Crazy Or Brilliant?

The TLDR answer to the title is a little of both. 

There's a new ETF provider called FIRE Funds that target the Financial Independence/Retire Early movement, aka FIRE. For now, they have two funds, FIRE Funds Wealth Builder ETF (FIRS) and FIRE Funds Income Target ETF (FIRI). Whether they actually have anything to do with FIRE is less interesting than the allocation ideas. We'll see how they work going forward but I do believe a lot of effort went into constructing these and that's worth exploring. 

The page for FIRS says "FIRS seeks long-term capital appreciation and diversification across four strategically constructed ETF baskets that align with Prosperity, Recession, Inflation, and Deflation conditions." So it is permanent portfolio inspired. It has a lot allocated to gold and Bitcoin. 

Here is the full constituency.

There are very few familiar names in there. I read something in there somewhere that the FIRE Funds will try to use funds from Tidal, a white shoe provider, where possible which is why so many of the names are unfamiliar. Some of the funds are brand new, so new that backtesting doesn't really work so I made a couple of tweaks which gets us a year to look at. That is still very short but better than a couple of months. 

I compared it to the Permanent Portfolio Mutual Fund (PPRFX) and Vanguard Balanced Index Fund (VBAIX).

I built it without reinvesting dividends on the presumption that if someone was living off this in early retirement they'd be pulling some amount of money out. In the period backtested, it paid out a little over 5%. There was no Calmar Ratio information but the FIRS backtest had a Kurtosis of -0.02 compared to -0.57 for PRPFX and 0.51 for VBAIX. For Kurtosis, lower is better. 

FIRS has a lot of complexity, really a lot, but the result seems in line and if it can sustainably kick out a 5+/-% yield in a 4% world with decent upcapture, that sounds pretty good.

FIRI has a couple of different challenges. Here's the constituency of that one.

It has about 26% in very high yielding derivative income funds, highlighted in yellow. GDXY has only been around since May but its payout annualizes out to 32% and price only, it is down 20% since it debuted. Yahoo Finance shows QQQY yielding 93% and down 45% on a price basis since it listed 14 months ago. ULTY listed in February, the yield annualizes out close to 60% and the fund is down 50% price only. XOMO yields 23% and for one year it is down 7% in price terms. YBIT's yield annualizes out to 54% and in price terms it is down 23% since it listed in the spring. Bitcoin is up 43% since YBIT started trading. Extrapolating an annual yield is not rigorous but paints a good enough picture for a blog post.

YieldMax talks about the importance of reinvesting the dividends their funds pay out. These extremely high yielding ETFs are not going to be able to keep up with their dividends. We'll see how that plays out for FIRI but the prospectus says it targets a 4% annual income level. 

It looks like the fund will yield quite a bit more than that based on the holdings. FIAX yields 7% per Yahoo Finance, MSTI is north of 5%, SPAX yields almost 8% and VETZ yields 5% and the very high yields of the derivative income funds. FIRI too might be a situation where any payout north of maybe 5% should be reinvested to offset the price erosion. 

The backtest is true to the current makeup of FIRI so it only goes back to June but in just five months it is down just over 6%. On a total return basis, it is up 1.99%. I'm less confident in this one but maybe once it has a year under its belt it can put in a good showing. 

And in other ETF news, Bridgewater is partnering with StateStreet to package Ray Dalio's All-Weather Portfolio into an ETF. All Weather is a variation on risk parity which as we've looked at many times and has been difficult to make work in an ETF or mutual fund. The default Dalio All-Weather is prepopulated in Portfoliovisualizer as follows. 

Here's how it has done compared to 50% equities/50% managed futures (another version of all-weather?) and VBAIX.

The bond allocation has of course hurt the portfolio very much. I couldn't find the prospectus for the proposed All-Weather ETF but the Bloomberg link says that Bridgewater will deliver the model that StateStreet will implement. Where Portfoliovisualizer has a static allocation, it sounds like this new SPDR ETF will not be static. I will keep an eye out for a prospectus or if you find the link, please leave it in the comments. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

What Were You Expecting?

One of the pre-market emails that Bloomberg sends out included a passage on Monday morning noting that 96% of all ETFs are up in 2024 which is a very high percentage. Many ETFs are up a lot of course but "popular gauges tracking hedge-fund returns are scoring much smaller victories." The article goes on to say "higher-fee strategies have proved too complex for their own good" implying long short funds generally but without naming names which was disappointing. 

