One year ago today was Bitcoin’s third block reward halving event in its history, since that time the point has been made crystal clear that it was not priced in…
Bitcoin back then was trading for less than $10,000 a pop. During the halving event on May 11, 2020 around 2:30PM CST, it was trading just over $8,500. In the days prior, Paul Tudor Jones made headlines announcing his bitcoin investment that premiere asset managers saw as career risk before him laying out his thesis in The Great Monetary Inflation. As unemployment was seeing records not seen since the Great Depression, the smart money was becoming bullish on hard assets as protection against the money printing machines around the world.
It was a bumpy year leading up to the event, bitcoin crashed in March with the coronavirus panic. In only two months, BTC found its footing again and saw gains over 100% off its 52 week lows. What a recovery! Not to mention, one year later after arguably the largest monetary expansion in our recorded history BTC is now worth more than $58,000.
If you had the conviction to buy BTC with strong hands during the washout in March 2020 and held onto your bitcoin, that means you have seen somewhere between 10X and 15X your original investment. Not bad when you think about everything else, except maybe perhaps bitcoin’s long lost cousin dogecoin or its closest competitor ethereum or plain old lumber possibly which are proving to make a good case for why it may help to have other eggs in your basket to optimize your portfolio’s returns.
Since May 11 last year, it has not been a straight line to the sky on the chart with bitcoin trading sideways for months as volatility dwindled into the Fall of 2020.
With the talk of a second wave, social unrest, and v-shaped recovery coming from every direction in the news cycle, the efforts being made to ensure there was not a fallout financially were unprecedented with trillions of dollars being created out of thin air to fight against an invisible enemy. The powers at be around the world through their massive efforts unfortunately were creating another invisible beast that the public would need to battle against, inflation. Cases of COVID-19 rose as the stock market rallied back towards new record highs despite week after week of very elevated unemployment numbers. This also coincided with one of the most contentious and controversial US presidential elections of all-time with social media companies going so far as fact-checking candidates and their stances plus statements online as well as escalated into them removing the sitting president, Donald Trump, from their platforms one after another.
To sustain a recovery in the US economy that would spill over into the rest of the world, US leaders pushed for lower interest rates on top of more loan as well as spending programs. Americans in lockdown receiving stimulus checks were quick to invest most of that money rather than actually spending it in the economy as intended. This created downward pressure on the dollar as its issuance grew enormously as the velocity of its use fell off the table quickly with the growing trend of trading “stimmies” in the hopes of making “tendies.” The Federal Reserve folks at the Marriner Eccles building in Washington, D.C. got bitcoin investor’s attention when they then began to openly discuss them possibly using digital dollars to essentially unleash inflation, universal basic income, and debt forgiveness.
Fed chairman Powell mentioned central bank digital currencies and their role in the future in October, and it was off to the races for bitcoin starting that month around $10,000. As election day played out and Americans were uncertain of the results for weeks, bitcoin began ticking up. As the GOP’s grip over control was loosening, the Senate failed to secure Judy Shelton a board seat on the Federal Reserve. She was arguably the last bastion of sound money as many viewed her as an awkward pick that wanted to put the US back on the gold standard during a time when the Fed’s balance sheet’s growth outpaced that of almost every asset and index on Earth besides a handful of exceptions, including bitcoin.
By December 15, the Senate majority leader Mitch McConnell congratulated Joe Biden and Kamala Harris on their victory while in the same 24 hours bitcoin’s price crossed over its previous all-time-high at $20,000.
The “Save America” rally on January 6, 2021 turned into an insurrection as many disgruntled Trump supporters stormed the United States Capitol building. They distrusted the election results and the media reporting them, so many of his fringe supporters sought to attack the building with the hopes of overturning the results of the 2020 US presidential election. It was unsuccessful and unfortunately claimed the lives of five people before, during, or after the mob attack with over a hundred people injured too. Sadly, it serves as an example of the rapid degradation of trust in our society and the demoralization of American citizens in their existing centralized systems.
The systems in which we participate and rely on are not fully transparent, so trust is necessary. If there was a blockchain or timechain-based voting system that could be audited by anonymized voters as well as pollsters privately and in real-time, it is possible that events like that never happen again. Around the world, governments in unison almost are eagerly taking on more and more debt near or at zero percent interest while printing more and more money to flood into the system. As Democrats regained control of the US Senate from the Georgia state runoff election and protesters took to storm the capitol, bitcoin was sailing above $30,000 and heading into $40,000 territory.
In the wake of the capitol event, Donald Trump was put through the process of being impeached again for the second time for now “inciting violence against the government of the United States.” Banks cut ties to Trump and his associates by closing their accounts. BTC held its head above $30,000 in January this year even while the newly confirmed Secretary of the Treasury, Janet Yellen, bashed bitcoin and crypto during her first official day on the job. Remember when Trump famously denounced bitcoin and crypto in 2019, saying the were highly volatile and based on thin air?
