What a crazy few weeks it’s been. There are a bunch of different topics I want to discuss today, so we’re going to look at three stories, with brief commentary on each.
 

IPOs Are for the Last Investors in Line

This is a devastating take on the IPO market, courtesy of Naval Ravikant, Babak Nivi and the rest of the team at Spearhead.

Naval: By the time a company goes public, you can bet anybody with connections, an appetite, investing skills and capital got a bite at it. So if you’re investing in a tech company’s IPO, you are literally last in line. That’s not to say you can’t make money – but the odds are lower because the fruit has been picked over many times.

Ravikant and Nivi are two of the best startup investors on the planet. Sadly, for public market investors, they know what they’re talking about here.

I hope one of the effects of this WeWork (WE) debacle will be companies going public earlier. If companies continue to stay private at $5 billion-plus valuations, investors will certainly start asking more uncomfortable questions. It would be a win for all investors, and companies would be forced to straighten up and strengthen their balance sheets to meet public market scrutiny.

But in the current environment, companies go public when they’re ready to start cashing out. So until this situation is resolved, I think setting aside a small portion of your portfolio (no more than 5% to 10% for most) for investing in promising private startups makes more sense than ever.
 

When Owning Gold Was Illegal in America: And Why It Could Be Again

I came across this article while researching last week’s piece on the bullish case for gold. If you don’t know the story of why and when gold was made illegal, do yourself a favor and read it. And even if you do know the story, there are some nuggets in there that might surprise you.

The prohibition against owning gold wasn’t uplifted until 1974 when President Gerald Ford – unaware that it was a federal felony to own gold – saw sound-money advocate Jim Blanchard on TV raising a bar of gold and asking from his wheelchair: “Why can I not own this?”

Ford signed proclamation Pub.L. 93-373, which legalized gold ownership and also made it legal to include gold clauses in contracts, effective 1977. Ford failed, however, to reestablish gold as a back up to government fiat or the American dollar.

State-Backed German Bank Says Bitcoin Will Leap to $90,000 in 2020

State-owned German bank BayernLB says its models show that bitcoin (BITCOMP) could reach $90,000 by 2020. It bases its research around the stock-to-flow ratio of bitcoin. This approach places emphasis on the supply of new bitcoin coming onto the market. Here are a few quotes directly from the report.

The stock-to-flow approach originating in commodity-market analysis serves to quantify the “hardness” of an asset. Applied to bitcoin, an unusually strong correlation emerges between the market value of this cryptocurrency and the ratio between existing stockpiles of bitcoin (“stock”) and new supply (“flow”)…

The stock-to-flow approach is a good heuristic for understanding bitcoin. It becomes clear that bitcoin is designed as an ultra-hard type of money. Next year, it will already exhibit a similarly high degree of hardness as gold. In 2024 (when halving is set to take place again), bitcoin’s degree of hardness will again increase massively…

If the May 2020 stock-to-flow ratio for bitcoin is factored into the model, a vertiginous price of around USD 90,000 emerges.

In summary, there’s not very much bitcoin coming onto the market already, and in May 2020, there will be half as much. BayernLB’s research indicates the halving is not currently priced into bitcoin.

The researchers do caution investors not to read too much into the model, “For even the best statistical model can fail miserably when seeking to predict the future.”