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Bitcoin – Insider Bulls v Global Scepticism

March 10, 2024

This is a very long-term chart (each candlestick equals a year), so anything can happen in the short term and often does with Bitcoin. Almost everybody in the chat rooms thinks Bitcoin is incomprehensible hot air and a scam and the general public is mystified as to how something with no tangible existence can be worth so much.

US$100 Bills are Just as Much a Matter of Faith as Bitcoin

But then I wonder about US$100 bills which are just pieces of paper with a number stamped on them. What is the difference? Back in the day people trusted gold and were as distrustful of paper as sceptics are now of Bitcoin. Yet Bitcoin has a huge advantage over $100 bills because their supply is strictly limited. In many countries, people have learned, rightly, to be distrustful of paper currency because governments who want to spend more just print more.

Even in these days of sophisticated, seemingly all-powerful central banks, we have just undergone a fierce bout of inflation which is not over yet and politicians, with good reason, are more distrusted than ever. In such an uncertain world an instrument like Bitcoin, limited in supply and outside the reach of Government interference, even though it is so hard to understand, can look tempting.

Bitcoin Action so Far Just a Warm-Up

Optimism around bitcoin (BTC) has significantly increased following the leading cryptocurrency’s ascent beyond the $60,000 mark this month. The renowned stock-to-flow (S2F) model’s creator, Plan B, forecasts “10 months of face melting FOMO [fear of missing out],” while others are of the view that BTC could reach $1m by 2033 [or even this year, see recent alert]. In recent days, onchain analyst Willy Woo has also contributed his insights, explaining on Monday that BTC is merely getting started.

“So you think we’re in a bull market?” asked Woo on the social media platform X. “We’re not, this has been the warm-up. A full fundamentals driven bull market is marked by a break of the upper blue band. When it breaks, Tradfi (traditional finance) is in for a shock.” Woo further shared a BTC macro index chart to support his statement. Woo has made some notable calls over the years and last November, he said BTC would likely never drop below $30K. “We’ll probably never see BTC going below $30k again if this onchain pattern holds true,” Woo stated three months ago.

On March 6, Woo explained that capital is flowing into bitcoin. “July 2010, BTC was 0.7 cents, it popped 10x in 5 days, then another 1000x 2 years following,” Woo posted on X. “Why? BTC was introduced to global liquidity with the advent of Mt Gox. Bitcoin just got listed on the world’s stock markets which holds ~$100T of capital, and they are piling in.” Woo further added:

[Technical analysis] charts will signal overbought, traders will try and short. BTC will run those charts over like a freight train. I saw this happen last cycle, late 2020, when hoards of HNW [high net worth individuals] rushed in with spot buys of $1m tickets.

As bitcoin’s narrative progresses, these forecasts suggest a pivotal era on the horizon, surpassing tradfi limits and expectations. With the community’s significant anticipations and Woo’s analysis of fundamental changes, the path indicates a time when BTC may not just contest but also reshape the concepts of wealth preservation and traditional investment strategies. Yet, the truth of these ambitious expectations will unfold with time, as much speculation relies on historical patterns that might not hold true in the future., 7 March 2024

The chart above is compatible with these bullish speculations. I have suggested in earlier alerts that eventually we may find that all the trading since 2013/14 is a giant consolidation capable of supporting a massive further rise in the price of Bitcoin. We also have the potential, as elaborated recently by Samson Mow, for a supply shock [demand shock?] as massive inflows into ETFs, around $750m on a recent day, meet reduced supply after the coming Bitcoin halving event which makes Bitcoin mining dramatically less profitable.

How Crowd Behaviour Could Drive Bitcoin Higher

The most worrying thing about the bullish Bitcoin thesis to which I subscribe is that so many commentators in the Bitcoin community are so bullish. But then I think of crowd theory. The idea behind crowd theory is that shares go up because a growing crowd of investors becomes aware of the performance and the story driving a stock and buy. Bitcoin could be in a similar position where a growing crowd of global investors becomes aware of the Bitcoin story and comes to believe that Bitcoin is the real deal.

Apologies to Believers but I See Parallels with the Rise of Christianity

Somewhat blasphemously I see parallels with the way in which Christianity came to dominate medieval hearts and minds. It starts with the somewhat shadowy figure of Jesus Christ (think Sakoshi Nakamoto for Bitcoin who nobody has ever seen) and then we get the early supporters, people like the Winklevoss twins, Jack Dorsey of Twitter and Square and more recently Michael Saylor of Microstrategy. They and others are like St Paul and the Apostles, spreading the Word.

Gradually the regulatory authorities came on board with Christianity becoming the official religion of the Roman empire in 313AD when the emperor Constantine issued the Edict of Milan.

Like Jesus, Paul spoke to people in their homes and synagogues. But he went beyond Jesus, who had only preached to Jews. Paul believed his message should also be taken to gentiles – the non-Jews.