I wonder if his outlook and stance towards bitcoin have changed…
By the end of January, a peaceful transition of power to President Biden’s administration took place and the Senate Republicans were able to successfully vote against Trump’s impeachment to quash it for good. Simultaneously, as Biden went on a tear making news for signing one executive order after another, redditors on WallStreetBets were on the verge of blowing out major Wall Street hedge funds with some of the largest titans in the capital markets backing them. Amid the Reddit-fueled trading frenzy in the stock market with names like AMC, Bed Bath & Beyond, and GameStop up more than 100% in a single session in some cases, and the Senate quickly motioned to hold a hearing on the state of the stock market. A rush of retail day traders bid up these names creating a fiasco on Wall Street where the major firms and players in the market were shorting them to bet against their value going up, which caused one of the worst weeks since October with major indexes falling more than 3%.
As everyone became consumed with the revolt of redditors in the stock market against the hedge fund insiders and market wizards, bitcoin was benefiting as it rose from $30,000 to over $50,000 in February. Tesla on the 8th announced they had invested $1.5B into BTC, and by the 16th MicroStrategy announced it was buying $900M more bitcoin in addition to their first $250M purchase back in August of 2020. On February 19, 2021, bitcoin went over $53,688 to reach a $1T market capitalization for the first time in history. By the 23rd, Square announced that they had bought 3,318 BTC for an aggregate purchase of $170M.
Bitcoin began March 2021 just below $50,000. Then, a jump in bond yields sent gold and stocks lower while bitcoin saw itself climbing on the news of Biden’s $1.9T stimulus plan getting passed. The new president’s pick for chairman of the SEC, Gary Gensler, was confirmed and went on the record saying that he thinks bitcoin and crypto are a catalyst for change. By the middle of the month, the Fed decided to leave rates unchanged and said they would until 2022 at the earliest or 2023 at the latest with Powell also noting that bitcoin and crypto are more of a gold substitute than the dollar.
Bitcoin just does what it needs to do, and that should always be priced in…
Come April, Democrats are pushing Biden harder for even larger infrastructure spending as well as more stimulus checks going directly to Americans in the next spending bill. The Fed’s Kashkari during an interview mentioned he would not panic if he saw a 4% inflation rate. Accordingly, BTC flew back above $60,000 in the days prior to Wall Street turning all eyes to Coinbase for their direct listing on the NASDAQ. Batching all of this news with the Fed’s dovish minutes looking out into 2022+ timeline being released, the markets all were going bananas and setting fresh record highs.
As the stock market was showing signs of major strength with strong earnings and positive jobs numbers, the streak was snapped with Biden’s proposal of raising capital gains taxes. Bitcoin had a wild ride down into the $50,000 range after the hyped-up Coinbase listing with a massive wave of leveraged long positions being liquidated in a span of only 20 minutes over the weekend. By the end of the month, BTC made a valiant recovery in the face of the news of Tesla’s earnings call citing they saw a quarterly profit while also selling $272M of their BTC holdings leaving them with a remaining $1.33B of bitcoin on their balance sheet. Tesla’s CFO, or “Master of Coin” as they call him now, said that the company plans on accumulating and acquiring more bitcoin in the future easing fears they may dump the rest.
Founder and CEO, Elon Musk, quickly shot down Dave Portnoy’s criticisms over Twitter that claimed that he was just buying BTC to pump and dump it all along by clarifying that he has not sold any of his personal bitcoin holdings and Tesla’s move to sell was to “prove liquidity of Bitcoin as an alternative to holding cash on [its] balance sheet.” It did not derail the rally though, as bitcoin closed the month above $50,000. Many talking heads on Wall Street were gleefully make jokes that the 14 year old electric vehicle company makes more money selling bitcoin than making cars. The Fed left rates unchanged again while keeping an eye on the very hot real estate market, and Powell again mentioned the central bank’s need to understand how digital currencies work.
The Fed has taken a change in tune to letting inflation “run hot” with Powell mentioning that if inflation above 2% is persistent they have and will use all their tools to lower it…
Central banks are playing a dangerous game of chicken with bitcoin and inflation. If they do anything to tighten their monetary policy in the hopes of taming soaring inflation, the risk is pulling the rug out from beneath the rest of the market with all of the easy money that is currently propping its value up. Interest rates must remain sticky near or at zero because raising them also risks taking the wind out of the sails of the market. Acting more as bureaucrats and politicians than bankers, the Fed has been put in a position that’s “damned if they do, damned if they don’t.” If they continue to let inflation rise unabated with increased amounts of money printing, the Fed might weigh on low to mid-income earners and younger generations in the United States who disproportionately own far less of the QE-assets that benefit from their actions like the higher earners.
This month has been a head scratcher with the former Fed chairman Janet Yellen’s statements regarding interest rates that triggered a broad-based pullback on the news that she expressed some feelings that raising rates may be necessary to prevent the economy from “over-heating” with all of the government stimulus. Following that news, Wall Street was sent into a tizzy with all of the banks and her favorite speaking engagements going into turmoil thinking that she was suggesting or predicting some rate hikes in the future. Very quickly, Yellen flip flopped before the end of the day and started walking back her comments to ease tensions on Wall Street saying she was not making any recommendations while falling in line with the current Fed chariman by saying any inflation or price increases are “transitory.”