This is a point we have hit on many times in terms of understanding what a fund is trying to do and how important it is for holders to have the correct expectations. 

The blue, red and yellow on the bar chart are all alts that we talk about regularly on the blog, none of them are inverse funds. They are all intended to go up when stocks go down. They should have a negative correlation to equities far more often than not. Nothing is infallible, but I believe they are reliable. VBAIX, the green bar, is going to go up most of the time including three out of four years on the bar chart. The three alts looked nothing like VBAIX in 2022 which was a good thing and they look nothing like VBAIX in the other years which is the challenge of having huge allocations to negatively correlated alts and why I talk all the time about small exposures to diversifiers. 

At a high level, I want small exposures to the blue, red and yellow to help smooth out the ride of my large exposure to the green line. 

The second bar chart is comprised of alts that are intended to be horizontal lines that tilt up no matter what is going on and they generally do that but they are not infallible. In 2022, the red bar was down 54 basis points. Of course it would have been better for it to have been up a little but that sort of decline is far from a failure compared to expecting up a little and it dropping 25%. 

The Bloomberg note might have been referring to the type of funds that go for alpha no matter what and that can be a difficult way to make a living. There must be some funds out there that are always up and reliably beat the market but even then, that is a tough thing to rely on going forward. A more realistic expectation for equities is the likelihood of lagging some years, outperforming in other years and hopefully capturing most of the effect over the longer term.  

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

A Fund That Is Both Intriguing & Puzzling

Barron's had an article about Bill Ackman's closed end fund that trades in Amsterdam but is on the US pink sheets with symbol PSHZF. This post is not about that fund. There was a quote in there from Eric Boughton, one of the managers of the Matisse Discounted Closed End Fund Strategy (MDCEX). Matisse has a couple of funds of closed end funds that we've looked at before.

Closed end funds (CEF) have a fixed* number of shares. They have a net asset value (NAV) per share but because the number of shares is fixed, the market price that closed end funds trade at can vary significantly from the NAV. For quite a few years now, many (most?) CEFs have traded below their NAV, so a discount to NAV. There was a stretch many years ago that I recall a lot of them were trading above their NAV which is referred to a a premium. Fixed* in that there is no daily creation/redemption process but funds can go through a process to issue new shares via secondary offerings. 

CEFs tend to have very high yields because they usually use leverage. The basics are not so difficult to understand but there is a lot of nuance to the space in terms of certain investors or funds, Matisse, Herzfeld Advisors and Saba Capital as some examples, trying to game the discount/premium dynamic along with some other strategies.

The chart is of three very long standing CEFs and isolates one of the challenges of owning closed end funds. The charts are price only but captures the erosion that often goes with owning CEFs. On a total return basis, the compound positively but they can't keep up with the payout. 

According to Morningstar, JPC is trading at only a 0.12% discount to NAV, PPT is trading at an 8.14% discount and MIN is trading at a 3.96% discount. For what it's worth, JPC had been at a 4% discount until very recently. The respective yields of the three funds are 9.9% with 38% leverage, 9.02% with no leverage information provided and 8.91% with 23% leverage.

That all tees us up to try to figure out MDCEX. And I do mean try to figure it out because I really don't know what to make of it. MDCEX is in Morningstar's Tactical Asset Allocation (TAA) category and the Fidelity info page for the fund offers the following comparison to other funds. 

MDCEX has had the highest returns but it appears to have been more volatile. Here's a comparison I built. The returns are competitive but the volatility is much higher.

MDCEX' Calmar Ratio was the essentially same as PRPFX and a good bit higher than VBAIX, higher is better. And its Kurtosis was off the charts high compared to the other two which is not good. High volatility and higher probability of bad outlier return (Kurtosis) don't have to be negatives if the correlation is low or if you have some reason to believe it could offer some sort of first or second responder defensive attributes but MDCEX's correlation to the S&P 500 is 0.86 and it has a downside capture of 88%. 