As the Christian movement began to accept non-Jewish members, it moved further away from the strict rules imposed on Jews. In so doing, it gradually became a new and separate religion.

Although the followers of Jesus were working hard to spread the message, there were still very few Christians in Rome. They were regarded with suspicion. Some important Christian rituals were mistaken as cannibalism, others as incest. Christians became an easy target.

Nero wasted no time [when he needed culprits to blame for a disastrous fire in the Roman capital]. He arrested and tortured all the Christians in Rome, before executing them with lavish publicity. Some were crucified, some were thrown to wild animals and others were burned alive as living torches.

A new approach

Despite this, Nero’s persecution of the new Christian sect was brief and, in the first century at least, was not repeated in other parts of the empire. When asked by Pliny the Younger how to deal with Christians in the Asian provinces, Trajan replied that they should not be actively pursued. However, they could be punished if they were publicly criticized and refused to abandon their beliefs.

Over time, the Christian church and faith grew more organized. In 313 AD, the Emperor Constantine issued the Edict of Milan, which accepted Christianity: 10 years later, it had become the official religion of the Roman Empire.

PBS, The Roman Empire in the First Century

It was only established at the Council of Nicaea, in 312, by bishops from all over the empire, that Christ was fully divine and not some sort of human/ divine hybrid inferior to God.

Think about this as what is happening to Bitcoin but, in an interconnected world, much more quickly.

One early investor in Bitcoin, Peter Saddington, had this to say.

Peter Saddington of Atlanta first heard about bitcoin back in 2011 and bought some for less than $3 per coin. When the price of Bitcoin became around $7,500, the profit on those early investments became approximately 250,000pc. “I’ve never seen anything like this,” said Peter Saddington, 35, the entrepreneur who also has a bachelor’s degree in computer science and three master’s degrees. “What solidified my confidence that this is worth investing in is that the code is based on math. It can’t be turned off.

Medium, 14 January 2019

Investing in Bitcoin is Based on Maths Which Can’t be Turned Off

“Can’t be turned off” is almost the whole point although the golden symbol of a single Bitcoin probably helps. It is almost like a digital artwork which is exploding in value. Buying Bitcoin is a leap of faith but it has all the ingredients of a story which could run and run, just like Christianity which ended up spreading into every nook and cranny all over the world and was only resisted by similar but different rival belief systems.

Nobody has ever experienced an investment like Bitcoin, which IPO’d at zero in 2009 and has risen to around $70,000 a coin (share?) recently. It is the greatest momentum play of all time so no wonder the number of so-called Bitcoin whales, holders of more than 1,000 coins, is on a parabolic upward curve. This is like a party in a not especially large hall where a rapidly growing number of people are trying to get in creating an impossible crush (the famous supply shock).

I checked out supply shock and I think what may be coming for Bitcoin is more like a demand shock, a sudden unexpected increase or decrease in demand. Supply is relatively fixed, albeit falling with each successive halving, but on the demand side, there are so many variables, especially with the arrival of Bitcoin ETFs.

Bitwise CIO Matt Hougan said that institutions “representing trillions of dollars in assets” are expected to start investing in spot Bitcoin ETFs by the second quarter.

Hougan made the revelation in a weekly memo sent out to investors, parts of which were shared on social media.

Influx of institutional interest

Hougan wrote that Bitwise, and likely the other Bitcoin ETF issuers, are engaged in “serious due diligence discussions” with a variety of major financial and corporate entities that are interested in gaining Bitcoin exposure.

He added that these entities include “major wirehouses, institutional consultants, and large corporations,” without disclosing further details about their identities.

According to the Bitwise CIO, entities in these three categories will initiate the “first significant flows” into Bitcoin in the second quarter. He added that the flows are expected to “accelerate throughout the year.”

The projection is based on a growing comfort level with digital asset products and a recognition of their potential to offer diversified investment opportunities.

Bitcoin ETF buyers

Since their US debut on Jan. 11, spot Bitcoin ETFs have swiftly amassed over $8.9bn in net inflows, marking them as some of the most successful ETF launches in history.

This surge in interest has prompted many to ask a critical question within the investment community: who is fueling this remarkable growth?

Hougan’s memo revealed that spot Bitcoin ETFs have garnered widespread interest from all types of investors, ranging from individual retail investors to sophisticated entities like hedge funds and asset managers.

He wrote:

“The introduction of Bitcoin ETFs was heralded as a bridge for professional investors to enter the Bitcoin market. Our experience over the past seven weeks emphatically confirms this.”

Notably, Registered Investment Advisors (RIAs), family offices, and venture capital funds have also been allocating exposure to BTC, which signifies the wide-ranging confidence in the potential of these ETFs.

This inclusivity signals a significant shift in the market trends, offering professional investors a regulated and familiar avenue to explore the burgeoning world of crypto investments.

Bitwise, 9 March 2024

There is also the possibility of nation-states becoming involved. So far only El Salvador has done so with mixed results. Its investment in Bitcoin is doing well but as a transaction medium, the Bitcoin experiment is struggling.

