Bitcoin, which has a habit of leading big moves in stocks, made it down to $109k from a peak of $124k. That move appears to be done for now, and it’s consolidating at around $111k. Tech stocks wobbled slightly, but nothing major so far. Nvidia earnings are on deck tonight – that’s always a big event. No doubt the dominant chipmaker will kill it, but will it kill it enough? Expectations could hardly be higher.
I don’t see Nvidia earnings being bad enough to tip the market over. Maybe a couple of days of turbulence if they are not quite as spectacular as everyone hopes?
More importantly, Jerome Powell’s Jackson Hole speech was surprisingly dovish. Stocks rallied in the aftermath, and Bitcoin put in a massive green candle that was quickly retraced. Then yesterday, Trump moved to fire Lisa Cook. As crazy as that is, the market took it in its stride. Imagine if any other President had manoeuvred so brazenly to gain control over the central bank and bring rates down…
I ended my post last week hoping for a bit more euphoria before the chaos ensues. It’s looking like I might get my wish. Trump doesn’t want rates lower for nothing. He wants to pump the markets. Plus, his businesses own a ton of crypto.
Where are the Robin Hood gamblers going to get their funds from when their cost of living keeps rising? Cash handouts from Trump? You can’t write anything off these days…
And then, today:
Well, well, well…
A few other observations
Remember Metaplanet? The haters have been running victory laps the past few weeks after Japan’s leading Bitcoin treasury company saw shares tank from their ATH of ¥1,930. Now it trades at ¥862. It’s no big surprise, however, I think few people realise that the treasury company mania didn’t end – it just moved elsewhere. Copycats have been popping up left and right. Also, stablecoins are the new hot topic.
Check out the recent price action on some of these tickers: 8105, 3853, 7422 – a ball of hot money is chasing them relentlessly, and most of this money likely came out of Metaplanet. Bigger names, like SBI Holdings (8573 ), have been pumping, too. (possible rate hikes and crypto behind this one) Monex Group (8698) is up big today on reports that it is considering issuing a yen-pegged stablecoin.
I’m not saying people should be chasing these names, but the hot money didn’t just go away. And don’t discount some of it coming back to Metaplanet in the next few weeks/months. They own the most Bitcoin, and Eric Trump (who is on the board) is coming to Japan soon. He’ll be keen to pump up the crowd.
The Japanese Prime Minister addressed a crypto conference in Tokyo this week. File that under ‘things I never would have imagined’.
We may be in the final innings, but that’s usually when the really crazy stuff happens…
I’m not leaving!
Rate cuts? Rate hikes?
After Jackson Hole, the market is now thoroughly convinced that the Fed will cut in September. That outcome is being front-run already. There will be a revolt if Powell doesn’t follow through…
What will the BOJ do? No idea, but the consensus seems to be for a small, cautious hike.
In the bigger picture, Trump is going to pump liquidity one way or another. That’s great news for risk assets in the shorter term and pretty terrifying on a longer time frame. The US doesn’t really need lower rates. If anything, inflation is likely to accelerate into the end of the year.
The pump could be spectacular. The dump is gonna hurt.
Plan accordingly. Keep your core portfolio in balance and otherwise leave it alone. Maybe take a critical look at your riskier satellite holdings and how you are positioned for what may be to come. If we get the pump, you know what comes next.
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
Chaos by Christmas? I do like a bit of alliteration, but this doesn’t sound good.
That nifty little turn of phrase came in a message from a friend. He’s been concerned about the way things look for a while, even as markets melted up following the Liberation Day debacle. The chaos message was timely, as I was already working on this post.
Exhibit A: Wall Street’s New Obsession? Japan’s Market Just Went Vertical – a short article about foreign investors returning to Japan in size. The Nikkei 225 is at real deal all-time highs. You see the latest price on the news each night. Is there perhaps a little euphoria creeping in?
Expectations are high. The Fed is supposedly going to ease in September. The BOJ seems to be due to hike. But will they? Federal Reserve Chair Jerome Powell is set to speak at Jackson Hole this week, but I doubt he will give much away. He has been under considerable pressure from the Trump administration to cut rates and has held firm so far. There are signs of cracks in the job market, but does JPow really have enough data to justify a cut? We’ll see, but I’m sceptical.
The same goes for the BOJ. Pressure is also coming on Governor Ueda from the US administration. Does the central bank feel certain enough about the inflation outlook and tariff outcome to take the plunge? One thing is certain: if the BOJ is going to hike, it will be leaked ahead of time. No one wants a surprise like this time last year. If you don’t hear anything in the days before, expect no action.
In the US, the S&P 500 is also pushing all-time highs, driven as ever by the Magnificent 7 tech stocks, which are driven in turn by the AI boom. Despite the furore over job numbers, the consumer seems to be doing ok on the face of things. However, the tariffs are yet to show up meaningfully in the data. Expect that to change soon.
Where are the Robin Hood gamblers going to get their funds from when their cost of living keeps rising? Cash handouts from Trump? You can’t write anything off these days…
It’s not just eggs that have gotten expensive:
The final innings for crypto?
Bitcoin topped $124k last week and has now ‘crashed’ to $113k. Ethereum went on quite a run and got the crypto bros fired up about the alt season they’ve been waiting for. If history is anything to go by, then the next couple of months should mark the top of this cycle. I have no idea where it goes in that short time, but you should probably block out the people calling for $200k by the end of the year. $120k was my best guess, and we have done that. Maybe there’s a little more left in the tank, but who knows? When it feels euphoric, that’s the signal. The fear and greed index shows fear, so I’m not feeling it yet…
What to do?