“If anybody appreciates the independence of the Fed, I think that person is me,” Yellen stated. “I don’t think there’s going to be an inflationary problem. But if there is the Fed will be counted on to address them.” It is leaving many wondering if her statements were a Freudian slip with an admission that tightening may be needed in response to stimulus spending that causes inflation due to her firsthand knowledge of the Fed’s inability quell it. Talking down these expectations seems almost reminiscent to Bernanke’s just before the Global Financial Crisis when he was telling members of Congress, “We believe the effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”
They always want you to think the economy and financial markets are better than they are in reality, and the situation they’re facing looks unmanageable without inflicting pain on the QE-asset holders (possibly bitcoin and crypto too).
At the time of this writing, all-time-highs are being seen everywhere you look whether its bitcoin, crypto, defi, commodities, debt prices, home prices, income, savings, or stocks. US inflation expectations have also never been higher since 2008, and the Federal Reserve, Treasury, and White House are the three blind mice that cannot see it. There is no one market that looks as if it is so financially and systemically important that if it waivered the entire market risks going with it. It almost seems as if we are not in a bitcoin bubble or another housing bubble for that matter, but more so of an “everything bubble.”
The truth may be that all of the assets and indexes that have seen record highs following March 2020 are not going up as much as the US Dollar’s value is going down. More than a decade after the GFC’s bailouts and easy money coming from the Fed, it is almost hard to find an asset or index that has not outperformed the dollar. If you look at it from another lens in terms of the total assets on the Federal Reserve’s balance sheet, then you may be able to paint a different picture. Price it all in bitcoin and then zoom out, the picture becomes clear: almost everything is trending towards zero in terms of BTC.
“Stocks only go up,” has been the mantra of not only Barstool’s DDTG but an entire generation of new investors with discretionary funds. Taking a long-term view of the stock market and zooming out like we did with bitcoin, it basically does just that with a handful of dips occurring over the decades that appear as wonderful buying opportunities in retrospect. Having the conviction to hold onto these positions historically have made people lots of money, but not everyone knows what “diamond hands” are or what “hodling” really means usually until they have sold and start doing the coulda, shoulda, woulda math. There is a key distinction between an investor and a trader, having the courage to let your winners run until they reach the logical conclusion of your investing thesis that prompted it.
Applying this to the “everything bubble” in the current bull market, many people do not even know what made them buy whatever it is they have invested in the first place besides emotion and fear of missing out that limits their ability to discern if they should ever step off the ride.
In America, the wealthiest 1% of Americans own more than 50% of all equities and the wealthiest 10% owns almost 90%. As the Fed insists on continuing trillions of dollars worth of asset purchases and bond buying programs as part of their QE scheme, the central bank is inflating asset prices in markets only accessible and desirable to the elite and wealthy that benefits from inflation more than it is a detriment to them. Before Robinhood and GameStop, far less kids and lower to middle class people were trading stocks and risking their hard earned money.
Artificially low interest rates and money printing have pushed more people with capital further out on the risk curve in search of higher returns, while making the lazy assumption that if the floor were to fallout beneath them that the Fed will catch them with a flood of liquidity. Traditionally, the Fed has only been looking to bailout the systemically important financial institutions and not the unsophisticated subprime borrowers and unwashed retail gamblers. As inflation looms and legendary investors saying that “cash is trash,” bitcoin as a decentralized and digital alternative to fiat currency that’s global, immutable, and non-sovereign maybe the best solution given its provably scarce supply of 21,000,000 versus the infinite dollar. Buying and holding bitcoin in the past twelve years as well as in the past twelve months compared to its legacy competition has been the best profit-maximizing strategy as the fastest horse.
A store of value is anything that holds its purchasing power in the future, and it is entirely based on a function of people’s perception of its worth or what they deem to be its intrinsic value. Liquidity, portability, purchasing power, and trustworthiness are the core characteristics to a store of value. Satoshi Nakamoto 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 currency is full of breaches of that trust.” Given the Fed authorized inflation over 2% and oversaw the US Dollar’s monetary base increase by over 20% in 2020, bitcoin is the superior store of value because its inflation rate currently at 1.84% is on a fixed schedule that decreases until it terminally reaches 0%.
As Paul Tudor Jones put it in The Great Monetary Inflation, “The goal, of course, is to be invested in the fastest horses over the duration of the ride.”
DISCLAIMER
An investment in any asset or strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. Nothing written herein may be considered as an offer or solicitation to purchase or sell securities or other services. The trading and investing ideas and strategies discussed herein are not recommendations to buy or sell any security and are not intended to provide any investment advice and/or recommendations of any kind, but are made available solely for educational and informational purposes. Before acting on information from above, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.
systemic bliss® 