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Bitcoin and the Coming Supply Shock

March 5, 2024

This is a screenshot from a talk by a guy called Samson Mow. He is a smart guy and the above is a range of sophisticated indicators. They are all bullish. As a result, he believes, wait for it, that Bitcoin is heading for a supply shock that will send the price to $1m in 2024!

Without putting precise numbers on it I agree about the supply shock theory. The new ETFs are receiving inflows of around $0.5bn a day which is funding the purchase of some 9,000 Bitcoins a day. On the supply side, miners are generating around 900 Bitcoins a day which will fall to 450 Bitcoins a day after the halving in April.

This is unsustainable and is setting up the Bitcoin market for extraordinary turbulence. It is an incredible situation and leads me to believe that all subscribers need some exposure to Bitcoin. Buy them directly, buy the Blackrock ETF, IBIT, if you can or buy shares in Microstrategy, a company which has placed a huge bet on Bitcoin; even Coinbase Global looks a good choice.

The Bitcoin chart is approaching an all-time peak and looks super-bullish to me.

I checked out the hash rate in the list of bullish factors listed above to discover what it was all about and found it so baffling I have not passed on what I found. The key point is that it is bullish. Most of the other factors relate to charts (technical analysis), supply and demand for Bitcoins and confidence in fiat money.

JAN3 CEO and Bitcoin bull Samson Mow believes that Bitcoin will see a significant supply shock in the coming days that could potentially cause its price to surge to $1 million within a matter of ‘days or weeks.’

The forecast hinges on a perceived supply shock driven by demand from the recently approved Bitcoin ETFs and a series of market adjustments currently unfolding.

Supply shock

The launch of Bitcoin ETFs has already attracted billions in trading volume. Concurrently, BlackRock’s acquisition of 11,500 BTC has notably reduced the available market supply within the first two days of trading.

The purchase is equivalent to buying 13 days’ worth of Bitcoin supply, which currently stands at around 900 BTC/day. Experts predict that the demand for BTC will rise exponentially, especially if the ETFs continue to see significant inflows.

Based on CryptoSlate’s analysis of the available BTC supply, if institutions continue to buy BTC at a similarly aggressive rate, it would only take around 120 days for the supply to dry up, making Bitcoin more scarce than it has ever been in its history.

Adding complexity to the market dynamics is the upcoming Bitcoin Halving, an event that historically impacts the price significantly by reducing the rate at which new BTC are created. The reward for mining new blocks will be halved to 3.125 BTC from 6.25 BTC in approximately 90 to 120 days.

This, combined with the existing demand exceeding supply, could lead to an unprecedented price surge as demand hits new record highs, while supply drops to its lowest level in history.

Max pain theory

Mow believes that markets will likely follow the “Max pain theory” — adapted from traditional financial markets, it suggests a scenario where Bitcoin’s price movements could result in the maximum financial loss for the largest number of market participants.

The theory, though not formally defined in the realm of crypto, typically refers to the price level at which most options contracts expire worthless, causing significant losses to holders. In Bitcoin’s case, this could translate into rapid and extreme price fluctuations, potentially catching many traders and investors off guard.

Mow believes that one key aspect of this theory in the Bitcoin market is the potential for a short squeeze in the coming days. A short squeeze occurs when the price of Bitcoin unexpectedly surges, forcing those who bet against it (short sellers) to buy back at higher prices to limit losses, further driving up the price.

The concept of max pain also ties into the unpredictability of Bitcoin’s price movements and market psychology. Bitcoin has a history of defying conventional market expectations, and a scenario that causes the maximum financial pain to the most significant number of market participants is consistent with its volatile and unpredictable nature.

According to Mow, a quick rise to $1m would disrupt the strategic plans of many, including nation-states and companies looking to invest in Bitcoin. It could also affect the usability of the Lightning Network due to high fees and break the Stock-to-Flow (S2F) model that many use to predict Bitcoin’s value.

Mow also commented on an additional number of events that would occur if Bitcoin hit $1m price point too quickly, including:

Among the most significant impacts would be on the legacy financial system, which Mow believes is unprepared for a rapid reorganization around Bitcoin.

Samson Mow, 15 January 2024

I am impressed with this guy and what he has to say. It sounds incredible but sometimes incredible things happen.

Microstrategy may not reach its goal of 1pc of Bitcoin supply but they are not far off at 193,000 coins v 196,000 or 210,000 needed depending on whether they want one per cent of existing supply or one per cent of ultimate potential supply. They are currently in the process of raising some $690,000 gross via an issue of convertible bonds expected to pay an interest rate between 0.5pc and 1pc and be convertible into SMCI shares at around a 35pc premium to the latest price to fund further Bitcoin purchases which makes great sense if they even remotely subscribe to Mow’s thesis.

Strategy – Make Sure to Have Some Exposure to Bitcoin

The beauty of Samson Mow’s aggressive predictions for the Bitcoin price is that they are so dramatic that you don’t need much exposure to have a potentially exciting position. Bear in mind that if the fireworks he is expecting do happen it may become hard to deal with all the investments mentioned below (IG, for example, may stop taking leveraged bets on MSTR and ETFs may have to stop accepting new money) so take your positions sooner rather than later. As he says, it could all happen very quickly.

Ether also has a great chart and may soon have ETFs as well.

Share & Crypto Recommendations

Bitcoin. BTCUSD. Buy @ $67,747

Microstrategy. MSTR. Buy @ $1,290

Coinbase Global. COIN. Buy @ $234.50

iShares Bitcoin Trust IBIT. Buy @ $39

Ether ETHUSD. Buy @ $3,766

Further reading

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