Expecting a bit of chaos and doing something about it are two different things. And maybe there is no need to do anything other than just mentally brace for a correction. After all, prolonged bear markets are illegal these days. (I jest, kind of. See: It’s going up forever, Laura)
Let’s do Japan first:
I have thoroughly enjoyed the interaction on X between investors in Japanese stocks over the last few years. What a glorious time to be invested in this market! Japan has clearly turned a corner, both in terms of putting the bubble-era all-time high behind us and making strides in corporate governance. But at ¥43,000 in August, things feel a little hot. I don’t think there’s reason to panic and dump your J-stonks, but with almost everything going up, it’s perhaps time to take a look at holdings that you might have got a little lucky with.
For me, that means going through my list and asking myself some basic questions: Why do I own this? Am I happy to hold it through a storm? My Japan account holdings now span two pages. I think I may have a few too many stocks. For some of them, I don’t really remember why I bought them in the first place. Would I buy them again now?
The majority of my holdings were bought for the dividends. That’s my way of keeping up with inflation and currency debasement in yen. I actually didn’t expect them to go up this much. I’m pretty comfortable keeping them and collecting my dividends through whatever may be on the horizon. NISA I won’t touch at all – that was all bought for a long-term hold.
I would like to get my holdings back to one page and a bit more dry powder in the cash account.
How about other markets?
You may own a bit of everything in your All Country fund, but performance has really been driven by tech stocks. Here are your top 10 holdings:
Is tech dominance going to ease? Bank of America thinks so. You may know from my previous posts that I believe that tech stocks and Bitcoin are the two assets that will reliably outperform currency debasement. Are they due for a correction? Maybe. Is the AI bubble going to burst? Probably, but what do we mean by ‘burst’? The AI genie is out of the bottle. It’s not going away. The world will continue to hunger for more computing power. I don’t feel like selling any of this stuff, but I would like to have some dry powder to buy more when there’s a panic.
Got it, but we sell all the crypto, right?
I have said before, you need to have a plan for crypto and execute as best as you can. It gets harder the higher the level of euphoria.
My two cents: I’m not sold on the idea of dumping actual Bitcoin in order to buy it back cheaper. It comes with its own risks: the treasury companies and BlackRock suitcoiners want as much as they can lay their hands on. I don’t want to sell to them and then struggle to get it back later. Plus, the tax reporting is a pain!
ETFs are not Bitcoin; they are Bitcoin exposure. They can go. The treasury companies are probably going to be the FTX/Luna of this cycle – beware. Alts are struggling to attract enough attention and money in the middle of a bull market – you don’t want them hanging around your neck next year when everyone is depressed. (see my February post, Exit liquidity)
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
I am reading “When Genius Failed: The Rise and Fall of Long-Term Capital Management”. It’s the remarkable story of a ’90s hedge fund comprising a group of big-brained academics, including Nobel Prize winners, who were so convinced that their models were infallible that they built a gigantic book of highly leveraged derivative trades. Even if you’re not familiar with the story, you can imagine how that ended.
The smart money doesn’t always win.
One of my favourite books is Jon Krakauer’s “Into Thin Air”. LTCM is like the hedge fund version of that cautionary tale. Hubris and leverage are a dangerous combination. The academics somehow convinced themselves that they had modelled out every outcome, and even if things went bad, there would always be enough liquidity to get out of their positions. Of course, ‘one in a million’ events happen more frequently than we expect, and when they do, nobody is around to buy what you desparately need to sell.
At least we learn our lessons, right? Well, LTCM blew up in 1998, and it was only 10 years later that Bear Stearns, which was closely linked to the fund, faced its own meltdown.
There’s a lot to be said for keeping things simple. Viva le dumb money!
Wait, isn’t this site supposed to be SMART Money Asia?
This is easily the greatest meme ever created. It applies to so many areas of life, and none more than investing. The LTCM guys were just too far out on the right of the curve that they no longer lived in reality.
Generally, the smart money and the dumb money follow the same strategy. They buy risk assets and sit on them. In my previous post, Liquid Refreshment, I covered how tech stocks and Bitcoin are the two things that outperform currency debasement. And what do the Robinhood degenerate gamblers do? They buy Mag 7 and IBIT and print money. When these assets dip, they buy more! What are the older, wiser retirement accounts buying? NASDAQ and IBIT, by the looks of it!
Wait, is the diversified portfolio guy telling us to just buy tech stocks and Bitcoin?
I have always said, if it’s a meaningful amount of money, you should have a core diversified portfolio weighted toward your base currency for about 80% of your wealth. You can allocate 20% or so to satellite holdings to take advantage of opportunities for higher returns. This is where you can go hard on tech stocks, gold, commodities and Bitcoin/crypto as you wish.
Overthinking and mid-curving are the killers. See my post, It’s going up forever, Laura, on why dumb money wins in the end.
I see that USD/JPY is back at ¥150. Let’s do the meme:
Simple!
Of course, mid-curve guy is right. Short-term, barring any crazy events (which happen a lot!), the yen should strengthen against the dollar. However, if you are doing long-term planning and trying to figure out how currency could affect you, it’s pretty clear that the country with the worst debt/demographics profile is going to lose against the country with the global reserve currency.
Plan accordingly.
