2021.22 - Inflection
TLDR:
The price chart doesn’t show it yet
The news hardly mentions it yet
It’s not really visible yet
But Bitcoin’s next chapter started June 5th, 2021
THE STANCE
My personal opinion on where Bitcoin seems to be heading.
Next Level
On June 5th 2021, Nayib Bukele, President of El Salvador — the first head of state ever to speak at a Bitcoin conference— declared he would push a bill to make Bitcoin legal tender in his country.
I have not yet cultivated a personal opinion on Bukele or El Salvador, I’ve read good and bad things, which seems par for the course. But this is not about him.
A country —even a small one— attempting to make Bitcoin legal tender pushes Bitcoin into the next dimension of geopolitics. It just does.
Bukele’s proposal still needs to be approved but those closer to the ground think he has a good chance of pulling it off as far as local opposition is concerned.
However —as Caitlin Long describes in a solid thread below— his opposition is unlikely to remain local for long. You see, if Bitcoin becomes a country’s currency it could be redefined as money under US Commercial Law, which would endow it with different legal status and accounting requirements than it currently has.
It seems Bukele is aware of the potential pushback and decided to go for it anyway.
Taking a page from Miami Mayor Francis Suarez’ playbook, Bukele openly courted the community:
Some privileged idiots were prompt to point out that El Salvador is too small to make a material difference to the price of Bitcoin, proving that they missed the point of Bitcoin in its entirety.
Bitcoin’s NGU (“Number Go Up”) Technology is a great meme and a powerful magnet that helps attract new waves of the crypto-curious.
But those that get into bitcoin only for the NGU are the ones selling right now; their lack of conviction makes them unable to weather the volatility.
A few, like Ruffer, are exiting at a handsome profit after meeting their targets. They are traders and have no particular attachment to their positions.
They are not hodlers and take a technician’s perspective to assets.
A lot of selling, however, seem to be coming from relative newcomers who are selling at a loss.
It’s a shame they did not take the time to build up their conviction by understanding what they were getting into.
I’m sure the people of El Salvador will be grateful they can buy cheap sats from these low-conviction speculators.
It would be wonderful to see what sound money does for El Salvador but regardless of what happens, this was the “starting shot” that marked a new stage of the race: Nations openly adopting and accumulating Bitcoin.
Many will ignore it, but a few will be following how this plays out very closely. Hints starting to drop already:
The first countries to realize and act upon the fact that they need to accumulate Bitcoin will gain a decisive advantage over the laggards, like Microstrategy did in the corporate world.
Here is the announcement:
Young King
It’s entirely fair to say that this may not have precipitated now had it not been for the grit, heart and genius of one particular Bitcoiner: Jack Mallers. He is an inspiration and gives me enormous faith in the younger generations.
This moving photo of him embracing his family moments after the announcement warms my heart.
LONG BITCOIN
Recent news that keeps me bullish on Bitcoin —"long / bullish" means you have the expectation something will rise in value.
Miami Edition
Over 10,000 Bitcoiners descended on Miami this week, as the world’s biggest Bitcoin event to date kicked off.
Solar Test
Square is investing $5M in an experimental Bitcoin mining facility that will rely exclusively on solar. They will use it as a case study on renewable energy for Bitcoin mining promising to make all its economic information public. Blockstream has partnered with Square to manage the facility
I’ll be interested in the results, although I’m clear that nothing about this will appease the ESG virtue-signalers, the experiment will be a valuable contribution whatever the result turns out to be. I’ll be pleasantly surprised if it turns out to be economically competitive.
Dorsey Doubles Down
Speaking of Square, CEO Jack Dorsey doubled down on his personal commitment to Bitcoin and said Square might build a hardware wallet
“If I were not at Square or Twitter I'd be working on bitcoin. If it needed more help than Square and Twitter, I would leave them for bitcoin. But I think both companies have a role to play.” —Jack Dorsey, CEO Twitter, Square
True DeFi
In this two minute video, Blockstream boardmember Alyse Killeen succinctly explains the problem with DeFi: It’s not really “De” (decentralized)
“A protocol governed by rulers is inherently broken from the start.” — Blockstream Boardmember Alyse Killeen
Take the 2 minutes to watch the clip, I was not aware of Alyse but I’ll definitely be following her more closely from now on.
