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Can we still avoid a climate crisis?

During the crypto winter from mid 2018 to early this year I spent a lot of time studying other fields that I am interested in. Among others I did some courses in Artificial Intelligence (AI), I looked at how Virtual Reality (VR) will change the world, and I started reading more about the causes and effects of global warming. Both AI and VR will make the world a much better place, even though it can lead to a lot of job losses and general AI could eventually be a threat to humanity (however, I think that general AI is still many decades away, if we ever get there). Global warming, however, will be devastating for mankind if we don’t act right now. I did not realize how close we are to the end of the world if nothing changes within (literally!) the next couple of years. We have only about 11 years left before it will be too late.

I have been thinking about climate change since Al Gore’s An Inconvenient Truth came out about 15 years ago. It did have quite an impact on me and it is one of the reasons why I did not buy a house at sea level in Vancouver. However, looking back my focus was way too much on just sea level rise. That is certainly a big effect of climate change, but there are much worse effects than that. Effects that could literally make humans extinct if we don’t act. Because of that urgency I stopped calling it climate change, but I tend to now mainly call it the Climate Crisis or the Climate Catastrophe.

My biggest worry is actually the general apathy that many people seem to have when it comes to the coming climate catastrophe. They do not ‘believe’ that the climate crisis is real or that it will affect them. Many of them are the same people that believe in conspiracy theories, but even some more intelligent people don’t seem to get what is happening to the world (including some of the smartest people in the Bitcoin community). Part of the reason seems to be social media, where people live in a bubble of like-minded people and only read what they want to read. Another is ‘fake news’ in some traditional media. This news wants to make people believe that temperatures may be rising, but that that is not due to human actions so we don’t need to do anything. Also people have lost trust in their governments and believe that climate change and environmental policies are just reasons to tax them more. For me the evidence is so clear that it’s hard to understand why some peoples still not see why the climate crisis is happening. It is simply impossible that the fast increase in temperatures over the past century is not due to human activity, temperatures have changed a lot in the past but never at this speed.

I do believe that because weather patterns are changing so fast more people will likely change their minds over the next years, but by then it might be too late. Luckily the younger generations seems to understand the risks, but they may not have enough power yet to change the world. The fact is that the world needs to come together to solve this problem. We have all the tools to solve the climate crisis, but there is no political will. And even if there is you get stories in the press about ‘other countries not doing anything, so we don’t need to do anything either’. I find it so short-sighted when I hear people reasoning like that, but it’s simply because people did not get the message or don’t see the urgency yet. That needs to change,

What will happen and when? First of all, we need to make sure that the level of carbon dioxide (CO2) stays below 450 ppm. We are currently at about 415 ppm, a year ago we were at 409 ppm. 450 ppm coincides roughly with a 2 degree Celsius temperature change in the world. That does not mean that all temperatures go up by 2 degrees, but the average temperature will go up 2 degrees. In the polar regions the temperature might go up 7 degrees or more and in other regions the effect might be less. You may think that 2 degrees does not make a lot of difference, but it actually does because this is an average. When temperatures on earth were 4 degrees lower than now Boston and New York were covered by one mile of ice! There will be more extreme variations in temperature which will make some parts of the world unliveable. If things don’t change we will hit 450 ppm by 2030, 11 years from the moment I am writing this article.

If we get over 450 ppm the climate crisis will be almost inevitable, simply because then not only the arctic will melt but also because of the thawing permafrost in northern Canada and Siberia. The problem with the permafrost is that a lot of methane is buried below it, it is a permasink of methane that suddenly becomes a permasource. So once we are above 450 ppm methane will get released into the air, which is a big problem. Methane is dozens of time more powerful as a greenhouse gas than CO2. It will exponentially increase the greenhouses gasses in the air we breathe, leading to an acceleration in the temperature increase, leading to more permafrost thawing etcetera. This so-called clathrate gun hypothesis could take place within our lifetime.

The immediate effect will be sea level change, the most talked about impact of the climate catastrophe. Once we hit 450 ppm and methane gets released we could get several meters of sea level increase. Not just cities like Miami (and most of Florida for that matter) will be under water within the next 20 years, but many of the most important cities in the world. That is a major loss financially of course, but it’s just a small effect of climate change. There are much bigger effects that people do not want to see.

One is that the weather will get a lot more severe. Warmer oceans lead to more and stronger hurricanes, meaning that large parts of the world may get hit yearly by storms that are much worse than the ones we currently see. I would not advise anyone to buy real estate in the Caribbean anymore. Certainly not at sea level, but probably also not higher up on the mountains. You may be in for some unpleasant surprises.

Warmer weather also leads to more forest fires. The fires in California last year were no coincidence and we will likely see them again this year. The same for the fires in British Columbia and Alberta. Vancouver had quite some smog during the summer last year caused by forest fires. That will be an annual occurrence very soon.