Looking at how it has actually traded though, yes more volatility and you can see in the chart it got pasted in the 2020 Pandemic Crash (poor first responder?) falling 36% but in 2022 it was only down 6.5% so maybe there's hope as a decent second responder? Regardless of whether 2022 was a matter of luck or skill, down 6.5% in 2022 is a solid result. The question though is whether there is any basis to believe it could do something like that again.

Since it's inception, according to Arch Indices portfolio tool, MDCEX has compounded at 8.62% versus 9.06% for VBAIX and 5.78% for PRPFX. VBAIX and PRPFX are both core holding types of funds and while Morgingstar puts MDCEX into TAA, I'm not sure that is a great fit. MDCEX as a core holding, the return is decent but the stats say it is very volatile and the Kurtosis number is truly awful.

Can it add value as a diversifier, more in line with the TAA category? I built out the following to backtest where the only difference is a 20% allocation to MDCEX or iShares Aggregate Bond ETF (AGG). BTAL is a client and personal holding.

Portfolio 3 is 50/50 S&P 500/managed futures and the benchmark is Vanguard Balanced Index.

The return is higher with MDCEX but so too is the volatility. The Calmar Ratio with Portfolio 1 is ok at 0.84, better than Portfolio 2 and VBAIX. Interestingly, 50/50 S&P 500/managed futures has a Calmar above 3 which is very good. Portfolio 1's Kurtosis is pretty bad at 2.47. That's not off the charts but it's high. I played around with some similar variations of Portfolio 1 and couldn't get the numbers to change much, good performance with a lot of volatility. 

Maybe not rigorous study, but if you shorten the time frame of any of the above to start after MDCEX fell 36% in the 2020 Pandemic Crash, the Kurtosis comes way down. The outlier of 2020 has really pounded this metric for the fund but if it happened once, could it happen again?

Top holdings per Fidelity

Simple to understand return attribution.

The expense net to fund holders is very high. The management fee seems in the ballpark at 0.95 but there are things like fees of the CEFs it owns, including very high fees for the Ackman fund mentioned above, that need to be considered and adds up to 3.84%.

The idea of what Matisse is doing is very interesting me, I've been intrigued by CEFs since the 80's but it has been ages since I used any for clients or owned one personally. I don't think it is a bad fund, yes very expensive, but I think there is something to learn by following it even though I am very unlikely to ever buy it.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Prepping For The Tyson Fight

Some quick hits tonight ahead of the Tyson fight, if I can stay up that long.

Meb Faber posted this quote.

The stock market goes up far more often than not. If an investor does nothing they will capture that long term inertia. The more trading an investor does, the more they fight against that inertia. That's not to say never make changes, occasionally changes need to be made and even the occasional change could turn out to be "right" or "wrong" which is fine, no one will get them all right and no one will get them all wrong but try to let the market work for you without fighting it. 

Next

This is something I made up for possible inclusion in the end of quarter letter I send out to clients. The blue line is obviously very smooth, an unvolatile ride. It would be great to have the portfolio look like that in real life but as a goal, you can see that it will have years where it lags by a lot. Seeing short terms lags on a backtest is one thing but enduring one is another. Do you have managed futures exposure? That is going through a pretty lousy grind right now but that doesn't mean it should be given up on. However, if you own managed futures through a mutual fund it might be worth selling in a taxable account until after the year end distribution. 

I saw the following on Twitter.

In his comments, Spencer replied to someone that he was specifically talking about the Risk Parity ETF (RPAR) not the strategy of risk parity. We've looked at risk parity many times. The concept is very intriguing but it has been difficult to own in a mutual fund or ETF wrapper. RPAR has done poorly and the Wealthfront Risk Parity Mutual Fund, which has done poorly too, just announced that it is closing. AQR had a risk parity mutual fund that struggled for a long time and then they changed the name of the fund and I believe they tweaked the strategy. AQR has other funds that maybe could be described as being a variation of risk parity but even if not, they appear to be influenced by risk parity. 

Cliff replied later in the comments that "I have no idea what RPAR is doing." There was another comment that I thought was worthwhile too. @StolpyStolps said "risk parity with just stocks and bonds isn't risk parity."

I'm on Bluesky if you're on there https://bsky.app/profile/randomroger.bsky.social. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

What Are SRTs & Should You Invest?

