With apologies to R.E.M. and a song and album I’ve never liked — though I love R.E.M. pre-Bill Berry retirement — I ask the question this morning of you, dear readers, how out of phase (and tune) you feel with what’s going on in the bitcoin markets right now?
Because I don’t feel out of phase with what’s happening here at all. And that isn’t some kind of gloat or self-congratulatory back-pat. Just a simple statement of fact. I could see this coming, like many others, for a long time now.
In fact, I’ve been trying to tell y’all this for close to a year now. I put my newsletter subscribers in bitcoin officially last January at $8865 per coin as a hedge against U.S. dollar weakness, even though I expected dollar strength during a spasm, which happened in March.
But I also expected gold and bitcoin to rise regardless of the dollar’s performance in the forex markets because of central bank response to that spasm and the coming supply constraint in bitcoin due to the halving of the reward pool.
Given the enormous rise in Bitcoin’s price and the way it has traded around each ‘Halv-ening’ there is a strong argument that Bitcoin is becoming a competitor to gold as a store of value.
And if that’s the case, then programmed slowing inflation during a time of huge uncertainty means Bitcoin should be setting up for its next big run higher…
… If anything, I think that once the chaos begins to unfold in the dollar markets a lot of people will begin looking for ways to protect their other wealth when they can’t get dollars.
Today it is, by far, the best-performing asset in that portfolio.
I thought I’d pegged you an idiot’s dream
Bitcoin was transitioning into a safe-haven asset par excellence and it would, when the time was right, assert its gravitational pull on global capital fleeing the chaos and insanity unleashed by megalomaniacs convinced this that this time they can roll back the laws of physics and make Communism work.
And it will work… for them… for a time, as all systems based on lies, fraud, coercion and fear ultimately do.
But then that system will collapse (possibly before it gets fully formed) due to those same physical laws of the universe, the time-risk associated with data transmission (no matter how fast we make electrons travel across a wire) and the stupidity of the people receiving the signals and making the edicts.
This, of course, assumes they are even listening to the data and not just blindly executing code they wrote when they were younger, and presumably, less wise.
It’s a bad assumption.
But I know many of you are still confused as to how this weird, vaguely libertarian thing, bitcoin, can be worth, per coin, more than fifteen times what an ounce of gold commands. I assure you it’s real and it’s likely to continue that way well into 2021 despite heart-stopping volatility and your protestations to the contrary.
You wore our expectations like an armored suit
Bitcoin is the talk of 2021 because, like in times past, it is exploding daily on a perfect mix of supply constraints and fear. There are four things increasing the frequency of bitcoin’s status as a safe-haven asset.
- The halving in May 2020 did, indeed, exert tremendous pressure on available supply. The Grayscale Bitcoin Investment Trust (GBTC) alone soaked up more supply in Q2 than was added during those three months.
- The advent of DeFi on Ethereum added the promise of pulling a yield for HODL’ers of bitcoin as billions poured in thanks to yield-starved investors looking for income in a world where the only people allowed to have one worked for major corporations and governments, but I repeat myself
- The inability of gold to overcome the daily manipulation of its price through futures led more institutional money looking for other options. Since bitcoin has no cost to store, literally, it is superior to gold in that respect while retaining a digital analogue to its properties.
- The most important piece is, however, the increased awareness and respectability of bitcoin three years on from the last bubble, which finally proved to another segment of the market that it was, in fact, not a one-hit wonder.
As long as these conditions persist bitcoin will continue to explore the upper bounds of its potential valuation. Because what has to be reiterated here is something that Jim Rickards reminds us of all the time with respect to gold rising.
“Withdrawal in disgust is not the same as apathy”
Namely, gold is rising because the dollar is falling. When gold is rising against all other currencies then it is in a bull market which is systemic across all other asset classes. In other words, the currencies themselves have lost the faith of the people using it.