But it also means that sailing the seas could become more dangerous. I was listening to a podcast recently in which an ocean sailor was interviewed. He had been racing the world for the past 20 years and he said that the waves and storms in the Southern ocean seem to be getting more dangerous, to the point that it may be impossible to sail there in the future. It was the first time I heard that, but if an experience sailor says that I tend to listen.

Much, much worse however, is an effect of permafrost thawing that you don’t hear about much yet. That is there are many viruses hidden below the ice, viruses for diseases that have been extinct for centuries or millennia. We do not have protection against these diseases because our immune system has not encountered them yet. In 2016 thawing permafrost led to an anthrax outbreak in Siberia, when reindeer carcasses defrosted and the anthrax bacteria in them spread into the water. At least one person died and about twenty got sick. Luckily this was just a local outbreak, but it could be much worse. Scientists already found small pox bacteria and Spanish flu in buried reindeer and they found that some bacteria can survive for tens of thousands of years below the ice. Once these diseases start spreading humans have no protection against them and millions or even billions of people may die. To me that is the most dangerous effect of the climate crisis, simply because we can’t protect us against this.

There are other effects that are overlooked, for example the effects on the food supply. When temperatures go up 2 degrees the areas where grain is grown will not be as fertile anymore. The best place to grow grain would like shift up 500 or more kilometers. But of course there are no grain field there and it will take years to cultivate the land there. This could lead to a global grain shortage. But not just grain, this is true for most staples that we consume. Even fish might suddenly disappear: when the sea gets too acidic or simply too warm many fish species can’t survive and will go extinct. Large parts of the world’s oceans may become completely dead. Famines might become the new normal.

The world will become unliveable in most of what is now the tropics, simply because it will be too hot for humans to survive. Large parts of the world’s coast lines will disappear as well. These people can’t stay there, so there will be a huge migration. Not millions but likely at least a billion people will need to relocate. The current immigration issues in Europe or North America are for the most part caused by the climate crisis already, but many people don’t realize this. It will only get worse, much worse.

There will many more direct and indirect effects, but these are the ones that worry me most. They worry me because we have no time left to change the way we live in order to avoid a catastrophe. Every year that we wait the costs to reverse the climate catastrophe rises exponentially. We have to make radical decisions such as immediately changing to electric cars only and almost completely stopping air travel. We should change to renewable energy as soon as possible (also for Bitcoin mining!) and get rid of the oil and gas industry. Right now that may be hard to imagine, but if we don’t do it the effects will be even harder to imagine. It will be extremely painful, with many people losing their jobs and their financial security. It means we have to change our fossil fuel culture, something nobody wants to do but something we all have to do.

The world has to come together to solve this. I believe we will start reading a lot more about the reality of this crisis soon. I also believe most people will eventually be convinced that they have to act. But by then it might be too late. Change has to happen now. It is much more expensive not to act on climate than to take even the most aggressive action today! We have to do it, we have no choice.

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Hut 8: the best alternative to buying Bitcoin?

Despite Bitcoin becoming more well known to the general public, most investors still don’t own any. A big reason for this is that they do not understand Bitcoin or that they find the asset class too risky or volatile. That’s not surprising, because Bitcoin is not something that you can understand by just reading a few online articles. You need to invest time to read books like “The Bitcoin Standard” or to do a Khan Academy course to really understand why Bitcoin is so important and why it will never go to zero. I have never felt more bullish about Bitcoin than right now, it is as if we are heading for a perfect storm that will benefit Bitcoin in ways most people can’t even imagine.

Next to not understanding Bitcoin, another reason why investors don’t hold Bitcoin is because it is hard to buy and keep safe. It is a new asset class that you can’t hold in your traditional brokerage account yet. And even if you manage to buy it, it is scary to keep it safe yourself. Sure, you can put Bitcoin on an exchange, but most exchanges are a lot less safe than banks. So you need to find other ways to do it, and for most people that is just too technical.

Exactly for that reason Sean and I started the FBC Bitcoin Investment Trust about 2 years ago (we recently sold this trust to 3iQ). It was a great product for investors to get access to Bitcoin without having to buy or hold it themselves. The only downside is that it is a product for accredited investors, so most investors are not eligible to buy units in the trust. Only once an ETF gets launched every investor can get access to this asset class without having to physically hold the coins.

Another product you could buy is the Grayscale Bitcoin Trust that is listed in the US. It is a great product and it’s easy to invest in it for everyone. However, the downside is that the units are traded at a price far above the Net Asset Value of the units. Currently the implied Bitcoin price for these units is about 30-40% above the real price of Bitcoin. That is fine as long as nothing changes in the market structure, but once an ETF gets approved this premium will likely evaporate very quickly.