And speaking of a truly decentralized DeFi:
Schnorr Tapping
It seems the Taproot —the latest upgrade to Bitcoin— is gathering enough support to lock in activation soon.
If you are new to Taproot, I’d summarize it like this:
By allowing different cryptographic math (Schnorr signatures) Taproot will make it much easier to implement smart contracts using Bitcoin.
It has the added advantages of having a very light footprint on the blockchain, a privacy-enhancing architecture and clever, trust-minimizing ways of incorporating “oracles” —sources of information external to the Bitcoin blockchain.
Most of the public is sleeping on Schnorr and the technologies it will enable (like Discreet Log Contracts) because they are not easy to understand, but a few companies like Atomic Finance and Suredbits are on the case.
Bitcoin-based DeFi is coming. You can bank on it.
CRYPTO WARS
crypto- | ˈˌkrɪpˌtoʊ | concealed; secret.
The monopoly over fiat money will not be given up without a fight.
Beyond Redemption
Not content with spreading Bitcoin FUD and pumping Dogecoin, Elon Musk continued to amuse himself by preying on the unthinking, this time leading them to invest in…Cumrocket. The resulting pump and dump was swift and merciless.
Those clueless enough to let the fate of their savings be dictated by the volatile amusement of man-child Emperor Elon will get thoroughly —and deservedly— REKT.
DYOT —Do Your Own Thinking
SHORT FIAT
Recent news that makes me bearish on the legacy financial system —"short / bearish" means betting it will go down in value.
Russia Out
Surprising no one, Russia announced it was exiting its USD positions (currently estimated at USD$41.5B) in its Sovereign Fund.
The announcement was more about posturing ahead of a summit , they’ve been reducing their USD holdings for years amid sanctions and has complained in the past about the “weaponization” of the USD and warned that the policy may have unintended consequences. Some speculate that China —who has also been reducing their USD positions and hoarding Gold— will be next to make the announcement.
PRICE DISCOVERY
This is the section where I talk about price with an updated weekly price chart. If this is your first time here, there’s a “how to interpret” guide below the chart.
After taking the plunge 3 weeks ago, Bitcoin has been spending most of its time chilling in the $34k to $36k range
How to interpret the Bitcoin Surfing chart:
Think of Bitcoin's price-action as a kite-surfer:
Bitcoin uses its board to stay above water and wants to catch some air.
When it catches air, it tends to keep rising but if it rises too fast (it's feet no longer touch the board) it can stumble.
If it falls off the board, it tends to keep falling until it regains its footing (may need to touch water or sand for that).
Water and sand arrest the fall and help it push itself back up.
If it goes up so much that it gets close to (or into) the Stratosphere, it will probably crash down all the way into the sand and may need to tap the bedrock level before pushing up again.
Dip Fishing
Revisiting our old Dip Fishing chart reveals nothing new, we’ve been ranging in the “Surprising” range since May 19th.
Each candle on this chart represents one day
It may not look it, but I think this is the moment to “back up the truck”. Most of however much you’ve decided to allocate to Bitcoin should be deployed by now.
Crystal Ball
My power-level does grant me access to a crystal ball yet and Bitcoin has a knack for making fools out of anyone who predicts prices but having said that, I think price-predicting models can be useful for orienting ourselves in terms of price discovery.
Below we have two different models. The “Power Law Corridor” model and “Stock to Flow”
Remember: All models are wrong, some models are useful.
Both models show broad “corridors” that could accommodate Bitcoin’s price being anywhere between $10,000 and $100,000 without breaking.
Some criticize the models for providing ranges so broad as to be meaningless, I disagree.
For me the important takeaway is that current price is well within the boundaries of expected volatility if Bitcoin continues its march upward.
These models will probably break one day, but they have remained valid longer than many would have expected; if you are not prepared to accept the volatility reflected in them as the price of the upward slope you need to reflect on why you are invested in this asset, or better yet, give me a call.
Strong hands are best built TOGETHER.
I work with families, groups and individuals, helping them build the knowledge and conviction to invest in Bitcoin safely.
All it takes is a few conversations.
Schedule a call to see if one of my plans is a good fit for you.