Trump wants rates lower, and Powell won’t play ball. So, Trump and Bessent will find ways to work around Powell and add liquidity regardless. This is bullish for stocks. If there is some kind of panic and a dip in stocks in the meantime, they will turn on the fire hose. Back up the truck and buy the dip!
The TSE apply pressure to listed companies to improve their governanace and return capital to shareholders – it’s a great time to own Japanese stocks if you have a JPY base currency need! (not so great if you don’t, see above)
Every four years, Bitcoin goes down around 80%. Then it spends about a year floundering around and recovering slightly, and the next two years in a powerful bull market. If it goes down 80% next year, you swing like Happy Gilmore!
See how it works? Dumb money stays winning!
Have a great weekend.
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
The hot summer months usually mark a quiet period for markets, but there are no signs of a lull so far this year.
While the upper house election last weekend likely had a limited impact on stocks, the trade deal announced shortly after certainly got things moving. The Nikkei 225 index surged over 3% on 23 July and is creeping up on ¥42,000 as I type today.
Shigeru Ishiba may have lost his ‘mandate from heaven’, but the Japanese auto industry is saved!
Perception really is a funny thing. Automaker stocks surged yesterday as investors cheered a 10% ‘reduction’ in US import tariffs from the 25% touted by Trump. However, before Trump took office, the tariff on cars was 2.5%. So there has actually been a 12.5% increase. Trump’s big stick negotiation tactics may be crude, but they appear to be working.
By the way, Weston Nakamura isn’t buying the coincidental timing of the trade deal announcement.
Probably the biggest pressure release for markets will be the end of tariff uncertainty. If Trump can secure a similar deal with the EU, then we are likely through the worst of it.
He’ll still have to come up with a pretty big distraction from the Epstein files, though, so we should stay on our toes.
Anyway, moving swiftly on
I find a lot of people struggle to understand the concept of currency debasement. If this is you, I highly recommend this episode of Forward Guidance with Raoul Pal and Julien Bittel:
You only actually need to listen to the first 10 minutes to get the picture, although it’s all good stuff.
A quick summary:
Governments restructured their debts after the ‘debt jubilee’ that followed the 2008 financial crisis, forming an almost perfect 4-year liquidity cycle
We’re in the 4th year of that cycle now, where the larger part of the debt is due
The liquidity that gets added never really gets taken back and is rising at a rate of around 8% per year
That is about the rate of debasement of fiat currency
If you divide an asset by the rate of global liquidity, you find out it’s true performance vs debasment
The S&P 500 is basically flat, same with other countries’ indexes
Gold is also flat, as it should be
The only assets that outperform debasement are tech stocks and crypto
Governments are now just servicing their debt. i.e. paying interest and not repaying the principal. GDP is falling due to the declining birth rate and shrinking labour force. And so, governments are debasing currency to pay for the debt.
Until political parties appear that are willing to tackle this problem, elections and politics are pretty much meaningless when it comes to investing. And, of course, no party wants to deal with the giant elephant in the room as it will mean years, likely decades of pain. That’s the reality. If you don’t want your spending power to get eroded over time, you need to be invested appropriately.
Now, should you only own tech stocks and crypto? Clearly not. But, in my humble opinion, you would be crazy not to have an allocation to them.
Incidentally, the Bitcoin 4-year cycle dovetails remarkably neatly with the 4-year liquidity cycle. I have come to realise that this is also not a coincidence. In fact, BTC lags global M2 money supply by around 90 days. Here is Julien Bittel’s chart of projected M2 from back in May:
Are you surprised that BTC is now near $120k? You shouldn’t be!
Now imagine if the Fed cuts rates in the next few months…
As long as that M2 line keeps going up, expect risk assets to follow. If you see it turn down later this year, that’s the purest signal possible that the Bitcoin bull market is nearing its end.
Inject that chart directly into my veins!
If you want to get deep into the weeds on liquidity, Arthur Hayes writes some entertaining posts. His latest is here. Be warned, Arthur is a liquidity/crypto uberbull.
Meanwhile, here in Japan, stocks are in celebration mode. I don’t see any reason to fade the mood, although my bullishness is always tempered by the fact that I’m living right here next to the canary in the debt/demographics coalmine.
You can only worry so much, though. Stay cool, and if the world ends, it will probably be a great time to buy stocks!
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
I’ve been getting asked about Bitcoin storage lately, so I thought I’d write a post on the topic. People rightly point out that one of the major obstacles to mainstream adoption of BTC is how difficult it is for the average person to store it safely. It’s actually one of the reasons I believe we are still relatively early in the adoption cycle, as it’s simply a problem waiting to be solved. Or at least made easier.
People have perhaps become all too accustomed to handing their assets over to ‘trusted third parties’ for safekeeping. Looking after your own Bitcoin keys is a degree of responsibility that most people are simply not used to taking on. It’s actually one of the things that fascinates me about the asset class – you have the choice of how much you want to actually be in control of your money. Custodial services are going to become more sophisticated going forward, but there will always be purists who want to manage their own keys.
What keys?
Non-Bitcoin people are probably already confused by the term ‘keys’. Put simply, you do not actually store Bitcoin itself. You store the private cryptographic keys that give you permission to access that Bitcoin. If you do not have access to your own keys, the coins can be taken from you – hence the mantra that forms the title of this post.
This doesn’t necessarily have to be done online. You can simply write your keys down on a piece of paper. If you are lucky enough to have a photographic memory, you can even store them in your head! Most people are going to want to use some kind of wallet, though.
Exchange risk
People generally purchase Bitcoin on an exchange. It’s very tempting to just leave it sitting right there. After all, it’s password protected, and you have set up 2FA. What could go wrong?