There are several listed companies that give you access to the digital asset class, but most are either blockchain companies with no direct Bitcoin exposure or companies that focus on altcoins or a combination of Bitcoin and altcoins. If you want exposure to just Bitcoin there is not a lot of choice on the equity markets, and I believe that there is only one credible stock out there: Hut 8 Mining (stock ticker: TSX:HUT.V). Full disclosure, I co-founded Hut 8 Mining and am still a fairly large shareholder, so keep that in mind when you read this. However, I am not an insider anymore (which means I only know as much as the company publicly communicates) and I mainly write this because many investors are not aware of Hut 8 yet.

We started Hut 8 in late 2017 because we saw an opportunity to raise money in public markets for a Bitcoin-only mining play. This turned out to be correct, because we managed to raise quite a lot of money in a matter of weeks and listed the company in early March 2018 on the Venture board of the Toronto Stock Exchange. We were lucky of course that we did this at the end of the bull market of Bitcoin, when everybody wanted to get exposure to crypto assets. In comparison to some of its competitors, Hut 8 has performed quite well during the bear market, and now that a new bull market has started I believe it could outperform almost all other public equities.

Hut 8 provides investors with direct exposure to bitcoin without the complexity of buying bitcoin. Investors avoid the need to create an online wallet, wire money offshore and understand how to safely store their bitcoin. And, you can own Hut 8 in your securities portfolio along with other stocks.

Hut 8 mines Bitcoin and no other cryptocurrencies. It stays away from mining Bitcoin Cash, Bitcoin SV, or other Bitcoin forks. It has an exclusive contract with Bitfury to use their blockboxes (shipping containers filled with bitcoin mining chips) in North America, which gives the company access to the best equipment at the lowest prices.

Hut 8 is the largest Bitcoin mining operation in North America with over 95 MW dedicated. The company mines much more efficient than most other miners, and currently mines at a price of around US$3000-3500 per Bitcoin while prices are more than double that. Per day Hut 8 mines about 25-30 Bitcoin, so after all costs it nets about US$120,000 per day. Because Hut 8 keeps most of the coins it mines the value of Hut 8 goes up (and down) with the Bitcoin price. Therefore, if you are bullish and believe Bitcoin might go back to an all-time high again this year (around US$ 20,000), the value of the coins that Hut 8 now mines every day is not $120,000 but about $500,000 per day. Once Hut 8’s war chest becomes big enough it may actually consider to be the first cryptocurrency company that will pay a dividend to its shareholders.

If you look at Hut 8’s price chart, you will see that the correlation to Bitcoin is pretty high (about 90%). After we took Hut 8 public, Sean and I developed the theory that because there is not a lot of outstanding stock, Hut 8 might go down more than Bitcoin in a bear market, but also go up more than Bitcoin in a bull market. I guess we were proven correct, because Hut 8 went down to $0.80 at the end of the bull market (at the end of March when Bitcoin hovered in the low $5000s), but went up 300% since then while Bitcoin ‘only’ went up about 80%. My belief is that Hut 8 might keep outperforming Bitcoin over the next year, simply because there is not a lot of supply of stock.

This piece is not meant as investment advice, but mainly to help people better understand what alternatives there are to buying Bitcoin outright. I personally believe Hut 8 is the best alternative, but as I mentioned I helped start the company so I may appear to be biased. As always, do your homework before investing and never invest more than you could lose!

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What’s happening with Bitcoin?

I get questions about Bitcoin and crypto almost every day from investors in First Block Capital or from investors in one of our crypto products. The main question is always my view on price, why did Bitcoin go down so much and what will happen in the future? After writing many emails about it and having many conversation on this topic, I decided to put some of my thoughts here as well.

Markets always overshoot, both on the upside and on the downside. Looking back to what happened a year ago when Bitcoin hit all time highs almost every day around this time, it’s now clear that the Bitcoin price went up way too fast and that it overshot it’s “real” value. What was happening is that because price went up so much demand increased fast, but nobody wanted to sell. That led to an even bigger increase in price, which in turn led to even more demand. This whole carousel stopped when the price hit almost $20,000 and some people started taking profits, meaning the supply went up. This caused the price to go down and some of the latest investors started to panic (they had never seen Bitcoin going down) and started to sell. The market stabilized after a couple of months and for many months the price hovered between $6000 and $8000. News reports about Bitcoin being more stable than Twitter stock came out, but they were a bit too fast.

Over the past couple of weeks Bitcoin saw another huge reduction in price. This happened all of a sudden and not many people had expected this (I for sure had not seen this coming). The main reason seems to have been the hard fork in Bitcoin Cash. I have never been a fan of Bitcoin Cash (BCH), mainly because of the scammers and criminals behind it and because of how they have been trying to destroy Bitcoin itself. The group behind BCH got into a disagreement about what the future of the coin should look like and that led to a split (a hard fork that split BCH into 2 different coins). Normally a hard fork pretty quickly has a winner and a loser, but because both parties behind the coins had tons of money they both invested crazy amounts o money in mining these coins to make their coin the winner. I think that what happened is that in order to finance this race, they had to sell their Bitcoin. This led to an increase in supply while demand was very stable, with a huge drop in prices as a result. That caused a panic among people that still held their Bitcoin and believed it would never go below $6000 (“Bitcoin might go to zero!”) so a whole wave of new selling occurred, causing Bitcoin to drop even further.

