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The Merge in Crypto Can Change Your Life.

By Blog, Cryptocurrency, Investing, Markets, Press, Wealth Management

While the Internet and how we interact digitally are being disrupted, you can build transformative wealth.

Total read time: 9 minutes

I missed the boat on the most significant bull run in financial history. My financial expertise and insights were born & bred at large wealth management firms. I was conditioned to scoff at new economic ideas, like Bitcoin. Now, I have my firm. I’m integrating crypto market ideas into a traditional portfolio. And what an exciting time to do so. 

Introducing, The Merge. I’m not going to miss this ride. And when you’re done reading this, neither will you.

What did we miss?

To appreciate the potential opportunity ahead of us, here’s what we missed in numbers.

I learned about Bitcoin from a 22-year-old on rideshare in an Uber. He asked if he could run something by me after I told him what I did for a living. He bought “something” for $0.40, and the price was now $500. In other words, his $400 investment in Bitcoin became $500,000. He asked me if it was real. I had never seen anything like it. He was afraid to touch it. I said the only way to know its objective is to try to cash it out. By now, he knows it’s real. But when did he know it was real? Did he sell it at $500? Did he sell it in a panic during the Pandemic when it was $6,200? If so, he would have earned $6.2 million on a $400 investment.

What is Bitcoin?

You know what it is, but you probably don’t know how it works. To fully understand The Merge, you need to know. Bitcoin is a decentralized currency. The government does not print it. It’s not borrowed from a bank. In other words, there are no intermediaries between you and Bitcoin, as there are with cash. Intermediaries take fees and charge interest on money. They report large cash deposits to the government so that they can assess taxes. But when you turn your cash into Bitcoin, you can also liquidate your Bitcoin for money without any “middlemen.” A ledger is the only record of your transaction of the coin. It’s called the blockchain. And you are a number on the blockchain, not a name. You are anonymous.

The Birth of Ethereum

The heart of Bitcoin’s success is the blockchain. It allows every transaction to be anonymous. Every new transaction is a new link in the chain. The blockchain is designed, managed, and stored on large custom servers.

Three years after the birth of Bitcoin, a group of programmers figured this out. They created their blockchain. Unlike Bitcoin, they decided their blockchain would not be exclusive. They would create a blockchain that anybody can use to make their currency. It’s called Ethereum. It’s more than just a coin.

Unlike Bitcoin, it’s an ecosystem.

The Birth of Decentralized Finance (Defi), ICOs & NFTs.

Many apps and cryptocurrencies have been formed on the Ethereum blockchain. Decentralized Financial Applications (called “DApps”) are the most disruptive. In the same way, there are no banking intermediaries with Bitcoin. There are no merchant intermediaries with DApps.

To listen to music, we must go through a streaming platform. They charge a monthly fee and pay the artists a tiny royalty rate. With DApps, the artist can bypass streaming platforms entirely. You don’t need to apply if you need a loan. You can skip the bank to get a mortgage within minutes. There are “open banks” on the blockchain where you can “deposit” your currency. These crypto banks lend money against your “wallet” like a regular bank and pay you part of the interest.

The Ethereum blockchain has also been programmed to create smart contracts. These agreements are binding, like ones drafted by an attorney. These contracts allowed companies to raise capital to grow their company through their cryptocurrency. It’s called an Initial Coin Offering (ICO). In the contracts, they offer ownership in the company. And sometimes, it’s special offers, discounts, and memberships to coin holders.

Non-Fungible Tokens (NFTs) are similar. The asset behind the token is not a company. When you own an NFT, you own something unique. Artwork, music, memorabilia, or exclusive video. Owning an NFT gives you membership, special access to the artists, a share of the royalty, licensing of the underlying work, and even a percentage of the proceeds from selling the underlying asset.

Like a stock, you can buy and sell your ICO and NFT token to a third party, in a secondary market, like Open Sea. With Bitcoin and Ethereum, you buy and sell your coin directly from them on their blockchain.

