Coin Alpha: February 2021 Outlook

“In retrospect, it was inevitable.” - Elon Musk

Tesla Makes a Huge Bitcoin Allocation, Plans to Introduce BTC Payments

Tesla (TSLA) stirred the financial newsflow this Monday (8.2) by announcing a $1,5 billion allocation to bitcoin. A 10-K annual filling reveals Tesla’s exposure being 7,7 percent of its gross cash, or 15,1% of net cash. Additionally the company plans to accept bitcoin as a payment method. Furthermore, Tesla announced it will not convert future receivables into cash, instead the company will add the bitcoins directly to its balance sheet.

The contemporary bitcoin allocation by Tesla elevates it straight to a second place on company treasury list (embedded chart) with an estimated amount of 43 000 bitcoins. Only one public company, MicroStrategy (MSTR), holds more bitcoins in its balance sheet than Tesla. MicroStrategy has been accumulating bitcoin since July 2020, as its CEO Michael Saylor announced MSTR to explore purchasing bitcoin, gold, and other alternative assets instead of holding cash (USD). Saylor sees bitcoin as “hard money” and store of value (SoV). Additionally he’s mainly indicating using bitcoin as an instrument to hedge global currency devaluation, technology disruption, social dislocation & political uncertainty.

The current market cycle, emerging in 2020, has been characterized by growing institutional demand. Institutional buyers, like MicroStrategy, Tesla, and Galaxy Digital, can be considered as more like long-term holders of bitcoin. Once a public company makes significant bitcoin allocation, it’ll likely hold the asset over longer time horizons.

In a stark contrast to current market cycle, 2017 cycle was largely fueled by retail accumulation, and characterized by ERC-20 ICO funding rounds. These Ethereum based small-cap tokens were deeply speculative in nature and the scene often involved pump&dump-styled strategies. 2020 market cycle clearly shows bitcoin becoming a more mature asset.

Polkadot (DOT) Upside Potential

Polkadot (DOT) has performed exceptionally well from 2020 to 2021, closely aligned with its DeFi rival Ethereum (ETH). DOT ascended 459,18 percent between 20-21 and ETH 962,34%.

Ethereum (ETH) Price Performance 2020-2021: 962,34%

Polkadot (DOT) Price Performance 2020-2021: 459,18%

When exploring the features of the two platform, we can see they’re designed differently, yet somewhat overlapping. Ethereum’s goal is to be a platform for decentralized finance and smart contracts, while Polkadot’s angle is to allow people to build entire blockchains and integrating these chains with each other.

Ethereum (ETH) Key Features

Backend development: Solidity.

Governance: Off-chain.

Consensus mechanism: Proof of work -> proof of stake.

Polkadot (DOT) Key Features

Backend development: Rust, Substrate framework.

Governance: On-chain.

Consensus mechanism: Proof of stake.

When assessing them both from investment perspective, Polkadot’s market cap (MCAP) is only 10,14% of Ethereum’s current market cap. Hypothetically Polkadot holds significant upside potential as the DeFi market matures. Ethereum holds a dominant position in decentralized finance, but has been suffering from scalability challenges. Polkadot might increase its market share as it gains more adoption among the developer community.

Downside(s) of Central Bank Stimulus: Growing Inflation

Nordea’s Andreas Steno Larsen recently estimated that 20 percent of all U.S. dollars in circulation were created (or printed) during 2020. This percentage represents around 3 trillion USD. The exceptional monetary policies conducted by central banks have raised worries and are starting to show concrete effects. One obvious result would be growing inflation and Olli Rehn, Governor at the Bank of Finland, estimates inflation to reach >10% per annum.

Inflation is starting to show in commodities and recently agricultural commodities. Global food prices reached a six-year high in late 2020 and the trend seems to be up for 2021. The growing food prices especially threaten poorer countries with lower purchasing power and large imports. Additionally, the food price spike might elevate broader inflation, making it harder for central banks to continue stimulus programs.

Dropping Bitcoin Reserves on Exchanges Indicate Growing Momentum

Dropping bitcoin exchange reserves seem to be inversely correlated with BTCUSD (bitcoin’s price). As an increasing amount of institutional demand is entering the scene, in recent forms of Tesla and MicroStrategy, there’s a real shortage of sellers. As bitcoins built-in scarcity is added to the equation, the outcome looks particularly bullish for bitcoin.

Want to Know More?

Subscribe to Coin Alpha’s future updates here on Substack.

Editor: Timo Oinonen. LinkedInTwitter.

Disclosure: The information provided is for informational purposes only and is subject to change without notice. The information presented in Coin Alpha should not be construed as investment advice.