What we are seeing now is another example of the market overshooting its target, but now on the downside. My gut feeling tells me that Bitcoin would be fairly priced in the $12,000-$15,000 range right now (which would be more in line with prices that most miners could profitably mine at), but in reality the price is in the $3000-4000 range. It’s once again supply and demand: a year ago everybody wanted to buy and not many people wanting to sell, now it’s a lot of people trying to sell their coins while there is not a lot of demand. I believe today’s prices are a great entry point if you are new investor or a good way to get a lower average price of your coins. Sure, Bitcoin could go down even more, especially with people selling for tax purposes (losses that can offset capital gains), but I don’t see it going much lower anymore.

I am actually surprised prices are so low, even though with hindsight I can explain why it happened. But I also know this bear market won’t last forever, simply because too much is happening in the space. Earlier this year I publicly said that I expected the Bitcoin price to be in the $20,000-$30,000 range by the end of 2018. This prediction was based on institutional capital coming into the market. That has not materialized yet, simply because it took much longer to get products and services approved. For example, a Bitcoin ETF has still not been approved by the SEC, despite many reputable companies filing to launch one. It will happen eventually (put February 27, 2019 in your calendar, by then there will be a final decision on the Van Eck ETF, the most promising candidate to be approved), and once it happens it may be a catalyst for a new bull run. But also other institutional products took a lot longer to get to market, for example institutional custodians and institutional exchanges. But that is all changing, with Goldman Sachs investing in BitGo and Fidelity launching a crypto custody product. Also a Bitcoin settled future will have a big impact (BAKKT will launch this in late January 2019), because in order to settle the transaction physical Bitcoins have to be bought (so far all Bitcoin futures were cash settled), meaning increased demand for coins. Once these products are live it will be a matter of time. None of the institutions wants to be first, but once one or two announce that they invest in crypto the others will follow. Nobody wants to be last either, so everybody aims to be a fast follower. When will this happen? Nobody can tell, but given the time frame when these products will be live I think prices a year from now may be significantly higher.

My long term view on Bitcoin has not changed at all. I still believe that Bitcoin might eventually be worth hundred of thousands of dollars per coin. My views on this are even stronger now than a year ago, partly because of new developments in the space (things like Lightning Network that will make Bitcoin a currency with lightning fast transactions at almost zero cost) and partly because I have changed my view on Altcoins significantly. A year ago I still believed we would have a world with hundreds of altcoins that could all be very valuable. Now I believe we will end up with maybe 10-20 valuable altcoins, while the rest may go to zero. Only the altcoins with strong teams and with properties that other coins don’t have will survive. Several of the top 10 coins may not survive, even the number 2 coin (XRP) will likely disappear once the SEC determines it is a security. I am also not that worried about forks anymore. Bitcoin has proven many times that it can survive hard forks, and the current slow death spiral of Bitcoin Cash is another example of this. The increase in Bitcoin dominance (the Bitcoin market cap as a percentage of the total crypto market cap) to over 50% shows this as well.

The current bear market reminds me of the dot com boom and bust in the early 2000s. At that time the media predicted the end of the Internet and that e-commence would never work. But guess what, 18 years later the most valuable companies in the world are the tech companies that nobody believed in anymore. Amazon went down from close to $100 to $6 during the dot com bust, Bitcoin is actually doing relatively well compared to that decline. This year Amazon hit $2000, over 20 times its all time high during the dot com boom and over 300 times the value during the bust. Assuming Bitcoin is the next Amazon a 20X at its all time high would be a price of $400,000 and a 300X based on the current price would be more than $1 million per Bitcoin. Don’t give up on Bitcoin yet!

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The Lightning Network: a huge opportunity to learn and earn money

Now that Bitcoin is in a bear market it’s a good opportunity to work on new business opportunities in the crypto space. Once the next bull run starts the emphasis will be mainly on price again and it will be harder to focus on building out new ideas. One of the things we are focusing on at First Block Capital is the Lightning Network, a second layer solution on top of the Bitcoin blockchain (and several other blockchains) that will lead to super fast and super cheap transactions. Basically Lightning makes Bitcoin the perfect payment method. There are still a lot of hurdles to overcome before we are there but I am confident the teams working on it will get there.

I was relatively late to the Bitcoin game (I first started investing in early 2013), but I was early to the Lightning Network. Last year I invested a small amount in Lightning Labs‘ seed round (through AngelList) and have been closely following the technology since. After the initial beta for developers earlier this year I started looking for business models on top of Lightning (Lightning Apps (Lapps), basically 3rd layer solutions on top of a blockchain) but also realized we needed to set up a Lightning node at First Block.