Exchanges get hacked. It’s happened many times before, with some of the biggest hacks occurring in Japan. Non-Bitcoin people may even have heard of Mt Gox, which went down back in 2014. It was by no means the last exchange to get hacked, with Coincheck suffering an attack in 2018 and DMM getting hacked more recently. Exchanges may also fail due to fraud and mismanagement, as FTX did in 2022.
Japan is interesting, as the FSA is incredibly strict and requires exchanges to keep enough reserves to cover customers in case of a hack. It’s actually one of the few countries in the world where you stand a reasonable chance of getting your money back in the event of a breach. But do you really want to take the chance?
What about small amounts?
If you only have a small exposure to Bitcoin, buying a cold storage wallet, setting it up and managing it seems like a lot of hassle. I get why people sometimes just leave coins on the exchange. However, everyone has a point where the amount of money becomes too big to stomach a loss, especially from a well-documented risk that you should have known better about taking. It’s really up to you to decide when you have reached that point.
Here’s the thing, though: people tend to think in terms of today’s value. They look at the amount of BTC they have and today’s price and say, “ok, I’m not going to go to the trouble of moving my coins off the exchange for this trivial amount”. What I would encourage people to do is think in terms of potential future value – if you lose your Bitcoin today, it’s gone. If the BTC price rises to $1 million per coin in ten years, how mad are you going to be that you didn’t protect it???
If it’s on the exchange, not your keys, not your cheese. North Korean hackers will never stop trying to get it!
Here are a few things to consider if you have decided it’s time to start looking after your holdings:
Online/offline
The first tradeoff comes with online vs. offline wallets, sometimes also referred to as hot and cold wallets.
It’s pretty simple: if your wallet is on a device that is connected to the internet (hot), it’s very convenient to use, but more susceptible to an attack. That’s why you hear Bitcoiners talk about putting their coins in cold storage. Take the keys offline, and it is much more difficult for a bad actor to get to them.
Custodial/Non-custodial
Once you have decided you want to get your keys offline, your next choice is whether to get a third party to handle it for you or do it yourself.
Of course, custodial services mean trusting someone else to manage your keys. The good ones will do this very well, perhaps better than you can yourself, but they won’t do it for free. You have to be very careful choosing a custodian and making sure that they really have your coins in cold storage and are not, in fact, lending them out to other parties and putting them at risk. Do your homework! If something doesn’t add up, there will be a reason. If a custodian is offering you a high rate of interest on your BTC, for instance, you are going to want to know where that yield is coming from and whether your coins are being put at risk to generate it.
Maybe custodial isn’t the easy route after all – it does require significant due diligence. Even after that, you have to trust the custodian to do what they say they will do.
Non-custodial cold storage
What most Bitcoiners have already figured out is that if you want a job done properly, you should do it yourself! Assuming we are not just writing our keys on paper or memorising them, this means purchasing a hardware wallet.
There are many hardware wallets available. The two best-known are made by Trezor and Ledger. I have used both and prefer Trezor, but it’s just my personal preference.
In terms of how to use these devices, I will try to keep it simple for now: buy one and follow the instructions to set it up! Tech-savvy people will find it easy. If you live in the world and have set up new computers, phones and other devices, it’s not going to be too difficult. Getting your ageing parents to use one might be a stretch…
When you set up your device, you will be guided through the process of generating a seed phrase. Here’s a definition from the Leger website:
You will want to handle your seed phrase properly. It essentially functions as a master key to access your private keys. And, if you lose or damage your hardware wallet, you can use the seed phrase to recover your keys on a new device.
Some basic rules:
Do not share your seed phrase with anyone
Do not store it online – this is not an email password that you put in a Google document or in a made-up contact in your address book! If anyone gets access to your seed phrase, they can steal your funds!
Do not type your seed phrase into anything other than your device, no matter who asks you to do so! If you keep everything safe, you will rarely need to use it at all.
Beware of emails from Trezor or Ledger saying there is a problem with your device and you need to follow a link, plug it in and enter your seed phrase to protect your funds! These emails are scams and will result in your wallet getting drained – no matter how real they may look, do not click anything!
I know this sounds a little scary, but welcome to taking responsibility for your own money! You also need to be careful accessing hardware provider websites, too – bookmark the link and access from there. These days, people tend to just Google ‘Trezor’ and click the top result – scammers work hard to get fake websites to the top of the rankings to catch people who do this. (This goes for any website, but especially where there is money or your private data at risk)
You should write your seed phrase down and store it somewhere safe. There are numerous devices available that are more sturdy than a piece of paper. I have had my wife walk in on me as I am punching a seed phrase into a metal plate – that wasn’t a simple conversation, but it was easier than explaining that the keys to my crypto ended up in the bin by accident…
Consult the experts
I am probably relatively crypto security savvy. But I am by no means an expert. I highly recommend that you consult the experts if you are going to self-custody your coins. Fortunately, I have just the guy for you!
Jameson Lopp has put together a trove of useful Bitcoin information on his website. He has tested and written up most of the Bitcoin wallets there are and published the information here: Recommended Bitcoin Wallets
He has also tested most of the seed backup devices – to destruction in some cases! His basic conclusion is that the more bells and whistles a backup device has, the more chances you have to mess it up. It’s hard to beat the simplicity of punching the phrase into a piece of metal!
