Innovation in the financial world doesn’t come along very often. I’m talking about real, true innovation. The kind of innovation that can change everything.
Yet sometimes, it comes from the most unlikely of places. Like in the face of a true crisis.
In the early 1770s, the Dutch Republic was in decline. Throughout most of the 18th century, the Dutch were an international trading powerhouse. A position achieved through the rise of the Dutch East India Company, which held a 21-year monopoly on trade with Asia. The map below shows the Company’s global trade routes.
Source: aronson.com
The Dutch East India Company helped make Amsterdam a financial powerhouse. And the heart of European capital markets.
It was all because the Dutch East India Company was one of the world’s first joint-stock companies listed on the Amsterdam Stock Exchange.
But by mid-century, the Dutch moved from dominance to decline. And by the 1770s, it faced one of the 18th century’s largest financial crises.
It began as commodity prices fell amid a surging surplus of imported goods. Depressed prices led to bank failures as credit dried up.
But in the face of that crisis, a merchant and broker named Adriaan van Ketwich saw an opportunity. Something that changed the course of financial history.
Part of the reason some banks collapsed, sending the Dutch economy into crisis, was that they lost money making speculative bets on individual names. Van Ketwich thought, why not pool a bunch of money together and buy a basket of investments instead?
So in 1774, he launched the Eendragt Maakt Magt (“Unity Creates Strength”), the world’s first mutual fund. It allowed small investors to benefit from a diversified portfolio. In this case, government bonds from countries like Austria, Denmark, Spain, and Sweden.
The fund also separated administration from investment management, a structure still used today.
Fast forward about 230 years and the world faced a financial crisis not seen for decades. A crisis that led to another true financial innovation: bitcoin.
Satoshi’s Revenge
By now, we all know the story. On October 31, 2008, the infamous and anonymous Satoshi Nakamoto published the white paper “Bitcoin: A Peer-to-Peer Electronic Cash System.” The Bitcoin network officially launched on January 3, 2009, with the first transaction coming nine days later.
The rest is history.
Longtime readers know that I believe bitcoin should be a part of your portfolio. It’s another way to diversify it beyond stocks and bonds.
It could serve a similar function to gold.
Yet I also think bitcoin is a far better bet today for new money than buying gold. That may be a controversial statement for most investors.
Just consider that after a spectacular run over the past several years, gold has a market cap of about $35 trillion. (That’s all the gold currently mined and above ground.) Meanwhile, U.S. public stocks are worth about $70 trillion.
Meaning gold is worth about half the value of the U.S. stock market.
Where does bitcoin stand? It has a market cap of about $1.7 trillion, just a fraction of gold and stocks.
The point is: which asset has the easiest path to double or more? Stocks? Gold? Or bitcoin?
I know which one I’m betting on.
Pattern Recognition
For the most part, it’s been a tough year in the crypto market.
Bitcoin reached an all-time high of just over $125,000 last year. Then it crashed more than 50% to its most recent low of just over $58,000 in June.
That’s not uncommon. If you’ve followed bitcoin for years, you know it tends to go through these boom-bust cycles pretty often. As a new financial tool, it’s still young. But it’s also now entrenched in the overall financial markets.
So it’s no surprise to see it rise fast, then fall just as quickly. Albeit with a much higher floor than before.
So where does that leave bitcoin today?
Last month, something changed. After sitting around the $60,000 mark for a while, bitcoin suddenly broke out.
What exactly happened for it to break out so violently? As I told readers of Strategic Trader on our community Slack channel, it was simply a short squeeze.
While crypto executives were visiting the White House, we saw $1 billion in short positions unwind in about an hour. That short squeeze then forced a record $2.7 billion in bearish bets to unwind throughout the day.
At the same time, I said we needed to see more follow-through. Specifically, I pointed to the $75,000 level as the next target.
It didn’t take long. By Friday, August 21, bitcoin blew past that mark.
Overall, the price rallied 13% in just two days.
But it was more than just a breakout. It felt like something more.
So I looked into bitcoin's price-action history to add context to the move.
Over the last 10 years, we’ve only seen two other cases where bitcoin rallied 12% or more over two days after falling more than 50%.
The first was in 2019. The second was in 2023.
In both cases, we saw substantial rallies in bitcoin in the following months. In fact, we can see how that looked in the charts below.
In the first case, bitcoin rallied 200% following that breakout.
Eventually, that rally stalled out. It later hit a new high in November 2021 at nearly $68,000. From there, it fell an astonishing 77%.
But again, after breaking out in 2023, bitcoin surged more than 300% in the ensuing months.
Now, that doesn’t mean we’ll see that same pattern again this time. At least not in the same way.
So, as I told readers on our Slack channel, I was looking at additional targets for bitcoin to break through to confirm it has momentum.
The first was getting above $82,000 and staying there. Something that happened earlier this week.
The longer it stays above that level, the more likely I believe it’s heading even higher.
My next target is around $98,000.
It won’t be easy. We’ll probably see plenty of resistance as bitcoin approaches that level.
But I believe it’s a solid bet. One that I’m making both with bitcoin and through bets in bitcoin-related stocks and warrants. (Of which we have several in the Strategic Trader portfolio today. They can give us leverage to the underlying move in bitcoin.)
With a lot of momentum going for it over the past month, bitcoin looks set to make a run at a new all-time high. So if you don’t have any exposure today, consider adding some. Even a small amount.
You can do it through owning bitcoin directly. Or owning a bitcoin-related fund like the iShares Bitcoin Trust ETF (IBIT). Or through individual stocks and warrants in companies that can give you leverage to the move I believe is about to happen.
When you look back in the coming months, I bet you’ll be glad you did.
Regards,
Editor, Strategic Trader