The same thing is happening with bitcoin. But because bitcoin is nowhere near its full capitalization as an alternative currency to the dollar, euro, yen, pound or Vietnamese dong, when the conditions are right it moves in dramatic fashion responding to macro-economic changes.
People forget that in 2016/17 there was sincere worry about a collapse in the euro. There was a lot of movement on the bitcoin blockchain in the summer of 2017 as people looked to get out of the euro-zone.
In 2013 it was capital flight out of China that underscored bitcoin’s first foray with $1000. Each time it didn’t take a lot of people (or money) to move this market and provide people with a real service in the face of government incompetence.
The powers-that-be have clamped down on moving wealth across borders via gold so bitcoin was the asset of choice to avoid currency risk. And with those moves came the attention as the story got out and here we are today.
Each one of these movements raised the market profile of bitcoin, attracted players both honest and dishonest and the market around it went through all the normal paroxysms of a new technology finding its way.
So where are we today? What’s the frequency, Kenneth?
Today we’re talking about technology, products, systems and government interference orders of magnitude more sophisticated than the original bitcoin blockchain.
And, in my opinion, almost none of them are mature enough to put real money into. Vegas money? Sure. Poker night money? Absolutely.
But we’re still talking about the basics of bitcoin as a real competing asset to many of the world’s most vulnerable fiat currencies, the aforementioned dong is one. The Turkish lira, Iranian riyal, Ukrainian Hryvnia, etc. are others.
So, let’s not but dial in too tightly here, we’re just getting used to the idea of bitcoin being a store of value in a world where it isn’t allowed to be a medium of exchange. The idea that more sophisticated financial platforms are stable and ready to subvert the current teetering banking system are still nothing more than dreams.
Bitcoin, like all highly emotional subjects, has people jumping to the endgame, talking about the death of the dollar or the euro or whatever. That is certainly a possibility, but not a certainty. And saying that doesn’t invalidate its potential nor its current status.
Like it or not people are thinking of it in these terms and the market will sort out whether we’ll get there. If there’s one thing ten-plus years of following bitcoin has taught me, sometimes very painfully, it is that there is an order of operations to everything.
So, let’s not get too crazy here. This isn’t the end of the story, but I like the story that’s been told so far.
I never understood the frequency
What’s next is watching how this latest jerk upwards in bitcoin’s price is now bringing along other projects, shedding light on ones of high quality while others of lower quality find themselves left by the roadside.
Because as many of bitcoin’s detractors point out there are serious issues here. There’s political risk of government crackdowns which may be more effective than in the past. There are centralized points of failure within the current market, such as Tether’s liquidity and lack of transparency, liquidity pools on Lightning Network and Ethereum’s architectural issues which still lurk in the distance.
We’re just beginning to see that separation happen now as bitcoin starts becoming ‘too expensive’ to some people. The rotation into other coins will happen and their differences/improvements on bitcoin’s limitations, privately admitted by even the most ardent bitcoin bulls, will prove themselves in this next phase of the cycle.
Of course, the biggest risk of all is people getting too carried away with bitcoin’s success to miss the changes to the landscape, politically, that have occurred over the past four years.
And the current rise isn’t even the beginning of the mania that’s still unsatisfied given the political unrest, economic uncertainty and naked power grabs occurring all around us. Between now and then it will prompt the harshest attempts by the oligarchy yet to cause interference and collapse bitcoin’s rising waveform.
That collapse will happen. All markets that go parabolic correct. It’s what happens after the collapse that determines the final outcome.
So, the stakes are now the highest they have ever been not only for bitcoin but for the oligarchs dead set on remaining in control. And this should prompt the most bitter battle in this monetary war. The question everyone is asking (or at least should be asking) is who has the best weapons?
Because every failed attempt to squelch the signal is another validated block in the chain which gives the bitcoin community the strength to finally switch channels all together and leave the old paradigm behind.
Everything else is just noise drowning out the signal.