Lopp is Co-founder & Chief Security Officer of Casa Hodl, which offers a range of solutions to help people store their Bitcoin more effectively. I’m not going to try to explain multisig here, but in a nutshell, it is a level of security which requires more than one user to approve a transaction using private keys. As the numbers get bigger, paying for better security begins to make sense.
Anyway, I’m not here to sell Casa’s services; I’m saying that Jameson Lopp has already done most of the research for you and generously published it on his website so you can learn. Check out his site and follow him on X @lopp
My two cents
As you have probably realised, some people possess far greater knowledge on storing Bitcoin and crypto than I do. However, if you want to know how I organise it, I can tell you.
Like with investments, I take a diversified approach. I think it’s important to learn how to take responsibility and self-custody, so I do that. However, I also live in a wooden house in an earthquake-prone country, and I am not entirely confident in looking after all of my Bitcoin. So, I also use Xapo Bank for third-party custody. I have written about them here: Banking your Bitcoin
If you ever decide to open an account with Xapo Bank, please use my referral code (SMM-XAT-EJG) or the referral link in that post. I have an ‘influencer’ deal with them, and I am surely the worst influencer they have ever had!!! It would be nice to actually help them get a customer now and then, and it won’t cost you any more than it would if you went directly to them. I am very comfortable recommending them.
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
I keep seeing posts declaring the 60/40 portfolio dead. No sh*t, Sherlock! Markowitz’s Modern Portfolio Theory dates back to 1952. I learned that 60/40 was no longer relevant in 2005. Where the hell have you been?
In case you are not familiar with it, the 60/40 refers to the traditional portfolio strategy that allocates 60% to stocks and 40% to bonds. The stock part aims for long-term growth while the bonds smooth out the volatility in rough periods.
Markowitz advanced this idea by blending a range of assets to produce a more efficient portfolio, recognising that the typical investor wants reasonable returns without excessive risk. See my post on Asset Allocation for more on this.
Can’t I just long equities?
Yes, it’s perfectly acceptable to just average into one or two stock ETFs and hold them for the long term, especially if you’re young. In fact, you can do that and read no further – you don’t need any help!
However, if you believe in passive investing and market indexing, which many people do these days, you must understand that the market encompasses more than just stocks.
Also, if you are investing a significant amount of money, it’s unwise to be 100% invested in one asset class, unless you have specific knowledge and overwhelming conviction. (which, by definition, a passive investor does not)
What’s a lot of money then? Great question! It’s different for everyone, but let me put it this way: If you are a passive investor, 100% in stocks, and you are starting to get concerned about the damage a market crash could do to your net worth, you might be getting close!
The funny thing about the 60/40 idea is that young people these days are probably already allocated 60/40, but to tech stocks and crypto!
Yeah, crypto, so where does that fit in?
This question is doing the rounds. If crypto is a new asset class, then where does it fit in a diversified portfolio? How big should the allocation be?
— The Wolf Of All Streets (@scottmelker) July 1, 2025
We can argue all day about whether the allocation should be closer to 10% or 40%. It clearly depends on an individual’s situation, risk profile, level of conviction, etc. The notable thing about this article is how it mixes up the whole Bitcoin vs. crypto terminology.
It mentions Bitcoin to start, but then it refers to crypto. So you should be putting 10-40% of your portfolio in what exactly? Bitcoin ETFs? Cryptocurrencies? Which ones? It’s not very clear.
I mean, they’re all the same thing, right?
Not even close! And ETH is the second-largest digital asset. Think how many coins have gone to zero since 2017! In my opinion, if you’re going to allocate part of your portfolio to this asset class, you need to get smart about it.
Here’s a pretty solid definition:
I’m not saying you can’t have mad conviction on a particular coin and hold it as an investment. If you have that level of certainty, then go for it. Hardcore XRP hodlers don’t care what I think, and they shouldn’t. They believe in the coin. But should the average investor put 10% of their net worth into it? Of course not!
The mainstream media are leading lambs to the slaughter if they can’t get their terminology straight.
Here’s the only truly investable cryptoasset in my humble opinion. Doesn’t it look beautiful?
Uncorrelated assets for the win
The modern portfolio enhances 60/40 by adding assets that are uncorrelated or only lightly correlated to stocks and bonds. That’s how you achieve better risk-adjusted returns. (similar or better returns with less risk) Back in 2005, I never imagined a shiny new, uncorrelated asset would emerge. It really is a remarkable thing.
Here’s a quick summary: between April 2022 and March 2025, Bitcoin’s correlation to the rest of the asset universe was 36%. People like to compare Bitcoin to tech stocks, but its correlation to them was only 40%. These levels are significantly lower than traditional assets’ correlation to each other, which typically comes in at around 60-70%. This makes Bitcoin an ideal asset to add to a diversified portfolio in order to beef up returns without meaningfully increasing risk.
What makes Bitcoin especially interesting is how sometimes it behaves like a risk asset, like equities, and other times, it acts as a defensive asset, like gold. Over time, it is expected to become more of a gold-like store of value asset.
“This makes Bitcoin unlike any other asset in the market. It is structurally independent, behaviorally adaptive, and still offers significant asymmetric upside relative to legacy safe-haven assets. For portfolio construction, Bitcoin stands out as both a potential long-term hedge, and a high-impact diversifier at present.”
Adding a 1% allocation to Bitcoin to a modern portfolio over the 3 years resulted in stronger risk-adjusted returns. (It improved both cumulative returns and shape ratios)
Adding Bitcoin did not increase downside risk.
