Bitcoin has been the highest performing asset of the last 13 years. From an exchange rate of 10,000 BTC for two Papa John’s Pizzas up to a peak of about 69,000 tethers for one BTC, plus the significant market caps for all of the other assets that carried on, were built from, or split from the Bitcoin protocol over the years.
But let’s start by clarifying that I am not an investment advisor, and this is not advice.
For the first several years of Bitcoin’s existence, the value of the asset was determined by people using it or believing that it would be used as a way to disrupt payment technologies like Visa and PayPal. Satoshi Nakamoto even boldly claimed that bitcoin could scale past Visa with existing hardware over 10 years ago, and the community of bitcoiners were acquiring coins while stores were setting up to sell everything from web design to alpaca socks with the new currency!
Don’t believe me?
“Digital gold” was the moniker of choice as the supply was fixed and auditable making for a hard money, but it was also cheaper and faster to transact compared to existing payment rails. This placed Bitcoin in the marketplace as something of an enigma: a distributed fintech disruptor with the properties of a commodity. Unfortunately, with the housing bubble crash of 2008 and the quantitative easing that followed, there was a heightened awareness of the need for sound money to resist bad monetary policies, so the focus of bitcoin became pretty universally that it was a viable asset class rather than its primary use as a payments network.
And so began Bitcoin’s correlation to traditional investment vehicles.
Despite memes to the contrary, Bitcoin is not a hedge against inflation. In fact, the more that it is treated primarily as a store of value by the economy, the more correlated to inflation that it will become. But why?
Well, the entire equities market is over-inflated because USD has been increasingly cheap over the last decade, and in an increasing inflationary pattern. It’s not just Bitcoin that is inflated. The entire market is. Housing, stocks, consumables; EVERYTHING! But BTC has managed to be even more overblown because on top of soft money coming from retail, there’s even softer money coming from the Tether printing press. The shrewd long-term investors know that as fiat currency softens, harder assets harden, and stocks, bonds and “crypto” have played accordingly.
Unfortunately, low interest rates and quantitative easing cannot go on forever, because even though assets have been appreciating, so has the price of raw materials and then trickling down to consumer goods and many other things in the economy, so as inflation hit a 40-year high in December, the Federal Reserve confirmed announcements that they would be raising interest rates to curb inflation. Reuters reported: “It’s almost as if, all at once, the Fed has realized that policy has been left too accommodative, for too long,” wrote Robert Kavcic, senior economist at BMO Capital Markets in a note to clients. “To their credit, if they’ve realized a mistake, they’re going to fix it—and fix it fast.”
This should start the beginning of a hardening of the dollar, and it indicates bearishness across markets which have been in what seemed like a permanent bull cycle. Well, as Stock-to-Flow models break down, support zones capitulate and rumors of Michael Saylor getting put under SEC investigation, it seems time for the largest bull market in history to finally come to an end.
So now what? Since BTC has ceased to be a fintech disrupter, and has therefore become little more than a market-correlated risk asset, the nonsense that people spew about “Gresham’s Law” and “Lindy Effect” are likely to come into play—which is to say that as value retreats to harder money, BTC should get passed right up, and value should pump into the hardest money: precious metals.
Secondarily, investment into truly disruptive sectors where new efficiencies are being created would be a good bet, but only if they aren’t already overvalued – like Tesla.
The bull case for BSV
I have made a prediction throughout this two-year BTC bull market cycle that BSV will outperform the bear market.
The money used to hold the price down is all margin money from people who are rich and sassy. As soon as they have to start bailing the water out of their sinking ships, holding down the BSV price becomes a liability rather than a luxury, so that extra capital will dry up. And since everyone already sold their BSV, if they were going to, it has almost nowhere to go but sideways or up while the rest of the market gives back its bubble gains. Furthermore, BSV’s use cases are growing. The BSV economy has focused hard on fundamentals during this cycle, and there has been a lot of strong foundations and strategic investments made in the BSV economy that should make the users of BSV remain focused on building their businesses that rely on micropayments.
I guess we will see!
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.