❌ Why Bitcoin is Disappearing From Exchanges

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What’s on the Menu 🍴

If supply and demand is what drives market prices, then what happens when the supply starts to disappear off of exchanges?

Well, that’s exactly what’s happening to Bitcoin this year.

In today’s Daily Dough, we’ll take a look at why this is happening and what we think comes next.

Here’s what we’ve got for you today:

  • Bitcoin is Disappearing From Exchanges ❌

  • Don’t Call It A (SPAC) Comeback 🤚

  • SPY Vs. QQQ: Which Is Better? ✔️

  • Bear-Proof Your Portfolio With This Hedge 🐻

Today’s newsletter is a 5 minute read.

Bitcoin is Disappearing From Exchanges ❌

The Bitcoin supply on exchanges is shrinking.

Yes, you heard it right - crypto exchanges are seeing the lowest Bitcoin supply since February 2018.

This dwindling supply became especially noticeable after the U.S. Securities and Exchange Commission (SEC) started attacking some of the largest crypto exchanges.

Binance and Coinbase have been among the most high profile lawsuits, accused of peddling unregistered securities to U.S. customers.

The result?

A dramatic 6.4% of Bitcoin supply moved out from exchanges in just a week. That's a lot of Bitcoins finding new homes.

This isn't just a flash in the pan, either.

Since 2020, Bitcoin has been steadily trickling away from exchanges.

The total percentage of bitcoins on exchanges has fallen from around 17% in 2020 to 11% this month.

That might not sound like much, but that’s over 1 MILLION bitcoins that got pulled off of exchanges.

This trend is all about self-custody. Bitcoin owners have been deciding to keep their digital gold closer to home.

As the SEC's scrutiny intensifies and legal battles unfold, traders and investors seem to prefer having their Bitcoins in their own hands, rather than leaving them at the mercy of exchanges.

After all, as crypto OG’s know - “not your keys, not your coins.”

In other words, if you don’t control your private keys, they’re not really your coins.

Exchanges may show you a digital representation of coins they’re supposed to be holding for you, but the only way to really be sure is to manage your own keys.

So, as long as these regulatory uncertainties continue to hover, it's likely that this trend of Bitcoins packing their bags from exchanges will carry on.

Key takeaway: What happens when supply goes down and demand increases? You got it, prices go up.

That’s why we’ve seen a steady increase in bitcoin’s price as the supply has dried up on exchanges.

Don’t Call It A (SPAC) Comeback 🤚

During the 2021 orgy of risk-taking, more than 200 companies went public via “blank check” shell mergers, otherwise known as Special Purpose Acquisition Companies (SPACs).

It turned out that the majority of these companies weren’t ready for public markets and some (cough Nikola) had fabricated outrageous stories about their businesses & product capabilities.

2022 brought a world of pain for most of these SPAC-enabled companies, with many of them down more than 90%.

In fact, we crunched the numbers and the median return to date of companies that went public via SPAC in the 2021-2022 timeframe is negative 80%! 😳

Out of roughly 300 companies, only 21 (7%) of these companies have delivered positive returns to public shareholders thus far.

We also counted at least 15 bankruptcies in the dataset.

Any way you look at it, these are astoundingly awful returns. SPACs have a tarnished reputation for good reason.

That being said, we’ve noticed a resurgence lately among a handful of “concept” stocks that went public via SPAC:

The companies behind these stocks don’t have profitable business models yet, but they do capture the imagination with the potential for futuristic innovation in areas like quantum computing, robotics, vertical take off, electric motorcycles, and space exploration.

The blistering performance lately is part of the broader “risk-on” trading environment we’re witnessing, and it’s quite possible the trade could expand to other beaten down SPACs.

This is definitely an area we’re poking around to see what other opportunities might exist 👀

SPY Vs. QQQ: Which Is Better? ✔️

ETF’s (Exchange Traded Funds) have blasted off in popularity with investors.

They give you an easy way to have a diversified portfolio.

While there are many ways to get exposure to the stock market through ETF’s, many people use index funds like:

  1. SPY (SPDR® S&P 500 ETF Trust) for S&P 500 exposure

  2. QQQ (Invesco QQQ Trust) for Nasdaq 100 exposure

SPY is the largest S&P 500 index fund by assets under management.

This begs the question for a lot of investors:

Which is better? SPY or QQQ?

The first answer is “it depends”…

And the second answer is “possibly both”.

Let’s cover what makes these two index funds different:

  1. They are tracking two completely different indices with different holdings (S&P 500 vs. Nasdaq 100).

  2. The position sizes of the top 5 holdings are different.

  3. The sectors being invested in also differ (SPY is more diversified across ALL sectors while QQQ invests more in the technology sector).

What about returns?

The QQQ has historically outperformed the SPY over time.

The QQQ is more concentrated in technology stocks (28% in SPY vs. 51% in QQQ).

Tech stocks have seen higher growth over the years, and investors have been rewarded.

But with high reward comes higher risk and volatility.

QQQ usually has larger drawdowns than SPY due to the makeup of its holdings.

You could consider this a downside depending on your risk tolerance.

It’s easy to see by comparing the holding weights on SPY vs. QQQ that you have:

  1. More SPY holdings and smaller position sizes in the top 5 holdings, giving you a “safer” and more diversified index fund.

SPY Holding Weights

  1. Less QQQ holdings and larger position sizes in the top 5 holdings giving you a more “concentrated” (but still diversified) index fund.

QQQ Holding Weights

So, when deciding between the two, SPY is a more balanced option (and holds value stocks) and QQQ is more technology focused (and holds more growth stocks).

There could even be a place for holding a position in both if you want some extra juice with tech stocks.

Sure, you’d have some overlap in the portfolio since the top 10 holdings in both are similar, but, the weightings and expected returns are different enough to justify it.

Bear-Proof Your Portfolio With This Hedge 🐻

Investing often feels like navigating a rollercoaster – it's thrilling, yet filled with unexpected dips.

The fear of bear markets can create jitters among even the most experienced investors.

That's where managed futures come into play – a stabilizing force during market downturns.

Managed futures, a unique asset class, have often shown resilience when traditional markets have taken a hit.

Their secret sauce?

They trade a mix of futures contracts from commodities to foreign currencies to indices.

During times of financial instability, these funds have demonstrated a knack for weathering the storm.

In fact, they've often outperformed other asset classes during crises, providing a safety cushion when you need it most.

According to RCM Alternatives, here’s how managed futures performed during a few prior market crashes:

  • Dotcom tech bubble: +44.69%

  • 9/11 tragedy: 1% (basically flat while stocks were down over 10%)

  • 2008 global financial crisis: 16.5%

And in 2022, while the NASDAQ was down 32%, one of our managed futures investments was up over 60%!

Why do they do well during market downturns?

Simple - many funds can short markets and actually profit during market crashes.

So, how can you dip your toes into managed futures?

The most common paths are: private funds, mutual funds, or ETFs.

Here’s a list of the top 100 managed futures funds by size of assets under management.

You can choose a fund based on their strategy and assets they trade (e.g. currencies, stocks, commodities, and more).

Managed futures can play a valuable role in your investment strategy, acting as a buffer in turbulent times.

While they might not consistently outperform during bull markets, their strength lies in their potential to mitigate losses during bear markets.

The key takeaway?

Diversification remains a cornerstone of successful investing – it's always wise to spread your risks.

Delicious Bites 😋

Food For Thought 🧠

"Don't tell me where your priorities are. Show me where you spend your money and I'll tell you what they are.”
- James W. Frick

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DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.