We did set up a node and quickly became the 6th most connected node on the Lightning Network with over 200 open channels. This sounds easier than it is, the Lightning network is still very user unfriendly and opening up channels is a time consuming manual process. At one point we actually lost half of our channels and our in-house Lightning expert Chang Li had to set them up all over again.

However, the return on investment is huge. By trying and breaking things we learn a lot about Lightning, information that is not available online yet, and I believe we now know more about Lightning than most other companies in the crypto space. But even better, we also make money with it! I had seen theoretical models that predicted that well connected nodes can earn 60-80% per year in Bitcoin on the funds in its channels, but I thought that would only be the case once Lightning would be more mature.

Turns out I was wrong. After many of our channels had crashed Chang added up the money in our node to see if we lost anything and it turned out we had made about $125 in just one week on an investment of $2000 (spread over 200 channels). That is over 5% per week! We paid about $60 in transaction fees to set up all the nodes, so basically we earned that back in 3-4 days and all returns after that are profit (not taking the time to set up the nodes into account nor the cost of the server). We can always close our channels and get our $2000 investment back, plus all the fees we earned.

The ‘problem’ is that we don’t know how we made this money. Lightning is so new that you can’t easily see which (or even how many) transactions went through your node and how much you made per transaction. Our thinking is that Satoshi’s Place (an interesting Lightning ‘game’ based on the million dollar homepage) led to a large number of transactions through our node, but we don’t know for sure. We are now looking at how we can best record the number of transactions and the average fee per transaction (we believe gathering and analyzing Lightning data may be another angle to earn money).

We have a lot more ideas for Lightning that we may work on. My personal opinion is that if Lightning should take off it will change the Internet as we know it. Not only will Bitcoin go sky high, but it will likely change the business model of most of the top Internet companies. I believe the next generation of multi-billion dollar companies may be based on Lightning and now is the time to start thinking about them and build (or fund) them.

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First Block Capital gets first cryptocurrency investment fund license!

Over the past couple of months Sean and I worked extremely hard to become the first fully regulated cryptocurrency investment fund and we pulled it off together with Jason Brooks and his legal team at BLG! The British Columbia Securities Commission granted our company First Block Capital its license and called it a landmark registration in a press release earlier today. Super happy with the result.

This week we will launch the FBC Bitcoin Trust, our first product that we will roll out globally to institutional & accredited investors. Next week our roadshow will start, looking forward to getting the financial world into Bitcoin!

B.C. Securities Commission grants landmark bitcoin investment fund manager registration

VANCOUVER, BRITISH COLUMBIA–(Marketwired – Sept. 6, 2017) – The British Columbia Securities Commission (BCSC) today announced the first registration of an investment fund manager in Canada solely dedicated to cryptocurrency investments. The BCSC has granted First Block Capital Inc. registration as an investment fund manager and an exempt market dealer in order to operate a bitcoin investment fund.

“Cryptocurrency investments are a new and novel form of investing in Canada. We have seen from the market and from investors that there is a strong appetite for access to these kinds of investments,” said Zach Masum, Manager, Legal Services, Capital Markets Regulation, and leader of the BCSC’s Tech Team. “This first registration allows access to bitcoin investments, while providing the BCSC with unique mechanisms to monitor operations in a rapidly developing area.”

Cryptocurrency investments raise risks that are different from traditional asset classes, including the cybersecurity risks inherent in dealing with digital currencies. These risks relate not only to the registrant, but also to the bitcoin fund’s custodian, a third party chosen to facilitate the safekeeping and exchange of bitcoins.

The conditions of registration imposed on First Block Capital were crafted to give flexibility to allow them to operate under the present regulatory framework, and give tools to the BCSC to evaluate the identified risks of this innovative fund type. First Block Capital is also now registered as an investment fund manager and exempt market dealer in Ontario; the BCSC is its principal regulator.

“We strongly encourage other companies in British Columbia, whether they are potential new registrants or existing investment fund managers, to contact the BCSC’s Tech Team if they are considering pursuing cryptocurrency investments in their funds,” said Masum. “The Tech Team can help ensure compliance with securities regulation, which can help save time and potential costs later on.”

The BCSC launched the Tech Team in January 2017 as part of its fintech outreach initiative to help B.C.-based fintech and technology companies understand their securities regulatory requirements. The Tech Team is also actively involved with the Canadian Securities Administrators’ Regulatory Sandbox Initiative, which supports fintech businesses seeking to offer innovative products, services and applications in Canada.

The Tech Team will continue engaging with key stakeholders, and anticipates issuing a publication later this year summarizing results of its outreach and proposing next steps to meet the needs of B.C. financial technology industry participants.

More information on the BCSC’s fintech outreach can be found on the BCSC’s technology webpage. The BCSC’s Tech Team can be reached by email at TechTeam@bcsc.bc.ca.

