It’s the first day of Summer, and June has been another momentous month for bitcoin and crypto assets. There’s plenty of room left the rest of this month and year for them to continue their current bull run. The prices have been led upwards by bitcoin rebounding off of the December 2018 bottom around $3200 that I called in this year’s thesis. According to data from CoinMarketCap, on June 30th the price a bitcoin was $640.59 in 2016, $2,492.60 in 2017, and $6,411.68 last year. The price of a bitcoin currently is $9,300 at the time of this writing and nearing the target everyone has their eyes on at the moment is $10,000. We may see it as soon as the end of the month. It is highly psychological number and Tyler Winklevoss, Co-Founder and CEO of Gemini, tweeted this week, “If bitcoin breaks 10k, you can bet it’s going to break 15k…” His reasoning was that it is a cheap asset until it disrupts the gold market, and bitcoin breaking $10,000 with both retail and institutional interest as well as money already invested in the market makes it feel more “real” to people and far less obscure. Knowing that it took less than three weeks for bitcoin to rise from $7,000 to $20,000, seeing prices rise back to new all-time-highs this year seems probable as well as conservative.
Forecasts for how the rest of this year plays out are looking very bright for bitcoin and crypto assets, but not so much for the traditional markets and asset classes. Bitcoin has truly shown that it was never dead and that “crypto winter” was a fad. The greater financial landscape right now is giving rise to a “Perfect Storm” scenario with bitcoin emerging as an insurance policy against monetary and fiscal policy irresponsibility by central banks and government interventions. It hasn’t necessarily become a “safe-haven” yet as it still performs as a risk asset, but recently bitcoin has displayed characteristics that suggests that possibility may be near in the future should its price approach a point that it stabilizes and becomes less volatile. Speculators are arguing whether or not it is a store-of-value though it should be noted that unlike gold which is known as the classical store-of-value, bitcoin isn’t held by central banks as part of their reserves. It is estimated that central banks hold one quarter of the world’s gold supply. Despite being made public that banks have colluded in manipulating and fixing gold prices in the past, surprisingly there is still a large consortium of investors thinking that it’s the better investment. Gold is basically a horse and carriage compared to bitcoin, which would most likely be a sport utility vehicle (SUV).
Bitcoin and gold each share the fundamental tenants of money each being durable, divisible, portable, uniform, accepted, and scarce. As a risk asset not held by central banks and yet with these aspects, Bitcoin is very likely to disrupt gold and outperform it over the short- and long-time horizons. The key to bitcoin’s success is that it is not widely adopted in comparison to gold. Over the remainder of the year and into 2020, the financial developments and global economic impacts will only give bitcoin more upside and push demand for it especially approaching the miner’s block reward halving. Speculation is one factor driving bitcoin and crypto’s growth, but it cannot be discounted when considering the all-time-highs of the 2017 were driven by it. This time around is different. The current crypto bull run still has retail hype and speculation, but what’s different is that the largest retailers are starting to accept it, the largest custodians beginning to store it, the largest firms trading it, the largest funds investing in it, the largest media outlets covering it, and the largest governments questioning their relationships with it. According to Google Trends for the term “bitcoin,” it also suggests this time around is different with far less traffic researching it. Posing the question, is this rally being institutionally driven?
The underpinning of Bitcoin is cryptography and math, whereas the U.S. dollar is backed by backed the “full faith and credit” of the U.S. government. It’s been an experiment starting in August 1971 that made Federal Reserve Notes the only form of money that for the first time created a currency without any gold or silver backing its value. President Nixon at the time labeled the move as “temporary,” and it’s been the same system ever since without any major enhancements or upgrades. Just remember that people lie, and math doesn’t. Bitcoin relative to gold is the more attractive asset for its immunity to central bank fiscal and monetary policies and their lack of any reserve holdings in it. To a certain extent central banks and their affiliates are the most incentivized, willing, and able to control the price of gold running away from the value of their fiat currency holdings. As controllers of the minting of new banknotes and coinage, they also hold the power to print more money that would decrease the overall buying power of the total currency base compared to fixed and deflationary assets like gold and bitcoin whose values would rise. While gold will still be a great safe haven, bitcoin as a risk asset not widely held yet with a unique combination of low correlations and potential asymmetrical returns in comparison to traditional asset classes makes it a far more attractive diversifying asset for long-term investors.