When scaling up to a 5% Bitcoin allocation, the risk-adjusted returns were even stronger, and the volatility remained manageable. Interestingly, they also tried a 3% allocation to the top 5 cryptoassets and achieved a similar uplift in performance without greatly increasing the risk.
So what’s the conclusion to be drawn here? You don’t have to go 40% into Bitcoin! Just a modest allocation increases portfolio efficiency without meaningfully increasing risk.
What are we trying to do again?
The whole point of investing is to beat inflation in your base currency. Doing it most efficiently with the least amount of risk is just being smart.
You can be overweight certain satellite holdings if you have a high level of conviction in them.
I still run a boring diversified portfolio, despite currently exceeding the recommended daily dosage of Bitcoin and Japanese stocks.
What’s my level of certainty?
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
You may have noticed a theme in my last two posts: markets have no top, because fiat has no bottom. If fiat money is programmed for debasement, then assets priced in fiat are equally programmed to increase in value over time.
We just got another example this weekend. When America struck at Iranian nuclear sites, the stock market was closed. However, crypto trades 24/7. Sure enough, Bitcoin dumped from $103k to $99k as everyone geared up for full-scale war. Then, this morning, after Iran’s token retaliation and the announcement of a ceasefire, it popped back above $105k.
Gotta be quick to buy those dips!
I have learned through experience that trying to trade geopolitical events is a waste of time. Unless you work at the Pentagon, you have zero edge. By the time you are positioned for a particular outcome, the situation has already shifted or resolved, and the move is done.
Case in point:
These events usually have far less of an impact on markets than people expect.
Or, as the kids like to say these days: Nothing ever happens.
That chart is a little hard to see, I know, but you probably get the picture. All these ‘big events’, and the stock market just goes up and to the right. FYI, it came from a 2016 blog post called A history of share prices by Kieron Nutbrown, former head of global macro fixed income at First State Investments in London.
Investing can pretty much be summed up as a long-term bet on the nothing ever happens narrative. The only gauge you need to watch is global liquidity. When that rises, asset prices go with it, and it’s going up forever, Laura.
In other news
Obviously, you can’t take the ‘nothing ever happens’ narrative too literally. Lots of things happen, but mostly they don’t have much influence on the big picture.
Japan is perhaps the most ‘nothing ever happens’ country in the world! Considering the absolute mess Western governments are in, it’s neat how Japan just keeps chugging along. Nobody expects leadership to get better, and people have pretty much accepted that electing the ‘other guys’ will just mean more of the same, but with less predictability.
However, things do change! On 25 June, the Financial Services Agency meet to discuss the possible reclassification of digital assets. (article here) If this goes ahead, it could mean that crypto will be taxed like stocks and could also pave the way for Japan-based crypto ETFs.
When I posted this article on X, I was met with comments about how this discussion has been ongoing for years, nothing ever changes, blah blah. But, I actually think it may happen this time. The FSA is well aware that the current classification doesn’t make a lot of sense, and the election of Trump and his positive stance towards digital assets appear to have motivated the powers that be to get with the program.
Time will tell, but my bet is that this goes ahead and is implemented from 2026.
If I’m right, this will probably be the pin that pops the Metaplanet bubble. The whole reason for buying a Bitcoin proxy was to avoid BTC gains being taxed as income. Take that away and demand for the stock should fall, although maybe not until next year, when it is actually implemented.
Until such a time, the Bitcoin/crypto proxy companies will likely continue to trade feverishly. A few weeks back, Beat Holdings (9399), a company formerly known as Xinhau Finance, jumped on the bandwagon and announced a Bitcoin treasury strategy. Bizarrely, they are buying the BlackRock IBIT ETF rather than Bitcoin itself. Not so bizarrely, they updated their website to look just like Metaplanet’s! The stock went vertical shortly after the announcement and is now bouncing around like a ping pong ball. Expect more of these before the year is out.
Something sensible
I am mostly out of Metaplanet and have just kept a relatively small holding in case Q3 gets as crazy as I think it might. So I now have some dry powder to allocate over the summer. Needless to say, this money will be going somewhere more sensible. With the USD/JPY still trading at ¥145, I will keep most of this in yen for the time being.
I came across this list of Noteworthy DX stocks from METI. These are companies identified by METI as being at the forefront of digital transformation. I already bought a couple of names from here and will perhaps add to them over time if they work out.
I also started a position in Renesas Electronics (6723) after reading this article. There were some interesting comments in there.
Luckily, Renesas doesn’t seem to have suffered any damage from its US partner Wolfspeed announcing that it is going into Chapter 11 bankruptcy…
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
BlackRock’s IBIT Bitcoin ETF recently hit $70 billion in assets under management. Do you know how long it took to get there? 341 days. That’s 5 times faster than it took their gold ETF (GLD) to reach that milestone. Bitcoin moves at a different speed.
Remember when the Bitcoin ETF launch was supposed to be a sell-the-news event? The midcurvers did it again.
On 6 June, Metaplanet announced an accelerated 2025-2027 Bitcoin acquisition plan, targeting 210,000 BTC by 2027. The company started this new phase with a 555 million share issue, with expected proceeds of $55.4 billion, to buy more Bitcoin. You can find the whole plan outlined here. You have to hand it to these guys for having mega conviction. Go, go, go!
If the ETFs were the catalyst for the 2024/25 bull market, Bitcoin treasury companies have been the other major force driving ongoing demand. Michael Saylor’s Strategy (formerly Microstrategy) hoovered up another 1,045 BTC on 9 June and now holds 582,000 Bitcoin acquired at an average price of just over $70k. Strategy has a nice overview of the company metrics here.
