Tag: Diversification

“Tim Draper’s Bitcoin Diversification Advice”

by Blockchain News

American venture capitalist and entrepreneur Tim Draper has advised business founders to diversify their cash holdings in the wake of the collapse of Silicon Valley Bank (SVB). In a report directed at business founders, Draper suggests that Bitcoin and other cryptocurrencies can serve as a hedge against a “domino run” on banks and overbearing government intervention. He notes that businesses can no longer rely on a single bank or governing body to manage their cash, and that diversification is essential.

To that end, Draper recommends that business founders keep at least six months of short-term cash in two separate bank accounts: one with a local bank and another with an international bank. In addition, he advises keeping at least two payrolls worth of cash in Bitcoin and other cryptocurrencies. Draper believes that these preventative steps are necessary because, for the “first time in many years,” governments are seizing control of banks, and governments themselves are “at risk of becoming insolvent.”

Draper’s advice comes at a time when the collapse of SVB has caused significant uncertainty in the tech industry. SVB, which was once known for its support of startup companies, has recently faced a number of challenges, including a significant data breach and an investigation into its lending practices. This has left many startups scrambling to find alternative sources of funding and cash management solutions.

According to Draper, many startups have already sought emergency relief from him after SVB and other banks shut down. He believes that the collapse of SVB serves as a warning to businesses that they need to be prepared for any eventuality. By diversifying their cash holdings and embracing cryptocurrencies like Bitcoin, businesses can ensure that they are not overly reliant on any one institution or government.

Draper has long been an advocate for Bitcoin and cryptocurrencies, and his recent advice to business founders reflects his belief that these digital assets are the future of finance. He has previously predicted that the price of Bitcoin could reach $250,000 by 2023, and he has invested heavily in a number of Bitcoin-related startups.

Overall, Draper’s advice serves as a reminder to businesses that they need to be proactive in managing their cash holdings and prepared for any eventuality. By diversifying their cash holdings and embracing cryptocurrencies, businesses can protect themselves against the uncertainty and volatility of the current financial landscape.

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MakerDAO Increases US Treasury Bond Holdings by 150%

by Blockchain News

MakerDAO, a lending protocol and stablecoin issuer, has voted in favor of a proposal to expand the amount of United States Government bonds held in its portfolio by 150%, from $500 million to $1.25 billion. This would be a significant increase. This action is being taken with the goals of diversifying its liquid assets and earning a net yearly yield in the range of 4.6% to 4.5%. The remaining $500 million of USDC in the PSM will be handled by decentralized finance asset manager Monetalis Clydesdale. MakerDAO has plans to deploy $750 million of the USDC in the PSM to acquire further US Treasury bonds.

The bonds will be acquired with equal maturities, monthly, and over the course of a period of six months; the total number of slots will be 12, and each slot will be worth $62.5 million. After taking into account the costs of custody, the proposition is anticipated to result in a net yearly return of 4.6% to 4.5%. The income stream of MakerDAO can potentially benefit from an increase in trading expenses. This action will result in the continuation of Monetalis Clydesdale’s management of a current allocation of $500 million from the United States Treasury, which has been in effect since October 2022.

On the other hand, some people who took part in the governance forum had reservations about the proposition. They pointed out that MakerDAO has not yet received any money from Monetalis for the first half billion DAI, and they claimed that questions asked in Maker’s Discord and governance forum were not responded swiftly, which did not provide sufficient time to evaluate the proposal.

The failure of Silicon Valley Bank on March 11 caused widespread fear throughout markets and led to the depeg of a number of stablecoins, including USD Coin (USDC) and Dai. In response to this, MakerDAO said that its community was working on suggestions to convert its stablecoin exposure to money market instruments, such as U.S. Treasurys, “with the objective of diversifying DAI’s liquid collateral.”

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Bubble or a drop in the ocean? Putting Bitcoin’s $1 trillion milestone into perspective

by Cointelegraph

On Feb. 19, Bitcoin’s (BTC) market capitalization surpassed $1 trillion for the first time. While this was an exciting moment for investors, it also concerned investors that the asset is in a bubble.

Although a handful of listed companies ever achieved this feat, unlike gold, silver, and Bitcoin, stocks potentially generate earnings, which in turn can be used for buybacks, dividends, or developing additional sources of revenue.

On the other hand, as Bitcoin adoption increases, those same companies will likely be forced to move some of their cash positions to non-inflatable assets, ensuring demand for gold, silver and Bitcoin.

In fact, data shows that diversification between Bitcoin and traditional assets provides better risk-adjusted performance for investors, which is getting increasingly difficult for companies to ignore.

Bitcoin continuing to push above the trillion-dollar mark is also easy to overlook until one compares it to the market cap of other significant global assets. To date, less than ten tradable assets have achieved this feat.