Bloomberg had a long writeup on a new, not that new, investment product called significant risk transfer or SRT. At first glance, they appear to be a cousin of catastrophe bonds. Insurance companies lay off a portion of their risk to things like hurricanes or tornados through catastrophe, cat, bonds. SRTs appear to do pretty much the same thing for banks. The Bloomberg article is the first I've heard of these so if you know the comparison to cat bonds is wrong, please leave a comment. 

The article cites things like car loans or loans for commercial property as examples of what is held in an SRT and "in August, Morgan Stanley offered an SRT tied to a more than $4 billion portfolio of loans to private-market funds. It priced less than 4 percentage points over the benchmark..." Loans for cars and property are no stranger to getting packaged into other vehicles so I still need to learn how SRTs differ from mortgage backed securities or asset backed securities. The example of "private market funds" is not something I've heard of being packaged and sold to investors however. 

This graphic might help.

Later in the article there is a table with more info.

SRTs are probably a long way from being packaged into a retail accessible fund and it is way too early for me to have any sort of opinion on SRTs. They seem similar to cat bonds but maybe not. Like cat bonds, there will probably be opportunities to learn more about these along the way. Cat bond funds are uncorrelated return streams with pretty good yields, are not sensitive to interest rates and very little volatility. The three cat bond funds that I am aware of all reacted to hurricanes Helene and Milton but as best as I can tell there were no triggering events from those hurricanes. 

Selling insurance can be very profitable with the occasional big hit. The way cat bond funds mitigate the risk is by holding a lot of very small positions insuring different types of events.

There is also a corollary to selling put options. Buying puts is a form of insurance, so selling puts (insurance) to people buying insurance is selling insurance. 

There are probably more funds that sell puts, but these three each do different things. WDTE hasn't done as poorly as it appears. There was a name/symbol change and it switched to paying weekly instead of monthly. Portfoliovisualizer missed $9 worth of dividends from 2023 and the payout for this year isn't completely missing but does seem a little short. I'm not sure WDTE is a great hold but it is one where most of the dividend should be reinvested. PUTW from WisdomTree sells close to the money puts in a attempt to provide a lot of upcaputre, so there will be downcapture too, with some yield. Client holding Princeton Premium is intended to look like a horizontal line that tilts upward.

The three cat bond funds seem to fall in between PUTW and Princeton Premium in terms of return and closer to Princeton Premium in terms of volatility. 

I am personally interested in learning more about various types of risk transfer. Where I think there is conceptual overlap between put selling and cat bonds, the two categories appear to be negatively correlated to each other.

WDTE and PUTW are tightly correlated to the S&P 500 but PPFIX has a negative correlation to the index. EMPIX is a personal holding that I am test driving for possible use in client accounts. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Simplicity, Hedged With A Little Complexity

Before we start, a quick follow up on Bitcoin. Mike Novogratz of Galaxy Digital said the following.

At $500,000 we would have a nice gain of course but that price level solves absolutely none of the world's problems. 

On to today's post. We have a lot of fun here with portfolio theory. The conversation sometimes looks at some pretty extreme ideas with thought process being not to adopt extreme ideas to actually use but what can we learn and should the extreme have a little influence over how the portfolio is actually constructed an managed. For example, we look at how 20 and even 30% allocations to managed futures could effect long term performance, correlations and volatility and it's instructive and leads me to allocate a little to managed futures but nothing like 20-30%. For my preferences, those huge weightings are extreme. 

I wanted to apply this topic to how our (my wife and me) retirement accounts are allocated. I've touched on this some over the years but I came to the conclusion that advisors are very leveraged to the stock market's ups and downs before putting any money to work into equites. This is something Meb Faber has discussed a few times too. I figured this out for myself long before I saw anyone else write about it. Not claiming originality, just that this seemed obvious when I first got into this part of my career a little over 20 years ago. 

When someone hires an advisor, they probably don't want their advisor spending all their time actively trading their own account or being in a position where they (the advisor) are having an emotional reaction to market events that would lead to panic selling or some other behavioral mistake. 