All this makes you wonder how the BTC price isn’t higher…
Not that $108k BTC is cheap, but institutional demand for the orange coin is surging, with copycat treasury companies springing up almost daily.
So why isn’t BTC at $150k? Probably the number one reason is that retail fever has yet to show up in this cycle. Maybe people got too badly burned by FOMO in previous bull markets. Or maybe Bitcoin at $100k+ just feels too expensive.
There’s also a lot of selling going on. OG whales, who accumulated coins at far lower prices, are cashing out. It turns out that $100k really is a magic number in that respect.
At some point, those guys will be satisfied and look to hold the rest of their stack for even higher prices. It feels like we might be getting close. Whether retail shows up or not remains to be seen. Part of me hopes they don’t – this is the herd that buys at the highs and ends up getting burned. Part of me is resigned to the fact that there is always a level of buzz where they can’t resist jumping in. It is what it is.
Where do we go from here?
If you managed to ignore the haters and the naysayers and accumulate the best-performing asset in the world and then sit on it this cycle, congratulations. That’s no mean feat!
Now don’t screw it up!
What do you think this is going to look like in another 4 years? How about 8 years? Hey, maybe governments will rein in their rampant spending and start behaving responsibly. Perhaps they’ll pay down some of that debt instead of creating more.
I’ve been writing about this stuff since 2017, imploring people to educate themselves on Bitcoin. I’m still shocked how few people have made the effort.
“I only invest in things I understand.”
Oh really? Explain to me how that bond fund you own works. What’s the sector breakdown in that stock index ETF you’ve got there?
Hey, if you’ve actually spent the time on Bitcoin and decided it’s not for you, that’s cool.
Or maybe your hobby is hunting Japanese deep value stocks, and you’re not interested in doing anything else – this one I can respect. If you’re happy and you don’t care, it’s all good.
But most people are just a combination of lazy and slaves to their own biases.
If this is you, you have until about the end of 2026 to change it or get left behind.
Times are changing
This summary thread on GMI’s ‘Everything Code” is worth 5 minutes of your time. That’s the reading time. It might take a little longer to digest.
The Tldr: Human productivity is heading down, to be replaced by robots and AI. More debt is coming. Debt to GDP is going up only. Spending power gets vaporised. Tech stocks and Bitcoin are the two things that can still outperform the debasement, and one is way more efficient than the other.
Things are going to get weird and very difficult for a while. It’s not a good scenario to sleepwalk into.
Death and taxes
“But, what about the tax on crypto?” This concern is understandable. Japan’s taxation on crypto is indeed heinous. Personally, I think it will change and be taxed like stocks sooner or later. But I might be wrong.
What is occurring is the financialization of Bitcoin. It’s crossed over to tradfi already. Don’t miss this. Pretty soon, you won’t have to sell your Bitcoin. You’ll be able to borrow against it.
No capital gains if you don’t sell. It’s how the rich spend their money.
It’s already here with various institutions, including Xapo Bank – I wrote about it in Banking your Bitcoin. This stuff is only going to get easier and more accessible. Just sit tight a little while.
What’s the game plan?
Bitcoin still has room to run this year, but next year is likely to be brutal. It will be ok to laugh at it again. You will feel smart for not owning it.
Metaplanet and other copycat BTC treasury companies might even turn out to be the FTX/Luna of this cycle. One or more of them could blow up spectacularly. This is not the time for FOMO. If you missed it, you missed it. Metaplanet is currently trading at a massive premium to its Bitcoin holdings. In the bear market, I would expect it to trade at a big discount.
However it works out, my thanks go out to this company for providing me with a larger-than-anticipated pile of dry powder to allocate this summer.
If you still have zero bitcoin exposure, 2026 is your best opportunity. You have until then to get your head around it and set aside some cash. Put the work in. Jameson Lopp has an excellent list of reputable Bitcoin news sites and newsletters here.
I talked to a young guy the other day, and every time I said Bitcoin, he came back with ‘crypto’. If you think these two are the same thing, you have some catching up to do. I cover this in The investment case for Bitcoin.
This cycle has been a real eye-opener in this respect. Every time Bitcoin pulls back 5%, crypto (meaning alts) gets destroyed. The bleed has been insane. You will go broke very quickly trying to outperform BTC – and why do you need to anyway?
Screenshot
The name of the game is to accumulate as much Bitcoin as you can, without putting yourself in the position where you could become a forced seller. You don’t have to go crazy, just average in when nobody wants it. ETFs are fine – you don’t have to go crypto native.
If you want to get excited about crypto, stablecoins are where it’s at. USDC founder Circle Internet Group’s (CRCL) IPO just blew away expectations. This could be the start of a gold rush in crypto IPOs. (I would be keeping an eye on Tether here) Societe Generale just announced that it will launch a USD-pegged stablecoin on Ethereum and Solana. I don’t think the average person on the street has any idea how easy it is to transact in stablecoins. Money is going to start moving so much faster.
The 2024/25 bull cycle may well accelerate from here. Things could get crazy. Maybe we’ll even get the alt season traders have been waiting for. Do what you have to to accumulate more BTC, and don’t be scared to set aside some dry powder for next year.
Good luck!
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
I am starting to see people discussing the idea that the stock market has been so pumped up on debt steroids that it simply won’t be allowed to go down for an extended period again. Normally, this kind of talk would be a massive flashing sell signal, but it’s not an idea that is being broadly discussed. It’s just popping up in pockets here and there.
