Market Overview
In the market today, how many companies can you confidently say you are comfortable owning for the next 25 years?
Those names are on a short list. Companies that come to mind include Apple, Google, Tesla, and Amazon.
According to studies performed by Wharton, the average tenure of a company in the S&P 500 is 21 years, compared to 36 years in 1965. This means stock picking is an art and companies often have an expiration date.
On average, the S&P 500 has returned 10% annually since inception, making it a powerful wealth compounder if you allow time to harness its power.
Taking this into consideration, which other asset classes have outperformed over significant stretches of time to provide real returns, beating or keeping up with inflation (generating alpha)?
Property. Owners benefit from housing price inflation, you must own the asset to benefit. Geographic scarcity and the performance of local economies and schools are primary value drivers of residential housing prices.
2021 was the best year for housing prices since 1987. Housing prices peaked for that historic credit cycle 2 years later in 1989.
Market cycles are happening much faster today. Broader housing prices are peaking today for this credit cycle. With rates quickly tightening, housing prices must eventually correct significantly.
Wage increases are driving up rental prices, which in turn are helping to keep prices high. However, borrowing costs will impact demand. Prices should normalize.
Conclusion
Putting all of this into consideration, there simply is not a high number of desirable assets that remain durable enough to hold over 50 years or longer.
Owning both property and the weighted index of America’s enduring companies have both proven to be powerful methods for compounding generational wealth.
How does cryptocurrency fit in?
Bitcoin is digital property. BTC is quickly becoming the reserve currency of the digital era, as other DeFi protocols, traditional companies, and institutional investors continue to purchase Bitcoin to serve both as a form of collateral and a store of wealth.
Properties of BTC make it a highly desirable asset in today’s period of high inflation. BTC has 1/10 the market capitalization of gold.
According to the Wall Street Journal, Fidelity just announced that they are adding the ability to purchase Bitcoin in 401k accounts. This is a significant move by the industry giant.
Currently, 23,000 companies use Fidelity to administer their retirement plans.
This is extremely bullish for the crypto asset class, as current investor exposure to BTC is under 5%.
“The endorsement of the nation’s largest retirement plan provider suggest crypto investing is moving further into the mainstream.” – WSJ
The IRS has treated Bitcoin as a form of property since 2014. This tax treatment opened the door to legitimate long-term ownership of the asset.
Current Portfolio
As we have prudently chosen to remain largely in cash to begin the launch of both the “crypto pure play portfolio” and the “picks and shovels” equities portfolio, Cabot SX Crypto Advisor is extremely well positioned to benefit from near-term downtrends across global markets. We are actively tracking all markets to provide you with the most up to date information.
We intend to increase our exposure to highly desirable crypto assets over the next several months as broader markets continue to contract due to inflation and rising interest rates.
Expectations remain that the federal reserve with raise rates quickly, with a 50-basis point hike at the upcoming meeting. This may put a near-term bottom in the markets. Over time, it is likely that the Fed will adjust or even reverse course if tightening looks to tip the U.S. into recession.
I urge you to stay engaged and to stay patient.
When things begin to feel most bleak, it is time to hunt for opportunities to purchase long-term compounders.
We have identified several best-in-class names that should be included in every portfolio.
Terra - LUNA
LUNA has remained significantly more resilient when compared to the broader market. LUNA is trading around $92.50, down only 2.36% over the past seven days. Broader markets are currently down 3% today alone.
This is a good sign of relative strength as demand for crypto stablecoins such as UST and USDT continue to rise. In periods of volatility, traders increasingly move between stablecoins and crypto assets. This represents part of our bullish overall thesis that LUNA benefits not only from increased trading but can outperform during periods of volatility. Recommendation - BUY
Ethereum – ETH
Ethereum is the leading global layer one blockchain. Ethereum powers a new ecosystem of decentralized web projects where creators can launch art, games, and content while also retaining ownership of their own data and custody of their own appreciating digital assets. Smart contracts power this ecosystem and remain the fundamental value driver of ETH.
Like Bitcoin, ETH is regulated by the CFTC and is a safer cryptocurrency investment when compared to other alt coins that may demonstrate properties of a security. That is why today, we own ETH in addition to BTC and recommend it as part of every portfolio. Recommendation – HOLD
ProShares Bitcoin Strategy ETF – BITO
Since first recommending the investment last week, BITO has traded sideways at $25. This is a good thing. This ETF is outperforming the broader market in a time of significant downward momentum.
In our view, this Bitcoin ETF bottomed in late January of 2022, and it is time to consider increasing your exposure. Investor adoption of BTC and other cryptocurrency assets is at an inflection point. Fidelity’s recent announcement alone is likely to catalyze a new era of owning BTC in retirement accounts.
Owning BITO is a cheaper and easier alternative to purchasing Bitcoin. Recommendation – BUY A QUARTER (of total intended position)
Coinbase Global, Inc – COIN
Coinbase just launched the initial version of their NFT marketplace on April 20. This marketplace coupled with subscriptions is likely to begin to diversify the Company’s reliance on trading fees overtime. However, this will take time. We are watching these metrics closely, as the stock has underperformed over the past two weeks along with the broader market. We are not recommending increasing exposure to this name until the stock forms a tradeable base, despite being valued at 8X EV/EBITDA – a historically low valuation for any well-performing company let alone an industry leader. COIN represents an attractive alternative to owning digital assets outright and will continue to benefit from their increasing adoption. Recommendation – HOLD
Watch List
Nvidia – NVDA
Nvidia is currently on our watch list. The stock is down 32% in the past month alone. This is setting up a generational buying opportunity to own the company with the single biggest exposure to the digitization of our material world. Nvidia is embarking on a bold new chapter in the history of the company.
Demand for AI, software and datacenters mean that semiconductors are the new oil powering our digital economy. This process will remain robust for years to come. Nvidia’s graphics cards are best in class.
The company’s fundamentals are incredibly strong, with revenue and EBITDA both growing well over 50% y/y. The only other large-cap company putting up these types of numbers is TSLA.
On a technical basis, the stock is not yet oversold. We are patiently awaiting our chance to purchase the stock at a significant discount.
In our view, when the stock begins to form a tradeable base over the next several months, it should be bought. We will keep you appraised. NVDA is poised to outperform the broader market over the next five years.
Others
We continue to actively monitor Solana (SOL) and Polygon (MATIC). These are highly scalable blockchain solutions that are likely to offer significant return on investment when the time is right to buy. In addition, we are watching Unity (U), an industry leader in graphics software.
Portfolio tables below reflect prices as of market close on April 25.
Crypto Portfolio
| Ticker | Original Weight | Price | Price at Rec | Performance | Rating |
| LUNA | 20.0% | 95.88 | 105.98 | -9.53% | BUY |
| ETH | 15.0% | 3,012.41 | 3,444.22 | -12.54% | HOLD |
| SOL | — | 100.48 | — | — | WATCH |
| MATIC | — | 1.34 | — | — | WATCH |
| CASH (USD) | 65.0% | — | — | — | — |
Equity Portfolio
| Ticker | Original Weight | Price | Price at Rec | Performance | Rating |
| Coinbase (COIN) | 2.5% | 135.14 | 142.5 | -5.16% | HOLD A QUARTER |
| Proshares Strategy Bitcoin ETF (BITO) | 2.5% | 25.1 | 25.93 | -3.20% | BUY A QUARTER |
| Nvidia (NVDA) | — | — | — | — | WATCH |
| Unity (U) | — | — | — | — | WATCH |
| CASH (USD) | 95.0% | — | — | — |