From the idea to the actual post, it generally takes me more than a week to publish something. When four (?) weeks ago the price of Bitcoin started to break-out and the bulls roared back on Twitter, I started to feel increasing uneasiness. I have a mental short on Bitcoin since years, is the market proving me (again) wrong? I decided I should journal these feelings here and begun to take notes.
Then a new ATH came, a bear market this week…and Animal Spirits dedicated TWO episodes of their podcast to BTC?!? I might not be that smart nor a good writer but if they talk about topics that I outlined as well I definitely do not want to be called for plagiarism. So here it is, my excusatio non petita that will make my argument even more invalid (BTW, one day I will write a post on how it piss me off when Americans use Latin words but with the English pronunciation, ffs you already did 80% of the road learning the word, why do not finish the job???).
So yes, Bitcoin is on the rise again and with it few other coins that survived the post 2017 massacre.
Previously, on The Italian Leather Sofa
A quick recap on what are (were? will see later) my beliefs: bearish on Bitcoin and all shitcoin, meh on utility and stable coins, kinda bullish on the blockchain and, if I have to choose one, Ethereum. ETH is a ‘platform’ on which you can build other blockchain/coins, my understanding is that it was a nice play if you believe in the technology but I never really invested.
Season 2, Episode 1
In this three years nothing has changed in Bitcoin other than the bull to bear to bull market. But the fact that Bitcoin is still here it is by itself a positive news for BTC investors. Which brings us to the first Bitcoin characteristic: a store of value. This is kind of a self-fulfilling property, since the longer it maintains value, the higher the probability it will continue to do so in the future.
Funny aspect about the ‘store of value’ quality is that none of its proponent really expect BTC to grow as that. They want it to grow 100x than that! The issue bitcoiners have with fiat currencies (sigh!) is that their value is eroded by inflation, which runs at about 2-3% per year. Contrary to popular belief gold is not that correlated to inflation if you measure the year to year changes BUT in the very long term its inflation-adjusted value is quite constant. Ask a BTC fanatic if they expect its value to grow by 3%/year in the long term and they will laugh at you.
It might work as a store of value but my issue with the theory is that is totally subjective. When I heard about Rallyrd I thought good luck to the guy that wants to invests in old cars…then joke on me because the app is thriving a lot (almost bought shares in a complete set of Pokemon cards). We assign value to a worn pair of Michael Jordan shoes because of the emotional attachment we as a collectivity assign to it; wish I had a worn by Maradona jersey today, fucking big checks are coming. If your theory is that gold had value since today and bitcoin is the new gold, what is preventing the next-bitcoin to make your bitcoin an obsolete store of value tomorrow? You have no control over it and good luck if you think that you can predict these sentiment changes in millions of people, wish you had told me that so we could have bet on Brexit.
My main concern about BTC is that the proof of work, the bitcoin mining, or the part of the algo behind the blockchain and therefore part of its value if you want, consumes a gazillion of energy and would do more in the future. This is a FEATURE of bitcoin, not a bug. How can you reconcile it with the other half of the world that is busy with ESG and Impact investing? What if tomorrow someone comes up with a blockchain tech that is not going to kill us because every transactions effectively pollutes like a million cars?
Another one of the main props that is frequently listed is illegal activity and transfer of funds outside regulated channels. I probably watch too much tv but I have this idea that investing in something because it facilitates something that is illegal usually ends up in a bad way. I understand the value of circumventing regulations, what I do not understand is how, if for example I live in Venezuela, I can buy bitcoins without passing from a regulated channel. When the US wanted to abolish online poker, it took them a signature on a piece of paper (if you are a credit card processor and we catch you transferring funds to these website, you will never do business again in the US) and puf, no more online poker. If you want to use a bank, they are a regulated entity and will not risk their license.
I would have a positive point if it is not illegal to buy BTC in these countries (really, I do not know) and people do because their local currency devalues constantly. At that point I would still but USD instead of BTC…but maybe it is a mess to do while BTC offer an infrastructure that makes it easier? I do not think that Revolut is available everywhere, so maybe the fact that BTC is, makes it a superior choice? But given that you are running away from something that has a huge volatility, would be BTC a good choice? Why not a stable coin? On the other side, how such stablecoin will gain prominence…if the price is stable? We go back to the initial point, BTC is the ‘gold’ of digital currencies simply because its price went (almost always) up and this has masked all its other negative aspects. No one really cares about volatility if it is due to prices going up.
One aspect that make me roll my eyes is when the bullish case goes: “add bitcoin to a basket of assets and its risk/return profile will improve by X”: bloke, obviously, you are adding something that is at ATH and it posted gains like Tesla on steroids…what would you expect? The main question about Bitcoin is if the past is a good predictor of the future, if the characteristics that generated past returns are persistent. If I buy a basket of bonds I know what to expect because past defaults data are likely valid for the future.
Yesterday for one km out of the ten I run I got excited by this idea: “maybe I can buy BTC on one of those platforms that lends them out to leveraged traders, so at least I can gain some interest while I see how this thing perform”. As per my previous post on Lendary, interest can be high, almost double digit. The issue is that those interest are not coming from any intrinsic cash flow generating feature of the coin. Traders use leverage because they expect BTC price to go up; if the price goes down, they will be wiped out and I will lose my interest…along with the capital gains. It is like a ‘win more’ opportunity, not an hedge. If you have BTC or are looking to buy, then do it because otherwise is leaving chips on the table but do not use it has a reason to buy because it is not.
And now, the good news
If you want to buy but feel bad because the price is so high, have a look at this Meb Faber paper on why buying all time highs is a great idea. Compared to three years ago, access is also easier since Coinbase is not the only game in town anymore. VanEck just launched an etn that is listed on Xetra; you can also buy Bitcoin on Revolut in a few taps on your phone, which I think is a great solution if you are not planning to dump big amounts.
Like in 2017, people reached out asking me about Bitcoin; this time the difference is that they are more ‘professional’, requests are about links to better understand how the blockchain works, while three years ago everything was about FOMO and getting rich fast. In Switzerland banks / financial institutions active in the Zug ‘crypto valley’ are real and big; Zuck based its own crypto in Geneva. This is not just for enthusiasts anymore, you might end up working in the crypto space without having an actual investment.
All the resources I have are pretty old because I think if someone was curious (and worth listening to), they satisfied their interest during the first bull market. Patrick O’Shaughnessy podcast series is a must. In three hours, you go easy from zero to hero knowledge. If you are interest in some common sense around what it is real de-centralisation and what is just a marketing stunt (like any Sovereign e-coin) Google “Matt Levine Bitcoin“, he wrote a lot of articles back in the days. And if you want something to read during Xmas holidays Ben Mezrich is always a good idea. Talking about Ben, last year he joined the writers room of Billions, the Showtime series. Curiously, Bobby Axelrod is involved in BTC stuff for two reasons: mining and bribery; the greatest (fictional) speculator is not long…
What I am reading now
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