After a 3-month downtrend, Bitcoin has roared back into life - surging past 30k. Against the backdrop of a worsening global economic crisis, are there still good reasons to buy Bitcoin? Is a new bull run just getting started?
Is now a good time to buy Bitcoin? Over the last 18 months, Bitcoin and the wider crypto market have endured a torrid bear market that saw prices plummet following the collapse of industry stalwarts such as Celsius, BlockFi, Three Arrows Capital, and FTX.
However, after dropping as low as $16,000 in November, BTC has staged an impressive recovery to begin 2023. With BTC up 83% year-to-date and blasting through $30,000, many technical analysts are now suggesting that the bottom is not only in, but a new uptrend is underway.
For new investors exploring Bitcoin for the first time, the landscape can be confusing, even intimidating. Perspectives on Bitcoin vary wildly from bullish zealots on the one hand to those who dismiss it as a worthless ponzi scheme on the other. If you’re asking yourself ‘should I buy Bitcoin now’, here are five macro trends and data points to consider.
The Bitcoin halving, also known as the "Bitcoin block reward halving," is a predetermined event that occurs approximately every four years in the Bitcoin network. It refers to the reduction in the rate at which new Bitcoins are created and awarded to miners for validating transactions and securing the network.
The next Bitcoin halving is approximately 300 days away. In trading markets, a lower supply with the same demand will lead to higher prices. Since the halving reduces the supply of new Bitcoins, and demand usually remains the same, the halving has preceded some of Bitcoin’s largest bull runs.
In the Bitcoin protocol, there is a limited supply of 21 million Bitcoins that can ever exist. The issuance of new Bitcoins is programmed to gradually decrease over time. Initially, when Bitcoin was created in 2009, the block reward was set at 50 Bitcoins per block. However, as part of the network’s design, this reward is cut in half roughly every 210,000 blocks, or about every four years.
In the 2024 halving, the reward will drop from 6.25 BTC per block to 3.125 BTC.
The importance of the Bitcoin halving stems from its impact on the supply and inflation rate of Bitcoin. With each halving event, the rate at which new Bitcoins are produced is reduced by 50%. This reduction has significant implications for the Bitcoin ecosystem:
Scarcity: The halving is designed to gradually reduce the supply of new Bitcoins entering circulation, making Bitcoin increasingly scarce over time. This scarcity aspect is often cited as one of the reasons for Bitcoin’s potential to store value and act as "digital gold."
Inflation control: By reducing the rate of new coin issuance, the halving acts as a mechanism to control Bitcoin’s inflation. As the supply growth slows down, it can potentially lead to increased demand, which may drive up the price of Bitcoin.
Market dynamics: The halving can have a profound impact on market dynamics, as it affects the incentives for miners. Miners, who validate transactions and maintain the network, receive newly minted Bitcoins as a reward. When the block reward is halved, miners receive fewer Bitcoins, which can influence their profitability and operational decisions. This can impact the overall network hashrate, mining difficulty, and potentially even the security of the network.
Market speculation: The anticipation and occurrence of the halving event often generates significant interest and speculation within the cryptocurrency community and beyond. Some believe that the reduction in the supply rate could lead to upward price pressure, as historical data has shown that previous halvings have been associated with bull markets.
2. Bitcoin’s value proposition is perfectly suited to the macro climate
Bitcoin was born out of the Global Financial Crisis of 2009. Against a backdrop of bank failures, government bailouts, and quantitative easing, Bitcoin was quietly deployed into the wild where it was ignored by everyone except for a small but growing group of idealists.
A decade and a half later, and we are seeing a new financial crisis with more bailouts, more wobbly banks, and a monetary establishment trapped between interest rate hikes, runaway inflation, and the siren song of money printing.
As Brave New Coin founder Fran Strajnar explained in a recent editorial, “the current banking crisis is a result of the ‘transitory’ lie. The Fed should have reacted to inflation six months earlier, and raised rates more gradually. Instead, they slammed on the brakes and now we have a car crash.”
