One down, one to go. With the FOMC resulting in a dovish cut, we now await the BOJ meeting next week. So, how are things shaping up for the end of the year and 2026?
The Fed delivered the expected 0.25% rate cut. It was accompanied by cautious commentary on next year, without really turning hawkish. Pretty much a goldilocks result for markets. Stocks rallied into the close, while Bitcoin pumped to $94k before quickly retracing. The Fed’s dot plot and 2026 outlook seem wildly irrelevant given where things are going after Powell’s term ends.
BREAKING: President Trump is asked if the new Fed Chair will be expected to "lower interest rates immediately."
Does anybody need that stated more clearly? The next Fed chair will be appointed by Trump and will do his bidding. Their primary function will be to cut interest rates. End of story.
Leaping into the future, it will be fascinating to see if a post-Trump Democrat administration will work to reinstate the Fed’s “independence”. I bet you they won’t…
Anyway, I digress. The US is moving toward financial repression in 2026. Inflation allowed to run hot, and interest rates forced lower = Negative real rates. Negative real rates are a stealth tax on savers. It’s how the government reduces the debt burden.
It’s not good. But it’s what is going to happen.
Americans who own assets will be fine. Those who don’t will struggle.
Lots of liquidity, equities up, hard assets up, and a weaker dollar.
So, Bitcoin to the moon, right?
Hmmm, given what I wrote above, we are looking at the perfect environment for Bitcoin. The macro gurus, who are relatively new to Bitcoin, are declaring the 4-year cycle dead and preparing for new all-time highs in 2026. Except that’s not what usually happens. October marked a picture-perfect 4-year cycle top. It doesn’t get any clearer. The bottom should be around Oct/Nov next year.
I’m long BTC and happy to be proven wrong, but I think there is pain to come. I think we will see $40-50k, and buying Bitcoin when stocks are pumping will seem like the dumbest thing a person could ever do with their money. Sentiment needs to be broken before we run again.
And yes, I will buy at those levels. Until then, there isn’t much point in thinking too hard about it.
As for stocks…
The midterm general election is in November. Sometimes the most obvious outcome is the correct one.
Is the BOJ going to spoil the party?
The BOJ is signalling a hike. It’s been reported in the Nikkei. It’s pretty much baked in and would be more of a surprise if it didn’t happen. I don’t think it’s going to shock markets. It might strengthen the yen a little, but it probably won’t be earth-shattering. See my post on the Yen Carry Trade from last week.
Japan, of course, is already at negative real rates. That should support the Japan equity bull market. It only sucks if you don’t own stocks…
I have the flu. That’s as much brain power as I have this morning. Time for a lie down.
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.
Markets are not looking so hot right now. I really hate to be bearish, but it’s becoming unavoidable.
Last week, Bitcoin made its first daily close below $100,000 in 188 days. Then yesterday it closed below the 50-day moving average on the weekly chart. This is always bad news for bulls. Some of the people who were telling us the 4-year cycle is over are still holding out for a reversal, but they are probably grasping at straws.
We are so done. Thank you for playing.
I know it’s unlike me to be so negative, but when a situation changes, it’s important to confront reality quickly. Crypto is heading into a bear market, and it’s right on schedule.
Initially, Bitcoin is acting as the pressure release valve as investors lose faith in an overheated risk environment. You will note how, over the last week or so, Bitcoin is lower when you wake up. Asia propped up the price in the daytime, and then America sold hard while we slept. Now Asia is selling, too.
Worse still, BTC tends to lead equities, and in my humble opinion, BTC is heading lower.
Stocks are already wobbling. In particular, the AI trade is coming under increased scrutiny. Nvidia earnings are due on Wednesday. I don’t think there are numbers big enough to satisfy the masses this time, although the numbers will likely be impressive regardless.
Burry put on his Nvidia/Palantir short and then closed his fund. Now he doesn’t have to worry about investors trying to pull their money when the market moves against him. People are debating whether he is actually any good at calling this stuff, which is a valid question. It’s such an obvious trade that you wonder if it can really be that simple, especially with Trump there to pump the markets every time they stumble.