World’s 20 most profitable companies. Source: fortune.com

As depicted above, the world’s 44 most profitable companies combined generate more than $1 trillion in earnings per year. One must keep in mind that stockholders might as well reinvest their dividends into equities, but some of it might end up in Bitcoin.

$1 trillion is small compared to real estate markets

Corporate earnings are not the only flows that may trickle into scarce digital assets. Some analysts estimate that part of the real estate investment, especially those yielding less than inflation, will eventually migrate to riskier assets, including Bitcoin.

On the other hand, current holders of lucrative real estate assets might be willing to diversify. Considering the relatively scarce assets available, stocks, commodities, and Bitcoin are likely the beneficiaries of some of this inflow.

Global real estate markets. Source: visualcapitalist.com

According to the above chart, the global agricultural real estate is valued at $27 trillion. The U.S. Department of Agriculture estimates a return on farm equity at 4.2% for 2020. Albeit very raw data, considering there are multiple uses for agricultural real estate, it is quite feasible that the sector generates over $1 trillion per year.

As recently reported by Cointelegraph, there are 51.9 million individuals worldwide with $1 million or higher net worth, excluding debt. Despite representing only 1% of the adult population, they collectively hold $173.3 trillion. Even if those are unwilling to sell assets in exchange for BTC, an insignificant 0.6% annual return is enough to create $1 trillion.

If there’s a bubble, Bitcoin is not alone

These numbers confirm how a $1 trillion market capitalization for Bitcoin should not be immediately considered a bubble.

Maybe those Bitcoin maximalists are correct, and global assets are heavily inflated due to a lack of scarce and secure options to store wealth. In this case, which doesn’t seem obvious, a global-scale asset deflation would certainly limit BTC upside potential. Unless they somehow think a cryptocurrency can extrapolate global wealth, which seems odd.

Back to a more realistic worldview, the above comparison with equities, agricultural real estate, and global wealth also confirms how insignificant Ether’s (ETH) current $244 billion capitalization is, let alone the remaining $610 billion in altcoins.

Assuming none of the corporate profits or real estate yield will be allocated to cryptocurrencies seems unlikely. Meanwhile, a mere $100 billion annual inflow for Bitcoin is five times higher than the $20.3 billion newly-minted coins per year at the current $59,500 price.

For example, $100 billion flowing into Bitcoin would only be 5% of the $1 trillion yearly corporate dividends and 5% from global wealth or agricultural real estate returns. Even though the impact on gold’s $11 trillion market capitalization would be negligent, such allocations would certainly play a vital role in Bitcoin’s path to becoming a multi-trillion dollar asset.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Oops! A 100% Bitcoin hodl outperformed CNBC’s 2017 altcoin basket by 170%

by Cointelegraph

Bitcoin (BTC) has produced phenomenal returns most years, but when it comes to maximizing them, it’s best just to buy and hodl.

That was the conclusion from new data circulating on social media this week, which casts serious doubt on the merits of following investment advice from mainstream media.

Don’t believe the hype?

Under the microscope was CNBC, which in 2017 offered viewers an investment portfolio made up of 30% Bitcoin and 70% altcoins.

Four years later, those who invested $10,000 at the time now have around $52,300. Had they just bought and hodled Bitcoin, however, they would have over $140,000.

“The 30% #BTC allocation is responsible for 75% of the return,” Twitter account StatsBTC, which uploaded the numbers, noted in comments.

CNBC’s portfolio came courtesy of well-known pundit Brian Kelly, months before it hit then all-time highs of $20,000. Altcoins also saw peaks, months later in early 2018, with most only to crash and never recover.

Subsequently, the network gained an unenviable reputation for acting as a buy signal for investors — ironically by telling them not to invest in Bitcoin. The same fate has since befallen the likes of gold bug Peter Schiff.

As Cointelegraph reported, fellow host Jim Cramer, on the other hand, has embraced Bitcoin thanks to persuasion from Morgan Creek Digital co-founder Anthony Pompliano. His investment, thought to be around $500,000, has made Cramer “a ton of money,” he said earlier this month.

All hail the king

Meanwhile, even a longer-term HODL strategy will have suffered from exposure to altcoins at the expense of its Bitcoin presence.

According to Bob Simon, owner of the StatsBTC account, $100 divided equally between Bitcoin, Litecoin, XRP, Dogecoin and Peercoin in March 2014 would now be worth $6,000. A Bitcoin-only punt, by contrast, would sell for $12,130.

“An equally weighted basket of the top 5 cryptocurrencies has underperformed Bitcoin by over 50% over the past 7 years,” he summarized.

Bitcoin vs. mixed investment returns. Source: Bob Simon/ Twitter

Analysts still believe that this coming summer will produce huge gains for altcoins, with one arguing that a peak price “Alt Season 2.0” has already begun.