Because of all of that, I've always been very heavy in cash or cash proxies. The current cash/cash proxy allocation is 54%. Our equity exposure is currently 22%, comprised of very simple beta. So that's 76% in very simple exposure, cash and plain vanilla equities. We have 8.6% in Standpoint Multi-Asset (BLNDX) which is more than clients typically have. Our exposure to alts is just over 9% split among four funds, a couple of which I'm test driving for possible across the board client use. For this conversation, I'm putting BTAL in it's own category as a first responder at 1.8%. That's a little low, I think it is low as a percentage because we contribute to these accounts. Our last sleeve is asymmetry which is Bitcoin and a smaller position in Ethereum which totals 4.3% these days. We also have more Bitcoin outside of our retirement accounts. For this exercise I excluded our joint account which is also in cash/cash proxies plus the Bitcoin I just mentioned. 

The Bitcoin has gone up in value since I bought it six years ago but we've made many contributions to these accounts over that time and even though the equity percentage has always been small, that sleeve has gone up quite a bit too. So while I did start the Bitcoin at about 1% back then, it's not as big of a weighting if I hadn't been making contributions every year. 

It's difficult to get an accurate backtest due to lumpy contributions and I added to other holdings at various but sporadic points along the way so if there is any utility to the back test it would be more about portfolio stats and maybe what to expect the next time the equity market goes down a lot. 

I set it to not rebalance, I'm a believer in ergodicity. It's not that I made no changes but I am closer to not rebalancing than rebalancing. Portfolio 2, the red line is closer to the reality of the last few years. It certainly looks nothing like the stock market in terms of CAGR or volatility but it's a pretty smooth ride. The Calmar Ratio is 0.65 which is not so hot but the Kurtosis looks very good at -0.57.

Portfolio 1, the blue line that started at 4.3% in Bitcoin might help create some understanding of what Portfolio 2 will look like from here in terms of volatility and other portfolio stats. For Portfolio 1 the Calmar was worse than Portfolio 2 at 0.28 while the Kurtosis of Portfolio 1 comes in at 0.26.

The backtest shows Portfolio 2 going down 6.06% in 2022. I have no idea if it was actually down 6.06% or more than that or less, the portfolio is constructed in such a way that I don't sweat declines. Of course that means it lagged far behind in 2023 and this year. Portfolio 1 was down 15% in 2022 because Bitcoin was down 64% that year. From here then, if Bitcoin grows to a bigger part of the portfolio than it is now, the next time Bitcoin goes down a lot after that, I would expect the portfolio to feel that impact. That's the bargain you strike with asymmetry.

In a couple of recent posts, we've kicked around some huge numbers in trying to explore the reality and utility of what Bitcoin might become. At 4% of our retirement accounts if it goes up 5x from and everything else stayed the same then Bitcoin would be a little over 20% of our accounts. Then let's say it hovered at that level for a bit and I got used to our accounts being that size and then it cut in half, that might be a little painful of course. The huge gain of the last couple of weeks doesn't feel real yet. Again, that is the bargain you strike with asymmetry. 

Closing out, I try to keep things as simple as possible, but there is some complexity bundled in, I would say just with the alts and maybe BLNDX but some might view BTAL and Bitcoin as being complex too. My priority is getting a real return without getting to the point of sweating the market's volatility to the point of succumbing to emotion. Fortunately it's a line I've never gotten anywhere close to.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

The Bitcoin Factor

Let's start with a pretty good article about factor investing from Morningstar. This is how they capture factor performance over the last 11 years.

Of the seven factors listed only quality, momentum, low volatility and value have taken turns at the top. Market cap weighting was second best three times and third best five times. Five of the factors have taken a turn being the worst including value which was the worst performer five times. There's a methodology twist in there somewhere because in past blog post we've seen years where market cap weighting did better than what they have laid out. The bigger point from their periodic table is that there is a lot of churning around with this and as we've said, no strategy can always be best. 

The following chart might be difficult to read but you can play around with some of these categories yourself  to try to look for any signal within the noise.

I used OVL for derivative income even though it's only been around since 2019. It's not a covered call fund, it sells put spreads as an overlay on top of owning the S&P 500. It has better upcapture relative to the older covered call funds. We have a decent sample size in terms of number of years and different types of events in those years including up a little for the broad market, down a little, up a lot, a crash and a bear market. 

In comparing straight up, only momentum and growth compounded meaningfully higher than market cap weighted (MCW) and quality was better the MCW by just a whisker. OVL is pretty close based on price only to MCW when you adjust the time to OVL's inception. 

