Thoughts on an eventful week in crypto

We recorded this 4 1/2 minute video this morning where I talked about Bitcoin and the key events of the week, notably the Canadian government actions of financial repression to quell dissent…

Read the video transcript

So we’ve had a hell of a week in crypto. Here we are on Friday, February 18th, and there’s almost too many stories to talk about in a quick recap, but let’s just go through them. The first thing is, obviously we’ve seen a pretty large correction. Bitcoin is down somewhere in the neighborhood of 10% from the highs that were earlier this week. But that’s really not that important.

We have the Russia – Ukraine situation, causing financial assets around the world broadly to sell off, and people worried about skyrocketing oil prices, etc. And that’s interesting, and one might say, well, but if bitcoin is an inflation head, shouldn’t it be going up? And there’s truth to that, except for the fact that bitcoin is also a risk asset. Now, when I say bitcoin is a risk asset, I explain it very simply. Bitcoin effectively is an option on its own adoption. If bitcoin becomes globally accepted as a store of value, its price will be somewhere in the neighborhood of ten to 15 times higher or potentially significantly more in today’s dollars. So the issue of how it’s going to trade really is a question of risk versus return. People who are betting on this, often classified as a risk asset, as a small piece in their portfolio. The onchain data, however, shows that most bitcoin owners are growing in length, i.e. hodling, as they say in the bitcoin community, holding on to it. So it’s really a question of who on the margin are the marginal buyers versus the marginal sellers. Those are the ones who tend to have bitcoin trading more like risk. So what else has been going on this week? Well, the biggest news, and frankly, one that I think will propel bitcoin towards its natural evolution as that global store of value is out of Canada.

Now, at the end of the day, if you had asked me two months ago, or pretty much any time in my life, if it was most likely that Canada of all countries, would be the one to show the need for censorship resistant asset, I would have said, you’re crazy. I mean, it just never occurred to me. But think about what Justin trudeau did this week by essentially freezing bank accounts without due process and telling people you cannot donate to what is largely a peaceful presentation, if an annoying one, for the infrastructure of Ottawa. He effectively said, the government has de facto control over your financial assets whenever they wish with no due process. Now, there’s lots of implications for freedom of speech.

Personally, as someone who believes in individual liberty and freedom, I find it reprehensible, but that’s irrelevant. What’s very relevant is what are people’s response? Well, the natural response of most people is to say, I don’t want the government to have full control. While the government does have control over the legacy banking system, god forbid they had a central bank digital currency where they could programmably effectively stop you from being able to save money, spend money or seize your assets, it would be even worse. So look at what bitcoin gives you as an alternative.

Sure, they can stop you from sending bitcoin into and out of the global financial system, but they can never truly take it away from you if you own it. Jesse Powell, the CEO of kraken, had a very frank, very interesting tweet this morning where effectively he told people, listen, if you’re concerned about this, take your bitcoins off, exchange and self custody to them. At least then you’ll be able to use it P2P to other people, person to person, PeerToPeer. And that’s kind of important. Bitcoin has that ability. Now. Is it perfect? No. Does it perform more like cash, like the actual paper stuff or the actual gold coins that people used to use? Yes.

And that means it has extra value. Think about that when one looks at the long term, because bitcoin has always been considered a hedge against central bank proficacy, money printing, money printing, goes burn. Now you have an undercurrent of bitcoin protects at least assets, not just in third world countries with potentates, but in actual G7 countries with supposedly democratic elected governments. That is a very big deal. My expectation is when the dust clears and financial markets stabilize, this will attract a whole new generation, a whole new group of large bitcoin buyers.

Remember, the market really isn’t that elastic if you got those buyers. That’s what you can see in the next bull run for bitcoin. But we shall see. Right now, Ukraine dominates the federal reserve raising rates, inflation being up, dominates. And so we’ll have to wait and see how this plays out over the next few months.

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