Of course, stock markets go up and down. In fact, the mighty US market took a hit in April due to the Liberation Day tariff malarkey. But did you notice how quickly it bounced back? Pretty much a V-shaped recovery. Same in March 2020.
I’ve said it before: the money has been funny since the 2008 global financial crisis. Many institutions that should have gone under were propped up at the expense of taxpayers and we’ve been getting screwed ever since. Economies and big business have become addicted to liquidity.
Sounds like tin foil hat stuff?
That’s the MSCI World Index. See what happens after the 2008 crash?
Here’s the gold chart for comparison.
So, are the assets going up, or is the unit of account going down? Check out the purchasing power of a dollar over time.
Ding ding ding ding ding! So, 2008 clearly wasn’t the start of the pattern. It just intensified after that.
The Federal Reserve of St. Louis puts together some pretty charts, doesn’t it?
Take a look at this one – currency in circulation:
Hello! So, if you keep creating more dollars, the purchasing power of a dollar goes down, and the value of assets and other stuff goes up against your inflated currency. I’m picking on USD here, but everywhere else looks the same. Probably worse.
Here’s a question I get asked a lot: “How do I convince my very conservative partner that we need to invest more?”
Answer: Just teach them that the market is going up forever!
If assets are going up forever, you’d better own some! You probably don’t need to fret too much about timing the market. Just make sure you keep a nice cash reserve so you don’t have to dip into your investments in a crisis, and yolo the rest into stocks, commodities, real estate, bitcoin and anything else that isn’t cash in the bank.
Of course, this is all somewhat tongue-in-cheek. But is it really much more complicated than that?
Please don’t misunderstand. Stocks can still go down 30-50% at any time. Bitcoin can still dump 50-80% and probably will next year. You should be prepared for these outcomes and never let yourself become a forced seller. But, over the long term, these assets go up and to the right because the denominator is cooked. Did you notice how long the whole DOGE ‘let’s reduce wasteful government spending’ drive lasted? It’s not even June, and Elon and Trump are melting down in public.
If you’re wondering why you have to become a money manager just to break even with inflation, here you go:
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
You might have noticed an uptick in articles covering bonds recently. In particular, bond yields and bond auctions. Bonds are confusing, and it’s often easier to just go and read something else, but you might be getting the sense that something is happening in the bond market. Like it’s trying to tell us something.
The market always finds something to worry about, and usually, those worries are temporary. This year alone, we’ve had inflation, stagflation, recession, tariffs, and trade wars, and the sky hasn’t fallen yet. But now the market is worried about bonds. And it’s not just worried about US treasuries. The same concerns surround UK gilts, Euro bonds, and Japanese government bonds.
This week, the US 30-year treasury yield has been flirting with the closely watched 5% level. Last Friday’s Moody’s US credit downgrade got things rolling. Then, on 21 May, there was a weak treasury auction, and the 30-year closed at 5.09%.
As yields move inversely to price, rising yields indicate that investors are selling bonds. The weak treasury auction, like recent weak gilt and JGB auctions, illustrates a lack of appetite for new bonds. So why are people so worried about bonds these days?
It’s the debt, stupid
At 237%, Japan is the heavyweight champion in debt-to-GDP. The UK is at 96% and the US is at 124%. None of these figures is encouraging. Japan is clearly not paying that back. The UK economy is in disarray, and you may remember Liz Truss almost blowing up the bond market in September 2022.
Trump talks a lot of smack, but his big beautiful tax bill is only going to inflate the problem over time. Anyone who believes he is going to cut deficit spending lives in MAGA fantasyland.
The bond market clearly doesn’t like it.
Is it happening?
The macro-heads I read are all fixated on yields, deficit spending and the massive risk flashing in the bond market. But is something really going to break, or is this just another worry that will soon make way for the next thing?
I’m not going to macro larp here, and I dislike doomers, so here’s a solid thread from Capital Flows on why we could be at an inflection point. It’s recommended reading for anyone trying to get their head around the current situation.
The tldr: Central banks are behind the curve – surprise! Meanwhile, banks are issuing debt like there’s no tomorrow. These big credit deals are feeding money into the economy and preventing a slowdown in growth. When central banks fall behind in a credit cycle like this, bond markets can crash because growth and inflation risewhile everyone expects a recession.
Does this mean I should not own bonds?
This is an important question. For traders, the trade is definitely sell long-term bonds. (TLT)
For investors with a diversified portfolio, should they be dumping their bonds and buying gold, copper, bitcoin, etc? I don’t think so. This is short-term tactical thinking and only for people who know what they are doing. By nature, a strategically diversified portfolio is always going to contain some assets that aren’t doing so well. Right now, it’s just the turn of bonds. Unless your time frame has changed dramatically, you can just sit tight.
Big developed economies losing control of yields is a scary proposition, and they are likely to do whatever they can to kick the can down the road and avoid the pain. Just last month, a surge in treasury yields caused Trump to back down on tariffs, remember?
Is this why Bitcoin is ripping?
It’s one of the reasons, yes. BTC is fundamentally a release valve for macro liquidity (I was dying to say that, but I got it from Capital Flows too!) What it means is, the more liquidity that gets pumped into the system, the higher the BTC price goes.
BTC is also going up because it’s at that stage of its own 4-year cycle. But it’s funny how that seems to align so well with global liquidity cycles. There’s probably a bit of mileage left in this bull market yet!
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.
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