Donald Trump campaigned on raising interest rates and a stronger currency is now advocating for cutting interest rates as well as weakening the U.S. Dollar in an effort to prop up the markets, keep valuations high, and extend the current bull market for stocks, bonds, gold, oil, and real estate. The Federal Open Markets Committee (FOMC) chairman, Jerome Powell, had been rolling the balance sheet off and starting to raise interest rates to tighten up the economy in 2017 accelerating into 2018. This had been causing stress in the traditional asset class markets that was punctuated by a total runoff in the last quarter of 2018. Believing that a market was being mishandled as a dumpster fire began in traditional assets markets, Donald Trump called in Steve Mnuchin as head of the Working Group on Financial Markets (also known as the “Plunge Protection Team“) on December 24th, 2018. Jerome Powell making a public statement on the Fed’s balance sheet roll-off in attempt to quell fears used the term “auto-pilot,” which Trump took aim at via Twitter commenting about being irresponsible with an already irresponsible monetary policy. The market reacted negatively in response, except for bitcoin of course beginning its 2019 bull run. Extraordinarily in his own fashion of publicly chastising people into backing off, it worked in Trump’s favor. Then, the Fed began making accommodations by any means necessary to take a 180 degree turn by putting all tightening on hold and stopped raising interest rates.
President Trump’s influence over the Federal Reserve created a wave that caused the European Central Bank (ECB), Bank of Japan (BoJ), People’s Bank of China (PBoC), Bank of Candada (BoC), Reserve Bank of New Zealand and other central banks around the world to cut interest rates. The S&P as a measure of the market has performed relatively well being up about 18% year-to-date. This week the intimidation factor did not work with Jerome Powell who decided to leave rates unchanged after being challenged again by Trump again who quipped that the Federal Reserve raised interest rates far too fast adamantly pressing Powell to resume the interest rate cuts and resume quantitative easing to remain competitive with other world currencies and economies. He also went so far as publicly asserting that as President he could possibly demote or replace him, but Powell noting he had the law on his side as well as stating his plans to serve the entire four-year term to its entirety. In the recently released Fed minutes from their June meeting, they were filled with dovish statements reflecting a cautious attitude indicating that they are monitoring the overall financial landscape before hinting at possible interest rates in the future. Following the news of the chairman’s statements bitcoin leapt from around $9300 to as high as $9,900, the S&P 500 index closed at all-time-highs, the treasury yield curve fell causing bond prices to rise, gold rallied to $1,400/oz. a price it has not seen in over six years, and oil saw a boost. This also was propelled by political concerns and nervousness stemming from Donald Trump and Iran, China tariff/trade war strains, and the short-term economic outlook for traditional markets with plausible interest rate cuts ahead showing a willingness for more “easy money.”
An attribute that bitcoin has that gold doesn’t is censorship-resistance. It’s a major pillar that should not be discounted because of the difference it can make for people living under regimes with tyrants and authoritarian governments that enforce capital controls or that outlaw various forms of peaceful trade. Bitcoin being open, public, neutral, borderless, and permission-less also shields owners from reckless fiscal and monetary decisions made by central banks and politicians. This month also saw the emergence of Libra, the cryptocurrency stablecoin project that Facebook is developing. Amazingly, the company who has come under scrutiny for data mining and duplicity is making the leap into the sector with the core aim of ending their reign over the Internet. Don’t mistake the naming of the project with the astrological significance of the zodiac sign being similar to the exchange Gemini’s. It is likely a shot over the bow by Mark Zuckerberg to the Winklevoss twins stemming back to their Harvard disagreement, and Zuckerberg understands network effects better than anybody with 2.38 billion monthly active users (MAUs) as of March 31, 2019. It is obvious he wants to onboard them into a new financial order that he, his company, and the Libra Foundation controls meaning it will be centralized and require trust that bitcoin fundamentally stands against being trust-less. It may serve as a helpful catalyst that leads many people into bitcoin and crypto assets, but there is a fear in the crypto community that its just a data grab that will come at the expense of users’ privacy while they may be making unsafe transactions or are locked out of their funds for violating any possible terms and service agreements. Libra is likely not going to be censorship-resistant quickly raising concerns that were brought to Jerome Powell and other’s attention like Rep. Maxine Waters.
