with fractioinalized ownership. Projects supporting this protocol include Tezos, tZero, Bancor, and Vertalo.

RegulatorSecurities and Exchange Commission (SEC)

Coins Included: Tezos, tZero, Bancor, and Vertalo

A Rapidly Closing Door for Privacy Coins:  

The Act requires that, “each agency shall issue rules to require each crypto-currency (including synthetic stablecoins) to allow for the tracing of transactions [emphasis added] in the crypto-currency and persons engaging in such transactions in a manner similar to that required of financial institutions with respect to currency transactions.

Regulator:                   Financial Crimes Enforcement Network (FinCEN)

Top Coins Included:      Monero,  Zcash, Dash, Verge, Horizon

The proposed legislation is a welcomed move forward as it provides a protective framework for businesses and institutions seeking to grow their engagement with cryptocurrency technology.  The Act’s final provision regarding “transaction traceability” provides long-awaited  safeguards against money laundering and criminal financial activity – the enabling of which was a criticism that cryptocurrency proponents have heard from the likes of Bill Gates and Donald Trump and have long sought to shed.  This requirement would bring the United States into cohesion with Europe’s FATF’s new“travel rule” which requires reporting on crypto transactions greater than $1000 and would effectively be a death-blow for privacy-centric cryptocurrencies in the United States.

Speaking on behalf of ourselves and other firms building businesses around cryptocurrencies, we applaud Representative Paul Gosar (R-AZ) and his team for the well written legislation.  It is in line with recommendations that we have been offering since 2017 and that we believe are the foundation upon which crypto-businesses in the United States will be built.

You can learn more about how regulation is shaping the adoption of Cryptocurrency by checking us out at www.sarsonfunds.com/education.

Christmas Comes Early to Cryptocurrency Firms: The Crypto-Currency Act of 2020

Cryptocurrency Act of 2020

The much anticipated Crypto-Currency Act of 2020 was introduced in draft form to the House of Representatives on Friday, Dec 20, 2019.

Hardly six pages in length, the proposed Bill makes significant progress towards clarifying the regulatory framework surrounding Digital Assets, though we hope lawmakers remove the atrocious hyphen within “Crypto-Currency” prior to a vote by the full House floor.

Speaking on behalf of ourselves and other firms building businesses around cryptocurrencies, we applaud Representative Paul Gosar (R-AZ) and his team for the well written legislation.

You can read the bill here and find our analysis below.Cryptocurrency Act of 2020

Crypto-Currency Act of 2020 Summary:

The legislation will not create any new agencies, but rather assigns an existing regulatory body for oversight based on a newly proposed federal classification of Digital Assets into three broad categories. Those categories and their corresponding federal regulator are below:

    • Crypto-commodities: These tokens are based on commodities or other “economic goods or services. We believe this would encompass “Utility Token” blockchain projects such as those related to medical records, identity, webservices etc.Regulator: Commodity Futures Trading Commission (CFTC)
    • Crypto-securities: These are tokens that represent “debt, equity, and derivative instruments that rest on a blockchain,” including those governed by “smart contracts and collateralized by other [digital assets].”  We believe that this would include smart contract platforms such as Ethereum, EOS, and others, especially when used to transact value (as opposed to record data). Bitcoin and other “value transfer” cryptocurrencies would fall into this category.Regulator: Securities and Exchange Commission (SEC)
    • Crypto-currencies:  These tokens are defined as representations of US currency and are “reserve-backed digital assets” such as “stablecoins” that are collateralized by synthetic or physical assets held in a “correspondent banking account.” This category would be the smallest of the three unless expanded to include tokenized real assets such as Gold and Real Estate based cryptocurrencies.Regulator: Financial Crimes Enforcement Network (FinCEN)

The Bill continues saying, “each agency shall issue rules to require each crypto-currency (including synthetic stablecoins) to allow for the tracing of transactions in the crypto-currency and persons engaging in such transactions in a manner similar to that required of financial institutions with respect to currency transactions.

The proposed legislation is a welcomed move forward, as it provides a protective framework for institutional allocation as well as safeguards against money-laundering and criminal financial activity – a cloud that cryptocurrency proponents have long sought to shed.

We anticipate this to be the official (and long anticipated) death-blow for privacy-centric cryptocurrencies such as Monero and Zcash that had historically run afoul of regulators with their claims of anonymous financial transactions.