About the British Columbia Securities Commission (www.bcsc.bc.ca)

The British Columbia Securities Commission is the independent provincial government agency responsible for regulating capital markets in British Columbia through the administration of the Securities Act. Our mission is to protect and promote the public interest by fostering:

  • A securities market that is fair and warrants public confidence
  • A dynamic and competitive securities industry that provides investment opportunities and access to capital

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Want to invest in Bitcoin? The Canadian Bitcoin Trust just launched and is now available to eligible investors.

As most of you know I am a big believer in Bitcoin and I have been for years. I invested in Bitcoin, I invested in Bitcoin companies, I speak at Bitcoin and blockchain conferences, and I founded and run a blockchain company. One thing I realized over the years is that buying Bitcoin and keeping it safe is still a major hurdle for investors. Experienced “Bitcoiners” may think it’s easy, but if you have never bought coins and you need to transfer money to an exchange and then set up a wallet, it can be a daunting task. If you invest a significant amount of money you want to make sure the bitcoins are safe and you may worry about getting hacked. So many people asked me about how to buy Bitcoin that last year I decided to solve this problem.

The idea Tom Kineshanko and I came up with was to launch a trust that would issue units that represent part of a bitcoin. People can buy these units, so effectively they buy small parts of a Bitcoin without having to physically buy Bitcoin themselves and without having to worry about being hacked. It’s comparable to buying shares in a private company, although in this case the company is Bitcoin and the shares are relatively liquid.

In order to get this started we teamed up with super-entrepreneur Sean Clark, who is among others the former Co-Founder of Shoes.com. Together we founded First Block Capital earlier this year and raised $700,000 for it in one week (probably a record for a start-up in Vancouver). FBC is the management company that will eventually run several funds, including a cryptocurrency hedge fund that will be managed by Tom, and the first vehicle we started was a Bitcoin trust.

Sean and I launched the the Canadian Bitcoin Trust in June to accredited investors, with a minimum investment of $1 million per investor. But our aim was to open it for retail investors as well. That was easier said than done, because you need licenses to sell to the general public – which is a good thing in my opinion, there have been too many scams and pump & dumps in Canada. So we applied for these licenses but it will take at least a few more months to get these and we wanted to be the first to launch a product like this to the retail sector in Canada.

We managed to become the first by partnering with FrontFundr, an equity crowdfunding platform based out of Vancouver. I am a shareholder in FrontFundr and I am on their Investment Committee, so I knew they had these licenses already and that we could potentially work with them if we would prepare a so-called Offering Memorandum. Together with our law firm (Borden Ladner Gervais, BLG) we worked crazy hours over the past couple of weeks to get this done and this week we got the green light to put our offering online. Having the best law firm was not cheap, but BLG helped us to navigate the many hurdles and potential roadblocks, and they were fully committed to help us to launch as soon as possible. I am very impressed with their work, especially after having worked with many other top law firms over the past decade.

We are now officially the first investment vehicle (in Canada) that allows eligible investors to own bitcoin through owning units of a trust. We know a couple of other firms are working on similar ideas and one even tried to launch yesterday as well – too bad they didn’t know we already launched a month ago without mentioning it in the press. We have big plans for the future of the Canadian Bitcoin Trust, but I can’t write about it here until we have our licenses.

If you’re interested to own some Bitcoin you can go to our campaign on FrontFundr and invest on the site. The minimum investment amount is CAN$500, there is no maximum amount. Except for US citizens we should be able to accept investors from most countries in the world, as long as you are able to invest in Canadian Dollar (so Chinese who want to invest would have to get C$ first). If you are an accredited investor who wants to put in at least $1 million please get in touch with me directly. The press release for our launch is here.

Happy investing!

Note: This is not investment advice! Bitcoin is very risky and investing in the Canadian Bitcoin Trust could mean losing all your money. Please read the Offering Memorandum that we published on FrontFundr site before making any investment decisions.

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Bitcoin seems to become mainstream

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Over the past couple of months the Bitcoin price exploded, from around $1000 in early January to almost $3000 earlier this week. The price increase not only leads to more people being aware of the cryptocurrency, but also to mainstream financial media taking it more serious. This morning I was very surprised to see that the Wall Street Journal casually mentioned on its front page the four asses classes stocks, bonds, gold and bitcoin! That is huge, as far as I know that has never happened before. Bitcoin has come a long way, happy to see it’s becoming a lot more mainstream.

Going to the Business & Finance section of today’s WSJ, my surprise got even bigger when I saw the title of the main article on the front page of that section “Bitcoin Trades Full Speed Ahead”. Wow… For years I have told people why Bitcoin won’t go away, why it is so valuable, and why people should invest 5% of their net assets in it. For years most people did not want to listen, but at least the ones that listened made incredible money on their bitcoin investments. And then all of a sudden the WJS puts bitcoin in the same league as stocks, bonds, and gold! This really made my day.