But it doesn’t look great to me. In the short term, at least, I’m siding with the bears.
Time preference is key
It’s ok to be bearish, but the big question is: over what timeframe?
BTC is a good starting point for this discussion, as it is highly sensitive to both global liquidity and overall risk sentiment.
When Bitcoin topped in November 2021, it was just as the Federal Reserve pivoted to begin a brutal tightening regime. Interestingly enough, in November 2025, the Fed is going in the opposite direction. In fact, the market was pricing in a further rate cut in December until the US government shutdown delayed the data and muddied the waters. Uncertainty around rates is a huge factor in sparking the sudden loss of appetite for risk.
The liquidity picture for 2026 actually looks pretty rosy. Trump is effectively going to gain control over the Fed, and he has the midterm elections to pump the market for. On the flip side of that lies a slowing US economy.
Bitcoin’s level of institutional adoption was meagre in 2021/2022. In fact, it turned out the industry was on the brink of collapse. And collapse it did: Terra/Luna, Celsius, Blockfi, 3AC, and, of course, FTX all fell during the bear market.
The picture is very different now. US Bitcoin ETFs have almost $120 billion in assets under management. $72 billion of that is in BlackRock’s IBIT alone. What’s more, the Trump administration is pro-crypto. This is not an industry on the brink of collapse any more. It’s just going to need to take a breather for a while.
Plan for the worst
The typical bear market drawdown from the peak for Bitcoin is 80%. So, worst case, we are going back to $25,000. Ouch! Not pleasant at all, but I would not bet against this outcome.
If ETFs and institutional adoption, plus a favourable liquidity cycle count for anything, which I think they do, we may not go that low. Personally, I’m not really interested in bidding $90k. I’ll get interested at lower levels. $50k seems a bit more like it. (this is my finger in the air, best guess if you are wondering how I got this number)
Here’s a little perspective:
What about stocks?
Nvidia’s P/E ratio is around 53. Investors are willing to pay that amount for each dollar of the company’s earnings. I probably don’t need to tell you that future earnings expectations are a little on the high side. The Magnificent 7’s average P/E ratio is around 28 to 35. Those expectations may well be due for a sharp adjustment.
The other 493 stocks in the S&P 500 are not looking so bad, although they could get dragged down somewhat in a Mag 7 correction.
Global stocks, Japan included, are unlikely to emerge unscathed, but we could well be looking at an interesting buying opportunity.
Personally, I kind of like the idea of reducing US exposure (particularly Mag 7) and increasing Japan. The only problem is then you get trapped in yen. Finance Minister Katayama is making the usual concerned noises about exchange rates, while taking absolutely no action to counter the yen’s decline. Real interest rates in Japan remain negative, and as long as they persist, the currency will continue to struggle.
Negative real rates are a boon for stocks, though. If rates somehow ever turn positive, it’s time to rethink.
All in all, it comes down to where you are in the financial planning process. I covered this in the Burry post, but here it is again in simpler form.
I see three key stages in the personal finance journey:
Accumulation – spend less than you earn and invest the difference into stocks and other high-growth assets. If asset prices decline, don’t panic and keep buying. In fact, buy more if you can.
Diversification – a mix of protecting capital, whilst continuing to accumulate. The key to knowing when to diversify comes down to three factors:
a) The data tells you – you hit your number and simply don’t need as much risk any more
b) You become conscious of the amount of money you have at risk and start thinking about what to do
c) Asset prices are considerably higher than the average price you paid when accumulating. Despite the wobbles, we are still in this zone for anyone who has been accumulating for a while. It may not last much longer, however…
3. Distribution – you begin living off the income generated from your accumulated assets, or simply spending the money
If you are in stage 1 or 3 and are properly allocated, a stock market correction should not bother you too much. If you are at stage 2 but have not diversified yet, the current window of opportunity may be about to close for a while. Don’t panic, but perhaps give it some thought.
Personally, I have been selling stocks that have done well over the short term, particularly tech/semi/AI-related stuff. A few Japanese tech stocks I owned got a big boost when PM Takaichi was elected and are probably due for a reality check.