With the Fed itself originally forecasting no major rate hikes as recently as 12 months ago, many banks parked huge sums in "the world’s safest asset" – US Treasuries.
This of course turned into sharp pain on the balance sheets of various mid-sized banks in particular, as they purchased multi-year Treasuries thinking they were stable and predictable (and the Fed was shouting from the rooftops assuring no major rate hikes not long ago).
Former Chief Technology Officer of Coinbase, and former general partner at the venture capital firm Andreessen Horowitz, Balaji Srinivasan goes further in stating the seriousness of the current banking crisis.
He wrote on Twitter, “Just as in 2008, the bankers lied. This time, the central bankers, the banks, and the bank regulators have lied to all dollar holders and depositors. This isn’t your typical fractional reserve situation. The problem is that there isn’t enough in the banks on a mark-to-market basis to cover withdrawals.”
They knew this throughout all of last year and communicated it internally in their coded language. The central banks, the banks, and the banking regulators all knew a huge crash was coming — the phrase is "unrealized losses". But they never notified you, the depositor.
With the Fed likely to continue to print money to ensure deposit liquidity can be met in the event of a bank-run crisis, Balaji says hyperinflation is a real possibility. The solution? Bitcoin of course.
“This is the clearest way to see what’s happening,” writes Balaji. “They’ve decided to monetize the debt in the messiest way possible by printing $150B+ for insolvent banks to cover an orgy of bank runs. The dollar supply is now going vertical and so is the demand for Bitcoin.”
Satoshi Nakamoto appears to have designed Bitcoin as a possible solution to this exact scenario. In 2009, shortly after the release of the Bitcoin white paper, the pseudonymous creator of Bitcoin posted to an internet forum.
He stated, “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”
Similarly, Real Vision CEO Raoul Pal says that as central banks again consider quantitative easing, the stage is set for hard assets such as Bitcoin and gold to perform well. “Huge quantitative easing of fiat meets the hardest money that automatically quantitatively tightens. Bitcoin wins.”
The contrast between central bank quantitative easing and an ever-expanding money supply against the quantitative tightening of Bitcoin’s third halving is stark. Fiat currency supply is growing quickly, while the scarcity narrative of Bitcoin is growing in importance.
Money printing looks set to again find its way into asset prices, including gold and Bitcoin. A small reallocation of even 1% from other asset classes to Bitcoin would represent capital inflows greater than Bitcoin’s current market cap.
3. Bitcoin is still in the buy zone
Dave The Wave is a pseudo-anonymous investor, trader, and technical analyst. A contrarian, Dave has a unique insight into Bitcoin, its chart history, and its potential chart future.
Dave is the author of the Bitcoin Logarithmic Growth Curve chart, one of the few accurate predictive models of Bitcoin’s price.
Bitcoin is still in the buy zone (the shaded area on the charts below) of the LGC. Historically, buying Bitcoin in the ‘buy zone’ has proved profitable over the long term, and is certainly preferable to buying at the top of the channel when Bitcoin is overheated and in danger of crashing. Bitcoin has been in the buy zone (some might call it the accumulation zone) for almost 16 months now, and while Bitcoin is in the buy zone, the risk/reward for buyers/investors remains favorable. As Dave says “buy the dip, not the top”.
As Dave’s next chart below shows – when Bitcoin moves it can move quickly. While Bitcoin is still in the buy zone, a potential target for the next bull run is $150,000.
On a 3-year time horizon or more, Bitcoin is one of the best-performing assets on the planet as the chart below shows.
Bitcoin’s strong performance has not escaped the notice of Wall Street analysts, investors and companies.
It’s exactly this long term performance that reflects MicroStrategy CEO Michael Saylor’s belief that "Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy."
Following MicroStrategy’s lead, in October 2020, payment platform Square announced that it had invested $50 million in Bitcoin, buying a total of 4,709 Bitcoins. Square said the investment represents about 1 percent of its total assets. Square said it was making the purchase because “Bitcoin has the potential to be a more ubiquitous currency in the future and an instrument of economic empowerment that provides a way for the world to participate in a global monetary system.”