As money gets easier around the world, Bitcoin and crypto assets will become harder and harder to own. We are seeing their first stages of a mainstream adoption being led by institutional money, retail interest, and speculators around the world betting that the current experiment will end. Libra’s arrival hopefully educates and emboldens people to adopt bitcoin and crypto assets but not being backed by cryptography or math makes it like the U.S. Dollar too requiring users to trust in the “full faith and credit” of Facebook and their ability to maintain the ledger dutifully. As a platform that has come under further examination on numerous occasions for security and privacy concerns, Facebook, Instagram, and Whatsapp have been known to go down while users are unable to connect with their servers, access their accounts, or send and receive data. It should be noted again that Bitcoin in its decade long history has not suffered an outage, shutdown, or gone down after the built-in Proof-of-Work consensus mechanisms failed to come into an agreement. In this year’s Crypto Facts and Fantasies, I noted that as a fact in my fourth point that, “Stablecoins are either 1:1 or algorithmically collateralized to be pegged to the US dollar’s value, even though they realistically should be pegged to the Consumer Price Index (CPI) that measures the average change over time of the prices paid by urban consumers for a market basket of consumer goods and services. Many are also subject to centralization, censorship, or privacy concerns that defeat many precepts of crypto assets.” While this was stated before Libra was announced its plans to be a basket currency, I also pointed out the fantasy of Stablecoins, “offering active investment qualities or any potential investor returns.” Bitcoin as well as various other investment grade crypto assets fundamentally will offer more opportunities for upside and protections being decentralized, censorship-resistant, as well as secured by cryptography and math.
Taking the global financial and political landscapes and the information above into consideration, the bull case for bitcoin to make another historic run to new all-time-highs is becoming increasingly predictable. Last year in March 2018, I was sure to call out analyst expectations of Bitcoin falling as low as $2,800. In January of this year I vocalized my confidence in my 2019 Thesis saying, “Once people realize how much value is possible and the money that is coming in, they will spark the next leg up and revive the poised bull market in crypto assets. The only target I have and will make publicly is for bitcoin’s price since it is the market I follow most closely and because it also has the longest track record. My price call is for it to be valued, conservatively, between $60,000 – $100,000 by the end of 2020 for my investment time horizon.” I still standby that statement and firmly believe it will come to fruition, sooner or later with less emphasis on it being on such a short time frame. The first target that bitcoin needs to take out is crossing $10,000, and after that as Tyler Winklevoss believes it will probably make a run at $15,000. It could happen as soon as Independence Day if things really took off with more news, political tension, as well as additional media coverage and positive views for its asymmetrical potential. I anticipate seeing prices rise over the next couple quarters, especially with new institutional entrants and people suffering from fear of missing out chasing the price up.
Notable Bits of News:
‘Bitcoin is easily going to take out its all-time highs’: Fundstrat’s Tom Lee – (CNBC) One of the most well known bitcoin bulls, Tom Lee, also shares in the belief that this year’s bull market is the setup for a much larger move. He also noted the Facebook announcement of its stablecoin plans will help bring more mainstream focus to bitcoin and crypto assets. Lee also believes in the notion that bitcoin may become a reserve currency down the line.
Blockchain: Is AI The Future Of Blockchain? – (CryptoDaily) The whole “blockchain, not bitcoin” narrative being driven mostly from corporate and enterprise interests who are losing control over the centralized Internet has really been blown out of proportion. It highlights a lack of understanding of the current developments and failure to see the future path for this technology. One thing is practically certain, bitcoin and crypto assets are going to be major part of the machine economy that instead of humans engaging in commerce will be artificial intelligence and algorithmic bots.
Hester Peirce, a commissioner with the U.S. SEC cautions against regulations stifling ETFs – (FxStreet) The Securities and Exchange Commission (SEC) commissioner, or “Crypto Mom” as she is known to many in the crypto community, spoke out about regulations inhibiting innovation. According to Peirce, the SEC will be releasing new ETF regulatory guidance that will help expedite new measures for bitcoin and crypto asset exchange-traded-fund products. The United States government has been playing it slow and steady thus far, but a rush to judgment could hamper growth and potential for cost-savings, profits, and efficiencies for America citizens and businesses.
Introducing Erasure Quant: Erasure’s first finance tournament – (Numerai) One of the most ambitious projects in the space has built a stock-picking tournament on their protocol. The plan is to crowdsource predictions to generate profitable strategies for their open-source hedge fund. It’s the first dApp on the Erasure protocol, and Quant is designed to be forked for users’ own tournaments calling for predictions on whatever asset or market they desire.
Best Blockchain & Crypto Podcasts of 2019 – (Riley Silbert’s Medium) Podcasts have become an easy and convenient form of media that is a great way to digest information about ideas, subjects, and topics you may otherwise not be exposed to normally. Having listened to many of them personally, I’d recommend his suggestions as well as refer you to the various episodes and podcasts in the systemic bliss crytpo learning library. They’re great while commuting, walking, or working on mindless tasks too.
Bitcoin Price Could Hit $50,000 as Options Traders Become Aggressive – (Wall Street Journal) Traders seeing the positive price action this year have become very bullish on bitcoin’s prospects. Some even wagering that the price for a coin will more than double its record prices in the 2017 bull run. The excitement behind the current rise in prices has spurred even more aggressive bets and strategies with risky options that may end up being worthless despite the underlying crypto assets still holding value (just below the strike prices).