Ep. 33 - Bitcoin - Where do we go from here?

It's no secret I've been a Bitcoin Bull over the last ~14 months, and most notably over the last four months. This is why the majority of my writing has revolved around Bitcoin itself, the network, and its socioeconomic impacts. Crypto is the new internet and moving forward all of web 3.0 and decentralized entities will be built on it. Crypto is that important.

So with my bullish sentiment, I've also had bullish price predictions (I still think we're heading far north of $100k in the next 3 - 6 months). However, given Bitcoin's recent pullback of ~15%, I've received quite a few messages from people asking what happened? Is the bull market over? and, should they sell? Briefly, don't sell, and no, the bull market is not over. Let's dig in.

Volatility

Volatility is the price we pay for asymmetric returns.

Securities and investments of any sort do not go in a straight line. If it does, then it's likely headed by Bernie Madoff, and in that case, you should run. For example, Amazon, Facebook, and Microsoft have all had >25% pullbacks, including Amazon having a >90% pullback in 2000. This is a headline about Amazon in 2000:

Amazon.bomb: How the internet's biggest success story turned sour

This was an article written by Barrons. The article went on to describe Amazon and Jeff Bezos as another failure during the internet "boom era". Imagine listening to that 'journalism' and selling? You would have missed out on millions of dollars.

The current volatility in Bitcoin's price is natural and expected for any new monetary asset. It should be embraced.

Greed

Humans continually make the same mistakes over and over again. We learn over millennia, slowly, not over the course of months and years. So when people say "this time is different" - it won't be different. People will get greedy and use leverage to purchase Bitcoin, the price will go down, and they will need to cover their margin, and then they'll panic and sell. Leveraged longs are one of the main drivers of the current price volatility.

People are greedy. Why buy $10,000 worth of Bitcoin when you could buy $30,000 worth using leverage (i.e., using debt)? Yes, it can lead to outsized returns, but it can also lead to panic selling and getting margin called. And this is what's currently happening. People have been taking on multi-million-dollar positions on margin and then when the price dips, they are forced to sell to cover their position. This is normal in bull markets. People who are trying to swing trade get greedy. But on a whole, this is a positive. Every time these leverage wipeouts occur, the buying is going to stronger hands.  

Bitcoin spot ETF

Another catalyst leading to the recent pull-back is Gary Gensler (Chairman of the U.S. Securities and Exchange Commission) denying a Bitcoin spot ETF in the US. Although the majority of Bitcoiner's don't think we need an ETF, as it's cheaper and quite easy to purchase individual Bitcoin without a managed fund, the reality is that institutional investors prefer regulated funds. And having a Bitcoin spot ETF approval would be a move in the right direction for corporate institutional adoption. However, this decision is short-term. It's not a matter of if one gets approved, it's a matter of when. Selling for these reasons is trading for the short-term, and attempting to trade in this market will be too challenging. Price swings occur too quickly, and you'll end up just getting chopped up.

Driving Catalyst for Bitcoin's Bull Run

The macro analysis for Bitcoin's bull-run and dominance moving forward is stronger than ever. The 10-year Treasury yield is averaging 1.50% as of late. CPI for October was 6.2%. Do the math on that... Trillions of dollars are losing 4.7% annually in real terms.

The US Treasury market has a $30T market cap, which is currently negative-yielding. Plus, real yields can't go positive because an increase in interest rates would bankrupt the country. In my opinion, it's only a matter of time before investors start allocating percentages to Bitcoin to stave off inflation. The Bond market is literally guaranteed to lose money. Bitcoin has an average CAGR of 200%. It will eventually become part of the Board of Directors' fiduciary duty to have an allocation to Bitcoin in order to hedge against inflation.

Closing

It's important to remember that Bitcoin is still young. The volatility is not a bad thing, it's just part of its current make-up. Adopt a long-term perspective and zoom out. Bitcoin's price on November 19, 2020, was $17,842; Bitcoin's price on November 19, 2021, is $57,994. That's a 225% increase.

PS if you bought last week at $68,000 and you're not buying today at $58,000 ask yourself why? The greatest asset ever is on discount.