I don't think I would expect minimum volatility to keep up with MCW over any long period so not much to say there. Value and dividends had slightly different paths to a similar outcome. Those two tracked closely until dividends broke higher in 2021, outperforming by almost 14%. Shareholder yield and buybacks tracked very closely to each other which makes sense until very recently. Early on SYLD lagged MCW badly but PKW was pretty close until it wasn't. PKW has been about 2000 basis points better than SYLD.

In the past I've said if you're going to go the factor route, you just need to accept that any factor you choose will at times be the worst. There should be times where it is the best too but value investors have been waiting a long time. I've also talked about blending factors to try to get some sort of superior risk adjusted result. 

If you go narrower than broad indexes then you already bring in most if not all the above factors plus any others out there through individual names or narrow based ETFs like sector, industry or niche. 

Other than for blogging purposes, I haven't spent any serious time looking for an optimal factor blend, it's not something I am going to implement IRL but I suspect a combo of a lot momentum and a little in something with some yield like maybe one of the newer derivative income funds might get close to be a solution. To be clear, I don't mean a single stock covered call fund that yields 60%.

Speaking of which, YieldMax, the king of the 60% yielding single stock, covered call ETFs, is planning to roll out a targeted yield fund that "yields" 12%. There's not a lot of information yet but this could be useful in terms of devising a depletion bucket. I put yield in quotes because I assume part of it will be return of capital. 

The last few weeks have been rough for bonds with duration. 

For the few months before I started this chart, they'd all gone up but it was a serious rollercoaster, check out the chart for yourself. Now, in less than a month they've been crushed. Maybe AGG's decline doesn't constitute a crushing but if you follow markets would you say this recent decline was a surprise? The commentary of course has been that Trump's proposed policies will be inflationary so maybe the FOMC will slow down and now the curve is steepening. I think everyone understands the argument here, will it turn out to be that simple of a cause an effect? I don't know but what I have more confidence in is the belief that bonds with duration continue to be sources of unreliable volatility. There are far better ways to offset equity volatility and bring in a little yield than riding 20 year treasuries. 

You probably know that Bitcoin has gone berserk since the election with the lift being attributed to the new administration being more favorably disposed to crypto and considering starting a Bitcoin reserve fund of some sort. At just above $88,000 as I type this, the market cap is $1.7 trillion. How much can the US buy at this level to have it matter? If they can buy $10 billion worth right now, I don't know if the market could accommodate that but Yahoo shows today's dollar volume at $126 billion so maybe, how high would it have to go in order for it to eventually matter to an economy the size of the US? 

Jim Cramer Tweeted out that there's no way Bitcoin goes to $1 million. Obviously, he has no idea, no one can know but think about that number. If it went to $1 million from here and somehow the US put $10 billion in today at $88,000, that would be an 11-12 bagger. At a 12x gain, so Bitcoin actually going to a million, $10 billion now would grow to $120 billion. That'd be a nice gain but would do very little in terms of scaling up to help the US government somehow. 

I'm not skeptical about $1 million, I just don't think it solves anything. If Bitcoin is not the savior of the world, it is a speculative asset that frequently goes up a lot. There's $7.5 trillion worth of gold above ground globally. There's not enough gold for the US to go back on the gold standard as some people talk about occasionally. Literally not enough unless you devalue the hell out of the dollar. 

There's talk that it's not a matter of if Bitcoin flips gold but when. In terms of being the currency that solves the world's problems, flipping gold means nothing, it's 4.4x from here. Again though, that'd be a nice gain. 

I guess I am less skeptical about it going to some sort of unfathomable number as I am about the market cap being worth quadrillions of dollars, or big enough to save the world. At $10 million per bitcoin or 120x from here, the market cap would be $208 trillion. The other day we guessed that maybe two billion people might be able to access any Bitcoin at all (a bigger number only supports my point), then each of those two billion people would have $104,000 worth of Bitcoin if you divided it evenly which is of course not possible. In the context of retirement or a lifetime of spending, $104,000 is a drop in the ocean.

It could go much higher and then disappear or forever remain a speculative asset that keeps going up but it is very difficult to see it being big enough to do what the touts say it will do. I've been saying for years, if you want to speculate, start with an amount that you could watch go to zero without damaging you financially. Then let it either succeed or fail and if it grows into a life changing piece of money, sell it and let it change your life. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.