Proof of Work vs. Proof of Stake

Everything I mentioned above has not gone mainstream yet. The electricity costs to manage high storage servers and mint coins for an ecosystem are too expensive and exhaust too many resources. It’s so bad that China had to stop crypto miners in their country. Minting coins and running servers were overwhelming the electric grid and creating blackouts. It’s also happening in California. The state has passed this cost on to taxpayers as a gas tax. The tax is the highest in the nation. Their mandate to be green energy independent will make it worse. But I digress.

Minting coins is called proof of work. When you pay cash for Bitcoin, you get a currency that is registered on its blockchain. But that’s one coin on one blockchain. Imagine multiple coins on one blockchain. Rising costs have become a barrier to creating currency on the Ethereum blockchain.

In response, programmers have created new blockchains based on proof of stake. With this development, you don’t need to mint a coin to be on the blockchain. The community on the blockchain validates your ownership. Once they do, the servers create a new link. This eliminates the rising costs and exhausting of resources of minting coins.

Solana is the blockchain responsible for this new development. The coin is widely known in the crypto market as the “Ethereum Killer.” Just like Ethereum, many applications can be created from it. This development has helped Solana win growing favor with ICO issuers and NFT creators. The coin has greatly increased in value.

The Merge

It was always believed that once a blockchain was created, it was permanent. For Ethereum to compete with Solana, they would have to merge their proof of work protocol with a proof of stake protocol. This is impossible.

So, we thought.

Turns out, by Sept. 13, 2022, the Ethereum blockchain will merge with proof of stake, eventually phasing out proof of work completely. 

This Transforms The Entire Crypto Market.

Bitcoin & Ethereum own 62% market share of the total crypto market. The Ethereum ecosystem of apps and cryptocurrencies is a big part of that percentage.

This merge doesn’t just affect the Ethereum currency but the entire ecosystem.

All the Decentralized Finance applications I mentioned above will start to accelerate their plans to launch and execute.  

And with this market share, Solana, and other coins like them, become a moot point and begin to lose value. Large investors like Elon Musk and Tesla are already pulling out of Bitcoin. The only cryptocurrency holding all the upside now is Ethereum, and all the coins are built on their blockchain.

My Thoughts

At the time of this writing, Bitcoin is currently $21,000. Ethereum is at $1,600. I believe Ethereum will one day surpass Bitcoin in price. Merging with a proof of stake protocol cuts costs and conserves natural resources. It is a profit and a sustainable environment investment opportunity. The only thing stopping Ethereum’s momentum is government regulators. But the nature of the crypto market makes regulation difficult. China already has a “digital currency.” The United States is taking steps in that direction. It may accelerate. The government can only regulate crypto markets by phasing out cash.

The only way around that is to hold cash in a different currency. My custodian partner allows my clients to buy and sell stock in other global currencies. This is what makes my firm unique in this area.

Next Steps

Go out and buy Ethereum. How much? Depends on your risk tolerance. It is still speculative by nature. If you’re feeling you caught a case of FOMO, good. Me and you both. I’m not going to miss these opportunities again. Neither should you.

Thank you for reading.

Whenever you’re ready, here’s how we can work together:

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Why you shouldn’t panic in a recession

By Blog, Inflation, Investing, Markets

Total read time: 7 minutes

In this newsletter, I will share why I don’t panic in a market downturn. I sleep well at night, and my clients do too. I used my training in quantitative economics to make investments based on a thesis of how I see the world. The result is three proven, time-tested insights to protect your portfolio in recession and the next.

In 2009 I took responsibility for managing my client’s portfolios. I found it challenging to get explanations and action steps on the Great Recession from the institutional money managers I hired. So I fired them and began to use macro thematic insights to create a foundation of stability in my clients’ portfolios that could weather a stormy market.  

Global Exposure through Property & Casualty Insurance Industry

In a recession, companies quickly lay off workers to cut costs and slash budgets across their business units like marketing and operations. Where they don’t cut costs, however, are the lines of insurance that cover the cost of settling lawsuits and protecting their assets such as plants, equipment, and real estate from human error and natural disasters. 