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By the way, I still believe bitcoin is undervalued and the bitcoin price will go up a lot more. If you follow my Twitter feed this is no news to you, I have been telling people for years to keep buying bitcoin and also told them to buy Ethereum and Ethereum Classic in early February (people who did that made $15,000-$20,000 for every $1000 they invested – in just 4 months).

But what will happen to the bitcoin price now that it’s at almost $3000? Is this a bubble? I wrote an article about this earlier this week to the investors in First Block Capital, the management company that runs several bitcoin and altcoin funds. I copy/paste the article below with some small changes to avoid that this is seen as marketing for our own funds (it is not of course, it is my personal opinion that anybody can agree or disagree with).

Cryptomarket overview

Since we closed our investment round in late April the cryptomarket suddenly went into exponential growth mode. Bitcoin grew from $1360 in late April to about $2700 in late May, before bouncing back to about $2000 and then growing back to $2900 at the time of writing (June 5). Altcoins have seen even stronger growth, with not only the smallcap coins but even some of the larger coins such as Ripple, Ethereum, and Ethereum Classic exploding in value. Daily price increases of 30-50% were not uncommon for some of these coins during this period.

What is behind this trend, specifically for Bitcoin? Is it a bubble? Yes and no, growth rates of consistently more than 10% per day are highly unusual and normally a clear sign of a bubble. That’s why I was quite happy to see Bitcoin go down 25% in 2 days around May 25. After this cooling off period slower growth started immediately, showing that nobody had lost appetite in Bitcoin yet. After about a week the price was back at $2500 and then over the past 2 days the price started increasing with about 10% per day.

The reason for the fast growth is simply supply and demand. The bitcoin supply is fixed at 21 million coins, and currently about 16.4 million coins have been mined. The rate of growth in coins is decreasing and only 4.6 million more will ever be created. At the same time more people hear about Bitcoin. People who may have dismissed it a few years ago are surprised Bitcoin is still around and growing faster than ever. Suddenly they realize they may have been wrong all along or they may still not get it, but want to at least hedge their bets. So they want to own a Bitcoin themselves. When not enough new coins are created and nobody is selling (most Bitcoin holders are so called HODLers – they “Hold On for Dear Life” in the Bitcoin rollercoaster) the price will automatically go up until someone feels enticed to sell.

And what happens if the price goes up? More people hear about it and want to own a coin as well, leading to even faster growth. This is what happened in May and what will happen very soon again. There are just not enough coins available and demand is going through the roof. Bitcoin exchange Coinbase added 400,000 users just in May this year. The average waiting time to get approved by an exchange is up to 3-4 weeks for most exchanges. All these people will talk to their friends after they made 20% profit in just a few days, and then some of their friends will want to get into the game as well. 

A bubble, yes, but not an unsustainable one. Look in your direct circle of friends or family, likely most of you will not have more than 2 or 3 good friends or family members that hold Bitcoin. That means most people you know have not even thought about buying coins, let alone really bought them. That’s not the sign of a bubble. Institutional money is not even in the game yet, simply because most funds can’t invest directly in Bitcoin (we are working on solving that!). Or think about it this way, the US has about 11 million millionaires. If all of them wanted to have just one Bitcoin that would be impossible. There are only 4.6 million coins left, prices would likely have to go into the hundreds of thousands of dollars per coin to convince enough people to sell. 

Some people may say that Bitcoin prices of $2500 are crazy, but I don’t agree. I have been in the market since prices were below $100 and each time the price hit a new psychological hurdle people said that Bitcoin was overpriced. At those lower prices I was never fully convinced whether Bitcoin would make it and whether the prices reflected the real value of Bitcoin. But the longer Bitcoin survived, the more I realized how resilient it is. Now that the public is finally waking up to Bitcoin I believe the currency is suddenly very undervalued. I have seen the fast growth from $100 to $1000, I have seen the crash from $1000 to $200, followed by the slow growth back to $1000. I have then seen the fast growth from $1000 to 3000, I am now fully convinced we may see $5000 quite soon and potentially even $10,000 later this year. And after that? Nobody knows. But if Wall Street gets into the game and if people really start treating Bitcoin as digital gold prices of $100,000 or more are very well possible. We will get lots of crashes in between, it won’t be straight growth. But keep in mind that you should HODL – don’t sell your coins in a sudden panic wave of sell orders. 

There are still some risks, but they are getting smaller. The biggest risk is still how to keep your coins safe, and that is what First Block Capital will help its investors with. Later this month we will go live with a campaign on FrontFundr so Canadian retail investors can invest in Bitcoin as well. A self fulfilling prophecy? Partly, but a prophecy in which I believe completely. 

Next time some more information on some of the major alt coins that we plan to invest in through our hedge fund and what I see happening there. Always feel free to get in touch with remarks or questions and keep in mind I intentionally left a lot of information out (Segwit and Hard Fork anyone?). Happy crypto investing!

