This week in Bitcoin
Last week’s neutral to negative outlook was largely accurate as BTC spent the week further consolidating on top of the 200-day moving average. This recent break to the downside is not much of a surprise after testing support Thursday and Friday. A modest correction, coming on the heels of the 3rd largest one-day move in Bitcoin’s history 2 weeks ago ($7,500 to $10,500 in under 12 hours) is hardly shocking. Despite the sell off there is plenty of bullish news this week to keep the bears caged.
Retail payments and investment mobile application, the Cash App, owned and run by Bitcoiner and Twitter founder Jack Dorsey published earnings this week. The reports showed that in Q3 investors bought $159m of Bitcoin via the App, up 245% on last year. Cash App customers are now absorbing 8.5% of all new mined Bitcoin and with only 188 days to the block reward halving, these (retail) numbers from this single onramp are very encouraging for medium- and long-term price gains.
As discussed last week, Chinese sentiment is crucial to the market. This week saw a rather under-reported but, in our opinion, highly significant development. The National Development and Reform Commission NDRC omitted Bitcoin mining from their current list of restricted industries that should be ‘eliminated’ from China. This latest published report adds further insight into how Beijing are now viewing Bitcoin and other cryptocurrencies and paves the way for greater political and economic support of blockchain technologies such as Bitcoin. It is not entirely inconceivable to suggest that the PBOC have been and will continue to be silent buyers of Bitcoin, which would jibe with their recent increase in gold purchases.
The world has gone mad and the system is broken
No sooner had new IMF chief, Christine Lagard stated that we should be ‘’happier’’ with a job than a higher savings rate had billionaire hedge fund legend, Ray Dalio published a blog post this week entitled ‘The world has gone made and the system is broken’. Lagard’s defense of Mario Draghi’s negative interest rate policy is the ying to Dalio’s yang.
Dalio eloquently encapsulated what the Bitcoin / Crypto community have been onto for some time…that global central bank policy is a monster problem, with the major economic powerhouses of Europe, Japan and the United States addicted to cheap, easy money. The purported ‘trickle-down’ effects of this modern monetary policy experiment are simply non-existent — the wealthiest 1% continue to exhibit astonishing wealth creation year-after-year, all while real wages for the working class have gone practically nowhere for 3 decades.
A symptom of this addiction are the violent global protests we are witnessing, many of which are a direct response to this inequality caused by the inflated asset prices and subsequent low/negative yield world we now live in. This Cantillon effect will only get worse as the current best worst option is to print more fiat to feed the addition.
The Bridgewater boss, went on to lambaste central bankers and governments but more specifically ‘the system’ as a whole. Ultimately what is at risk here, is the very credibility of the major global fiat currencies as a reliable store of wealth.
Our bet is that Ray will be long gold and bitcoin calls.
Pseudonymous institutional investor and quant, PlanB published the often cited Modeling Bitcoin’s Value with Scarcity in March this year. It has now gone viral having been translated into 22 different languages and has sparked further quantitative research into this pricing method.
Naturally many investors have taken notice of the $100,000 — $1,000,000 price predictions and the impact halving events are having on stock to flow and price — as shown above. If Bitcoin has such massive potential growth then why is this not priced in yet?
This question was recently discussed on PlanB’s latest interview with Stephan Livera
- Those that know about it are already invested
- Markets are inefficient
- Information has not been fully absorbed yet
- Lots of people do not believe the Stock to Flow model
We know first-hand that significant capital still sits on the sidelines. As discussed last week, the enormous global Private Wealth market has barely started investing in digital assets and institutional investors have a long way to go. There is a learning process many investors must go through and most have not even started at all.
In our opinion, markets are efficient enough for us to largely dismiss point 2. Which leaves the probable likelihood that most don’t believe the model. If true then this is good news if you are long and do believe.
As Nick Szabo has recently discussed, perhaps Bitcoin is moving towards trading as a Veblen good, whereby the higher the price of a good, the greater the demand? Although somewhat counter-intuitive when considering Bitcoin / crypto as money, perhaps society may start to consider the ownership of Bitcoin in the same context as owning a Rolex, designer cloths and classic cars?
For now, we will keep an eye on how this popular pricing model plays out. We agree with PlanB’s view that if Bitcoin is not above $55,000 before the start of 2022 then the model, which until now is statistically significant, breaks down.
Crypto weekly performance: 9th November 2019. Source www.bitgur.com