This protection is in the form of property casualty insurance.

The BRICs–Brazil, Russia India and China are some of the most rapidly growing economies in today’s world. This has led to an explosion of commercial real estate development and residential home values that have never been higher!

New assets need new liability coverage. 

The international financial markets are not as transparent when investing in global growth.  It’s difficult to find publicly traded companies. However, this makes sense if you’re also looking for risk-managed exposure across borders because insurers like AON Corporation (AFL), Chubb Corp.(CB), and Arch Capital Group Incorporated(ACI) all do business in these countries.

Please also note why I didn’t mention healthcare.

Health insurance (health care coverage) is a cyclical industry. A health insurer’s largest policyholders are small business owners and corporations. When the economy expands, there is an increase in premiums through hires. When they lose premium and sales, layoffs decrease sales. Property & Casualty insures cars, homes, boats, commercial buildings, events, and other properties and assets are typically non-cyclical.

Real Estate Investment Trusts (REITs)

Health Care/Assisted Living 

America has been aging for the last 20 years and assisted living facilities have rapidly developed across the country to meet this need. You’ll also find that they evolved into diverse facilities with various business models, locations, amenities, and specialized care, such as the disabled elderly and those with Alzheimer’s Disease as an example. You can invest in these facilities through a real estate investment trust (REITs), a publicly traded trust of pooled healthcare facilities where the rental income generated from these properties is paid directly to you, the shareholder. Omega Healthcare is one of the largest trusts whose price and rental income remain stable during recession cycles.

E-commerce & Warehousing

Another interesting play in the REIT space is to invest in warehouses that fulfill online orders. E-commerce was already becoming an integral part of our online user experience. Shopping on the Internet, on your phone, and at home accelerated delivery by the Pandemic lockdowns. In another dramatic paradigm shift, the remote work lifestyle was born. This also marks the beginning of The Great Resignation, where people demand more space and flexibility in their work schedules from their employers.  Due to this movement, many commercial buildings in New York City have become residential properties. People no longer want to go to the office every day when they can be productive at home. JPMorgan Chase has shuddered hundreds of branches across the country during the pandemic, and they’re not likely to return. 

With this said, I believe you will also find stability in the REITs market by investing in properties that are in the warehousing and fulfillment of online consumer products like Prologis, which has the largest e-commerce warehousing/fulfillment portfolio in the world.

“Household Name” Companies.

If you’re subscribed to my weekly newsletter Macro View™ I have spoken about redefining the notion of “investing in companies with products that you love and use everyday.” 

Because that is not an investing strategy.

Instead you should think about investing in companies that everybody loves and knows, and as it turns out, those companies have tthe largest percentage of individual investors than any publicly traded company. If you’re managing risk, you want as little volatility as possible, and individuals who invest in companies that everyone loves. Because when people love the company they tend to hold on to its stock, and not sell it in a panic. This characteristic tends to cause the volatility (the up and down up and down frequency) to become less than other stocks, even in a down market. They’re also the first stocks to recover when the market rallies upward.

Because here’s the dirty little secret: volatility is often caused by institutional investors like corporate pension plans, insurance companies, state retirement plans, endowments, and large private foundations who when they trade, do so in large volumes that move the market in a noticeable direction.

I invested in Apple Computer at $6.96 a share in 2007 because I believed that the iPod was just one of many products that would come out of this company, and I believe that there was no other company like it. They also operate on a proprietary technology platform which made it hard to replicate, making their products projectively indispensable.  By 2012 Apple stock was as high as $295 a share. I’ve also recently added Tesla to my portfolio. There’s a very large share of individual investors in that stock as well, and they have done two stock splits in the last 2 years, which I and my clients have benefited greatly from.

The growth in these sectors will continue to be strong in the foreseeable future, mostly driven by technology and growing global market share, which makes them long-term keepers in my portfolio. and Management’s ability to adapt to disruption.

Thank you for reading.

Whenever you’re ready, here’s how we can work together:

Subscribe to the Macro View newsletter

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