Jack Dorsey, the CEO of Square is a long-time Bitcoin evangelist and investor. Square has previously invested in bitcoin from a product, leadership, and legal innovation perspective, and today adds this financial investment. The company launched bitcoin trading in 2018 with Cash App, which enables the buying and selling of bitcoin. In 2019, the company formed Square Crypto, an independent team solely focused on contributing to bitcoin open-source work for the benefit of all, and also recently launched the Cryptocurrency Open Patent Alliance (COPA), a non-profit organization encouraging crypto innovation and opening access to patented crypto inventions.
While the 2022 bear market crash and crypto company blow-up has deterred any other public companies from following MicroStrategy and Square’s lead, that might be about to change.
Back in 2021 Jack Dorsey tweeted that hyperinflation is coming.
As reported above, Balaji Srinivasan is now making the case that hyperinflation is imminent. The Fed is devaluing the dollar. This is what Ray Dalio predicted: the monetization of the debt.
If this trend continues, and any bank runs begin, that could turn into a positive feedback loop for Bitcoin. First individuals will rush to protect their wealth by buying Bitcoin, then companies, the institutions, and then small nation states. Will this scenario actually happen this year? It seems far-fetched, but the one lesson we can learn from history is that when hyperinflation happens, it happens fast.
In 1923, at the worst time of German hyperinflation, the exchange rate between the dollar and the Mark was one trillion Marks to one dollar, and a wheelbarrow full of money would not even buy a newspaper. Most Germans were taken completely by surprise by the speed of the financial tornado. In today’s digital world, it’s likely that hyperinflation happens even faster.
For ten years, countless crypto exchanges, startups and institutions have tried and failed to win SEC approval for a U.S. Bitcoin Spot ETF.
The launch of a spot Bitcoin ETF would be a significant step in the legitimization of the crypto asset industry. It would open the door to an eventual pathway for the wider American investment community to invest in Bitcoin. It would mean investors don’t have to custody Bitcoin themselves and should attract significant new inflows.
This month, asset giant BlackRock, which manages $9.5 trillion in assets, surprised the crypto world when it applied to the U.S. Securities and Exchange Commission for a Bitcoin exchange-traded fund (ETF). Though the product is technically a trust, it is the same as a spot ETF, analysts say.
It is thought that Blackrock’s (BLK) iShares Bitcoin Trust application has a better chance of approval by the SEC than all other applications to date. That’s because of a “surveillance-sharing agreement” between exchanges.
On page 36 of the 19b-4 filing, it says that to avoid market manipulation, the Nasdaq will enter into a surveillance-sharing agreement with an operator of a spot trading platform for Bitcoin.
This could finally satisfy the SEC, that the ETF can function without market manipulation, a charge it has used to deny previous Bitcoin Spot ETF proposals.
Is BlackRock going to succeed where all others have failed? The current regulatory environment remains uncertain but the Wall Street giant has the best shot yet.
We’ll know early next year, about one month before the halving. If they succeed, expect Bitcoin fireworks.
The application can be read here.
As the below chart from Rekt Capital indicates, the downward resistance trendline from the most recent all time high has been broken. This suggests that we are at the very beginning of a new uptrend that will eventually blossom into a full blown bull market.
Historical price data suggests that Bitcoin will eventually exceed its most recent all-time high of $69,000. Whether or not it happens this year, or next year, the risk-reward continues to favor those investors who buy when Bitcoin is in the lower part of the LGC channel and hold for the long term.
Bitcoin appears to be an asymmetric bet. If one only invests what one can afford to lose, there is a limited risk of loss with the benefit of substantial upside. Based on Bitcoin’s network effects, growing adoption, the supply shock following next year’s halving, and the volatile macro backdrop, Bitcoin appears set to outperform in the years ahead. How long will you stay on the sidelines?
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