The Other Hurdle Rate.. Bitcoin?!
Bahamas Beach Life + Advising Family Offices in the wake of the 4th Turning.
Last week I was a beach in Paradise Island, The Bahamas when I received a message from a high net-worth individual running a family office in Dubai for whom I do consulting work every now and again.
I won’t reveal his name, but each and every one of you has seen his threads on X and articles on sub stack.
He messages me at random times, sometimes after periods of radio silence. The interesting thing is that I’ve developed an intuition around when I’ll hear from him as it often eerily coincides with global macro events.
For instance, he correctly told me he had good reason to believe that Israel would strike Iran back in December last year. Months later he was proven correct.
This text just said “How are u? Free to talk?”
We then proceeded to have one of our chats, comparing notes over various events and the likelihood of their various macro outcomes. After 20 minutes or so of discussion, he asked the question I knew was coming - because he always asks it towards the end of our discussions:
“So, what’s the trade?”
I outlined what has been on my mind for nearly 9 months: we’re in the midst of a macro-monetary reset coinciding with the most significant geo-political regime shift seen in many decades.
Ergo, no matter which angle I view the world from, no matter the lens through which I size up any given investment idea, the cash everyone is ‘discounting’ in their DCF models will be revalued against gold or, if enough people consider it digital gold, Bitcoin.
For those like my friend ‘M’ who are trying to allocate 10’s if not 100’s of millions of dollars to preserve and grow wealth, macro, liquidity and geopolitics matter.
Fundamentals alone won’t help much if a president crushes your investment theme with the stroke of a pen, nor can my friend afford to leave millions tied up in any given investment for a decade if a war breaks out.
There are levels to this game.
Which is why he is always asking me to find ideas and run them through a filter that reduces the risk of any one government crushing a given industry or asset class.
Therefore, as I argue in the piece below, gold is the new hurdle rate. For alpha on the gold price performance, choose an asymmetric derivative on gold itself with no theta, or time decay (translation = Gold Royalties)
In my mind I visualise it thusly:
Fiat purchasing power in USD continues to decay at >7% per year on average and looking at the US fiscal situation I see them needing more than one year of double-digit inflation over the next decade to restore the debt/GDP ratio (nominal GDP). Inverting that and drawing a mental graph should illustrate the base case for the gold price re-rating higher at the same rate in an ‘upwards and to the right’ linear fashion.
Various other commodities prices when measured relative to gold will exhibit various out/under performance over certain timeframes as illustrated by the synovial wave pattern above.
This is why I see most people messing up a good opportunity as the temptation to try to time the oscillations by trading other commodities will be too much for most.
When gold is sloping upward at 7-10% PA it, not the US 10 year at 4%, is one hurdle rate I use.
So what about the other hurdle rate I mentioned, Bitcoin?
I’m glad you asked - let me share my thoughts with you.
