America’s 401K : Interview with Lyn Alden ③

Lyn Alden is the founder of Lyn Alden Investment Strategy, where she provides market research to tens of thousands of individual investors and financial professionals. With a focus on income-generating investments, she provides the overall macro picture of the industry. Lyn reminds us why it is important to look at the bigger picture, especially in crypto. With her weekly newsletters and informative research, she has become a known name in the Industry. Please take a look.

Interview Date : 13th October 2020


Ideally, deflation is better for an economy, because your money will get stronger. I have had a couple of podcasts with Jeff Booth, and one of his arguments was that technology in itself is very deflationary in a good way. In a sense, it enhances our productivity, and it makes things a lot cheaper. So, our money should be able to buy more. However, because the economy is so debt heavy today, meaning that we have so much debt relative to GDP, income, and the money supply, we are not set up in such a way where prolonged deflation can be allowed to occur. That would result in a systematic dead-collapse. Ideally, authorities should shift to a system where they would resist the temptation of authorities interfering in the market and creating short business cycles. In the shorter business cycles, every single time the central bank comes in and lowers the interest rates to make a recession as short as possible. They will continue to do that until it goes all the way to 0. Letting business cycles play out more, at least from a monetary standpoint, they can still do some fiscal support, but still not encourage debt to go too high. Subsequently, deflation can strengthen people’s currency. For now, they need to figure out how to get this debt bubble, which is likely to become inflationary at a point. From thereon, they have a choice to go with the more inflationary system that can be pretty beneficial, and I hope they do so.

America’s 401K

401K is a type of account that you can use to hold investments. Decades ago, companies used to offer pensions, but that changed. Over time, they started shifting to 401K. This account is a system account offered by an employer for an employee. An employee can put a percentage of their income into 401K from their paycheck, and it will not be taxed. Usually, the employer matches that; if the employee puts 5 % of his or her paycheck in, the employer will also put 5% up to a certain time. Now, that money will be put in a vehicle where it will be tax-advantaged, and you can invest in equities, bonds, ETFs, etc., depending on what kind of asset class is being offered. When people start withdrawing from it or retire, that is when they have to start paying tax on it. You can think of it as an investment for people, and this is one of the reasons why people in the States are heavily investing in equity markets. Besides 401K, Roth IRA is another version of this. We have all these different kinds of accounts that encourage equity ownership, and they tend to be equity heavy. Compared to Europe or Japan, Americans tend to have a lot more of their net worth in equities than other places.

Investor vs. Trader

I am an investor in the sense that I have a multiyear holding period. I do not trade on the edges. Traders tend to be more interested in alternative coins because they can have more volatility. They can triple their money but they can also lose half of their money overnight. For an investor, it is mainly about timeframes considering things like “will Bitcoins market cap grow over the next 3 to 5 years?” or “what are the drivers that increase in value in Bitcoin”, and “what are the risks”. On the contrary. If you are more into trading and looking at technical charts, you are more looking out for what’s going to happen today, next week, and next month. So, it is just about different time frames and different goals.

Tokens with Custodians

Gold tokens are a good application of technology, and it is a way for people who want Gold to get more liquidity. Compared to ETFs, you rely a little bit less on centralization. However, the problem with Gold, unlike Bitcoin which is purely decentralized and no central custodian is holding it, is the value that we all trade around. Something like a gold-backed cryptocurrency or a gold ETF is an asset all kinds of people trade with. These tokens are still held by a central custodian, so you still have to trust them when they say “we have all the reserves”, “we can verify” or “governments will not interfere or confiscate”. I think once it is invented the technology can be applied to multiple areas, but it still is somewhat different than Bitcoin itself. 

Secondary Layers Keeping Fees Low

Space is still in its infancy. It has become more efficient than before, but the fees are getting higher. I think some of the secondary layers, like the lightning network, so are getting responsible for keeping fees low. You can for example wire money from one bank to another, but that is a very time-consuming and expensive process. You would not want to do that for every transaction, especially not small transactions. For smaller transactions, we have a couple that is a global platform to more quickly send money like Paypal, but every country has its own platform as well. Sending money over Bitcoin is still pretty efficient right now. It takes a while for it to settle but the fees are still pretty reasonable. I think as Bitcoin scales over time, we are likely to see more importance fall on the lightning network and other secondary layers. They take some of those transactions off the chain, process efficiently, and then settle on the chain again.

Why Even Join the Space? Take a non-Zero Position

One of my approaches to decide whether or not to join the space is making the argument for having a non 0 position. It is not necessarily an argument for having a very big bet on Bitcoin, rather it is an argument for “why 1 % is better than 0%” or “2% is better than 0%”. If someone that has 1%~2% of their portfolio in Bitcoin, that asymmetric kind of risk-reward can add a lot to a portfolio compared to going all-in or putting 20% of your portfolio in it. Certainly, some people study the space, know it very well, and have high conviction, so they can put a lot more in. However, it is worth noting that the Bitcoin market capitalization is currently a fraction of 1% of global wealth. If people have 1% of their wealth in Bitcoin, they are already ahead of the curve. They will have created a position in the space for themselves. Another reason is Bitcoin’s price. If you look at a chart in log form, which makes it less exponential, you can see that the price tends to have these peaks and these multiyear consolidations. In other words, Bitcoin tends to time pretty well with halving cycles. The trend goes like this: 

Consolidation > More Consolidation> Little Bull Market > Full Bull Market> Correction and Consolidation, and this continues until the next halving cycle. We have been in this 2~3-year bear market where Bitcoin has not reached a new height. So, it is natural for the space to weaken a little bit or not experience an increase in user volume. However, it is very informative to look at a log chart, even though it is the price that ignites interest in people. If Bitcoin ever breaks the 20 000 dollars, that will get people a lot more interested again, because they will feel like the bull market is back.

An Annual Report to Keep Oversight

I publish an annual report every year that tracks about 30 countries. That puts all the information in one space, and I also focus on a handful of them more closely. I have one big block where I put the US, Europe, Japan, China, India, Russia, and South America as a whole. Those are the key baskets I follow to some extent just to see what the opportunities are. If you are looking at S&P 500 companies, it is hard to get a pricing advantage from one or the other because there are just so many analysts that are looking at every company.

Interviewer , Editor : Lina Kamada


The Article published on this our Homepage are only for the purpose of providing information. This is not intended as a solicitation for cryptocurrency trading. Also, this article is the author’s personal opinions, and this does not represent opinion for the Company BTCBOX co.,Ltd.