Marc van der Chijs

June 5, 2017

in Uncategorized

A stock market crash is inevitable

For months I have been surprised to see that the US stock market keeps breaking records. Yes, I get it of course, corporations and investors believe the Trump presidency means lower taxes and more stimulus for businesses. However, by now any rational person should realize that most of this will be pure wishful thinking.

In my opinion the USA is headed for disaster, but most market participants don’t want to see it. Trump behaves like he is crazy, just looking at his tweets it is clear that he does not belong in the White House. Not only does he not seem to grasp what it means to be president, but with his erratic behavior and thin skin he is a danger to the world. Most of his voters didn’t want to see it before the election, which was a surprise to me. But it seems most still don’t want to see it, and that is why I believe the US economy -and with that the stock market- is headed for disaster. When will that happen? I think fairly soon. I see so many red flags that I wanted to write a quick blog post about it. 

This week the world faces some important economic and political events that may lead to a perfect storm. First of all the Brexit vote. If the UK indeed decides to leave the EU this will be a major setback and could lead to a shockwave on financial markets. On Wednesday the Dutch will have their elections. Normally not an important event (at least not for the rest of the world), but given that the right-wing populist party of Geert Wilders has a chance to win, this could lead to a new shockwave. Next to that the FED will make a decision on the interest rates. Trump wants to see economic growth, so he wants to keep the rates low, but it seems likely that the FED will start increasing its rates this week. That’s bad news for business, especially because this will be the beginning of a series of rate increases.

But most important, and something you don’t read much about in the media (yet), is that Wednesday night the US will reach its debt ceiling. That means that the country is not able to borrow more money to finance its deficit. With $20 trillion (!) in debts the country is in unsustainable territory already, but now things are getting even worse. In the past debt ceilings were always increased, although sometimes at the last moment and after a serious stand-off. However, now that Trump is in power there is no Democrat who would vote for an increase in the debt ceiling. So the world may realize on Thursday morning that the good times might suddenly be over.

The US has enough money to keep paying its bills until early this summer (mainly interest payments on debt), but it will have cut a lot of other costs do so. That in itself is problematic already, but when that happens Trump might finally realize that his plans for tax cuts and additional infrastructure and defense expenses simply won’t work. Or if he still doesn’t get it, it is likely that at least the market will understand that fiscal stimulus measures are unlikely to happen.

And what will happen the moment the US really runs out of cash is anybody’s guess. I would actually not be surprised if Trump would choose to go for a default its obligations and then blame it on the Democrats (he indicated this once during his election campaign!). I believe this would pave the way for a dictatorship: the economy would completely fall apart, people would not only lose their social security but also their pensions, and riots would be very likely. Trump would then re-emerge as the strong man who will solve it, by blaming anybody but himself for the mess.

Summarizing, from an economic point of view I don’t believe the stock market rally can continue for much longer. To me it seems a huge stock market crash is inevitable. It’s not a question if it will happen, but only when it will happen. The moment the first investors start heading for the exits the whole house of cards may collapse. If you are an investor you should consider hedging your bets by going into gold, silver and possibly Bitcoin. Don’t wait too long. 

in Uncategorized

Job opportunity: Full-time founding CEO at new Canadian Bitcoin Fund

 

A team of four experienced serial startup and fund founders will launch a Canadian Bitcoin and Altcoin Investment Fund out of either Vancouver or Toronto.

A Canadian management company will be set up to run multiple crypto funds:

Fund 1: tax efficient bitcoin buy and hold fund.
> Value to investors: they get secure exposure to bitcoin and their bitcoin is managed by experts, their gains are taxed at 50% less than if they held bitcoin directly

Fund 2: bitcoin alpha fund
One of our co-founders, a machine learning PhD who has been building trading algorithms for 100M+ hedge funds for the past 6 years, will be designing our trading strategy/algos.
> Value to investors: a team of very experienced people will trade their bitcoin

Fund 3: altcoin ICO fund
This one requires a deeper understanding of the crypto world, in short we’ll be buying into “Initial Coin Offerings” – digital IPOs effectively where we can buy and then later sell tokens (crypto curency units) at a gain.
> Value to investors: significant, liquid, upside

Status:
The team has worked with a major law firm for the past 4 months and has determined the best structure to set this up. The team also has about 70% of the seed capital needed to open and begin raising money into fund 1. We need to find a few more friends/family investors to invest in the management company.

We are looking for a proven entrepreneur who wants to commit to this full time for at least 3 years. Large stock incentive package available for the right candidate.

My preferred candidate should be an entrepreneur based in Canada (or someone with previous experience in Canada who would be willing to move here), should have raised money before, should have a working knowledge of and interest in bitcoin and altcoins, and should have some previous fund experience.

If interested send me an email: marcvanderchijs@gmail.com. Feel free to share!