There is also the possibility of ultra-high-net-worth individuals becoming involved.

After selling $8.5bn worth of Amazon stock, Jeff Bezos has become the centre of discussions speculating on a potential Bitcoin investment. This financial move and Bezos’s recent dinner with Michael Saylor, known for his large Bitcoin holdings, fueled the rumor. Some say the meeting was set so Bezos  could seek advice or partnership opportunities in the Bitcoin space, considering Saylor’s influence and success.

Adding to the speculation, a Bitcoin address transaction involving 26,200 BTC, valued at about $51,000 each, intrigued crypto analysts. This transaction, possibly linked to a high-networth individual like Jeff Bezos, coincides with the timing of his stock sales. Although Bezos’s BTC investment remains uncertain, the mere possibility points out the influence of billionaire investments in the crypto space.

Analytics Insight, 9 March 2024

Q2 2024 Could be Decisive

There are growing signs that the second quarter of 2024 could be a decisive period for Bitcoin as demand from the newly launched ETFs ramps up while a Bitcoin halving event restricts supply. The chart is compatible with this notion. A decisive close above $70,000 would be an exciting moment for Bitcoin bulls.

I think Bitcoin should be at least five per cent of every portfolio as suggested when I recommended, for those able to do so, that they should hold 80pc in QQQ, 15pc in QQQ3 and 5pc in IBIT. An alternative for UK-based investors is to buy EQQU, LQQ3 and five per cent in either Coinbase Global (COIN) or Microstrategy (MSTR) or the two combined.

I have realised that a good way to think of Bitcoin is as a new asset class for the digital age, invented in 2009, which has grown in value to around $1.3T. Going from zero to 1T plus was the hard part. The question now is how much further might it go and that could be a long way. Even gold is booming (see chart below) and Bitcoin is digital gold filling the need for a safe, albeit volatile asset for the digital age.

I don’t believe in God or the divinity of Christ but I can see how Christianity fulfilled a need and that enabled it to conquer much of the world. Bitcoin fills a need and may be similarly successful. I even suspect that purchases made below $100,000 a coin will come to look very cheap to future generations of investors.

As I have noted before and above, the chart supports such an analysis with the potential for all the trading between 2013 and today forming a massive upward-sloping consolidation. A move, especially a sharp move on high volume, to above $100,000 would look like a breakout.

The fact that Bitcoin (digital gold) and Spot Gold (physical gold) are rising together suggests that part of the issue is waning confidence in paper money, central bankers and politicians. People want an asset with a limited or finite supply that cannot be debauched.

Both have been volatile in the past, especially Bitcoin but I suspect that may be less the case in the future. There may be short, sharp corrections but not the sustained sell-offs we have seen. On a long-term chart, even the bigger falls in the Bitcoin price look like corrections in a secular uptrend and seem to mirror bear markets in shares.

The Rise Over $1T was the Hard Part

In 15 years the market value of Bitcoin has risen from zero to $1.3T. I think that was the hard part. In the process, it has weathered the effect of a widespread belief that the initial rise was a scam and subsequently a sharp rise in interest rates and still managed to reach a new ATH [all-time high]. Over the next 15 years $10T looks very doable implying a Bitcoin price of around $500,000 and some observers believe even more is possible.

There may be an element of FOMO going on as there will be with any sharply rising investment but that can only happen if there are strong underlying drivers at play.

Re Bitcoin, I have been wondering where the sellers come from given the insider bullishness. There is an explanation below.

Hougan explained: “Historically, alts [alternative crypto investments] season capped the rise of bitcoin as marginal capital shifted out of bitcoin into the rest of the market. But bitcoin’s 2024 rally is being driven by entirely new money — non-crypto-native money — flowing into the ecosystem via ETFs. This suggests the ‘wealth effect’ can be ongoing for a while, as long as more new money is flowing in (via ETFs) than old money is flowing out (into alts).”

He continued, “Because I think the bitcoin bull market is still in its early stages, I suspect this will be the case,” adding:

The result is more of an ‘everything season’ than a classic ‘alts season.’ That’s what we’re seeing in the market and I suspect it will continue.

Matt Hougan, chief investment officer, Bitwise, 10 March 2024

I am beginning to realise that it is precisely because Bitcoin has no value and no rationale other than as a store of value that it is so perfect as a speculative vehicle. The very things that the general public and Warren Buffett’s late partner, Charlie Munger, found so infuriating about Bitcoin are what makes it so successful.

Share and Crypto Recommendations

Bitcoin BTCUSD. Buy @ $69,700

Ether. ETHUSD. Buy @ $3,946

iShares Bitcoin Trust ETF. Buy @ $39.55

Coinbase Global. COIN. Buy @ $256.50

Microstrategy. MSTR. Buy @ $1,425

QQQ Buy @ $439/ EQQU. Buy @ $445

QQQ3. Buy @ $170/ LQQ3 Buy @ £145

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