In other business
My next casual meetup, billed as the Nikkei ¥50,000 party, is on 26 November from 7pm at Hobgoblin Roppongi. Everyone is welcome. You don’t have to talk about investing, and you don’t have to drink unless you want to. Some of us may need to!
Before you ask, yes, the event will go ahead even if the Nikkei is below ¥50,000. That is an achievement unlocked, and I’m sure we’ll be back above that level in due course.
Don’t get too bearish!
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.
Our family just came back from a weekend break, which was my treat in celebration of our stellar investment returns. Note: don’t tell your significant other how well your portfolio is doing unless you are prepared to spread some of the winning around! We had barely been back home for 5 minutes when the doorbell rang and a new pair of boots was delivered. She bought those herself, so no complaints from me, but you can see how this goes.
Even the stock market is enjoying a little retail therapy.
In case you’re not familiar with the term, retail in this case means individual investors: regular people, you and me. One theory is that covid is behind this surge in retail-driven performance. Stuck at home with their stimmy checks, regular investors learned to buy the dip, and it’s been working for them ever since. Stocks, crypto, gold – whatever retail jumps on goes up. Institutional investors look on in bewilderment, stuck with their risk models flashing warnings as the market leaves them in the dust.
It may not be healthy, but these are the cards we’ve been dealt. And with the Fed expected to cut a couple more times this year while simultaneously ending its balance sheet runoff, it’s hard to find a compelling reason to ease off the gas. Trump has even been talking about handing out money from tariff proceeds to the public. Can you imagine?
It would be rude not to do this! I’m looking at late November, maybe 26th, 27th or 28th. I’m open to suggestions on the venue, but my basic rule is that it must be a cash bar, so we don’t have to worry about whether everyone turns up to cover costs or fiddle around sorting out the bill. What do you say? If you don’t live in Tokyo and have been thinking of taking a trip, well…
Send me a message, email, DM or whatever if you want to come along. Will mostly plan this on X, so keep an eye on this thread.
We’ve been talking about an end-of-year melt-up for a few weeks now. So far, so good. I noticed the Nikkei Asia already started talking down the likelihood of a BOJ rate hike later this week. You can pretty much take that to the bank, right?
Is the Bitcoin 4-year cycle over?
After the most vicious deleveraging event ever just a couple of weeks ago, the crypto market has recovered. Yes, retail bought the dip once more!
There has been a wave of speculation over whether the 4-year cycle is still intact. It’s fascinating, actually, as crypto-natives have been hyper-trained on this narrative. It’s probably the reason Bitcoin is not significantly higher right now. Long-term holders have been unloading, while retail ETF buyers continue to accumulate. Many of the new investors have no idea what the 4-year cycle is and just have a monthly allocation set up for their account.
Felix is awesome, and I love his Forward Guidance Podcast, but time will tell. 2013, 2017 and 2021 were all followed by a nasty bear market. Yes, Bitcoin wasn’t a macro asset like it is now. Yes, you can make a great case that liquidity is rising, and the boomer ETF buyers will keep buying. I really want to believe, you know! But let’s just say I’m ready for anything. Warren Buffett hates crypto, but his quote about finding out who’s been swimming naked when the tide goes out could have been written for the industry. All we need is one good leverage flush to start the dominoes falling, and we all get a chance to buy at $50k again. Don’t think it can’t happen.
At least it will give these guys something to chirp about.
These guys are great! They’ve done zero work, but they will gladly tell you how Bitcoin is too volatile to be investable.
Well, BTC has closed above $100,000 for 172 consecutive days now. If you wanted to sell, you have had plenty of time to do so. If 2026 is a bear market, make sure you ignore these nitwits on their victory lap and back up the truck.
Melt-up before the melt-down, though, right? I’m yet to see real euphoria in crypto this year. Remember the images of people lined up on the street to buy gold a week or so ago? That’s what we’re looking for. We’re not there yet.
It’s a busy week with the Fed meeting, BOJ and Trump on the loose in Asia. I don’t know when the next dip will come, but you can bet that retail will be ready to buy it!
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 woke up last Saturday morning and, as is my habit, checked on the overnight market movements. I did a double-take and wondered what the hell had happened. Bitcoin, perhaps the nimblest indicator of global risk appetite, had dumped heavily. Several possible scenarios ran through my mind, but I knew it could only mean one thing…
Donald Trump has posted something!
Bingo! After market hours on a Friday, America’s fearless leader had somehow mangled a Chinese announcement on rare earth exports and sent out a post threatening further 100% tariffs on China. After all the TACO earlier this year, I had forgotten about the trade war!
Had stock markets been open, they would not have liked it at all. As they were closed, crypto bore the brunt, and anyone unfortunate enough to be awake got to witness the biggest liquidation cascade of all time. Bitcoin fell to around $104,000 initially before bouncing. Alts were nuked without mercy, with $ATOM token getting as close to zero as you can really get without going negative.
Something in the range of $18.7 billion in positions got liquidated in a matter of minutes, and around $560 billion was wiped from the total crypto market cap. Fun times!
I won’t get into the whole conspiracy theory of what happened. Suffice to say, a very large and very suspicious short position appeared in the market shortly before the fun began. This seems to be the only person who made money that day. It could be a coincidence, of course. I guess we will never know…
Japan is moving to ban insider trading in crypto, by the way. Seems like a good call.
Bitcoin hodlers would be a little concerned to see the price fall so quickly, but most take it in their stride. Leveraged traders, however, some of whom don’t even own Bitcoin, did not make out so well. Many got a lesson in risk management they will never forget.
Of course, by the US open on Monday morning, Trump had already straightened things out, and stocks acted like nothing had ever happened.
It’s always the leverage
Most people should stay away from leverage. Hell, even skilled traders should handle it with care. And yet, Volatility Shares just filed for a total of 27 leveraged 3x and 5x single asset ETFs. If approved, every Robinhooder will be able to go 5x long Nvidia, Palantir, XRP and more. What could possibly go wrong?
Wall of worry
We’re so back! Add to this the growing concern over the AI-driven boom and whether it is, in fact, a bubble, and you have to wonder if the Q4 melt-up might be cancelled.
The AI bubble talk is understandable. OpenAI has around $1.5 trillion in AI build-out plans. This for an unprofitable company with only $13 billion in annual revenue. Both smart money and dumb money alike are positioned for a bullish Q4. Tech stocks sure have a long way to fall if investors lose their nerve.
A week or two ago, the CEO of Goldman Sachs warned that a stock market correction could occur in the next 12-24 months. Thanks for the deep insight, bro! Jamie Dimon is talking about gold possibly going to $5,000 or even $10,000.
Throw in the US government’s shutdown, and you may wonder how stocks can possibly rise further. Surely the Bitcoin bull run is over, too?
While Trump was busy TACOing, Jerome Powell came out on Tuesday and said that “the downside risks to employment appear to have risen.” That appears to imply a further rate cut at the Fed’s end-of-month meeting. More importantly, JPow signalled the end of the Fed’s balance sheet runoff. If quantitative tightening is really over and liquidity flows, the wall of worry could melt rapidly.
I don’t know what’s going to happen, and you certainly shouldn’t be making investment decisions based on my offhand opinions, but if we get a strong earnings season, I still see a bullish Q4 and then trouble on the horizon in 2026. It’s never dull, is it?
Yes, Prime Minister
Organising a Prime Minister seems to be a tough gig these days. France had a guy quit and then get reappointed in the same week! Here in Japan, Sanae Takaichi went from being a done deal to less than Liz Truss in a couple of days. Now the LDP is courting the opposition, and it’s looking like they might find the votes to anoint the country’s first female Prime Minister after all. Who knows?
The market has already tipped its hand if the deal gets done. JP stocks up and yen down. I will unapologetically cheer for our iron lady just because I want my Nikkei ¥50,000 party. The yen is cooked anyway.
A diversified portfolio matched to your base currency and risk profile with satellite holdings in debasement assets.
I sound like a broken record, don’t I? By the way, I found a Japan Physical Palladium ETF (1543). It’s amazing what is available these days. Don’t do anything I wouldn’t do!
Thank you for your attention to this matter.
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.
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.
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.
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.
Smart Money Asia 